<PAGE>
FOR INFORMATION ONLY
A REGISTRATION STATEMENT RELATING TO THIS COMPANY HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION BUT HAS NOT YET BECOME EFFECTIVE.
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
AMENDMENT NO. 2
TO
FORM 10
----------------
GENERAL FORM FOR REGISTRATION
OF SECURITIES
PURSUANT TO SECTION 12(b) OR (g) OF THE
SECURITIES EXCHANGE ACT OF 1934
SONOSIGHT, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
WASHINGTON 91-1405022
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
P.O. BOX 3020
NORTH CREEK PARKWAY
BOTHELL, WASHINGTON 98041-3020
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
</TABLE>
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (425) 482-8888
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NONE.
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, PAR VALUE $0.01 PER SHARE
SERIES A PARTICIPATING CUMULATIVE PREFERRED STOCK, PAR VALUE $1.00 PER SHARE
(TITLE OF CLASS)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
SONOSIGHT, INC.
PART I
ITEM 1. BUSINESS.
The information required by this item is contained under the sections
"INTRODUCTION", "FORWARD LOOKING INFORMATION," "THE DISTRIBUTION", "RISK
FACTORS", "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS", and "BUSINESS" of the Information Statement (the
"Information Statement") attached hereto as Annex I and such sections are
incorporated herein by reference.
ITEM 2. FINANCIAL INFORMATION.
The information required by this item is contained under the sections
"SELECTED COMBINED FINANCIAL DATA", "UNAUDITED PRO FORMA FINANCIAL
INFORMATION", "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS" and "FINANCING" of the Information Statement and such
sections are incorporated herein by reference.
ITEM 3. PROPERTIES.
The information required by this item is contained under the section
"PROPERTIES" of the Information Statement and such section is incorporated
herein by reference.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required by this item is contained under the sections
"MANAGEMENT OF SONO--Stock Ownership of Directors and Executive Officers",
"EXECUTIVE COMPENSATION--Compensation of Executive Officers" and "--Aggregated
Option Exercises in Fiscal 1997 and Year-End Option Values" and "CERTAIN
TRANSACTIONS--Option Adjustments" of the Information Statement and such
sections are incorporated herein by reference.
ITEM 5. DIRECTORS AND EXECUTIVE OFFICERS.
The information required by this item is contained under the sections
"MANAGEMENT OF SONO--Directors" and "--Executive Officers" and "EXECUTIVE
COMPENSATION" of the Information Statement and such sections are incorporated
herein by reference.
ITEM 6. EXECUTIVE COMPENSATION.
The information required by this item is contained under the sections
"EXECUTIVE COMPENSATION" and "CERTAIN TRANSACTIONS--Option Adjustments" of the
Information Statement and such sections are incorporated herein by reference.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by this item is contained under the sections
"INTRODUCTION", "THE DISTRIBUTION--Relationship between ATL and SONO after the
Distribution", "FINANCING--Capital Contribution by ATL", "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS--
Liquidity and Capital Resources" and "CERTAIN TRANSACTIONS" of the Information
Statement and such sections are incorporated herein by reference.
<PAGE>
ITEM 8. LEGAL PROCEEDINGS.
The information required by this item is contained under the sections
"BUSINESS--Legal Proceedings" and "--Environmental" of the Information
Statement and such sections are incorporated herein by reference.
ITEM 9. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
RELATED SHAREHOLDER MATTERS.
The information required by this item is contained under the sections "THE
DISTRIBUTION--Manner of the Distribution" and "--Listing and Trading of SONO
Common Stock", "MANAGEMENT OF SONO--Stock Ownership of Directors and Executive
Officers" and "DESCRIPTION OF SONO CAPITAL STOCK" of the Information Statement
and such sections are incorporated herein by reference.
ITEM 10. RECENT SALE OF UNREGISTERED SECURITIES.
None.
ITEM 11. DESCRIPTION OF REGISTRANT'S SECURITIES TO BE REGISTERED.
The information required by this item is contained under the section
"DESCRIPTION OF SONO CAPITAL STOCK" of the Information Statement and such
section is incorporated herein by reference. Reference is also made to the
Articles of Incorporation of SONO and the Bylaws of SONO which are set forth
as Exhibits 3.1 and 3.3 hereto, respectively, and the form of Common Stock
Certificate of SONO set forth as Exhibit 10 hereto.
ITEM 12. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The information required by this item is contained under the section
"MANAGEMENT OF SONO--Director and Officer Liability" of the Information
Statement and such section is incorporated herein by reference. Reference is
also made to the Articles of Incorporation of SONO and the Bylaws of SONO
which are set forth as Exhibits 3.1 and 3.3 hereto, respectively.
ITEM 13. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The information required by this item is contained in "SELECTED COMBINED
FINANCIAL DATA", "UNAUDITED PRO FORMA FINANCIAL INFORMATION" and in the
"Combined Financial Statements" on pages F-1 through F-12 of the Information
Statement and is incorporated herein by reference.
ITEM 14. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
<PAGE>
[LOGO OF ATL ULTRASOUND]
Dear Shareholder:
The Information Statement which follows describes the impending distribution
by ATL Ultrasound, Inc. to its shareholders of 100% of the outstanding common
stock of SonoSight, Inc. ("SONO"), a wholly owned subsidiary of ATL. SONO will
be engaged in the development, manufacture and marketing of highly portable or
handheld ultrasonic imaging devices, designed to be used as primary
examination tools and carried by the physician in a variety of clinical
applications such as women's healthcare, emergency medicine and internal
medicine.
As more fully discussed in the Information Statement, the Board of Directors
and management of ATL believe that the divestiture of SONO through the
distribution of its common stock is in the best interests of ATL and will
enhance the value for ATL shareholders in these businesses. We believe that
the core businesses of ATL and SONO are fundamentally dissimilar and that both
can best be served by organizing SONO with an independent management focused
solely on developing and marketing these handheld ultrasound imaging devices.
As explained in the Information Statement, each holder of record of ATL
Common Stock on the record date for the distribution, which was March 30,
1998, will receive one share of SONO Common Stock for each three shares of ATL
Common Stock held on such date. No fractional shares will be issued. In lieu
of receiving fractional shares, ATL shareholders will receive cash. It is
anticipated that statements evidencing your ownership in SONO will be mailed
on the date of the distribution, which is April 6, 1998. Shortly thereafter,
you will receive cash for any fractional shares to which you would otherwise
be entitled.
The Information Statement is being sent to shareholders of record of ATL as
of this date. Shareholders of record on the record date for the distribution
will be entitled automatically to participate in the distribution and are not
required to do anything to become entitled to participate. We are not
soliciting your proxy since no shareholder approval of the distribution is
required or sought.
The Information Statement contains important information about SONO, its
organization, business and properties and also contains financial statements
and other financial information. SONO's initial level of capitalization is $18
million, and the new company will receive a second funding from ATL of $12
million in January 1999. I urge you to review the Information Statement and
retain it for future reference.
Sincerely,
/s/ Dennis C. Fill
Chairman of the Board and
Chief Executive Officer
Bothell, Washington
March 31, 1998
<PAGE>
[LOGO OF SONOSIGHT, INC.]
Dear Shareholder:
If you owned three or more shares of Common Stock of ATL Ultrasound, Inc. on
March 30, 1998, you will become a shareholder in a new publicly held company--
SonoSight, Inc. ("SONO")--which is developing and plans to market handheld or
otherwise highly portable ultrasound devices for use as first stage
examination tools.
SONO's FirstSight(TM) ultrasound technology innovation is planned to open a
truly new field of clinical diagnosis--"primary imaging"--that will empower
clinicians at the examining table, at the bedside, and in the field, by
extending their immediate diagnostic capabilities. We have conceived primary
imaging as a "Pass/Act/Refer" clinical diagnosis model: "Pass" when no
abnormality is detected, "Act" when an abnormality is detected with sufficient
precision to allow immediate therapeutic intervention, or "Refer" when
specialist referral for further diagnostic workup is required before
definitive therapy can be instituted. This clinical model is intended, for the
first time, to bring the immediacy, efficacy, convenience, comfort, and cost
savings of ultrasound technology to the initial physical examination, wherever
it is performed.
SONO's FirstSight line of ultrasound devices will first be designed for use
in women's healthcare, a field commanding increasing attention and financial
resources in many parts of the world. The considerable patient care and
economic benefits of our ultrasound devices, however, are planned to be
applicable to a broad range of medical practitioners in a wide variety of
settings.
The enclosed Information Statement will provide you with more detailed
information about SONO, primary imaging, and FirstSight technology. Those of
us who are on SONO's management team are enthusiastic about its future and the
significant opportunity it represents. We believe that we will be making a
positive contribution to the current emphasis of healthcare providers
worldwide by providing better patient care at less cost. We look forward to
working on your behalf in the years ahead.
Sincerely,
/s/ Kevin W. Goodwin
President and Chief Executive
Officer
Bothell, Washington
March 31, 1998
<PAGE>
INFORMATION STATEMENT
SONOSIGHT, INC.
COMMON STOCK (PAR VALUE $0.01 PER SHARE)
This Information Statement is being furnished by ATL Ultrasound, Inc., a
Washington corporation ("ATL"), in connection with its distribution (the
"Distribution") of a tax-free stock dividend to holders of ATL common stock of
record as of the close of business on March 30, 1998 (the "Record Date"), of
100% of the outstanding common stock of SonoSight, Inc., a Washington
corporation ("SONO") and associated preferred stock purchase rights.
The Distribution will be made effective as of April 6, 1998 (the
"Distribution Date"). No consideration will be paid by ATL's shareholders for
shares of SONO common stock. Shareholders will receive one share of SONO
common stock for every three shares of ATL common stock owned by them. No
fractional shares of SONO common stock will be distributed, but shareholders
will later receive the cash equivalent of any such fractional shares.
THE ATTENTION OF THE SHAREHOLDERS IS DIRECTED PARTICULARLY TO THE "RISK
FACTORS" DESCRIBED HEREIN FOR INFORMATION THAT SHOULD BE CONSIDERED IN
ADDITION TO THE OTHER INFORMATION OF THIS INFORMATION STATEMENT.
There is not currently a public market for the SONO common stock. It is
anticipated that SONO common stock will be listed on the Distribution Date on
the Nasdaq National Market System under the trading symbol SONO.
----------------
NO VOTE OF SHAREHOLDERS IS REQUIRED IN CONNECTION WITH THIS
DISTRIBUTION. WE ARE NOT ASKING YOU FOR A PROXY, AND YOU
ARE REQUESTED NOT TO SEND US A PROXY.
----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY OTHER FEDERAL OR STATE AUTHORITY NOR
HAS SUCH COMMISSION OR OTHER AUTHORITY PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS INFORMATION STATEMENT. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
----------------
Shareholders of ATL with inquiries relating to the Distribution should
contact ATL's Corporate and Investor Relations Department, 22100 Bothell
Everett Highway, P.O. Box 3003, Bothell, WA 98041-3003, Telephone: (800) 426-
2670, Ext. 7427. After the Distribution Date, shareholders of SONO with
inquiries relating to their investment in SONO should contact SonoSight, Inc.,
Secretary, at North Creek Parkway, P.O. Box 3020, Bothell, Washington 98041-
3020 (telephone no. (425) 482-8888; Website: http://www.sonosight.com).
----------------
The date of this Information Statement is March 31, 1998.
<PAGE>
[THE INSIDE COVERS (FRONT AND BACK) OF THE INFORMATION STATEMENT ARE DELETED.]
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Summary................................................................... 5
Forward Looking Statements................................................ 7
Introduction.............................................................. 8
The Distribution.......................................................... 8
Reasons for the Distribution............................................ 8
Manner of the Distribution.............................................. 9
Listing and Trading of SONO Common Stock................................ 9
Federal Income Tax Consequences of the Distribution..................... 10
Conditions to the Distribution.......................................... 12
Relationship Between ATL and SONO After the Distribution................ 12
Risk Factors.............................................................. 12
Financing................................................................. 17
Capital Contribution by ATL............................................. 17
Bank Operating Facility................................................. 17
Selected Combined Financial Data.......................................... 18
Unaudited Pro Forma Financial Information................................. 19
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 21
General Overview........................................................ 21
Results of Operations................................................... 22
Liquidity and Capital Resources......................................... 22
Business.................................................................. 24
Management of SONO........................................................ 31
Directors............................................................... 31
Committees of the Board of Directors.................................... 32
Executive Officers...................................................... 33
Stock Ownership of Directors and Executive Officers..................... 33
Director and Officer Liability.......................................... 35
Executive Compensation.................................................... 35
Compensation of Executive Officers...................................... 35
Certain Relationships and Related Transactions.......................... 36
1998 Option, Restricted Stock, Stock Grant, Stock Appreciation Right and
Performance Unit Plan.................................................. 36
Management Incentive Compensation Plan.................................. 42
Nonemployee Director Stock Option Plan.................................. 43
401(k) Retirement Plan.................................................. 44
Certain Transactions...................................................... 44
Financial Support....................................................... 44
Agreements Between ATL and SONO......................................... 45
Option Adjustments...................................................... 48
Description of SONO Capital Stock......................................... 50
Authorized Capital Stock................................................ 50
Common Stock............................................................ 50
Preferred Stock......................................................... 50
SONO Rights............................................................. 50
Market for SONO Common Stock............................................ 53
Dividends............................................................... 53
Transfer Agent and Registrar............................................ 53
Available Information..................................................... 53
Index to Combined Financial Statements.................................... F-1
</TABLE>
3
<PAGE>
[This page intentionally left blank]
4
<PAGE>
SUMMARY
The following Summary is qualified in its entirety by reference to the
detailed information and financial statements included elsewhere in this
Information Statement.
THE DISTRIBUTION
<TABLE>
<C> <S>
Distributing Company............. ATL Ultrasound, Inc., a Washington
corporation ("ATL").
Shares to be Distributed......... Approximately 4.8 million shares of common
stock, par value $0.01 per share ("SONO
Common Stock"), of SonoSight, Inc., a
Washington corporation ("SONO"), based on
the number of shares of Common Stock, par
value $0.01 per share, of ATL ("ATL Common
Stock") expected to be outstanding on the
Record Date referred to below, including
accompanying SONO purchase rights. See
"DESCRIPTION OF SONO CAPITAL STOCK--SONO
Rights". No action is needed by ATL
shareholders to receive their SONO Common
Stock.
Distribution Ratio............... One share of SONO Common Stock for each
three shares of ATL Common Stock.
Shares of SONO Common Stock
Outstanding on the Distribution Approximately 4.8 million shares will be
Date............................ outstanding on the Distribution Date. An
additional 325,000 shares will be
authorized for future issuance in response
to the exercise of pre-existing options to
purchase ATL common stock, and 1.1 million
shares will be authorized for future stock
and stock option incentive awards to SONO
directors and employees. See "CERTAIN
TRANSACTIONS--Option Adjustments", and "--
Agreements Between ATL and SONO--Employee
Benefits Agreement".
Trading Market................... SONO is arranging to have the SONO Common
Stock listed on the Nasdaq National Market
System as of the Distribution Date.
Record Date...................... Close of business on March 30, 1998.
Transfer Agent................... First Chicago Trust Company of New York
("Transfer Agent").
Distribution Date................ April 6, 1998. On the Distribution Date,
ATL will transfer shares of SONO Common
Stock to the Transfer Agent. The Transfer
Agent will mail shareholder statements on
or about April 6, 1998. SONO plans to
issue no stock certificates for SONO
stock.
Fractional Share Interests....... Fractional share interests will be
aggregated and sold by the Transfer Agent
on the open market and checks for the
ratably divided cash proceeds will be
mailed to those shareholders otherwise
entitled to a fractional interest shortly
after share statements are mailed. See
"THE DISTRIBUTION--Manner of the
Distribution".
Tax Consequences................. ATL has received an opinion of Cravath,
Swaine & Moore, tax counsel to ATL, that
receipt of SONO Common Stock by
shareholders of ATL will be tax-free for
Federal income tax purposes. See "THE
DISTRIBUTION--Federal Income Tax
Consequences of the Distribution".
</TABLE>
5
<PAGE>
SONOSIGHT, INC.
<TABLE>
<C> <S>
Business of SONO................. SONO is developing handheld or otherwise
highly portable ultrasonic imaging devices
to be used as examination tools carried by
the physician in a variety of clinical
settings, including women's healthcare,
emergency and internal medicine
applications. It is the belief of SONO's
management that SONO's FirstSight(TM)
primary imaging technology will increase
the information gathered by physical
examination, helping clinicians improve
patient outcomes and lower healthcare
costs by bringing the immediacy and
efficacy of ultrasound to the examining
table, the bedside and the field.
Examination with SONO FirstSight
technology is expected to enable
clinicians to identify earlier those
patients requiring more comprehensive
diagnostic procedures or specialist
intervention.
Risk Factors..................... Shareholders are directed to the discussion
of risk factors which begins on page 10 of
this Information Statement.
Subsequent Relationship With ATL. While SONO will be an independent public
company following the Distribution, it
will be contracting with ATL for a number
of important services until SONO makes
other arrangements for those services. See
"THE DISTRIBUTION--Relationship Between
ATL and SONO After the Distribution" and
"CERTAIN TRANSACTIONS".
Principal Executive Offices...... North Creek Parkway, P.O. Box 3020,
Bothell, WA 98041-3020. Telephone (425)
482-8888; Website
http://www.sonosight.com.
</TABLE>
6
<PAGE>
FORWARD LOOKING STATEMENTS
In compliance with the provisions of the Private Securities Litigation
Reform Act of 1995, SONO provides the following information.
SONO is endeavoring to increase, through ultrasound imaging, the information
gathered by a clinician during physical examination of a patient. This benefit
is intended to improve patient outcomes by distinguishing patients requiring
more comprehensive diagnostic procedures from patients not in immediate need
of such services. SONO intends to market new imaging devices for use where
early detection of a problem can make an actual difference in patient
management. These imaging devices represent a convergence of highly portable
systems, microcircuitry advances, and advanced digital and software
development with the desire for noninvasive imaging in early physical
examination of a patient.
Forward looking information is also found in the "SUMMARY" on page 3,
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS" beginning on page 17, and in the "BUSINESS" section beginning on
page 20 of this Information Statement.
The above statements and those referred to above are forward looking
statements that involve a number of risks and uncertainties and other factors
that could cause actual results to differ materially from those projected in
the forward looking statements. SONO is developing new ultrasound devices for
new markets, which entails considerable uncertainty. Such product development
can encounter unanticipated obstacles, which may materially delay or prevent
the completion of the products, cause significant changes in their intended
performance, and/or result in significant unanticipated costs and expenses.
SONO could encounter difficulties in receiving regulatory approvals for its
products, which could materially delay or prevent their introduction into the
marketplace. Organizing a manufacturing operation could pose unanticipated
obstacles and delays, component and manufacturing costs may exceed SONO's
current expectations, and vendors who supply components necessary for the
manufacture of products could be delayed in delivering critical components.
The financial resources available to SONO may not be sufficient to fund
completion of product development and introduction, particularly if
unanticipated technical difficulties or changes in market requirements arise,
and additional financing, if needed, may not be available on favorable terms
or at all. The markets SONO plans to establish may not develop as rapidly as
SONO anticipates, which may cause sales and revenues to fall significantly
short of SONO's objectives. Competition for handheld ultrasound devices may
develop, which could cause a decline in SONO's unit sales, selling prices, or
both. The foregoing factors, and those described under "Risk Factors" below,
among others, may cause obstacles which are difficult for SONO to overcome
with its presently planned assets and resources, and could cause results to
differ materially from those presently anticipated by SONO. Accordingly,
investors should not place undue reliance on forward looking statements. SONO
assumes no obligation to update forward looking statements made herein or in
other public filings or new releases. Additional information on the factors is
found in "RISK FACTORS" beginning on page 10 of this Information Statement.
Section 27A(b)(2)(D) of the Securities Act of 1933 and Section 21E(b)(2)(D)
of the Securities Exchange Act of 1934 both state that the section of the
respective act entitled "Application of Safe Harbor for Forward-Looking
Statements" shall not apply to a forward-looking statement that is made in
connection with an initial public offering.
7
<PAGE>
INTRODUCTION
On April 6, 1998 (the "Distribution Date"), ATL Ultrasound, Inc. ("ATL")
will make a distribution (the "Distribution") of 100% of the outstanding
shares of Common Stock, par value $0.01 per share, of its wholly owned
subsidiary, SonoSight, Inc. ("SONO"), as a tax-free stock dividend to holders
of record of ATL Common Stock, par value $0.01 per share, at the close of
business on March 30, 1998 (the "Record Date").
The highly portable or handheld ultrasonic imaging devices under development
by SONO (referred to herein as "handheld" devices or products) are a
continuing evolution of ATL's developments in high density digital ultrasound
electronics, which ATL pioneered over a decade ago. Because these handheld
devices are being designed to be significantly different from ATL's cart-
borne, high performance ultrasound systems in terms of utility, end-users, and
distribution channels, ATL and SONO believe this business is of a
substantially different character from that which has been historically
conducted by ATL. It is for these reasons that SONO is being reorganized as a
separate, independent business. See "THE DISTRIBUTION--Reasons for the
Distribution" and "BUSINESS--Decision to Form a Separate Company".
SONO's principal executive offices will be located at North Creek Parkway,
P.O. Box 3020, Bothell, Washington 98041-3020, and its telephone number is
(425) 482-8888. SONO's Website address is http://www.sonosight.com.
THE DISTRIBUTION
After extended study, ATL has concluded that it is in the best interests of
ATL and its shareholders to spin off its handheld ultrasound systems business
to its shareholders by making the Distribution. To respond to the exercise of
existing options to purchase ATL Common Stock, 325,000 shares of SONO Common
Stock will be authorized for issuance under the SONO Adjustment Plan following
the Distribution as a result of the adjustment of existing ATL stock options.
See "CERTAIN TRANSACTIONS--Agreements Between ATL and SONO--Employee Benefits
Plan" and "--Option Adjustments." At the time of the Distribution, ATL will
make a capital contribution of its cumulative advances to SONO and contribute
$30 million of cash as capital to SONO for working capital and other purposes
in two tranches, a first tranche of $18 million at the time of the
Distribution and a second tranche of $12 million on January 15, 1999. See
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS--Liquidity and Capital Resources."
REASONS FOR THE DISTRIBUTION
The Distribution is intended to increase the long-term value of the
investment of ATL's shareholders in medical diagnostic ultrasound by
permitting the managements of both ATL and SONO to concentrate on the
particular needs and opportunities of their respective core businesses. These
two businesses are basically dissimilar (in terms of, for example, markets,
product size and configuration, channels of distribution, investment
priorities, competitive strategies, and management requirements) and ATL
believes the businesses can be more effectively managed as separate companies.
The long-term planning and development of ATL's premium and mid-range
ultrasound systems business, with its more established markets, different
product configurations, and distribution channels, should benefit from the
absence of concerns about the demanding financial requirements and more
variable results associated with the development of a new handheld ultrasound
device business for new and different markets. Furthermore, the Distribution
is intended to permit the handheld ultrasound device business to develop a
more focused management structure with the proper incentives to respond to the
needs of newly created ultrasound markets in a manner which is intended to
meet different competitive requirements. ATL and SONO also believe that the
Distribution will allow the financial markets to recognize and better evaluate
the individual merits of the two businesses. See "BUSINESS--Decision to Form a
Separate Company".
8
<PAGE>
MANNER OF THE DISTRIBUTION
On or before the Distribution Date, ATL will transfer to the Transfer Agent
for holders of record of ATL Common Stock on the Record Date, 100% of the
outstanding shares of SONO Common Stock. Such shares will be distributed to
holders of record of ATL Common Stock on the Record Date, without any
consideration being paid by such holders, on the basis of one share of SONO
Common Stock for each three shares of ATL Common Stock held on the Record
Date. All such shares will be fully paid, nonassessable and free of pre-
emptive rights. The Transfer Agent estimates that mailing of shareholder
statements for such shares will commence on or about April 6, 1998.
No certificates or scrip representing fractional shares of SONO Common Stock
will be issued as part of the Distribution. In lieu of receiving fractional
shares, each holder of ATL Common Stock who would otherwise be entitled to
receive a fractional share of SONO Common Stock will receive cash for such
fractional interest. Such cash will be derived from the sale of fractional
interests by the Transfer Agent on behalf of shareholders otherwise entitled
to fractional shares. The Transfer Agent, as promptly as practicable, will
aggregate and sell all fractional share interests at then prevailing prices in
the over-the-counter market and ratably distribute by mail the net proceeds of
such sale to shareholders of record otherwise entitled to receive fractional
shares shortly after shareholder statements evidencing ownership in SONO are
mailed. See "Federal Income Tax Consequences of the Distribution" below.
No holder of ATL Common Stock will be required to pay any cash or other
consideration for the shares of SONO Common Stock received in the Distribution
or to surrender or exchange shares of ATL Common Stock in order to receive
SONO Common Stock. The Distribution will not affect the number of, or the
rights attaching to, outstanding shares of ATL Common Stock. After the
Distribution, holders of ATL Common Stock will continue to own their shares of
ATL Common Stock and, if such shareholders were shareholders of record at the
close of business on the Record Date, they will also receive shares of SONO
Common Stock.
In connection with the Distribution, each outstanding option to purchase ATL
Common Stock held by an employee of SONO or ATL on the Distribution Date will
be adjusted to provide an option to purchase SONO Common Stock and a separate
option to purchase ATL Common Stock. Option adjustments are intended to
provide each employee optionholder with the same "intrinsic value" in the
adjusted options as represented by the original ATL options ("Existing ATL
Options") immediately prior to the Distribution Date. The number of shares
covered by such adjusted options and the respective option exercise prices
will be based upon the exercise price of the Existing ATL Options, the
relative market prices of the two stocks immediately prior to and subsequent
to the Distribution, and an adjustment ratio of one SONO option for each six
shares covered by the Existing ATL Options. Adjusted options to purchase ATL
Common Stock will thereafter be tendered to and serviced by ATL, and adjusted
options to purchase SONO Common Stock will thereafter be tendered to and
serviced by SONO. Such adjusted options may be exercised against ATL and SONO
only during that portion of the term of the original ATL option in connection
with which they were issued. See "CERTAIN TRANSACTIONS--Agreements Between ATL
and SONO--Employee Benefits Plan" and "--Option Adjustments."
Since holders of unvested restricted ATL Common Stock are shareholders of
record as of the Record Date, such restricted ATL Common Stock holders will
receive the SONO stock dividend in the same manner as other holders of ATL
Common Stock on the Record Date, and the SONO shares will continue to be
subject to the same restrictions as existed for the restricted ATL Common
Stock. Such restrictions will expire in accordance with their original terms
and schedules.
LISTING AND TRADING OF SONO COMMON STOCK
There is currently no public market for the SONO Common Stock. Prices at
which the SONO Common Stock may trade prior to the Distribution on a "when-
issued" basis, or after the Distribution, cannot be predicted. The prices at
which trading in such stock occurs may fluctuate significantly. The prices at
which the SONO Common Stock trades will be determined by the marketplace and
may be influenced by many factors, including, but not limited to, the depth
and liquidity of the market for the SONO Common Stock, investor
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perception of SONO and the industry in which SONO participates, SONO's
progress in the marketplace, and general economic and market conditions. See
"RISK FACTORS."
SONO is making arrangements for the SONO Common Stock and the accompanying
indivisible SONO Rights to be quoted on the Nasdaq National Market of the
Nasdaq Stock Market ("Nasdaq") following the Distribution Date. The Nasdaq
ticker symbol will be SONO. SONO is expected to initially have approximately
7,300 shareholders of record, based upon the number of shareholders of record
of ATL as of December 31, 1997. For information regarding options to purchase
SONO Common Stock that will be outstanding after the Distribution see "CERTAIN
TRANSACTIONS--Option Adjustments".
Following the Distribution Date, ATL Common Stock will continue to trade on
Nasdaq under the ticker symbol ATLI. As of the Distribution Date SONO's
results of operations will no longer be consolidated with ATL's results. See
"SELECTED COMBINED FINANCIAL DATA". Accordingly, as a result of the
Distribution, the trading price of ATL Common Stock may fluctuate to account
for this de-consolidation, and the combined trading prices of the ATL Common
Stock and the SONO Common Stock held by shareholders after the Distribution
may be less than, equal to or greater than the trading price of the ATL Common
Stock prior to the Distribution. The prices at which the ATL Common Stock
trades after the Distribution will be determined by the marketplace and may be
influenced by many factors, including, among others, the depth and liquidity
of the market for the ATL Common Stock, investor perception of ATL and the
industry in which ATL participates, ATL's dividend policy and general economic
and market conditions.
FEDERAL INCOME TAX CONSEQUENCES OF THE DISTRIBUTION
ATL has received an opinion of Cravath, Swaine & Moore, tax counsel to ATL,
to the effect that for Federal income tax purposes:
1. The Distribution will qualify as a tax-free spin-off under Section 355
of the Internal Revenue Code of 1986, as amended (the "Code").
2. No gain or loss will be recognized by ATL upon the Distribution.
3. No gain or loss will be recognized by holders of the ATL Common Stock
solely as a result of their receipt of the SONO Common Stock in the
Distribution.
4. The tax basis of the ATL Common Stock and the SONO Common Stock
(including any fractional shares of SONO Common Stock for which cash is
received) held immediately after the Distribution by any holder will equal
such holder's tax basis in its ATL Common Stock immediately before the
Distribution, allocated in proportion to the relative fair market values of
the ATL Common Stock and the SONO Common Stock on the Distribution Date.
5. The holding period of the SONO Common Stock received in the
Distribution (including any fractional shares of SONO Common Stock for
which cash is received) will include the holding period of the ATL Common
Stock with respect to which the SONO Common Stock was distributed, provided
that such ATL Common Stock was held as a capital asset on the Distribution
Date.
6. Cash received in lieu of fractional share interests in SONO Common
Stock will be treated as payment in exchange for such stock. The difference
between the amount of cash received and basis allocable to such fractional
share interest will be a capital gain or loss, as the case may be, provided
that the ATL Common Stock is held as a capital asset on the Distribution
Date.
Such opinion of counsel is subject to certain factual representations and
assumptions. ATL is not aware of any present facts or circumstances that would
cause such representations and assumptions to be untrue. ATL and
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SONO will also agree to certain restrictions on their future actions to
provide further assurances that the Distribution will qualify as tax free. See
"CERTAIN TRANSACTIONS--Agreements Between ATL and SONO--Distribution
Agreement." No ruling has been or will be sought from the Internal Revenue
Service with respect to the Federal income tax consequences of the
Distribution, and there can be no assurance that the Internal Revenue Service
will not take a position contrary to that expressed in the opinion of Cravath,
Swaine & Moore.
If the Distribution were not to qualify under Section 355 of the Code, then
(i) ATL would recognize capital gain equal to the excess of (x) the fair
market value of the SONO Common Stock on the Distribution Date over (y) its
adjusted tax basis in the SONO Common Stock, and (ii) each holder of ATL
Common Stock who receives shares of SONO Common Stock in the Distribution
would be treated as if such shareholder received a taxable distribution in an
amount equal to the fair market value of such shares of SONO Common Stock on
the Distribution Date, taxed first as a dividend to the extent of such
shareholder's pro rata share of ATL's current and accumulated earnings and
profits, and then as a nontaxable return of capital to the extent of such
shareholder's basis in the ATL Common Stock (with any remaining amount being
taxed as capital gain). Pursuant to the Distribution Agreement, ATL and SONO
will agree that ATL will bear 85% of any such corporate level tax and SONO
will bear 15% thereof, unless such tax is caused by actions of ATL or SONO, in
which case the responsible party will bear the tax. Regardless of such
agreement, ATL and SONO will each be severally liable to the Internal Revenue
Service for the full amount of any such Federal corporate level tax that is
not paid by the other. For a description of the Distribution Agreement, see
"CERTAIN TRANSACTIONS--Agreements Between ATL and SONO--Distribution
Agreement."
This summary may not be applicable to shareholders who received their ATL
Common Stock as restricted stock, unless before the Distribution Date the
restrictions applicable to such ATL Common Stock have lapsed or the holder of
such restricted ATL Common Stock has elected under Section 83(b) of the Code
to recognize compensation income upon the grant of such restricted stock.
Generally, the receipt of restricted SONO Common Stock as a dividend on such
restricted ATL Common Stock will not be treated as a taxable event, but the
holder of such restricted SONO Common Stock will recognize ordinary
compensation income at the time the restrictions on such SONO Common Stock
lapse, in an amount equal to the fair market value of such restricted SONO
Common Stock at that time.
Disqualifying acquisitions. Under current law, ATL (but not ATL
shareholders) would recognize taxable gain in connection with the Distribution
(determined as if ATL had sold all the SONO Common Stock for fair market value
on the Distribution Date) if 50% or more of the outstanding stock of SONO or
ATL were acquired (or deemed to be acquired) and the Distribution and such
acquisition were part of a plan or series of related transactions (a
"Disqualifying Acquisition"). For that purpose, any acquisition of stock of
SONO or ATL within the period beginning two years prior to the Distribution
Date and ending two years after the Distribution Date would be presumed to be
part of such a plan or series of related transactions, although ATL or SONO,
as the case may be, may be able to rebut such presumption.
The Distribution Agreement contains provisions intended to prevent the
occurrence of a Disqualifying Acquisition. Under the terms of the Distribution
Agreement, unless otherwise approved by the IRS or legal counsel or agreed to
by both ATL and SONO, ATL and SONO will not at any time after the Distribution
Date take any action which may be inconsistent with the tax treatment of the
Distribution as a nonrecognition event for ATL. Without limiting the
generality of the foregoing, ATL and SONO will not, within two years after the
Distribution Date: (a) liquidate or merge with or into any other corporation;
(b) issue any capital stock that in the aggregate exceeds 45%, by vote or
value, of its capital stock issued and outstanding immediately after the
Distribution; (c) with certain exceptions, redeem, purchase or otherwise
reacquire its capital stock issued and outstanding immediately after the
Distribution; (d) make a material disposition or cessation of operations by
means of a sale or exchange of assets or capital stock, a distribution to
shareholders, or otherwise, of the assets constituting the trades or
businesses relied upon to satisfy Section 355 (b) of the Code; or (e)
discontinue the active conduct of the trades or businesses relied upon to
satisfy Section 355 (b) of the Code. Accordingly, it can be expected that ATL
and SONO will not enter into any transaction which might constitute a
Disqualifying
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Acquisition, and, consequently, the ability of ATL and SONO to enter into
business combinations with other companies or to issue additional stock may be
restricted.
The foregoing discussion of the anticipated Federal income tax consequences
of the Distribution is for general information only. ATL shareholders should
consult their own advisers as to the specific tax consequences of the
Distribution, including the effects of foreign, state and local tax laws and
the effect of possible changes in tax laws.
CONDITIONS TO THE DISTRIBUTION
There are no conditions precedent to the Distribution. No shareholder vote
is required for the Distribution. Nevertheless, the ATL Board of Directors has
reserved the right to abandon, defer or modify the Distribution and the
related transactions described herein at any time prior to the Distribution
Date.
RELATIONSHIP BETWEEN ATL AND SONO AFTER THE DISTRIBUTION
Subsequent to the Distribution, SONO will operate independently from ATL,
and ATL will continue to conduct its remaining businesses. Mr. Cramer will
continue as a director of ATL, and Dr. Souquet will continue as a vice
president of ATL. See "MANAGEMENT OF SONO--Directors."
On the Distribution Date, SONO and ATL will enter into a Distribution
Agreement, a series of Service Agreements, an OEM Supply Agreement, an
Employee Benefits Agreement, and a Technology Transfer and License Agreement
governing their relationship subsequent to the Distribution. Such agreements
provide for an allocation of assets and liabilities relating to their
ultrasound businesses between ATL and SONO, for certain arrangements relating
to the adjustment of ATL stock options and restricted stock, for the
transition of employee benefits for SONO employees, for the transfer and
licensing of certain technology rights between the two companies, for the
protection of ATL technology licensed to SONO, and for noncompetition between
ATL and SONO for a limited period of time in the spheres of certain of their
present businesses. See "CERTAIN TRANSACTIONS--Agreements Between ATL and
SONO." Although ATL will continue to offer to provide services to SONO for a
period of time subsequent to the Distribution Date, such services will only be
made available for certain specified business functions and, in any event, are
ultimately expected to be discontinued.
RISK FACTORS
New Company; Need to Manage Rapid Growth. SONO is a new company being
created principally with existing employees of ATL for the purpose of engaging
in a challenging program of product development and introduction in a market
that may become highly competitive. SONO has never been operated or managed as
a stand-alone company. After the Distribution, SONO and its management will be
assuming responsibility for a variety of management and administrative
functions which have been previously performed by ATL, in many cases by
personnel who are remaining at ATL. SONO will be required to establish the
corporate infrastructure and financial systems and controls to operate as an
independent company. The scope and complexity of SONO's activities and the
number of employees are likely to increase rapidly as product development and
preparation for manufacturing and marketing of its products proceed. SONO's
transition to an independent stand-alone public company, coupled with the need
to manage the development and introduction of its products, will place
significant strains on its limited management and administrative resources and
increased demands on its administrative and financial infrastructure,
procedures, systems and controls. There can be no assurance that SONO's
administrative and financial infrastructure, procedures, systems and controls
will adequately support its planned activities, or that its management will be
able to effectively manage its activities to achieve the rapid, efficient
execution of its product development program and business strategy.
No History of Profitability; Potential Fluctuations in Operating
Results. SONO does not have an operating history as a separate, stand-alone
company. SONO has experienced significant operating losses since its
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inception, has an accumulated deficit of $7.9 million at December 31, 1997,
and had a net tangible book value of $240,128 at December 31, 1997. SONO has
no revenues from product sales and will not have any such revenues unless and
until a marketable product is successfully developed, receives government
approvals, and is successfully manufactured and distributed to the market.
SONO expects to continue to experience losses unless and until sales of its
handheld ultrasound products become significant in future years. See
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS" and "FORWARD LOOKING INFORMATION." There can be no assurance that
SONO will ever generate sufficient revenues to attain profitability on an
annual basis, and financial results may fluctuate materially from quarter to
quarter, particularly during the initial quarters of handheld ultrasound
product distribution. Moreover, SONO's quarterly results may also be affected
by fluctuating demand for SONO's planned products, declines in the average
selling prices for such products, by increases in the costs of the components
and subassemblies acquired by SONO from vendors, or other effects.
The market prices for securities of medical technology companies have often
been volatile. Among other things, announcements of technical innovations or
new commercial products by SONO or its competitors, developments concerning
proprietary rights, including patents and litigation matters, publicity
regarding actual or potential medical results with products under development
by SONO, and regulatory developments in both the United States and foreign
countries, as well as period-to-period fluctuations in revenues and financial
results and changes in estimates by securities analysts, may have a
significant impact on the market price of shares of SONO Common Stock
following the Distribution.
Possible Need for Additional Financing. Based on SONO's current operating
plan, SONO believes that its working capital will be sufficient to satisfy its
capital requirements and finance its plans for product development through to
an initial product launch in 1999. See "FORWARD LOOKING STATEMENTS." Such
belief is based on certain assumptions, including, among other things, R&D and
marketing expenses needed to bring its planned handheld products to market,
the time required to do so, projected revenues and rate of adoption, and that
ATL will make payment of its second unconditional tranche of $12 million on
time on January 15, 1999, and there can be no assurance that such assumptions
will prove to be correct. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS--Liquidity and Capital
Resources." In addition, contingencies or opportunities may arise which would
require SONO to reduce discretionary spending, obtain additional capital, or
both. Accordingly, there can be no assurance that cash resources will be
sufficient to satisfy SONO's capital requirements. SONO may require additional
financing, which may take the form of the issuance of common or preferred
stock or debt securities, or may involve bank financing. There can be no
assurance that SONO will be able to obtain such additional capital on a timely
basis, on favorable terms, or at all. See "FINANCING."
Uncertainty of Product Development and Production. The handheld ultrasound
imaging products to be marketed by SONO are still under development, and a
fully operational prototype has yet to be produced. Product development
programs typically encounter unforeseen problems and delays, and their costs
often exceed budgets planned at the outset of the programs. There are no
assurances that SONO's handheld ultrasound device development programs will
not encounter technical obstacles, or that those technical obstacles can be
overcome or can be accomplished in a timely or cost-effective manner. The
occurrence of technical obstacles, the time needed to overcome them, or the
inability to do so, could have a material adverse effect on SONO's business,
financial condition and results of operations. SONO's plans call for
production of handheld ultrasound devices in unit volumes which SONO believes
to be significantly above those typically attained by manufacturers of cart-
borne ultrasound systems. There can be no assurance that such a manufacturing
operation can be timely developed or arranged with a third party, or will not
encounter problems obtaining the necessary personnel, equipment, materials,
and/or support. Obstacles and delays in efficiently organizing a manufacturing
operation could have a material adverse effect on SONO's business, financial
condition or results of operations. The medical device industry has
traditionally been characterized by rapidly evolving technology, resulting in
relatively short product life cycles and continuing competitive pressure to
develop and market new products. There can be no assurance that SONO will be
able to develop and market new products on a cost-effective and timely basis,
that such products will compete favorably with products developed by others or
that SONO's existing technology will not be superseded by new technology
developed by competitors.
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Uncertainty of Market Development or Acceptance; Development of Competitive
Products. SONO expects to market products which are unlike existing ultrasound
systems in new markets for medical ultrasound. There are no assurances that
the products developed by SONO will be favorably received by these markets, or
that new markets for SONO's products will develop in a timely manner. If the
markets for SONO's handheld ultrasound devices fail to develop, develop more
slowly than SONO anticipates, or cease to develop, SONO's business, financial
condition and results of operations could be materially and adversely
affected. SONO is organizing a distribution network which will be reliant to a
significant degree upon the efforts of third party distributors. Many of these
distributors are expected to be in the business of distributing other medical
products in addition to the SONO products. There can be no assurance that this
distribution network will function as effectively as SONO desires, or that
individual third party distributors will be effective in marketing SONO's
products. Competitive products may emerge as SONO is marketing its handheld
ultrasound devices. A number of research groups have received government
funding from the U.S. Government's Advanced Research Projects Agency ("ARPA")
for development of miniaturized or laptop ultrasound units concurrently with
ATL's ARPA grant. Companies with resources far greater than those of SONO may
now be planning to market handheld ultrasound devices or may decide to do so
in the future. See "BUSINESS--Competition." In addition, ATL can enter the
handheld market five years after the Distribution Date, and this five year
restriction may be subject to limitations or not fully enforceable in all
jurisdictions. ATL can market ultrasound devices weighing more than ten pounds
at any time, although it has no current plans for products in the 10-15 pound
category. Furthermore, third parties may receive licenses to ATL's technology
which extend to products competitive with those of SONO. There can be no
assurance that actual or potential competitors will not develop and market
products that are superior or perceived to be superior relative to products
supplied by SONO. Competition could adversely affect SONO's revenues and
profitability.
Lack of Diversification. SONO will be engaged in the primary imaging
business (See "BUSINESS"), and will be entirely reliant on the success of its
handheld ultrasound products to sustain its planned financial results and
future growth. SONO currently has no plans for diversification of its business
outside of handheld ultrasound device markets. SONO's rights to use ATL
technologies are limited to handheld devices, and SONO has agreed with ATL
that SONO will not, for a period of five years, compete with ATL by engaging
in certain activities related to ultrasound systems that are not handheld
ultrasound products. Additionally, SONO has, for a period of five years,
granted an exclusive license to ATL to use all SONO technologies for
ultrasound systems other than handheld ultrasound products. See "CERTAIN
TRANSACTIONS--Agreements Between ATL and SONO." Consequently, SONO will be
subject to adverse developments in the medical device business as a result of
competition, technological change, governmental regulation, change in third-
party reimbursement policies or any other factors to a greater extent than a
company with more diverse businesses.
Potential Loss of Personnel. Key employees of SONO could terminate their
employment pending or following the Distribution or may not elect to join SONO
from ATL, which could adversely affect SONO's operations for a period of time.
Additionally, SONO has agreed with ATL that it will neither recruit nor hire
ATL employees without the consent of ATL for at least one year following the
Distribution. See "CERTAIN TRANSACTIONS--Agreements Between ATL and SONO."
No Prior Market for SONO Common Stock. There is not currently a public
market for SONO Common Stock and there can be no assurance as to the prices at
which trading in SONO Common Stock will occur after the Distribution. Until
SONO Common Stock is fully distributed and an orderly market develops, the
prices at which such stock trades may fluctuate significantly. SONO is making
arrangements to have SONO Common Stock approved for quotation on Nasdaq
following the Distribution Date. See "THE DISTRIBUTION--Listing and Trading of
SONO Common Stock".
Extensive Government Regulation. SONO's planned products and manufacturing
activities are subject to extensive and rigorous governmental regulation,
principally by the U.S. Food and Drug Administration (the "FDA") and
corresponding state and foreign agencies. The FDA administers the Federal
Food, Drug and Cosmetic Act, as amended (the "FDC Act"). SONO is subject to
the standards and procedures contained in the FDC Act and the regulations
promulgated thereunder, and is subject to inspection by the FDA for compliance
with such standards and procedures. SONO is in need of clearance of its
handheld ultrasound products by the
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FDA before it can begin marketing the products in the United States, and
approvals are also required before SONO can begin marketing its products in
most other countries. While SONO anticipates receiving needed approvals in
time for its current plans for product introduction, the process of obtaining
regulatory approvals can be lengthy, expensive and uncertain. Failure to
obtain the necessary clearances and approvals will delay marketing of SONO's
products, and failure to comply with FDA regulations and ISO quality
requirements could result in sanctions being imposed, including restrictions
on the marketing of, or the recall of, SONO's products. There can be no
assurance that SONO will be able to obtain necessary regulatory approvals in
the future, and delays in the receipt of or failure to receive such approvals,
the loss of previously obtained approvals or failure to comply with regulatory
requirements could have a material adverse effect on the business, financial
condition and results of operations of SONO. See "BUSINESS--Government
Regulation."
Dependence on Third-Party Reimbursement; Cost Containment. SONO's products
will be used by healthcare providers for medical services for which the
providers may seek reimbursement from various third-party payors such as
government programs and private health insurance plans. Such reimbursement is
subject to the regulations and policies of governmental agencies and other
third-party payers. Presently, reimbursement is authorized for a number of the
uses of handheld ultrasound devices envisioned by SONO, but not for all
planned procedures for which its devices may be suitable. Reduced governmental
expenditures in many countries, however, continue to put pressure on
diagnostic procedure reimbursement. SONO cannot predict whether reimbursement
for additional procedures which may be performed by its products will be
approved, what changes may be forthcoming in reimbursement policies and
procedures, nor the effect of such changes on its business. There can be no
assurance that the use of SONO's products will be considered cost-effective by
third-party payers, that reimbursement will continue to be available or, if
available, that payers' reimbursement levels will not adversely affect SONO's
ability to sell its products on a profitable basis. Failure by hospitals and
other healthcare providers to obtain reimbursement from third-party payers
and/or changes in governmental and private third-party payers' policies toward
reimbursement for procedures employing SONO's products could have a material
adverse effect on SONO's business, financial condition and results of
operations. See "BUSINESS--Reimbursement."
Uncertainty of Patents and Proprietary Rights. SONO has one issued U.S.
patent covering its planned handheld products, and has a number of patent
applications for its planned products pending in the United States and other
countries. There can be no assurance that pending patent applications will be
approved or that the issued patents or pending applications will not be
challenged or circumvented by competitors. There can be no assurance that
trademark protection sought by SONO will be granted and maintained.
Certain critical technology incorporated in SONO's products is protected by
copyright and trade secret laws and confidentiality and licensing agreements.
There can be no assurance that such protection will prove adequate or that
SONO will have adequate remedies for violation of its intellectual property
rights. Because of the substantial length of time and expense associated with
bringing new products through development and regulatory approval to the
marketplace, the medical device industry places considerable importance on
obtaining patent, trademark, copyright and trade secret protection for new
technologies, products and processes. The loss of protection for SONO's
technology could have a material adverse effect on SONO's business. Certain
technology which is being incorporated in SONO's products is licensed under an
agreement with ATL which is terminable by ATL upon a material breach by SONO
which goes uncured for thirty days, and the loss of the rights to such
technology could have a material adverse effect on SONO's business. See
"CERTAIN TRANSACTIONS--Agreements Between ATL and SONO."
Companies in high-technology businesses routinely review the products of
others for possible conflict with their own patent rights. High technology
companies from time to time receive notices of claims from others alleging
patent infringement. While SONO believes that it does not infringe any valid
patent of any third party, there can be no assurance that SONO will not be
subject to future claims of patent infringement or that any claim will not
require SONO to pay substantial damages or delete certain features from its
products, or both. Such claims could temporarily or permanently interrupt
SONO's ability to ship affected products.
SONO is dependent upon certain ATL technology which is licensed from ATL for
use in SONO's planned products. Termination or other loss of such rights could
have a substantial impact upon SONO's ability to develop, make and sell its
planned handheld ultrasound products.
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Absence of Dividends. SONO currently does not intend to pay cash dividends
on shares of its Common Stock. Restrictions on the payment of dividends may
exist under SONO's planned operating facility.
Dependence on Single-Source Suppliers. SONO will depend on some single-
source vendors for certain important component parts for its products, in
particular, VLSI Technology and Harris Semiconductor, two of ATL's partners in
the ARPA program. Although no supply contracts are presently in place, SONO
plans to purchase custom ASICs from these two companies. A disruption in the
supply of a single-source part for a product could have a material adverse
effect on SONO's production of products incorporating such items in cases
where the existing inventory of the components is not adequate to meet SONO's
demand for the component during such disruption. Vendors of highly specialized
and unique parts such as custom semiconductor devices and critical scanhead
materials can occasionally experience difficulty in the manufacture of such
components. Vendors can also experience difficulty in meeting quality
standards that SONO requires of its vendors. In addition, these items
generally have long order lead times, restricting the ability of SONO to
respond quickly to changing market conditions.
Possibility of Products Liability and Warranty Claims. The manufacture and
sale of SONO's products entail inherent risks of product liability and
warranty claims. SONO expects to have a limited amount of product liability
insurance; however, in the event of a product liability claim there can be no
assurance that the coverage limits of such insurance policies will be
adequate. Product liability insurance is expensive and in the future may not
be available on acceptable terms, if at all. A successful claim against SONO
in excess of insurance coverage could have a material adverse effect on SONO's
business, financial condition and results of operations. In addition, warranty
claims and recalls may adversely affect SONO's operations and financial
condition.
Possible Antitakeover Effects. The Rights Agreement between SONO and First
Chicago Trust Company of New York, acceleration provisions in benefit plans
and employee contracts, and the terms of SONO's license to use ATL technology
contain several provisions that may make the acquisition of control of SONO
more difficult or expensive. See "DESCRIPTION OF SONO COMMON STOCK--SONO
Rights", "CERTAIN TRANSACTIONS--Agreements Between ATL and SONO's', and
"EXECUTIVE COMPENSATION".
Federal Income Tax Consequences of the Distribution. ATL has received an
opinion of Cravath, Swaine & Moore, tax counsel to ATL, to the effect that the
Distribution will be tax free under Section 355 of the Code. Such opinion is
subject to certain factual representations and assumptions. ATL is not aware
of any present facts or circumstances that would cause such representations
and assumptions to be untrue. SONO and ATL will also agree to certain
restrictions on their future actions to provide further assurances that the
Distribution will qualify as tax free. See "CERTAIN TRANSACTIONS--Agreements
Between ATL and SONO--Distribution Agreement." No ruling has been or will be
sought from the Internal Revenue Service with respect to the Federal income
tax consequences of the Distribution, and there can be no assurance that the
Internal Revenue Service will not take a position contrary to that expressed
in the opinion of Cravath, Swaine & Moore. If the Distribution were not to
qualify under Section 355 of the Code, or if an acquisition of ATL or SONO
were to take place as part of a plan that includes the Distribution, then ATL
and shareholders receiving SONO Common Stock could be subject to certain tax
liabilities. See "THE DISTRIBUTION--Federal Income Tax Consequences of the
Distribution" for a detailed discussion of the U.S. Federal income tax
consequences of the Distribution.
Reliance Upon ATL During Transition Period. During the transition period
necessary for its autonomous operation as a public company, SONO will contract
with ATL for certain services and support. See "CERTAIN TRANSACTIONS--
Agreements Between ATL and SONO." These services include, among others,
engineering services that may be critical to the success of SONO's product
development efforts. Such services will be provided by ATL as ATL concurrently
meets the needs of its own shareholders and business, and conflicting demands
upon ATL's resources may develop which could adversely affect the provision of
services to SONO. ATL has the right to terminate a service agreement on 90
days notice in certain circumstances. There can be no assurance that the ATL
resources needed by SONO will be available to SONO to the level or in the
timeframe required by SONO to meet its planned objectives, and that ATL's
internal priorities will not materially adversely affect the availability of
important services to SONO.
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FINANCING
CAPITAL CONTRIBUTION BY ATL
At the time of the Distribution, ATL will make a capital contribution of its
cumulative advances to SONO (which totaled approximately $8.1 million as of
December 31, 1997) and contribute $30 million of cash as capital to SONO for
working capital and other purposes. All invoices for goods and services for
SONO which are outstanding on the Distribution Date, and as to which
associated goods and services have not been delivered or performed will be the
responsibility of SONO after the Distribution Date. The $30 million
contribution will be made in two tranches, a first tranche of $18 million on
the Distribution Date, and a second tranche of $12 million on January 15,
1999. See "CERTAIN TRANSACTIONS--Agreements Between ATL and SONO--Distribution
Agreement" and "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS--Liquidity and Capital Resources."
BANK OPERATING FACILITY
SONO has been discussing terms and conditions of an operating facility with
several banks, but has not as yet concluded arrangements with any institution.
SONO is continuing these discussions but it is unlikely that SONO will arrange
the desired operating facility prior to the Distribution Date.
17
<PAGE>
SELECTED COMBINED FINANCIAL DATA
The information set forth below under the captions "Combined Statement of
Operations Data" and "Combined Balance Sheet Data" as of December 31, 1996 and
1997 and for each of the years in the three-year period ended December 31,
1997, and for the period from February 1994 (inception) through December 31,
1997 is derived from the audited combined financial statements of SonoSight,
Inc.
The selected data presented below under the caption "Combined Statement of
Operations Data" for the period ended December 31, 1994 is derived from
unaudited combined financial statements of SonoSight, Inc.
The information set forth below should be read in conjunction with
Management's Discussion and Analysis of Financial Condition and Results of
Operations and the combined audited financial statements and related notes
thereto included elsewhere in this Information Statement.
SONO's business, which is the basis for the following combined financial
information, consists of the handheld ultrasound division of ATL. The combined
financial information below represent the combination of ATL's handheld
division and the corporate entity (SonoSight, Inc.) effecting the
Distribution. The information set forth below is intended to present the
results of operations and financial condition of SONO as if it had operated as
a stand-alone company since its inception. Certain of the costs and expenses
presented in this combined financial information represent intercompany
allocations and management estimates of the cost of services provided by ATL.
As a result, the combined financial statements and information presented may
not be indicative of the results that would have been achieved had SONO
operated as a nonaffiliated entity.
COMBINED STATEMENT OF OPERATIONS DATA
<TABLE>
<CAPTION>
FOR THE PERIODS ENDED DECEMBER 31, FEBRUARY 1994
-------------------------------------------- (INCEPTION) THROUGH
1994 1995 1996 1997 DECEMBER 31, 1997
-------- -------- ----------- ----------- -------------------
<S> <C> <C> <C> <C> <C>
Grant Revenues.......... $ -- $ -- $ 1,028,895 $ 2,947,700 $ 3,976,595
Operating Expenses
Research and
development.......... 38,926 74,928 2,575,719 7,063,842 9,753,415
Selling, general and
administrative....... 2,503 8,623 197,057 1,819,355 2,027,538
Other expenses........ -- -- 20,578 58,954 79,532
-------- -------- ----------- ----------- -----------
Total Operating
Expenses........... 41,429 83,551 2,793,354 8,942,151 11,860,485
-------- -------- ----------- ----------- -----------
Net Loss............ $(41,429) $(83,551) $(1,764,459) $(5,994,451) $(7,883,890)
======== ======== =========== =========== ===========
Pro forma net loss per
share (unaudited)...... $ (1.24)
===========
Shares used in computing
pro forma net loss per
share (unaudited)...... 4,824,780
===========
</TABLE>
COMBINED BALANCE SHEET DATA
<TABLE>
<CAPTION>
AS OF DECEMBER
31,
-----------------
1996 1997
-------- --------
<S> <C> <C>
Total assets............................................. $156,703 $409,967
Owner's equity........................................... $103,849 $240,128
</TABLE>
Balance sheet data prior to 1996 is not meaningful. Substantially all
intercompany activity related to SONO's operations and all amounts receivable
and payable by SONO are accounted for by ATL and the net amount, except
accrued compensated absences, is recorded as net advances from ATL in owner's
equity.
18
<PAGE>
UNAUDITED PRO FORMA FINANCIAL INFORMATION
The historical combined financial statements of SONO found on pages F-1
through F-15 of this Information Statement reflect periods during which SONO
did not operate as an independent publicly-owned company. Therefore, such
historical financial statements may not necessarily reflect the combined
results of operations or financial position that would have existed had SONO
been an independent publicly-owned company during those periods. The following
pro forma financial statements reflect adjustments to the historical combined
statement of operations as if the Distribution had occurred at the beginning
of the period presented and adjustments to the historical combined balance
sheet as if the Distribution had occurred at December 31, 1997. The pro forma
financial statements of SONO should be read in conjunction with the historical
combined financial statements and the notes thereto contained elsewhere in
this Information Statement. The pro forma financial information is presented
for informational purposes only and does not necessarily reflect the future
results of operations or financial position of SONO or what the results of
operations or financial position would have been had SONO been an independent
publicly-owned company during the period reflected.
As a result of the Distribution, SONO believes that the following pro forma
financial information is important to enable the reader to obtain a more
meaningful understanding of SONO's results of operations.
PRO FORMA BALANCE SHEET
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1997
------------------------------------------
HISTORICAL ADJUSTMENTS PRO FORMA
----------- ------------ ------------
<S> <C> <C> <C>
Assets
Cash............................. $ -- $ 18,000,000 (a) $ 18,000,000
Property and equipment, net...... 409,967 409,967
----------- ------------
Total Assets................... $ 409,967 $ 18,409,967
=========== ============
Liabilities
Accrued expenses................. $ 169,839 $ 169,839
Owner's Equity
Preferred stock, par value $1.00,
6,000,000 shares authorized, no
shares issued or outstanding.... -- --
Common stock, par value $.01,
50,000,000 shares authorized, no
shares issued or outstanding,
actual; 4,824,780 shares issued
and outstanding, pro forma...... -- 48,248 (b) 48,248
Additional paid-in capital....... -- 30,000,000 (a) 38,075,770
8,075,770 (b)
Net advances from ATL.............. 8,124,018 (8,124,018)(b) --
Due from ATL....................... -- (12,000,000)(a) (12,000,000)
Deficit accumulated during the
development stage................. (7,883,890) (7,883,890)
----------- ------------
Total Owner's Equity........... 240,128 18,240,128
----------- ------------
Total Liabilities and Owner's
Equity........................ $ 409,967 $ 18,409,967
=========== ============
</TABLE>
- --------
(a) Represents ATL's contribution of $18 million in cash on the Distribution
Date and its unconditional commitment to contribute an additional $12
million in cash on January 15, 1999.
(b) Represents the contribution by ATL of all cumulative net advances to SONO
and the issuance of SONO Common Stock upon the Distribution.
19
<PAGE>
PRO FORMA STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
1997
-------------------------------------
HISTORICAL ADJUSTMENTS PRO FORMA
----------- ----------- -----------
<S> <C> <C> <C>
Grant Revenues.......................... $ 2,947,700 $ 2,947,700
Operating Expenses
Research and development.............. 7,063,842 640,000(c) 7,703,842
Selling, general and administrative... 1,819,355 20,000(c) 2,539,355
700,000(d)
Other expenses........................ 58,954 58,954
----------- -----------
Total Operating Expenses............ 8,942,151 10,302,151
----------- -----------
Net Loss............................ $(5,994,451) $(7,354,451)
=========== ===========
Pro forma net loss per share............ $ (1.52)
===========
Shares used in computing pro forma net
loss per share......................... 4,824,780
===========
</TABLE>
- --------
(c) The adjustments represent the 20% mark-up on research and development
expenses and a 10% mark-up on general and administrative expenses which
are provided for under the service agreements between ATL and SONO. See
"AGREEMENTS BETWEEN ATL AND SONO."
(d) Represents the additional estimated costs expected to be incurred by SONO
on a prospective basis, including the incremental costs associated with
SONO's status as an independent public company. Incremental costs are
derived from known amounts, preliminary negotiations and quotes from
service providers, and amounts that are readily estimable by management.
These costs are as follows:
<TABLE>
<S> <C>
Executive compensation........................................... $180,000
Audit, legal and tax............................................. 90,000
Shareholder relations............................................ 135,000
Directors' and officers' insurance............................... 100,000
Annual directors' fees and expenses.............................. 160,000
Exchange listing fees............................................ 35,000
--------
$700,000
========
</TABLE>
20
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following Management's Discussion and Analysis of Financial Condition
and Results of Operations contains certain forward-looking statements which
involve risks and uncertainties. SONO's actual results could differ materially
from those anticipated in these forward-looking statements as a result of a
number of factors, including those described under "Forward Looking
Information" and "Risk Factors" and elsewhere in this Information Statement.
GENERAL OVERVIEW
The business of SonoSight, Inc. ("SONO") began in 1994 as a project of ATL
Ultrasound, Inc. ("ATL") chartered to develop the conceptual design and
specifications for a handheld ultrasound device. Since inception, the project
evolved into a separate division of ATL with a focus on accelerating the
research, development and commercialization of the handheld device. SONO
expects to complete a working prototype during the third calendar quarter of
1998. To date, there have been no revenues from the sale of SONO's highly
portable ultrasound devices. If commercialized, the highly portable or
handheld ultrasound imaging devices are expected to allow physicians to carry
a diagnostic instrument which is expected by SONO to complement and extend the
information gathered in an initial physical patient examination.
SONO significantly expanded its development activities in 1996 when its
handheld ultrasound device proposal was selected for matched funding by the
U.S. Government's Advanced Research Projects Agency ("ARPA"). ARPA's
Technology Reinvestment Project ("TRP") provides funding of up to 50% for the
development of technology having both military and commercial applications. In
May 1996, SONO and its TRP collaborators (University of Washington, Harris
Semiconductor and VLSI Technology, Inc.) formed a consortium and entered into
a development contract with the Office of Naval Research (the "U.S. Navy").
Each of the collaborators has specific contracted deliverables and earmarked
funding based on its achievement of milestones. The U.S. Navy is expected to
contribute $4,755,000 for SONO's share of the project or approximately half of
SONO's initial TRP proposal costs totaling $9,704,000. SONO has recorded
revenues of $3,976,595 as of December 31, 1997, and expects the balance of
approximately $778,400 will be realized as revenue assuming the remaining
project milestones are met. The terms of the development contract specify that
each collaborator will own rights to the technology it develops. The
Application Specific Integrated Circuits ("ASICs") which are planned to be
manufactured by VLSI Technology, Inc. and Harris Semiconductor are essential
to SONO in developing handheld, ultrasonic imaging devices, and SONO will be
relying on VLSI Technology, Inc. and Harris Semiconductor to supply ASICs
which incorporate the technologies developed by the consortium.
SONO's future success will largely depend on its ability to successfully
develop, obtain government approval of, market and sell the handheld
ultrasound products. To date, SONO has not generated any revenue from product
sales. Since inception, funding from ATL and the U.S. Navy has been used to
finance the development of SONO's technologies.
As of December 31, 1997, SONO has incurred cumulative losses since inception
of approximately $7.9 million. Moreover, SONO has increased, and expects to
further increase its level of operating expenses and operating losses as it
accelerates research and development efforts and moves to commercializing the
handheld ultrasound device. SONO's limited operating history and stage of
development makes accurate prediction of future operating results difficult.
Future revenues and results of operations may fluctuate significantly from
quarter to quarter or year to year and will depend upon numerous factors,
including the timing of regulatory clearances or approvals, the extent to
which SONO's planned products gain market acceptance, the scale-up of
manufacturing capabilities, the expansion of sales and marketing activities,
competition, the timing and success of new product introductions by SONO or
its competitors and the ability of SONO and its agents to market its products
in the United States and internationally. Accordingly, period to period
comparisons of SONO's operating results are not necessarily meaningful and
should not be relied upon as indicators of future performance or operating
results.
21
<PAGE>
RESULTS OF OPERATIONS--COMPARISON OF THE YEAR ENDED DECEMBER 31, 1997 TO THE
YEARS ENDED DECEMBER 31, 1996 AND 1995
Costs and expenses for SONO consist of research and development; selling,
general and administrative; and other expenses. These expenses have increased
and are expected to continue to increase as SONO devotes more resources to
developing its first product and becomes a stand-alone company responsible for
performing additional management and administrative functions.
Work commenced on the U.S. Navy contract in 1996. SONO recorded grant
revenues of $1,028,895 and $2,947,700 for the years ended December 31, 1996
and 1997, respectively. In 1997 grant revenue increased by 186% over 1996 due
to scaled-up efforts to develop the handheld system, and therefore, greater
allowable expenses qualifying for the U.S. Navy funding under the terms of the
contract. The U.S. Navy contract is nearing completion and much lower grant
revenues will be realized in 1998.
Research and development expenses were $74,928, $2,575,719, and $7,063,842
for the years ended December 31, 1995, 1996, and 1997, respectively. Research
and development expenses increased as the handheld project evolved from the
initial design efforts in 1995 involving only a few engineers to a fully
staffed development program in 1996 and 1997 with accelerating expenditures
for engineering personnel, consultants, materials and other project spending.
Selling, general and administrative expenses were $8,623, $197,057, and
$1,819,355 for the years ended December 31, 1995, 1996, and 1997,
respectively. SONO did not commit significant market research and distribution
channel development resources until 1997 and, therefore, experienced the large
spending increase over 1996 and 1995 when expenses were primarily for limited
general and administrative overhead. The marketing expenditures principally
relate to costs associated with the increase in personnel and consulting
expenditures for market research and distribution channel development
activities.
LIQUIDITY AND CAPITAL RESOURCES
To date, SONO has not generated any revenue from the sale of products, and
its cash requirements have been funded by advances from ATL and grants from
the U.S. Navy under the ARPA development program. During the year ended
December 31, 1997, cash obtained from these sources and used in operations was
$9.1 million. The cash requirements of SONO's business have increased in
recent periods and are expected to continue to increase as SONO accelerates
product development activities, engages in market research and the creation of
distribution channels, and builds the management and administrative
infrastructure necessary to function as a stand-alone public company.
In connection with the Distribution, ATL will contribute to the capital of
SONO all cumulative net advances made by ATL to SONO prior to the Distribution
date. In addition, ATL will contribute to the capital of SONO (a) the amount
of $18 million in cash on the Distribution date, and (b) the amount of $12
million in cash on January 15, 1999. The second contribution of $12 million by
ATL is a contractual obligation under the Distribution Agreement between ATL
and SONO. There is no contingency to be satisfied before ATL makes this second
payment of $12 million. The contractual obligation to make this payment is
satisfied simply by the passage of time, as stated in the Distribution
Agreement between ATL and SONO. SONO has full recourse to ATL in the event of
a default of this obligation. While SONO has no contingency plans at present
to respond to such a default, SONO may in such event consider the issuance of
common or preferred stock or debt securities, or bank financing. See "RISK
FACTORS--Possible Need for Additional Financing." Based on current operating
plans, SONO management believes the $30 million in cash from ATL should
provide sufficient working capital to fund its currently planned operations
through to an initial product launch in 1999. However, the amount of cash
required to fund the completion of product development, the establishment of
management, administrative and manufacturing infrastructure, distribution
channels, and the introduction of product to the marketplace are difficult to
predict, and will depend in part upon factors beyond SONO's control. Cash
requirements could exceed SONO's estimates as a result of a variety of factors
such as technical obstacles, delays
22
<PAGE>
in development or in obtaining regulatory approval, cost overruns in research
and development programs or establishing manufacturing activities, greater
than anticipated administrative expenses or lower than anticipated adoption
rates or revenues after product introduction. Unanticipated opportunities or
contingencies also could result in increased cash requirements. Accordingly,
SONO could require additional financing earlier than it presently anticipates,
and such financing may not be obtainable on a timely basis, on favorable
terms, or at all. See "RISK FACTORS--Possible Need for Additional Financing"
and "FORWARD LOOKING STATEMENTS."
If adequate funds are not available to meet its cash needs, SONO may be
required to significantly curtail its research and development programs, its
overall spending levels, or delay or cancel marketing initiatives or product
introductions, or obtain funds through arrangements with collaborative
partners or others that may require SONO to relinquish rights to certain of
its technologies or products.
YEAR 2000
SONO is developing its products to be "Year 2000" compliant and believes
that problems associated with computer programs written using two digits
rather than four digits to define the applicable year will be inconsequential
to SONO's operations.
23
<PAGE>
BUSINESS
OVERVIEW
SONO is developing handheld ultrasonic imaging devices to be used as
examination tools and carried by the physician for a variety of clinical
settings, including women's healthcare and emergency and internal medicine
applications. SONO's FirstSight(TM) primary imaging technology is expected by
SONO to increase the information gathered by physical examination, helping
clinicians improve patient outcomes and lower healthcare costs by bringing the
immediacy and efficacy of ultrasound to the examining table, the bedside and
the field. Examination with SONO's FirstSight technology is expected to enable
clinicians to identify earlier those patients requiring more comprehensive
diagnostic procedures or specialist intervention.
SONO has conceived primary imaging as a "Pass/Act/Refer" clinical diagnosis
model: "Pass" when no abnormality is detected, "Act" when an abnormality is
detected with sufficient precision to allow immediate therapeutic
intervention, or "Refer" when specialist referral for further diagnostic
workup is required before definitive therapy can be instituted. This clinical
model is intended to bring the immediacy, efficacy, convenience, comfort, and
cost savings of ultrasound technology to the initial physical examination,
wherever it is performed.
SONO is the operating company for the handheld ultrasound device business
founded by ATL. SONO is currently based in ATL's headquarters facility in
Bothell, Washington. SONO was originally incorporated in Washington State on
July 7, 1986 and became the wholly owned subsidiary for ATL's handheld
ultrasound device business by change of name to Handheld Ultrasound Systems,
Inc. on December 31, 1997 and now by name change is SonoSight, Inc. During its
first two fiscal years following the Distribution, SONO plans to begin the
manufacture, marketing and distribution of handheld ultrasound products. SONO
does not expect product revenues before 1999.
BACKGROUND
The handheld ultrasound imaging devices under development by SONO are a
continuing evolution of ATL's leadership in digital broadband ultrasound
technology. ATL introduced the first all-digital ultrasound system in 1988 and
today has the largest installed base of all-digital systems. ATL has recently
introduced its fifth generation of digital ultrasound technology, while many
other companies are just introducing their first. ATL's leadership is based on
its development of proprietary microchip ASIC (Application Specific Integrated
Circuit) technology and advanced system software to increase the power and
resolution of ultrasound imaging while reducing its cost. In 1997, ATL
introduced what is believed to be the world's most powerful ultrasound system,
the HDI 5000 system which operates at over 14 billion operations per second,
yet is the same physical size as its predecessor, the HDI 3000. The HDI 5000
is the first system to apply supercomputed processing, patented new blood flow
imaging technology and adaptive system intelligence to diagnostic ultrasound,
giving healthcare providers a vast amount of new information about the human
body.
While ATL has prioritized the use of its ASIC technology to increase the
performance and capabilities of diagnostic ultrasound imaging, ATL recognized
that the increasing electronic capacity of its custom ASICs would inevitably
reach a point where all of the processing circuitry necessary for an
ultrasound system could be compacted into a single, battery-powered, handheld
unit. In 1994, ATL assembled a team of scientists and engineers in its
research and development organization and charged them to begin design of a
handheld ultrasound system. In February 1996, ARPA selected ATL and a
consortium consisting of the University of Washington, VLSI Technology, Inc.
and Harris Semiconductor for a two year matching grant of $6.3 million to
develop a handheld ultrasound device for use on the battlefield or in other
natural or man-made disaster situations to diagnose victims of severe trauma.
See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS." Interest in the ARPA-sponsored program arose in part due to
the fact that survival rates dramatically improve if life-threatening
conditions can be diagnosed and remedial treatment begun within the first hour
after injury. This government sponsored program is expected to culminate with
the delivery of prototype handheld ultrasound devices to the Department of the
Navy in the third quarter of 1998.
24
<PAGE>
As a result of the accelerated progress toward development of a handheld
ultrasound device which the ARPA program funding provided, ATL announced in
February 1997 formation of a business group responsible for product and
commercial market development of an all-digital handheld ultrasound system.
ATL Vice President Kevin Goodwin was named vice president and general manager
of ATL's Handheld Systems Business Group. Jens Quistgaard, Ph.D., Chief of the
Senior Technology Staff, ATL's senior scientific body, was named executive
director of product generation. These individuals are now serving in key
positions in SONO management. See "MANAGEMENT OF SONO--Executive Officers."
DECISION TO FORM A SEPARATE COMPANY
ATL management believes that it is in the best interests of SONO, ATL and
ATL shareholders to spin off SONO as a separate, independent company focusing
on the handheld ultrasound device business opportunity. The following
distinctions were among the primary considerations that led the management and
Board of Directors of ATL to this decision.
Business Focus. ATL's priority is the development, marketing and service of
high performance and mid-range ultrasound systems that serve highly
specialized and established diagnostic areas of medicine, as well as open new
clinical applications of ultrasound that require advanced performance
capabilities. In these markets, ultrasound is most commonly used as a
definitive diagnostic instrument. Due to size and cost constraints, today's
ultrasound systems cannot effectively be used as primary screening tools as
envisioned by SONO. SONO is developing entirely new products for the primary
imaging market. ATL and SONO believe that the challenges of the primary
imaging market will be best met by a singularly focused, strongly committed,
independent business.
Time to Market. The development of SONO's handheld ultrasound device
business has reached the point at which SONO must act quickly and decisively
to organize a manufacturing capability for handheld ultrasound devices and put
in place a worldwide distribution network for these products. ATL and SONO
believe that the desire for rapid time to market can be best satisfied by a
nimble organization focused on the single challenge of the handheld ultrasound
market.
Customers. ATL and SONO believe that the sophisticated ultrasound systems
sold by ATL are the finest ultrasonic imaging products available today. To
gain the full benefit of such performance, the ATL products are purchased and
operated by highly specialized ultrasound professionals. ATL's products are
sold to hospitals and large clinics where specialized practitioners of
ultrasonic imaging generally conduct their practices. SONO envisions that its
handheld devices will be used by established ultrasound professionals, but
also that these much simpler, easy to operate devices could potentially be
used by a broad range of medical disciplines which today do not routinely
employ ultrasound.
Products. ATL's diagnostic ultrasound systems are cart-borne, high
performance systems weighing several hundred pounds and requiring an external
electrical power source. Scanning is performed by a scanhead or probe which
connects to the cart-borne system. Images are viewed on a television-type
monitor and the system is operated from a full computer-style keyboard and
numerous other controls. The cart is typically an integral part of the system
and carries peripheral accessories such as VCRs and printers. SONO anticipates
that its products will differ in each of the above characteristics. SONO's
products are anticipated to be light-weight, battery-powered devices (under
ten pounds) consisting of a handheld scanhead unit connected by cable to a
small processor unit and a flat-panel display. Images will typically be viewed
on the flat-panel display, and the system is presently planned to have simple
controls operated by one hand or even one finger as a patient is scanned.
Price. ATL's cart-borne mid range and premium systems currently sell for
prices ranging from $50,000 to $300,000, SONO's products are expected to be
sold below $20,000, and thus be affordable to a broader group of medical
practitioners.
Distribution. ATL distributes its ultrasound systems through a direct
company sales force in the United States and through affiliate subsidiaries
and supporting exclusive dealer networks in international markets. However,
ATL and SONO believe that the higher volume nature of the SONO business will
benefit from an independent dealer distribution network to reach a broad range
of medical practitioners worldwide.
25
<PAGE>
BUSINESS STRATEGY
SONO's objective is to lead in the creation, development and distribution of
handheld devices for use in a broad range of medical disciplines. Key elements
of the Company's strategy include:
.Create and lead the development of the "primary imaging" market.
SONO intends to develop broad awareness of the many potential clinical
applications for primary imaging. SONO is developing handheld ultrasound
devices to be marketed to hospitals, clinics, physicians and other medical
personnel worldwide for use as a primary screening tool during a physical
examination. In this deployment, the purpose of the device is to exclude or
identify a problem that would benefit from full specialist diagnostic follow-
up. Its clinical role may be likened appropriately to a stethoscope, helping
the clinician to exclude or detect heart, lung, abdominal or vascular auditory
irregularities. For the first time, SONO believes, SONO would provide a
primary screening tool that gives front line clinicians a direct view into the
body.
.Establish FirstSight as a technology standard for the primary imaging
market.
SONO intends to market its products to physicians by demonstrating the
benefits of primary imaging. SONO's highly portable FirstSight ultrasound
devices will be marketed to hospitals, clinics, physicians, and other medical
personnel worldwide. Because of its small size, high performance, and ease of
operation, SONO intends to work with a broad range of clinical opinion leaders
to demonstrate and communicate the efficacy, safety, and cost-effectiveness of
FirstSight ultrasound technology.
.Focus initial products in women's healthcare markets worldwide.
SONO plans to demonstrate the clinical utility and cost effectiveness of
FirstSight technology in the women's healthcare field which is already
familiar with ultrasound as a cornerstone of clinical diagnosis. In addition,
women's healthcare is receiving increased attention and financial resources in
many parts of the world, thus increasing impetus for early adoption of primary
imaging. SONO intends to build a library of case studies through which both
primary imaging, and FirstSight technology, will demonstrate its benefits to
this patient population.
.Expand usage to broad clinician and patient populations.
SONO believes the primary diagnostic capabilities provided by FirstSight
technology will have significant professional appeal to many clinical
specialties. Following demonstration of the benefits of FirstSight technology
in women's healthcare, SONO intends to expand its marketing programs to
support the use of primary imaging in a variety of clinical settings in which
the ability to make a more precise diagnosis in an initial physical
examination will provide patient care and costs benefits previously
inaccessible. Clinical specialties to be targeted include emergency medicine,
internal and family medicine, cardiology, military medicine, and geriatric
medicine, among others.
.Establish strategic partners for manufacturing and worldwide distribution.
SONO intends to outsource the high volume production of its handheld
devices. SONO believes that this outsourcing will optimize manufacturing
efficiency and allow SONO to focus on product development, marketing, sales
and operations. SONO also intends to build alliances with established
independent medical equipment distributors with widespread sales personnel who
reach medical providers in all settings with offerings of a variety of medical
products. This worldwide distribution network is planned to reach the
hospitals, clinics, and medical practices which customarily purchase
ultrasound equipment, but is also intended to reach a wide variety of medical
practitioners who do not at present use ultrasonic imaging. Clinically skilled
sales specialists will be deployed to educate the sales organizations of the
distribution companies working with SONO.
1998 PLAN OF OPERATIONS
During the remainder of fiscal 1998, and continuing into 1999, SONO
anticipates continuing with research and development of its initial handheld
product. This includes the verification and validation of ASIC chips, the
26
<PAGE>
integration of system software and power supply, the completion of enclosures
and user interface (controls), and acoustic power and intensity measurements.
When full system integration has been completed, the unit is planned to
undergo manufacturing engineering in preparation for clinical trial and
commercial unit manufacturing. During this period of time SONO also plans to
pursue regulatory clearance of its products, to proceed with completion of the
remaining milestones of the ARPA contract with the U.S. Navy, to continue with
its efforts to establish distribution channels for its planned products, and
to begin to establish the corporate infrastructure necessary to operate as a
fully independent public company. SONO plans to move to its own facilities in
Bothell, Washington during this period. See "FORWARD LOOKING INFORMATION."
SONO'S ULTRASOUND PRODUCTS
SONO is developing a family of handheld ultrasound devices for primary
imaging applications. SONO currently believes that its ultrasound devices will
generally sell for under $20,000, and is designing products offering a
combination of portability, image quality and overall utility that SONO
believes has previously been unavailable at that price point. The products are
planned to include a scanhead and a display system typically with an
integrated flat panel display, easy to use controls, and additionally will
provide images through a video output to standard video monitors. The products
are being designed to take advantage of advanced battery technology. See
"FORWARD LOOKING STATEMENTS."
CLINICAL APPLICATIONS
SONO believes its planned products will be applicable to a broad market:
. Women's Healthcare--1) in gynecology, as a complement to or a
replacement for the bi-manual pelvic examination of the uterus and
ovaries for routine assessments such as: presence and size of fibroid
tumors; changes in endometrial lining, including thickness and polyps,
especially during hormone therapy; following normal and follicular
development and the evaluation of cystic and solid ovarian masses; 2)
in obstetrics, for quick assessment of fetal size, position, viability
and placental location, especially in situations where standard
ultrasound facilities are not readily available or would require
booking a return patient visit solely for an ultrasound examination.
. Emergency Medicine--1) to triage patients with various acute medical
conditions requiring urgent therapeutic intervention such as the
presence of acute pericardial effusion (fluid accumulation in the heart
sac potentially leading to tamponade or compression of the heart);
abnormal cardiac ventricular size, contractility or wall motion
pointing to an impending acute cardiac event such as myocardial
infarction (heart attack); dissection (wall splitting) of the abdominal
aorta; presence of an ectopic (extrauterine) pregnancy; differential
diagnosis of gallbladder inflammation associated with gallstones; 2) to
triage trauma patients, especially those with internal bleeding caused
by blunt abdominal trauma; 3) to provide ultrasound guidance for
arterial and/or venous catheter placement. In general, to bring
otherwise unavailable ultrasound diagnostic technology to the scene of
an accident, in an ambulance or helicopter, or other points of critical
care such as military environments like the battlefield, onboard ships
and in field hospitals, etc.
. Primary Care [Internal and Family Medicine]--for use during routine or
first-level physical examination throughout the body (abdomen, chest,
soft tissues, etc.); extending the clinician's diagnostic senses in
much the same way as do the stethoscope, blood pressure monitor and
thermometer; to facilitate primary clinical triage in the
"Pass/Act/Refer" model: "Pass" when no abnormality is detected, "Act"
when an abnormality is detected with sufficient precision to allow
immediate therapeutic intervention, or "Refer" when specialist referral
for further diagnostic workup is required before definitive therapy can
be instituted.
SALES AND MARKETING
SONO is presently organizing a worldwide distribution network for its
handheld ultrasound products. SONO does not presently intend to retain a
significant company commissioned sales force, but is in the process of
contracting with independent medical equipment distributors having widespread
sales personnel who reach medical providers in all settings with offerings of
a variety of medical products. Such a distribution network is expected to
reach the hospitals, clinics, and medical practices which customarily purchase
ultrasound equipment,
27
<PAGE>
but may also reach a wide variety of medical practitioners who do not at
present use ultrasonic imaging. SONO plans to continue to build this
distribution network until it has the full geographic coverage it believes
necessary to reach the medical practice areas which will benefit by the use of
handheld ultrasound products. This includes areas of the world where
conventional cart-borne ultrasound systems are often deemed too expensive, but
where the quality of medical care would be substantially improved through use
of less costly handheld ultrasound devices. Clinically skilled sales
specialists will be deployed to educate and facilitate the sales organizations
of the distribution companies working with SONO.
CLINICAL TRAINING
SONO plans to use established industry training programs and networks to
teach basic ultrasound techniques to those unfamiliar with ultrasonic imaging.
This task is expected to be greatly eased by the planned simplicity of
operation of SONO's handheld ultrasound devices, and by the clarity of the
images produced by the FirstSight technology of these devices. Additionally,
SONO intends to support customers through ongoing training and clinical
support.
COMPETITION
There is no distinct competition in the marketplace for handheld ultrasonic
imaging products. A number of companies today offer portable ultrasound
systems, which are low-performance desktop units often resembling a portable
oscilloscope. At least two companies are believed to be developing ultrasound
systems constructed around a laptop computer. A number of groups, like ATL,
are being funded by government grants to develop small ultrasound devices.
SONO believes other companies may be planning to develop highly portable
devices. SONO believes it can successfully compete with other companies
through its technology advantage based on the broadband transducer and digital
ASIC expertise it brings from ATL, both of which provide a proprietary
foundation for high quality image performance and ongoing cost reduction.
MANUFACTURING
SONO plans to have ATL manufacture some or all of SONO's requirements for
handheld ultrasound devices for a period of up to five years. See "CERTAIN
TRANSACTIONS--Agreements Between ATL and SONO." SONO may decide at any time to
end its supply arrangement with ATL following a 180 day notice period, and
have ATL assist in the transfer of such manufacturing capability to SONO's own
facilities or another supplier designated by SONO. In any event, SONO also has
the right to have certain critical component subassemblies such as transducer
assemblies continue to be manufactured by ATL for an extended period of time.
SERVICE AND WARRANTY
It is anticipated that SONO's handheld ultrasound devices will be offered
with differing warranties varying from several months to a year. All returned
products of SONO will be diagnosed for cause of failure, if applicable, and
possible future improvement. SONO does not expect to have a significant
service business.
RESEARCH AND DEVELOPMENT
SONO conducts extensive research, development and engineering activities. To
date, approximately 35 engineers have been dedicated to development of the
handheld ultrasound products. SONO anticipates that the majority of these
individuals will join SONO at the time of the Distribution. SONO expects
research and development expenditures to increase during 1999 as new product
configurations are developed for introduction. During 1997, 1996 and 1995,
SONO spent approximately $7.1 million, $2.6 million and $0.1 million,
respectively, on research and development. During 1996 and 1997 SONO had
revenue totaling approximately $4.0 million in matching funds under its ARPA-
sponsored collaboration program.
28
<PAGE>
PATENTS, TRADEMARKS AND LICENSES
SONO has filed a number of patent applications on its handheld ultrasound
device in the United States and other countries, and received its first U.S.
patent No. 5,722,412 for its handheld products in March, 1998. U.S. Pat. No.
5,722,412, has a term extending to June 28, 2016 and covers handheld
ultrasound systems with digital beamformers weighing less than ten pounds,
including those which are under development by the Company. SONO has a license
from ATL to use ATL technology such as ASIC technology in its handheld
products, and to continue to have access to ATL's technological developments
for three years following the Distribution Date. See "CERTAIN TRANSACTIONS--
Agreements Between ATL and SONO." SONO intends to register the trademarks and
trade names through which it conducts its businesses in the United States and
abroad. SONO intends to seek protection for the software contained in SONO's
ultrasound products under patent, copyright, and trade secret laws where, in
its judgment, significant advantage may be obtained from such protection.
Patent, copyright and trade secret protection is subject to limitations and
uncertainties, and may not provide significant competitive advantage to SONO.
See "RISK FACTORS."
SONO knows of no infringement by its products of any intellectual property
rights of others, nor has it received notice from any third party of any
claimed infringement. SONO is unaware of any competitive products which
infringe the intellectual property rights of SONO.
GOVERNMENT REGULATION
SONO's products are subject to extensive regulation by numerous governmental
authorities, principally the FDA and corresponding state and foreign agencies,
and to various domestic and foreign electrical safety and emission standards.
The FDA has broad regulatory powers with respect to preclinical and clinical
testing of new medical products and the manufacturing, marketing and
advertising of medical products. SONO's manufacturing facilities and the
manufacture of its products are subject to FDA regulations respecting
registration of manufacturing facilities and compliance with the FDA's Quality
System Regulations ("QSR"). SONO is also subject to periodic on-site
inspection for compliance with such regulations.
The FDA requires that all medical devices introduced to the market be
preceded either by a premarket notification clearance order under Section
510(k) of the FDC Act, or an approved premarket approval application (PMA). A
510(k) premarket notification clearance order indicates FDA agreement with an
applicant's determination that the product for which clearance has been sought
is substantially equivalent to medical devices that were on the market prior
to 1976 or have subsequently received clearance. A PMA indicates that the FDA
has determined the company must submit clinical trial data and manufacturing
quality assurance information, to prove it is safe and effective for its
labeled indications. The process of obtaining 510(k) clearance typically takes
approximately six to nine months, while a PMA process typically lasts more
than a year. SONO's handheld devices are believed to require only 510(k)
clearance.
SONO's products are being designed to comply generally with applicable
electrical safety standards, such as those of Underwriters Laboratories and
non-U.S. safety standards authorities. Several countries have, in recent
years, changed the electronic emission requirement which must be met by
ultrasound equipment. There can be no assurances that SONO will be able to
continue to respond to these continually changing regulatory requirements in a
timely manner.
SONO's regulatory compliance programs are being developed to encompass
verification of SONO's compliance with international standards for medical
device design, manufacture, installation, and servicing known as ISO 9001
standards. The Medical Device Directives, which encompass ISO 9001 standards,
will become mandatory in Europe in 1998. The FDA has adopted the ISO 9001
standards as the basis for its QSRs for the United States, and these standards
will be in full effect for U.S. manufacturers of medical devices in June,
1998.
29
<PAGE>
REIMBURSEMENT
The products SONO is developing are intended to be used by healthcare
providers for primary imaging applications for which the providers may seek
reimbursement from third-party payors. In the United States, this includes
Medicare, Medicaid and private health insurance plans. Such reimbursement is
subject to the regulations and policies of governmental agencies and other
third-party payors. For example, the Medicare program, which reimburses
hospitals and physicians for services provided to a significant percentage of
hospital patients, places certain limitations on the methods and levels of
reimbursement of hospitals for procedure costs and for capital expenditures
made to purchase equipment, such as that sold by SONO. The Medicare program
also limits the level of reimbursement to physicians for diagnostic tests. The
state-administered Medicaid programs and private payors also place limitations
on the reimbursement of both facilities and physicians for services provided
in connection with diagnostic and clinical procedures. Reduced governmental
expenditures in the United States and many other countries continue to put
pressure on diagnostic procedure reimbursement. SONO cannot predict what
changes may be forthcoming in these policies and procedures, nor the effect of
such changes on its business.
Third-party payors worldwide, including governmental agencies, are under
increasing pressure to contain medical costs. Limits on reimbursement or other
cost containment measures imposed by third-party payors may adversely affect
the financial condition and ability of hospitals and other users to purchase
products, such as those of SONO, by reducing funds available for capital
expenditures or otherwise. SONO is unable to forecast what additional
legislation or regulation, if any, relating to the healthcare industry or
third-party reimbursement may be enacted in the future or what effect such
legislation or regulation would have on SONO.
ENVIRONMENTAL
SONO is subject to Federal, state and local provisions regulating the
discharge of materials into the environment or otherwise for the protection of
the environment. Although SONO's current operations have not been
significantly affected by compliance with environmental laws or regulations,
Federal, state and local governments are becoming increasingly sensitive to
environmental issues, and SONO cannot predict what impact future environmental
regulations may have on its operations.
LEGAL PROCEEDINGS
There are no suits or claims pending against SONO, nor is SONO aware of any
threatened suits or claims. While product liability claims against diagnostic
imaging companies have not been significant, SONO intends to maintain product
liability insurance as of the time of the Distribution.
EMPLOYEES
As of December 31, 1997, there were 30 full-time employees assigned to the
business of SONO. Of these employees, 23 were engaged in research and product
development, and the balance were engaged in marketing and administrative
capacities. None of SONO's employees is covered by collective bargaining
agreements, nor has SONO experienced work stoppages. SONO considers its
employee relations to be good.
PROPERTIES
SONO is planning to relocate its principal offices after the Distribution
Date from ATL's headquarters facility to leased premises in the North Creek
Parkway Office Complex in Bothell, Washington. The terms of a lease to the
premises are presently being negotiated with the landlord of the property, and
a lease is expected to be concluded shortly after the Distribution Date.
30
<PAGE>
MANAGEMENT OF SONO
DIRECTORS
The business of SONO will be managed under the direction of its Board of
Directors (the "SONO Board"). The SONO Board will meet on a regular basis to
review SONO's operations, strategic and business plans, acquisitions and
dispositions, and other significant developments affecting SONO and to act on
matters requiring SONO Board approval. It will also hold special meetings when
an important matter requires SONO Board action between scheduled meetings.
Members of senior management will be regularly invited to SONO Board meetings
to discuss the progress of and future plans relating to their areas of
responsibility.
Following are brief biographies of the six individuals who will serve as
Directors of SONO immediately after the Distribution:
KIRBY L. CRAMER (age 60) serves as Chairman of the Board of Directors and is
a member of the Executive Committee. Mr. Cramer is the Chairman Emeritus of
Hazleton Laboratories Corporation, a contract biological and chemical research
laboratory, which was acquired by Corning Incorporated in 1987. He is Chairman
of the Board of Northwestern Trust Company and also President of Keystone
Capital Company, an investment company. Mr. Cramer received his Bachelor of
Arts degree from Northwestern University and Master of Business Administration
degree from the University of Washington and is a graduate of the Harvard
Business School's Advanced Management Program. In 1988, he received an
honorary Doctor of Laws degree from James Madison University. Mr. Cramer is a
member of the University of Washington Foundation and is past Chairman of the
Advisory Board of the University of Washington School of Business
Administration. He is the past President and Trustee Emeritus of the Darden
School Foundation of the University of Virginia. Mr. Cramer is a member of the
boards of directors of ATL Ultrasound, Inc., Northwestern Trust Company,
Immunex Corporation, Unilab Corporation, The Commerce Bank of Washington,
N.A., Landec Corporation, and Pharmaceutical Product Development, Inc.
EDWARD V. FRITZKY (age 47) is chairman of the board and chief executive
officer of Immunex Corporation, a position he has held since joining Immunex
in 1994. From 1992 to 1994 he served as president of Lederle Laboratories, a
division of American Cyanamid. Mr. Fritzky was a vice president of Lederle
Laboratories from 1989 to 1992. Prior to joining Lederle Laboratories, he
served in various executive positions at Searle Pharmaceuticals, Inc., a
subsidiary of the Monsanto Company. During his tenure at Searle, Mr. Fritzky
was vice president of marketing for the United States and president and
general manager of Searle Canada and Lorex Pharmaceuticals, a joint venture
company. Mr. Fritzky holds a B.A. degree from Duquesne University and is a
graduate of the Advanced Executive Program at the J.L. Kellogg Graduate School
of Management at Northwestern University. Mr. Fritzky serves on the Advisory
Board of the University of Washington Business School and is a member of the
board of trustees of the Seattle Technology Alliance and the Corporate Council
for the Arts.
STEVEN R. GOLDSTEIN, M.D. (age 47) is Professor of Obstetrics and Gynecology
at New York University School of Medicine, Director of Gynecological
Ultrasound at NYU Medical Center, and Co-director of Bone Densitometry for the
Department of Obstetrics and Gynecology at NYU Medical Center. He is the
immediate past chairman of the New York section of the American College of
Obstetrics and Gynecology. Dr. Goldstein is a member of the Board of Governors
of the American Institute of Ultrasound in Medicine. He is a member of the
Board of Directors of the American Registry of Diagnostic Medical
Sonographers, the major certifying organization for sonographers in the United
States. He holds his M.D. degree from NYU School of Medicine and completed his
residency in OB/GYN at NYU affiliated hospitals in 1980. Dr. Goldstein has
authored one textbook on endovaginal ultrasound and a second textbook on
gynecological ultrasound. He has authored over 50 technical papers, written
chapters in numerous texts relating to OB/GYN, and been an invited speaker at
over 250 medical and scientific presentations worldwide. Dr. Goldstein is a
member of the Gynecology Advisory Board of Eli Lilly and Pfizer corporations.
KEVIN M. GOODWIN (age 40) has been vice president and general manager of
ATL's handheld systems business group since February, 1997. Mr. Goodwin began
his career in medical products with American Hospital Supply Corporation as a
national distribution manager, followed by a position with Picker
International as area manager for the southeastern United States. In his first
sales position with American General Healthcare, a
31
<PAGE>
division of Baxter Healthcare, he was named the company's top sales
representative during his first year in the position. Mr. Goodwin joined ATL
in 1987, where he was promoted through a series of sales positions until being
named the business director, and then the vice president and general manager,
for ATL's businesses in Asia, Pacific and Latin America ("APLAC") in 1991.
During Mr. Goodwin's tenure in these positions, APLAC was ATL's fastest
growing business unit. Mr. Goodwin was instrumental in these positions in
establishing several international affiliate companies and several strategic
alliances with international partners. Mr. Goodwin holds a degree in business
administration from Monmouth College of Monmouth, Illinois with an emphasis on
hospital management, and attended the Stanford Executive Program.
JEFFREY PFEFFER, PH.D. (age 51) is Thomas D. Dee Professor of Organizational
Behavior at the Graduate School of Business at Stanford University, where he
has been a faculty member since 1979. He has also been on the faculty at the
University of Illinois and the University of California at Berkeley, and has
served as a chaired visiting professor at Harvard Business School. Dr. Pfeffer
currently serves on the Visiting Committee for the Harvard Business School. He
received B.S. and M.S. degrees from Carnegie Mellon University and his Ph.D.
degree from Stanford University. Dr. Pfeffer is the author of eight books and
more than 90 articles in professional journals on management topics ranging
from organizational design to human resource management. He also serves on the
editorial boards of numerous professional journals. Dr. Pfeffer is a member of
the Stanford Business School Alumni Association Board of Directors and is a
member of the board and compensation committee of Portola Packaging, Inc.
JACQUES SOUQUET (age 50) has been senior vice president for product
generation at ATL since 1993. Dr. Souquet joined ATL in 1981 as a principal
scientist in the cardiology division. He rejoined the company in 1989 as
director of strategic marketing and product planning. Dr. Souquet's career in
ultrasonics began in 1976 and encompasses both technology development and
strategic marketing. He has been involved in medical ultrasound imaging with
key contributions in low loss, wideband transducers and array design,
transesophageal phased array, and digital ultrasound imaging system design.
Dr. Souquet received a High Engineering Degree from Ecole Superieure
d'Electricite of Paris, France, a Ph.D. degree from Orsay University of France
in the field of optical memory and a second Ph.D. degree from Stanford
University in the field of new acoustic imaging techniques for medical
ultrasound applications and non-destructive testing. Dr. Souquet is the
recipient of 6 patents in the field of ultrasound imaging, including one for
the multiplane TEE probe and is the author of more than 40 technical papers.
Discussions are ongoing with additional outside Director candidates, with
the expectation that the full Board will comprise seven members.
All of the Directors listed above will have been elected to the initial
Board of Directors of SONO by ATL, as sole shareholder of SONO. In accordance
with the provisions of the Articles of Incorporation and Bylaws of SONO, all
Directors of SONO will stand for election annually by the shareholders of
SONO.
Directors who are employees of SONO do not receive any fee for their
services as Directors. Directors of SONO who are not employees of SONO will be
paid an annual retainer of $16,000 plus $1000 for each sequence of Board of
Directors and Committee meetings attended. A nonemployee Director serving as
Chairman of the Board will be paid an additional $75,000 per annum therefor.
After the Distribution Date, each nonemployee Director not serving as SONO
Board Chairman will receive an option to purchase 10,000 shares of SONO Common
Stock on the date of his or her first Board meeting upon initial election to
the SONO Board, and a subsequent annual stock option grant to purchase 5,000
shares of SONO Common Stock. In the case of a nonemployee Director serving as
SONO Board Chairman, such person will receive an option to purchase 25,000
shares of SONO Common Stock upon first election to the position of SONO Board
Chairman, and a subsequent annual stock option grant to purchase 10,000 shares
of SONO Common Stock for each successive year of service in the position. See
"EXECUTIVE COMPENSATION--Nonemployee Director Stock Option Plan" below.
COMMITTEES OF THE BOARD OF DIRECTORS
SONO has established standing committees of its Board of Directors,
including Audit, Compensation, and Executive Committees. Each of these
Committees is responsible to the full Board of Directors and its activities
are therefore subject to approval of the Board. The functions performed by
these Committees are those which are typically performed by similar committees
of other corporations and can be summarized as follows:
32
<PAGE>
Audit Committee. The Audit Committee will review the accounting and auditing
principles and procedures of SONO, with a view to providing for the
safeguarding of SONO assets and the reliability of its financial records.
Compensation Committee. The Compensation Committee will establish salaries,
incentives and other forms of compensation for directors, officers and other
executives of SONO and its subsidiaries. The Committee will also administer
the various incentive compensation and benefit plans of SONO and recommend the
establishment of policies relating to such incentive compensation and benefit
plans.
Executive Committee. The Executive Committee has authority, subject to
limitations prescribed by the Board, to exercise, during the intervals between
meetings of the Board, the powers of the full Board, and is also available, on
a standby basis, for use in an emergency or when scheduling makes it
impractical to bring the full Board together for a meeting. The members of
this committee will be Mr. Cramer, Chairman, Mr. Goodwin and Dr. Souquet.
The SONO Board may also establish certain other committees to facilitate its
work.
EXECUTIVE OFFICERS
Set forth below are the names, ages and titles of the persons who are
expected to serve as Executive Officers of SONO following the Distribution:
<TABLE>
<CAPTION>
NAME AGE OFFICE
---- --- ------
<C> <C> <S>
Kevin M. Goodwin................. 40 President and Chief Executive Officer
Jens U. Quistgaard............... 34 Vice President, Product Generation
</TABLE>
Discussions are ongoing with outside candidates for the position of Chief
Financial Officer. Each of these Officers will hold office until their
successors are elected or until their earlier removal or resignation. Messrs.
Goodwin and Quistgaard have been engaged in the business of SONO, ATL or their
subsidiaries in an executive capacity during the past seven and two years,
respectively. Those persons who are currently officers of ATL will relinquish
their positions with ATL by the Distribution Date.
The business experience during the past five years of Mr. Goodwin is set
forth above under "Directors". Following is a brief biography of Dr.
Quistgaard:
JENS U. QUISTGAARD, PH.D. (age 34) has been executive director of product
generation for ATL's handheld systems business group since its inception in
1997. In this position, he has been responsible for all engineering and
manufacturing work in the group, and played a key role in defining ATL's
handheld business and product plans. He joined ATL in 1990 as a senior
engineer, and rose to the rank of Chief of the Senior Technology Staff, the
highest technical position in ATL. Dr. Quistgaard holds several U.S. patents
in ultrasonic imaging, led the development of 3-dimensional flow imaging and
Internet connectivity features on ATL's high performance products, and was
elected an ATL Technical Fellow in 1996. Prior to joining ATL, he worked in
the field of morphological image processing and analysis. Dr. Quistgaard holds
a B.S. degree in mathematics and computational sciences from Stanford
University, and a Ph.D. degree in electrical engineering from the University
of Washington.
STOCK OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth information as of December 31, 1997, known by
SONO with respect to each shareholder projected to be the beneficial owner of
more than five percent of any class of voting securities of SONO immediately
after the Distribution, and concerning the Common Stock of SONO that is
projected to be beneficially owned immediately after the Distribution by each
of the Directors and Executive Officers of SONO and by all Directors and
Officers of SONO as a group. The projections are based upon the number of
shares of ATL Common Stock held by the individuals and the group on December
31, 1997, as adjusted to reflect the number of shares of SONO to be
distributed in the Distribution (see "THE DISTRIBUTION--Manner of the
Distribution"). Each of the named persons and each member of the group is
expected to have sole voting and investment power with respect to the shares
shown, except as noted below. None of SONO's Executive Officers or Directors
are expected to own more than 1% of SONO Common Stock.
33
<PAGE>
BENEFICIAL OWNERSHIP OF SHARES
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF PERCENT
BENEFICIAL OF
NAME AND ADDRESS OF BENEFICIAL OWNER OWNERSHIP(1) CLASS
------------------------------------ ------------ -------
<S> <C> <C>
5% OWNERS
---------
Chancellor LGT Asset Management, Inc. .............. 462,800(2) 9.6%
Fifty California Street, 27th Floor
San Francisco, CA 94111
ICM Asset Management, Inc. ......................... 433,944(3) 9.0%
601 W. Main Avenue, Suite 600
Spokane, WA 99201
Kopp Investment Advisors, Inc. ..................... 314,533(4) 6.5%
6600 France Avenue So.
Edina, MN 55435
Wellington Management Company....................... 243,983(5) 5.0%
75 State Street
Boston, MA 02109
DIRECTORS AND EXECUTIVE OFFICERS
--------------------------------
Kirby L. Cramer..................................... 3,999 *
Edward V. Fritzky................................... 0
Steven R. Goldstein................................. 100 *
Kevin M. Goodwin.................................... 907(6) *
Jeffrey Pfeffer..................................... 0 *
Jens U. Quistgaard.................................. 37 *
Jacques Souquet..................................... 19,306(6) *
All Directors and Executive Officers as a Group
(6 Persons)........................................ 24,349(1)(6) *
</TABLE>
- --------
* Under one percent.
(1) Includes shares of SONO Common Stock which may be acquired upon exercise
of options to be received as a result of the adjustment of ATL stock
options for ATL stock options exercisable within 60 days of January 1,
1998. See "CERTAIN TRANSACTIONS--Option Adjustments".
(2) A wholly owned subsidiary of LGT Asset Management, Inc., along with its
wholly owned subsidiary Chancellor LGT Trust Company, with sole power to
vote and dispose of 462,800 shares, based upon publicly available
information reported as of December 31, 1997.
(3) Sole power to vote 327,906 shares and sole power to dispose of 433,944
shares, based upon publicly available information reported as of December
31, 1997.
(4) Sole power to vote 46,166 shares, sole power to dispose of 35,000 shares,
and shared power to dispose of 279,533 based upon publicly available
information reported as of December 31, 1997.
(5) Shared power to vote 16,216 and shared power to dispose of 243,983
shares, based upon publicly available information reported as of December
31, 1997.
(6) Includes shares of SONO Common Stock to be received by the trustee of
ATL's Incentive Savings and Stock Ownership Plan (the "ATL ISSOP/401(k)")
for each share of ATL Common Stock allocated by the trustee to each
Executive Officer and/or Director who is a participant in the ATL
ISSOP/401(k).
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<PAGE>
DIRECTOR AND OFFICER LIABILITY
Limitation on Director Liability. SONO's Articles of Incorporation provide
for indemnification of officers and directors and limitations on director
liability. The Washington Business Corporation Act (the "WBCA") allows charter
documents to eliminate or limit the personal liability of directors; however,
the Articles of Incorporation may not eliminate or limit the liability of a
director for: (i) acts or omissions involving intentional misconduct or a
knowing violation of law; (ii) approval of certain distributions or loans
contrary to law; or (iii) any transaction from which the director personally
receives a benefit in money, property or services to which the director is not
legally entitled. SONO's Articles of Incorporation limits on director
liability are deemed to be contract rights, which may not be adversely
affected by a repeal or modification of the applicable law and which are to be
automatically amended as authorized by changes in applicable law so that the
liability of a Director shall be eliminated or limited to the fullest extent
not prohibited by applicable law. The WBCA does not limit a director's
liability for violation of certain Federal laws, including the Federal
securities laws.
Indemnification of Directors and Officers. SONO's Articles of Incorporation
provide that SONO shall indemnify its Directors and officers for expenses and
liabilities incurred by them as a result of their service as Directors and
officers, provided that no such indemnification shall be provided on account
of: (i) acts or omissions of the Director or officer finally adjudged to be
intentional misconduct or a knowing violation of the law; (ii) approval of
certain distributions or loans contrary to law; or (iii) any transaction with
respect to which the Director or officer is finally adjudged to have received
a benefit to which he or she was not legally entitled. This comprehensive
language is intended to provide the broadest indemnification of Directors and
officers not prohibited by Washington law, and to authorize indemnification of
Directors and officers of amounts paid in settlement of actions brought in the
name of SONO, commonly known as derivative actions.
EXECUTIVE COMPENSATION
COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth information concerning compensation for the
fiscal years 1997 for services in all capacities to SONO and its predecessors
by persons who at the Distribution Date are expected to be the Chief Executive
Officer and four most highly compensated executive officers of SONO, other
than the Chief Executive Officer (collectively, the "Named Executive
Officers").
Summary Compensation Table
<TABLE>
<CAPTION>
ANNUAL
COMPENSATION LONG TERM COMPENSATION AWARDS
------------ -------------------------------
RESTRICTED
STOCK LTIP ALL OTHER
SALARY AWARDS PAYOUTS COMPENSATION
NAME OF PRINCIPAL POSITION YEAR ($) ($) ($)(1) ($)(2)
- -------------------------- ---- ------------ ---------- ------- ------------
<S> <C> <C> <C> <C> <C>
Kevin M. Goodwin............. 1997 216,346 -- 40,688 2,969
President and Chief
Executive Officer
Jens U. Quistgaard........... 1997 111,230 -- 4,783 270
Vice President
Product Generation
</TABLE>
- --------
(1) Includes bonus awards earned during the fiscal year under the ATL Long
Term Incentive Plan.
(2) Includes both group term life and employer-matching contributions made
to the ATL ISSOP/401(k) Plan.
Option/SAR Grants
No option or SAR grants were made to the Named Executive Officers in 1997.
35
<PAGE>
Option Exercises and Year-End Values
The following table sets forth certain information as of December 31, 1997,
regarding in-the-money ATL options exercised and held by the Named Executive
Officers in 1997. See "CERTAIN TRANSACTIONS--Option Adjustments".
AGGREGATED OPTION EXERCISES IN FISCAL 1997 AND YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
SHARES OPTIONS AT FY-END(#) OPTIONS AT FY-END($)(1)
ACQUIRED ON VALUE ------------------------- -------------------------
NAME EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Kevin M. Goodwin........ 10,000 198,438 -- 15,000 -- 34,063
Jens U. Quistgaard...... 575 13,478 150 675 2,109 11,433
</TABLE>
- --------
(1) This amount is the aggregate number of the outstanding options multiplied
by the difference between the fair market value of the ATL Common Stock as
reported on Nasdaq on December 31, 1997, minus the exercise price of such
options.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Following the Distribution, ATL will continue to have a relationship with
SONO as a result of the Distribution, Service, OEM Supply, Technology Transfer
and License, and Employee Benefits Agreements described below. See "CERTAIN
TRANSACTIONS--Agreements Between ATL and SONO." Except as contemplated by
these agreements or as otherwise described in this Information Statement, ATL
and SONO expect to cease to have any material contractual relationships with
each other. See "THE DISTRIBUTION--Relationship Between ATL and SONO After the
Distribution."
Kirby L. Cramer, a Director of SONO, has been a director of ATL for five
years, and Jacques Souquet has been a senior vice president of ATL for the
past five years. Both will remain in these positions with ATL following the
Distribution. Mr. Goodwin and Dr. Quistgaard will relinquish their positions
with ATL by the Distribution Date. See "MANAGEMENT OF SONO--Directors" and "--
Executive Officers."
1998 OPTION, RESTRICTED STOCK, STOCK GRANT, STOCK APPRECIATION RIGHT AND
PERFORMANCE UNIT PLAN
SONO has adopted the 1998 Option, Restricted Stock, Stock Grant, Stock
Appreciation Right and Performance Unit Plan for employees and consultants of
SONO (the "1998 Plan") in order to promote the interests of SONO and its
shareholders by providing to employees and consultants of SONO selected by the
Compensation Committee of SONO additional performance incentives. ATL, as sole
shareholder of SONO, has approved the 1998 Plan. No approval of the 1998 Plan
is required to be obtained from ATL shareholders, and none will be sought by
SONO or ATL.
The 1998 Plan, in the same manner as the similar plan approved by ATL
shareholders for ATL in 1996, combines the features of a stock option plan, a
stock appreciation rights plan, a restricted stock plan, a stock grant plan
and a performance unit plan. It is a long-term incentive compensation plan and
is designed to provide a competitive and balanced incentive and reward program
for the employees and selected consultants of SONO. While stock options, stock
appreciation rights and restricted stock awards reward participants for
appreciation in the market price of SONO Common Stock from the date of grant
to the date of exercise or maturity, the performance unit element is designed
to motivate employees and reward them for achievement of specified significant
measures of performance over extended periods of time.
The provisions of the 1998 Plan do not require that stock options, stock
appreciation rights, stock grants, restricted stock and performance units be
granted simultaneously to eligible employees, and such awards may be granted
under the 1998 Plan as the Compensation Committee determines. For a
description of the stock option
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grants and restricted stock awards which are held by Messrs. Goodwin and
Quistgaard by virtue of the adjustment of the ATL stock options and restricted
stock, see "EXECUTIVE COMPENSATION--Compensation of Executive Officers" above.
Description of the 1998 Plan. There are reserved for issuance upon the
exercise of options, for the issuance of restricted stock and stock grant
awards and for issuance upon the payment of performance units and stock
appreciation rights under the 1998 Plan 1,000,000 shares of SONO Common Stock,
of which no more than one-third may be issued as restricted stock awards and
stock grants under the Plan.
Eligibility to Received Awards. Employees, consultants and independent
contractors of SONO selected by SONO's Compensation Committee are eligible to
receive awards of options, stock grants, stock appreciation rights, restricted
stock grants and/or performance units under the 1998 Plan.
Terms and Conditions of Stock Option Grants. The Compensation Committee is
authorized under the 1998 Plan, in its discretion, to issue options under the
1998 Plan as "Incentive Stock Options" (as defined in Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code")) or as "Nonqualified
Stock Options" (defined in the 1998 Plan as being all other options granted
thereunder). The option price for each option granted under the 1998 Plan will
be not less than 100% of the fair market value of the SONO Common Stock on the
date of grant, except that, with respect to any Nonqualified Stock Option, the
option price may equal the average daily fair market value of the SONO Common
Stock calculated over any continuous period of trading days beginning and
ending no more than 30 business days before or after the granting date of such
option. For purposes of the 1998 Plan, "fair market value" means the average
of the high and low sales prices of the SONO Common Stock for the period in
question as quoted on Nasdaq.
Upon exercise the option price is to be paid in full in cash or, to the
extent permitted by the Compensation Committee, in SONO Common Stock owned by
the optionee for at least three months and having a market value on the date
of exercise equal to the aggregate option price, or in a combination of cash
and stock. The option price may also be paid by delivery of a properly
executed exercise notice, together with irrevocable instructions to a broker
designated by SONO to promptly deliver the exercise price to SONO. The option
price under each option will remain constant during the life of such option,
regardless of changes in the market value of the SONO Common Stock. No cash
consideration will be paid to SONO by optionees for the granting of any
option. The optionee must pay to SONO applicable withholding taxes upon
exercise of the option as a condition to receiving the share certificates. The
withholding tax may be paid in cash or by the withholding or delivery of SONO
Common Stock.
Each option will have a term of not more than 10 years from the date of
grant, and may be exercisable in installments as prescribed by the
Compensation Committee in the option grant, but no option can be exercisable
prior to the first anniversary of the date of grant except in the case of the
death of an optionee during employment or except as the Compensation Committee
otherwise determines. It is the present intention of the Compensation
Committee that both Nonqualified Stock Options and Incentive Stock Options
granted to employees under the 1998 Plan will become exercisable in annual
installments of 25% of the number of shares initially granted, commencing on
the first anniversary of the grant date, such installments to be cumulative,
and will not be exercisable prior thereto, except as described below.
If the employment of an optionee is terminated other than by reason of
death, normal or early retirement or disability or for cause, the optionee may
exercise the option at any time within the 90-day period immediately following
the date of such termination (but not after the expiration date of the
option), to the extent of the number of shares purchasable at the date of
termination of employment.
In the event of the termination of the employment of an optionee because of
normal retirement or disability, the optionee may exercise such option at any
time prior to expiration of the option, to the extent of the remaining shares
covered by such option, whether or not such shares had become purchasable by
the optionee at the date of termination of employment. In the event of the
termination of the employment of an optionee because of early
37
<PAGE>
retirement, the optionee may exercise such option at any time prior to
expiration of the option, to the extent of the remaining shares covered by
such option, at such time or times as such option becomes purchasable by the
optionee in accordance with its terms. In the event of the death of an
optionee while the optionee is employed by SONO or any of its subsidiaries or
while such option is otherwise outstanding, the option may be exercised by an
optionee's beneficiary or legal representative at any time within a period of
one year after the optionee's death, but not after the expiration of the
option, to the extent of the remaining shares covered by his or her option,
whether or not such shares had become purchasable by the optionee at the date
of the optionee's death. In the event of the death of an optionee during the
one-year period following the termination of the optionee's employment or
following termination of employment by reason of normal or early retirement or
disability, such option (unless such termination is for cause) may be
exercised by the optionee's beneficiary or legal representative, but only to
the extent of the number of shares purchasable by the optionee pursuant to the
provisions of his or her option at the date of termination of the optionee's
employment during the following time periods: i) if the optionee's death was
within one year of his termination of employment due to any reason other than
retirement or disability, then during the remainder of such 90 day period or
disability; or ii) if the termination was by reason of normal or early
retirement or disability, then at any time prior to the expiration date of the
option.
Notwithstanding the foregoing provisions, but subject to the provisions of
the next paragraph, the Compensation Committee may determine, in its sole
discretion, in the case of any termination of employment that (i) the optionee
may exercise such option to the extent of the remaining shares covered thereby
whether or not such shares had become purchasable by the optionee at the date
of termination of his or her employment and (ii) such option may be exercised
at any time prior to the expiration of the original term of the option.
In the event that an optionee does not remain in the employ of SONO or of
one of its subsidiaries and the termination of the optionee's service is for
cause, the option will automatically terminate on the date of first
notification to the optionee of such termination unless the Compensation
Committee otherwise determines.
The 1998 Plan also provides that, if the option grant so states, upon
notification of an intention to exercise a Nonqualified Stock Option, either
in whole or in part, the Compensation Committee may require the optionee to
surrender the option for cancellation, in lieu of exercising it, and receive
in exchange for such surrender a payment in cash and/or shares equal to the
difference between the option price of the shares covered by the option
surrendered for cancellation and the fair market value of such shares on the
date on which the optionee's notice of exercise is received by SONO.
Stock Appreciation Rights. Under the 1998 Plan the Compensation Committee is
authorized to grant stock appreciation rights ("SARs") to eligible employees,
consultants and independent contractors of SONO. A SAR is an incentive award
that permits the holder to receive (per share covered thereby) an amount equal
to the amount by which the fair market value of a share of SONO Common Stock
on the date of exercise exceeds the fair market value of such share on the
date the SAR was granted (the "base price").
The Compensation Committee may grant an SAR separately or in tandem with a
related option and may grant both "general" and "limited" SARS. A general SAR
granted in tandem with a related option will generally have the same terms and
provisions as the related option with respect to exercisability, and the base
price of such a SAR will generally be equal to the option price under the
related option. Upon the exercise of a tandem SAR the related option will be
deemed to be exercised for all purposes of the 1998 Plan and vice versa.
A general SAR granted separately and not in tandem with any option will have
such terms as the Compensation Committee may determine, subject to the
provisions of the 1998 Plan. Under the 1998 Plan the base price of a stand-
alone SAR may not be less than the fair market value of the SONO Common Stock
determined as in the case of a Nonqualified Stock Option; the term of a stand-
alone SAR may not be greater than 10 years from the date it was granted.
38
<PAGE>
A limited SAR may be exercised only during the 90 days immediately following
a Change of Control (as defined below). For the purpose of determining the
amount payable upon exercise of a limited SAR, the fair market value of a
share of SONO Common Stock will be equal to the higher of (x) the highest fair
market value of the SONO Common Stock during the 90-day period ending on the
date the limited SAR is exercised, determined as in the case of an option, or
(y) whichever of the following is applicable:
(i) the highest per share price paid in any tender or exchange offer
which is in effect at any time during the 90 days preceding the exercise of
the limited right;
(ii) the fixed or formula price for the acquisition of shares of SONO
Common Stock in a merger or similar agreement approved by the shareholders
or Board of Directors, if such price is determinable on the date of
exercise; and
(iii) the highest price per share paid to any shareholder of SONO in a
transaction or group of transactions giving rise to the exercisability of
the limited right.
General SARs granted in tandem with a related option are payable in cash,
SONO Common Stock or any combination thereof as determined in the sole
discretion of the Compensation Committee. Limited SARs are payable only in
cash. General stand-alone SARs are also payable only in cash, unless the
Compensation Committee provides otherwise at the time of grant.
Unless otherwise provided by the Compensation Committee at the time of
grant, the provisions of the 1998 Plan relating to the termination of
employment of a holder of a stock option will apply equally, to the extent
applicable, to the holder of a SAR.
Restricted Stock Awards. The Compensation Committee is authorized under the
1998 Plan to issue shares of SONO Common Stock to eligible employees,
consultants and independent contractors of SONO, such shares to be restricted
as hereinafter described. The consideration received for such shares by SONO
is the payment in cash of an amount equal to the par value thereof and past
services of the participant. The recipient of restricted stock will be
recorded as a shareholder of SONO and will have, subject to the restrictions
described below, all the rights of a shareholder with respect to such shares
and will receive all dividends or other distributions made or paid with
respect to such shares; provided that the shares themselves and any new,
additional or different shares or securities which the recipient may be
entitled to receive with respect to such shares by virtue of a stock split or
stock dividend or any other change in the corporate or capital structure of
SONO will be subject to the restrictions described below.
During a period of months following the date of grant, as determined by the
Compensation Committee, which will in no event be less than six months (the
"Restricted Period"), the restricted stock may not be sold, assigned,
transferred, pledged, hypothecated or otherwise encumbered or disposed of by
the recipient, except in the event of death or the transfer of the restricted
stock to SONO upon termination of the holder's employment. In the event of the
normal retirement or death of the recipient during the Restricted Period, the
restrictions on the shares will immediately lapse. In the event of the early
retirement of the recipient during the Restricted Period, the restrictions on
the shares will continue until they lapse in accordance with the terms of the
grant. If the employment of the recipient by SONO terminates during the
Restricted Period for any reason other than the retirement or death of the
employee, the shares of restricted stock held by the employee will be
forfeited to SONO and the employee must immediately transfer and return the
certificates for the restricted stock to SONO.
Stock Grant Awards. The 1998 Plan authorizes the Compensation Committee to
issue shares of SONO Common Stock to nonofficer employees of SONO. The
consideration received for such shares by SONO is the payment in cash of an
amount equal to the par value thereof and past services. Each recipient of a
stock grant may receive a cash award at the time of grant in an amount
sufficient to offset the recipient's estimated tax liabilities arising from
the grant.
39
<PAGE>
Performance Unit Awards. Performance units awarded under the 1998 Plan will
have a base value, expressed in dollars, determined by the Compensation
Committee on the day on which the award is granted which generally will be the
fair market value of the SONO Common Stock on such day. This value is the
"unit base value". The actual amount paid to the employee, consultant or
independent contractor, as the case may be, by SONO when the award matures at
the end of the award cycle will depend on the achievement of cumulative
performance measures. These measures will be determined by the Compensation
Committee at the time the award is made and may include, but are not limited
to, cumulative targets with respect to earnings per share or pretax profits,
return on shareholders' equity, asset management, cash flow or return on
capital employed of SONO and/or one of its subsidiaries, divisions or
departments. The Compensation Committee will also determine the length of the
award cycle (which may not be less than three years), a payment schedule and
whether the payment will be made in cash, SONO Common Stock or a combination
of cash and SONO Common Stock. The payment schedule will provide a range of
percentages of the unit base value which will be payable to the participant in
the event that cumulative targets, of varying amounts, are achieved.
In instances where performance measures are not achieved, no award will be
payable. The SONO Compensation Committee has discretion under the 1998 Plan to
apply performance measures on an absolute basis or relative to industry
indices and conclusively determine whether the measures have been achieved, as
well as to revise the payment schedules and performance measure formerly
determined by it if, in its judgment, significant economic or other changes
have occurred which were not foreseeable by the Committee when it set the
initial measures.
A performance unit award will terminate if the participant does not remain
in the employ of SONO during the award cycle, except as the Compensation
Committee otherwise determines, and except in the case of death, normal or
early retirement or disability occurring after the first anniversary of the
date of grant of the award, in which event, if the performance measure is met,
a pro rata portion of the award will be paid based on the elapsed time of the
award cycle prior to death, retirement or disability.
No payment of a performance unit award will be made prior to the end of an
award cycle, except as the Compensation Committee otherwise determines and
except in the case of death, in which event the participant's beneficiary or
legal representative may elect, subject to the approval of the Compensation
Committee, to have the participant's pro rata portion of the award paid at the
end of the year in which death occurred.
Transferability. The recipient's rights to the options, SARS, restricted
stock and performance units may not be assigned or transferred except by will
or the applicable laws of descent or distribution or to a designated
beneficiary.
Capital Adjustments. In the event of any changes in the outstanding stock of
SONO by reason of stock dividends, stock splits, recapitalizations, mergers,
consolidations, combinations or exchanges of shares, splitups, split-offs,
spin-offs, liquidations or other similar changes in capitalization, or any
distribution to shareholders other than cash dividends, the Compensation
Committee in its sole discretion may make any adjustments it determines to be
appropriate in the outstanding options, stock appreciation rights, restricted
shares or performance units granted under the 1998 Plan and in the total
number and class of shares as to which awards may be made under the 1998 Plan.
Change of Control. Under the 1998 Plan, upon a Change of Control, each
outstanding option and SAR will automatically become exercisable in full for
the total remaining number of shares covered thereby. In addition, during the
90-day period following a Change of Control an optionee may choose to receive
cash equal to the difference between the exercise price of the option and the
fair market value of a share of SONO Common Stock determined as described
above for a limited SAR (except for optionees with related SARs and, in the
case of a Director, any Director who received an option without related SARs
and during the 6 month period prior to the Change in Control), in lieu of
exercising the option and paying the option price. Also, all restrictions on
shares of restricted stock will lapse upon a Change of Control, and
performance units will be paid (unless the optionee has previously had his or
her benefits under this Plan deferred (in which case this payment is also
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<PAGE>
deferred)) pro rata to the date of a Change of Control and all amounts
otherwise deferred by SONO and any employee in connection with performance
units will be distributed. A Change of Control is defined in the 1998 Plan as
(i) a change in the Board of Directors such that a majority of the seats on
the Board are occupied by individuals who were neither nominated by a majority
of the Incumbent Directors (as defined below) of SONO then in office nor
appointed by directors so nominated, (ii) the acquisition by any person (other
than SONO or a SONO employee benefit plan) of, in the case of transactions not
approved by a majority of the directors of SONO who were either nominated by a
majority of the directors of SONO then in office or appointed by directors so
nominated ("Incumbent Directors"), 20% or more of the combined general voting
power of the SONO Common Stock and any other voting securities of SONO and, in
the case of other transactions, 33% or more of such combined voting power, or
(iii) the approval by the shareholders of SONO of a complete liquidation or
dissolution of SONO or a merger, consolidation or sale of substantially all of
the assets of SONO (collectively, a "Business Combination"), other than a
Business Combination in which all or substantially all of the shareholders of
SONO receive 60% or more of the stock of the corporation resulting from the
Business Combination in substantially the same proportions as their ownership
before the Business Combination, no holder has more than 33% of the combined
voting power of the capital stock of the resulting corporation and at least a
majority of the board of directors of the resulting corporation are Incumbent
Directors.
Administration. The Compensation Committee will be authorized to administer
the 1998 Plan and will consist of at least two members of the Board who have
not been eligible to receive awards under the 1998 Plan or any other
discretionary plans of SONO or its affiliates for one year prior to their
service on the Compensation Committee.
Amendment and Termination. The 1998 Plan may be terminated, modified or
amended by the shareholders of SONO. The Board of Directors may also terminate
the 1998 Plan, or modify or amend it in certain respects as set forth in the
1998 Plan. No options or awards may be granted under the 1998 Plan after April
6, 2008.
Federal Income Tax Consequences--Option Plans. The Federal income tax
consequences to SONO and to any person granted an award under the 1998 Plan
under the existing applicable provisions of the Code and the regulations
thereunder, are substantially as follows.
Under present law and regulations, no income will be recognized by a
participant upon the grant of stock options, SARS, restricted stock (except as
described below) or performance units.
On the exercise of a Nonqualified Stock Option, the optionee will recognize
taxable ordinary income in an amount equal to the excess of the fair market
value of the shares acquired over the option price. Upon a later sale of those
shares, the optionee will have short-term, mid-term or long-term capital gain
or loss, as the case may be, in an amount equal to the difference between the
amount realized on such sale and the tax basis of the shares sold. If payment
of the option price is made entirely in cash, the tax basis of the shares will
be equal to their fair market value on the date of exercise (but not less than
the option price), and their holding period will begin on the day after the
exercise date.
If the optionee uses previously owned shares to exercise an option in whole
or in part the transaction will not be considered to be a taxable disposition
of the previously owned shares. The optionee's tax basis and holding period of
the previously owned shares will be carried over to the equivalent number of
shares received on exercise. The tax basis of the additional shares received
upon exercise will be the fair market value of the shares on the date of
exercise (but not less than the amount of cash, if any, used in payment), and
the holding period for such additional shares will begin on the day after the
exercise date.
The same rules apply to an Incentive Stock Option which is exercised more
than three months after the optionee's termination of employment (or more than
12 months thereafter in the case of permanent and total disability as defined
in the Code).
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<PAGE>
On the exercise of an Incentive Stock Option during employment or within
three months after the employee's termination of employment (12 months in the
case of permanent and total disability as defined in the Code), for regular
tax purposes the optionee will recognize no income at the time of exercise
(although the employee will have income for alternative minimum income tax
purposes at that time as if the option were a Nonqualified Stock Option) and
no deduction will be allowed to SONO for Federal income tax purposes in
connection with the grant or exercise of the option. If the acquired shares
are sold or exchanged after the later of (a) one year from the date of
exercise of the option, or (b) two years from the date of grant of the option
(the "Holding Period"), the difference between the amount realized by the
holder on that sale or exchange and the option price will be taxed to the
holder as a capital gain or loss. If the shares are disposed of before the
Holding Period requirements are satisfied, then the holder will recognize
taxable ordinary income in the year of disposition in an amount equal to the
excess, on the date of exercise of the option, of the fair market value of the
shares received over the option price paid (or generally, if less, the excess
of the amount realized on the sale of the shares over the option price), and
the holder will have capital gain or loss, long-term or short-term as the case
may be, in an amount equal to the difference between (a) the amount realized
by the holder upon that disposition of the shares and (b) the option price
paid by the holder increased by the amount of ordinary income, if any, so
recognized by the holder. If an optionee uses shares acquired pursuant to the
exercise of an Incentive Stock Option to exercise an Incentive Stock Option
before the Holding Period requirements are satisfied, the optionee will
recognize ordinary income as discussed above, but any further gain realized
upon such exercise will not be recognized until the newly acquired stock is
disposed of.
Upon the receipt of restricted stock, the employee will generally recognize
taxable ordinary income when the shares cease to be subject to restrictions
under the plan equal to the excess of the fair market value of the shares at
that time over the amount, if any, paid for such shares. However, within 30
days after the date the shares are received, the employee may elect under
Section 83(b) of the Code to recognize taxable ordinary income at the time of
transfer in an amount equal to the excess of the fair market value of the
shares at such time over the amount, if any, paid for such shares. In that
case no additional income will be recognized by the employee upon the lapse of
restrictions on the shares, but, if the shares are subsequently forfeited, the
employee may not deduct the income recognized at the time of receipt of the
shares and the employee will have a capital loss equal to the amount, if any,
paid for such shares. The recipient's holding period for the shares will begin
at the time taxable income is recognized under these rules, and the tax basis
in the shares will be the amount of ordinary income so recognized plus the
amount, if any, paid for the shares. Any dividends received on the restricted
shares prior to the date the employee recognizes income as described above
will be taxable compensation income when received.
Upon payment to a participant in settlement of a stock option or pursuant to
the exercise of SARs or pursuant to a performance unit award the participant
will recognize taxable ordinary income in an amount equal to the cash and the
fair market value of SONO Common Stock received. Upon the issuance of a stock
bonus award the recipient will recognize taxable ordinary income in an amount
equal to the fair market value of the SONO Common Stock received and the
amount of any tax offset cash award made together with the issuance of such
stock.
Special rules apply to a Director or officer subject to liability under
Section 16(b) of the Securities and Exchange Act.
In all the foregoing cases SONO may be entitled to a deduction at the same
time and in the same amount as the optionee recognizes ordinary income,
provided the amount of such ordinary income, when added to the optionee's
other compensation is reasonable and is otherwise deductible under the Code.
MANAGEMENT INCENTIVE COMPENSATION PLAN
The SONO Board of Directors has adopted the Management Incentive
Compensation Plan of SONO (the "MIC Plan") as an additional incentive for
officers and other employees of SONO selected by the Compensation
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Committee. The adoption of the MIC Plan has been ratified and approved by ATL,
as sole shareholder of SONO, prior to the Distribution Date. The MIC Plan will
be administered by the Compensation Committee of the SONO Board of Directors
consisting of not less than two members of the SONO Board who are not eligible
to participate in the MIC Plan. The Compensation Committee will have authority
to determine the total amount available for awards under the MIC Plan, the
eligible employees (or surviving spouses or estates of deceased eligible
employees) to receive awards, and the amount, terms, form and time of payment
of each award.
Awards may be made in cash or in SONO Common Stock or in any combination
thereof, as determined by the Compensation Committee. When an award is paid by
reference to SONO Common Stock, the payment will be valued at the average of
the high and low sales prices for the SONO Common Stock as quoted on Nasdaq on
such date or dates determined by the Compensation Committee (but not more than
five business days prior to the date of grant of the award.)
Awards granted may be paid immediately, or in up to 20 annual installments
on a deferred basis, all as determined by the Compensation Committee. Although
final authority to determine how and when an award is to be paid rests
entirely with the Compensation Committee, the Compensation Committee may
permit eligible employees, not later than six months prior to the end of any
fiscal year, to express their preferences as to the form and timing of awards
to be granted by the Compensation Committee with respect to such year.
NONEMPLOYEE DIRECTOR STOCK OPTION PLAN
SONO has adopted the Nonemployee Director Stock Option Plan (the "Director
Plan") which authorizes a total of 125,000 shares of SONO Common Stock for
restricted stock and stock option grants, subject to certain adjustments for
reclassifications, reorganizations and similar corporate transactions. The
adoption of the Director Plan has been ratified and approved by ATL, as sole
shareholder of SONO, prior to the Distribution Date. Under the Director Plan,
each nonemployee Director automatically receives the grant of an option with
an exercise price equal to the fair market value of the number of shares of
SONO Common Stock covered by the option on the date of grant. Options are
exercisable and become fully vested and nonforfeitable on the first
anniversary of grant, assuming that the optionee continues to serve as a
Director on such anniversary. Options expire on the tenth anniversary of
grant, subject to earlier termination in the event an optionee ceases to be a
Director of the Company.
The Director Plan is administered by the Board of Directors, which may
amend, terminate or suspend the Director Plan in certain limited respects;
provided, however, that if required to qualify the Director Plan under SEC
Rule 16b-3, no amendment may be made more than once every six months that
would change the amount, price, timing or vesting of options under the
Director Plan, other than to comport with changes in the Code, as amended, or
the rules and regulations promulgated thereunder. If required to qualify the
Director Plan under Rule 16b-3, no amendment may be made without approval by
the Company's shareholders that would (a) materially increase the number of
shares of SONO Common Stock that may be issued under the Director Plan,
(b) materially modify the requirements as to eligibility for participation in
the Director Plan, or (c) otherwise materially increase the benefits accruing
to participants under the Director Plan.
Pursuant to the Director Plan, each nonemployee Director will automatically
receive on the date of his or her first SONO Board meeting, options to
purchase 10,000 shares of SONO Common Stock at an exercise price equal to the
fair market value of SONO Common Stock on the date of grant. Each nonemployee
Director will thereafter automatically receive options to purchase 5,000
shares of SONO Common Stock on the anniversary date of the first grant for so
long as the Director serves on the SONO Board, such subsequent grants having
an exercise price equal to the fair market value of SONO Common Stock on such
anniversary dates. In lieu of these grants, a nonemployee Director elected to
the position of Chairman of the SONO Board will receive, upon his or her
election to the position of Board Chairman, options to purchase 25,000 shares
of SONO Common Stock at an exercise price equal to the fair market value of
SONO Common Stock on the date of grant. Such nonemployee Director Board
Chairman will thereafter automatically receive options to purchase 10,000
shares of SONO Common Stock on the anniversary date of the first Board
Chairman grant for so long as the Director serves in
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such position. The option grants vest twelve months after the grant date upon
the optionee's continued service as a Director or Chairman, as the case may
be, through that time. A nonemployee Director Board Chairman vacating such
Chairman position on the vesting date and continuing in the position of
nonemployee Director will receive a vesting of the number of options to which
he or she would otherwise be entitled by virtue of the nonemployee Director
position. Each option expires on the earlier of ten years from the date of
grant or 90 days after a director's termination of service as a Director. The
optionee's right to the stock options may not be assigned or transferred
except by will or applicable laws of descent and distribution or to a
designated beneficiary. If during the term of an option, there is a change in
the outstanding stock of SONO by reason of stock dividends, stock splits,
recapitalization, mergers, consolidation, combinations or exchanges of shares,
split-ups, split-offs, spin-offs, or other similar changes in capitalization,
or any distribution to shareholders other than cash dividends, the number of
and class of shares covered by any outstanding option and the exercise price
per share of the option will be proportionally adjusted. Immediately prior to
certain mergers, consolidations, liquidations or similar reorganizations of
SONO, any option granted under the Director Plan may be exercised in whole or
in part, whether or not the vesting requirements applicable to such options
have been satisfied.
The Director Plan may be terminated, modified, or amended by the
shareholders of the Company. The Board of Directors may also terminate the
Director Plan, or modify or amend it in certain limited respects.
As of the date of this Information Statement, Messrs. Cramer, Goldstein,
Pfeffer and Souquet are entitled to grants under the Director Plan.
Federal Tax Consequences. The federal income tax consequences to any person
granted an award under the Director Plan is described under "EXECUTIVE
COMPENSATION--1998 Option, Restricted Stock, Stock Grant, Stock Appreciation
Right and Performance Unit Plan--Federal Income Tax Consequences".
401(K) RETIREMENT PLAN
Immediately following the Distribution Date, SONO will establish the 401(k)
Retirement Plan of SONO (the "401(k) Retirement Plan") in order to provide its
employees with a tax preferential savings and investment program. The 401(k)
Retirement Plan permits an eligible employee to contribute 1% to 16% of his
basic compensation and commissions to the 401(k) Retirement Plan on a before-
tax or after-tax basis; provided, however, that contributions made on a
before-tax basis are limited to $10,000 per calendar year (or such greater
amount as may be permitted pursuant to Section 402(g) of the Code). Such
contributions are matched by a participating employer's contribution of at
least 100% of the first 3% of the employee's contribution, and 50% of the next
3% of the employee's contribution.
A participant's interest in the employer's contribution and earnings thereon
vests at the rate of 20% per year of service and vests fully after 5 years of
service. For vesting purposes, an employee receives credit for years of
service with ATL Funds contributed by each participant are invested, at the
participant's election, in one or several diversified equity funds and/or a
fixed income fund. SONO is currently in the process of concluding arrangements
with Merrill Lynch to serve as administrator and trustee for the 401(k)
Retirement Plan.
CERTAIN TRANSACTIONS
FINANCIAL SUPPORT
SONO has been operated prior to the Distribution as an integrated unit of
ATL. There are no debts, loans, or other obligations of SONO to ATL which SONO
will carry subsequent to the Distribution Date. At the time of the
Distribution, ATL will contribute all prior advances by ATL as of that date to
SONO, and will make a capital contribution to SONO as described in the
"FINANCING" section of this Information Statement. See also "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS--
Liquidity and Capital Resources."
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AGREEMENTS BETWEEN ATL AND SONO
SONO and ATL intend to enter into certain agreements on the Distribution
Date, described below, which will govern their relationship subsequent to the
Distribution and provide for the allocation of certain liabilities and
obligations arising from periods prior to the Distribution. Copies of such
agreements are filed as exhibits to the registration statement on Form 10
under the Exchange Act of which this Information Statement is a part. The
following descriptions are subject to the detailed provisions of such
agreements, to which reference is hereby made for a complete statement of such
provisions, and the descriptions are qualified in their entirety by such
reference.
Distribution Agreement. ATL and SONO will enter into the Distribution
Agreement, which generally provides for the manner of effecting the
Distribution, certain indemnification rights and procedures, access to books
and records, tax liabilities, and insurance matters.
At the time of the Distribution, ATL will contribute all prior advances made
by ATL to SONO and $30 million in cash in two tranches, one tranche of $18
million on the Distribution Date and one tranche of $12 million on January 15,
1999. See also "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS--Liquidity and Capital Resources." The Distribution
may be abandoned, at any time prior to the Distribution Date by, and in the
sole discretion of, ATL.
Under the Distribution Agreement, each of the parties has agreed to
indemnify the other against certain claims relating to or arising out of their
respective businesses after the Distribution Date. Additionally, each of ATL
and SONO has agreed that it will not take, or permit any of its affiliates to
take, any action after the Distribution Date that could reasonably be expected
to prevent the Distribution from qualifying as a tax-free distribution
pursuant to Section 355 of the Code or any other transaction contemplated by
the Distribution Agreement that is intended by the parties to be tax-free from
failing to so qualify. In addition, each of ATL and SONO has agreed that it
will not take, or permit any of its affiliates to take, any action after the
Distribution Date that could reasonably be expected to have a material adverse
impact on the known tax consequences to the other party (except that each
party may take any actions in the ordinary course or in connection with any
tax audit or filing). SONO has agreed to carry out the remaining
responsibilities of ATL under the ARPA program through completion of the ARPA
contract. The parties have also agreed that neither company will solicit or
extend offers of employment to the employees of the other company during the
one year period commencing with the Distribution Date without the prior
consent of the employer company. Finally, the Distribution Agreement provides
for the allocation of benefits under existing insurance policies between ATL
and SONO, grants each of ATL and SONO access to certain records and
information in the possession of the other, imposes certain confidentiality
obligations on each, and provides that, except as otherwise set forth therein
or in any related agreement, ATL will pay the costs and expenses of the
Distribution incurred prior to the Distribution Date. Thereafter, each party
will bear its own costs and expenses.
Service Agreements. For the purpose of an orderly transition following the
Distribution, ATL and SONO will enter into a number of agreements (the
"Service Agreements") pursuant to which ATL will provide to SONO for limited
periods of time ranging up to five years, but only as may be requested by
SONO, certain services, including financial services, human resources,
engineering, information services, facilities services, and regulatory
services at SONO's expense. The Service Agreements are identical in their
terms, differing only in the description of the nature of the service and its
cost which is the subject of each agreement. As each individual service
function terminates or is transitioned by SONO to its own employees or another
provider, the agreement which is the subject of that service will terminate.
SONO will pay ATL for the services rendered in amounts which are intended to
compensate ATL for both its out-of-pocket expenses (including the salaries,
benefit and overhead expenses of the ATL employees providing such services)
and a markup ranging from 10% to 25%. SONO will also pay for capital equipment
to supply the services requested by SONO, and will own and take possession of
such capital equipment at the cessation of ATL's provision of the service. ATL
may adjust such prices periodically in line with its own periodic
redetermination of the cost to ATL of such services.
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In the case of engineering services, ATL will offer these services for five
years following the Distribution Date at a markup of 20%. For all other
services the markup is 10% for the first year following the Distribution Date,
15% for the second year, and 25% for the third year. Engineering services
after the fifth year and all other services beyond the third year will be at
the mutual consent of ATL and SONO. ATL and SONO believe that these rates are
competitive with the cost of obtaining such services with third parties in
arm's length transactions.
SONO may discontinue any of the services covered by the Service Agreements
on 90 days' prior written notice to ATL. The Service Agreements provide that
ATL will use reasonable efforts to provide the services requested by SONO and
to consider changes requested by SONO as to the manner in which the services
are provided. Engineering services will be provided for an initial period on a
par with ATL's highest priority engineering programs. In the event of any
dispute over the services or the manner in which they are performed by ATL,
SONO may terminate the affected Service Agreements. ATL will not be liable to
SONO for the interruption or discontinuance of the services for force majeure
or other causes beyond ATL's control, for negligent performance by ATL or for
any loss, damage or expense resulting from ATL's provision of the services.
ATL has the right in certain circumstances to terminate a Service Agreement on
90 days notice.
Technology Transfer and License Agreement. SONO and ATL will enter into a
Technology Transfer and License Agreement, effective as of the Distribution
Date, under which SONO will own certain handheld ultrasound technology
developed at ATL and have access to certain ATL technology in the development
and manufacture of handheld ultrasound devices. Under this agreement, SONO
will take ownership of the handheld ultrasound technology which has been
developed by ATL pursuant to the ARPA sponsored joint research program in
which ATL has been a partner, and also the patent rights which have been
established or are being pursued for that technology. SONO will also receive a
nonexclusive license to use any other ATL technology in existence or developed
during the period ending three years after the Distribution Date in its
handheld ultrasound products. This license bears a royalty of 3% of the net
sales of SONO's handheld ultrasound devices which use ATL technology,
declining to 1 1/2% five years after the commencement of SONO customer
shipments and ending after another three years. For products in a range
immediately outside the range of handheld ultrasound products which utilize
ATL technology, royalties payable are 4% and 2%, respectively, for the same
periods. SONO has no plans at present to develop products outside the handheld
range. The license will become paid up by a lumpsum payment which is due ATL
if SONO ceases to be an independent stand-alone company during the eight year
period following the Distribution Date, which shall be deemed to have occurred
during the five year period following the Distribution Date if there is any
Change of Control of SONO or if, during the sixth, seventh and eighth years
following the Distribution Date, SONO is acquired or controlled by an entity
which is or becomes a diagnostic imaging entity during this three year period.
The lumpsum payment is $150 million during the first five years following the
Distribution Date, and $75 million during the next three years. This payment
is intended to compensate ATL for the use of its technology under control of a
third party, and is based upon the over $350 million investment ATL has made
to develop digital, broadband and ASIC technology over the past ten years,
which is the foundation of ATL's current products and of the planned future
products of ATL. SONO and ATL have also entered into a cross-license whereby
ATL has the right to use developments of SONO made during the three year
period following the Distribution Date in its full-size ultrasound system
products. SONO and ATL have also agreed that SONO will not engage in the full-
size ultrasound system business and ATL will not engage in the handheld device
business for the five years following the Distribution Date. After this five
year period, each party's ongoing obligation with respect to the technology of
the other will be to respect the patent and copyright rights of the other,
although SONO will retain a license to use the previously-licensed ATL
technology in handheld systems and ATL will retain a license to use the
previously-licensed SONO technology in full-size ultrasound systems.
OEM Supply Agreement. SONO has the option under the OEM Supply Agreement
with ATL to have handheld ultrasound products and subassemblies manufactured
exclusively for SONO by ATL in accordance with SONO's specifications for a
period of up to five years. Upon agreement by ATL and SONO upon production
timing and costs, ATL will supply SONO with the specified items at ATL's cost
during an initial
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period following the Distribution Date, and at ATL's cost plus 20% after the
initial period through year five. SONO will bear any non-recurring engineering
costs and capital expenditures associated with such manufacture. SONO has the
right to end this supply arrangement with ATL upon 180 days notice, whereupon
ATL will assist SONO in the transfer of the manufacturing function to SONO or
another supplier designated by SONO.
Employee Benefits Agreement. To address certain employee and employee
benefits matters in connection with the Distribution, ATL and SONO will enter
into the Employee Benefits Agreement. Pursuant to the Employee Benefits
Agreement, SONO will retain or assume, as the case may be, sole responsibility
as employer for all employees of SONO as of the Distribution Date. ATL has
provided equity benefits to its employees under ATL benefit plans in the form
of options to purchase ATL Common Stock and restricted ATL Common Stock.
Pursuant to the Employee Benefits Agreement, ATL and SONO have agreed to
adjust each existing ATL employee benefit or award in the following manner:
401(k) Retirement Plan. The Employee Benefits Agreement provides that
SONO will establish and administer the 401(k) Retirement Plan which will
provide benefits to all SONO employees who, immediately prior to the
Distribution Date, were participants in, or otherwise entitled to benefits
under, the ATL ISSOP/401(k) Plan. All SONO employees who wish to
participate in the 401(k) Retirement Plan will be required to enroll in the
401(k) Retirement Plan in accordance with its terms.
Outstanding ATL Options. Pursuant to the Employee Benefits Agreement, ATL
and SONO have agreed that each unexercised option held by a SONO or ATL
employee to purchase ATL Common Stock outstanding as of the Record Date
("Existing ATL Options") will be adjusted to reflect the Distribution (an
"Adjusted ATL Option"), and that each employee holding an Existing ATL
Option will also be granted an option to purchase SONO Common Stock in
connection with the Distribution ( "Adjusted SONO Options"). The manner in
which the number of such adjusted options and the exercise prices of such
adjusted options will be determined is describe in "OPTION ADJUSTMENTS,"
below. The Adjusted SONO Options will be administered by SONO under a SONO
Adjustment Plan, the terms of which will be substantially the same as those
of the ATL 1992 Option, Restricted Stock, Stock Grant, Stock Appreciation
Right and Performance Unit Plan and the ATL 1992 Nonofficer Employee Stock
Plan, the ATL plans under which substantially all of the Existing ATL
Options were granted.
It is anticipated that each person who is an ATL employee or a SONO
employee immediately prior to the Distribution Date will continue in such
respective employment. While ATL's option plans generally restrict an
optionee's right to exercise an option following termination of employment,
the Employee Benefits Agreement provides for continued exercisability of
the Adjusted ATL Options or Adjusted SONO Options so long as the optionee
remains in the employment of ATL or SONO, as the case may be, following the
Distribution.
Certain Existing ATL Options may be currently intended to qualify as
"incentive stock options" ("ISO's") under the Code. However, continued ISO
status requires that the optionee be employed by the grantor (or a parent
or subsidiary of the grantor) and that the option generally be exercised
within three months after an optionee's termination. Because the
Distribution will terminate the affiliation between ATL and SONO, employees
of SONO holding Adjusted ATL Options, as well as employees of ATL holding
Adjusted SONO Options, will lose any claim to ISO status for such options
three months after the Distribution Date. Such options will thereafter be
treated as "non-qualified" options.
ATL and SONO believe that neither the grant of the Adjusted SONO Options
nor the adjustments resulting in the Adjusted ATL Options should result in
the recognition of taxable income by ATL or SONO or their respective
optionees. However, there can be no assurance that such recognition will
not occur. Each holder of an outstanding ATL Option is urged to consult
with his or her own tax advisor.
ATL ESP Plan. The ATL Employee Stock Purchase ("ESP") Plan enables
participating ATL employees to purchase, on the last day of each Purchase
Period (as defined in the ESP Plan), ATL Common Stock at the lesser of (i)
85% of the fair market value on the first day of the applicable Purchase
Period or (ii) 85% of the fair market value on the last day of such
Purchase Period. The purchase price is collected by
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means of employee salary and wage deferrals. The ATL ESP Plan provides that
the right to participate terminates immediately upon the date the
participant ceases employment with ATL or any qualifying subsidiary. Any
contributions collected prior to the date of termination are paid to the
participant in cash.
Pursuant to the Employee Benefits Agreement, immediately prior to the
Record Date the committee administering the ATL ESP Plan will adjust the
length of the then-current Purchase Period to end prior to the Record Date,
and shares of ATL Common Stock will be purchased for all eligible
participants so as to allow participants to participate in the Distribution
of SONO Common Stock. The Employee Benefits Agreement provides that normal
Purchase Periods will resume under the ATL ESP Plan on July 1, 1998, or on
such other dates as the administrator under the plan determine.
Non-Vested Restricted Stock Awards. Pursuant to the Employee Benefits
Agreement, each award of restricted ATL Common Stock that is outstanding as
of the Record Date will be entitled to participate in the Distribution even
though such award has not vested, and each holder thereof will receive,
according to the Distribution Ratio, an award of restricted SONO Common
Stock. No fractional shares of SONO Common Stock, or cash in lieu thereof,
will be issued with respect to any shares of restricted ATL Common Stock
participating in the Distribution. The Employee Benefits Agreement provides
that the restrictions on shares of restricted ATL Common Stock and SONO
Common Stock granted to an ATL employee will be identical to the
restrictions underlying such employee's shares of restricted ATL Common
Stock prior to the Distribution, and the restrictions on shares of
restricted ATL Common Stock and SONO Common Stock granted to any SONO
employee will pertain to continued employment by SONO, and will otherwise
mirror the restriction on such SONO employee's shares of restricted ATL
Common Stock prior to the Distribution. As of January 30, 1998 there were
approximately 160,000 shares of non-vested restricted ATL Common Stock
outstanding. Accordingly, it is anticipated that approximately 53,000
shares of restricted SONO Common Stock will be issued in connection with
the Distribution.
The Employee Benefits Agreement also provides for the continuation of
medical, dental and other welfare plans by ATL and SONO for the benefit of
their respective employees following the Distribution, and for the allocation
of liability for, and obligations to indemnify against, any employment-related
claims brought against ATL or SONO, or both companies jointly.
OPTION ADJUSTMENTS
ATL and its present subsidiaries (including SONO) have approximately 600
employees who are expected to hold Existing ATL Options as of the Record Date.
Each Existing ATL Option held by an employee of SONO or ATL and outstanding on
the Record Date and as of April 7, 1998, the date on which the ATL Common
Stock is expected to begin to trade on Nasdaq without the dividend of the SONO
Common Stock (the "Ex-Dividend Date") will be adjusted as set forth herein.
All Existing ATL Options, vested and unvested, which are outstanding on the
Distribution Date will be adjusted to provide new ATL options ("Adjusted ATL
Options") and separately exercisable SONO options ("Adjusted SONO Options").
The adjustment will be made by using the fair market value of ATL Common Stock
immediately prior to the Ex-Dividend Date and the fair market values of ATL
Common Stock and SONO Common Stock immediately following on the Ex-Dividend
Date to provide each optionholder with the same "intrinsic value" in the
Adjusted ATL and Adjusted SONO Options as the optionholder held in the
Existing ATL Options immediately prior to the Ex-Dividend Date. The adjustment
will generally result in new numbers of options and new exercise prices for
the Adjusted Options as compared with the numbers of options and exercise
prices of the Existing ATL Options.
To determine the exercise price adjustment, the fair market value of ATL
Common Stock immediately preceding the Ex-Dividend Date and the fair market
value of ATL Common Stock and SONO Common Stock immediately following on the
Ex-Dividend Date are determined. These fair market values will be determined
by the closing price of ATL Common Stock on Nasdaq on the trading day
immediately preceding the Ex-Dividend Date, and by the opening prices of ATL
Common Stock and SONO Common Stock, respectively, on Nasdaq on
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the Ex-Dividend Date. An "Exercise Price Adjustment Ratio" is then determined
for each outstanding option by dividing the exercise price of an Existing ATL
Option by the fair market value of ATL Common Stock immediately preceding the
Ex-Dividend Date. The exercise price for each Adjusted ATL Option is then
determined by multiplying the Exercise Price Adjustment Ratio by the fair
market value determined for the ATL Common Stock immediately following on the
Ex-Dividend Date. The exercise price for each Adjusted SONO Option is then
determined by multiplying the Exercise Price Adjustment Ratio by the fair
market value determined for the SONO Common Stock immediately following on the
Ex-Dividend Date.
The number of options of each Adjusted Option is determined as follows. The
number of Adjusted SONO Options are determined by dividing the number of
Existing ATL Options by six. Since this number of Adjusted SONO Options is
less than that which would result using the three to one Distribution Ratio,
the "intrinsic value" of the total of both Adjusted Options is then adjusted
to be equal to the "intrinsic value" of the Existing ATL Options immediately
prior to the Ex-Dividend Date. This is done by adjusting the number of
Adjusted ATL Options until the "spreads" between the exercise prices of the
Adjusted Options and the fair market values of the two Common Stocks
immediately following on the Ex-Dividend Date equals the "spread" between the
exercise price of the Existing ATL Options and the fair market value of ATL
Common Stock immediately prior to the Ex-Dividend Date. When the number of
Adjusted ATL Options necessary to equalize the two "intrinsic values" has been
determined, all fractional shares are disregarded and the integer numbers of
options are the numbers of new Adjusted SONO Options and Adjusted ATL Options
possessed by the optionholder.
The Adjusted SONO Options will be administered by SONO under the SONO
Adjustment Plan, the terms of which will be substantially the same as those of
the ATL 1992 Option, Restricted Stock, Stock Grant, Stock Appreciation Right
and Performance Unit Plan and the ATL 1992 Nonofficer Employee Stock Plan, the
ATL plans under which substantially all of the Existing ATL Options were
granted. Based upon the above adjustment formula and the approximately 1.8
million unexercised options to purchase ATL common stock outstanding as of
December 31, 1997, it is anticipated that approximately 325,000 shares of SONO
Common Stock will be authorized for issuance under the SONO Adjustment Plan.
Upon the termination of all such options through exercise, expiration, or
otherwise, the authorization for any shares remaining for issuance under the
SONO Adjustment Plan shall be extinguished.
The foregoing option adjustment will result in each optionholder possessing:
(i) one option to purchase a share of SONO Common Stock for every six Existing
ATL Options held, (ii) new exercise prices for the Adjusted Options which
reflect the relative market values of the two stocks, and (iii) a change in
the number of ATL options which is necessary to maintain "intrinsic value."
The "intrinsic value" of the Adjusted Options immediately following on the Ex-
Dividend Date will be substantially equal to the "intrinsic value" of the
Existing ATL Options just prior to the Ex-Dividend Date.
All other terms of the Existing ATL Options as applied by the stock option
plans under which the options were originally granted will continue to apply
to the Adjusted Options, including the continuation of the remaining portions
of their original vesting schedules and ten year terms. The compensation
committees of the boards of directors of both ATL and SONO retain the
authority to modify the foregoing adjustment procedure if, in their respective
judgments, the market prices determined as described above reflect significant
disruptive market events that are independent, determinable, and verifiable
effects other than the Distribution.
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DESCRIPTION OF SONO CAPITAL STOCK
AUTHORIZED CAPITAL STOCK
The authorized capital stock of SONO consists of the authority to issue (i)
50,000,000 shares of SONO Common Stock, par value of $.01 per share, and (ii)
6,000,000 shares of its preferred stock, par value of $1.00 per share
("Preferred Stock"). The descriptions of SONO Common Stock, Preferred Stock,
and SONO Rights are qualified in their entirety by reference to (i) the
Amended and Restated Articles of Incorporation, and (ii) the Rights Plan
pertaining to SONO Series A Participating Cumulative Preferred Shares, copies
of which have been filed as an exhibit to the registration statement of which
this Information Statement is a part, and (iii) the applicable provisions of
the laws of the State of Washington.
COMMON STOCK
The holders of SONO Common Stock will be entitled to one vote for each share
on all matters voted by shareholders, including the election of Directors,
and, except as otherwise required by law or provided in any resolution adopted
by the SONO Board of Directors with respect to any series of SONO Preferred
Stock, the holders of such shares will exclusively possess all voting power.
The holders of SONO Common Stock will not have any cumulative voting,
conversion, redemption or preemptive rights. Subject to any preferential
rights of any outstanding series of SONO Preferred Stock, the holders of SONO
Common Stock will be entitled to such dividends as may be declared from time
to time by the SONO Board of Directors from funds available, and will be
entitled to receive pro rata all assets of SONO legally available for
distribution upon any dissolution, liquidation or winding up of SONO, whether
voluntary or involuntary. See "--Dividends".
PREFERRED STOCK
The SONO Board is authorized to issue shares of SONO Preferred Stock in one
or more series and to set the number of shares constituting any such series,
the voting powers, if any, and the designations, preferences and relative,
participating, optional or special rights, and qualifications, limitations or
restrictions, including the rate or rates at which dividends will be payable;
whether and on what terms the shares constituting any series will be
redeemable, subject to sinking fund provisions, or convertible or exchangeable
into other securities of SONO; and the liquidation preferences, if any, of
such series, without any further vote or action by the shareholders. Thus, any
series may, if so determined by the SONO Board of Directors, have full voting
rights with the SONO Common Stock or limited voting rights, be convertible
into or exchangeable for SONO Common Stock or another security of SONO, be
redeemable, carry the right to specified participating dividends, which may be
fixed or adjustable and which may be cumulative, and have such other relative
rights, preferences and limitations as the SONO Board of Directors may
determine. Issuance of authorized but unissued shares of SONO Common Stock or
SONO Preferred Stock (including upon conversion of any convertible SONO
Preferred Stock) could cause a dilution of the book value of the SONO Common
Stock and (in the case of SONO Common Stock and SONO Preferred Stock with
voting rights) would dilute the voting power of the then current shareholders
of SONO. No shares of SONO Preferred Stock will be outstanding at the
Distribution Date.
SONO RIGHTS
Pursuant to a Rights Agreement dated as of April 6, 1998 between SONO and
First Chicago Trust Company of New York, (the "SONO Rights Agreement"),
holders of shares of SONO Common Stock will hold rights to purchase shares of
SONO Series A Participating Cumulative Preferred Stock, par value $1.00 (the
"SONO Participating Preferred Shares"), exercisable only in certain
circumstances (the "SONO Rights"). Each SONO Right, when it becomes
exercisable as described below, will entitle the registered holder to purchase
one one-hundredth ( 1/100) of a share of SONO Participating Preferred Shares
at a price equal to four times the average of the high and low sales prices of
the SONO Common Stock quoted on Nasdaq for each of the 10 trading days
commencing on the sixth trading day following the Distribution Date (the
"Purchase Price").
The SONO Participating Preferred Shares issuable upon exercise of the Rights
will not be redeemable. Each SONO Participating Preferred Share will be
entitled to a minimum preferential quarterly dividend payment of
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$.01 per share, but will be entitled to an aggregate dividend of 100 times the
dividend declared per share of SONO Common Stock, if any. In the event of
dissolution, liquidation or winding up of SONO, whether voluntary or
involuntary, the holders of the SONO Participating Preferred Shares will be
entitled to a minimum preferential payment of $.01 per share, but will be
entitled to an aggregate preferential payment of 100 times the payment made
per share of SONO Common Stock. Each SONO Participating Preferred Share will
have 100 votes, voting together with the SONO Common Stock. Finally, in the
event of any merger, business combination, consolidation or other transaction
in which the SONO Common Stock is exchanged, each SONO Participating Preferred
Share will be entitled to receive 100 times the amount received per share of
SONO Common Stock. Because of the nature of the SONO Participating Preferred
Share's dividend, liquidation and voting rights, the value of the one one-
hundredth ( 1/100) interest in a SONO Participating Preferred Share issuable
upon exercise of each Right should approximate the value of one share of SONO
Common Stock. Customary antidilution provisions are designed to protect that
relationship in the event of certain changes in the SONO Common Stock and the
SONO Participating Preferred Shares. The SONO Participating Preferred Shares
are authorized to be issued in fractions which are an integral multiple of one
one-hundredth ( 1/100) of a SONO Participating Preferred Share. SONO may, but
is not required to, issue fractions of shares upon the exercise of SONO
Rights, and, in lieu of fractional shares, SONO may utilize a depository
arrangement as provided by the terms of the SONO Participating Preferred
Shares and, in the case of fractions other than one one-hundredth ( 1/100) of
a SONO Participating Preferred Share or integral multiples thereof, may make a
cash payment based on the market price of such shares.
Until the earlier of (i) such time as SONO learns that a person or group
(including any affiliate or associate of such person or group) has acquired,
or has obtained the right to acquire, beneficial ownership of 15% or more of
the outstanding SONO Common Stock (such person or group being an "Acquiring
Person",) and (ii) such date, if any, as may be designated by the SONO Board
of Directors following the commencement of, or first public disclosure of an
intent to commence, a tender or exchange offer for outstanding SONO Common
Stock which could result in the offeror becoming the beneficial owner of 15%
or more of the outstanding SONO Common Stock (the earlier of such dates,
subject to certain exceptions, being the "Separation Date"), the SONO Rights
will be evidenced by the certificates for the SONO Common Stock registered in
the names of the holders thereof (which certificates for SONO Common Stock
will also be deemed to be SONO Right Certificates, as defined below) and not
by separate SONO Right Certificates. Therefore, until the Separation Date, the
SONO Rights will be transferred with and only with the SONO Common Stock.
The SONO Rights will expire on April 5, 2008 (the "Expiration Date") unless
earlier redeemed or canceled by SONO as described below.
The number of SONO Participating Preferred Shares or other securities
issuable upon exercise of a SONO Right, the Purchase Price, the Redemption
Price (as defined below) and the number of SONO Rights associated with each
outstanding share of SONO Common Stock are all subject to adjustment by the
SONO Board of Directors in the event of any change in the SONO Common Stock or
the SONO Participating Preferred Shares, whether by reason of stock dividends,
stock splits, recapitalizations, mergers, consolidations, combinations or
exchanges of securities, split-ups, split-offs, spin-offs, liquidations, other
similar changes in capitalization, any distribution or issuance of cash,
assets, evidences of indebtedness or subscription rights, options or warrants
to holders of SONO Common Stock or SONO Participating Preferred Shares, as the
case may be (other than the SONO Rights or regular quarterly cash dividends),
or otherwise.
In the event a person becomes an Acquiring Person, the SONO Rights will
entitle each holder of a SONO Right (other than those held by an Acquiring
Person (or any affiliate or associate of such Acquiring Person)) to purchase,
for the Purchase Price, that number of one one-hundredths ( 1/100) of a SONO
Participating Preferred Share equivalent to the number of shares of SONO
Common Stock which at the time of the transaction would have a market value of
twice the Purchase Price. Any SONO Rights that are at any time beneficially
owned by an Acquiring Person (or any affiliate or associate of an Acquiring
Person) will be null and void and nontransferable and any holder of any such
SONO Right (including any purported transferee or subsequent holder) will be
unable to exercise or transfer any such SONO Right.
51
<PAGE>
After there is an Acquiring Person the SONO Board of Directors may elect to
exchange each SONO Right (other than SONO Rights that have become null and
void and nontransferable as described above) for consideration per SONO Right
consisting of one-half of the securities that would be issuable at such time
upon the exercise of one SONO Right pursuant to the terms of the SONO Rights
Agreement, and without payment of the Purchase Price.
In the event SONO is acquired in a merger by, or other business combination
with, or 50% or more of its assets or assets representing 50% or more of its
earning power are sold, leased, exchanged or otherwise transferred (in one or
more transactions) to, a publicly traded corporation, each SONO Right will
entitle its holder (subject to the next paragraph) to purchase, for the
Purchase Price, that number of common shares of such corporation which at the
time of the transaction would have a market value of twice the Purchase Price.
In the event SONO is acquired in a merger by, or other business combination
with, or 50% or more of its assets or assets representing 50% or more of the
earning power of SONO are sold, leased, exchanged or otherwise transferred (in
one or more transactions) to, an entity that is not a publicly traded
corporation, each SONO Right will entitle its holder (subject to the next
paragraph) to purchase, for the Purchase Price, at such holder's option, (i)
that number of shares of the surviving corporation in the transaction with
such entity (which surviving corporation could be SONO) which at the time of
the transaction would have a book value of twice the Purchase Price, (ii) that
number of shares of such entity which at the time of the transaction would
have a book value of twice the Purchase Price or (iii) if such entity has an
affiliate which has publicly traded common shares, that number of common
shares of such affiliate which at the time of the transaction would have a
market value of twice the Purchase Price.
At any time prior to the earlier of (i) such time as a person becomes an
Acquiring Person and (ii) the Expiration Date, the SONO Board of Directors may
redeem the SONO Rights in whole, but not in part, at a price (in cash or SONO
Common Stock or other securities of SONO deemed by the SONO Board of Directors
to be at least equivalent in value) of $.01 per SONO Right, subject to
adjustment as provided in the SONO Rights Agreement (the "Redemption Price");
provided that, for the 120-day period after any date of a change (resulting
from a proxy or consent solicitation) in a majority of the SONO Board in
office at the commencement of such solicitation, the SONO Rights may only be
redeemed if (A) there are directors then in office who were in office at the
commencement of such solicitation and (B) the SONO Board, with the concurrence
of a majority of such directors then in office, determines that such
redemption is, in its judgment, in the best interests of SONO and its
shareholders. Immediately upon the action of the SONO Board of Directors
electing to redeem the SONO Rights, SONO will make an announcement thereof,
and, upon such election, the right to exercise the SONO Rights will terminate
and the only right of the holders of SONO Rights will be to receive the
Redemption Price.
Until a SONO Right is exercised, the holder thereof, as such, will have no
rights as a shareholder of SONO, including, without limitation, the right to
vote or to receive dividends. No supplement or amendment shall be made which
reduces the Redemption Price (other than pursuant to certain adjustments
therein), provides for an earlier Expiration Date or makes certain changes to
the definition of Acquiring Person. However, for the 120-day period after any
date of a change (resulting from a proxy solicitation) in a majority of the
SONO Board in office at the commencement of such solicitation, the SONO Rights
Agreement may be supplemented or amended only if (A) there are directors then
in office who were in office at the commencement of such solicitation and
(B) the SONO Board of Directors, with the concurrence of a majority of such
directors then in office, determines that such supplement or amendment is, in
their judgment, in the best interests of SONO and its shareholders.
The SONO Rights have certain antitakeover effects. The SONO Rights will
cause substantial dilution to a person or group that attempts to acquire SONO
without conditioning the offer on substantially all the SONO Rights being
acquired. The SONO Rights will not interfere with any merger or other business
combination approved by the SONO Board since the SONO Board of Directors may,
at its option, at any time prior to any person becoming an Acquiring Person,
redeem all but not less than all of the then outstanding SONO Rights at the
Redemption Price.
52
<PAGE>
MARKET FOR SONO COMMON STOCK
Shares of SONO Common Stock distributed to ATL shareholders will be freely
transferable, except for shares received by persons who may be deemed
"affiliates" of SONO under the Securities Act. Persons who may be affiliates
of SONO after the Distribution generally include individuals or entities that
control, are controlled by, or are under the common control with, SONO and may
include certain officers and directors of SONO, as well as ATL. Persons who
are affiliates of SONO will be permitted to sell their shares of SONO only
pursuant to an effective registration statement under the Securities Act or an
exemption from registration requirements of the Securities Act.
There have been no private or public trading markets for SONO Common Stock.
SONO is making arrangements to have the SONO Common Stock accepted by Nasdaq
as eligible for quotation on the Nasdaq National Market System, but there can
be no assurances as to the prices at which trading in SONO Common Stock will
occur. Such prices will be determined by the marketplace and may be influenced
by many factors, including, among others, the depth and liquidity of the
market for SONO Common Stock, investor perception of SONO and the high
technology medical equipment business, and SONO's dividend policy.
DIVIDENDS
SONO does not currently intend to pay regular cash dividends on its Common
Stock following the Distribution. The dividend policy of SONO will be reviewed
from time to time by the SONO Board. Payment of dividends will be a business
decision to be made by the SONO Board based upon the existence of earnings and
financial position and such other business considerations as the Board of
Directors consider relevant. Such dividend policy will be subject to
restrictions contained in its bank credit facility. See "FINANCING--Bank
Operating Facility" and "CERTAIN FACTORS."
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for SONO Common Stock is First Chicago
Trust Company of New York, 525 Washington Blvd., 9th Floor, Jersey City, NJ
07310.
AVAILABLE INFORMATION
After the Distribution, SONO will be subject to the informational
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act") and, in accordance therewith, will file proxy statements, reports and
other information with the Securities and Exchange Commission (the "SEC").
Reports, proxy statements and other information filed by SONO may be inspected
and copied at the Public Reference Section of the SEC at Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the SEC's Regional Offices in
Chicago (Suite 1400, Northwest Atrium Center, 500 West Madison Street,
Chicago, Illinois 60661) and in New York (75 Park Place, New York, New York
10007). Copies of such material can be obtained by mail from the Public
Reference Section of the SEC at prescribed rates. The SEC also maintains a Web
Site at http:\\//www.sec.gov that contains reports, proxy and information
statements and other information regarding registrants that file
electronically with the SEC.
SONO has filed a Registration Statement on Form 10 with the SEC pursuant to
the Exchange Act with respect to the SONO Common Stock and associated
preferred share purchase rights to be issued in the Distribution. As permitted
by the rules and regulations of the SEC, this Information Statement omits
certain information, exhibits and undertakings set forth in the Registration
Statement. Such additional information can be inspected at and obtained from
the SEC in the manner set forth above, upon payment of prescribed rates. For
further information, reference is made to the Registration Statement and the
exhibits filed therewith. Statements contained in this Information Statement
or in any document incorporated by reference in this Information Statement
relating to the contents of any contract or other document referred to herein
or therein are not necessarily complete, and in each instance reference is
made to the copy of such contract or other document
53
<PAGE>
filed as an exhibit to the Registration Statement or such other document, each
such statement being qualified in all inspects by such reference.
NO PERSON IS AUTHORIZED BY ATL OR SONO TO GIVE ANY INFORMATION OR TO MAKE
ANY REPRESENTATION, OTHER THAN THOSE CONTAINED IN THIS INFORMATION STATEMENT
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS SHOULD NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED.
NEITHER THE DELIVERY OF THIS INFORMATION STATEMENT NOR ANY DISTRIBUTION OF
SECURITIES MADE HEREUNDER SHALL IMPLY THAT THERE HAS BEEN NO CHANGE IN THE
INFORMATION SET FORTH HEREIN OR IN THE AFFAIRS OF ATL OR SONO SINCE THE DATE
HEREOF.
54
<PAGE>
INDEX TO COMBINED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report............................................... F-2
Combined Balance Sheets.................................................... F-3
Combined Statements of Operations.......................................... F-4
Combined Statements of Cash Flows.......................................... F-5
Combined Statements of Owner's Equity...................................... F-6
Notes to Combined Financial Statements..................................... F-7
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders,
SonoSight, Inc.
We have audited the accompanying combined balance sheets of SonoSight, Inc.
(a development stage enterprise) as of December 31, 1996 and 1997, and the
related combined statements of operations, owner's equity, and cash flows for
each of the years in the three-year period ended December 31, 1997 and for the
period from February 1994 (inception) through December 31, 1997. These
combined financial statements are the responsibility of SonoSight, Inc.'s
management. Our responsibility is to express an opinion on these combined
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of SonoSight, Inc. (a
development stage enterprise) as of December 31, 1996 and 1997, and the
results of its operations and its cash flows for each of the years in the
three-year period ended December 31, 1997 and for the period from February
1994 (inception) through December 31, 1997, in conformity with generally
accepted accounting principles.
KPMG Peat Marwick LLP
Seattle, Washington
February 12, 1998
F-2
<PAGE>
SONOSIGHT, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
AT DECEMBER 31,
------------------------
1996 1997
----------- -----------
ASSETS
------
<S> <C> <C>
Property and equipment, net.......................... $ 156,703 $ 409,967
----------- -----------
Total Assets................................... $ 156,703 $ 409,967
=========== ===========
LIABILITIES AND OWNER'S EQUITY
------------------------------
Liabilities
Accrued expenses................................... $ 52,854 $ 169,839
----------- -----------
Owner's equity
Preferred stock, par value $1.00, 6,000,000
shares authorized, no shares issued or
outstanding..................................... -- --
Common stock, par value $0.01, 50,000,000 shares
authorized, no shares issued or outstanding..... -- --
Net advances from ATL............................ 1,993,288 8,124,018
Deficit accumulated during the development stage. (1,889,439) (7,883,890)
----------- -----------
Total Owner's Equity........................... 103,849 240,128
----------- -----------
Total Liabilities and Owner's Equity........... $ 156,703 $ 409,967
=========== ===========
</TABLE>
See accompanying notes to combined financial statements
F-3
<PAGE>
SONOSIGHT, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31, FEBRUARY 1994
---------------------------------- (INCEPTION) THROUGH
1995 1996 1997 DECEMBER 31, 1997
-------- ----------- ----------- -------------------
<S> <C> <C> <C> <C>
Grant Revenues.......... $ -- $ 1,028,895 $ 2,947,700 $ 3,976,595
Operating Expenses
Research and
development.......... 74,928 2,575,719 7,063,842 9,753,415
Selling, general and
administrative....... 8,623 197,057 1,819,355 2,027,538
Other expenses........ -- 20,578 58,954 79,532
-------- ----------- ----------- -----------
Total Operating
Expenses........... 83,551 2,793,354 8,942,151 11,860,485
-------- ----------- ----------- -----------
Net Loss................ $(83,551) $(1,764,459) $(5,994,451) $(7,883,890)
======== =========== =========== ===========
Pro forma net loss per
share (unaudited)...... $ (1.24)
===========
Shares used in computing
pro forma net loss per
share (unaudited)...... 4,824,780
===========
</TABLE>
See accompanying notes to combined financial statements
F-4
<PAGE>
SONOSIGHT, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31, FEBRUARY 1994
---------------------------------- (INCEPTION) THROUGH
1995 1996 1997 DECEMBER 31, 1997
-------- ----------- ----------- -------------------
<S> <C> <C> <C> <C>
Cash Flows from
Operating Activities:
Net Loss.............. $(83,551) $(1,764,459) $(5,994,451) $(7,883,890)
Adjustments to
reconcile net loss to
net cash used in
operating activities:
Depreciation........ -- 23,964 110,698 134,662
Change in accrued
expenses........... -- 52,854 116,985 169,839
-------- ----------- ----------- -----------
Net cash used in
operating
activities......... (83,551) (1,687,641) (5,766,768) (7,579,389)
Cash Flows used by
Investing Activities--
Purchase of equipment.. -- (180,667) (363,962) (544,629)
Cash Flows provided from
Financing Activities--
Net advances from ATL.. 83,551 1,868,308 6,130,730 8,124,018
-------- ----------- ----------- -----------
Net change in Cash...... -- -- -- --
Cash at Beginning of
Period................. -- -- -- --
-------- ----------- ----------- -----------
Cash at End of Period... $ -- $ -- $ -- $ --
======== =========== =========== ===========
</TABLE>
See accompanying notes to combined financial statements
F-5
<PAGE>
SONOSIGHT, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
COMBINED STATEMENTS OF OWNER'S EQUITY
<TABLE>
<CAPTION>
DEFICIT
ACCUMULATED NET
DURING THE ADVANCES TOTAL
COMMON DEVELOPMENT FROM OWNER'S
STOCK STAGE PARENT EQUITY
------ ----------- ---------- -----------
<S> <C> <C> <C> <C>
Balance at February 1994
(inception)....................... $ -- $ -- $ -- $ --
Net advances from ATL............ -- -- 41,429 41,429
Net Loss......................... -- (41,429) -- (41,429)
---- ----------- ---------- -----------
Balance at December 31, 1994....... -- (41,429) 41,429 --
Net advances from ATL............ -- -- 83,551 83,551
Net Loss......................... -- (83,551) -- (83,551)
---- ----------- ---------- -----------
Balance at December 31, 1995....... -- (124,980) 124,980 --
Net advances from ATL............ -- -- 1,868,308 1,868,308
Net Loss......................... -- (1,764,459) -- (1,764,459)
---- ----------- ---------- -----------
Balance at December 31, 1996....... -- (1,889,439) 1,993,288 103,849
Net advances from ATL............ -- -- 6,130,730 6,130,730
Net Loss......................... -- (5,994,451) -- (5,994,451)
---- ----------- ---------- -----------
Balance at December 31, 1997....... $ -- $(7,883,890) $8,124,018 $ 240,128
==== =========== ========== ===========
</TABLE>
See accompanying notes to combined financial statements
F-6
<PAGE>
SONOSIGHT, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO COMBINED FINANCIAL STATEMENTS
1. BACKGROUND, BUSINESS DESCRIPTION AND BASIS OF PRESENTATION
SONOSIGHT, Inc. ("SONO"), a development stage enterprise, commenced
operations in 1994 as a project of ATL Ultrasound, Inc. ("ATL") and was
chartered to develop the design and specifications for a handheld ultrasound
device and other highly portable ultrasound products. During the years since
inception, the project was organized as a separate division of ATL with the
purpose of accelerating research, development and commercialization of this
device. On February 2, 1998 the ATL Board of Directors approved a plan to
spin-off SONO as an independent, publicly owned company. This transaction is
to be effected through the tax-free distribution of SONO's shares to ATL
shareholders (the "Distribution") on or about April 6, 1998 (the "Distribution
Date"). Shareholders will receive one share of SONO common stock for each
three shares of ATL common stock held. In connection with the Distribution,
ATL will contribute to the capital of SONO all cumulative net advances made by
ATL to SONO prior to the Distribution Date. In addition, ATL will
unconditionally contribute to the capital of SONO (a) the amount of $18
million in cash on the Distribution Date, and (b) the amount of $12 million in
cash on January 15, 1999. ATL and SONO will also enter into a number of
agreements to facilitate the Distribution and the transition of SONO to an
independent business (see Note 3).
SONO's development activities were expanded significantly in 1996 when its
handheld ultrasound device proposal was selected for matched funding by the
U.S. Government's Advanced Research Projects Agency ("ARPA"). ARPA's
Technology Reinvestment Project ("TRP") provides funding of up to 50% for the
development of technology having both military and commercial applications. In
May 1996, SONO and its TRP collaborators (University of Washington, Harris
Semiconductor and VLSI Technology, Inc.) formed a consortium and entered into
a development contract with the Office of Naval Research (the "U.S. Navy").
Each of the collaborators has specific contracted deliverables and earmarked
funding based on its achievement of milestones. The U.S. Navy is expected to
contribute $4,755,000 for SONO's share of the project or approximately half of
SONO's initial TRP proposal costs totaling $9,704,000. SONO has recorded
revenues of $3,976,595 as of December 31, 1997, and expects the balance of
approximately $778,400 will be realized as revenue assuming the remaining
project milestones are met. The terms of the development contract specify that
each collaborator will own rights to the technology it develops. The
Application Specific Integrated Circuits ("ASICs") developed jointly by ATL,
VLSI Technology, Inc. and Harris Semiconductor are essential to SONO in
developing a commercial handheld ultrasound device, and SONO will be relying
on VLSI Technology, Inc. and Harris Semiconductor to manufacture ASICs which
incorporate technology developed by the consortium.
SONO is focused on developing, manufacturing, and marketing highly portable,
handheld diagnostic medical ultrasound devices. SONO plans to sell these
devices to physicians, hospitals, clinics, private medical practices and
emergency medical personnel worldwide. SONO's future growth will largely
depend on its ability to market and sell the handheld ultrasound products.
Completion of a prototype is expected during the third quarter of 1998. To
date, SONO has not generated any revenue from product sales. Since inception,
funding from ATL and the U.S. Navy has been used to finance the development of
SONO's technologies. SONO expects to continue to incur operating losses unless
and until handheld ultrasound product sales generate sufficient revenue to
fund its continuing operations.
Basis of Presentation
SONO's business, which is the basis for these combined financial statements,
consists of the handheld ultrasound division of ATL. The combined financial
statements represent the combination of ATL's handheld division and the
corporate entity (SonoSight, Inc.) established to effect the Distribution. The
accompanying combined financial statements, which are derived from the
historical books and records of ATL, include the assets, liabilities, revenues
and expenses of SONO at historical cost.
F-7
<PAGE>
SONOSIGHT, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
The combined financial statements reflect the assets, liabilities, revenues,
and expenses of SONO as it was operated as a division of ATL. The statements
of operations include allocations for facilities and certain support services,
such as engineering overhead, administration, accounting, finance, human
resources and regulatory functions. These allocations were based on estimates
of personnel time and effort spent by ATL on behalf of SONO. Management
believes these allocations were made on a reasonable basis (see Note 3).
The portion of SONO's financing requirements funded by ATL are shown as net
advances from ATL in owner's equity. Activity in the net advances from ATL
equity account relates to net cash received from ATL through intercompany
advances to fund SONO's operating deficits. ATL did not acquire additional
financing to fund these advances and no interest has been charged to SONO. The
average balances of these advances were $85,000, $813,000 and $4,638,000 for
the years ended December 31, 1995, 1996 and 1997, respectively. In connection
with the Distribution, ATL has agreed to make a capital contribution to SONO
of the cumulative net advances from ATL on the Distribution date plus $18
million in cash on the Distribution Date and an additional unconditional $12
million in cash on January 15, 1999.
The financial information included herein is not necessarily indicative of
the financial position, results of operations or cash flows of SONO in the
future or what the financial position, results of operations or cash flows
would have been if SONO had been a separate, independent public company during
the periods presented.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Property and Equipment
Property and equipment are stated at cost. The costs of significant
additions and improvements to property and equipment are capitalized.
Maintenance and repair costs are expensed as incurred. Furniture, equipment,
computers and purchased software are depreciated primarily using the straight-
line method over the following estimated useful lives:
Furniture and equipment 10 years
Computers and purchased software 3-5 years
For long-lived assets, including property and equipment, SONO evaluates the
carrying value of the assets by comparing the estimated future cash flows
generated from the use of the asset and its eventual disposition with the
assets' reported net book value. The carrying value of assets are evaluated
for impairment when events or changes in circumstances occur which may
indicate the carrying amount of the asset may not be recoverable.
ARPA Grant Revenue Recognition
SONO recognizes grant revenue from the U.S. Navy as earned based on
reimbursable spending and achievement of contract milestones. The ARPA
contract is a cost reimbursement contract with a schedule of program technical
milestones and related reimbursable expenditures. Grant revenue from ARPA has
been recognized in the combined statement of operations based on reimbursable
project spending. Revenue recognition is limited to amounts representing
assured realization of contractually agreed funding specified for the
technical milestones achieved, i.e., no revenue is recognized for any cost
overruns that would only be realizable by achieving a future milestone.
Amounts received for reimbursed expenditures under the program are not
refundable. Grant revenues of $0, $1,028,895, and $2,947,700 were recognized
during 1995, 1996, and 1997, respectively.
F-8
<PAGE>
SONOSIGHT, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
Research and Development
Research and development costs are expensed as incurred.
Income Taxes
Deferred tax assets and liabilities are recognized based on temporary
differences between the combined financial statements and tax bases of assets
and liabilities using enacted tax rates expected to be in effect when they are
realized. A valuation allowance against deferred tax assets is recorded, if,
based upon weighted available evidence, it is more likely than not that some
or all of the deferred tax assets will not be realized. For income tax
purposes, SONO's results have been included in the consolidated Federal income
tax return of ATL and, accordingly, the net operating loss generated to date
will not be available to SONO for use in periods subsequent to the
Distribution. After the Distribution, SONO's results of operations will no
longer be included in ATL's consolidated return.
It is SONO's policy to record its tax expense or benefit as if it were a
separate taxpayer. Consequently, because SONO is in the development stage and
has incurred losses since its inception, no current or deferred tax benefit
has been recorded.
Stock-based Compensation
SONO will apply Accounting Principles Board (APB) Opinion No. 25, Accounting
for Stock Issued to Employees and related Interpretations in measuring
compensation costs for its stock options. SONO will disclose pro forma net
income (loss) and net income (loss) per share as if compensation costs had
been determined consistent with Statement of Financial Accounting Standard
(FAS) No. 123, Accounting for Stock-Based Compensation.
Pro Forma Net Loss Per Share
Given SONO's historical capital structure as a division of ATL and the
changes therein to be effected by the spin-off of SONO from ATL, historical
loss per share amounts are not presented in the combined financial statements
as they are not considered to be meaningful.
Pro forma net loss per share in 1997 is calculated based on shares of SONO's
common stock which are expected to be outstanding at the date of the
Distribution.
Use of Estimates
The preparation of combined financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities at the date of the combined
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
3. ARRANGEMENTS WITH ATL
Since the inception of SONO's business activities, all facilities and
certain support services, such as engineering overhead, administration,
accounting, finance, human resources and regulatory functions, have been
F-9
<PAGE>
SONOSIGHT, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
provided by ATL. For these services, SONO was charged $0, $826,644, and
$1,826,433 for the years ended December 31, 1995, 1996 and 1997, respectively.
These charges represent an allocation of SONO's proportionate share of ATL's
overhead costs using formulas which management believes are reasonable based
upon SONO's use of facilities and services. All other costs for all periods
presented, including payroll costs, are directly attributed to SONO and have
been paid by ATL and charged to SONO.
In connection with the Distribution, SONO expects to enter into the
following agreements with ATL:
Distribution Agreement
This agreement provides for the principal corporate services required to
effect the Distribution, including, among other things, the preparation of a
registration statement registering SONO's common stock under the Exchange Act
and an undertaking by SONO to prepare a registration statement registering the
shares of SONO common stock to be issued upon the exercise of SONO's stock
options under the Securities Act.
Services Agreements
For the purpose of an orderly transition following the Distribution, SONO
and ATL will enter into a number of agreements (the "Service Agreements")
pursuant to which ATL will provide to SONO for limited periods of time ranging
up to five years, but only as may be requested by SONO, certain services,
including financial services, human resources, legal services, engineering,
information services, facilities services, and regulatory services at SONO's
expense. The Service Agreements are identical in their terms, differing only
in the description of the nature of the service and its cost. As each
individual service function terminates or is transitioned by SONO to its own
employees or another provider, the agreement which is the subject of that
service will terminate. SONO will pay ATL for the services rendered in amounts
which are intended to compensate ATL for both its out-of-pocket expenses
(including the salaries and overhead expenses of the ATL employees providing
such services) and a markup ranging from 10% to 25%. SONO may discontinue any
of the services covered by the Service Agreements on 90 days' prior written
notice to ATL. ATL may terminate a Service Agreement on 90 days notice in
certain circumstances.
OEM Supply Agreement
SONO will have handheld ultrasound products and subassemblies manufactured
exclusively for SONO by ATL in accordance with SONO's specifications. ATL will
supply SONO with the specified items at ATL's cost to manufacture plus 20%.
SONO has the right to end this supply arrangement with ATL upon 180 days'
notice, whereupon ATL will assist SONO in the transfer of the manufacturing
function to SONO or another supplier designated by SONO.
Technology Transfer and License Agreement
SONO and ATL will enter into a Technology Transfer and License Agreement,
effective as of the Distribution Date, under which SONO will own certain
handheld ultrasound technology developed at ATL and have access to certain ATL
technology which is necessary or useful in the development and manufacture of
handheld ultrasound products. Under this agreement, SONO will take ownership
of the handheld ultrasound technology which has been developed by ATL pursuant
to the ARPA sponsored joint research program in which ATL has been a partner,
and also the patent rights which have been established or are being pursued
for that technology. SONO will also receive a nonexclusive license to use any
other ATL technology in existence or developed during the period ending three
years after the Distribution date in its handheld ultrasound products.
F-10
<PAGE>
SONOSIGHT, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
This license bears a royalty of 3% of the net sales of handheld ultrasound
products under ten pounds which use ATL technology, declining to 1 1/2% five
years after the commencement of SONO customer shipments and ending after
another three years. To the extent that SONO develops products in the range of
ten to fifteen pounds which utilize ATL technology, royalties are payable at
4% and 2% respectively, for the same periods. SONO has no plans at present to
develop products in this higher range. The license will become paid up by a
lump-sum payment which is due ATL if SONO ceases to be an independent stand-
alone company during the eight year period following the Distribution Date.
The lump-sum payment is $150 million during the five years following the
Distribution date, and $75 million for the next three years. SONO and ATL have
also entered into a cross-license whereby SONO has the right to use technology
developed by ATL during the three year period following the Distribution date
in its handheld products, and ATL has the right to use developments of SONO
made during the same period in its full-size ultrasound system products. SONO
and ATL have also agreed that SONO will not engage in the full-size ultrasound
system business and ATL will not engage in the handheld ultrasound device
business for five years following the Distribution Date. After this five year
period, each party's ongoing obligation with respect to the technology of the
other will be to respect the patent and copyright rights of the other,
although SONO will retain a license to use the previously-licensed ATL
technology in handheld systems and ATL will retain a license to use the
previously-licensed SONO technology in full-size ultrasound systems.
Employee Benefits Agreement
Under the terms of this agreement SONO will retain or assume, as the case
may be, sole responsibility as employer for all employees of SONO as of the
Distribution Date. Also, in connection with the Distribution, ATL option
holders will receive options in SONO as described further in note 6.
These agreements were negotiated between the CEO of SONO and the CEO of ATL.
ATL was assisted in these discussions by ATL's in-house counsel, and outside
counsel was retained for the specific purpose of assisting SONO in these
discussions. ATL and SONO believe that the terms of these agreements are
competitive with the cost of obtaining such rights and services in arm's
length negotiations with third parties. SONO has the right to terminate any of
its service and supply agreements with ATL at any time with sufficient notice.
F-11
<PAGE>
SONOSIGHT, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
4. UNAUDITED PRO FORMA INFORMATION
As a result of the Distribution, SONO believes that the following pro forma
financial information is important to enable the reader to obtain a more
meaningful understanding of SONO's results of operations. The pro forma
financial information set forth below is for information purposes and may not
be indicative of SONO's future performance, and does not necessarily reflect
the results of operations or financial position of SONO had SONO operated as a
separate, stand-alone entity during the period presented.
PRO FORMA BALANCE SHEET
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1997
------------------------------------------
HISTORICAL ADJUSTMENTS PRO FORMA
----------- ------------ ------------
<S> <C> <C> <C>
Assets
Cash............................. $ -- $ 18,000,000 (a) $ 18,000,000
Property and equipment, net...... 409,967 409,967
----------- ------------
Total Assets................... $ 409,967 $ 18,409,967
=========== ============
Liabilities
Accrued expenses................. $ 169,839 $ 169,839
Owner's Equity
Preferred stock, par value $1.00,
6,000,000 shares authorized, no
shares issued or outstanding.... -- --
Common stock, par value $.01,
50,000,000 shares authorized, no
shares issued or outstanding,
actual; 4,824,780 shares issued
and outstanding, pro forma...... -- 48,248 (b) 48,248
Additional paid-in capital......... -- 30,000,000 (a) 38,075,770
-- 8,075,770 (b)
Net advances from ATL.............. 8,124,018 (8,124,018)(b) --
Due from ATL....................... -- (12,000,000)(a) (12,000,000)
Deficit accumulated during the
development stage................. (7,883,890) (7,883,890)
----------- ------------
Total Owner's Equity........... 240,128 18,240,128
----------- ------------
Total Liabilities and Owner's
Equity........................ $ 409,967 $ 18,409,967
=========== ============
</TABLE>
- --------
(a) Represents ATL's contribution of $18 million in cash on the distribution
date and their unconditional commitment to contribute an additional $12
million in cash on January 15, 1999.
(b) Represents the contribution by ATL of all cumulative net advances to SONO
and the issuance of SONO Common Stock upon the Distribution.
F-12
<PAGE>
SONOSIGHT, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
PRO FORMA STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
1997
-------------------------------------
HISTORICAL ADJUSTMENTS PRO FORMA
----------- ----------- -----------
<S> <C> <C> <C>
Grant Revenues.......................... $ 2,947,700 $ 2,947,700
Operating Expenses
Research and development.............. 7,063,842 640,000(c) 7,703,842
Selling, general and administrative... 1,819,355 20,000(c) 2,539,355
700,000(d)
Other expenses........................ 58,954 58,954
----------- -----------
Total Operating Expenses............ 8,942,151 10,302,151
----------- -----------
Net Loss............................ $(5,994,451) $(7,354,451)
=========== ===========
Pro forma net loss per share............ $ (1.52)
===========
Shares used in computing pro forma net
loss per share......................... 4,824,780
===========
</TABLE>
- --------
(c) The adjustments represent the 20% mark-up on research and development
expenses and a 10% mark-up on general and administrative expenses which
are provided for under the service agreements between ATL and SONO.
(d) Represents the additional estimated costs expected to be incurred by
SONO on a prospective basis, including the incremental costs associated
with SONO's status as an independent public company. Incremental costs
are derived from known amounts, preliminary negotiations and quotes from
service providers, and amounts estimated by management as follows:
<TABLE>
<S> <C>
Executive compensation............................................ $180,000
Audit, legal and tax.............................................. 90,000
Shareholder relations............................................. 135,000
Directors' and officers' insurance................................ 100,000
Annual directors' fees and expenses............................... 160,000
Exchange listing fees............................................. 35,000
--------
$700,000
========
</TABLE>
5. PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
1996 1997
-------- ---------
<S> <C> <C>
Property and Equipment:
Furniture and equipment............................... $ 86,175 $ 172,025
Computers and purchased software...................... 94,492 372,604
Less accumulated depreciation......................... (23,964) (134,662)
-------- ---------
Property and Equipment, net........................... $156,703 $ 409,967
======== =========
</TABLE>
F-13
<PAGE>
SONOSIGHT, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
6. EQUITY
Stock Option Plans:
SONO had no stock options outstanding as of December 31, 1997. SONO does
intend to adopt its own Option (including nonemployee director), Restricted
Stock, Stock Grant, Stock Appreciation Right and Performance Unit Plan. In
connection with the Distribution, ATL option holders will receive SONO options
pursuant to the terms of the Employee Benefits Agreement between ATL and SONO.
All Existing ATL Options, vested and unvested, which are outstanding on the
Distribution Date will be adjusted to provide new ATL options ("Adjusted ATL
Options") and separately exerciseable SONO options ("Adjusted SONO Options").
The adjustment will be made by using the fair market value of ATL Common Stock
immediately prior to the ex-dividend date and the fair market values of
ATL Common Stock and SONO Common Stock immediately following on the ex-
dividend date to provide each optionholder with the same "intrinsic value" in
the Adjusted ATL and Adjusted SONO Options as the optionholder held in the
Existing ATL Options immediately prior to the ex-dividend date. The adjustment
will generally result in new numbers of options and new exercise prices for
the Adjusted Options as compared with the numbers of options and exercise
prices of the Existing ATL Options. Holders of ATL options will receive one
adjusted SONO option for each six ATL options held.
At December 31, 1997, options to purchase 1,847,500 ATL shares are
outstanding, and 983,936 are exerciseable.
At December 31, 1997, ATL had five stock compensation plans, including, in
1997 only, an employee stock purchase plan. Had compensation cost been
determined consistent with FAS 123, net loss would have been increased to the
pro forma amounts as indicated below:
<TABLE>
<CAPTION>
1995 1996 1997
----- ------- -------
<S> <C> <C> <C> <C>
Net Loss............................. As Reported $ (84) $(1,764) $(5,994)
Pro forma (106) (1,860) (6,141)
</TABLE>
Net loss per share in 1997 on a proforma basis would have been $(1.27) under
FAS 123 compared to $(1.24) as shown on the pro forma basis in the Combined
Statements of Operations.
Pro forma compensation expense is recognized for the fair value of each
option and employee stock purchase right estimated on the date of grant using
the Black-Scholes pricing model. The following assumptions were used for
option grants in 1995, 1996 and 1997, respectively: expected volatility of
26%, 33% and 39%; risk-free interest rates of 6.4%, 6.7% and 6.3%; expected
lives of 4.25 years and zero dividend yield. For employee stock purchases, the
following assumptions were used in 1997: expected volatility of 42%; risk-free
interest rates of 5.1%; expected lives of .5 years; and zero dividend yield.
The preceding assumptions were based on facts and circumstances directly
related to ATL and would not necessarily be indicative of assumptions that
will be in effect for SONO once it becomes an independent company.
7. EMPLOYEE BENEFIT PLANS
Pension Plan
Prior to the Distribution, SONO's employees were covered under ATL's
noncontributory, defined benefit pension plan. SONO does not intend to adopt
its own noncontributory, defined benefit pension plan nor will SONO be
required to make future contributions to ATL's plan.
F-14
<PAGE>
SONOSIGHT, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
401(k) Plan
Prior to the Distribution, SONO's employees participated in ATL's
ISSOP/401(k) retirement savings plan. SONO intends to adopt its own 401(k)
Plan. SONO employees have the right to participate in the SONO 401(k) Plan.
8. CONTINGENCIES
SONO is subject to certain rules and regulations of the U.S. Food and Drug
Administration ("FDA") and other regulatory agencies regarding the design,
documentation, manufacture, marketing and reporting of the performance of its
planned products. SONO's ability to obtain timely FDA export and new product
approvals is dependent upon the results of FDA inspections and reviews.
F-15
<PAGE>
PART II
ITEM 15. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements:
1. See Index to Combined Financial Statements beginning on page F-1 of
the Information Statement.
2. Financial Statement Schedules:
All schedules are omitted because they are not applicable or
required, or because the required information is included in the
Combined Financial Statements or notes thereto.
(b) Exhibits:
See Index to Exhibits.
II-1
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act of
1934, the Registrant has duly caused this Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized.
SONOSIGHT, INC.
(Registrant)
/s/ Kevin M. Goodwin
Date: March 31, 1998 By: _________________________________
Kevin M. Goodwin
President
II-2
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
3.1* Articles of Incorporation of SonoSight, Inc.
3.2* Certificate of Designation of Series A, Participating Cumulative
Preferred Stock Setting Forth the Powers, Preferences, Rights,
Qualifications, Limitations and Restrictions of Such Series of
Preferred Stock of SonoSight, Inc.
3.3* Bylaws of SonoSight, Inc.
4.1 Rights Agreement between SonoSight, Inc. and First Chicago Trust
Company of New York dated as of April 6, 1998.
10.1 Distribution Agreement between ATL Ultrasound, Inc. and SonoSight,
Inc. dated as of April 6, 1998.
10.2 Technology Transfer and License Agreement between ATL Ultrasound, Inc.
and SonoSight, Inc. dated as of April 6, 1998.
10.3 OEM Supply Agreement between ATL Ultrasound, Inc. and SonoSight, Inc.
dated as of April 6, 1998.
10.4 Employee Benefits Agreement between ATL Ultrasound, Inc. and
SonoSight, Inc. dated as of April 6, 1998.
10.5* Service Agreement between ATL Ultrasound, Inc. and SonoSight, Inc.
dated as of April 6, 1998.
10.6 SonoSight, Inc. Adjustment Plan.
10.7 Form of SonoSight, Inc. Common Stock Certificate.
10.8* 1998 Option, Restricted Stock, Stock Grant, Stock Appreciation Right
and Performance Unit Plan.
10.9* Nonemployee Director Stock and Stock Option Plan.
10.10* Management Incentive Compensation Plan.
27. Financial data schedule (Previously filed on initial Form 10 dated
February 13, 1998).
</TABLE>
- --------
* Previously filed on Amendment No. 1 on Form 10 dated March 19, 1998.
<PAGE>
EXHIBIT 4.1
DRAFT
RIGHTS AGREEMENT
Dated as of April 6, 1998
between
SONOSIGHT, INC.
and
FIRST CHICAGO TRUST COMPANY OF NEW YORK,
as Rights Agent
<PAGE>
Table of Contents
-----------------
<TABLE>
<CAPTION>
Section Page
- -----------
<S> <C>
1. Certain Definitions.................................................... 1
2. Appointment of Rights Agent............................................ 7
3. Issue of Rights and Right Certificates................................. 8
4. Form of Right Certificates............................................. 9
5. Execution, Countersignature and
Registration..........................................................10
6. Transfer, Split-Up, Combination and
Exchange of Right Certificates;
Mutilated, Destroyed, Lost or Stolen
Right Certificates; Uncertificated
Rights.................................................................10
7. Exercise of Rights; Expiration Date
of Rights.............................................................11
8. Cancellation and Destruction of Right
Certificates..........................................................13
9. Reservation and Availability of
Preferred Shares......................................................13
10. Preferred Shares Record Date...........................................14
11. Adjustments in Rights After There Is an
Acquiring Person; Exchange of Rights for
Shares; Business Combinations.........................................15
12. Certain Adjustments....................................................19
13. Certificate of Adjustment..............................................20
14. Additional Covenants...................................................20
15. Fractional Rights and Fractional Shares................................21
16. Rights of Action.......................................................22
17. Transfer and Ownership of Rights and
Right Certificates.....................................................22
18. Right Certificate Holder Not Deemed
a Shareholder.........................................................23
19. Concerning the Rights Agent............................................23
20. Merger or Consolidation or Change
of Rights Agent.......................................................24
21. Duties of Rights Agent.................................................24
22. Change of Rights Agent.................................................26
23. Issuance of Additional Rights and
Right Certificates....................................................27
24. Redemption and Termination.............................................27
25. Notices................................................................28
26. Supplements and Amendments.............................................29
27. Successors.............................................................30
28. Benefits of This Rights Agreement;
Determinations and Actions by the
Board of Directors, etc. .............................................30
29. Severability...........................................................30
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
Section Page
- ------- ----
<S> <C>
30. Governing Law..........................................................30
31. Counterparts; Effectiveness............................................30
32. Descriptive Headings...................................................31
</TABLE>
Exhibits
- --------
A. Certificate of Designation
B. Form of Right Certificate
ii
<PAGE>
RIGHTS AGREEMENT dated as of _________, 1998, between
SONOSIGHT, INC., a Washington
corporation (the "Company"), and FIRST CHICAGO TRUST
COMPANY OF NEW YORK, as Rights Agent (the "Rights Agent").
The Board of Directors of the Company has authorized and declared a dividend
of a Right (as hereinafter defined) having the rights assigned to it pursuant to
this Rights Agreement for each share of Common Stock and has authorized the
issuance of one Right (as such number may hereafter be adjusted pursuant to the
provisions of this Rights Agreement) with respect to each share of Common Stock
that shall become outstanding between the date of this Rights Agreement and the
earliest of the Distribution Date, the Redemption Date or the Expiration Date
(as such terms are hereinafter defined); provided, however, that Rights may be
-------- -------
issued with respect to shares of Common Stock that shall become outstanding
after the Distribution Date and prior to the earlier of the Redemption Date or
the Expiration Date in accordance with the provisions of Section 23. Each Right
shall initially represent the right to purchase one one-hundredth (1/100th) of a
share of Series A Participating Cumulative Preferred Stock, par value $1.00 per
share, of the Company (the "Preferred Shares"), having the powers, rights and
preferences set forth in the Certificate of Designation attached as Exhibit A.
Accordingly, in consideration of the premises and the mutual agreements herein
set forth, the parties hereby agree as follows:
Section 1. Certain Definitions. For purposes of this Rights Agreement, the
-------------------
following terms have the meanings indicated:
"Acquiring Person" shall mean any Person who or which, alone or together with
----------------
all Affiliates and Associates of such Person, shall be the Beneficial Owner of
15% or more of the Common Shares then outstanding, but shall not include (a) the
Company, any Subsidiary of the Company, any employee benefit plan of the Company
or of any of its Subsidiaries, or any Person holding Common Shares for or
pursuant to the terms of any such employee benefit plan or (b) any such Person
who has become such a Beneficial Owner solely because (i) of a change in the
aggregate number of Common Shares outstanding since the last date on which such
Person acquired Beneficial
1
<PAGE>
Ownership of any Common Shares or (ii) it acquired such Beneficial Ownership in
the good faith belief that such acquisition would not (x) cause such Beneficial
Ownership to exceed 15% of the Common Shares then outstanding and such Person
relied in good faith in computing the percentage of its Beneficial Ownership on
publicly filed reports or documents of the Company which are inaccurate or out-
of-date or (y) otherwise cause a Distribution Date or the adjustment provided
for in Section 11(a) to occur. Notwithstanding clause (b) of the prior sentence,
if any Person that is not an Acquiring Person due to such clause (b) does not
reduce its percentage of Beneficial Ownership of Common Shares to below 15% by
the Close of Business on the fifth Business Day after notice from the Company
(the date of notice being the first day) that such Person's Beneficial Ownership
of Common Shares so exceeds 15%, such Person shall, at the end of such five
Business Day period, become an Acquiring Person (and such clause (b) shall no
longer apply to such Person). For purposes of this definition, the
determination whether any Person acted in "good faith" shall be conclusively
determined by the Board of Directors of the Company, acting by a vote of those
directors of the Company whose approval would be required to redeem the Rights
under Section 24.
"Affiliate" and "Associate", when used with reference to any Person, shall
--------- ---------
have the respective meanings ascribed to such terms in Rule 12b-2 of the General
Rules and Regulations under the Exchange Act, as in effect on the date of this
Rights Agreement.
A Person shall be deemed the "Beneficial Owner" of, and shall be deemed to
----------------
"beneficially own", and shall be deemed to have "Beneficial Ownership" of, any
- ----------------- --------------------
securities:
(i) which such Person or any of such Person's Affiliates or Associates is
deemed to "beneficially own" within the meaning of Rule 13d-3 of the General
Rules and Regulations under the Exchange Act, as in effect on the date of this
Rights Agreement;
(ii) which such Person or any of such Person's Affiliates or Associates has
(A) the right to acquire (whether such right is exercisable immediately or only
after the passage of time) pursuant to any agreement, arrangement or
understanding (written or oral), or upon the exercise of conversion rights,
exchange rights, rights (other than the Rights), warrants or options, or
otherwise; provided, however, that a Person shall not be deemed the Beneficial
--------- -------
Owner of, or to beneficially own, or to have Beneficial Ownership of, securities
tendered pursuant to a tender or exchange offer made by or on behalf of such
Person or any of such Person's Affiliates or Associates until such tendered
securities are accepted for purchase or exchange thereunder or (B) the right to
vote pursuant to any agreement, arrangement or understanding (written or oral);
provided, however, that a Person shall not be deemed the Beneficial Owner of, or
- -------- -------
to beneficially own, any security if (1) the agreement, arrangement or the
Beneficial Owner of, or to beneficially own, any security if (1) the agreement,
arrangement or understanding (written or oral) to vote such security arises
solely from a revocable proxy or consent given to such Person in response to a
public proxy or consent
2
<PAGE>
solicitation made pursuant to, and in accordance with, the applicable rules and
regulations under the Exchange Act and (2) the beneficial ownership of such
security is not also then reportable on Schedule 13D under the Exchange Act (or
any comparable or successor report); or
(iii) which are beneficially owned, directly or indirectly, by any other
Person with which such Person or any of such Person's Affiliates or Associates
has any agreement, arrangement or understanding (written or oral) for the
purpose of acquiring, holding, voting (except pursuant to a revocable proxy as
described in clause (ii)(B) of this definition) or disposing of any securities
of the Company.
Notwithstanding the foregoing, nothing contained in this definition shall cause
a Person ordinarily engaged in business as an underwriter of securities to be
the "Beneficial Owner" of, or to "beneficially own", any securities acquired in
a bona fide firm commitment underwriting pursuant to an underwriting agreement
with the Company.
"Book Value", when used with reference to Common Shares issued by any Person,
----------
shall mean the amount of equity of such Person applicable to each Common Share,
determined (i) in accordance with generally accepted accounting principles in
effect on the date as of which such Book Value is to be determined, (ii) using
all the consolidated assets and all the consolidated liabilities of such Person
on the date as of which such Book Value is to be determined, except that no
value shall be included in such assets for goodwill arising from consummation of
a business combination, and (iii) after giving effect to (A) the exercise of all
rights, options and warrants to purchase such Common Shares (other than the
Rights), and the conversion of all securities convertible into such Common
Shares, at an exercise or conversion price, per Common Share, which is less than
such Book Value before giving effect to such exercise or conversion (whether or
not exercisability or convertibility is conditioned upon occurrence of a future
event), (B) all dividends and other distributions on the capital stock of such
Person declared prior to the date as of which such Book Value is to be
determined and to be paid or made after such date, and (C) any other agreement,
arrangement or understanding (written or oral), or transaction or other action
prior to the date as of which such Book Value is to be determined which would
have the effect of thereafter reducing such Book Value.
"Business Combination" shall have the meaning set forth in Section 11(c)(I).
--------------------
"Business Day" shall mean each Monday, Tuesday, Wednesday, Thursday and Friday
------------
which is not a day on which banking institutions in the Borough of Manhattan,
The City of New York, or Seattle, Washington are authorized or obligated by law
or executive order to close.
"Certificate of Designation" shall mean the Certificate of Designation of
---------------------------
Series A Participating Cumulative Preferred Stock setting forth the powers,
preferences, rights,
3
<PAGE>
qualifications, limitations and restrictions of such series of Preferred Stock
of the Company, a copy of which is attached as Exhibit A.
"Close of Business" on any given date shall mean 5:00 p.m., New York City
-----------------
time, on such date; provided, however, that, if such date is not a Business Day,
-------- -------
"Close of Business" shall mean 5:00 p.m., New York City time, on the next
succeeding Business Day.
"Common Shares", when used with reference to the Company prior to a Business
-------------
Combination, shall mean the shares of Common Stock of the Company or any other
shares of capital stock of the Company into which the Common Stock shall be
reclassified or changed. "Common Shares", when used with reference to any
Person (other than the Company prior to a Business Combination), shall mean
shares of capital stock of such Person (if such Person is a corporation) of any
class or series, or units of equity interests in such Person (if such Person is
not a corporation) of any class or series, the terms of which do not limit (as a
maximum amount and not merely in proportional terms) the amount of dividends or
income payable or distributable on such class or series or the amount of assets
distributable on such class or series upon any voluntary or involuntary
liquidation, dissolution or winding up of such Person and do not provide that
such class or series is subject to redemption at the option of such Person, or
any shares of capital stock or units of equity interests into which the
foregoing shall be reclassified or changed; provided, however, that, if at any
-------- -------
time there shall be more than one such class or series of capital stock or
equity interests of such Person, "Common Shares" of such Person shall include
all such classes and series substantially in the proportion of the total number
of shares or other units of each such class or series outstanding at such time.
"Common Stock" shall have the meaning set forth in the introductory paragraph
------------
of this Rights Agreement.
"Company" shall have the meaning set forth in the heading of this Rights
-------
Agreement; provided, however, that if there is a Business Combination, "Company"
--------- -------
shall have the meaning set forth in Section 11(c)(III). The term "control" with
-------
respect to any Person shall mean the power to direct the management and policies
of such Person, directly or indirectly, by or through stock ownership, agency or
otherwise, or pursuant to or in connection with an agreement, arrangement or
understanding (written or oral) with one or more other Persons by or through
stock ownership, agency or otherwise; and the terms "controlling" and
"controlled" shall have meanings correlative to the foregoing.
"Distribution Date" shall have the meaning set forth in Section 3(b).
-----------------
4
<PAGE>
"Exchange Act" shall mean the Securities Exchange Act of 1934, as in effect on
------------
the date in question, unless otherwise specifically provided.
"Exchange Consideration" shall have the meaning set forth in Section 11(b)(I).
----------------------
"Expiration Date" shall have the meaning set forth in Section 7(a).
---------------
"Major Part" when used with reference to the assets of the Company and its
----------
Subsidiaries as of any date shall mean assets (i) having a fair market value
aggregating 50% or more of the total fair market value of all the assets of the
Company and its Subsidiaries (taken as a whole) as of the date in question, (ii)
accounting for 50% or more of the total value (net of depreciation and
amortization) of all the assets of the Company and its Subsidiaries (taken as a
whole) as would be shown on a consolidated or combined balance sheet of the
Company and its Subsidiaries as of the date in question, prepared in accordance
with generally accepted accounting principles then in effect, or (iii)
accounting for 50% or more of the total amount of net income or revenues of the
Company and its Subsidiaries (taken as a whole) as would be shown on a
consolidated or combined statement of income of the Company and its Subsidiaries
for the period of 12 months ending on the last day of the Company's monthly
accounting period next preceding the date in question, prepared in accordance
with generally accepted accounting principles then in effect.
"Market Value", when used with reference to Common Shares on any date, shall
------------
be deemed to be the average of the daily closing prices, per share, of such
Common Shares for the period which is the shorter of (1) 30 consecutive Trading
Days immediately prior to the date in question or (2) the number of consecutive
Trading Days beginning on the Trading Day immediately after the date of the
first public announcement of the event requiring a determination of the Market
Value and ending on the Trading Day immediately prior to the record date of such
event; provided, however, that, in the event that the Market Value of such
--------- -------
Common Shares is to be determined in whole or in part during a period following
the announcement by the issuer of such Common Shares of any action of the type
described in Section 12(a) that would require an adjustment thereunder, then,
and in each such case, the Market Value of such Common Shares shall be
appropriately adjusted to reflect the effect of such action on the market price
of such Common Shares. The closing price for each Trading Day shall be the
closing price quoted on the composite tape for securities listed on the New York
Stock Exchange, or, if such securities are not quoted on such composite tape or
if such securities are not listed on such exchange, on the principal United
States securities exchange registered under the Exchange Act (or any recognized
foreign stock exchange) on which such securities are listed, or, if such
securities are not listed on any such exchange, the average of the closing bid
and asked quotations with respect to a share of such securities on the Nasdaq
National Market or such other system then in use, or if no such quotations are
available, the average of the closing bid and asked prices as furnished by a
professional market maker making a market in such securities selected by the
Board of Directors of the Company. If on any such Trading Day no
5
<PAGE>
market maker is making a market in such securities, the closing price of such
securities on such Trading Day shall be deemed to be the fair value of such
securities as determined in good faith by the Board of Directors of the Company
(whose determination shall be described in a statement filed with the Rights
Agent and shall be binding on the Rights Agent, the holders of Rights and all
other Persons); provided, however, that for the purpose of determining the
-------- -------
closing price of the Preferred Shares for any Trading Day on which there is no
such market maker for the Preferred Shares the closing price on such Trading Day
shall be deemed to be the Formula Number (as defined in the Certificate of
Designation) times the closing price of the Common Shares of the Company on such
Trading Day.
"Person" shall mean an individual, corporation, partnership, joint venture,
------
association, trust, unincorporated organization or other entity.
"Preferred Shares" shall have the meaning set forth in the introductory
----------------
paragraph of this Rights Agreement. Any reference in this Rights Agreement to
Preferred Shares shall be deemed to include any authorized fraction of a
Preferred Share, unless the context otherwise requires.
"Principal Party" shall mean the Surviving Person in a Business Combination;
---------------
provided, however, that, if such Surviving Person is a direct or indirect
- -------- -------
Subsidiary of any other Person, "Principal Party" shall mean the Person which is
the ultimate parent of such Surviving Person and which is not itself a
Subsidiary of another Person. In the event ultimate control of such Surviving
Person is shared by two or more Persons, "Principal Party" shall mean that
Person that is immediately controlled by such two or more Persons.
"Purchase Price" with respect to each Right shall mean the product of four
--------------
times the average of the high and low sales prices of a share of the Company's
Common Stock quoted on Nasdaq National Market for each of the 10 Trading Days
commencing on the sixth Trading Day following the date of this Rights Agreement,
as such amount may from time to time be adjusted as provided herein, and shall
be payable in lawful money of the United States of America. All references
herein to the Purchase Price shall mean the Purchase Price as in effect at the
time in question.
"Record Date" shall have the meaning set forth in the introductory paragraph
-----------
of this Rights Agreement.
"Redemption Date" shall have the meaning set forth in Section 24(a).
---------------
"Redemption Price" with respect to each Right shall mean $.01, as such amount
----------------
may from time to time be adjusted in accordance with Section 12. All references
herein to the Redemption Price shall mean the Redemption Price as in effect at
the time in question.
6
<PAGE>
"Registered Common Shares" shall mean Common Shares which are, as of the date
------------------------
of consummation of a Business Combination, and have continuously been for the 12
months immediately preceding such date, registered under Section 12 of the
Exchange Act.
"Right Certificate" shall mean a certificate evidencing a Right in
-----------------
substantially the form attached as Exhibit B.
"Rights" shall mean the rights to purchase Preferred Shares (or other
------
securities) as provided in this Rights Agreement.
"Securities Act" shall mean the Securities Act of 1933, as in effect on the
--------------
date in question, unless otherwise specifically provided.
"Subsidiary" shall mean a Person, at least a majority of the total outstanding
----------
voting power (being the power under ordinary circumstances (and not merely upon
the happening of a contingency) to vote in the election of directors of such
Person (if such Person is a corporation) or to participate in the management and
control of such Person (if such Person is not a corporation) of which is owned,
directly or indirectly, by another Person or by one or more other Subsidiaries
of such other Person or by such other Person and one or more other Subsidiaries
of such other Person.
"Surviving Person" shall mean (1) the Person which is the continuing or
----------------
surviving Person in a consolidation or merger specified in Section 11(c)(I)(i)
or 11(c)(I)(ii) or (2) the Person to which the Major Part of the assets of the
Company and its Subsidiaries is sold, leased, exchanged or otherwise transferred
or disposed of in a transaction specified in Section 11(c)(I)(iii); provided,
---------
however, that, if the Major Part of the assets of the Company and its
- -------
Subsidiaries is sold, leased, exchanged or otherwise transferred or disposed of
in one or more related transactions specified in Section 11(c)(I)(iii) to more
than one Person, the "Surviving Person" in such case shall mean the Person that
acquired assets of the Company and/or its Subsidiaries with the greatest fair
market value in such transaction or transactions.
"Trading Day" shall mean a day on which the principal national securities
-----------
exchange (or principal recognized foreign stock exchange, as the case may be) on
which any securities or Rights, as the case may be, are listed or admitted to
trading is open for the transaction of business or, if the securities or Rights
in question are not listed or admitted to trading on any national securities
exchange (or recognized foreign stock exchange, as the case may be), a Business
Day.
Section 2. Appointment of Rights Agent. The Company hereby appoints the
-----------------------------
Rights Agent to act as agent for the Company and the holders of the Rights (who
prior to the Distribution Date shall also be the holders of the Common Stock) in
accordance
7
<PAGE>
with the terms and conditions hereof, and the Rights Agent hereby accepts such
appointment. The Company may from time to time appoint one or more co-Rights
Agents as it may deem necessary or desirable (the term "Rights Agent" being used
herein to refer, collectively, to the Rights Agent together with any such co-
Rights Agents). In the event the Company appoints one or more co-Rights Agents,
the respective duties of the Rights Agent and any co-Rights Agents shall be as
the Company shall determine.
Section 3. Issue of Rights and Right Certificates. (a) One Right shall be
---------------------------------------
associated with each Common Share outstanding on the Record Date, each
additional Common Share that shall become outstanding between the Record Date
and the earliest of the Distribution Date, the Redemption Date or the Expiration
Date and each additional Common Share with which Rights are issued after the
Distribution Date but prior to the earlier of the Redemption Date or the
Expiration Date as provided in Section 23; provided, however, that, if the
-------- -------
number of outstanding Rights are combined into a smaller number of outstanding
Rights pursuant to Section 12(a), the appropriate fractional Right determined
pursuant to such Section shall thereafter be associated with each such Common
Share.
(b) Until the earlier of (i) such time as the Company learns that a Person
has become an Acquiring Person or (ii) the Close of Business on such date, if
any, as may be designated by the Board of Directors of the Company following the
commencement of, or first public disclosure of an intent to commence, a tender
or exchange offer by any Person (other than the Company, any Subsidiary of the
Company, any employee benefit plan of the Company or of any of its Subsidiaries,
or any Person holding Common Shares for or pursuant to the terms of any such
employee benefit plan) for outstanding Common Shares, if upon consummation of
such tender or exchange offer such Person could be the Beneficial Owner of 15%
or more of the outstanding Common Shares (the Close of Business on the earlier
of such dates being the "Distribution Date"), (x) the Rights will be evidenced
by the certificates for Common Shares registered in the names of the holders
thereof and not by separate Right Certificates and (y) the Rights, including the
right to receive Right Certificates, will be transferable only in connection
with the transfer of Common Shares. As soon as practicable after the
Distribution Date, the Rights Agent will send, by first-class, postage-prepaid
mail, to each record holder of Common Shares as of the Distribution Date, at the
address of such holder shown on the records of the Company, a Right Certificate
evidencing one whole Right for each Common Share (or for the number of Common
Shares with which one whole Right is then associated if the number of Rights per
Common Share held by such record holder has been adjusted in accordance with the
proviso in Section 3(a)). If the number of Rights associated with each Common
Share has been adjusted in accordance with the proviso in Section 3(a), at the
time of distribution of the Right Certificates the Company may make any
necessary and appropriate rounding adjustments so that Right Certificates
representing only whole numbers of Rights are distributed and cash is paid
8
<PAGE>
in lieu of any fractional Right in accordance with Section 15(a). As of and
after the Distribution Date, the Rights will be evidenced solely by such Right
Certificates.
(c) With respect to any certificate for Common Shares, until the earliest of
the Distribution Date, the Redemption Date or the Expiration Date, the Rights
associated with the Common Shares represented by any such certificate shall be
evidenced by such certificate alone, the registered holders of the Common Shares
shall also be the registered holders of the associated Rights and the surrender
for transfer of any such certificate shall also constitute the transfer of the
Rights associated with the Common Shares represented thereby.
(d) Certificates issued for Common Shares after the date hereof (including,
without limitation, upon transfer or exchange of outstanding Common Shares), but
prior to the earliest of the Distribution Date, the Redemption Date or the
Expiration Date, shall have printed on, written on or otherwise affixed to them
the following legend:
This certificate also evidences and entitles the holder hereof to
certain Rights as set forth in an Rights Agreement dated as of April 6,
1998, as it may be amended from time to time (the "Rights Agreement"),
between SonoSight, Inc. and First Chicago Trust Company of New York, as
Rights Agent, the terms of which are hereby incorporated herein by
reference and a copy of which is on file at the principal executive offices
of SonoSight, Inc. Under certain circumstances, as set forth in the Rights
Agreement, such Rights will be evidenced by separate certificates and will
no longer be evidenced by this certificate. The Corporation will mail to
the holder of this certificate a copy of the Rights Agreement without
charge after receipt of a written request therefor. Rights beneficially
owned by Acquiring Persons or their Affiliates or Associates (as such terms
are defined in the Rights Agreement) and by any subsequent holder of such
Rights are null and void and nontransferable.
Notwithstanding the requirements of this paragraph (d), the omission of a
legend shall not affect the enforceability of any part of this Rights Agreement
or the rights of any holder of Rights.
Section 4. Form of Right Certificates. The Right Certificates (and the form
--------------------------
of election to purchase and form of assignment to be printed on the reverse side
thereof) shall be in substantially the form set forth as Exhibit B and may have
such marks of identification or designation and such legends, summaries or
endorsements printed thereon as the Company may deem appropriate and as are not
inconsistent with the provisions of this Rights Agreement, or as may be required
to comply with any applicable law or with any rule or regulation made pursuant
thereto or with any rule or regulation of any stock exchange on which the Rights
may from time to time be listed,
9
<PAGE>
or to conform to usage. Subject to the provisions of Sections 7, 11 and 23, the
Right Certificates, whenever issued, shall be dated as of the Distribution Date,
and on their face shall entitle the holders thereof to purchase such number of
Preferred Shares as shall be set forth therein for the Purchase Price set forth
therein.
Section 5. Execution Countersignature and Registration. (a) The Right
-------------------------------------------
Certificates shall be executed on behalf of the Company by the Chairman of the
Board, the Chief Executive Officer, the President, the Chief Operating Officer
or a Vice President (whether preceded by any additional title) of the Company,
either manually or by facsimile signature, and have affixed thereto the
Company's seal or a facsimile thereof which shall be attested by the Secretary,
an Assistant Secretary or a Vice President (whether preceded by any additional
title, provided that such Vice President shall not have also executed the Right
Certificates) of the Company, either manually or by facsimile signature. The
Right Certificates shall be manually countersigned by the Rights Agent and shall
not be valid or obligatory for any purpose unless so countersigned. In case any
officer of the Company who shall have signed any of the Right Certificates shall
cease to be such an officer of the Company before countersignature by the Rights
Agent and issuance and delivery by the Company, such Right Certificates may
nevertheless be countersigned by the Rights Agent and issued and delivered by
the Company with the same force and effect as though the person who signed such
Right Certificates had not ceased to be such an officer of the Company; and any
Right Certificate may be signed on behalf of the Company by any person who, at
the actual date of execution of such Right Certificate, shall be a proper
officer of the Company to sign such Right Certificate, although at the date of
execution of this Rights Agreement any such person was not such an officer of
the Company.
(b) Following the Distribution Date, the Rights Agent will keep or cause to
be kept, at its principal office in Jersey City, New Jersey, books for
registration and transfer of the Right Certificates issued hereunder. Such
books shall show the names and addresses of the respective holders of the Right
Certificates, the number of Rights evidenced by each of the Right Certificates,
the certificate number of each of the Right Certificates and the date of each of
the Right Certificates.
Section 6. Transfer, Split-Up, Combination and Exchange of Right
-----------------------------------------------------
Certificates; Mutilated. Destroyed, Lost or Stolen Right Certificates;
- ----------------------------------------------------------------------
Uncertificated Rights. (a) Subject to the provisions of Sections 7(e) and 15,
- ---------------------
at any time after the Distribution Date, and at or prior to the Close of
Business on the earlier of the Redemption Date or the Expiration Date, any Right
Certificate or Right Certificates may be transferred, split-up, combined or
exchanged for another Right Certificate or Right Certificates representing, in
the aggregate, the same number of Rights as the Right Certificate or Right
Certificates surrendered then represented. Any registered holder desiring to
transfer, split-up, combine or exchange any Right Certificate shall make such
request in writing delivered to the Rights Agent and shall surrender the Right
Certificate or Right Certificates to be transferred, split-up, combined or
exchanged at the principal office of the Rights Agent;
10
<PAGE>
provided, however, that neither the Rights Agent nor the Company shall be
- -------- -------
obligated to take any action whatsoever with respect to the transfer of any
Right Certificate surrendered for transfer until the registered holder shall
have completed and signed the certification contained in the form of assignment
on the reverse side of such Right Certificate and shall have provided such
additional evidence of the identity of the Beneficial Owner (or former
Beneficial Owner) or Affiliates or Associates thereof as the Company shall
reasonably request. Thereupon the Rights Agent shall, subject to Sections 7(e)
and 15, countersign and deliver to the Person entitled thereto a Right
Certificate or Right Certificates, as the case may be, as so requested. The
Company may require payment of a sum sufficient to cover any tax or governmental
charge that may be imposed in connection with any transfer, split-up,
combination or exchange of Right Certificates.
(b) Upon receipt by the Company and the Rights Agent of evidence reasonably
satisfactory to them of the loss, theft, destruction or mutilation of a valid
Right Certificate, and, in case of loss, theft or destruction, of indemnity or
security reasonably satisfactory to them, and, at the Company's request,
reimbursement to the Company and the Rights Agent of all reasonable expenses
incidental thereto, and up on surrender to the Rights Agent and cancellation of
the Right Certificate if mutilated, the Company will make a new Right
Certificate of like tenor and deliver such new Right Certificate to the Rights
Agent for delivery to the registered owner in lieu of the Right Certificate so
lost, stolen, destroyed or mutilated.
(c) Notwithstanding any other provision hereof, the Company and the Rights
Agent may amend this Rights Agreement to provide for uncertificated Rights in
addition to or in place of Rights evidenced by Right Certificates.
Section 7. Exercise of Rights: Expiration Date of Rights. (a) Subject to
---------------------------------------------
Section 7(e) and except as otherwise provided herein (including Section 11),
each Right shall entitle the registered holder thereof, upon exercise thereof as
provided herein, to purchase for the Purchase Price, at any time after the
Distribution Date and at or prior to the earlier of (i) the Close of Business on
_______, 2008 (the Close of Business on such date being the "Expiration Date"),
or (ii) the Redemption Date, one one-hundredth (l/100th) of a Preferred Share,
subject to adjustment from time to time as provided in Sections 11 and 12.
(b) The registered holder of any Right Certificate may exercise the Rights
evidenced thereby (except as otherwise provided herein) in whole or in part at
any time after the Distribution Date, upon surrender of the Right Certificate,
with the form of election to purchase on the reverse side thereof duly executed,
to the Rights Agent at the principal office of the Rights Agent in Jersey City,
New Jersey, together with payment of the Purchase Price for each one one-
hundredth (1/100th) of a Preferred Share as to which the Rights are exercised,
at or prior to the earlier of (i) the Expiration Date or (ii) the Redemption
Date.
11
<PAGE>
(c) Upon receipt of a Right Certificate representing exercisable Rights, with
the form of election to purchase duly executed, accompanied by payment of the
Purchase Price for the Preferred Shares to be purchased together with an amount
equal to any applicable transfer tax, in lawful money of the United States of
America, in cash or by certified check or money order payable to the order of
the Company, the Rights Agent shall thereupon (i) either (A) promptly
requisition from any transfer agent of the Preferred Shares (or make available,
if the Rights Agent is the transfer agent) certificates for the number of
Preferred Shares to be purchased and the Company hereby irrevocably authorizes
its transfer agent to comply with all such requests or (B) if the Company shall
have elected to deposit the Preferred Shares with a depositary agent under a
depositary arrangement, promptly requisition from the depositary agent
depositary receipts representing the number of one one-hundredths (1/100ths) of
a Preferred Share to be purchased (in which case certificates for the Preferred
Shares to be represented by such receipts shall be deposited by the transfer
agent with the depositary agent) and the Company will direct the depositary
agent to comply with all such requests, (ii) when appropriate, promptly
requisition from the Company the amount of cash to be paid in lieu of issuance
of fractional shares in accordance with Section 15, (iii) promptly after receipt
of such certificates or depositary receipts, cause the same to be delivered to
or upon the order of the registered holder of such Right Certificate, registered
in such name or names as may be designated by such holder and (iv) when
appropriate, after receipt promptly deliver such cash to or upon the order of
the registered holder of such Right Certificate.
(d) In case the registered holder of any Right Certificate shall exercise
fewer than all the Rights evidenced thereby, a new Right Certificate evidencing
Rights equivalent to the Rights remaining unexercised shall be issued by the
Rights Agent and delivered to the registered holder of such Right Certificate or
to his duly authorized assigns, subject to the provisions of Section 15.
(e) Notwithstanding anything in this Rights Agreement to the contrary, any
Rights that are at any time beneficially owned by an Acquiring Person or any
Affiliate or Associate of an Acquiring Person shall be null and void and
nontransferable, and any holder of any such Right (including any purported
transferee or subsequent holder) shall not have any right to exercise or
transfer any such Right.
(f) Notwithstanding anything in this Rights Agreement to the contrary,
neither the Rights Agent nor the Company shall be obligated to undertake any
action with respect to a registered holder of any Right Certificates upon the
occurrence of any purported exercise as set forth in this Section 7 unless such
registered holder shall have (i) completed and signed the certificate contained
in the form of election to purchase set forth on the reverse side of the Right
Certificate surrendered for such exercise and (ii) provided such additional
evidence of the identity of the Beneficial Owner (or former
12
<PAGE>
Beneficial Owner) or Affiliates or Associates thereof as the Company shall
reasonably request.
(g) The Company may temporarily suspend, for a period of time not to exceed
90 calendar days after the Distribution Date, the exercisability of the Rights
in order to prepare and file a registration statement under the Securities Act,
on an appropriate form, with respect to the Preferred Shares purchasable upon
exercise of the Rights and permit such registration statement to become
effective; provided, however, that no such suspension shall remain effective
-------- -------
after, and the Rights shall without any further action by the Company or any
other Person become exercisable immediately upon, the effectiveness of such
registration statement. Upon any such suspension, the Company shall issue a
public announcement stating that the exercisability of the Rights has been
temporarily suspended and shall issue a further public announcement at such time
as the suspension is no longer in effect. Notwithstanding any provision herein
to the contrary, the Rights shall not be exercisable in any jurisdiction if the
requisite qualification under the blue sky or securities laws of such
jurisdiction shall not have been obtained or the exercise of the Rights shall
not be permitted under applicable law.
Section 8. Cancellation and Destruction of Right Certificates. All Right
--------------------------------------------------
Certificates surrendered or presented for the purpose of exercise, transfer,
split-up, combination or exchange shall, and any Right Certificate representing
Rights that have become null and void and nontransferable pursuant to Section
7(e) surrendered or presented for any purpose shall, if surrendered or presented
to the Company or to any of its agents, be delivered to the Rights Agent for
cancellation or in canceled form, or, if surrendered or presented to the Rights
Agent, shall be canceled by it, and no Right Certificates shall be issued in
lieu thereof except as expressly permitted by this Rights Agreement. The Company
shall deliver to the Rights Agent for cancellation and retirement, and the
Rights Agent shall so cancel and retire, any Right Certificate purchased or
acquired by the Company. The Rights Agent shall deliver all canceled Right
Certificates to the Company, or shall, at the written request of the Company,
destroy such canceled Right Certificates, and in such case shall deliver a
certificate of destruction thereof to the Company.
Section 9. Reservation and Availability of Preferred Shares. (a) The
------------------------------------------------
Company covenants and agrees that it will cause to be reserved and kept
available out of its authorized and unissued Preferred Shares or any authorized
and issued Preferred Shares held in its treasury, free from preemptive rights or
any right of first refusal, a number of Preferred Shares sufficient to permit
the exercise in full of all outstanding Rights.
(b) In the event that there shall not be sufficient Preferred Shares issued
but not outstanding or authorized but unissued to permit the exercise or
exchange of Rights in accordance with Section 11, the Company covenants and
agrees that it will take all such
13
<PAGE>
action as may be necessary to authorize additional Preferred Shares for issuance
upon the exercise or exchange of Rights pursuant to Section 11.
(c) The Company covenants and agrees that it will take all such action as may
be necessary to ensure that all Preferred Shares delivered upon exercise or
exchange of Rights shall, at the time of delivery of the certificates for such
Preferred Shares (subject to payment of the Purchase Price), be duly and validly
authorized and issued and fully paid and nonassessable shares.
(d) So long as the Preferred Shares issuable upon the exercise or exchange of
Rights are to be listed on any national securities exchange, the Company
covenants and agrees to use its best efforts to cause, from and after such time
as the Rights become exercisable or exchangeable, all Preferred Shares reserved
for such issuance to be listed on such securities exchange upon official notice
of issuance upon such exercise or exchange.
(e) The Company further covenants and agrees that it will pay when due and
payable any and all Federal and state transfer taxes and charges which may be
payable in respect of the issuance or delivery of Right Certificates or of any
Preferred Shares upon the exercise or exchange of the Rights. The Company shall
not, however, be required to pay any transfer tax which may be payable in
respect of any transfer or delivery of Right Certificates to a Person other
than, or in respect of the issuance or delivery of certificates for the
Preferred Shares in a name other than that of, the registered holder of the
Right Certificate evidencing Rights surrendered for exercise or exchange or to
issue or deliver any certificates for Preferred Shares upon the exercise or
exchange of any Rights until any such tax shall have been paid (any such tax
being payable by the holder of such Right Certificate at the time of surrender)
or until it has been established to the Company's satisfaction that no such tax
is due.
Section 10. Preferred Shares Record Date. Each Person in whose name any
----------------------------
certificate for Preferred Shares is issued upon the exercise or exchange of
Rights shall for all purposes be deemed to have become the holder of record of
the Preferred Shares represented thereby on, and such certificate shall be
dated, the date upon which the Right Certificate evidencing such Rights was duly
surrendered and payment of any Purchase Price (and any applicable transfer
taxes) was made; provided, however, that, if the date of such surrender and
-------- -------
payment is a date upon which the Preferred Shares transfer books of the Company
are closed, such Person shall be deemed to have become the record holder of such
shares on, and such certificate shall be dated, the next succeeding Business Day
on which the Preferred Shares transfer books of the Company are open.
14
<PAGE>
Section 11. Adjustments in Rights After There Is an Acquiring Person:
---------------------------------------------------------
Exchange of Rights for Shares: Business Combinations. (a) Upon a Person
- ----------------------------------------------------
becoming an Acquiring Person, proper provision shall be made so that each holder
of a Right, except as provided in Section 7(e), shall thereafter have a right to
receive, upon exercise thereof for the Purchase Price in accordance with the
terms of this Rights Agreement, such number of one one-hundredths (1/100ths) of
a Preferred Share as shall equal the result obtained by multiplying the Purchase
Price by a fraction, the numerator of which is the number of one one-hundredths
(1/100ths) of a Preferred Share for which a Right is then exercisable and the
denominator of which is 50% of the Market Value of the Common Shares on the date
on which a Person becomes an Acquiring Person. As soon as practicable after a
Person becomes an Acquiring Person (provided the Company shall not have elected
to make the exchange permitted by Section 11(b)(I) for all outstanding Rights),
the Company covenants and agrees to use its best efforts to:
(I) prepare and file a registration statement under the Securities Act, on an
appropriate form, with respect to the Preferred Shares purchasable upon exercise
of the Rights;
(II) cause such registration statement to become effective as soon as
practicable after such filing;
(III) cause such registration statement to remain effective (with a
prospectus at all times meeting the requirements of the Securities Act) until
the Expiration Date; and
(IV) qualify or register the Preferred Shares purchasable upon exercise of
the Rights under the blue-sky or securities laws of such jurisdictions as may be
necessary or appropriate.
(b)(I) The Board of Directors of the Company may, at its option, at any time
after a Person becomes an Acquiring Person, mandatorily exchange all or part of
the then outstanding and exercisable Rights (which shall not include Rights that
shall have become null and void and nontransferable pursuant to the provisions
of Section 7(e)) for consideration per Right consisting of one-half of the
securities that would be issuable at such time upon the exercise of one Right in
accordance with Section 11(a) (the consideration issuable per Right pursuant to
this Section 11(b)(I) being the "Exchange Consideration"). The Board of
Directors of the Company may, at its option, issue, in substitution for
Preferred Shares, Common Shares in an amount per Preferred Share equal to the
Formula Number (as defined in the Certificate of Designation) if there are
sufficient Common Shares issued but not outstanding or authorized but unissued.
If the Board of Directors of the Company elects to exchange all the Rights for
Exchange Consideration pursuant to this Section 11(b)(I) prior to the physical
distribution of the Rights Certificates, the
15
<PAGE>
Corporation may distribute Exchange Consideration in lieu of distributing Rights
Certificates, in which case for purposes of this Rights Agreement holders of
Rights shall be deemed to have simultaneously received and surrendered for
exchange Rights Certificates on the date of such distribution.
(II) Any action of the Board of Directors of the Company ordering the
exchange of any Rights pursuant to Section 11(b)(I) shall be irrevocable and,
immediately upon the taking of such action and without any further action and
without any notice, the right to exercise any such Right pursuant to Section
11(a) shall terminate and the only right thereafter of a holder of such Right
shall be to receive the Exchange Consideration in exchange for each such Right
held by such holder or, if the Exchange Consideration shall not have been paid,
to exercise any such Right pursuant to Section 11 (c)(I). The Company shall
promptly give public notice of any such exchange; provided, however, that the
-------- -------
failure to give, or any defect in, such notice shall not affect the validity of
such exchange. The Company promptly shall mail a notice of any such exchange to
all holders of such Rights at their last addresses as they appear upon the
registry books of the Rights Agent. Any notice which is mailed in the manner
herein provided shall be deemed given, whether or not the holder receives the
notice. Each such notice of exchange will state the method by which the
exchange of the Rights for the Exchange Consideration will be effected and, in
the event of any partial exchange, the number of Rights which will be exchanged.
Any partial exchange shall be effected pro rata based on the number of Rights
(other than Rights which shall have become null and void and nontransferable
pursuant to the provisions of Section 7(e)) held by each holder of Rights.
(c)(I) In the event that, following a Distribution Date, directly or
indirectly, any transactions specified in the following clause (i), (ii) or
(iii) of this Section 11(c) (each such transaction being a "Business
Combination") shall be consummated:
(I) the Company shall consolidate with, or merge with and into, any other
Person;
(ii) any Person shall merge with and into the Company and, in connection with
such merger, all or part of the Common Shares shall be changed into or exchanged
for capital stock or other securities of the Company or of any other Person or
cash or any other property; or
(iii) the Company shall sell, lease, exchange or otherwise transfer or
dispose of (or one or more of its Subsidiaries shall sell, lease, exchange or
otherwise transfer or dispose of), in one or more transactions, the Major Part
of the assets of the Company and its Subsidiaries (taken as a whole) to any
other
16
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Person or Persons, then, in each such case, proper provision shall be made so
that each holder of a Right, except as provided in Section 7(e), shall
thereafter have the right to receive, upon the exercise thereof for the Purchase
Price in accordance with the terms of this Rights Agreement, the securities
specified below (or, at such holder's option, if any Business Combination is
consummated at any time after a Person becomes an Acquiring Person, the
securities specified in Section 11(a)):
(A) If the Principal Party in such Business Combination has Registered Common
Shares outstanding, each Right shall thereafter represent the right to receive,
upon the exercise thereof for the Purchase Price in accordance with the terms of
this Rights Agreement, such number of Registered Common Shares of such Principal
Party, free and clear of all liens, encumbrances or other adverse claims, as
shall have an aggregate Market Value equal to the result obtained by multiplying
the Purchase Price by two,
(B) If the Principal Party in such Business Combination does not have
Registered Common Shares outstanding, each Right shall thereafter represent the
right to receive, upon the exercise thereof for the Purchase Price in accordance
with the terms of this Rights Agreement, at the election of the holder of such
Right at the time of the exercise thereof, any of:
(1) such number of Common Shares of the Surviving Person in such
Business Combination as shall have an aggregate Book Value immediately
after giving effect to such Business Combination equal to the result
obtained by multiplying the Purchase Price by two;
(2) such number of Common Shares of the Principal Party in such
Business Combination (if the Principal Party is not also the Surviving
Person in such Business Combination) as shall have an aggregate Book Value
immediately after giving effect to such Business Combination equal to the
result obtained by multiplying the Purchase Price by two; or
(3) if the Principal Party in such Business Combination is an
Affiliate of one or more Persons which has Registered Common Shares
outstanding, such number of Registered Common Shares of whichever of such
Affiliates of the Principal Party has Registered Common Shares with the
greatest aggregate Market Value on the date of consummation of such
Business Combination as shall have an aggregate Market Value on the date of
such Business Combination equal to the result obtained by multiplying the
Purchase Price by two.
17
<PAGE>
(II) The Company shall not consummate any Business Combination unless each
issuer of Common Shares for which Rights may be exercised, as set forth in this
Section 11(c), shall have sufficient authorized Common Shares that have not been
issued or reserved for issuance (and which shall, when issued upon exercise
thereof in accordance with this Rights Agreement, be validly issued, fully paid
and nonassessable and free of preemptive rights, rights of first refusal or any
other restrictions or limitations on the transfer or ownership thereof) to
permit the exercise in full of the Rights in accordance with this Section 11(c)
and unless prior thereto:
(i) a registration statement under the Securities Act on an appropriate
form, with respect to the Rights and the Common Shares of such issuer
purchasable upon exercise of the Rights, shall be effective under the
Securities Act; and
(ii) the Company and each such issuer shall have:
(A) executed and delivered to the Rights Agent a supplemental
agreement providing for the assumption by such issuer of the obligations
set forth in this Section 11(c) (including the obligation of such issuer to
issue Common Shares upon the exercise of Rights in accordance with the
terms set forth in Sections 11(c)(I) and 11(c)(III)) and further providing
that such issuer, at its own expense, will use its best efforts to:
(1) cause a registration statement under the Securities Act on an
appropriate form, with respect to the Rights and the Common Shares of
such issuer purchasable upon exercise of the Rights, to remain
effective (with a prospectus at all times meeting the requirements of
the Securities Act) until the Expiration Date;
(2) qualify or register the Rights and the Common Shares of such
issuer purchasable upon exercise of the Rights under the blue sky or
securities laws of such jurisdictions as may be necessary or
appropriate; and
(3) list the Rights and the Common Shares of such issuer purchasable
upon exercise of the Rights on each national securities exchange on
which the Common Shares were listed prior to the consummation of the
Business Combination or, if the Common Shares were not listed on a
national securities exchange prior to the consummation of the Business
Combination, on a national securities exchange;
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<PAGE>
(B) furnished to the Rights Agent a written opinion of independent
counsel stating that such supplemental agreement is a valid, binding and
enforceable agreement of such issuer; and
(C) filed with the Rights Agent a certificate of a nationally
recognized firm of independent accountants setting forth the number of
Common Shares of such issuer which may be purchased upon the exercise of
each Right after the consummation of such Business Combination.
(III) After consummation of any Business Combination and subject to the
provisions of Section 11(c)(II), (i) each issuer of Common Shares for which
Rights may be exercised as set forth in this Section 11(c) shall be liable for,
and shall assume, by virtue of such Business Combination, all the obligations
and duties of the Company pursuant to this Rights Agreement, (ii) the term
"Company" shall thereafter be deemed to refer to such issuer, (iii) each such
issuer shall take such steps in connection with such consummation as may be
necessary to assure that the provisions hereof (including the provisions of
Sections 11(a) and 11(b)) shall thereafter be applicable, as nearly as
reasonably may be, in relation to its Common Shares thereafter deliverable upon
the exercise of the Rights, and (iv) the number of Common Shares of each such
issuer thereafter receivable upon exercise of any Right shall be subject to
adjustment from time to time in a manner and on terms as nearly equivalent as
practicable to the provisions of Sections 11(a) and 12(a) and the provisions of
Sections 7, 9 and 10 with respect to the Preferred Shares shall apply, as nearly
as reasonably may be, on like terms to any such Common Shares.
Section 12. Certain Adjustments. (a) To preserve the actual or potential
-------------------
economic value of the Rights, if at any time after the date of this Rights
Agreement there shall be any change in the Common Shares or the Preferred
Shares, whether by reason of stock dividends, stock splits, recapitalizations,
mergers, consolidations, combinations or exchanges of securities, split-ups,
split-offs, spin-offs, liquidations, other similar changes in capitalization,
any distribution or issuance of cash, assets, evidences of indebtedness or
subscription rights, options or warrants to holders of Common Shares or
Preferred Shares, as the case may be (other than the Rights or regular quarterly
cash dividends) or otherwise, then, in each such event the Board of Directors of
the Company shall make such appropriate adjustments in the number of Preferred
Shares (or the number and kind of other securities) issuable upon exercise of
each Right, the Purchase Price and Redemption Price in effect at such time and
the number of Rights outstanding at such time (including the number of Rights or
fractional Rights associated with each Common Share) such that following such
adjustment such event shall not have had the effect of reducing or limiting the
benefits the holders of the Rights would have had absent such event.
(b) If, as a result of an adjustment made pursuant to Section 12(a), the
holder of any Right thereafter exercised shall become entitled to receive any
securities other than
19
<PAGE>
Preferred Shares, thereafter the number of such securities so receivable upon
exercise of any Right shall be subject to adjustment from time to time in a
manner and on terms as nearly equivalent as practicable to the provisions of
Sections 11(a) and 12(a) and the provisions of Sections 7, 9 and 10 with respect
to the Preferred Shares shall apply, as nearly as reasonably may be, on like
terms to any such other securities.
(c) All Rights originally issued by the Company subsequent to any adjustment
made to the amount of Preferred Shares or other securities relating to a Right
shall evidence the right to purchase, for the Purchase Price, the adjusted
number and kind of securities purchasable from time to time hereunder upon
exercise of the Rights, all subject to further adjustment as provided herein.
(d) Irrespective of any adjustment or change in the Purchase Price or the
number of Preferred Shares or number or kind of other securities issuable upon
the exercise of the Rights, the Right Certificates theretofore and thereafter
issued may continue to express the terms which were expressed in the initial
Right Certificates issued hereunder.
(e) In any case in which action taken pursuant to Section 12(a) requires that
an adjustment be made effective as of a record date for a specified event, the
Company may elect to defer until the occurrence of such event the issuing to the
holder of any Right exercised after such record date the Preferred Shares and/or
other securities, if any, issuable upon such exercise over and above the
Preferred Shares and/or other securities, if any, issuable before giving effect
to such adjustment; Provided, however, that the Company shall deliver to such
--------- -------
holder a due bill or other appropriate instrument evidencing such holder's right
to receive such additional securities upon the occurrence of the event requiring
such adjustment.
Section 13. Certificate of Adjustment. Whenever an adjustment is made as
-------------------------
provided in Section 11 or 12, the Company shall (a) promptly prepare a
certificate setting forth such adjustment and a brief statement of the facts
accounting for such adjustment (b) promptly file with the Rights Agent and with
each transfer agent for the Preferred Shares a copy of such certificate and (c)
mail a brief summary thereof to each holder of a Right Certificate (or, prior to
the Distribution Date, of the Common Shares) in accordance with Section 25. The
Rights Agent shall be fully protected in relying on any such certificate and on
any adjustment therein contained.
Section 14. Additional Covenants. (a) Notwithstanding any other provision of
--------------------
this Rights Agreement, no adjustment to the number of Preferred Shares (or
fractions of a share) or other securities for which a Right is exercisable or
the number of Rights outstanding or associated with each Common Share or any
similar or other adjustment shall be made or be effective if such adjustment
would have the effect of reducing or limiting the benefits the holders of the
Rights would have had absent such adjustment,
20
<PAGE>
including, without limitation, the benefits under Sections 11 and 12, unless the
terms of this Rights Agreement are amended so as to preserve such benefits.
(b) The Company covenants and agrees that, after the Distribution Date,
except as permitted by Section 26, it will not take (or permit any Subsidiary of
the Company to take) any action if at the time such action is taken it is
reasonably foreseeable that such action will reduce or otherwise limit the
benefits the holders of the Rights would have had absent such action, including,
without limitation, the benefits under Sections 11 and 12. Any action taken by
the Company during any period after any Person becomes an Acquiring Person but
prior to the Distribution Date shall be null and void unless such action could
be taken under this Section 14(b) from and after the Distribution Date.
Section 15. Fractional Rights and Fractional Shares. (a) The Company may,
---------------------------------------
but shall not be required to, issue fractions of Rights or distribute Right
Certificates which evidence fractional Rights. In lieu of such fractional
Rights, the Company may pay to the registered holders of the Right Certificates
with regard to which such fractional Rights would otherwise be issuable an
amount in cash equal to the same fraction of the current market value of a whole
Right. For purposes of this Section 15(a), the current market value of a whole
Right shall be the closing price of the Rights (as determined pursuant to the
second and third sentences of the definition of Market Value contained in
Section 1) for the Trading Day immediately prior to the date on which such
fractional Rights would have been otherwise issuable.
(b) The Company may, but shall not be required to, issue fractions of
Preferred Shares upon exercise of the Rights or distribute certificates which
evidence fractional Preferred Shares. In lieu of fractional Preferred Shares,
the Company may elect to (i) utilize a depository arrangement as provided by the
terms of the Preferred Shares or (ii) in the case of a fraction of a Preferred
Share (other than one one-hundredth (1/100th) of a Preferred Share or any
integral multiple thereof), pay to the registered holders of Right Certificates
at the time such Rights are exercised as herein provided an amount in cash equal
to the same fraction of the current market value of one Preferred Share, if any
are outstanding and publicly traded (or the Formula Number times the current
market value of one Common Share if the Preferred Shares are not outstanding and
publicly traded). For purposes of this Section 15(b), the current market value
of a Preferred Share (or Common Share) shall be the closing price of a Preferred
Share (or Common Share) (as determined pursuant to the second and third
sentences of the definition of Market Value contained in Section 1) for the
Trading Day immediately prior to the date of such exercise. If, as a result of
an adjustment made pursuant to Section 12(a), the holder of any Right thereafter
exercised shall become entitled to receive any securities other than Preferred
Shares, the provisions of this Section 15(b) shall apply, as nearly as
reasonably may be, on like terms to such other securities.
21
<PAGE>
(c) The Company may, but shall not be required to, issue fractions of Common
Shares upon exchange of Rights pursuant to Section 11(b), or to distribute
certificates which evidence fractional Common Shares. In lieu of such
fractional Common Shares, the Company may pay to the registered holders of the
Right Certificates with regard to which such fractional Common Shares would
otherwise be issuable an amount in cash equal to the same fraction of the
current Market Value of one Common Share as of the date on which a Person became
an Acquiring Person.
(d) The holder of Rights by the acceptance of the Rights expressly waives his
right to receive any fractional Rights or any fractional shares upon exercise of
a Right except as provided in this Section 15.
Section 16. Rights of Action. (a) All rights of action in respect of this
-----------------
Rights Agreement are vested in the respective registered holders of the Right
Certificates (and, prior to the Distribution Date, the registered holders of the
Common Shares); and any registered holder of any Right Certificate (or, prior to
the Distribution Date, of the Common Shares), without the consent of the Rights
Agent or of the holder of any other Right Certificate (or, prior to the
Distribution Date, of the Common Shares) may, in his own behalf and for his own
benefit, enforce, and may institute and maintain any suit, action or proceeding
against the Company to enforce, or otherwise act in respect of, his right to
exercise the Rights evidenced by such Right Certificate in the manner provided
in such Right Certificate and in this Rights Agreement. Without limiting the
foregoing or any remedies available to the holders of Rights, it is specifically
acknowledged that the holders of Rights would not have an adequate remedy at law
for any breach of this Rights Agreement and shall be entitled to specific
performance of the obligations of any Person under, and injunctive relief
against actual or threatened violations of the obligations of any Person subject
to, this Rights Agreement.
(b) Any holder of Rights who prevails in an action to enforce the provisions
of this Rights Agreement shall be entitled to recover the reasonable costs and
expenses, including attorneys' fees, incurred in such action.
Section 17. Transfer and Ownership of Rights and Right Certificates. (a)
-------------------------------------------------------
Prior to the Distribution Date, the Rights will be transferable only in
connection with the transfer of the Common Shares.
(b) After the Distribution Date, the Right Certificates will be transferable,
subject to Section 7(e), only on the registry books of the Rights Agent if
surrendered at the principal office of the Rights Agent, duly endorsed or
accompanied by a proper instrument of transfer.
(c) The Company and the Rights Agent may deem and treat the Person in whose
name a Right Certificate (or, prior to the Distribution Date, the associated
Common Shares certificate) is registered as the absolute owner thereof and of
the Rights
22
<PAGE>
evidenced thereby (notwithstanding any notations of ownership or writing on the
Right Certificates or the associated certificate for Common Shares made by
anyone other than the Company or the Rights Agent) for all purposes whatsoever,
and neither the Company nor the Rights Agent shall be affected by any notice to
the contrary.
Section 18. Right Certificate Holder Not Deemed a Shareholder. No holder, as
-------------------------------------------------
such, of any Right Certificate shall be entitled to vote or receive dividends or
be deemed, for any purpose, the holder of the Preferred Shares or of any other
securities of the Company which may at any time be issuable on the exercise of
the Rights represented thereby, nor shall anything contained herein or in any
Right Certificate be construed to confer upon the holder of any Right
Certificate, as such, any of the rights of a shareholder of the Company,
including, without limitation, any right to vote for the election of directors
or upon any matter submitted to shareholders at any meeting thereof, or to give
or withhold consent to any corporate action, or to receive notice of meetings or
other actions affecting shareholders, or to receive dividends or other
distributions or subscription rights, or otherwise, until the Right or Rights
evidenced by such Right Certificate shall have been exercised in accordance with
the provisions hereof.
Section 19. Concerning the Rights Agent. (a) The Company agrees to pay to
----------------------------
the Rights Agent reasonable compensation for all services rendered by it
hereunder and from time to time, on demand of the Rights Agent, its reasonable
expenses and counsel fees and other disbursements incurred in the administration
and execution of this Rights Agreement and the exercise and performance of its
duties hereunder.
(b) The Rights Agent shall be protected and shall incur no liability for or
in respect of any action taken, suffered or omitted by it in connection with its
administration of this Rights Agreement in reliance upon any Right Certificate
or certificate for the Common Shares or for other securities of the Company,
instrument of assignment or transfer, power of attorney, endorsement, affidavit,
letter, notice, direction, consent, certificate, statement, or other paper or
document believed by it to be genuine and to be signed, executed and, where
necessary, verified or acknowledged, by the proper Person or Persons.
Section 20. Merger or Consolidation or Change of Rights Agent. (a) Any
-------------------------------------------------
corporation into which the Rights Agent or any successor Rights Agent may be
merged or with which it may be consolidated, or any corporation resulting from
any merger or consolidation to which the Rights Agent or any successor Rights
Agent shall be a party, or any corporation succeeding to the stock transfer or
corporate trust business of the Rights Agent or any successor Rights Agent,
shall be the successor to the Rights Agent under this Rights Agreement without
the execution or filing of any paper or any further act on the part of any of
the parties hereto; provided that such corporation would be eligible for
---------
appointment as a successor Rights Agent under the provisions of Section 22. In
case, at the time such successor Rights Agent shall succeed to the agency
created by
23
<PAGE>
this Rights Agreement, any of the Right Certificates shall have been
countersigned but not delivered, any such successor Rights Agent may adopt the
countersignature of the predecessor Rights Agent and deliver such Right
Certificates so countersigned; and, in case at that time any of the Right
Certificates shall not have been countersigned, any successor Rights Agent may
countersign such Right Certificates either in the name of the predecessor Rights
Agent or in the name of the successor Rights Agent; and in all such cases such
Right Certificates shall have the full force provided in the Right Certificates
and in this Rights Agreement.
(b) In case at any time the name of the Rights Agent shall be changed and at
such time any of the Right Certificates shall have been countersigned but not
delivered, the Rights Agent may adopt the countersignature under its prior name
and deliver Right Certificates so countersigned; and, in case at that time any
of the Right Certificates shall not have been countersigned, the Rights Agent
may countersign such Right Certificates either in its prior name or in its
changed name; and in all such cases such Right Certificates shall have the full
force provided in the Right Certificates and in this Rights Agreement.
Section 21. Duties of Rights Agent. The Rights Agent undertakes the duties
-----------------------
and obligations imposed by this Rights Agreement upon the following terms and
conditions, by all of which the Company and the holders of Right Certificates
(or, prior to the Distribution Date, of the Common Shares), by their acceptance
thereof, shall be bound:
(a) The Rights Agent may consult with legal counsel (who may be legal counsel
for the Company), and the opinion of such counsel shall be full and complete
authorization and protection to the Rights Agent as to any action taken,
suffered or omitted by it in good faith and in accordance with such opinion.
(b) Whenever in the performance of its duties under this Rights Agreement the
Rights Agent shall deem it necessary or desirable that any fact or matter
(including, without limitation, the identity of any Acquiring Person) be proved
or established by the Company prior to taking, refraining from taking or
suffering any action hereunder, such fact or matter (unless other evidence in
respect thereof be herein specifically prescribed) may be deemed to be
conclusively proved and established by a certificate signed by any one of the
Chairman of the Board, the Chief Executive Officer, the President, the Chief
Operating Officer, the Chief Financial Officer, a Vice President (whether
preceded by any additional title), the Treasurer or the Secretary of the Company
and delivered to the Rights Agent; and such certificate shall be full
authorization to the Rights Agent for any action taken or suffered in good faith
by it under the provisions of this Rights Agreement in reliance upon such
certificate.
(c) The Rights Agent shall be liable hereunder only for its own negligence,
bad faith or willful misconduct.
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<PAGE>
(d) The Rights Agent shall not be liable for or by reason of any of the
statements of fact or recitals contained in this Rights Agreement or in the
Right Certificates (except as to its countersignature thereof) or be required to
verify the same, but all such statements and recitals are and shall be deemed to
have been made by the Company only.
(e) The Rights Agent shall not be under any responsibility in respect of the
validity of this Rights Agreement or the execution and delivery hereof (except
the due execution hereof by the Rights Agent) or in respect of the validity or
execution of any Right Certificate (except its countersignature thereof); nor
shall it be responsible for any breach by the Company of any covenant or
condition contained in this Rights Agreement or in any Right Certificate; nor
shall it be responsible for any adjustment required under the provisions of
Section 11 or 12 or responsible for the manner, method or amount of any such
adjustment or the ascertaining of the existence of facts that would require any
such adjustment (except with respect to the exercise of Rights evidenced by
Right Certificates after actual notice of any such adjustment); nor shall it by
any act hereunder be deemed to make any representation or warranty as to the
authorization or reservation of any Preferred Shares or Common Shares to be
issued pursuant to this Rights Agreement or any Right Certificate or as to
whether any Preferred Shares or Common Shares will, when so issued, be validly
authorized and issued, fully paid and nonassessable.
(f) The Company agrees that it will perform, execute, acknowledge and deliver
or cause to be performed, executed, acknowledged and delivered all such further
and other acts, instruments and assurances as may reasonably be required by the
Rights Agent for the carrying out or performing by the Rights Agent of the
provisions of this Rights Agreement.
(g) The Rights Agent is hereby authorized and directed to accept instructions
with respect to the performance of its duties hereunder from any one of the
Chairman of the Board, the Chief Executive Officer, the President, the Chief
Operating Officer, a Vice President (whether preceded by any additional title),
the Secretary or the Treasurer of the Company, in connection with its duties and
it shall not be liable for any action taken or suffered to be taken by it in
good faith in accordance with instructions of any such officer.
(h) The Rights Agent and any shareholder, director, officer or employee of
the Rights Agent may buy, sell or deal in any of the Rights or other securities
of the Company or become pecuniarily interested in any transaction in which the
Company may be interested, or contract with or lend money to the Company or
otherwise act as fully and freely as though it were not the Rights Agent under
this Rights Agreement. Nothing herein shall preclude the Rights Agent from
acting in any other capacity for the Company or for any other legal entity.
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<PAGE>
(i) The Rights Agent may execute and exercise any of the rights or powers
hereby vested in it or perform any duty hereunder either itself or by or through
its attorneys or agents, and the Rights Agent shall not be answerable or
accountable for any act, default, neglect or misconduct of any such attorneys or
agents or for any loss to the Company resulting from any such act, default,
neglect or misconduct provided reasonable care was exercised in the selection
and continued employment thereof.
Section 22. Change of Rights Agent. The Rights Agent or any successor Rights
----------------------
Agent may resign and be discharged from its duties under this Rights Agreement
upon 30 days' notice in writing mailed to the Company and to each transfer agent
of the Common Shares and the Preferred Shares by registered or certified mail,
and to the holders of the Right Certificates (or, prior to the Distribution
Date, of the Common Shares) by first-class mail. The Company may remove the
Rights Agent or any successor Rights Agent upon 30 days' notice in writing,
mailed to the Rights Agent or successor Rights Agent, as the case may be, and to
each transfer agent of the Common Shares and the Preferred Shares by registered
or certified mail, and to the holders of the Right Certificates (or, prior to
the Distribution Date, of the Common Shares) by first-class mail. If the Rights
Agent shall resign or be removed or shall otherwise become incapable of acting,
the Company shall appoint a successor to the Rights Agent. If the Company shall
fail to make such appointment within a period of 30 days after giving notice of
such removal or after it has been notified in writing of such resignation or
incapacity by the resigning or incapacitated Rights Agent or by the holder of a
Right Certificate (or, prior to the Distribution Date, of the Common Shares)
(who shall, with such notice, submit his Right Certificate or, prior to the
Distribution Date, the certificate representing his Common Shares, for
inspection by the Company), then the registered holder of any Right Certificate
(or, prior to the Distribution Date, of the Common Shares) may apply to any
court of competent jurisdiction for the appointment of a new Rights Agent. Any
successor Rights Agent, whether appointed by the Company or by such a court,
shall be a corporation organized and doing business under the laws of the United
States or of the State of New Jersey (or of any other state of the United States
so long as such corporation is authorized to conduct a stock transfer or
corporate trust business in the State of New York), in good standing, having a
principal office in the State of New Jersey, which is authorized under such laws
to exercise stock transfer or corporate trust powers and is subject to
supervision or examination by Federal or state authority and which has at the
time of its appointment as Rights Agent a combined capital and surplus of at
least $50,000,000. After appointment, the successor Rights Agent shall be
vested with the same powers, rights, duties and responsibilities as if it had
been originally named as Rights Agent without further act or deed; but the
predecessor Rights Agent shall deliver and transfer to the successor Rights
Agent any property at the time held by it hereunder, and execute and deliver any
further assurance, conveyance, act or deed necessary for the purpose. Not later
than the effective date of any such appointment, the Company shall file notice
thereof in writing with the predecessor Rights Agent and each transfer agent of
the Common Shares and
26
<PAGE>
the Preferred Shares, and mail a notice thereof in writing to the registered
holders of the Right Certificates (or, prior to the Distribution Date, of the
Common Shares). Failure to give any notice provided for in this Section 22,
however, or any defect therein shall not affect the legality or validity of the
resignation or removal of the Rights Agent or the appointment of the successor
Rights Agent, as the case may be.
Section 23. Issuance of Additional Rights and Right Certificates.
----------------------------------------------------
Notwithstanding any of the provisions of this Rights Agreement or of the Rights
to the contrary, the Company may, at its option, issue new Right Certificates
evidencing Rights in such form as may be approved by its Board of Directors to
reflect any adjustment or change made in accordance with the provisions of this
Rights Agreement. In addition, in connection with the issuance or sale of Common
Shares following the Distribution Date and prior to the earlier of the
Redemption Date and the Expiration Date, the Company (a) shall, with respect to
Common Shares so issued or sold pursuant to the exercise of stock options or
under any employee plan or arrangement, or upon the exercise, conversion or
exchange of securities, notes or debentures issued by the Company, and (b) may,
in any other case, if deemed necessary or appropriate by the Board of Directors
of the Company, issue Right Certificates representing the appropriate number of
Rights in connection with such issuance or sale; provided, however, that (i) no
-------- -------
such Right Certificate shall be issued if, and to the extent that, the Company
shall be advised by counsel that such issuance would create a significant risk
of material adverse tax consequences to the Company or the Person to whom such
Right Certificate would be issued, and (ii) no such Right Certificate shall be
issued if, and to the extent that, appropriate adjustment shall otherwise have
been made in lieu of the issuance thereof.
Section 24. Redemption and Termination. (a) The Board of Directors of the
--------------------------
Company may, at its option, at any time prior to the earlier of (i) such time as
a Person becomes an Acquiring Person and (ii) the Expiration Date, order the
redemption of all, but not fewer than all, the then outstanding Rights at the
Redemption Price (the date of such redemption being the "Redemption Date"), and
the Company, at its option, may pay the Redemption Price either in cash or
Common Shares or other securities of the Company deemed by the Board of
Directors of the Company, in the exercise of its sole discretion, to be at least
equivalent in value to the Redemption Price; Provided, however, that, in
--------- -------
addition to any other limitations contained herein on the right to redeem
outstanding Rights (including the occurrence of any event or the expiration of
any period after which the Rights may no longer be redeemed), for the 120-day
period after any date of a change (resulting from a proxy or consent
solicitation) in a majority of the Board of Directors of the Company in office
at the commencement of such solicitation, the Rights may only be redeemed if (A)
there are directors then in office who were in office at the commencement of
such solicitation and (B) the Board of Directors of the Company, with the
concurrence of a majority of such directors then in office, determines that such
redemption is, in their judgment, in the best interests of the Company and its
shareholders.
27
<PAGE>
(b) Immediately upon the action of the Board of Directors of the Company
ordering the redemption of the Rights, and without any further action and
without any notice, the right to exercise the Rights will terminate and the only
right thereafter of the holders of Rights shall be to receive the Redemption
Price. Within 10 Business Days after the action of the Board of Directors of
the Company ordering the redemption of the Rights, the Company shall give notice
of such redemption to the holders of the then outstanding Rights by mailing such
notice to all such holders at their last addresses as they appear upon the
registry books of the Rights Agent or, prior to the Distribution Date, on the
registry books of the transfer agent for the Common Shares. Each such notice of
redemption will state the method by which payment of the Redemption Price will
be made. The notice, if mailed in the manner herein provided, shall be
conclusively presumed to have been duly given, whether or not the holder of
Rights receives such notice. In any case, failure to give such notice by mail,
or any defect in the notice, to any particular holder of Rights shall not affect
the sufficiency of the notice to other holders of Rights.
Section 25. Notices. Notices or demands authorized by this Agreement to be
-------
given or made by the Rights Agent or by the holder of a Right Certificate (or,
prior to the Distribution Date, of the Common Shares) to or on the Company shall
be sufficiently given or made if sent by first-class mail, postage prepaid,
addressed (until another address is filed in writing with the Rights Agent) as
follows:
SonoSight, Inc.
North Creek Parkway
P.O. Box ________
Bothell, Washington 98011
Attention of Corporate Secretary
Subject to the provisions of Section 22, any notice or demand authorized by
this Rights Agreement to be given or made by the Company or by the holder of a
Right Certificate (or, prior to the Distribution Date, of the Common Shares) to
or on the Rights Agent shall be sufficiently given or made if sent by first-
class mail, postage prepaid, addressed (until another address is filed in
writing with the Company) as follows:
First Chicago Trust Company of New York
P.O. Box 4690
Suite 4690, 525 Washington Blvd.
Jersey City, NJ 07303-2532
Attention of Tenders & Exchanges Administrative Department
28
<PAGE>
Notices or demands authorized by this Rights Agreement to be given or made by
the Company or the Rights Agent to any holder of a Right Certificate (or, prior
to the Distribution Date, of the Common Shares) shall be sufficiently given or
made if sent by first-class mail, postage prepaid, addressed to such holder at
the address of such holder as shown on the registry books of the Rights Agent
or, prior to the Distribution Date, on the registry books of the transfer agent
for the Common Shares.
Section 26. Supplements and Amendments. At any time prior to the
--------------------------
Distribution Date and subject to the last sentence of this Section 26, the
Company may, and the Rights Agent shall if the Company so directs, supplement or
amend any provision of this Rights Agreement (including, without limitation, the
date on which the Distribution Date shall occur, the time during which the
Rights may be redeemed pursuant to Section 24 or any provision of the
Certificate of Designation) without the approval of any holder of the Rights.
From and after the Distribution Date and subject to applicable law, the Company
may, and the Rights Agent shall if the Company so directs, amend this Rights
Agreement without the approval of any holders of Right Certificates (i) to cure
any ambiguity or to correct or supplement any provision contained herein which
may be defective or inconsistent with any other provision of this Rights
Agreement or (ii) to make any other provisions in regard to matters or questions
arising hereunder which the Company may deem necessary or desirable and which
shall not adversely affect the interests of the holders of Right Certificates
(other than an Acquiring Person or an Affiliate or Associate of an Acquiring
Person). Any supplement or amendment adopted during any period after any Person
has become an Acquiring Person but prior to the Distribution Date shall be null
and void unless such supplement or amendment could have been adopted under the
prior sentence from and after the Distribution Date. Any supplement or
amendment to this Rights Agreement duly approved by the Company shall become
effective immediately upon execution by the Company, whether or not also
executed by the Rights Agent. Notwithstanding anything contained in this Rights
Agreement to the contrary, during the 120-day period after any date of a change
(resulting from a proxy or consent solicitation) in a majority of the Board of
Directors of the Company in office at the commencement of such solicitation,
this Rights Agreement may be supplemented or amended only if (A) there are
directors then in office who were in office at the commencement of such
solicitation and (B) the Board of Directors of the Company, with the concurrence
of a majority of such directors then in office, determines that such supplement
or amendment is, in their judgment, in the best interests of the Company and its
shareholders and, after the Distribution Date, the holders of the Rights. In
addition, notwithstanding anything to the contrary contained in this Rights
Agreement, no supplement or amendment to this Rights Agreement shall be made
which (a) reduces the Redemption Price (except as required by Section 12(a)),
(b) provides for an earlier Expiration Date or to) changes the last two
sentences in the definition of Acquiring Person contained in Section 1.
29
<PAGE>
Section 27. Successors. All the covenants and provisions of this Rights
-----------
Agreement by or for the benefit of the Company or the Rights Agent shall bind
and inure to the benefit of their respective successors and assigns hereunder.
Section 28. Benefits of This Rights Agreement; Determinations and Actions by
----------------------------------------------------------------
the Board of Directors. etc. (a) Nothing in this Rights Agreement shall be
- ---------------------------
construed to give to any Person other than the Company, the Rights Agent and the
registered holders of the Right Certificates (and, prior to the Distribution
Date, of the Common Shares) any legal or equitable right, remedy or claim under
this Rights Agreement; but this Rights Agreement shall be for the sole and
exclusive benefit of the Company, the Rights Agent and the registered holders of
the Right Certificates (and, prior to the Distribution Date, of the Common
Shares).
(b) Except as explicitly otherwise provided in this Rights Agreement, the
Board of Directors of the Company shall have the exclusive power and authority
to administer this Rights Agreement and to exercise all rights and powers
specifically granted to the Board of Directors of the Company or to the Company,
or as may be necessary or advisable in the administration of this Rights
Agreement, including, without limitation, the right and power to (i) interpret
the provisions of this Rights Agreement and (ii) make all determinations deemed
necessary or advisable for the administration of this Rights Agreement
(including, without limitation, a determination to redeem or not redeem the
Rights or to amend this Rights Agreement and a determination of whether there is
an Acquiring Person).
Section 29. Severability. If any term, provision, covenant or restriction of
------------
this Rights Agreement is held by a court of competent jurisdiction or other
authority to be invalid, void or unenforceable, the remainder of the terms,
provisions, covenants and restrictions of this Rights Agreement shall remain in
full force and effect and shall in no way be affected, impaired or invalidated.
Section 30. Governing Law. This Rights Agreement and each Right Certificate
--------------
issued hereunder shall be deemed to be a contract made under the law of the
State of Washington and for all purposes shall be governed by and construed in
accordance with the law of such State applicable to contracts to be made and
performed entirely within such State.
Section 31. Counterparts; Effectiveness. This Rights Agreement may be
----------------------------
executed in any number of counterparts and each of such counterparts shall for
all purposes be deemed to be an original, and all such counterparts shall
together constitute but one and the same instrument. This Rights Agreement
shall be effective as of the Close of Business on the date hereof.
30
<PAGE>
Section 32. Descriptive Headings. Descriptive headings of the several
--------------------
Sections of this Rights Agreement are inserted for convenience only and shall
not control or affect the meaning or construction of any of the provisions of
this Rights Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Rights Agreement to be
duly executed as of the day and year first above written.
SONOSIGHT, INC.,
by:
------------------------------
Name:
Title:
FIRST CHICAGO TRUST COMPANY
OF NEW YORK, as Rights Agent,
by:
-------------------------------
Name:
Title:
31
<PAGE>
EXHIBIT A
(Form of Certificate of Designation)
See Exhibit 3.2 this Form 10
32
<PAGE>
EXHIBIT B
(Form of Right Certificate]
Certificate No. [R]-
Rights
- ------------
NOT EXERCISABLE AFTER APRIL 5, 2008, OR EARLIER IF REDEEMED BY
THE COMPANY. THE RIGHTS ARE SUBJECT TO REDEMPTION, AT THE OPTION
OF THE COMPANY, AT $.01 PER RIGHT, ON THE TERMS SET FORTH IN THE
RIGHTS AGREEMENT. RIGHTS BENEFICIALLY OWNED BY AN ACQUIRING
PERSON OR AN AFFILIATE OR ASSOCIATE OF AN ACQUIRING PERSON (AS
SUCH TERMS ARE DEFINED IN THE RIGHTS AGREEMENT) AND BY ANY
SUBSEQUENT HOLDER OF SUCH RIGHTS ARE NULL AND VOID AND
NONTRANSFERABLE.
Right Certificate
SONOSIGHT, INC.
This certifies that ________________________________________________,
or registered assigns, is the registered owner of the number of Rights set forth
above, each of which entitles the owner thereof, subject to the terms,
provisions and conditions of the Amended and Restated Rights Agreement dated as
of April 6, 1998 (the "Rights Agreement") between SonoSight, Inc., a Washington
corporation (the "Company"), and First Chicago Trust Company of New York, as
Rights Agent (the "Rights Agent"), unless the Rights evidenced hereby shall have
been previously redeemed by the Company, to purchase from the Company at any
time after the Distribution Date (as defined in the Rights Agreement) and prior
to 5:00 p.m., New York City time, on April 5, 2008 (the "Expiration Date"), at
the principal office of the Rights Agent, or its successors as Rights Agent, [in
New York, New York], one one-hundredth (1/100th) of a fully paid, nonassessable
share of Series A Participating Cumulative Preferred Stock, par value $1.00 per
share, of the Company (the "Preferred Shares"), at a purchase price per one one-
hundredth (1/100th) of a share equal to the product of four times the average of
the high and low sales prices of a share of the Company's Common Stock quoted on
the Nasdaq National Market for each of the 10 trading days commencing on the
sixth trading day following the date of the Rights Agreement (the "Purchase
Price") payable in cash, upon presentation and surrender of this Right
Certificate with the Form of Election to Purchase duly executed.
The Purchase Price and the number and kind of shares which may be purchased
upon exercise of each Right evidenced by this Right Certificate, as set forth
above, are
<PAGE>
the Purchase Price and the number and kind of shares which may be so purchased
as of April 6, 1998. As provided in the Rights Agreement, the Purchase Price
and the number and kind of shares which may be purchased upon the exercise of
each Right evidenced by this Right Certificate are subject to modification and
adjustment upon the happening of certain events.
If the Rights evidenced by this Right Certificate are at any time beneficially
owned by an Acquiring Person or an Affiliate or Associate of an Acquiring Person
(as such terms are defined in the Rights Agreement), such Rights shall be null
and void and nontransferable and the holder of any such Right (including any
purported transferee or subsequent holder) shall not have any right to exercise
or transfer any such Right.
This Right Certificate is subject to all the terms, provisions and conditions
of the Rights Agreement, which terms, provisions and conditions are hereby
incorporated herein by reference and made a part hereof and to which reference
to the Rights Agreement is hereby made for a full description of the rights,
limitations of rights, obligations, duties and immunities hereunder of the
Rights Agent, the Company and the holders of the Right Certificates. Copies of
the Rights Agreement are on file at the above-mentioned office of the Rights
Agent and are also available from the Company upon written request.
This Right Certificate, with or without other Right Certificates, upon
surrender at the principal stock transfer or corporate trust office of the
Rights Agent, may be exchanged for another Right Certificate or Right
Certificates of like tenor and date evidencing Rights entitling the holder to
purchase a like aggregate number and kind of shares as the Rights evidenced by
the Right Certificate or Right Certificates surrendered shall have entitled such
holder to purchase. If this Right Certificate shall be exercised in part, the
holder shall be entitled to receive upon surrender hereof another Right
Certificate or Right Certificates for the number of whole Rights not exercised.
Subject to the provisions of the Rights Agreement, the Rights evidenced by
this Right Certificate may be redeemed by the Company at its option at a
redemption price (in cash or shares of Common Stock or other securities of the
Company deemed by the Board of Directors to be at least equivalent in value) of
$.01 per Right (which amount shall be subject to adjustment as provided in the
Rights Agreement) at any time prior to the earlier of (i) such time as a Person
becomes an Acquiring Person and (ii) the Expiration Date; Provided, however,
--------- -------
that, for the 120-day period after any date of a change (resulting from a proxy
or consent solicitation) in a majority of the Board of Directors of the Company
in office at the commencement of such solicitation, the Rights may only be
redeemed if (A) there are directors then in office who were in office at the
commencement of such solicitation and (B) the Board of Directors of the Company,
with the concurrence of a majority of such directors then in office, determines
that such redemption is, in their judgment, in the best interests of the Company
and its shareholders.
<PAGE>
The Company may, but shall not be required to, issue fractions of Preferred
Shares or distribute certificates which evidence fractions of Preferred Shares
upon the exercise of any Right or Rights evidenced hereby. In lieu of issuing
fractional shares, the Company may elect to make a cash payment as provided in
the Rights Agreement for fractions of a share other than one one-hundredth
(1/100th) of a share or any integral multiple thereof or to issue certificates
or utilize a depository arrangement as provided in the terms of the Rights
Agreement and the Preferred Shares.
No holder of this Right Certificate shall be entitled to vote or receive
dividends or be deemed for any purpose the holder of the Preferred Shares or of
any other securities of the Company which may at any time be issuable on the
exercise hereof, nor shall anything contained in the Rights Agreement or herein
be construed to confer upon the holder hereof, as such, any of the rights of a
shareholder of the Company, including, without limitation, any right to vote for
the election of directors or upon any matter submitted to shareholders at any
meeting thereof, or to give or withhold consent to any corporate action, or to
receive notice of meetings or other actions affecting shareholders (except as
provided in the Rights Agreement), or to receive dividends or other
distributions or subscription rights, or otherwise, until the Right or Rights
evidenced by this Right
<PAGE>
Certificate shall have been exercised as provided in accordance with the
provisions of the Rights Agreement.
This Right Certificate shall not be valid or obligatory for any purpose until
it shall have been countersigned by the Rights Agent.
WITNESS the facsimile signature of the proper officers of the Company and its
corporate seal.
Dated as of:
SONOSIGHT, INC.,
by:
---------------------------------
Name:
Title:
Attest:
- ------------------------------
Name:
Title:
Countersigned:
FIRST CHICAGO TRUST COMPANY OF
NEW YORK, as Rights Agent,
by
- ------------------------------
Authorized Officer
<PAGE>
EXHIBIT 10.1
DISTRIBUTION AGREEMENT
THIS DISTRIBUTION AGREEMENT (the "Agreement") is effective as of April 6, 1998,
and is by and between:
(a) ATL Ultrasound, Inc., a corporation of the State of Washington doing
business as Advanced Technology Laboratories, having a place of business at
22100 Bothell-Everett Highway, Bothell, Washington 98041-3003 ("ATL"), and
(b) SonoSight, Inc., a corporation of the State of Washington, having a
place of business at North Creek Parkway, Bothell, Washington 98011 ("SONO").
WHEREAS, SONO is a wholly-owned subsidiary of ATL, engaged in the business of
developing, manufacturing, marketing, selling, and maintaining highly portable
hand carried ultrasonic imaging devices.
WHEREAS, the Board of Directors of ATL has determined that it is appropriate and
desirable to separate SONO from ATL by distributing all of the issued and
outstanding shares of SONO common stock, $.01 par value per share (the "SONO
Common Stock"), to the holders of ATL common stock, $.01 par value per share
(the "ATL Common Stock").
WHEREAS, ATL and SONO desire to establish the principal corporate transactions
required to effect the distribution, certain other agreements governing matters
relating to the distribution, and the relationship between ATL and SONO
following the distribution.
NOW, THEREFORE, in consideration of the terms and conditions in this Agreement,
the parties agree as follows:
I. DEFINITIONS
1.0. Definitions. As used in this Agreement, the following terms shall have the
-----------
following meanings which shall be applicable equally to both the singular and
the plural forms of the terms defined:
(a) "Affiliate" with respect to any specified person, shall mean a person
that, directly or indirectly, controls, is controlled by, or is under common
control with the specified person; however, for the purposes of this Agreement,
SONO and ATL shall not be deemed to be Affiliates of one another.
1
<PAGE>
(b) "Agent" shall mean the First Chicago Trust Company of New York, the
distribution agent appointed by the parties to distribute the SONO Common Stock
in connection with the Distribution.
(c) "Distribution" shall mean the distribution as a dividend of SONO Common
Stock to the holders of ATL Common Stock as provided in this Agreement.
(d) "Distribution Date" shall mean the effective date of the Distribution
as determined by the Board of Directors of ATL, which is contemplated to be
April 6, 1998.
(e) "Record Date" shall mean the record date for the Distribution as
determined by the Board of Directors of ATL, which is contemplated to be March
30, 1998.
(f) "Related Agreements" shall mean any and all agreements entered into by
and between ATL and SONO pursuant to this Agreement or in connection with the
Distribution, and shall include the Employee Benefits Agreement, each and every
Service Agreement, the Technology Transfer and License Agreement, and the OEM
Supply Agreement.
(g) "SONO Business" shall mean the business of developing, manufacturing,
marketing, selling, and maintaining highly portable hand carried ultrasonic
imaging devices, and any other business or operation conducted by SONO or any
Affiliate of SONO at any time on or after the Distribution Date.
(h) "SONO Employee" shall mean any employee of ATL who is assigned by ATL
to the SONO Business on the day immediately prior to the Distribution Date
including, but not limited to, those who are on leave of absence, or any
disability leave as of the Distribution Date.
II. PRE-DISTRIBUTION TRANSACTIONS
2.0. SONO Actions. Prior to the Distribution Date, SONO shall take all
-----------
necessary corporate actions to undertake the transactions contemplated in this
Agreement or in any Related Agreement, including the authorization of a
sufficient number of shares of SONO Common Stock necessary to effect the
Distribution, and to effect any adjustments to outstanding options to acquire
ATL Common Stock to reflect the Distribution.
2.1. ATL Actions. In its capacity as the sole shareholder of SONO, and prior to
-----------
the Distribution Date, ATL shall cooperate with SONO to approve or ratify any
corporate actions that are necessary or desirable to be taken by SONO to
accomplish the transactions contemplated by this Agreement or any Related
2
<PAGE>
Agreement in a manner consistent with their terms, including the election or
appointment of directors and officers of SONO to serve in such capacities
following the Distribution Date, and the approval of the SONO stock-based
compensation or other plans, agreements, and other arrangements.
2.2. Securities Law Actions. Prior to the Distribution Date:
----------------------
(a) ATL and SONO will prepare and file with the Securities and Exchange
Commission (the "Commission") the General Form For Registration of Securities on
Form 10, including the Information Statement (collectively, the "Form 10"),
setting forth disclosures concerning SONO, the Distribution, and any other
appropriate matters. In addition, ATL and SONO will prepare and file with the
Commission any other forms or other documents, if any, required for the
registration of the shares of SONO Common Stock pursuant to the SONO stock-based
compensation plans. ATL and SONO shall use reasonable efforts to cause the Form
10 and any other forms to become effective as soon as practicable after filing.
ATL shall mail the Information Statement to holders of ATL Common Stock as of
the Record Date.
(b) SONO will prepare and file, and will use its best efforts to have
approved an application for listing of the SONO Common Stock on the National
Association of Securities Dealers Automated Quotation ("Nasdaq") National Market
System.
2.3. Capital Contribution. On the Distribution Date, ATL will contribute to the
--------------------
capital of SONO all of the cumulative net advances made by ATL to SONO prior to
the Distribution Date. In addition, ATL will contribute to the capital of SONO
(a) the amount of Eighteen Million Dollars in cash on the Distribution Date, and
(b) the amount of Twelve Million Dollars in cash on January 15, 1999.
2.4. Transfer of Assets. As at the Distribution Date, ATL will transfer,
------------------
assign, and convey to SONO all of ATL's right, title, and interest to the SONO
property and equipment which is identified and recorded in the fixed asset
ledger of ATL as of the Distribution Date. SONO will be responsible for the
purchase of any other assets including, but not limited to, any assets required
by SONO to establish a production or manufacturing capability for the SONO
Business.
Following the Distribution Date and if required by SONO, the parties shall
execute any additional documentation necessary to vest in SONO the title to the
assets transferred to SONO in connection with the Distribution.
2.5. DISCLAIMER. SONO UNDERSTANDS AND AGREES THAT ATL IS NOT IN THIS AGREEMENT
----------
OR IN ANY RELATED AGREEMENT MAKING ANY REPRESENTATION OR WARRANTY OF ANY KIND
WITH RESPECT TO THE SUFFICIENCY OR THE ADEQUACY OF THE CAPITAL CONTRIBUTION
3
<PAGE>
MADE TO SONO, OR THE SUFFICIENCY OR THE ADEQUACY OF THE ASSETS TRANSFERRED TO
SONO, INCLUDING THEIR SUFFICIENCY OR ADEQUACY FOR THE OPERATION OF SONOVIS
FOLLOWING THE DISTRIBUTION DATE, OR THE NEED FOR SONO TO OBTAIN ADDITIONAL
CAPITAL OR ADDITIONAL ASSETS FOLLOWING THE DISTRIBUTION DATE. THE PROPERTY AND
EQUIPMENT SHALL BE TRANSFERRED, ASSIGNED, AND CONVEYED TO SONO "AS-IS" WITHOUT
ANY WARRANTIES OF ANY KIND INCLUDING, BUT NOT LIMITED TO, THE WARRANTIES OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.
III. THE DISTRIBUTION AND RELATED TRANSACTIONS
3.0. ATL Board Action. The Board of Directors of ATL in their sole discretion
----------------
shall establish the Record Date, the Distribution Date, and any procedures
necessary or appropriate to effect the Distribution; however, the Distribution
shall not occur prior to the time that the following conditions have been
satisfied or waived by the Board of Directors of ATL:
(a) any approvals and consents necessary to consummate the Distribution
will have been obtained, and will be in full force and effect;
(b) no order, injunction, or decree issued by any court or agency of
competent jurisdiction, or other legal restraint or prohibition preventing the
consummation of the Distribution will be in effect, and no other event will have
occurred or failed to occur that prevents the consummation of the Distribution;
(c) the Form 10 and any other applicable forms submitted to the Commission
in connection with the Distribution will have been declared effective by the
Commission; and,
(d) no other events or developments shall have occurred prior to the
Distribution Date of this Agreement that, in the reasonable judgment of ATL's
Board of Directors, would result in the Distribution having a material adverse
effect on ATL or its shareholders.
The satisfaction of the conditions in this Section will not create any
obligation on the part of ATL, or on the part of any other person to effect or
to seek to effect the Distribution, or in any way limit ATL's right to terminate
this Agreement or the Distribution.
3.1. The Distribution. On or prior to the Distribution Date, ATL will deliver
----------------
to the Agent, for the benefit of the holders of record of ATL Common Stock at
the close of business on the Record Date, stock certificate(s) representing in
the aggregate (and rounded down to the nearest whole share) the number of shares
4
<PAGE>
of SONO Common Stock representing one share of SONO Common Stock for every three
shares of ATL Common Stock outstanding on the Record Date.
ATL shall instruct the Agent to distribute (in book entry form, and as promptly
as practicable following the Distribution Date) to the holders of record of ATL
Common Stock at the close of business on the Record Date, one share of SONO
Common Stock for every three shares of ATL Common Stock, and cash in lieu of
fractional shares of SONO Common Stock in the amount as determined by the
provisions in Section 3.2. All of the shares of SONO Common Stock issued in the
Distribution will be fully paid, nonassessable, and free of preemptive rights.
3.2. Fractional Shares. No certificates or scrip representing fractional shares
-----------------
of SONO Common Stock will be issued as a part of the Distribution. Each holder
of ATL Common Stock who would otherwise be entitled to receive a fractional
share of SONO Common Stock pursuant to the Distribution will receive cash for
the fractional share. ATL shall instruct the Agent (a) to determine the number
of fractional shares of SONO Common Stock allocable to each holder of ATL Common
Stock at the close of business on the Record Date; (b) to aggregate all such
fractional shares into whole shares; (c) to sell the whole shares thus obtained
in the open market at then-prevailing prices on behalf of ATL shareholders who
would otherwise be entitled to receive fractional share interests; and (d) to
distribute to each ATL shareholder the shareholder's ratable share of the net
proceeds of the sales. In selling the whole shares, the Agent shall in its sole
discretion determine when, how, through which broker-dealers and at what prices
to make the sales, provided that no sales shall be made through a broker-dealer
that is an Affiliate of SONO.
No certificates or scrip representing fractional shares of either ATL Common
Stock or SONO Common Stock, and no cash in lieu of fractional shares of either
ATL Common Stock or SONO Common Stock will be distributed in connection with any
adjustments to any options to acquire ATL Common Stock to reflect the
Distribution. Fractional shares, if any, shall be rounded down to the nearest
whole share.
3.3. Service Agreements. On or prior to the Distribution Date, the parties
------------------
shall execute multiple Service Agreements (each in form and content shown in
Attachment A) under which ATL will provide to SONO certain services described in
the Service Agreements for limited periods of time following the Distribution
Date. Separate Service Agreements will be executed by the parties for each
group of services required by SONO, which may include financial services, human
resource services, engineering services, information services, facilities
services, regulatory services, and such other services as agreed by the parties.
All services shall be provided by ATL in accordance with the terms in the
respective Service Agreements.
3.4. Technology Transfer and License Agreement. On or prior to the Distribution
-----------------------------------------
Date, the parties shall execute the Technology Transfer and License Agreement
shown in Attachment B.
5
<PAGE>
3.5. Employee Benefit Agreement. On or prior to the Distribution Date, the
--------------------------
parties shall execute the Employee Benefits Agreement shown in Attachment C.
3.6. OEM Supply Agreement. On or prior to the Distribution Date, the parties
--------------------
shall execute the OEM Supply Agreement in form substantially as shown in
Attachment D.
3.7. Further Assurances. Following the Distribution Date, if any further
------------------
actions are necessary or desirable to carry out the purposes of this Agreement,
the parties shall take all such actions, including the execution of any
documents necessary to consummate the transactions contemplated by this
Agreement.
IV. POST-DISTRIBUTION MATTERS
4.0. Qualification as Tax-Free Distribution. After the Distribution Date,
--------------------------------------
neither ATL nor SONO will take or allow any of their respective Affiliates to
take any action which could reasonably be expected to prevent the Distribution
from qualifying as a tax-free distribution within the meaning of Section 355 of
the Internal Revenue Code of 1986, as amended (the "Code").
After the Distribution Date, SONO will not and will not allow any Affiliate of
SONO to take any action or enter into any transaction which could reasonably be
expected to materially adversely impact the anticipated tax consequences to ATL
of any transaction contemplated by this Agreement; however, nothing in this
Section shall prohibit SONO from taking any action, or entering into any
transaction in the ordinary course of business in connection with the settlement
of any audit issue, or in connection with the filing of any tax return.
After the Distribution Date, ATL will not and will not allow any Affiliate of
ATL to take any action or enter into any transaction which could reasonably be
expected to materially adversely impact the anticipated tax consequences to SONO
of any transaction contemplated by this Agreement; however, nothing in this
Section shall prohibit ATL from taking any action, or entering into any
transaction in the ordinary course of business in connection with the settlement
of any audit issue, or in connection with the filing of any tax return.
Each party represents to the other party that it has no present intention to do
or to take any action prohibited by the provisions of this Section.
4.1. Remedy. If the Distribution does not qualify as a tax-free distribution
------
under Section 355 of the Code through no action or inaction on the part of
either of the parties, ATL will bear eighty-five percent of any subsequent
corporate level tax, and SONO will bear fifteen percent of any subsequent
corporate level tax. In the event the Distribution does not qualify under
Section 355 of the Code
6
<PAGE>
as a result of the actions of ATL or SONO, the responsible party will bear all
of the subsequent corporate level tax.
4.2. ONR Contract. The collaborative and development agreement among the United
------------
States Office of Naval Research, ATL, the University of Washington, and two
other companies dated May, 1996 (the "ONR Agreement"), will not be transferred
or otherwise assigned to SONO in connection with the Distribution. Following the
Distribution, SONO will provide to ATL (at no cost to ATL) the engineering and
other services required by ATL to perform its obligations under the ONR
Agreement. The services shall be provided by SONO to ATL until ATL has
completely performed its obligations under the ONR Agreement. During the term of
the ONR Agreement, SONO shall take no action or inaction, either directly or
indirectly, which would cause ATL to be in breach of or default under any term
or condition in the ONR Agreement. Any payments received by ATL under the ONR
Agreement in connection with the performance of its obligations under the ONR
Agreement following the Distribution Date shall be transferred by ATL to SONO.
ATL will not expand the scope of the ONR Agreement without the prior consent of
SONO.
V. INDEMNIFICATION
5.0. Indemnification by ATL. ATL will indemnify, defend, and hold harmless
----------------------
SONO, its Affiliates, and each of their respective directors, officers,
employees, and agents from and against any and all claims, actions, damages,
liabilities, costs, and expenses (including, but not limited to, reasonable
attorneys' fees and legal costs) arising out of or in connection with (a) the
business or operations of ATL or its Affiliates, including the SONO Business
which arose prior to the Distribution Date; (b) any claim that the information
included by ATL in the Form 10 (including the Information Statement), or in any
other form or document submitted to the Securities and Exchange Commission by
ATL in connection with the Distribution is false or misleading, or omits to
state any material fact in order to make the information not false or
misleading; and, (c) any breach of this Agreement by ATL or its Affiliates.
5.1. Indemnification by SONO. SONO will indemnify, defend, and hold harmless
-----------------------
ATL, its Affiliates, and each of their respective directors, officers,
employees, and agents from and against any and all claims, actions, damages,
liabilities, costs, and expenses (including, but not limited to, reasonable
attorneys' fees and legal costs) arising out of or in connection with (a) the
SONO Business and its operation on or after the Distribution Date; (b) any claim
that any statement or other communication made or delivered by SONO in
connection with promoting or otherwise describing the transactions contemplated
in this Agreement or in any Related Agreement whether made prior to or
subsequent to the Distribution Date is false or misleading, or omits to state
any material fact in order to make the statement or communication not false or
misleading;
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and, (c) any breach of this Agreement by SONO or its Affiliates.
5.2. Insurance Proceeds. The amount that any indemnifying party is or may be
------------------
required to pay to any indemnitee under this Agreement shall be reduced by any
insurance proceeds and other amounts actually recovered by the indemnitee in
reduction of the applicable loss. If an indemnitee receives an indemnity
payment in connection with an applicable loss, and subsequently receives
insurance proceeds or other amounts in respect of the applicable loss, the
indemnitee will pay to the indemnifying party the amount of the insurance
proceeds or other amounts actually received.
5.3. Procedure for Indemnification. If an indemnitee receives notice of any
-----------------------------
claim, or the commencement of a claim by a person who is not a party to this
Agreement (a "Third Party Claim") with respect to which an indemnifying party
may be obligated to provide indemnification under this Agreement, the indemnitee
shall give the indemnifying party notice promptly upon becoming aware of the
Third Party Claim. The failure to give notice shall not relieve the
indemnifying party of its obligations except to the extent that the indemnifying
party is prejudiced by the failure to give the notice. The notice shall
describe the Third Party Claim in reasonable detail, including the amount
(estimated if necessary) of the loss that has been or may be sustained by the
indemnitee.
The indemnifying party shall defend or compromise the Third Party Claim at its
expense and by counsel of its choice. Within thirty days following the receipt
of the notice, the indemnifying party shall notify the indemnitee whether the
indemnifying party will assume responsibility for defending the Third Party
Claim; however, an indemnifying party may elect not to assume responsibility for
defending a Third Party Claim only in the event of a good faith dispute that the
claim was appropriately tendered under the indemnification provisions of this
Agreement. After giving notice of its election to assume the defense of a Third
Party Claim, the indemnifying party shall not be liable for any legal or other
costs and expenses subsequently incurred by the indemnitee in connection with
the defense.
If an indemnifying party elects to defend or compromise any Third Party Claim,
the indemnitee shall cooperate with the indemnifying party in all reasonable
respects in connection the defense or compromise, and shall not admit any
liability with respect to the Third Party Claim, or settle, compromise, or
discharge the Third Party Claim without the indemnifying party's prior written
consent.
Following the payment by an indemnifying party to any indemnitee in connection
with any Third Party Claim, the indemnifying party shall be subrogated to and
shall stand in the place of the indemnitee with respect to any rights or claims
the
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indemnitee may have in connection with the Third Party Claim, or against the
person asserting the Third Party Claim.
5.4. Survival of Indemnities. The obligations of the parties under this Article
-----------------------
shall terminate three years after the Distribution Date, except with respect to
claims for which one party has provided notice to the other prior to the end of
the three year period.
VI. ACCESS TO INFORMATION AND CONFIDENTIALITY
6.0. Access to Information. From and after the Distribution Date, and subject
---------------------
to the provisions in this Agreement, ATL shall afford to SONO, and to its
authorized representatives reasonable access and duplicating rights (with
copying costs to be borne by SONO) during normal business hours to all books,
records, and documents of ATL relating to the SONO Business, or relating to the
SONO Employees.
After the Distribution Date, SONO shall afford to ATL, and to its authorized
representatives reasonable access and duplicating rights (with copying costs to
be borne by ATL) during normal business hours to all books, records, and
documents of SONO relating to the SONO Business prior to the Distribution Date.
6.1. Confidentiality. Any information disclosed by one party to the other party
---------------
in connection with the performance of this Agreement, and any other information
designated in writing by the disclosing party as confidential (collectively, the
"Confidential Information") shall be received and maintained confidential by the
receiving party using the same standard of care that the receiving party uses to
protect its own confidential information, but not less than reasonable care.
The Confidential Information may be used by the receiving party only to perform
its obligations under this Agreement or under a Related Agreement, and shall not
be disclosed to a third party without the prior written consent of the
disclosing party. The disclosure of Confidential Information shall be
restricted only to the minimum number of employees of each party requiring
access to the Confidential Information to perform this Agreement.
The provisions of this Section shall not apply to Confidential Information which
is: (a) already known to the receiving party without an obligation of
confidentiality (it being understood that information of either party in the
possession of the other party prior to the Effective Date shall not be covered
by this exception); (b) publicly known or becomes publicly known through no
unauthorized act of the receiving party; (c) rightfully received by the
receiving party from a third party; (d) disclosed to a third party by the
disclosing party without similar restrictions; (e) approved for disclosure by
the disclosing party; or (f) required to be disclosed pursuant to a requirement
of a governmental agency
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or by law as long as the receiving party provides to the disclosing party notice
of the requirement prior to any disclosure.
Upon the termination of this Agreement for any reason, each party shall return
to the other party all Confidential Information of the other party, and cease
any further use of the Confidential Information.
VII. DISPUTE RESOLUTION
7.0. Negotiation and Binding Arbitration. Any dispute, controversy, or claim
-----------------------------------
(collectively, a "Dispute") between the parties arising out of this Agreement or
relating to the subject matter of this Agreement shall be settled using the
following procedures as the sole means to resolve the Dispute.
A party seeking to resolve the Dispute shall give written notice to the other
party briefly describing the nature of the Dispute. A meeting will be held
between the parties within ten days after the receipt of the notice. The
meeting will be attended by individuals with decision making authority regarding
the Dispute.
If the parties have not resolved the Dispute to the mutual satisfaction of the
parties within thirty days following the initiation of the meeting, the parties
shall submit the Dispute to binding arbitration in accordance with the
Commercial Arbitration Rules of the American Arbitration Association by a sole
arbitrator selected by the parties. The arbitration will be held in Bothell,
Washington. Judgment upon the award rendered by the arbitrator may be entered
by any court having jurisdiction. The cost of the arbitrator will be shared
equally by the parties. At the conclusion of the arbitration, the arbitrator
shall indicate a prevailing party. The prevailing party shall be entitled to
recover its attorney's fees and other costs in connection with the arbitration.
To the extent this Agreement limits the remedies of any party, the arbitrator
shall not have the authority to grant any remedy to any party in excess of the
limitations.
VIII. MISCELLANEOUS
8.0. Entire Agreement. This Agreement including the attachments and the
----------------
agreements and other documents referred to in this Agreement constitutes the
full, complete, and entire understanding and agreement by and between the
parties with respect to the subject matter in this Agreement, and supersedes all
previous negotiations, commitments, and writings with respect to the subject
matter of this Agreement.
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8.1. Expenses. Except as otherwise set forth in this Agreement or a Related
--------
Agreement, ATL shall be responsible for the expenses of the transactions
contemplated in this Agreement which arose prior to the Distribution Date.
Except as otherwise provided in this Agreement or a Related Agreement, each of
the parties shall be responsible for its own expenses in connection with the
transactions contemplated in this Agreement which arise after the Distribution
Date.
8.2. Governing Law. This Agreement shall be governed by, construed, and
-------------
enforced in accordance with the laws of the State of Washington.
8.3. Notices. All notices, requests, demands, and other communications under
-------
this Agreement shall be in writing, and shall be deemed to have been duly given
(a) on the date of service if served personally on the party to whom notice is
given; (b) on the day of transmission if sent by facsimile transmission to the
facsimile number given below; (c) on the business day after delivery to an
overnight courier service, or the express mail service maintained by the United
States Postal Service; or (d) on the third day after mailing if mailed to the
party to whom notice is to be given, by registered or certified mail, postage
prepaid, properly addressed, and return-receipt requested to the party as
follows:
If to ATL:
Advanced Technology Laboratories
22100 Bothell-Everett Highway
Bothell, Washington 98041-3003
Attn: Chief Executive Officer
Facsimile No. (425) 487-____
with copy to:
Advanced Technology Laboratories
22100 Bothell-Everett Highway
Bothell, Washington 98041-3003
Attn: Vice President, General Counsel
Facsimile No. (425) 487-8135
If to SONO:
SonoSight, Inc.
North Creek Parkway
Bothell, Washington 98011
Attn: President
Facsimile No. (425) ___-____
Any party may change its address or facsimile number by giving the other party
notice of the new information in the manner set forth above.
8.4. Modification of Agreement. No modification, amendment, or waiver of any
-------------------------
provision of this Agreement shall be effective unless the same shall be in
writing and signed by each of the parties. The modification, amendment, or
waiver shall be effective only in the specific instance and for the purpose for
which it is given.
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8.5. Termination. This Agreement may be terminated and the Distribution
-----------
abandoned at any time prior to the Distribution Date by and at the sole
discretion of ATL without the approval of SONO. In the event of the termination,
neither party shall have any liability of any kind to the other party.
8.6. Successors and Assigns. This Agreement shall be binding upon and inure to
----------------------
the benefit of the parties and their respective successors and permitted
assigns. This Agreement, and any of the rights, interests, or obligations under
this Agreement shall not be assigned by either party without the prior written
consent of the other party which consent shall not be withheld unreasonably.
8.7. No Third Party Beneficiaries. This Agreement is solely for the benefit of
----------------------------
the parties, and is not intended to confer any rights or remedies upon any other
person.
8.8. Titles and Headings. The Section and Article headings in this Agreement
-------------------
are inserted for convenience of reference only, and are not intended to
constitute a part of or to affect the meaning or interpretation of this
Agreement.
8.9. Attachments. The attachments to this Agreement shall be construed with and
-----------
as an integral part of this Agreement to the same extent as if they had been set
forth in full in this Agreement.
8.10. Severability. In case any one or more of the provisions contained in
------------
this Agreement should be invalid, illegal, or unenforceable, the enforceability
of the remaining provisions shall not in any way be affected or impaired. It is
the intention of the parties that they would have executed the remaining terms,
provisions, covenants, and restrictions without including any invalid, void, or
unenforceable provisions. In the event that any term, provision, covenant, or
restriction is held to be invalid, void, or unenforceable, the parties agree to
use their best efforts to find and employ an alternate means to achieve the same
or substantially the same result as that contemplated by such term, provision,
covenant, or restriction.
8.11. No Waiver. The failure by either party at any time to enforce any of the
---------
terms or conditions of this Agreement shall not constitute or be construed as a
waiver of the terms and conditions. Each party expressly reserves the right to
enforce the terms and conditions of this Agreement at any time.
8.12. Survival. All covenants and agreements of the parties contained in this
--------
Agreement will survive the Distribution Date.
8.13. Counterparts. This Agreement may be executed in one or more counterparts
------------
each of which shall be considered one and the same agreement,
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and shall become a binding agreement when one or more counterparts have been
signed by each party and delivered to the other party.
8.14. Force Majeure. No party shall be liable to the other party for any
-------------
failure to perform any obligation under this Agreement where such failure is due
to causes beyond the reasonable control of the party. Such causes include, but
are not limited to acts of war, government export controls, other governmental
acts, industrial dispute, lock-out, accident, fire, explosion, transport delays,
acts of a third party, or loss or damage to any equipment. Each party shall use
its best efforts to comply with its respective obligations under this Agreement
despite the intervention or occurrence of any such cause, and to resume
compliance with those obligations as soon as any such cause ceases to affect the
performance of its obligations under this Agreement.
8.15. No Hire Covenant. During the twelve month period following the
----------------
Distribution Date, ATL shall not offer employment to any then current employee
of SONO, or any person who was an employee of SONO within a six month period
immediately prior to ATL's proposed offer of employment without the prior
written consent of SONO or the following Committee. In order to provide a
mechanism to establish the consent contemplated by the provisions of the
previous sentence, the parties shall establish a three person committee to
review instances where ATL desires to employ either current or past employees of
SONO during the twelve month period following the Distribution Date. The
committee shall consist of the Chief Executive Officer of ATL, the Vice
President of Human Resources of SONO (or such other SONO officer as SONO may
designate), and the Chief Executive Officer of SONO. Consent shall be deemed
given or withheld in accordance with the majority vote of the committee members.
During the twelve month period following the Distribution Date, SONO shall not
offer employment to any then current employee of ATL, or any person who was an
employee of ATL within a six month period immediately prior to SONO's proposed
offer of employment without the prior written consent of ATL or the following
committee. In order to provide a mechanism to establish the consent contemplated
by the provisions of previous sentence, the parties shall establish a three
person committee to review instances where SONO desires to employ either then
current or past employees of ATL within the twelve month period following the
Distribution Date. The committee shall consist of the Chief Executive Officer of
ATL, the Vice President of Human Resources of ATL, and the Chief Executive
Officer of SONO. Consent shall be deemed given or withheld in accordance with
the majority vote of the committee members.
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ATL Ultrasound, Inc. SonoSight, Inc.
By: _________________________ By: _____________________________
Title: ______________________ Title: __________________________
Date: _______________________ Date: ___________________________
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ATTACHMENT A
Form of Service Agreement
(see following pages)
15
<PAGE>
ATTACHMENT B
Technology Transfer and License Agreement
(see following pages)
16
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ATTACHMENT C
Employee Benefits Agreement
(see following pages)
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ATTACHMENT D
OEM Supply Agreement
(see following pages)
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EXHIBIT 10.2
TECHNOLOGY TRANSFER AND LICENSE AGREEMENT
THIS LICENSE AGREEMENT (the "Agreement") is effective as of April 6, 1998 (the
"Effective Date"), and is by and between:
(i) ATL Ultrasound, Inc., a corporation of the State of Washington doing
business as Advanced Technology Laboratories, having a place of business at
22100 Bothell-Everett Highway, Bothell, Washington 98041-3003 ("ATL"), and
(ii) SonoSight, Inc., a corporation of the State of Washington, having a
place of business at North Creek Parkway, Bothell, Washington 98011
("SonoSight").
WHEREAS, ATL has certain Handheld Technology (as defined below), and desires to
transfer its rights to the Handheld Technology to SonoSight, and to grant to
SonoSight a license to use ATL Technology (as defined below) in connection with
the development, manufacture, sale, and maintenance of Handheld Ultrasound
Devices (as defined below).
WHEREAS, SonoSight desires to acquire the Handheld Technology, and to grant to
ATL a license to use the Handheld Technology and the SonoSight Technology (as
defined below) in ultrasound systems which are not Handheld Ultrasound Devices.
NOW, THEREFORE, in consideration of the terms and conditions in this Agreement,
the parties agree as follows:
I. DEFINITIONS
1.0. Definitions. As used in this Agreement, the following terms shall have
the following meanings:
(a) "Handheld Technology" shall mean:
(i) any inventions (whether patentable or not), discoveries, trade
secrets, technology, know-how, technical drawings, and other proprietary
information and literature within the patent disclosure documents listed in
Attachment A, including any and all patent rights and rights to patents derived
therefrom in any jurisdiction; and
(ii) the patents and patent applications listed in Attachment A, and
any divisions, continuations, continuations in part, and renewal applications
thereof, and any renewals, extensions, or revisions thereof, or supplementary
patent certificates derived therefrom in any jurisdiction; and
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(iii) any inventions (whether patentable or not), discoveries, trade
secrets, technology, know-how, technical drawings, and other proprietary
information and literature produced by ATL for SonoSight under a Service
Agreement between ATL and SonoSight and fully paid for by SonoSight as specified
in such Service Agreement.
(b) "ATL Technology" shall mean any inventions (whether patentable or not),
discoveries, trade secrets, technology, know-how, technical drawings, and other
proprietary information and literature owned by ATL or by its subsidiaries on
the Effective Date, or developed by ATL during the three year period following
the Effective Date. For the purpose of this Agreement, ATL Technology shall
exclude Handheld Technology, and any inventions (whether patentable or not),
discoveries, trade secrets, technology, know-how, technical drawings, and other
proprietary information and literature licensed to ATL by a third party
(collectively, "ATL Third Party Technology"), except where the terms of the
third party license with ATL permit ATL the right to sublicense the ATL Third
Party Technology to others. For illustrative purposes only, the ATL Technology
may include scanhead and transducer technology, ASIC technology, software,
signal processing techniques, and other proprietary and confidential information
of ATL. Except as otherwise provided in this Agreement, ATL Technology shall
not include any trademarks, trade names, service marks, logos, slogans, or trade
dress owned or used by ATL.
(c) "SonoSight Technology" shall mean any inventions (whether patentable or
not), discoveries, trade secrets, technology, know-how, technical drawings, and
other proprietary information and literature developed by SonoSight during the
three year period following the Effective Date including, but not limited to,
any modifications, improvements, additions, or enhancements made to the Handheld
Technology by SonoSight or by its agents, and any modifications, improvements,
additions, or enhancements made to the ATL Technology by SonoSight. For the
purpose of this Agreement, SonoSight Technology shall exclude any inventions
(whether patentable or not), discoveries, trade secrets, technology, know-how,
technical drawings, and other proprietary information and literature licensed to
SonoSight by a third party (collectively, "SonoSight Third Party Technology"),
except where the terms of the third party license with SonoSight permit
SonoSight the right to sublicense the SonoSight Third Party Technology to
others. Unless otherwise agreed, SonoSight Technology shall not include any
trademarks, trade names, service marks, logos, slogans, or trade dress owned or
used by SonoSight.
(d) "Handheld Ultrasound Devices" shall mean an ultrasound system including
a scanhead, a display device (or a video signal transmitter in lieu of a display
device), and all intermediate components, together with all housings, controls,
power sources, and output interfaces connected thereto, which do not weigh in
the aggregate more than ten pounds. Handheld Ultrasound Devices shall include
additional or substitute components intended for use with such an ultrasound
system which, together with such system, meet the ten pound limitation. The
weights of any peripheral devices which may be connectable to such an
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<PAGE>
ultrasound system, such as printers, VCRs, auxiliary monitors, and battery
chargers, shall not be included in such weight computation. Handheld Ultrasound
Devices do not include any ultrasound system or component designed for or
intended to be used in a cart-borne configuration.
(e) "Highly Portable Ultrasound Device" shall mean any ultrasound system or
component meeting the requirements of the definition of Handheld Ultrasound
Device except for the weight limitation which, for a Highly Portable Ultrasound
Device, is in the aggregate more than ten pounds and not more than fifteen
pounds. The weight of a lithotripter sold with and providing power to a Handheld
Ultrasound Device as an integrated component of such a lithotripter, with a
Handheld Ultrasound Device as its imaging component, shall not be included in
the weight computation of a Highly Portable Ultrasound Device.
II. TRANSFER OF TECHNOLOGY AND LICENSES
2.0. Transfer of Handheld Technology. Effective as at the Effective Date, ATL
transfers, assigns, and conveys to SonoSight, and SonoSight accepts the
transfer, assignment, and conveyance from ATL of all of ATL's right, title, and
interest in and to the Handheld Technology. SonoSight understands that the
United States Government has reserved or acquired certain rights to the Handheld
Technology under ATL's agreement with the United States Office of Naval
Research, and that ATL is transferring, assigning, and conveying the Handheld
Technology to SonoSight subject to the rights reserved or acquired by the United
States Government. Any training or other support required by SonoSight either to
understand or to implement the Handheld Technology is beyond the scope of this
Agreement, and may be provided by ATL to SonoSight under the terms and
conditions of a separate service agreement.
2.1. License to Handheld and SonoSight Technology. Effective as at the
Effective Date, SonoSight grants to ATL a world-wide and royalty-free license to
use the Handheld Technology and the SonoSight Technology in ultrasound systems
which are not Handheld Ultrasound Devices. The license granted to ATL set forth
in this Section shall be an exclusive license for a period of five years from
the Effective Date as to products which are neither Handheld nor Highly Portable
Ultrasound Devices, and nonexclusive as to products which are Highly Portable
Ultrasound Devices. Thereafter, the license granted to ATL set forth in this
Section shall become a non-exclusive license in its entirety.
The license to use the Handheld Technology and the SonoSight Technology set
forth in this Section shall include the right to sublicense third parties to use
the Handheld Technology and the SonoSight Technology to manufacture ultrasound
systems that are not Handheld Ultrasound Devices for ATL or for the third party
under the third party's marks, and the right to grant third parties the right to
import, make, sell or use ultrasound systems that are not Handheld Ultrasound
Devices containing the Handheld Technology or the SonoSight Technology. The
parties shall share in any royalties received from third parties due to
sublicensing by ATL of such Handheld and SonoSight technology in proportions
agreed to by the parties. In the event of failure of the parties to agree upon
such proportions, the parties shall share such royalties equally. Prior to any
sublicense of Handheld or SonoSight Technology, ATL shall notify SonoSight
of the sublicense and obtain the written agreement of the third party to protect
the technology in accordance with the applicable provisions in this Agreement.
If ATL desires to obtain the right to use the SonoSight Third Party Technology,
any royalties, fees, or other payments required to be paid to SonoSight's third
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party licensor in connection with ATL's right to use any SonoSight Third Party
Technology shall be paid by ATL; however, nothing in this Section shall obligate
ATL to obtain the right to use the SonoSight Third Party Technology.
The license to use the Handheld Technology and the SonoSight Technology shall
terminate in the event ATL is in material default of any term or condition in
this Agreement, and does not correct the default to the reasonable satisfaction
of SonoSight within thirty days following receipt of notice from SonoSight
specifying the default. Any dispute between the parties concerning default or
termination shall be resolved in accordance with the "DISPUTE RESOLUTION"
provisions of Article 6 herein. Upon the termination of the license to use the
Handheld Technology and the SonoSight Technology as set forth above, ATL
immediately shall return to SonoSight any and all material given to ATL by
SonoSight embodying all or any portion of the Handheld Technology and SonoSight
Technology, and any and all copies of the material in ATL's possession or under
ATL's control.
2.2. License to ATL Technology. Effective as at the Effective Date, and
subject to the terms and conditions in this Agreement, ATL grants to SonoSight a
non-exclusive, non-transferable (except as set forth below), and world-wide
right to use the ATL Technology in Handheld Ultrasound Devices and Highly
Portable Ultrasound Devices. At the end of five years from the Effective Date,
the license granted to SonoSight set forth in this Section shall extend to
include the right to use the ATL Technology in ultrasound systems which are not
Handheld Ultrasound Devices; EXCEPT THAT such extension does not include any
license to use any patent of ATL or any copyrighted software of ATL in any
product or application that is not a Handheld Ultrasound Device or a Highly
Portable Ultrasound Device.
Except as otherwise set forth in this Agreement, the license to use the ATL
Technology may not be sublicensed, assigned, or otherwise transferred by
SonoSight. SonoSight shall have the right to sublicense the ATL Technology to
third parties to import, make, sell or use Handheld and Highly Portable
Ultrasound Devices as SonoSight labeled and trade dressed devices or as third
party labeled Handheld or Highly Portable Ultrasound Devices, provided, however,
that if a seller or distributor of such third party labeled Devices also sells
or distributes ultrasound devices which are not Handheld or Highly Portable
Ultrasound Devices, then ATL shall have the same rights to import, make, sell or
use Handheld Ultrasound Devices on terms and conditions no less favorable than
those enjoyed by the third party. Prior to any sublicense of ATL Technology
permitted by the provisions of this Section, SonoSight shall notify ATL of the
sublicense and obtain the written agreement of the third party to protect the
ATL Technology in accordance with the applicable provisions in this Agreement.
If SonoSight desires to obtain the right to use the ATL Third Party Technology,
any royalties, fees, or other payments required to be paid to ATL's third party
licensor in connection with SonoSight's right to use any ATL Third Party
Technology shall be paid by SonoSight; however, nothing in this Section shall
obligate SonoSight to obtain the right to use the ATL Third Party Technology.
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SonoSight shall have the right to use the ATL logo and the mark "Advanced
Technology Laboratories" or the mark "ATL Ultrasound" on Handheld and Highly
Portable Ultrasound Devices bearing the trademarks of SonoSight only in
connection with a legend stating that the technology contained within the Device
is licensed to SonoSight by ATL. The ATL logo and the ATL mark shall not be
greater in size than one-half of the size of the type or script used to identify
the Device as a SonoSight product. SonoSight shall provide ATL with a sample of
each of its intended uses of ATL's logo and marks.
The license to use the ATL Technology, logo, and marks shall terminate in the
event SonoSight is in material default of any term or condition in this
Agreement and does not correct the default to the reasonable satisfaction of ATL
within thirty days following receipt of notice from ATL specifying the default.
Any dispute between the parties concerning default or termination shall be
resolved in accordance with the "DISPUTE RESOLUTION" provisions of Article 6
herein. Upon the termination of the license to use the ATL Technology as set
forth above or at the conclusion of a dispute resolution proceeding, SonoSight
immediately shall return to ATL any and all material given to SonoSight by ATL
embodying all or any portion of the ATL Technology, and any and all copies of
the material in SonoSight's possession or under SonoSight's control.
2.3. Fully Paid License. In order to compensate ATL for use of the ATL
Technology under direction or control of a third party, SonoSight shall make a
one-time payment to ATL to obtain a fully paid license to use the ATL Technology
in accordance with and subject to the terms and conditions in this Agreement in
the event of either of the following:
(a) a license fee of One Hundred Fifty Million Dollars is due and payable
if, during the first five years following the Effective Date, fifty percent or
more of the securities entitled to vote for the election of directors of
SonoSight are acquired directly or indirectly by a single person or entity, or
by a combination of persons or entities under the control of a single person or
entity, or a majority of the SonoSight board of directors is controlled by a
single person or entity; or
(b) a license fee of Seventy-five Million Dollars is due and payable if,
during the sixth, seventh, or eighth year following the Effective Date, fifty
percent or more of the securities entitled to vote for the election of directors
of SonoSight are acquired directly or indirectly by a single person or entity,
or by a combination of persons or entities under the control of a single person
or entity, or a majority of the SonoSight board of directors is controlled by a
single person or entity, which person(s) or entity(s) is engaged in the medical
diagnostic imaging business other than by manufacture or sale of SonoSight
Handheld or Highly Portable Ultrasound Devices.
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No payment shall be made to ATL if any of the events described in Section 2.3.
occur at any time after the end of the eighth year following the Effective Date.
In the event SonoSight does not make the one-time payment to ATL as described
above following demand from ATL, the license to use the ATL Technology set forth
in this Agreement shall terminate immediately and with no further action on the
part of ATL. In that event, SonoSight immediately shall return to ATL any and
all material given to SonoSight by ATL embodying all or any portion of the ATL
Technology, and any and all copies of the material in SonoSight's possession or
under SonoSight's control.
SonoSight acknowledges that the ATL Technology has been created and developed by
ATL over a substantial period of time, at a considerable expense, and gives ATL
a significant commercial advantage. SonoSight further acknowledges that a third
party who acquired the ATL Technology would gain a considerable commercial
advantage without making an investment similar in scope to that made by ATL, and
that such gain would cause ATL significant commercial damage. SonoSight agrees
that the occurrence of any of the events described above would represent either
a direct or indirect acquisition of the ATL Technology by a third party.
SonoSight and ATL agree that the damage to ATL can not be calculated by the
parties at the Effective Date without considerable difficulty, and that the one-
time payment as described in this Section is a fair, reasonable, and just
estimate of the damage caused to ATL for the commercial advantage obtained by
the third party resulting from its acquisition of the ATL Technology.
During the first eight years following the Effective Date, in order to
compensate SonoSight for use of the SonoSight Technology under direction or
control of a third party, a third party controlling the securities or directors
of ATL as defined in paragraph 2.3(a), shall have no rights to use the SonoSight
Technology for uses beyond that of ATL immediately prior to the third party
gaining control unless the third party agrees in writing to pay SonoSight
royalties of 3% and 1 1/2% for uses beyond that of ATL immediately prior to the
third party gaining control on the same basis and during the same eight year
time period as SonoSight is paying royalties under Section III of this
Agreement, and to otherwise be bound by the terms and conditions of the
Agreement.
2.5. Disclosure of Technology. At reasonable intervals during the three year
period following the Effective Date, the parties shall meet to disclose
technology developed by the parties which is included within the scope of the
license each party granted to the other party under the terms of this Agreement.
Any technology which is disclosed, including any material and information
disclosed during the meetings, shall be subject to the provisions in this
Agreement.
III. ROYALTY PAYMENTS
3.0. Royalty Payments. For the right to use the ATL Technology as set forth in
this Agreement, SonoSight shall pay to ATL a royalty based upon the worldwide
net revenues reported by SonoSight and its distributors, licensees and agents
from the sale of any and all Handheld Ultrasound Devices and Highly Portable
Ultrasound Devices sold by SonoSight (or its distributors, licensees and agents)
which were manufactured using all or any portion of the ATL Technology, or which
incorporate all or any portion of the ATL Technology. The royalty shall be:
(a) three percent of the worldwide net revenues resulting from the sale of
Handheld Ultrasound Devices and four percent of the worldwide net revenues
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resulting from the sale of Highly Portable Ultrasound Devices during the first
five year period commencing on the First Sale Date (as defined below); and
(b) one and one-half percent of the worldwide net revenues resulting from
the sale of Handheld Ultrasound Devices and two percent of the worldwide net
revenues resulting from the sale of Highly Portable Ultrasound Devices during
the sixth year, the seventh year, and the eighth year following the First Sale
Date.
No royalty shall be payable to ATL commencing on the ninth year following the
First Sale Date.
3.1. Defined Terms. For the purposes of this Article III, the term "First Sale
Date" shall mean the date on which a Handheld Ultrasound Device or a Highly
Portable Ultrasound Device is sold or otherwise transferred for monetary
consideration by SonoSight, its subsidiaries, licensees or its agents and
delivered to any party unrelated to any of them.
For the purposes of this Section the term "net revenues" shall mean the revenues
from the sale and/or maintenance of Handheld Ultrasound Devices or Highly
Portable Ultrasound Devices, less any taxes (except income taxes) on the
Devices, credits for returned Devices, quantity discounts actually given by
SonoSight, freight allowances, cash discounts actually given by SonoSight, and
any agent's commissions actually paid by SonoSight.
For the purposes of the calculation of the payments required to be made to ATL,
the net revenues from the sale of Devices sold to a related or affiliated entity
of SonoSight for subsequent resale by the entity shall not be used to calculate
the payment due to ATL. In that instance, the payment due to ATL shall be
calculated based upon the net revenues of the related or affiliated entity from
end customers, less any taxes (except income taxes) on the Devices, credits for
returned Devices, quantity discounts actually given by the entity, freight
allowances, cash discounts actually given by the entity, and any agent's
commissions actually paid by the entity.
With respect to revenues in a currency other than United States Dollars, for the
purposes of the calculation and the determination of the payment due to ATL, the
amount payable to ATL shall be the net revenue converted into United States
Dollars using the average of (a) the 4:00 P.M. New York foreign exchange selling
rates in effect on the last business day of the calendar quarter, and (b) the
4:00 P.M. New York foreign exchange selling rates in effect on the first
business day of the calendar quarter, as reported in the Currency Trading
section of The Wall Street Journal, or by converting the net revenue into United
States Dollars using another international foreign exchange index acceptable to
ATL in effect on the applicable date.
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3.2. Taxes. The royalty payments payable to ATL set forth in this Agreement
shall be net of any taxes or withholdings of any kind. In the event any taxes
are due as a result of the royalty payments to ATL (excluding taxes based upon
the net income or gross receipts of ATL) including, but not limited to sales,
use, value added, gross receipts, registration, transfer, conveyance, excise,
recording, license, and other similar taxes and fees, such taxes shall be paid
by SonoSight.
3.3. Time of Payment. Unless otherwise set forth in this Agreement, all
royalty payments shall be paid to ATL within thirty days following the end of
each calendar quarter by wire transfer to an account notified to SonoSight by
ATL, and shall apply to all Devices sold during the previous calendar quarter.
3.4 Books and Records. SonoSight shall maintain complete and accurate books
and records with respect to the products (including the Handheld Ultrasound
Devices and Highly Portable Ultrasound Devices) sold by SonoSight containing the
ATL Technology. With each payment submitted to ATL, SonoSight shall provide to
ATL a written report containing sufficient information to allow the
determination of the payment due. Upon reasonable notice to SonoSight, and at
reasonable times, SonoSight shall permit ATL (at ATL's expense) to inspect the
books and records of SonoSight to verify the payments set forth above.
IV. WARRANTY, INDEMNITY, LIABILITY
4.0. Warranty. ATL represents that it has the right to transfer to SonoSight
its rights to the Handheld Technology as set forth in this Agreement, and the
right to grant to SonoSight the right to use the ATL Technology under the terms
and conditions in this Agreement.
ATL MAKES NO OTHER REPRESENTATION OR WARRANTY CONCERNING THE HANDHELD TECHNOLOGY
OR THE ATL TECHNOLOGY, EXPRESS OR IMPLIED, INCLUDING THE WARRANTIES OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. ATL MAKES NO WARRANTY
CONCERNING SONOSIGHT'S ABILITY TO MAKE ANY DEVICES OR PRODUCTS INCLUDING
HANDHELD ULTRASOUND DEVICES USING THE HANDHELD TECHNOLOGY OR THE ATL TECHNOLOGY,
INCLUDING ANY WARRANTY THAT THE HANDHELD TECHNOLOGY OR THE ATL TECHNOLOGY IS
ERROR FREE OR THAT THE HANDHELD TECHNOLOGY OR THE ATL TECHNOLOGY WILL NOT
INFRINGE ANY PATENT, COPYRIGHT, TRADE SECRET, OR OTHER RIGHTS OF ANY THIRD
PARTY.
SonoSight represents that it has the right to grant to ATL the right to use the
Handheld Technology and the SonoSight Technology under the terms and conditions
in this Agreement.
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SONOSIGHT MAKES NO OTHER REPRESENTATION OR WARRANTY CONCERNING THE HANDHELD
TECHNOLOGY OR THE SONOSIGHT TECHNOLOGY, EXPRESS OR IMPLIED, INCLUDING THE
WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. SONOSIGHT
MAKES NO WARRANTY CONCERNING ATL'S ABILITY TO MAKE ANY PRODUCTS USING THE
HANDHELD TECHNOLOGY OR THE SONOSIGHT TECHNOLOGY, INCLUDING ANY WARRANTY THAT THE
HANDHELD TECHNOLOGY OR THE SONOSIGHT TECHNOLOGY IS ERROR FREE OR THAT THE
HANDHELD TECHNOLOGY OR THE SONOSIGHT TECHNOLOGY WILL NOT INFRINGE ANY PATENT,
COPYRIGHT, TRADE SECRET, OR OTHER RIGHTS OF ANY THIRD PARTY.
4.1. ATL Indemnity. ATL shall indemnify, and hold harmless SonoSight, its
subsidiaries, and each of their respective officers, directors, and employees
from any and all liability resulting from or in any way connected with the non-
Handheld Ultrasound Devices manufactured or sold by or under license from ATL
using or incorporating the SonoSight Technology or the Handheld Technology.
4.2. SonoSight Indemnity. SonoSight shall indemnify, and hold harmless ATL,
its subsidiaries, and each of their respective officers, directors, and
employees from any and all liability resulting from or in any way connected with
the products manufactured or sold by or under license from SonoSight using or
incorporating the Handheld Technology, the SonoSight Technology, or the ATL
Technology.
4.3. Definition of Liability. IN NO EVENT SHALL EITHER PARTY BE LIABLE TO THE
OTHER PARTY FOR ANY INDIRECT, SPECIAL, OR CONSEQUENTIAL DAMAGES INCLUDING,
WITHOUT LIMITATION, LOST PROFITS, IRRESPECTIVE OF THE WAY IN WHICH SUCH DAMAGES
MAY ARISE, EVEN IF THE PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH
DAMAGES.
V. CONFIDENTIALITY AND FIELD OF USE OF TECHNOLOGY
5.0. Confidentiality. Any information disclosed by one party to the other
party in connection with the performance of this Agreement, and any other
information designated in writing by the disclosing party as confidential
(collectively, the "Confidential Information") shall be received and maintained
confidential by the receiving party using the same standard of care that the
receiving party uses to protect its own confidential information, but not less
than reasonable care. The Confidential Information may be used by the receiving
party only to perform its obligations under this Agreement, and shall not be
disclosed to a third party without the prior written consent of the disclosing
party. The disclosure of Confidential Information shall be restricted only to
the minimum number of employees of each party requiring access to the
Confidential Information to perform its obligations under this Agreement.
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The provisions of this Section shall not apply to Confidential Information which
is: (a) already known to the receiving party without an obligation of
confidentiality (it being understood that information of either party in the
possession of the other party prior to the Effective Date shall not be covered
by this exception); (b) publicly known or becomes publicly known through no
unauthorized act of the receiving party; (c) rightfully received by the
receiving party from a third party; (d) disclosed to a third party by the
disclosing party without similar restrictions; (e) approved for disclosure by
the disclosing party; or, (f) required to be disclosed pursuant to a requirement
of a governmental agency or by law as long as the receiving party provides to
the disclosing party notice of the requirement prior to any disclosure.
Upon the termination of this Agreement for any reason, each party shall return
to the other party all Confidential Information of the other party, and cease
any further use of the Confidential Information.
5.1. Field of Use of Technology. For five years following the Effective Date,
ATL shall not engage directly or indirectly in the development, manufacture, or
sale of Handheld Ultrasound Devices using Handheld Technology or the SonoSight
Technology. Thereafter, ATL shall have the right to develop, manufacture, and
sell Handheld Ultrasound Devices using any technology, including unpatented
Handheld Technology or unpatented SonoSight Technology; however, ATL's right to
develop, manufacture, and sell Handheld Ultrasound Devices shall not extend to
Handheld Ultrasound Devices infringing any valid and enforceable claim in any
patent owned or controlled by SonoSight, or infringing any valid and enforceable
copyright rights owned by SonoSight.
For five years following the Effective Date, SonoSight shall not engage directly
or indirectly in the development, manufacture, or sale of ultrasound systems
using ATL Technology which are not Handheld Ultrasound Devices or Highly
Portable Ultrasound Devices. Thereafter, SonoSight shall have the right to
develop, manufacture, and sell ultrasound systems using any technology,
including unpatented ATL Technology; however, SonoSight's right to develop,
manufacture, and sell ultrasound systems shall not extend to the sale of
ultrasound systems which are not Handheld Ultrasound Devices or Highly Portable
Ultrasound Devices and which infringe any valid and enforceable claim in any
patent owned or controlled by ATL or its subsidiaries, or infringe any valid and
enforceable copyright rights owned by ATL or its subsidiaries.
VI. DISPUTE RESOLUTION
6.0. Negotiation and Binding Arbitration. Any dispute, controversy, or claim
(collectively, a "Dispute") between the parties arising out of this Agreement or
relating to the subject matter of this Agreement shall be settled using the
following procedures as the sole means to resolve the Dispute.
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A party seeking to resolve the Dispute shall give notice to the other party
briefly describing the nature of the Dispute. A meeting will be held between
the parties within ten days after the receipt of the notice. The meeting will
be attended by individuals with decision making authority regarding the Dispute.
If the parties have not resolved the Dispute to the mutual satisfaction of the
parties at the meeting, the parties shall submit the Dispute to binding
arbitration in accordance with the Commercial Arbitration Rules of the American
Arbitration Association by a sole arbitrator selected by the parties. The
arbitration will be held in Bothell, Washington within 30 days of submission of
the Dispute to arbitration. Judgment upon the award rendered by the arbitrator
may be entered by any court having jurisdiction. The cost of the arbitrator will
be shared equally by the parties. At the conclusion of the arbitration, the
arbitrator shall indicate a prevailing party. The prevailing party shall be
entitled to its attorney's fees and other costs in connection with the
arbitration. To the extent this Agreement limits the remedies of any party, the
arbitrator shall not have the authority to grant any remedy to any party in
excess of the limitations provided in this Agreement.
If the arbitrator's decision has the effect of terminating a party's license
under this Agreement, such license shall not terminate if the party whose
license is being terminated provides the prevailing party, within 30 days of the
arbitrator's decision, with a written statement by the arbitrator certifying
that any breach of this Agreement by the party being terminated has been cured,
and that the party being terminated has taken any other actions specified in the
arbitration's decision.
VII. MISCELLANEOUS
7.0. Entire Agreement. This Agreement including the attachments shall
constitute the full, complete, and entire understanding and agreement by and
between the parties with respect to the subject matter in this Agreement, and
supersedes all previous negotiations, commitments, and writings with respect to
the subject matter of this Agreement. Counsel for both parties have participated
in the preparation of the Agreement and it shall not be construed against either
party as the drafter.
7.1. Governing Law. This Agreement shall be governed by, construed, and
enforced in accordance with the laws of the State of Washington.
7.2. Notices. All notices, requests, demands, and other communications under
this Agreement shall be in writing, and shall be deemed to have been duly given
(a) on the date of service if served personally on the party to whom notice is
given; (b) on the day of transmission if sent by facsimile transmission to the
facsimile number given below; (c) on the business day after delivery to an
overnight courier service, or the express mail service maintained by the United
States Postal Service; or (d) on the third day after mailing if mailed to the
party to whom notice is to be given, by registered or certified mail, postage
prepaid, properly addressed, and return-receipt requested to the party as
follows:
If to ATL:
Advanced Technology Laboratories
22100 Bothell-Everett Highway
Bothell, Washington 98041-3003
Attn: Vice President, General Counsel
Facsimile No.: (425) 487-8135
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If to SonoSight:
SonoSight, Inc.
North Creek Parkway
Bothell, Washington 98011
Attn: President
Facsimile No.: (425) ___-____
Any party may change its address or facsimile number by giving the other party
notice of the new information in the manner set forth above.
7.3. Modification of Agreement. No modification, amendment, or waiver of any
provision of this Agreement shall be effective unless the same shall be in
writing and signed by each of the parties. The modification, amendment, or
waiver shall be effective only in the specific instance and for the purpose for
which given.
7.4. Successors and Assigns. This Agreement shall be binding upon and inure to
the benefit of the parties and their respective successors and permitted
assigns. This Agreement, and any of the rights, interests, or obligations under
this Agreement shall not be assigned by either party without the prior written
consent of the other party which consent shall not be withheld unreasonably.
7.5. No Third Party Beneficiaries. This Agreement is solely for the benefit of
the parties, and is not intended to confer upon any other person any rights or
remedies.
7.6. Titles and Headings. The Section and Article headings in this Agreement
are inserted for convenience of reference only, and are not intended to
constitute a part of or to affect the meaning or interpretation of this
Agreement.
7.7. Attachments. The attachments to this Agreement shall be construed with
and as an integral part of this Agreement to the same extent as if they had been
set forth in full in this Agreement.
7.8. Severability. In case any one or more of the provisions contained in this
Agreement should be invalid, illegal, or unenforceable, the enforceability of
the remaining provisions shall not in any way be affected or impaired. It is
the intention of the parties that they would have executed the remaining terms,
provisions, covenants, and restrictions without including any invalid, void, or
unenforceable provisions. In the event that any term, provision, covenant, or
restriction is held to be invalid, void, or unenforceable, the parties agree to
use their best efforts to find and employ an alternate means to achieve the same
or substantially the same result as that contemplated by such term, provision,
covenant, or restriction.
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7.9. No Waiver. The failure by either party at any time to enforce any of the
terms or conditions of this Agreement shall not constitute or be construed as a
waiver of the terms and conditions. Each party expressly reserves the right to
enforce the terms and conditions of this Agreement at any time.
7.10. Counterparts. This Agreement may be executed in one or more counterparts
each of which shall be considered one and the same agreement, and shall become a
binding agreement when one or more counterparts have been signed by each party
and delivered to the other party.
7.11. Force Majeure. No party shall be liable to the other party for any
failure to perform any obligation under this Agreement where such failure is due
to causes beyond the reasonable control of the party. Such causes include, but
are not limited to acts of war, government export controls, other governmental
acts, industrial dispute, lock-out, accident, fire, explosion, transport delays,
acts of a third party, or loss or damage to any equipment. Each party shall use
its best efforts to comply with its respective obligations under this Agreement
despite the intervention or occurrence of any such cause, and to resume
compliance with those obligations as soon as any such cause ceases to affect the
performance of its obligations under this Agreement.
ATL Ultrasound, Inc. SonoSight, Inc.
By: _________________________ By: ____________________________
Title: ________________________ Title: ___________________________
Date: _______________________ Date: ___________________________
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ATTACHMENT A
Handheld Technology
Patent Disclosures
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"ULTRASONIC SIGNAL PROCESSOR FOR A HAND HELD ULTRASONIC DIAGNOSTIC
INSTRUMENT" by JJ Hwang, Bob Pedersen, and Lauren Pflugrath.
Patent Applications and Patents
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U.S. Pat. 5,722,412 (Pflugrath et al.)
"ULTRASONIC ARRAY TRANSDUCER TRANSCEIVER FOR A HAND HELD ULTRASONIC
DIAGNOSTIC INSTRUMENT" by Blake Little, JJ Hwang, and Lauren Pflugrath, U.S.
Appl. SN 08/826,543, filed April 3, 1997.
"HAND HELD ULTRASONIC DIAGNOSTIC INSTRUMENT WITH DIGITAL BEAMFORMER" by
Bill Ogle, Larry Greisel, Blake Little, Judd Coughlin, Steve Danielson, and
Lauren Pflugrath, U.S. Appl. SN 08/863,936, filed May 27, 1997.
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EXHIBIT 10.3
OEM SUPPLY AGREEMENT
THIS OEM SUPPLY AGREEMENT (the "Agreement") is effective as of April 6, 1998
(the "Effective Date"), and is by and between:
(a) ATL Ultrasound, Inc., a corporation of the State of Washington doing
business as Advanced Technology Laboratories, having a place of business at
22100 Bothell-Everett Highway, Bothell, Washington 98041-3003 ("ATL"), and
(b) SonoSight, Inc., a corporation of the State of Washington, having a
place of business at North Creek Parkway, Bothell, Washington 98011
("SonoSight").
WHEREAS, ATL will manufacture handheld ultrasound devices for SonoSight for a
certain period of time following the Effective Date.
NOW, THEREFORE, in consideration of the terms and conditions in this Agreement
and of the terms and conditions in the Distribution Agreement between ATL and
SonoSight dated April 6, 1998, the parties agree as follows:
I. DEFINITIONS
1.0 Definitions. As used in this Agreement, the term "Product(s)" shall mean
the self contained highly portable hand carried ultrasonic imaging device having
the preliminary specifications described in Attachment 1.0. (The parties
acknowledge that the Products are still in a state of development and that
complete and final specifications will not be known until final acceptance
testing and clinical trials have been completed. At that time, the preliminary
Product specifications of Attachment 1.0 will be updated upon mutual written
agreement of the parties.)
II. SCOPE OF AGREEMENT
2.0. Exclusive Basis. Upon the Effective Date, ATL will manufacture the
Products exclusively for SonoSight for a period of up to five (5) years under
the terms of this Agreement, unless this Agreement is otherwise terminated under
the terms of this Agreement.
2.1. Attachment Updates. After the parties update the preliminary Product
specifications in Attachment 1.0, ATL will update the preliminary Cost Model in
Attachment 5.1. SonoSight understands that any subsequent updates or changes to
Attachment 1.0 may delay the production or delivery of Products to SonoSight.
III. AGREEMENT ADMINISTRATION
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3.0. Agreement Administration. Upon the Effective Date, each party shall
designate an individual who shall be responsible for the administration of this
Agreement on behalf of that party. Any and all inquires related to this
Agreement, or the performance by the parties of their obligations under this
Agreement, including any updates to any Attachment, shall be directed to the
individuals designated by the parties. Each party shall have the right to
replace any individual previously designated by that party upon written notice
to the other party.
IV. CAPITAL EXPENDITURES AND MANUFACTURING EXPENSES
4.0. Capital Expenditures. ATL may incur costs for the purchase of capital
items related to the manufacture of the Products. Unless otherwise agreed upon
by the parties, ATL shall notify SonoSight before it purchases any item expected
to cost more than $2,000. SonoSight shall provide ATL with written approval
before any such item is purchased by ATL. If any item is expected to cost more
than $2,000, the parties shall identify such items as "Unique" or "Non-Unique."
"Unique" items are those items that are unique to the manufacture of the
Products. "Non-Unique" items are those items that may be used and shared by
ATL and SonoSight. All items that cost less than $2,000 shall be deemed Non-
Unique, unless otherwise agreed upon by the parties.
SonoSight will purchase capital items related to the manufacture of the
Products. Alternatively, upon agreement by the parties, ATL will purchase
approved Unique items and invoice SonoSight as ATL incurs such costs. SonoSight
shall reimburse ATL upon its receipt of such an invoice. Unless otherwise agreed
upon by the parties, SonoSight shall own all Unique items for which it has paid.
For all Non-Unique items over $2,000, the parties shall agree upon ownership
prior to ATL's purchase. If the parties agree that SonoSight will own the Non-
Unique item and approval has been given by SonoSight, ATL will purchase the Non-
Unique item and invoice SonoSight as ATL incurs such costs. SonoSight shall
reimburse ATL upon its receipt of such an invoice. If the parties agree that ATL
will own the Non-Unique item, ATL will purchase the Non-Unique item and factor
such costs into the Cost Model of Attachment 5.1.
SonoSight understands that any delay necessitated by the approval and agreement
process under this Section may delay the production or delivery of Products to
SonoSight.
4.1. Care and Removal of Capital Items. Unless otherwise agreed upon by the
parties, SonoSight shall be responsible for the general and preventative
maintenance of all items owned by SonoSight. ATL will provide SonoSight with
such maintenance services under the terms of a separate service agreement.
After the expiration or termination of this Agreement, SonoSight shall receive
all items for which it owns and the parties shall agree upon the removal of such
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items. SonoSight shall be responsible for all costs and expenses related to the
removal of such items including, but not limited to, expenses related to the
repair of ATL's facilities caused by the removal of such items.
4.2. Manufacturing Expenses. ATL will incur manufacturing expenses such as,
but not limited to, indirect labor, direct labor, materials, and non-recurring
engineering expenses ("Manufacturing Expenses"). SonoSight shall be responsible
for all Manufacturing Expenses. ATL will invoice SonoSight for all
Manufacturing Expenses on a monthly basis from the Effective Date until
SonoSight provides ATL with notice that the Product is within ninety (90) days
of final production status (the "Start-up Phase"). After the Start-up Phase is
complete, or if SonoSight elects, until Product production commences, the
Manufacturing Expenses will be factored into the Cost Model of Attachment 5.1 at
a rate of ATL's cost per unit plus twenty percent (20%).
ATL will provide SonoSight with a quarterly budget report of its Manufacturing
Expense projections. ATL and SonoSight will meet on a quarterly basis to review
any Manufacturing Expenses that ATL believes will be greater than ten (10%) of
the Manufacturing Expenses projected in the most recent quarterly budget report.
4.3. Inventory. Product materials purchased by ATL will be treated as a
Manufacturing Expense and will correspond with the Product Volume Projections
described in Attachment 5.0. ATL may purchase Product material under this
Agreement using standard purchasing practices. Unless SonoSight specifies a
vendor for Product materials, ATL will purchase all Product materials from any
ATL approved vendor.
4.4. Prototype/Validation Products. All materials for prototype or validation
Products will be treated as a Manufacturing Expense.
4.5. Use of Common Materials. ATL will attempt, where possible, to use
materials, fixtures and procedures which are common to both ATL products and the
Products. ATL will not charge SonoSight for the costs of any material,
fixtures, and procedures used by ATL for ATL products. Where any such costs are
incurred by ATL which are applicable to both ATL products and Product features,
SonoSight shall reimburse ATL for only the portion of such costs which are
applicable to the Products.
V. PRODUCT QUANTITY, PRICING, PAYMENT, and CHANGES
5.0. Product Quantity. The specific quantity of Products manufactured by ATL
under this Agreement are described in the Product Volume Projections in
Attachment 5.0, which may be updated upon agreement of the parties.
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5.1. Product Pricing. The price of Products manufactured by ATL under this
Agreement are described in the preliminary Cost Model of Attachment 5.1. After
Attachment 1.0 has been updated, ATL shall update the preliminary Cost Model of
Attachment 5.1 as provided in Sections 4.0. and 4.2. ATL and SonoSight shall
meet every three (3) months during the term of this Agreement to review Product
pricing. Unless otherwise agreed upon in writing by the parties, any price
change shall apply only to purchase orders placed after the effective date of
such price change.
5.2. Taxes. The price of Products manufactured by ATL under this Agreement do
not include applicable sales, excise, use, value added, or other taxes, duties,
or fees (including customs duties and broker charges if applicable) in effect or
later levied, which ATL may be required to pay or collect in connection with the
sale of the Products to SonoSight (excluding taxes based upon the income or
gross receipts of ATL). All such taxes, duties, and fees shall be paid by
SonoSight upon receipt of an invoice from ATL.
5.3. Product Payment. Unless otherwise agreed, all Products sold to SonoSight
by ATL under this Agreement shall be invoiced at the time of shipment. Payment
terms are net thirty (30) days of the invoice date. If SonoSight requests that
shipment be made other than F.O.B. ATL's manufacturing facility in Bothell,
Washington, the payment must be in an amount sufficient to pay for any
additional shipping costs. Overdue payments shall be charged interest at the
lesser of twelve percent (12%) per annum, or the maximum permitted by applicable
law.
5.4. Product Changes Notifications. SonoSight may submit Product changes to
ATL in the form of a written Product Change Notification ("PCN"). Each PCN
shall be accompanied by documentation that will enable ATL to implement the
change and to investigate the cost impact of the change. After ATL receives a
PCN and the appropriate documentation, ATL will use reasonable efforts to
prepare a cost impact report within five (5) business days. SonoSight
understands that any PCN may affect the price, production, or delivery of the
Products.
VI. PURCHASE ORDERS
6.0. SonoSight Purchase Orders. Subject to the provisions of Section 6.1,
SonoSight shall tender purchase orders to ATL for purchases under this
Agreement. SonoSight may request that ATL ship specific quantities of Products
on a weekly basis during each month. ATL will respond within two (2) weeks
after receipt of a SonoSight purchase order with estimated shipping schedules
based on shipping dates requested by SonoSight.
-4-
<PAGE>
6.1. Controlling Terms. In the event that any documents issued by SonoSight
under this Agreement, including any SonoSight purchase order, contains terms in
addition to, in conflict with, or different than the terms of this Agreement,
the terms of this Agreement shall control. No term or condition in any document
issued by SonoSight shall be applicable to this Agreement unless expressly
agreed to in writing by ATL.
VII. ACCESSORY TESTING
7.0. Accessory Testing. Upon SonoSight's request, ATL will conduct accessory
testing, such as but not limited to VCRs and printers, on the Products prior to
delivery of the Products. Within thirty (30) days of ATL's receipt of a
purchase order under this Agreement, SonoSight shall notify ATL of SonoSight's
desire to have ATL test the Products with any such accessories. After SonoSight
provides ATL with such notice, SonoSight shall, at its own expense, deliver the
required accessories to ATL. SonoSight understands that any delay necessitated
by its delivery of any accessories to ATL for purposes of testing may delay the
production or delivery of Products to SonoSight.
7.1. Return of Accessories. Upon the expiration or termination of this
Agreement, ATL shall return to SonoSight any accessories that were provided by
SonoSight under Section 7.0.
VIII. DELIVERY AND SHIPPING
8.0. Delivery and Shipping. ATL shall deliver Products to SonoSight on the
dates specified by SonoSight in the purchase orders and agreed to by ATL.
Unless otherwise agreed, delivery shall be F.O.B. ATL's manufacturing facility
in Bothell, Washington.
8.1. Non-Standard Shipping. Upon the request of SonoSight and at SonoSight's
expense, ATL shall ship the Products to destinations outside the Seattle,
Washington area by air freight using standard containers defined by SonoSight
for the Products. Risk of loss shall pass to SonoSight upon delivery of
Products to a common carrier by ATL, with freight and other insurance coverage's
obtained per SonoSight's instructions. SonoSight shall be responsible for any
and all costs attendant to such shipment, such as customs charges and insurance.
If SonoSight requests ATL to make shipments outside of the United States,
SonoSight shall be responsible for obtaining any related permits or licenses,
including those required by United States export laws, or any other related
documents and shall bear all cost and expense related in any way to such
permits, licenses, or documents.
IX. INSPECTION, TESTING AND PRODUCT EXCHANGE
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<PAGE>
9.0. Inspection and Testing. ATL shall inspect and test every Product before
shipment in accordance with existing ATL standards. ATL shall provide SonoSight
with record of such testing upon SonoSight's reasonable request. At SonoSight's
expense, SonoSight or its duly authorized representative shall have the right
and opportunity to witness such inspection and/or tests, provided that this
right does not delay Product manufacture or shipments. ATL shall make
reasonable arrangements at its facilities for SonoSight to witness such
inspection and/or tests. SonoSight's failure to witness any inspection or test
shall not be a ground for rejection of any Product or shipment.
9.1. Acceptance. SonoSight will be deemed to have accepted the Products
shipped under this Agreement as conforming and undamaged unless SonoSight gives
written notice of such rejection within ten (10) days of Product receipt by
SonoSight (if ATL shipped the Product to SonoSight), or within ten (10) days of
Product receipt by SonoSight's customer (if ATL shipped the Product to
SonoSight's customer).
9.2. Product Warranty. For ninety (90) days from the date of Product shipment,
ATL warrants that the Products shipped by ATL under this Agreement will be free
from defects in material and workmanship. This warranty shall not apply to any
Product subjected to misuse or alteration by SonoSight or its customer.
9.3. Exchange Program. As SonoSight's exclusive remedy under the warranty of
Section 9.2, ATL shall provide a ninety (90) day exchange of faulty or defective
parts in Products delivered under this Agreement. SonoSight shall have the
right to exchange a faulty or defective part to ATL for free replacement,
provided SonoSight notifies ATL that it is returning a part under this exchange
program within ninety (90) days of shipment of the Product. Returns shall
utilize ATL's form for return authorization. Each party shall bear the cost of
parts shipped to the other under this exchange program.
9.4. Definition of Liability. ATL will use reasonable efforts to manufacture
Products for SonoSight in accordance with SonoSight's delivery schedule;
however, with the exception of the warranty provided in this Agreement, ATL will
have no liability to SonoSight or a third party for ATL's performance or non-
performance under this Agreement, or for the performance of any Product
manufactured by ATL under this Agreement.
9.5. Exclusions. EXCEPT FOR THE EXCHANGE PROGRAM OF SECTION 9.3 ABOVE, THE
PRODUCTS MADE AND DELIVERED UNDER THIS AGREEMENT CARRY NO WARRANTIES, EXPRESSED
OR IMPLIED, INCLUDING ANY WARRANTY OF MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE, OR NON-INFRINGEMENT OF PATENT, COPYRIGHT, TRADE SECRET,
TRADEMARK, TRADE DRESS OR OTHER
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<PAGE>
INTELLECTUAL PROPERTY RIGHT OF A THIRD PARTY, OR WARRANTY ARISING FROM SAMPLES
PREVIOUSLY SUPPLIED, OR WARRANTY ARISING FROM ATL'S ABILITY TO MANUFACTURE
PRODUCTS BY DATES REQUIRED BY SonoSight. The parties understand and agree that
SonoSight will be performing all sales and after the sale servicing of the
Products it receives under this Agreement.
9.6. Indemnification. The warranty of Section 9.2 is solely for the benefit of
SonoSight, and may be asserted only by SonoSight. SonoSight shall be solely
responsible for any representations or warranties made by SonoSight to any
customer with respect to Products, services or delivery dates. SonoSight shall
defend, indemnify and hold harmless ATL, any subsidiary of ATL, and each of
their respective officers, directors, employees, agents, and representatives
from and against any and all claims, actions, damages, liens, liabilities, costs
and expenses (including, but not limited to, reasonable attorneys fees) arising
out of or in connection with its performance of any of its obligations under
this Agreement, the sale of any Products by SonoSight, or its agents,
representatives, or affiliates, and the performance or non-performance of any
Product (except as otherwise provided in this Agreement).
X. GOVERNMENT APPROVALS, COMPLIANCE WITH LAW AND GMP/QUALITY CONTROL AUDITS
10.0. Government Approvals. SonoSight shall be responsible for obtaining all
necessary governmental approvals and other necessary authorizations for the
promotion, marketing and sale of the Products and spare parts. ATL shall assist
SonoSight in such efforts by providing technical information and data to
SonoSight under the terms of a separate service agreement.
10.1. GMP/Quality Control Audits. ATL will use its reasonable efforts to
manufacture the Products to comply with the standards that ATL uses in the
manufacture of its own products. Upon request and after reasonable notice to
ATL, SonoSight may (a) inspect the storage and quality of parts for the
Products in ATL's facilities, and (b) assure itself of the adequacy and
effectiveness of the quality system applied by ATL. For these purposes,
SonoSight's representative may visit the facilities of ATL, at SonoSight's
expense, during reasonable times to conduct such inspections. During the term
of this Agreement, ATL will provide SonoSight with device history record
configuration documentation for all Products manufactured by ATL.
XI. PRODUCT SUPPORT
11.0. Product Support. Unless otherwise agreed upon by the parties, ATL shall
not provide any Product support to any end-user of the Products or to any
customer of SonoSight. ATL will provide SonoSight with Product spare parts
-7-
<PAGE>
and Product repairs. Prices for such Product spare parts and Product repairs are
specified in Attachment 11.0. If SonoSight has no spare parts available, ATL
agrees to use its reasonable efforts to ship spare parts ordered by SonoSight
within 48 hours of its receipt of an order for such parts under the condition
that patient and/or operator safety is involved due to a problem which is solely
attributable to a manufacturing defect of the Product.
ATL shall provide Product spare parts to SonoSight after the date of Product
shipment for as long as ATL has an inventory of such parts. If ATL decides to
cease maintaining an inventory of such parts, it shall extend to SonoSight the
opportunity for SonoSight to make a last time purchase of such parts. If ATL
does not maintain an inventory of a spare part but knows of a third party source
for such part, it will assist SonoSight in arranging for supply of the part to
SonoSight by the third party source.
11.1. Parts Information. Upon SonoSight's request and expense, ATL shall
provide SonoSight with all information in the possession of ATL relating to the
manufacture of the Products including: all information concerning the set-up of
manufacture items for which SonoSight has paid, lists of parts, instructions,
test procedures, and related drawings and approved vendors of such parts for the
Products delivered hereunder.
11.2. Key Parts/Components. ATL shall continue to supply SonoSight with the
key parts/components described in Attachment 11.2 after the expiration or
termination of this Agreement for so long as such parts/components continue to
be made by ATL or continue to be made by an ATL vendor.
XII. MANUALS AND DOCUMENTATION
12.0. Manuals and Documentation. SonoSight shall be responsible for any and
all manuals and documentation for the Products.
XIII. PURCHASE OF DISCONTINUED PRODUCTS AND MATERIALS
13.0. Purchase of Discontinued Products. In the event that a Product or a
material is discontinued, SonoSight agrees to purchase from ATL, at ATL's cost,
(a) all discontinued Products that are finished and in ATL's possession; (b) all
discontinued material inventory, whether in raw form or work in progress, and
not returnable to the supplier or usable by ATL; (c) all discontinued materials
on order that cannot be canceled; and (d) any supplier cancellation or
restocking charges incurred with respect to the cancellation of discontinued
materials. ATL shall use reasonable efforts to cancel all applicable component
purchase orders, reduce component inventory through return for credit programs,
or allocate components for alternate programs if applicable. Notwithstanding
the above, SonoSight shall only purchase from ATL the discontinued Products and
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<PAGE>
materials which have been produced or procured by ATL reasonably in accordance
with the Product Volume Projections of Attachment 5.0. Delivery of any Products
or materials purchased by SonoSight under this Section shall be F.O.B. Bothell,
Washington.
13.1. Purchase of Unique Materials. Following delivery of the last Product
produced under this Agreement, SonoSight agrees to purchase from ATL, at ATL's
cost, all remaining materials which ATL possesses that are unique to the
Products. Delivery of such materials shall be F.O.B. Bothell, Washington.
Notwithstanding the above, SonoSight shall only purchase from ATL the remaining
materials which have been procured by ATL reasonably in accordance with the
Product Volume Projections of Attachment 5.0.
XIV. INDEMNIFICATIONS
14.0. Indemnification. SonoSight shall indemnify, defend and hold harmless
ATL, any subsidiary of ATL, and each of their respective officers, directors,
employees, agents, and representatives from and against any and all losses,
claims, actions, damages, judgments, liabilities, costs, and expenses, including
reasonable attorneys fees arising out of or relating to personal injury
(including death), or property damage relating in any way to the Products. The
indemnification will be contingent upon ATL giving SonoSight reasonable notice
of receipt of any claim and allowing SonoSight to assume control of the defense,
compromise, or settlement. The indemnification shall not extend to any losses,
claims, damages, costs or expenses arising out of ATL's negligence, or the
negligence of any third party. This indemnification shall survive the
expiration of this Agreement.
14.1. Intellectual Property Indemnification. SonoSight shall indemnify and
hold harmless ATL, any subsidiary of ATL, and each of their respective officers,
directors, employees, agents, and representatives from any and all liability,
loss, or damage that ATL may suffer as the result of claims, demands, costs, or
judgments by any third party that the Product violates its patent, copyright,
trade secret, trade dress, trademark, or any other intellectual property
right(s). The foregoing indemnification does not apply to any manufacturing
process used by ATL, and not specified by SonoSight, to manufacture the Product.
14.2. Limit of Liability. IN NO EVENT SHALL EITHER PARTY BE LIABLE TO THE
OTHER PARTY FOR ANY INDIRECT, SPECIAL, OR CONSEQUENTIAL DAMAGES INCLUDING,
WITHOUT LIMITATION, LOST PROFITS, IRRESPECTIVE OF THE WAY IN WHICH SUCH DAMAGES
MAY ARISE, EVEN IF THE PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH
DAMAGES.
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<PAGE>
XV. CONFIDENTIALITY
15.0. Confidentiality. Any information disclosed by one party to the other
party in connection with the performance of this Agreement, and any other
information designated in writing by the disclosing party as confidential
(collectively, the "Confidential Information") shall be received and maintained
confidential by the receiving party using the same standard of care that the
receiving party uses to protect its own confidential information, but not less
than reasonable care. The Confidential Information may be used by the receiving
party only to perform its obligations under this Agreement, and shall not be
disclosed to a third party without the prior written consent of the disclosing
party. The disclosure of Confidential Information shall be restricted only to
the minimum number of employees of each party requiring access to the
Confidential Information to perform its obligations under this Agreement.
The provisions of this Section 15.0 shall not apply to Confidential Information
which is: (a) already known to the receiving party without an obligation of
confidentiality (it being understood that information of either party in the
possession of the other party prior to the Effective Date shall be covered by
this exception); (b) publicly known or becomes publicly known through no
unauthorized act of the receiving party; (c) rightfully received by the
receiving party from a third party; (d) disclosed to a third party by the
disclosing party without similar restrictions; (e) approved for disclosure by
the disclosing party; or, (f) required to be disclosed pursuant to a requirement
of a governmental agency or by law as long as the receiving party provides to
the disclosing party notice of the requirement prior to any disclosure.
Upon the termination of this Agreement for any reason, each party shall return
to the other party all Confidential Information of the other party, and cease
any further use of the Confidential Information.
XVI. DISPUTE RESOLUTION
16.0. Dispute Resolution. In the event of any dispute or disagreement between
the parties with respect to the performance or non-performance by ATL of any
obligation under this Agreement, the individuals designated by the parties under
Section 3.0, shall meet to resolve the dispute. In the event the individuals
are unable to resolve the dispute to the satisfaction of the parties within
thirty (30) days following the initial meeting of the individuals, SonoSight may
cancel or terminate this Agreement upon ninety (90) days' notice. The
cancellation or termination of this Agreement shall be the sole and exclusive
remedy available to SonoSight resulting from or arising out of the performance
or non-performance of any obligation of ATL under this Agreement.
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<PAGE>
XVII. MISCELLANEOUS
17.0. Entire Agreement. This Agreement including the attachments shall
constitute the full, complete, and entire understanding and agreement by and
between the parties with respect to the subject matter in this Agreement, and
supersedes all previous negotiations, commitments, and writings with respect to
the subject matter of this Agreement.
17.1. Governing Law. This Agreement shall be governed by, construed, and
enforced in accordance with the laws of the State of Washington.
17.2. Notices. All notices, requests, demands, and other communications under
this Agreement shall be in writing, and shall be deemed to have been duly given
(a) on the date of service if served personally on the party to whom notice is
given; (b) on the day of transmission if sent by facsimile transmission to the
facsimile number given below; (c) on the business day after delivery to an
overnight courier service, or the express mail service maintained by the United
States Postal Service; or (d) on the third day after mailing if mailed to the
party to whom notice is to be given, by registered or certified mail, postage
prepaid, properly addressed, and return-receipt requested to the party as
follows:
If to ATL:
Advanced Technology Laboratories
22100 Bothell-Everett Highway
Bothell, Washington 98041-3003
Attn: Don Blem, Sr. Vice President Operations
Facsimile No. (425) 487- 7245
with copy to:
Advanced Technology Laboratories
22100 Bothell-Everett Highway
Bothell, Washington 98041-3003
Attn: General Counsel
Facsimile No. (425) 487-8135
If to SonoSight:
SonoSight, Inc.
North Creek Parkway
Bothell, Washington 98011
Attn: President
Facsimile No. (425) ___-____
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<PAGE>
Any party may change its address by giving the other party notice of its new
address in the manner set forth above.
17.3. Modification of Agreement. No modification, amendment, or waiver of any
provision of this Agreement shall be effective unless the same shall be in
writing and signed by each of the parties. The modification, amendment, or
waiver shall be effective only in the specific instance and for the purpose for
which given.
17.4. Successors and Assigns. This Agreement shall be binding upon and inure
to the benefit of the parties and their respective successors and permitted
assigns. This Agreement, and any of the rights, interests, or obligations under
this Agreement shall not be assigned by either party without the prior written
consent of the other party which consent shall not be withheld unreasonably.
17.5. No Third Party Beneficiaries. This Agreement is solely for the benefit
of the parties, and is not intended to confer upon any other person any rights
or remedies.
17.6. Titles and Headings. The Section and Article headings in this Agreement
are inserted for convenience of reference only, and are not intended to
constitute a part of or to affect the meaning or interpretation of this
Agreement.
17.7. Attachments. The attachments to this Agreement shall be construed with
and as an integral part of this Agreement to the same extent as if they had been
set forth in full in this Agreement.
17.8. Severability. In case any one or more of the provisions contained in
this Agreement should be invalid, illegal, or unenforceable, the enforceability
of the remaining provisions shall not in any way be affected or impaired. It is
the intention of the parties that they would have executed the remaining terms,
provisions, covenants, and restrictions without including any invalid, void, or
unenforceable provisions. In the event that any term, provision, covenant, or
restriction is held to be invalid, void, or unenforceable, the parties agree to
use their best efforts to find and employ an alternate means to achieve the same
or substantially the same result as that contemplated by such term, provision,
covenant, or restriction.
17.9. No Waiver. The failure by either party at any time to enforce any of the
terms or conditions of this Agreement shall not constitute or be construed as a
waiver of the terms and conditions. Each party expressly reserves the right to
enforce the terms and conditions of this Agreement at any time.
17.10. Counterparts. This Agreement may be executed in one or more
counterparts each of which shall be considered one and the same agreement,
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<PAGE>
and shall become a binding agreement when one or more counterparts have been
signed by each party and delivered to the other party.
17.11. Force Majeure. No party shall be liable to the other party for any
failure to perform any obligation under this Agreement where such failure is due
to causes beyond the reasonable control of the party. Such causes include, but
are not limited to acts of war, government export controls, other governmental
acts, industrial dispute, lock-out, accident, fire, explosion, transport delays,
acts of a third party, or loss or damage to any equipment. Each party shall use
its best efforts to comply with its respective obligations under this Agreement
despite the intervention or occurrence of any such cause, and to resume
compliance with those obligations as soon as any such cause ceases to affect the
performance of its obligations under this Agreement.
17.12. Term and Termination. The term of this Agreement shall commence on the
Effective Date and continue until terminated as follows:
(a) This Agreement may be terminated in full or in part upon thirty (30)
days written notice:
(i) by SonoSight if ATL materially defaults in the performance of any
of its obligations under this Agreement and fails to remedy such
default to the reasonable satisfaction of SonoSight within such thirty
(30) day notice period; or
(ii) by ATL in the event SonoSight has defaulted in the performance of
any of its obligations under this Agreement, or under any other
agreement by and between ATL and SonoSight, and has not remedied the
default to the reasonable satisfaction of ATL within thirty (30) days
following the receipt of written notice specifying the default; or
(iii) by either party in the event the other party is acquired by or
acquires a competitor of the first party without the written consent
of the first party; or
(iv) upon written notice by either party in the event the other party
becomes insolvent, files for protection under the bankruptcy code,
makes an assignment for the benefit of creditors, has a receiver or
trustee appointed, or is unable to meet its financial obligations as
they come due; or
(v) by either party if SonoSight has no Product orders pending anytime
after its initial Product order, and
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<PAGE>
(b) SonoSight may terminate this Agreement in full or in part for any
reason or for no reason upon one hundred and eighty (180) days written notice,
and
(c) ATL may terminate this Agreement in full or in part for any reason or
for no reason after the exclusive five year period has expired.
Sections 14, 15, 16 and 17 shall survive termination of the Agreement. The
termination of this Agreement shall not affect any rights either party has
accrued at the time the termination becomes effective, including SonoSight's
right to conclude sales of Products where the selling process has been initiated
prior to the termination, provided the purchase order for such sale is place
with and accepted by ATL by the date of termination.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first set forth above.
ATL Ultrasound, Inc. SonoSight, Inc.
By: _________________________ By: ____________________________
Title: ________________________ Title: ___________________________
Date: _______________________ Date: ___________________________
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<PAGE>
ATTACHMENT 1.0
Product Specifications
PCB
Arrays
End Unit
<PAGE>
ATTACHMENT 5.0
Product Volume Projections
Q1 1998 -
Q2 1998 -
Q3 1998 -
Q4 1998 -
Q1 1999 -
Q2 1999 -
Q3 1999 -
Q4 1999 -
All SonoSight purchase orders shall fall within the Product Volume
Projections set-forth above; however, the Product quantity and Product
configuration in SonoSight purchase orders may vary as follows:
<TABLE>
<CAPTION>
PRODUCT DELIVERY PERIOD AFTER PERMISSIBLE CHANGE TO PRODUCT VOLUME PROJECTIONS
ATL'SACCEPTANCE OF SONOSIGHT'S
FIRST PURCHASE ORDER:
- ----------------------------------------------------------------------------------------
<S> <C>
30 days No change permitted.
- ----------------------------------------------------------------------------------------
30 - 90 days Projected Product Volumes may not increase in quantity
unless required materials are available to ATL. A 25%
decrease in the projected Product Volume quantity is
permitted. Product Volume projections shall be
reviewed on a monthly basis.
- ----------------------------------------------------------------------------------------
3 - 6 months Projected Product Volumes may increase or decrease in
quantity by 25%. Product Volume projections shall be
reviewed on a monthly basis.
- ----------------------------------------------------------------------------------------
6 - 9 months Projected Product Volumes may increase in quantity by
100% or decrease in quantity by 50%. Product Volume
projections shall be reviewed on a monthly basis.
- ----------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<S> <C>
9 months and beyond Projected Product Volumes may increase as required or
decrease in quantity by 100%. Product Volume
projections shall be reviewed on a monthly basis.
- ----------------------------------------------------------------------------------------
<CAPTION>
BUSINESS DAYS PRIOR TO THE PERMISSIBLE CHANGES TO PRODUCT CONFIGURATION
SHIP DATE SPECIFIED IN A
PURCHASE ORDER
- ----------------------------------------------------------------------------------------
<C> <S>
0 - 5 No change permitted
- ----------------------------------------------------------------------------------------
6 - 10 25% of shippable Product may be re-configured
dependent on material availability
- ----------------------------------------------------------------------------------------
11 - 20 50% of shippable Product may be re-configured
dependent on material availability
- ----------------------------------------------------------------------------------------
</TABLE>
For purposes of this Attachment 5.0, permissible Product configuration changes
include, but are not limited to, language configuration changes.
<PAGE>
ATTACHMENT 5.1
Cost Model
Standard Cost
Volume Based Upon
Materials, Over Head, Labor
<PAGE>
ATTACHMENT 11.0
Product Spare Part and Product Repair Price List
<PAGE>
ATTACHMENT 11.2
Key Parts/Components
<PAGE>
EXHIBIT 10.4
EMPLOYEE BENEFITS AGREEMENT
THIS EMPLOYEE BENEFITS AGREEMENT (the "Agreement") is effective as of April 6,
1998, and is by and between:
(a) ATL Ultrasound, Inc., a corporation of the State of Washington doing
business at Advanced Technology Laboratories, having a place of business at
22100 Bothell-Everett Highway, Bothell, Washington("ATL"), and
(b) SonoSight, Inc., a corporation of the State of Washington, having a
place of business at North Creek Parkway, Bothell, Washington 98011 ("SONO").
WHEREAS, SONO is a wholly-owned subsidiary of ATL, and the directors, officers,
and employees of ATL including those assigned to the SONO Business (as defined
below) participate in certain stock-based compensation and incentive plans,
insurance plans, and retirement and other benefit plans currently maintained or
sponsored by ATL.
WHEREAS, ATL and SONO have entered into a Distribution Agreement (the
"Distribution Agreement") under which ATL will distribute all of the issued and
outstanding shares of SONO Common Stock to ATL shareholders under the terms and
conditions in the Distribution Agreement.
WHEREAS, following the Distribution (as defined in the Distribution Agreement),
ATL and SONO will be operated as independent public companies, and SONO no
longer will be a subsidiary of ATL.
WHEREAS, ATL and SONO wish to provide for the allocation of responsibilities
with respect to certain employee benefit matters following the Distribution.
NOW, THEREFORE, in consideration of the terms and conditions in this Agreement,
the parties agree as follows:
I. DEFINITIONS
1.0 Definitions. Capitalized terms used in this Agreement which are not
-----------
defined below shall have the meanings set forth in the Distribution Agreement.
The following terms shall have the following meanings which shall be applicable
equally to both the singular and the plural forms of the terms defined:
(a) "ATL Stock Option" shall mean an option to purchase ATL Common Stock
granted by ATL to a SONO or ATL employee (as defined in General Instruction
A.1.a to Form S-8 of the U.S. Securities and Exchange Commission) prior to the
Distribution Date pursuant to any ATL Plan.
1
<PAGE>
(b) "Plan" shall mean any plan, policy, arrangement, contract or agreement
providing compensation or benefits for any group of employees or for any
individual employee, or the dependents or beneficiaries of any such employee
whether formal or informal, or written or unwritten, and including, without
limitation, any means pursuant to which any benefit is provided by an employer
to any employee or the beneficiaries of any such employee.
(c) "401(k) Retirement Plan" shall mean a defined contribution plan for
employees and their beneficiaries maintained pursuant to Section 401(k) or
Section 401(a) of the Code, and in compliance with the requirements of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA").
II. EMPLOYMENT
2.0. Responsibilities on Distribution Date. On the Distribution Date, SONO
-------------------------------------
shall assume sole responsibility as the employer for the SONO Employees.
III. SONO 401(k) PLAN AND RETIREMENT BENEFITS
3.0. SONO 401(k) Plan. Effective as of the Distribution Date, SONO shall take
----------------
all action necessary and appropriate to establish and administer a 401(k)
Retirement Plan (the "SONO 401(k) Plan") in such form as may be approved by the
Board of Directors of SONO.
3.1. Continuation of Benefits. Following the Distribution Date, SONO will offer
------------------------
benefits under the SONO 401(k) Plan to all SONO Employees who were participants
in or otherwise entitled to benefits under the ATL Incentive Savings and Stock
Ownership/401 (k) Plan (the "ATL 401 (k) Plan"). Immediately prior to the
Distribution Date, all SONO Employees who wish to participate in the SONO 401(k)
Plan will be required to enroll in the SONO 401(k) Plan in accordance with the
terms of the SONO 401 (k) Plan.
3.2. Account Balances. SONO Employees electing to participate in the SONO
----------------
401(k) Plan shall be permitted to rollover assets from the ATL 401 (k) Plan to
the SONO 401 (k) Plan only as permitted by the terms in the SONO 401 (k) Plan.
Each rollover shall comply
<PAGE>
with Section 414(l) of the Code, the requirements of ERISA, and the regulations
promulgated thereunder.
3.3. ATL Information. As soon as practicable after the Distribution Date, ATL
---------------
will provide to SONO a list of SONO Employees who were participants in or
otherwise entitled to benefits under the ATL 401(k) Plan on the business day
immediately prior to the Distribution Date, together with a listing of each SONO
Employee's account balance thereunder.
3.4. Retirement Benefits. At the Distribution Date, ATL shall vest the SONO
-------------------
Employees for all purposes under ATL's retirement plan. Each SONO Employee will
be treated as a terminated employee under the retirement plan for the purposes
of receiving the retirement plan benefits.
IV. STOCK OPTION PLANS
4.0. Adjusted Options. Prior to the Distribution Date, each ATL Stock Option
----------------
which is outstanding and not exercised shall remain subject to its original
vesting schedule, and shall be adjusted by ATL to represent two separately
exercisable options (each an "Adjusted Option"); namely, one to purchase ATL
Common Stock, and the other to purchase SONO Common Stock.
The ATL Adjusted Options shall have substantially the same terms as the ATL
Stock Options, and shall be exercisable for the same number of shares of ATL
Common Stock as was originally covered by the related ATL Stock Option; however,
the number of shares of ATL Common Stock shall be subject to further adjustment
by ATL (as ATL deems necessary) so that the aggregate "intrinsic value" of the
ATL Adjusted Options and the SONO Adjusted Options determined in the manner set
forth below will equal the "intrinsic value" of the ATL Stock Options to which
the Adjusted Options relate. The exercise price for the ATL Adjusted Options
shall be established in accordance with the provisions below.
The SONO Adjusted Options shall have substantially the same terms as the ATL
Stock Option, and shall be exercisable for the number of shares of SONO Common
Stock equivalent to one-sixth of the number of shares of ATL Common Stock
originally covered by the related ATL Stock Options. The exercise price for the
SONO Adjusted Options shall be established in accordance with the provisions
below.
No certificates or scrip representing fractional shares of either ATL Common
Stock or SONO Common Stock, and no cash in lieu of fractional shares of either
ATL Common Stock or SONO Common Stock will be distributed in connection with any
Adjusted Options. Fractional shares, if any, shall be rounded down to the
nearest whole share.
<PAGE>
4.1. Adjusted Option Exercise Price. The exercise price of each Adjusted Option
------------------------------
shall be established to give effect to the Distribution as follows:
(a) the pre-Distribution fair market value of the ATL Common Stock as
determined by the closing price of the ATL Common Stock as quoted on the Nasdaq
National Market System on the trading day immediately preceding the Distribution
Date shall be established;
(b) the ratio of (i) the exercise price for the ATL Stock Option (as
determined at the date of the grant of the ATL Stock Option) to (ii) the pre-
Distribution fair market value for the ATL Common Stock as determined in (a)
above shall be established;
(c) the exercise price for the ATL Adjusted Options shall be equal to the
opening price for the ATL Common Stock as quoted on the Nasdaq National Market
System on the trading day immediately following the Distribution Date multiplied
by the ratio established in (b) above; and,
(d) the exercise price for the SONO Adjusted Options shall be equal to the
opening price for the SONO Common Stock as quoted on the Nasdaq National Market
System on the trading day immediately following the Distribution Date multiplied
by the ratio established in (b) above.
4.2. Adjustment to Shares of ATL Common Stock. The number of shares of ATL
----------------------------------------
Common Stock obtainable under an ATL Adjusted Option as determined in Section
4.0. shall be subject to further adjustment by ATL (as ATL deems necessary) so
that the aggregate post-Distribution "intrinsic value" of the ATL Adjusted
Options and the SONO Adjusted Options will equal the pre-Distribution "intrinsic
value" of the ATL Stock Options to which the Adjusted Options relate. For the
purposes of the provisions of this Section, the term "intrinsic value" shall
mean:
(a) with respect to each ATL Stock Option, the difference between (i) the
fair market value of the ATL Common Stock (as determined in accordance with the
provisions in Section 4.1. (a) above) and (ii) the exercise price for the ATL
Stock Option (as determined at the date of the grant of the option) multiplied
by the number of shares covered by the ATL Stock Option;
(b) with respect to each ATL Adjusted Option, the difference between (i)
the post-Distribution fair market value of the ATL Common Stock (as determined
in accordance with the provisions in Section 4.1. (c) above) and (ii) the
exercise price for the ATL Adjusted Options (as determined in accordance with
the provisions in Section 4.1. (c) above) multiplied by the number of shares
covered in accordance with the Distribution;
<PAGE>
(c) with respect to each SONO Adjusted Option, the difference between (i)
the post-Distribution fair market value of the SONO Common Stock (as determined
in accordance with the provisions in Section 4.1. (d) above) and (ii) the
exercise price for the SONO Adjusted Options (as determined in accordance with
the provisions in Section 4.1. (d) above) multiplied by the number of shares
covered in accordance with the Distribution.
ATL reserves the right to adjust the manner in which the Adjusted Option
exercise price is established, and the adjustments to the number of shares of
ATL Common Stock or SONO Common Stock in connection with the Adjusted Options to
exclude the effect of independent, determinable, and verifiable events on the
market value per share which may occur at approximately the same time as the
Distribution.
4.3. Administration. Following the Distribution Date and subject to applicable
--------------
federal securities laws, any holder of an Adjusted Option may exercise the
option in whole or in part as follows:
(a) any holder of an ATL Adjusted Option may exercise any option by
delivering a properly executed notice of exercise to ATL, together with the
consideration therefor or other instructions. With respect to an option to
purchase ATL Common Stock, ATL shall proceed to issue shares of ATL Common Stock
in accordance with the terms of the applicable ATL Plan under which such option
was granted. With respect to an option to purchase SONO Common Stock, ATL shall
deliver to SONO:
(i) a copy of the notice of exercise; and,
(ii) any of the following:
(a) a check in the amount of the aggregate exercise price, or
(b) a copy of instructions to a broker designated by SONO
directing the broker to sell the shares of SONO Common Stock for which the
option was exercised, and to remit to SONO the aggregate exercise price (a
"cashless exercise"), or
(c) a request from the option holder to the administrator of the
applicable SONO Plan that the exercise price be satisfied by the delivery of
previously acquired shares of SONO Common Stock with a fair market value equal
to the aggregate exercise price, along with the certificates for such shares (a
"stock-for-stock exercise"); and,
(iii) a statement certifying that ATL has withheld or otherwise
obtained the payment of any applicable federal withholding tax payable by the
option holder in connection with such exercise; and,
<PAGE>
(iv) a request that SONO direct the Agent to issue to the option
holder a certificate for the number of shares of SONO Common Stock for which
such option was exercised or, in the case of a cashless exercise, for any shares
of SONO Common Stock that were not sold in the cashless exercise. If the
administrator of the applicable SONO Plan shall permit SONO option holders to
effect either cashless exercises or stock-for-stock exercises, it shall not
discriminate against ATL option holders based solely upon their status as ATL
option holders.
(b) any SONO option holder may exercise any option by delivering to SONO a
properly executed notice of exercise, together with the consideration therefor
or other instructions. With respect to an option to purchase SONO Common Stock,
SONO shall proceed to issue the shares of SONO Common Stock in accordance with
the terms of the applicable SONO Plan. With respect to an option to purchase ATL
Common Stock, SONO shall deliver to ATL:
(i) a copy of the notice of exercise; and,
(ii) any of the following:
(a) a check in the amount of the aggregate exercise price, or
(b) a copy of instructions to a broker designated by ATL to
effect a cashless exercise and to remit to ATL the aggregate exercise price, or
(c) a request from the option holder to the administrator of the
applicable ATL Plan to effect a stock-for-stock exercise, along with the
certificates for the shares of the previously acquired ATL Common Stock; and,
(iii) a statement certifying that SONO has withheld or otherwise
obtained the payment of any applicable federal withholding tax payable by the
option holder in connection with such exercise; and,
(iv) except in the case of a stock withholding exercise, a request
that ATL direct the Agent to issue to the option holder a certificate for the
number of shares of ATL Common Stock for which such option was exercised or, in
the case of a cashless exercise, for any shares of ATL Common Stock that were
not sold in the cashless exercise. If the administrator of the applicable ATL
Plan shall permit ATL option holders to effect either cashless exercises or
stock-for-stock exercises, it shall not discriminate against SONO option holders
based solely upon their status as SONO option holders.
(c) ATL or SONO shall not be obligated to authorize the delivery of any
certificates for shares or any proceeds relating to the exercise of an
<PAGE>
Adjusted Option unless and until it shall have received all of the required
documents specified above, as applicable.
4.4. Restricted Stock. ATL and SONO each shall take or cause to be taken all
----------------
actions necessary and appropriate to ensure that holders of restricted shares of
ATL Common Stock granted under the applicable ATL Plan will receive the shares
of SONO Common Stock issuable as a dividend thereon. The shares of SONO Common
Stock shall be restricted shares, subject to the same vesting schedule and other
restrictions as applicable to the restricted shares of ATL Common Stock to which
they relate. ATL and SONO each shall issue certificates for shares of ATL Common
Stock or shares of SONO Common Stock, respectively, to the holders of restricted
shares upon the lapsing of the applicable restrictions thereon.
4.5. Other Administration Matters. ATL shall administer all Adjusted Options
----------------------------
exercisable for shares and all restricted shares of ATL Common Stock in
accordance with the applicable ATL Plan under which such options or restricted
shares were initially granted, including those options and restricted shares
held by SONO Employees. SONO shall administer all Adjusted Options exercisable
for shares of SONO Common Stock, and all restricted shares of SONO Common Stock
awarded under any applicable Plan in accordance with the applicable SONO Plan,
including those options and restricted shares held by ATL employees.
4.6. Duration. Until all Adjusted Options exercisable for shares of the
--------
registrant corporation have been exercised, issued, canceled, replaced, or have
expired in accordance with their terms, ATL and SONO at its own costs shall:
(i) use its best efforts to prepare and file with the Commission such
amendments and supplements to any forms filed with the Commission in connection
with the Distribution, and the prospectus used in connection therewith as may be
necessary to keep such forms effective and to comply with the provisions of
applicable law with respect to the issuance by ATL and by SONO of all of the ATL
Common Stock or SONO Common Stock respectively issuable pursuant to the Adjusted
Options;
(ii) furnish to the other such number of copies of the prospectuses to be
distributed pursuant to the requirements of any forms filed in connection with
the Distribution, and any amendments or supplements thereto, as the other shall
reasonably request for delivery to holders of Adjusted Options, along with any
other materials or documents which the registrant company has undertaken to
distribute to holders of Adjusted Options pursuant to its filings;
(iii) use its best efforts to register or qualify all options and shares of
ATL Common Stock or SONO Common Stock covered by any forms filed
<PAGE>
with the Commission in connection with the Distribution under the securities or
"blue sky" laws of the jurisdictions in which holders of Adjusted Options
reside, and do any and all other acts and things that may be necessary to enable
the holders of Adjusted Options to exercise the options in such jurisdictions;
(iv) use its best efforts either to maintain the qualification of the ATL
Common Stock or the SONO Common Stock for inclusion on the Nasdaq National
Market System or to list such securities on any national securities exchange on
which shares of ATL Common Stock or SONO Common Stock are then listed, and to
provide a transfer agent and registrar for the shares; and,
(v) reserve for issuance upon the exercise of Adjusted Options at all times
a sufficient number of shares of both ATL Common Stock and SONO Common Stock.
4.7. Notices. At least on a monthly basis, ATL and SONO each shall provide to
-------
the other notice of the termination of employment of a holder of an Adjusted
Option or an owner of restricted shares issued by the other in connection with
the Distribution, or of any other event which would result in the cancellation,
replacement, or expiration of such Adjusted Option, or the forfeiture of such
restricted shares.
4.8. Stock Purchase Plan. Immediately prior to the Record Date, the
-------------------
administrators of the ATL Employee Stock Purchase Plan (the "ATL ESP Plan") will
adjust the length of the then current purchase period (as defined in the ATL ESP
Plan) to end prior to the Record Date. Shares of ATL Common Stock will be
purchased for all eligible participants to allow the participation in the
distribution of SONO Common Stock in connection with the Distribution. The
purchase period will resume under the ATL ESP Plan on ______, 1998, or such
other date determined by the administrators of the ATL ESP Plan.
4.9. Other Employee Matters. Each Sono Employee will be treated as a terminated
----------------------
employee under any ATL plan; however, the committee administering the ATL Stock
Option Plan has determined that each option to acquire ATL Common Stock granted
to SONO Employees prior to the Distribution Date (as adjusted by the provisions
of the Agreement) will continue to vest according to its original vesting
schedule during the period the SONO Employee remains employed by SONO.
<PAGE>
V. OTHER BENEFITS
5.0. Medical/Dental Plan Coverage. On and after the Distribution Date, SONO
----------------------------
shall be responsible for providing medical/dental coverage, and assuming
responsibility for the associated liabilities and obligations of all SONO
Employees and their eligible dependents and beneficiaries.
5.1. Disability Coverage. On and after the Distribution Date, SONO shall be
-------------------
responsible for providing life insurance coverage, short term disability
coverage, and long term disability coverage for all SONO Employees and their
eligible dependents and beneficiaries.
5.2. Continuation Coverage Administration. As of the Distribution Date, SONO
------------------------------------
shall be responsible for the administration of the continuation coverage
requirements imposed by any applicable law as they relate to any SONO Employee
and their current qualified beneficiaries. As of the Distribution Date, SONO
shall be responsible for all liabilities and obligations in connection with
coverage to be provided, claims incurred, and premiums owed on or after the
Distribution Date under any SONO Plan in respect of any SONO Employees and their
current qualified beneficiaries.
5.3. Personal Time Off. Following the Distribution Date, SONO shall grant to
-----------------
SONO Employees the personal time off balances each SONO Employee had accrued
with ATL at the Distribution Date as reflected on the ATL payroll system.
5.4. Flexible Spending Accounts. Until December 31, 1998, ATL shall permit each
--------------------------
SONO Employee to submit to ATL for reimbursement under ATL's health care and/or
dependent care flexible spending plans any eligible expenses incurred by the
SONO Employee prior to the Distribution Date.
5.5. Claims. ATL shall indemnify, defend, and hold harmless SONO from any
------
employment-related claims of an ATL employee or a SONO Employee arising from
acts occurring before the Distribution Date. SONO shall indemnify, defend, and
hold harmless ATL from any employment-related claims of any SONO Employee
arising from acts occurring on or after the Distribution Date.
VI. ACCESS TO INFORMATION AND CONFIDENTIALITY
6.0. Access to Information. From and after the Distribution Date, and subject
---------------------
to the provisions in this Agreement, ATL and SONO will afford to each other and
to their authorized representatives reasonable access and duplicating rights
(with copying costs to be borne by the requesting party) during normal business
hours to all books, records, documents, communications, items, and matters,
including computer data relating to the Adjusted Options, and the administration
of the Adjusted Options and restricted shares.
<PAGE>
6.1. Confidentiality. Any information disclosed by one party to the other party
---------------
in connection with the performance of this Agreement, and any other information
designated in writing by the disclosing party as confidential (collectively, the
"Confidential Information") shall be received and maintained confidential by the
receiving party using the same standard of care that the receiving party uses to
protect its own confidential information, but not less than reasonable care.
The Confidential Information may be used by the receiving party only to perform
its obligations under this Agreement and shall not be disclosed to a third party
without the prior written consent of the disclosing party. The disclosure of
Confidential Information shall be restricted only to the minimum number of
employees of each party requiring access to the Confidential Information to
perform this Agreement.
The provisions of this Section shall not apply to Confidential Information which
is: (a) already known to the receiving party without an obligation of
confidentiality (it being understood that information of either party in the
possession of the other party prior to the Distribution Date shall not be
covered by this exception); (b) publicly known or becomes publicly known through
no unauthorized act of the receiving party; (c) rightfully received by the
receiving party from a third party; (d) disclosed to a third party by the
disclosing party without similar restrictions; (e) approved for disclosure by
the disclosing party; or, (f) required to be disclosed pursuant to a requirement
of a governmental agency or by law as long as the receiving party provides to
the disclosing party notice of the requirement prior to any disclosure.
Upon the termination of this Agreement for any reason, each party shall return
to the other party all Confidential Information of the other party, and cease
any further use of the Confidential Information.
VII. DISPUTE RESOLUTION
7.0. Negotiation and Binding Arbitration. Any dispute, controversy, or claim
-----------------------------------
(collectively, a "Dispute") between the parties arising out of this Agreement or
relating to the subject matter of this Agreement shall be settled using the
following procedures as the sole means to resolve the Dispute.
A party seeking to resolve the Dispute shall give notice to the other party
briefly describing the nature of the Dispute. A meeting will be held between
the parties within ten days after the receipt of the notice. The meeting will
be attended by individuals with decision making authority regarding the Dispute.
If the parties have not resolved the Dispute to the mutual satisfaction of the
parties within thirty days following the initiation of the meeting, the parties
shall
<PAGE>
submit the Dispute to binding arbitration in accordance with the Commercial
Arbitration Rules of the American Arbitration Association by a sole arbitrator
selected by the parties. The arbitration will be held in Bothell, Washington.
Judgment upon the award rendered by the arbitrator may be entered by any court
having jurisdiction. The cost of the arbitrator will be shared equally by the
parties. At the conclusion of the arbitration, the arbitrator shall indicate a
prevailing party. The prevailing party shall be entitled to its attorney's fees
and other costs in connection with the arbitration. To the extent this Agreement
limits the remedies of any party, the arbitrator shall not have the authority to
grant any remedy to any party in excess of the limitations.
VIII. MISCELLANEOUS
8.0. Entire Agreement. This Agreement, and the agreements and other documents
----------------
referred to in this Agreement, shall constitute the full, complete, and entire
understanding and agreement by and between the parties with respect to the
subject matter in this Agreement, and supersedes all previous negotiations,
commitments, and writings with respect to the subject matter of this Agreement.
8.1. Expenses. Except as otherwise provided in this Agreement, the parties each
--------
shall be responsible for their own costs and expenses incurred in connection
with the implementation of this Agreement, and the consummation of the
transactions contemplated by this Agreement.
8.2. Governing Law. This Agreement shall be governed by, construed, and
-------------
enforced in accordance with the laws of the State of Washington.
8.3. Notices. All notices, requests, demands, and other communications under
-------
this Agreement shall be in writing, and shall be deemed to have been duly given
(a) on the date of service if served personally on the party to whom notice is
given; (b) on the day of transmission if sent by facsimile transmission to the
facsimile number given below; (c) on the business day after delivery to an
overnight courier service, or the express mail service maintained by the United
States Postal Service; or (d) on the third day after mailing if mailed to the
party to whom notice is to be given, by registered or certified mail, postage
prepaid, properly addressed, and return-receipt requested to the party as
follows:
If to ATL:
<PAGE>
Advanced Technology Laboratories
22100 Bothell-Everett Highway
Bothell, Washington 98041-3003
Attn: Vice President, Human Resources
Facsimile No: (425) 487-____
with copy to:
Advanced Technology Laboratories
22100 Bothell-Everett Highway
Bothell, Washington 98041-3003
Attn: Vice President, General Counsel
Facsimile No: (425) 487-8135
If to SONO:
SonoSight, Inc.
North Creek Parkway
Bothell, Washington 98011
Attn: President
Facsimile No. (425) ___-____
Any party may change its address or facsimile number by giving the other party
notice of the new information in the manner set forth above.
8.4. Modification of Agreement. No modification, amendment, or waiver of any
-------------------------
provision of this Agreement shall be effective unless the same shall be in
writing and signed by each of the parties. The modification, amendment, or
waiver shall be effective only in the specific instance and for the purpose for
which given.
8.5. Successors and Assigns. This Agreement shall be binding upon and inure to
----------------------
the benefit of the parties and their respective successors and permitted
assigns. This Agreement, and any of the rights, interests, or obligations under
this Agreement shall not be assigned by either party without the prior written
consent of the other party which consent shall not be withheld unreasonably.
8.6. No Third Party Beneficiaries. This Agreement is solely for the benefit of
----------------------------
the parties, and is not intended to confer upon any other person any rights or
remedies.
8.7. Titles and Headings. The section and article headings in this Agreement
-------------------
are inserted for convenience of reference only, and are not intended to
constitute a part of or to affect the meaning or interpretation of this
Agreement.
8.8. Severability. In case any one or more of the provisions contained in this
------------
Agreement should be invalid, illegal, or unenforceable, the enforceability of
the remaining provisions shall not in any way be affected or impaired. It is
the intention of the parties that they would have executed the remaining terms,
provisions, covenants, and restrictions without including any invalid, void, or
unenforceable provisions. In the event that any term, provision, covenant, or
restriction is held to be invalid, void, or unenforceable, the parties agree to
use their best efforts to find and employ an alternate means to achieve the same
or
<PAGE>
substantially the same result as that contemplated by such term, provision,
covenant, or restriction.
8.9. No Waiver. The failure by either party at any time to enforce any of the
---------
terms or conditions of this Agreement shall not constitute or be construed as a
waiver of such terms and conditions. Each party expressly reserves the right to
enforce the terms and conditions of this Agreement at any time.
8.10. Counterparts. This Agreement may be executed in one or more counterparts
------------
each of which shall be considered one and the same agreement, and shall become a
binding agreement when one or more counterparts have been signed by each party
and delivered to the other party.
8.11. Force Majeure. No party shall be liable to the other party for any
-------------
failure to perform any obligation under this Agreement where such failure is due
to causes beyond the reasonable control of the party. Such causes include, but
are not limited to acts of war, government export controls, other governmental
acts, industrial dispute, lock-out, accident, fire, explosion, transport delays,
acts of a third party, or loss or damage to any equipment. Each party shall use
its best efforts to comply with its respective obligations under this Agreement
despite the intervention or occurrence of any such cause, and to resume
compliance with those obligations as soon as any such cause ceases to affect the
performance of its obligations under this Agreement.
ATL Ultrasound, Inc. SonoSight, Inc.
By: ___________________________ By: ______________________________
Title: ________________________ Title: ___________________________
Date: _________________________ Date: ____________________________
<PAGE>
EXHIBIT 10.6
SONOSIGHT, INC.
ADJUSTMENT PLAN
1. DEFINITIONS
The following terms shall have the corresponding meanings for purposes of
the Plan:
"Change of Control" means
(a) a "Board Change." For purposes of the Plan, a Board Change shall have
occurred if a majority of the seats (other than vacant seats) on the
Corporation's Board of Director (the "Board") were to be occupied by individuals
who were neither (i) nominated by a majority of the Incumbent Directors nor (ii)
appointed by directors so nominated. An "Incumbent Director" is a member of the
Board who has been either (i) nominated by a majority of the directors of the
Corporation then in office or (ii) appointed by directors so nominated, but
excluding, for this purpose, any such individual whose initial assumption of
office occurs as a result of either an actual or threatened election contest (as
such terms are used in Rule 14a-11 of Regulation 14A promulgated under the
Securities Exchange Act of 1934, as amended (the "Exchange Act") ) or other
actual or threatened solicitation of proxies or consents by or on behalf of a
Person other than the Board; or
(b) The acquisition by any individual, entity or group (within the meaning
of Section 13(d)(3) or 14(d)(2) of the Exchange Act) (a "Person") of beneficial
ownership (within the meaning of Rule 13d-3 promulgated uncle. the Exchange
Act) of (i) 20% or more of either (A) the then outstanding shares of common
stock (the "Outstanding Corporation Common Stock") or (B) the combined voting
power of the then outstanding victim securities of the Corporation entitled to
vote generally in the election of directors (the "Outstanding Corporation Voting
Securities"), in the case of either (A) or (B) of this clause (i), which
acquisition is not approved in advance by a majority of the Incumbent Directors
or (ii) 33% or more of either (A) the Outstanding Corporation Common Stock or
(B) the Outstanding Corporation Voting Securities, in the case of either (A) or
(B) of this clause (ii), which acquisition is approved in advance by a majority
of the Incumbent Directors; provided, however, that the following acquisitions
shall not constitute a Change of Control: (x) any acquisition by the
Corporation, (v) any acquisition by any employee benefit plan (or related trust)
sponsored or maintained by the Corporation or any corporation controlled by the
Corporation, or (z) any acquisition by any corporation
1
<PAGE>
pursuant to a reorganization, merger or consolidation, if, following such
reorganization, merger or consolidation, the conditions described in clauses
(i), (ii) and (iii) of the following subsection (c) are satisfied; or
(c) Approval by the shareholders of the Corporation of a reorganization,
merger or consolidation, in each case, unless, following such reorganization,
merger or consolidation, (i) more than 60% of, respectively, the then
outstanding shares of common stock of the corporation resulting from such
reorganization, merger or consolidation and the combined voting power of the
then outstanding voting securities of such corporation entitled to vote
generally in the election of directors is then beneficially owned, directly or
indirectly, by all or substantially all of the individuals and entities who were
the beneficial owners, respectively, of the Outstanding Corporation Common Stock
and Outstanding Corporation Voting Securities immediately prior to such
reorganization, merger or consolidation in substantially the same proportions as
their ownership, immediately prior to such reorganization, merger or
consolidation, of the Outstanding Corporation Common Stock and Outstanding
Corporation Voting Securities, as the case may be, (ii) no Person (excluding the
Corporation, any employee benefit plan (or related trust) of the Corporation or
such corporation resulting from such reorganization, merger or consolidation and
any Person beneficially owning, immediately prior to such reorganization, merger
or consolidation, directly or indirectly, 33% or more of the Outstanding
Corporation Common Stock or Outstanding Corporation Voting Securities, as the
case may be) beneficially owns, directly or indirectly, 33% or more of,
respectively, the then outstanding shares of common stock of the corporation
resulting from such reorganization, merger or consolidation or the combined
voting power of the then outstanding voting securities of such corporation
entitled to vote generally in the election of directors, and (iii) at least a
majority of the members of the board of directors of the corporation resulting
from such reorganization, merger or consolidation were the Incumbent Directors
at the time of the execution of the initial agreement providing for such
reorganization, merger or consolidation; or
(d) Approval by the shareholders of the Corporation of (i) a complete
liquidation or dissolution of the Corporation or (ii) the sale or other
disposition of all or substantially all of the assets of the Corporation, other
than to a corporation, with respect to which following such sale or other
disposition, (A) more than 60% of, respectively, the then outstanding shares of
common stock of such corporation and the combined voting power of the then
outstanding voting securities of such corporation entitled to vote generally in
the election of directors is then beneficially owned, directly or indirectly, by
all or substantially all of the individuals and entities who were the beneficial
owners, respectively, of the Outstanding Corporation Common Stock and
Outstanding Corporation Voting Securities immediately prior to such sale or
other disposition in
2
<PAGE>
substantially the same proportion as their ownership, immediately prior to such
sale or other disposition, of the Outstanding Corporation Common Stock and
Outstanding Corporation Voting Securities, as the case may be, (B) no Person
(excluding the Corporation and any employee benefit plan (or related trust) of
the Corporation or such corporation and any Person beneficially owning,
immediately prior to such sale or other disposition, directly or indirectly, 33%
or more of the Outstanding Corporation Common Stock or Outstanding Corporation
Voting Securities, as the case may be) beneficially owns, directly or
indirectly, 33% or more of, respectively, the then outstanding shares of common
stock of such corporation and the combined voting power of the then outstanding
voting securities of such corporation entitled to vote generally in the election
of directors, and (C) at least a majority of the members of the board of
directors of such corporation were approved by a majority of the Incumbent
Directors at the time of the execution of the initial agreement or action of the
Board providing for such sale or other disposition of assets of the Corporation.
"Committee" means the Committee provided for in Section 4, which shall
administer the Plan.
"Common Stock" means common stock, par value $0.01 per share, of the
Corporation.
"Corporation" means SonoSight, Inc., a Washington corporation.
"Designated Beneficiary"; means any person designated in writing by an
employee as a legal recipient of a Restricted Stock award in the event of the
employee's death, or in the absence of such designation, the employee's estate.
Such designation must be on file with the Corporation in order to be effective
but, unless the employee has made an irrevocable designation, may be changed
from time to time by the employee.
"Distribution" means the distribution of all the outstanding shares of
Common Stock to the shareholders of ATL.
"Fair Market Value" of the Common Stock as of any trading day means the
average (rounded to the next highest cent in the case of fractions of a cent) of
the high and low sales prices of the Common Stock as reported on such trading
day by the Nasdaq National Market . If no sales price is reported for the
Common Stock on such trading day, then "Fair Market Value" shall mean the
highest bid price reported for the Common Stock on such trading day by the
National Quotation Bureau Incorporated or any similar nationally recognized
organization. The Committee, in its sole discretion, shall make all
determinations required by this definition.
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"Restricted Stock" means the shares of Common Stock referred to in Section
8 which are issued in connection with the Distribution in respect of outstanding
restricted stock issued under the ATL Plans (the "ATL Restricted Stock").
"SonoSight Adjusted Option" has the meaning set forth under the definition
of "ATL Option."
"ATL" means ATL Ultrasound, Inc., a Washington corporation.
"ATL Option" means an option to purchase the common stock, par value $.01 per
share of ATL (the "ATL Common Stock") granted under the Westmark International
Incorporated 1986 Option, Restricted Stock, Stock Appreciation Right and
Performance Unit Plan and the Amended and Restated Nonofficer Employee Option,
Restricted Stock and Stock Grant Plan, and the ATL 1992 Option, Stock
Appreciation Right, Restricted Stock, Stock Grant and Performance Unit Plan 1992
Nonofficer Employee Stock Plan, Management Incentive Compensation Plan and the
Nonemployee Director Stock Option Plan (together, the "ATL Plans") which, in
connection with the Distribution, has been adjusted and converted into two
separately exercisable options, one to purchase Common Stock (a "SonoSight
Adjusted Option") and one to purchase ATL Common Stock.
2. PURPOSE
The purpose of the Plan is to provide for (i) the grant of SonoSight
Adjusted Options as a result of the adjustment of the ATL Options and (ii) the
administration of the SonoSight Adjusted Options and of the Restricted Stock
(and any securities issued in respect of the Restricted Stock).
3. STOCK SUBJECT TO THE PLAN
There are reserved for issuance upon the exercise of options under the Plan
that number of shares of Common Stock equal to the number of shares of ATL
Common Stock issuable upon exercise of the ATL Options. Such shares may be
authorized and unissued shares of Common Stock or previously outstanding shares
of Common Stock then held in the Corporation's treasury. If any option granted
under the Plan shall be canceled, in whole or in part, for any reason
(including, without limitation, by reason of its surrender pursuant to the
provisions of Section 7(f) and the substitution in place thereof of a new option
or stock appreciation right but excluding any termination or expiration pursuant
to the provisions of the third paragraph of Section 7(b) or Section 7(c) without
having been exercised in full, the shares subject thereto shall again be
available for the purposes of issuance under the Plan.
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4. ADMINISTRATION
The Plan shall be administered by the Committee. Subject to the express
provisions of the Plan, the Committee shall have plenary authority, in its
discretion, to determine the individuals to whom, and the time or times at
which, stock options shall be granted as contemplated in Section 2 (including,
without limitation, whether such options shall be Incentive Stock Options or
Nonqualified Stock Options or a combination thereof, as such terms are defined
in Section 7(a)) and the number of rights to be covered by each such grant. In
making such determinations, the Committee may take into account the nature of
the services rendered by the respective employees, their present and potential
contributions to the Corporation's success and such other factors as the
Committee in its discretion may deem relevant. Subject to the express
provisions of the Plan, the Committee shall have plenary authority to interpret
the Plan, to prescribe, amend and rescind rules and regulations relating to it,
to determine the terms and provisions of stock option agreements (which need not
be identical) and to make all other determinations necessary or advisable for
the administration of the Plan. The Committee's determinations of the matters
referred to in this Section 4 shall be conclusive. It is the intention of the
Corporation that the Plan and the administration hereof comply in all respects
with Section 16(b) of the Exchange Act, and the rules and regulations
promulgated thereunder, and if any Plan provision is later found not to be in
compliance with Section 16(b), the provision shall be deemed null and void.
5. THE COMMITTEE
The Board shall designate a Committee of members of the Board which shall
meet the requirements of Section 16(b) of the Exchange Act. Currently, the
Committee shall consist solely of two or more members of the Board who are
nonemployee directors. If at any time an insufficient number of disinterested
directors is available to serve on such Committee, interested directors may
serve on the Committee; however, during such time, no options or stock
appreciation rights shall be granted under the Plan to any person if the
granting of such options or stock appreciation rights would not meet the
requirements of Section 16(b) of the Exchange Act.
For purposes of this Section 5, a "nonemployee director" is a person who meets
the definition of "disinterested person" as set forth in the rules and
regulations promulgated under Section 16(b) of the Exchange Act. Currently, a
nonemployee director for purposes of this Section 5 is a member of the Board who
is not (and, during the 12-month period preceding his appointment as a member of
the Committee has not been) granted or awarded stock, stock appreciation rights
or other equity securities of the Corporation or any affiliated corporation
pursuant to the Plan or any other discretionary plan of the
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Corporation or any affiliated corporation except for formula plans (as such term
is defined in Rule 16b-3(c)(2)(ii) issued under the Exchange Act) or ongoing
securities acquisition plans (as described in Rule 16b-3 (d) (2) (i) issued
under the Exchange Act). The Committee shall be appointed by the Board, which
may from time to time appoint members of the Committee in substitution for
members previously appointed and may fill vacancies, however caused, in the
Committee. The Committee shall select one of its members as its Chairman and
shall hold its meetings at such times and places as it may determine. A majority
of its members shall constitute a quorum. All determinations of the Committee
shall be made by not less than a majority of its members. Any decision or
determination reduced to writing and signed by all the members shall be fully as
effective as if it had been made by a majority vote at a meeting duly called and
held. The Committee may appoint a secretary, shall keep minutes of its meetings
and shall make such rules and regulations for the conduct of its business as it
shall deem advisable.
6. ELIGIBILITY
SonoSight Adjusted Options may only be granted in respect of ATL Options
granted to an 'employee' of the company, its subsidiaries or parents as defined
in General Instruction A.1.a to Form S-8, or in any successor regulation
applicable to the form of registration with the U.S. Securities and Exchange
Commission of the stock subject to this Plan. Prior to the Distribution the
Committee may only grant SonoSight Adjusted Options in connection with the
Distribution. After the Distribution, the Committee may grant options to holders
of options issued under the Plan, but only in connection with the surrender of
outstanding options in exchange for new options pursuant to Section 7(f) or the
adjustment of options issued under the Plan pursuant to Section 11. A director
of the Corporation or of a subsidiary who is not also an employee of the
Corporation or of a parent or subsidiary will not be eligible to receive stock
options under the Plan. Any employee eligible under the Plan may receive one or
more grants of stock, as the Committee shall from time to time determine, and
such determinations may be different as to different employees and may vary as
to different awards and grants.
7. OPTION GRANTS
(a) The Committee is authorized under the Plan, in its discretion, to
issue options as "Incentive Stock Options" (as defined in Section 422 of the
United States Internal Revenue Code of 1986, as amended (the "Code")) or as
"Nonqualified Stock Options" (all other options granted hereunder). The purchase
price of the Common Stock under each option granted under the Plan shall be
determined by the Committee but shall be not less than 100% of the Fair Market
Value of the Common Stock at the time such option is granted. Notwithstanding
the previous sentence, any Nonqualified Stock Option may provide that the
purchase price be equal to the average Fair Market Value of the Common Stock
over any continuous period of trading days beginning and ending no more than 30
business days before or after the date such option is granted. Notwithstanding
the foregoing provisions, the purchase price of a
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SonoSight Adjusted Option shall be at such per share price as the Committee
determines.
(b) The Committee shall be authorized in its discretion to prescribe in
the option grant the installments, if any, in which an option granted under the
Plan shall become exercisable, provided that no option shall be exercisable
prior to the first anniversary of the date of grant thereof except as provided
in Sections 7 (c), (d), (h), (i) and (j) or except as the Committee otherwise
determines. In no case may an option be exercised as to less than 25 shares at
any one time (or the remaining shares covered by the option if less than 25)
during the term of the option. The Committee shall also be authorized to
establish the manner and the effective date of the exercise of an option. The
term of each Nonqualified Stock Option shall be not more than 10 years and one
month from the date of grant thereof and the term of each Incentive Stock Option
shall be not more than 10 years from the date of grant thereof, unless options
are earlier terminated in accordance with Section 7(c).
In general, upon exercise, the option price is to be paid in full in cash;
however, the Committee can determine at the time the option is granted for
Incentive Stock Options or at any time prior to exercise for Nonqualified Stock
Options, that additional forms of payment will be permitted. To the extent
permitted by the Committee and applicable laws and regulations (including, but
not limited to, federal tax and securities laws and regulations and state
corporate law), an option may be exercised (i) in Common Stock owned by the
option holder having a Fair Market Value on the date of exercise equal to the
aggregate option price, or, at the discretion of the Committee, in a combination
of cash and stock; provided, however that payment in stock shall not be made
unless such stock shall have been owned by the option holder for a period of at
least three months prior thereto; or (ii) by delivery of a properly executed
exercise notice, together with irrevocable instructions to a broker, all in
accordance with the regulations of the Federal Reserve Board, to deliver
promptly to the Corporation the amount of sale or loan proceeds to pay the
exercise price and any federal, state or local withholding tax obligations that
may arise in connection with the exercise.
In lieu of requiring an option holder to pay cash or stock and to receive in
turn shares or share certificates of Common Stock upon the exercise of a
Nonqualified Stock Option, if the option so provides, the Committee may elect to
require the option holder to surrender the option to the Corporation for
cancellation as to all or any portion of the number of shares covered by the
intended exercise and receive in exchange for such surrender a payment, at the
election of the Committee, in cash, or in a combination of cash and shares of
Common Stock, equivalent to the appreciated value of the shares covered by the
option surrendered for cancellation. Such appreciated value shall be the
difference between the option price of such shares (as adjusted pursuant to
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Section 12) and the Fair Market Value of such shares, which shall for this
purpose be determined by the Committee taking into consideration all relevant
factors, but which shall not be less than the Fair Market Value of such shares
on the date on which the option holder's notice of exercise is received by the
Corporation. Upon delivery to the Corporation of a notice of exercise of
option, the Committee may avail itself of its right to require the option holder
to surrender the option to the Corporation for cancellation as to shares covered
by such intended exercise. The Committee's right of election shall expire, if
not exercised, at the close of business on the fifth business day following the
delivery to the Corporation of such notice. Should the Committee not exercise
such right of election, the delivery of the aforesaid notice of exercise shall
constitute an exercise by the option holder of the option to the extent therein
set forth, and payment for the shares covered by such exercise shall become due
immediately.
(c) In the event that an individual receiving a stock option shall not
remain in the employ of the Corporation or one of its subsidiaries or, after the
Distribution, of ATL or one of its subsidiaries and the termination of such
individual's service is for cause, the option shall automatically terminate upon
first notification to the option holder of such termination of employment,
unless the Committee determines otherwise, and such option shall automatically
terminate upon the date of such termination of employment for all shares which
were not purchasable upon such date. For purposes of this Section 7 (c), "cause"
is defined as a determination by the Committee that the option holder (i) has
committed a felony, (ii) has engaged in an act or acts of deliberate and
intentional dishonesty resulting or intended to result directly or indirectly in
improper material gain to or personal enrichment of the individual at the
Corporation's expense, or (iii) has willfully disobeyed the Corporation's
appropriate rules, instructions or orders, and such willful disobeyance has
continued for a period of 10 days following notice thereof from the Corporation.
In the event of the termination of the employment of the holder of an
option because of early or normal retirement ("Retirement") or disability, he
may (unless such option shall have been previously terminated pursuant to the
provisions of the preceding paragraph or unless otherwise provided in his option
grant) exercise such option at any time prior to the expiration of the option,
(i) in the event of disability or normal retirement, to the extent of the number
of shares covered by such option, whether or not vested and (ii) in the event of
early Retirement, in accordance with the original vesting schedules, to the
extent of the number of shares covered by such option that were purchasable by
him at the date of his termination of employment. (Although the option may be
exercised after Retirement or disability, under Section 422 of the Code, if the
option has been designated as an Incentive Stock Option, it must be exercised
within three months after the date of Retirement or one year after the
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termination of employment due to disability in order to qualify for incentive
stock option tax treatment.)
In the event of the death of an individual to whom an option has been
granted under the Plan, while he is employed by the Corporation or one of its
subsidiaries or, after the Distribution, by ATL or one of its subsidiaries, or
while such an option is otherwise outstanding, the option theretofore granted to
him (unless his option shall have been previously terminated pursuant to the
provisions of this Section 7(c) or unless otherwise provided in his option
grant) may, subject to the limitations described in Section 7(h), be exercised
by a legatee or legatees of the option holder under his last will, or by his
personal representatives or distributees, at any time within a period of one
year after his death, but not after the expiration of the option, to the extent
of the remaining shares covered by his option whether or not such shares had
become purchasable by such an individual at the date of his death. In the event
of the death of an individual (i) during the one-year period following
termination of his employment or (ii) following termination of employment by
reason of Retirement or disability, then the option (if not previously
terminated pursuant to the provisions of this Section 7(c)) may be exercised
during the remainder of such one-year period or during the remaining term of the
option, respectively, by a legatee or legatees of the option holder under the
employee's last will, or by his personal representatives or distributees, but
only to the extent of the number of shares purchasable by such employee pursuant
to the provisions of Section 7(d) at the date of termination of his employment.
In the event of the termination of the employment of the holder of an
option, other than by reason of Retirement, disability or death, he may (unless
his option shall have been previously terminated pursuant to the provisions of
this Section 7 (c) or unless otherwise provided in his option grant) exercise
his option at any time within one year after such termination, but not after the
expiration of the option, to the extent of the number of shares covered by his
option which were purchasable by him at the date of the termination of his
employment, and such option shall automatically terminate upon the date of such
termination of employment for all shares which were not purchasable upon such
date.
(d) Notwithstanding the foregoing provisions, the Committee may determine,
in its sole discretion, in the case of any termination of employment, that the
holder of an option may exercise such option to the extent of some or all of the
remaining shares covered thereby whether or not such shares had become
purchasable by such an individual at the date of the termination of his
employment and may exercise such option at any time prior to the expiration of
the original term of the option, except that such extension shall not cause any
Incentive Stock Option to fail to continue to qualify as an Incentive Stock
Option
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without the consent of the option holder. Options granted under the Plan shall
not be affected by any change of employment so long as the holder continues to
be an employee of the Corporation or of a subsidiary or, after the Distribution,
of ATL or one of its subsidiaries. The option grant may, subject to any
requirements contained in the Code, contain such provisions as the Committee may
approve with reference to the effect of approved leaves of absence. Nothing in
the Plan or in any option granted pursuant to the Plan shall confer on any
individual any right to continue in the employ of the Corporation or any other
employer or interfere in any way with the right of the Corporation or any other
employer to terminate his employment at any time.
(e) The date of grant of an option pursuant to the Plan shall be the date
of grant of the underlying ATL Option and the price and number of options shall
be determined in accordance with Section IV of the Employee Benefits Agreement
of April 6, 1998 between the Corporation and ATL. The Committee shall promptly
notify a grantee of an award and a written option grant shall promptly be duly
executed and delivered by or on behalf of the Corporation.
(f) The Committee shall be authorized, in its absolute discretion, to
permit option holders to surrender outstanding options in exchange for the grant
of new options or to require option holders to surrender outstanding options as
a condition precedent to the grant of new options. The number of shares covered
by the new options, the option price, the option period and other terms and
conditions of the new options shall all be determined in accordance with the
Plan and may be different from the provisions of the surrendered options.
(g) In the event an optionee is granted Incentive Stock Options that in
the aggregate entitle the optionee to purchase, in the first year such options
become exercisable (whether under their original terms or as a result of the
occurrence of an Acceleration Event, as defined below), Common Stock of the
Corporation, any parent corporation or any subsidiary of the Corporation having
a Fair Market Value (determined as of the time such options are granted) in
excess of $100,000, such portion in excess of $100,000 shall be treated as a
Nonqualified Stock Option. The previous sentence shall not apply if the Internal
Revenue Service publicly rules, issues a private ruling to the Corporation, any
optionee of the Corporation or any legates, personal representative or
distributed of an optionee or states in proposed, temporary or final regulations
that provisions which allow the full exercise of an optionee's Incentive Stock
Options upon the occurrence of the relevant Acceleration Event do not violate
Section 422(b)(7) of the Code. An "Acceleration Event" means (i) a determination
of the Committee to allow an optionee to exercise his options in full upon
termination of his employment as provided in Section 7 (c) or (d), (ii) the
death of an optionee, or (iii) any Change of Control as defined in Section 1.
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(h) Notwithstanding any contrary waiting period, installment period or
other limitation or restriction in any option agreement or in the Plan, each
outstanding option shall automatically become exercisable in full for the total
remaining number of shares covered thereby upon a Change of Control.
(i) Anything in the Plan to the contrary notwithstanding, during the 90-
day period from and after a Change of Control (x) an optionee (other than an
optionee who initiated a Change of Control in a capacity other than as an
officer or a Director of the Corporation) who is an officer or a Director of the
Corporation (within the meaning of Section 16 of the Exchange Act and the rules
and regulations promulgated thereunder) with respect to an option that was
granted at least six months prior to the date of exercise pursuant to this
sentence and is unaccompanied by a stock appreciation right and (y) any other
optionee who is not an officer or a Director with respect to an option that is
unaccompanied by a stock appreciation right shall, unless the Committee shall
determine otherwise at the time of grant, have the right, in lieu of the payment
of the full purchase price of the shares of Common Stock being purchased under
the option and by giving written notice to the Corporation, to elect (within
such 90-day period) to surrender all or part of the option to the Corporation
and to receive in cash an amount equal to the amount by which the amount
determined pursuant to Section 9(d) hereof on the date of exercise (determined
as if the optionee had exercised a limited stock appreciation right on such
date) shall exceed the purchase price per share under the option multiplied by
the number of shares of Common Stock granted under the stock option as to which
the right granted by this sentence shall have been exercised. Such written
notice shall specify the optionee's election to purchase shares granted under
the option or to receive the cash payment referred to in the immediately
preceding sentence.
(j) Notwithstanding the foregoing provisions, the optionee's employment
contract with the Corporation may provide that upon termination of his
employment for other than cause or for "good reason" (as defined in his
employment contract), all stock options shall become immediately exercisable.
8. RESTRICTED STOCK AWARDS
(a) The holder of Restricted Stock shall be recorded as a shareholder of
the Corporation, at which time the Corporation, at its discretion, may either
issue a Restricted Stock Certificate or make a book entry credit in the
Corporation's stock ledger to evidence the award of such Restricted Stock, and
the holder shall have, subject to the provisions hereof, all the rights of a
shareholder with respect to such shares and receive all dividends or other
distributions made or paid with respect to such shares; provided, that the
shares themselves, and any new, additional or different shares or securities
which the recipient may be entitled to receive with respect to such shares by
virtue of a stock split or stock dividend or
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any other change in the corporate or capital structure of the Corporation, shall
be subject to the restrictions hereinafter described.
(b) During a period of years following the date of grant as set forth in
each related ATL Restricted Stock grant (the "Restricted Period"), the
Restricted Stock may not be sold, assigned, transferred, pledged, hypothecated
or otherwise encumbered or disposed of by the recipient, except in the event of
death or the transfer thereof to the Corporation under the provisions of the
next succeeding paragraph. The recipient may file with the Treasurer of the
Corporation a designation of beneficiary or beneficiaries, which designation may
be changed or revoked by the recipient's sole action. In the event of the death
or normal retirement of the recipient during the Restricted Period, such
restrictions shall immediately lapse, and the Designated Beneficiary or legal
representative of the estate of the recipient shall be free to transfer,
encumber or otherwise dispose of the Restricted Stock. In the event of early
retirement, such restrictions will lapse in accordance with the terms of the
grant.
In the event that, during the Restricted Period, the employment of the
recipient by the Corporation or one of its subsidiaries or, after the
Distribution, by ATL or one of its subsidiaries is terminated for any reason
(including termination with or without cause by the Corporation or such
subsidiary or, after the Distribution, by ATL or its subsidiary, resignation by
the recipient, or retirement under a pension plan of the Corporation or one of
its subsidiaries or, after the Distribution, of ATL or one of its subsidiaries),
other than termination of employment due to the death of the recipient, then the
shares of Restricted Stock held by him shall be forfeited to the Corporation and
the recipient shall immediately transfer and return to the Corporation the
certificates, if any have been issued to him, representing all the Restricted
Stock and the recipient's rights as a shareholder with respect to the Restricted
Stock shall cease, effective with such termination of employment.
Notwithstanding the foregoing, the recipient's employment contract with the
Corporation may provide that upon termination of his employment for other than
cause or for good reason, all Restricted Stock shall cease to be subject to such
restrictions.
A recipient's rights to Restricted Stock may not be assigned or transferred
except upon death by will, descent or distribution. In the event of any attempt
by the recipient to sell, exchange, transfer, pledge or otherwise dispose of
shares of Restricted Stock in violation of the provisions hereof, such shares
shall be forfeited to the Corporation.
(c) Notwithstanding the Restricted Period contained in the grant of
Restricted Stock, in the event of a Change of Control (as defined in Section 1),
all restrictions on shares of Restricted Stock shall immediately lapse and such
Restricted Shares shall become immediately transferable and nonforfeitable.
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(d) Notwithstanding the Restricted Period contained in the grant of
Restricted Stock, the Committee may determine, in its sole discretion, in the
case of any termination of employment, that the restrictions on some or all of
the shares of Restricted Stock awarded to an employee shall immediately lapse
and such Restricted Shares shall become immediately transferable and
nonforfeitable.
9. WITHHOLDING TAXES
The Corporation or any of its subsidiaries shall have the right to retain
and withhold from any payment under the Plan the amount of taxes required by any
government to be withheld or otherwise deducted and paid with respect to such
payment. At its discretion, the Corporation may require an award recipient
receiving shares of Common Stock to reimburse the Corporation for any such taxes
required to be withheld by the Corporation and withhold any distribution in
whole or in part until the Corporation is so reimbursed. In lieu thereof the
Corporation shall have the right to withhold from any other cash amounts due or
to become due from the Corporation to the award recipient an amount equal to
such taxes or retain and withhold a number of shares having a market value not
less than the amount of such taxes required to be withheld by the Corporation to
reimburse the Corporation for any such taxes and cancel (in whole or in part)
any such shares so withheld in order to reimburse the Corporation for any such
taxes. The Corporation may also retain and withhold or the award recipient may
elect, subject to the approval of the Corporation at its sole discretion, to
have the Corporation retain and withhold a number of shares having a market
value not less than the amount of such tax to reimburse the Corporation for any
such tax and to cancel (in whole or in part) any such shares so withheld. Each
election by an award recipient to have shares retained or to deliver shares for
this purpose shall be subject to the following restrictions: (i) the election
must be in writing and made on or prior to the date the amount of the tax is to
be determined (the "Tax Date") and (ii) if the award recipient is subject to
Section 16 of the Exchange Act; an election to have shares retained to satisfy
the tax must be an irrevocable election made at least six months prior to the
Tax Date or the withholding election must become effective during the ten-
business-day period beginning on the third business day following the date on
which the Corporation releases for publication its annual or quarterly summary
statements of sales and earnings and ending on the twelfth business day
following the date of release thereof.
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10. TRANSFERABILITY AND OWNERSHIP RIGHTS OF STOCK APPRECIATION RIGHTS AND
OPTIONS
No stock option granted under the Plan shall be transferable otherwise than
by will, descent or distribution, and a stock option may be exercised, during
the lifetime of the holder thereof, only by him. The holder of a stock
appreciation right or option shall have none of the rights of a shareholder
until the shares subject thereto or awarded thereby shall have been registered
in the name of such holder on the transfer books of the Corporation.
11. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION
Except as otherwise provided in Section 7(g), in the event of any changes
in the outstanding stock of the Corporation by reason of stock dividends, stock
splits, recapitalizations, mergers, consolidations, combinations or exchanges of
shares, split-ups, split-offs, spin-offs, liquidations or other similar changes
in capitalization, or any distribution to shareholders other than cash
dividends, the Committee shall make such adjustments, if any, in light of the
change or distribution as the Committee in its sole discretion shall determine
to be appropriate in the number and class of shares or rights subject to options
and stock appreciation rights and the exercise prices of the options and stock
appreciation rights covered thereby. In the event of any such change in the
outstanding Common Stock of the Corporation, the aggregate number and class of
shares available under the Plan and the maximum number of shares as to which
options may be granted and stock appreciation rights awarded shall be
appropriately adjusted by the Committee.
12. AMENDMENT AND TERMINATION
Unless the Plan shall theretofore have been terminated as hereinafter
provided, the Plan shall terminate on, and no awards of stock appreciation
rights or options shall be made after, April 6, 2008; provided, however, that
such termination shall have no effect on awards of stock options made prior
thereto. The Plan may be terminated, modified or amended by the shareholders
of the Corporation. The Board of Directors of the Corporation may also
terminate the Plan, or modify or amend the Plan in such respects as it shall
deem advisable in order to conform to any change in any law or regulation
applicable thereto, or in other respects; however, shareholder approval will be
required for any amendment which will (a) increase the total number of shares as
to which options may be granted under the Plan, (b) change the class of persons
eligible to receive grants of stock options, or (c) require shareholder approval
under any applicable law. The amendment or termination of the Plan shall not,
without the
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consent of the recipient of any award under the Plan, alter or impair any rights
or obligations under any award theretofore granted under the Plan.
13. EFFECTIVENESS OF THE PLAN
The Plan shall become effective immediately prior to the Distribution on
April 6, 1998. The Committee may in its discretion authorize the granting of
options and stock appreciation rights, the payments, issuance or exercise of
which, respectively, shall be expressly subject to the conditions that (a) the
shares of Common Stock reserved for issuance under the Plan shall have been duly
listed, upon official notice of issuance, upon each stock exchange in the United
States upon which the Common Stock is traded and (b) a registration statement
under the Securities Act of 1933, as amended, with respect to such shares shall
have become effective.
Adopted by the Corporation's Board of Directors and approved by the
Corporation's sole shareholder on April __, 1998.
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EXHIBIT 10.7
[EAGLE VIGNETTE]
SONOSIGHT, INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF WASHINGTON
COMMON STOCK CUSIP 83568G 10 4
SEE REVERSE FOR
CERTAIN DEFINITIONS
THIS IS TO CERTIFY that
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF THE COMMON stock, $.01 (one cent) PAR
VALUE, OF
SONOSIGHT, INC. (hereinafter called the "Corporation"), transferable on the
books of the Corporation by the holder hereof in person or by duly authorized
attorney, upon surrender of this certificate properly endorsed. This certificate
and the shares represented hereby are issued and shall be held subject to all of
the provisions of the Certificate of Incorporation, as amended, and the Bylaws
of the Corporation, to all of which the holder of this certificate by acceptance
hereof assents.
This certificate is not valid unless countersigned and registered by the
Transfer Agent and Registrar.
WITNESS the signatures of its duly authorized officers.
Dated:
SECRETARY PRESIDENT AND CHIEF EXECUTIVE OFFICER
COUNTERSIGNED AND REGISTERED:
FIRST CHICAGO TRUST COMPANY
OF NEW YORK
TRANSFER AGENT AND REGISTRAR,
BY
AUTHORIZED SIGNATURE
<PAGE>
SONOSIGHT, INC.
This certificate evidences shares of Common Stock of the Corporation. Other
classes of shares of the Corporation are, and may in the future be, authorized
and outstanding, and those classes may consist of one or more series of shares,
each with different rights, preferences and limitations. The Corporation will
furnish any stockholder, upon request and without charge, a full statement of
the powers, designations, preferences and relative participating, optional or
other special rights of each class of stock or series thereof and the
qualifications, limitations or restrictions of such preferences and/or rights.
This certificate also evidences and entitles the holder hereof to certain
Rights as set forth in a Rights Agreement dated as of April 6, 1998, as it may
be amended from time to time (the "Rights Agreement"), between SonoSight, Inc.
and First Chicago Trust Company of New York, as Rights Agent, the terms of which
are hereby incorporated herein by reference and a copy of which is on file at
the principal executive offices of the Corporation. Under certain circumstances,
as set forth in the Rights Agreement, such Rights will be evidenced by separate
certificates and will no longer be evidenced by this certificate. The
Corporation will mail to the holder of this certificate a copy of the Rights
Agreement without charge after receipt of a written request therefor. Rights
beneficially owned by Acquiring Persons or their Affiliates or Associates (as
such terms are defined in the Rights Agreement) and by any subsequent holder of
such Rights are null and void and nontransferable.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM -- as tenants in common
TEN ENT -- as tenants by the entireties
JT TEN -- as joint tenants with right of
survivorship and not as tenants
in common
UNIF GIFT MIN ACT - ................. Custodian..................
(Cust) (Minor)
under Uniform Gifts to Minors
Act .........................................
(State)
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED, hereby sell, assign and transfer unto
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PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
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(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
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Shares
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of the capital stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
Attorney
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to transfer the said stock on the books of the within-named Corporation with
full power of substitution in the premises.
Dated
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X
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X
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NOTICE: THE SIGNATURE(S) TO THIS ASSIGNMENT
MUST CORRESPOND WITH THE NAME(S) AS
WRITTEN UPON THE FACE OF THE
CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT OR
ANY CHANGE WHATEVER.
Signature(s) Guaranteed
By
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THE SIGNATURE(S) MUST BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION (BANKS,
STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN
AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT TO S.E.C. RULE
17Ad-15.
