<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
SCHEDULE 14D-1
TENDER OFFER STATEMENT
(PURSUANT TO SECTION 14(D)(1) OF THE SECURITIES EXCHANGE ACT OF 1934)
------------------------
ATL ULTRASOUND, INC.
(Name of Subject Company)
KONINKLIJKE PHILIPS ELECTRONICS N.V.
(ROYAL PHILIPS ELECTRONICS)
PHILIPS ELECTRONICS
NORTH AMERICA CORPORATION
PHILIPS ACQUISITION, INC.
(Bidder)
COMMON STOCK, PAR VALUE $.01 PER SHARE
(INCLUDING THE ASSOCIATED RIGHTS TO PURCHASE SERIES A
PARTICIPATING CUMULATIVE PREFERRED STOCK)
(Title of Class of Securities)
00207N100
(CUSIP Number of Class of Securities)
SAMUEL J. ROZEL
COMPANY SECRETARY
1251 AVENUE OF THE AMERICAS
20TH FLOOR
NEW YORK, NEW YORK 10020
212-536-0500
(Name, Address and Telephone Number of Person Authorized
to Receive Notices and Communications on Behalf of Bidders)
COPY TO:
NEIL T. ANDERSON, ESQ.
SULLIVAN & CROMWELL
125 BROAD STREET
NEW YORK, NEW YORK 10004
(212) 558-4000
CALCULATION OF FILING FEE:
<TABLE>
<CAPTION>
TRANSACTION VALUATION* AMOUNT OF FILING FEE**
<S> <C>
$860,820,424.50 $172,164.09
</TABLE>
* For purposes of calculating the filing fee only. This calculation assumes
17,045,949 Shares (equal to the sum of (i) 14,789,665 Shares issued and
outstanding as of July 31, 1998, according to ATL Ultrasound, Inc. (the
"Company") and (ii) 2,256,284 Shares subject to issuance pursuant to
outstanding options under the Company's stock option plans.
** 1/50 of 1% of transaction valuation
/ / Check box if any part of the fee is offset as provided by Rule 0-11(a)(2)
and identify the filing with which the offsetting fee was previously paid.
Identify the previous filing by registration statement number, or the Form
or Schedule and the date of its filing.
<TABLE>
<S> <C> <C> <C>
Amount Previously Paid: Filing Party:
Form or Registration No.: Date Filed:
</TABLE>
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<PAGE>
SCHEDULE 14D-1
<TABLE>
<C> <S> <C>
CUSIP NO. 00207N100
</TABLE>
<TABLE>
<C> <S>
1. NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
Koninklijke Philips Electronics N.V. (Royal Philips Electronics)
2. CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a) / /
(b) / /
3. SEC USE ONLY
4. SOURCE OF FUNDS
WC; OO
5. CHECK IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED
PURSUANT TO ITEMS 2(e) OR 2(f) / /
6. CITIZENSHIP OR PLACE OF ORGANIZATION
The Netherlands
7. AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH
REPORTING PERSON
0
8. CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (7) EXCLUDES
CERTAIN SHARES / /
9. PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (7)
0%
10. TYPE OF REPORTING PERSON
CO
</TABLE>
<PAGE>
SCHEDULE 14D-1
<TABLE>
<C> <S> <C>
CUSIP NO. 00207N100
</TABLE>
<TABLE>
<C> <S>
1. NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
Philips Electronics North America Corporation
2. CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a) / /
(b) / /
3. SEC USE ONLY
4. SOURCE OF FUNDS
AF
5. CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED
PURSUANT TO ITEMS 2(e) OR 2(f) / /
6. CITIZENSHIP OR PLACE OF ORGANIZATION
Delaware
7. AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH
REPORTING PERSON
0
8. CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (7) EXCLUDES
CERTAIN SHARES / /
9. PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (7)
0%
10. TYPE OF REPORTING PERSON
CO
</TABLE>
<PAGE>
SCHEDULE 14D-1
<TABLE>
<C> <S> <C>
CUSIP NO. 00207N100
</TABLE>
<TABLE>
<C> <S>
1. NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
Philips Acquisition, Inc.
2. CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a) / /
(b) / /
3. SEC USE ONLY
4. SOURCE OF FUNDS
AF
5. CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED
PURSUANT TO ITEMS 2(e) OR 2(f) / /
6. CITIZENSHIP OR PLACE OF ORGANIZATION
Washington
7. AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH
REPORTING PERSON
0
8. CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (7) EXCLUDES
CERTAIN SHARES / /
9. PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (7)
0%
10. TYPE OF REPORTING PERSON
CO
</TABLE>
<PAGE>
Item 1. SECURITY AND SUBJECT COMPANY.
(a) The name of the subject company is ATL Ultrasound, Inc., a Washington
corporation (the "Company"), and the address of its principal executive offices
is 22100 Bothell Everett Highway, Bothell, Washington 98041.
(b) The class of the securities to which this statement relates is the
Common Stock, par value $0.01 per share (including the associated rights to
purchase Series A Participating Cumulative Preferred Stock (the "Rights" and,
collectively with the Common Stock, the "Shares")), of the Company. The
information set forth in the introductory section and Section 1 of the Offer to
Purchase (the "Offer to Purchase") annexed hereto as Exhibit (a)(1) is
incorporated herein by reference.
(c) The information set forth in the introductory section and in Section 6
of the Offer to Purchase is incorporated herein by reference.
Item 2. IDENTITY AND BACKGROUND.
(a)-(d); (g) The information set forth in Section 9 of the Offer of Purchase
is incorporated herein by reference. The name, business address, present
principal occupation or employment, the material occupations, positions, offices
or employment for the past five years and citizenship of each director and
executive officer of Koninklijke Philips Electronics N.V. ("Royal Philips"), a
company incorporated under the laws of The Netherlands, Philips Electronics
North America Corporation, a Delaware corporation ("Parent"), Philips Holding
USA Inc., a Delaware corporation ("Holding") and Philips Acquisition, Inc., a
Washington corporation ("Merger Sub") are set forth in Schedule A to the Offer
to Purchase and are incorporated herein by reference.
(e)-(f) During the last five years, none of Merger Sub, Parent, Holding,
Royal Philips, or to the best of their respective knowledge, any of the
directors and executive officers of Merger Sub, Parent, Holding or Royal Philips
has been convicted in a criminal proceeding (excluding traffic violations or
similar misdemeanors) or has been a party to a civil proceeding of a judicial or
administrative body of competent jurisdiction as a result of which any such
person was or is subject to a judgment, decree or final order enjoining future
violations of, or prohibiting activities subject to, federal or state securities
laws or finding any violation of such law.
Item 3. PAST CONTACTS, TRANSACTIONS OR NEGOTIATIONS WITH THE SUBJECT COMPANY.
(a)-(b) The information set forth in Sections 9, 10, 11 and Schedule A of
the Offer to Purchase is incorporated herein by reference.
Item 4. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION.
(a)-(c) The information set forth in Section 12 of the Offer to Purchase is
incorporated herein by reference.
Item 5. PURPOSE OF THE TENDER OFFER AND PLANS OR PROPOSALS OF THE BIDDER.
(a)-(g) The information set forth in the introductory section and in
Sections 7, 10 and 11 of the Offer to Purchase is incorporated herein by
reference. Except as set forth in such sections of the Offer to Purchase, none
of Merger Sub, Parent or Royal Philips currently has any plans or proposals
which relate to or would result in: (a) an extraordinary corporate transaction,
such as a merger, reorganization or liquidation involving the Company or any of
its subsidiaries; (b) a sale or transfer of a material amount of assets of the
Company or any of its subsidiaries; (c) any change in the present board of
directors or management of the Company including, but not limited to, any plans
or proposals to change the number or the term of directors or to fill any
existing vacancies on the board of directors of the Company; (d) any material
change in the present capitalization or dividend policy of the Company; (e) any
other material change in the Company's corporate structure or business; (f)
causing a class of securities of the Company to be delisted from a national
securities exchange or to cease to be authorized to be quoted in an inter-dealer
quotation system of a registered national securities association; or (g) a class
of equity securities of the Company becoming eligible for termination of
registration pursuant to Section 12(g)(4) of the Securities Exchange Act of
1934, as amended.
<PAGE>
Item 6. INTEREST IN SECURITIES OF THE SUBJECT COMPANY.
(a)-(b) The information set forth in Sections 9, 10 and Schedule A of the
Offer to Purchase is incorporated herein by reference.
Item 7. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH RESPECT TO
THE SUBJECT COMPANY'S SECURITIES.
The information set forth in the introductory section and Sections 9, 10 and
11 of the Offer to Purchase is incorporated herein by reference.
Item 8. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED.
The information set forth in Section 16 of the Offer to Purchase is
incorporated herein by reference.
Item 9. FINANCIAL STATEMENTS OF CERTAIN BIDDERS.
The information set forth in Section 9 to the Offer to Purchase is
incorporated herein by reference.
Item 10. ADDITIONAL INFORMATION.
(a) The information set forth in Section 10 of the Offer of Purchase is
incorporated herein by reference.
(b)-(d) The information set forth in Section 15 of the Offer of Purchase is
incorporated herein by reference.
(e)-(f) Not applicable.
Item 11. MATERIAL TO BE FILED AS EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------- --------------------------------------------------------------------------------------------------------
<S> <C>
(a)(1) Offer to Purchase, dated August 4, 1998.
(a)(2) Form of Letter of Transmittal with respect to the Shares.
(a)(3) Form of letter, dated August 4, 1998, to brokers, dealers, commercial banks, trust companies and other
nominees.
(a)(4) Form of letter to be used by brokers, dealers, commercial banks, trust companies, and nominees to their
clients.
(a)(5) Press Release issued by Parent, dated July 29, 1998.
(a)(6) Form of newspaper advertisement, dated August 4, 1998.
(a)(7) Notice of Guaranteed Delivery.
(a)(8) Guidelines for Substitute Form W-9.
(c)(1) Agreement and Plan of Merger, dated as of July 29, 1998, by and among the Company, Parent and Purchaser.
(g)(1) Employment and Consulting Agreement, dated as of July 29, 1998 between the Company and Dennis C. Fill.
(g)(2) Employment Agreement, dated as of July 29, 1998 by and between the Company and Pamela Dunlop.
(g)(3) Employment Agreement dated as of July 29, 1998 between the Company and Donald Blem.
(g)(4) Employment Agreement dated as of July 29, 1998 between the Company and Jacques Souquet.
(g)(5) Employment and Consulting Agreement dated as of July 29, 1998 between the Company and Castor F. Diaz.
</TABLE>
<PAGE>
SIGNATURES
After due inquiry and to the best of my knowledge and belief, I certify that
the information set forth in this statement is true, complete and correct.
<TABLE>
<S> <C> <C>
Dated: August 4, 1998 KONINKLIJKE PHILIPS ELECTRONICS N.V.
By: /s/ GUIDO R. C. DIERICK
--------------------------------------
Name: Guido R. C. Dierick
Title: Director and Deputy Secretary
PHILIPS ELECTRONICS NORTH AMERICA CORPORATION
By: /s/ WILLIAM E. CURRAN
--------------------------------------
Name: William E. Curran
Title: Senior Vice President and Chief Financial
Officer
PHILIPS ACQUISITION, INC.
By: /s/ WILLIAM E. CURRAN
--------------------------------------
Name: William E. Curran
Title: President
</TABLE>
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------- --------------------------------------------------------------------------------------------------------
<S> <C>
(a)(1) Offer to Purchase, dated August 4, 1998.
(a)(2) Form of Letter of Transmittal with respect to the Shares.
(a)(3) Form of letter, dated August 4, 1998, to brokers, dealers, commercial banks, trust companies and other
nominees.
(a)(4) Form of letter to be used by brokers, dealers, commercial banks, trust companies, and nominees to their
clients.
(a)(5) Press Release issued by the Parent, dated July 29, 1998.
(a)(6) Form of newspaper advertisement, dated August 4, 1998.
(a)(7) Notice of Guaranteed Delivery.
(a)(8) Guidelines for Substitute Form W-9.
(c)(1) Agreement and Plan of Merger, dated as of July 29, 1998, by and among the Company, Parent and Purchaser.
(g)(1) Employment and Consulting Agreement, dated as of July 29, 1998 by and between the Company and Dennis C.
Fill.
(g)(2) Employment Agreement, dated as of July 29, 1998 by and between the Company and Pamela Dunlop.
(g)(3) Employment Agreement dated as of July 29, 1998 between the Company and Donald Blem.
(g)(4) Employment Agreement dated as of July 29, 1998 between the Company and Jacques Souquet.
(g)(5) Employment and Consulting Agreement dated as of July 29, 1998 between the Company and Castor F. Diaz.
</TABLE>
<PAGE>
OFFER TO PURCHASE FOR CASH
ALL OUTSTANDING SHARES OF COMMON STOCK
(INCLUDING THE ASSOCIATED PREFERRED STOCK PURCHASE RIGHTS)
OF
ATL ULTRASOUND, INC.
AT
$50.50 NET PER SHARE
BY
PHILIPS ACQUISITION, INC.
A WHOLLY OWNED SUBSIDIARY OF
PHILIPS ELECTRONICS NORTH AMERICA CORPORATION
AND AN INDIRECT WHOLLY OWNED SUBSIDIARY OF
KONINKLIJKE PHILIPS ELECTRONICS N.V.
(ROYAL PHILIPS ELECTRONICS)
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY
TIME, ON MONDAY, AUGUST 31, 1998, UNLESS THE OFFER IS EXTENDED.
THE OFFER (AS DEFINED BELOW) IS CONDITIONED UPON, AMONG OTHER THINGS, (1)
THERE BEING VALIDLY TENDERED AND NOT WITHDRAWN PRIOR TO THE EXPIRATION OF THE
OFFER A NUMBER OF SHARES OF COMMON STOCK, PAR VALUE $0.01 PER SHARE (THE "COMMON
STOCK") (INCLUDING THE ASSOCIATED RIGHTS TO PURCHASE SERIES A PARTICIPATING
CUMULATIVE PREFERRED STOCK (THE "RIGHTS" AND, COLLECTIVELY WITH THE COMMON
STOCK, THE "SHARES") OF ATL ULTRASOUND, INC. (THE "COMPANY") REPRESENTING A
MAJORITY OF THE TOTAL VOTING POWER OF ALL SHARES OF CAPITAL STOCK OF THE COMPANY
OUTSTANDING ON A FULLY DILUTED BASIS AND AS WILL PERMIT MERGER SUB (AS DEFINED
BELOW) TO EFFECT THE MERGER (AS DEFINED BELOW) WITHOUT THE VOTE OF ANY PERSON
OTHER THAN MERGER SUB AND (2) ANY APPLICABLE WAITING PERIOD UNDER THE
HART-SCOTT-RODINO ANTITRUST IMPROVEMENTS ACT OF 1976, AS AMENDED, AND THE
REGULATIONS THEREUNDER AND UNDER THE ANTITRUST OR COMPETITION LAWS OF AUSTRIA
AND GERMANY WITH RESPECT TO THE OFFER AND/OR THE MERGER HAVING EXPIRED OR BEEN
TERMINATED. CERTAIN OTHER CONDITIONS TO CONSUMMATION OF THE OFFER ARE DESCRIBED
IN SECTION 13.
THE BOARD OF DIRECTORS OF THE COMPANY HAS UNANIMOUSLY ADOPTED THE MERGER
AGREEMENT (AS DEFINED BELOW), APPROVED THE OFFER AND THE MERGER, DETERMINED THAT
THE OFFER AND THE MERGER ARE FAIR TO, AND IN THE BEST INTERESTS OF, THE HOLDERS
OF SHARES AND RECOMMENDS THAT HOLDERS OF SHARES ACCEPT THE OFFER AND TENDER
THEIR SHARES PURSUANT TO THE OFFER.
--------------------------
IMPORTANT
Any shareholder desiring to tender all or any portion of such shareholder's
Shares should (1) complete and sign the Letter of Transmittal or a facsimile
thereof in accordance with the instructions in the Letter of Transmittal,
including any required signature guarantees, and mail or deliver the Letter of
Transmittal or such facsimile with such shareholder's certificate(s) for the
tendered Shares and any other required documents to the Depositary (as defined
below), (2) follow the procedure for book-entry transfer of Shares set forth in
Section 3 or (3) request such shareholder's broker, dealer, commercial bank,
trust company or other nominee to effect the transaction for such shareholder.
Shareholders having Shares registered in the name of a broker, dealer,
commercial bank, trust company or other nominee must contact such broker,
dealer, commercial bank, trust company or other nominee if they desire to tender
Shares so registered. Unless the context requires otherwise, all references to
Shares herein shall include the associated Rights.
The Rights are presently evidenced by the certificates for the Common Stock
and a tender by a shareholder of such shareholder's shares of Common Stock will
also constitute a tender of the associated Rights. A shareholder who desires to
tender Shares and whose certificates for such Shares are not immediately
available, or who cannot comply with the procedure for book-entry transfer on a
timely basis, may tender such Shares by following the procedures for guaranteed
delivery set forth in Section 3.
Questions and requests for assistance may be directed to the Information
Agent (as defined below) or to the Dealer Manager (as defined below) at their
respective addresses and telephone numbers set forth on the back cover of this
Offer to Purchase. Requests for additional copies of this Offer to Purchase and
the Letter of Transmittal may be directed to the Information Agent or to
brokers, dealers, commercial banks or trust companies.
--------------------------
THE DEALER MANAGER FOR THE OFFER IS:
MERRILL LYNCH & CO.
---------------
August 4, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
SECTION PAGE
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<C> <S> <C>
Introduction.............................................................................................. 1
The Tender Offer
1. Terms of the Offer......................................................................... 2
2. Acceptance for Payment and Payment for Shares.............................................. 4
3. Procedure for Tendering Shares............................................................. 5
4. Rights of Withdrawal....................................................................... 8
5. Certain United States Federal Income Tax Consequences of the Offer......................... 9
6. Price Range of Shares; Dividends........................................................... 10
7. Effect of the Offer on the Market for the Shares; Stock Quotation,
Margin Regulations and Exchange Act Registration........................................... 10
8. Certain Information Concerning the Company................................................. 11
9. Certain Information Concerning Merger Sub, Parent and Royal Philips........................ 13
10. Background of the Offer; Contacts with the Company; Employment Agreements.................. 16
11. Purpose of the Offer; Plans for the Company; the Merger.................................... 20
12. Source and Amount of Funds................................................................. 29
13. Certain Conditions of the Offer............................................................ 30
14. Dividends and Distributions................................................................ 31
15. Certain Legal Matters...................................................................... 32
16. Fees and Expenses.......................................................................... 34
17. Miscellaneous.............................................................................. 35
Schedule A Information Concerning the Directors and Executive Officers of Royal Philips, Holding,
Parent and Merger Sub...................................................................... A-1
</TABLE>
<PAGE>
TO THE HOLDERS OF SHARES OF
ATL ULTRASOUND, INC.:
INTRODUCTION
Philips Acquisition, Inc., a Washington corporation ("Merger Sub"), a wholly
owned subsidiary of Philips Electronics North America Corporation, a Delaware
corporation ("Parent"), and an indirect wholly owned subsidiary of Koninklijke
Philips Electronics N.V., a company incorporated under the laws of The
Netherlands ("Royal Philips"), hereby offers to purchase all of the outstanding
shares of Common Stock, par value $0.01 per share (the "Common Stock"), of ATL
Ultrasound, Inc., a Washington corporation (the "Company"), including the
associated rights to purchase Series A Participating Cumulative Preferred Stock
(the "Rights" and, together with the Common Stock, the "Shares") issued pursuant
to the Amended and Restated Rights Agreement, dated as of June 26, 1992 (the
"Rights Agreement"), between the Company and First Chicago Trust Company at
$50.50 per Share, net to the seller in cash, without interest, upon the terms
and subject to the conditions set forth in this Offer to Purchase and in the
related Letter of Transmittal (which, together with any amendments or
supplements hereto or thereto, collectively constitute the "Offer"). Tendering
shareholders will not be obligated to pay brokerage fees or commissions or,
subject to Instruction 6 of the Letter of Transmittal, transfer taxes on the
purchase of Shares by Merger Sub pursuant to the Offer. Merger Sub will pay all
charges and expenses of Citibank, N.A. (the "Depositary") and D.F. King & Co.,
Inc. (the "Information Agent"). Unless the context requires otherwise, all
references to Shares herein shall include the associated Rights, and all
references to the Rights shall include all benefits that may inure to the
holders of the Rights pursuant to the Rights Agreement.
THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, (1) THERE BEING VALIDLY
TENDERED AND NOT WITHDRAWN PRIOR TO THE EXPIRATION OF THE OFFER A NUMBER OF
SHARES REPRESENTING A MAJORITY OF THE TOTAL VOTING POWER OF ALL SHARES OF
CAPITAL STOCK OF THE COMPANY OUTSTANDING ON A FULLY DILUTED BASIS AND AS WILL
PERMIT MERGER SUB TO EFFECT THE MERGER (AS DEFINED BELOW) WITHOUT THE VOTE OF
ANY PERSON OTHER THAN MERGER SUB AND (2) ANY APPLICABLE WAITING PERIOD UNDER THE
HART-SCOTT-RODINO ANTITRUST IMPROVEMENTS ACT OF 1976, AS AMENDED (THE "HSR
ACT"), AND THE REGULATIONS THEREUNDER AND UNDER THE ANTITRUST OR COMPETITION
LAWS OF AUSTRIA AND GERMANY WITH RESPECT TO THE OFFER AND/OR THE MERGER HAVING
EXPIRED OR BEEN TERMINATED. CERTAIN OTHER CONDITIONS TO CONSUMMATION OF THE
OFFER ARE DESCRIBED IN SECTION 13.
THE BOARD OF DIRECTORS OF THE COMPANY HAS UNANIMOUSLY ADOPTED THE MERGER
AGREEMENT, APPROVED THE OFFER AND THE MERGER, DETERMINED THAT THE OFFER AND THE
MERGER ARE FAIR TO, AND IN THE BEST INTERESTS OF, THE HOLDERS OF SHARES AND
RECOMMENDS THAT HOLDERS OF SHARES ACCEPT THE OFFER AND TENDER THEIR SHARES
PURSUANT TO THE OFFER.
The Offer is being made pursuant to an Agreement and Plan of Merger (the
"Merger Agreement"), dated as of July 29, 1998, by and among the Company, Parent
and Merger Sub, pursuant to which, after completion of the Offer (subject to
Section 2.1(b) of the Merger Agreement, pursuant to which at Parent's election
the Company will be merged with and into Merger Sub), Merger Sub will be merged
with and into the Company (either such merger, the "Merger") and each issued and
outstanding Share (other than Shares owned by Parent, Merger Sub or any other
subsidiary of Parent (collectively, the "Parent Companies") or Shares which are
held by shareholders ("Dissenting Shareholders") exercising dissenters' rights
pursuant to Section 23B.13.020 of the Washington Business Corporation Act (the
"WBCA")) shall, by virtue of the Merger and without any action on the part of
the holder thereof, be converted into and represent the right to receive an
amount in cash, without interest, equal to the price paid for each Share
pursuant to the Offer (the "Merger Consideration"). The Merger Agreement is more
fully described in Section 11.
THIS OFFER TO PURCHASE AND THE RELATED LETTER OF TRANSMITTAL CONTAIN
IMPORTANT INFORMATION WHICH SHOULD BE READ IN THEIR ENTIRETY BEFORE ANY DECISION
IS MADE WITH RESPECT TO THE OFFER.
<PAGE>
1. TERMS OF THE OFFER.
Upon the terms and subject to the conditions set forth in the Offer
(including the terms and conditions set forth in Section 13 (the "Offer
Conditions") and if the Offer is extended or amended, the terms and conditions
of such extension or amendment), Merger Sub will accept for payment, and pay
for, all Shares validly tendered on or prior to the Expiration Date and not
withdrawn as permitted by Section 4. The term "Expiration Date" means 12:00
Midnight, New York City time, on Monday, August 31, 1998, unless and until
Merger Sub shall, subject to the terms of the Merger Agreement, in its sole
discretion, have extended the period for which the Offer is open, in which event
the term "Expiration Date" shall mean the latest time and date on which the
Offer, as so extended by Merger Sub, shall expire.
The Offer is conditioned on, among other things, the Minimum Condition (as
defined in Section 13) being satisfied. See Section 13. ACCORDING TO THE
COMPANY, AS OF JULY 31, 1998, THERE WERE 14,789,665 SHARES ISSUED AND
OUTSTANDING AND 2,256,284 SHARES RESERVED FOR ISSUANCE UNDER THEN-CURRENT
OUTSTANDING STOCK OPTIONS PURSUANT TO THE COMPANY'S STOCK OPTION AND INCENTIVE
PLANS. Based on the foregoing, Merger Sub believes that if all of the Shares
reserved for issuance as set forth above are considered to be outstanding on a
fully diluted basis on the Expiration Date, the Minimum Condition would be
satisfied if at least 8,522,975 Shares are validly tendered and not withdrawn
prior to the Expiration Date.
Rights are presently evidenced by the certificates for the Common Stock and
the tender by a shareholder of such shareholder's shares of Common Stock will
also constitute a tender of the associated Rights. Pursuant to the Offer, no
separate payment will be made by Merger Sub for the Rights. Pursuant to the
Merger Agreement, the Board of Directors of the Company, at its meeting on July
28, 1998, approved an amendment of the Rights Agreement (the "Rights Amendment")
to provide that the execution of the Merger Agreement or the commencement of the
Offer or the consummation of the Merger or the other transactions contemplated
thereby will not cause (i) either Parent, Merger Sub or any of their respective
"affiliates" or "associates" (each as defined in the Rights Agreement) to be
deemed an Acquiring Person (as defined in the Rights Agreement), (ii) a
Distribution Date (as defined in the Rights Agreement) to occur or (iii) the
Rights to separate from the Shares. Pursuant to the Merger Agreement, the
Company has agreed to take all necessary action with respect to all of the
outstanding Rights, so that the Company, as of the time immediately prior to the
purchase of any Shares by any of the Parent Companies pursuant to the Offer,
will have no obligations under the Rights or the Rights Agreement and the
holders will have no rights under the Rights or the Rights Agreement, in each
case, other than the right to receive the redemption payment of $0.01 per Right
in cash as provided in the Rights Agreement.
Subject to the terms of the Merger Agreement (see Section 11) and applicable
rules and regulations of the Securities and Exchange Commission (the "SEC"),
Merger Sub expressly reserves the right, in its sole discretion, at any time or
from time to time, to extend the period of time during which the Offer is open
by giving oral or written notice of such extension to the Depositary. During any
such extension, all Shares previously tendered and not withdrawn will remain
subject to the Offer, subject to the right of a tendering shareholder to
withdraw such shareholder's Shares. See Section 4. Subject to the terms of the
Merger Agreement and the applicable rules and regulations of the SEC, Merger Sub
also expressly reserves the right, in its sole discretion, at any time or from
time to time, (i) to delay acceptance for payment of or (regardless of whether
such Shares were theretofore accepted for payment) payment for, any tendered
Shares, or to terminate or amend the Offer as to any Shares not then paid for,
on the occurrence of any of the conditions specified in Section 13 and (ii) to
waive any condition (other than the Minimum Condition) and to set forth or
change any other term and condition of the Offer, by giving oral or written
notice of such delay, termination or amendment to the Depositary and by making a
public announcement thereof; PROVIDED that, Merger Sub will not, without the
prior written consent of the Company (such consent to be authorized by the Board
of Directors of the Company) (i) waive the Minimum Condition, (ii) decrease the
price per Share or change the form of consideration payable in the Offer, (iii)
decrease the number of Shares sought in the Offer, (iv) impose additional
conditions to the Offer, (v) change any Offer Condition or amend any other term
of the Offer if any such change or amendment would be in any manner adverse to
the holders of Shares or (vi) except as provided below, extend the Offer if all
of the Offer Conditions have been satisfied. Merger Sub reserves the right, in
its sole discretion, to extend the Offer after all of the Offer
2
<PAGE>
Conditions have been satisfied or waived if it reasonably determines such
extension is appropriate in order to enable it to purchase at least 90% of the
outstanding Shares in the Offer (in which case Merger Sub may extend the
expiration date on one occasion for up to ten business days beyond the time it
would otherwise be required to accept validly tendered Shares for payment). If
Merger Sub accepts any Shares for payment pursuant to the terms of the Offer, it
will accept for payment all Shares validly tendered prior to the Expiration Date
and not withdrawn, and, subject to the terms and conditions of the Offer,
including but not limited to the Offer Conditions, it will accept for payment
and promptly pay for all Shares so accepted for payment. Merger Sub confirms
that its reservation of the right to delay payment for Shares which it has
accepted for payment is limited by Rule 14e-1(c) under the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), which requires that a tender
offeror pay the consideration offered or return the tendered securities promptly
after the termination or withdrawal of a tender offer.
Pursuant to the Merger Agreement, (i) in the event of the failure of one or
more of the Offer Conditions set forth in Section 13 to be satisfied or waived
on any date the Offer would otherwise expire, Merger Sub shall from time to time
extend the Offer until such time as such condition is or conditions are
satisfied or waived, PROVIDED that, except as set forth below, Merger Sub shall
not be required to extend the Offer beyond October 30, 1998, and (ii) in the
event, after October 30, 1998, of the failure of the Regulatory Condition (as
defined in Section 13) to be satisfied or waived on the date the Offer would
otherwise expire (and the satisfaction or waiver on such date of the other Offer
Conditions other than the Minimum Condition), Merger Sub shall give the Company
notice thereof and, at the request of the Company, from time to time extend the
Offer until the earlier of (1) five business days after such time as the
Regulatory Condition is satisfied or waived and (2) the date chosen by the
Company which shall not be later than the earlier of (x) December 31, 1998 or
(y) five business days after the earliest date on which the Company reasonably
believes the Regulatory Condition will be satisfied, PROVIDED that if such
condition is not satisfied by any date chosen by the Company as described in
this clause (y), the Company may request further extensions of the Offer in
accordance with the terms of the Merger Agreement.
Any extension, delay, termination or amendment of the Offer will be followed
as promptly as practicable by public announcement thereof, such announcement in
the case of an extension to be issued no later than 9:00 A.M., New York City
time, on the next business day after the previously scheduled Expiration Date.
Subject to applicable law (including Rules 14d-4(c), 14d-6(d) and 14e-1 under
the Exchange Act, which require that any material change in the information
published, sent or given to shareholders in connection with the Offer be
promptly disseminated to shareholders in a manner reasonably designed to inform
shareholders of such change) and without limiting the manner in which the Merger
Sub may choose to make any public announcement, Merger Sub shall have no
obligation to publish, advertise or otherwise communicate any such public
announcement other than by issuing a press release or other announcement.
Merger Sub confirms that if it makes a material change in the terms of the
Offer or the information concerning the Offer, or if it waives a material
condition of the Offer, Merger Sub will extend the Offer to the extent required
by Rules 14d-4(c), 14d-6(d) and 14e-1 under the Exchange Act.
If, prior to the Expiration Date, Merger Sub, if previously approved by the
Company in writing, shall decrease the percentage of Shares being sought or the
consideration offered to holders of Shares, such decrease shall be applicable to
all holders whose Shares are accepted for payment pursuant to the Offer and, if
at the time notice of any increase or decrease is first published, sent or given
to holders of Shares, the Offer is scheduled to expire at any time earlier than
the tenth business day from and including the date that such notice is first so
published, sent or given, the Offer will be extended until the expiration of
such ten business day period. For purposes of the Offer, a "business day" means
any day other than a Saturday, Sunday or federal holiday and consists of the
time period from 12:01 A.M. through 12:00 Midnight, New York City time.
The Company has provided Merger Sub with the Company's shareholder lists and
security position listings for the purpose of disseminating the Offer to holders
of the Shares. This Offer to Purchase, the related Letter of Transmittal and
other relevant materials will be mailed by Merger Sub to record holders of
Shares and will be furnished by Merger Sub to brokers, dealers, commercial
banks, trust companies and
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similar persons whose names, or the names of whose nominees, appear on the
shareholder lists or, if applicable, who are listed as participants in a
clearing agency's security position listing, for subsequent transmittal to
beneficial owners of Shares.
2. ACCEPTANCE FOR PAYMENT AND PAYMENT FOR SHARES.
Upon the terms and subject to the conditions of the Offer (including the
Offer Conditions and, if the Offer is extended or amended, the terms and
conditions of any such extension or amendment), Merger Sub will accept for
payment, and will pay for, Shares validly tendered and not withdrawn as soon as
practicable after the later of (i) the expiration or termination of all
applicable waiting periods under the HSR Act and under any applicable waiting
periods under the antitrust or competition laws and regulations of Austria and
Germany (the "Foreign Filings"), in each case with respect to the Offer and/or
the Merger and (ii) the Expiration Date, if at the time of the later of the
occurrence of (i) or (ii) above, the Minimum Condition has been satisfied or
waived; PROVIDED, HOWEVER, that Merger Sub shall not waive the Minimum Condition
without the prior written consent of the Company. In addition, subject to
applicable rules of the SEC, Merger Sub expressly reserves the right to delay
acceptance for payment of or payment for Shares in order to comply, in whole or
in part, with any applicable law. Notwithstanding the foregoing, Merger Sub
reserves the right, in its sole discretion, to extend the Offer notwithstanding
the prior satisfaction of the Offer Conditions if it reasonably determines such
extension is appropriate in order to enable it to purchase at least 90% of the
outstanding Shares in the Offer (in which case Merger Sub may extend the
expiration date on one occasion for up to ten business days beyond the time it
would otherwise be required to accept validly tendered Shares for payment). See
Sections 13 and 15. Royal Philips filed a Notification and Report Form under the
HSR Act on August 3, 1998 and, accordingly, unless earlier terminated or
extended by a request for additional information, the waiting period under the
HSR Act is scheduled to expire at 11:59 p.m., New York City time, on August 18,
1998. See Section 15. In all cases, payment for Shares tendered and accepted for
payment pursuant to the Offer will be made only after timely receipt by the
Depositary of certificates for such Shares (or a confirmation of a book-entry
transfer of such Shares (a "Book-Entry Confirmation") into the Depositary's
account at The Depository Trust Company (the "Book-Entry Transfer Facility")), a
properly completed and duly executed Letter of Transmittal (or facsimile
thereof) (or, in the case of a book-entry transfer, an Agent's Message (as
defined below)) and any other documents required by the Letter of Transmittal.
For purposes of the Offer, Merger Sub will be deemed to have accepted for
payment Shares validly tendered and not withdrawn as, if and when Merger Sub
gives oral or written notice to the Depositary of its acceptance for payment of
such Shares pursuant to the Offer. Payment for Shares accepted for payment
pursuant to the Offer will be made by deposit of the purchase price therefor
with the Depositary, which will act as agent for the tendering shareholders for
the purpose of receiving payments from Merger Sub and transmitting such payments
to the tendering shareholders. UNDER NO CIRCUMSTANCES WILL INTEREST ON THE
PURCHASE PRICE FOR SHARES BE PAID, REGARDLESS OF ANY EXTENSION OF THE OFFER OR
ANY DELAY IN MAKING SUCH PAYMENT.
If any tendered Shares are not accepted for payment pursuant to the terms
and conditions of the Offer for any reason, or if certificates are submitted for
more Shares than are tendered, certificates for such unpurchased Shares will be
returned, without expense to the tendering shareholder (or, in the case of
Shares tendered by book-entry transfer of such Shares into the Depositary's
account at the Book-Entry Transfer Facility pursuant to the procedures set forth
in Section 3, such Shares will be credited to an account maintained with the
Book-Entry Transfer Facility), as soon as practicable following expiration or
termination of the Offer.
Merger Sub reserves the right to transfer or assign in whole or in part from
time to time to one or more direct or indirect subsidiaries of Parent the right
to purchase all or any portion of the Shares tendered pursuant to the Offer, but
any such transfer or assignment will not relieve Merger Sub of its obligations
under the Offer and will in no way prejudice the rights of tendering
shareholders to receive payment for Shares validly tendered and accepted for
payment pursuant to the Offer.
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3. PROCEDURE FOR TENDERING SHARES.
VALID TENDER. To tender Shares pursuant to the Offer, (a) a properly
completed and duly executed Letter of Transmittal (or a facsimile thereof) in
accordance with the instructions of the Letter of Transmittal, with any required
signature guarantees, certificates for Shares to be tendered, and any other
documents required by the Letter of Transmittal, must be received by the
Depositary prior to the Expiration Date at one of its addresses set forth on the
back cover of this Offer to Purchase, (b) such Shares must be delivered pursuant
to the procedures for book-entry transfer described below (and a Book-Entry
Confirmation of such delivery received by the Depositary, including an Agent's
Message if the tendering shareholder has not delivered a Letter of Transmittal),
prior to the Expiration Date, or (c) the tendering shareholder must comply with
the guaranteed delivery procedures set forth below. The term "Agent's Message"
means a message transmitted by the Book-Entry Transfer Facility to, and received
by, the Depositary and forming a part of a Book-Entry Confirmation, which states
that the Book-Entry Transfer Facility has received an express acknowledgment
from the participant in the Book-Entry Transfer Facility tendering the Shares
which are the subject of such Book-Entry Confirmation, that such participant has
received and agrees to be bound by the terms of the Letter of Transmittal and
that Merger Sub may enforce such agreement against the participant.
Pursuant to the Rights Agreement, until the close of business on the
Distribution Date, the Rights will be transferred with and only with the
certificates for Common Stock and the surrender for transfer of any certificates
for Common Stock will also constitute the transfer of the Rights associated with
the Common Stock represented by such certificates. Pursuant to the Rights
Amendment, no Distribution Date will occur by reason of the commencement of the
Offer or the consummation of the Merger or the other transactions contemplated
by the Merger Agreement.
If separate certificates representing the Rights are issued to holders of
Common Stock prior to the time a holder's Shares are tendered pursuant to the
Offer, certificates representing a number of Rights equal to the number of
shares of Common Stock tendered must be delivered to the Depositary, or, if
available, a Book-Entry Confirmation received by the Depositary with respect
thereto, in order for such shares of Common Stock to be validly tendered. If the
Distribution Date occurs and separate certificates representing the Rights are
not distributed prior to the time shares of Common Stock are tendered pursuant
to the Offer, Rights may be tendered prior to a shareholder receiving the
certificates for Rights by use of the guaranteed delivery procedure described
below. A tender of shares of Common Stock constitutes an agreement by the
tendering shareholder to deliver certificates representing all Rights formerly
associated with the number of shares of Common Stock tendered pursuant to the
Offer to the Depositary prior to expiration of the period permitted by such
guaranteed delivery procedures for delivery of certificates for, or a Book-Entry
Confirmation with respect to, Rights (the "Rights Delivery Period"). However,
after expiration of the Rights Delivery Period, Merger Sub may elect to reject
as invalid a tender of shares of Common Stock with respect to which certificates
for, or a Book-Entry Confirmation with respect to, the number of Rights required
to be tendered with such Common Stock have not been received by the Depositary.
Nevertheless, Merger Sub will be entitled to accept for payment shares of Common
Stock tendered by a shareholder prior to receipt of the certificates for the
Rights required to be tendered with such shares of Common Stock, or a Book-Entry
Confirmation with respect to such Rights, and either (a) subject to complying
with applicable rules and regulations of the SEC, withhold payment for such
shares of Common Stock pending receipt of the certificates for, or a Book-Entry
Confirmation with respect to, such Rights or (b) make payment for shares of
Common Stock accepted for payment pending receipt of the certificates for, or a
Book-Entry Confirmation with respect to, such Rights in reliance upon the
agreement of a tendering shareholder to deliver Rights and such guaranteed
delivery procedures. Any determination by Merger Sub to make payment for shares
of Common Stock in reliance upon such agreement and such guaranteed delivery
procedures or, after expiration of the Rights Delivery Period, to reject a
tender as invalid will be made in the sole and absolute discretion of Merger
Sub.
BOOK-ENTRY DELIVERY. The Depositary will establish an account with respect
to the Shares at the Book-Entry Transfer Facility for purposes of the Offer
within two business days after the date of this Offer to
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Purchase. Any financial institution that is a participant in the Book-Entry
Transfer Facility's system may make book-entry transfer of Shares by causing the
Book-Entry Transfer Facility to transfer such Shares into the Depositary's
account in accordance with the Book-Entry Transfer Facility's procedures for
such transfer. However, although delivery of Shares may be effected through
book-entry transfer, either the Letter of Transmittal (or facsimile thereof),
properly completed and duly executed, together with any required signature
guarantees, or an Agent's Message in lieu of the Letter of Transmittal, and any
other required documents, must, in any case, be transmitted to and received by
the Depositary at one of its addresses set forth on the back cover of this Offer
to Purchase by the Expiration Date, or the tendering shareholder must comply
with the guaranteed delivery procedures described below. If the Distribution
Date occurs, the Depositary will also make a request to establish an account
with respect to the Rights at the Book-Entry Transfer Facility, but no assurance
can be given that book-entry transfer of Rights will be available. If book-entry
transfer of Rights is available, the foregoing book-entry transfer procedures
will also apply to Rights. If book-entry transfer of Rights is not available and
the Distribution Date occurs, a tendering shareholder will be required to tender
Rights by means of physical delivery of certificates for Rights to the
Depositary (in which event references in this Offer to Purchase to Book-Entry
Confirmations with respect to Rights will be inapplicable). The confirmation of
a book-entry transfer of Shares or Rights into the Depositary's account at the
Book-Entry Transfer Facility as described above is referred to herein as a
"Book-Entry Confirmation." DELIVERY OF DOCUMENTS TO THE BOOK-ENTRY TRANSFER
FACILITY IN ACCORDANCE WITH THE BOOK-ENTRY TRANSFER FACILITY'S PROCEDURES DOES
NOT CONSTITUTE DELIVERY TO THE DEPOSITARY.
THE METHOD OF DELIVERY OF SHARES, RIGHTS, THE LETTER OF TRANSMITTAL AND ALL
OTHER REQUIRED DOCUMENTS, INCLUDING DELIVERY THROUGH THE BOOK-ENTRY TRANSFER
FACILITY, IS AT THE ELECTION AND RISK OF THE TENDERING SHAREHOLDER. SHARES WILL
BE DEEMED DELIVERED ONLY WHEN ACTUALLY RECEIVED BY THE DEPOSITARY (INCLUDING, IN
THE CASE OF A BOOK-ENTRY TRANSFER, BY BOOK-ENTRY CONFIRMATION). IF DELIVERY IS
BY MAIL, IT IS RECOMMENDED THAT THE SHAREHOLDER USE PROPERLY INSURED REGISTERED
MAIL WITH RETURN RECEIPT REQUESTED. IN ALL CASES, SUFFICIENT TIME SHOULD BE
ALLOWED TO ENSURE TIMELY DELIVERY.
SIGNATURE GUARANTEES. Except as otherwise provided below, all signatures on
a Letter of Transmittal must be guaranteed by a financial institution (including
most commercial banks, savings and loan associations and brokerage houses) that
is a participant in the Security Transfer Agents Medallion Program, the New York
Stock Exchange Medallion Signature Guarantee Program or the Stock Exchange
Medallion Program (each, an "Eligible Institution"). Signatures on a Letter of
Transmittal need not be guaranteed (a) if the Letter of Transmittal is signed by
the registered holders (which term, for purposes of this section, includes any
participant in the Book-Entry Transfer Facility's system whose name appears on a
security position listing as the owner of the Shares or Rights) of Shares and
Rights tendered therewith and such registered holder has not completed the box
entitled "Special Payment Instructions" or the box entitled "Special Delivery
Instructions" on the Letter of Transmittal or (b) if such Shares and Rights are
tendered for the account of an Eligible Institution. See Instructions 1 and 5 of
the Letter of Transmittal. If the certificates for Shares or Rights are
registered in the name of a person other than the signer of the Letter of
Transmittal, or if payment is to be made or certificates for Shares or Rights
not tendered or not accepted for payment are to be returned to a person other
than the registered holder of the certificates surrendered, then the tendered
certificates must be endorsed or accompanied by appropriate stock powers, in
either case signed exactly as the name or names of the registered holders or
owners appear on the certificates, with the signatures on the certificates or
stock powers guaranteed as described above. See Instructions 1 and 5 of the
Letter of Transmittal.
GUARANTEED DELIVERY. A shareholder who desires to tender Shares (or Rights,
if applicable) pursuant to the Offer and whose certificates for Shares (or
Rights, if applicable) are not immediately available (including because
certificates for Rights have not yet been distributed by the Rights Agent), or
who cannot comply with the procedure for book-entry transfer on a timely basis,
or who cannot deliver all
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required documents to the Depositary prior to the Expiration Date, may tender
such Shares (and/or Rights, if applicable) by following all of the procedures
set forth below:
(i) such tender is made by or through an Eligible Institution;
(ii) a properly completed and duly executed Notice of Guaranteed
Delivery, substantially in the form provided by Merger Sub, is received by
the Depositary, as provided below, prior to the Expiration Date; and
(iii) the certificates for all tendered Shares and/or Rights, in proper
form for transfer (or a Book-Entry Confirmation with respect to all such
Shares and/or Rights), together with a properly completed and duly executed
Letter of Transmittal (or facsimile thereof), with any required signature
guarantees (or, in the case of a book-entry transfer, an Agent's Message in
lieu of the Letter of Transmittal), and any other required documents, are
received by the Depositary within (a) in the case of Shares, three trading
days after the date of execution of such Notice of Guaranteed Delivery or
(b) in the case of Rights, a period ending on the later of (1) three trading
days after the date of execution of such Notice of Guaranteed Delivery or
(2) three trading days after the date certificates for Rights are
distributed to shareholders by the Rights Agent. A "trading day" is any day
on which the New York Stock Exchange, Inc. (the "NYSE") is open for
business.
The Notice of Guaranteed Delivery may be delivered by hand to the Depositary
or transmitted by facsimile transmission or mail to the Depositary and must
include a guarantee by an Eligible Institution in the form set forth in such
Notice of Guaranteed Delivery.
OTHER REQUIREMENTS. Notwithstanding any provision hereof, payment for
Shares accepted for payment pursuant to the Offer will in all cases be made only
after timely receipt by the Depositary of (a) certificates for (or a timely
Book-Entry Confirmation with respect to) such Shares and, if the Distribution
Date occurs, certificates for (or a timely Book-Entry Confirmation, if
available, with respect to) the associated Rights (unless Merger Sub elects to
make payment for such Shares pending receipt of the certificates for, or a
Book-Entry Confirmation with respect to, such Rights as described above), (b) a
Letter of Transmittal (or facsimile thereof), properly completed and duly
executed, with any required signature guarantees (or, in the case of a
book-entry transfer, an Agent's Message in lieu of the Letter of Transmittal)
and (c) any other documents required by the Letter of Transmittal. Accordingly,
tendering shareholders may be paid at different times depending upon when
certificates for Shares (or Rights) or Book-Entry Confirmations with respect to
Shares (or Rights, if available) are actually received by the Depositary. UNDER
NO CIRCUMSTANCES WILL INTEREST ON THE PURCHASE PRICE OF THE SHARES BE PAID BY
MERGER SUB, REGARDLESS OF ANY EXTENSION OF THE OFFER OR ANY DELAY IN MAKING SUCH
PAYMENT.
TENDER CONSTITUTES AN AGREEMENT. The valid tender of Shares and, if
applicable, Rights pursuant to one of the procedures described above will
constitute a binding agreement between the tendering shareholder and Merger Sub
upon the terms and subject to the conditions of the Offer.
APPOINTMENT. By executing a Letter of Transmittal as set forth above
(including through delivery of an Agent's Message), the tendering shareholder
irrevocably appoints designees of Merger Sub as such shareholder's
attorneys-in-fact and proxies, each with full power of substitution, to the full
extent of such shareholder's rights with respect to the Shares tendered by such
shareholder and accepted for payment by Merger Sub and with respect to any and
all other Shares or other securities issued or issuable in respect of such
Shares on or after July 29, 1998. All such proxies will be considered coupled
with an interest in the tendered Shares and Rights. Such appointment is
effective when, and only to the extent that, Merger Sub deposits the payment for
such Shares with the Depositary. Upon the effectiveness of such appointment, all
prior powers of attorney, proxies and consents given by such shareholder will be
revoked, and no subsequent powers of attorney, proxies and consents may be given
(and, if given, will not be deemed effective). Merger Sub's designees will, with
respect to the Shares for which the appointment is effective, be empowered to
exercise all voting and other rights of such shareholder as they, in their sole
discretion, may deem proper at any annual, special or adjourned meeting of the
shareholders of the Company, by written consent in lieu of any such meeting or
otherwise. Merger Sub reserves the right to require that, in
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order for Shares to be deemed validly tendered, immediately upon Merger Sub's
payment for such Shares, Merger Sub must be able to exercise full voting rights
with respect to such Shares.
DETERMINATION OF VALIDITY. All questions as to the validity, form,
eligibility (including time of receipt) and acceptance of any tender of Shares
or Rights will be determined by Merger Sub in its sole discretion, which
determination will be final and binding. Merger Sub reserves the absolute right
to reject any and all tenders determined by it not to be in proper form or the
acceptance for payment of or payment for which may, in the opinion of Merger
Sub's counsel, be unlawful. Merger Sub also reserves the absolute right to waive
any defect or irregularity in the tender of any Shares or Rights of any
particular shareholder whether or not similar defects or irregularities are
waived in the case of other shareholders. No tender of Shares or Rights will be
deemed to have been validly made until all defects and irregularities relating
thereto have been cured or waived. None of Merger Sub, the Depositary, the
Information Agent, the Dealer Manager or any other person will be under any duty
to give notification of any defects or irregularities in tenders or incur any
liability for failure to give any such notification. Merger Sub's interpretation
of the terms and conditions of the Offer (including the Letter of Transmittal
and instructions thereto) will be final and binding.
BACKUP WITHHOLDING. In order to avoid "backup withholding" of federal
income tax on payments of cash pursuant to the Offer, a shareholder surrendering
Shares in the Offer must, unless an exemption applies, provide the Depositary
with such shareholder's correct taxpayer identification number ("TIN") on a
Substitute Form W-9 and certify under penalties of perjury that such TIN is
correct and that such shareholder is not subject to backup withholding. If a
shareholder does not provide such shareholder's correct TIN or fails to provide
the certifications described above, the Internal Revenue Service (the "IRS") may
impose a penalty on such shareholder and payment of cash to such shareholder
pursuant to the Offer may be subject to backup withholding of 31%. All
shareholders surrendering Shares pursuant to the Offer should complete and sign
the main signature form and the Substitute Form W-9 included as part of the
Letter of Transmittal to provide the information and certification necessary to
avoid backup withholding (unless an applicable exemption exists and is proved in
a manner satisfactory to Merger Sub and the Depositary). Certain shareholders
(including, among others, all corporations and certain foreign individuals and
entities) are not subject to backup withholding. Non-corporate foreign
shareholders should complete and sign the main signature form and a Form W-8,
Certificate of Foreign Status, a copy of which may be obtained from the
Depositary, in order to avoid backup withholding. See Instruction 9 to the
Letter of Transmittal.
4. RIGHTS OF WITHDRAWAL.
Tenders of Shares made pursuant to the Offer are irrevocable except that
Shares tendered pursuant to the Offer may be withdrawn at any time prior to the
Expiration Date and, unless theretofore accepted for payment by Merger Sub
pursuant to the Offer, may also be withdrawn at any time after October 2, 1998.
For a withdrawal to be effective, a written or facsimile transmission notice
of withdrawal must be timely received by the Depositary at one of its addresses
set forth on the back cover of this Offer to Purchase. Any such notice of
withdrawal must specify the name of the person having tendered the Shares to be
withdrawn, the number of Shares to be withdrawn and the names in which the
certificate(s) evidencing the Shares to be withdrawn are registered, if
different from that of the person who tendered such Shares. The signature(s) on
the notice of withdrawal must be guaranteed by an Eligible Institution, unless
such Shares have been tendered for the account of any Eligible Institution. If
Shares have been tendered pursuant to the procedures for book-entry transfer as
set forth in Section 3, any notice of withdrawal must specify the name and
number of the account at the Book-Entry Transfer Facility to be credited with
the withdrawn Shares and otherwise comply with the Book-Entry Transfer
Facility's procedures. If certificates for Shares to be withdrawn have been
delivered or otherwise identified to the Depositary, the name of the registered
holder and the serial numbers of the particular certificates evidencing the
Shares to be withdrawn must also be furnished to the Depositary as aforesaid
prior to the physical release of such certificates. All questions as to the form
and validity (including time of receipt) of any notice of withdrawal will be
determined by Merger Sub, in its sole discretion, which determination
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shall be final and binding. None of Merger Sub, Parent, the Dealer Manager, the
Depositary, the Information Agent or any other person will be under any duty to
give notification of any defects or irregularities in any notice of withdrawal
or incur any liability for failure to give such notification. Withdrawals of
tender for Shares may not be rescinded, and any Shares properly withdrawn will
be deemed not to have been validly tendered for purposes of the Offer. However,
withdrawn Shares may be retendered by following one of the procedures described
in Section 3 at any time prior to the Expiration Date.
If Merger Sub extends the Offer, is delayed in its acceptance for payment of
Shares, or is unable to accept for payment Shares pursuant to the Offer, for any
reason, then, without prejudice to Merger Sub's rights under this Offer, the
Depositary may, nevertheless, on behalf of Merger Sub, retain tendered Shares,
and such Shares may not be withdrawn except to the extent that tendering
shareholders are entitled to withdrawal rights as set forth in this Section 4.
5. CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF THE OFFER.
Sales of Shares pursuant to the Offer and the exchange of Shares for cash
pursuant to the Merger will be taxable transactions for federal income tax
purposes and may also be taxable transactions under applicable state, local,
foreign and other tax laws. The tax consequences of the receipt of cash in
exchange for Shares pursuant to the Offer or the Merger may vary depending on,
among other things, the particular circumstances of a shareholder. For federal
income tax purposes, a shareholder whose Shares are purchased pursuant to the
Offer or who receives cash as a result of the Merger generally will recognize
gain or loss equal to the difference between the adjusted basis of the Shares
sold or exchanged and the amount of cash received therefor. Such gain or loss
will be capital gain or loss if the Shares are held as capital assets by the
shareholder and will be long-term capital gain or loss if the shareholder's
holding period in such Shares for federal income tax purposes is more than one
year at the time of the sale or exchange. Long-term capital gain recognized by a
non-corporate shareholder is generally subject to tax at a maximum rate of 20%.
In addition, a shareholder's ability to use capital losses to offset ordinary
income is limited.
To the extent that the Company or any of its subsidiaries owns or leases
real property in the State of Washington, certain transfer taxes may apply to
the sale or exchange of Shares by a shareholder pursuant to the Offer and the
Merger. Although Merger Sub will pay any such taxes on behalf of the
shareholders, such payment may be treated as additional consideration paid for
the Shares. In such case, the amount of such additional consideration would be
offset by treatment of the tax as an additional selling expense incurred by the
shareholder. Accordingly, the payment of such taxes by Merger Sub should have no
effect on the amount of gain or loss recognized by a shareholder.
A shareholder that tenders Shares pursuant to the Offer or Merger may be
subject to backup withholding at a rate of 31% unless such shareholder provides
a TIN and certifies under penalties of perjury that such TIN is correct or
properly certifies that such shareholder is awaiting a TIN, or unless an
exemption applies. See "Backup Withholding" under Section 3 hereof and
Instruction 9 in the Letter of Transmittal.
THE INCOME TAX DISCUSSION SET FORTH ABOVE IS INCLUDED FOR GENERAL
INFORMATION ONLY AND MAY NOT BE APPLICABLE TO SHAREHOLDERS IN SPECIAL SITUATIONS
SUCH AS SHAREHOLDERS WHO RECEIVED THEIR SHARES UPON THE EXERCISE OF EMPLOYEE
STOCK OPTIONS OR OTHERWISE AS COMPENSATION AND SHAREHOLDERS WHO ARE NOT UNITED
STATES PERSONS. SHAREHOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS WITH RESPECT
TO THE SPECIFIC TAX CONSEQUENCES TO THEM, IN THEIR PARTICULAR CIRCUMSTANCES, OF
THE OFFER AND THE MERGER, INCLUDING THE APPLICATION AND EFFECT OF FEDERAL,
STATE, LOCAL, FOREIGN OR OTHER TAX LAWS.
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6. PRICE RANGE OF SHARES; DIVIDENDS.
The Shares are traded on the Nasdaq Stock Market's National Market (the
"Nasdaq National Market") under the symbol "ATLI". The following table sets
forth, for the calendar quarters indicated, the high and low sales prices for
the Shares on the Nasdaq National Market, based upon public sources:
<TABLE>
<CAPTION>
SALES PRICE
--------------------
<S> <C> <C>
HIGH LOW
--------- ---------
Calendar Year
1996:
First Quarter............................................................ $ 31.50 $ 20.50
Second Quarter........................................................... 41.25 26.50
Third Quarter............................................................ 38.50 25.25
Fourth Quarter........................................................... 33.25 25.00
1997:
First Quarter............................................................ 37.00 28.75
Second Quarter........................................................... 45.25 27.00
Third Quarter............................................................ 47.88 33.75
Fourth Quarter........................................................... 48.13 39.44
1998:
First Quarter............................................................ 51.50 35.13
Second Quarter........................................................... 51.13 42.25
Third Quarter (through August 3, 1998)................................... 51.00 41.63
</TABLE>
The Rights trade together with the Common Stock. On July 28, 1998, the last
full trading day prior to the public announcement of the terms of the Offer and
the Merger, the reported closing price on the Nasdaq National Market was $42.06
per Share. On August 3, 1998, the last full trading day prior to commencement of
the Offer, the reported closing price on the Nasdaq National Market was $50.13
per Share. SHAREHOLDERS ARE URGED TO OBTAIN A CURRENT MARKET QUOTATION FOR THE
SHARES.
Merger Sub has been advised by the Company that the Company did not pay
dividends on its Shares during the years ended December 31, 1997 or 1996 and has
not paid any dividends in 1998. The Merger Agreement prohibits the Company from
declaring or paying any dividends until the effectiveness of the Merger.
7. EFFECT OF THE OFFER ON THE MARKET FOR THE SHARES; STOCK QUOTATION, MARGIN
REGULATIONS AND EXCHANGE ACT REGISTRATION.
MARKET FOR SHARES. The purchase of Shares by Merger Sub pursuant to the
Offer will reduce the number of Shares that might otherwise trade publicly and
may reduce the number of holders of Shares, which could adversely affect the
liquidity and market value of the remaining Shares held by the public.
STOCK QUOTATION. The Shares are traded on the Nasdaq National Market.
According to published guidelines of the Nasdaq National Market, the Shares
might no longer be eligible for quotation on the Nasdaq National Market if,
among other things, either (i) the number of Shares publicly held was less than
750,000, there were fewer than 400 holders of round lots, the aggregate market
value of publicly held Shares was less than $5,000,000, net tangible assets was
less than $4,000,000 and there were fewer than two registered and active market
makers for the Shares, or (ii) the number of Shares publicly held was less than
1,100,000, there were fewer than 400 holders of round lots, the aggregate market
value of publicly held Shares was less than $15,000,000, and either (x) the
Company's market capitalization was less than $50,000,000 or (y) the total
assets and total revenue of the Company for the most recently completed fiscal
year or two of the last three most recently completed fiscal years did not
exceed $50,000,000 and there were fewer than four registered and active market
makers. Shares held directly or indirectly by directors, officers or beneficial
owners of more than 10% of the Shares are not considered as being publicly held
for this purpose. According to the Company, as of July 31, 1998, there were
7,087 holders of record of Shares (not including beneficial holders of Shares in
street name), and as of July 31, 1998, there were 14,789,665
10
<PAGE>
Shares outstanding. If the Common Stock were to be delisted, the associated
Rights would be delisted as well.
If the Shares were to cease to be quoted on the Nasdaq National Market, the
market for the Shares could be therefor adversely affected. It is possible that
the Shares would be traded or quoted on other securities exchanges or in the
over-the-counter market, and that price quotations would be reported by such
exchanges, or through Nasdaq or other sources. The extent of the public market
for the shares of Common Stock and associated Rights and the availability of
such quotations would, however, depend upon the number of shareholders and/or
the aggregate market value of the shares of Common Stock and associated Rights
remaining at such time, the interest in maintaining a market in the shares of
Common Stock and associated Rights on the part of securities firms, the possible
termination of registration of the Shares under the Exchange Act and other
factors.
MARGIN REGULATIONS. The shares of Common Stock are presently "margin
securities" under the regulations of the Board of Governors of the Federal
Reserve Board (the "Federal Reserve Board"), which has the effect, among other
things, of allowing brokers to extend credit on the collateral of such shares of
Common Stock. Depending upon factors similar to those described above regarding
listing and market quotations, the shares of Common Stock might no longer
constitute "margin securities" for the purposes of the Federal Reserve Board's
margin regulations in which event the shares of Common Stock would be ineligible
as collateral for margin loans made by brokers.
EXCHANGE ACT REGISTRATION. The Shares are currently registered under the
Exchange Act. Such registration may be terminated by the Company upon
application to the SEC if the outstanding Shares are not listed on a national
securities exchange and if there are fewer than 300 holders of record of Shares.
Termination of registration of the Shares under the Exchange Act would reduce
the information required to be furnished by the Company to its shareholders and
to the SEC and would make certain provisions of the Exchange Act, such as the
short-swing profit recovery provisions of Section 16(b) and the requirement to
furnish a proxy statement in connection with shareholders' meetings pursuant to
Section 14(a) and the related requirement to furnish an annual report to
shareholders, no longer applicable with respect to the Shares. Furthermore, the
ability of "affiliates" of the Company and persons holding "restricted
securities" of the Company to dispose of such securities pursuant to Rule 144
under the Securities Act of 1933, as amended, may be impaired or eliminated. If
registration of the Shares under the Exchange Act were terminated, the Shares
would no longer be eligible for Nasdaq reporting or for continued inclusion on
the Federal Reserve Board's list of "margin securities." Merger Sub intends to
seek to cause the Company to apply for termination of registration of the Shares
as soon as possible after consummation of the Offer if the requirements for
termination of registration are met.
8. CERTAIN INFORMATION CONCERNING THE COMPANY.
The Company is a Washington corporation with its principal executive offices
located at 22100 Bothell-Everett Highway, Bothell, Washington. The Company has
described its business in publicly available information in the manner set forth
below.
The Company is engaged in the high-technology medical systems business. The
Company develops, manufactures, markets and services diagnostic medical
ultrasound systems and related accessories and supplies worldwide. The Company
currently operates through 14 international affiliates and through approximately
60 local distributors worldwide.
Set forth below is certain summary consolidated financial information for
each of the Company's last three fiscal years for the period ended December 31,
1997 as contained in the Company's 1997 Annual Report on Form 10-K (the "Form
10-K") and for the six months ended June 27, 1997 and July 3, 1998 as contained
in a press release issued by the Company on July 29, 1998. More comprehensive
financial information is included in the Form 10-K (including management's
discussion and analysis of financial condition and results of operation) and
other documents filed by the Company with the SEC, and the following summary is
qualified in its entirety by reference to such reports and other documents and
all of the financial information and notes contained therein. Copies of such
reports and other documents may be examined at or obtained from the SEC and
Nasdaq in the manner set forth below.
11
<PAGE>
ATL ULTRASOUND, INC.
SELECTED CONSOLIDATED FINANCIAL INFORMATION
(In thousands, except per share data)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
SIX MONTHS ENDED DECEMBER 31,
---------------------- ----------------------------------
<S> <C> <C> <C> <C> <C>
JUNE 27, JULY 3,
1997 1998 1995 1996 1997
---------- ---------- ---------- ---------- ----------
OPERATING DATA:
Revenues........................................... $ 200,926 $ 217,128 $ 399,446 $ 419,157 $ 431,244
Gross profit....................................... 97,206 109,210 184,525 204,982 213,819
Income (loss) before income taxes.................. 5,751 9,471 14,488 (2,574) 25,893
Net income (loss).................................. 4,601 7,633 12,002 (828) 21,171
Net income (loss) per share (on a fully diluted
basis)........................................... 0.31 0.50 0.88 (0.06) 1.41
Weighted average shares outstanding (on a fully
diluted basis)................................... 14,864 15,230 13,574 13,900 14,970
FINANCIAL POSITION:
Total assets....................................... $ 376,833 $ 365,884 $ 353,448 $ 380,201 $ 361,810
Working capital.................................... 171,189 173,921 161,581 166,294 182,804
Long-term debt..................................... 12,532 28,778 14,837 12,936 12,307
Stockholders' equity............................... 212,682 210,709 210,293 211,250 229,721
</TABLE>
Except as otherwise set forth herein, the information concerning the Company
contained in this Offer to Purchase has been taken from or based upon publicly
available documents and records on file with the SEC and other public sources
and is qualified in its entirety by reference thereto. Although Parent, Merger
Sub, the Information Agent and the Dealer Manager have no knowledge that would
indicate that any statements contained herein based on such documents and
records are untrue, Parent, Merger Sub, the Information Agent and the Dealer
Manager cannot take responsibility for the accuracy or completeness of the
information contained in such documents and records, or for any failure by the
Company to disclose events which may have occurred or may affect the
significance or accuracy of any such information but which are unknown to
Parent, Merger Sub, the Information Agent or the Dealer Manager.
In the course of the discussions between Company management, Merger Sub and
Parent, Merger Sub and Parent were provided with certain nonpublic financial
information and projections prepared by Company management showing revenues
increasing to $685.6 million, net income increasing to $72.8 million, earnings
per share increasing to $4.26 and total assets increasing to $617.8 million, in
each case, as of, or for the year ended, December 31, 2002.
The Company has advised Merger Sub that (i) it does not, as a matter of
course, make public forecasts as to future revenues or profits and (ii) the
foregoing projections were based on estimates and assumptions that are
inherently subject to significant economic and competitive uncertainties, all of
which are difficult to predict and many of which are beyond the Company's
control. Accordingly, there can be no assurance that the projected results can
be realized or that actual results will not be materially higher or lower than
those projected. The projections were not prepared with a view to public
disclosure or compliance with the published guidelines of the SEC or the
guidelines established by the American Institute of Certified Public Accountants
regarding projections or forecasts. None of the Company, Parent, Merger Sub or
their respective advisors assumes any responsibility for the accuracy of the
projections. The inclusion of the foregoing projections should not be regarded
as an indication that the Company, Parent, Merger Sub or any other person who
received such information considers it an accurate prediction of future events.
None of the Company, Parent or Merger Sub intends to update, revise or correct
such projections if they become inaccurate (even in the short term).
Parent and Merger Sub have identified the following important factors that
could cause the Company's actual results to differ materially from the foregoing
projections: (i) the sluggishness of the
12
<PAGE>
ultrasound market in some European countries and the turbulent economic
conditions in certain Asian markets; (ii) the increase of worldwide competition
in the ultrasound market, and the introduction by most of the Company's
competitors of new ultrasound products over the past two years; and (iii)
unanticipated events, such as delays in the Company's product development and
cost reduction programs, the unavailability of components critical to the
Company's products due to natural disasters, change in vendor business or
otherwise, a stronger U.S. dollar, delays in receiving necessary regulatory
approvals, and other unforeseen events, all of which could adversely impact the
Company's financial results.
AVAILABLE INFORMATION. The Company is subject to the information and
reporting requirements of the Exchange Act and in accordance therewith is
obligated to file reports and other information with the SEC relating to its
business, financial condition and other matters. Information, as of particular
dates, concerning the Company's directors and officers, their remuneration,
stock options granted to them, the principal holders of the Company's
securities, any material interests of such persons in transactions with the
Company and other matters is required to be disclosed in proxy statements
distributed to the Company's shareholders and filed with the SEC. Such reports,
proxy statements and other information should be available for inspection at the
public reference room at the SEC's offices at 450 Fifth Street, N.W.,
Washington, D.C., 20549 and also should be available for inspection and copying
at the regional offices of the SEC located at Seven World Trade Center, 13th
Floor, New York, New York 10048 and Citicorp Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60611. Copies may be obtained, by mail, upon
payment of the SEC's customary charges, by writing to its principal office at
450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549 and can be
obtained electronically on the SEC's Website at http://www.sec.gov.
9. CERTAIN INFORMATION CONCERNING MERGER SUB, PARENT AND ROYAL PHILIPS
Merger Sub is a Washington corporation and to date has engaged in no
activities other than those incident to its formation and the commencement of
the Offer. Merger Sub is a wholly owned subsidiary of Parent. The principal
offices of Merger Sub are located at 1251 Avenue of the Americas, New York, New
York 10020.
Parent is a Delaware corporation and an indirect wholly-owned subsidiary of
Royal Philips. Parent's principal offices are located at 1251 Avenue of the
Americas, New York, New York 10020. Parent's activities vary from integrated
manufacturing and marketing entities to marketing organizations that sell
products imported from Royal Philips and its affiliates or third parties. Based
upon sales, Parent's largest businesses are consumer electronics, lighting,
semiconductors and components.
Philips Holding USA Inc. ("Holding") is a Delaware corporation and a wholly
owned subsidiary of Royal Philips. Holding's principal offices are located at
1251 Avenue of the Americas, New York, New York 10020. Holding does not engage
in any activities other than those incident to its role as a holding company of
Royal Philips.
Royal Philips is a company incorporated under the laws of The Netherlands
and is the parent company of the Royal Philips group. Royal Philip's principal
executive offices are located at Rembrandt Tower, Amstelplein 1, 1096 HA
Amsterdam, The Netherlands. The activities of the Royal Philips group are
organized in product divisions which are responsible for Royal Philips'
worldwide business policy. Royal Philips has manufacturing and sales
organizations in over 60 countries. Royal Philips delivers products, systems and
services in the fields of lighting, consumer electronics and communications,
music and film, domestic appliances and personal care, components,
semiconductors, medical systems, business electronics and information
technology.
AVAILABLE INFORMATION. Additional information concerning Royal Philips is
set forth in Royal Philips' Annual Report on Form 20-F (the "Philips Form 20-F")
for the fiscal year ended December 31, 1997, a copy of which may be obtained
from the SEC in the manner set forth with respect to information concerning the
Company in Section 8.
13
<PAGE>
Set forth below is certain summary consolidated financial information of
Royal Philips. More comprehensive financial information is included in the
Philips Form 20-F (including management's discussion and analysis of financial
condition and results of operation) and other documents filed by Royal Philips
with the SEC, and the following summary is qualified in its entirety by
reference to the Philips Form 20-F and such other documents and all of the
financial information and notes contained therein. Copies of such other
documents may be examined at or obtained from the SEC in the manner set forth
above.
KONINKLIJKE PHILIPS ELECTRONICS N.V.
SELECTED CONSOLIDATED FINANCIAL INFORMATION
(IN MILLIONS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
DECEMBER 31,
------------------------------------------------------
<S> <C> <C> <C> <C>
1995 1996 1997 1997(A)
NLG NLG NLG US$
------------- ------------- ------------- ---------
OPERATING DATA:
(Dutch GAAP)
Sales................................................... 64,462 69,195 76,453 37,702
Gross income............................................ 16,629 15,834 18,894 9,317
Income before income taxes.............................. 3,354 914 4,240 2,091
Net income (loss)....................................... 2,518 (590) 5,733 2,827
Diluted earnings (loss) per common share................ 7.13 (1.73) 16.09 7.93
Adjusted weighted average shares outstanding............ 354,363,701 351,350,370 356,341,909
(US GAAP)
Net income (loss)....................................... 2,343 (866) 5,881 2,900
Diluted earnings (loss) per common share................ 6.63 (2.53) 16.78 8.27
FINANCIAL POSITION:
(Dutch GAAP)
Total assets............................................ 52,242 55,072 59,441 29,313
Total current liabilities............................... 23,256 25,036 23,986 11,829
Long-term debt.......................................... 12,808 14,368 13,598 6,706
Other group equity...................................... 2,123 1,712 2,400 1,184
Stockholders' equity.................................... 14,055 13,956 19,457 9,595
(US GAAP)
Total assets............................................ 53,003 55,587 59,991 29,584
Stockholders' equity.................................... 15,437 15,003 20,735 10,225
</TABLE>
- ------------------------
(a) Dutch Guilders (NLG) are translated into U.S. Dollars ($) at a rate of
2.0278 NLG = $1.0000, the Noon Buying Rate of the Federal Reserve Bank of
New York on December 31, 1997. The presentation of the U.S. Dollar amounts
should not be construed as a representation that the Dutch Guilder amounts
could be so converted into U.S. Dollars at the rate indicated or at any
other rate.
Royal Philips' financial statements are prepared in accordance with
generally accepted accounting principles in The Netherlands ("Dutch GAAP"),
which differ in certain significant respects from generally accepted accounting
principles in the U.S. ("US GAAP"). Royal Philips, however, believes that the
differences between Dutch GAAP and US GAAP are not material to a decision by a
holder of Shares whether to sell, tender or hold the Shares. To determine net
income and stockholders' equity in accordance with US GAAP, Royal Philips has
applied the following accounting principles:
14
<PAGE>
Under Dutch GAAP, goodwill arising from acquisitions prior to 1992 was
charged directly to stockholders' equity. According to US GAAP, goodwill
arising from acquisitions, including those prior to 1992, is capitalized and
amortized over its useful life up to a maximum of 40 years.
Under Dutch GAAP, catalogues of recorded music, music publishing rights,
film rights and theatrical rights are written down if and to the extent that
the present value of the expected income generated by the acquired
catalogues falls below their book value. Under US GAAP they are amortized
over a maximum period of 30 years.
Royal Philips reported a charge for the restructuring of Grundig of NLG
302 million in its 1995 financial statements, of which NLG 40 million
related to write-off of assets. This restructuring had not been communicated
to employees until 1996 and, accordingly, was recorded under US GAAP as a
charge of NLG 262 million in 1996. Until 1997 Royal Philips had an
obligation under certain put options given to other shareholders in Grundig.
For the purposes of US GAAP this liability was recorded in 1995, whereas
under Dutch GAAP it was accrued in 1996. In 1997 Royal Philips settled this
obligation.
In 1997 Royal Philips reported a charge to net income of NLG 139 million
relating to a higher accumulated benefit obligation compared to the market
value of the plan assets or existing level of the pension provision in two
of Royal Philips' pension plans. For US GAAP purposes, this amount is
capitalized as an intangible asset for this additional minimum liability.
In July 1995, Royal Philips contributed its net assets of cable networks
with a book value of approximately NLG 200 million to UPC, a newly
established joint venture in which Royal Philips had acquired a 50%
interest. Under Dutch GAAP, this transfer resulted in a gain of NLG 127
million relating to the partial disposal of its interest in these assets to
the joint venture partner (UIH). For the purposes of US GAAP, this gain was
not considered realized because the consideration received by Royal Philips
principally consisted of equity and notes issued by UPC and equity in UIH,
and not cash. In 1997, Royal Philips sold its 50% interest in this joint
venture upon which the gain of NLG 127 million could be recognized under US
GAAP in 1997.
Under Dutch GAAP, majority-owned entities are consolidated. Under US
GAAP, consolidation of majority-owned entities is not permitted if minority
interest holders have the right to participate in operating decisions of the
entity. Although Royal Philips owns 60% of Philips Consumer Communications,
a joint venture with Lucent Technologies, Inc., under US GAAP this joint
venture cannot be consolidated but should be accounted for under the equity
method.
Under Dutch GAAP's historical cost convention, Royal Philips generally
considers the functional currency of entities in a highly inflationary
economy to be the US dollar. Under US GAAP, the functional currency would be
the reporting currency. The difference between the use of the US dollar as
the functional currency instead of the reporting currency is not material.
Under Dutch GAAP, securities available for sale are valued at the lower
of cost or net realizable value. Under US GAAP, they are valued at market
price. A higher market price compared with the book value is credited to
stockholders' equity as an unrealized holding gain.
Under US GAAP, it is not appropriate to record a liability for
dividends/distribution to shareholders subject to approval of the Annual
General Meeting of Shareholders.
According to US GAAP, divestments which cannot be regarded as
discontinued segments of business must be accounted for as income from
continuing operations. Under Dutch GAAP, certain material transactions such
as disposals of lines of activities, including closures of substantial
production facilities or substantial results from disposals of interests in
unconsolidated companies have been accounted for as extraordinary items,
which under US GAAP would be recorded in income from operations.
15
<PAGE>
Statements Royal Philips, Parent and Merger Sub may publish, including those
in this Offer to Purchase, that are not strictly historical are
"forward-looking"' statements. Although Royal Philips, Parent and Merger Sub
believe the expectations reflected in such forward-looking statements are based
on reasonable assumptions, they can give no assurance that their expectations
will be realized. Forward-looking statements involve known and unknown risks
which may cause the actual results and corporate developments of Royal Philips,
Parent and Merger Sub to differ materially from those expected. There are a
number of factors that could cause actual results and developments to differ
materially from those expressed or implied by these forward-looking statements.
These factors include, but are not limited to, levels of consumer and business
spending in major economies, changes in consumer tastes and preferences, the
levels of marketing and promotional expenditures by Royal Philips and its
competitors, raw materials and employee costs, changes in future exchange and
interest rates, changes in tax rates and future business combinations,
acquisitions or dispositions, and the rate of technical changes.
The name, citizenship, business address, present principal occupation, and
material positions held during the past five years of each of the directors and
executive officers of Royal Philips, Holding, Parent and Merger Sub are set
forth in Schedule A to this Offer to Purchase.
Except as set forth in Section 10 and Schedule A, none of Merger Sub,
Parent, Holding or Royal Philips, or, to the best of their knowledge, any of the
persons listed in Schedule A hereto nor any associate or majority-owned
subsidiary of any of the foregoing, beneficially owns or has a right to acquire
any equity securities of the Company. None of Merger Sub, Parent, Holding or
Royal Philips, or, to the best of their knowledge, any of the persons or
entities referred to above, nor any director, executive officer or subsidiary of
any of the foregoing, has effected any transaction in such equity securities
during the past 60 days.
Except as set forth in Sections 10 and 11, none of Merger Sub, Parent,
Holding or Royal Philips, or, to the best of their knowledge, any of the persons
listed in Schedule A hereto, has any contract, arrangement, understanding or
relationship with any other person with respect to any securities of the
Company, including, but not limited to, any contract, arrangement, understanding
or relationship concerning the transfer or the voting of any such securities,
joint ventures, loan or option arrangements, puts or calls, guaranties of loans,
guaranties against loss or the giving or withholding of proxies. Except as set
forth in Sections 10 and 11, there have been no contacts, negotiations or
transactions since January 1, 1995 between Royal Philips, Holding, Parent or
Merger Sub, or, to the best of their knowledge, any of the persons listed in
Schedule A hereto, on the one hand, and the Company or its affiliates, on the
other hand, concerning a merger, consolidation or acquisition, a tender offer or
other acquisition of securities, an election of directors, or a sale or other
transfer of a material amount of assets. Except as described in Sections 10 and
11, none of Merger Sub, Parent, Holding or Royal Philips, or, to the best of
their knowledge, any of the persons listed in Schedule A hereto, has since
January 1, 1995 had any transaction with the Company or any of its executive
officers, directors or affiliates that would require disclosure under the rules
and regulations of the SEC applicable to the Offer.
10. BACKGROUND OF THE OFFER; CONTACTS WITH THE COMPANY; EMPLOYMENT AGREEMENTS
BACKGROUND OF THE OFFER.
In September 1997, Frank Low, an independent consultant who has been
retained from time to time by the Company to advise the Company with respect to
the diagnostic imaging industry, including the review of possible strategic
alliances, called representatives of Royal Philips and Parent (for purposes of
this Item 10, references to Parent or its representatives include Royal Philips
or its representatives) and the Company to explore the possibility of interest
in a strategic transaction between the two companies. On October 8, 1997, Parent
and the Company entered into a confidentiality agreement to govern the exchange
of nonpublic information between them.
In October and November 1997, Castor F. Diaz, Senior Vice President,
Worldwide Sales and Marketing, of the Company and Harvey N. Gillis, then Chief
Financial Officer of the Company, held discussions to exchange information
regarding potential strategic opportunities with representatives of
16
<PAGE>
Parent. In early December 1997, Dennis C. Fill, Chairman and Chief Executive
Officer of the Company, and Jacques Souquet, Senior Vice President, Product
Generation of the Company, met with Henk Bodt, Executive Vice President of Royal
Philips, to further discuss potential synergies of a strategic transaction. In
mid-December 1997, Parent informed Mr. Fill that it had decided that it had no
further interest in an acquisition of the Company.
In June 1998, Mr. Low called Mr. Fill to tell him that Parent had a renewed
interest in a possible acquisition of the Company. Mr. Low forwarded to Mr. Fill
a request he had received from Parent for Mr. Fill to meet with representatives
of Parent. Mr. Fill responded that he would be willing to meet with Parent's
representatives.
On June 22, 1998, Messrs. Fill, Diaz and Souquet met with Mr. Cor Boonstra,
Chief Executive Officer of Royal Philips, and Mr. Jan Hommen, Chief Financial
Officer of Royal Philips, in Parent's New York City offices. Messrs. Boonstra
and Hommen indicated that Parent had reevaluated its diagnostic imaging business
during the Spring and had decided to grow such business, including through
possible acquisitions, and for that reason were interested in recommencing
discussions with the Company about a possible business combination. During the
meeting, representatives of the Company presented a profile of the Company which
had been presented at a recent financial analysts' conference and presented an
overview of the Company's business and technology. Representatives of Parent
presented an overview of Parent's diagnostic imaging business and indicated that
there could be benefits of a combination of the diagnostic imaging businesses of
both companies. During the course of the meeting, Parent's representatives and
Mr. Fill held preliminary discussions regarding valuation and other material
issues concerning a potential acquisition of the Company.
Representatives of Parent stated that any discussions of a possible merger
would have to be facilitated by a due diligence investigation by Parent of the
Company's business. The parties agreed at this meeting to enter into an
exclusivity agreement whereby the Company would discuss the possibility of a
business combination only with Parent during the period from June 22 to July 17,
1998. This agreement was signed the following day.
From June 29 to July 2, 1998, the parties met in Bellevue, Washington to
conduct a due diligence exchange of information. Representatives of Parent and
Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch"), financial
advisor to Parent, led by Mr. Jan van Leeuwen of Royal Philips' mergers and
acquisitions department, met with representatives of the Company, led by Mr.
Fill and including a representative of BT Alex. Brown Incorporated ("BT Alex.
Brown"), financial advisor to the Company. At the conclusion of these meetings,
Parent's representatives announced that they would review the results of the
meetings before proceeding with any further discussions.
On July 8, 1998, Messrs. Fill and Hommen spoke by telephone regarding the
potential valuation of an acquisition of the Company. A few days after such
discussion, Mr. Hommen stated that a further round of due diligence
investigation by Parent was necessary. Mr. Fill said that the Company would
participate with Parent in further due diligence review in meetings on July 15
to July 17 in Seattle, Washington, in which representatives of Parent, led by
Mr. van Leeuwen, and representatives of Merrill Lynch met with the
representatives of the Company who participated in the previous due diligence
meetings. Messrs. Fill and Hommen met in New York City on July 17 and discussed
a number of issues posed by a possible acquisition of the Company. Messrs. Fill
and Hommen agreed to continue these discussions the following week after all
parties gave further consideration to the issues.
On July 20 through July 27, 1998, representatives of the parties and their
financial and legal advisors further discussed valuation and other issues and,
during the same period, the parties' legal advisors negotiated the terms of the
draft Merger Agreement and the employment agreements with the Senior Officers
(as defined below) and the parties engaged in further due diligence exchanges.
At a meeting held on the morning of July 28, 1998, in Seattle, Washington,
the Board of Directors of the Company met to consider the terms of the proposed
acquisition. At such meeting, the Board of
17
<PAGE>
Directors reviewed and discussed the latest terms of the proposed acquisition
and received reports from and asked questions of its management and legal and
financial advisors. During that afternoon, Messrs. Fill and Hommen further
negotiated, and ultimately agreed upon, a price per Share of $50.50 for the
Offer and the Merger and representatives of the parties and their legal advisors
negotiated and agreed upon the other terms of the Merger Agreement and the
employment agreements with the Senior Officers. The Board of Directors of the
Company met again late in the afternoon of July 28, at which time the advisors
described the final terms of the proposed acquisition, the Board of Directors
received an oral opinion (which opinion was subsequently confirmed by delivery
of a written opinion dated July 29, 1998, the date of execution of the Merger
Agreement) from BT Alex. Brown as to the fairness, from a financial point of
view, of the $50.50 per Share cash consideration to the holders of Shares (other
than Parent and its affiliates) and unanimously voted to adopt the Merger
Agreement, to approve the terms of the Offer and the Merger and to recommend to
holders of Shares that they tender their Shares pursuant to the Offer. The
Merger Agreement and the employment agreements with the Senior Officers were
executed and delivered by the parties and the acquisition was publicly announced
in press releases issued on the morning of July 29, 1998, prior to the opening
of the New York stock markets.
EMPLOYMENT AGREEMENTS. Prior to the execution of the Merger Agreement, the
Company and five of its executive officers (the "Senior Officers") were parties
to change in control/severance agreements which provided for, among other
things, the payment of severance amounts and benefits upon certain terminations
of employment in connection with a change in control of the Company. The Senior
Officers have entered into new employment agreements with the Company that are
generally effective as of the Effective Time and that replace the existing
change in control agreements. Copies of the new employment agreements are filed
as Exhibits (g)(1), (g)(2), (g)(3), (g)(4) and (g)(5) hereto and are
incorporated herein by reference and the following summary is qualified in its
entirety by reference to such agreements.
EMPLOYMENT AND CONSULTING AGREEMENT OF MR. FILL. Concurrent with the signing
of the Merger Agreement, Mr. Fill entered into an employment and consulting
agreement ("Fill's Agreement") with the Company in substitution of his present
agreement. The period of employment during which salary and benefits shall be
provided (the "Fill Period of Employment") will begin at the Effective Time and
will end on December 31, 1998. Pursuant to Fill's Agreement, he will serve as
the President and Chief Executive Officer of the Company at an annual salary of
$675,000 and will receive a bonus of $675,000 on or about January 1, 1999.
Immediately following the expiration of the Fill Period of Employment, Mr.
Fill will retire from the Company and serve as a consultant for five additional
years (the "Fill Consulting Period") (the Fill Period of Employment and the Fill
Consulting Period collectively referred to as the "Fill Term"). Immediately
prior to the Effective Time, the Company shall pay Mr. Fill a consulting fee of
$1,150,000 and an additional $60,000 on January 1, 1999, and on the first day of
each calendar quarter thereafter to and including October 1, 2003. The Company
shall pay any premiums required by Medicare for Mr. Fill's post-retirement
Medicare coverage and on January 1, 1999, the Company shall cancel all life
insurance agreements covering Mr. Fill and pay to Mr. Fill the cash amount
required by Mr. Fill to purchase a paid up policy of $300,000 of life insurance
on such date.
If Mr. Fill's employment or consultancy is terminated by the Company without
cause (Mr. Fill may not be terminated for cause during the Fill Consulting
Period) or if Mr. Fill terminates upon a material breach (as those terms are
defined in Fill's Agreement), the Company will pay Mr. Fill a lump sum equal to
the remaining salary, bonus and consulting fee for the remaining Fill Term.
The Fill Agreement prohibits Mr. Fill from competing with the business of
the Company and Philips Medical Systems during, and for one year after, the Fill
Employment Period and the Fill Consulting Period.
EMPLOYMENT AGREEMENTS OF MESSRS. BLEM AND SOUQUET AND MS.
DUNLAP. Concurrent with the signing of the Merger Agreement, Donald D. Blem,
Senior Vice President, Operations, Mr. Souquet and Pamela L.
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Dunlap, Senior Vice President, Finance and Administration, and Chief Financial
Officer (the "Executives"), entered into employment agreements (the "Employment
Agreements") with the Company in substitution of their present agreements. The
period of employment during which salary and benefits shall be provided (the
"Executives Period of Employment") will begin at the Effective Time and will end
on December 31, 2001. Pursuant to their agreements, Messrs. Blem and Souquet and
Ms. Dunlap will serve as Senior Vice President of Operations, Senior Vice
President -- Chief Technology Officer, and Senior Vice President and Chief
Financial Officer, respectively, with base salaries of $245,000, $255,000 and
$200,000, respectively. Each Executive will be entitled to an annual bonus upon
achievement of certain targets with a target bonus opportunity of 50% of base
salary which may be higher or lower depending upon performance.
Messrs. Blem and Souquet and Ms. Dunlap will be granted stock options
("Options") to acquire 5,000, 7,000, and 5,000 shares of common stock of Royal
Philips, respectively. Such Options will become exercisable ratably over a three
year period. Pursuant to each Employment Agreement, the Company shall establish
the Long-Term Performance Unit Plan which shall provide each Executive with a
bonus (the "Incentive Bonus") equal to that Executive's base salary, to be paid
in the first quarter following the end of the Performance Period (the "Payment
Date"), if the Executive is an employee on the last day of the Performance
Period and 75% of the Strategic Plan (as such term is defined in the Employment
Agreements) has been achieved during the 1999-2001 performance period (the
"Performance Period"). If 100% of the Strategic Plan is achieved during the
Performance Period, each Executive's Incentive Bonus shall be two times base
salary and if 100% of the Strategic Plan, including synergies, is achieved, the
Incentive Bonus shall be three times base salary. In the first quarter following
December 31, 1999 and December 31, 2000, each Executive shall receive a payment
equal to 20% of base salary (each, an "Advance Bonus") which shall reduce the
Incentive Bonus, on a dollar for dollar basis, otherwise payable under this
paragraph.
If the Executives' employment is terminated by the Company without cause or
if Executive terminates upon a material breach (as those terms are defined in
the Employment Agreements), the Company will pay the Executives a lump sum equal
to the remaining salary and bonus for the remaining Executives' Period of
Employment and a pro-rata Incentive Bonus to be paid when such bonuses would
have otherwise become payable. In addition, all Options will become immediately
exercisable and will remain exercisable for at least one-year following
termination of employment.
The Employment Agreements prohibit the Executives from competing with the
business of the Company and Philips Medical Systems during, and for one year
after, the Executives Period of Employment.
EMPLOYMENT AND CONSULTING AGREEMENT OF MR. DIAZ. Concurrent with the
signing of the Merger Agreement, Mr. Diaz entered into an employment and
consulting agreement ("Diaz's Agreement") with the Company in substitution of
his present agreement. The period of employment during which salary and benefits
shall be provided (the "Diaz Period of Employment") will begin at the Effective
Time and will end on December 31, 1999. Pursuant to Diaz's Agreement, he will
serve as the Senior Vice President -- Worldwide Sales and Marketing of the
Company at an annual salary of $285,000. Mr. Diaz will be entitled to an annual
bonus upon achievement of certain targets with a target bonus opportunity of 50%
of base salary which may be higher or lower depending upon performance. On
January 1, 1999, Mr. Diaz will be paid a bonus for 1998 equal to a pro rata
portion (based on the number of days elapsed in 1998 through the Effective Time)
of the bonus payable based on the Company's annualized performance through the
end of the last fiscal quarter before the Effective Time.
Mr. Diaz will be granted Options to acquire 5,000 shares of common stock of
Royal Philips. Such Options will become exercisable at a rate of 50% on July 31,
1999 and 50% on December 31, 1999. Unless Mr. Diaz is terminated by the Company
for cause (as such term is defined in Diaz's Agreement) or voluntarily resigns,
his Options will remain exercisable for at least one year following the Diaz
Term (as defined below). In addition, Mr. Diaz shall be eligible for an
Incentive Bonus, on the same basis as
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described above, pro-rated, based on the ratio that the number of days in the
Diaz Period of Employment to the number of days in the Performance Period. Under
the Long Term Performance Unit Plan, Mr. Diaz will receive a bonus of 20% of
base salary upon completion of the first year of the plan, which shall reduce,
on a dollar for dollar basis, the amount of Mr. Diaz's Incentive Bonus otherwise
payable under the New LTIP.
Immediately following the expiration of the Diaz Period of Employment, Mr.
Diaz will serve as a consultant for two additional years (the "Diaz Consulting
Period") (the Diaz Period of Employment and the Diaz Consulting Period
collectively referred to as the "Diaz Term"). During the Diaz Consulting Period,
the Company shall pay Mr. Diaz a consulting fee of $200,000 per year. In
addition, until Mr. Diaz is entitled to Medicare, he shall be entitled to
receive medical benefits (or the after tax cost of such benefits if they cannot
be provided pursuant to the Company's medical plans) from the Company.
If Mr. Diaz's employment or consultancy is terminated by the Company without
cause (Mr. Diaz may not be terminated for cause during the Diaz Consulting
Period) or if Mr. Diaz terminates upon a material breach (as such terms are
defined in Diaz's Agreement), the Company will pay Mr. Diaz a lump sum equal to
the remaining salary, bonus and consulting fee for the remaining Diaz Term and a
pro-rata Incentive Bonus to be paid when such bonuses would have otherwise
become payable.
The Diaz Agreement prohibits Mr. Diaz from competing with the business of
the Company and Philips Medical Systems during, and for one year after, the Diaz
Term.
EMPLOYMENT AGREEMENTS OF OTHER EXECUTIVES. The Company is obligated to use
its best efforts to enter into fifteen employment agreements with certain other
executives (the "Other Executives") of the Company following the signing of the
Merger Agreement (the "Other Agreements"). These Other Agreements will provide
the Other Executives with the same level of base salary and bonus opportunity
that they are currently receiving from the Company for one year following the
Effective Time. If such Other Executives are terminated by the Company without
cause or terminate upon a material breach (as such terms are defined in the
Executives' Employment Agreements), the Company will pay to such Other
Executives a lump-sum equal to the remaining base salary otherwise payable for
the remainder of the one-year period. These Other Executives will be entitled to
participate in the Long-Term Performance Unit Plan on substantially the same
terms as the Executives, other than for threshold amounts.
EFFECT OF THE MERGER ON EMPLOYEE BENEFIT AND STOCK PLANS. In addition to
the provisions relating to employment agreements described above, the Merger
Agreement contemplates that certain additional actions will be taken in respect
of employee benefit and stock plans in which executive officers of the Company
are eligible to participate. Parent shall cause the Company (or if Merger Sub
will be the surviving entity in the Merger, Merger Sub) (the "Surviving
Corporation") to honor all benefit obligations accrued as of the Effective Time.
For a period of two years after the Effective Time, the Surviving Corporation
will provide benefits (other than stock-related benefits) to Company employees
that are substantially similar to those provided by the Company before the
Effective Time.
In accordance with the Merger Agreement, the Company will use its reasonable
best efforts to cause each option to purchase Shares (whether or not
exercisable) to be surrendered and canceled as of the Effective Time for a cash
payment equal to the product of (i) the number of Shares subject to the option
and (ii) the difference between the Merger Consideration and the per Share
exercise price of the option.
In addition, the transactions contemplated by the Merger Agreement will
constitute a "Change in Control" for purposes of certain compensation and
benefit programs of the Company. As a result, all outstanding options will
immediately become vested and exercisable, the restrictions on all restricted
stock awards will vest and the current long term bonus cycles will be terminated
and paid out.
11. PURPOSE OF THE OFFER; PLANS FOR THE COMPANY; THE MERGER.
PURPOSE. The purpose of the Offer is to acquire for cash as many
outstanding Shares as possible as a first step in acquiring the entire equity
interest in the Company.
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If Merger Sub acquires a majority of the outstanding Shares pursuant to the
Offer, it will have the vote necessary under Washington law to approve the
Merger of Merger Sub with and into the Company. Therefore, if at least
approximately 8,522,975 Shares are acquired pursuant to the Offer or otherwise,
Merger Sub will be able to and intends to effect the Merger without the vote of
any person other than Merger Sub. In addition, under the WBCA, Parent may cause
the Company to merge with and into Merger Sub without a vote of the Company's
shareholders if Merger Sub owns at least 90% of the outstanding Shares. If over
90% of the outstanding Shares are tendered in the Offer, Parent intends to
effect the merger of the Company into Merger Sub.
If Merger Sub acquires Shares pursuant to the Offer, Merger Sub intends to
conduct a detailed review of the Company and its assets, business, operations,
properties, policies, corporate structure, capitalization and the
responsibilities and qualification of the Company's management and personnel and
consider what, if any, changes Merger Sub deems desirable in light of the
circumstances which then exist, but Merger Sub does not presently contemplate
any major changes in the operations of the Company.
THE MERGER AGREEMENT. The Merger Agreement provides that the closing of the
Merger will take place on the first business day on which the last to be
satisfied or waived of the conditions set forth in the Merger Agreement shall be
satisfied or waived, or at such other place and time and/or on such other date
as the Company and Parent may agree. Upon consummation of the Merger, each Share
issued and outstanding immediately prior to the Effective Time (other than
Shares owned by the Parent Companies or Shares which are held by Dissenting
Shareholders) shall, by virtue of the Merger and without any action on the part
of the holder thereof, be converted into the right to receive, without interest,
the Merger Consideration.
VOTE REQUIRED TO APPROVE MERGER. The WBCA requires, among other things,
that any plan of merger or share exchange of the Company must be adopted by the
Board of Directors of the Company and Merger Sub and, if the "short form" merger
procedure described below is not available, approved by the holders of a
majority of the Company's outstanding Shares and the outstanding Shares of
Merger Sub. The Board of Directors of the Company and Merger Sub have adopted
the Merger Agreement and approved the Offer and the Merger; consequently, the
only additional actions of the Company and Merger Sub that may be necessary to
effect the Merger is approval by such shareholders if the "short form" merger
procedure described below is not available. Under the WBCA and the Company's
Restated Articles of Incorporation, the affirmative vote of holders of a
majority of the outstanding Shares (including any Shares owned by Merger Sub) is
required to approve the Merger. If Merger Sub acquires, through the Offer or
otherwise, voting power with respect to at least a majority of the outstanding
Shares (which would be the case if the Minimum Condition were satisfied and
Merger Sub were to accept for payment Shares tendered pursuant to the Offer), it
would have sufficient voting power to effect the Merger without the vote of any
other shareholder of the Company. However, the WBCA also provides that if a
parent company owns at least 90% of each class of stock of a subsidiary, the
parent company may merge the subsidiary with and into itself without the
approval of the other shareholders of the parent or subsidiary. Accordingly, if,
as a result of the Offer or otherwise, Merger Sub acquires or controls the
voting power of at least 90% of the outstanding Shares, Merger Sub could effect
the Merger using such "short-form" merger procedures without prior notice to, or
any action by, any other shareholder of Merger Sub or the Company.
CHAPTER 23B.19 OF THE WBCA. In general, Chapter 23B.19 of the WBCA prevents
a Washington corporation or certain foreign corporations transacting business in
the State of Washington (in each case a "target corporation"), from engaging in
a "significant business transaction" (defined as a variety of transactions,
including mergers, as set forth below) with an "acquiring person" (defined,
generally stated, as a person with 10% or more of a corporation's outstanding
voting shares) for a period of five years following the date such person became
an acquiring person unless the significant business transaction or the purchase
of shares in which the person became an acquiring person is approved prior to
the time that the person became an acquiring person by a majority of the board
of directors of the target corporation.
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Chapter 23B.19 defines a "significant business transaction" as including (a)
a merger, share exchange or consolidation of a target corporation or a
subsidiary of a target corporation with (i) an acquiring person, or (ii) any
other domestic or foreign corporation which is, or after the merger, share
exchange, or consolidation would be, an affiliate or associate of the acquiring
person; (b) a sale, lease exchange, mortgage, pledge, transfer, or other
disposition or encumbrance, whether in one transaction or a series of
transactions, to or with an acquiring person or an affiliate or associate of an
acquiring person of assets of a target corporation or a subsidiary of a target
corporation having an aggregate market value equal to or above a threshold
amount; (c) the termination, while the corporation has an acquiring person and
as a result of the acquiring person's acquisition of ten percent or more of the
shares of the corporation, of five percent or more of the employees of the
target corporation or its subsidiaries employed in the State of Washington,
whether at one time or over the five-year period following the share acquisition
time; (d) the issuance, transfer or redemption by a target corporation or a
subsidiary of a target corporation, whether in one transaction or a series of
transactions, of shares or of options, warrants or rights to acquire shares of a
target corporation or a subsidiary of a target corporation to an acquiring
person or an affiliate or associate of an acquiring person except in certain
transactions, including certain transactions made pro rata to all holders of the
applicable securities; (e) the liquidation or dissolution of a target
corporation proposed by, or pursuant to an agreement, arrangement, or
understanding, whether or not in writing, with an acquiring person or an
affiliate or associate of an acquiring person; (f) certain reclassifications of
securities that have the effect of increasing the proportionate share of the
outstanding shares of a class or series of voting shares or securities
convertible into voting shares of a target corporation or a subsidiary of the
target corporation that is directly or indirectly owned by an acquiring person
or an affiliate or associate of an acquiring person; or (g) a receipt by an
acquiring person or an affiliate of an acquiring person of the benefit, except
proportionately as a shareholder of a target corporation, of loans, advances,
guarantees, pledges, or other financial assistance or tax advantages provided by
or through a target corporation.
THE MERGER AGREEMENT PROVIDES THAT IF ANY TAKEOVER STATUTE IS OR SHALL
BECOME APPLICABLE TO THE TRANSACTIONS CONTEMPLATED THEREBY, THE COMPANY AND THE
BOARD OF DIRECTORS OF THE COMPANY SHALL GRANT SUCH APPROVALS AND TAKE SUCH
ACTIONS AS ARE NECESSARY SO THAT THE TRANSACTIONS CONTEMPLATED BY THE MERGER
AGREEMENT MAY BE CONSUMMATED AS PROMPTLY AS PRACTICABLE ON THE TERMS
CONTEMPLATED THEREBY AND OTHERWISE ACT TO ELIMINATE THE EFFECTS OF SUCH STATUTE
OR REGULATION ON THE TRANSACTIONS CONTEMPLATED THEREBY.
CONDITIONS TO THE MERGER. The respective obligations of the Company, Parent
and Merger Sub to consummate the Merger are subject to the fulfillment of
certain conditions set forth in the Merger Agreement, including (i) if required
by the WBCA, the approval of the Merger by the holders of a majority of the
Shares in accordance with applicable law and the Articles and By-Laws of the
Company, (ii) the purchase by Merger Sub (or one of the Parent Companies) of
Shares pursuant to the Offer, and (iii) there being no statute, rule,
regulation, judgment, decree, injunction or other order (whether temporary,
preliminary or permanent) enacted, issued, promulgated, enforced or entered by
any Governmental Entity (as defined in the Merger Agreement) of competent
jurisdiction in effect which prohibits consummation of the Merger (collectively,
an "Order").
TERMINATION OF THE MERGER AGREEMENT. According to its terms, the Merger
Agreement may be terminated and the transactions contemplated thereby abandoned
at any time prior to the Effective Time, before or after the approval by holders
of Shares: (a) by the mutual consent of Parent (also acting on behalf of Merger
Sub) and the Company, by action of their respective Boards of Directors; or (b)
by action of the Board of Directors of either Parent or the Company if (i)
Merger Sub shall not have accepted for payment any Shares pursuant to the Offer
prior to December 31, 1998; PROVIDED, HOWEVER, that such right to terminate the
Merger Agreement shall not be available to (A) Parent if any Shares have been
accepted for payment pursuant to the Offer or (B) any party whose failure to
perform any of its obligations under the
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Merger Agreement results in the failure of any Offer Condition; or (ii) any
Governmental Entity shall have issued an Order which shall have become final and
nonappealable; or (c) unless the Offer shall have been consummated, by action of
the Board of Directors of Parent, if (x) (i) the Company shall have breached or
failed to perform in any material respect any of its covenants or agreements
under the Merger Agreement (other than any immaterial covenants or agreements)
or (ii) a representation or warranty of the Company set forth in the Merger
Agreement shall have been inaccurate when made or shall thereafter become
inaccurate, except for such inaccuracies which, when taken together (in each
case without regard to any qualification as to materiality or any material
adverse effect on the financial condition, properties, business or results of
operations of the Company and its subsidiaries taken as a whole (excluding any
change or development resulting from the announcement of the Merger Agreement or
the transactions contemplated thereby) (a "Material Adverse Effect"), contained
in the applicable representations and warranties) would not reasonably be likely
to have a Material Adverse Effect, and, with respect to any such breach, failure
to perform or inaccuracy that can be remedied, the breach, failure or inaccuracy
is not remedied within 15 business days after the giving of written notice of
such breach, failure or inaccuracy to the Company; or (y) the Board of Directors
of the Company shall have withdrawn or modified in any manner adverse to Parent
or Merger Sub its approval or recommendation of the Offer, the Merger Agreement
or the Merger or shall have adopted or recommended any Acquisition Proposal (as
defined below), or the Board of Directors of the Company, upon request by
Parent, shall fail to reaffirm such approval or recommendation within 10
business days after such request if an Acquisition Proposal is pending, or shall
have resolved to do any of the foregoing; or (d) by action of the Board of
Directors of the Company, (x) if Parent or Merger Sub (or another Parent
Company) (i) shall have breached in any material respect any of the
representations, warranties, covenants or agreements contained in the Merger
Agreement (other than any immaterial covenants or agreements) and, with respect
to any such breach that can be remedied, the breach is not remedied within 15
business days after the Company has provided Parent with written notice of such
breach or (ii) shall have failed to commence the Offer by August 4, 1998 or to
pay for the Shares pursuant to the Offer in accordance with the terms thereof,
(y) if (i) the Board of Directors of the Company receives a written offer not
solicited on or after the date of the Merger Agreement, with respect to a
merger, reorganization, share exchange, consolidation or sale of all or
substantially all of the Company's assets or a tender or exchange offer not
solicited on or after the date of the Merger Agreement for more than 50% of the
outstanding Shares is commenced, and with respect to which the Board of
Directors of the Company concludes in good faith, after consultation with its
independent financial advisor and its outside counsel, that approval, acceptance
or recommendation of such transaction is required by the fiduciary duties of the
Company's Board of Directors under applicable law (any such transaction, a
"Superior Proposal"), (ii) the Company has given Merger Sub three business days
prior written notice of its intention to terminate the Merger Agreement to
accept the Superior Proposal and Merger Sub shall have failed to offer to amend
the Offer so that it is at least as favorable to the shareholders of the Company
as the Superior Proposal and (iii) the Company prior to such termination pays to
Merger Sub in immediately available funds the fees described in the next
paragraph.
FEES AND EXPENSES. The Merger Agreement provides that if (x) (i) the Offer
shall have remained open for a minimum of at least 20 business days, (ii) after
the date of the Merger Agreement, any corporation, partnership, person, other
entity or group (as defined in Section 13(d)(3) of the Exchange Act) other than
Parent or Merger Sub or any of their respective subsidiaries or affiliates
(collectively, a "Person") shall have become the beneficial owner of 15% or more
of the outstanding Shares or made any Acquisition Proposal, (iii) the Minimum
Condition shall not have been satisfied and the Offer is terminated as described
in clause (c)(x) of the preceding paragraph (but only if such termination
relates to a breach of the Company's obligations described under "--Acquisition
Proposals" below) or as described in clause (b)(i) of the preceding paragraph
without the purchase of any Shares thereunder and (iv) within twelve months of
such termination the Company enters into an agreement (other than a
confidentiality agreement in customary form) with respect to an Acquisition
Proposal (as such term is defined below, except that the reference in such
definition to 15% shall be deemed a reference to 40% for purposes of this
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clause (iv) only) or any person or other entity (other than Parent or any of its
affiliates) becomes the beneficial owner of 40% or more of the outstanding
Shares, (y) Parent shall have terminated this Agreement as described in clause
(c)(y) of the preceding paragraph, or (z) the Company shall have terminated this
Agreement as described in clause (d)(y) of the preceding paragraph, then the
Company shall promptly, but in no event later than five business days after the
date of a request by Parent for payment of such fee (other than a termination as
described in clause (d)(y) of the preceding paragraph, in which case payment
shall be concurrent with termination), pay Parent a fee of $23,700,000, which
amount shall be payable in same day funds. If the Company fails to promptly pay
the amount due pursuant to this paragraph, and, in order to obtain such payment,
Parent or Merger Sub commences a suit which results in a judgment against the
Company for the fee set forth in this paragraph, the Company shall pay to Parent
or Merger Sub its costs and expenses (including attorneys' fees) in connection
with such suit, together with interest on the amount of the fee at the prime
rate of Citibank N.A. on the date such payment was required to be made.
AMENDMENT OF THE MERGER AGREEMENT. Subject to the applicable provisions of
the WBCA, at any time prior to the Effective Time, the parties to the Merger
Agreement may modify or amend the Merger Agreement by written agreement executed
and delivered by duly authorized officers of the respective parties.
TREATMENT OF OPTIONS. The Merger Agreement provides that prior to the
Effective Time, the Company shall use its reasonable best efforts to take such
actions as may be necessary such that at the Effective Time, each stock option
outstanding pursuant to the Stock Plans ("Option"), whether or not then
exercisable, shall be canceled and only entitle the holder thereof, upon
surrender thereof, to receive an amount in cash equal to the difference between
the Merger Consideration over the exercise price per Share of such Option
multiplied by the number of Shares previously subject to such Option, less all
applicable withholding Taxes. Such payment shall be made by the Company as soon
as administratively feasible after the Effective Time.
INDEMNIFICATION OF OFFICERS AND DIRECTORS. The Merger Agreement provides
that from and after the Effective Time, Parent agrees that it will indemnify and
hold harmless each present and former director and officer of the Company and
its subsidiaries, determined as of the Effective Time (the "Indemnified
Parties"), against any costs or expenses (including reasonable attorneys' fees),
judgments, fines, losses, claims, damages or liabilities (collectively, "Costs")
incurred in connection with any claim, action, suit, proceeding or
investigation, whether civil, criminal, administrative or investigative, arising
out of matters existing or occurring at or prior to the Effective Time, whether
asserted or claimed prior to, at or after the Effective Time, to the fullest
extent that the Company would have been permitted under Washington law and its
Articles or By-Laws in effect on the date of the Merger Agreement to indemnify
such person (and Parent shall also advance expenses as incurred to the fullest
extent permitted under applicable law, provided that the person to whom expenses
are advanced provides an undertaking to repay such advances if it is ultimately
determined that such person is not entitled to indemnification). The Merger
Agreement also provides that Parent shall cause the Surviving Corporation to
maintain the Company's existing officers' and directors' liability insurance (or
equivalent thereof) ("D&O Insurance") for a period of six years after the
Effective Time, so long as the annual premium therefor is not in excess of an
amount (the "Maximum Premium") equal to 150% of the last annual premium paid
prior to the date of the Merger Agreement; PROVIDED, HOWEVER, that if such
insurance coverage cannot be obtained at all, or can only be obtained at an
annual premium in excess of the Maximum Premium, Parent shall maintain the most
advantageous policies of directors' and officers' insurance obtainable for an
annual premium equal to the Maximum Premium.
TREATMENT OF EMPLOYEE BENEFITS. The Merger Agreement provides that for a
period of two years following the Effective Time, Parent will cause the Company
to continue to provide the Employees with compensation and employee benefit
plans (other than stock option or other plans involving the potential issuance
of securities of the Company or of any of the Parent Companies) which in the
aggregate are
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substantially comparable to those currently provided by the Company to such
employees immediately prior to the Effective Time, provided that employees
covered by collective bargaining agreements need not be provided such benefits.
Parent will, or will cause the Surviving Corporation to, honor without
modification all employee (or former employee) benefit obligations accrued as of
the Effective Time.
CHIEF EXECUTIVE OFFICER AGREEMENT. A description of the Employment and
Consulting Agreement of Mr. Fill is set forth above.
COMPOSITION OF THE BOARD OF DIRECTORS. If requested by Parent, the Company
will, subject to compliance with applicable law, immediately following the
acceptance for payment of, and payment by Merger Sub for, more than 50 percent
of the outstanding Shares pursuant to the Offer, take all actions necessary to
cause persons designated by Parent to become directors of the Company so that
the total number of such persons equals at least that number of directors,
rounded up to the next whole number, which represents the product of (x) the
total number of directors on the Board of Directors multiplied by (y) the
percentage that the number of Shares so accepted for payment and paid for plus
any Shares beneficially owned by Parent or its affiliates on the date of the
Merger Agreement bears to the number of Shares outstanding at the time of such
payment. In furtherance thereof, the Company will increase the size of the
Board, or use its best efforts to secure the resignation of directors, or both,
as is necessary to permit Parent's designees to be elected to the Company's
Board of Directors; provided, however, that prior to the Effective Time, the
Company's Board of Directors shall always have at least three members (the
"Independent Directors") who are neither officers of Parent nor designees,
shareholders or affiliates of Parent or Parent's affiliates ("Parent Insiders");
and provided further that, in such event, if the number of Independent Directors
shall be reduced below three for any reason whatsoever, any remaining
Independent Directors (or Independent Director, if there shall be only one
remaining) shall be entitled to designate persons to fill such vacancies who
shall be deemed to be Independent Directors for purposes of the Merger Agreement
or, if no Independent Directors then remain, the other directors shall designate
three persons to fill such vacancies who shall not be officers or affiliates of
Parent or any of Parent's affiliates, and such persons shall be deemed to be
Independent Directors for purposes of the Merger Agreement. At such time, the
Company, if so requested, will use its best efforts to cause persons designated
by Parent to constitute the same percentage of each committee of such board,
each board of directors of each subsidiary of the Company and each committee of
each such board (in each case to the extent of the Company's ability to elect
such persons). The Company's obligations to appoint designees to the Board of
Directors shall be subject to Section 14(f) of the Exchange Act and Rule 14f-1
thereunder.
ACQUISITION PROPOSALS. The Merger Agreement provides that neither the
Company, any of its subsidiaries, nor any of their respective officers and
directors shall, and the Company shall direct and use its best efforts to cause
its employees, agents and representatives (including, without limitation, any
investment banker, attorney or accountant retained by the Company or any of its
subsidiaries) not to, directly or indirectly, initiate, solicit, encourage or
otherwise facilitate (including by providing any confidential information or
data to or having any negotiations or discussions with any person (other than
Parent or its affiliates) making or inquiring with respect to making an
Acquisition Proposal), any inquiries or the making of any proposal or offer
(including, without limitation, any proposal or offer to shareholders of the
Company) with respect to a merger, reorganization, share exchange, consolidation
or similar transaction involving the Company, or any purchase of more than 15%
(on a fair market value basis) of the assets of the Company and its subsidiaries
on a consolidated basis (including any such purchase of assets effected
indirectly through the purchase of such subsidiaries), or any purchase of, or
tender offer for, more than 15% of any equity securities of the Company (any
such proposal or offer being referred to as an "Acquisition Proposal"), except
that the Company shall have the right, if, and only to the extent that, the
Company's Board of Directors concludes in good faith after consultation with
outside legal counsel that such actions are required to comply with the
fiduciary duties of the Company's Board of Directors under applicable law in
response to a bona fide, written Acquisition Proposal not solicited on or after
the date of the Merger Agreement, to engage in negotiations concerning, provide
confidential information or data to,
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or have discussions with, any person relating to an Acquisition Proposal. The
Merger Agreement provides that the Company will immediately cease and cause to
be terminated any existing activities, discussions or negotiations with any
parties conducted with respect to any of the foregoing, and that the Company
will take the necessary steps to promptly inform the individuals or entities
referred to in the first sentence of this paragraph of their obligations under
this provision of the Merger Agreement. The Merger Agreement provides that the
Company will notify Parent promptly, and in any event within 24 hours, if any
such inquiries or proposals are received by, any such information is requested
from, or any such negotiations or discussions are sought to be initiated or
continued with, the Company or any of its subsidiaries, indicating, in
connection with such notice, the name of such person and the material terms of
any such proposals or offers, and shall thereafter keep Parent informed on a
current basis of the status and material terms of any such proposals or offers
and the status of any such discussions or negotiations. The Merger Agreement
provides that the Company also will promptly request each person which has prior
to the date of the Merger Agreement executed a confidentiality agreement in
connection with its consideration of acquiring the Company and/or any of its
subsidiaries to return all confidential information heretofore furnished to such
person by or on behalf of the Company; provided, that Company shall not be
prohibited from taking and disclosing to its stockholders a position required by
Rule 14e-2(a) promulgated under the Exchange Act or from making any disclosure
to the Company's shareholders if, in the good faith judgment of the Board of
Directors of the Company after consultation with outside counsel, failure to do
so would be a violation of its obligations under applicable law.
COVENANTS. The Merger Agreement also contains certain other restrictions as
to the conduct of business by the Company pending the Merger, as well as
representations and warranties of each of the parties customary in transactions
of this kind.
DISSENTERS' RIGHTS. Holders of Shares do not have appraisal rights as a
result of the Offer. However, if the Merger is consummated, (i) in the case of a
short-form merger consummated pursuant to WBCA 23B.11.040, each holder of Shares
who has delivered to the Company before the date set in the Company's notice
(which date may not be fewer than thirty nor more than sixty days after the date
the Company delivers the notice) the shareholder's intent to demand payment, and
(ii) in the case of a merger consummated pursuant to WBCA 23B.11.030, each
holder of Shares who has (x) delivered to the Company before the vote on the
Merger is taken written notice of the shareholder's intent to demand payment and
(y) not voted such Shares in favor of the Merger, will be entitled to receive
payment of the fair value of such shareholder's Shares. Within thirty days of
the later of the effective date of the Merger or the date the payment demand is
received, the Company must pay each dissenter who has complied with WBCA
23B.13.230 the amount the Company estimates to be the fair value of the
shareholder's Shares, plus accrued interest. A dissenter may notify the Company
in writing of the dissenter's own estimate of the fair value of the dissenter's
Shares and amount of interest due and either demand payment of such estimate
less any payment received, or reject the corporation's offer and demand payment
of such estimate. A dissenter waives the right to demand payment in accordance
with the previous sentence unless the dissenter notifies the Company of the
dissenter's demand in writing within thirty days after the Company made or
offered payment for the dissenter's Shares. If a demand payment remains
unsettled, the Company must commence a proceeding within sixty days after
receiving the payment demand and petition the court to determine the fair value
of the Shares and accrued interest.
If any holder of Shares fails to demand payment in accordance with Chapter
23B.13 of the WBCA, or effectively withdraws or waives his right to demand
payment as provided in the WBCA, the Shares of such shareholder will be
converted into the Merger Consideration in accordance with the Merger Agreement.
The foregoing discussion is not a complete statement of law pertaining to
dissenters' rights under the WBCA and is qualified in its entirety by the full
text of Chapter 23B.13 of the WBCA.
FAILURE TO FOLLOW THE STEPS REQUIRED BY CHAPTER 23B.13 OF THE WBCA FOR
DEMANDING PAYMENT MAY RESULT IN THE LOSS OF SUCH RIGHTS.
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RULE 14E-3. The Merger would have to comply with any applicable Federal law
operative at the time of its consummation. Rule 13e-3 under the Exchange Act is
applicable to certain "going private" transactions. Merger Sub does not believe
that Rule 13e-3 will be applicable to the Merger unless the Merger is
consummated more than one year after the termination of the Offer. If
applicable, Rule 13e-3 would require, among other things, that certain financial
information concerning the Company and certain information relating to the
fairness of the Merger and the consideration offered to minority shareholders be
filed with the SEC and disclosed to minority shareholders prior to consummation
of the Merger.
RIGHTS AGREEMENT. Set forth below is a summary description of the Rights as
filed with the Company Registration Statement on Form S-4, dated April 18, 1994,
as amended, relating to the Rights.
Pursuant to the Amended and Restated Rights Agreement dated as of June 26,
1992, between the Company and First Chicago Trust Company of New York, as Rights
Agent, as amended (the "Rights Agreement"), holders of shares of Common Stock
currently hold rights to purchase shares of the Company's Series A Participating
Cumulative Preferred Stock, par value $1.00 per share (the "ATL Series A
Preferred Shares") exercisable only in certain circumstances (the "Rights"). The
Rights, which are represented by certificates for Common Stock, currently trade
together with the Common Stock. Each Right, when it becomes exercisable as
described below, will entitle the registered holder to purchase one
one-hundredth (1/100) of an ATL Series A Preferred Share at a price (the
"Purchase Price") equal to four times the average of the high and low sale
prices of the Common Stock as reported on the Nasdaq National Market for each of
the 10 trading days commencing on the sixth trading day following June 26, 1992.
The ATL Series A Preferred Shares issuable upon exercise of the Rights will
not be redeemable. Each ATL Series A Preferred Share will be entitled to a
minimum preferential quarterly dividend payment of $.01 per share, but will be
entitled to an aggregate dividend of 100 times the dividend declared per share
of Common Stock, if any. In the event of dissolution, liquidation or winding up
of the Company, whether voluntary or involuntary, the holders of ATL Series A
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 Common Stock. Each ATL Series A Preferred Share
will have 100 votes, voting together with the Common Stock. Finally, in the
event of any merger, business combination, consolidation or other transaction in
which the Common Stock is exchanged, each ATL Series A Preferred Share will be
entitled to receive 100 times the amount received per share of Common Stock.
Because of the nature of the ATL Series A Preferred Shares' dividend,
liquidation and voting rights, the value of the one one-hundredth (1/100)
interest in an ATL Series A Preferred Share issuable upon exercise of each Right
should approximate the value of one share of Common Stock. Customary
antidilution provisions are designed to protect that relationship in the event
of certain changes in the Common Stock and the ATL Series A Preferred Shares.
The ATL Series A Preferred Shares are authorized to be issued in fractions that
are an integral multiple of one one-hundredth (1/100) of an ATL Series A
Preferred Share. The Company may, but is not required to, issue fractions of
shares upon the exercise of Rights, and, in lieu of fractional shares, the
Company may utilize a depository arrangement as provided by the terms of the ATL
Series A Preferred Shares and, in the case of fractions other than one
one-hundredth (1/100) of an ATL Series A 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 the Company 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 Common Stock (such person or group being an "Acquired
Person") and (ii) such date, if any, as may be designated by the Company's Board
of Directors (the "Company Board") following the commencement of, or first
public disclosure of an intent to commence, a tender or exchange offer for
outstanding Common Stock that could result in the offeror becoming the
beneficial owner of 15% or more of the outstanding Common Stock (the earlier of
such dates, subject to certain exceptions, being the "Separation Date"), the
Rights will be evidenced by certificates for Common
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Stock registered in the names of the holders thereof (which certificates for
Common Stock will also be deemed to be Right Certificates, as defined herein),
not by separate Right Certificates. Therefore, until the Separation Date, the
Rights will be transferred with and only with the Common Stock.
As soon as practicable following the Separation Date, separate certificates
evidencing the Rights ("Right Certificates") will be mailed to holders of record
of Common Stock as of the close of business on the Separation Date (and to each
initial record holder of certain Common Stock originally issued after the
Separation Date), and such separate Right Certificates alone will thereafter
evidence the Rights.
The Rights are not exercisable until the Separation Date and will expire on
June 30, 2002 (the "Rights Expiration Date"), unless earlier redeemed or
canceled by the Company, as described below.
The number of ATL Series A Preferred Shares or other securities issuable
upon exercise of a Right, the Purchase Price, the Redemption Price (as defined
herein) and the number of Rights associated with each outstanding share of
Common Stock are all subject to adjustment by the Company Board in the event of
any change in the Common Stock or the ATL Series A 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 Stock or ATL
Series A Preferred Shares, as the case may be (other than the Rights or regular
quarterly cash dividends), or otherwise.
In the event a person becomes an Acquiring Person, the Rights will entitle
each holder of a 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-hundredth (1/100) of an ATL Series A Preferred
Share equivalent to the number of shares of ATL Common Stock that at the time of
the transaction would have a market value of twice the Purchase Price. Any
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 Right (including any purported
transferee or subsequent holder) will be unable to exercise or transfer any such
Right.
After there is an Acquiring Person, the Company Board may elect to exchange
each Right (other than Rights that have become null and void and nontransferable
as described above) for consideration per Right consisting of one-half of the
securities that would be issuable at such time upon the exercise of one Right
pursuant to the terms of the Rights Agreement, and without payment of the
Purchase Price.
In the event the Company 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 Right will
entitle its holder (subject to the next paragraph) to purchase, for the Purchase
Price, that number of common shares of such corporation that at the time of the
transaction would have a market value of twice the Purchase Price. In the event
the Company 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 the Company are sold, leased, exchanged or otherwise transferred (in
one or more transactions) to, an entity that is not a publicly traded
corporation, each 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 the Company that at the time of the transaction
would have a book value of twice the Purchase Price, (ii) that number of shares
of such entity that at the time of the transaction would have a book value of
twice the Purchase Price, or (iii) if such entity has an affiliate that has
publicly traded common shares, that number of common shares of such affiliate
that 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 Rights Expiration Date, the Company Board may
redeem the Rights in whole, but not in part, at a price (in cash or Common Stock
or other securities of the Company deemed by the Company Board to be at
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least equivalent in value) of $.01 per Right, subject to adjustment as provided
in the Rights Agreement (the "Redemption Price"); 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 Company Board 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 Company 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 the Company and its shareholders. Immediately upon the action of
the Company Board electing to redeem the Rights, the Company will make an
announcement thereof, and, upon such election, the right to exercise the Rights
will terminate and the only right of the holders of Rights will be to receive
the Redemption Price.
Until a right is exercised, the holder thereof, as such, will have no rights
as a shareholder of the Company, including, without limitation, the right to
vote or to receive dividends.
At any time prior to the Separation Date, the Company may, without the
approval of any holder of the Rights, supplement or amend any provision of the
Rights Agreement (including the date on which the Separation Date would occur,
the time during which the Rights may be redeemed or the terms of the ATL Series
A Preferred Shares), except that no supplement or amendment shall be made that
reduces the Redemption Price (other than pursuant to certain adjustments
therein), provides for an earlier Rights 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 or consent solicitation) in a
majority of the Company Board in office at the commencement of such
solicitation, the Rights Agreement may be supplemented or amended only if (A)
there are directors then in office who were in office at the commence of such
solicitation and (B) the Company Board, with the concurrence of a majority of
such directors then in office, determines that such supplement or amendment is,
in its judgment, in the best interests the Company and its shareholders.
The Rights have certain antitakeover effects. The Rights will cause
substantial dilution to a person or group that attempts to acquire the Company
without conditioning the offer on substantially all the Rights being acquired.
The Rights will not interfere with any merger or other business combination
approved by the Company Board since the Company Board may, at its option, at any
time prior to any person becoming an Acquiring Person, redeem all but not less
than all the then outstanding Rights at the Redemption Price.
Pursuant to the Merger Agreement, the Board of Directors of the Company, at
its meeting on July 28, 1998, approved the Rights Amendment, and on July 29,
1998, the Rights Amendment was executed. The Rights Amendment amended the Rights
Agreement to provide that the execution of the Merger Agreement or the
commencement of the Offer or the consummation of the Merger or the other
transactions contemplated thereby will not cause (i) either Parent or Merger Sub
or any of their respective "affiliates" or "associates" (each as defined in the
Rights Agreement) or any of their respective permitted assignees or transferees
to be deemed an Acquiring Person (as defined in the Rights Agreement) (ii) a
Distribution Date (as defined in the Rights Agreement) to occur or (iii) the
Rights to separate from the Shares or otherwise become exercisable. The Merger
Agreement further provides that the Company will take all necessary action with
respect to all of the outstanding Rights, so that the Company, as of the time
immediately prior to the purchase of any Shares by Parent or any of the Parent
Companies (as defined in the Merger Agreement) pursuant to the Offer, will have
no obligations under the Rights or the Rights Agreement and the holders will
have no rights under the Rights or the Rights Agreement, in each case, other
than the right to receive the redemption payment of $0.01 per Right in cash as
provided in the Rights Agreement.
12. SOURCE AND AMOUNT OF FUNDS.
Merger Sub estimates that the total amount of funds required to purchase all
of the outstanding Shares (other than those already owned by Parent) pursuant to
the Offer and the Merger and to pay related fees and expenses will be
approximately $800 million. Merger Sub will obtain these funds from
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Royal Philips, either directly or indirectly, via other subsidiaries of Royal
Philips, through loans, advances or capital contributions. It is currently
anticipated that such funds will be generated internally by Royal Philips and
its subsidiaries. No final decisions have been made, however, concerning the
method Royal Philips will employ to obtain such funds. Such decisions, when
made, will be based on Royal Philips' review from time to time of the
advisability of particular actions, as well as on prevailing interest rates and
financial and other economic conditions.
13. CERTAIN CONDITIONS OF THE OFFER.
Notwithstanding any other provision of the Offer, but subject to the terms
and conditions of the Merger Agreement (and provided that Merger Sub shall not
be obligated to accept for payment any Shares until expiration or termination of
all applicable waiting periods under the HSR Act and any applicable waiting
periods relating to the antitrust or competition laws of Austria and Germany, in
each case with respect to the Offer and/or the Merger (the "Regulatory
Condition")), Merger Sub (x) shall not be required to accept for payment or,
subject to any applicable rules and regulations of the SEC, including Rule
14e-1(c) promulgated under the Exchange Act (relating to Merger Sub's obligation
to pay for or return tendered Shares promptly after termination or withdrawal of
the Offer), pay for, and (y) may delay the acceptance for payment of or (subject
to such rules and regulations, including Rule 14e-1(c)) payment for, any
tendered Shares, in each case if a majority of the total Shares outstanding on a
fully diluted basis and as will permit Merger Sub to effect the Merger without
the vote of any person other than Merger Sub shall not have been properly and
validly tendered pursuant to the Offer and not withdrawn prior to the expiration
of the Offer (the "Minimum Condition"), or, if on or after July 29, 1998, and at
or before the expiration of the Offer, any of the following events shall occur:
(a)(i) the Company shall have breached or failed to perform in any material
respect any of its covenants or agreements (other than any immaterial covenants
or agreements) under the Merger Agreement or (ii) any representation or warranty
of the Company set forth in the Merger Agreement shall have been inaccurate when
made or shall be inaccurate as of the expiration of the Offer, except in the
case of clause (a)(ii) for such inaccuracies which, when taken together (in each
case without regard to any qualifications as to materiality or a Material
Adverse Effect contained in the applicable representations and warranties) would
not reasonably be likely to have a Material Adverse Effect;
(b) there shall be threatened, instituted or pending any action, litigation
or proceeding (hereinafter, an "Action") by any Governmental Entity: (i)
challenging the acquisition by Parent or Merger Sub of Shares or seeking to
restrain or prohibit the consummation of the Offer or the Merger; (ii) seeking
to prohibit or impose any material limitations on Parent's, Merger Sub's or any
of their respective affiliates' ownership or operation of all or any material
portion of the business or assets of the Company and its subsidiaries taken as a
whole or the business or assets of any significant subsidiary of Royal Philips,
or to compel Parent or Merger Sub to dispose of or hold separate all or any
portion of Parent's or Merger Sub's or the Company's business or assets
(including the business or assets of their respective affiliates and
subsidiaries) as a result of the Offer or the Merger; (iii) seeking to impose
material limitations on the ability of Parent or Merger Sub effectively to
acquire or hold, or to exercise full rights of ownership of, the Shares
including, without limitation, the right to vote the Shares purchased by them on
an equal basis with all other Shares on all matters properly presented to the
shareholders of the Company; or (iv) that, in any event, would, individually or
in the aggregate, reasonably be likely to have a Material Adverse Effect;
(c) any statute, rule, regulation, order or injunction shall be enacted,
promulgated, entered, enforced or deemed to or become applicable to the Offer or
the Merger, or any other action shall have been taken, proposed or threatened,
by any court or other Governmental Entity, that is reasonably expected to result
in any of the effects of, or have any of the consequences sought to be obtained
or achieved in, any Action referred to in clauses (i) through (iv) of paragraph
(b) above;
(d) any change or development shall have occurred that, individually or in
the aggregate, is reasonably likely to have a Material Adverse Effect; or
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(e) the Merger Agreement shall have been terminated by the Company or Parent
or Merger Sub in accordance with its terms;
which, in the reasonable judgment of Parent and Merger Sub, in any such
case, and regardless of the circumstances (including any action or inaction
by Parent or Merger Sub) giving rise to any such conditions, makes it
inadvisable to proceed with the Offer and/or with such acceptance for
payment of or payment for Shares.
The foregoing conditions may be asserted by Parent or Merger Sub regardless
of the circumstances (including any action or inaction by Parent or Merger Sub)
giving rise to such condition. The conditions described in paragraphs (a)
through (e) above are for the sole benefit of Parent and Merger Sub and may be
waived by Parent or Merger Sub, by express and specific action to that effect,
in whole or in part at any time and from time to time in their sole discretion.
The failure by Merger Sub at any time to exercise any of the foregoing rights
will not be deemed a waiver of any such right, the waiver of any such right with
respect to particular facts and other circumstances will not be deemed a waiver
with respect to any other facts and circumstances, and each such right will be
deemed an ongoing right that may be asserted at any time and from time to time.
A public announcement will be made of a material change in, or waiver of,
such conditions, and the Offer may, in certain circumstances, be extended in
connection with any such change or waiver.
14. DIVIDENDS AND DISTRIBUTIONS.
Pursuant to the terms of the Merger Agreement, the Company is prohibited
from taking any of the actions described in the two succeeding paragraphs, and
nothing herein shall constitute a waiver by Merger Sub or Parent of any of its
rights under the Merger Agreement or a limitation of remedies available to
Merger Sub or Parent for any breach of the Merger Agreement, including
termination thereof.
If, on or after the date of the Merger Agreement, the Company should (1)
split, combine or otherwise change the Shares or its capitalization, (2) acquire
currently outstanding Shares or otherwise cause a reduction in the number of
outstanding Shares or (3) issue or sell additional Shares, shares of any other
class of capital stock, other voting securities or any securities convertible
into, or rights, warrants or options, to acquire any of the foregoing, other
than Shares issued pursuant to the exercise of stock options outstanding as of
the date of the Merger Agreement, then, subject to the provisions described in
Section 13 above and the terms and conditions of the Merger Agreement, Merger
Sub, in its sole discretion, may make such adjustments as it deems appropriate
in the Merger Consideration and other terms of the Offer, including, without
limitation, the number or type of securities offered to be purchased.
If, on or after the date of the Merger Agreement, the Company should declare
or pay any cash dividend on the Shares or other distribution on the Shares, or
issue with respect to the Shares any additional Shares, shares of any other
class of capital stock other voting securities or any securities convertible
into, or rights, warrants or options, conditional or otherwise, to acquire, any
of the foregoing, payable or distributable to shareholders of record on a date
prior to the transfer of the Shares purchased pursuant to the Offer to Merger
Sub or its nominee or transferee on the Company's stock transfer records, then,
subject to the provisions described in Section 13 above, (1) the offer price
may, in the sole discretion of Merger Sub, be reduced by the amount of any such
cash dividend or cash distribution and (2) the whole of any such noncash
dividend, distribution or issuance to be received by the tendering shareholders
will (a) be received and held by the tendering shareholders for the account of
Merger Sub and will be required to be promptly remitted and transferred by each
tendering shareholder to the Depositary for the account of Merger Sub,
accompanied by appropriate documentation of transfer, or (b) at the direction of
Merger Sub, be exercised for the benefit of Merger Sub, in which case the
proceeds of such exercise will promptly be remitted to Merger Sub. Pending such
remittance and subject to applicable law, Merger Sub will be entitled to all
rights and privileges as owner of any such noncash dividend, distribution,
issuance or proceeds and may withhold the entire offer price or deduct from the
offer price the amount or value thereof, as determined by Merger Sub in its sole
discretion.
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15. CERTAIN LEGAL MATTERS.
GENERAL. Except as otherwise disclosed herein, based upon an examination of
publicly available filings with respect to the Company, Parent and Merger Sub
are not aware of any licenses or other regulatory permits which appear to be
material to the business of the Company and which might be adversely affected by
the acquisition of Shares by Merger Sub pursuant to the Offer or of any approval
or other action by any governmental, administrative or regulatory agency or
authority which would be required for the acquisition or ownership of Shares by
Merger Sub pursuant to the Offer. Should any such approval or other action be
required, it is currently contemplated that such approval or action would be
sought or taken. There can be no assurance that any such approval or action, if
needed, would be obtained or, if obtained, that it will be obtained without
substantial conditions or that adverse consequences might not result to the
Company's or Parent's business or that certain parts of the Company's or
Parent's business might not have to be disposed of in the event that such
approvals were not obtained or such other actions were not taken, any of which
could cause Merger Sub to elect to terminate the Offer without the purchase of
the Shares thereunder. Merger Sub's obligation under the Offer to accept for
payment and pay for Shares is subject to certain conditions. See Section 13.
ANTITRUST COMPLIANCE. Under the HSR Act and the rules that have been
promulgated thereunder by the Federal Trade Commission ("FTC"), certain
acquisition transactions may not be consummated unless certain information has
been furnished to the Antitrust Division of the Department of Justice (the
"Antitrust Division") and the FTC and certain waiting period requirements have
been satisfied. The acquisition of Shares by Merger Sub is subject to these
requirements. See Section 2 of this Offer to Purchase as to the effect of the
HSR Act on the timing of Merger Sub's obligation to accept Shares for payment.
Pursuant to the HSR Act, Parent filed a Notification and Report Form with
respect to the acquisition of Shares pursuant to the Offer and the Merger with
the Antitrust Division and the FTC on August 3, 1998. Under the provisions of
the HSR Act applicable to the purchase of Shares pursuant to the Offer, such
purchases may not be made until the expiration of a 15-calendar day waiting
period following the filing by Parent. Accordingly, the waiting period under the
HSR Act will expire at 11:59 p.m., New York City time, on August 18, 1998,
unless early termination of the waiting period is granted or Parent receives a
request for additional information or documentary material prior thereto. If
either the FTC or the Antitrust Division were to request additional information
or documentary material from Parent, the waiting period would expire at 11:59
p.m., New York City time, on the tenth calendar day after the date of
substantial compliance by Parent with such request unless the waiting period is
sooner terminated by the FTC or the Antitrust Division. Thereafter, the waiting
period could be extended only by agreement or by court order. See Section 2.
Only one extension of such waiting period pursuant to a request for additional
information is authorized by the rules promulgated under the HSR Act, except by
agreement or by court order. Any such extension of the waiting period will not
give rise to any withdrawal rights not otherwise provided for by applicable law.
See Section 4. Although the Company is required to file certain information and
documentary material with the Antitrust Division and the FTC in connection with
the Offer, neither the Company's failure to make such filings nor a request from
the Antitrust Division or the FTC for additional information or documentary
material made to the Company will extend the waiting period.
The Antitrust Division and the FTC frequently scrutinize the legality under
the antitrust laws of transactions such as the proposed acquisition of Shares by
Merger Sub pursuant to the Offer. At any time before or after Merger Sub's
purchase of Shares, the Antitrust Division or the FTC could take such action
under the antitrust laws as it deems necessary or desirable in the public
interest, including seeking to enjoin the acquisition of Shares pursuant to the
Offer or seeking divestiture of Shares acquired by Merger Sub or the divestiture
of substantial assets of Parent, the Company or any of their respective
subsidiaries. Private parties may also bring legal action under the antitrust
laws under certain circumstances. There can be no assurance that a challenge to
the Offer on antitrust grounds will not be made or, if a challenge is
32
<PAGE>
made, what the result will be. See Section 13 of this Offer to Purchase for
certain conditions to the Offer that could become applicable in the event of
such a challenge.
In addition, the antitrust and competition laws of certain other foreign
jurisdictions require notification of the transaction and the observance of
pre-consummation waiting periods. Under applicable law and regulation in
Austria, transactions like the Offer must be notified to the Austrian Cartel
Court and may not be implemented prior to clearance. The Cartel Court will issue
a written confirmation permitting the implementation of the merger within four
to six weeks of formal notification unless it commences an investigation that
can take as long as five months. Under Austrian law, a transaction may be
prohibited only if it is likely to create or strengthen a dominant position.
Under applicable law and regulation in Germany, transactions like the Offer must
be notified to the Bundeskartellamt (the "BKA"), and may not be implemented
prior to clearance by the BKA. The BKA is obliged to decide within the one-month
period following notification whether to clear the transaction or to start a
second-stage investigation. Second-stage decisions must be rendered within four
months from the date of notification. The four-month period may be extended with
the consent of the notifying party. Under German law, a transaction may be
prohibited only if it is likely that it will create or strengthen a dominant
position.
The Company and Merger Sub will cooperate in making the required pre-merger
notification filings in Austria and Germany. It is possible that the Company and
Merger Sub will make additional pre-merger notification filings as well. It is
not expected that actions by the Austrian, German or other competition
authorities will have any material impact on the timing of the Offer or its
implementation.
OTHER FOREIGN APPROVALS. The Company owns property or conducts business in
various foreign countries and jurisdictions. In connection with the acquisition
of the Shares pursuant to the Offer, the laws of certain of those foreign
countries and jurisdictions may require the filing of information with, or the
obtaining of the approval of, governmental authorities in such countries and
jurisdictions, including the Regulatory Approvals. The governments in such
countries and jurisdictions might attempt to impose additional conditions on the
Company's operations conducted in such countries and jurisdictions as a result
of the acquisition of the Shares pursuant to the Offer. There can be no
assurance that Parent will be able to cause the Company or its subsidiaries to
satisfy or comply with such laws or that compliance or non-compliance will not
have a material adverse effect on the financial condition, properties, business
or results of operations of the Company and its subsidiaries taken as a whole or
impair Parent, Merger Sub or the Company or any of their respective affiliates,
following consummation of the Offer or Merger, to conduct any material business
or operations in any such countries. See Section 13.
STATE TAKEOVER LAWS. A number of states have adopted laws and regulations
applicable to offers to acquire securities of corporations which are
incorporated in such states and/or which have substantial assets, shareholders,
principal executive offices or principal places of business therein. In Edgar v.
MITE Corporation, the Supreme Court of the United States held that the Illinois
Business Takeover Statute, which made the takeover of certain corporations more
difficult, imposed a substantial burden on interstate commerce and was therefore
unconstitutional. In CTS Corporation v. Dynamics Corporation of America, the
Supreme Court held that as a matter of corporate law, and in particular, those
laws concerning corporate governance, a state may constitutionally disqualify an
acquiror of "Control Shares" (ones representing ownership in excess of certain
voting power thresholds e.g. 20%, 33% or 50%) of a corporation incorporated in
its state and meeting certain other jurisdictional requirements from exercising
voting power with respect to those shares without the approval of a majority of
the disinterested shareholders.
Chapter 23B.19 of the WBCA limits the ability of a Washington corporation to
engage in certain business transactions with an "acquiring person" (defined,
generally stated, as a person with 10% or more of the outstanding voting shares
of the corporation) unless, among other things, the business transaction or the
purchase of the shares in which the person became an acquiring person is
approved prior to the time that the person became an acquiring person by a
majority of the board of directors of the Washington corporation. The Company's
Board of Directors has approved the Merger Agreement and the Merger
33
<PAGE>
Sub's acquisition of Shares pursuant to the Offer and, therefore, Chapter 23B.19
of the WBCA is inapplicable to the Offer and the Merger. See Section 11.
Based on information supplied by the Company, Merger Sub does not believe
that any state takeover laws purport to apply to the Offer or the Merger.
Neither Merger Sub nor Parent has currently complied with any state takeover
statute or regulation. Merger Sub reserves the right to challenge the
applicability or validity of any state law purportedly applicable to the Offer
or the Merger and nothing in this Offer to Purchase or any action taken in
connection with the Offer or the Merger is intended as a waiver of such right.
If it is asserted that any state takeover statute is applicable to the Offer or
the Merger and if an appropriate court does not determine that it is
inapplicable or invalid as applied to the Offer or the Merger, Merger Sub might
be required to file certain information with, or to receive approvals from, the
relevant state authorities, and Merger Sub might be unable to accept for payment
or pay for Shares tendered pursuant to the Offer, or be delayed in consummating
the Offer or the Merger. In such case, Merger Sub may not be obliged to accept
for payment or pay for any Shares tendered pursuant to the Offer.
If it is asserted that one or more state takeover laws applies to the Offer
and it is not determined by an appropriate court that such act or acts do not
apply or are invalid as applied to the Offer, Merger Sub might be required to
file certain information with, or receive approvals from, the relevant state
authorities. In addition, if enjoined, Merger Sub might be unable to accept for
payment any Shares tendered pursuant to the Offer, or be delayed in consummating
the Offer. In such case, Merger Sub may not be obligated to accept for payment
any Shares tendered. See Section 13.
EXON-FLORIO. Under Section 721 of Title VII of the United States Defense
Production Act of 1950, as amended by Section 5021 of the Omnibus Trade and
Competitiveness Act of 1988 ("Exon-Florio"), the President of the United States
is authorized to prohibit or suspend acquisitions, mergers or takeovers by
foreign persons of persons engaged in interstate commerce in the United States
if the President determines, after investigation, that such foreign persons in
exercising control of such acquired persons might take action that threatens to
impair the national security of the United States and that other provisions of
existing law do not provide adequate authority to protect national security.
Pursuant to Exon-Florio, notice of an acquisition by a foreign person is to be
made to the Committee on Foreign Investment in the United States ("CFIUS"),
which is comprised of representatives of the Departments of the Treasury, State,
Commerce, Defense and Justice, the Office of Management and Budget, the United
States Trade Representative's Office and the Council of Economic Advisors and
which has been selected by the President to administer Exon-Florio, either
voluntarily by the parties to such proposed acquisition, merger or takeover or
by any member of CFIUS.
A determination that an investigation is called for must be made within 30
days after notification of a proposed acquisition, merger or takeover is first
filed with CFIUS. Any such investigation must be completed within 45 days of
such determination. Any decision by the President to take action must be
announced within 15 days of the completion of the investigation. Although
Exon-Florio does not require the filing of a notification, nor does it prohibit
the consummation of an acquisition, merger or takeover if notification is not
made, such an acquisition, merger or takeover thereafter remains indefinitely
subject to divestment should the President subsequently determine that the
national security of the United States has been threatened or impaired. Merger
Sub does not believe that the Offer or the Merger threatens to impair the
national security of the United States and does not intend to notify CFIUS of
the proposed transaction.
16. FEES AND EXPENSES.
Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch") is
acting as Dealer Manager in connection with the Offer. Pursuant to an engagement
letter, dated July 1, 1998 (the "Engagement Letter"), between Royal Philips and
Merrill Lynch, Merrill Lynch has also been retained to act as financial advisor
to Royal Philips in connection with the Offer and the Merger. Royal Philips has
agreed to pay
34
<PAGE>
Merrill Lynch in compensation for its services as Dealer Manager and as
financial advisor in connection with the Offer and the Merger as follows: Royal
Philips has agreed to pay Merrill Lynch a fee of $3,500,000 in the event that
Royal Philips or one of its affiliates acquires at least 50.1% of the
outstanding capital stock of the Company. The fees of $100,000 paid upon the
date of the Engagement Letter and $650,000 paid upon the execution of the Merger
Agreement will be credited towards the $3,500,000 fee. Royal Philips has also
agreed to reimburse Merrill Lynch for its reasonable out-of-pocket expenses,
including the reasonable fees and disbursements of its counsel, incurred in
connection with its services as financial advisor and Dealer Manager, and has
agreed to indemnify Merrill Lynch and certain affiliated parties against certain
liabilities and expenses in connection with the Offer and the Merger, including
liabilities under the federal securities laws.
Merger Sub has also retained D.F. King & Co., Inc. to act as the Information
Agent in connection with the Offer. The Information Agent may contact holders of
Shares by mail, telephone, telex, telegraph and personal interviews and may
request brokers, dealers and other nominee shareholders to forward materials
relating to the Offer to beneficial owners of Shares. The Information Agent will
receive reasonable and customary compensation for such services, plus
reimbursement of out-of-pocket expenses and Merger Sub will indemnify the
Information Agent against certain liabilities and expenses in connection with
the Offer, including liabilities under the federal securities laws.
Merger Sub will pay the Depositary reasonable and customary compensation for
its services in connection with the Offer, plus reimbursement for out-of-pocket
expenses, and will indemnify the Depositary against certain liabilities and
expenses in connection therewith, including liabilities under the federal
securities laws. Brokers, dealers, commercial banks and trust companies will be
reimbursed by Merger Sub for customary mailing and handling expenses incurred by
them in forwarding material to their customers.
17. MISCELLANEOUS.
The Offer is not being made to (nor will tenders be accepted from or on
behalf of) holders of Shares in any jurisdiction in which the making of the
Offer or the acceptance thereof would not be in compliance with the laws of such
jurisdiction. However, Merger Sub may, in its sole discretion, take such action
as it may deem necessary to make the Offer in any such jurisdiction and extend
the Offer to holders of Shares in such jurisdiction.
Neither Merger Sub nor Parent is aware of any jurisdiction in which the
making of the Offer or the acceptance of Shares in connection therewith would
not be in compliance with the laws of such jurisdiction.
Merger Sub and Parent have filed with the SEC a Statement on Schedule l4D-1
pursuant to Rule l4d-3 of the General Rules and Regulations under the Exchange
Act, furnishing certain additional information with respect to the Offer, and
may file amendments thereto. Such Statement and any amendments thereto,
including exhibits, may be examined and copies may be obtained from the
principal office of the SEC in Washington, D.C. in the manner set forth in
Section 8.
No person has been authorized to give any information or make any
representation on behalf of Parent or Merger Sub not contained in this Offer to
Purchase or in the Letter of Transmittal and, if given or made, such information
or representation must not be relied upon as having been authorized.
PHILIPS ACQUISITION, INC.
August 4, 1998
35
<PAGE>
SCHEDULE A
DIRECTORS AND EXECUTIVE OFFICERS OF KONINKLIJKE PHILIPS
ELECTRONICS N.V. (ROYAL PHILIPS ELECTRONICS)
<TABLE>
<CAPTION>
PRESENT PRINCIPAL
OCCUPATION OR EMPLOYMENT
NAME AND BUSINESS AND FIVE-YEAR EMPLOYMENT
ADDRESS OFFICE(S) HISTORY CITIZENSHIP
- ---------------------------- ---------------------------- ------------------------------- --------------------
<S> <C> <C> <C>
Cor Boonstra President; Chairman of the President, Chairman of the The Netherlands
Groenewoudseweg 1 Board of Management and Board of Management and the
5621 BA Eindhoven, Group Management Committee Group Management Committee of
The Netherlands Royal Philips Electronics.
Prior to 1993, President and
Chief Operating Officer of Sara
Lee Corporation. Chairman of
Philips Lighting Division from
1994 until 1995. Member of the
Supervisory Board of PolyGram
N.V., Sara Lee DE N.V., Hunter
Douglas International N.V.,
Technical University Eindhoven.
Dudley G. Eustace Executive Vice- President; Executive Vice-President, Vice United Kingdom and
Groenewoudseweg 1 Vice- Chairman of the Board Chairman of the Board of Canada
5621 BA Eindhoven, of Management and the Group Management and the Group
The Netherlands Management Committee Management Committee of Royal
Philips Electronics. Prior to
1997, Chief Financial Officer
of Royal Philips Electronics.
Jan H.M. Hommen Executive Vice- President; Executive Vice-President, The Netherlands
Groenewoudseweg 1 Member of the Board of Member of the Board of
5621 BA Eindhoven, Management and the Group Management and the Group
The Netherlands Management Committee; Chief Management Committee and Chief
Financial Officer Financial Officer of Royal
Philips Electronics. Prior to
1997, Chief Financial Officer
of Alcoa International Holdings
Co. Member of the Supervisory
Board of PolyGram N.V. since
1997.
</TABLE>
A-1
<PAGE>
<TABLE>
<CAPTION>
PRESENT PRINCIPAL
OCCUPATION OR EMPLOYMENT
NAME AND BUSINESS AND FIVE-YEAR EMPLOYMENT
ADDRESS OFFICE(S) HISTORY CITIZENSHIP
- ---------------------------- ---------------------------- ------------------------------- --------------------
<S> <C> <C> <C>
Adri Baan Executive Vice- President; Executive Vice-President, The Netherlands
Groenewoudseweg 1 Member of the Board of Member of the Board of
5621 BA Eindhoven, Management and the Group Management and the Group
The Netherlands Management Committee Management Committee of Royal
Philips Electronics and, until
1998, Chairman of the Philips
Business Electronics Division
of Royal Philips Electronics.
Doug J. Dunn Executive Vice- President; Executive Vice-President, United Kingdom
Groenewoudseweg 1 Member of the Board of Member of the Board of
5621 BA Eindhoven, Management and the Group Management and of the Group
The Netherlands Management Committee; Management Committee and
Chairman of the Consumer Chairman of the Consumer
Electronics Division Electronics Division of Royal
Philips Electronics. Chairman
of Philips Lighting Division
from 1993 to 1996. Member of
Supervisory Board of ASM
Lithography Holding N.V. from
1995 until 1997.
Y.C. Lo Executive Vice- President; Executive Vice-President, Republic of China
Groenewoudseweg 1 Member of the Board of Member of the Board of
5621 BA Eindhoven, Management and the Group Management, Member of the Group
The Netherlands Management Committee; Management Committee and
Chairman of the Components Chairman of the Components
Division Division of Royal Philips
Electronics. Prior to 1996,
Chairman of the Board of
Directors of Philips Taiwan Ltd
and Member of the Board of
Directors of Taiwan
Semiconductor Manufacturing
Company Ltd.
</TABLE>
A-2
<PAGE>
<TABLE>
<CAPTION>
PRESENT PRINCIPAL
OCCUPATION OR EMPLOYMENT
NAME AND BUSINESS AND FIVE-YEAR EMPLOYMENT
ADDRESS OFFICE(S) HISTORY CITIZENSHIP
- ---------------------------- ---------------------------- ------------------------------- --------------------
<S> <C> <C> <C>
Arthur P.M. van Executive Vice- President; Executive Vice-President, The Netherlands
der Poel Member of the Board of Member of the Board of
Groenewoudseweg 1 Management and the Group Management, Member of the Group
5621 BA Eindhoven, Management Committee; Management Committee and
The Netherlands Chairman of the Chairman of the Semiconductors
Semiconductors Division Division of Royal Philips
Electronics. Member of Philips
Semiconductors Division.
John W. Whybrow Executive Vice- President; Executive Vice-President, United Kingdom
Groenewoudseweg 1 Member of the Board of Member of the Board of
5621 BA Eindhoven, Management and the Group Management, Member of the Group
The Netherlands Management Committee; Management Committee and
Chairman of the Lighting Chairman of the Lighting
Division Division of Royal Philips
Electronics. Since 1997,
Director of Wolseley PLC and
Chairman Lumiled Lighting B.V.
R. Pieper Executive Vice- President; Executive Vice-President, The Netherlands
Groenewoudseweg 1 Member of the Board of Member of the Board of
5621 BA Eindhoven, Management and the Group Management and Member of the
The Netherlands Management Committee Group Management Committee.
Chief Executive Office of
Tandem Computers from 1996 to
1997 and Chief Executive
Officer of Ungermaan-Bass from
1993 to 1995.
</TABLE>
<TABLE>
<S> <C> <C> <C>
Michael P. Moakley* Member of the Group Member of the Group United States
1251 Avenue of the Management Committee; Management Committee of
Americas New York, NY President and Chief Royal Philips
10020 Executive Officer of Electronics. President
Philips Electronics and Chief Executive
North America Officer of Philips Elec-
Corporation tronics North America
Corporation. From 1989 to
1997, President and CEO
of Philips Medical
Systems.
</TABLE>
- ------------------------
* Purchased 2,000 Shares, or less than 0.1% of the outstanding Shares, on
October 20, 1995.
A-3
<PAGE>
<TABLE>
<CAPTION>
PRESENT PRINCIPAL
OCCUPATION OR EMPLOYMENT
NAME AND BUSINESS AND FIVE-YEAR EMPLOYMENT
ADDRESS OFFICE(S) HISTORY CITIZENSHIP
- ---------------------- ---------------------- ------------------------- ----------------
<S> <C> <C> <C> <C>
Ad H.A. Veenhof Member of the Group Member of the Group Management The Netherlands
Groenewoudseweg 1 Management Committee; Committee, Chairman of the
5621 BA Eindhoven, Chairman of the Domestic Domestic Appliances and
The Netherlands Appliances and Personal Care Personal Care Division of Royal
Division Philips Electronics. Prior to
1996, Member of Management of
Philips Consumer Electronics.
Kees Bulthuis Member of the Group Member of the Group Management The Netherlands
Groenewoudseweg 1 Management Committee; Senior Committee and Senior Managing
5621 BA Eindhoven, Managing Director of Director of Corporate Research
The Netherlands Corporate Research of Royal Philips Electronics.
J. M. Barella Member of the Group Member of the Group Management The Netherlands
Groenewoudseweg 1 Management Committee; Committee of Royal Philips
5621 BA Eindhoven, Chairman of the Medical Electronics. Chairman and
The Netherlands Systems Division Member of the Management
Committee of the Medical
Systems Division of Royal
Philips Electronics.
A.B. Bok Member of the Group Member of the Group Management The Netherlands
Groenewoudseweg 1 Management Committee; Committee and Chairman of the
5621 BA Eindhoven, Chairman of the Business Business Electronics Committee
The Netherlands Electronics Division of Royal Philips Electronics.
Prior to April 1998, Chairman
of the Philips Industrial
Electronics Division.
J.P. Oosterveld Member of the Group Member of the Group Management The Netherlands
Groenewoudseweg 1 Management Committee; Senior Committe and Senior Director of
5621 BA Eindhoven, Director of Corporate Corporate Strategy of Royal
The Netherlands Strategy Philips Electronics. Prior to
1997, Management of Philips Key
Modules.
</TABLE>
A-4
<PAGE>
<TABLE>
<CAPTION>
PRESENT PRINCIPAL
OCCUPATION OR EMPLOYMENT
NAME AND BUSINESS AND FIVE-YEAR EMPLOYMENT
ADDRESS OFFICE(S) HISTORY CITIZENSHIP
- ---------------------------- ---------------------------- ------------------------------- --------------------
<S> <C> <C> <C> <C>
A. Westerlaken Member of the Group Member of the Group Management The Netherlands
Groenewoudseweg 1 Management Committee; Committee, General Secretary,
5621 BA Eindhoven, General Secretary; Chief Chief Legal Officer and
The Netherlands Legal Officer; Secretary to Secretary to the Board of
the Board of Management Management of Royal Philips
Electronics. Since 1995, Mem-
ber of the Supervisory Board of
ASM Lithography Holding N.V.
From 1990 to 1994, Chief Legal
Officer of DAF N.V.
N.J. Bruijel Member of the Group Member of the Group Management The Netherlands
Groenewoudseweg 1 Management Committee Committee responsible for
5621 BA Eindhoven, responsible for Corporate Corporate Human Resources
The Netherlands Human Resources Management Management of Royal Philips
Electronics. Prior to July
1998, General Management of
Philips Japan. Prior to 1996,
Management of Philips Lighting
Division.
F.A. Maljers Member of the Supervisory Retired. Member of the The Netherlands
Groenewoudseweg 1 Board Supervisory Board of Royal
5621 BA Eindhoven, Philips Electronics since 1993.
The Netherlands Prior to 1994, Chairman and
Chief Executive Officer of
Unilever N.V. Currently,
Vice-Chairman of the
Supervisory Board of KLM Royal
Dutch Airlines, Member of the
Supervisory Board of SHV
Holdings N.V., Non-Executive
Director of Amoco Petroleum and
Diageo PLC, Member of the
Advisory Committee of KPMG
Holding N.V. and Professor of
Strategic Management at Erasmus
University Rotterdam.
</TABLE>
A-5
<PAGE>
<TABLE>
<CAPTION>
PRESENT PRINCIPAL
OCCUPATION OR EMPLOYMENT
NAME AND BUSINESS AND FIVE-YEAR EMPLOYMENT
ADDRESS OFFICE(S) HISTORY CITIZENSHIP
- ---------------------------- ---------------------------- ------------------------------- --------------------
<S> <C> <C> <C> <C>
A. Leysen Member of the Supervisory Retired. Member of the Belgium
Groenewoudseweg 1 Board Supervisory Board of Royal
5621 BA Eindhoven, Philips Electronics since 1983.
The Netherlands Chairman of the Supervisory
Boards of Agfa-Gevaert Group,
Gevaert N.V., Hapag-Lloyd AG
(from 1990 to 1997) and SHV
Holdings N.V. Prior to 1998,
Vice-Chairman of the
Supervisory Board of BMW AG.
Currently, Member of the
Supervisory Boards of Bayer AG,
VEBA AG, Deutsche Telekom AG.
W. Hilger Member of the Supervisory Retired. Member of the Germany
Groenewoudseweg 1 Board Supervisory Board of Royal
5621 BA Eindhoven, Philips Electronics since 1990.
The Netherlands Prior to 1994, Chairman of the
Board of Management of Hoechst
A.G. Currently, Member of the
Supervisory Boards of Dresdner
Bank A.G., Mannesmann AG,
Alusuisse Lonza, Huls AG, IBM
Deutschland GmbH; Chairman of
the Supervisory Boards of
Victoria Versicherung AG and
Victoria Lebensversicherung AG.
L.C. van Wachem Member of the Supervisory Retired. Member of the The Netherlands
Groenewoudseweg 1 Board Supervisory Board of Royal
5621 BA Eindhoven, Philips Electronics since 1993.
The Netherlands Member of the Supervisory
Boards of N.V. Koninklijke
Nederlandsche Petroleum
Maatschappij, ABB Asea Brown
Boveri Ltd., Akzo Nobel N.V.,
Bayer AG, BMW AG, and Zurich
Versicherungs-Gruppe; Member of
the Board of Directors of IBM
Corporation, ATCO Ltd, and
Credit Suisse Holding.
</TABLE>
A-6
<PAGE>
<TABLE>
<CAPTION>
PRESENT PRINCIPAL
OCCUPATION OR EMPLOYMENT
NAME AND BUSINESS AND FIVE-YEAR EMPLOYMENT
ADDRESS OFFICE(S) HISTORY CITIZENSHIP
- ---------------------------- ---------------------------- ------------------------------- --------------------
<S> <C> <C> <C> <C>
C.J. Oort Member of the Supervisory Retired. Member of the The Netherlands
Groenewoudseweg 1 Board Supervisory Board of Royal
5621 BA Eindhoven, Philips Electronics since 1995.
The Netherlands Chairman of the Supervisory
Boards of Royal Dutch Airlines
KLM and the Robeco group;
Member of the Supervisory
Boards of KPN Koninklijke PTT
Nederland (KPN and TPG since
June 26, 1998), Northern
Telecom International Finance,
BCE Telecom International
Holdings, BCE Tele-Direct
Publications International,
Hoogenbosch Retail Group;
Member of the Board of
Stichting HBG, Stichting
Koninklijke Nedlloyd, Stichting
Koninklijke van Ommeren;
Advisory Board Member of Price
Waterhouse (the Netherlands).
Prior to 1995, Professor of
Economics, University of
Maastricht.
L. Schweitzer Member of the Supervisory Member of the Supervisory Board France
34 Quai du Point Board of Royal Philips Electronics
du Jour since 1997. Chairman and Chief
BP 103 92109 Executive Officer of La Regie
Boulogne Bilancourt Nationale des Usines Renault;
Cedex, France Member of the Boards of
Pechiney, Banque Nationale de
Paris, Credit National, and
I.F.R.I.
</TABLE>
A-7
<PAGE>
DIRECTORS AND EXECUTIVE OFFICERS OF PHILIPS HOLDING USA INC.
<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION OR
NAME AND BUSINESS EMPLOYMENT AND FIVE-YEAR
ADDRESS OFFICE(S) EMPLOYMENT HISTORY CITIZENSHIP
- ------------------------------ ------------------------------ ------------------------------- ---------------
<S> <C> <C> <C>
Sir Richard Greenbury Member of the Supervisory Member of the Supervisory Board United Kingdom
Michael House Board of Royal Philips Electronics
47 Bakerstreet since 1998. Chairman and Chief
London W1A 1DN, Executive of Marks & Spencer
United Kingdom plc; Non-Executive Director of
Lloyds TSB Bank from 1992 to
1997, ICI from 1992 to 1993,
and Zeneca.
W. de Kleuver Member of the Supervisory Retired. Prior to August 1, The Netherlands
Groenewoudseweg 1 Board 1998, Executive Vice- President,
5621 BA Eindhoven, Member of the Board of
The Netherlands Management and Group Management
Committee of Royal Philips
Electronics. Prior to 1996,
Chairman of the Philips
Components Division.
Michael P. Moakley* Chairman of the Board; President and Chief Executive United States
1251 Avenue of the Americas President Officer of Philips Electronics
New York, NY 10020 North America Corporation since
March, 1996. Prior to that
time, President and Chief
Executive Officer of Philips
Medical Systems.
William E. Curran Senior Vice President -- Senior Vice President and Chief United States
1251 Avenue of the Americas Finance; Treasurer Financial Officer of Philips
New York, NY 10020 Electronics North America
Corporation since February,
1996. Prior to that time, Vice
President, Chief Operating
Officer and Chief Financial
Officer of Philips Medical
Systems.
Samuel J. Rozel Senior Vice-President; Senior Vice President, General United States
1251 Avenue of the Americas Secretary Counsel, Secretary and Director
New York, NY 10020 of Philips Electronics North
America Corporation since 1989.
Paul S. Friedlander Assistant Secretary Vice-President, Tax and Customs United States
1251 Avenue of the Americas Administration of Philips
New York, NY 10020 Electronics North America
Corporation.
</TABLE>
- ------------------------
* See previous footnote.
A-8
<PAGE>
DIRECTORS AND EXECUTIVE OFFICERS OF PHILIPS ELECTRONICS
NORTH AMERICA CORPORATION
<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION OR
NAME AND BUSINESS EMPLOYMENT AND FIVE-YEAR
ADDRESS OFFICE(S) EMPLOYMENT HISTORY CITIZENSHIP
- ------------------------------ ------------------------------ ------------------------------- ---------------
<S> <C> <C> <C>
Michael P. Moakley* President; Chief Executive President and Chief Executive United States
1251 Avenue of the Americas Officer; Director Officer of Philips Electronics
New York, NY 10020 North America Corporation since
March, 1996. Prior to that
time. President and Chief
Executive Officer of Philips
Medical Systems.
William E. Curran Senior Vice-President; Chief Senior Vice President and United States
1251 Avenue of the Americas Financial Officer; Director Financial Officer of Philips
New York, NY 10020 Electronics North America
Corporation since Feburary,
1996. Prior to that time, Vice
President, Chief Operating
Officer and Chief Financial
Officer of Philips Medical
Systems.
Samuel J. Rozel Senior Vice-President; Senior Vice President, General United States
1251 Avenue of the Americas Secretary; General Counsel, Secretary and Director
New York, NY 10020 of Philips Electronics North
America Corporation since 1989.
William A. Enser Senior Vice-President, Senior Vice-President, Business United States
1251 Avenue of the Americas Business Development and Development and Process
New York, NY 10020 Process Improvement Improvement of Philips
Electronics North America
Corporation. Prior to January
1998, President of Philips
Electronic Instruments Company,
a division of Philips
Electronic North America
Corporation.
Robert F. Matthews Senior Vice-President, Human Senior Vice-President, Human United States
1251 Avenue of the Americas Resources Resources of Philips
New York, NY 10020 Electronics Corporation of
North America. Prior to July
1994, Manager, Financial
Leadership Development and
Human Resources General
Electric Company.
</TABLE>
- ------------------------
* See previous footnote.
A-9
<PAGE>
DIRECTORS AND EXECUTIVE OFFICERS OF PHILIPS ACQUISITION, INC.
<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION OR
NAME AND BUSINESS EMPLOYMENT AND FIVE-YEAR
ADDRESS OFFICE(S) EMPLOYMENT HISTORY CITIZENSHIP
- ------------------------------ ------------------------------ ------------------------------- ---------------
<S> <C> <C> <C>
William E. Curran President; Chief Executive Senior Vice President and Chief United States
1251 Avenue of the Americas Officer; Director Financial Officer of Philips
New York, NY 10020 Electronics North America
Corporation since February,
1996. Prior to that time, Vice
President, Chief Operating
Officer and Chief Financial
Officer of Philips Medical
Systems.
Michael P. Moakley* Vice President; Treasurer; President and Chief Executive United States
1251 Avenue of the Americas Assistant Secretary; Director Officer of Philips Electronics
New York, NY 10020 North America Corporation since
March, 1996. Prior to that
time, President and Chief
Executive Officer of Philips
Medical Systems.
Samuel J. Rozel Vice-President; Secretary; Senior Vice President, General United States
1251 Avenue of the Americas Assistant Treasurer; Director Counsel, Secretary and Director
New York, NY 10020 of Philips Electronics North
America Corporation since 1989.
</TABLE>
- ------------------------
* See previous footnote.
A-10
<PAGE>
[Back Cover]
Facsimile copies of the Letter of Transmittal, properly completed and duly
signed, will be accepted. The Letter of Transmittal, certificates for Shares and
any other required documents should be sent by each shareholder of the Company
or such shareholder's broker-dealer, commercial bank, trust company or other
nominee to the Depositary at one of the addresses set forth below:
THE DEPOSITARY FOR THE OFFER IS:
CITIBANK, N.A.
<TABLE>
<S> <C> <C>
BY HAND: BY MAIL: BY OVERNIGHT COURIER:
CITIBANK, N.A. CITIBANK--WWSS CITIBANK-WWSS
Corporate Trust Window c/o Citicorp Data c/o Citicorp Data
111 Wall Street, 5th Floor Distribution, Inc. Distribution, Inc.
New York, New York 10043 P.O. Box 7073 400 Sette Drive
Paramus, New Jersey 07653 Paramus, New Jersey 07652
</TABLE>
BY FACSIMILE TRANSMISSION (FOR ELIGIBLE INSTITUTIONS ONLY):
(201) 262-3240
CONFIRM RECEIPT OF FACSIMILE BY TELEPHONE ONLY:
(800) 422-2077
Any questions or requests for assistance or additional copies of the Offer
to Purchase and the Letter of Transmittal may be directed to the Information
Agent or the Dealer Manager at their respective telephone numbers and locations
listed below. You may also contact your broker, dealer, commercial bank or trust
company or other nominee for assistance concerning the Offer.
THE INFORMATION AGENT FOR THE OFFER IS:
D. F. KING & CO., INC.
77 Water Street
New York, New York 10005
Banks and Brokers Call Collect: (212) 269-5550
ALL OTHERS CALL TOLL FREE: (800) 769-7666
THE DEALER MANAGER FOR THE OFFER IS:
MERRILL LYNCH & CO.
World Financial Center
North Tower
New York, New York 10281-1305
(212) 449-8971 (Call Collect)
<PAGE>
LETTER OF TRANSMITTAL
TO TENDER SHARES OF COMMON STOCK
(INCLUDING THE ASSOCIATED PREFERRED STOCK PURCHASE RIGHTS)
OF
ATL ULTRASOUND, INC.
PURSUANT TO THE OFFER TO PURCHASE DATED AUGUST 4, 1998
BY
PHILIPS ACQUISITION, INC.
A WHOLLY OWNED SUBSIDIARY OF
PHILIPS ELECTRONICS NORTH AMERICA CORPORATION
AND AN INDIRECT WHOLLY OWNED SUBSIDIARY OF
KONINKLIJKE PHILIPS ELECTRONICS N.V.
(ROYAL PHILIPS ELECTRONICS)
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY
TIME, ON MONDAY, AUGUST 31, 1998, UNLESS THE OFFER IS EXTENDED.
This Letter of Transmittal, certificates for Shares (as defined below) and
any other required documents should be sent or delivered by each shareholder of
the Company or his broker, dealer, commercial bank or other nominee to the
Depositary at one of its addresses set forth below.
<TABLE>
<S> <C> <C>
THE DEPOSITARY FOR THE OFFER IS:
CITIBANK, N.A.
BY MAIL: BY OVERNIGHT DELIVERY: BY HAND:
CITIBANK-WWSS CITIBANK-WWSS CITIBANK, N.A.
c/o Citicorp Data Distribution, Inc. c/o Citicorp Data Distribution, Inc. Corporate Trust Window
P.O. Box 7073 400 Sette Drive 111 Wall Street, 5th Floor
Paramus, New Jersey 07653 Paramus, New Jersey 07652 New York, New York 10043
</TABLE>
<TABLE>
<S> <C>
FACSIMILE TRANSMISSION: CONFIRM FACSIMILE BY TELEPHONE:
(For Eligible Institutions Only) (800) 422-2077
(201) 262-3240
</TABLE>
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH
ABOVE, OR TRANSMISSION VIA A FACSIMILE NUMBER OTHER THAN AS SET FORTH ABOVE,
WILL NOT CONSTITUTE A VALID DELIVERY.
THE INSTRUCTIONS ACCOMPANYING THIS LETTER OF TRANSMITTAL SHOULD BE READ
CAREFULLY BEFORE THIS LETTER OF TRANSMITTAL IS COMPLETED.
This Letter of Transmittal is to be completed by shareholders either if
certificates are to be forwarded herewith or, unless an Agent's Message (as
defined in Section 3 of the Offer to Purchase (as defined below)) is utilized,
if delivery is to be made by book-entry transfer to the Depositary's account at
The Depository Trust Company (the "Book-Entry Transfer Facility") pursuant to
the procedures set forth in Section 3 of the Offer to Purchase. Shareholders
whose certificates evidencing Shares ("Share Certificates") are not immediately
available or who cannot deliver their Share Certificates and all other documents
required hereby to the Depositary prior to the Expiration Date (as defined in
Section 1 of the Offer to Purchase), or who cannot comply with the book-entry
transfer procedures on a timely basis must tender their Shares according to the
guaranteed delivery procedure set forth in Section 3 of the Offer to Purchase.
See Instruction 2. DELIVERY OF DOCUMENTS TO THE BOOK-ENTRY TRANSFER FACILITY
DOES NOT CONSTITUTE DELIVERY TO THE DEPOSITARY.
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
DESCRIPTION OF SHARES TENDERED
- --------------------------------------------------------------------------------------------------
NAME(S) AND ADDRESS(ES) OF REGISTERED HOLDER(S) SHARE CERTIFICATE(S) AND SHARE(S)
(PLEASE FILL IN, IF BLANK, EXACTLY AS NAME(S) APPEAR(S) TENDERED
ON SHARE CERTIFICATE(S) AND SHARE(S) TENDERED) (ATTACH ADDITIONAL LIST IF NECESSARY)
- ---------------------------------------------------------------------------------------------------
TOTAL NUMBER
OF SHARES
SHARE REPRESENTED NUMBER OF
CERTIFICATE BY SHARES
NUMBER(S)* CERTIFICATES* TENDERED**
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------
----------------------------------------
----------------------------------------
----------------------------------------
----------------------------------------
----------------------------------------
TOTAL
SHARES:
- ---------------------------------------------------------------------------------------------------
* NEED NOT BE COMPLETED BY SHAREHOLDERS TENDERING BY BOOK-ENTRY TRANSFER.
** UNLESS OTHERWISE INDICATED, IT WILL BE ASSUMED THAT ALL SHARES EVIDENCED BY EACH SHARE
CERTIFICATE DELIVERED TO THE DEPOSITARY ARE BEING TENDERED HEREBY. SEE INSTRUCTION 4.
------------------------------------------------------------------------------------------------
</TABLE>
BOXES BELOW FOR USE BY ELIGIBLE INSTITUTIONS ONLY
<TABLE>
<S> <C>
/ / CHECK HERE IF TENDERED SHARES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER MADE TO THE ACCOUNT
MAINTAINED BY THE DEPOSITARY WITH THE BOOK-ENTRY TRANSFER FACILITY AND COMPLETE THE FOLLOWING:
Name of Tendering Institution:
Account Number:
Transaction Code Number:
/ / CHECK HERE IF TENDERED SHARES ARE BEING DELIVERED PURSUANT TO A NOTICE OF GUARANTEED DELIVERY
SENT TO THE DEPOSITARY PRIOR TO THE DATE HEREOF AND COMPLETE THE FOLLOWING:
Name(s) of Registered Owner(s):
Window Ticket Number (if any):
Date of Execution of Notice of Guaranteed Delivery:
Name of Institution that Guaranteed Delivery:
Account Number (if delivered by Book-Entry Transfer):
Transaction Code Number:
</TABLE>
<PAGE>
NOTE: SIGNATURES MUST BE PROVIDED BELOW
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
Ladies and Gentlemen:
The undersigned hereby tenders to Philips Acquisition, Inc., a Washington
corporation ("Merger Sub"), a wholly owned subsidiary of Philips Electronics
North America Corporation, a Delaware corporation ("Parent"), and an indirect
wholly owned subsidiary of Koninklijke Philips Electronics N.V., a company
incorporated under the laws of The Netherlands ("Royal Philips"), the
above-described shares of Common Stock, par value $0.01 per share (the "Common
Stock"), of ATL Ultrasound, Inc., a Washington corporation (the "Company"),
including the associated rights to purchase Series A Participating Cumulative
Preferred Stock (the "Rights") issued pursuant to the Amended and Restated
Rights Agreement, dated as of June 26, 1992 (the "Rights Agreement"), between
the Company and First Chicago Trust Company (the Common Stock and the Rights
together are referred to herein as the "Shares"), at $50.50 per Share, net to
the seller in cash, without interest, upon the terms and subject to the
conditions set forth in the Offer to Purchase dated August 4, 1998 (as amended
or supplemented from time to time, the "Offer to Purchase"), receipt of which is
hereby acknowledged, and in this Letter of Transmittal (which, as amended or
supplemented from time to time, together constitute the "Offer"). The
undersigned understands that Merger Sub reserves the right to transfer or
assign, in whole or in part from time to time to Parent or one or more direct or
indirect wholly owned subsidiaries of Parent, the right to purchase Shares
tendered pursuant to the Offer.
Subject to and effective upon acceptance for payment of, and payment for,
the Shares tendered herewith in accordance with the terms and subject to the
conditions of the Offer (including, if the Offer is extended or amended, the
terms and conditions of such extension or amendment) the undersigned hereby
sells, assigns and transfers to, or upon the order of, Merger Sub all right,
title and interest in and to all of the Shares that are being tendered hereby
and any and all cash dividends, distributions, rights, other Shares or other
securities issued or issuable in respect of such Shares on or after July 29,
1998 (collectively, "Distributions") and irrevocably appoints the Depositary the
true and lawful agent and attorney-in-fact of the undersigned with respect to
such Shares and all Distributions with full power of substitution (such power of
attorney being deemed to be an irrevocable power coupled with an interest), to
the fullest extent of such shareholder's right with respect to such Shares (and
any Distributions) (a) to deliver such Share Certificates evidencing such Shares
and all Distributions, or transfer ownership of such Shares and all
Distributions on the account books maintained by the Book-Entry Transfer
Facility together, in either case, with all accompanying evidences of transfer
and authenticity, to or upon the order of Merger Sub, upon receipt by the
Depositary, as the undersigned's agent, of the purchase price (adjusted, if
appropriate, as provided in the Offer to Purchase), (b) present such Shares and
all Distributions for transfer on the books of the Company, and (c) receive all
benefits and otherwise exercise all rights of beneficial ownership of such
Shares and all Distributions, all in accordance with the terms of the Offer.
The undersigned hereby irrevocably appoints Merger Sub, its officers and
designees, and each of them, the attorneys-in-fact and proxies of the
undersigned, each with full power of substitution, to the full extent of the
undersigned's rights, including to exercise such voting and other rights as each
such attorney and proxy or his (or her) substitute shall, in his (or her) sole
discretion, deem proper, and otherwise act (including pursuant to written
consent), with respect to all of the Shares tendered hereby which have been
accepted for payment by Merger Sub (and any and all Distributions), which the
undersigned is entitled to vote at any meeting of shareholders of the Company
(whether annual or special and whether or not an adjourned meeting), or written
consent in lieu of such meeting, or otherwise. This proxy and power of attorney
is coupled with an interest in the Shares tendered hereby and is irrevocable and
is granted in consideration of, and is effective upon, the acceptance for
payment of such Shares by Merger Sub in accordance with the terms of the Offer.
Such acceptance for payment shall, without further action, revoke all prior
proxies and consents granted by the undersigned with respect to such Shares (and
all Shares and other securities issued in Distributions in respect of such
Shares), and no subsequent proxy or power of attorney or written consent shall
be given (and if given or executed, shall be deemed not to be effective) with
respect thereto by the undersigned. Merger Sub reserves the right to require
that, in order for Shares to be deemed validly tendered, immediately upon Merger
Sub's acceptance for payment of such Shares, Merger Sub is able to exercise full
voting and other rights with respect to such Shares (and any associated
Distributions), including voting at any meeting of stockholders.
The undersigned hereby represents and warrants that the undersigned has full
power and authority to tender, sell, assign and transfer the Shares tendered
hereby and all Distributions, and that when such Shares are accepted for payment
by Merger Sub, Merger Sub will acquire good, marketable and unencumbered title
thereto, free and clear of all liens, restrictions, charges and encumbrances,
and that none of such Shares and Distributions will be subject to any adverse
claim. The undersigned, upon request, shall execute and delivery any signature
guarantees or additional documents deemed by the Depositary or Merger Sub to be
necessary or desirable to complete the sale, assignment and transfer of the
Shares tendered hereby and all other Securities. In addition, the undersigned
shall promptly remit and transfer to the Depositary for the account of Merger
Sub all Distributions in respect of the Shares tendered hereby, accompanied by
appropriate documentation of transfer, and pending such remittance or
appropriate assurance thereof, Merger Sub shall be entitled to all rights and
privileges as owner of such Distributions and may withhold the entire purchase
price or deduct from the purchase price the amount or value thereof, as
determined by Merger Sub in its sole discretion.
<PAGE>
All authority herein conferred or agreed to be conferred pursuant to this
Letter of Transmittal shall not be affected by, and shall survive, the death or
incapacity of the undersigned, and any obligation of the undersigned hereunder
shall be binding upon the successors, assigns, heirs, executors, administrators
and legal representatives of the undersigned. Except as stated in the Offer to
Purchase, this tender is irrevocable.
The undersigned understands that valid tenders of Shares pursuant to any one
of the procedures described in Section 3 of the Offer to Purchase and in the
instructions hereto will constitute a binding agreement between the undersigned
and Merger Sub upon the terms and subject to the conditions of the Offer. The
undersigned recognizes that under certain circumstances set forth in the Offer
to Purchase, Merger Sub may not be required to accept for payment any of the
Shares tendered hereby.
Unless otherwise indicated herein under "Special Payment Instructions,"
please issue the check for the purchase price and/or return any Share
Certificates evidencing Shares not tendered or not accepted for payment in the
name(s) of the registered holder(s) appearing under "Description of Shares
Tendered." Similarly, unless otherwise indicated under "Special Delivery
Instructions," please mail the check for the purchase price and/or return any
Share Certificates evidencing Shares not tendered or accepted for payment (and
accompanying documents, as appropriate) to the address(es) of the registered
holder(s) appearing under "Description of Shares Tendered." If both the Special
Delivery Instructions and the Special Payment Instructions are completed, please
issue the check for the purchase price and/or return any Share Certificates
evidencing Shares not purchased (together with accompanying documents as
appropriate) in the name(s) of, and deliver said check and/or return such Share
Certificates to, the person or persons so indicated. Shareholders tendering
Shares by book-entry transfer may request that any Shares not accepted for
payment be returned by crediting such account maintained at the Book-Entry
Transfer Facility as such stockholder may designate by making an appropriate
entry under "Special Payment Instructions." The undersigned recognizes that
Merger Sub has no obligation pursuant to the Special Payment Instructions to
transfer any Shares from the name of the registered holder(s) thereof if Merger
Sub does not accept for payment any of the Shares so tendered.
- ------------------------------------------------
SPECIAL PAYMENT INSTRUCTIONS
(SEE INSTRUCTIONS 1, 5, 6 AND 7)
To be completed ONLY if the check for the purchase price of Shares
purchased and/or Share Certificates evidencing Shares not tendered or not
purchased are to be issued in the name of someone other than the
undersigned.
Issue
/ / Check and/or / / Certificate(s)
To:
____________________________________________________________________________
____________________________________________________________________________
NAME(S) (PLEASE PRINT)
Address
____________________________________________________________________________
____________________________________________________________________________
____________________________________________________________________________
(INCLUDE ZIP CODE)
__________________________________________________________________________
(TAXPAYER IDENTIFICATION OR SOCIAL SECURITY NO.)
(SEE SUBSTITUTE FORM W-9 CONTAINED HEREIN)
- ------------------------------------------------------------
- ------------------------------------------------------------
SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 5 AND 7)
To be completed ONLY if the check for the purchase price of the Shares
purchased and/or Share Certificates evidencing Shares not tendered or not
purchased are to be mailed to someone other than the undersigned, or to the
undersigned at an address other than that shown under "Description of Shares
Tendered."
Mail
/ / Check and/or / / Certificate(s)
To:
____________________________________________________________________________
____________________________________________________________________________
NAME (PLEASE PRINT)
Address
____________________________________________________________________________
____________________________________________________________________________
____________________________________________________________________________
(INCLUDE ZIP CODE)
-----------------------------------------------------------
<PAGE>
--------------------------------------------------------------------------
SHAREHOLDERS SIGN HERE
(PLEASE COMPLETE SUBSTITUTE FORM W-9 CONTAINED HEREIN)
X __________________________________________________________________________
X __________________________________________________________________________
SIGNATURE(S) OF SHAREHOLDER(S)
Dated: _____________, 1998
(Must be signed by registered holder(s) as name(s) appear(s) on Share
Certificate(s) or on a security position listing or by person(s) authorized
to become registered holder(s) by certificates and documents transmitted
herewith. If signature is by trustees, executors, administrators, guardians,
attorneys-in-fact, agents, officers of a corporation or others acting in a
fiduciary or representative capacity, please provide the following
information. See Instruction 5.)
____________________________________________________________________________
(NAME(S))
__________________________________________________________________________
(PLEASE PRINT OR TYPE)
__________________________________________________________________________
CAPACITY (FULL TITLE)
__________________________________________________________________________
ADDRESS
__________________________________________________________________________
ZIP CODE
<TABLE>
<S> <C>
AREA CODE AND TELEPHONE NUMBER (HOME) TAX IDENTIFICATION OR SOCIAL SECURITY NUMBER
(COMPLETE SUBSTITUTE FORM W-9 BELOW)
AREA CODE AND TELEPHONE NUMBER (BUSINESS)
</TABLE>
GUARANTEE OF SIGNATURE(S)
(IF REQUIRED--SEE INSTRUCTIONS 1 AND 5)
X __________________________________________________________________________
AUTHORIZED SIGNATURE
__________________________________________________________________________
NAME (PLEASE PRINT OR TYPE)
<TABLE>
<S> <C>
FULL TITLE NAME OF FIRM
</TABLE>
____________________________________________________________________________
ADDRESS
__________________________________________________________________________
INCLUDE ZIP CODE
<TABLE>
<S> <C>
Date: , 1998
AREA CODE AND TELEPHONE NUMBER
</TABLE>
- --------------------------------------------------------------------------------
<PAGE>
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE OFFER
1. GUARANTEE OF SIGNATURES. Except as provided below, all signatures on this
Letter of Transmittal must be guaranteed by a financial institution (including
most commercial banks, savings and loan associations and brokerage houses) that
is a participant in the Security Transfer Agents Medallion Program, the New York
Stock Exchange Medallion Signature Guarantee Program or the Stock Exchange
Medallion Program (each, an "Eligible Institution"). Signatures on a Letter of
Transmittal need not be guaranteed (a) if this Letter of Transmittal is signed
by the registered holders (which term, for purposes of this document, includes
any participant in the Book-Entry Transfer Facility's systems whose name appears
on a security position listing as the owner of the Shares) of Shares tendered
herewith and such registered holder has not completed the box entitled "Special
Payment Instructions" or the box entitled "Special Delivery Instructions" on
this Letter of Transmittal, or (b) if such Shares are tendered for the account
of an Eligible Institution. See Instruction 5.
2. DELIVERY OF LETTER OF TRANSMITTAL AND CERTIFICATES; GUARANTEED DELIVERY
PROCEDURES. This Letter of Transmittal is to be completed by stockholders either
if Share Certificates are to be forwarded herewith or if a tender of Shares is
to be made pursuant to the procedures for delivery by book-entry transfer set
forth in Section 3 of the Offer to Purchase. Share Certificates evidencing all
physically tendered Shares, or confirmation ("Book-Entry Confirmation") of any
book-entry transfer into the Depositary's account at the Book-Entry Transfer
Facility of Shares delivered by book-entry transfer as well as a properly
completed and duly executed letter of transmittal, must be received by the
Depositary, at one of the addresses set forth herein on or prior to the
Expiration Date (as defined in Section 1 of the Offer to Purchase). If Share
Certificates are forwarded to the Depositary in multiple deliveries, a properly
completed and duly executed Letter of Transmittal must accompany each such
delivery.
Stockholders whose Share Certificates are not immediately available, who
cannot deliver their Share Certificates and all other required documents to the
Depositary prior to the Expiration Date or who cannot comply with the book-entry
transfer procedures on a timely basis may tender their Shares by properly
completing and duly executing a Notice of Guaranteed Delivery pursuant to the
guaranteed delivery procedure set forth in Section 3 of the Offer to Purchase.
Pursuant to such procedure, (i) such tender must be made by or through an
Eligible Institution, (ii) a properly completed and duly executed Notice of
Guaranteed Delivery, substantially in the form provided by Merger Sub, must be
received by the Depositary prior to the Expiration Date and (iii) the Share
Certificates evidencing all physically tendered Shares (or Book-Entry
Confirmation with respect to such Shares), as well as a properly completed and
duly executed Letter of Transmittal (or facsimile thereof) with any required
signature guarantees, or, in the case of a book-entry transfer, an Agent's
Message (as defined in Section 3 of the Offer to Purchase) and any other
documents required by this Letter of Transmittal, must be received by the
Depositary within three New York Stock Exchange trading days after the date of
execution of such Notice of Guaranteed Delivery, all as provided in Section 3 of
the Offer to Purchase.
If Share Certificates are forwarded separately to the Depositary, a properly
completed and duly executed Letter of Transmittal must accompany each such
delivery.
THE METHOD OF DELIVERY OF SHARES, THIS LETTER OF TRANSMITTAL AND ALL OTHER
REQUIRED DOCUMENTS, INCLUDING DELIVERY THROUGH THE BOOK-ENTRY TRANSFER FACILITY,
IS AT THE ELECTION AND RISK OF THE TENDERING SHAREHOLDER. SHARES WILL BE DEEMED
DELIVERED ONLY WHEN ACTUALLY RECEIVED BY THE DEPOSITARY (INCLUDING, IN THE CASE
OF A BOOK-ENTRY TRANSFER, BY BOOK-ENTRY CONFIRMATION). IF DELIVERY IS BY MAIL,
IT IS RECOMMENDED THAT THE SHAREHOLDER USE PROPERLY INSURED REGISTERED MAIL WITH
RETURN RECEIPT REQUESTED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO
ENSURE TIMELY DELIVERY.
<PAGE>
No alternative, conditional or contingent tenders will be accepted and no
fractional Shares will be purchased. All tendering shareholders, by execution of
this Letter of Transmittal (or facsimile thereof), waive any right to receive
any notice of the acceptance of their Shares for payment.
3. INADEQUATE SPACE. If the space provided herein under "Description of
Shares Tendered" is inadequate, the certificate numbers and/or the number of
Shares tendered should be listed on a separate signed schedule and attached
hereto.
4. PARTIAL TENDERS. (Not applicable to stockholders who tender by book-entry
transfer.) If fewer than all the Shares evidenced by any Share Certificate
submitted are to be tendered, fill in the number of Shares which are to be
tendered in the box entitled "Number of Shares Tendered." In such cases, new
Share Certificate(s) evidencing the remainder of the Shares that were evidenced
by the old Share Certificate(s) will be sent to the registered holder, unless
otherwise provided in the appropriate box on this Letter of Transmittal, as soon
as practicable after the Expiration Date. All Shares represented by Share
Certificates delivered to the Depositary will be deemed to have been tendered
unless otherwise indicated.
5. SIGNATURES ON LETTER OF TRANSMITTAL, STOCK POWERS AND ENDORSEMENTS. If
this Letter of Transmittal is signed by the registered holder(s) of the Shares
tendered hereby, the signature(s) must correspond exactly with the name(s) as
written on the face of the Share Certificate(s) without alteration, enlargement
or any change whatsoever.
If any of the Shares tendered hereby are held of record by two or more
persons, all such persons must sign this Letter of Transmittal.
If any tendered Shares are registered in different names on several Share
Certificates, it will be necessary to complete, sign and submit as many separate
Letters of Transmittal as there are different registrations of Share
Certificates.
If this Letter of Transmittal is signed by the registered holder(s) of the
Shares evidenced by Share Certificates listed and transmitted hereby, no
endorsements of Share Certificates or separate stock powers are required unless
payment is to be made to, or Share Certificates evidencing Shares not tendered
or purchased are to be issued in the name of, a person other than the registered
holder(s), in which case the Share Certificate(s) evidencing the Shares tendered
hereby must be endorsed or accompanied by appropriate stock powers, in either
case signed exactly as the name(s) of the registered holder(s) appear(s) on such
Share Certificate(s). Signatures on such certificates and stock powers must be
guaranteed by an Eligible Institution.
If this Letter of Transmittal is signed by a person other than the
registered holder(s) of the Shares tendered hereby, the Share Certificate(s)
evidencing the Shares tendered hereby must be endorsed or accompanied by
appropriate stock powers, in either case signed exactly as the name or names of
the registered holder or holders appear on the Share Certificate(s). Signatures
on such Share Certificate(s) or stock powers must be guaranteed by an Eligible
Institution.
If this Letter of Transmittal or any Share Certificates or stock power is
signed by a trustee, executor, administrator, guardian, attorney-in-fact, agent,
officer of a corporation or any person acting in a fiduciary or representative
capacity, such person should so indicate when signing, and proper evidence
satisfactory to Merger Sub of such person's authority so to act must be
submitted.
6. STOCK TRANSFER TAXES. Except as set forth in this Instruction 6, Merger
Sub will pay or cause to be paid any stock transfer taxes with respect to the
transfer and sale of Shares to it or its order pursuant to the Offer. If,
however, payment of the purchase price is to be made to, or if Share
Certificates evidencing Shares not tendered or purchased are to be registered in
the name of, a person other than the registered holder(s), or if Share
Certificates evidencing tendered Shares are registered in the name of any person
other than the person(s) signing this Letter of Transmittal, the amount of any
stock transfer taxes (whether imposed on the registered holder(s) or such other
person) payable on account of the transfer to such person will be deducted from
the purchase price unless satisfactory evidence of the payment of such taxes, or
exemption therefrom, is submitted.
<PAGE>
EXCEPT AS PROVIDED IN THIS INSTRUCTION 6, IT WILL NOT BE NECESSARY FOR
TRANSFER TAX STAMPS TO BE AFFIXED TO THE CERTIFICATE(S) LISTED IN THIS LETTER OF
TRANSMITTAL.
7. SPECIAL PAYMENT AND DELIVERY INSTRUCTIONS. If a check for the purchase
price of any Shares tendered hereby is to be issued, or Share Certificate(s)
evidencing Shares not tendered or not purchased are to be issued, in the name of
a person other than the person(s) signing this Letter of Transmittal or if such
check or any such Share Certificate is to be sent and/or any Share Certificates
are to be returned to someone other than the signer above, or to the signer
above but at an address other than that shown in the box entitled "Description
of Shares Tendered" above, the appropriate boxes on this Letter of Transmittal
should be completed. Shareholders tendering Shares by book-entry transfer may
request that Shares not purchased be credited to such account maintained at the
Book-Entry Transfer Facility as such shareholder may designate under "Special
Delivery Instructions." If no such instructions are given, any such Shares not
purchased will be returned by crediting the account at the Book-Entry Transfer
Facility.
8. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Questions or requests for
assistance may be directed to, or additional copies of the Offer to Purchase,
this Letter of Transmittal and the Notice of Guaranteed Delivery may be obtained
from, the Information Agent or the Dealer Manager at the telephone numbers and
addresses set forth below. Shareholders may also contact their broker, dealer,
commercial bank or trust company.
9. BACKUP FEDERAL INCOME TAX WITHHOLDING AND SUBSTITUTE FORM W-9. Under the
"backup withholding" provisions of federal tax law, the Depositary may be
required to withhold 31% of the purchase price of Shares purchased pursuant to
the Offer. To prevent backup withholding, each tendering shareholder should
complete and sign the Substitute Form W-9 included in this Letter of Transmittal
and either: (a) provide the shareholder's correct taxpayer identification number
("TIN") and certify, under penalties of perjury, that the TIN provided is
correct (or that such shareholder is awaiting a TIN), and that (i) the
shareholder has not been notified by the Internal Revenue Service ("IRS") that
the shareholder is subject to backup withholding as a result of failure to
report all interest or dividends, or (ii) the IRS has notified the shareholder
that the shareholder is no longer subject to backup withholding; or (b) provide
an adequate basis for exemption. If "Applied For" is written in Part I of the
substitute Form W-9, the Depositary will retain 31% of any payment of the
purchase price for tendered Shares during the 60-day period following the date
of the Substitute Form W-9. If the stockholder furnishes the Depositary with his
or her TIN within 60 days of the date of the Substitute W-9, the Depositary will
remit such amount retained during the 60-day period to the shareholder and no
further amounts will be retained or withheld from any payment made to the
shareholder thereafter. If, however, the shareholder has not provided the
Depositary with his or her TIN within such 60-day period, the Depositary will
remit such previously retained amounts to the IRS as backup withholding and
shall withhold 31% of any payment of the purchase price for the tendered Shares
made to the shareholder thereafter unless the shareholder furnishes a TIN to the
Depositary prior to such payment. In general, an individual's TIN is the
individual's Social Security number. If a certificate for tendered Shares is
registered in more than one name or is not in the name of the actual owner,
consult the Guidelines for Certification of Taxpayer Identification Number on
Substitute Form W-9 for additional guidance on which number to report. If the
Depositary is not provided with the correct TIN or an adequate basis for
exemption, the shareholder may be subject to a $50 penalty imposed by the IRS
and backup withholding at a rate of 31%. Certain holders (including, among
others, all corporations and certain foreign individuals) are not subject to
these backup withholding and reporting requirements. In order to satisfy the
Depositary that a foreign individual qualifies as an exempt recipient, such
foreign individual must submit a statement (generally, IRS Form W-8), signed
under penalties of perjury, attesting to that individual's exempt status. A form
for such statements can be obtained from the Depositary.
If payment for tendered Shares is to be made, pursuant to Special Payment
Instructions, to a person other than the tendering shareholder, backup
withholding will apply unless such other person, rather than the tendering
shareholder, complies with the procedures described above to avoid backup
withholding.
For further information concerning backup withholding and instructions for
completing the Substitute Form W-9 (including how an individual who does not
have a TIN can obtain one and how to complete the Substitute Form W-9 if Shares
are held in more than one name), consult the Guidelines of the IRS for
Certification of Taxpayer Identification Number on Substitute Form W-9 attached
to this Letter of Transmittal.
Failure to complete the Substitute Form W-9 will not, by itself, cause
Shares to be deemed invalidly tendered, but may require the Depositary to
withhold 31% of the amount of any payments for such Shares. Backup withholding
is not an additional federal income tax. Rather, the federal income tax
liability of a person subject to backup withholding will be reduced by the
amount of tax withheld. If withholding results in an overpayment of taxes, a
refund may be obtained, provided the appropriate information is furnished to the
IRS.
<PAGE>
IMPORTANT: THIS LETTER OF TRANSMITTAL (TOGETHER WITH SHARE CERTIFICATES OR
CONFIRMATION OF BOOK-ENTRY TRANSFER AND ALL OTHER REQUIRED DOCUMENTS) OR THE
NOTICE OF GUARANTEED DELIVERY MUST BE RECEIVED BY THE DEPOSITARY PRIOR TO THE
EXPIRATION DATE.
<PAGE>
<TABLE>
<CAPTION>
PAYER: CITIBANK, N.A.
<S> <C> <C>
SUBSTITUTE Name:
FORM W-9 Address:
DEPARTMENT OF THE TREASURY Check appropriate box:
INTERNAL REVENUE SERVICE
Individual / / Corporation / /
Partnership / / Other (specify) / /
REQUEST FOR TAXPAYER IDENTIFICATION
NUMBER (TIN) AND CERTIFICATION
SSN: __ __ __ - __ __ - __ __
__ __
or
EIN: __ __ - __ __ __ __ __
__ __
PART I. Please provide your taxpayer identification number in the
space at right. If awaiting TIN, write "Applied For."
PART II. For Payees exempt from backup withholding. See the enclosed "Guidelines for
Certification of
Taxpayer Identification Number on Substitute Form W-9."
PART III. CERTIFICATION
Under penalties of perjury, I certify that:
(1) The number shown on this form is my correct Taxpayer Identification Number (or I am waiting
for a number to be issued to me), and
(2) I am not subject to backup withholding either because: (a) I have not been notified by the
IRS that I am subject to backup withholding as a result of a failure to report all interests
or dividends, or (b) the IRS has notified me that I am no longer subject to backup
withholding.
CERTIFICATION INSTRUCTIONS--You must cross out item (2) above if you have been notified by the
IRS that you are subject to backup withholding because of underreporting interest or dividends on
your tax return. However, if after being notified by the IRS that you were subject to backup
withholding you received another notification from the IRS that you are no longer subject to
backup withholding, do not cross out item (2).
Signature: Date:, 1998
</TABLE>
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP
WITHHOLDING OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE
MERGER. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF
TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL
DETAILS.
<PAGE>
THE INFORMATION AGENT FOR THE OFFER IS:
D. F. KING & CO., INC.
77 Water Street
New York, New York 10005
Banks and Brokers Call Collect: (212) 269-5550
ALL OTHERS CALL TOLL FREE: (800) 769-7666
THE DEALER MANAGER FOR THE OFFER IS:
MERRILL LYNCH & CO.
World Financial Center
North Tower
New York, New York 10281-1305
(212) 449-8971 (Call Collect)
<PAGE>
OFFER TO PURCHASE FOR CASH
ALL OUTSTANDING SHARES OF COMMON STOCK
(INCLUDING THE ASSOCIATED PREFERRED STOCK PURCHASE RIGHTS)
OF
ATL ULTRASOUND, INC.
AT
$50.50 NET PER SHARE
BY
PHILIPS ACQUISITION, INC.
A WHOLLY OWNED SUBSIDIARY OF
PHILIPS ELECTRONICS NORTH AMERICA CORPORATION
AND AN INDIRECT WHOLLY OWNED SUBSIDIARY OF
KONINKLIJKE PHILIPS ELECTRONICS N.V.
(ROYAL PHILIPS ELECTRONICS)
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY
TIME, ON MONDAY, AUGUST 31, 1998, UNLESS THE OFFER IS EXTENDED.
August 4, 1998
To Brokers, Dealers, Commercial Banks,
Trust Companies and Other Nominees:
We have been engaged by Philips Acquisition, Inc., a Washington corporation
("Merger Sub") and a wholly owned subsidiary of Philips Electronics North
America Corporation, a Delaware corporation ("Parent"), and an indirect wholly
owned subsidiary of Koninklijke Philips Electronics N.V., a company incorporated
under the laws of The Netherlands ("Royal Philips"), to act as Dealer Manager in
connection with Merger Sub's offer to purchase all of the outstanding shares of
Common Stock, par value $0.01 per share (the "Common Stock"), including the
associated rights to purchase Series A Participating Cumulative Preferred Stock
(the "Rights" and, collectively with the Common Stock, the "Shares"), of ATL
Ultrasound, Inc., a Washington corporation (the "Company"), at $50.50 per Share,
net to the seller in cash, without interest, upon the terms and subject to the
conditions set forth in Merger Sub's Offer to Purchase, dated August 4, 1998 (as
amended or supplemented from time to time, the "Offer to Purchase"), and in the
related Letter of Transmittal (which, as amended or supplemented from time to
time, together constitute the "Offer"). Please furnish copies of the enclosed
materials to those of your clients for whom you hold Shares registered in your
name or in the name of your nominee.
Enclosed herewith are the following documents:
1. Offer to Purchase, dated August 4, 1998;
2. Letter of Transmittal to be used by shareholders of the Company in
accepting the Offer;
3. Letter to Shareholders of the Company from the President and Chief
Executive Officer of the Company, accompanied by the Company's
Solicitation/Recommendation Statement on Schedule 14D-9;
4. A printed form of letter that may be sent to your clients for whose
account you hold Shares in your name or in the name of your nominee,
with space provided for obtaining such clients' instructions with regard
to the Offer;
5. Notice of Guaranteed Delivery;
6. Guidelines for Certification of Taxpayer Identification Number on
Substitute Form W-9; and
7. Return envelope addressed to Citibank, N.A., the Depositary.
<PAGE>
Payment for Shares accepted for payment pursuant to the Offer will be in all
cases made only after timely receipt by Citibank, N.A. (the "Depositary"), of
(a) certificates for (or a timely Book-Entry Confirmation (as defined in the
Offer to Purchase) with respect to) such Shares, (b) a Letter of Transmittal,
properly completed and duly executed, with any required signature guarantees,
or, in the case of a book-entry transfer effected pursuant to the procedure set
forth in Section 3 of the Offer to Purchase, an Agent's Message (as defined in
the Offer to Purchase), and (c) any other documents required by the Letter of
Transmittal. Accordingly, tendering shareholders may be paid at different times
depending upon when certificates for Shares or Book-Entry Confirmations with
respect to Shares are actually received by the Depositary. UNDER NO
CIRCUMSTANCES WILL INTEREST BE PAID ON THE PURCHASE PRICE FOR SHARES, REGARDLESS
OF ANY EXTENSION OF THE OFFER OR ANY DELAY IN MAKING PAYMENT PURSUANT TO THE
OFFER.
The Offer is being made pursuant to an Agreement and Plan of Merger (the
"Merger Agreement"), dated as of July 29, 1998, by and among the Company, Parent
and Merger Sub, pursuant to which, after completion of the Offer (subject to
Section 2.1(b) of the Merger Agreement, pursuant to which at Merger Sub's
election the Company will be merged with and into Merger Sub), Merger Sub will
be merged with and into the Company (either such merger, the "Merger") and each
issued and outstanding Share (other than Shares owned by Parent, Merger Sub or
any other subsidiary of Parent or Shares which are held by shareholders validly
exercising dissenters' rights under Washington law) shall, by virtue of the
Merger and without any action on the part of the holder thereof, be converted
into and represent the right to receive the per Share price paid in the Offer,
without interest.
THE BOARD OF DIRECTORS OF THE COMPANY HAS UNANIMOUSLY ADOPTED THE MERGER
AGREEMENT (AS DEFINED BELOW), APPROVED THE OFFER AND THE MERGER, DETERMINED THAT
THE OFFER AND THE MERGER ARE FAIR TO, AND IN THE BEST INTERESTS OF, THE HOLDERS
OF SHARES AND RECOMMENDS THAT THE HOLDERS OF SHARES ACCEPT THE OFFER AND TENDER
THEIR SHARES PURSUANT TO THE OFFER.
Upon the terms and subject to the conditions of the Offer (including, if the
Offer is extended or amended, the terms and conditions of any such extension or
amendment), Merger Sub will be deemed to have accepted for payment, and will pay
for, all Shares validly tendered and not properly withdrawn by the Expiration
Date (as defined in the Offer to Purchase) if, as and when Merger Sub gives oral
or written notice to the Depositary of Merger Sub's acceptance of the tenders of
such Shares for payment pursuant to the Offer. Payment for Shares purchased
pursuant to the Offer will be made only after timely receipt by the Depositary
of (i) certificates evidencing such Shares or timely confirmation of a
book-entry transfer of such Shares into the Depositary's account at the
Book-Entry Transfer Facility (as defined in the Offer to Purchase), (ii) a
properly completed and duly executed Letter of Transmittal (or facsimile
thereof) or, in the case of a book-entry transfer, an Agent's Message (as
defined in the Offer to Purchase), and (iii) any other documents required by the
Letter of Transmittal. The Offer is not being made to, nor will tenders be
accepted from, or on behalf of, holders of Shares in any jurisdiction in which
the making or acceptance of the Offer would not be in compliance with the laws
of such jurisdiction. In any jurisdiction where the securities, blue sky or
other laws require the Offer to be made by a licensed broker or dealer, the
Offer will be deemed made on behalf of Merger Sub by Merrill Lynch, Pierce,
Fenner & Smith Incorporated, the Dealer Manager for the Offer, or one or more
registered brokers or dealers that are licensed under the laws of such
jurisdiction. An envelope in which to return your instructions to us is
enclosed. If you authorize tender of your Shares, all such Shares will be
tendered unless otherwise indicated in such instruction form. Please forward
your instructions to us as soon as possible to allow us ample time to tender
Shares on your behalf prior to the expiration of the Offer.
In order to tender Shares pursuant to the Offer, a properly completed and
duly executed Letter of Transmittal (or facsimile thereof), with any required
signature guarantees, or an Agent's Message (in the case of any book-entry
transfer), and any other documents required by the Letter of Transmittal, should
be sent to the Depositary, and either certificates representing the tendered
Shares should be delivered or such Shares must be delivered to the Depositary
pursuant to the procedures for book-entry transfers, all in accordance with the
instructions set forth in the Letter of Transmittal and the Offer to Purchase.
2
<PAGE>
Neither Parent nor Merger Sub will pay any fees or commissions to any broker
or dealer or other person (other than the Dealer Manager, the Information Agent
and the Depositary as described in the Offer to Purchase) in connection with the
solicitation of tenders of Shares pursuant to the Offer. You will be reimbursed
upon request for customary mailing and handling expenses incurred by you in
forwarding the enclosed offering materials to your clients.
YOUR PROMPT ACTION IS REQUESTED. WE URGE YOU TO CONTACT YOUR CLIENTS AS
PROMPTLY AS POSSIBLE. THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00
MIDNIGHT, NEW YORK CITY TIME, ON MONDAY, AUGUST 31, 1998, UNLESS THE OFFER IS
EXTENDED.
Any inquiries you may have with respect to the Offer should be addressed to
Merrill Lynch, Pierce, Fenner & Smith Incorporated, the Dealer Manager for the
Offer, at World Financial Center, North Tower, New York, New York 10281-1305,
telephone number (212) 449-8971 (call collect), or to D.F. King & Co., Inc., the
Information Agent for the Offer, at 77 Water Street, New York, New York 10005,
telephone number (212) 269-5550.
Requests for additional copies of enclosed materials may be directed to the
Information Agent or the Dealer Manager.
Very truly yours,
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
NOTHING CONTAINED HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL RENDER YOU OR ANY
PERSON THE AGENT OF ROYAL PHILIPS, MERGER SUB, PARENT, THE COMPANY, ANY
AFFILIATE OF THE COMPANY, THE DEALER MANAGER, THE INFORMATION AGENT OR THE
DEPOSITARY, OR AUTHORIZE YOU OR ANY OTHER PERSON TO USE ANY DOCUMENT OR MAKE ANY
REPRESENTATION ON BEHALF OF ANY OF THEM WITH RESPECT TO THE OFFER NOT CONTAINED
IN THE OFFER TO PURCHASE OR THE LETTER OF TRANSMITTAL.
3
<PAGE>
OFFER TO PURCHASE FOR CASH
ALL OUTSTANDING SHARES OF COMMON STOCK
(INCLUDING THE ASSOCIATED PREFERRED STOCK PURCHASE RIGHTS)
OF
ATL ULTRASOUND, INC.
AT
$50.50 NET PER SHARE
BY
PHILIPS ACQUISITION, INC.
A WHOLLY OWNED SUBSIDIARY OF
PHILIPS ELECTRONICS NORTH AMERICA CORPORATION
AND AN INDIRECT WHOLLY OWNED SUBSIDIARY OF
KONINKLIJKE PHILIPS ELECTRONICS N.V.
(ROYAL PHILIPS ELECTRONICS)
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY
TIME, ON MONDAY, AUGUST 31, 1998, UNLESS THE OFFER IS EXTENDED.
To Our Clients:
Enclosed for your consideration is an Offer to Purchase, dated August 4,
1998 (as amended or supplemented from time to time, the "Offer to Purchase"),
and the related Letter of Transmittal (which, as amended or supplemented from
time to time, together constitute the "Offer"), relating to the Offer by Philips
Acquisition, Inc., a Washington corporation ("Merger Sub"), and a wholly owned
subsidiary of Philips Electronics North America Corporation, a Delaware
corporation ("Parent"), and an indirect wholly owned subsidiary of Koninklijke
Philips Electronics N.V., a company incorporated under the laws of The
Netherlands ("Royal Philips"), to purchase all of the outstanding shares of
Common Stock, par value $.01 per share (the "Common Stock"), including the
associated rights to purchase Series A Participating Cumulative Preferred Stock
(the "Rights" and, collectively with the Common Stock, the "Shares"), of ATL
Ultrasound, Inc., a Washington corporation (the "Company"), at $50.50 per Share,
net to the seller in cash, without interest, upon the terms and subject to the
conditions set forth in the Offer. Also enclosed is the letter to shareholders
of the Company from the Chairman and Chief Executive Officer of the Company
accompanied by the Company's Solicitation/Recommendation Statement on Schedule
14D-9.
WE ARE THE HOLDER OF RECORD OF SHARES HELD BY US FOR YOUR ACCOUNT. A TENDER
OF SUCH SHARES CAN BE MADE ONLY BY US AS THE HOLDER OF RECORD AND PURSUANT TO
YOUR INSTRUCTIONS. THE LETTER OF TRANSMITTAL ACCOMPANYING THIS LETTER IS
FURNISHED TO YOU FOR YOUR INFORMATION ONLY AND CANNOT BE USED BY YOU TO TENDER
SHARES HELD BY US FOR YOUR ACCOUNT.
We request instructions as to whether you wish to tender any or all of the
Shares held by us for your account, pursuant to the terms and conditions set
forth in the Offer.
Your attention is directed to the following:
1. The offer price is $50.50 per Share, net to the seller in cash, without
interest, upon the terms and subject to the conditions of the Offer.
2. The Offer is being made for all of the outstanding Shares.
3. THE BOARD OF DIRECTORS OF THE COMPANY HAS UNANIMOUSLY ADOPTED THE MERGER
AGREEMENT (AS DEFINED BELOW), APPROVED THE OFFER AND THE MERGER (AS DEFINED
BELOW), DETERMINED THAT THE OFFER AND THE
<PAGE>
MERGER ARE FAIR TO, AND IN THE BEST INTERESTS OF, THE HOLDERS OF SHARES AND
RECOMMENDS THAT THE HOLDERS OF SHARES ACCEPT THE OFFER AND TENDER THEIR
SHARES PURSUANT TO THE OFFER.
4. The Offer is conditioned upon, among other things, there being validly
tendered and not withdrawn prior to the expiration of the Offer that number
of Shares which represents a majority of the total voting power of all
shares of capital stock of the Company outstanding on a fully diluted basis,
and which will permit Merger Sub to effect the Merger without the vote of
any person other than Merger Sub. Subject to the terms of the Merger
Agreement, the Offer is also subject to other terms and conditions,
including receipt of certain regulatory approvals, set forth in the Offer to
Purchase. Any or all conditions to the Offer may be waived by Merger Sub as
set forth in the Merger Agreement.
5. The Offer and withdrawal rights will expire at 12:00 Midnight, New York City
time, on Monday, August 31, 1998, unless the Offer is extended.
6. The Offer is being made pursuant to an Agreement and Plan of Merger (the
"Merger Agreement"), dated as of July 29, 1998, by and among the Company,
Parent and Merger Sub, pursuant to which, after completion of the Offer
(subject to Section 2.1(b) of the Merger Agreement, pursuant to which at
Merger Sub's election the Company will be merged with and into Merger Sub),
Merger Sub will be merged with and into the Company (either such merger, the
"Merger") and each issued and outstanding Share (other than Shares owned by
Parent, Merger Sub or any other subsidiary of Parent or Shares which are
held by shareholders validly exercising dissenters' rights under Washington
law) shall, by virtue of the Merger and without any action on the part of
the holder thereof, be converted into and represent the right to receive the
per Share price paid in the Offer, without interest.
7. Any stock transfer taxes applicable to the sale of Shares to Merger Sub
pursuant to the Offer will be paid by Merger Sub, except as otherwise
provided in Instruction 6 of the Letter of Transmittal.
If you wish to have us tender any or all of the Shares held by us for your
account, please so instruct us by completing, executing and returning to us the
instruction form set forth below.
Payment for Shares accepted for payment pursuant to the Offer will be in all
cases made only after timely receipt by Citibank, N.A. (the "Depositary"), of
(a) certificates for (or a timely Book-Entry Confirmation (as defined in the
Offer to Purchase) with respect to) such Shares, (b) a Letter of Transmittal,
properly completed and duly executed, with any required signature guarantees,
or, in the case of a book-entry transfer effected pursuant to the procedure set
forth in Section 3 of the Offer to Purchase, an Agent's Message (as defined in
the Offer to Purchase), and (c) any other documents required by the Letter of
Transmittal. Accordingly, tendering shareholders may be paid at different times
depending upon when certificates for Shares or Book-Entry Confirmations with
respect to Shares are actually received by the Depositary. UNDER NO
CIRCUMSTANCES WILL INTEREST BE PAID ON THE PURCHASE PRICE FOR SHARES, REGARDLESS
OF ANY EXTENSION OF THE OFFER OR ANY DELAY IN MAKING PAYMENT PURSUANT TO THE
OFFER.
The Offer is not being made to, nor will tenders be accepted from, or on
behalf of, holders of Shares in any jurisdiction in which the making or
acceptance of the Offer would not be in compliance with the laws of such
jurisdiction. In any jurisdiction where the securities, blue sky or other laws
require the Offer to be made by a licensed broker or dealer, the Offer will be
deemed made on behalf of Merger Sub by Merrill Lynch, Pierce, Fenner & Smith
Incorporated, the Dealer Manager for the Offer, or one or more registered
brokers or dealers that are licensed under the laws of such jurisdiction. An
envelope in which to return your instructions to us is enclosed. If you
authorize tender of your Shares, all such Shares will be tendered unless
otherwise indicated in such instruction form. Please forward your instructions
to us as soon as possible to allow us ample time to tender Shares on your behalf
prior to the expiration of the Offer.
2
<PAGE>
INSTRUCTIONS WITH RESPECT TO THE
OFFER TO PURCHASE FOR CASH
ALL OUTSTANDING SHARES OF COMMON STOCK
(INCLUDING THE ASSOCIATED RIGHTS
TO PURCHASE PREFERRED STOCK)
OF
ATL ULTRASOUND, INC.
The undersigned acknowledge(s) receipt of your letter and the enclosed Offer
to Purchase, dated August 4, 1998, and the related Letter of Transmittal, in
connection with the offer by Philips Acquisition, Inc., a Washington corporation
("Merger Sub"), a wholly owned subsidiary of Philips Electronics North America
Corporation, a Delaware corporation ("Parent"), and an indirect wholly owned
subsidiary of Koninklijke Philips Electronics N.V., a company incorporated under
the laws of The Netherlands ("Royal Philips"), to purchase for cash all of the
outstanding shares of Common Stock, par value $.01 per share (the "Common
Stock"), including the associated rights to purchase Series A Participating
Cumulative Preferred Stock (the "Rights" and, collectively with the Common
Stock, the "Shares"), of ATL Ultrasound, Inc., a Washington corporation.
This will instruct you to tender the number of Shares indicated below (or if
no number is indicated below, all Shares) that are held by you for the account
of the undersigned, upon the terms and subject to the conditions set forth in
the Offer to Purchase and the related Letter of Transmittal.
Dated: , 1998
NUMBER OF SHARES TO BE TENDERED:
_____________ SHARES*
SIGN HERE
________________________________________________________________________________
________________________________________________________________________________
Signature(s)
________________________________________________________________________________
Please Print Name(s)
________________________________________________________________________________
Please Print Address(es)
________________________________________________________________________________
Area Code and Telephone Number(s)
________________________________________________________________________________
Tax Identification or Social Security Number(s)
- ------------------------
* Unless otherwise indicated, it will be assumed that all your Shares are to
be tendered.
3
<PAGE>
Exhibit (a)(5)
[LETTERHEAD OF PHILIPS MEDIA RELATIONS]
Amsterdam, 29 July 1998
98.035
PHILIPS TO ACQUIRE ATL IN $800 MILLION TRANSACTION
Royal Philips Electronics of the Netherlands (AEX:PHI, NYSE:PHG), and ATL
Ultrasound of the United States (NASDAQ:ATLI), announced today that ATL and
Philips have signed a definitive merger agreement for Philips to acquire all
the outstanding shares of ATL for approximately $800 million, or $50.50 per
share for each outstanding share of ATL common stock.
The transaction will be a cash tender offer followed by a cash merger to
acquire any shares not previously tendered. As a result of the transaction, ATL
will become a wholly owned subsidiary of Philips Medical Systems. The ATL Board
of Directors has unanimously approved the transaction. Philips expects to
commence its cash tender offer on August 4th 1998. The cash tender offer is
subject to Philips receiving at least a majority of the fully diluted shares of
ATL in the tender offer, as well as receipt of customary regulatory approvals.
ATL, with annual revenues of $430 million in 1997 and 2,600 employees,
pioneered the development of broadband digital ultrasound and software
technologies, and is a leader in the high performance ultrasound market. The
ultrasound sector is the only part of the diagnostic imaging business in which
Philips Medical Systems does not play a major role. "ATL is a technological
leader in diagnostic ultrasound, and offers a key growth opportunity for
Philips Medical," says Hans (J.M.) Barella, Chairman and CEO of Philips Medical
Systems. "this acquisition underscores our commitment to global leadership in
worldwide diagnostic imaging by building on the success of ATL." Philips
Medical Systems is already a global leader in the x-ray business and diagnostic
imaging systems and services.
ATL has an especially strong presence in the United States and Europe. The
complementary businesses of Philips Medical Systems and ATL allow for the
building of significant synergies. ATL's strong management, solid financial
performance, and business growth opportunities make this an excellent
acquisition for Philips.
The merger will provide ATL access to Philips Medical Systems' considerable
research and technology base, expand its service support, and further increase
sales. "Combining the strengths of Philips Medical Systems and ATL creates a
diagnostic imaging business second to none", said Dennis C. Fill, ATL Chairman
and CEO. "With essentially no overlap in our products and technologies, we
believe this combination is the perfect match for both companies. This merger
is particularly good for the long-term prospects of ATL and all our employees,
as we will become the worldwide center of Philips for ultrasound, with our
headquarters remaining in Bothell. ATL will be an even stronger force in
ultrasound than it already is."
<PAGE>
Ultrasound is the fastest growing sector of the medical imaging business today,
and worldwide revenues for ultrasound are approximately $2.5 billion per year.
Ultrasound is a non-invasive technology that uses high frequency soundwaves to
image the body's organs, soft tissue, and blood flow in real time.
Three-dimensional imaging has let to a growing diagnostic role for ultrasound.
Philips has recently stated that it would only look for acquisitions that would
strengthen its existing portfolio, and this agreement reflects that strategy.
The transaction affirms Philips' commitment to the Medical Systems division as
one of the building blocks of the company, and one where value can be added and
increasing profits realized. Philips Medical Systems is consistently delivering
a very profitable performance with steady growth and a strong cash flow, and
this merger will enable the division to contribute more significantly to the
sales and results of the Philips Group. The transaction is expected to have a
positive impact on earnings per share for Philips.
For further information, please contact:
Anne Bugge, ATL Corporate and Investor Relations, tel. +1 425 4877427
Jeremy Cohen, Philips Media Relations, tel. +31 20 5977213
Bulletin International has pictures for broadcast free for use. For more
information or a Beta SP copy, contact Amelia Elphick at Bulletin on
+44 171 278 6070 or email [email protected]
ATL, with headquarters near Seattle, Washington, USA, is a worldwide leader in
the development, manufacture, distribution and service of diagnostic medical
ultrasound systems. With approximately 50% of revenues coming from
international markets the company serves customers in over 100 countries
through 15 subsidiaries and an extensive distributor network. Press releases
and other corporate information are available on ATL's web site at
http://www.atl.com. Press releases are also available on PR Newswire's Company
News-On-Call at HTTP://WWW.PRENEWSWIRE.COM
Philips Medical Systems is a leading supplier of diagnostic imaging systems and
related services worldwide, employing 9,000 people in more than 100 countries.
Philips' products are backed by a worldwide network of research and
development, and sales and service organizations. Philips Medical Systems is
part of Royal Philips Electronics of the Netherlands.
Royal Philips Electronics of the Netherlands is one of the world's biggest
electronics companies, with sales of over US$ 39 billion in 1997. It is a
global leader in color television sets, lighting, home telephony products,
electric shavers and recorded music (PolyGram). Its 264,700 employees in more
than 60 countries are active in the areas of semiconductors and components,
consumer products, professional products and systems, lighting, and software
and services. Philips is quoted on the NYSE, London, Frankfurt, Amsterdam and
other stock exchanges.
News from Philips is located at www.news.philips.com
<PAGE>
This announcement is neither an offer to purchase nor a solicitation of an
offer to sell Shares (as defined below). The Offer (as defined below) is made
solely by the Offer to Purchase dated August 4, 1998 and the related Letter of
Transmittal and any amendments or supplements thereto, and is being made to all
holders of Shares. The Offer is not being made to (nor will tenders be accepted
from or on behalf of) holders of Shares in any jurisdiction in which the making
of the Offer or the acceptance thereof would not be in compliance with the laws
of such jurisdiction. In any jurisdiction where the securities, blue sky or
other laws require the Offer to be made by a licensed broker or dealer, the
Offer will be deemed to be made on behalf of Purchaser (as defined below) by
Merrill Lynch, Pierce, Fenner & Smith Incorporated or one or more registered
brokers or dealers that are licensed under the laws of such jurisdiction.
Notice of Offer to Purchase for Cash
All Outstanding Shares of Common Stock
(Including the Associated Preferred
Stock Purchase Rights)
of
ATL Ultrasound, Inc.
at
$50.50 Net Per Share
by
Philips Acquisition, Inc.
a wholly owned subsidiary of
Philips Electronics
North America Corporation
and an indirect wholly owned subsidiary of
Koninklijke Philips Electronics N.V.
(Royal Philips Electronics)
Philips Acquisition, Inc., a Washington corporation ("Purchaser") and a wholly
owned subsidiary of Philips Electronics North America Corporation, a Delaware
corporation ("Parent") and an indirect wholly owned subsidiary of Koninklijke
Philips Electronics N.V. (Royal Philips Electronics), a company incorporated
under the laws of The Netherlands ("Royal Philips"), is offering to purchase all
outstanding shares of Common Stock, par value $0.01 per share (including the
associated preferred stock purchase rights (collectively with the Common Stock,
the "Shares")), of ATL Ultrasound, Inc., a Washington corporation (the
"Company"), at $50.50 per Share, net to the seller in cash, without interest,
upon the terms and subject to the conditions set forth in the Offer to Purchase
dated August 4, 1998 (the "Offer to Purchase") and in the related Letter of
Transmittal (which, together with any amendments or supplements thereto,
collectively constitute the "Offer"). Tendering stockholders will not be
obligated to pay brokerage fees or commissions or, except as set forth in
Instruction 6 of the Letter of Transmittal, transfer taxes on the purchase of
Shares by Purchaser pursuant to the Offer. The purpose of the Offer is to
acquire for cash as many outstanding Shares as possible as a first step in
acquiring the entire equity interest in the Company. Following the consummation
of the Offer, Purchaser intends to effect the Merger (as defined below).
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY
TIME, ON MONDAY, AUGUST 31, 1998, UNLESS THE OFFER IS EXTENDED.
The Offer is conditioned upon, among other things, (1) there being validly
tendered and not withdrawn prior to the expiration of the Offer a number of
Shares representing a majority of the total voting power of all shares of
capital stock of the Company outstanding on a fully diluted basis and as will
permit Purchaser to effect the Merger without the vote of any person other than
Purchaser and (2) any applicable waiting period under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended, and the regulations thereunder
<PAGE>
and under the antitrust or competition laws of Austria and Germany with respect
to the Offer and/or the Merger having expired or been terminated. Certain other
conditions to the Offer are described in Section 13 of the Offer to Purchase.
The Offer is being made pursuant to an Agreement and Plan of Merger (the "Merger
Agreement") dated as of July 29, 1998 by and among the Company, Parent and
Purchaser, pursuant to which, after completion of the Offer (subject to Section
2.1(b) of the Merger Agreement, pursuant to which at Parent's election the
Company will be merged with and into Purchaser), Purchaser will be merged with
and into the Company (either such merger, the "Merger") and each issued and
outstanding Share (other than Shares owned by Parent, Purchaser or any other
subsidiary of Parent or Shares which are held by stockholders exercising
dissenters' rights pursuant to Section 23B.13.020 of the Washington Business
Corporation Act) shall, by virtue of the Merger and without any action on the
part of the holder thereof, be converted into and represent the right to receive
an amount in cash, without interest, equal to the price paid for each Share
pursuant to the Offer. The Merger Agreement is more fully described in the Offer
to Purchase.
The Board of Directors of the Company has unanimously adopted the Merger
Agreement, approved the Offer and the Merger, determined that the Offer and the
Merger are fair to, and in the best interests of, the holders of Shares and
recommends that holders of Shares accept the Offer and tender their Shares
pursuant to the Offer.
For purposes of the Offer, Purchaser will be deemed to have accepted for
payment, and thereby purchased, Shares validly tendered and not withdrawn as, if
and when Purchaser gives oral or written notice to Citibank, N.A. (the
"Depositary") of Purchaser's acceptance for payment of such Shares pursuant to
the Offer. Upon the terms and subject to the conditions of the Offer, payment
for Shares accepted for payment pursuant to the Offer will be made by deposit of
the purchase price therefor with the Depositary, which will act as agent for the
tendering stockholders for the purpose of receiving payments from Purchaser and
transmitting such payments to the tendering stockholders whose Shares have been
accepted for payment. Under no circumstances will interest on the purchase price
for Shares be paid, regardless of any extension of the Offer or any delay in
making such payment.
In all cases, payment for Shares tendered and accepted for payment pursuant to
the Offer will be made only after timely receipt by the Depositary of (a)
certificates for such Shares or timely confirmation of the book-entry transfer
of such Shares into the Depositary's account at The Depository Trust Company
(the "Book-Entry Transfer Facility") pursuant to the procedures set forth in
Section 3 of the Offer to Purchase, (b) a Letter of Transmittal (or facsimile
thereof), properly completed and duly executed, with any required signature
guarantees (or, in the case of a book-entry transfer, an Agent's Message (as
defined in Section 3 of the Offer to Purchase) in lieu of the Letter of
Transmittal) and (c) any other documents required by the Letter of Transmittal.
The term "Expiration Date" means 12:00 Midnight, New York City time, on Monday,
August 31, 1998, unless and until Purchaser, in its sole discretion (but subject
to the terms of the Merger Agreement), shall have extended the period of time
during which the Offer is open, in which event the term "Expiration Date" shall
mean the latest time and date on which the Offer, as so extended by Purchaser,
shall expire. Subject to the terms of the Merger Agreement and the applicable
rules and regulations of the Securities and Exchange Commission, Purchaser
expressly reserves the right, in its sole discretion, at any time or from time
to time, to extend the period of time during which the Offer is open by giving
oral or written notice of such extension to the Depositary. Any such extension
will be followed as promptly as practicable by public announcement thereof, such
announcement to be issued no later than 9:00 A.M., New York City time, on the
next business day after the previously scheduled expiration date of the Offer.
<PAGE>
During any such extension, all Shares previously tendered and not withdrawn will
remain subject to the Offer, subject to the right of a tendering stockholder to
withdraw such stockholder's Shares.
Tenders of Shares made pursuant to the Offer are irrevocable except that Shares
tendered pursuant to the Offer may be withdrawn at any time prior to the
Expiration Date and, unless theretofore accepted for payment by Purchaser
pursuant to the Offer, may also be withdrawn at any time after October 2, 1998.
For a withdrawal to be effective a written or facsimile transmission notice of
withdrawal must be timely received by the Depositary at one of its addresses set
forth on the back cover of the Offer to Purchase. Any such notice of withdrawal
must specify the name of the person having tendered the Shares to be withdrawn,
the number of Shares to be withdrawn and the names in which the certificate(s)
evidencing the Shares to be withdrawn are registered, if different from that of
the person who tendered such Shares. The signature(s) on the notice of
withdrawal must be guaranteed by an Eligible Institution (as defined in Section
3 of the Offer to Purchase), unless such Shares have been tendered for the
account of any Eligible Institution. If Shares have been tendered pursuant to
the procedures for book-entry transfer as set forth in Section 3 of the Offer to
Purchase, any notice of withdrawal must specify the name and number of the
account at the Book-Entry Transfer Facility to be credited with the withdrawn
Shares and otherwise comply with the Book-Entry Transfer Facility's procedures.
If certificates for Shares to be withdrawn have been delivered or otherwise
identified to the Depositary, the name of the registered holder and the serial
numbers shown on such certificates must also be furnished to the Depositary as
aforesaid prior to the physical release of such certificates. All questions as
to the form and validity (including time of receipt) of any notice of withdrawal
will be determined by Purchaser, in its sole discretion, which determination
shall be final and binding. None of Parent, Purchaser, the Dealer Manager
(listed below), the Depositary, the Information Agent (listed below) or any
other person will be under any duty to give notification of any defects or
irregularities in any notice of withdrawal or incur any liability for failure to
give such notification. Withdrawals of tenders of Shares may not be rescinded,
and any Shares properly withdrawn will be deemed not to have been validly
tendered for purposes of the Offer. However, withdrawn Shares may be retendered
by following one of the procedures described in Section 3 of the Offer to
Purchase at any time prior to the Expiration Date.
The information required to be disclosed by paragraph (e)(1)(vii) of Rule 14d-6
of the General Rules and Regulations under the Securities Exchange Act of 1934,
as amended, is contained in the Offer to Purchase and is incorporated herein by
reference.
The Company has provided Purchaser with the Company's stockholder list and
security position listings for the purpose of disseminating the Offer to holders
of Shares. The Offer to Purchase and the Letter of Transmittal and, if required,
other relevant materials, will be mailed by Purchaser to record holders of
Shares and will be furnished to brokers, dealers, commercial banks, trust
companies and similar persons whose names, or the names of whose nominees,
appear on the Company's stockholder list or, if applicable, who are listed as
participants in a clearing agency's security position listing for subsequent
transmittal to beneficial owners of Shares.
The Offer to Purchase and the Letter of Transmittal contain important
information which should be read carefully before any decision is made with
respect to the Offer.
Questions and requests for assistance may be directed to the Information Agent
or to the Dealer Manager at their respective addresses and telephone numbers set
forth below. Requests for additional copies of the Offer to Purchase and the
related Letter of Transmittal may be directed to the Information Agent or to
brokers, dealers, commercial banks or trust companies. Such additional copies
<PAGE>
will be furnished at Purchaser's expense. Purchaser will not pay any fees or
commissions to any broker or dealer or any other person (other than the Dealer
Manager) for soliciting tenders of Shares pursuant to the Offer.
The Information Agent for the Offer is:
D. F. King & Co., Inc.
77 Water Street
New York, New York 10005
Banks and Brokers Call Collect: (212) 269-5550
All Others Call Toll Free: (800) 769-7666
The Dealer Manager for the Offer is:
Merrill Lynch & Co.
World Financial Center
North Tower
New York, New York 10281-1305
(212) 449-8971 (Call Collect)
August 4, 1998
<PAGE>
NOTICE OF GUARANTEED DELIVERY
FOR TENDER OF SHARES OF COMMON STOCK
(INCLUDING THE ASSOCIATED PREFERRED STOCK PURCHASE RIGHTS)
OF
ATL ULTRASOUND, INC.
PURSUANT TO THE OFFER TO PURCHASE DATED AUGUST 4, 1998
BY
PHILIPS ACQUISITION, INC.
A WHOLLY OWNED SUBSIDIARY OF
PHILIPS ELECTRONICS NORTH AMERICA CORPORATION
AND AN INDIRECT WHOLLY OWNED SUBSIDIARY OF
KONINKLIJKE PHILIPS ELECTRONICS N.V.
(ROYAL PHILIPS ELECTRONICS)
As set forth in Section 3 of the Offer to Purchase (as defined below), this
form, or a form substantially equivalent to this form, must be used to accept
the Offer (as defined below) if the certificates representing shares of Common
Stock, par value $.01 per share (the "Common Stock"), including the associated
rights to purchase Series A Participating Cumulative Preferred Stock (the
"Rights" and, collectively with the Common Stock, the "Shares"), of ATL
Ultrasound, Inc., a Washington corporation (the "Company"), are not immediately
available or time will not permit all required documents to reach the Depositary
prior to the Expiration Date (as defined in the Offer to Purchase) or the
procedures for book-entry transfer cannot be completed on a timely basis. Such
form may be delivered by hand or transmitted by facsimile transmission or mailed
to the Depositary and must include a guarantee by an Eligible Institution (as
defined in Section 3 of the Offer to Purchase). See Section 3 of the Offer to
Purchase.
<TABLE>
<S> <C> <C>
THE DEPOSITARY FOR THE OFFER IS:
CITIBANK, N.A.
BY MAIL: BY OVERNIGHT COURIER: BY HAND:
CITIBANK-WWSS CITIBANK-WWSS Citibank, N.A.
c/o Citicorp Data Distribution, c/o Citicorp Data Distribution, Corporate Trust Window
Inc. Inc. 111 Wall Street, 5th Floor
P.O. Box 7073 400 Sette Drive New York, New York 10043
Paramus, New Jersey 07653 Paramus, New Jersey 07652
</TABLE>
<TABLE>
<S> <C>
BY FACSIMILE TRANSMISSION: CONFIRM RECEIPT OF FACSIMILE BY TELEPHONE:
(FOR ELIGIBLE INSTITUTIONS ONLY): 1-800-422-2077
(201) 262-3240
</TABLE>
DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO AN ADDRESS OTHER THAN AS SET
FORTH ABOVE, OR TRANSMISSION OF INSTRUCTIONS VIA A FACSIMILE NUMBER OTHER THAN
AS LISTED ABOVE, WILL NOT CONSTITUTE A VALID DELIVERY.
This Notice of Guaranteed Delivery is not to be used to guarantee
signatures. If a signature on a Letter of Transmittal is required to be
guaranteed by an Eligible Institution under the instructions thereto, such
signature guarantee must appear in the applicable space provided in the
signature box on the Letter of Transmittal.
<PAGE>
Ladies and Gentlemen:
The undersigned hereby tenders to Philips Acquisition, Inc., a Washington
corporation ("Merger Sub") and a wholly owned subsidiary of Philips Electronics
North America Corporation, a Delaware corporation, and an indirect wholly owned
subsidiary of Koninklijke Philips Electronics N.V., a company incorporated under
the laws of The Netherlands, upon the terms and subject to the conditions set
forth in the Offer to Purchase, dated August 4, 1998 (the "Offer to Purchase"),
and the related Letter of Transmittal (which, as amended or supplemented from
time to time, together constitute the "Offer"), receipt of which is hereby
acknowledged, the number of Shares indicated below pursuant to the guaranteed
delivery procedure set forth in Section 3 of the Offer to Purchase.
<TABLE>
<S> <C>
Number of Shares: Name(s) of Record Holder(s):
Share Certificate Numbers (if available): Address(es): PLEASE TYPE OR PRINT
If Shares will be delivered by book-entry transfer, ZIP CODE
Account
Number: Telephone Number:
Date: , 1998 AREA CODE
Signature(s): SIGNATURES
</TABLE>
GUARANTEE
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, a participant in the Security Transfer Agents Medallion
Program, The New York Stock Exchange Medallion Signature Guarantee Program or
the Stock Exchange Medallion Program (each, an "Eligible Institution"), hereby
guarantees that either the certificates representing the Shares tendered hereby
in proper form for transfer, or timely confirmation of a book-entry transfer of
such Shares into the Depositary's account at The Depository Trust Company
(pursuant to procedures set forth in Section 3 of the Offer to Purchase),
together with a properly completed and duly executed Letter of Transmittal (or
facsimile thereof) with any required signature guarantees (or, in the case of a
book-entry transfer, an Agent's Message (as defined in the Offer to Purchase))
and any other documents required by the Letter of Transmittal, will be received
by the Depositary at one of its addresses set forth above within three (3) New
York Stock Exchange trading days after the date of execution hereof.
2
<PAGE>
The Eligible Institution that completes this form must communicate this
guarantee to the Depositary and must deliver the Letter of Transmittal,
certificates for Shares and any other required documents to the Depositary
within the time period shown herein. Failure to do so could result in a
financial loss to such Eligible Institution.
Name of Firm: __________________________________________________________________
Address: _______________________________________________________________________
_______________________________________________________________________
ZIP CODE
Area Code and
Telephone Number: ______________________________________________________________
AUTHORIZED SIGNATURE
Name: __________________________________________________________________________
PLEASE TYPE OR PRINT
Title: _________________________________________________________________________
Dated: ___________________________________________________________________, 1998
NOTE: DO NOT SEND CERTIFICATES FOR SHARES WITH THIS NOTICE OF GUARANTEED
DELIVERY. CERTIFICATES FOR SHARES ARE TO BE DELIVERED WITH THE LETTER OF
TRANSMITTAL.
3
<PAGE>
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
GUIDELINES FOR DETERMINING THE PROPER IDENTIFICATION NUMBER TO GIVE THE
PAYER.--Social Security numbers have nine digits separated by two hyphens: i.e.
000-00-0000. Employer identification numbers have nine digits separated by only
one hyphen: i.e. 00-0000000. The table below will help determine the number to
provide on Substitute Form W-9.
<TABLE>
<CAPTION>
- -----------------------------------------------------
GIVE THE NAME AND
SOCIAL SECURITY
FOR THIS TYPE OF ACCOUNT: NUMBER OF-
- -----------------------------------------------------
<S> <C> <C>
1. An individual's The individual
account
2. Two or more The actual owner of
individuals (joint the account or, if
account) combined funds, the
first individual on
the account(1)
3. Custodian account of The minor(2)
a minor (Uniform
Gift to Minors Act)
4. a. The usual The grantor-
revocable savings trustee(1)
trust (grantor is
also a trustee)
b. So-called trust The actual owner(1)
account that is
not a legal or
valid trust under
state law.
5. Sole proprietorship The owner(3)
- -----------------------------------------------------
<CAPTION>
GIVE THE NAME AND
EMPLOYER
IDENTIFICATION
FOR THIS TYPE OF ACCOUNT: NUMBER OF-
<S> <C> <C>
- -----------------------------------------------------
6. A valid trust, The legal entity (Do
estate, or pension not furnish the
trust identifying number
of the personal
representative or
trustee unless the
legal entity itself
is not designated in
the account
title.)(4)
7. Corporate account The corporation
8. Association, club, The organization
religious,
charitable,
educational, or
other tax-exempt
organization account
9. Partnership account The partnership
10. A broker or The broker or
registered nominee nominee
11. Account with the The public entity
Department of
Agriculture in the
name of a public
entity (such as a
state or local
government, school
district, or prison)
that receives
agricultural program
payments
</TABLE>
- ---------------------------------------------
- ---------------------------------------------
(1) List first and circle the name of the person whose number you furnish. If
only one person on a joint account has a social security number, that
person's number must be furnished.
(2) Circle the minor's name and furnish the minor's social security number.
(3) Show the name of the owner.
(4) List first and circle the name of the legal trust, estate, or pension trust.
NOTE:If no name is circled when there is more than one name, the number will be
considered to be that of the first name listed.
<PAGE>
OBTAINING A TAXPAYER IDENTIFICATION NUMBER
Persons without a taxpayer identification number should apply for one and
write "Applied for" in Part 1 of Substitute Form W-9. Individuals should file
Form SS-5, Application for a Social Security Card (or, in the case of resident
aliens that do not have and are not eligible for Social Security numbers, form
W-7, Application for Individual Taxpayer Identification Number), and
corporations, partnerships or other entities should file Form SS-4, Application
for Employer Identification Number. Form SS-5 may be obtained from Local Social
Security Administration offices. Forms W-7 and SS-4 may be obtained from the IRS
by calling 1-800-TAX-FORM (1-800-829-3676).
NOTE: Writing "Applied for" in Part 1 means that you have already applied for a
TIN or that you intend to apply for one soon.
The following persons are exempt from backup withholding on payments from
the sale of Shares pursuant to the Offer:
- A corporation.
- An organization exempt from tax under Section 501(a) of the Internal
Revenue Code.
- An individual retirement plan ("IRA").
- A custodial account under Section 403(b)(7) of the Internal Revenue Code.
- The United States or any of its agencies or instrumentalities.
- A State, the District of Columbia, a possession of the United States, or
any of their political subdivisions or instrumentalities.
- A foreign government or any of its political subdivisions, agencies or
instrumentalities.
- A foreign central bank of issue.
- A dealer in securities or commodities required to register in the United
States or a possession of the United States.
- A futures commission merchant registered with the Commodities Futures
Trading Commission.
- A real estate investment trust.
- An entity registered at all times during the tax year under the Investment
Company Act of 1940.
- A common trust fund operated by a bank under Section 584(a) of the
Internal Revenue Code.
- A financial institution.
- A person registered under the Investment Advisers Act of 1940 who
regularly acts as a broker.
Such persons should nevertheless complete Substitute Form W-9 to avoid
possible erroneous withholding. An exempt person should enter the correct TIN in
part I, write "Exempt" in Part II, and sign and date the form.
PRIVACY ACT NOTICE
Section 6109 of the Internal Revenue Service requires you to give your
correct taxpayer identification number to persons who must file information
returns with the IRS to report interest, dividends and certain other income paid
to you, mortgage interest you paid, the acquisition or abandonment of secured
property, cancellation of debt, or contributions you made to an IRA. The IRS
uses the numbers for identification purposes and to help verify the accuracy of
your tax return. The IRS may also provide this information to the Department of
Justice for civil or criminal litigation and to states, cities and the District
of Columbia to help carry out their tax laws.
You must provide your TIN whether or not you are required to file a tax
return. Payers must generally withhold 31% of taxable interest, dividend and
certain other payment to a payee who does not give a TIN to a payer. Certain
penalties may also apply.
<PAGE>
AGREEMENT AND PLAN OF MERGER
----------------------------
AGREEMENT AND PLAN OF MERGER (hereinafter called this "AGREEMENT"),
dated as of July 29, 1998, among
ATL Ultrasound, Inc., a Washington corporation (the "COMPANY"), Philips
Electronics North America Corporation, a Delaware corporation ("PARENT"), and
Philips Acquisition, Inc., a Washington corporation and a wholly-owned
subsidiary of Parent ("MERGER SUB"), the Company and Merger Sub sometimes being
hereinafter collectively referred to as the "CONSTITUENT CORPORATIONS."
RECITALS
WHEREAS, the Boards of Directors of Parent and the Company each have
unanimously adopted this Agreement and approved the Offer (as defined herein)
and the Merger (as defined herein) and determined that it is in the best
interests of their respective companies and shareholders for Parent to acquire
the Company upon the terms and subject to the conditions set forth herein; and
WHEREAS, the Company, Parent and Merger Sub desire to make certain
representations, warranties, covenants and agreements in connection with this
Agreement.
NOW, THEREFORE, in consideration of the premises, and of the
representations, warranties, covenants and agreements contained herein, the
parties hereto hereby agree as follows:
ARTICLE I
The Tender Offer
1.1. TENDER OFFER. (a) Provided that this Agreement shall not have
been terminated in accordance with Article IX hereof and none of the events set
forth in Annex A hereto (the "OFFER CONDITIONS") shall have occurred or be
existing, within five business days of the date hereof, Merger Sub will commence
a tender offer (the "OFFER") for all of the outstanding shares of common stock,
par value $0.01 per share (the "SHARES"), of the Company, together with the
associated rights to purchase (the
<PAGE>
"RIGHTS") Series A Participating Cumulative Preferred Stock, par value $1.00 per
share, of the Company (the "SERIES A PREFERRED") at a price of $50.50 per Share
in cash, net to the seller. The obligation of Merger Sub to accept for payment
and pay for any Shares tendered pursuant to the Offer shall be subject only to
the satisfaction or waiver of the Offer Conditions. Merger Sub will not,
without the prior written consent of the Company (such consent to be authorized
by the Board of Directors of the Company) (i) waive the Minimum Condition (as
defined in Annex A), (ii) decrease the price per Share or change the form of
consideration payable in the Offer, (iii) decrease the number of Shares sought
in the Offer, (iv) impose additional conditions to the Offer, (v) change any
Offer Condition or amend any other term of the Offer if any such change or
amendment would be in any manner adverse to the holders of Shares or (vi) except
as provided below, extend the Offer if all of the Offer Conditions have been
satisfied; PROVIDED, HOWEVER, and notwithstanding anything herein to the
contrary, it is understood and agreed that Merger Sub may extend the expiration
date of the Offer after all of the Offer Conditions have been satisfied or
waived if it reasonably determines such extension is appropriate in order to
enable it to purchase at least 90% of the outstanding Shares in the Offer (in
which case Merger Sub may extend the expiration date on one occasion for up to
ten business days beyond the time it would otherwise be required to accept
validly tendered Shares for payment). Parent and Merger Sub further agree that:
(A) in the event of the failure of one or more of the Offer Conditions to be
satisfied or waived on any date the Offer would otherwise expire, Merger Sub
shall from time to time extend the Offer until such time as such condition is or
conditions are satisfied or waived, provided that, except as set forth below,
Merger Sub shall not be required to extend the Offer beyond October 30, 1998,
and (B) in the event, after October 30, 1998, of the failure of the Regulatory
Condition (as defined in Annex A) to be satisfied or waived on the date the
Offer would otherwise expire (and the satisfaction or waiver on such date of the
other Offer Conditions other than the Minimum Condition), Merger Sub shall give
the Company notice thereof and, at the request of the Company, from time to time
extend the Offer until the earlier of (1) five business days after such time as
the Regulatory Condition is satisfied or waived and (2) the date chosen by the
Company which shall not be later than the earlier of (x) December 31, 1998 or
(y) five business days after the earliest date on which the Company
-2-
<PAGE>
reasonably believes the Regulatory Condition will be satisfied, provided that if
such condition is not satisfied by any date chosen by the Company pursuant to
this clause (y), the Company may request further extensions of the Offer in
accordance with the terms of this Section 1.1. On the terms of the Offer and
subject to the Offer Conditions, Merger Sub shall pay for all Shares validly
tendered and not withdrawn pursuant to the Offer that Merger Sub becomes
obligated to purchase pursuant to the Offer as soon as practicable after the
expiration of the Offer. The Company's Board of Directors shall recommend
acceptance of the Offer to its stockholders in a Solicitation/Recommendation
Statement on Schedule 14D-9 (as supplemented or amended from time to time, the
"SCHEDULE 14D-9") to be filed with the Securities and Exchange Commission (the
"SEC") upon commencement of the Offer; PROVIDED, HOWEVER, that the Company's
Board of Directors may thereafter amend or withdraw its recommendation in
accordance with the second paragraph of Section 7.2.
(b) Parent and Merger Sub agree, as to the Offer to Purchase and
related Letter of Transmittal (which documents, as supplemented or amended from
time to time, together constitute the "OFFER DOCUMENTS"), and the Company
agrees, as to the Schedule 14D-9, that such documents shall, in all material
respects, comply with the requirements of the Exchange Act and the rules and
regulations thereunder and other applicable laws. The Company and its counsel,
as to the Offer Documents, and Merger Sub and its counsel, as to the
Schedule 14D-9, shall be given an opportunity to review such documents prior to
their being filed with the SEC. Parent, Merger Sub and the Company each agrees
promptly to correct any information provided by it for use in the Offer
Documents or the Schedule 14D-9 that shall have become false or misleading in
any material respect. Parent and Merger Sub further agree to take all steps
necessary to cause the Schedule 14D-1 as so corrected to be filed with the SEC
and the other Offer Documents as so corrected to be disseminated to holders of
Shares, in each case as and to the extent required by applicable federal
securities laws. The Company further agrees to take all steps necessary to
cause the Schedule 14D-9 as so corrected to be filed with the SEC and
disseminated to holders of Shares, in each case as and to the extent required by
applicable federal securities laws.
-3-
<PAGE>
(c) In connection with the Offer, the Company will cause its transfer
agent to furnish promptly to Merger Sub a list, as of the most recent date
practicable, of the record holders of Shares and their addresses, as well as
mailing labels containing the names and addresses of all record holders of
Shares, any non-objecting beneficial owner lists and lists of security positions
of Shares held in stock depositories in the Company's possession or control.
The Company will furnish Merger Sub with such additional information (including,
but not limited to, updated lists of holders of Shares and their addresses,
mailing labels, non-objecting beneficial owner lists and lists of security
positions) and such other assistance as Parent or Merger Sub or their agents may
reasonably request in communicating the Offer to the record and beneficial
holders of Shares. Subject to the requirements of applicable law, and except
for such steps as are necessary to disseminate the Offer Documents and any
other documents necessary to consummate the Offer, Parent and Merger Sub shall
hold in confidence the information contained in any such labels, listings and
files, shall use such information only in connection with the Offer and the
Merger and, if this Agreement shall be terminated, shall, upon request, deliver
to the Company all copies of such information then in their possession.
ARTICLE II
The Merger; Closing; Effective Time
2.1. THE MERGER. (a) Upon the terms and subject to the conditions of
this Agreement, including, without limitation, Section 2.1(b), at the Effective
Time (as defined in Section 2.3) Merger Sub shall be merged with and into the
Company and the separate corporate existence of Merger Sub shall thereupon cease
(the "MERGER"). Subject to Section 2.1(b), the Company shall be the surviving
corporation in the Merger (sometimes hereinafter referred to as the "SURVIVING
CORPORATION") and shall continue to be governed by the laws of the State of
Washington, and the separate corporate existence of the Company with all its
rights, privileges, immunities, powers and franchises shall continue unaffected
by the Merger, except as set forth in Section 3.1. The Merger shall have the
effects specified in Section 23B.11.060 of the Washington Business Corporation
Act (the "WBCA").
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(b) In the event that over 90% of the outstanding Shares have been
accepted for payment by Merger Sub in the Offer, Parent may, by written notice
to the Company and in lieu of the provisions set forth in the first two
sentences of Section 2.1(a), elect to cause the Company to merge with and into
Merger Sub at the Effective Time, in which case, at the Effective Time, the
Company shall be merged with and into Merger Sub and the separate corporate
existence of the Company shall thereupon cease; PROVIDED, HOWEVER, that the
Company shall not be deemed to have breached any of its representations,
warranties or covenants set forth in this Agreement solely by reason of such
election. In such circumstance, the merger of the Company into Merger Sub shall
be deemed the "Merger" for all purposes hereunder and Merger Sub shall be deemed
the "Surviving Corporation" for all purposes hereunder.
2.2. CLOSING. The closing of the Merger (the "CLOSING") shall take
place (i) at the offices of Sullivan & Cromwell, 125 Broad Street, New York, New
York at 10:00 A.M. on the first business day on which the last to be satisfied
or waived of the conditions set forth in Article VIII hereof shall be satisfied
or waived in accordance with this Agreement or (ii) at such other place and time
and/or on such other date as the Company and Parent may agree.
2.3. EFFECTIVE TIME. As soon as practicable following the Closing,
the Company and Parent will cause articles of merger (the "WASHINGTON ARTICLES
OF MERGER") to be executed and filed with the Secretary of State of the State of
Washington (the "SECRETARY OF STATE") as provided in Section 23B.11.050 of the
WBCA. The Merger shall become effective at the time specified in the Washington
Articles of Merger as filed with the Secretary of State, and such time is
hereinafter referred to as the "EFFECTIVE TIME." Unless Parent and the Company
agree otherwise, the Washington Articles of Merger shall specify that the Merger
shall become effective at the time of filing such articles with the Secretary of
State.
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ARTICLE III
Articles of Incorporation and By-Laws
of the Surviving Corporation
3.1. ARTICLES OF INCORPORATION. The Restated Articles of
Incorporation of the Company (the "ARTICLEs") in effect at the Effective Time
shall be the Articles of Incorporation of the Surviving Corporation, until duly
amended in accordance with the terms thereof and the WBCA, except that Article 3
of the Articles shall be amended to read in its entirety as follows:
"The aggregate number of shares which the Corporation shall have the
authority to issue is 1,000 shares of Common Stock, par value $0.01 per
share."
3.2. THE BY-LAWS. The By-Laws of Merger Sub in effect at the
Effective Time shall be the By-Laws of the Surviving Corporation, until duly
amended in accordance with the terms thereof and the WBCA.
ARTICLE IV
Officers and Directors
of the Surviving Corporation
4.1. OFFICERS AND DIRECTORS. The directors of Merger Sub and the
officers of the Company at the Effective Time shall, from and after the
Effective Time, be the directors and officers, respectively, of the Surviving
Corporation until their successors have been duly elected or appointed and
qualified or until their earlier death, resignation or removal in accordance
with the Surviving Corporation's Articles of Incorporation and By-Laws.
4.2. ACTIONS BY DIRECTORS. For purposes of Article IX and
Sections 2.2, 2.3, 10.3 and 10.4, no action taken by the Board of Directors of
the Company after the consummation of the Offer and prior to the Merger shall be
effective unless such action is approved by the affirmative vote of at least a
majority of the Independent Directors (as defined in Section 4.3).
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4.3. BOARDS OF DIRECTORS; COMMITTEES. (a) If requested by Parent, the
Company will, subject to compliance with applicable law, immediately following
the acceptance for payment of, and payment by Merger Sub for, more than 50
percent of the outstanding Shares pursuant to the Offer, take all actions
necessary to cause persons designated by Parent to become directors of the
Company so that the total number of such persons equals at least that number of
directors, rounded up to the next whole number, which represents the product of
(x) the total number of directors on the Board of Directors multiplied by
(y) the percentage that the number of Shares so accepted for payment and paid
for plus any Shares beneficially owned by Parent or its affiliates on the date
hereof bears to the number of Shares outstanding at the time of such payment.
In furtherance thereof, the Company will increase the size of the Board, or use
its best efforts to secure the resignation of directors, or both, as is
necessary to permit Parent's designees to be elected to the Company's Board of
Directors; provided, however, that prior to the Effective Time, the Company's
Board of Directors shall always have at least three members (the "INDEPENDENT
DIRECTORS") who are neither officers of Parent nor designees, shareholders or
affiliates of Parent or Parent's affiliates ("PARENT INSIDERS"); and PROVIDED
FURTHER that, in such event, if the number of Independent Directors shall be
reduced below three for any reason whatsoever, any remaining Independent
Directors (or Independent Director, if there shall be only one remaining) shall
be entitled to designate persons to fill such vacancies who shall be deemed to
be Independent Directors for purposes of this Agreement or, if no Independent
Directors then remain, the other directors shall designate three persons to fill
such vacancies who shall not be officers or affiliates of Parent or any of
Parent's affiliates, and such persons shall be deemed to be Independent
Directors for purposes of this Agreement. At such time, the Company, if so
requested, will use its best efforts to cause persons designated by Parent to
constitute the same percentage of each committee of such board, each board of
directors of each subsidiary of the Company and each committee of each such
board (in each case to the extent of the Company's ability to elect such
persons). The Company's obligations to appoint designees to the Board of
Directors shall be subject to Section 14(f) of the Securities Exchange Act of
1934 (the "EXCHANGE ACT") and Rule 14f-1 thereunder. The Company shall promptly
take all actions required pursuant to such Section and Rule in order
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to fulfill its obligations under this Section 4.3 and shall provide for
inclusion in the Schedule 14D-9 being mailed to shareholders contemporaneously
with the commencement of the Offer such information with respect to Parent and
its designees as is required under such Section and Rule in order to fulfill its
obligations under this Section 4.3 (provided that Parent shall have provided to
the Company on a timely basis all information required to be included under such
Section and Rule with respect to the designees of Parent).
ARTICLE V
Conversion or Cancellation of Shares in the Merger
5.1. CONVERSION OR CANCELLATION OF SHARES. The manner of converting
or canceling shares of the Company and Merger Sub in the Merger shall be as
follows:
(a) At the Effective Time, each Share issued and outstanding
immediately prior to the Effective Time (other than Shares owned by Parent,
Merger Sub or any other subsidiary of Parent (collectively, the "PARENT
COMPANIES")) or Shares which are held by stockholders ("DISSENTING
STOCKHOLDERS") exercising dissenters' rights pursuant to Section 23B.13.020 of
the WBCA) shall, by virtue of the Merger and without any action on the part of
the holder thereof, be converted into the right to receive, without interest, an
amount in cash equal to $50.50 or such greater amount which may be paid pursuant
to the Offer (the "MERGER CONSIDERATION"). All such Shares, by virtue of the
Merger and without any action on the part of the holders thereof, shall no
longer be outstanding and shall be canceled and retired and shall cease to
exist, and each holder of a certificate representing any such Shares shall
thereafter cease to have any rights with respect to such Shares, except the
right to receive the Merger Consideration for such Shares upon the surrender of
such certificate in accordance with Section 5.2 or the right, if any, to receive
payment from the Surviving Corporation of the "fair value" of such Shares as
determined in accordance with Section 23B.13.020 of the WBCA.
(b) At the Effective Time, each Share issued and outstanding at the
Effective Time and owned by any of the Parent Companies, and each Share issued
and held in the
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Company's treasury at the Effective Time, shall, by virtue of the Merger and
without any action on the part of the holder thereof, cease to be outstanding,
shall be canceled and retired without payment of any consideration therefor and
shall cease to exist.
(c) At the Effective Time, each share of Common Stock, par value $0.01
per share, of Merger Sub issued and outstanding immediately prior to the
Effective Time shall, by virtue of the Merger and without any action on the part
of Merger Sub or the holders of such shares, be converted into one Share, unless
Parent has made the election provided for in Section 2.1(b) hereof, in which
case each such share of Merger Sub shall remain outstanding and each certificate
therefor shall continue to evidence one share of Common Stock of the Surviving
Corporation.
5.2. PAYMENT FOR SHARES. Parent shall make available or cause to be
made available as and when needed to the bank or trust company appointed by
Parent as paying agent prior to the consummation of the Offer, which paying
agent shall be reasonably acceptable to the Company (the "PAYING AGENT"),
amounts sufficient in the aggregate to provide all funds necessary for the
Paying Agent to make payments pursuant to Section 5.1(a) hereof to holders of
Shares issued and outstanding immediately prior to the Effective Time. Promptly
after the Effective Time, the Surviving Corporation shall instruct the Paying
Agent to mail to each person who was, at the Effective Time, a holder of record
(other than any of the Parent Companies) of issued and outstanding Shares a form
of letter of transmittal and instructions in customary form for use in effecting
the surrender of the certificates which, immediately prior to the Effective
Time, represented any of such Shares in exchange for payment therefor. Upon
surrender to the Paying Agent of such a certificate, together with such letter
of transmittal, duly executed and completed in accordance with the instructions
thereto, the Surviving Corporation shall promptly cause to be paid to the
persons entitled thereto a check in the amount to which such persons are
entitled, after giving effect to any required tax withholdings. No interest
will be paid or will accrue on the amount payable upon the surrender of any such
certificate. If payment is to be made to a person other than the registered
holder of the certificate surrendered, it shall be a condition of such payment
that the certificate so surrendered shall be properly endorsed or otherwise in
proper form for transfer
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and that the person requesting such payment shall pay any transfer or other
taxes required by reason of the payment to a person other than the registered
holder of the certificate surrendered or establish to the satisfaction of the
Surviving Corporation and the Paying Agent that such tax has been paid or is not
applicable. 180 days following the Effective Time, the Surviving Corporation
shall be entitled to cause the Paying Agent to deliver to it any funds
(including any interest received with respect thereto) made available to the
Paying Agent which have not been disbursed to holders of certificates formerly
representing Shares outstanding immediately prior to the Effective Time, and
thereafter such holders shall be entitled to look to the Surviving Corporation
only as general creditors thereof with respect to the cash payable upon due
surrender of their certificates. Notwithstanding the foregoing, neither the
Paying Agent nor any party hereto shall be liable to any holder of certificates
formerly representing Shares for any amount paid to a public official pursuant
to any applicable abandoned property, escheat or similar law. The Surviving
Corporation shall pay all charges and expenses of the Paying Agent in connection
with the exchange of cash for Shares and Parent shall reimburse the Surviving
Corporation for such charges and expenses.
5.3. DISSENTERS' RIGHTS. If any Dissenting Stockholder shall be
entitled to be paid the "fair value" of such Dissenting Stockholder's Shares, as
provided in Section 23B.13.020 of the WBCA, the Company shall give Parent notice
thereof and Parent shall have the right to participate in all negotiations and
proceedings with respect to any such demands. Neither the Company nor the
Surviving Corporation shall, except with the prior written consent of Parent,
voluntarily make any payment with respect to, or settle or offer to settle, any
such demand for payment. If any Dissenting Stockholder shall fail to perfect or
shall have effectively withdrawn or lost the right to dissent, the Shares held
by such Dissenting Stockholder shall thereupon be treated as though such Shares
had been converted into the right to receive the Merger Consideration pursuant
to Section 5.1.
5.4. TRANSFER OF SHARES AFTER THE EFFECTIVE TIME. No transfers of
Shares shall be made on the stock transfer books of the Surviving Corporation at
or after the Effective Time.
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ARTICLE VI
Representations and Warranties
6.1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. Except as set
forth in the corresponding section of the disclosure letter, dated the date
hereof, delivered by the Company to Parent prior to the execution hereof (the
"DISCLOSURE LETTER"), the Company hereby represents and warrants to Parent and
Merger Sub that:
(a) CORPORATE ORGANIZATION AND QUALIFICATION. Each of the Company and
its subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of its respective jurisdiction of incorporation and is
in good standing as a foreign corporation in each jurisdiction where the
properties owned, leased or operated, or the business conducted, by it require
such qualification, except for any such failure to so qualify or be in such good
standing which, when taken together with all other such failures, is not
reasonably likely to have a Material Adverse Effect. Each of the Company and
its subsidiaries has the requisite corporate power and authority to carry on its
respective businesses in all material respects as they are now being conducted.
The Company has made available to Parent a complete and correct copy of the
Company's Articles and By-Laws and the comparable governing instruments of each
of its subsidiaries, each as amended to date. The Company's Articles and
By-Laws and the comparable governing instruments of each of its subsidiaries so
delivered are in full force and effect.
(b) AUTHORIZED CAPITAL. The authorized capital stock of the Company
consists of 50,000,000 Shares, of which 14,759,713 Shares were outstanding as of
July 3, 1998, and 6,000,000 shares of Preferred Stock, par value $1.00 per share
(the "PREFERRED SHARES"), of which no shares are outstanding. All of the
outstanding Shares and Preferred Shares have been duly authorized and all of the
outstanding Shares are validly issued, fully paid and nonassessable. The
Company has no Shares or Preferred Shares reserved for issuance, except that, as
of July 3, 1998, there were 2,452,482 Shares reserved for issuance upon exercise
of outstanding options under (or, in the case of the Employee Stock Purchase
Plan, reserved for issuance under such plan) pursuant to the Westmark
International Incorporated 1986
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Amended and Restated Option, Restricted Stock, Stock Appreciation Right and
Performance Unit Plan, Westmark International Incorporated 1986 Amended and
Restated Nonofficers Employee Option, Restricted Stock and Stock Grant Plan,
1986 Management Incentive Plan, Amended 1992 Option, Stock Appreciation Right,
Restricted Stock, Stock Grant and Performance Unit Plan, 1992 Nonofficers
Employee Stock Plan, Amended Nonemployee Directors Stock Option Plan, and
Employee Stock Purchase Plan (collectively, the "STOCK PLANS"), and
500,000 shares of Series A Preferred reserved for issuance pursuant to the
Amended and Restated Rights Agreement, dated as of June 26, 1992, between the
Company and First Chicago Trust Company of New York (the "RIGHTS AGREEMENT").
Each of the outstanding shares of capital stock of each of the Company's
subsidiaries is duly authorized, validly issued, fully paid and nonassessable
and owned, either directly or indirectly, by the Company free and clear of all
liens, pledges, security interests, claims or other encumbrances. Except as set
forth above, there are no shares of capital stock of the Company authorized,
issued or outstanding and except as set forth above, there are no preemptive
rights or outstanding subscriptions, options, warrants, rights or convertible
securities of the Company or any of its subsidiaries, or agreements or
commitments of the Company or any of its subsidiaries of any character relating
to the issued or unissued capital stock or other securities of the Company or
any of its subsidiaries. Immediately prior to the consummation of the Offer, no
Shares, Preferred Shares or other securities of the Company will be issuable
pursuant to the Rights Agreement, and after the Effective Time the Surviving
Corporation will have no obligation to issue, transfer or sell any Shares or
common stock of the Surviving Corporation pursuant to any Compensation and
Benefit Plan (as defined in Section 6.1(h)).
(c) CORPORATE AUTHORITY. Subject only to approval of this Agreement
by the holders of a majority of the outstanding Shares, the Company has the
requisite corporate power and authority and has taken all corporate action
necessary in order to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. This Agreement is a valid and binding
agreement of the Company enforceable against the Company in accordance with its
terms. The Board of Directors of the Company has (A) unanimously adopted this
Agreement and approved the Offer and the Merger and (B) received the opinion of
its financial advisor, BT Alex. Brown, to the effect that, as of
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the date of this Agreement, the consideration to be received by the holders of
Shares (other than Parent and its affiliates) in the Offer and the Merger is
fair to such holders from a financial point of view, a copy of the written
opinion of which will promptly be provided to Parent.
(d) GOVERNMENTAL FILINGS; NO VIOLATIONS.
(i) Other than those notices, reports, filings, consents,
registrations, approvals, permits or authorizations provided for in Section 2.3,
as required under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the
"HSR ACT") and the antitrust or competition laws and regulations of Belgium (if
required by law), Austria and Germany (the "FOREIGN FILINGS"), and the
Exchange Act and the Investment Canada Act ("ICA") (collectively, the
"REGULATORY FILINGS"), no notices, reports or other filings are required to be
made by the Company with, nor are any consents, registrations, approvals,
permits or authorizations required to be obtained by the Company from, any
governmental or regulatory authority, agency, commission or other entity,
domestic or foreign ("GOVERNMENTAL ENTITY"), in connection with the execution
and delivery of this Agreement by the Company and the consummation by the
Company of the transactions contemplated hereby, except for those the failure of
which to be made or obtained would not, individually or in the aggregate,
reasonably be likely to adversely affect the Company in a material way or to
prevent the consummation of, or materially impair the Company's ability to
consummate, the transactions contemplated hereby.
(ii) The execution and delivery of this Agreement by the Company does
not, and the consummation by the Company of the transactions contemplated by
this Agreement will not, constitute or result in (A) a breach or violation of,
or a default under, the Articles or By-Laws of the Company or the comparable
governing instruments of any of its subsidiaries, (B) a breach or violation of,
a default under or the triggering of any payment or other obligations pursuant
to, any of the Company's existing Compensation and Benefit Plans or any grant or
award made under any of the foregoing, (C) a breach or violation of, or a
default under, the acceleration of or the creation of a lien, pledge, security
interest or other encumbrance on assets (with or without the giving of notice or
the lapse of time) pursuant to, any provision of any agreement, lease, license,
contract, note, mortgage,
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indenture, arrangement or other obligation ("CONTRACTS") of the Company or any
of its subsidiaries or any law, rule, ordinance or regulation or judgment,
decree, order, award or governmental or non-governmental permit or license to
which the Company or any of its subsidiaries is subject or (D) any change in the
rights or obligations of any party under any of the Contracts, except in the
case of clauses (B), (C) or (D) above, any such breach, violation, default,
triggering, acceleration or creation that, individually or in the aggregate,
would not reasonably be likely to have a Material Adverse Effect or to prevent
the consummation of, or materially impair the ability of the Company to
consummate, the transactions contemplated hereby. Schedule 6.1(d)(ii) of the
Disclosure Letter sets forth, to the knowledge of the Company, a list of (x) any
material consents required under any Contracts to be obtained prior to
consummation of the transactions contemplated by this Agreement (whether or not
subject to the exception set forth with respect to clause (C) above) and (y) any
Contracts containing any covenants of the Company or any of its subsidiaries not
to compete in any line of business or with any person. The Company will use its
reasonable best efforts to obtain the consents referred to in the Disclosure
Letter.
(e) COMPANY REPORTS; FINANCIAL STATEMENTS. The Company has made
available to Parent each registration statement, schedule, report, proxy
statement or information statement filed by it since December 31, 1997 (the
"AUDIT DATE"), including, without limitation, (i) the Company's Annual Report on
Form 10-K for the year ended December 31, 1997 and (ii) the Company's Quarterly
Report on Form 10-Q for the periods ended March 31, 1998, each in the form
(including exhibits and any amendments thereto) filed with the SEC (all such
statements, schedules and reports, the "COMPANY REPORTS"). As of their
respective dates, the Company Reports did not, and any Company Reports filed
with the SEC subsequent to the date hereof will not, contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements made therein, in light of the
circumstances in which they were made, not misleading. Each of the consolidated
balance sheets included in or incorporated by reference into the Company Reports
(including the related notes and schedules) fairly presents in all material
respects the consolidated financial position of the Company and its subsidiaries
as of its date and each of the consolidated statements of income and of changes
in
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financial position included in or incorporated by reference into the Company
Reports (including any related notes and schedules) fairly presents in all
material respects the results of operations, retained earnings and changes in
financial position, as the case may be, of the Company and its subsidiaries for
the periods set forth therein (subject, in the case of unaudited statements, to
normal year-end audit adjustments which will not be material in amount or
effect), in each case in accordance with generally accepted accounting
principles consistently applied during the periods involved, except as may be
noted therein.
(f) ABSENCE OF CERTAIN CHANGES. Except as disclosed in the Company
Reports filed with the SEC prior to the date hereof, since December 31, 1997,
the Company and its subsidiaries have conducted their respective businesses only
in, and have not engaged in any material transaction other than according to,
the ordinary and usual course of such businesses and there has not been (i) any
change or development that, individually or in the aggregate, has had, or,
individually or in the aggregate, is reasonably likely to have, a Material
Adverse Effect; (ii) any declaration, setting aside or payment of any dividend
or other distribution with respect to the capital stock of the Company; or
(iii) any change by the Company in accounting principles, practices or methods.
Since December 31, 1997, except as provided for herein or as disclosed in the
Company Reports filed with the SEC prior to the date hereof or as required under
agreements disclosed on Schedule 6.1(h) of the Disclosure Letter and other than
in the ordinary course, there has not been any increase in the compensation
payable or which could become payable by the Company and its subsidiaries to
their officers or key employees, or any amendment of any Compensation and
Benefit Plans (as hereinafter defined).
(g) LITIGATION AND LIABILITIES. Except as disclosed in the Company
Reports filed with the SEC prior to the date hereof, there are no (i) civil,
criminal or administrative actions, suits, claims, hearings, investigations or
proceedings pending or, to the knowledge of the Company, threatened against the
Company or any of its subsidiaries or (ii) obligations or liabilities, whether
or not accrued, contingent or otherwise, including, without limitation, those
relating to matters involving any Environmental Law (as hereinafter defined), in
each of cases (i) and (ii), other than those that, individually or
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in the aggregate, are not reasonably likely to have a Material Adverse Effect.
(h) EMPLOYEE BENEFITS.
(i) All bonus, deferred compensation, pension, retirement,
profit-sharing, thrift, savings, employee stock ownership, stock bonus, stock
purchase, restricted stock and stock option plans, all employment, termination,
severance, welfare, fringe benefit, compensation, medical or health contract or
other plan, contract, policy or arrangement which covers employees or former
employees (the "EMPLOYEES") and current and former directors of the Company or
its subsidiaries or their respective predecessors (the "COMPENSATION AND BENEFIT
PLANS"), including, but not limited to, "employee benefit plans" within the
meaning of Section 3(3) of the Employee Retirement Income Security Act of 1974,
as amended("ERISA"), are listed in Schedule 6.1(h)(i) of the Disclosure Letter.
True and complete copies of all Compensation and Benefit Plans and such other
benefit plans, contracts or arrangements, including, but not limited to, any
material trust instruments and/or insurance contracts, if any, forming a part of
any such plans and agreements, and all amendments thereto have been made
available to Parent.
(ii) All Compensation and Benefit Plans are in material compliance
with applicable law and all Compensation and Benefit Plans which are employee
benefit plans, other than "multiemployer plans" within the meaning of
Sections 3(37) of ERISA, covering Employees (the "PLANS"), to the extent subject
to ERISA, are in substantial compliance with ERISA. Each Plan which is an
"employee pension benefit plan" within the meaning of Section 3(2) of ERISA
("PENSION PLAN") and which is intended to be qualified under Section 401(a) of
the Internal Revenue Code of 1986, as amended (the "CODE"), has received a
favorable determination letter from the Internal Revenue Service with respect to
"TRA" (as defined in Section 1 of Internal Revenue Service Revenue
Procedure 93-39), and the Company has no knowledge of any circumstances likely
to result in revocation of any such favorable determination letter. There is no
pending or, to the knowledge of the Company, threatened material litigation
relating to the Compensation and Benefit Plans. Neither the Company nor any of
its subsidiaries has engaged in a transaction with respect to any Plan that,
assuming the taxable period of such
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transaction expired as of the date hereof, could subject the Company or any of
its subsidiaries to a tax or penalty imposed by either Section 4975 of the Code
or Section 502(i) of ERISA in an amount which would be material.
(iii) No material liability under Subtitle C or D of Title IV of ERISA
has been or is expected to be incurred by the Company or any of its subsidiaries
with respect to any ongoing, frozen or terminated "single-employer plan", within
the meaning of Section 4001(a)(15) of ERISA, currently or formerly maintained by
any of them, or the single-employer plan of any entity which is considered one
employer with the Company under Section 4001 of ERISA or Section 414 of the Code
(an "ERISA AFFILIATE"). None of the Company, its subsidiaries or any ERISA
Affiliate has contributed to a "multiemployer plan", within the meaning of
Section 3(37) of ERISA, at any time on or after September 26, 1980. No notice
of a "reportable event", within the meaning of Section 4043 of ERISA for which
the 30-day reporting requirement has not been waived, has been required to be
filed for any Pension Plan or by any ERISA Affiliate within the 12-month period
ending on the date hereof.
(iv) All material contributions required to be made under the terms of
any Plan have been timely made. Neither any Pension Plan nor any
single-employer plan of an ERISA Affiliate has an "accumulated funding
deficiency" (whether or not waived) within the meaning of Section 412 of the
Code or Section 302 of ERISA. Neither the Company nor any of its subsidiaries
has provided, or is required to provide, security to any Pension Plan or to any
single-employer plan of an ERISA Affiliate pursuant to Section 401(a)(29) of the
Code.
(v) There has been no material adverse change in the financial
condition of any single-employer plan since the last day of the most recent Plan
year.
(vi) Neither the Company nor any of its subsidiaries have any
obligations for retiree health and life benefits under any Compensation and
Benefit Plan. There are no restrictions on the rights of the Company or any of
its subsidiaries to amend or terminate any such Plan without incurring any
material liability thereunder.
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(vii) All Compensation and Benefit Plans covering foreign employees
comply with applicable local law. Except as disclosed in the Company Reports
filed with the SEC prior to the date hereof, neither the Company nor any of its
subsidiaries has any material unfunded liabilities with respect to any Pension
Plan which covers foreign Employees.
(viii) The consummation of the transactions contemplated by this
Agreement will not (x) entitle any employees of the Company or any of its
subsidiaries to severance pay, (y) accelerate the time of payment or vesting or
trigger any payment of compensation or benefits under, increase the amount
payable or trigger any other material obligation pursuant to, any of the
Compensation and Benefit Plans or (z) result in any breach or violation of, or a
default under any of the Compensation and Benefit Plans.
(ix) No payment (or acceleration of benefits) required to be made to
any Employee as a result of the transactions contemplated by this Agreement
under any Compensation and Benefit Plan or otherwise will, if made, constitute
an "excess parachute payment" within the meaning of Section 280G of the Code.
Notwithstanding the foregoing, the Company is not a party to any Contract
pursuant to which it could be liable to indemnify any "disqualified individual"
as defined in Section 280G(c) of the Code for any excise tax under Section 4999
of the Code with respect to any "excess parachute payment".
(i) BROKERS AND FINDERS. Neither the Company nor any of its officers,
directors or employees has employed any broker or finder or incurred any
liability for any brokerage fees, commissions or finders fees in connection with
the transactions contemplated herein, except that the Company has employed BT
Alex. Brown as its financial advisor, the arrangements with which have been
disclosed in writing to Parent prior to the date hereof.
(j) RIGHTS PLAN. (i) The Company has amended the Rights Agreement to
provide that neither Parent nor any of its "affiliates" or "associates" (each as
defined in the Rights Agreement) (including Merger Sub) shall be deemed an
Acquiring Person (as defined in the Rights Agreement) and that the Distribution
Date (as defined in the Rights Agreement) shall not be deemed to occur, and that
the Rights will not separate from the Shares, as a result of the entering into
this Agreement, the commencement of the Offer
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or the consummation of the Merger or the other transactions contemplated hereby;
(ii) the Company will take all necessary action with respect to all of the
outstanding Rights, so that the Company, as of the time immediately prior to the
purchase of any Shares by Parent or any of the Parent Companies pursuant to the
Offer, will have no obligations under the Rights or the Rights Agreement and the
holders will have no rights under the Rights or the Rights Agreement, in each
case, other than the right to receive the redemption payment of $0.01 per Right
in cash as provided in the Rights Agreement.
(k) TAKEOVER STATUTES. No "fair price", "moratorium", "control share
acquisition", "interested shareholder", "business combination" or other similar
antitakeover statute or regulation (including, without limitation, the business
combination provisions of Chapter 23B.19 of the WBCA) (each a "TAKEOVER
STATUTE") is, or at the Effective Time will be, applicable to the Company, the
Shares, the Offer or the Merger or the transactions contemplated hereby.
(l) ENVIRONMENTAL MATTERS. Except (other than in the case of
clause (iii) below) for such matters that, individually or in the aggregate,
would not reasonably be likely to have a Material Adverse Effect, (i) the
Company and its subsidiaries have at all times complied with all applicable
Environmental Laws; (ii) the properties presently owned or operated by the
Company or its subsidiaries (including, without limitation, soil, groundwater or
surface water on or under the properties, and buildings thereon) (the
"PROPERTIES") do not contain and have not contained any Hazardous Substance (as
hereinafter defined) other than as permitted under applicable Environmental Law,
do not contain, and have not contained, any underground storage tanks, do not
have any asbestos present and have not been used as a sanitary landfill, dump or
hazardous waste disposal site; (iii) neither the Company nor any of its
subsidiaries has within the last five years received any notices, demand letters
or requests for information from any Governmental Entity or any third party that
the Company may be in violation of, or liable under, any Environmental Law and
none of the Company, its subsidiaries or the Properties are subject to any court
order, administrative order or decree arising under any Environmental Law; and
(iv) no Hazardous Substance has been disposed of, transferred, released or
transported from any of the Properties during
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the time such Property was owned or operated by the Company or one of its
subsidiaries, other than as permitted under and as would not reasonably be
expected to result in any liability under applicable Environmental Law, which,
in any such case, is not the subject of a fully adequate reserve.
"ENVIRONMENTAL LAW" means (i) any applicable Federal, state, foreign or local
law, statute, ordinance, rule, regulation, code, license, permit, authorization,
approval, consent, common law, legal doctrine, order, judgment, decree,
injunction, requirement or agreement with any governmental entity, (x) relating
to the protection, preservation or restoration of the environment (including,
without limitation, air, water vapor, surface water, groundwater, drinking water
supply, surface land, subsurface land, plant and animal life or any other
natural resource), or to human health or safety, or (y) the exposure to, or the
use, presence, storage, recycling, treatment, generation, transportation,
processing, handling, labeling, production, release or disposal of Hazardous
Substances, in each case as amended and as now in effect. "HAZARDOUS SUBSTANCE"
means any substance presently listed, defined, designated or classified as
hazardous, toxic, radioactive or dangerous, or otherwise regulated, under any
Environmental Law, whether by type or by quantity, including any substance
containing any such substance as a component.
(m) INTELLECTUAL PROPERTY.
(i) The Company and/or each of its subsidiaries owns, or is licensed
or otherwise possesses legally enforceable rights to use, all material patents,
trademarks, trade names, service marks, copyrights, and any applications
therefor, technology, know-how, computer software programs or applications, and
tangible or intangible proprietary information or materials that are used in the
business of the Company and its subsidiaries as currently conducted, and all
material patents, trademarks, trade names, service marks and copyrights held by
the Company and/or its subsidiaries are valid and subsisting.
(ii) Except as disclosed in Company Reports filed prior to the date
hereof:
(A) neither the Company nor any of its subsidiaries is, nor will the
Company or any of its subsidiaries be as a result of the execution and
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delivery of this Agreement or the performance of the Company's obligations
hereunder, in violation of any licenses, sublicenses or other agreements as
to which the Company or any of its subsidiaries is a party or pursuant to
which the Company or any of its subsidiaries is authorized to use any
third-party patents, trademarks, tradenames, service marks, copyrights,
trade secrets, technology, know-how or computer software (collectively,
"THIRD-PARTY INTELLECTUAL PROPERTY RIGHTS"), in each case which violation
would, individually or in the aggregate, reasonably be likely to adversely
affect the Company in a material manner;
(B) no material claims with respect to (I) the patents, registered and
unregistered trademarks and service marks, registered copyrights, trade
names, and any applications therefor, trade secrets, know-how, technology
or computer software owned by the Company or any of its subsidiaries
(collectively, the "COMPANY INTELLECTUAL PROPERTY RIGHTS"); or
(II) Third-Party Intellectual Property Rights are currently pending or, to
the knowledge of the Company, are threatened by any person; and
(C) to the knowledge of the Company, there is no material unauthorized
use, infringement or misappropriation of any of the Company Intellectual
Property Rights by any third party, including any employee of the Company
or any of its subsidiaries.
(n) TAX MATTERS.
(i) The Company has timely filed or caused to be filed all federal,
state, local and foreign tax returns and tax reports required to be filed by, or
with respect to, the Company and its subsidiaries on or prior to the date
hereof, except to the extent that any failure to so file would not, individually
or in the aggregate, reasonably be likely to adversely affect the Company in any
material manner. Such returns and reports are complete and accurate in all
material respects. The Company and its subsidiaries have timely paid (A) all
taxes shown as due on such tax returns and (B) all taxes for which no return is
required to be filed, except to the extent that any failure to so pay would not,
individually or in the aggregate, reasonably be likely to adversely affect the
Company in any material manner. All
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U.S. federal income and employment tax returns and reports of the Company and
its subsidiaries have been examined by the Internal Revenue Service for all
years through 1993. No material issues have been raised in writing by the
relevant taxing authority in connection with any examination of the tax returns
and reports referred to in the first sentence of this clause (i).
(ii) The Company will timely file or cause to be filed all federal,
state, local and foreign tax returns and tax reports required to be filed by, or
with respect to, the Company and its subsidiaries between the date hereof and
the Effective Time, except to the extent that any failure to so file would not,
individually or in the aggregate, reasonably be likely to adversely affect the
Company in any material manner. Such returns and reports will be complete and
accurate in all material respects.
(iii) No waivers of statutes of limitations have been given or
requested with respect to any material taxes of the Company or its subsidiaries.
(iv) The Company is not, nor was it at any time during the five-year
period ending on the date on which the Effective Time occurs, a "United States
real property holding corporation" within the meaning of Section 897(C) of the
Code.
(o) INSURANCE. All material fire and casualty, general liability,
business interruption, product liability, and sprinkler and water damage
insurance policies maintained by the Company or any of its subsidiaries are with
reputable insurance carriers, provide adequate coverage for risks incident to
the business of the Company and its subsidiaries and their respective properties
and assets in character and amount generally comparable with those carried by
persons engaged in similar businesses and subject to generally comparable perils
or hazards. All such policies are in full force and effect and no notice of
cancellation, termination or default has been received with respect to any such
policy. All premiums due and payable on such policies covering all periods up
to and including the Closing Date have been paid in full or accrued.
(p) PRODUCT WARRANTIES. (i) There are no material warranties,
express or implied, written or oral, with respect to the products of the Company
or any of its
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subsidiaries ("COMPANY PRODUCTS"); (ii) as of the date hereof there are no
pending or threatened material claims with respect to any such warranty; (iii)
there are no statements, citations or decisions by any Governmental Entity
declaring any Company Products defective or unsafe; (iv) no Company Product
fails to meet in any material respect any standards promulgated by any
applicable Governmental Entity; (v) there have been no recalls ordered within
the past five years by any such Governmental Entity with respect to any Company
Product; and (vi) there are no material pending, or, to the knowledge of the
Company as of the date hereof, threatened, product liability claims against or
involving the Company or any of its subsidiaries or any Company Product and no
such claims have been settled or adjudicated since December 31, 1995.
(q) YEAR 2000. The Company has a Year 2000 program in place which,
to the knowledge of the Company, is adequate to cause all computer software and
data processing devices (i) used in or for the manufacturing of Company Products
by the Company and/or any of its subsidiaries, or (ii) utilized in or by any
Company Products, including any Company Products sold and/or installed prior to
the date hereof, to become "Year 2000 Compliant" during 1999 and the Company
reasonably believes that all material costs associated with such program are
included in the Company's 1998 Budget and in its 1999 Strategic Plan, in each
case except as would not reasonably be likely, individually or in the aggregate,
to have a Material Adverse Effect. "YEAR 2000 COMPLIANT" means that the product
or software accurately processes and stores date/time data (including, but not
limited to calculating, comparing, displaying, recording and sequencing
operations involving date/time data) during, from and into and between the
twentieth and twenty-first centuries, and the years 1999 and 2000, including
correct processing of leap year data.
(r) COMPLIANCE WITH APPLICABLE LAWS. Each of the Company and its
subsidiaries has in effect all material federal, state, local and foreign
governmental approvals, authorizations, certificates, filings, franchises,
licenses, notices, permits and rights ("PERMITS") necessary for it to own, lease
or operate its properties and assets and to carry on its business as now
conducted in all material respects, and there has occurred no material default
under any such Permit. The Company and its subsidiaries are in compliance in
all material respects with all applicable statutes, laws,
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ordinances, rules, orders and regulations of any Governmental Entity.
6.2. REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB. Parent
and Merger Sub represent and warrant to the Company that:
(a) CORPORATE ORGANIZATION AND QUALIFICATION. Each of Parent and
Merger Sub is a corporation duly organized, validly existing and in good
standing under the laws of its respective jurisdiction of incorporation and is
in good standing as a foreign corporation in each jurisdiction where the
properties owned, leased or operated, or the business conducted, by it require
such qualification except for such failure to so qualify or to be in such good
standing, which, when taken together with all other such failures, is not
reasonably likely to have a material adverse effect on the financial condition,
properties, business or results of operations of Parent and its subsidiaries,
taken as a whole or on the ability of Parent or Merger Sub to perform their
obligations under this Agreement. Merger Sub has made available to the Company
true and complete copies of its articles of incorporation and bylaws.
(b) CORPORATE AUTHORITY. Parent and Merger Sub each has the requisite
corporate power and authority and has taken all corporate action necessary in
order to execute and deliver this Agreement and to consummate the transactions
contemplated hereby. This Agreement is a valid and binding agreement of Parent
and Merger Sub enforceable against Parent and Merger Sub in accordance with its
terms.
(c) GOVERNMENTAL FILINGS; NO VIOLATIONS. (i) Other than the
Regulatory Filings, no notices, reports or other filings are required to be made
by Parent and Merger Sub with, nor are any consents, registrations, approvals,
permits or authorizations required to be obtained by Parent and Merger Sub from,
any Governmental Entity in connection with the execution and delivery of this
Agreement by Parent and Merger Sub and the consummation of the transactions
contemplated hereby by Parent and Merger Sub, except for those the failure of
which to be made or obtained would not, individually or in the aggregate,
reasonably be likely to prevent the consummation of, or materially impair the
ability of Parent or Merger Sub to consummate, the transactions contemplated
hereby.
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(ii) The execution and delivery of this Agreement by Parent and Merger
Sub do not, and the consummation of the transactions contemplated hereby by
Parent and Merger Sub will not, constitute or result in (A) a breach or
violation of, or a default under, the Certificate or Articles of Incorporation
or By-Laws of Parent or Merger Sub or (B) a breach or violation of, a default
under, the acceleration of or the creation of a lien, pledge, security interest
or other encumbrance on assets (with or without the giving of notice or the
lapse of time) pursuant to, any provision of any Contract of Parent or Merger
Sub or any law, ordinance, rule or regulation or judgment, decree, order, award
or governmental or non-governmental permit or license to which Parent or Merger
Sub is subject, except in the case of clause (B) above, any such breach,
violation, default, acceleration or creation that, individually or in the
aggregate, is not reasonably likely to prevent the consummation of, or
materially impair the ability of Parent or Merger Sub to consummate, the
transactions contemplated hereby.
(d) FUNDS. Parent has or will have the funds necessary to consummate
the Offer and the Merger.
ARTICLE VII
Covenants
7.1. INTERIM OPERATIONS OF THE COMPANY. The Company covenants and
agrees that, prior to the Effective Time (unless Parent shall otherwise agree
in writing and except as otherwise contemplated by this Agreement or as set
forth in the Disclosure Letter):
(a) the business of the Company and its subsidiaries shall be
conducted only in the ordinary and usual course and, to the extent
consistent therewith, each of the Company and its subsidiaries shall use
its reasonable best efforts to preserve its business organization intact
and maintain its existing relations with customers, suppliers, employees
and business associates;
(b) the Company shall not (i) sell or pledge or agree to sell or
pledge any stock owned by it in any of its subsidiaries; (ii) amend its
Articles or By-Laws or
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amend, modify or terminate the Rights Agreement; (iii) split, combine or
reclassify the outstanding Shares or Preferred Shares; or (iv) declare, set
aside or pay any dividend payable in cash, stock or property with respect
to the Shares or Preferred Shares;
(c) neither the Company nor any of its subsidiaries shall (i) issue,
sell, pledge, dispose of or encumber any additional shares of, or
securities convertible or exchangeable for, or options, warrants, calls,
commitments or rights of any kind to acquire, any shares of its capital
stock other than, in the case of the Company, Shares issuable pursuant to
options outstanding on the date hereof under the Stock Plans;
(ii) transfer, lease, license, guarantee, sell, mortgage, pledge, dispose
of or encumber any assets or incur or modify any indebtedness or other
liability other than in the ordinary and usual course of business;
(iii) acquire directly or indirectly by redemption or otherwise any shares
of the capital stock of the Company; or (iv) authorize capital expenditures
in any manner not reflected in the capital budget of the Company attached
to the Disclosure Letter or make any acquisition of, or investment in, any
business or stock of any other person or entity;
(d) other than (i) the employment agreements entered into in
connection with this Agreement, (ii) as otherwise provided herein, (iii) as
required by law or (iv) as required under an existing plan as of the date
hereof, neither the Company nor any of its subsidiaries shall (A) grant any
severance or termination pay to, or enter into any employment or severance
agreement with, any director, officer or other employee of the Company or
such subsidiaries; or (B) establish, adopt, enter into, make any new grants
or awards (or accelerate the vesting, or increase the value of any benefit)
under, or amend, any collective bargaining, bonus, profit sharing, thrift,
compensation, stock option, restricted stock, pension, retirement, employee
stock ownership, deferred compensation, employment, termination, severance
or other plan, agreement, trust, fund, policy or arrangement for the
benefit of any directors, officers or employees;
(e) neither the Company nor any of its subsidiaries shall settle or
compromise any material claims or
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litigation or, except in the ordinary and usual course of business, modify,
amend or terminate any of its material Contracts or waive, release or
assign any material rights or claims;
(f) neither the Company nor any of its subsidiaries shall make any
material tax election or permit any material insurance policy naming it as
a beneficiary or a loss payable payee to be canceled or terminated without
the prior written approval of Parent, except in the ordinary and usual
course of business;
(g) neither the Company nor any of its subsidiaries shall
(i) terminate the employment of any Employee who is covered by a change in
control, employment, termination or similar agreement, except for Cause (as
defined in such agreements) or (ii) permit circumstances to exist that
would provide such Employee with Good Reason (as defined in such
agreements) to terminate employment; and
(h) neither the Company nor any of its subsidiaries shall authorize or
enter into an agreement to do any of the foregoing.
7.2. ACQUISITION PROPOSALS. The Company agrees that neither the
Company nor any of its subsidiaries nor any of the respective officers and
directors of the Company or its subsidiaries shall, and the Company shall direct
and use its best efforts to cause its employees, agents and representatives
(including, without limitation, any investment banker, attorney or accountant
retained by the Company or any of its subsidiaries) not to, directly or
indirectly, initiate, solicit, encourage or otherwise facilitate (including by
providing any confidential information or data to or having any negotiations or
discussions with any person (other than Parent or its affiliates) making or
inquiring with respect to making an Acquisition Proposal), any inquiries or the
making of any proposal or offer (including, without limitation, any proposal or
offer to stockholders of the Company) with respect to a merger, reorganization,
share exchange, consolidation or similar transaction involving the Company, or
any purchase of more than 15% (on a fair market value basis) of the assets of
the Company and its subsidiaries on a consolidated basis (including any such
purchase of assets
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effected indirectly through the purchase of such subsidiaries), or any purchase
of, or tender offer for, more than 15% of any equity securities of the Company
(any such proposal or offer being hereinafter referred to as an "ACQUISITION
PROPOSAL"), except that the Company shall have the right, if, and only to the
extent that, the Company's Board of Directors concludes in good faith after
consultation with outside legal counsel that such actions are required to comply
with the fiduciary duties of the Company's Board of Directors under applicable
law in response to a bona fide, written Acquisition Proposal not solicited on or
after the date hereof, to engage in negotiations concerning, provide
confidential information or data to, or have discussions with, any person
relating to an Acquisition Proposal. The Company will immediately cease and
cause to be terminated any existing activities, discussions or negotiations with
any parties conducted heretofore with respect to any of the foregoing. The
Company will take the necessary steps to promptly inform the individuals or
entities referred to in the first sentence hereof of the obligations undertaken
in this Section 7.2. The Company will notify Parent promptly, and in any event
within 24 hours, if any such inquiries or proposals are received by, any such
information is requested from, or any such negotiations or discussions are
sought to be initiated or continued with, the Company or any of its
subsidiaries, indicating, in connection with such notice, the name of such
person and the material terms of any such proposals or offers, and shall
thereafter keep Parent informed on a current basis of the status and material
terms of any such proposals or offers and the status of any such discussions or
negotiations. The Company also will promptly request each person which has
heretofore executed a confidentiality agreement in connection with its
consideration of acquiring the Company and/or any of its subsidiaries to return
all confidential information heretofore furnished to such person by or on behalf
of the Company.
Nothing contained in this Agreement shall prohibit the Company from
taking and disclosing to its stockholders a position required by Rule 14e-2(a)
promulgated under the Exchange Act or from making any disclosure to the
Company's stockholders if, in the good faith judgment of the Board of Directors
of the Company after consultation with outside counsel, failure to do so would
be a violation of its obligations under applicable law.
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7.3. MEETINGS OF THE COMPANY'S STOCKHOLDERS. If the approval of the
Agreement by the Company's stockholders is required by law following
consummation of the Offer, the Company will take, consistent with applicable law
and its Articles and By-Laws, all action necessary to convene a meeting of
holders of Shares as promptly as practicable to consider and vote upon the
approval of this Agreement and the Merger. Subject to fiduciary requirements of
applicable law, the Board of Directors of the Company shall recommend such
approval and the Company shall take all lawful action to solicit such approval.
At any such meeting of the Company all of the Shares then owned by the Parent
Companies will be voted in favor of this Agreement and the Merger. The
Company's proxy or information statement with respect to such meeting of
shareholders (the "PROXY STATEMENT"), at the date thereof and at the date of
such meeting, will not include an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading; PROVIDED, HOWEVER, that the foregoing shall not apply to the
extent that any such untrue statement of a material fact or omission to state a
material fact was made by the Company in reliance upon and in conformity with
written information concerning the Parent Companies furnished to the Company by
Parent specifically for use in the Proxy Statement. The Proxy Statement shall
not be filed, and no amendment or supplement to the Proxy Statement will be made
by the Company, without prior consultation with Parent and its counsel.
7.4. FILINGS; OTHER ACTION. Subject to the terms and conditions
herein provided, the Company and Parent shall: (a) promptly make their
respective filings and thereafter make any other required submissions under the
HSR Act and other Regulatory Filings with respect to the Offer and the Merger;
and (b) use their respective reasonable best efforts to promptly take, or cause
to be taken, all other action and do, or cause to be done, all other things
necessary, proper or appropriate under applicable laws and regulations to
consummate and make effective the transactions contemplated by this Agreement as
soon as practicable after the date hereof; PROVIDED, however, that neither
Parent nor Merger Sub will be required to divest or hold separate any of their,
the Company's or any of their respective affiliates' businesses or assets.
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7.5. ACCESS. Upon reasonable notice, the Company shall (and shall
cause each of its subsidiaries to) afford Parent's officers, employees, counsel,
accountants and other authorized representatives ("REPRESENTATIVES") access,
during normal business hours throughout the period prior to the Effective Time,
to its properties, books, Contracts and records and, during such period, the
Company shall (and shall cause each of its subsidiaries to) furnish promptly to
Parent all information concerning its business, properties and personnel as
Parent or its Representatives may reasonably request, provided that no
investigation pursuant to this Section 7.5 shall affect or be deemed to modify
any representation or warranty made by the Company and PROVIDED, further, that
the foregoing shall not require the Company to permit any inspection, or to
disclose any information, which in the reasonable judgment of the Company would
result in the disclosure of any trade secrets of third parties or violate any
obligation of the Company with respect to confidentiality if the Company shall
have used reasonable efforts to obtain the consent of such third party to such
inspection or disclosure. All information exchanged pursuant to this
Section 7.5 shall be subject to the confidentiality agreement dated October 8,
1997, between the Company and Parent. All requests for information made
pursuant to this Section shall be directed to an executive officer of the
Company or such person as may be designated by any such officer. Upon any
termination of this Agreement, Parent will collect and deliver to the Company
all documents obtained by it or any of its Representatives then in their
possession and any copies thereof.
7.6. NOTIFICATION OF CERTAIN MATTERS. The Company shall give prompt
notice to Parent of: (a) any notice of, or other communication relating to, any
material environmental matter or any material default or event that, with notice
or lapse of time or both, would become a material default, received by the
Company or any of its subsidiaries subsequent to the date of this Agreement and
prior to the Effective Time, under any Contract to which the Company or any of
its subsidiaries is a party or is subject; and (b) any change or development
that, individually or in the aggregate, is reasonably likely to have a Material
Adverse Effect. Each of the Company and Parent shall give prompt notice to the
other party of any notice or other communication from any third party alleging
that the consent of such third party is or may be required in connection with
the transactions contemplated by this Agreement.
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7.7. PUBLICITY. The initial press release by the parties hereto with
respect to this Agreement shall be a joint press release and thereafter the
Company and Parent shall consult with each other prior to issuing any press
releases or otherwise making public statements with respect to the transactions
contemplated hereby and prior to making any filings with any Governmental Entity
or with any national securities exchange with respect thereto.
7.8. BENEFITS. (a) STOCK OPTIONS. Prior to the Effective Time, the
Company shall use its reasonable best efforts to take such actions as may be
necessary such that at the Effective Time, each stock option outstanding
pursuant to the Stock Plans ("OPTION"), whether or not then exercisable, shall
be canceled and only entitle the holder thereof, upon surrender thereof, to
receive an amount in cash equal to the difference between the Merger
Consideration over the exercise price per Share of such Option multiplied by the
number of Shares previously subject to such Option, less all applicable
withholding Taxes. Such payment shall be made by the Company as soon as
administratively feasible after the Effective Time.
(b) EMPLOYEE BENEFITS. Parent agrees that, for a period of two years
following the Effective Time, it will cause the Company to continue to provide
the Employees with compensation and employee benefit plans (other than stock
option or other plans involving the potential issuance of securities of the
Company or of any of the Parent Companies) which in the aggregate are
substantially comparable to those currently provided by the Company to such
employees immediately prior to the Effective Time, provided that employees
covered by collective bargaining agreements need not be provided such benefits.
Parent will, or will cause the Surviving Corporation to, honor without
modification all employee (or former employee) benefit obligations accrued as of
the Effective Time.
(c) MISCELLANEOUS. The Company shall use its best efforts to take the
actions set forth on Schedule 7.8(c) of the Disclosure Letter.
Section 7.9. INDEMNIFICATION; DIRECTORS' AND OFFICERS' INSURANCE.
(a) From and after the Effective Time, Parent agrees that it will indemnify and
hold harmless each present and former director and officer of the Company and
its subsidiaries, determined as of the Effective Time (the
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"INDEMNIFIED PARTIES"), against any costs or expenses (including reasonable
attorneys' fees), judgments, fines, losses, claims, damages or liabilities
(collectively, "COSTS") incurred in connection with any claim, action, suit,
proceeding or investigation, whether civil, criminal, administrative or
investigative, arising out of matters existing or occurring at or prior to the
Effective Time, whether asserted or claimed prior to, at or after the Effective
Time, to the fullest extent that the Company would have been permitted under
Washington law and its Articles or By-Laws in effect on the date hereof to
indemnify such person (and Parent shall also advance expenses as incurred to the
fullest extent permitted under applicable law, provided that the person to whom
expenses are advanced provides an undertaking to repay such advances if it is
ultimately determined that such person is not entitled to indemnification).
(b) Any Indemnified Party wishing to claim indemnification under
paragraph (a) of Section 7.9, upon learning of any such claim, action, suit,
proceeding or investigation, shall promptly notify Parent thereof. In the event
of any such claim, action, suit, proceeding or investigation (whether arising
before or after the Effective Time), (i) Parent or the Surviving Corporation
shall have the right to assume the defense thereof and Parent shall not be
liable to such Indemnified Parties for any legal expenses of other counsel or
any other expenses subsequently incurred by such Indemnified Parties in
connection with the defense thereof, except that if Parent or the Surviving
Corporation elects not to assume such defense or counsel for the Indemnified
Parties advises that there are issues which raise conflicts of interest between
Parent or the Surviving Corporation and the Indemnified Parties, the Indemnified
Parties may retain counsel satisfactory to them, and Parent or the Surviving
Corporation shall pay all reasonable fees and expenses of such counsel for the
Indemnified Parties promptly after statements therefor are received; PROVIDED,
HOWEVER, that Parent shall be obligated pursuant to this paragraph (b) to pay
for only one firm of counsel for all Indemnified Parties in any jurisdiction
unless the use of one counsel for such Indemnified Parties would present such
counsel with a conflict of interest, (ii) the Indemnified Parties will cooperate
in the defense of any such matter and (iii) Parent shall not be liable for any
settlement effected without its prior written consent; and provided further that
Parent shall not have any obligation hereunder to any
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Indemnified Party when and if a court of competent jurisdiction shall ultimately
determine, and such determination shall have become final, that the
indemnification of such Indemnified Party in the manner contemplated hereby is
prohibited by applicable law.
(c) For a period of six years after the Effective Time, Parent shall
cause to be maintained in effect the current policies of directors' and
officers' liability insurance maintained by the Company (provided that Parent
may substitute therefor policies with reputable and financially sound carriers
of at least the same coverage and amounts containing terms and conditions which
are no less advantageous) with respect to claims arising from or related to
facts or events which occurred at or before the Effective Time; PROVIDED,
HOWEVER, that Parent shall not be obligated to make annual premiums for such
insurance to the extent such premiums exceed 150% of the annual premiums paid as
of the date hereof by the Company for such insurance (such 150% amount, the
"MAXIMUM PREMIUM"). If such insurance coverage cannot be obtained at all, or
can only be obtained at an annual premium in excess of the Maximum Premium,
Parent shall maintain the most advantageous policies of directors' and officers'
insurance obtainable for an annual premium equal to the Maximum Premium. The
Company represents to Parent that the Maximum Premium is $284,523.
7.10. TAKEOVER STATUTES. If any Takeover Statute is or shall become
applicable to the transactions contemplated hereby, the Company and the Board of
Directors of the Company shall grant such approvals and take such actions as are
necessary so that the transactions contemplated hereby may be consummated as
promptly as practicable on the terms contemplated hereby and otherwise act to
eliminate the effects of such statute or regulation on the transactions
contemplated hereby.
ARTICLE VIII
Conditions
8.1. CONDITIONS TO EACH PARTY'S OBLIGATIONS TO EFFECT THE MERGER. The
respective obligations of each party to consummate the Merger shall be subject
to the satisfaction or waiver, where permissible, prior to the Effective Time,
of the following conditions:
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(a) STOCKHOLDER APPROVAL. If approval of the Merger by the holders
of Shares is required by applicable law, the Merger shall have been duly
approved by the holders of a majority of the Shares, in accordance with
applicable law and the Articles and By-Laws of the Company;
(b) PURCHASE OF SHARES. Merger Sub (or one of the Parent Companies)
shall have purchased Shares pursuant to the Offer; and
(c) LITIGATION. No court or other Governmental Entity of competent
jurisdiction shall have enacted, issued, promulgated, enforced or entered any
statute, rule, regulation, judgment, decree, injunction or other order (whether
temporary, preliminary or permanent) which is in effect and prohibits
consummation of the Merger (collectively, an "ORDER").
ARTICLE IX
Termination
9.1. TERMINATION BY MUTUAL CONSENT. This Agreement may be terminated
and the Merger may be abandoned at any time prior to the Effective Time, before
or after the approval by holders of Shares, by the mutual consent of Parent
(also acting on behalf of Merger Sub) and the Company, by action of their
respective Boards of Directors.
9.2. TERMINATION BY EITHER PARENT OR THE COMPANY. This Agreement may
be terminated and the Merger may be abandoned by action of the Board of
Directors of either Parent or the Company if (i) Merger Sub shall not have
accepted for payment any Shares pursuant to the Offer prior to December 31,
1998; PROVIDED, HOWEVER, that the right to terminate this Agreement pursuant to
this Section 9.2(i) shall not be available to (A) Parent if any Shares have been
accepted for payment pursuant to the Offer or (B) any party whose failure to
perform any of its obligations under this Agreement results in the failure of
any Offer Condition; or (ii) any Governmental Entity shall have issued an Order
which shall have become final and nonappealable.
9.3. TERMINATION BY PARENT. Unless the Offer shall have been
consummated, this Agreement may be
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terminated and the Merger may be abandoned at any time prior to the Effective
Time, before or after the approval by holders of Shares, by action of the Board
of Directors of Parent, if (x) (i) the Company shall have breached or failed to
perform in any material respect any of its covenants or agreements hereunder
(other than any immaterial covenants or agreements) or (ii) a representation or
warranty of the Company set forth in this Agreement shall have been inaccurate
when made or shall thereafter become inaccurate, except for such inaccuracies
which, when taken together (in each case without regard to any qualification as
to materiality or a Material Adverse Effect contained in the applicable
representations and warranties) would not reasonably be likely to have a
Material Adverse Effect, and, with respect to any such breach, failure to
perform or inaccuracy that can be remedied, the breach, failure or inaccuracy is
not remedied within 15 business days after the giving of written notice of such
breach, failure or inaccuracy to the Company; or (y) the Board of Directors of
the Company shall have withdrawn or modified in any manner adverse to Parent or
Merger Sub its approval or recommendation of the Offer, this Agreement or the
Merger or shall have adopted or recommended any Acquisition Proposal, or the
Board of Directors of the Company, upon request by Parent, shall fail to
reaffirm such approval or recommendation within 10 business days after such
request if an Acquisition Proposal is pending, or shall have resolved to do any
of the foregoing.
9.4. TERMINATION BY THE COMPANY. This Agreement may be terminated and
the Merger may be abandoned at any time prior to the Effective Time, before or
after the approval by holders of Shares, by action of the Board of Directors of
the Company, (x) if Parent or Merger Sub (or another Parent Company) (i) shall
have breached in any material respect any of the representations, warranties,
covenants or agreements contained in this Agreement (other than any immaterial
covenants or agreements) and, with respect to any such breach that can be
remedied, the breach is not remedied within 15 business days after the Company
has provided Parent with written notice of such breach or (ii) shall have failed
to commence the Offer within the time required in Section 1.1 or to pay for the
Shares pursuant to the Offer in accordance with the terms thereof, (y) if
(i) the Board of Directors of the Company receives a written offer not solicited
on or after the date hereof, with respect to a merger, reorganization, share
exchange,
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consolidation or sale of all or substantially all of the Company's assets or a
tender or exchange offer not solicited on or after the date hereof for more than
50% of the outstanding Shares is commenced, and with respect to which the Board
of Directors of the Company concludes in good faith, after consultation with its
independent financial advisor and its outside counsel, that approval, acceptance
or recommendation of such transaction is required by the fiduciary duties of the
Company's Board of Directors under applicable law (any such transaction, a
"SUPERIOR PROPOSAL"), (ii) the Company has given Purchaser three business days
prior written notice of its intention to terminate this Agreement to accept the
Superior Proposal and Purchaser shall have failed to offer to amend the Offer so
that it is at least as favorable to the stockholders of the Company as the
Superior Proposal and (iii) the Company prior to such termination pays to
Purchaser in immediately available funds the fee required to be paid pursuant to
Section 9.5.
9.5. EFFECT OF TERMINATION AND ABANDONMENT. (a) In the event of
termination of this Agreement and abandonment of the Merger pursuant to this
Article IX, no party hereto (or any of its directors or officers) shall have any
liability or further obligation to any other party to this Agreement, except as
provided in Section 9.5(b) below and Section 10.2 and except that nothing herein
will relieve any party from liability for any wilful and material breach of its
covenants under this Agreement.
(b) If (x) (i) the Offer shall have remained open for a minimum of at
least 20 business days, (ii) after the date hereof any corporation, partnership,
person, other entity or group (as defined in Section 13(d)(3) of the Exchange
Act) other than Parent or Merger Sub or any of their respective subsidiaries or
affiliates (collectively, a "PERSON") shall have become the beneficial owner of
15% or more of the outstanding Shares or made any Acquisition Proposal, (iii)
the Minimum Condition shall not have been satisfied and the Offer is terminated
pursuant to Section 9.3(x) (but only if such termination relates to a breach of
the Company's obligations under Section 7.2) or pursuant to Section 9.2(i)
without the purchase of any Shares thereunder and (iv) within twelve months of
such termination the Company enters into an agreement (other than a
confidentiality agreement in customary form) with respect to an Acquisition
Proposal (as such term is defined in
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Section 7.2, except that the reference in such definition to 15% shall be deemed
a reference to 40% for purposes of this clause (iv) only) or any person or other
entity (other than Parent or any of its affiliates) becomes the beneficial owner
of 40% or more of the outstanding Shares, (y) Parent shall have terminated this
Agreement pursuant to Section 9.3(y), or (z) the Company shall have terminated
this Agreement pursuant to Section 9.4(y), then the Company shall promptly, but
in no event later than five business days after the date of a request by Parent
for payment of such fee (other than a termination pursuant to Section 9.4(y), in
which case payment shall be concurrent with termination), pay Parent a fee of
$23,700,000, which amount shall be payable in same day funds. The Company
acknowledges that the agreements contained in this Section 9.5(b) are an
integral part of the transactions contemplated in this Agreement, and that,
without these agreements, Parent and Merger Sub would not enter into this
Agreement; accordingly, if the Company fails to promptly pay the amount due
pursuant to this Section 9.5(b), and, in order to obtain such payment, Parent or
Merger Sub commences a suit which results in a judgment against the Company for
the fee set forth in this paragraph (b), the Company shall pay to Parent or
Merger Sub its costs and expenses (including attorneys' fees) in connection with
such suit, together with interest on the amount of the fee at the prime rate of
Citibank N.A. on the date such payment was required to be made.
ARTICLE X
Miscellaneous and General
10.1. PAYMENT OF EXPENSES. (a) Except as otherwise set forth in
Section 9.5, whether or not the Merger shall be consummated, each party hereto
shall pay its own expenses incident to preparing for, entering into and carrying
out this Agreement and the consummation of the Merger.
(b) Except as otherwise provided in the fifth sentence of Section 5.2
of this Agreement, all state, local, foreign or provincial sales, use, real
property transfer, stock transfer or similar taxes (including any interest,
penalties or additions thereto) attributable to the transactions contemplated by
this Agreement shall be timely paid by Parent or Merger Sub.
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10.2. SURVIVAL. The agreements of the Company, Parent and Merger Sub
contained in Sections 5.2 (but only to the extent that such Section expressly
relates to actions to be taken after the Effective Time), 5.3, 5.4, 7.8, 7.9,
7.10 and 10.1 and this Section 10.2 shall survive the consummation of the
Merger. The agreements of the Company, Parent and Merger Sub contained in
Sections 7.5, 9.5 and 10.1 shall survive the termination of this Agreement. No
representation or warranty shall survive the consummation of the Offer.
10.3. MODIFICATION OR AMENDMENT. Subject to the applicable provisions
of the WBCA, at any time prior to the Effective Time, the parties hereto may
modify or amend this Agreement, by written agreement executed and delivered by
duly authorized officers of the respective parties.
10.4. WAIVER OF CONDITIONS. The conditions to each of the parties'
obligations to consummate the Merger are for the sole benefit of such party and
may be waived by such party in whole or in part to the extent permitted by
applicable law.
10.5. COUNTERPARTS. For the convenience of the parties hereto, this
Agreement may be executed in any number of counterparts, each such counterpart
being deemed to be an original instrument, and all such counterparts shall
together constitute the same agreement.
10.6. GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of New York, except as otherwise
required by the WBCA.
10.7. NOTICES. Any notice, request, instruction or other document to
be given hereunder by any party to the others shall be in writing and delivered
personally or sent by registered or certified mail, postage prepaid, or by
facsimile:
IF TO PARENT OR MERGER SUB
Philips Electronics North America Corporation
1251 Avenue of the Americas
20th Floor
New York, NY 10020
Attention: General Counsel
Fax: (212) 536-0505
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with a copy to
Neil T. Anderson, Esq.
Sullivan & Cromwell
125 Broad St.
New York, NY 10004
Fax: (212) 558-3588
IF TO THE COMPANY
ATL Ultrasound, Inc.
22100 Bothell Everett Highway
Bothell, WA 98041
Attention: General Counsel
Fax: (425) 487-8135
with a copy to
Robert I. Townsend, III, Esq.
Cravath, Swaine & Moore
825 Eighth Avenue
New York, NY 10019
Fax: (212) 474-3700
or to such other persons or addresses as may be designated in writing by the
party to receive such notice as provided above.
10.8. ENTIRE AGREEMENT, ETC. This Agreement (including the
Disclosure Letter and Annex A hereto) and the Confidentiality Agreement, taken
together, (a) constitutes the entire agreement, and supersedes all other prior
agreements, understandings, representations and warranties both written and
oral, among the parties, with respect to the subject matter hereof, and (b)
shall not be assignable by operation of law or otherwise and is not intended to
create any obligations to, or (except with respect to the provisions of
Section 7.9) rights in respect of, any person other than the parties hereto;
PROVIDED, HOWEVER, that Parent may designate, by written notice to the Company,
another wholly-owned direct or indirect subsidiary to be a Constituent
Corporation in lieu of Merger Sub, in which event all references herein to
Merger Sub shall be deemed references to such other subsidiary except that all
representations and warranties made herein with respect to Merger Sub as of the
date of this Agreement shall be deemed
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representations and warranties made with respect to such other subsidiary as of
the date of such designation.
10.9. DEFINITIONS OF "SUBSIDIARY", "AFFILIATE", "PERSON", "KNOWLEDGE"
AND MATERIAL ADVERSE EFFECT. When a reference is made in this Agreement to a
subsidiary of a party, the word "subsidiary" means any corporation or other
organization whether incorporated or unincorporated of which at least a majority
of the securities or interests having by the terms thereof ordinary voting power
to elect at least a majority of the board of directors or others performing
similar functions with respect to such corporation or other organization is
directly or indirectly owned or controlled by such party or by any one or more
of its subsidiaries, or by such party and one or more of its subsidiaries. When
a reference is made in this Agreement to an affiliate of a party, the word
"affiliate" means any person directly or indirectly controlling, controlled by
or under common control with such other person at the time at which the
determination of affiliation is being made. The term "control" (including, with
correlative meanings, the term "controlled by" or "under common control with"),
as applied to any person, means the possession, direct or indirect, of the power
to direct or cause the direction of the management and policies of such person,
whether through the ownership of voting securities or other ownership interests,
by contract or otherwise. When a reference is made in this Agreement to a
person, the word "person" means any individual, corporation, partnership,
association, trust or other entity or organization of whatever nature. When the
word "knowledge" is used in this Agreement with reference to the Company or its
management or officers, such word will be deemed to refer to the actual
knowledge of the executive officers of the Company and such other officer that
has primary responsibility for the subject matter with respect to which
"knowledge" is being considered. For purposes of this Agreement, "Material
Adverse Effect" means any material adverse effect on the financial condition,
properties, business or results of operations of the Company and its
subsidiaries taken as a whole (excluding any change or development resulting
from the announcement of this Agreement or the transactions contemplated
hereby).
10.10. OBLIGATION OF PARENT. Whenever this Agreement requires Merger
Sub to take any action, such requirement shall be deemed to include an
undertaking on the part of Parent to cause Merger Sub to take such action.
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10.11. CAPTIONS. The Article, Section and paragraph captions herein
are for convenience of reference only, do not constitute part of this Agreement
and shall not be deemed to limit or otherwise affect any of the provisions
hereof.
10.12 SEVERABILITY. If any term or other provision of this Agreement
is invalid, illegal or incapable of being enforced by any rule of law or public
policy, all other conditions and provisions of this Agreement shall nevertheless
remain in full force and effect so long as the economic or legal substance of
the transactions contemplated hereby is not affected in any manner adverse to
any party. Upon such determination that any term or other provision is invalid,
illegal or incapable of being enforced, the parties hereto shall negotiate in
good faith to modify this Agreement so as to effect the original intent of the
parties as closely as possible in an acceptable manner to the end that the
transactions contemplated hereby are fulfilled to the fullest extent possible.
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IN WITNESS WHEREOF, this Agreement has been duly executed and
delivered by the duly authorized officers of the parties hereto on the date
first hereinabove written.
PHILIPS ELECTRONICS NORTH AMERICA CORPORATION
By /s/ WILLIAM E. CURRAN
-----------------------------------
Senior Vice President and
Chief Financial Officer
PHILIPS ACQUISITION, INC.
By /s/ WILLIAM E. CURRAN
-----------------------------------
President
ATL ULTRASOUND, INC.
By /s/ DENNIS C. FILL
-----------------------------------
Chairman of the Board, President
and Chief Executive Officer
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Annex A
CERTAIN CONDITIONS OF THE OFFER. Notwithstanding any other provision
of the Offer, but subject to the terms and conditions of the Merger Agreement
(and provided that Merger Sub shall not be obligated to accept for payment any
Shares until expiration or termination of all applicable waiting periods under
the H-S-R Act and any applicable waiting periods relating to the Foreign
Filings, in each case with respect to the Offer and/or the Merger (the
"REGULATORY CONDITION")), Merger Sub (x) shall not be required to accept for
payment or, subject to any applicable rules and regulations of the Commission,
including Rule 14e-1(c) promulgated under the Exchange Act (relating to Merger
Sub's obligation to pay for or return tendered Shares promptly after termination
or withdrawal of the Offer), pay for, and (y) may delay the acceptance for
payment of or (subject to such rules and regulations, including Rule 14e-1(c))
payment for, any tendered Shares, in each case if a majority of the total Shares
outstanding on a fully diluted basis and as will permit Merger Sub to effect the
Merger without the vote of any person other than Merger Sub shall not have been
properly and validly tendered pursuant to the Offer and not withdrawn prior to
the expiration of the Offer (the "MINIMUM CONDITION"), or, if on or after
July 29, 1998, and at or before the time of acceptance for payment of any of
such Shares, any of the following events shall occur:
(a) (i) the Company shall have breached or failed to perform in any
material respect any of its covenants or agreements (other than any
immaterial covenants or agreements) under the Merger Agreement or (ii) any
representation or warranty of the Company set forth in the Merger Agreement
shall have been inaccurate when made or shall be inaccurate as of the
expiration of the Offer, except in the case of clause (a)(ii) for such
inaccuracies which, when taken together (in each case without regard to any
qualifications as to materiality or a Material Adverse Effect contained in
the applicable representations and warranties) would not reasonably be
likely to have a Material Adverse Effect;
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(b) there shall be threatened, instituted or pending any action,
litigation or proceeding (hereinafter, an "ACTION") by any Governmental
Entity: (i) challenging the acquisition by Parent or Merger Sub of Shares
or seeking to restrain or prohibit the consummation of the Offer or the
Merger; (ii) seeking to prohibit or impose any material limitations on
Parent's, Merger Sub's or any of their respective affiliates' ownership or
operation of all or any material portion of the business or assets of the
Company and its subsidiaries taken as a whole or the business or assets of
any significant subsidiary of Koninklijke Philips Electronics N.V., or to
compel Parent or Merger Sub to dispose of or hold separate all or any
portion of Parent's or Merger Sub's or the Company's business or assets
(including the business or assets of their respective affiliates and
subsidiaries) as a result of the Offer or the Merger; (iii) seeking to
impose material limitations on the ability of Parent or Merger Sub
effectively to acquire or hold, or to exercise full rights of ownership of,
the Shares including, without limitation, the right to vote the Shares
purchased by them on an equal basis with all other Shares on all matters
properly presented to the shareholders of the Company; or (iv) that, in any
event, would, individually or in the aggregate, reasonably be likely to
have a Material Adverse Effect;
(c) any statute, rule, regulation, order or injunction shall be
enacted, promulgated, entered, enforced or deemed to or become applicable
to the Offer or the Merger, or any other action shall have been taken,
proposed or threatened, by any court or other Governmental Entity, that is
reasonably expected to result in any of the effects of, or have any of the
consequences sought to be obtained or achieved in, any Action referred to
in clauses (i) through (iv) of paragraph (b) above;
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(d) any change or development shall have occurred that, individually
or in the aggregate, is reasonably likely to have a Material Adverse
Effect; or
(e) the Merger Agreement shall have been terminated by the Company or
Parent or Merger Sub in accordance with its terms;
which, in the reasonable judgment of Parent and Merger Sub, in any such case,
and regardless of the circumstances (including any action or inaction by Parent
or Merger Sub) giving rise to any such conditions, makes it inadvisable to
proceed with the Offer and/or with such acceptance for payment of or payment for
Shares.
The foregoing conditions may be asserted by Parent or Merger Sub
regardless of the circumstances (including any action or inaction by Parent or
Merger Sub) giving rise to such condition. The conditions set forth in
paragraphs (a) through (e) above are for the sole benefit of Parent and Merger
Sub and may be waived by Parent or Merger Sub, by express and specific action to
that effect, in whole or in part at any time and from time to time in their sole
discretion.
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EMPLOYMENT AND CONSULTING AGREEMENT
AGREEMENT, dated as of July 29, 1998, by and between ATL Ultrasound,
Inc. (the "Company") and Dennis C. Fill ("Executive").
WHEREAS, Executive's current employer, ATL Ultrasound, Inc., has
entered into an Agreement and Plan of Merger, dated as of July 29, 1998 with
Philips Acquisition, Inc. and Philips Electronics North America Corporation
(the "Merger Agreement"); and
WHEREAS, the Company desires to secure the continued employment of
Executive following the successful consummation of the Offer (as such term is
defined in the Merger Agreement); and
WHEREAS, Executive and the Company desire to enter into an agreement
setting forth the terms and conditions of the employment of Executive with the
Company on and after the successful consummation of the Offer;
NOW, THEREFORE, IN CONSIDERATION OF the mutual covenants herein
contained, and other good and valuable consideration, the parties hereto agree
as follows:
1. EMPLOYMENT. Subject to the successful consummation of the Offer,
the Company hereby agrees to employ Executive, and Executive agrees to serve as
an employee of the Company, on the terms and conditions set forth in this
Agreement, effective as of the date of this Agreement. The continuation of such
employment shall be expressly conditioned on and subject to the consummation of
the transactions contemplated by the Merger Agreement. This Agreement shall
become null and void, and shall have no force or effect, if the transactions
contemplated under the Merger Agreement are not consummated; PROVIDED, THAT,
Sections 21, 24 and 25 of this Agreement shall be deemed to be effective as of
the successful consummation of the Offer. Following the Employment Period (as
defined below) the Company shall engage Executive as a consultant of the Company
in accordance with Section 6 hereof.
2. TERM. The period of employment of Executive by the Company
hereunder (the "Employment Period") shall commence as of the Effective Time (as
defined in the Merger Agreement) (the "Commencement Date") and shall continue
until December 31, 1998, at which time Executive shall retire from the Company.
In accordance with Section 6 hereof, Executive shall serve as a consultant to
the Company until December 31, 2003 (the "Consulting Period") following the
Employment Period
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(the Employment Period and Consulting Period collectively referred to as the
"Term"). The Term may be sooner terminated by either party in accordance with
Section 6 of this Agreement.
3. DUTIES AND RESPONSIBILITIES. During the Employment Period,
Executive shall serve as the Chief Executive Officer and President of the
Company with such duties and responsibilities that are customary for such a
position. During the Employment Period, Executive shall devote substantially
all of his working time, attention and energies during normal business hours
(other than absences due to illness or vacation) to the performance of his
duties for the Company. Executive may serve as a member of the board of
directors of other companies or engage in other outside activities, provided
that such activities do not interfere with Executive's duties hereunder.
4. PLACE OF PERFORMANCE. The principal place of employment of
Executive shall be at the Company's executive offices in Seattle, Washington.
5. COMPENSATION AND RELATED MATTERS.
(a) BASE SALARY AND BONUS. During the Employment Period the
Company shall pay Executive a base salary at the rate of not less than $675,000
per year ("Base Salary"). Executive's Base Salary shall be paid in
approximately equal installments in accordance with the Company's customary
payroll practices. On or about January 1, 1999, Executive shall be paid an
annual bonus for 1998 in the amount of $675,000.
(b) BENEFIT PLANS. During the Employment Period, Executive
shall be entitled to participate in such employee benefit plans and insurance
programs offered by the Company, or which it may adopt from time to time, for
its executive management or supervisory personnel generally, in accordance with
the eligibility requirements for participation therein. Notwithstanding the
foregoing, Executive shall not be entitled to receive severance pursuant to the
Company's severance plan if he is entitled to receive payments pursuant to
Section 9(b) of this Agreement. Nothing herein shall be construed so as to
prevent the Company from modifying or terminating any employee benefit plans or
programs, or employee fringe benefits, it may adopt from time to time.
(c) VACATION AND SICK LEAVE. During the Employment Period,
Executive shall be entitled to the amount of paid vacation and sick leave that
is provided to other executive offices, in accordance with the Company's
customary practices.
(d) EXPENSES. The Company shall promptly reimburse Executive
for all reasonable business expenses incurred during the Term upon the
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presentation of reasonably itemized statements of such expenses in accordance
with the Company's policies and procedures now in force or as such policies and
procedures may be modified with respect to all executive officers of the
Company.
6. CONSULTING ARRANGEMENT. Immediately following the Employment
Period, Executive shall serve as a consultant to the Company during the
Consulting Period. During the Consulting Period, Executive shall make himself
available, upon the mutual consent of Executive and the President of Philips
Medical Systems, for consultation and advice on matters affecting the business
affairs of the Company. Immediately prior to the Effective Time, Executive
shall receive a lump-sum consulting fee of $1,150,000 and an additional $60,000
on January 1, 1999, and on the first day of each calendar quarter thereafter to
and including October 1, 2003 (the "Consulting Fee"). In addition, beginning on
the commencement of the Consulting Period and continuing for the life of
Executive, the Company shall pay any premiums required by Medicare for the
Executive's post-retirement Medicare coverage. On January 1, 1999, the Company
shall cancel all life insurance agreements covering Executive and pay to
Executive the cash amount required by Executive to purchase a paid up policy for
$300,000 of life insurance on such date.
7. TERMINATION. This Agreement shall be terminated upon the
earliest to occur of the following:
(a) EXPIRATION. The expiration of the Term.
(b) DEATH. The death of Executive. Notwithstanding the
foregoing, if Executive should die during the Consulting Period, Executive's
beneficiaries or his estate, as the case may be, shall continue to receive the
Consulting Fee until the end of the year in which his death occurs.
(c) CAUSE. The Company terminates Executive for Cause during
the Employment Period. For purposes of this Agreement, the Company shall have
"Cause" to terminate Executive upon Executive's (i) willful misconduct (but
excluding any action that Executive reasonably believes is in the best interests
of the Company), which is materially economically injurious to the Company or to
any entity in control of, controlled by or under common control with the Company
(an "Affiliate"), including, but not limited to, any breach of Sections 10 and
11 hereof or (ii) the conviction of, or plea of guilty or nolo contendere to, a
felony involving moral turpitude. The Company may not terminate Executive for
Cause during the Consulting Period.
(d) WITHOUT CAUSE. The Company terminates Executive hereunder
without Cause by providing Executive with a Notice of Termination.
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(e) VOLUNTARY TERMINATION. Executive terminates this Agreement
at any time upon ninety (90) days prior written notice to the Company.
(f) MATERIAL BREACH. Executive terminates his employment for a
material breach of this Agreement by the Company. For purposes of this
Agreement, a "material breach" shall be deemed to occur upon a failure by the
Company to comply with any material provision of this Agreement without
Executive's written consent, including, but not limited to, (i) a material
diminution in Executive's position, duties, status, authority or responsibility
as set forth under the terms of this Agreement, (ii) a reduction in Base Salary
or bonus, or (iii) a relocation of the Executive to a location more than 50
miles from his present location, which in the case of any alleged violation of
this paragraph (f), has not been cured in all material respects within thirty
(30) days after written notice of such noncompliance has been given by Executive
to the Company.
8. TERMINATION PROCEDURE.
(a) NOTICE OF TERMINATION. Any termination of Executive by the
Company or by Executive (other than termination pursuant to Section 7(a) or (b)
hereof) shall be communicated by written Notice of Termination to the other
party hereto in accordance with Section 14. For purposes of this Agreement, a
"Notice of Termination" shall mean a notice which shall indicate the specific
termination provision in this Agreement relied upon and shall set forth in
reasonable detail the facts and circumstances claimed to provide a basis for
termination of Executive under the provisions so indicated.
(b) DATE OF TERMINATION. "Date of Termination" shall mean
(i) if Executive is terminated by the expiration of this Agreement, the date of
expiration, (ii) if Executive is terminated by his death, the date of his death,
and (iii) if Executive is terminated pursuant to Sections 7(c), 7(d), 7(e), or
7(f) the date specified in the Notice of Termination.
9. AMOUNTS DUE UPON TERMINATION. In the event Executive's
relationship with the Company terminates during the Term, the Company shall
provide Executive with the payments set forth below. Executive acknowledges and
agrees that the payments set forth in this Section 9 constitute liquidated
damages for termination of this Agreement during the Term.
(a) If Executive is terminated pursuant to Sections 7(a), 7(b),
7(c), or 7(e) the Company shall pay Executive his accrued, but unpaid Base
Salary, bonus specified in Section 5(a) and Bonus or Consulting Fee, as the case
may be, pro rata for the year in which terminated through the Date of
Termination at the rate in effect at the time Notice of Termination is given,
and (subject to 7(b)) the Company shall have no
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further obligations to Executive under this Agreement; PROVIDED, THAT, Executive
shall be entitled to any other benefit or payment provided pursuant to any plan
or policy of the Company in accordance with such plan's or policy's terms.
(b) If Executive's employment is terminated pursuant to Sections
7(d) or 7(f), the Company shall pay to Executive his (A) Base Salary or
Consulting Fee, as the case may be, accrued through the Date of Termination and
(B) a lump-sum payment equal to all remaining amounts that would have been paid
under Sections 5(a) and 6 had this Agreement continued through to the end of the
Term (the "Remaining Period"). All such payments shall be made as soon as
administratively feasible following such termination. Executive shall also be
entitled to any other benefits or payments provided pursuant to any plan or
policy of the Company in accordance with such plan's or policy's terms, except
as provided in Section 5(b).
(c) CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY.
(i) Notwithstanding anything in this Agreement to the contrary,
in the event it shall be determined that any payment, award, benefit or
distribution (or any acceleration of any payment, award, benefit or
distribution) by the Company (or any of its affiliated entities) or any entity
which effectuates (or has previously effectuated) a change in control (or any of
its affiliated entities) to or for the benefit of Executive (whether pursuant to
the terms of this Agreement or otherwise) (the "Payments") would be subject to
the excise tax (the "Excise Tax") under Section 4999 of the Internal Revenue
Code of 1986, as amended (the "Code"), then the amounts payable to Executive
under this Agreement shall be the greater of (A) the Payment, if the result of
subtracting the Excise Tax from the Payment is more than the Safe Harbor Cap and
(B) the Payment, reduced to the maximum amount as will result in no portion of
the Payments being subject to the Excise Tax (the "Safe Harbor Cap"), reducing
first the payments under Section 9(b)(B), unless an alternative method of
reduction is elected by Executive. For purposes of reducing the Payments to the
Safe Harbor Cap, only amounts payable to Executive under this Agreement (and no
other Payments) shall be reduced, unless consented to by Executive.
(ii) All determinations required to be made under this Section 9
shall be made by the nationally recognized public accounting firm that is
selected by Executive (the "Accounting Firm"). If payments are reduced to the
Safe Harbor Cap, the Accounting Firm shall provide a reasonable opinion to
Executive that he is not required to report any Excise Tax on his federal income
tax return. All fees, costs and expenses (including, but not limited to, the
costs of retaining experts) of the Accounting Firm shall be borne by the
Company. The determination by the Accounting Firm shall be binding upon the
Company and Executive (except as provided in paragraph (iii) below).
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(iii) If payments are reduced to the Safe Harbor Cap as
provided in Section 9(c)(i)(B) and if it is established pursuant to a final
determination of a court or an Internal Revenue Service (the "IRS") proceeding
which has been finally and conclusively resolved, that Payments have been made
to, or provided for the benefit of, Executive by the Company, which are in
excess of the limitations provided in this Section 9(c)(i)(B) (hereinafter
referred to as an "Excess Payment"), such Excess Payment shall be deemed for all
purposes to be a loan to Executive made on the date Executive received the
Excess Payment and Executive shall repay the Excess Payment to the Company on
demand, together with interest on the Excess Payment at the applicable federal
rate (as defined in Section 1274(d) of the Code) from the date of Executive's
receipt of such Excess Payment until the date of such repayment. As a result of
the uncertainty in the application of Section 4999 of the Code at the time of
the determination, it is possible that Payments which will not have been made by
the Company should have been made (an "Underpayment"), consistent with the
calculations required to be made under this Section 8. In the event that it is
determined (A) by the Accounting Firm, the Company (which shall include the
position taken by the Company, or together with its consolidated group, on its
federal income tax return) or the IRS or (B) pursuant to a determination by a
court, that an Underpayment has occurred, the Company shall pay an amount equal
to such Underpayment to Executive within ten (10) days of such determination
together with interest on such amount at the applicable federal rate from the
date such amount would have been paid to Executive until the date of payment.
10. CONFIDENTIAL INFORMATION; REMOVAL OF DOCUMENTS AND
NON-DISPARAGEMENT.
(a) Executive agrees to keep secret and retain in the strictest
confidence all Confidential Information which relates to the Company and any of
its Affiliates. "Confidential Information" (a) means information (i) that is
learned by Executive from the Company or any Affiliate before or after the date
of this Agreement (other than Confidential Information that was known by
Executive on a nonconfidential basis prior to the disclosure thereof); (ii) that
is commercially valuable to the Company and (iii) that is not published or of
public record or otherwise generally known (other than through failure of
Executive to fully perform his obligations hereunder), and (b) includes, without
limitation, customer lists, client lists, trade secrets, pricing policies and
other business affairs of the Company and any of its Affiliates. Executive
agrees not to disclose any such Confidential Information to anyone outside the
Company or any of its Affiliates, whether during or after his period of service
with the Company, except (x) as such disclosure may be required or appropriate
in connection with his service or (y) when required to do so by a court of law,
by any governmental agency or by any administrative or legislative body
(including a committee thereof) with apparent jurisdiction to order him to
divulge, disclose or make accessible such information. Executive agrees to give
the Company advance written notice of any disclosure pursuant to clause (y) of
the
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preceding sentence and to cooperate with any efforts by the Company to limit the
extent of such disclosure.
(b) All records, files, drawings, documents, models, equipment,
and the like containing Confidential Information or needed in the Company's
business, which Executive has control over shall not be removed from the
Company's premises without its written consent, unless such removal is in the
furtherance of the Company's business or is in connection with Executive's
carrying out his duties under this Agreement and, if so removed, shall be
returned to the Company promptly after termination of Executive's employment
hereunder, or otherwise promptly after removal if such removal occurs following
termination. Executive's rolodex, telephone directory and similar type items,
and furniture, art work and property owned by Executive or otherwise not owned
by the Company shall not be deemed Company property and shall not be covered by
this Section 10(b). The Company shall be the owner of all trade secrets and
other products relating to the Company's business developed by Executive alone
or in conjunction with others as part of his services with the Company.
(c) Executive agrees that during the Term and for a period of
one year thereafter, he will not and that his attorneys, agents, or other
representatives shall not (i) take any action or make or publish any statement,
whether oral or written, which disparages in any way the Company or any or all
of its present or former employees, principals, directors, partners, or
Affiliates, including, without limitation, any disparaging statement which
interferes in any way with the ability of the Company or any of its affiliates
to market their services, products, to retain existing client relationships, or
to obtain new client relationships; (ii) make any statements in any public forum
or statements intended for publication in the public media, which are reasonably
likely to negatively affect the standing of the Company or its Affiliates.
11. NON-COMPETITION.
(a) In consideration of the benefits to be provided to Executive
hereunder, Executive covenants that he will not, without the prior written
consent of the Company, during the Term and the twelve (12) month period
thereafter or, if terminated pursuant to Sections 7(d) or 7(e) hereof, the
Remaining Period, if greater (the "Restriction Period"), engage in any way,
directly or indirectly, in any business whose product or activities directly
compete with the products or activities of Philips Medical Systems or the
Company anywhere where Philips Medical Systems or the Company conducts such
businesses, other than in his capacity as an employee or consultant of the
Company.
(b) Executive hereby covenants and agrees that, at all times
during the Restriction Period, Executive shall not employ or seek to employ any
person employed at that time by Philips Medical Systems or the Company or any of
its
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subsidiaries or its Affiliates, or otherwise encourage or entice such person or
entity to leave such employment.
(c) Executive hereby covenants and agrees that, at all times
during the Restriction Period, Executive will not (i) pursue or attempt to
develop any project known to Executive and which Philips Medical Systems or the
Company or any Affiliates are pursuing, developing or attempting to develop as
of the Date of Termination ("Project"), directly or indirectly, alone, in
association with or as a shareholder, principal, agent, partner, officer,
director, employee or consultant of any other organization or (ii) divert to any
entity which is engaged in any business conducted by Philips Medical Systems or
the Company or any Affiliates in the same geographic area as Philips Medical
Systems or the Company or any Affiliates, any Project or any customer of Philips
Medical Systems or the Company or any Affiliates.
(d) Executive acknowledges that the restrictions, prohibitions
and other provisions of this Section 11 are reasonable, fair and equitable in
scope, terms and duration, are necessary to protect the legitimate business
interests of the Company and are a material inducement to the Company to enter
into this Agreement. It is the intention of the parties hereto that the
restrictions contained in this paragraph be enforceable to the fullest extent
permitted by applicable law. Therefore, to the extent any court of competent
jurisdiction shall determine that any portion of the foregoing restrictions is
excessive, such provision shall not be entirely void, but rather shall be
limited or revised only to the extent necessary to make it enforceable.
12. REMEDY. Should Executive engage in or perform any of the acts
prohibited by Sections 10 and 11, it is agreed that the Company shall be
entitled to full injunctive relief, to be issued by any competent court of
equity, enjoining and restraining Executive and each and every other person,
firm, organization, association, or corporation concerned therein, from the
continuance of such violative acts. The foregoing remedy available to Company
shall not be deemed to limit or prevent the exercise by the Company of any or
all further rights and remedies which may be available to the Company hereunder
or at law or in equity.
13. SUCCESSORS; BINDING AGREEMENT. This Agreement shall be binding
upon and shall inure to the benefit of Executive, his heirs, executors,
administrators, beneficiaries and assigns and shall be binding upon and shall
inure to the benefit of the Company and its successors.
14. NOTICE. For the purposes of this Agreement, notices, demands and
all other communications provided for in this Agreement shall be in writing and
shall be deemed to have been duly given when delivered either personally or by
United States certified or registered mail, return receipt requested, postage
prepaid, addressed, in case
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of Executive, to the last address on file with the Company and if to the
Company, to its executive offices or to such other address as any party may have
furnished to the others in writing in accordance herewith, except that notices
of change of address shall be effective only upon receipt.
15. RESOLUTION OF DIFFERENCES OVER BREACHES OF AGREEMENT. The
parties shall use good faith efforts to resolve any controversy or claim arising
out of, or relating to this Agreement or the breach thereof, first in accordance
with the Company's internal review procedures, except that this requirement
shall not apply to any claim or dispute under or relating to Sections 10 or 11
of this Agreement. If despite their good faith efforts, the parties are unable
to resolve such controversy or claim through the Company's internal review
procedures, then such controversy or claim shall be resolved by a court of law
having jurisdiction thereof. If any contest or dispute shall arise between the
Company and Executive regarding any provision of this Agreement, each of the
parties shall be responsible for paying all of its own legal fees and expenses
incurred in connection with such contest or dispute.
16. GOVERNING LAW. This Agreement is governed by, and is to be
construed and enforced in accordance with, the laws of the State of Washington,
without regard to principles of conflicts of laws. If, under such law, any
portion of this Agreement is at any time deemed to be in conflict with any
applicable statute, rule, regulation or ordinance, such portion shall be deemed
to be modified or altered to conform thereto or, if that is not possible, to be
omitted from this Agreement, and the invalidity of any such portion shall not
affect the force, effect and validity of the remaining portion hereof.
17. AMENDMENT. No provisions of this Agreement may be amended,
modified, or waived unless such amendment or modification is agreed to in
writing signed by Executive and by a duly authorized officer of the Company, and
such waiver is set forth in writing and signed by the party to be charged. No
waiver by either party hereto at any time of any breach by the other party
hereto of any condition or provision of this Agreement to be performed by such
other party shall be deemed a waiver of similar or dissimilar provisions or
conditions at the same or at any prior or subsequent time.
18. SURVIVAL. The respective obligations of, and benefits afforded
to, Executive and Company as provided in Sections 10 and 11 of this Agreement
shall survive the termination of this Agreement.
19. NO CONFLICT OF INTEREST. During the Employment Period, Executive
shall not directly, or indirectly render service, or undertake any employment or
consulting agreement with another entity without the express written consent of
the Company.
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20. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
21. ENTIRE AGREEMENT. This Agreement sets forth the entire agreement
of the parties hereto (and in the case of the Company, its predecessors) in
respect of the subject matter contained herein and supersede all prior
agreements, promises, covenants, arrangements, communications, representations
or warranties, whether oral or written, by any officer, employee or
representative of any party hereto in respect of such subject matter, including,
but not limited to, the Employment Agreement by and between ATL Ultrasound, Inc.
and Executive, dated as of the second day of November, 1990 and any and all
amendments made subsequent thereto (the "Prior Agreement") and, as of the
successful consummation of the Offer, such Prior Agreement shall be void and of
no further force or effect. Any prior agreement of the parties hereto in
respect of the subject matter contained herein is hereby terminated and
canceled, as of the successful consummation of the Offer; PROVIDED THAT, except
as provided in Section 24 hereof, this Agreement shall not modify or terminate
the provisions of any compensation or benefit plan providing benefits upon a
change in control of the Company (excluding the Prior Agreement); PROVIDED,
FURTHER, that Executive acknowledges and agrees that he will be paid an
aggregate amount of no more than $388,125 with respect to the 1996-98, 1997-99
and 1998-00 performance cycles under the Company's Long Term Incentive Plan (the
"Plan"), effective as of January 1, 1993 and waives all rights for any other
payments under such Plan upon payment of such amounts. Executive acknowledges
that in consideration of the benefits to be provided hereunder, he has, as of
the successful consummation of the Offer, waived all of his rights under the
Prior Agreement, including, but not limited to Section 6 thereof.
22. INDEPENDENT CONTRACTOR. During the Consulting Period, in
performing services hereunder, Executive will at all times and for all purposes,
constitute an independent contractor and not an employee or agent of the Company
or any of its subsidiaries or affiliates. In no event will Executive be, or
represent himself to be, an officer, employee or agent of the Company or any
subsidiary or affiliate thereof nor will Executive bind, or attempt to bind, the
Company or any subsidiary or affiliate thereof to any contract, agreement,
liability or obligation of any nature. Except as expressly provided herein, the
Company will not be required to provide any benefits to Executive which it
provides to its employees including without limitation retirement plans,
insurance programs and vacation based on services rendered during the Consulting
Period.
23. SECTION HEADINGS. The section headings in this Agreement are for
convenience of reference only, and they form no part of this Agreement and shall
not affect its interpretation.
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24. RESTRICTED STOCK. Executive and the Company agree that Executive
shall waive the accelerated vesting of any shares of common stock of the Company
that are currently subject to a vesting requirement (the "Restricted Stock")
until immediately prior to the Effective Time. Immediately before the Effective
Time, all shares of Restricted Stock shall immediately vest.
25. COOPERATION. Executive agrees to use his best efforts to
cooperate with and assist Philips Medical Systems in its efforts to execute
employment agreements with the executives of the Company, selected by Philips
Medical Systems, under terms and conditions satisfactory to Philips Medical
Systems.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
ATL Ultrasound, Inc.
By: /s/ Pamela L. Dunlap
------------------------------
/s/ Dennis C. Fill
---------------------------------
DENNIS C. FILL
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EMPLOYMENT AGREEMENT
AGREEMENT, dated as of July 29, 1998, by and between ATL Ultrasound,
Inc. (the "Company") and Pamela Dunlap ("Executive").
WHEREAS, Executive's current employer, ATL Ultrasound, Inc., has
entered into an Agreement and Plan of Merger, dated as of July 29, 1998 with
Philips Acquisition, Inc. and Philips Electronics North America Corporation (the
"Merger Agreement"); and
WHEREAS, the Company desires to secure the continued employment of
Executive following the successful consummation of the Offer (as such term is
defined in the Merger Agreement); and
WHEREAS, Executive and the Company desire to enter into an agreement
setting forth the terms and conditions of the employment of Executive with the
Company on and after the successful consummation of the Offer;
NOW, THEREFORE, IN CONSIDERATION OF the mutual covenants herein
contained, and other good and valuable consideration, the parties hereto agree
as follows:
1. EMPLOYMENT. Subject to the successful consummation of the Offer,
the Company hereby agrees to employ Executive, and Executive agrees to serve as
an employee of the Company, on the terms and conditions set forth in this
Agreement, effective as of the date of this Agreement. The continuation of such
employment shall be expressly conditioned on and subject to the consummation of
the transactions contemplated by the Merger Agreement; PROVIDED, THAT, Section
20 of this Agreement shall be deemed to be effective as of the consummation of
the Offer. This Agreement shall become null and void, and shall have no force
or effect, if the transactions contemplated under the Merger Agreement are not
consummated.
2. EMPLOYMENT PERIOD. The "Employment Period" shall be the period
commencing on the Effective Time (as defined in the Merger Agreement) and ending
on December 31, 2001.
3. DUTIES AND RESPONSIBILITIES. During the Employment Period,
Executive shall serve as the Senior Vice President and CFO of the Company with
such duties and responsibilities that are customary for such position and shall
include those that are assigned to her by the Company during the Employment
Period that are not inconsistent with such position. Executive shall devote
substantially all of her working time, attention and energies during normal
business hours (other than absences due to
<PAGE>
illness or vacation) to the performance of her duties for the Company. Upon the
prior written approval of the Chief Executive Officer of the Philips Medical
Systems, Executive may serve as a member of the board of directors of other
companies or engage in other outside activities, provided that such activities
do not interfere with Executive's duties hereunder; provided, further, that if
Executive is already a member of any such board of directors, as set forth on
Exhibit A hereof, she shall be entitled to remain on such board without
violating the terms of this Agreement.
4. PLACE OF PERFORMANCE. The principal place of employment of
Executive shall be at the Company's executive offices in Seattle, Washington.
5. COMPENSATION AND RELATED MATTERS.
(a) BASE SALARY AND BONUS. During the Employment Period the
Company shall pay Executive a base salary at the rate of not less than $ 200,000
per year ("Base Salary") which shall be annually reviewed by the Company.
Executive's Base Salary shall be paid in approximately equal installments in
accordance with the Company's customary payroll practices. If Executive's Base
Salary is increased by the Company, such increased Base Salary shall then
constitute the Base Salary for all purposes of the Agreement. On or about
January 1, 1999, Executive shall be paid an annual bonus equal to the pro rata
portion (based on the number of days elapsed in 1998 through and including the
Effective Time) of the annual bonus that would have been payable under
Executive's annual bonus arrangement in effect on the date hereof based on the
Company's annualized performance through the last full fiscal quarter completed
before the Effective Time; PROVIDED, THAT for purposes of this sentence,
Executive's maximum annual bonus opportunity shall be deemed to be 50% of Base
Salary. For the remaining period of 1998 following the Effective Time (for
which a bonus may be paid, prorated in the proportion that the number of days
after the Effective Time through December 31, 1998 bears to 365) and during each
subsequent year of the Employment Period, Executive shall be entitled to an
annual incentive bonus ("Bonus"), based upon the achievement of performance
targets, such targets as determined in the sole discretion of the Company, to be
payable at the same time as bonuses are paid to other executive officers.
Executive's target Bonus shall be 50% of Base Salary, but may be more or less
upon achievement of performance targets.
(b) STOCK OPTION. (i) The Executive shall be granted stock
options (the "Stock Option") to acquire 5,000 shares of the common stock of
Royal Philips Electronics (the "Stock"), pursuant to the Philips Electronics
North America Corporation 1998 Stock Incentive Plan (the "Option Plan"). The
Stock Option shall be granted on the Effective Time, and shall be granted at an
exercise price per share equal to the fair market value of the Stock on the
date of grant and shall be subject to the general terms of the Option Plan
and the stock
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option agreement thereunder (the "Option Agreement"). Stock Options granted
pursuant to this Section 5(b)(i) shall become exercisable at a rate of
33-1/3% on each of the first, second and third anniversaries of the date of
grant, provided Executive remains an employee on such date, and shall expire
ten (10) years following the date of grant, except as otherwise provided in
the Option Plan or Option Agreement. Notwithstanding the foregoing, if
Executive is terminated pursuant to Sections 6(e) or 6(g) hereof, such Stock
Option shall become immediately exercisable and shall remain exercisable for
one-year following such termination.
(ii) Beginning in the year 2000, Executive shall be eligible for
option grants on the same basis as other senior executives of the Company.
(c) LONG-TERM PERFORMANCE UNIT PLAN. The Company shall
establish the Long-Term Performance Unit Plan which shall provide Executive with
a bonus (the "Incentive Bonus") equal to Executive's Base Salary, to be paid in
the first quarter following the end of the Performance Period (the "Payment
Date"), if Executive is an employee on the last day of the Performance Period
and 75% of the base case strategic plan, as attached as Exhibit B (the
"Strategic Plan") has been achieved during the 1999-2001 performance period (the
"Performance Period"). If 100% of the Strategic Plan is achieved during the
Performance Period, Executive's Incentive Bonus shall be two times Base Salary
and if 100% of the Strategic Plan is achieved, including synergies, the
Incentive Bonus shall be three times Base Salary. In the first quarter
following December 31, 1999 and December 31, 2000, Executive shall receive a
payment equal to 20% of Base Salary (each, an "Advance Bonus") which shall
reduce the Incentive Bonus, on a dollar for dollar basis, otherwise payable
under this paragraph. Notwithstanding the foregoing, if Executive is terminated
pursuant to Sections 6(e) or 6(g) hereof, Executive shall be entitled to a
pro-rata Incentive Bonus, based on the ratio the number of days worked in the
Performance Period bears to the total number of days in the Performance Period,
to be paid on the Payment Date.
(d) BENEFIT PLANS. Executive shall be entitled to participate
in such employee benefit plans and insurance programs offered by the Company, or
which it may adopt from time to time, for its executive management or
supervisory personnel generally, in accordance with the eligibility requirements
for participation therein. Notwithstanding the foregoing, Executive shall not
be entitled to receive severance pursuant to the Company's severance plan if she
is entitled to receive payments pursuant to Section 8(c) of this Agreement.
Nothing herein shall be construed so as to prevent the Company from modifying or
terminating any employee benefit plans or programs, or employee fringe benefits,
it may adopt from time to time.
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(e) VACATION AND SICK LEAVE. Executive shall be entitled to the
amount of paid vacation and sick leave that is provided to other executive
officers, in accordance with the Company's customary practices.
(f) EXPENSES. The Company shall promptly reimburse Executive
for all reasonable business expenses upon the presentation of reasonably
itemized statements of such expenses in accordance with the Company's policies
and procedures now in force or as such policies and procedures may be modified
with respect to all executive officers of the Company.
6. TERMINATION. This Agreement shall be terminated upon the
earliest to occur of the following:
(a) EXPIRATION. The expiration of the Employment Period.
(b) DEATH. The death of Executive.
(c) DISABILITY. If, as a result of Executive's Disability,
Executive shall have been substantially unable to perform her duties hereunder
for a period of six (6) consecutive months and within thirty (30) days after
written Notice of Termination is given by the Company after such six (6) month
period, Executive shall not have returned to the substantial performance of her
duties on a full-time basis. For purposes of this Agreement, "Disability" shall
have the same meaning as that term is defined in the Company's Long Term
Disability Plan; PROVIDED, THAT, if no such plan exists, "Disability" shall have
the same meaning as provided in Section 22(e)(3) of the Code.
(d) CAUSE. The Company terminates Executive for Cause. For
purposes of this Agreement, the Company shall have "Cause" to terminate
Executive's employment upon Executive's (i) willful and continued failure to
substantially perform her duties with the Company (other than any such failure
resulting from her incapacity due to physical or mental illness) after a written
demand for substantial performance is delivered to Executive which identifies
the manner in which the Company believes that Executive has not substantially
performed her duties, or (ii) willful misconduct (but excluding any action that
Executive reasonably believes is in the best interests of the Company) which is
materially economically injurious to the Company or to any entity in control of,
controlled by or under common control with the Company (an "Affiliate"),
including, but not limited to, any breach of Sections 9 and 10 hereof, or
(iii) the conviction of, or plea of guilty or nolo contendere to, a felony
involving moral turpitude, or (iv) habitual drug or alcohol abuse by Executive.
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(e) WITHOUT CAUSE. The Company terminates Executive's
employment hereunder without Cause by providing Executive with a Notice of
Termination.
(f) VOLUNTARY TERMINATION. Executive terminates this Agreement
and Executive's employment hereunder at any time upon ninety (90) days prior
written notice to the Company.
(g) MATERIAL BREACH. Executive terminates her employment for a
material breach of this Agreement by the Company. For purposes of this
Agreement, a "material breach" shall be deemed to occur upon a failure by the
Company to comply with any material provision of this Agreement without
Executive's written consent, including, but not limited to, (i) a material
diminution in Executive's position, duties, status, authority or responsibility
as set forth under the terms of this Agreement, (ii) a reduction in Base Salary,
Bonus or Incentive Bonus opportunity, or (iii) a relocation of the Executive to
a location more than 50 miles from her present location, which in the case of
any alleged violation of this paragraph (g), has not been cured in all material
respects within thirty (30) days after written notice of such noncompliance has
been given by Executive to the Company.
7. TERMINATION PROCEDURE.
(a) NOTICE OF TERMINATION. Any termination of Executive by the
Company or by Executive (other than termination pursuant to Section 6(a) or (b)
hereof) shall be communicated by written Notice of Termination to the other
party hereto in accordance with Section 13. For purposes of this Agreement, a
"Notice of Termination" shall mean a notice which shall indicate the specific
termination provision in this Agreement relied upon and shall set forth in
reasonable detail the facts and circumstances claimed to provide a basis for
termination of Executive under the provisions so indicated.
(b) DATE OF TERMINATION. "Date of Termination" shall mean
(i) if Executive's employment is terminated by the expiration of this Agreement,
the date of expiration, (ii) if Executive's employment is terminated by her
death, the date of her death, (iii) if Executive's employment is terminated
pursuant to Section 6(c) hereof, thirty (30) days after Notice of Termination is
given (provided that Executive shall not have again become available for service
on a regular basis during such thirty (30) day period), (iv) if Executive's
employment is terminated pursuant to Sections 6(d), 6(e), or 6(g) the date
specified in the Notice of Termination, and (v) if Executive's employment is
terminated for any other reason, the date on which a Notice of Termination is
given.
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8. AMOUNTS DUE UPON TERMINATION OR DURING DISABILITY. In the event
Executive is disabled or her employment terminates during the Employment Period,
the Company shall provide Executive with the payments set forth below.
Executive acknowledges and agrees that the payments set forth in this Section 8
constitute liquidated damages for termination of her employment during the
Employment Period.
(a) During any period that Executive fails to perform her duties
hereunder as a result of Disability ("disability period"), Executive shall
continue to receive her Base Salary at the rate then in effect for such period
until her employment is terminated pursuant to Section 6(c) hereof; PROVIDED,
THAT, payments so made to Executive during the first six (6) months of the
disability period shall be reduced by the sum of the amounts, if any, paid to
the Executive at or prior to the time of any such payment under disability
benefit plans of the Company or under the Social Security disability insurance
program, and which amounts were not previously applied to reduce any such
payment. Executive shall also be entitled to any other benefits or payments
provided pursuant to any plan or policy of the Company in accordance with such
plan's or policy's terms.
(b) If Executive is terminated pursuant to Sections 6(a), 6(b),
6(d), or 6(f) the Company shall pay Executive her accrued, but unpaid Base
Salary and Bonus through the Date of Termination at the rate in effect at the
time Notice of Termination is given, and the Company shall have no further
obligations to Executive under this Agreement; PROVIDED, THAT, Executive shall
be entitled to any other benefit or payment provided pursuant to any plan or
policy of the Company in accordance with such plan's or policy's terms.
(c) If Executive's employment is terminated pursuant to Sections
6(e) or 6(g), the Company shall pay to Executive her (A) Base Salary accrued
through the Date of Termination and (B) a lump-sum payment equal to the
remaining Base Salary and Average Bonus (as defined below) that would have been
paid to Executive had her employment continued through the Employment Period
(the "Remaining Period"); PROVIDED THAT, Executive shall be entitled to a
minimum payment of one (1) times Executive's then current Base Salary and
Average Bonus. All such payments shall be made as soon as administratively
feasible following such termination. Executive shall also be entitled to any
other benefits or payments provided pursuant to any plan or policy of the
Company in accordance with such plan's or policy's terms, except as provided in
Section 5(d). For purposes of the foregoing, "Average Bonus" means the average
annual Bonus paid to Executive by the Company (or its successors) during the
three year period immediately preceding her Date of Termination.
(d) CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY.
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(i) Notwithstanding anything in this Agreement to the contrary,
in the event it shall be determined that any payment, award, benefit or
distribution (or any acceleration of any payment, award, benefit or
distribution) by the Company (or any of its affiliated entities) or any entity
which effectuates (or has previously effectuated) a change in control (or any of
its affiliated entities) to or for the benefit of Executive (whether pursuant to
the terms of this Agreement or otherwise) (the "Payments") would be subject to
the excise tax (the "Excise Tax") under Section 4999 of the Internal Revenue
Code of 1986, as amended (the "Code"), then the amounts payable to Executive
under this Agreement shall be the greater of (A) the Payment, if the result of
subtracting the Excise Tax from the Payment is more than the Safe Harbor Cap and
(B) the Payment, reduced to the maximum amount as will result in no portion of
the Payments being subject to the Excise Tax (the "Safe Harbor Cap"), reducing
first the payments under Section 8(c)(B), unless an alternative method of
reduction is elected by Executive. For purposes of reducing the Payments to the
Safe Harbor Cap, only amounts payable to Executive under this Agreement (and no
other Payments) shall be reduced, unless consented to by Executive.
(ii) All determinations required to be made under this Section 8
shall be made by the nationally recognized public accounting firm that is
selected by Executive (the "Accounting Firm"). If payments are reduced to the
Safe Harbor Cap, the Accounting Firm shall provide a reasonable opinion to
Executive that she is not required to report any Excise Tax on her federal
income tax return. All fees, costs and expenses (including, but not limited to,
the costs of retaining experts) of the Accounting Firm shall be borne by the
Company. The determination by the Accounting Firm shall be binding upon the
Company and Executive (except as provided in paragraph (iii) below).
(iii) If payments are reduced to the Safe Harbor Cap as
provided in Section 8(d)(i)(B) and if it is established pursuant to a final
determination of a court or an Internal Revenue Service (the "IRS") proceeding
which has been finally and conclusively resolved, that Payments have been made
to, or provided for the benefit of, Executive by the Company, which are in
excess of the limitations provided in this Section 8(d)(i)(B) (hereinafter
referred to as an "Excess Payment"), such Excess Payment shall be deemed for all
purposes to be a loan to Executive made on the date Executive received the
Excess Payment and Executive shall repay the Excess Payment to the Company on
demand, together with interest on the Excess Payment at the applicable federal
rate (as defined in Section 1274(d) of the Code) from the date of Executive's
receipt of such Excess Payment until the date of such repayment. As a result of
the uncertainty in the application of Section 4999 of the Code at the time of
the determination, it is possible that Payments which will not have been made by
the Company should have been made (an "Underpayment"), consistent with the
calculations required to be made under this Section 8. In the event that it is
determined (A) by the Accounting Firm, the Company (which shall include the
position taken by the Company, or together with its consolidated
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group, on its federal income tax return) or the IRS or (B) pursuant to a
determination by a court, that an Underpayment has occurred, the Company shall
pay an amount equal to such Underpayment to Executive within ten (10) days of
such determination together with interest on such amount at the applicable
federal rate from the date such amount would have been paid to Executive until
the date of payment.
9. CONFIDENTIAL INFORMATION AND REMOVAL OF DOCUMENTS.
(a) Executive shall hold in a fiduciary capacity for the benefit
of the Company all secret or confidential information, knowledge or data
relating to the Company or any Affiliate, and their respective businesses
("Confidential Information"), which shall have been obtained by Executive during
Executive's employment by the Company or any Affiliate and which shall not be or
become public knowledge (other than by acts by Executive or representatives of
Executive in violation of this Agreement). After termination of Executive's
employment with the Company, Executive shall not, without the prior written
consent of the Company or as may otherwise be required by law or legal process,
communicate or divulge any such information, knowledge or data to anyone other
than the Company and those designated by it.
(b) All records, files, drawings, documents, models, equipment,
and the like containing Confidential Information or needed in the Company's
business which Executive has control over shall not be removed from the
Company's premises without its written consent, unless such removal is in the
furtherance of the Company's business or is in connection with Executive's
carrying out her duties under this Agreement and, if so removed, shall be
returned to the Company promptly after termination of Executive's employment
hereunder, or otherwise promptly after removal if such removal occurs following
termination of employment. Executive's rolodex, telephone directory and similar
type items, and furniture, art work and property owned by Executive or otherwise
not owned by the Company shall not be deemed Company property and shall not be
covered by this Section 9(b). The Company shall be the owner of all trade
secrets and other products relating to the Company's business developed by
Executive alone or in conjunction with others as part of her employment with the
Company.
10. NON-COMPETITION.
(a) In consideration of the benefits to be provided to Executive
hereunder, Executive covenants that she will not, without the prior written
consent of the Company, during the Employment Period and the twelve (12) month
period following her termination of employment for any reason or, if terminated
pursuant to Section 6(e) hereof, the Remaining Period, if greater (the
"Restriction Period"), engage in any way, directly or indirectly, in any
business whose product or activities directly compete with
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the products or activities of Philips Medical Systems or the Company anywhere
where Philips Medical Systems or the Company conducts its businesses, other than
in her capacity as an employee of the Company.
(b) Executive hereby covenants and agrees that, at all times
during the Employment Period and for a period of one (1) years immediately
following her termination for any reason, Executive shall not employ or seek to
employ any person employed at that time by Philips Medical Systems or the
Company, or otherwise encourage or entice such person or entity to leave such
employment.
(c) Executive hereby covenants and agrees that, at all times
during the Restriction Period, Executive will not (i) pursue or attempt to
develop any project known to Executive and which Philips Medical Systems or the
Company are pursuing, developing or attempting to develop as of the Date of
Termination ("Project"), directly or indirectly, alone, in association with or
as a shareholder, principal, agent, partner, officer, director, employee or
consultant of any other organization or (ii) divert to any entity which is
engaged in any business conducted by Philips Medical Systems or the Company in
the same geographic area as Philips Medical Systems or the Company, any Project
or any customer of Philips Medical Systems or the Company.
(d) Executive acknowledges that the restrictions, prohibitions
and other provisions of this Section 10 are reasonable, fair and equitable in
scope, terms and duration, are necessary to protect the legitimate business
interests of the Company and are a material inducement to the Company to enter
into this Agreement. It is the intention of the parties hereto that the
restrictions contained in this paragraph be enforceable to the fullest extent
permitted by applicable law. Therefore, to the extent any court of competent
jurisdiction shall determine that any portion of the foregoing restrictions is
excessive, such provision shall not be entirely void, but rather shall be
limited or revised only to the extent necessary to make it enforceable.
11. REMEDY. Should Executive engage in or perform any of the acts
prohibited by Sections 9 and 10, it is agreed that the Company shall be entitled
to full injunctive relief, to be issued by any competent court of equity,
enjoining and restraining Executive and each and every other person, firm,
organization, association, or corporation concerned therein, from the
continuance of such violative acts. The foregoing remedy available to Company
shall not be deemed to limit or prevent the exercise by the Company of any or
all further rights and remedies which may be available to the Company hereunder
or at law or in equity.
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<PAGE>
12. SUCCESSORS; BINDING AGREEMENT. This Agreement shall be binding
upon and shall inure to the benefit of Executive, her heirs, executors,
administrators, beneficiaries and assigns and shall be binding upon and shall
inure to the benefit of the Company and its successors.
13. NOTICE. For the purposes of this Agreement, notices, demands and
all other communications provided for in this Agreement shall be in writing and
shall be deemed to have been duly given when delivered either personally or by
United States certified or registered mail, return receipt requested, postage
prepaid, addressed, in case of Executive, to the last address on file with the
Company and if to the Company, to its executive offices or to such other address
as any party may have furnished to the others in writing in accordance herewith,
except that notices of change of address shall be effective only upon receipt.
14. RESOLUTION OF DIFFERENCES OVER BREACHES OF AGREEMENT. The
parties shall use good faith efforts to resolve any controversy or claim arising
out of, or relating to this Agreement or the breach thereof, first in accordance
with the Company's internal review procedures, except that this requirement
shall not apply to any claim or dispute under or relating to Sections 9 or 10 of
this Agreement. If despite their good faith efforts, the parties are unable to
resolve such controversy or claim through the Company's internal review
procedures, then such controversy or claim shall be resolved by a court of law
having jurisdiction thereof. If any contest or dispute shall arise between the
Company and Executive regarding any provision of this Agreement, the parties
shall be responsible for paying all of its own legal fees and expenses incurred
in connection with such contest or dispute.
15. GOVERNING LAW. This Agreement is governed by, and is to be
construed and enforced in accordance with, the laws of the State of Washington,
without regard to principles of conflicts of laws. If, under such law, any
portion of this Agreement is at any time deemed to be in conflict with any
applicable statute, rule, regulation or ordinance, such portion shall be deemed
to be modified or altered to conform thereto or, if that is not possible, to be
omitted from this Agreement, and the invalidity of any such portion shall not
affect the force, effect and validity of the remaining portion hereof.
16. AMENDMENT. No provisions of this Agreement may be amended,
modified, or waived unless such amendment or modification is agreed to in
writing signed by Executive and by a duly authorized officer of the Company, and
such waiver is set forth in writing and signed by the party to be charged. No
waiver by either party hereto at any time of any breach by the other party
hereto of any condition or provision of this Agreement to be performed by such
other party shall be deemed a waiver of
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similar or dissimilar provisions or conditions at the same or at any prior or
subsequent time.
17. SURVIVAL. The respective obligations of, and benefits afforded
to, Executive and Company as provided in Sections 9 and 10 of this Agreement
shall survive the termination of this Agreement.
18. NO CONFLICT OF INTEREST. During the Employment Period, Executive
shall not directly, or indirectly render service, or undertake any employment or
consulting agreement with another entity without the express written consent of
the Company.
19. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
20. ENTIRE AGREEMENT. This Agreement sets forth the entire agreement
of the parties hereto (and in the case of the Company, its predecessors) in
respect of the subject matter contained herein and supersede all prior
agreements, promises, covenants, arrangements, communications, representations
or warranties, whether oral or written, by any officer, employee or
representative of any party hereto in respect of such subject matter, including,
but not limited to, the Employment Agreement by and between ATL Ultrasound, Inc.
and Executive, dated as of the first day of January, 1997 and any and all
amendments made subsequent thereto (the "Prior Agreement"), and as of the
successful consummation of the Offer, such Prior Agreement shall be void and of
no further force or effect. Any prior agreement of the parties hereto in
respect of the subject matter contained herein is hereby terminated and
canceled, as of the successful consummation of the Offer; PROVIDED THAT, this
Agreement shall not modify or terminate the provisions of any compensation or
benefit plan providing benefits upon a change in control of the Company
(excluding the Prior Agreement); PROVIDED, FURTHER, that Executive acknowledges
and agrees that she will be paid no more than 23%, 0.0% and 23.4% of Base Salary
under the 1996-98, 1997-99 and 1998-00 performance cycles, respectively, under
the Company's Long Term Incentive Plan (the "Plan"), effective as of January 1,
1993 and waives all rights for any other payments under such Plan upon payment
of such amounts. Executive acknowledges that in consideration of the benefits
to be provided hereunder, she has waived, as of the successful consummation of
the Offer, all of her rights under the Prior Agreement, including, but not
limited to Section 6 thereof.
21. SECTION HEADINGS. The section headings in this Agreement are for
convenience of reference only, and they form no part of this Agreement and shall
not affect its interpretation.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
ATL Ultrasound, Inc.
By: /s/ Dennis C. Fill
-------------------------------
/s/ Pamela Dunlap
----------------------------------
Pamela Dunlap
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EXHIBIT A
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EXHIBIT B
1999-2001 Strategic Plan (*)
Income Statement 1999 2000 2001
- ------------------------------------------------------------------
Total Product Revenue 427.9 466.5 511.0
Product Gross Profit 233.9 266.2 292.6
- ------------------------------------------------------------------
Service Revenue 103.4 109.4 115.7
Service Gross Profit 43.9 47.2 50.6
- ------------------------------------------------------------------
Total Revenue $ 531.3 $ 575.9 $ 626.7
Total Gross Profit $ 277.8 $ 313.4 $ 343.2
Gross Margin 52.3% 54.4% 54.8%
- ------------------------------------------------------------------
Operating Expenses
Selling and Marketing 110.1 118.0 126.8
% Revenue 20.7% 20.5% 20.2%
General & Admin 41.6 43.6 46.1
% Revenue 7.8% 7.6% 7.4%
R&D Expense 63.2 67.0 72.0
% Revenue 11.9% 11.6% 11.5%
Other 3.6 6.2 7.8
- ------------------------------------------------------------------
Total Operating Expense $ 218.5 $ 234.8 $ 252.6
41% 41% 40%
- ------------------------------------------------------------------
Operating Income $ 59.3 $ 78.6 $ 90.6
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- --------------------------
(*) The synergies expected to be realized as a result of the Merger will be
between $50 and $70 million, as mutually agreed upon by the parties.
<PAGE>
EMPLOYMENT AGREEMENT
AGREEMENT, dated as of July 29, 1998, by and between ATL Ultrasound,
Inc. (the "Company") and Donald Blem ("Executive").
WHEREAS, Executive's current employer, ATL Ultrasound, Inc., has
entered into an Agreement and Plan of Merger, dated as of July 29, 1998 with
Philips Acquisition, Inc. and Philips Electronics North America Corporation (the
"Merger Agreement"); and
WHEREAS, the Company desires to secure the continued employment of
Executive following the successful consummation of the Offer (as such term is
defined in the Merger Agreement); and
WHEREAS, Executive and the Company desire to enter into an agreement
setting forth the terms and conditions of the employment of Executive with the
Company on and after the successful consummation of the Offer;
NOW, THEREFORE, IN CONSIDERATION OF the mutual covenants herein
contained, and other good and valuable consideration, the parties hereto agree
as follows:
1. EMPLOYMENT. Subject to the successful consummation of the Offer,
the Company hereby agrees to employ Executive, and Executive agrees to serve as
an employee of the Company, on the terms and conditions set forth in this
Agreement, effective as of the date of this Agreement. The continuation of such
employment shall be expressly conditioned on and subject to the consummation of
the transactions contemplated by the Merger Agreement; PROVIDED, THAT, Section
20 of this Agreement shall be deemed to be effective as of successful
consummation of the Offer. This Agreement shall become null and void, and shall
have no force or effect, if the transactions contemplated under the Merger
Agreement are not consummated.
2. EMPLOYMENT PERIOD. The "Employment Period" shall be the period
commencing on the Effective Time (as defined in the Merger Agreement) and ending
on December 31, 2001.
3. DUTIES AND RESPONSIBILITIES. During the Employment Period,
Executive shall serve as the Senior Vice President of Operations of the Company
with such duties and responsibilities that are customary for such position and
shall include those that are assigned to him by the Company during the
Employment Period that are not inconsistent with such position. Executive shall
devote substantially all of his working time, attention and energies during
normal business hours (other than absences
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due to illness or vacation) to the performance of his duties for the Company.
Upon the prior written approval of the Chief Executive Officer of the Philips
Medical Systems, Executive may serve as a member of the board of directors of
other companies or engage in other outside activities, provided that such
activities do not interfere with Executive's duties hereunder; provided,
further, that if Executive is already a member of any such board of directors,
as set forth on Exhibit A hereof, he shall be entitled to remain on such board
without violating the terms of this Agreement.
4. PLACE OF PERFORMANCE. The principal place of employment of
Executive shall be at the Company's executive offices in Seattle, Washington.
5. COMPENSATION AND RELATED MATTERS.
(a) BASE SALARY AND BONUS. During the Employment Period the
Company shall pay Executive a base salary at the rate of not less than $ 245,000
per year ("Base Salary") which shall be annually reviewed by the Company.
Executive's Base Salary shall be paid in approximately equal installments in
accordance with the Company's customary payroll practices. If Executive's Base
Salary is increased by the Company, such increased Base Salary shall then
constitute the Base Salary for all purposes of the Agreement. On or about
January 1, 1999, Executive shall be paid an annual bonus equal to the pro rata
portion (based on the number of days elapsed in 1998 through and including the
Effective Time) of the annual bonus that would have been payable under
Executive's annual bonus arrangement in effect on the date hereof based on the
Company's annualized performance through the last full fiscal quarter completed
before the Effective Time; PROVIDED, THAT for purposes of this sentence,
Executive's maximum annual bonus opportunity shall be deemed to be 50% of Base
Salary. For the remaining period of 1998 following the Effective Time (for
which a bonus may be paid, prorated in the proportion that the number of days
after the Effective Time through December 31, 1998 bears to 365) and during each
subsequent year of the Employment Period, Executive shall be entitled to an
annual incentive bonus ("Bonus"), based upon the achievement of performance
targets, such targets as determined in the sole discretion of the Company, to be
payable at the same time as bonuses are paid to other executive officers.
Executive's target Bonus shall be 50% of Base Salary, but may be more or less
upon achievement of performance targets.
(b) STOCK OPTION. (i) The Executive shall be granted stock
options (the "Stock Option") to acquire 5,000 shares of the common stock of
Royal Philips Electronics (the "Stock"), pursuant to the Philips Electronics
North America Corporation 1998 Stock Incentive Plan (the "Option Plan"). The
Stock Option shall be granted on the Effective Time, and shall be granted at
an exercise price per share equal to the fair market value of the Stock on
the date of grant and shall be subject to the general terms of the Option
Plan and the stock
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option agreement thereunder (the "Option Agreement"). Stock Options granted
pursuant to this Section 5(b)(i) shall become exercisable at a rate of
33-1/3% on each of the first, second and third anniversaries of the date of
grant, provided Executive remains an employee on such date, and shall expire
ten (10) years following the date of grant, except as otherwise provided in
the Option Plan or Option Agreement. Notwithstanding the foregoing, if
Executive is terminated pursuant to Sections 6(e) or 6(g) hereof, such Stock
Option shall become immediately exercisable and shall remain exercisable for
one-year following such termination.
(ii) Beginning in the year 2000, Executive shall be eligible for
option grants on the same basis as other senior executives of the Company.
(c) LONG-TERM PERFORMANCE UNIT PLAN. The Company shall
establish the Long-Term Performance Unit Plan which shall provide Executive with
a bonus (the "Incentive Bonus") equal to Executive's Base Salary, to be paid in
the first quarter following the end of the Performance Period (the "Payment
Date"), if Executive is an employee on the last day of the Performance Period
and 75% of the base case strategic plan, as attached as Exhibit B (the
"Strategic Plan") has been achieved during the 1999-2001 performance period (the
"Performance Period"). If 100% of the Strategic Plan is achieved during the
Performance Period, Executive's Incentive Bonus shall be two times Base Salary
and if 100% of the Strategic Plan is achieved, including synergies, the
Incentive Bonus shall be three times Base Salary. In the first quarter
following December 31, 1999 and December 31, 2000, Executive shall receive a
payment equal to 20% of Base Salary (each, an "Advance Bonus") which shall
reduce the Incentive Bonus, on a dollar for dollar basis, otherwise payable
under this paragraph. Notwithstanding the foregoing, if Executive is terminated
pursuant to Sections 6(e) or 6(g) hereof, Executive shall be entitled to a
pro-rata Incentive Bonus, based on the ratio the number of days worked in the
Performance Period bears to the total number of days in the Performance Period,
to be paid on the Payment Date.
(d) BENEFIT PLANS. Executive shall be entitled to participate
in such employee benefit plans and insurance programs offered by the Company, or
which it may adopt from time to time, for its executive management or
supervisory personnel generally, in accordance with the eligibility requirements
for participation therein. Notwithstanding the foregoing, Executive shall not
be entitled to receive severance pursuant to the Company's severance plan if he
is entitled to receive payments pursuant to Section 8(c) of this Agreement.
Nothing herein shall be construed so as to prevent the Company from modifying or
terminating any employee benefit plans or programs, or employee fringe benefits,
it may adopt from time to time.
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<PAGE>
(e) VACATION AND SICK LEAVE. Executive shall be entitled to the
amount of paid vacation and sick leave that is provided to other executive
officers, in accordance with the Company's customary practices.
(f) EXPENSES. The Company shall promptly reimburse Executive
for all reasonable business expenses upon the presentation of reasonably
itemized statements of such expenses in accordance with the Company's policies
and procedures now in force or as such policies and procedures may be modified
with respect to all executive officers of the Company.
6. TERMINATION. This Agreement shall be terminated upon the
earliest to occur of the following:
(a) EXPIRATION. The expiration of the Employment Period.
(b) DEATH. The death of Executive.
(c) DISABILITY. If, as a result of Executive's Disability,
Executive shall have been substantially unable to perform his duties hereunder
for a period of six (6) consecutive months and within thirty (30) days after
written Notice of Termination is given by the Company after such six (6) month
period, Executive shall not have returned to the substantial performance of his
duties on a full-time basis. For purposes of this Agreement, "Disability" shall
have the same meaning as that term is defined in the Company's Long Term
Disability Plan; PROVIDED, THAT, if no such plan exists, "Disability" shall have
the same meaning as provided in Section 22(e)(3) of the Code.
(d) CAUSE. The Company terminates Executive for Cause. For
purposes of this Agreement, the Company shall have "Cause" to terminate
Executive's employment upon Executive's (i) willful and continued failure to
substantially perform his duties with the Company (other than any such failure
resulting from his incapacity due to physical or mental illness) after a written
demand for substantial performance is delivered to Executive which identifies
the manner in which the Company believes that Executive has not substantially
performed his duties, or (ii) willful misconduct (but excluding any action that
Executive reasonably believes is in the best interests of the Company) which is
materially economically injurious to the Company or to any entity in control of,
controlled by or under common control with the Company (an "Affiliate"),
including, but not limited to, any breach of Sections 9 and 10 hereof, or
(iii) the conviction of, or plea of guilty or nolo contendere to, a felony
involving moral turpitude, or (iv) habitual drug or alcohol abuse by Executive.
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(e) WITHOUT CAUSE. The Company terminates Executive's
employment hereunder without Cause by providing Executive with a Notice of
Termination.
(f) VOLUNTARY TERMINATION. Executive terminates this Agreement
and Executive's employment hereunder at any time upon ninety (90) days prior
written notice to the Company.
(g) MATERIAL BREACH. Executive terminates his employment for a
material breach of this Agreement by the Company. For purposes of this
Agreement, a "material breach" shall be deemed to occur upon a failure by the
Company to comply with any material provision of this Agreement without
Executive's written consent, including, but not limited to, (i) a material
diminution in Executive's position, duties, status, authority or responsibility
as set forth under the terms of this Agreement, (ii) a reduction in Base Salary,
Bonus or Incentive Bonus opportunity, or (iii) a relocation of the Executive to
a location more than 50 miles from his present location, which in the case of
any alleged violation of this paragraph (g), has not been cured in all material
respects within thirty (30) days after written notice of such noncompliance has
been given by Executive to the Company.
7. TERMINATION PROCEDURE.
(a) NOTICE OF TERMINATION. Any termination of Executive by the
Company or by Executive (other than termination pursuant to Section 6(a) or (b)
hereof) shall be communicated by written Notice of Termination to the other
party hereto in accordance with Section 13. For purposes of this Agreement, a
"Notice of Termination" shall mean a notice which shall indicate the specific
termination provision in this Agreement relied upon and shall set forth in
reasonable detail the facts and circumstances claimed to provide a basis for
termination of Executive under the provisions so indicated.
(b) DATE OF TERMINATION. "Date of Termination" shall mean
(i) if Executive's employment is terminated by the expiration of this Agreement,
the date of expiration, (ii) if Executive's employment is terminated by his
death, the date of his death, (iii) if Executive's employment is terminated
pursuant to Section 6(c) hereof, thirty (30) days after Notice of Termination is
given (provided that Executive shall not have again become available for service
on a regular basis during such thirty (30) day period), (iv) if Executive's
employment is terminated pursuant to Sections 6(d), 6(e), or 6(g) the date
specified in the Notice of Termination, and (v) if Executive's employment is
terminated for any other reason, the date on which a Notice of Termination is
given.
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8. AMOUNTS DUE UPON TERMINATION OR DURING DISABILITY. In the event
Executive is disabled or his employment terminates during the Employment Period,
the Company shall provide Executive with the payments set forth below.
Executive acknowledges and agrees that the payments set forth in this Section 8
constitute liquidated damages for termination of his employment during the
Employment Period.
(a) During any period that Executive fails to perform his duties
hereunder as a result of Disability ("disability period"), Executive shall
continue to receive his Base Salary at the rate then in effect for such period
until his employment is terminated pursuant to Section 6(c) hereof; PROVIDED,
THAT, payments so made to Executive during the first six (6) months of the
disability period shall be reduced by the sum of the amounts, if any, paid to
the Executive at or prior to the time of any such payment under disability
benefit plans of the Company or under the Social Security disability insurance
program, and which amounts were not previously applied to reduce any such
payment. Executive shall also be entitled to any other benefits or payments
provided pursuant to any plan or policy of the Company in accordance with such
plan's or policy's terms.
(b) If Executive is terminated pursuant to Sections 6(a), 6(b),
6(d), or 6(f) the Company shall pay Executive his accrued, but unpaid Base
Salary and Bonus through the Date of Termination at the rate in effect at the
time Notice of Termination is given, and the Company shall have no further
obligations to Executive under this Agreement; PROVIDED, THAT, Executive shall
be entitled to any other benefit or payment provided pursuant to any plan or
policy of the Company in accordance with such plan's or policy's terms.
(c) If Executive's employment is terminated pursuant to Sections
6(e) or 6(g), the Company shall pay to Executive his (A) Base Salary accrued
through the Date of Termination and (B) a lump-sum payment equal to the
remaining Base Salary and Average Bonus (as defined below) that would have been
paid to Executive had his employment continued through the Employment Period
(the "Remaining Period"); PROVIDED THAT, Executive shall be entitled to a
minimum payment of one (1) times Executive's then current Base Salary and
Average Bonus. All such payments shall be made as soon as administratively
feasible following such termination. Executive shall also be entitled to any
other benefits or payments provided pursuant to any plan or policy of the
Company in accordance with such plan's or policy's terms, except as provided in
Section 5(d). For purposes of the foregoing, "Average Bonus" means the average
annual Bonus paid to Executive by the Company (or its successors) during the
three year period immediately preceding his Date of Termination.
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(d) CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY.
(i) Notwithstanding anything in this Agreement to the contrary,
in the event it shall be determined that any payment, award, benefit or
distribution (or any acceleration of any payment, award, benefit or
distribution) by the Company (or any of its affiliated entities) or any entity
which effectuates (or has previously effectuated) a change in control (or any of
its affiliated entities) to or for the benefit of Executive (whether pursuant to
the terms of this Agreement or otherwise) (the "Payments") would be subject to
the excise tax (the "Excise Tax") under Section 4999 of the Internal Revenue
Code of 1986, as amended (the "Code"), then the amounts payable to Executive
under this Agreement shall be the greater of (A) the Payment, if the result of
subtracting the Excise Tax from the Payment is more than the Safe Harbor Cap and
(B) the Payment, reduced to the maximum amount as will result in no portion of
the Payments being subject to the Excise Tax (the "Safe Harbor Cap"), reducing
first the payments under Section 8(c)(B), unless an alternative method of
reduction is elected by Executive. For purposes of reducing the Payments to the
Safe Harbor Cap, only amounts payable to Executive under this Agreement (and no
other Payments) shall be reduced, unless consented to by Executive.
(ii) All determinations required to be made under this Section 8
shall be made by the nationally recognized public accounting firm that is
selected by Executive (the "Accounting Firm"). If payments are reduced to the
Safe Harbor Cap, the Accounting Firm shall provide a reasonable opinion to
Executive that he is not required to report any Excise Tax on his federal income
tax return. All fees, costs and expenses (including, but not limited to, the
costs of retaining experts) of the Accounting Firm shall be borne by the
Company. The determination by the Accounting Firm shall be binding upon the
Company and Executive (except as provided in paragraph (iii) below).
(iii) If payments are reduced to the Safe Harbor Cap as
provided in Section 8(d)(i)(B) and if it is established pursuant to a final
determination of a court or an Internal Revenue Service (the "IRS") proceeding
which has been finally and conclusively resolved, that Payments have been made
to, or provided for the benefit of, Executive by the Company, which are in
excess of the limitations provided in this Section 8(d)(i)(B) (hereinafter
referred to as an "Excess Payment"), such Excess Payment shall be deemed for all
purposes to be a loan to Executive made on the date Executive received the
Excess Payment and Executive shall repay the Excess Payment to the Company on
demand, together with interest on the Excess Payment at the applicable federal
rate (as defined in Section 1274(d) of the Code) from the date of Executive's
receipt of such Excess Payment until the date of such repayment. As a result of
the uncertainty in the application of Section 4999 of the Code at the time of
the determination, it is possible that Payments which will not have been made by
the Company should have been made (an "Underpayment"), consistent with the
calculations required to be made under this
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Section 8. In the event that it is determined (A) by the Accounting Firm, the
Company (which shall include the position taken by the Company, or together with
its consolidated group, on its federal income tax return) or the IRS or (B)
pursuant to a determination by a court, that an Underpayment has occurred, the
Company shall pay an amount equal to such Underpayment to Executive within ten
(10) days of such determination together with interest on such amount at the
applicable federal rate from the date such amount would have been paid to
Executive until the date of payment.
9. CONFIDENTIAL INFORMATION AND REMOVAL OF DOCUMENTS.
(a) Executive shall hold in a fiduciary capacity for the benefit
of the Company all secret or confidential information, knowledge or data
relating to the Company or any Affiliate, and their respective businesses
("Confidential Information"), which shall have been obtained by Executive during
Executive's employment by the Company or any Affiliate and which shall not be or
become public knowledge (other than by acts by Executive or representatives of
Executive in violation of this Agreement). After termination of Executive's
employment with the Company, Executive shall not, without the prior written
consent of the Company or as may otherwise be required by law or legal process,
communicate or divulge any such information, knowledge or data to anyone other
than the Company and those designated by it.
(b) All records, files, drawings, documents, models, equipment,
and the like containing Confidential Information or needed in the Company's
business which Executive has control over shall not be removed from the
Company's premises without its written consent, unless such removal is in the
furtherance of the Company's business or is in connection with Executive's
carrying out his duties under this Agreement and, if so removed, shall be
returned to the Company promptly after termination of Executive's employment
hereunder, or otherwise promptly after removal if such removal occurs following
termination of employment. Executive's rolodex, telephone directory and similar
type items, and furniture, art work and property owned by Executive or otherwise
not owned by the Company shall not be deemed Company property and shall not be
covered by this Section 9(b). The Company shall be the owner of all trade
secrets and other products relating to the Company's business developed by
Executive alone or in conjunction with others as part of his employment with the
Company.
10. NON-COMPETITION.
(a) In consideration of the benefits to be provided to Executive
hereunder, Executive covenants that he will not, without the prior written
consent of the Company, during the Employment Period and the twelve (12) month
period following his termination of employment for any reason or, if terminated
pursuant to Section 6(e)
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hereof, the Remaining Period, if greater (the "Restriction Period"), engage in
any way, directly or indirectly, in any business whose product or activities
directly compete with the products or activities of Philips Medical Systems or
the Company anywhere where Philips Medical Systems or the Company conducts its
businesses, other than in his capacity as an employee of the Company.
(b) Executive hereby covenants and agrees that, at all times
during the Employment Period and for a period of one (1) years immediately
following his termination for any reason, Executive shall not employ or seek to
employ any person employed at that time by Philips Medical Systems or the
Company, or otherwise encourage or entice such person or entity to leave such
employment.
(c) Executive hereby covenants and agrees that, at all times
during the Restriction Period, Executive will not (i) pursue or attempt to
develop any project known to Executive and which Philips Medical Systems or the
Company are pursuing, developing or attempting to develop as of the Date of
Termination ("Project"), directly or indirectly, alone, in association with or
as a shareholder, principal, agent, partner, officer, director, employee or
consultant of any other organization or (ii) divert to any entity which is
engaged in any business conducted by Philips Medical Systems or the Company in
the same geographic area as Philips Medical Systems or the Company, any Project
or any customer of Philips Medical Systems or the Company.
(d) Executive acknowledges that the restrictions, prohibitions
and other provisions of this Section 10 are reasonable, fair and equitable in
scope, terms and duration, are necessary to protect the legitimate business
interests of the Company and are a material inducement to the Company to enter
into this Agreement. It is the intention of the parties hereto that the
restrictions contained in this paragraph be enforceable to the fullest extent
permitted by applicable law. Therefore, to the extent any court of competent
jurisdiction shall determine that any portion of the foregoing restrictions is
excessive, such provision shall not be entirely void, but rather shall be
limited or revised only to the extent necessary to make it enforceable.
11. REMEDY. Should Executive engage in or perform any of the acts
prohibited by Sections 9 and 10, it is agreed that the Company shall be entitled
to full injunctive relief, to be issued by any competent court of equity,
enjoining and restraining Executive and each and every other person, firm,
organization, association, or corporation concerned therein, from the
continuance of such violative acts. The foregoing remedy available to Company
shall not be deemed to limit or prevent the exercise by the Company of any or
all further rights and remedies which may be available to the Company hereunder
or at law or in equity.
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12. SUCCESSORS; BINDING AGREEMENT. This Agreement shall be binding
upon and shall inure to the benefit of Executive, his heirs, executors,
administrators, beneficiaries and assigns and shall be binding upon and shall
inure to the benefit of the Company and its successors.
13. NOTICE. For the purposes of this Agreement, notices, demands and
all other communications provided for in this Agreement shall be in writing and
shall be deemed to have been duly given when delivered either personally or by
United States certified or registered mail, return receipt requested, postage
prepaid, addressed, in case of Executive, to the last address on file with the
Company and if to the Company, to its executive offices or to such other address
as any party may have furnished to the others in writing in accordance herewith,
except that notices of change of address shall be effective only upon receipt.
14. RESOLUTION OF DIFFERENCES OVER BREACHES OF AGREEMENT. The
parties shall use good faith efforts to resolve any controversy or claim arising
out of, or relating to this Agreement or the breach thereof, first in accordance
with the Company's internal review procedures, except that this requirement
shall not apply to any claim or dispute under or relating to Sections 9 or 10 of
this Agreement. If despite their good faith efforts, the parties are unable to
resolve such controversy or claim through the Company's internal review
procedures, then such controversy or claim shall be resolved by a court of law
having jurisdiction thereof. If any contest or dispute shall arise between the
Company and Executive regarding any provision of this Agreement, the parties
shall be responsible for paying all of its own legal fees and expenses incurred
in connection with such contest or dispute.
15. GOVERNING LAW. This Agreement is governed by, and is to be
construed and enforced in accordance with, the laws of the State of Washington,
without regard to principles of conflicts of laws. If, under such law, any
portion of this Agreement is at any time deemed to be in conflict with any
applicable statute, rule, regulation or ordinance, such portion shall be deemed
to be modified or altered to conform thereto or, if that is not possible, to be
omitted from this Agreement, and the invalidity of any such portion shall not
affect the force, effect and validity of the remaining portion hereof.
16. AMENDMENT. No provisions of this Agreement may be amended,
modified, or waived unless such amendment or modification is agreed to in
writing signed by Executive and by a duly authorized officer of the Company, and
such waiver is set forth in writing and signed by the party to be charged. No
waiver by either party hereto at any time of any breach by the other party
hereto of any condition or provision of this Agreement to be performed by such
other party shall be deemed a waiver of
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similar or dissimilar provisions or conditions at the same or at any prior or
subsequent time.
17. SURVIVAL. The respective obligations of, and benefits afforded
to, Executive and Company as provided in Sections 9 and 10 of this Agreement
shall survive the termination of this Agreement.
18. NO CONFLICT OF INTEREST. During the Employment Period, Executive
shall not directly, or indirectly render service, or undertake any employment or
consulting agreement with another entity without the express written consent of
the Company.
19. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
20. ENTIRE AGREEMENT. This Agreement sets forth the entire agreement
of the parties hereto (and in the case of the Company, its predecessors) in
respect of the subject matter contained herein and supersede all prior
agreements, promises, covenants, arrangements, communications, representations
or warranties, whether oral or written, by any officer, employee or
representative of any party hereto in respect of such subject matter, including,
but not limited to, the Employment Agreement by and between ATL Ultrasound, Inc.
and Executive, dated as of the first day of January, 1997 and any and all
amendments made subsequent thereto (the "Prior Agreement"), and as of the
successful consummation of the Offer, such Prior Agreement shall be void and of
no further force or effect. Any prior agreement of the parties hereto in
respect of the subject matter contained herein is hereby terminated and
canceled, as of the successful consummation of the Offer; PROVIDED THAT, this
Agreement shall not modify or terminate the provisions of any compensation or
benefit plan providing benefits upon a change in control of the Company
(excluding the Prior Agreement); PROVIDED, FURTHER, that Executive acknowledges
and agrees that he will be paid no more than 23%, 0.0% and 23.4% of Base Salary
under the 1996-98, 1997-99 and 1998-00 performance cycles, respectively, under
the Company's Long Term Incentive Plan (the "Plan"), effective as of January 1,
1993 and waives all rights for any other payments under such Plan upon payment
of such amounts Executive acknowledges that in consideration of the benefits to
be provided hereunder, he has waived, as of the successful consummation of the
Offer, all of his rights under the Prior Agreement, including, but not limited
to Section 6 thereof.
21. SECTION HEADINGS. The section headings in this Agreement are for
convenience of reference only, and they form no part of this Agreement and shall
not affect its interpretation.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
ATL Ultrasound, Inc.
By: /s/ Dennis C. Fill
-------------------------------
/s/ Donald Blem
----------------------------------
Donald Blem
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<PAGE>
EXHIBIT A
Sisters of Providence Health Systems
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EXHIBIT B
1999-2001 Strategic Plan (*)
Income Statement 1999 2000 2001
- ------------------------------------------------------------------
Total Product Revenue 427.9 466.5 511.0
Product Gross Profit 233.9 266.2 292.6
- ------------------------------------------------------------------
Service Revenue 103.4 109.4 115.7
Service Gross Profit 43.9 47.2 50.6
- ------------------------------------------------------------------
Total Revenue $ 531.3 $ 575.9 $ 626.7
Total Gross Profit $ 277.8 $ 313.4 $ 343.2
Gross Margin 52.3% 54.4% 54.8%
- ------------------------------------------------------------------
Operating Expenses
Selling and Marketing 110.1 118.0 126.8
% Revenue 20.7% 20.5% 20.2%
General & Admin 41.6 43.6 46.1
% Revenue 7.8% 7.6% 7.4%
R&D Expense 63.2 67.0 72.0
% Revenue 11.9% 11.6% 11.5%
Other 3.6 6.2 7.8
- ------------------------------------------------------------------
Total Operating Expense $ 218.5 $ 234.8 $ 252.6
41% 41% 40%
- ------------------------------------------------------------------
Operating Income $ 59.3 $ 78.6 $ 90.6
- ------------------------------------------------------------------
- --------------------------
(*) The synergies expected to be realized as a result of the Merger will be
between $50 and $70 million, as mutually agreed upon by the parties.
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<PAGE>
EMPLOYMENT AGREEMENT
AGREEMENT, dated as of July 29, 1998, by and between ATL Ultrasound,
Inc. (the "Company") and Jacques Souquet ("Executive").
WHEREAS, Executive's current employer, ATL Ultrasound, Inc., has
entered into an Agreement and Plan of Merger, dated as of July 29, 1998 with
Philips Acquisition, Inc. and Philips Electronics North America Corporation (the
"Merger Agreement"); and
WHEREAS, the Company desires to secure the continued employment of
Executive following the successful consummation of the Offer (as such term is
defined in the Merger Agreement); and
WHEREAS, Executive and the Company desire to enter into an agreement
setting forth the terms and conditions of the employment of Executive with the
Company on and after the successful consummation of the Offer;
NOW, THEREFORE, IN CONSIDERATION OF the mutual covenants herein
contained, and other good and valuable consideration, the parties hereto agree
as follows:
1. EMPLOYMENT. Subject to the successful consummation of the Offer,
the Company hereby agrees to employ Executive, and Executive agrees to serve as
an employee of the Company, on the terms and conditions set forth in this
Agreement, effective as of the date of this Agreement. The continuation of such
employment shall be expressly conditioned on and subject to the consummation of
the transactions contemplated by the Merger Agreement; PROVIDED, THAT, Section
20 of this Agreement shall be deemed to be effective as of the successful
consummation of the Offer. This Agreement shall become null and void, and shall
have no force or effect, if the transactions contemplated under the Merger
Agreement are not consummated.
2. EMPLOYMENT PERIOD. The "Employment Period" shall be the period
commencing on the Effective Time (as defined in the Merger Agreement) and ending
on December 31, 2001.
3. DUTIES AND RESPONSIBILITIES. During the Employment Period,
Executive shall serve as the Senior Vice President -- Chief Technology Officer
of the Company with such duties and responsibilities that are customary for
such position and shall include those that are assigned to him by the Company
during the Employment Period that are not inconsistent with such position.
Executive shall devote substantially all of his working time, attention and
energies during normal business hours (other than
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absences due to illness or vacation) to the performance of his duties for the
Company. Upon the prior written approval of the Chief Executive Officer of the
Philips Medical Systems, Executive may serve as a member of the board of
directors of other companies or engage in other outside activities, provided
that such activities do not interfere with Executive's duties hereunder;
provided, further, that if Executive is already a member of any such board of
directors, as set forth on Exhibit A hereof, he shall be entitled to remain on
such board without violating the terms of this Agreement.
4. PLACE OF PERFORMANCE. The principal place of employment of
Executive shall be at the Company's executive offices in Seattle, Washington.
5. COMPENSATION AND RELATED MATTERS.
(a) BASE SALARY AND BONUS. During the Employment Period the
Company shall pay Executive a base salary at the rate of not less than $ 255,000
per year ("Base Salary") which shall be annually reviewed by the Company.
Executive's Base Salary shall be paid in approximately equal installments in
accordance with the Company's customary payroll practices. If Executive's Base
Salary is increased by the Company, such increased Base Salary shall then
constitute the Base Salary for all purposes of the Agreement. On or about
January 1, 1999, Executive shall be paid an annual bonus equal to the pro rata
portion (based on the number of days elapsed in 1998 through and including the
Effective Time) of the annual bonus that would have been payable under
Executive's annual bonus arrangement in effect on the date hereof based on the
Company's annualized performance through the last full fiscal quarter completed
before the Effective Time; PROVIDED, THAT for purposes of this sentence,
Executive's maximum annual bonus opportunity shall be deemed to be 50% of Base
Salary. For the remaining period of 1998 following the Effective Time (for
which a bonus may be paid, prorated in the proportion that the number of days
after the Effective Time through December 31, 1998 bears to 365) and during each
subsequent year of the Employment Period, Executive shall be entitled to an
annual incentive bonus ("Bonus"), based upon the achievement of performance
targets, such targets as determined in the sole discretion of the Company, to be
payable at the same time as bonuses are paid to other executive officers.
Executive's target Bonus shall be 50% of Base Salary, but may be more or less
upon achievement of performance targets.
(b) STOCK OPTION. (i) The Executive shall be granted stock
options (the "Stock Option") to acquire 7,000 shares of the common stock of
Royal Philips Electronics (the "Stock"), pursuant to the Philips Electronics
North America Corporation 1998 Stock Incentive Plan (the "Option Plan"). The
Stock Option shall be granted on the Commencement Date, and shall be granted
at an exercise price per share equal to the fair market value of the Stock on
the date of grant and shall be subject to the general terms of the Option
Plan and the stock
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<PAGE>
option agreement thereunder (the "Option Agreement"). Stock Options granted
pursuant to this Section 5(b)(i) shall become exercisable at a rate of
33-1/3% on each of the first, second and third anniversaries of the date of
grant, provided Executive remains an employee on such date, and shall expire
ten (10) years following the date of grant, except as otherwise provided in
the Option Plan or Option Agreement. Notwithstanding the foregoing, if
Executive is terminated pursuant to Section 6(e) or 6(g) hereof, such Stock
Option shall become immediately exercisable and shall remain exercisable for
one year following such termination.
(ii) Beginning in the year 2000, Executive shall be eligible for
option grants on the same basis as other senior executives of the Company.
(c) LONG-TERM PERFORMANCE UNIT PLAN. The Company shall
establish the Long-Term Performance Unit Plan which shall provide Executive with
a bonus (the "Incentive Bonus") equal to Executive's Base Salary, to be paid in
the first quarter following the end of the Performance Period (the "Payment
Date"), if Executive is an employee on the last day of the Performance Period
and 75% of the base case strategic plan, as attached as Exhibit B (the
"Strategic Plan") has been achieved during the 1999-2001 performance period (the
"Performance Period"). If 100% of the Strategic Plan is achieved during the
Performance Period, Executive's Incentive Bonus shall be two times Base Salary
and if 100% of the Strategic Plan is achieved, including synergies, the
Incentive Bonus shall be three times Base Salary. In the first quarter
following December 31, 1999 and December 31, 2000, Executive shall receive a
payment equal to 20% of Base Salary (each, an "Advance Bonus") which shall
reduce the Incentive Bonus, on a dollar for dollar basis, otherwise payable
under this paragraph. Notwithstanding the foregoing, if Executive is terminated
pursuant to Sections 6(e) or 6(g) hereof, Executive shall be entitled to a
pro-rata Incentive Bonus, based on the ratio the number of days worked in the
Performance Period bears to the total number of days in the Performance Period,
to be paid on the Payment Date.
(d) BENEFIT PLANS. Executive shall be entitled to participate
in such employee benefit plans and insurance programs offered by the Company, or
which it may adopt from time to time, for its executive management or
supervisory personnel generally, in accordance with the eligibility requirements
for participation therein. Notwithstanding the foregoing, Executive shall not
be entitled to receive severance pursuant to the Company's severance plan if he
is entitled to receive payments pursuant to Section 8(c) of this Agreement.
Nothing herein shall be construed so as to prevent the Company from modifying or
terminating any employee benefit plans or programs, or employee fringe benefits,
it may adopt from time to time.
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<PAGE>
(e) VACATION AND SICK LEAVE. Executive shall be entitled to the
amount of paid vacation and sick leave that is provided to other executive
officers, in accordance with the Company's customary practices.
(f) EXPENSES. The Company shall promptly reimburse Executive
for all reasonable business expenses upon the presentation of reasonably
itemized statements of such expenses in accordance with the Company's policies
and procedures now in force or as such policies and procedures may be modified
with respect to all executive officers of the Company.
6. TERMINATION. This Agreement shall be terminated upon the
earliest to occur of the following:
(a) EXPIRATION. The expiration of the Employment Period.
(b) DEATH. The death of Executive.
(c) DISABILITY. If, as a result of Executive's Disability,
Executive shall have been substantially unable to perform his duties hereunder
for a period of six (6) consecutive months and within thirty (30) days after
written Notice of Termination is given by the Company after such six (6) month
period, Executive shall not have returned to the substantial performance of his
duties on a full-time basis. For purposes of this Agreement, "Disability" shall
have the same meaning as that term is defined in the Company's Long Term
Disability Plan; PROVIDED, THAT, if no such plan exists, "Disability" shall have
the same meaning as provided in Section 22(e)(3) of the Code.
(d) CAUSE. The Company terminates Executive for Cause. For
purposes of this Agreement, the Company shall have "Cause" to terminate
Executive's employment upon Executive's (i) willful and continued failure to
substantially perform his duties with the Company (other than any such failure
resulting from his incapacity due to physical or mental illness) after a written
demand for substantial performance is delivered to Executive which identifies
the manner in which the Company believes that Executive has not substantially
performed his duties, or (ii) willful misconduct (but excluding any action that
Executive reasonably believes is in the best interests of the Company) which is
materially economically injurious to the Company or to any entity in control of,
controlled by or under common control with the Company (an "Affiliate"),
including, but not limited to, any breach of Sections 9 and 10 hereof, or
(iii) the conviction of, or plea of guilty or nolo contendere to, a felony
involving moral turpitude, or (iv) habitual drug or alcohol abuse by Executive.
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<PAGE>
(e) WITHOUT CAUSE. The Company terminates Executive's
employment hereunder without Cause by providing Executive with a Notice of
Termination.
(f) VOLUNTARY TERMINATION. Executive terminates this Agreement
and Executive's employment hereunder at any time upon ninety (90) days prior
written notice to the Company.
(g) MATERIAL BREACH. Executive terminates his employment for a
material breach of this Agreement by the Company. For purposes of this
Agreement, a "material breach" shall be deemed to occur upon a failure by the
Company to comply with any material provision of this Agreement without
Executive's written consent, including, but not limited to, (i) a material
diminution in Executive's position, duties, status, authority or responsibility
as set forth under the terms of this Agreement, (ii) a reduction in Base Salary,
Bonus or Incentive Bonus opportunity, or (iii) a relocation of the Executive to
a location more than 50 miles from his present location, which in the case of
any alleged violation of this paragraph (g), has not been cured in all material
respects within thirty (30) days after written notice of such noncompliance has
been given by Executive to the Company.
7. TERMINATION PROCEDURE.
(a) NOTICE OF TERMINATION. Any termination of Executive by the
Company or by Executive (other than termination pursuant to Section 6(a) or (b)
hereof) shall be communicated by written Notice of Termination to the other
party hereto in accordance with Section 13. For purposes of this Agreement, a
"Notice of Termination" shall mean a notice which shall indicate the specific
termination provision in this Agreement relied upon and shall set forth in
reasonable detail the facts and circumstances claimed to provide a basis for
termination of Executive under the provisions so indicated.
(b) DATE OF TERMINATION. "Date of Termination" shall mean
(i) if Executive's employment is terminated by the expiration of this Agreement,
the date of expiration, (ii) if Executive's employment is terminated by his
death, the date of his death, (iii) if Executive's employment is terminated
pursuant to Section 6(c) hereof, thirty (30) days after Notice of Termination is
given (provided that Executive shall not have again become available for service
on a regular basis during such thirty (30) day period), (iv) if Executive's
employment is terminated pursuant to Sections 6(d), 6(e), or 6(g) the date
specified in the Notice of Termination, and (v) if Executive's employment is
terminated for any other reason, the date on which a Notice of Termination is
given.
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8. AMOUNTS DUE UPON TERMINATION OR DURING DISABILITY. In the event
Executive is disabled or his employment terminates during the Employment Period,
the Company shall provide Executive with the payments set forth below.
Executive acknowledges and agrees that the payments set forth in this Section 8
constitute liquidated damages for termination of his employment during the
Employment Period.
(a) During any period that Executive fails to perform his duties
hereunder as a result of Disability ("disability period"), Executive shall
continue to receive his Base Salary at the rate then in effect for such period
until his employment is terminated pursuant to Section 6(c) hereof; PROVIDED,
THAT, payments so made to Executive during the first six (6) months of the
disability period shall be reduced by the sum of the amounts, if any, paid to
the Executive at or prior to the time of any such payment under disability
benefit plans of the Company or under the Social Security disability insurance
program, and which amounts were not previously applied to reduce any such
payment. Executive shall also be entitled to any other benefits or payments
provided pursuant to any plan or policy of the Company in accordance with such
plan's or policy's terms.
(b) If Executive is terminated pursuant to Sections 6(a), 6(b),
6(d), or 6(f) the Company shall pay Executive his accrued, but unpaid Base
Salary and Bonus through the Date of Termination at the rate in effect at the
time Notice of Termination is given, and the Company shall have no further
obligations to Executive under this Agreement; PROVIDED, THAT, Executive shall
be entitled to any other benefit or payment provided pursuant to any plan or
policy of the Company in accordance with such plan's or policy's terms.
(c) If Executive's employment is terminated pursuant to Sections
6(e) or 6(g), the Company shall pay to Executive his (A) Base Salary accrued
through the Date of Termination and (B) a lump-sum payment equal to the
remaining Base Salary and Average Bonus (as defined below) that would have been
paid to Executive had his employment continued through the Employment Period
(the "Remaining Period"); PROVIDED THAT, Executive shall be entitled to a
minimum payment of one (1) times Executive's then current Base Salary and
Average Bonus. All such payments shall be made as soon as administratively
feasible following such termination. Executive shall also be entitled to any
other benefits or payments provided pursuant to any plan or policy of the
Company in accordance with such plan's or policy's terms, except as provided in
Section 5(d). For purposes of the foregoing, "Average Bonus" means the average
annual Bonus paid to Executive by the Company (or its successors) during the
three year period immediately preceding his Date of Termination.
(d) CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY.
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(i) Notwithstanding anything in this Agreement to the contrary,
in the event it shall be determined that any payment, award, benefit or
distribution (or any acceleration of any payment, award, benefit or
distribution) by the Company (or any of its affiliated entities) or any entity
which effectuates (or has previously effectuated) a change in control (or any of
its affiliated entities) to or for the benefit of Executive (whether pursuant to
the terms of this Agreement or otherwise) (the "Payments") would be subject to
the excise tax (the "Excise Tax") under Section 4999 of the Internal Revenue
Code of 1986, as amended (the "Code"), then the amounts payable to Executive
under this Agreement shall be the greater of (A) the Payment, if the result of
subtracting the Excise Tax from the Payment is more than the Safe Harbor Cap and
(B) the Payment, reduced to the maximum amount as will result in no portion of
the Payments being subject to the Excise Tax (the "Safe Harbor Cap"), reducing
first the payments under Section 8(c)(B), unless an alternative method of
reduction is elected by Executive. For purposes of reducing the Payments to the
Safe Harbor Cap, only amounts payable to Executive under this Agreement (and no
other Payments) shall be reduced, unless consented to by Executive.
(ii) All determinations required to be made under this Section 8
shall be made by the nationally recognized public accounting firm that is
selected by Executive (the "Accounting Firm"). If payments are reduced to the
Safe Harbor Cap, the Accounting Firm shall provide a reasonable opinion to
Executive that he is not required to report any Excise Tax on his federal income
tax return. All fees, costs and expenses (including, but not limited to, the
costs of retaining experts) of the Accounting Firm shall be borne by the
Company. The determination by the Accounting Firm shall be binding upon the
Company and Executive (except as provided in paragraph (iii) below).
(iii) If payments are reduced to the Safe Harbor Cap as
provided in Section 8(d)(i)(B) and if it is established pursuant to a final
determination of a court or an Internal Revenue Service (the "IRS") proceeding
which has been finally and conclusively resolved, that Payments have been made
to, or provided for the benefit of, Executive by the Company, which are in
excess of the limitations provided in this Section 8(d)(i)(B) (hereinafter
referred to as an "Excess Payment"), such Excess Payment shall be deemed for all
purposes to be a loan to Executive made on the date Executive received the
Excess Payment and Executive shall repay the Excess Payment to the Company on
demand, together with interest on the Excess Payment at the applicable federal
rate (as defined in Section 1274(d) of the Code) from the date of Executive's
receipt of such Excess Payment until the date of such repayment. As a result of
the uncertainty in the application of Section 4999 of the Code at the time of
the determination, it is possible that Payments which will not have been made by
the Company should have been made (an "Underpayment"), consistent with the
calculations required to be made under this Section 8. In the event that it is
determined (A) by the Accounting Firm, the Company (which shall include the
position taken by the Company, or together with its consolidated
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group, on its federal income tax return) or the IRS or (B) pursuant to a
determination by a court, that an Underpayment has occurred, the Company shall
pay an amount equal to such Underpayment to Executive within ten (10) days of
such determination together with interest on such amount at the applicable
federal rate from the date such amount would have been paid to Executive until
the date of payment.
9. CONFIDENTIAL INFORMATION AND REMOVAL OF DOCUMENTS.
(a) Executive shall hold in a fiduciary capacity for the benefit
of the Company all secret or confidential information, knowledge or data
relating to the Company or any Affiliate, and their respective businesses
("Confidential Information"), which shall have been obtained by Executive during
Executive's employment by the Company or any Affiliate and which shall not be or
become public knowledge (other than by acts by Executive or representatives of
Executive in violation of this Agreement). After termination of Executive's
employment with the Company, Executive shall not, without the prior written
consent of the Company or as may otherwise be required by law or legal process,
communicate or divulge any such information, knowledge or data to anyone other
than the Company and those designated by it.
(b) All records, files, drawings, documents, models, equipment,
and the like containing Confidential Information or needed in the Company's
business which Executive has control over shall not be removed from the
Company's premises without its written consent, unless such removal is in the
furtherance of the Company's business or is in connection with Executive's
carrying out his duties under this Agreement and, if so removed, shall be
returned to the Company promptly after termination of Executive's employment
hereunder, or otherwise promptly after removal if such removal occurs following
termination of employment. Executive's rolodex, telephone directory and similar
type items, and furniture, art work and property owned by Executive or otherwise
not owned by the Company shall not be deemed Company property and shall not be
covered by this Section 9(b). The Company shall be the owner of all trade
secrets and other products relating to the Company's business developed by
Executive alone or in conjunction with others as part of his employment with the
Company.
10. NON-COMPETITION.
(a) In consideration of the benefits to be provided to Executive
hereunder, Executive covenants that he will not, without the prior written
consent of the Company, during the Employment Period and the twelve (12) month
period following his termination of employment for any reason or, if terminated
pursuant to Section 6(e) hereof, the Remaining Period, if greater (the
"Restriction Period"), engage in any way, directly or indirectly, in any
business whose product or activities directly compete with
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the products or activities of Philips Medical Systems or the Company anywhere
where Philips Medical Systems or the Company conducts its businesses, other than
in his capacity as an employee of the Company.
(b) Executive hereby covenants and agrees that, at all times
during the Employment Period and for a period of one (1) years immediately
following his termination for any reason, Executive shall not employ or seek to
employ any person employed at that time by Philips Medical Systems or the
Company, or otherwise encourage or entice such person or entity to leave such
employment.
(c) Executive hereby covenants and agrees that, at all times
during the Restriction Period, Executive will not (i) pursue or attempt to
develop any project known to Executive and which Philips Medical Systems or the
Company are pursuing, developing or attempting to develop as of the Date of
Termination ("Project"), directly or indirectly, alone, in association with or
as a shareholder, principal, agent, partner, officer, director, employee or
consultant of any other organization or (ii) divert to any entity which is
engaged in any business conducted by Philips Medical Systems or the Company in
the same geographic area as Philips Medical Systems or the Company, any Project
or any customer of Philips Medical Systems or the Company.
(d) Executive acknowledges that the restrictions, prohibitions
and other provisions of this Section 10 are reasonable, fair and equitable in
scope, terms and duration, are necessary to protect the legitimate business
interests of the Company and are a material inducement to the Company to enter
into this Agreement. It is the intention of the parties hereto that the
restrictions contained in this paragraph be enforceable to the fullest extent
permitted by applicable law. Therefore, to the extent any court of competent
jurisdiction shall determine that any portion of the foregoing restrictions is
excessive, such provision shall not be entirely void, but rather shall be
limited or revised only to the extent necessary to make it enforceable.
11. REMEDY. Should Executive engage in or perform any of the acts
prohibited by Sections 9 and 10, it is agreed that the Company shall be entitled
to full injunctive relief, to be issued by any competent court of equity,
enjoining and restraining Executive and each and every other person, firm,
organization, association, or corporation concerned therein, from the
continuance of such violative acts. The foregoing remedy available to Company
shall not be deemed to limit or prevent the exercise by the Company of any or
all further rights and remedies which may be available to the Company hereunder
or at law or in equity.
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12. SUCCESSORS; BINDING AGREEMENT. This Agreement shall be binding
upon and shall inure to the benefit of Executive, his heirs, executors,
administrators, beneficiaries and assigns and shall be binding upon and shall
inure to the benefit of the Company and its successors.
13. NOTICE. For the purposes of this Agreement, notices, demands and
all other communications provided for in this Agreement shall be in writing and
shall be deemed to have been duly given when delivered either personally or by
United States certified or registered mail, return receipt requested, postage
prepaid, addressed, in case of Executive, to the last address on file with the
Company and if to the Company, to its executive offices or to such other address
as any party may have furnished to the others in writing in accordance herewith,
except that notices of change of address shall be effective only upon receipt.
14. RESOLUTION OF DIFFERENCES OVER BREACHES OF AGREEMENT. The
parties shall use good faith efforts to resolve any controversy or claim arising
out of, or relating to this Agreement or the breach thereof, first in accordance
with the Company's internal review procedures, except that this requirement
shall not apply to any claim or dispute under or relating to Sections 9 or 10 of
this Agreement. If despite their good faith efforts, the parties are unable to
resolve such controversy or claim through the Company's internal review
procedures, then such controversy or claim shall be resolved by a court of law
having jurisdiction thereof. If any contest or dispute shall arise between the
Company and Executive regarding any provision of this Agreement, the parties
shall be responsible for paying all of its own legal fees and expenses incurred
in connection with such contest or dispute.
15. GOVERNING LAW. This Agreement is governed by, and is to be
construed and enforced in accordance with, the laws of the State of Washington,
without regard to principles of conflicts of laws. If, under such law, any
portion of this Agreement is at any time deemed to be in conflict with any
applicable statute, rule, regulation or ordinance, such portion shall be deemed
to be modified or altered to conform thereto or, if that is not possible, to be
omitted from this Agreement, and the invalidity of any such portion shall not
affect the force, effect and validity of the remaining portion hereof.
16. AMENDMENT. No provisions of this Agreement may be amended,
modified, or waived unless such amendment or modification is agreed to in
writing signed by Executive and by a duly authorized officer of the Company, and
such waiver is set forth in writing and signed by the party to be charged. No
waiver by either party hereto at any time of any breach by the other party
hereto of any condition or provision of this Agreement to be performed by such
other party shall be deemed a waiver of
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similar or dissimilar provisions or conditions at the same or at any prior or
subsequent time.
17. SURVIVAL. The respective obligations of, and benefits afforded
to, Executive and Company as provided in Sections 9 and 10 of this Agreement
shall survive the termination of this Agreement.
18. NO CONFLICT OF INTEREST. During the Employment Period, Executive
shall not directly, or indirectly render service, or undertake any employment or
consulting agreement with another entity without the express written consent of
the Company.
19. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
20. ENTIRE AGREEMENT. This Agreement sets forth the entire agreement
of the parties hereto (and in the case of the Company, its predecessors) in
respect of the subject matter contained herein and supersede all prior
agreements, promises, covenants, arrangements, communications, representations
or warranties, whether oral or written, by any officer, employee or
representative of any party hereto in respect of such subject matter, including,
but not limited to, the Employment Agreement by and between ATL Ultrasound, Inc.
and Executive, dated as of the first day of January, 1997 and any and all
amendments made subsequent thereto (the "Prior Agreement"), and as of the
successful consummation of the Offer, such Prior Agreement shall be void and of
no further force or effect. Any prior agreement of the parties hereto in
respect of the subject matter contained herein is hereby terminated and
canceled, as of the successful consummation of the Offer; PROVIDED THAT, this
Agreement shall not modify or terminate the provisions of any compensation or
benefit plan providing benefits upon a change in control of the Company
(excluding the Prior Agreement); PROVIDED, FURTHER, that Executive acknowledges
and agrees that he will be paid no more than 23%, 0.0% and 23.4% of Base Salary
under the 1996-98, 1997-99 and 1998-00 performance cycles, respectively, under
the Company's Long Term Incentive Plan (the "Plan"), effective as of January 1,
1993 and waives all rights for any other payments under such Plan upon payment
of such amounts. Executive acknowledges that in consideration of the benefits
to be provided hereunder, he has waived, as of the successful consummation of
the Offer, all of his rights under the Prior Agreement, including, but not
limited to Section 6 thereof.
21. SECTION HEADINGS. The section headings in this Agreement are for
convenience of reference only, and they form no part of this Agreement and shall
not affect its interpretation.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
ATL Ultrasound, Inc.
By: /s/ Dennis C. Fill
----------------------------
/s/ Jacques Souquet
-------------------------------
Jacques Souquet
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EXHIBIT A
French Chamber of Commerce in Seattle
Sonosight, Inc.
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<PAGE>
EXHIBIT B
1999-2001 Strategic Plan (*)
Income Statement 1999 2000 2001
- ------------------------------------------------------------------
Total Product Revenue 427.9 466.5 511.0
Product Gross Profit 233.9 266.2 292.6
- ------------------------------------------------------------------
Service Revenue 103.4 109.4 115.7
Service Gross Profit 43.9 47.2 50.6
- ------------------------------------------------------------------
Total Revenue $ 531.3 $ 575.9 $ 626.7
Total Gross Profit $ 277.8 $ 313.4 $ 343.2
Gross Margin 52.3% 54.4% 54.8%
- ------------------------------------------------------------------
Operating Expenses
Selling and Marketing 110.1 118.0 126.8
% Revenue 20.7% 20.5% 20.2%
General & Admin 41.6 43.6 46.1
% Revenue 7.8% 7.6% 7.4%
R&D Expense 63.2 67.0 72.0
% Revenue 11.9% 11.6% 11.5%
Other 3.6 6.2 7.8
- ------------------------------------------------------------------
Total Operating Expense $ 218.5 $ 234.8 $ 252.6
41% 41% 40%
- ------------------------------------------------------------------
Operating Income $ 59.3 $ 78.6 $ 90.6
- ------------------------------------------------------------------
- --------------------------
(*) The synergies expected to be realized as a result of the Merger will be
between $50 and $70 million, as mutually agreed upon by the parties.
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EMPLOYMENT AND CONSULTING AGREEMENT
AGREEMENT, dated as of July 29, 1998, by and between ATL Ultrasound,
Inc. (the "Company") and Castor F. Diaz ("Executive").
WHEREAS, Executive's current employer, ATL Ultrasound, Inc., has
entered into an Agreement and Plan of Merger, dated as of July 29, 1998 with
Philips Acquisition, Inc. and Philips Electronics North America Corporation (the
"Merger Agreement"); and
WHEREAS, the Company desires to secure the continued employment of
Executive following the successful consummation of the Offer (as such term is
defined in the Merger Agreement); and
WHEREAS, Executive and the Company desire to enter into an agreement
setting forth the terms and conditions of the employment of Executive with the
Company on and after the successful consummation of the Offer;
NOW, THEREFORE, IN CONSIDERATION OF the mutual covenants herein
contained, and other good and valuable consideration, the parties hereto agree
as follows:
1. EMPLOYMENT. Subject to the successful consummation of the Offer,
the Company hereby agrees to employ Executive, and Executive agrees to serve as
an employee of the Company, on the terms and conditions set forth in this
Agreement, effective as of the date of this Agreement. The continuation of such
employment shall be expressly conditioned on and subject to the consummation of
the transactions contemplated by the Merger Agreement. This Agreement shall
become null and void, and shall have no force or effect, if the transactions
contemplated under the Merger Agreement are not consummated; PROVIDED, THAT,
Section 21 of this Agreement shall be deemed to be effective as of the
successful consummation of the Offer. Following the Employment Period (as
defined below) the Company shall engage Executive as a consultant of the Company
in accordance with Section 6 hereof.
2. TERM. The period of employment of Executive by the Company
hereunder (the "Employment Period") shall commence as of the Effective Time (as
defined in the Merger Agreement) (the "Commencement Date") and shall continue
until December 31, 1999, at which time Executive's employment with the Company
shall cease. In accordance with Section 6 hereof, Executive shall serve as a
consultant to the Company for two additional years (the "Consulting Period")
following the Employment Period (the Employment Period and Consulting Period
collectively referred to as the "Term"); PROVIDED, THAT, prior to the
commencement of the Consulting Period, the parties
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may agree by mutual consent to extend the Consulting Period. The Term may be
sooner terminated by either party in accordance with Section 6 of this
Agreement.
3. DUTIES AND RESPONSIBILITIES. During the Employment Period, the
Executive shall serve as the Senior Vice President -- Worldwide Sales and
Marketing of the Company with such duties and responsibilities that are
customary for such a position and shall include those that are assigned to him
by the Company during the Employment Period that are not inconsistent with such
position. During the Employment Period, Executive shall devote substantially
all of his working time, attention and energies during normal business hours
(other than absences due to illness or vacation) to the performance of his
duties for the Company. Upon the prior written approval of the Chief Executive
Officer of the Philips Medical Systems, Executive may serve as a member of the
board of directors of other companies or engage in other outside activities,
provided that such activities do not interfere with Executive's duties
hereunder; provided, further, that if Executive is already a member of any such
board of directors, as set forth on Exhibit A hereof, he shall be entitled to
remain on such board without violating the terms of this Agreement.
4. PLACE OF PERFORMANCE. The principal place of employment of
Executive shall be at the Company's executive offices in Seattle, Washington.
5. COMPENSATION AND RELATED MATTERS.
(a) BASE SALARY AND BONUS. During the Employment Period the
Company shall pay Executive a base salary at the rate of not less than $285,000
per year ("Base Salary") which shall be reviewed annually by the Company.
Executive's Base Salary shall be paid in approximately equal installments in
accordance with the Company's customary payroll practices. If Executive's Base
Salary is increased by the Company, such increased Base Salary shall then
constitute the Base Salary for all purposes of the Agreement. On or about
January 1, 1999, Executive shall be paid an annual bonus equal to the pro rata
portion (based on the number of days elapsed in 1998 through and including the
Effective Time) of the annual bonus that would have been payable under
Executive's annual bonus arrangement in effect on the date hereof based on the
Company's annualized performance through the last full fiscal quarter completed
before the Effective Time; PROVIDED, THAT, for purposes of this sentence,
Executive's maximum annual bonus opportunity shall be deemed to be 50% of Base
Salary. For the remaining period of 1998 following the Effective Time (for
which a bonus may be paid, prorated in the proportion that the number of days
after the Effective Time through December 31, 1998 bears to 365) and during each
subsequent year of the Employment Period, Executive shall be entitled to an
annual incentive bonus ("Bonus"), based upon the achievement of performance
targets, such targets as determined in the sole discretion of the Company, to be
payable at the same time as bonuses are paid to other executive
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officers. Executive's target Bonus shall be 50% of Base Salary, but may be more
or less upon achievement of performance targets.
(b) STOCK OPTION. The Executive shall be granted stock options
(the "Stock Option") to acquire 5,000 shares of the common stock of Royal
Philips Electronics (the "Stock"), pursuant to the Philips Electronics North
America Corporation 1998 Stock Incentive Plan (the "Option Plan"). The Stock
Option shall be granted on the Commencement Date, and shall be granted at an
exercise price per share equal to the fair market value of the Stock
on the date of grant and shall be subject to the general terms of the Option
Plan and the stock option agreement thereunder (the "Option Agreement").
Stock Options granted pursuant to this Section 5(b) shall become exercisable
at a rate of 50% on July 31, 1999 and 50% on December 31, 1999, provided
Executive was an employee on such date, and shall expire ten (10) years
following the date of grant, except as otherwise provided in the Option Plan
or Option Agreement. Notwithstanding the foregoing, the Stock Option shall
remain exercisable until at least the first anniversary of the end of the
Term (not to exceed ten (10) years) unless Executive's employment is
terminated pursuant to Sections 7(d) or 7(f) hereof.
(c) LONG-TERM PERFORMANCE UNIT PLAN. The Company shall
establish the Long-Term Performance Unit Plan which shall provide Executive with
an incentive bonus (the "Incentive Bonus") equal to Executive's Base Salary to
be paid in the first quarter following the end of the Performance Period (the
"Payment Date"), if Executive was either an employee or consultant at the end of
the Term and 75% of the base case strategic plan, as attached as Exhibit B (the
"Strategic Plan") has been achieved during the 1999-2001 performance period (the
"Performance Period") pro-rated, based on the ratio of the number of days in
the Employment Period bears to the number of days in the Performance Period. If
100% of the Strategic Plan is achieved during the Performance Period,
Executive's Incentive Bonus shall be two times Base Salary pro-rated, based on
the ratio of the number of days in the Employment Period bears to the number of
days in the Performance Period. If 100% of the Strategic Plan is achieved,
including synergies, the Incentive Bonus shall be three times Base Salary,
pro-rated, based on the ratio of the number of days in the Employment Period
bears to the number of days in the Performance Period. In the first quarter
following December 31, 1999, Executive shall receive a payment equal to 20% of
Base Salary (an "Advance Payment") which shall reduce the Incentive Bonus, on a
dollar for dollar basis, otherwise payable under this paragraph.
Notwithstanding, the foregoing, if Executive is terminated pursuant to Section
7(e) or 7(g) hereof, Executive shall be entitled to a pro-rata Incentive Bonus,
based on the ratio the number of days worked in the Employment Period bears to
the total number of days in the Performance Period, to be paid on the Payment
Date.
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(d) BENEFIT PLANS. During the Employment Period, Executive
shall be entitled to participate in such employee benefit plans and insurance
programs offered by the Company, or which it may adopt from time to time, for
its executive management or supervisory personnel generally, in accordance with
the eligibility requirements for participation therein. Notwithstanding the
foregoing, Executive shall not be entitled to receive severance pursuant to the
Company's severance plan if he is entitled to receive payments pursuant to
Section 9(c) of this Agreement. Nothing herein shall be construed so as to
prevent the Company from modifying or terminating any employee benefit plans or
programs, or employee fringe benefits, it may adopt from time to time.
(e) VACATION AND SICK LEAVE. During the Employment Period,
Executive shall be entitled to the amount of paid vacation and sick leave that
is provided to other executive offices, in accordance with the Company's
customary practices.
(f) EXPENSES. The Company shall promptly reimburse Executive
for all reasonable business expenses incurred during the Term upon the
presentation of reasonably itemized statements of such expenses in accordance
with the Company's policies and procedures now in force or as such policies and
procedures may be modified with respect to all executive officers of the
Company.
6. CONSULTING ARRANGEMENT. Immediately following the Employment
Period, Executive shall serve as a consultant to the Company during the
Consulting Period. During the Consulting Period, Executive shall make himself
available, at the reasonable request of the Company, for consultation and advice
on matters affecting the business affairs of the Company, by telephonic
conference if reasonably practicable. During the Consulting Period, the Company
shall pay Executive an annual consulting fee equal to $200,000 (the "Consulting
Fee") per year, to be paid in approximately equal installments in accordance
with the Company's customary practices. In addition, until Executive is
eligible for Medicare, he shall be entitled to receive medical benefits (or the
after tax cost of such benefits if they cannot be provided pursuant to the
Company's medical plans) from the Company.
7. TERMINATION. This Agreement shall be terminated upon the
earliest to occur of the following:
(a) EXPIRATION. The expiration of the Term.
(b) DEATH. The death of Executive. Notwithstanding the
foregoing, if Executive should die during the Consulting Period, Executive's
beneficiaries or his estate, as the case may be, shall continue to receive the
Consulting Fee until the end of the year in which his death occurs.
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<PAGE>
(c) DISABILITY. If, as a result of Executive's Disability
during the Employment Period, Executive shall have been substantially unable to
perform his duties hereunder for a period of six (6) consecutive months and
within thirty (30) days after written Notice of Termination is given by the
Company after such six (6) month period, Executive shall not have returned to
the substantial performance of his duties. For purposes of this Agreement,
"Disability" shall have the same meaning as that term is defined in the
Company's Long Term Disability Plan; PROVIDED, THAT, if no such plan exists,
"Disability" shall have the same meaning as provided in Section 22(e)(3) of the
Code.
(d) CAUSE. The Company terminates Executive for Cause during
the Employment Period. For purposes of this Agreement, the Company shall have
"Cause" to terminate Executive upon Executive's (i) willful and continued
failure to substantially perform his duties with the Company (other than any
such failure resulting from his incapacity due to physical or mental illness)
after a written demand for substantial performance is delivered to Executive
which identifies the manner in which the Company believes that Executive has not
substantially performed his duties, or (ii) willful misconduct (but excluding
any action that Executive reasonably believes is in the best interests of the
Company) which is materially economically injurious to the Company or to any
entity in control of, controlled by or under common control with the Company (an
"Affiliate"), including, but not limited to, any breach of Sections 10 and 11
hereof, or (iii) the conviction of, or plea of guilty or nolo contendere to, a
felony involving moral turpitude, or (iv) habitual drug or alcohol abuse by
Executive. The Company may not terminate Executive for Cause during the
Consulting Period.
(e) WITHOUT CAUSE. The Company terminates Executive hereunder
without Cause by providing Executive with a Notice of Termination.
(f) VOLUNTARY TERMINATION. Executive terminates this Agreement
at any time upon ninety (90) days prior written notice to the Company.
(g) MATERIAL BREACH. Executive terminates his employment for a
material breach of this Agreement by the Company. For purposes of this
Agreement, a "material breach" shall be deemed to occur upon a failure by the
Company to comply with any material provision of this Agreement without
Executive's written consent, including, but not limited to, (i) a material
diminution in Executive's position, duties, status, authority or responsibility
as set forth under the terms of this Agreement, (ii) a reduction in Base Salary,
Bonus or Incentive Bonus opportunity, or (iii) a relocation of the Executive to
a location more than 50 miles from his present location, which in the case of
any alleged violation of this paragraph (g), has not been cured in all material
respects within thirty (30) days after written notice of such noncompliance has
been given by Executive to the Company.
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8. TERMINATION PROCEDURE.
(a) NOTICE OF TERMINATION. Any termination of Executive by the
Company or by Executive (other than termination pursuant to Section 7(a) or (b)
hereof) shall be communicated by written Notice of Termination to the other
party hereto in accordance with Section 14. For purposes of this Agreement, a
"Notice of Termination" shall mean a notice which shall indicate the specific
termination provision in this Agreement relied upon and shall set forth in
reasonable detail the facts and circumstances claimed to provide a basis for
termination of Executive under the provisions so indicated.
(b) DATE OF TERMINATION. "Date of Termination" shall mean
(i) if Executive is terminated by the expiration of this Agreement, the date of
expiration, (ii) if Executive is terminated by his death, the date of his death,
(iii) if Executive is terminated pursuant to Section 7(c) hereof, thirty (30)
days after Notice of Termination is given (provided that Executive shall not
have again become available for service on a regular basis during such thirty
(30) day period), (iv) if Executive is terminated pursuant to Sections 7(d),
7(e), 7(f), or 7(g) the date specified in the Notice of Termination, and (v) if
Executive is terminated for any other reason, the date on which a Notice of
Termination is given.
9. AMOUNTS DUE UPON TERMINATION OR DURING DISABILITY. In the event
Executive is disabled or his relationship with the Company terminates during the
Term, the Company shall provide Executive with the payments set forth below.
Executive acknowledges and agrees that the payments set forth in this Section 9
constitute liquidated damages for termination of this Agreement during the Term.
(a) During any period that Executive fails to perform his duties
hereunder during the Employment Period as a result of Disability ("disability
period"), Executive shall continue to receive his Base Salary, as the case may
be, at the rate then in effect for such period until this Agreement is
terminated pursuant to Section 7(c) hereof; PROVIDED, THAT, payments so made to
Executive during the first six (6) months of the disability period shall be
reduced by the sum of the amounts, if any, paid to the Executive at or prior to
the time of any such payment under disability benefit plans of the Company or
under the Social Security disability insurance program, and which amounts were
not previously applied to reduce any such payment. Executive shall also be
entitled to any other benefits or payments provided pursuant to any plan or
policy of the Company in accordance with such plan's or policy's terms.
(b) If Executive is terminated pursuant to Sections 7(a), 7(b),
7(d), or 7(f) the Company shall pay Executive his accrued, but unpaid Base
Salary and Bonus or Consulting Fee, as the case may be, through the Date of
Termination at the rate
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in effect at the time Notice of Termination is given, and (subject to 7(b)) the
Company shall have no further obligations to Executive under this Agreement;
PROVIDED, THAT, Executive shall be entitled to any other benefit or payment
provided pursuant to any plan or policy of the Company in accordance with such
plan's or policy's terms.
(c) If Executive's employment is terminated pursuant to Sections
7(e) or 7(g), the Company shall pay to Executive his (A) Base Salary or
Consulting Fee, as the case may be, accrued through the Date of Termination, (B)
if during the Employment Term, a lump-sum payment equal to the remaining Base
Salary, Average Bonus (as defined below) and Consulting Fee that would have been
paid to Executive had this Agreement continued through the Term (the "Remaining
Term"), and (C) if during the Consulting Term, all remaining amounts that would
have been paid under Section 6 had this Agreement continued through the end of
the Term. All such payments shall be made as soon as administratively feasible
following such termination. Executive shall also be entitled to any other
benefits or payments provided pursuant to any plan or policy of the Company in
accordance with such plan's or policy's terms, except as provided in Section
5(d). For purposes of the foregoing, "Average Bonus" means the average annual
bonus paid to Executive by the Company (or its successors) during the three year
period immediately preceding his Date of Termination.
(d) CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY.
(i) Notwithstanding anything in this Agreement to the
contrary, in the event it shall be determined that any payment, award, benefit
or distribution (or any acceleration of any payment, award, benefit or
distribution) by the Company (or any of its affiliated entities) or any entity
which effectuates (or has previously effectuated) a change in control (or any of
its affiliated entities) to or for the benefit of Executive (whether pursuant to
the terms of this Agreement or otherwise) (the "Payments") would be subject to
the excise tax (the "Excise Tax") under Section 4999 of the Internal Revenue
Code of 1986, as amended (the "Code"), then the amounts payable to Executive
under this Agreement shall be the greater of (A) the Payment, if the result of
subtracting the Excise Tax from the Payment is more than the Safe Harbor Cap and
(B) the Payment, reduced to the maximum amount as will result in no portion of
the Payments being subject to the Excise Tax (the "Safe Harbor Cap"), reducing
first the payments under Section 9(c)(B), unless an alternative method of
reduction is elected by Executive. For purposes of reducing the Payments to the
Safe Harbor Cap, only amounts payable to Executive under this Agreement (and no
other Payments) shall be reduced, unless consented to by Executive.
(ii) All determinations required to be made under this
Section 9 shall be made by the nationally recognized public accounting firm that
is selected by Executive (the "Accounting Firm"). If payments are reduced to
the Safe
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Harbor Cap, the Accounting Firm shall provide a reasonable opinion to Executive
that he is not required to report any Excise Tax on his federal income tax
return. All fees, costs and expenses (including, but not limited to, the costs
of retaining experts) of the Accounting Firm shall be borne by the Company. The
determination by the Accounting Firm shall be binding upon the Company and
Executive (except as provided in paragraph (iii) below).
(iii) If payments are reduced to the Safe Harbor Cap as
provided in Section 9(d)(i)(B) and if it is established pursuant to a final
determination of a court or an Internal Revenue Service (the "IRS") proceeding
which has been finally and conclusively resolved, that Payments have been made
to, or provided for the benefit of, Executive by the Company, which are in
excess of the limitations provided in this Section 9(d)(i)(B) (hereinafter
referred to as an "Excess Payment"), such Excess Payment shall be deemed for all
purposes to be a loan to Executive made on the date Executive received the
Excess Payment and Executive shall repay the Excess Payment to the Company on
demand, together with interest on the Excess Payment at the applicable federal
rate (as defined in Section 1274(d) of the Code) from the date of Executive's
receipt of such Excess Payment until the date of such repayment. As a result of
the uncertainty in the application of Section 4999 of the Code at the time of
the determination, it is possible that Payments which will not have been made by
the Company should have been made (an "Underpayment"), consistent with the
calculations required to be made under this Section 8. In the event that it is
determined (A) by the Accounting Firm, the Company (which shall include the
position taken by the Company, or together with its consolidated group, on its
federal income tax return) or the IRS or (B) pursuant to a determination by a
court, that an Underpayment has occurred, the Company shall pay an amount equal
to such Underpayment to Executive within ten (10) days of such determination
together with interest on such amount at the applicable federal rate from the
date such amount would have been paid to Executive until the date of payment.
10. CONFIDENTIAL INFORMATION; REMOVAL OF DOCUMENTS AND
NON-DISPARAGEMENT.
(a) Executive shall hold in a fiduciary capacity for the benefit
of the Company all secret or confidential information, knowledge or data
relating to the Company or any Affiliate, and their respective businesses
("Confidential Information") which shall have been obtained by Executive during
Executive's employment by the Company or any Affiliate and which shall not be or
become public knowledge (other than by acts by Executive or representatives of
Executive in violation of this Agreement). After termination of Executive's
employment with the Company, Executive shall not, without the prior written
consent of the Company or as may otherwise be required by law or legal process,
communicate or divulge any such information, knowledge or data to anyone other
than the Company and those designated by it.
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(b) All records, files, drawings, documents, models, equipment,
and the like containing Confidential Information or needed in the Company's
business which Executive has control over shall not be removed from the
Company's premises without its written consent, unless such removal is in the
furtherance of the Company's business or is in connection with Executive's
carrying out his duties under this Agreement and, if so removed, shall be
returned to the Company promptly after termination of Executive's employment
hereunder, or otherwise promptly after removal if such removal occurs following
termination. Executive's rolodex, telephone directory and similar type items,
and furniture, art work and property owned by Executive or otherwise not owned
by the Company shall not be deemed Company property and shall not be covered by
this Section 10(b). The Company shall be the owner of all trade secrets and
other products relating to the Company's business developed by Executive alone
or in conjunction with others as part of his services with the Company.
(c) Executive agrees that during the Term and for a period of one
year thereafter, he will not and that his attorneys, agents, or other
representatives shall not (i) take any action or make or publish any statement,
whether oral or written, which disparages in any way the Company or any or all
of its present or former employees, principals, directors, partners, or
affiliates, including, without limitation, any disparaging statement which
interferes in any way with the ability of the Company or any of its affiliates
to market their services, products, to retain existing client relationships, or
to obtain new client relationships; (ii) make any statements in any public forum
or statements intended for publication in the public media, which are reasonably
likely to negatively affect the standing of the Company or its affiliates.
11. NON-COMPETITION.
(a) In consideration of the benefits to be provided to Executive
hereunder, Executive covenants that he will not, without the prior written
consent of the Company, during the Term and the twelve (12) month period
thereafter or, if terminated pursuant to Sections 7(e) or 7(g) hereof, the
Remaining Period, if greater (the "Restriction Period"), engage in any way,
directly or indirectly, in any business whose product or activities directly
compete with the products or activities of Philips Medical Systems or the
Company anywhere where Philips Medical Systems or the Company conducts such
businesses, other than in his capacity as an employee or consultant of the
Company.
(b) Executive hereby covenants and agrees that, at all times
during the Restriction Period, Executive shall not employ or seek to employ any
person employed at that time by Philips Medical Systems or the Company, or
otherwise encourage or entice such person or entity to leave such employment.
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(c) Executive hereby covenants and agrees that, at all times
during the Restriction Period, Executive will not (i) pursue or attempt to
develop any project known to Executive and which Philips Medical Systems or the
Company are pursuing, developing or attempting to develop as of the Date of
Termination ("Project"), directly or indirectly, alone, in association with or
as a shareholder, principal, agent, partner, officer, director, employee or
consultant of any other organization or (ii) divert to any entity which is
engaged in any business conducted by Philips Medical Systems or the Company in
the same geographic area as Philips Medical Systems or the Company, any Project
or any customer of Philips Medical Systems or the Company.
(d) Executive acknowledges that the restrictions, prohibitions
and other provisions of this Section 11 are reasonable, fair and equitable in
scope, terms and duration, are necessary to protect the legitimate business
interests of the Company and are a material inducement to the Company to enter
into this Agreement. It is the intention of the parties hereto that the
restrictions contained in this paragraph be enforceable to the fullest extent
permitted by applicable law. Therefore, to the extent any court of competent
jurisdiction shall determine that any portion of the foregoing restrictions is
excessive, such provision shall not be entirely void, but rather shall be
limited or revised only to the extent necessary to make it enforceable.
12. REMEDY. Should Executive engage in or perform any of the acts
prohibited by Sections 10 and 11, it is agreed that the Company shall be
entitled to full injunctive relief, to be issued by any competent court of
equity, enjoining and restraining Executive and each and every other person,
firm, organization, association, or corporation concerned therein, from the
continuance of such violative acts. The foregoing remedy available to Company
shall not be deemed to limit or prevent the exercise by the Company of any or
all further rights and remedies which may be available to the Company hereunder
or at law or in equity.
13. SUCCESSORS; BINDING AGREEMENT. This Agreement shall be binding
upon and shall inure to the benefit of Executive, his heirs, executors,
administrators, beneficiaries and assigns and shall be binding upon and shall
inure to the benefit of the Company and its successors.
14. NOTICE. For the purposes of this Agreement, notices, demands and
all other communications provided for in this Agreement shall be in writing and
shall be deemed to have been duly given when delivered either personally or by
United States certified or registered mail, return receipt requested, postage
prepaid, addressed, in case
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of Executive, to the last address on file with the Company and if to the
Company, to its executive offices or to such other address as any party may have
furnished to the others in writing in accordance herewith, except that notices
of change of address shall be effective only upon receipt.
15. RESOLUTION OF DIFFERENCES OVER BREACHES OF AGREEMENT. The
parties shall use good faith efforts to resolve any controversy or claim arising
out of, or relating to this Agreement or the breach thereof, first in accordance
with the Company's internal review procedures, except that this requirement
shall not apply to any claim or dispute under or relating to Sections 10 or 11
of this Agreement. If despite their good faith efforts, the parties are unable
to resolve such controversy or claim through the Company's internal review
procedures, then such controversy or claim shall be resolved by a court of law.
If any contest or dispute shall arise between the Company and Executive
regarding any provision of this Agreement, the each party shall be responsible
for paying all of its own legal fees and expenses incurred in connection with
such contest or dispute.
16. GOVERNING LAW. This Agreement is governed by, and is to be
construed and enforced in accordance with, the laws of the State of Washington,
without regard to principles of conflicts of laws. If, under such law, any
portion of this Agreement is at any time deemed to be in conflict with any
applicable statute, rule, regulation or ordinance, such portion shall be deemed
to be modified or altered to conform thereto or, if that is not possible, to be
omitted from this Agreement, and the invalidity of any such portion shall not
affect the force, effect and validity of the remaining portion hereof.
17. AMENDMENT. No provisions of this Agreement may be amended,
modified, or waived unless such amendment or modification is agreed to in
writing signed by Executive and by a duly authorized officer of the Company, and
such waiver is set forth in writing and signed by the party to be charged. No
waiver by either party hereto at any time of any breach by the other party
hereto of any condition or provision of this Agreement to be performed by such
other party shall be deemed a waiver of similar or dissimilar provisions or
conditions at the same or at any prior or subsequent time.
18. SURVIVAL. The respective obligations of, and benefits afforded
to, Executive and Company as provided in Sections 10 and 11 of this Agreement
shall survive the termination of this Agreement.
19. NO CONFLICT OF INTEREST. During the Employment Period, Executive
shall not directly, or indirectly render service, or undertake any employment or
consulting agreement with another entity without the express written consent of
the Company.
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20. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
21. ENTIRE AGREEMENT. This Agreement sets forth the entire agreement
of the parties hereto (and in the case of the Company, its predecessors) in
respect of the subject matter contained herein and supersede all prior
agreements, promises, covenants, arrangements, communications, representations
or warranties, whether oral or written, by any officer, employee or
representative of any party hereto in respect of such subject matter, including,
but not limited to, the Employment Agreement by and between ATL Ultrasound, Inc.
and Executive, dated as of the first day of January, 1997 and any and all
amendments made subsequent thereto (the "Prior Agreement"), as of the successful
consummation of the Offer, and such Prior Agreement shall be void and of no
further force or effect. Any prior agreement of the parties hereto in respect
of the subject matter contained herein is hereby terminated and canceled, as of
the successful consummation of the Offer; PROVIDED THAT, this Agreement shall
not modify or terminate the provisions of any compensation or benefit plan
providing benefits upon a change in control of the Company (excluding the Prior
Agreement); PROVIDED, FURTHER, that Executive acknowledges and agrees that he
will be paid no more than 23%, 0.0% and 23.4% of Base Salary under the 1996-98,
1997-99 and 1998-00 performance cycles, respectively, under the Company's Long
Term Incentive Plan (the "Plan"), effective as of January 1, 1993 and waives all
rights for any other payments under such Plan upon payment of such amounts.
Executive acknowledges that in consideration of the benefits to be provided
hereunder, he has waived, as of the successful consummation of the Offer, all of
his rights under the Prior Agreement, including, but not limited to Section 6
thereof.
22. INDEPENDENT CONTRACTOR. During the Consulting Period, in
performing services hereunder, Executive will at all times and for all purposes,
constitute an independent contractor and not an employee or agent of the Company
or any of its subsidiaries or affiliates. In no event will Executive be, or
represent himself to be, an officer, employee or agent of the Company or any
subsidiary or affiliate thereof nor will Executive bind, or attempt to bind, the
Company or any subsidiary or affiliate thereof to any contract, agreement,
liability or obligation of any nature. Except as expressly provided herein, the
Company will not be required to provide any benefits to Executive which it
provides to its employees including without limitation retirement plans,
insurance programs and vacation based on services rendered during the Consulting
Period.
23. SECTION HEADINGS. The section headings in this Agreement are for
convenience of reference only, and they form no part of this Agreement and shall
not affect its interpretation.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
ATL Ultrasound, Inc.
By: /s/ Dennis C. Fill
-------------------------------
/s/ Castor F. Diaz
----------------------------------
CASTOR F. DIAZ
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EXHIBIT A
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EXHIBIT B
1999-2001 Strategic Plan (*)
Income Statement 1999 2000 2001
- ------------------------------------------------------------------
Total Product Revenue 427.9 466.5 511.0
Product Gross Profit 233.9 266.2 292.6
- ------------------------------------------------------------------
Service Revenue 103.4 109.4 115.7
Service Gross Profit 43.9 47.2 50.6
- ------------------------------------------------------------------
Total Revenue $ 531.3 $ 575.9 $ 626.7
Total Gross Profit $ 277.8 $ 313.4 $ 343.2
Gross Margin 52.3% 54.4% 54.8%
- ------------------------------------------------------------------
Operating Expenses
Selling and Marketing 110.1 118.0 126.8
% Revenue 20.7% 20.5% 20.2%
General & Admin 41.6 43.6 46.1
% Revenue 7.8% 7.6% 7.4%
R&D Expense 63.2 67.0 72.0
% Revenue 11.9% 11.6% 11.5%
Other 3.6 6.2 7.8
- ------------------------------------------------------------------
Total Operating Expense $ 218.5 $ 234.8 $ 252.6
41% 41% 40%
- ------------------------------------------------------------------
Operating Income $ 59.3 $ 78.6 $ 90.6
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- --------------------------
(*) The synergies expected to be realized as a result of the Merger will be
between $50 and $70 million, as mutually agreed upon by the parties.
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