<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
FORM 10-Q
(Mark One)
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the quarterly period ended JULY 4, 1998 or
------------
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the transition period from ________ to __________
Commission file number 1-10068
-------
ACUSON CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 94-2784998
------------------------ ---------------------------------
(State of Incorporation) (IRS Employer Identification No.)
1220 CHARLESTON ROAD
P. O. BOX 7393
MOUNTAIN VIEW, CA 94039-7393
(Address of principal executive offices)
Registrant's telephone number, including area code, is (650) 969-9112
--------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Common Stock, $0.0001 par value 28,015,394 shares
-------------------------------- -----------------------------
(Class) Outstanding at August 8, 1998
<PAGE>
________________________________________________________________________________
FORM 10-Q
ACUSON CORPORATION
INDEX
<TABLE>
<CAPTION>
PAGE
NUMBER
<S> <C> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
<S>
- ---- --- --------------------------------------------------------------------
Condensed Consolidated Balance Sheets as of
July 4, 1998 and December 31, 1997 1
Condensed Consolidated Statements of Operations
for the Three Months Ended July 4, 1998 and
June 28, 1997 and for the Six Months Ended July 4, 1998
and June 28, 1997 2
Condensed Consolidated Statements of Cash Flows
for the Six Months Ended July 4, 1998 and
June 28, 1997 3
Notes to Condensed Consolidated
Financial Statements 4
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings 11
ITEM 2. Changes in Securities and Use of Proceeds 11
ITEM 4. Submission of Matters to a Vote of Security Holders 11
ITEM 6. Exhibits and Reports on Form 8-K 12
Signature 13
</TABLE>
<PAGE>
________________________________________________________________________________
ACUSON CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
July 4, DECEMBER 31,
1998 1997
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 16,752 $ 22,735
Accounts receivable, net of allowance for doubtful accounts
of $3,469 in 1998 and $3,475 in 1997 132,718 131,067
Inventories 80,705 75,517
Deferred income taxes 25,523 25,244
Other current assets 15,118 16,771
-------- --------
Total current assets 270,816 271,334
PROPERTY AND EQUIPMENT, at cost, net of accumulated depreciation
and amortization of $143,049 and $136,888 in 1998 and 1997, respectively 74,196 70,631
OTHER ASSETS, NET 23,805 20,863
-------- --------
Total Assets $368,817 $362,828
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Short-term borrowings $ 40,000 $ 32,000
Accounts payable 22,608 21,975
Other accrued liabilities 92,697 98,754
-------- --------
Total current liabilities 155,305 152,729
-------- --------
COMMITMENTS AND CONTINGENCIES (NOTE 6)
STOCKHOLDERS' EQUITY
Preferred stock, par value $0.0001:
authorized, 10,000 shares; outstanding, none - -
Common stock and additional paid-in capital, common stock par value
$0.0001: authorized, 50,000 shares; outstanding, 28,006 shares
and 28,244 shares in 1998 and 1997, respectively 128,581 123,968
Accumulated other comprehensive loss (1,570) (1,472)
Retained earnings 86,501 87,603
-------- --------
Total stockholders' equity 213,512 210,099
-------- --------
Total Liabilities and Stockholders' Equity $368,817 $362,828
======== ========
</TABLE>
________________________________________________________________________________
The accompanying notes are an integral part of these statements.
<PAGE>
________________________________________________________________________________
ACUSON CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
-------------------------------- ------------------------------
JULY 4, JUNE 28, JULY 4, JUNE 28,
1998 1997 1998 1997
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET SALES
Product $ 90,961 $ 91,316 $184,540 $178,819
Service 22,332 21,376 44,531 41,454
-------- -------- -------- --------
Total net sales 113,293 112,692 229,071 220,273
-------- -------- -------- --------
COST OF SALES
Product 48,124 49,407 96,575 96,160
Service 11,629 11,446 23,642 21,513
-------- -------- -------- --------
Total cost of sales 59,753 60,853 120,217 117,673
-------- -------- -------- --------
Gross profit 53,540 51,839 108,854 102,600
-------- -------- -------- --------
OPERATING EXPENSES
Selling, general and administrative 32,497 29,802 64,527 58,763
Product development 14,933 14,388 29,823 27,612
-------- -------- -------- --------
Total operating expenses 47,430 44,190 94,350 86,375
-------- -------- -------- --------
Income from operations 6,110 7,649 14,504 16,225
INTEREST INCOME (EXPENSE), NET (197) 250 (381) 334
-------- -------- -------- --------
Income before income taxes 5,913 7,899 14,123 16,559
PROVISION FOR INCOME TAXES 1,774 2,155 4,237 4,970
-------- -------- -------- --------
Net income $ 4,139 $ 5,744 $ 9,886 $ 11,589
======== ======== ======== ========
EARNINGS PER SHARE
Basic $ 0.15 $ 0.20 $ 0.35 $ 0.40
======== ======== ======== ========
Diluted $ 0.14 $ 0.19 $ 0.34 $ 0.38
======== ======== ======== ========
WEIGHTED AVERAGE COMMON AND COMMON EQUIVALENT
SHARES OUTSTANDING
Basic 28,028 28,916 28,153 28,778
======== ======== ======== ========
Diluted 28,954 30,687 29,043 30,684
======== ======== ======== ========
- ---------------------------------------------------------------------------------------------------------------
NET INCOME $ 4,139 $ 5,744 $ 9,886 $ 11,589
OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX
Foreign currency translation adjustments 115 (217) (98) (1,288)
-------- -------- -------- --------
Comprehensive income $ 4,254 $ 5,527 $ 9,788 $ 10,301
======== ======== ======== ========
</TABLE>
________________________________________________________________________________
The accompanying notes are an integral part of these statements.
<PAGE>
________________________________________________________________________________
ACUSON CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
---------------------------------
JULY 4, JUNE 28,
1998 1997
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 9,886 $ 11,589
Adjustments to reconcile net income
to cash provided by operating activities:
Depreciation and amortization 11,295 11,123
Tax benefit of employee stock transactions 592 4,473
Changes in:
Accounts receivable (1,372) (27,891)
Leases receivable (3,425) (984)
Inventories (5,177) 7,514
Deferred income taxes (253) 205
Other current assets 1,757 8,401
Accounts payable 668 5,250
Other accrued liabilities (2,834) 1,442
------- --------
Net cash provided by operating activities 11,137 21,122
------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Investment in property and equipment (15,294) (11,600)
Sale of fixed assets 134 5,396
Other (109) 265
------- -------
Net cash used in investing activities (15,269) (5,939)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Repayments of short-term borrowings (11,000) (6,000)
Proceeds from short-term borrowings 19,000 5,000
Repurchase of common stock (17,164) (16,612)
Issuance of common stock under stock option and
stock purchase plans 7,423 13,901
------- -------
Net cash used in financing activities (1,741) (3,711)
------- -------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (110) (327)
------- -------
Net increase (decrease) in cash (5,983) 11,145
CASH, BEGINNING OF PERIOD 22,735 14,413
------- -------
CASH, END OF PERIOD $16,752 $25,558
======= =======
</TABLE>
________________________________________________________________________________
The accompanying notes are an integral part of these statements.
<PAGE>
________________________________________________________________________________
ACUSON CORPORATION
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
NOTE 1 - INTERIM STATEMENTS
In the opinion of management, the unaudited interim condensed consolidated
financial statements include all adjustments, which include only normal
recurring adjustments, necessary to summarize fairly Acuson Corporation's (the
"Company's") condensed consolidated financial position as of July 4, 1998, and
its condensed consolidated results of operations and cash flows for the six-
month periods ended July 4, 1998 and June 28, 1997. The results of operations
for the three and six-month periods ended July 4, 1998, are not necessarily
indicative of the results to be expected for the entire year ending December 31,
1998. Certain information reported in the prior year has been reclassified to
conform to the 1998 presentation.
The Company's principle accounting policies are set forth in the financial
statements for the year ended December 31, 1997, and notes thereto, contained in
the Company's Annual Report filed with the Securities and Exchange Commission.
NOTE 2. COMPREHENSIVE INCOME (LOSS)
Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130 ("SFAS 130"), "Reporting Comprehensive Income."
SFAS 130 requires that items defined as other comprehensive income, such as
changes in foreign currency translation adjustments, be separately reported in
the financial statements and that the accumulated balance of other comprehensive
income be reported separately from retained earnings and additional paid-in
capital in the equity section of the balance sheet. The following tables
present the components, and related tax effect, of accumulated other
comprehensive income:
<TABLE>
<CAPTION>
The following is a summary of the accumulated other comprehensive loss balance
Accumulated
Foreign Other
Currency Comprehensive
Items Loss
(in thousands) (in thousands)
-----------------------------------------
<S> <C> <C>
Six months ended July 4, 1998
Beginning balance $(1,472) $(1,472)
Current-period change (98) (98)
------- -------
Ending balance $(1,570) $(1,570)
======= =======
</TABLE>
The following is a summary of the related tax effect allocated to each component
of other comprehensive income (loss)
<TABLE>
<CAPTION>
Tax
Before-Tax (Expense) Net-of-Tax
Amount or Benefit Amount
(in thousands) (in thousands) (in thousands)
-----------------------------------------------------------
<S> <C> <C> <C>
Three months ended June 28, 1997
Foreign currency translation adjustments $ (298) $ 81 $ (217)
======= ==== =======
Six months ended June 28, 1997
Foreign currency translation adjustments $(1,840) $552 $(1,288)
======= ==== =======
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
Three months ended July 4, 1998
Foreign currency translation adjustments $ 164 $(49) $ 115
====== ==== =======
Six months ended July 4, 1998
Foreign currency translation adjustments $ (140) $ 42 $ (98)
====== ==== =======
</TABLE>
NOTE 3 - EARNINGS PER SHARE
Basic earnings per share excludes dilution and is computed by dividing net
income by the weighted average number of common shares outstanding. Diluted
earnings per share reflects the potential dilution that could occur if the
Company's outstanding, "in the money," stock options were exercised. Diluted
earnings per share is computed by dividing net income by the weighted average
number of common and common equivalent shares outstanding during the period.
Common equivalent shares are calculated using the treasury stock method and
represent incremental shares issuable upon the exercise of the Company's
outstanding options. The following table provides reconciliations of the
numerators and denominators used in calculating basic and diluted earnings per
share for the three and six-month periods ended June 28, 1997 and July 4, 1998:
<TABLE>
<CAPTION>
Dilutive
Effect of
Options
Basic Outstanding Diluted
(in thousands, except per share amounts)
---------------------------------------------------------
<S> <C> <C> <C>
Three months ended June 28, 1997
Net income (numerator) $ 5,744 $ 5,744
Weighted average number of
shares outstanding (denominator) 28,916 1,771 30,687
Earnings per share $ 0.20 $ 0.19
======= =======
Six months ended June 28, 1997
Net income (numerator) $11,589 $11,589
Weighted average number of
shares outstanding (denominator) 28,778 1,906 30,684
Earnings per share $ 0.40 $ 0.38
======= =======
Three months ended July 4, 1998
Net income (numerator) $ 4,139 $ 4,139
Weighted average number of
shares outstanding (denominator) 28,028 926 28,954
Earnings per share $ 0.15 $ 0.14
======= =======
Six months ended July 4, 1998
Net income (numerator) $ 9,886 $ 9,886
Weighted average number of
shares outstanding (denominator) 28,153 890 29,043
Earnings per share $ 0.35 $ 0.34
======= =======
</TABLE>
For the three and six-month periods ended July 4, 1998 approximately 570,000
and 677,000 weighted average options to purchase shares of common stock,
respectively, were antidilutive and were therefore not included in the
computation of diluted earnings per share because the exercise prices were
greater than the average market price of the common shares. Approximately
91,000 and 58,000 antidilutive weighted average options were outstanding during
the three and six-month periods ended June 28, 1997, respectively.
<PAGE>
NOTE 4 - INVENTORIES
The components of inventories were as follows (in thousands):
<TABLE>
<CAPTION>
JULY 4, DEC. 31,
1998 1997
------------------------------
<S> <C> <C>
Raw materials $27,867 $29,057
Work-in-process 18,012 16,379
Finished goods 34,826 30,081
------- -------
Total inventories $80,705 $75,517
======= =======
</TABLE>
NOTE 5 - SHORT-TERM BORROWINGS
The Company has a revolving, unsecured credit agreement for $75.0 million
which is in effect through March 2000. Under the terms of the agreement, no
compensating balances are required and the interest rate is determined at the
time of borrowing based on the London interbank offered rate plus a margin, or
prime rate. For the quarter ended July 4, 1998, the weighted average borrowings
were $40.2 million and the weighted average interest rate was 6.4 percent. For
the six months ended July 4, 1998, the weighted average borrowings were $36.9
million and the weighted average interest rate was 6.6 percent. On July 4,
1998, borrowings under this facility, which are subject to certain debt
covenants, totaled $40.0 million and the effective rate was 6.4 percent.
NOTE 6 - LEGAL CONTINGENCIES
On October 27, 1994, the Company was sued in Ghent, Belgium, by Cormedica NV,
in connection with the Company's termination of its distributor relationship
with Cormedica. In the suit, Cormedica seeks indemnities and damages in the
amount of approximately $2.5 million, plus interest. The Company intends to
defend this suit vigorously. This suit is still in the fact finding stage.
NOTE 7 - COMMON STOCK
On May 27, 1998, the Company authorized and declared a dividend distribution
of one preferred stock purchase Right for each outstanding share of Common Stock
to stockholders of record at the close of business on June 8, 1998, and
authorized the issuance of one preferred stock purchase Right with each future
share of Common Stock issued by the Company before the Rights become
exercisable, or before the Rights are redeemed by the Company, or before the
Rights expire on June 8, 2008. The Rights will attach to all certificates
representing shares of outstanding Company Common Stock and will not be
exercisable or transferable apart from the Common Stock until ten days after
another person or group of persons acquires 15 percent of the Company's Common
Stock or commences a tender or exchange offer for at least 15 percent of the
Company's Common Stock. Each Right entitles the holder to purchase from the
Company one one-hundredth of a share (a "Unit") of Series A Preferred Stock at
$120 per Unit, subject to adjustments for dilutive events. In certain
circumstances, each Right will entitle its holder to purchase a larger number of
shares of common stock in an acquiring company. The Board of Directors may
redeem the Rights, at any time, at $0.01 per Right, payable in cash, common
shares or other consideration. In addition, the Board may also, without consent
of the holders of the Rights, amend the terms of the Rights to lower the
threshold for exercisability of the Rights.
NOTE 8 - DISCLOSURE OF THE IMPACT THAT RECENTLY ISSUED FINANCIAL STANDARDS WILL
HAVE ON THE FINANCIAL STATEMENTS WHEN ADOPTED IN A FUTURE PERIOD
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131 ("SFAS 131"), "Disclosures About Segments
of an Enterprise and Related Information." This statement is effective for
fiscal years beginning after December 15, 1997 but need not be applied to
interim financial statements in
<PAGE>
the initial year of application; however, comparative information for interim
periods in the initial year of application will be reported in the financial
statements for interim periods in fiscal year 1999. The adoption of SFAS 131
will not have a material effect on the Company's financial statements.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 ("SFAS 133"), "Accounting for Derivative
Instruments and Hedging Activities." This statement establishes accounting and
reporting standards for derivative instruments and hedging activities and is
effective for all fiscal years beginning after June 15, 1999. The Company
anticipates the adoption of SFAS 133 will not have a material effect on the
Company's financial statements.
_______________________________________________________________________________
<PAGE>
_______________________________________________________________________________
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Net sales for the quarter ended July 4, 1998, were $113.3 million compared
with $112.7 million for the quarter ended June 28, 1997. For the first six
months of 1998, net sales were $229.1 million compared to $220.3 for the same
period in 1997. Worldwide service revenue increased 4.5 percent to $22.3
million for the second quarter of 1998, compared with $21.4 million for the
second quarter of 1997. For the six months ended July 4, 1998, worldwide
service revenue increased 7.4 percent to $44.5 million. Domestic net sales for
the quarter ended July 4, 1998 increased 9.2 percent to $81.9 million while
international net sales decreased 16.6 percent to $31.4 million. Domestic net
sales for the first six months of 1998 increased 10.7 percent to $161.1 million
while international net sales decreased 9.1 percent to $68.0 million.
International revenues were negatively impacted by the continued economic
weakness in Asia and by the current strength of the U.S. dollar. The Company
expects these trends to continue at least through the third quarter of 1998.
Gross profit for the second quarter of 1998 increased to 47.3 percent
compared with 46.0 percent for the second quarter of 1997. For the six months
ended July 4, 1998, gross profit increased to 47.5 percent compared with 46.6
percent for the same period in 1997. The increases were primarily due to
reduced warranty costs on new product installations.
Selling, general and administrative expenses for the quarter ended July 4,
1998, were $32.5 million or 28.7 percent of net sales, compared with $29.8
million or 26.4 percent of net sales for the quarter ended June 28, 1997. For
the six months ended July 4, 1998, selling, general and administrative costs
were $64.5 million or 28.2 percent of net sales, compared with $58.8 million or
26.7 percent of net sales for the same period in 1997. The increases were
primarily due to higher selling expenses resulting from planned additions to the
Company's sales infrastructure.
Product development spending for the second quarter of 1998 was $14.9 million
or 13.2 percent of net sales, compared with $14.4 million or 12.8 percent of net
sales for the second quarter of 1997. For the six months ended July 4, 1998,
product development costs were $29.8 million or 13.0 percent of net sales,
compared with $27.6 million or 12.5 percent of net sales for the same period in
1997. The increases were primarily due to increased contracted services in
support of new product development.
Net interest expense for the three months ended July 4, 1998 was $0.2 million
compared with net interest income of $0.3 million for the three months ended
June 28, 1997. For the first six months of 1998, net interest expense was $0.4
million compared with net interest income of $0.3 million for the same period in
1997. The increases in net interest expense were primarily due to the Company's
increased short-term borrowings.
The provision for income taxes was $1.8 million for the second quarter of
1998, compared with a provision of $2.2 million for the second quarter of 1997.
For the six months ended July 4, 1998, the provision for income taxes was $4.2
million compared with a provision of $5.0 million for the same period in 1997.
The effective tax rate for both the second quarter and first six months of 1998
was a provision of 30.0 percent compared with provisions of 27.3 percent and
30.0 percent for the second quarter and first six months of 1997, respectively.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131 ("SFAS 131"), "Disclosures About Segments
of an Enterprise and Related Information." This statement is effective for
fiscal years beginning after December 15, 1997, but need not be applied to
interim financial statements in the initial year of application; however,
comparative information for interim periods in the initial year of application
will be reported in the financial statements for interim periods in fiscal year
1999. The adoption of SFAS 131 will not have a material effect on the Company's
financial statements.
<PAGE>
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 ("SFAS 133"), "Accounting for Derivative
Instruments and Hedging Activities." This statement establishes accounting and
reporting standards for derivative instruments and hedging activities and is
effective for all fiscal years beginning after June 15, 1999. The Company
anticipates the adoption of SFAS 133 will not have a material effect on the
Company's financial statements.
LIQUIDITY AND CAPITAL RESOURCES
During the six months ended July 4, 1998, the Company's cash and cash
equivalents balance decreased $6.0 million to $16.8 million, and short-term
borrowings increased $8.0 million to $40.0 million. During the first six
months of 1998 the Company generated $11.1 million in cash from operations.
The primary source of cash from operations was net income of $9.9 million and
the primary use of cash was an increase in inventory of $5.2 million. The
increase in inventory was primarily the result of higher inventory levels due
to the Native/TM/ Tissue Harmonic Imaging (NTHI) upgrade for the Company's
Aspen/TM/ ultrasound system. Shipments of Aspen systems with the NTHI option
are expected to begin in the third quarter of 1998.
The Company's investing and financing activities for the six months ended
July 4, 1998, used $17.0 million in cash. The Company purchased $15.3 million
of equipment during the year, primarily consisting of computer equipment.
Included in the financing activities for the first half of 1998, was $7.4
million raised through employee participation in the Company's stock option and
stock purchase plans. The Company used $17.2 million, including $2.7 million
accrued in 1997, for share repurchases. Also included in the financing
activities for the first half of 1998 were net short-term borrowings of $8.0
million.
On October 15, 1996, the Board of Directors authorized the repurchase of
4,000,000 shares of common stock over an unspecified period of time. During the
second quarter of 1998, the Company repurchased 251,900 shares at a total cost
of $4.8 million. As of July 4, 1998, the Company had repurchased 2,014,700
shares toward the 4,000,000 share repurchase authorization at a cumulative cost
of $39.6 million.
Working capital at July 4, 1998 decreased $3.1 million from the year ended
December 31, 1997. At July 4, 1998, the Company's working capital totaled
$115.5 million.
The Company has a revolving, unsecured credit agreement for $75.0 million
which is in effect through March 2000. Under the terms of the agreement, no
compensating balances are required and the interest rate is determined at the
time of borrowing based on the London interbank offered rate plus a margin, or
prime rate. For the quarter ended July 4, 1998, the weighted average borrowings
were $40.2 million and the weighted average interest rate was 6.4 percent. For
the six months ended July 4, 1998, the weighted average borrowings were $36.9
million and the weighted average interest rate was 6.6 percent. On July 4,
1998, borrowings under this facility, which are subject to certain debt
covenants, totaled $40.0 million and the effective rate was 6.4 percent.
Based on its current operating plan, the Company believes that the liquidity
provided by its existing cash, cash generated from operations, and the borrowing
arrangement described above will be sufficient to meet the Company's projected
operating and capital requirements for at least fiscal 1998.
INVESTMENT RISKS
The Management's Discussion and Analysis of Financial Condition and Results
of Operations section in this report contains forward-looking statements
regarding the Company and its products. These forward-looking statements are
based on current expectations and the Company assumes no obligation to update
this information. The Company's actual results could differ materially from
those discussed in this document. In evaluating the forward-looking statements
contained in this document, prospective investors and shareholders should
carefully consider the factors set forth below.
The success of Acuson's products depends on the timely completion of
additional product capabilities and software updates; actual and perceived
levels of product performance in a clinical environment compared to other
imaging modalities and competitive ultrasound systems; continued market
acceptance of the products and their pricing; and competitor responses including
recently introduced competitive products, pricing, intellectual property
<PAGE>
allegations and product positioning counter-strategies. The Company's business
is also subject to risks from potential negative impacts of weakness in certain
markets in Asia and Europe and by the current strength of the U.S. dollar. As
the Company's international business has grown, the Company has an increasing
percentage of its receivables in other countries. In both Italy and Brazil the
amount of receivables exceeds $11,000,000. In France the amount of receivables
exceeds $5,000,000 and in China and Germany the amount of receivables exceeds
$4,000,000. Political instability or other issues may impact the ability of the
Company to collect receivables in foreign countries.
During 1997, the Company initiated a two phase project to replace its
outdated computing environment with an enterprise-wide, integrated business
information system to control many of its operating systems including order
administration, service and financial and manufacturing processes. The first
phase of this project is currently scheduled to become operational during the
third quarter of 1998 and the Company has retained an experienced consulting
organization to assist in the conversion. However, the Company's future
shipments and results could be adversely impacted if, following the conversion,
there are significant problems with the system.
YEAR 2000
The Company is taking steps to ensure its products and services will continue
to operate on and after January 1, 2000. In addition to the new business
information system noted above, which is year 2000 compliant and will be
replacing a significant portion of the Company's critical systems, the Company
is currently engaged in a three phase project to evaluate and remedy those
systems not being replaced. The first phase was completed in May 1998 and
included a comprehensive inventory of the Company's systems and an analysis and
determination of the criticality of each system by an experienced consulting
firm. This phase included the evaluation of both information technology ("IT")
and non-IT systems. Non-IT systems include systems or hardware containing
embedded technology such as microcontrollers. Phase two will focus on
confirming the year 2000 compliance of those systems identified in phase one and
is expected to be completed during the first quarter of 1999. The third and
final phase, which is expected to be completed during the third quarter of 1999,
will involve taking any needed corrective action to bring all remaining critical
systems and components into compliance and to develop a contingency plan in the
event any non-compliant critical systems are not remedied by January 1, 2000.
Upon completion of this project, if systems material to the Company's operations
have not been made year 2000 compliant, the year 2000 issue could have a
material impact on the Company's financial statements. To date, the costs
incurred by the Company with respect to this project are not material. Future
anticipated costs will be difficult to estimate until after the completion of
phase two, however with the implementation of the Company's new business
information system, the Company does not anticipate those costs to be material.
The Company's products being shipped today are year 2000 compliant and the
Company believes its products previously shipped are either year 2000
compliant or can be made year 2000 compliant by customer purchase of an
upgrade.
The Company has also been communicating with suppliers and others it does
business with to coordinate year 2000 readiness. The responses received by the
Company to date have indicated that steps are currently being undertaken to
address this concern.
Based upon the steps being taken to address this issue and the progress to
date, the Company does not expect the financial impact of the year 2000 date
conversion to be material to its financial position or results of operations.
However, if preventative and/or corrective actions by the Company or those the
Company does business with are not made in a timely manner, the year 2000 issue
could have a material adverse effect on the Company's financial statements.
For a description of the general investment considerations and risks
surrounding Acuson's overall business and financial prospects, refer to the
Company's Form 10-K filed with the Securities and Exchange Commission for the
year ended December 31, 1997.
Acuson and Sequoia are registered trademarks and Aspen and Native are trademarks
of Acuson Corporation.
________________________________________________________________________________
<PAGE>
________________________________________________________________________________
PART II
ITEM 1
LEGAL PROCEEDINGS
The current status is the same as previously reported in Company's Form 10-K
for the fiscal year ended December 31, 1997.
ITEM 2
CHANGES IN SECURITIES AND USE OF PROCEEDS
On May 27, 1998, the Company authorized and declared a dividend distribution
of one preferred stock purchase Right for each outstanding share of Common Stock
to stockholders of record at the close of business on June 8, 1998, and
authorized the issuance of one preferred stock purchase Right with each future
share of Common Stock issued by the Company before the Rights become
exercisable, or before the Rights are redeemed by the Company, or before the
Rights expire on June 8, 2008. The Rights will attach to all certificates
representing shares of outstanding Company Common Stock and will not be
exercisable or transferable apart from the Common Stock until ten days after
another person or group of persons acquires 15 percent of the Company's Common
Stock or commences a tender or exchange offer for at least 15 percent of the
Company's Common Stock. Each Right entitles the holder to purchase from the
Company one one-hundredth of a share (a "Unit") of Series A Preferred Stock at
$120 per Unit, subject to adjustments for dilutive events. In certain
circumstances, each Right will entitle its holder to purchase a larger number of
shares of common stock in an acquiring company. The Board of Directors may
redeem the Rights, at any time, at $0.01 per Right, payable in cash, common
shares or other consideration. In addition, the Board may also, without consent
of the holders of the Rights, amend the terms of the Rights to lower the
threshold for exercisability of the Rights.
ITEM 4
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
a) The Annual Meeting of Stockholders of the Company was held on May 27, 1998.
b) The result of Stockholders' votes at the Annual Meeting were as follows:
(i) All nominees for director of the Company were elected by the following
vote:
Name Votes For Votes Withheld
---- --------- --------------
Robert J. Gallagher 23,209,518 85,450
Albert L. Greene 23,212,277 82,691
Karl H. Johannsmeier 23,207,737 87,231
Samuel H. Maslak 23,208,803 86,165
Alan C. Mendelson 23,209,827 85,141
(ii) Ratification of appointment of Arthur Andersen LLP as independent
public accountants of the Company.
Broker
Votes For Votes Against Abstain Non-Vote
--------- ------------- ------- --------
23,229,054 20,837 44,890 187
<PAGE>
ITEM 6
EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
--------
<TABLE>
<CAPTION>
The following Exhibits are filed as part of, or incorporated by
reference into, this Form 10-Q:
<S> <C> <C>
4.1 Rights Agreement, dated June 8, 1998, between Acuson Corporation and *
BankBoston, N.A., as Rights Agent (Exhibit 1)
10.1 Non-Negotiable Secured Promissory Note, dated April 24, 1998, of
Edward P. Cornell
10.2 Deed of Trust, dated April 24, 1998, between Edward P. Cornell and
Commonwealth Land Title Company, as Trustee
27.1 Financial Data Schedule
</TABLE>
b) Reports on Form 8-K
-------------------
The Company filed no reports on Form 8-K during the quarter ended July
4, 1998.
* Incorporated by reference to the indicated exhibit in the
Company's Form 8-A12B dated June 5, 1998
________________________________________________________________________________
<PAGE>
________________________________________________________________________________
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ACUSON CORPORATION
(Registrant)
August 18, 1998 By /s/ Robert J. Gallagher
------------------------
Robert J. Gallagher
Vice Chairman and Chief Operating Officer
(duly authorized Officer and Principal
Financial Officer)
<PAGE>
ACUSON CORPORATION EXHIBIT 10.1
- -------------------------------------------------------------------------------
NON-NEGOTIABLE SECURED PROMISORY NOTE
-------------------------------------
$400,000 Mountain View, California
April 24, 1998
For value received, Edward P. Cornell ("Cornell") and Carol S. Cornell,
husband and wife (collectively "Borrower"), promise to pay to the order of
Acuson Corporation, a Delaware corporation ("Lender"), in lawful money of the
United States, the principal amount of FOUR HUNDRED THOUSAND DOLLARS ($400,000).
This Note shall not bear interest, except as otherwise provided herein. All
sums payable hereunder shall be payable to Lender at its office, 1220 Charleston
Road, Mountain View, California 94039-7393, or at such other place or places as
may from time to time be designated by Lender.
All amounts payable under this Note are payable in lawful money of the
United States, without notice, demand, offset or deduction. Checks will
constitute payment only when collected. All payments made hereunder (including
any prepayments) shall be credited first to any accrued and unpaid interest and
the remainder to principal. Borrower shall have the right to pay, without
penalty, all or any portion of principal and any interest owing under this Note
at any time.
This Note is secured by a deed of trust ("Deed of Trust") of even date
herewith executed by Borrower, as trustor, and Lender, as Beneficiary, on the
real property described therein (the "Subject Property")
Subject to the terms hereof, Lender shall automatically and without any
action by any person or entity forgive on a daily basis the principal amount
outstanding under this Note at a rate of $156.43 per day commencing on September
2, 1997 and ending on September 2, 2004. Lender will provide Borrower upon
request a statement of the principal amount then outstanding under this Note.
Upon termination of Cornell's employment by Lender or by any of Lender's
subsidiaries (collectively, "Employer"), whether by Cornell voluntarily or by
Employer with "Cause" (as defined below), but not including termination by
reason of Cornell's death, then Lender shall cease any further daily forgiveness
under this Note and the entire principal amount hereof then outstanding (i.e.,
---
amounts not forgiven or prepaid) shall be due and payable at the earliest of (a)
the second anniversary of the date of the termination of employment, (b) the
date of "Sale" (as defined below) of all or any part of the Subject Property,
and (c) the date the Subject Property is no longer used as Borrower's "Primary
Residence" (as defined below). If the Subject Property was at one time
Borrower's Primary Residence, but then is no longer used as Borrower's Primary
Residence pending sale or other transfer thereof, then subparagraph (c) above
shall not be applicable, but the other subparagraphs above shall be unaffected.
Upon (w) Cornell's death, (x) termination of Cornell's employment by Employer
without Cause, (y) reduction of Cornell's target compensation (with a base
salary of not less than $176,000 per year) from Employer to an amount less than
$200,000 per year, or (z) a "Change in Control" (as defined below) of Lender,
the entire principal amount of this Note then outstanding shall automatically
and without any action by any person or entity be immediately forgiven.
Lender agrees to indemnify Borrower on an after-tax basis for the federal
and California
<PAGE>
income tax consequences of this Note and the forgiveness of the principal amount
hereof. Borrower agrees (i) to take all such actions as Lender may reasonably
request to minimize the liability of Lender pursuant to this indemnity and (ii)
to repay to Lender any tax savings to Borrower resulting from any repayment of
this Note.
As used herein, the following terms shall have the definitions indicated:
"Cause" shall mean (i) gross malfeasance by Cornell, (ii) Cornell's conviction
of a felony involving moral turpitude or (iii) Cornell's refusal to perform
reasonable duties (consistent with his position as a Vice President of Lender)
for Employer for a period of 30 days even though he is mentally and physically
able to perform such duties; "Change in Control" shall mean the occurrence of
any of the following: (i) any "person" (including a group of persons), as such
term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934
(the "Exchange Act") (other than Employer or any employee benefit plan of
Employer, including any Trustee of such plan acting as Trustee, or any member of
the Board of Directors of Lender on the date hereof) is or becomes the
"beneficial owner" (as that term is defined in Rule 13d-3 under the Exchange
Act), directly or indirectly, of securities of Lender representing 30% or more
of the combined voting power of Lender's then outstanding securities, or (ii)
any merger, reorganization or other transaction pursuant to which the holders,
as a group, of all of the shares of Lender outstanding prior to the transaction
hold, as a group, less than 70% of the shares of Lender after the transaction,
or (iii) any other event which the Board of Directors of Lender determines, in
its discretion, would materially alter the ownership and management of Lender;
"Primary Residence" shall mean use of the Subject Property by either Cornell or
Carol Cornell as an established, fixed, permanent, or ordinary dwelling place;
provided that if Cornell ceases to use the Subject Property as his established,
fixed, permanent, or ordinary dwelling place, the Subject Property shall be
deemed a Primary Residence for purposes of this Note only for so long as Cornell
remains personally liable for all indebtedness secured by the Subject Property
and Cornell provides Lender adequate security for this Note; and "Sale" shall
mean the sale, hypothecation, encumbrance or other transfer, whether voluntary,
involuntary, or by operation of law, of all or any part of the Subject Property.
Upon the Subject Property no longer being used as Borrower's Primary
Residence, or upon the Sale of all or any part of the Subject Property or any
interest therein, Lender shall cease any further daily forgiveness under this
Note and the entire principal amount then owing under this Note shall be
immediately due and payable (the "Sale Acceleration"); Provided, however, that
--------- -------
if (a) Cornell is then employed by Employer, (b) Borrower immediately upon such
Sale or cessation of use either owns or purchases a new primary residence within
40 miles of Lender's principal executive offices in Mountain View, California,
and (c) in connection with such purchase Borrower executes and properly records
a deed of trust, in substantially the form of the Deed of Trust, securing this
Note (which shall thereafter be applied by treating such new primary residence
as the Subject Property for all purposes of this Note), then (x) any Sale
Acceleration shall apply only to the extent that one-half of the cost of such
new primary residence is less than $400,000, and (y) the daily forgiveness of
this Note shall be adjusted to an amount determined by dividing the principal
amount outstanding hereunder immediately prior to the Sale Acceleration minus
the amount of the Sale Acceleration by the number of days from the date of the
Sale Acceleration to and including September 2, 2004, and (z) the principal
amount of this Note shall be reduced to an amount equal to the principal amount
outstanding hereunder immediately prior to the Sale Acceleration minus the
amount of the Sale Acceleration.
If Borrower defaults in the payment of principal or interest hereunder or
otherwise fails in any material respect to comply with any of the provisions of
this Note or defaults in any material respect in the performance of any
covenant, condition, provision, or term in the Deed of Trust or any
2
<PAGE>
other instrument securing this Note and such default or failure continues
uncured for a period of 30 days after written notice thereof, the entire
principal of this Note then outstanding, and any accrued but unpaid interest, at
the option of Lender, shall be and become immediately due and payable without
demand or notice. In the event of such default or failure, the principal balance
of this Note then outstanding shall bear interest at the lesser of eighteen
percent (18%) per annum or the maximum rate permitted by law from the date of
such default or failure until principal and interest hereunder are paid in full.
A default under this Note shall constitute a default under the Deed of Trust.
Borrower hereby certifies to Lender that Borrower reasonably expects to be
entitled to, and will, itemize deductions for federal and California income tax
purposes for each year that this Note is outstanding.
In the event any action or proceeding is commenced to enforce any rights
under this Note, the prevailing party shall be entitled to recover from the
other party its costs and reasonable attorneys' fees.
No exercise of any right or remedy by Lender hereunder shall constitute a
waiver of any other right or remedy contained herein or in the Deed of Trust or
provided by law. The acceptance of any sum less than the amount then due shall
not be construed as a waiver of the default in the payment of the full amount
then due.
If any provision of this Note is held invalid by a court of competent
jurisdiction, the remainder of this Note shall not be affected thereby and shall
remain in full force and effect.
This Note shall be governed by the laws of the State of California, both in
interpretation and performance. This Note is not negotiable and may not be
assigned by any party hereto, except that this Note may be assigned by Lender to
a wholly owned subsidiary of Lender or in connection with a merger,
consolidation, sale of all or substantially all of Lender's assets or a
reorganization of Lender.
If Borrower consists of more than one person or entity, their obligations
under this Note shall be joint and several.
Borrower for themselves, their heirs, legal representatives, successors and
assigns, jointly and severally waive presentment, demand, protest, and notice of
dishonor and waive any right to be released by reason of any extension of time
or change in terms of payment or any change, alteration, or release of any
security given for the payment hereof.
3
<PAGE>
THIS NOTE IS SUBJECT TO SECTION 2966 OF THE CIVIL CODE, WHICH PROVIDES THAT
THE HOLDER OF THIS NOTE SHALL GIVE WRITTEN NOTICE TO THE PAYOR, OR HIS SUCCESSOR
IN INTEREST, OF PRESCRIBED INFORMATION AT LEAST NINETY (90) BUT NOT MORE THAN
ONE HUNDRED FIFTY (150) DAYS BEFORE ANY BALLOON PAYMENT IS DUE.
/s/ Edward P. Cornell /s/ Carol S. Cornell
- ----------------------- -----------------------
Edward P. Cornell Carol S. Cornell
ACUSON CORPORATION
By: /s/ Robert J. Gallagher
-----------------------
Robert J. Gallagher
Chief Operating Officer
4
<PAGE>
ACUSON CORPORATION EXHIBIT 10.2
- --------------------------------------------------------------------------------
When Recorded Mail to:
Acuson Corporation
1220 Charleston Road
P.O. Box 7393
Mountain View, California 94039-7393
Attn: Charles H. Dearborn, Esq.
DEED OF TRUST
-------------
THE PARTIES TO THIS DEED OF TRUST, made as of the 24th day of April,
1998 are EDWARD P. CORNELL and CAROL S. CORNELL, husband and wife (collectively,
"Trustor"), COMMONWEALTH LAND TITLE COMPANY ("Trustee"), and ACUSON CORPORATION,
a Delaware corporation ("Beneficiary").
RECITALS
--------
Trustor and Beneficiary hereby acknowledge and agree as follows:
1. Edward P. Cornell ("Employee") is employed by Beneficiary as of
the date of this Deed of Trust.
2. In consideration of Employee's services, Beneficiary has agreed to
lend to Trustor an aggregate of Four Hundred Thousand Dollars ($400,000)
principal amount as partial financing of a primary residence.
3. The loan by Beneficiary is evidenced by that certain promissory
note referred to below. Such note bears interest at a rate substantially below
the currently prevailing rate of interest on loans of like principal amounts
secured by a second deed of trust on residential real property.
4. Beneficiary is willing to make the loan to Trustor as a benefit of
employment and is willing to charge a rate of interest below the market rate as
a form of compensation for services rendered by Employee while an employee of
Beneficiary.
GRANT IN TRUST
--------------
Trustor irrevocably grants and assigns to Trustee, in trust, with
power of sale and right of entry and possession, all of that certain real
property located in the County of Santa Clara, State of California and more
particularly described in Exhibit A attached hereto and incorporated herein by
this reference, together with all easements and other rights now or hereafter
made appurtenant thereto, all improvements now or hereafter located thereon, and
all fixtures, additions, and accretions thereto. Said real property,
appurtenances, improvements, fixtures, additions, and accretions are hereinafter
called the "Subject Property." Trustor makes the foregoing grant to
1
<PAGE>
Trustee to hold the Subject Property in trust for the benefit of Beneficiary,
and for the purpose and upon the terms and conditions hereinafter set forth.
A. OBLIGATIONS SECURED.
Trustor makes the foregoing grant and assignment for the purpose of
securing:
1. Payment to Beneficiary of all indebtedness evidenced by and
arising under the promissory note of even date herewith payable to Beneficiary,
in the principal amount of FOUR HUNDRED THOUSAND DOLLARS ($400,000), together
with interest thereon as specified therein (the "Promissory Note") and any
modifications, extension or renewals thereof;
2. Payment of such further sums and performance of such further
obligations or both, as the case may be, as the then record owner of the Subject
Property may undertake to pay or perform or both pay and perform, as the case
may be (whether as principal, surety, or guarantor), for the benefit of
Beneficiary, its successor or assigns, when said borrowing or obligation or
both, as the case may be, are evidenced by a writing or writings reciting that
it or they are so secured; and
3. Performance of each agreement of Trustor herein contained or
incorporated herein by reference and payment of each fee, cost and expense by
Trustor as herein set forth.
TO PROTECT THE SECURITY OF THIS DEED OF TRUST, THE PARTIES AGREE AS
FOLLOWS:
1. Title. Trustor warrants that, except as otherwise disclosed to
-----
Beneficiary in writing, Trustor lawfully holds and possesses the Subject
Property in fee simple, without limitation on the right to encumber. Trustor
further warrants that the Subject, subject to paragraph C.11 below, may become
subject to a deed of trust recorded immediately prior to this Deed of Trust in
the official records of Santa Clara County, California, for the benefit of such
lender as Beneficiary may approve, to secure indebtedness in the principal sum
of up to $500,000 (the "Prior Deed of Trust"), which will rank prior in right to
this deed of trust.
2. Taxes. Assessments and Fees. Trustor shall pay, at least ten (10)
---------------------------
days prior to delinquency, all taxes, assessments, levies and charges affecting
the Subject Property and all costs, fees and expenses arising out of or levied
or imposed as a consequence of this Deed of Trust, whether imposed upon Trustor,
Trustee or Beneficiary, but not including taxes payable by Beneficiary that are
measured by and imposed upon Beneficiary's net income.
3. Insurance. Trustor shall insure the Subject Property against loss
---------
or damage by fire and such other risks as Beneficiary shall from time to time
reasonably require. Trustor shall carry public liability insurance, flood
insurance required under any applicable law, and other insurance as Beneficiary
may reasonably require. Trustor shall maintain all required insurance in
companies, amounts, coverages, and forms reasonably satisfactory to Beneficiary.
All such policies or certificates of insurance shall name Beneficiary as a loss
payee subordinate in right only to the beneficiary under the Prior Deed of
Trust, and they shall also provide that they cannot be terminated as to
Beneficiary except upon thirty (30) days prior written notice to Beneficiary.
Trustor shall deliver certificates evidencing such insurance to Beneficiary upon
request.
4. Liens and Encumbrances. Trustor shall pay, at or prior to the
----------------------
maturity date thereof, all obligations secured by or reducible to liens and
encumbrances which shall now or
2
<PAGE>
hereafter encumber or appear to encumber the Subject Property or any part
thereof or interest therein, whether senior or subordinate to the lien of this
Deed of Trust, including, without limitation, all claims for work or labor
performed, or materials or supplies furnished in connection with any work of
demolition, alteration, or improvement of, or construction upon, the Subject
Property.
5. Disposition of Insurance and Condemnation Proceeds Trustor assigns
--------------------------------------------------
to Beneficiary (i) all awards for damages suffered or compensation paid by
reason of a taking for public use of, or an action in eminent domain affecting
all or any part of, the Subject Property or any interest therein, and (ii) all
proceeds of any insurance policies paid by reason of loss sustained to the
Subject Property or any part thereof, subject, however, to the prior right of
the beneficiary under the Prior Deed of Trust to receive such proceeds and make
application thereof. Beneficiary shall release to Trustor such insurance
proceeds received as a result of damage or destruction of the Subject Property
as required to pay for the repair and restoration of such damage or destruction.
Beneficiary may apply any sum in excess of the amount required to repair or
restore said damage or destruction and any other such sum to any indebtedness or
obligation secured hereby and in such order as Beneficiary may, at its sole
option, determine. Subject to the prior rights of the beneficiary under the
Prior Deed of Trust, Beneficiary shall be entitled to settle and adjust all
claims under insurance policies provided hereunder. However, Beneficiary may,
at the absolute discretion of Beneficiary and regardless of any impairment of
security or lack of impairment of security, release to Trustor all or any part
of the entire amount so collected upon any conditions Beneficiary chooses.
Application of all or any portion of said funds, or the release thereof, shall
not be deemed to constitute an admission that any repair or replacement
resulting from the application or release of said funds satisfies Trustor's
obligations under Paragraph A.6 and shall not cure or waive any default or
notice of default hereunder or invalidate any acts done pursuant to such notice.
6. Maintenance and Preservation of the Property Trustor covenants:
--------------------------------------------
(i) to keep the Subject Property in good condition and repair; (ii) not to
remove or demolish the Subject Property or any part thereof; (iii) to complete
or restore promptly and in good and workmanlike manner the Subject Property or
any part thereof which may be damaged or destroyed; (iv) to comply with all
laws, ordinances, regulations, and standards which affect the Subject Property
or require alteration or improvement thereto or demolition thereof; (v) not to
commit or permit waste thereof; (vi) not to commit, suffer or permit any act
upon the Subject Property in violation of any law, ordinance, regulation or
standard; (vii) to do all other acts which from the character or use of the
Subject Property may be reasonably necessary to maintain and preserve its value;
(viii) except for the Prior Deed of Trust or any New Loan, as defined in C.11
below, not to create any deed of trust or encumbrance upon the Subject Property
subsequent to the date of this Deed of Trust, without specifically providing
therein that the same is subject to this Deed of Trust for the full amount
secured hereby, including (without limitation) extensions, renewals, and future
advances, together with interest thereon, and subject to all of the terms and
provisions hereof; and (ix) to execute and, where appropriate, acknowledge and
deliver such further instruments as Beneficiary or Trustee deems necessary or
appropriate to preserve, continue, perfect, and enjoy the security provided for
herein.
7. Defense and Notice of Actions. Trustor shall, without liability,
-----------------------------
cost, or expense to Beneficiary or Trustee, protect, preserve, and defend title
to the Subject Property, the security hereof, and the rights and powers of
Beneficiary or Trustee hereunder. Trustor shall give Beneficiary and Trustee
prompt notice in writing of the filing of any such action or proceeding.
8. Right of Inspection. Beneficiary and its agents or employees may
-------------------
enter the Subject Property at any reasonable time for the purpose of inspecting
the Subject Property and
3
<PAGE>
ascertaining Trustor's compliance with the terms hereof.
9. Acceptance of Trust. Notice of Indemnification. Trustee accepts
----------------------------------------------
this trust when this Deed of Trust, duly executed and acknowledged, becomes a
public record as provided by law. Trustee is not obligated to notify any party
hereto of pending sale under any other deed of trust or of any action or
proceeding in which Trustor, Beneficiary, or Trustee shall be a party unless
Trustee brings such action. Trustee shall not be obligated to perform any act
required of it hereunder unless the performance of such act is requested in
writing and Trustee is reasonably indemnified against loss, liability, and
expense.
10. Powers of Trustee. From time to time upon written request of
-----------------
Beneficiary and presentation of this Deed of Trust for endorsement, and without
affecting the personal liability of any person for payment of any indebtedness
or performance of the obligation secured hereby, Trustee may, without liability
therefor and without notice: reconvey all or any part of the Subject Property;
consent to the making of any map or plat thereof; join in granting any easement
thereon; or join in any extension agreement or any agreement subordinating the
lien or charge hereof. Trustee or Beneficiary may from time to time apply to any
court of competent jurisdiction for aid and direction in the execution of the
trust hereunder and the enforcement of the rights and remedies available
hereunder, and Trustee or Beneficiary may obtain orders or decrees directing or
confirming or approving acts in the execution of said trusts and the enforcement
of said remedies. Trustee has no obligation to notify any party of any pending
sale or any action or proceeding unless held or commenced and maintained by
Trustee under this Deed of Trust. Trustor shall pay to Trustee reasonable
compensation and reimbursement for services and expenses in the administration
of the trust created hereunder, including reasonable attorneys' fees. Trustor
shall indemnify Trustee and Beneficiary against all losses, claims, demands, and
liabilities, including reasonable attorneys' fees, which either may incur,
suffer, or sustain in the execution of the trusts created hereunder or in the
performance of any act required or permitted hereunder or by law.
11. Substitution of Trustees. From time to time, by a writing signed
------------------------
and acknowledged by Beneficiary and recorded in the Office of the Recorder of
the County in which the Subject Property is situated, Beneficiary may appoint
another trustee to act in the place and stead of Trustee or any successor. Such
writing shall refer to this Deed of Trust and set forth the date, book, and page
of its recordation. The recordation of such instrument of substitution shall
discharge Trustee herein named and shall appoint the new trustee as the trustee
hereunder with the same effect as if originally named Trustee herein. A writing
recorded pursuant to the provisions of this paragraph shall be conclusive proof
of the proper substitution of such new trustee.
12. Acceleration upon Sale or Encumbrance or Termination of
-------------------------------------------------------
Employment. Upon the sale, hypothecation, encumbrance or other transfer,
- ----------
whether voluntary,involuntary, or by operation of law, of all or any part of
the Subject Property or any rights or interest therein ("Sale"), or upon the
Subject Property no longer being used as Trustor's Primary Residence (as
defined below), then at its sole option Beneficiary may, by written notice to
Trustor, declare all obligations secure d hereby immediately due and payable;
provided, however, that if (a) Employee is then employed by Beneficiary, (b)
- -------- -------
Employee immediately upon such Sale or cessation of use either owns or
purchases a new Primary Residence within 40 miles of Beneficiary's principal
executive offices in Mountain View, California, and (c) in connection with
such purchase, Trustor executes and properly records a deed of trust, in
substantially the form of this Deed of Trust, securing the Promissory Note,
then any such acceleration shall apply only to the extent that one-half of the
cost of such new Primary Residence is less than $400,000. Upon termination of
employment of Employee by Beneficiary or by any of Beneficiary's subsidiaries
(collectively "Employer"), whether by Employee voluntarily or
4
<PAGE>
by Employer with "Cause" (as defined below), but not including termination by
reason of Employee's death, then at its sole option Beneficiary may, by written
notice to Trustor, declare all obligations secured hereby due and payable at the
earliest of (x) the second anniversary of the date of the termination of
employment, (y) the date of Sale of all or any part of the Subject Property, and
(z) the date the Subject Property is no longer used as Trustor's Primary
Residence. If the Subject Property was at one time Borrower's Primary Residence,
but then is no longer used as Borrower's Primary Residence pending sale or other
transfer thereof, then subparagraph (z) above shall not be applicable, but the
other subparagraphs above shall be unaffected. Trustor shall notify Beneficiary
promptly in writing of any transaction or event which may give rise to a right
of acceleration hereunder. As used herein, the following terms shall have the
definitions indicated: "Cause" shall mean (i) gross malfeasance by Employee,
(ii) Employee's conviction of a felony involving moral turpitude or (iii)
Employee's refusal to perform reasonable duties (consistent with his position as
a Vice President of Beneficiary) for Employer for a period of 30 days even
though he is mentally and physically able to perform such duties; and "Primary
Residence" shall mean use of the Subject Property by Trustor as an established,
fixed, permanent, or ordinary dwelling place.
13. Reconveyance Upon Beneficiary's written request, and upon
------------
surrender to Trustee for cancellation of this Deed of Trust and any note,
instrument, or instruments, setting forth all obligations secured hereby,
Trustee shall reconvey, without warranty, the Subject Property or that portion
thereof then held hereunder. The recitals of any matters or facts in any
reconveyance executed hereunder shall be conclusive proof of the truthfulness
thereof. To the extent permitted by law, the reconveyance may describe the
grantee as "the person or persons legally entitled thereto." Neither
Beneficiary nor Trustee shall have any duty to determine the rights of persons
claiming to be rightful grantees of any reconveyance.
B. DEFAULT PROVISIONS.
1. Rights and Remedies. At any time after default in the payment or
-------------------
performance in any material respect of any obligation secured or imposed hereby,
by the Promissory Note, or by the Prior Deed of Trust, Beneficiary and Trustee
shall have the following rights and remedies:
(a) With or without notice, to declare all obligations secured
hereby immediately due and payable;
(b) With or without notice, and without releasing Trustor from any
obligation hereunder, to cure any default of Trustor and, in connection
therewith, to enter upon the Subject Property and to do such acts and things as
Beneficiary or Trustee deem necessary or desirable to protect the security
hereof including, without limitation, to appear in and defend any action or
proceeding purporting to affect the security hereof or the rights or powers of
Beneficiary or Trustee hereunder, to pay, purchase, contest, or compromise any
encumbrance, charge, lien, or claim of lien which, in the judgment of either
Beneficiary or Trustee, is prior or superior hereto, the judgment of Beneficiary
or Trustee being conclusive as between the parties hereto; to pay any premiums
or charges with respect to insurance required to be carried hereunder; and to
employ counsel, accountants, contractors, and other appropriate persons to
assist them;
(c) To commence and maintain an action or actions in any court of
competent jurisdiction to foreclose this instrument as a mortgage or to obtain
specific enforcement of the covenants of Trustor hereunder, and Trustor agrees
that such covenants shall be specifically enforceable by injunction or any other
appropriate equitable remedy and that for the purposes of any
5
<PAGE>
suit brought under this subparagraph, Trustor waives the defense of laches and
any applicable statute of limitations;
(d) To execute a written notice of such default and of its
election to cause the Subject Property to be sold to satisfy the obligation
secured hereby. Trustee shall give and record such notice as the law then
requires as a condition precedent to a Trustee's sale. When the minimum period
of time required by law after such notice has elapsed, Trustee, without notice
to or demand upon Trustor except as otherwise required by law, shall sell the
Subject Property at the time and place of sale fixed by it in the notice of
sale, either as a whole or in separate parcels and in such order as it or
Beneficiary may determine, at public auction to the highest bidder for cash, in
lawful money of the United States payable at the time of sale (the obligations
hereby secured being the equivalent of cash for purposes of said sale). Trustor
shall have no right to direct the order in which the Subject Property is sold.
Trustee may postpone sale of all or any portion of the Subject Property by
public announcement at such time and place of sale, and from time to time
thereafter may postpone such sale by public announcement at such time fixed by
the preceding postponement. Trustee shall deliver to the purchaser at such sale
a deed conveying the Subject Property or portion thereof so sold, but without
any covenant or warranty, express or implied. The recitals in such deed of any
matters of facts shall be conclusive proof of the truthfulness thereof. Any
person, including Trustee, Trustor, or Beneficiary, may purchase at such sale.
After deducting all costs, fees, and expenses of Trustee, and of this
trust, including cost of evidence of title and reasonable attorneys' fees in
connection with such sale, Trustee shall apply the proceeds of sale to payment
of: all sums so expended under the terms hereof not then repaid, with accrued
interest at the rate of ten percent (10%) per annum; the payment of all other
sums then secured hereby; and the remainder, if any, to the person or persons
legally entitled thereto.
Subject to the rights of the beneficiary under the Prior Deed of
Trust, all sums realized by Beneficiary under this paragraph B.1(d), less all
costs and expenses incurred by Beneficiary under this paragraph B.1(d),
including reasonable attorneys' fees, and less such sum as Beneficiary
reasonably deems appropriate as a reserve to meet future expenses under this
paragraph B.1(d), shall be applied on any indebtedness or obligation secured
hereby in such order as Beneficiary shall determine. Neither application of
said sums to said indebtedness nor any other action taken by Beneficiary or
Trustee under this paragraph shall cure or waive any default or notice of
default. Beneficiary or Trustee, or any employee or agent of Beneficiary or
Trustee, or a receiver appointed by a court, may take any action or proceeding,
without regard to (i) the adequacy of the security for the indebtedness or
obligations secured hereunder, (ii) the existence of a declaration that the
indebtedness secured hereby has been declared immediately due and payable, or
(iii) the filing of a notice of default.
2. Payment of Costs, Expenses and Attorneys' Fees. All costs and
----------------------------------------------
expenses incurred by Trustee and Beneficiary pursuant to subparagraphs (a)
through (d) inclusive of paragraph B.1 (including, without limitation, court
costs and attorneys' fees, whether incurred in litigation or not) shall bear
interest at the maximum lawful rate from the date of expenditure until said sums
have been paid. Beneficiary shall be entitled to bid, at the sale of the
Subject Property held pursuant to subparagraph B.1(d) above, the amount of said
costs, expenses and interest in addition to the amount of the other obligations
hereby secured as a credit bid, the equivalent of cash.
3. Remedies Cumulative. All rights and remedies of Beneficiary and
-------------------
Trustee hereunder are cumulative and in addition to all rights and remedies
provided by law or in other
6
<PAGE>
agreements between Trustor and Beneficiary.
4. Releases, Extensions, Modifications and Additional Security.
-----------------------------------------------------------
Without affecting the liability of any person for payment of any indebtedness
secured hereby, or the lien or priority of this Deed of Trust upon the Subject
Property, Beneficiary may, from time to time, with or without notice, do one or
more of the following: release any person's liability for the payment of an
indebtedness secured hereby, make any agreement or take any action extending the
maturity or otherwise altering the terms or increasing the amount of any
indebtedness secured hereby, and accept additional security or release all or a
portion of the Subject Property and other security held to secure the
indebtedness secured hereby.
C. MISCELLANEOUS PROVISIONS.
1. Subordination to Prior Deed of Trust. Subject to paragraph C.11,
------------------------------------
(a) this Deed of Trust and the lien created hereunder shall be
and the same are hereby made subject and subordinate to the lien created by,
and the terms, covenants, and conditions contained in, the Prior Deed of
Trust, as well as to extensions, consolidations, modifications, and
supplements thereto, provided that any increase in the indebtedness secured
thereby is advanced or incurred under any of the express provisions of the
Prior Deed of Trust or any extension, consolidation, modification or
supplement thereto; the extensions, consolidations, modifications, and
supplements herein referred to shall not be deemed to include any extension,
consolidation, modification, or supplement which expands the rights of the
holders of the Prior Deed of Trust to make additional advances beyond those
described in the Prior Deed of Trust;
(b) Neither the Trustee nor Beneficiary hereunder, nor their
respective successors or assigns nor any other legal holder hereof, shall
acquire by subrogation, contract, or otherwise any lien upon another estate,
right, or interest in the Subject Property (including but not limited to any
which may arise in respect to real estate taxes, assessments, or other
governmental charges) which is or may be prior in right to the Prior Deed of
Trust or any extension, consolidation, modification, or supplement thereto
unless within sixty (60) days following written notice of such intention from
the Trustee or Beneficiary or their respective successors or assigns, the then
beneficiary under the Prior Deed of Trust shall fail or refuse to purchase or
acquire by subrogation or otherwise such prior lien, estate, right, or interest,
or shall fail within such period to commence, and thereafter proceed diligently,
to purchase or acquire the same;
(c) This Deed of Trust and the lien hereof shall be expressly
subject and subordinate to any and all advances in whatever amounts and
whenever made, with interest thereon, and to any expenses, charges, and fees
secured thereby, including any and all of such advances, interest, expenses,
charges, and fees which may increase the indebtedness secured by the Prior
Deed of Trust above the original principal amount thereof, provided the same
is advanced or incurred under any of the express provisions of the Prior Deed
of Trust or any extension, consolidation, modification, or supplement thereto.
The extensions, consolidations, modifications, and supplements herein referred
to shall not be deemed to include any extension, consolidation, modification,
or supplement which expands the rights of the beneficiary under the Prior Deed
of Trust to make additional advances beyond those described in the Prior Deed
of Trust;
(d) The Trustee and Beneficiary hereunder, their successors and
assigns or any other legal holder of this Deed of Trust shall agree to assign
and release unto the legal beneficiary of the Prior Deed of Trust:
7
<PAGE>
(i) All of their right, title, interest, or claim, if any,
in and to the proceeds of all policies of insurance covering the Subject
Property to be applied upon the indebtedness secured by or disposed of in
accordance with the provisions of the Prior Deed of Trust; and
(ii) All of their right, title, and interest or claim, if
any, in and to all awards or other compensation made for any taking of any
part of the Subject Property to be applied upon the indebtedness secured by or
disposed of in accordance with the provisions of the Prior Deed of Trust;
provided however, that in the event that following any such application and
disposition of the insurance proceeds or compensation award or other
compensation, any balance remains, it shall be made payable to the order of
Beneficiary or its successors or assigns for application in the manner
prescribed by paragraph B.1 hereof. If, after such application, any balance
remains, it shall be made payable to the order of Trustor or its successors or
assigns;
(e) If the beneficiary under the Prior Deed of Trust shall at
any time release to the Trustor any such insurance proceeds or condemnation
award for the purpose of restoration of the Subject Property, such release
shall not be deemed to be an additional advance under the Prior Deed of Trust
nor shall it otherwise be deemed to be in violation of any restriction of this
Deed of Trust upon the amount permitted to be secured by the Prior Deed of
Trust and to which this Deed of Trust is subordinate; and
(f) So long as the Prior Deed of Trust shall remain upon the
Subject Property or any part thereof, the assigns of Trustee, or any other
legal holder hereof, shall execute, acknowledge, and deliver, upon demand, at
any time or times, any and all further subordination or other instruments in
recordable form reasonably sufficient for the foregoing purposes or that the
Trustor or the Trustee or Beneficiary, or their respective successors or
assigns, or the legal holders of the Prior Deed of Trust, may hereafter
reasonably require for carrying out the true purpose and intent of the
foregoing covenants.
2. Non-Waiver. By accepting payment of any sum secured hereby after
----------
its due date or later performance of any obligation secured hereby, Beneficiary
shall not waive its right against any person obligated directly or indirectly
hereunder or on any obligation hereby secured, either to require prompt payment
when due of all other sums so secured or to declare default for failure to make
such prompt payment. No exercise of any right or remedy by Beneficiary or
Trustee hereunder shall constitute a waiver of any other right or remedy herein
contained or provided by law.
3. Execution of Documents. Trustor agrees, upon demand by
----------------------
Beneficiary or Trustee, to execute any and all documents and instruments
required to effectuate the provisions hereof.
4. Statements of Condition. From time to time as required,
-----------------------
Beneficiary shall furnish to Trustor such statements as may be required
concerning the condition of the obligations secured hereby. Upon demand by
Beneficiary, Trustor covenants and agrees to pay the maximum amount allowed by
law for such statements.
5. Obligations of Trustor Joint and Several If more than one person
----------------------------------------
has
8
<PAGE>
executed this deed of trust as "Trustor," the obligations of all such persons
hereunder shall be joint and several.
6. Recourse to Separate Property. Any married person who executes
-----------------------------
this Deed of Trust as a Trustor and who also executes a note or other evidence
of obligation reciting that its payment or performance is secured by this Deed
of Trust agrees that Beneficiary may have recourse against that person's
separate property and any community property, whether or not such property is
part of the Subject Property, of which that person is a manager for payment of
all notes and other obligations of that married person which are secured by this
Deed of Trust. This Deed of Trust does not create a lien on any property other
than the Subject Property.
7. Beneficiary Defined. The word "Beneficiary" hereunder means the
-------------------
Beneficiary named herein or any future owner or holder, including pledgee, of
any note, notes or instrument secured hereby.
8. Severability If any terms of this Deed of Trust or the
------------
application thereof to any person or circumstances shall to any extent be
invalid or unenforceable, the remainder of this Deed of Trust, or the
application of such term to persons or circumstances other than those as to
which it is invalid or unenforceable, shall not be affected thereby, and each
term of this Deed of Trust shall be valid and enforceable to the fullest extent
permitted by law.
9. Successors in Interest. The terms, covenants, and conditions
----------------------
herein contained shall be binding upon and inure to the benefit of the heirs,
successors, and assigns of the parties hereto.
10. Governing Law. This Deed of Trust shall be governed by the laws
-------------
of the State of California, both in interpretation and performance.
11. Beneficiary Subordination to Prior Deed of Trust and Refinancing
----------------------------------------------------------------
Thereof. In the event Trustor desires to enter into the Prior Deed of Trust, or
- -------
to pay in full the loan secured by the Prior Deed of Trust and to replace such
loan with new financing secured by the Subject Property (a "New Loan"), Trustor
shall be entitled to require that Beneficiary subordinate the lien of this Deed
of Trust to the lien of the Prior Deed of Trust or then New Loan pursuant to the
terms of this paragraph. Beneficiary shall have no obligation to so subordinate
the lien of this Deed of Trust unless each and all of the following conditions
for Beneficiary's sole benefit are satisfied:
(a) At least thirty (30) days and no more than sixty (60) days
prior to the date that Trustor desires to effectuate such subordination,
Trustor requests by written notice to Beneficiary that Beneficiary so
subordinate the lien of this Deed of Trust to the lien of the Prior Deed of
Trust or the lien of the deed of trust or mortgage securing the New Loan, and
submits in writing to Beneficiary a copy of the promissory note, deed of trust
or mortgage, and other documentation regarding the Prior Deed of Trust or the
New Loan, together with a copy of the form of subordination agreement that the
new lender desires Beneficiary to sign, and together with a current appraisal
of the Subject Property prepared by the appraiser for the new lender
evidencing the then current fair market value thereof.
(b) The Prior Deed of Trust encumbers only the Subject Property
and the New Loan is secured by a deed of trust or mortgage encumbering only
the Subject Property.
9
<PAGE>
(c) Beneficiary shall not be required to execute any instrument which
would obligate Beneficiary to pay any loan or any part thereof.
(d) Trustor shall not be in default under the terms of this Deed of
Trust or the Promissory Note at the time any request to subordinate is made.
(e) There shall be no balloon payment required under the terms of the
financing giving rise to the Prior Deed of Trust or the New Loan prior to the
last date on which the Promissory Note must be paid in full or is fully forgiven
(nothing herein shall be construed to prevent Trustor from obtaining a loan or
loans which are voluntarily prepayable before such date).
(f) The loan secured by the Prior Deed of Trust and the New Loan shall
be procured from an institutional lender (i.e. a bank, or federal or California
savings and loan association).
(g) The interest, points, loans fees and charges of the loan secured
by the Prior Deed of Trust or the New Loan shall not exceed the norm in the
lending community in and for the County of Santa Clara for secured residential
loans at such time.
(h) The principal amount of the indebtedness secured by any such Prior
Deed of Trust or the New Loan shall not exceed such amount as Trustor and
Beneficiary may agree in writing.
(i) The proceeds of the loan secured by the Prior Deed of Trust or the
New Loan shall be used solely to pay for the construction of Trustor's principal
residence on the Subject Property or to pay the construction lender who loaned
Trustor the funds to construct Trustor's principal residence on the Subject
Property.
(j) None of the provisions of this Deed of Trust or the Promissory
Note are changed.
The Prior Deed of Trust or any such new deed of trust or mortgage
securing the New Loan shall provide that notice of any default under the terms
thereof shall be given by the lender to Trustor and Beneficiary and Beneficiary
shall have the right, but not the obligation, to cure such default. Trustor
shall furnish Beneficiary with a true copy of the Prior Deed of Trust any
such new deed of trust or mortgage, the promissory note secured thereby, and all
other loan documents evidencing the loan required by the lender to be signed by
Trustor.
Provided the foregoing conditions are met, Beneficiary shall cooperate
with Trustor and such new lender in effecting the Prior Deed of Trust or any
such new deed of trust or mortgage, and shall sign such subordination
documentation as may be required solely to subordinate the lien of this Deed of
Trust to the lien of the Prior Deed of Trust or the lien of the deed of trust or
mortgage securing the New Loan.
IN WITNESS WHEREOF, Trustor and Beneficiary have executed this Deed of
Trust on the day and year set forth above. (Any Trustor whose address is set
forth below hereby requests that a copy of notice of default and notice of sale
be mailed to him at that address. Failure to insert an address shall constitute
a waiver of the right to receive a copy of a notice of default.)
10
<PAGE>
TRUSTOR PLEASE NOTE: IN THE EVENT OF YOUR DEFAULT, CALIFORNIA
PROCEDURE PERMITS THE TRUSTEE TO SELL THE SUBJECT PROPERTY AT A SALE HELD
WITHOUT SUPERVISION BY ANY COURT AFTER EXPIRATION OF A PERIOD PRESCRIBED BY LAW.
SEE SUBPARAGRAPH B.1.(d) ABOVE FOR A DESCRIPTION OF THIS PROCEDURE. UNLESS YOU
PROVIDE AN ADDRESS FOR THE GIVING OF NOTICE, YOU MAY NOT BE ENTITLED TO NOTICE
OF THE COMMENCEMENT OF SALE PROCEEDINGS. BY EXECUTION OF THIS DEED OF TRUST,
YOU CONSENT TO SUCH PROCEDURE. IF YOU HAVE ANY QUESTIONS CONCERNING IT, YOU
SHOULD CONSULT YOUR LEGAL ADVISOR. BENEFICIARY URGES YOU TO GIVE IT PROMPT
NOTICE OF ANY CHANGE IN YOUR ADDRESS SO THAT YOU MAY RECEIVE PROMPTLY ANY NOTICE
GIVEN PURSUANT TO THIS DEED OF TRUST.
EDWARD P. CORNELL
/s/ EDWARD P. CORNELL
------------------------------------
CAROL S. CORNELL
/s/ CAROL S. CORNELL
------------------------------------
ACUSON CORPORATION, Beneficiary
By: /s/ Robert J. Gallagher
---------------------------------
Robert J. Gallagher,
Chief Operating Officer
11
<PAGE>
STATE OF CALIFORNIA )
) ss.
COUNTY OF SANTA CLARA )
On April 27, 1998 before me, the undersigned, a Notary Public in and for said
--------------
County and State, personally appeared EDWARD P. CORNELL and CAROL S. CORNELL,
personally known to me to be the person(s) whose name(s) are subscribed to the
within instrument and acknowledged to me that they executed the same in their
authorized capacity(ies), and that by their signature on the instrument the
person(s), or the entity(ies) upon behalf of which the person(s) acted, executed
the instrument.
WITNESS my hand and official seal.
/s/ Bonnie F. Belisle
- -----------------------------------------
Signature of Notary Public
BONNIE F. BELISLE
Commission # 114998
Notary Public--California
Santa Clara County
My Comm. Expires Nov 8, 2000
(This area for official notarial seal)
STATE OF CALIFORNIA )
) ss.
COUNTY OF SANTA CLARA )
On April 27, 1998 before me, the undersigned, a Notary Public in and for said
--------------
County and State, personally appeared ROBERT J. GALLAGHER,
personally known to me to be the person whose name is subscribed to the
within instrument and acknowledged to me that he executed the same in his
authorized capacity, and that by his signature on the instrument the
person, or the entity upon behalf of which the person acted, executed
the instrument.
WITNESS my hand and official seal.
/s/ Bonnie F. Belisle
- -----------------------------------------
Signature of Notary Public
BONNIE F. BELISLE
Commission # 114998
Notary Public--California
Santa Clara County
My Comm. Expires Nov 8, 2000
(This area for official notarial seal)
12
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUL-04-1998
<CASH> 16,752
<SECURITIES> 0
<RECEIVABLES> 136,187
<ALLOWANCES> 3,469
<INVENTORY> 80,705
<CURRENT-ASSETS> 270,816
<PP&E> 217,245
<DEPRECIATION> 143,049
<TOTAL-ASSETS> 368,817
<CURRENT-LIABILITIES> 155,305
<BONDS> 0
0
0
<COMMON> 128,581
<OTHER-SE> 84,931
<TOTAL-LIABILITY-AND-EQUITY> 368,817
<SALES> 184,540
<TOTAL-REVENUES> 229,071
<CGS> 96,575
<TOTAL-COSTS> 120,217
<OTHER-EXPENSES> 94,350
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 381
<INCOME-PRETAX> 14,123
<INCOME-TAX> 4,237
<INCOME-CONTINUING> 9,886
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,886
<EPS-PRIMARY> 0.35
<EPS-DILUTED> 0.34
</TABLE>
