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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________
FORM 10-K
(Mark One)
[X] Annual report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the fiscal year ended DECEMBER 31, 1998 or
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[_] 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
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ACUSON CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 94-2784998
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(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
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Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of Each Exchange on Which Registered
- ------------------------------- -------------------------------------------
Common Stock, $0.0001 par value New York Stock Exchange
Preferred Stock Purchase Rights New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
___________________
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 [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of the Registrant's voting stock held by non-
affiliates on March 5, 1999 (based upon the NYSE closing price on such date) was
approximately $413,114,184.
As of March 5, 1999, there were 26,760,433 shares of the Registrant's Common
Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Parts of the following documents are incorporated by reference in Parts II and
III of this Form 10-K Report: (1) Proxy Statement for registrant's Annual
Meeting of Stockholders to be held June 8, 1999 (other than the Compensation
Committee Report and Performance Graph contained therein) (Part III), and (2)
registrant's Annual Report to Stockholders for the fiscal year ended December
31, 1998 (Part II).
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PART I
ITEM 1
BUSINESS
GENERAL BUSINESS
Acuson Corporation ("Acuson" or the "Company") is a manufacturer, worldwide
marketer and service provider of high-performance systems that generate,
display, archive and retrieve medical diagnostic ultrasound images. Hospitals,
clinics and healthcare delivery systems throughout the world use Acuson products
for a broad range of clinical applications including radiology, cardiology,
obstetrical/gynecological ("ob/gyn") and peripheral vascular.
Set forth below is a description of the Company's business. This description
includes forward-looking statements that involve risks and uncertainties. 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 here. Factors that could cause or
contribute to such differences include, but are not limited to, those discussed
in the "Investment Risks" section set forth below as well as in the sections
entitled "Competition" and "Government Regulation."
COMPANY HISTORY
The Company was incorporated in California in 1981 and changed its state of
incorporation to Delaware in 1986. Since its inception, the Company has focused
exclusively on systems that generate, display, archive and retrieve medical
diagnostic ultrasound images.
The first generation system, the Acuson 128 ultrasound system, launched in 1983,
was based on an advanced computer-based ultrasound architecture. Over its seven-
year life, the system grew to support many additional new ultrasound modes,
transducers (the hand-held device that transmits and receives the ultrasound
signals) and other capabilities.
Acuson's second generation system, the Acuson 128XP(R) ultrasound system, was
introduced in July 1990. This more configurable system provides a greater number
of application-specific configurations for a broader range of clinical use. The
system's greater flexibility has allowed the Company to address a wider spectrum
of clinical specialties and pricing segments in both the domestic and
international ultrasound markets.
The AEGIS(R) digital image and data management system was introduced by Acuson
in October 1992. The AEGIS system is a Picture Archiving and Communication
System (PACS) product and provides capabilities for the capture and storage of
ultrasound examinations for on-line review, archiving and transmission within
the hospital and/or clinical environment and over wide-area networks. This
system also enables the images produced by Acuson's platforms to be effectively
translated into final reports, which can be faxed to the referring physician.
During 1996, Acuson introduced two new ultrasound platforms, the Sequoia (R)
ultrasound systems and the Aspen(TM) ultrasound system, to be sold along with
the 128XP system. The Sequoia 512 ultrasound system for general imaging
applications and the Sequoia C256 echocardiography system for cardiology
applications were introduced in April 1996, and began shipping in July 1996. The
Sequoia platform is Acuson's highest performance ultrasound platform.
In October 1996, Acuson announced its second major ultrasound product
introduction of the year: the Aspen ultrasound system. The Aspen system resulted
from a convergence of select technologies from the Sequoia platform and other
Acuson innovations to create a high-performance platform that is sold at a lower
price than the Sequoia systems but at a premium to the 128XP system. The Aspen
system began shipping in November 1996.
During 1997, Acuson introduced Native(TM) Tissue Harmonic Imaging (NTHI), the
first major upgrade to the Sequoia platform. When compared to images not using
NTHI, NTHI produces significantly clearer diagnostic images for a portion of the
patient population that is considered difficult to image. Difficult-to-image
patients may be obese, elderly, extremely muscular or may suffer from the side
effects of chemotherapy, smoking or cardiac surgery. NTHI overcomes the imaging
challenges posed by this patient population by transmitting the echoes at lower
frequencies to improve
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penetration into the body, while receiving and processing only the higher
frequency echoes produced by the body's inherent harmonic characteristics. The
result is a significant improvement in image clarity and tissue contrast
resolution. During 1998, the Company introduced the Advanced Imaging Option for
the Aspen system. This option combines into one high-performance upgrade, NTHI
and DELTA(R) differential echo amplification, which enhances contrast
resolution while maintaining detail resolution.
A second major product introduction in 1997 was the MICROSON(TM) high-resolution
transducer family. MICROSON transducers enable clinicians to visualize with
extraordinary detail tiny structures that are very close to the surface of the
skin. MICROSON transducers are particularly useful in musculoskeletal
examinations to look at nerves, tendons and muscles and in imaging small parts,
such as breasts, thyroid glands and testicles. MICROSON transducers are
available for Sequoia, Aspen and 128XP systems.
Also during 1997, Acuson introduced several new products for the digital
storage, transmission and review of ultrasound images, expanding the Company's
role in providing products to enhance the productivity and efficiency of the
ultrasound department. In May 1997, the Company introduced the WorkPro(TM)
productivity package, an upgrade to the AEGIS system. In June 1997, the Company
introduced the ViewPro(TM) image review software package and the WebPro(TM) web-
based package, two other cost-effective solutions that allow ultrasound images
to be reviewed off-line and transferred to remote sites via the Internet or an
intranet. In November 1998, the Company launched the WS3000(TM) Ultrasound PACS
Workstation. The WS3000 Workstation is a complete Windows(R) NT
hardware/software solution for use with the AEGIS system and includes features
that enable increased exam review productivity and the ability to create final
reports on-line.
During 1998, the Company introduced the Perspective(TM) Advanced Display Option
for the Sequoia and Aspen systems. This option provides a practical and
comprehensive package of display capabilities, including FreeStyle(TM) Extended
Imaging, 3D fetal assessment surface rendering and 3D organ assessment
volumetric rendering.
In 1998, Acuson announced that the Company was developing a new intracardiac
ultrasound catheter called the AcuNav (TM) Diagnostic Ultrasound Catheter. The
AcuNav catheter contains a fully functional ultrasound transducer miniaturized
to fit into the tip of a catheter just over 3 millimeters in diameter. The
catheter is inserted through the femoral vein directly into the heart, and is
intended to increase image clarity and allow physicians to clearly visualize
chambers, valves and devices within the heart. The Company is currently
conducting clinical trials of the AcuNav catheter in preparation for submission
of a 510(k) application to obtain premarket clearance from the United States
Food and Drug Administration.
ACUSON'S PRODUCTS AND TECHNOLOGIES
The Company's ultrasound platforms - the Sequoia ultrasound platform, the Aspen
ultrasound platform and the 128XP ultrasound platform - are designed to bring
cost-effective solutions to clinical applications such as radiology, cardiology,
ob/gyn and peripheral vascular. Acuson believes that this family of ultrasound
systems provides the following benefits when compared with other ultrasound
technologies.
IMAGING PERFORMANCE. Acuson's systems are designed to provide superior
image quality through greater detail resolution, contrast resolution and
image uniformity. In addition, Acuson systems provide superior clinical
sensitivity for a broad range of Doppler and color Doppler applications,
which are used to detect, measure and depict blood flows.
VERSATILITY. Acuson's breadth of product offerings provides customers with
a wide range of choices depending on their budgetary and clinical needs.
RELIABILITY. The Company's thousands of ultrasound systems under warranty
or full-service contract in North America have averaged more than 99.9%
cumulative uptime since 1983.
UPGRADABILITY. Acuson's ultrasound systems have an upgradable core
architecture. Every Acuson 128 system shipped since 1983 can be upgraded to
perform every diagnostic capability the Company now offers on new 128XP
systems. In many cases, the changes are accomplished simply with new
software. In other cases, customers purchase new hardware options or
transducers, which also include new software to control
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performance. All three of the Company's ultrasound platforms are designed
to follow the same philosophy of upgradability that was established with
the Acuson 128 platform.
EASE OF USE. Acuson's philosophy of system design and its system
architecture allow for greater ease of use. The portability and
maneuverability of the Sequoia and Aspen platforms help increase hospital
efficiency and productivity, while the ergonomic design of the new systems
and transducers enhances both doctor and patient comfort levels.
SEQUOIA ULTRASOUND PLATFORM. The Sequoia platform relies on four proprietary
cornerstones: Coherent Image Formation, Doppler technology, transducer
technology with patented connectors and the DIMAQ(TM) integrated ultrasound
workstation. The list price of a Sequoia system starts at $200,000.
COHERENT IMAGE FORMATION. Sequoia systems use patented coherent image
formation technology and scan with digital processing channels to acquire
and encode phase and amplitude data. These encoded data are then assembled
to create images based on full echo information.
DOPPLER TECHNOLOGY. Acuson's advances in Doppler technology on the Sequoia
systems include SST(TM) Color Doppler and Solo(TM) Spectral Doppler.
SST COLOR DOPPLER. With SST Color Doppler, the Sequoia C256 and Sequoia
512 systems use multiple beamformers to produce high spatial resolution
color Doppler images at high frame rates.
SOLO SPECTRAL DOPPLER. The Sequoia systems use a dedicated audio
beamformer for spectral Doppler. This results in a high degree of
sensitivity and clarity of information throughout the entire spectral
waveform.
TRANSDUCER TECHNOLOGY. The Sequoia platform includes a new family of
transducers that feature new acoustic, connector and ergonomic design.
These transducers offer a new level of high frequency capability and low
noise performance. The new patented Sequoia transducer connector features a
pinless design, while maintaining 612 simultaneous connections. In
addition, these transducers offer expanded MultiHertz(R) multiple frequency
imaging capabilities.
DIMAQ INTEGRATED ULTRASOUND WORKSTATION. The Sequoia platform integrates a
special-purpose ultrasound workstation into the system architecture. The
DIMAQ integrated ultrasound workstation has direct access to exam data
generated in the system. It offers real-time digital image processing, such
as DELTA differential echo amplification, and runs special application
programs. DELTA differential echo amplification is a patented, real-time
processing technique for improving wall visualization and tissue
conspicuity. The DIMAQ workstation provides connectivity and DICOM (the
medical industry standard for digital imaging and communication)
capability.
ASPEN ULTRASOUND PLATFORM. The Aspen ultrasound system resulted from a
convergence of select technologies from the Sequoia ultrasound platform and
other Acuson innovations to create a high-performance platform at a lower price
than the Sequoia systems. The Aspen platform is built on four major
cornerstones: technology convergence, value engineering, transducer technology
and the DIMAQ integrated ultrasound workstation. The list price of an Aspen
system starts at $150,000.
TECHNOLOGY CONVERGENCE. As mentioned above, the Aspen platform represents a
convergence of select technologies from the Sequoia platform and other
Acuson innovations. One example of these innovations that is currently
unique to the Aspen system is Convergent(TM) Color Doppler, which improves
color Doppler performance in such applications as renal, obstetric,
gynecological and small parts imaging.
VALUE ENGINEERING. Value engineering provides versatility and
upgradability, system portability and ergonomics. The Aspen system is
compact, lightweight and provides a keyboard design that places the most
frequently used controls at the user's fingertips.
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TRANSDUCER TECHNOLOGY. The Aspen platform supports more than 20 transducers
addressing all major ultrasound clinical applications. The Aspen system
accommodates new transducers designed specifically for the Aspen platform
as well as select transducers from both the 128XP and the Sequoia systems.
DIMAQ INTEGRATED ULTRASOUND WORKSTATION. Similar to the Sequoia platform,
the DIMAQ workstation is a special-purpose ultrasound workstation that is
completely integrated within the Aspen architecture. The DIMAQ workstation,
which includes the hardware foundation for DICOM software and real-time
JPEG compression and decompression, has direct access to exam data
generated in the system. It offers real-time digital image processing and
runs special application programs.
128XP ULTRASOUND PLATFORM. The Acuson 128XP system is a clinically versatile,
cost-effective ultrasound system. Since its introduction in 1990, several major
upgrades to the 128XP system have been introduced, including Color Doppler
Energy, Acoustic Response Technology/Tissue Contrast Resolution ("ART/TCR"),
DTI(TM) Doppler Tissue Imaging, EF(TM) Extended Frequency upgrade and the
PerformancePlus(TM) update. The 128XP system also has incorporated features and
functions from the Sequoia and Aspen platforms, such as a wide array of
transducer technologies and new diagnostic functions. The Company currently
plans to introduce the NTHI upgrade option on its 128XP system during 1999. The
list price of a 128XP system starts at $80,000.
PICTURE ARCHIVING AND COMMUNICATION SYSTEM (PACS) PRODUCTS. The AEGIS system is
a PACS product that enables the capture and storage of ultrasound examinations
for on-line review, archiving and transmission within the hospital and over
wide-area networks, improving the effectiveness of the overall ultrasound system
and aiding in improving the timeliness and quality of the diagnosis. The AEGIS
system allows connectivity to DICOM PACS and printers and supports ultrasound
systems from Acuson and from other manufacturers. The list price of the AEGIS
system depends on the size and capability of the network with a typical system
ranging in list price from $125,000 to $350,000.
Acuson attempts to protect its intellectual property through a combination of
trade secrets and, where appropriate, copyrights, trademarks and patents. The
Company also relies substantially on its unpatented proprietary know-how. See
"Investment Risks - Patents and Proprietary Technology" for a detailed
discussion as well as certain risk factors.
SERVICE
The Company employs a staff of full-time service engineers who service Acuson
systems in North America and in the countries where Acuson has international
subsidiaries. Service to customers in other international areas is provided
through the Company's independent distributors.
Acuson warrants its products for 12 months and thereafter provides service
through service contracts and other time and material arrangements. All domestic
ultrasound systems under Acuson warranty or full-service contracts are
guaranteed to have 99.0% uptime, and such systems have averaged more than 99.9%
cumulative uptime since 1983.
Systems under warranty or service contract receive periodic maintenance by
Acuson service engineers, who also install new system capabilities or software
upgrades and respond to customer service requests. These services may be
purchased from the Company's service organization by customers who do not have a
service contract with Acuson.
Service revenue was 19.8%, 19.5% and 24.6% of total net sales in 1998, 1997 and
1996, respectively. See Part II, Item 7 - "Management's Discussion and Analysis
of Financial Condition and Results of Operations." See also "Investment Risks -
Service" below for certain risk factors related to the Company's service
business.
MARKETING AND SALES
The Company sells its products primarily to hospitals, clinics, private and
governmental institutions and healthcare agencies and doctors' offices. The
Company and its subsidiaries employ their own full-time sales, service and
applications staff in North America, certain European countries, Australia and
Japan. Acuson sells through independent distributors in other European
countries, Asia, Latin America and the Middle East. The Company typically sells
its products below the list price, as part of its marketing strategy, and also
leases its equipment to customers under sales-
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type leases. See Note 4 of Notes to Consolidated Financial Statements contained
in Part II, Item 8 for additional information on the Company's sales-type
leasing activities.
The Company targets the high-end segments of the ultrasound market and focuses
its efforts on the following major hospital-based ultrasound market segments:
United States General Imaging, United States Cardiovascular and International.
The Company entered the United States General Imaging market in 1983. The major
sub-segments of this market include radiology, peripheral vascular and ob/gyn.
Radiology includes examinations of abdominal organs, the gastrointestinal tract,
the urinary tract, the musculoskeletal structure and small parts such as the
breasts, testes and thyroid. The peripheral vascular sub-segment focuses
primarily on examinations of the vessels of the leg and neck. Applications of
ob/gyn center on examinations of the female reproductive system and the
developing fetus.
The Company entered the United States Cardiovascular market in 1988. Cardiology
applications center on examinations of the heart and proximate vessels, while
cardiovascular applications extend to include the entire vascular system.
The Company entered the international market segment in 1984. International
markets generally include the same range of clinical ultrasound applications as
the domestic market.
See Note 10 of Notes to Consolidated Financial Statements contained in Part II,
Item 8 for information concerning the Company's operating segments and
additional geographic information.
The sales process for ultrasound systems typically requires six to eighteen
months between initial customer contact and placement of an order. On-site
demonstrations are often part of the customer's evaluation process, and
customers frequently make side-by-side comparisons of performance and other
features of competing systems. Acuson employs a staff of applications personnel
who operate the system during sales demonstrations and who also train physicians
and ultrasound technicians on the use of the system after delivery.
COMPETITION
Acuson competes primarily on the basis of the major clinical and efficiency
benefits of the imaging performance, versatility, reliability, upgradability,
digital image management, ease of use and price of its products.
The Company believes that its product capabilities can enable physicians to make
earlier, more accurate and/or more confident diagnoses and also can provide
superior long-term economic value. As do virtually all companies in the
industry, Acuson offers on-site system demonstrations to customers during the
sales process, and customers frequently evaluate equipment performance and other
factors. The markets for the Company's products have become increasingly
competitive and price is often a factor in the purchase decision.
The Company's ultrasound equipment competes with systems offered by a number of
companies and their affiliates abroad, including ATL Ultrasound, Inc. ("ATL"), a
division of Philips Medical Systems; Aloka Co., Ltd.; General Electric Company;
Hewlett-Packard Company; Hitachi Corporation; Siemens Medical Systems, Inc. and
Toshiba Medical Systems, Inc. All of these competitors have significantly
greater financial and other resources and generally compete in more medical
imaging and other market segments and countries than Acuson. While the Company
believes that its Sequoia and Aspen systems provide superior and advanced
capabilities and features, the products offered to date by these competitors in
some cases include features and capabilities not currently offered by Acuson and
in some cases are substantially less expensive than Acuson's products. See
"Investment Risks - Competition" below.
Diagnostic ultrasound is generally less expensive than other competing imaging
modalities such as computed tomography and magnetic resonance imaging, and, in
certain applications, offers capabilities that make it the modality of choice
regardless of cost. However, no assurance can be given that such price and/or
performance advantages can be maintained in comparison to other current or
future imaging modalities. In addition, ultrasound systems compete with other
imaging modalities for limited hospital funding. See "Investment Risks -
Ultrasound Market Changes" below.
PRODUCT DEVELOPMENT
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One of Acuson's fundamental beliefs is that technological innovations can
provide the best solutions for cost-constrained medical environments. The
Company spent $57,600,000, $57,300,000 and $60,900,000 on product development in
1998, 1997 and 1996, respectively. See "Company History" and "Acuson's Products
and Technologies" above.
Since Acuson's founding, virtually all product development has taken place at
the Company's headquarters in Mountain View, California. The Company maintains a
strong commitment to product development programs to develop proprietary
technologies. Product development is subject to certain risk factors. See
"Investment Risks - Products" below.
GOVERNMENT REGULATION
As a manufacturer of medical devices, Acuson is subject to extensive regulation
by federal, state and local governmental authorities, such as, the United States
Food and Drug Administration (the "FDA") and the California Department of Health
Services. Obtaining FDA clearances or approvals of the Company's products can be
time consuming, lengthy, uncertain and expensive and can delay the marketing and
sale of the Company's products. The Company's products generally require either
FDA 510(k) premarket clearance or a premarket approval ("PMA"). The review of a
PMA application generally takes one to two years from the date the PMA is
accepted for filing, but may take significantly longer. It generally takes from
four to twelve months from submission to obtain 510(k) premarket clearance, but
may take longer. The FDA has recently been more rigorous in its 510(k) clearance
process, which has generally resulted in a longer review period. See "Investment
Risks - Regulation by Government Agencies" below. Congress also recently passed
the FDA Modernization Act of 1997, which enacts significant changes in how FDA
regulates medical devices. The practical effects of this new law on the Company
are not known at this time.
Manufacturers of medical devices marketed in the United States are required to
adhere to FDA's applicable Quality Systems Regulations ("QSR") which include
testing, design, control and documentation requirements. Manufacturers also must
comply with Medical Device Reporting ("MDR") requirements that a firm report to
the FDA certain adverse events associated with the Company's devices. The
Company is subject to routine inspection by the FDA and certain state agencies
for compliance with QSR requirements, MDR requirements and other applicable
regulations. The FDA uses its statutory authority vigorously during inspections
of companies and in other enforcement matters. The FDA has recently finalized
changes to the QSR regulations and has promulgated new MDR regulations, both of
which will likely increase the cost of compliance with QSR requirements. The
Company also is subject to numerous federal, state and local laws relating to
such matters as healthcare "fraud and abuse," safe working conditions,
manufacturing practices, environmental protection, fire hazard control and
disposal of hazardous or potentially hazardous substances. Changes in existing
requirements and implementation and adoption of new requirements could have a
material adverse effect on the Company's business, financial condition and
results of operations. Although Acuson believes that it is in compliance with
all applicable regulations of the FDA, the State of California and other
federal, state, and local governmental authorities, current regulations depend
heavily on administrative interpretation, and there can be no assurance that the
Company will not incur significant costs to comply with laws and regulation in
the future or that laws and regulations will not have a material adverse effect
upon the Company's business, financial condition or results of operations. In
addition, the potential effects on the Company of heightened enforcement of
federal, state and local regulations cannot be predicted.
The Federal government regulates hospital and physician payments for diagnostic
examinations furnished to Medicare beneficiaries, including related capital
equipment acquisition costs. For inpatient services, hospitals are reimbursed
under the Medicare prospective payment system ("PPS") that pays hospitals a
fixed amount for services provided to an inpatient based on the patient's
diagnosis-related group ("DRG"), which is established based on principal and
secondary diagnoses and discharge status, rather than reimbursing the hospital
for its actual costs incurred. For capital costs related to inpatient services,
in 1991 Medicare began to phase in over a ten-year period a prospective payment
system that incorporates an add-on to the DRG-based payment. Under the Balanced
Budget Act of 1997 ("BBA"), capital payments to hospitals will be reduced by 2.1
percent between October 1, 1997 and September 30, 2002.
For certain hospital outpatient services, including ultrasound examinations,
reimbursement currently is based on the lesser of the hospital's costs or
charges, or a blended amount composed of the hospital's reasonable costs and the
fee schedule amount that Medicare reimburses for such services when furnished in
a physician's office. The BBA required
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hospital outpatient reimbursement to shift to a prospective payment system by
1999. However, because the Health Care Financing Administration ("HCFA") is
experiencing Year 2000 problems, implementation of the outpatient PPS has been
delayed until April 2000 at the earliest. Since final regulations implementing
this new payment system have not been issued, it is unclear what impact this new
system will have on payment for ultrasound services. Until January 2000, capital
acquisition costs for services furnished to hospital outpatients will be
reimbursed on the basis of 90 percent of the reasonable costs actually incurred
by the hospital. Thereafter, payment for capital will be folded into the new
outpatient PPS methodology. In general, prospective payment systems for both
inpatient and outpatient hospital services, where reimbursement is based on a
fixed fee rather than actual costs incurred, could have a negative impact on
hospital purchases of expensive equipment.
Physicians are reimbursed for Medicare services according to a fee schedule. Fee
schedule payments include a component to reimburse physicians for the practice
expenses incurred in their office practices, including expenses such as the
purchase of ultrasound devices. On January 1, 1999, HCFA revised the manner in
which practice expenses are valued from the current historical charge basis to a
resource basis. For 1999, physician payments for ultrasound services experienced
very little change under the new payment system. However, these values are
considered interim for the next four years and still could change significantly
over this period.
The Administration and Congress from time to time consider various Medicare and
other healthcare reform proposals. Some of these proposals could affect
significantly both private and public reimbursement for healthcare services,
including diagnostic devices, and could adversely affect the demand for such
devices.
Reimbursement for services rendered to Medicaid beneficiaries is determined
pursuant to each state's Medicaid plan, which is established by state law and
regulations, subject to requirements of federal law and regulations. The BBA has
allowed states even more control over coverage and payment issues. The impact on
the Company of this greater state control on Medicaid payment for diagnostic
services is uncertain.
Federal and state laws also regulate the sale of medical devices, the referral
of patients for diagnostic examinations utilizing such devices, and the
submission of claims to third party payers (including Medicare and Medicaid).
These laws include physician self-referral prohibitions, antikickback laws, and
false claims laws. The Company seeks to structure its arrangements with
hospitals, physicians, and other customers to be in compliance with these
federal and state laws, and to keep up-to-date on developments concerning their
application by various means including consultation with legal counsel. However,
the Company is unable to predict how these laws will be applied in the future,
and no assurances can be given that its arrangements will not become subject to
scrutiny under them.
Since June 1998, medical device companies wishing to sell products into those
European countries that are members of the European Union are required to place
the CE mark on their products. To be able to place that mark on its products,
Acuson must comply with the standards of the European Medical Device Directive
(the "MDD"), and be subject to annual surveillance audits by a certified
organization to assure conformity to the MDD. The Company is currently certified
as compliant with the relevant requirements of the MDD and the Company will
undertake activities designed to assure continued compliance; however, no
assurance can be given that the Company will continue to be able to place the CE
mark on its products. If the Company loses its ability to place the CE mark on
its products, the Company will not be able to sell its products into the
European Union. In 1998, sales into the European Union accounted for
approximately 19.0% of the Company's revenues.
MANUFACTURING
The Company primarily manufactures its products at its Mountain View, California
facility. In October 1994, Acuson acquired Sound Technology Incorporated
("STI"), a transducer manufacturer located in State College, Pennsylvania. STI
provides complementary technical capabilities to the Company's established
Transducer Division. For other sub-assemblies, the Company generally
subcontracts with outside vendors for assembly and fabrication and in addition,
produces some components at its own facility in Canoga Park, California. Sub-
assemblies are produced according to the Company's designs or specifications.
The Company performs assembly, testing and quality assurance at various stages
of completion.
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Component parts and microprocessors for the Company's products and some
specialty transducers are purchased from outside vendors. A number of such items
currently have limited or single sources of supply. See "Investment Risks -
Manufacturing" below.
The Company builds units to a marketing forecast that is updated periodically
and utilizes a commercially available computer system for manufacturing,
accounting and sales order processing. Because it builds to forecast, the
Company does not consider its backlog a significant indicator of business
levels.
EMPLOYEES
As of December 31, 1998, the Company had 1,894 full-time employees. The Company
considers its relations with its employees to be good.
INVESTMENT RISKS
In evaluating and understanding Acuson's business and financial prospects and
the potential success of any Acuson product, and in evaluating any forward-
looking statement contained in this document or otherwise, prospective investors
and stockholders should carefully consider the factors set forth below.
PRODUCTS. During 1996, Acuson introduced two major new products, the Sequoia
and Aspen ultrasound systems. There is no guarantee that sales of such products
will increase or continue at their current rate. As more Aspen and Sequoia
systems enter the clinical environment, continued market acceptance will depend
in part on the actual and perceived performance and quality of these products in
that clinical environment. In addition, the Company believes that the continued
success of these products will also depend on the timely and successful
completion of future product enhancements and capabilities. The Company has a
number of these new product enhancements and capabilities as well as additional
new products, including the AcuNav ultrasound catheter, under development at any
time. There is no guarantee, however, as to when, if ever, the development of
such products and product enhancements and capabilities will be completed.
COMPETITION. Diagnostic ultrasound is a well-established field in which there
are a number of competitors. The Company competes with several companies and
their affiliates such as ATL, Aloka Co., Ltd., General Electric Company,
Hewlett-Packard Company, Hitachi Corporation, Siemens Medical Systems, Inc., and
Toshiba Medical Systems, Inc., all of which have significantly greater financial
and other resources. In addition, most of these companies compete in more
medical imaging and other market segments and countries than the Company. While
the Company believes that its Sequoia and Aspen systems provide superior and
advanced capabilities and features, the products offered to date by these
competitors in some cases include features and capabilities not currently
offered by the Company and in some cases are substantially less expensive than
the Company's products.
Market success in diagnostic ultrasound is heavily dependent on the purchaser's
evaluation of the system's diagnostic value, cost, ease of use and safety. Any
established or new ultrasound company may introduce a system or upgrades to an
existing system that is equal to or superior to the Company's products in
quality or performance and no assurance can be given that the Company's products
will remain competitive with existing or future products. If a competitor
introduces a new product, customers may delay submitting new orders to the
Company and may cancel orders in the backlog.
ULTRASOUND MARKET CHANGES. Diagnostic ultrasound is generally less expensive
than other competing imaging modalities such as computed tomography and magnetic
resonance imaging, and, in certain applications, offers capabilities that make
it the modality of choice regardless of cost. However, these price and/or
performance advantages may not continue in comparison to other current or future
imaging modalities. In addition, ultrasound systems compete with other imaging
modalities for limited hospital funding.
The trends of health care provider consolidation, medical cost containment and
intense competitive pressures are continuing in the market. These factors have
placed increased pressures on ultrasound system pricing and along with start-up
and other manufacturing costs of the Company's new product lines, have
contributed to the decline in the
9
<PAGE>
Company's gross margins over the last several years. For example, the Company's
gross margins have declined from 61.3% in 1990 to 47.3% in 1998. Further, the
U.S. government is continuing to consider Medicare reforms. The Company believes
that future revenues and profitability will continue to be impacted by these
uncertainties, especially in the Company's domestic markets. Although some
portions of the international ultrasound markets are experiencing some economic
growth, it is uncertain whether this is a temporary or permanent trend.
As health care provider consolidation and medical cost containment continue in
the market, customers are relying to an increased degree on national sales
contracts. In 1997, the Company was awarded a number of national contracts, some
of which are exclusive for a number of years. If the Company is unsuccessful at
obtaining future national contracts, the Company may be precluded from selling
to certain large customers or buying groups. In addition, the exclusive
contracts may be canceled during their term by the customer or may not be
renewed.
PATENTS AND PROPRIETARY TECHNOLOGY. Acuson attempts to protect its
intellectual property through a combination of trade secrets and, where
appropriate, copyrights, trademarks and patents. The Company owns or has rights
to greater than 100 U.S. patents (plus many international counterparts),
covering certain aspects of its systems, and it has over 150 U.S. patent
applications pending (plus many international counterparts). No assurances can
be given as to the breadth or degree of protection patents, copyrights,
trademarks or trade secrets will afford the Company.
The Company's competitors also rely on patents to protect their technology, and
numerous physicians, universities and other individuals or entities in the
ultrasound field are patenting many ultrasound inventions. The Company has from
time to time received notices from such competitors and other entities or
individuals that the Company may need a license to one or more of their patents
in order to continue to sell its products. Such a competitor, individual or
entity may have, or may be granted, a patent to which the Company must obtain a
license if it wishes to market and sell any one or more of its products. To
date, patent disputes involving the Company have ultimately been resolved
through licensing arrangements, sometimes involving the payment of royalties by
the Company. There can be no assurance that the Company will be able to obtain a
license to any patent (if so required) or that such a license will be available
on reasonable financial or other terms.
The Company also relies heavily on its unpatented proprietary know-how. No
assurance can be given that others will not be able to develop substantially
equivalent proprietary information to the Company's, or otherwise obtain access
to the Company's know-how.
REGULATION BY GOVERNMENT AGENCIES. As a manufacturer of medical devices,
Acuson is subject to extensive regulation by federal, state and local
governmental authorities, such as the FDA and the California Department of
Health Services. Obtaining FDA market clearances or approvals can be time
consuming, lengthy and expensive and there can be no assurance that the
necessary clearance or approval will be granted the Company or that FDA review
will not involve delays adversely affecting the Company. For example, the
Company believes that the time it takes to obtain clearance for new products has
increased and the FDA has been more rigorous in its 510(k) clearance process.
Manufacturers of medical devices marketed in the United States are required to
adhere to numerous regulations, including Quality Systems Regulations ("QSR"),
which address testing, design, control and documentation requirements.
Manufacturers also must comply with Medical Device Reporting ("MDR")
requirements that a firm report to the FDA certain adverse events associated
with a Company's devices. The Company is subject to routine inspection by the
FDA and certain state agencies for compliance with QSR requirements, MDR
requirements and other applicable regulations. The Company believes the FDA is
using its statutory authority more vigorously during inspections of companies
and in other enforcement matters. The FDA has recently finalized changes to the
QSR regulations and has promulgated new MDR regulations, both of which will
likely increase the cost of compliance with QSR requirements. Congress also
recently passed the FDA Modernization Act of 1997, which enacts significant
changes in how the FDA regulates medical devices. The Company also is subject to
numerous federal, state and local laws relating to such matters as health care
"fraud and abuse," safe working conditions, manufacturing practices,
environmental protection, fire hazard control and disposal of hazardous or
potentially hazardous substances. Changes in existing requirements and
implementation and adoption of new requirements could have a material adverse
effect on the Company's business, financial condition and results of operations.
Although Acuson believes that it is in compliance with all applicable
regulations of the FDA, the State of California and other federal, state and
local governmental authorities, current regulations depend heavily on
administrative interpretation, and there can be no assurance that the Company
will not incur significant costs to comply with laws and regulations in the
future or that laws and regulations will not have a material adverse effect upon
the
10
<PAGE>
Company's business, financial condition or results of operations. In addition,
the potential effects on the Company of heightened enforcement of federal, state
and local regulations cannot be predicted.
Federal and state regulations also govern or influence the reimbursement to
health care providers of fees and capital equipment costs in connection with
medical examinations of certain patients. Changes in current policies, including
implementation of a new hospital outpatient reimbursement system, could impact
reimbursement for the purchase and/or operation of the Company's equipment by
such providers and thereby adversely affect future sales of the Company's
products. In particular, the Clinton Administration and the Congress continue to
debate and consider various Medicare and other health care reform proposals that
could significantly affect both private and public reimbursement for health care
services. Some of these proposals, if enacted into law, could reduce
reimbursement for or the incentive to use diagnostic devices and procedures and
thus could adversely affect the demand for diagnostic devices, including the
Company's products.
Acuson and its customers are subject to various federal and state laws
pertaining to physician self-referral prohibitions, antikickback laws and false
claims laws. Acuson seeks to structure its sales, marketing and other activities
to comply with these and other laws. However, given the broad reach of these
laws, there can be no assurance that Acuson's activities would not be subject to
scrutiny and/or challenge at some time in the future.
Since June 1998, medical device companies wishing to sell products into those
European countries that are members of the European Union have been required to
place the CE mark on their products. To be able to place that mark on its
products, Acuson must comply with the standards of the MDD, and be subject to
annual surveillance audits by a certified organization to assure conformity to
the MDD. The Company is currently certified as compliant to the relevant
requirements of the MDD and the Company will undertake activities designed to
assure continued compliance; however, no assurance can be given that the Company
will continue to be able to place the CE mark on its products. If the Company
loses its ability to place the CE mark on its products, the Company will not be
able to sell its products into the European Union. In 1998, sales into the
European Union accounted for approximately 19.0% of the Company's revenues.
EMPLOYEES. Acuson believes that its continued success and future growth will
depend on, among other factors, its ability to continue to attract and retain
skilled employees. The loss of a significant number of employees could adversely
affect its business, most significantly by delaying the development of new
products and product enhancements. The job market in the Silicon Valley area is
very competitive, especially for skilled electrical and software engineers.
There can be no assurance that the Company will be able to retain or hire key
employees.
MANUFACTURING. Component parts and microprocessors for the Company's products
and some specialty transducers are purchased from outside vendors. A number of
such items currently have limited or single sources of supply, and disruption or
termination of those sources could have a temporary adverse effect on shipments
and the financial results of the Company. The Company believes that it could
ultimately develop alternate sources for all such items, but that sales could be
lost or deferred as a result of doing so.
SERVICE. Approximately 19.8% of the Company's 1998 revenues were derived from
the Company's service activities, including the sales of service contracts and
time and material services. Increasing cost containment pressures in the market
have adversely impacted the number of customers purchasing service contracts and
the prices of those contracts, but this impact has been somewhat offset by the
Company's increased installed base and an increase in time and material
services. The Company believes that the trend away from service contracts will
continue and there can be no assurance that the Company will be able to continue
to maintain its current levels of service contract revenue. Further, the
introduction of the Sequoia and Aspen products by the Company will continue to
reduce sales of new service contracts and options to the 128XP system installed
base. In addition, the Company has made significant expenditures in establishing
remote diagnostic and other service programs unique to the Sequoia and Aspen
systems. There can be no assurance that this investment will be profitable, as
the success of the Aspen and Sequoia service program will depend in part on the
number of Aspen and Sequoia systems sold. Finally, the Company has seen an
increasing trend for hospitals to purchase asset management contracts, in which
all of the hospital's medical equipment and in some cases, other assets, are
managed and serviced by third parties. As Acuson does not sell asset management
services and only services Acuson ultrasound systems, this increased trend
toward asset management contracts could have an adverse impact on the Company's
sales of service contracts and its time and materials service business.
11
<PAGE>
INTERNATIONAL OPERATIONS AND INTERNATIONAL RECEIVABLES. The Company's
international business is subject to risks of potential negative impacts from
economic weakness in certain countries in Asia, Latin America and Europe and by
adverse economic impacts from currency fluctuations in its worldwide operations.
As the Company's international business has grown, the Company has an increasing
percentage of its receivables in other countries. Political instability,
currency fluctuations or other issues may impact the ability of the Company to
collect receivables in foreign countries. The following table, in thousands,
summarizes the Company's foreign receivables in excess of $3.0 million at
December 31, 1998:
December 31, 1998
------------------------
Italy $14,081
Brazil 12,567
France 7,034
Japan 6,221
China 5,744
Germany 5,506
Sweden 3,974
Switzerland 3,617
DERIVATIVE FINANCIAL INSTRUMENTS. The Company is subject to market risk due to
fluctuations in foreign currency exchange rates. The Company manages this risk
through established policies and procedures that include the use of derivative
financial instruments. The Company routinely enters into forward foreign
currency exchange contracts to hedge amounts due from selected subsidiaries
denominated in foreign currencies against fluctuations in exchange rates. The
purpose of the hedging activities is to minimize the effect of foreign exchange
rate movements on the Company's operating results and on the cash flows it
receives from its foreign subsidiaries. Currently, the Company neither engages
in foreign currency speculation nor holds or issues financial instruments for
trading purposes. Because the Company only enters into forward currency exchange
contracts as hedges, any change in currency rates would not result in a material
gain or loss, as any gain or loss on the underlying transaction being hedged
would be offset by the gain or loss on the forward currency contract. For this
reason, the Company believes that neither its exposure to foreign currency
exchange rate risk nor any potential near-term losses in future earnings, fair
values or cash flows from reasonably possible near-term changes in market rates
or prices would be material. Forward currency contract terms are typically not
more than three months and the counterparties to the exchange contracts are
major domestic and international financial institutions. See Note 2 of Notes to
Consolidated Financial Statements contained in Part II, Item 8 for additional
information regarding the Company's forward foreign currency exchange contracts
and accounting treatment thereof.
EURO CONVERSION. On January 1, 1999, eleven of the fifteen member countries of
the European Union adopted the Euro as their common legal currency. Following
the introduction of the Euro, the local currencies of the participating
countries are scheduled to remain legal tender until June 30, 2002. During this
transition period goods and services may be paid for in either Euros or the
participating country's local currency. Thereafter, only the Euro will be legal
tender in the participating countries. The Company believes its current
accounting systems are capable of accommodating the Euro conversion with minimal
intervention and that the conversion will not have a material impact on the
competitiveness of its products in Europe. The Company also believes any costs
of addressing the Euro conversion will not have a material impact on the
Company's financial statements.
COMPANY'S COMPUTING ENVIRONMENT. The Company uses a centralized computing
environment to control its order administration, financial and manufacturing
processes. 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 was substantially completed during 1998 and the second
phase is currently scheduled to be completed during the latter half of 2000. 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, during and following the conversion, there are
significant problems with the system.
YEAR 2000 READINESS. 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 ready and
will be replacing a significant portion of the Company's critical systems, the
Company is currently engaged in a three-
12
<PAGE>
phase project to evaluate and remedy those systems not being replaced. The first
phase, completed in May 1998, included a comprehensive inventory of the
Company's systems by an experienced consulting firm and an analysis and
determination of the criticality of each system. 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. The second phase was completed in December 1998, and focused
on confirming the year 2000 readiness of those systems identified in phase one.
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 make all
remaining critical systems and components year 2000 ready and to develop a
contingency plan in the event any non-compliant critical systems are not
remedied by January 1, 2000. The Company expects the project to be successfully
completed during the third quarter of 1999 and has established a year 2000
steering committee, comprised of senior executives, and a dedicated program
office to track and monitor the progress of the project. However, if by January
1, 2000, systems material to the Company's operations have not been made year
2000 ready, 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 have not been material and future anticipated costs are not
expected to be material.
The Company's products being shipped today are year 2000 ready and the Company
believes its products previously shipped are either year 2000 ready or can be
made year 2000 ready 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. The
Company primarily sells its products to hospitals, clinics and other customers
within the healthcare industry. Should the year 2000 issue impact the ability
and willingness of these customers to purchase capital equipment, the year 2000
issue could have a material adverse impact on the Company's financial
statements.
INDUSTRY CONSOLIDATION. During 1998, Philips Medical Systems completed its
acquisition of ATL Ultrasound, Inc. The Company believes that consolidations
such as this may provide its competitors with significantly greater financial
and other resources with which to compete in the marketplace. As companies
attempt to strengthen or hold their market positions, future consolidation
within the industry could lead to increased variability in the Company's
operating results and could have a material adverse impact on the Company's
financial statements.
EARTHQUAKE. The Company's research and development and manufacturing
activities, its corporate headquarters and other critical business operations
are located near major earthquake faults. In the event of a major earthquake,
the ultimate impact on the Company, significant suppliers and the general
infrastructure is unknown, but operating results could be materially affected.
The Company is not insured for losses and interruptions caused by earthquakes.
Acuson, AEGIS, DELTA, MultiHertz, Sequoia and 128XP are registered trademarks
and AcuNav, Aspen, Convergent, DIMAQ, DTI, EF, FreeStyle, MICROSON, Native,
PerformancePlus, Perspective, Solo, SST, ViewPro, WS3000, WebPro and WorkPro are
trademarks of Acuson Corporation. Windows is a registered trademark of Microsoft
Corporation.
================================================================================
13
<PAGE>
ITEM 2
PROPERTIES
The Company leases its facilities under operating leases. The principal offices
and manufacturing space are located in Mountain View, California. In addition,
the Company leases manufacturing facilities in Canoga Park, California and State
College, Pennsylvania, and sales and service facilities in various locations in
the United States and abroad. The Company believes its facilities are adequate
for its present needs, in good condition and suitable for their intended uses.
================================================================================
ITEM 3
LEGAL PROCEEDINGS
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. This suit is still in the fact-
finding stage. The Company intends to defend this suit vigorously.
================================================================================
ITEM 4
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year covered by this report.
================================================================================
ITEM 4A
DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. The directors and executive
officers of the Company and their ages as of March 31, 1999 are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Samuel H. Maslak 50 Chairman of the Board and Chief Executive Officer
Robert J. Gallagher 55 Vice Chairman of the Board and Senior Vice President
Albert L. Greene 49 Director
Karl H. Johannsmeier 70 Director
Daniel R. Dugan 44 President
Barry Zwarenstein 50 Vice President, Chief Financial Officer
Edward P. Cornell 54 Senior Vice President, Engineering
Rick E. Smith 52 Senior Vice President, Worldwide Sales and Marketing
Bradford C. Anker 53 Vice President, Manufacturing
Charles H. Dearborn 46 Vice President, Human Resources and Legal Affairs, General Counsel and Secretary
L. Thomas Morse 55 Vice President, Corporate Controller
</TABLE>
SAMUEL H. MASLAK co-founded the Company in September 1981, and has been Chief
Executive Officer and a director since that date. He was President of the
Company from September 1981 until May 1995. He was appointed Chairman of the
Board in May 1995.
ROBERT J. GALLAGHER joined Acuson in January 1983 as Vice President, Finance and
Chief Financial Officer. Mr. Gallagher became Executive Vice President in March
1991, was Chief Operating Officer from January 1994 until March 1999, and was
President of the Company from May 1995 until November 1997, when he was
appointed Vice Chairman of the Board. He retired as Chief Operating Officer in
March 1999 and is currently a Senior Vice President of the Company.
14
<PAGE>
ALBERT L. GREENE is the President, Chief Executive Officer and Co-founder of
HealthCentral.com, a web-based software and information services company. Mr.
Greene served from 1990-1998 as Chief Executive Officer of Sutter Health East
Bay, Alta Bates Health Systems and Alta Bates Medical Center in Berkeley. He was
Chair of The California Healthcare Association in 1998. Mr. Greene is also a
director of Quadramed (NASDAQ, QMDC), a healthcare information technology and
solutions provider.
KARL H. JOHANNSMEIER served as a director of the Company from September 1981 to
May 1994 and has also served as a director from March 1995 to the present. He
founded Optimetrix Corporation, a semiconductor processing equipment company,
where he served as President and Chief Executive Officer from 1976 to 1981 and
as Chairman of the Board of Directors from 1976 to 1984. Optimetrix Corporation
was acquired by Eaton Corporation in 1982. Mr. Johannsmeier has been a private
investor over the last twenty years.
DANIEL R. DUGAN joined the Company in 1984 in a sales management role. He has
held several senior positions in sales and marketing including Senior Vice
President, Worldwide Sales, Service and Marketing to which he was promoted in
1994. In 1997 he was promoted to President and is currently responsible for all
functional areas of the Company.
BARRY ZWARENSTEIN joined the Company in November 1998 as Vice President, Chief
Financial Officer. Prior to working for Acuson, Mr. Zwarenstein served as Chief
Financial Officer, FMC Europe from 1992 to 1996 and as Senior Vice President,
Finance & Business Development and Chief Financial Officer for Logitech, S.A.
from 1996 to 1998.
EDWARD P. CORNELL joined the Company in September 1997 as Vice President,
Engineering and was promoted to Senior Vice President, Engineering in November
1997. From 1990 to 1997, Mr. Cornell was Vice President of Engineering and
Product Development for Pitney Bowes, Inc. in Stamford, CT. For the prior 16
years, Mr. Cornell was employed by General Electric at their Corporate R&D
Center and in Operations.
RICK E. SMITH joined the Company in 1992 as Director of Sales, General Imaging
and was promoted to Vice President, General Imaging Business Unit in 1995 and
Vice President, North America Business Operations in June 1998. He became Senior
Vice President, Worldwide Sales and Marketing in March 1999.
BRADFORD C. ANKER joined the Company in December 1983 and has served as Vice
President, Manufacturing since that date.
CHARLES H. DEARBORN joined the Company in October 1988 and has served as General
Counsel since that date. He was elected Secretary of the Company in February
1991 and Vice President in February 1995. He was appointed Vice President, Human
Resources and Legal Affairs in June 1997.
L. THOMAS MORSE joined the Company in July 1983 and has served as Corporate
Controller since that date. He was elected an officer of the Company in March
1989 and Vice President, Corporate Controller in February 1991.
================================================================================
15
<PAGE>
PART II
ITEM 5
MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The information required by Item 5 of Form 10-K is incorporated by reference to
the information contained in the section captioned "Market for Registrant's
Common Equity and Related Stockholder Matters" in the Company's Annual Report to
Stockholders for the fiscal year ended December 31, 1998 (the "1998 Annual
Report").
================================================================================
ITEM 6
SELECTED CONSOLIDATED FINANCIAL DATA
The information required by Item 6 of Form 10-K is incorporated by reference to
the information contained in the section captioned "Selected Consolidated
Financial Data" in the Company's 1998 Annual Report.
================================================================================
ITEM 7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The information required by Item 7 of Form 10-K is incorporated by reference to
the information contained in the section captioned "Management's Discussion and
Analysis of Financial Condition and Results of Operations" in the Company's 1998
Annual Report.
================================================================================
ITEM 7A
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information required by Item 7A of Form 10-K is incorporated by reference to
the information contained in the section captioned "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and Note 2 of "Notes
to Consolidated Financial Statements" in the Company's 1998 Annual Report.
================================================================================
ITEM 8
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by Item 8 of Form 10-K is incorporated by reference
to the consolidated financial statements and notes thereto, and to the section
captioned "Quarterly Data" in the Company's 1998 Annual Report.
================================================================================
ITEM 9
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
================================================================================
With the exception of the information specifically incorporated by reference
from the 1998 Annual Report in Part II of this Form 10-K, the Company's 1998
Annual Report is not to be deemed filed as part of this Form 10-K.
================================================================================
16
<PAGE>
PART III
ITEM 10
DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
DIRECTORS. The information required by Item 10 of Form 10-K with respect to
directors is incorporated by reference to the information contained in the
sections captioned "Nomination and Election of Directors" and "Section 16(a)
Beneficial Ownership Reporting Compliance" in the Registrant's definitive Proxy
Statement for the Annual Meeting of Stockholders to be held on June 8, 1999 (the
"Proxy Statement"). See also pages 14 and 15 of this Form 10-K.
EXECUTIVE OFFICERS. See pages 14 and 15 of this Form 10-K.
================================================================================
ITEM 11
EXECUTIVE COMPENSATION
The information required by Item 11 of Form 10-K is incorporated by reference
to the information contained in the sections captioned "Compensation of
Directors and Executive Officers," "Options Granted to Executive Officers,"
"Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option
Values," "Employment Contracts, Termination of Employment and Change in Control
Arrangements" and "Compensation Committee Interlocks and Insider Participation"
in the Proxy Statement.
================================================================================
ITEM 12
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by Item 12 of Form 10-K is incorporated by reference
to the information contained in the section captioned "Share Ownership of
Directors, Executive Officers and Certain Beneficial Owners" in the Proxy
Statement.
================================================================================
ITEM 13
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by Item 13 of Form 10-K is incorporated by reference
to the information contained in the section captioned "Certain Relationships and
Other Transactions" in the Proxy Statement.
================================================================================
17
<PAGE>
PART IV
ITEM 14
EXHIBITS, FINANCIAL STATEMENT SCHEDULES
AND REPORTS ON FORM 8-K
NOTE: This copy of the Company's Form 10-K does not include Exhibits.
(a) The following documents are filed as part of this Form 10-K:
(1) Financial Statements. The following consolidated financial statements
of Acuson Corporation and Report of Independent Public Accountants are
incorporated into this Form 10-K Report by reference to the section
entitled "Financial Contents" of the Company's 1998 Annual Report:
Consolidated Statements of Operations and Comprehensive Income --
For the Three Years Ended December 31, 1998
Consolidated Balance Sheets -- As of December 31, 1998 and 1997
Consolidated Statements of Stockholders' Equity -- For the Three
Years Ended December 31, 1998
Consolidated Statements of Cash Flows -- For the Three Years
Ended December 31, 1998
Notes to Consolidated Financial Statements
Report of Independent Public Accountants
Supplementary Information
Quarterly Data (Unaudited)
(2) Financial Statement Schedules. The following financial statement
schedule of Acuson Corporation for the three years ended December 31,
1998 is filed as part of this Form 10-K:
Page
----
Report of Independent Public Accountants on Valuation and
Qualifying Accounts Schedule S-1
Valuation and Qualifying Accounts For The Three Years Ended
December 31, 1998 (Schedule II) S-2
All other schedules are omitted because they are not applicable or the
required information is shown in the consolidated financial statements
or notes incorporated herein by reference to the Company's 1998 Annual
Report.
18
<PAGE>
(3) Exhibits. The following Exhibits are filed as part of, or incorporated
by reference into, this Form 10-K:
<TABLE>
<S> <C>
3.1 Restated Certificate of Incorporation, as amended (Exhibit 3.8) *
3.2 Bylaws, as amended
4.1 Rights Agreement, dated as of June 8, 1998, between Acuson Corporation ***
and BankBoston, N.A., as Rights Agent, as amended (Exhibit 1)
10.1 The Company's 1986 Supplemental Stock Option Plan, as amended (Exhibit ///(1)
10.3)
10.2 Form of Supplemental Stock Option (Exhibit 10.7) /(1)
10.3 Series A Preferred Stock Purchase Agreement, dated January 6, 1982, *
between the Company and the Purchasers listed on Schedule A thereto
(Exhibit 10.8)
10.4 Series B Preferred Stock Purchase Agreement, dated March 29, 1983, *
between the Company and the Purchasers listed on Schedule A thereto
(Exhibit 10.9)
10.5 Series C Convertible Preferred Stock Purchase Agreement, dated March 30, *
1984, between the Company and the Purchasers listed on Exhibit A thereto
(Exhibit 10.10)
10.6 Lease of office space, dated May 15, 1990, between Shoreline Investments ++
III and the Company (Exhibit 19.1)
10.7 Lease of office space, dated May 15, 1990, between Shoreline Investments ++
III and the Company (Exhibit 19.2)
10.8 Lease of office space, dated May 15, 1990, between Shoreline Investments ++
III and the Company (Exhibit 19.3)
10.9 Lease of office space, dated May 15, 1990, between Shoreline Investments ++
VI and the Company (Exhibit 19.4)
10.10 Lease of office space, dated May 15, 1990, between Shoreline Investments ++
V and the Company (Exhibit 19.5)
10.11 Lease of office space, dated May 15, 1990, between Shoreline Investments ++
VI and the Company (Exhibit 19.6)
10.12 Lease of office space, dated May 15, 1990, between Shoreline Investments ++
VI and the Company (Exhibit 19.7)
10.13 Lease of office space, dated May 15, 1990, between Shoreline Investments ++
VII and the Company (Exhibit 19.8)
10.14 The Company's 1991 Stock Incentive Plan, as amended (1)
10.15 Form of the Company's Supplemental and Non-Employee Director Supplemental (1)
Options under the 1991 Stock Incentive Plan and related exercise
documents, as amended
10.16 Non-Negotiable Secured Promissory Note, dated August 8, 1991, of Daniel ++++(1)
R. Dugan (Exhibit 19.1)
10.17 Second Deed of Trust, dated August 8, 1991, between Daniel R. Dugan and ++++
First American Title Insurance Company, as Trustee (Exhibit 19.2)
10.18 Lease of office space, dated July 31, 1991, between Shoreline Investments ++++
V and the Company (Exhibit 19.3)
</TABLE>
19
<PAGE>
<TABLE>
<S> <C>
10.19 Lease of office space, dated January 31, 1992, between Shoreline Investments V ##
and the Company (Exhibit 19.1)
10.20 Form of Amendment Number 1 to Supplemental Stock Option Terms Under the Company's ////(1)
1986 Supplemental Stock Plan and 1991 Stock Incentive Plan (Exhibit 10.1)
10.21 Form of Supplemental Stock Option Terms Under the Company's 1991 Stock Incentive ////(1)
Plan (Exhibit 10.2)
10.22 The Company's 1995 Employee Stock Purchase Plan, as amended (1)
10.23 The Company's 1995 Stock Incentive Plan, as amended (1)
10.24 Credit Agreement, dated March 28, 1997, between Acuson Corporation and ABN AMRO
Bank N. V., as Agent for Lenders, as amended
10.25 Acuson Management Incentive Plan, as amended (1)
10.26 Non-Negotiable Secured Promissory Note, dated April 24, 1998, of Edward P. &
Cornell (Exhibit 10.1)
10.27 Deed of Trust, dated April 24, 1998, between Edward P. Cornell and Commonwealth &
Land Title Company, as Trustee
10.28 Promissory Note, dated September 11, 1998, between Acuson Corporation and Banque
Nationale de Paris
10.29 Letter agreement, dated September 11, 1998, between Acuson Corporation and Banque
Nationale de Paris
10.30 Form of Change of Control Agreement for Certain Executive Officers of the Company (1)
10.31 Form of the Company's 1995 Stock Incentive Plan (1)
11.1 Statement regarding computation of per share earnings for the fiscal year ended @
December 31, 1994 (Exhibit 11.6)
13.1 The portion of the Annual Report to security holders for the fiscal year ended
December 31, 1998, which is incorporated by reference
21.1 Subsidiaries of the Company
23.1 Consent of Independent Public Accountants
27.1 Financial Data Schedule for the year ended December 31, 1998
</TABLE>
(b) The Company filed no reports on Form 8-K during the fourth quarter of the
fiscal year covered by this report.
* Incorporated by reference to the indicated exhibit in the Company's
Registration Statement on Form S-1 (File No. 33-7838), as amended.
*** Incorporated by reference to the indicated exhibit in the Company's
Form 8-A dated December 31, 1998.
++ Incorporated by reference to the indicated exhibit in the Company's
Form 10-Q Quarterly Report for the quarterly period ended June 30,
1990.
++++ Incorporated by reference to the indicated exhibit in the Company's
Form 10-Q Quarterly Report for the quarterly period ended September
28, 1991.
20
<PAGE>
## Incorporated by reference to the indicated exhibit in the Company's
Form 10-Q Quarterly Report for the quarterly period ended March 28,
1992.
/ Incorporated by reference to the indicated exhibit in the Company's
Form 10-K Annual Report for the fiscal year ended December 31,
1993.
/// Incorporated by reference to the indicated exhibit in the Company's
Form 10-Q Quarterly Report for the quarterly period ended July 2,
1994.
//// Incorporated by reference to the indicated exhibit in the Company's
Form 10-Q Quarterly Report for the quarterly period ended October
1, 1994.
@ Incorporated by reference to the indicated exhibit in the Company's
Form 10-K Annual Report for the fiscal year ended December 31,
1994.
& Incorporated by reference to the indicated exhibit in the Company's
Form 10-Q Quarterly Report for the quarterly period ended July 4,
1998.
(1) Management contract or compensatory plan required to be filed as an
exhibit.
21
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
March 29, 1999 By /s/ Samuel H. Maslak
---------------------
Samuel H. Maslak
Chairman and Chief Executive Officer
March 29, 1999 By /s/ Barry Zwarenstein
---------------------
Barry Zwarenstein
Vice President, Chief Financial
Officer (Principal Financial Officer)
March 29, 1999 By /s/ L. Thomas Morse
-------------------
L. Thomas Morse
Vice President, Corporate Controller
(Principal Accounting Officer)
22
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE Date
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
/s/ Samuel H. Maslak Chairman and Chief Executive Officer March 29, 1999
- -----------------------
(Samuel H. Maslak)
/s/ Robert J. Gallagher Vice Chairman and Senior Vice President March 29, 1999
- -----------------------
(Robert J. Gallagher)
/s/ Barry Zwarenstein Vice President, Chief Financial Officer March 29, 1999
- -----------------------
(Barry Zwarenstein) (Principal Financial Officer)
/s/ L. Thomas Morse Vice President, Corporate Controller March 29, 1999
- ----------------------- (Principal Accounting Officer)
(L. Thomas Morse)
/s/ Albert L. Greene Director March 29, 1999
- -----------------------
(Albert L. Greene)
/s/ Karl H. Johannsmeier Director March 29, 1999
- ------------------------
(Karl H. Johannsmeier)
</TABLE>
23
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULE
We have audited in accordance with generally accepted auditing standards,
the financial statements included in Acuson Corporation's Annual Report to
Shareholders incorporated by reference in this Form 10-K, and have issued our
report thereon dated January 29, 1999. Our audit was made for the purpose of
forming an opinion on those statements taken as a whole. The schedule listed at
Part IV, Item 14(a)(2) is the responsibility of the Company's management and is
presented for purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic financial statements. This
schedule has been subjected to the auditing procedures applied in the audit of
the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
/s/ Arthur Andersen LLP
San Jose, California
January 29, 1999
S-1
<PAGE>
ACUSON CORPORATION SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
FOR THE THREE YEARS ENDED DECEMBER 31, 1998
(In thousands)
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO
BEGINNING COSTS AND BALANCE AT END
OF PERIOD EXPENSES WRITE-OFFS OF PERIOD
----------- ----------- ------------- --------------
<S> <C> <C> <C> <C>
ALLOWANCE FOR DOUBTFUL ACCOUNTS:
Year ended:
December 31, 1996 $2,998 $ 442 $ (472) $2,968
December 31, 1997 $2,968 $ 868 $ (361) $3,475
December 31, 1998 $3,475 $ 212 $ (126) $3,561
ACCRUED WARRANTY:
Year ended:
December 31, 1996 $4,440 $ 9,526 $ (7,942) $6,024
December 31, 1997 $6,024 $15,207 $(12,276) $8,955
December 31, 1998 $8,955 $14,357 $(15,014) $8,298
</TABLE>
S-2
<PAGE>
ACUSON CORPORATION EXHIBIT 3.2
- --------------------------------------------------------------------------------
BYLAWS
OF
ACUSON CORPORATION
<PAGE>
INDEX
-----
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I - Offices....................................................... 1
Section 1. Registered Office........................................ 1
Section 2. Other Offices............................................ 1
ARTICLE II - Corporate Seal............................................... 1
Section 3. Corporate Seal........................................... 1
ARTICLE III - Stockholders' Meetings...................................... 1
Section 4. Place of Meetings........................................ 1
Section 5. Annual Meeting Stockholder Proposals at Annual Meetings.. 1
Section 6. Notice of Meetings....................................... 2
Section 7. Quorum................................................... 2
Section 8. Adjournment and Notice of Adjourned
Meetings............................................. 2
Section 9. Voting Rights............................................ 2
Section 10. Joint Owners of Stock.................................... 3
Section 11. List of Stockholders..................................... 3
Section 12. Action without Meeting................................... 3
Section 13. Organization............................................. 3
ARTICLE IV - Directors.................................................... 4
Section 14. Number and Term of Office................................ 4
Section 15. Powers................................................... 4
Section 16. Vacancies................................................ 4
Section 17. Resignation.............................................. 4
Section 18. Removal.................................................. 5
Section 19. Meetings................................................. 5
(a) Annual Meetings............................................. 5
(b) Regular Meetings............................................ 5
(c) Special Meetings............................................ 5
(d) Telephone Meetings.......................................... 5
(e) Notice of Meetings.......................................... 5
(f) Waiver of Notice............................................ 5
</TABLE>
i.
<PAGE>
<TABLE>
<S> <C>
Section 20. Quorum and Voting......................................... 6
(a) Quorum........................................................ 6
(b) Majority Vote................................................. 6
Section 21. Action without Meeting.................................... 6
Section 22. Fees and Compensation..................................... 6
Section 23. Committees................................................ 7
(a) Executive Committee........................................... 7
(b) Other Committees.............................................. 7
(c) Term.......................................................... 7
(d) Meetings...................................................... 8
Section 24. Organization.............................................. 8
ARTICLE V - Officers........................................................ 8
Section 25. Officers Designated....................................... 8
Section 26. Tenure and Duties of Officers............................. 9
(a) General....................................................... 9
(b) Duties of Chairman of the Board of Directors.................. 9
(c) Duties of Chief Executive Officer............................. 9
(d) Duties of President........................................... 9
(e) Duties of Other Officers...................................... 9
(f) Duties of Secretary........................................... 9
(g) Duties of Chief Financial Officer............................. 10
Section 27. Resignations.............................................. 10
Section 28. Removal................................................... 10
ARTICLE VI - Execution of Corporate Instruments and
Voting of Securities Owned by the Corporation................. 10
Section 29. Execution of Corporate Instruments.........................10
Section 30. Voting of Securities Owned by the
Corporation............................................... 11
</TABLE>
ii.
<PAGE>
<TABLE>
<S> <C>
ARTICLE VII - Shares of Stock............................................... 11
Section 31. Form and Execution of Certificates........................ 11
Section 32. Lost Certificates......................................... 11
Section 33. Transfers................................................. 12
Section 34. Fixing Record Dates....................................... 12
Section 35. Registered Stockholders................................... 12
ARTICLE VIII - Other Securities of the Corporation.......................... 12
Section 36. Execution of Other Securities............................. 12
ARTICLE IX - Dividends...................................................... 13
Section 37. Declaration of Dividends.................................. 13
Section 38. Dividend Reserve.......................................... 13
ARTICLE X - Fiscal Year..................................................... 13
Section 39. Fiscal Year............................................... 13
ARTICLE XI - Indemnification of Directors, Officers,
Employees and Other Agents...................................... 14
Section 40. Indemnification of Directors, Officers,
Employees and Other Agents................................. 14
(a) Directors and Executive Officers.............................. 14
(b) Other Officers, Employees and Other Agents.................... 14
(c) Good Faith.................................................... 14
(d) Expenses...................................................... 14
(e) Enforcement................................................... 15
(f) Non-Exclusivity of Rights..................................... 15
(g) Survival of Rights............................................ 16
(h) Amendments.................................................... 16
(i) Savings Clause................................................ 16
ARTICLE XII - Notices....................................................... 16
Section 41. Notices................................................... 16
(a) Notice to Stockholders........................................ 16
(b) Notice to Directors........................................... 16
</TABLE>
iii.
<PAGE>
<TABLE>
<S> <C>
(c) Address Unknown............................................... 16
(d) Affidavit of Mailing.......................................... 16
(e) Time Notices Deemed Given..................................... 16
(f) Methods of Notice............................................. 17
(g) Failure to Receive Notice..................................... 17
(h) Notice to Person with Whom Communication Is
Unlawful...................................................... 17
ARTICLE XIII - Amendments................................................... 17
Section 42. Amendments................................................ 17
ARTICLE XIV - Loans of Officers and Others.................................. 18
Section 43. Certain Corporate Loans and Guaranties.................... 18
</TABLE>
iv.
<PAGE>
BYLAWS
ACUSON CORPORATION
(A Delaware corporation)
ARTICLE I
Offices
Section 1. Registered Office. The registered office of the corporation in
-----------------
the State of Delaware shall be in the City of Dover, County of Kent. (Del. Code
Ann., tit. 8, (S) 131)
Section 2. Other Offices. The corporation shall also have and maintain an
-------------
office or principal place of business at such place as may be fixed by the Board
of Directors, and may also have offices at such other places, both within and
without the State of Delaware as the Board of Directors may from time to time
determine or the business of the corporation may require. (Del. Code Ann.,
tit. 8, (S) 122(8))
ARTICLE II
Corporate Seal
Section 3. Corporate Seal. The corporate seal shall consist of a die
--------------
bearing the name of the corporation and the inscription, "Corporate Seal-
Delaware." Said seal may be used by causing it or a facsimile thereof to be
impressed or affixed or reproduced or otherwise. (Del. Code Ann., tit. 8, (S)
122(3))
ARTICLE III
Stockholders' Meetings
Section 4. Place of Meetings. Meetings of the stockholders of the
-----------------
corporation shall be held at such place, either within or without the State of
Delaware, as may be designated from time to time by the Board of Directors, or,
if not so designated, then at the office of the corporation required to be
maintained pursuant to Section 2 hereof. (Del. Code Ann., tit. 8, (S) 211(a))
Section 5. Annual Meeting: Stockholder Proposals at Annual Meetings. The
--------------------------------------------------------
annual meeting of the stockholders of the corporation shall be held on any date
and time which may from time to time be designated by the Board of Directors.
At such annual meeting, directors shall be elected and only such other business
may be transacted as shall have been properly brought before the meeting. (Del.
Code Ann., tit. 8, (S) 211(b))
1.
<PAGE>
To be properly brought before an annual meeting, business must be specified
in the notice of meeting (or any supplement thereto) given by or at the
direction of the Board of Directors, otherwise properly brought before the
meeting by or at the direction of the Board of Directors or otherwise properly
brought before the meeting by a stockholder. In addition to any other
applicable requirements, for business to be properly brought before an annual
meeting by a stockholder, the stockholder must have given timely notice thereof
in writing to the Secretary of the corporation. To be timely, a stockholder's
notice must be delivered to or mailed and received at the principal executive
offices of the corporation, not less than 45 days nor more than 75 days prior to
the date on which the corporation first mailed its proxy materials for the
previous year's annual meeting of stockholders (or the date on which the
corporation mails its proxy materials for the current year if during the prior
year the corporation did not hold an annual meeting or if the date of the annual
meeting was changed more than 30 days from the prior year). A stockholder's
notice to the Secretary shall set forth as to each matter the stockholder
proposes to bring before the annual meeting (i) a brief description of the
business desired to be brought before the annual meeting and the reasons for
conducting such business at the annual meeting, (ii) the name and record address
of the stockholder proposing such business, (iii) the class and number of shares
of the corporation which are beneficially owned by the stockholder, and (iv) any
material interest of the stockholder in such business.
Notwithstanding anything in the Bylaws to the contrary, no business shall
be conducted at the annual meeting except in accordance with the procedures set
forth in this Section 5, provided, however, that nothing in this Section 5 shall
be deemed to preclude discussion by any stockholder of any business properly
brought before the annual meeting in accordance with said procedure.
The chairman of an annual meeting shall, if the facts warrant, determine
and declare to the meeting that business was not properly brought before the
meeting in accordance with the provisions of this Section 5, and if he should so
determine he shall so declare to the meeting, and any such business not properly
brought before the meeting shall not be transacted.
Nothing in this Section 5 shall affect the right of a stockholder to
request inclusion of a proposal in the corporation's proxy statement to the
extent that such right is provided by an applicable rule of the Securities and
Exchange Commission."
Section 5. Notice of Meetings. Except as otherwise provided by law or the
------------------
Certificate of Incorporation, written notice of each meeting of stockholders
shall be given not less than ten (10) nor more than sixty (60) days before the
date of the meeting to each stockholder entitled to vote at such meeting, such
notice to specify the place, date and hour and purpose or purposes of the
meeting. Notice of the time, place and purpose of any meeting of stockholders
may be waived in writing, signed by the person entitled to notice thereof,
either before or after such meeting, and will be waived by any stockholder by
his attendance thereat in person or by proxy, except when the stockholder
attends a meeting for the express purpose of objecting, at the beginning of the
meeting, to the transaction of any business because the meeting
2.
<PAGE>
is not lawfully called or convened. Any stockholder so waiving notice of such
meeting shall be bound by the proceedings of any such meeting in all respects as
if due notice thereof had been given. (Del. Code Ann., tit. 8, (S)(S) 222, 229)
Section 6. Quorum. At all meetings of stockholders, except where otherwise
------
provided by statute or by the Certificate of Incorporation, or by these Bylaws,
the presence, in person or by proxy duly authorized, of the holders of a
majority of the outstanding shares of stock entitled to vote shall constitute a
quorum for the transaction of business. Any shares, the voting of which at said
meeting has been enjoined, or which for any reason cannot be lawfully voted at
such meeting, shall not be counted to determine a quorum at such meeting. In
the absence of a quorum any meeting of stockholders may be adjourned, from time
to time, by vote of the holders of a majority of the shares represented thereat,
but no other business shall be transacted at such meeting. The stockholders
present at a duly called or convened meeting, at which a quorum is present, may
continue to transact business until adjournment, notwithstanding the withdrawal
of enough stockholders to leave less than a quorum. Except as otherwise
provided by law, the Certificate of Incorporation or these Bylaws, all action
taken by the holders of a majority of the voting power represented at any
meeting at which a quorum is present shall be valid and binding upon the
corporation. (Del. Code Ann., tit. 8, (S) 216)
Section 7. Adjournment and Notice of Adjourned Meetings. Any meeting of
---------------------------------------------
stockholders, whether annual or special, may be adjourned from time to time (i)
by the vote of a majority of the shares, the holders of which are present either
in person or by proxy, or (ii) by the chairman of an annual or special meeting.
When a meeting is adjourned to another time or place, notice need not be given
of the adjourned meeting if the time and place thereof are announced at the
meeting at which the adjournment is taken. At the adjourned meeting the
corporation may transact any business which might have been transacted at the
original meeting. If the adjournment is for more than thirty (30) days, or if
after the adjournment a new record date is fixed for the adjourned meeting, a
notice of the adjourned meeting shall be given to each stockholder of record
entitled to vote at the meeting. (Del. Code Ann., tit. 8, (S) 222(c))
Section 8. Voting Rights. For the purpose of determining those
-------------
stockholders entitled to vote at any meeting of the stockholders, except as
otherwise provided by law, only persons in whose names shares stand on the stock
records of the corporation on the record date, as provided in Section 11 of
these Bylaws, shall be entitled to vote at any meeting of stockholders. Every
person entitled to vote or execute consents shall have the right to do so either
in person or by an agent or agents authorized by a written proxy executed by
such person or his duly authorized agent, which proxy shall be filed with the
Secretary at or before the meeting at which it is to be used. An agent so
appointed need not be a stockholder. No proxy shall be voted on after three (3)
years from its date of creation unless the proxy provides for a longer period.
All elections of Directors shall be by written ballot, unless otherwise provided
in the Certificate of Incorporation. (Del. Code Ann., tit. 8, (S)(S) 211(e),
212(b))
3.
<PAGE>
Section 9. Joint Owners of Stock. If shares or other securities having
---------------------
voting power stand of record in the names of two (2) or more persons, whether
fiduciaries, members of a partnership, joint tenants, tenants in common, tenants
by the entirety, or otherwise, or if two (2) or more persons have the same
fiduciary relationship respecting the same shares, unless the Secretary is given
written notice to the contrary and is furnished with a copy of the instrument or
order appointing them or creating the relationship wherein it is so provided,
their acts with respect to voting shall have the following effect: (a) if only
one (1) votes, his act binds all; (b) if more than one (1) votes, the act of the
majority so voting binds all; (c) if more than one (1) votes, but the vote is
evenly split on any particular matter, each faction may vote the securities in
question proportionally, or may apply to the Delaware Court of Chancery for
relief as provided in the General Corporation Law of Delaware, Section 217(b).
If the instrument filed with the Secretary shows that any such tenancy is held
in unequal interests, a majority or even-split for the purpose of this
subsection (c) shall be a majority or even-split in interest. (Del. Code Ann.,
tit. 8, (S) 217(b))
Section 10. List of Stockholders. The Secretary shall prepare and make, at
--------------------
least ten (10) days before every meeting of stockholders, a complete list of the
stockholders entitled to vote at said meeting, arranged in alphabetical order,
showing the address of each stockholder and the number of shares registered in
the name of each stockholder. Such list shall be open to the examination of any
stockholder, for any purpose germane to the meeting, during ordinary business
hours, for a period of at least ten (10) days prior to the meeting, either at a
place within the city where the meeting is to be held, which place shall be
specified in the notice of the meeting, or, if not specified, at the place where
the meeting is to be held. The list shall be produced and kept at the time and
place of meeting during the whole time thereof, and may be inspected by any
stockholder who is present. (Del. Code Ann., tit. 8, (S) 219(a))
Section 11. Action Without Meeting. Unless otherwise provided in the
----------------------
Certificate of Incorporation, any action required by statute to be taken at any
annual or special meeting of stockholders of the corporation, or any action
which may be taken at any annual or special meeting of such stockholders, may be
taken without a meeting, without prior notice and without a vote, if a consent
or consents in writing, setting forth the action so taken, are signed by the
holders of outstanding stock having not less than the minimum number of votes
that would be necessary to authorize or take such action at a meeting at which
all shares entitled to vote thereon were present and voted. To be effective, a
written consent must be delivered to the corporation by delivery to its
registered office in Delaware, its principal place of business, or an officer or
agent of the corporation having custody of the book in which proceedings of
meetings of stockholders are recorded. Delivery made to a corporation's
registered office shall be by hand or by certified or registered mail, return
receipt requested. Every written consent shall bear the date of signature of
each stockholder who signs the consent and no written consent shall be effective
to take the corporate action referred to therein unless, within sixty days of
the earliest dated consent delivered in the manner required by this Section to
the corporation, written consents signed by a sufficient number of holders to
take action are delivered to the corporation in accordance with this Section.
Prompt notice of the taking of the corporate action without a meeting by less
than unanimous written consent shall be given to those stockholders who have not
consented in writing.
4.
<PAGE>
Section 12. Organization. At every meeting of stockholders, the Chairman
------------
of the Board, or, if the Chairman of the Board is absent, the Chief Executive
Officer or, if the Chief Executive Officer is absent, the most senior officer
present, or in the absence of any such officer, a chairman of the meeting chosen
by a majority in interest of the stockholders entitled to vote, present in
person or by proxy, shall act as chairman. The Secretary, or, in his absence,
an Assistant Secretary directed to do so by the Chairman of the Board, shall act
as secretary of the meeting.
ARTICLE IV
Directors
Section 13. Number and Term of Office. The authorized number of directors
-------------------------
of the corporation shall be fixed from time to time by the board of directors
either by a resolution or a bylaw duly adopted by the board of directors. The
number of directors presently authorized is five. Except as provided in Section
16, the Directors shall be elected by the stockholders at their annual meeting
in each year and shall hold office until the next annual meeting and until their
successors shall be duly elected and qualified. Directors need not be
stockholders unless so required by the Certificate of Incorporation. If for any
cause, the Directors shall not have been elected at an annual meeting, they may
be elected as soon thereafter as convenient at a special meeting of the
stockholders called for that purpose in the manner provided in these Bylaws.
(Del. Code Ann., tit. 8, (S)(S) 141(b), 211(b), (c))
Section 14. Powers. The powers of the corporation shall be exercised, its
------
business conducted and its property controlled by the Board of Directors, except
as may be otherwise provided by statute or by the Certificate of Incorporation.
(Del. Code Ann., tit. 8, (S) 141(a))
Section 15. Vacancies. Unless otherwise provided in the Certificate of
---------
Incorporation, vacancies and newly created directorships resulting from any
increase in the authorized number of Directors may be filled by a majority of
the Directors then in office, although less than a quorum, or by a sole
remaining Director, and each Director so elected shall hold office for the
unexpired portion of the term of the Director whose place shall be vacant and
until his successor shall have been duly elected and qualified. A vacancy in
the Board of Directors shall be deemed to exist under this Section 16 in the
case of the death, removal or resignation of any Director, or if the
stockholders fail at any meeting of stockholders at which Directors are to be
elected (including any meeting referred to in Section 19 below) to elect the
number of Directors then constituting the whole Board of Directors. (Del. Code
Ann., tit. 8, (S) 223(a), (b))
Section 16. Resignation. Any Director may resign at any time by delivering
-----------
his written resignation to the Secretary, such resignation to specify whether it
will be effective at a particular time, upon receipt by the Secretary or at the
pleasure of the Board of Directors. If no such specification is made, it shall
be deemed effective at the pleasure of the Board of Directors. When one or more
Directors shall resign from the Board of Directors, effective at a future date,
a majority of
5.
<PAGE>
the Directors then in office, including those who have so resigned, shall have
power to fill such vacancy or vacancies, the vote thereon to take effect when
such resignation or resignations shall become effective, and each Director so
chosen shall hold office for the unexpired portion of the term of the Director
whose place shall be vacated and until his successor shall have been duly
elected and qualified. (Del. Code Ann., tit. 8, (S)(S) 141(b), 223(d))
Section 17. Removal. At a special meeting of stockholders called for the
-------
purpose in the manner hereinabove provided, the Board of Directors, or any
individual Director, may be removed from office, with or without cause, and a
new Director or Directors elected by a vote of stockholders holding a majority
of the outstanding shares entitled to vote at an election of Directors. (Del.
Code Ann., tit. 8, (S) 141(k))
Section 18. Meetings.
--------
(a) Annual Meetings. The annual meeting of the Board of Directors
---------------
shall be held immediately after the annual meeting of stockholders and at the
place where such meeting is held. No notice of an annual meeting of the Board of
Directors shall be necessary and such meeting shall be held for the purpose of
electing officers and transacting such other business as may lawfully come
before it.
(b) Regular Meetings. Except as hereinafter otherwise provided,
----------------
regular meetings of the Board of Directors shall be held in the office of the
corporation required to be maintained pursuant to Section 2 hereof. Unless
otherwise restricted by the Certificate of Incorporation, regular meetings of
the Board of Directors may also be held at any place within or without the State
of Delaware which has been designated by resolution of the Board of Directors or
the written consent of all Directors. (Del. Code Ann., tit. 8, (S) 141(g))
(c) Special Meetings. Unless otherwise restricted by the Certificate
----------------
of Incorporation, special meetings of the Board of Directors may be held at any
time and place within or without the State of Delaware whenever called by the
Chairman of the Board, the Chief Executive Officer, the President or a majority
of the Directors. (Del. Code Ann., tit. 8, (S) 141(g))
(d) Telephone Meetings. Any member of the Board of Directors, or of
------------------
any committee thereof, may participate in a meeting by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other, and participation in a meeting
by such means shall constitute presence in person at such meeting. (Del. Code
Ann., tit. 8, (S) 141(i))
(e) Notice of Meetings. Written notice of the time and place of all
------------------
regular and special meetings of the Board of Directors shall be given at least
one (1) day before the date of the meeting. Notice of any meeting may be waived
in writing at any time before or after the meeting and will be waived by any
Director by attendance thereat, except when the Director attends the meeting for
the express purpose of objecting, at the beginning of the meeting, to the
transaction of
6.
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any business because the meeting is not lawfully called or convened. (Del. Code
Ann., tit. 8, (S) 229)
(f) Waiver of Notice. The transaction of all business at any meeting of the
----------------
Board of Directors, or any committee thereof, however called or noticed, or
wherever held, shall be as valid as though had at a meeting duly held after
regular call and notice, if a quorum be present and if, either before or after
the meeting, each of the Directors not present shall sign a written waiver of
notice, or a consent to holding such meeting, or an approval of the minutes
thereof. All such waivers, consents or approvals shall be filed with the
corporate records or made a part of the minutes of the meeting. (Del. Code Ann.,
tit. 8, (S) 229)
Section 19. Quorum and Voting.
-----------------
(a) Quorum. Unless the Certificate of Incorporation requires a greater
------
number, a quorum of the Board of Directors shall consist of a majority of the
exact number of Directors fixed from time to time in accordance with Section 14
of these Bylaws, but not less than one (l); provided, however, at any meeting
whether a quorum be present or otherwise, a majority of the Directors present
may adjourn from time to time until the time fixed for the next regular meeting
of the Board of Directors, without notice other than by announcement at the
meeting. (Del. Code Ann., tit. 8, (S) 141(b))
(b) Majority Vote. At each meeting of the Board of Directors at which a
-------------
quorum is present all questions and business shall be determined by a vote of a
majority of the Directors present, unless a different vote be required by law,
the Certificate of Incorporation or these Bylaws. (Del. Code Ann., tit. 8, (S)
141(b))
Section 20. Action without Meeting. Unless otherwise restricted by the
----------------------
Certificate of Incorporation or these Bylaws, any action required or permitted
to be taken at any meeting of the Board of Directors or of any committee thereof
may be taken without a meeting, if all members of the Board of Directors or
committee, as the case may be, consent thereto in writing, and such writing or
writings are filed with the minutes of proceedings of the Board of Directors or
committee. (Del. Code Ann., tit. 8, (S) 141(f))
Section 21. Fees and Compensation. Directors shall not receive any stated
---------------------
salary for their services as Directors, but by resolution of the Board of
Directors a fixed fee, with or without expense of attendance, may be allowed for
attendance at each meeting and at each meeting of any committee of the Board of
Directors. Nothing herein contained shall be construed to preclude any Director
from serving the corporation in any other capacity as an officer, agent,
employee, or otherwise and receiving compensation therefor. (Del. Code Ann.,
tit. 8, (S) 141(h))
7.
<PAGE>
Section 22. Committees.
----------
(a) Executive Committee. The Board of Directors may by resolution
-------------------
passed by a majority of the whole Board of Directors, appoint an Executive
Committee to consist of one (l) or more members of the Board of Directors. The
Executive Committee, to the extent permitted by law and specifically granted by
the Board of Directors, shall have and may exercise when the Board of Directors
is not in session all powers of the Board of Directors in the management of the
business and affairs of the corporation, including, without limitation, the
power and authority to declare a dividend or to authorize the issuance of stock,
except such committee shall not have the power or authority to amend the
Certificate of Incorporation (except that the committee may, to the extent
authorized in the resolution or resolutions providing for the issuance of shares
of stock adopted by the Board of Directors as provided by law, fix any of the
preferences or rights of such shares relating to dividends, redemption,
dissolution, any distribution of assets of the corporation or the conversion
into, or the exchange of such shares for shares of any other class or classes or
any other series of the same or any other class or classes of stock of the
corporation), to adopt an agreement of merger or consolidation, to recommend to
the stockholders the sale, lease or exchange of all or substantially all of the
corporation's property and assets, to recommend to the stockholders a
dissolution of the corporation or a revocation of a dissolution or to amend
these Bylaws. (Del. Code Ann., tit. 8, (S) 141(c))
(b) Other Committees. The Board of Directors may, by resolution
----------------
passed by a majority of the whole Board of Directors, from time to time appoint
such other committees as may be permitted by law. Such other committees
appointed by the Board of Directors shall consist of one (1) or more members of
the Board of Directors, and shall have such powers and perform such duties as
may be prescribed by the resolution or resolutions creating such committees, but
in no event shall such committee have the powers denied to the Executive
Committee in these Bylaws. (Del. Code Ann., tit. 8, (S) 141(c))
(c) Term. The members of all committees of the Board of Directors
----
shall serve a term coexistent with that of the Board of Directors which shall
have appointed such committee. The Board of Directors, subject to the provisions
of subsections (a) or (b) of this Section 24, may at any time increase or
decrease the number of members of a committee or terminate the existence of a
committee. The membership of a committee member shall terminate on the date of
his death or voluntary resignation. The Board of Directors may at any time for
any reason remove any individual committee member and the Board of Directors may
fill any committee vacancy created by death, resignation, removal or increase in
the number of members of the committee. The Board of Directors may designate one
or more Directors as alternate members of any committee, who may replace any
absent or disqualified member at any meeting of the committee, and, in addition,
in the absence or disqualification of any member of a committee, the member or
members thereof present at any meeting and not disqualified from voting, whether
or not he or they constitute a quorum, may unanimously appoint another member of
the Board of Directors to act at the meeting in the place of any such absent or
disqualified member. (Del. Code Ann., tit. 8, (S)141(c))
8.
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(d) Meetings. Unless the Board of Directors shall otherwise provide,
--------
regular meetings of the Executive Committee or any other committee appointed
pursuant to this Section 24 shall be held at such times and places as are
determined by the Board of Directors, or by any such committee, and when notice
thereof has been given to each member of such committee, no further notice of
such regular meetings need be given thereafter. Special meetings of any such
committee may be held at the principal office of the corporation required to be
maintained pursuant to Section 2 hereof, or at any place which has been
designated from time to time by resolution of such committee or by written
consent of all members thereof, and may be called by any Director who is a
member of such committee, upon written notice to the members of such committee
of the time and place of such special meeting given in the manner provided for
the giving of written notice to members of the Board of Directors of the time
and place of special meetings of the Board of Directors. Notice of any special
meeting of any committee may be waived in writing at any time before or after
the meeting and will be waived by any Director by attendance thereat, except
when the Director attends such special meeting for the express purpose of
objecting, at the beginning of the meeting, to the transaction of any business
because the meeting is not lawfully called or convened. A majority of the
authorized number of members of any such committee shall constitute a quorum for
the transaction of business, and the act of a majority of those present at any
meeting at which a quorum is present shall be the act of such committee. (Del.
Code Ann., tit. 8, (S)(S) 141(c), 229)
Section 23. Organization. At every meeting of the Directors, the Chairman
------------
of the Board of Directors, or, if a Chairman has not been appointed or is
absent, the President or if the President is absent, the most senior Vice
President, or, in the absence of any such officer, a chairman of the meeting
chosen by a majority of the Directors present, shall preside over the meeting.
The Secretary, or in his absence, an Assistant Secretary directed to do so by
the Chairman of the Board, shall act as secretary of the meeting.
ARTICLE V
Officers
Section 24. Officers Designated. The officers of the corporation shall be
-------------------
the Chief Executive Officer, the President, the Chief Financial Officer and the
Secretary, all of whom shall be elected at the annual meeting of the Board of
Directors. The Board of Directors may also appoint a Chairman of the Board of
Directors and such other officers and agents with such powers and duties as it
shall deem necessary. The order of the seniority of the officers other than the
Chief Executive Officer and the President shall be in the order of their
nomination, unless otherwise determined by the Board of Directors. The Board of
Directors may assign such additional titles to one or more of the officers as it
shall deem appropriate. Any one person may hold any number of offices of the
corporation at any one time unless specifically prohibited therefrom by law.
The salaries and other compensation of the officers of the corporation shall be
fixed by or in the manner designated by the Board of Directors. (Del. Code
Ann., tit. 8, (S)(S) 122(5), 142(a), (b))
9.
<PAGE>
Section 25. Tenure and Duties of Officers.
-----------------------------
(a) General. All officers shall hold office at the pleasure of the
-------
Board of Directors and until their successors shall have been duly elected and
qualified, unless sooner removed. Any officer elected or appointed by the Board
of Directors may be removed at any time by the Board of Directors. If the office
of any officer becomes vacant for any reason, the vacancy may be filled by the
Board of Directors. (Del. Code Ann., tit. 8, (S) 141(b), (e))
(b) Duties of Chairman of the Board of Directors. The Chairman of the
--------------------------------------------
Board of Directors shall preside at all meetings of the stockholders and of the
Board of Directors. The Chairman of the Board of Directors shall perform other
duties commonly incident to his office and shall also perform such other duties
and have such other powers as the Board of Directors shall designate from time
to time. (Del. Code Ann., tit. 8, (S) 142(a))
(c) Duties of Chief Executive Officer. The Chief Executive Officer
shall be the chief executive officer of the corporation and shall, subject to
the control of the Board of Directors, have general supervision, direction and
control of the business and officers of the corporation. The Chief Executive
Officer shall perform other duties and have other powers commonly incident to
his office, including the power to appoint a Treasurer and one or more Assistant
Treasurers with powers and duties commonly incident to such offices, and shall
also perform such other duties and have such other powers as the Board of
Directors shall designate from time to time. (Del. Code Ann., tit. 8, (S)
142(a))
(d) Duties of President. The President may assume and perform the
-------------------
duties of the Chief Executive Officer in the absence or disability of the Chief
Executive Officer or whenever the office of the Chief Executive Officer is
vacant. The President shall perform such other duties and have such other powers
as the Board of Directors or the Chief Executive Officer shall designate from
time to time. (Del. Code Ann., tit. 8, (S) 142(a))
(e) Duties of Other Officers. The other officers, in the order of
------------------------
their seniority, may assume and perform the duties of the Chief Executive
Officer in the absence or disability of the Chief Executive Officer and the
President or whenever the offices of the Chief Exective Officer and the
President are vacant. The officers shall perform other duties commonly incident
to their office and shall perform such other duties and have such other powers
as the Board of Directors or the Chief Executive Officer shall designate from
time to time. (Del. Code Ann., tit. 8, (S) 142(a))
(f) Duties of Secretary. The Secretary or Assistant Secretary shall
-------------------
attend all meetings of the stockholders and of the Board of Directors, and shall
record all acts and proceedings thereof in the minute book of the corporation.
The Secretary shall give notice in conformity with these Bylaws of all meetings
of the stockholders, and of all meetings of the Board of Directors and any
committee thereof requiring notice. The Secretary shall perform all other duties
given him in these Bylaws and other duties commonly incident to his office and
shall also
10.
<PAGE>
perform such other duties and have such other powers as the Board of Directors
shall designate from time to time. The Chief Executive Officer may direct
any Assistant Secretary to assume and perform the duties of the Secretary
in the absence or disability of the Secretary, and each Assistant Secretary
shall perform other duties commonly incident to his office and shall also
perform such other duties and have such other powers as the Board of
Directors or the Chief Executive Officer shall designate from time to time.
(Del. Code Ann., tit. 8, (S) 142(a))
(g) Duties of Chief Financial Officer. The Chief Financial
---------------------------------
Officer shall keep or cause to be kept the books of account of the corporation
in a thorough and proper manner, and shall render statements of the financial
affairs of the corporation in such form and as often as required by THE Board of
Directors or the Chief Executive Officer. The Chief Financial Officer, subject
to the order of the Board of Directors, shall have the custody of all funds and
securities of the corporation. The Chief Financial Officer shall perform other
duties commonly incident to his office and shall also perform such other duties
and have such other powers as the Board of Directors or the Chief Executive
Officer shall designate from time to time. The Chief Executive Officer may
direct the Treasurer or any Assistant Treasurer to assume and perform the duties
of the Chief Financial Officer in the absence or disability of the Chief
Financial Officer. The Treasurer and each Assistant Treasurer shall perform
other duties commonly incident to their offices and shall also perform such
other duties and have such other powers as the Board of Directors or the Chief
Executive Officer shall designate from time to time. (Del. Code Ann., tit. 8,(S)
142(a))
Section 26. Resignations. Any officer may resign at any time by giving
------------
written notice to the Board of Directors or to the Chief Executive Officer or to
the President or to the Secretary. Any such resignation shall be effective when
received by the person or persons to whom such notice is given, unless a later
time is specified therein, in which event the resignation shall become effective
at such later time. Unless otherwise specified in such notice, the acceptance
of any such resignation shall not be necessary to make it effective. (Del. Code
Ann., tit. 8, (S) 142(b))
Section 27. Removal. Any officer may be removed from office at any time
-------
either with or without cause, by the Chief Executive Officer or by the vote or
written consent of a majority of the Directors in office at the time, or by any
committee of superior officers upon whom such power of removal may have been
conferred by the Board of Directors.
ARTICLE VI
Execution of Corporate Instruments and
Voting of Securities Owned by the Corporation
Section 28. Execution of Corporate Instruments. The Board of Directors
----------------------------------
may, in its discretion, determine the method and designate the signatory officer
or officers, or other person or persons, to execute on behalf of the corporation
any corporate instrument or document, or to sign on behalf of the corporation
the corporate name without limitation, or to enter into contracts on behalf of
the corporation, except where otherwise provided by law or these Bylaws, and
such
11.
<PAGE>
execution or signature shall be binding upon the corporation. (Del. Code
Ann., tit. 8, (S)(S) 103(a), 142(a), 158)
Unless otherwise specifically determined by the Board of Directors or
otherwise required by law, promissory notes, deeds of trust, mortgages and other
evidences of indebtedness of the corporation, and other corporate instruments or
documents requiring the corporate seal, and certificates of shares of stock
owned by the corporation, shall be executed, signed or endorsed by the Chairman
of the Board of Directors, the Chief Executive Officer, the President, the Chief
Financial Officer, the Secretary or any other officer. All other instruments and
documents requiring the corporate signature, but not requiring the corporate
seal, may be executed as aforesaid or in such other manner as may be directed by
the Board of Directors. (Del. Code Ann., tit. 8, (S)(S) 103(a) 142(a), 158)
All checks and drafts drawn on banks or other depositaries on funds to the
credit of the corporation or in special accounts of the corporation shall be
signed by such person or persons as the Board of Directors shall authorize so to
do. (Del. Code Ann., tit. 8, (S)(S) 103(a), 142(a), 158)
Section 29. Voting of Securities Owned by the Corporation. All stock and
---------------------------------------------
other securities of other corporations owned or held by the corporation for
itself, or for other parties in any capacity, shall be voted, and all proxies
with respect thereto shall be executed, by the person authorized so to do by
resolution of the Board of Directors, or, in the absence of such authorization,
by the Chairman of the Board of Directors, the Chief Executive Officer, the
President, the Secretary or any other officer. (Del. Code Ann., tit. 8, (S) 123)
ARTICLE VII
Shares of Stock
Section 30. Form and Execution of Certificates. The shares of the
----------------------------------
corporation shall be represented by certificates, provided that the Board of
Directors of the corporation may provide by resolution or resolutions that some
or all of any or all classes or series of its stock shall be uncertificated
shares. Any such resolution shall not apply to shares represented by a
certificate until such certificate is surrendered to the corporation.
Notwithstanding the adoption of such a resolution by the Board of Directors,
every holder of stock represented by certificates and upon request every holder
of uncertificated shares shall be entitled to have a certificate signed by, or
in the name of the corporation by the chairman or vice-chairman of the Board of
Directors, the Chief Executive Officer, the President or any other officer, and
by the Secretary or an Assistant Secretary, or the Treasurer or an Assistant
Treasurer of the corporation representing the number of shares registered in
certificate form. Any or all the signatures on the certificate may be a
facsimile. In case any officer, transfer agent, or registrar who has signed or
whose facsimile signature has been placed upon a certificate shall have ceased
to be such officer, transfer agent or registrar before such certificate is
issued, it may be issued by the corporation with the same effect as if he were
such officer, transfer agent or registrar at the date of issue. (Del. Code Ann.,
tit. 8, (S)158)
12.
<PAGE>
Section 31. Lost Certificates. The corporation may issue a new certificate
-----------------
of stock or uncertificated shares in place of any certificate theretofore issued
by the corporation alleged to have been lost, stolen, or destroyed, and the
corporation may require the owner of such lost, stolen, or destroyed
certificate, or his legal representative, to give the corporation a bond
sufficient to indemnify it against any claim that may be made against the
corporation on account of the alleged loss, theft or destruction of any such
certificate or the issuance of such new certificate or uncertificated shares.
(Del. Code Ann., tit. 8, (S) 167)
Section 32. Transfers. Transfers of record of shares of stock of the
---------
corporation shall be made only upon its books by the holders thereof, in person
or by attorney duly authorized, and upon the surrender of a properly endorsed
certificate or certificates for a like number of shares. (Del. Code Ann., tit.
6, (S) 8-401(1))
Section 33. Fixing Record Dates. In order that the corporation may
-------------------
determine the stockholders entitled to notice of or to vote at any meeting of
stockholders or any adjournment thereof, or to express consent to corporate
action in writing without a meeting, or entitled to receive payment of any
dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of stock or
for the purpose of any other lawful action, the Board of Directors may fix, in
advance, a record date, which shall not be more than sixty (60) nor less than
ten (10) days before the date of such meeting, nor more than sixty (60) days
prior to any other action. If no record date is fixed: (a) the record date for
determining stockholders entitled to notice of or to vote at a meeting of
stockholders shall be at the close of business on the day next preceding the day
on which notice is given, or, if notice is waived, at the close of business on
the day next preceding the day on which the meeting is held; (b) the record date
for determining stockholders entitled to express consent to corporate action in
writing without a meeting, when no prior action by the Board of Directors is
necessary, shall be the day on which the first written consent is expressed; and
(c) the record date for determining stockholders for any other purpose shall be
at the close of business on the day on which the Board of Directors adopts the
resolution relating thereto. A determination of stockholders of record entitled
to notice of or to vote at a meeting of stockholders shall apply to any
adjournment of the meeting; provided, however, that the Board of Directors may
fix a new record date for the adjourned meeting. (Del. Code Ann., tit. 8, (S)
213)
Section 34. Registered Stockholders. The corporation shall be entitled to
-----------------------
recognize the exclusive right of a person registered on its books as the owner
of shares to receive dividends, and to vote as such owner, and shall not be
bound to recognize any equitable or other claim to or interest in such share or
shares on the part of any other person whether or not it shall have express or
other notice thereof, except as otherwise provided by the laws of Delaware.
(Del. Code Ann., tit. 8, (S)(S) 213(a), 219)
13.
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ARTICLE VIII
Other Securities of the Corporation
Section 35. Execution of Other Securities. All bonds, debentures and
-----------------------------
other corporate securities of the corporation, other than stock certificates,
may be signed by the Chairman of the Board of Directors, the Chief Executive
Officer, the President or any other officers, or such other person as may be
authorized by the Board of Directors, and the corporate seal impressed thereon
or a facsimile of such seal imprinted thereon and attested by the signature of
the Secretary or an Assistant Secretary, the Chief Financial Officer or the
Treasurer or an Assistant Treasurer; provided, however, that where any such
bond, debenture or other corporate security shall be authenticated by the manual
signature of a trustee under an indenture pursuant to which such bond, debenture
or other corporate security shall be issued, the signatures of the persons
signing and attesting the corporate seal on such bond, debenture or other
corporate security may be the imprinted facsimile of the signatures of such
persons. Interest coupons appertaining to any such bond, debenture or other
corporate security, authenticated by a trustee as aforesaid, shall be signed by
the Chief Financial Officer or by the Treasurer or an Assistant Treasurer of the
corporation or such other person as may be authorized by the Board of Directors,
or bear imprinted thereon the facsimile signature of such person. In case any
officer who shall have signed or attested any bond, debenture or other corporate
security, or whose facsimile signature shall appear thereon or on any such
interest coupon, shall have ceased to be such officer before the bond, debenture
or other corporate security so signed or attested shall have been delivered,
such bond, debenture or other corporate security nevertheless may be adopted by
the corporation and issued and delivered as though the person who signed the
same or whose facsimile signature shall have been used thereon had not ceased to
be such officer of the corporation.
ARTICLE IX
Dividends
Section 36. Declaration of Dividends. Dividends upon the capital
------------------------
stock of the corporation, subject to the provisions of the Certificate of
Incorporation, if any, may be declared by the Board of Directors pursuant to law
at any regular or special meeting. Dividends may be paid in cash, in property,
or in shares of the capital stock, subject to the provisions of the Certificate
of Incorporation. (Del. Code Ann., tit. 8, (S)(S) 170, 173)
Section 37. Dividend Reserve. Before payment of any dividend, there may
----------------
beset aside out of any funds of the corporation available for dividends such sum
or sums as the Board of Directors from time to time, in their absolute
discretion, think proper as a reserve or reserves to meet contingencies, or for
equalizing dividends, or for repairing or maintaining any property of the
corporation, or for such other purpose as the Board of Directors shall think
conducive to the
14.
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interests of the corporation, and the Board of Directors may modify or abolish
any such reserve in the manner in which it was created. (Del. Code Ann., tit. 8,
(S) 171)
ARTICLE X
Fiscal Year
Section 38. Fiscal Year. Unless otherwise fixed by resolution of the
-----------
Board of Directors, the fiscal year of the corporation shall end December 31 of
each year.
ARTICLE XI
Indemnification of Directors, Officers,
Employees and Other Agents
Section 39. Indemnification of Directors, Officers, Employees and
--------------------------------------------------------
Other Agents.
-------------
(a) Directors and Executive Officers. The corporation shall
---------------------------------
indemnify its directors and executive officers to the full extent permitted by
the Delaware General Corporation Law, as the same exists or may hereafter be
amended (but, in the case of any such amendment, only to the extent that such
amendment permits the corporation to provide broader indemnification rights than
said Law permitted the corporation to provide prior to such amendment);
provided, however, that the corporation may limit the extent of such
indemnification by individual contracts with its directors and executive
officers; and, provided, further, that the corporation shall not be required to
indemnify any director or executive officer in connection with any proceeding
(or part thereof) initiated by such person or any proceeding by such person
against the corporation or its directors, officers, employees or other agents
unless (i) such indemnification is expressly required to be made by law, (ii)
the proceeding was authorized by the board of directors of the corporation or
(iii) such indemnification is provided by the corporation, in its sole
discretion, pursuant to the powers vested in the corporation under the Delaware
General Corporation Law.
(b) Other Officers, Employees and Other Agents. The
------------------------------------------
corporation shall have power to indemnify its other officers, employees and
other agents as set forth in the Delaware General Corporation Law.
(c) Good Faith. For purposes of any determination under this
----------
By-Law, a director or executive officer shall be deemed to have acted in good
faith and in a manner he reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, to have had no reasonable cause to believe that his conduct was
unlawful, if his action is based on the records or books of account of the
corporation or another enterprise, or on information supplied to him by the
officers of the corporation or another enterprise in the course of their duties,
or on the advice of legal counsel for the corporation or another enterprise or
on information or records given or reports made to the corporation or another
15.
<PAGE>
enterprise by an independent certified public accountant or by an appraiser or
other expert selected with reasonable care by the corporation or another
enterprise. The term "another enterprise" as used in this paragraph (c) shall
mean any other corporation or any partnership, joint venture, trust or other
enterprise, including any employee benefit plan, of which such person is or was
serving at the request of the corporation as a director, officer, employee or
other agent. The provisions of this paragraph (c) shall not be deemed to be
exclusive or to limit in any way the circumstances in which a person may be
deemed to have met the applicable standard of conduct set forth by the Delaware
General Corporation Law.
(d) Expenses. The corporation shall advance, prior to the
--------
final disposition of any proceeding, promptly following request therefor, all
expenses incurred by any director or executive officer in connection with such
proceeding upon receipt of an undertaking by or on behalf of such person to
repay said amounts if it should be determined ultimately that such person is not
entitled to be indemnified under this By-Law or otherwise.
Notwithstanding the foregoing, unless otherwise determined pursuant to
paragraph (e) of this By-Law, no advance shall be made by the corporation if a
determination is reasonably and promptly made (1) by the board of directors by a
majority vote of a quorum consisting of directors who were not parties to the
proceeding, or (2) if such quorum is not obtainable, or, even if obtainable, a
quorum of disinterested directors so directs, by independent legal counsel in a
written opinion that, based upon the facts known to the decision making party at
the time such determination is made, such person acted in bad faith or in a
manner that such person did not believe to be in or not opposed to the best
interests of the corporation, or, with respect to any criminal proceeding, such
person believed or had reasonable cause to believe that his conduct was
unlawful.
(e) Enforcement. Without the necessity of entering into an
-----------
express contract, all rights to indemnification and advances under this By-Law
shall be deemed to be contractual rights and be effective to the same extent and
as if provided for in a contract between the corporation and the director or
executive officer who serves in such capacity at any time while this By-Law and
other relevant provisions of the Delaware General Corporation Law and other
applicable law, if any, are in effect. Any right to indemnification or advances
granted by this By-Law to a director or executive officer shall be enforceable
by or on behalf of the person holding such right in any court of competent
jurisdiction if (i) the claim for indemnification or advances is denied, in
whole or in part, or (ii) no disposition of such claim is made within ninety
(90) days of request therefor. The claimant in such enforcement action, if
successful in whole shall be entitled to be paid also the expense of prosecuting
his claim. It shall be a defense to any such action that the claimant has not
met the standards of conduct which make it permissible under the Delaware
General Corporation Law for the corporation to indemnify the claimant for the
amount claimed, but the burden of proving such defense shall be on the
corporation. Neither the failure of the corporation (including its board of
directors, independent legal counsel or its stockholders) to have made a
determination prior to the commencement of such action that indemnification of
the claimant is proper in the circumstances because he has met the applicable
standard of conduct set forth in the Delaware
16.
<PAGE>
General Corporation Law, nor an actual determination by the corporation
(including its board of directors, independent legal counsel or its
stockholders) that the claimant has not met such applicable standard of conduct,
shall be a defense to the action or create a presumption that claimant has not
met the applicable standard of conduct.
(f) Non-Exclusivity of Rights. The rights conferred on any
-------------------------
person by this By-Law shall not be exclusive of any other right which such
person may have or hereafter acquire under any statute, provision of the
Certificate of Incorporation, By-Laws, agreement, vote of stockholders or
disinterested directors or otherwise, both as to action in his official capacity
and as to action in another capacity while holding office. The corporation is
specifically authorized to enter into individual contracts with any or all of
its directors, officers, employees or agents respecting indemnification and
advances, as provided by law.
(g) Survival of Rights. The rights conferred on any person by
------------------
this By-Law shall continue as to a person who has ceased to be a director,
officer, employee or other agent and shall inure to the benefit of the heirs,
executors and administrators of such a person.
(h) Amendments. Any repeal or modification of this By-Law
----------
shall only be prospective and shall not affect the rights under this By-Law in
effect at the time of the alleged occurrence of any action or omission to act
that is the cause of any proceeding against any agent of the corporation.
(i) Savings Clause. If this By-Law or any portion hereof shall
--------------
be invalidated on any ground by any court of competent jurisdiction, then the
corporation shall nevertheless indemnify each agent to the full extent permitted
any applicable portion of this By-Law that shall not have been invalidated, or
by any other applicable law.
ARTICLE XII
Notices
Section 40. Notices.
-------
(a) Notice to Stockholders. Whenever, under any provisions of
----------------------
these Bylaws, notice is required to be given to any stockholder, it shall be
given in writing, timely and duly deposited in the United States mail, postage
prepaid, and addressed to his last known post office address as shown by the
stock record of the corporation or its transfer agent. (Del. Code Ann., tit. 8,
(S) 222)
(b) Notice to Directors. Any notice required to be given to
-------------------
any Director may be given by the method stated in subsection (a), or by
telegram, except that such notice other than one which is delivered personally
shall be sent to such address as such Director shall have filed in writing with
the Secretary, or, in the absence of such filing, to the last known post office
address of such Director.
17.
<PAGE>
(c) Address Unknown. If no address of a stockholder or
---------------
Director be known, notice may be sent to the office of the corporation required
to be maintained pursuant to Section 2 hereof.
(d) Affidavit of Mailing. An affidavit of mailing, executed by
--------------------
a duly authorized and competent employee of the corporation or its transfer
agent appointed with respect to the class of stock affected, specifying the name
and address or the names and addresses of the stockholder or stockholders, or
Director or Directors, to whom any such notice or notices was or were given, and
the time and method of giving the same, shall be conclusive evidence of the
statements therein contained. (Del. Code Ann., tit. 8, (S) 222)
(e) Time Notices Deemed Given. All notices given by mail, as
-------------------------
as above provided, shall be deemed to have been given as at the time of mailing
and all notices given by telegram shall be deemed to have been given as at the
sending time recorded by the telegraph company transmitting the notices.
(f) Methods of Notice. It shall not be necessary that the same
-----------------
method of notice be employed in respect of all Directors, but one permissible
method may be employed in respect of any one or more, and any other permissible
method or methods may be employed in respect of any other or others.
(g) Failure to Receive Notice. The period or limitation of
-------------------------
time within which any stockholder may exercise any option or right, or enjoy any
privilege or benefit, or be required to act, or within which any Director may
exercise any power or right, or enjoy any privilege, pursuant to any notice sent
him in the manner above provided, shall not be affected or extended in any
manner by the failure of such stockholder or such Director to receive such
notice.
(h) Notice to Person with Whom Communication Is Unlawful.
----------------------------------------------------
Whenever notice is required to be given, under any provision of law or of the
Certificate of Incorporation or Bylaws of the corporation, to any person with
whom communication is unlawful, the giving of such notice to such person shall
not be required and there shall be no duty to apply to any governmental
authority or agency for a license or permit to give such notice to such person.
Any action or meeting which shall be taken or held without notice to any such
person with whom communication is unlawful shall have the same force and affect
as if such notice had been duly given. In the event that the action taken by the
corporation is such as to require the filing of a certificate under any
provision of the Delaware General Corporation Law, the certificate shall state,
if such is the fact and if notice is required, that notice was given to all
persons entitled to receive notice except such persons with whom communication
is unlawful. (Del. Code Ann., tit. 8, (S) 230)
18.
<PAGE>
ARTICLE XIII
Amendments
Section 41. Amendments. These Bylaws may be repealed, altered or amended
----------
or new Bylaws adopted by the stockholders. The Board of Directors shall also
have the authority, if such authority is conferred upon the Board of Directors
by the Certificate of Incorporation, to repeal, alter or amend these Bylaws or
adopt new Bylaws (including, without limitation, the amendment of any Bylaw
setting forth the number of Directors who shall constitute the whole Board of
Directors) subject to the power of the stockholders to change or repeal such
Bylaws and provided that the Board of Directors shall not make or alter any
Bylaws fixing the qualifications, classifications, term of office or
compensation of Directors. (Del. Code Ann., tit. 8, (S)(S) 109(a), 122(6))
ARTICLE XIV
Loans of Officers and Others
Section 42. Certain Corporate Loans and Guaranties. If the corporation has
--------------------------------------
outstanding shares held of record by 100 or more persons on the date of approval
by the Board of Directors, the corporation may make loans of money or property
to, or guarantee the obligations of, any officer of the corporation or its
parent or any subsidiary, whether or not a director of the corporation or its
parent or any subsidiary, or adopt an employee benefit plan or plans authorizing
such loans or guaranties, upon the approval of the Board of Directors alone, by
a vote sufficient without counting the vote of any interested director or
directors, if the Board of Directors determines that such a loan or guaranty or
plan may reasonably be expected to benefit the corporation.
19.
<PAGE>
ACUSON CORPORATION EXHIBIT 10.14
- -------------------------------------------------------------------------------
ACUSON CORPORATION
1991 STOCK INCENTIVE PLAN
Adopted by the Board of Directors on February 5, 1991
Approved by stockholders on May 6, 1991
Amended by the Board of Directors effective on May 31, 1995
Amended by the Board of Directors on February 19, 1999
1. PURPOSE.
-------
(a) The purpose of the Plan is to provide a means by which selected
employees of and consultants to Acuson Corporation, a Delaware Corporation (the
"Company"), and its Affiliates, as defined in subparagraph 1(b), may be given an
opportunity to purchase stock of the Company. It is intended that this purpose
will be effected through the granting of (i) incentive stock options and (ii)
nonstatutory stock options.
(b) The word "Affiliate" as used in the Plan means any parent corporation
or subsidiary corporation of the Company, as those terms are defined in Sections
424(e) and (f), respectively, of the Internal Revenue Code of 1986, as amended
(the "Code").
(c) The Company, by means of the Plan, seeks to retain the services of
persons now employed by or serving as consultants to the Company, to secure and
retain the services of persons capable of filling such positions, and to provide
incentives for such persons to exert maximum efforts for the success of the
Company.
(d) The Company intends that the stock options granted under the Plan
("Stock Awards") shall, in the discretion of the Board of Directors of the
Company (the "Board") or any committee to which responsibility for
administration of the Plan has been delegated pursuant to subparagraph 2(c), be
either: incentive stock options as that term is used in Section 422 of the Code
("Incentive Stock Options"), or options which do not qualify as incentive stock
options ("Supplemental Stock Options"). All options shall be separately
designated Incentive Stock Options or Supplemental Stock Options at the time of
grant, and in such form as issued pursuant to paragraph 6, and a separate
certificate or certificates shall be issued for shares purchased on exercise of
each type of option. An option designated as a Supplemental Stock Option will
not be treated as an Incentive Stock Option.
<PAGE>
2. ADMINISTRATION.
--------------
(a) The Plan shall be administered by the Board unless and until the Board
delegates administration to a committee, as provided in subparagraphs 2(c) and
2(d).
(b) The Board shall have the power, subject to, and within the limitations
of, the express provisions of the Plan:
(i) To determine from time to time which of the persons eligible
under the Plan shall be granted Stock Awards; when and how the Stock Awards
shall be granted; whether a Stock Award will be an Incentive Stock Option, a
Supplemental Stock Option, or a combination of the foregoing; the provisions of
each Stock Award granted (which need not be identical), including the time or
times when a person shall be permitted to purchase or receive stock pursuant to
a Stock Award; and the number of shares with respect to which Stock Awards shall
be granted to each such person.
(ii) To construe and interpret the Plan and Stock Awards granted under
it, and to establish, amend and revoke rules and regulations for its
administration. The Board, in the exercise of this power, may correct any
defect, omission or inconsistency in the Plan or in any Stock Award, in a manner
and to the extent it shall deem necessary or expedient to make the Plan fully
effective.
(iii) To amend the Plan as provided in paragraph 12.
(iv) Generally, to exercise such powers and to perform such acts as
the Board deems necessary or expedient to promote the best interests of the
Company.
(c) With respect to options granted to officers of the Company subject to
Section 16(b) of the Exchange Act, the Plan may be administered by a committee
of the Board (the "Committee"), which committee shall be constituted in such
manner as to permit such grants and related transactions under the Plan to be
exempt from Section 16(b) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act") in accordance with Rule 16b-3 (or any successor thereto)
promulgated under the Exchange Act ("Rule 16b-3"). If administration is
delegated to a Committee, the Committee shall have, in connection with the
administration of the Plan, the powers theretofore possessed by the Board,
subject, however, to such resolutions, not inconsistent with the provisions of
the Plan, as may be adopted from time to time by the Board. Subject to
subparagraph 2(d) the Board may abolish the Committee at any time and revest in
the Board the administration of the Plan.
(d) Notwithstanding anything in this paragraph 2 to the contrary, the
Board may delegate to a committee of one (1) or more members of the Board the
authority to grant options to eligible persons who are not officers or directors
of the Company.
2
<PAGE>
3. STRUCTURE OF THE PLAN.
---------------------
The Plan shall consist of an option grant program whereby certain
employees and consultants to the Company described in paragraph 5 shall be
eligible for option grants in the discretion of the Board.
4. SHARES SUBJECT TO THE PLAN.
--------------------------
(a) Subject to the provisions of paragraph 11 relating to adjustments upon
changes in stock, the stock that may be sold pursuant to Stock Awards granted
under the Plan shall not exceed in the aggregate five million (5,000,000) shares
of the Company's common stock. If any Stock Award granted under the Plan shall
for any reason expire or otherwise terminate without having been exercised in
full, the stock not purchased under such option shall again become available for
the Plan.
(b) The stock subject to the Plan may be unissued shares or reacquired
shares bought on the market or otherwise.
(c) An Incentive Stock Option may be granted to an eligible person under
the Plan only if the aggregate fair market value (determined at the time the
option is granted) of the stock with respect to which Incentive Stock Options
(as defined in the Code) granted after 1986 are exercisable for the first time
by such optionee during any calendar year under all incentive stock option plans
of the Company and its Affiliates does not exceed one hundred thousand dollars
($100,000).
5. ELIGIBILITY.
-----------
(a) Incentive Stock Options may be granted only to employees (including
officers) of the Company or its Affiliates. A director of the Company who is not
an employee of the Company shall not be eligible to receive Stock Awards
pursuant to the Plan. Stock Awards other than Incentive Stock Options may be
granted only to officers or employees of or consultants to the Company or its
Affiliates.
(b) No person shall be eligible for the grant of an Incentive Stock Option
under the Plan if, at the time of grant, such person owns (or is deemed to own
pursuant to Section 424(d) of the Code) stock possessing more than ten percent
(10%) of the total combined voting power of all classes of stock of the Company
or of any of its Affiliates unless the exercise price of such Incentive Stock
Option is at least one hundred ten percent (110%) of the fair market value of
such stock at the date of grant and the term of the option does not exceed five
(5) years from the date of grant.
3
<PAGE>
6. OPTION PROVISIONS.
-----------------
Each option shall be in such form and shall contain such terms and
conditions as the Board or the Committee shall deem appropriate. The provisions
of separate options need not be identical, but each option shall include
(through incorporation of provisions hereof by reference in the option or
otherwise) the substance of each of the following provisions:
(a) The term of any option shall not be exercisable after the expiration
of ten (10) years from the date it was granted.
(b) The exercise price of each Incentive Stock Option shall be not less
than one hundred percent (100%) of the fair market value of the stock subject to
the option on the date the option is granted. The exercise price of each
Supplemental Stock Option shall be not less than ten percent (10%) of the fair
market value of the stock subject to the option on the date the option is
granted.
(c) The purchase price of stock acquired pursuant to an option shall be
paid, to the extent permitted by applicable statutes and regulations, either (i)
in cash at the time the option is exercised, or (ii) at the discretion of the
Board or the Committee, either at the time of the grant or exercise of the
option, (A) by delivery to the Company of shares of common stock of the Company
that have been held for the requisite period necessary to avoid a charge to the
Company's reported earnings and valued at the fair market value on the date of
exercise (determined by the closing sale price per share of Common Stock for
such date as reported by the New York Stock Exchange), (B) according to a
deferred payment or other arrangement (which may include, without limiting the
generality of the foregoing, the use of other common stock of the Company) with
the person to whom the option is granted or to whom the option is transferred
pursuant to subparagraph 6(d), or (C) in any other form of legal consideration
that may be acceptable to the Board or the Committee.
In the case of any deferred payment arrangement, interest shall be
payable at least annually and shall be charged at the minimum rate of interest
necessary to avoid the treatment as interest, under any applicable provisions of
the Code, of any amounts other than amounts stated to be interest under the
deferred payment arrangement.
(d) An option shall not be transferable except by will or by the laws of
descent and distribution, and shall be exercisable during the lifetime of
the person to whom the option is granted only by such person.
(e) The total number of shares of stock subject to an option may, but need
not, be allotted in periodic installments (which may, but need not, be equal).
From time to time during each of such installment periods, the option may become
exercisable ("vest") with respect to some or all of the shares allotted to that
period, and if vested, may be exercised with respect to some or all of the
4
<PAGE>
shares allotted to such period and/or any prior period as to which the option
was not fully exercised. During the remainder of the term of the option (if its
term extends beyond the end of the installment periods), the option may be
exercised from time to time with respect to any shares then remaining subject to
the option. The provisions of this subparagraph 6(e) are subject to any option
provisions governing the minimum number of shares as to which an option may be
exercised.
(f) The Company may as a condition of issuing any stock pursuant to the
Plan, require any person who is to acquire such stock, (i) to give written
assurances satisfactory to the Company as to such person's knowledge and
experience in financial and business matters and/or to employ a purchaser
representative reasonably satisfactory to the Company who is knowledgeable and
experienced in financial and business matters, and that he or she is capable of
evaluating, alone or together with the purchaser representative, the merits and
risks of exercising the option; and (ii) to give written assurances satisfactory
to the Company stating that such person is acquiring the stock for such person's
own account and not with any present intention of selling or otherwise
distributing the stock. These requirements, and any assurances given pursuant to
such requirements, shall be inoperative if (i) the issuance of the shares has
been registered under the Securities Act of 1933, as amended (the "Securities
Act"), or (ii) as to any particular requirement, a determination is made by
counsel for the Company that such requirement need not be met in the
circumstances under the then applicable securities laws.
(g) An option shall terminate three (3) months after termination of the
optionee's employment or relationship as a consultant with the Company or an
Affiliate, unless (i) such termination is due to such person's permanent and
total disability, within the meaning of Section 422(c)(6) of the Code, in which
case the option may, but need not, provide that it may be exercised at any time
within one (1) year following such termination of employment or relationship as
a consultant; or (ii) the optionee dies while in the employ of or while serving
as a consultant to the Company or an Affiliate, or within not more than three
(3) months after termination of such employment or relationship, in which case
the option may, but need not, provide that it may be exercised at any time
within eighteen (18) months following the death of the optionee by the person or
persons to whom the optionee's rights under such option pass by will or by the
laws of descent and distribution; or (iii) the option by its terms specifies
either (A) that it shall terminate sooner than three (3) months after
termination of the optionee's employment or relationship as a consultant, or (B)
that it may be exercised more than three (3) months after termination of such
employment or relationship with the Company or an Affiliate. This subparagraph
6(g) shall not be construed to extend the term of any option or to permit anyone
to exercise the option after expiration of its term, nor shall it be construed
to increase the number of shares as to which any option is exercisable from the
amount exercisable on the date of termination of the optionee's employment or
relationship as a consultant.
5
<PAGE>
(h) The option may, but need not, include a provision whereby the optionee
may elect at any time during the term of his or her employment or relationship
as a consultant with the Company or any Affiliate to exercise the option as to
any part or all of the shares subject to the option prior to the stated vesting
date of the option or of any installment or installments specified in the
option. Any shares so purchased from any unvested installment or option may be
subject to a repurchase right in favor of the Company or to any other
restriction the Board or the Committee determines to be appropriate.
7. COVENANTS OF THE COMPANY.
------------------------
(a) During the terms of the options granted under the Plan, the Company
shall keep available at all times the number of shares of stock required to
satisfy such options.
(b) The Company shall seek to obtain from each regulatory commission or
agency having jurisdiction over the Plan such authority as may be required to
issue and sell shares of stock upon grant or exercise of Stock Awards under the
Plan; provided, however, that this undertaking shall not require the Company to
register under the Securities Act either the Plan, any Stock Award granted under
the Plan, or any stock issued or issuable pursuant to any such Stock Awards. If,
after reasonable efforts, the Company is unable to obtain from any such
regulatory commission or agency the authority which counsel for the Company
deems necessary for the lawful issuance and sale of stock under the Plan, the
Company shall be relieved from any liability for failure to issue and sell stock
upon exercise of such Stock Awards unless and until such authority is obtained.
8. USE OF PROCEEDS FROM STOCK.
--------------------------
Proceeds from the sale of stock pursuant to Stock Awards granted under the
Plan shall constitute general funds of the Company.
9. MISCELLANEOUS.
-------------
(a) The Board or the Committee shall have the power to accelerate the time
at which a Stock Award may first be exercised or the time during which an option
or stock acquired pursuant to a Stock Award or any part thereof will vest,
notwithstanding the provisions in the Stock Award stating the time at which it
may first be exercised or the time during which it will vest.
(b) Neither a recipient of a Stock Award nor any person to whom a Stock
Award is transferred under subparagraph 6(d) shall be deemed to be the holder
of, or to have any of the rights of a holder with respect to, any shares subject
to such Stock Award unless and until such person has satisfied all requirements
for exercise of the Stock Award pursuant to its terms.
6
<PAGE>
(c) Nothing in the Plan or an instrument executed or Stock Award granted
pursuant thereto shall confer upon any eligible employee or consultant any right
to continue in the employ of the Company or any Affiliate (or to continue acting
as a consultant) or shall affect the right of the Company or any Affiliate to
terminate the employment or consulting relationship of any eligible employee or
consultant with or without cause. In the event that a Stock Award recipient is
permitted or otherwise entitled to take a leave of absence, the Company shall
have the unilateral right to (i) determine whether such leave of absence will be
treated as a termination of employment for purposes of his or her Stock Award,
and (ii) suspend or otherwise delay the time or times at which the shares
subject to the Stock Award would otherwise vest.
(d) At the discretion of the Board or the Committee, the recipient may
satisfy any federal, state or local tax withholding obligation relating to the
exercise of such Stock Award by any of the following means or by a combination
of such means: (i) tendering a cash payment; (ii) authorizing the Company to
withhold from the shares of the common stock otherwise issuable to the
participant as a result of the exercise of the Stock Award a number of shares
having a fair market value less than or equal to the amount of the withholding
tax obligation; or (iii) delivering to the Company owned and unencumbered shares
of the common stock of the Company having a fair market value less than or equal
to the amount of the withholding tax obligation.
10. CANCELLATION AND RE-GRANT OF OPTIONS.
------------------------------------
The Board or the Committee shall have the authority to effect, at any
time and from time to time, with the consent of the affected option holders, (i)
the repricing of any or all outstanding options (excluding Incentive Stock
Options) under the Plan and/or (ii) the cancellation of any or all outstanding
options under the Plan and the grant in substitution therefor new options under
the Plan covering the same or different numbers of shares of common stock but
having an option price per share not less than ten percent (10%) of the fair
market value (one hundred percent (100%) of the fair market value in the case of
an Incentive Stock Option or, in the case of a ten percent (10%) stockholder (as
defined in subparagraph 5(b)), not less than one hundred and ten percent (110%)
of the fair market value) per share of common stock on the new grant date.
11. ADJUSTMENTS UPON CHANGES IN STOCK.
---------------------------------
(a) If any change is made in the stock subject to the Plan, or subject to
any Stock Award granted under the Plan (through merger, consolidation,
reorganization, recapitalization, stock dividend, dividend in property other
than cash, stock split, liquidating dividend, combination of shares, exchange of
shares, change in corporate structure or otherwise), the Plan and outstanding
Stock Awards will be appropriately adjusted in the class(es) and number of
shares and price per share of stock subject to outstanding Stock Awards.
7
<PAGE>
(b) In the event of: (i) a dissolution or liquidation of the Company; (ii)
a merger or consolidation in which the Company is not the surviving corporation;
(iii) a reverse merger in which the Company is the surviving corporation but the
shares of the Company's common stock outstanding immediately preceding the
merger are converted by virtue of the merger into other property, whether in the
form of securities, cash or otherwise; or (iv) any other capital reorganization
in which more than fifty percent (50%) of the shares of the Company entitled to
vote are exchanged, then to the extent permitted by applicable law (x) any
surviving corporation shall assume any Stock Awards outstanding under the Plan
or shall substitute similar rights for those outstanding under the Plan, or (y)
such Stock Awards shall continue in full force and effect. In the event any
surviving corporation refuses to assume or continue such Stock Awards, or to
substitute similar Stock Awards for those outstanding under the Plan, then, with
respect to Stock Awards held by persons then performing services as employees or
consultants for the Company, the time during which such options may be exercised
shall be accelerated and the Stock Awards terminated if not exercised prior to
such event.
12. AMENDMENT OF THE PLAN.
---------------------
(a) The Board at any time, and from time to time, may amend the Plan.
However, except as provided in paragraph 11 relating to adjustments upon changes
in stock, no amendment shall be effective unless approved by the stockholders of
the Company within twelve (12) months before or after the adoption of the
amendment, where the amendment will:
(i) Increase the number of shares reserved for issuance under
the Plan;
(ii) Modify the requirements as to eligibility for participation
in the Plan (to the extent such modification requires stockholder approval in
order for the Plan to satisfy the requirements of Section 422(b) of the Code);
or
(iii) Modify the Plan in any other way if such modification
requires stockholder approval in order for the Plan to satisfy the requirements
of Section 422(b) of the Code or to comply with the requirements of Rule 16b-3.
(b) It is expressly contemplated that the Board may amend the Plan in any
respect the Board deems necessary or advisable to provide eligible employees or
consultants with the maximum benefits provided or to be provided under the
provisions of the Code and the regulations promulgated thereunder relating to
employee stock options and/or to bring the Plan and/or options granted under it
into compliance therewith.
(c) Rights and obligations under any Stock Award granted before amendment
of the Plan shall not be altered or impaired by any amendment of the
8
<PAGE>
Plan unless (i) the Company requests the consent of the person to whom the
option was granted and (ii) such person consents in writing.
13. TERMINATION OR SUSPENSION OF THE PLAN.
-------------------------------------
(a) The Board may suspend or terminate the Plan at any time. Unless sooner
terminated, the Plan shall terminate within ten (10) years from the date the
Plan is adopted by the Board or approved by the stockholders of the Company,
whichever is earlier. No Stock Awards may be granted under the Plan while the
Plan is suspended or after it is terminated.
(b) Rights and obligations under any Stock Award granted while the Plan is
in effect shall not be altered or impaired by suspension or termination of the
Plan, except with the consent of the person to whom the Stock Award was granted.
14. EFFECTIVE DATE AND STOCKHOLDER APPROVAL OF PLAN.
-----------------------------------------------
The Plan become effective when adopted by the Board on February 5, 1991 and
was approved by the Company's stockholders on May 6, 1991. Effective May 31,
1995, the Board amended the Plan to terminate the automatic option grant program
for non-employee directors which was replaced by a similar program under the
Company's 1995 Stock Incentive Plan, which amendment did not require stockholder
approval. On February 19, 1999, the Board adopted and approved an amendment and
restatement of the Plan to reflect amendments promulgated by the Securities and
Exchange Commission to Rule 16b-3 applicable to the Plan, which amendment did
not require stockholder approval.
9
<PAGE>
ACUSON CORPORATION EXHIBIT 10.15
- --------------------------------------------------------------------------------
ACUSON CORPORATION
SUPPLEMENTAL STOCK OPTION TERMS
Acuson Corporation (the "Company"), pursuant to its 1991 Stock Incentive
Plan (the "Plan"), has this day granted to you, the optionee named on the Notice
of Grant of Stock Options and Grant Agreement to which these Supplemental Stock
Option Terms are attached (the "Agreement"), an option to purchase shares of the
common stock of the Company ("Common Stock"). This option is not intended to
qualify as an "incentive stock option" within the meaning of Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code"). Whenever used herein,
"this option" refers to the Agreement together with these Supplemental Stock
Option Terms.
The details of your option are as follows:
1. The total number of shares subject to this option is set forth in the
Agreement. Subject to the limitations contained herein, this option shall be
exercisable with respect to each installment shown below on or after the date of
vesting applicable to such installment, as follows:
(a) Except as otherwise provided in this paragraph 1, commencing on the
date specified as the "Beginning Vesting Date" in the Agreement, shares shall be
allocated to this option, and shall vest and become exercisable, in four
installments, as follows: twenty percent (20%) on the first anniversary of the
Beginning Vesting Date, twenty percent (20%) on the second anniversary of such
date, thirty percent (30%) on the third anniversary of such date, and the
remaining thirty percent (30%) on the fourth anniversary of such date. The
shares subject to this option shall be allocated, and shall vest and become
exercisable, in accordance with the preceding sentence only until the earlier of
(i) the date on which all such shares have been allocated hereto or (ii) the
date of termination of your employment or relationship as a consultant or
director with the Company or an affiliate of the Company (as defined in the
Plan) for any reason or no reason, including your death or disability. You shall
have no right to exercise this option as to any share until such share has been
allocated hereto and has vested, and you shall have no right to exercise this
option as to any fractional share. Fractional shares, if any, included in an
installment shall not vest before such time as additional fractional shares, or
portions thereof, included in other installments allocated to this option can be
combined with the existing fractional share to constitute one or more whole
shares.
(b) Notwithstanding anything to the contrary contained in this paragraph
1, the total number of shares subject to this option shall be allocated hereto
and shall vest fully, automatically and without any further action by the
parties hereto on the twenty-second day after any Share Acquisition Date, unless
prior to such twenty-second day a majority of the Continuing Directors then in
office has determined that the transaction pursuant to which a Person has become
an Acquiring Person is an Approved Transaction.
(c) For purposes of paragraph 1(b), the following definitions shall apply:
<PAGE>
Acuson Corporation
Supplemental Stock Option Terms
"Acquiring Person" means any Person who or which, together with all
----------------
Affiliates and Associates of such Person, shall be the Beneficial Owner of
20% or more of the Common Stock then outstanding, but shall not include the
Company, any Subsidiary of the Company or any employee benefit plan of the
Company or any Subsidiary of the Company, or any entity holding Common
Stock for or pursuant to the terms of any such plan. Notwithstanding the
foregoing, no Person shall become an Acquiring Person as the result of an
acquisition of Common Stock by the Company which, by reducing the number of
shares outstanding, increases the proportionate number of shares
beneficially owned by such Person to 20% or more of the Common Stock of the
Company then outstanding; provided, however, that if a Person becomes the
-------- -------
Beneficial Owner of 20% or more of the Common Stock of the Company then
outstanding by reason of share purchases by the Company and shall, after
such share purchases by the Company, become the Beneficial Owner of any
additional Common Stock of the Company, then such Person shall be deemed to
be an Acquiring Person.
"Affiliate" and "Associate" have the respective meanings ascribed to
--------- ---------
such terms in Rule 12b-2 of the General Rules and Regulations under the
Exchange Act, as in effect on the date of this grant.
"Approved Transaction" means any transaction that occurs at a time
--------------------
when Continuing Directors are in office and a majority of the Continuing
Directors then in office has determined that the transaction is in the best
interest of the Company and its stockholders.
A Person shall be deemed the "Beneficial Owner" of and shall be deemed
----------------
to "beneficially own" any securities: (i) which such Person or any of such
Person's Affiliates or Associates beneficially owns, directly or
indirectly; (ii) which such Person or any of such Person's Affiliates or
Associates has (A) the right to acquire (whether such right is exercisable
immediately or only after the passage of time) pursuant to any agreement,
arrangement or understanding, or upon the exercise of conversion rights,
exchange rights, rights (other than the Rights), warrants or options, or
otherwise; provided, however, that a Person shall not be deemed the
-------- -------
Beneficial Owner of, or to beneficially own, securities tendered pursuant
to a tender or exchange offer made by or on behalf of such Person or any of
such Person's Affiliates or Associates until such tendered securities are
accepted for purchase or exchange; or (B) the right to vote pursuant to any
agreement, arrangement or understanding; provided, however, that a Person
-------- -------
shall not be deemed the Beneficial Owner of, or to beneficially own, any
security if the agreement, arrangement or understanding to vote such
security (1) arises solely from a revocable proxy or consent given to such
person in response to a public proxy or consent solicitation made pursuant
to, and in accordance with, the applicable rules and regulations of the
Exchange Act and (2) is not also then reportable on Schedule 13D under the
Exchange Act (or any comparable or successor report), or (iii) which are
beneficially owned, directly or indirectly, by any other Person with which
such Person or any of such Person's Affiliates or Associates has any
agreement, arrangement or understanding for the purpose of acquiring,
holding, voting (except to the extent contemplated by the proviso to clause
(ii) (B) of this definition) or disposing of any securities of the Company;
provided further, however, that nothing in this paragraph shall
-------- ------- -------
2
<PAGE>
Acuson Corporation
Supplemental Stock Option Terms
cause a Person to be the Beneficial Owner of, or to beneficially own,
any securities (x) acquired through such Person's participation in the
business of underwriting securities in good faith in a firm commitment
underwriting until the expiration of forty days after the date of such
acquisition or (y) which such Person has reported on Schedule 13G
under the Exchange Act and has not ceased to be eligible to report on
Schedule 13G pursuant to Rule 13d-1 under the Exchange Act.
"Common Stock" means the shares of common stock, par value $.0001
------------
per share, of the Company.
"Continuing Director" means (i) any member of the Board of
-------------------
Directors of the Company, while such Person is a member of the Board,
who is not an Acquiring Person, or an Affiliate or Associate of an
Acquiring Person, or a representative of an Acquiring Person or of any
such Affiliate or Associate, and who was, if applicable, a member of
the Board prior to the time that any Person becomes an Acquiring
Person, or (ii) any Person who subsequently becomes a member of the
Board, while such Person is a member of the Board who is not an
Acquiring Person, or an Affiliate or Associate of an Acquiring Person
or a representative of an Acquiring Person or of any such Affiliate or
Associate, if such Person's nomination for election or election to the
Board is recommended or approved by a majority of Continuing
Directors.
"Exchange Act" means the Securities Exchange Act of 1934, as
------------
amended, and the rules and regulations promulgated thereunder.
"Person" means any individual, firm, partnership, corporation or
------
other entity, and shall include any successor (by merger or
otherwise) of such entity.
"Rights" means the rights granted to the Company's shareholders
------
to purchase additional Common Stock under certain circumstances, as
described in that certain Rights Agreement, dated as of May 5, 1988,
by and between the Company and The First National Bank of Boston, as
rights agent.
"Share Acquisition Date" means the first date of public
----------------------
announcement by the Company or an Acquiring Person that a Person has
become an Acquiring Person.
"Subsidiary" of any Person means any corporation or other entity
----------
of which a majority of the voting power of the voting equity
securities or equity interest is owned, directly or indirectly, by
such Person, or which is otherwise controlled by such Person.
2. (a) The exercise price per share of this option is set forth in the
Agreement, being not less than ten percent (10%) of the fair market value of the
Common Stock on the date of grant of this option.
(b) The purchase price of stock acquired pursuant to this option shall be
paid at the time of exercise, to the extent permitted by applicable statutes and
regulations, by (i) personal check, certified check, bank draft, or postal money
order payable to the order of Acuson Corporation in lawful money of the United
States (collectively, "Cash Consideration");
3
<PAGE>
Acuson Corporation
Supplemental Stock Option Terms
(ii) delivery on a form prescribed by the Company of an irrevocable direction to
a securities broker approved by the Company to sell shares of common stock of
the Company and deliver all or a portion of the proceeds to the Company in
payment for the stock issuable upon exercise of this option; (iii) surrender to
the Company of shares of common stock of the Company (or delivery of a properly
executed form of attestation of ownership of shares of common stock of the
Company) that have been held for the requisite period necessary to avoid a
charge to the Company's reported earnings and valued at the fair market value on
the date of exercise (determined by the closing sale price per share of common
stock of the Company for such date); or (iv) in any combination of the
foregoing.
3. The minimum number of shares with respect to which this option may be
exercised at any one time is ten (10), except as to an installment subject to
exercise, as set forth in paragraph 1, which amounts to fewer than ten (10)
shares, in which case, as to the exercise of that installment, the number of
such shares in such installment shall be the minimum number of shares. In no
event may this option be exercised for any number of shares which would require
the issuance of anything other than whole shares.
4. Notwithstanding anything to the contrary contained herein, this option may
not be exercised unless the shares issuable upon exercise of this option are
then registered under the Securities Act of 1933, as amended (the "Securities
Act"), or, if such shares are not then so registered, the Company has determined
that such exercise and issuance would be exempt from the registration
requirements of the Securities Act.
5. The term of this option commences on the grant date as set forth in the
Agreement and, unless sooner terminated as set forth below or in the Plan,
terminates on the date set forth in the Agreement (which date shall be no more
than ten (10) years from the date this option is granted). In no event may this
option be exercised on or after the date on which it terminates. This option
shall terminate prior to the expiration of its term as follows: three (3) months
after the termination of your employment or relationship as a consultant or
director with the Company or an affiliate of the Company (as defined in the
Plan) for any reason or for no reason unless:
(a) such termination of employment or relationship as a consultant or
director is due to your permanent and total disability (within the meaning of
Section 422(c)(6) of the Code), in which event the option shall terminate on the
earlier of the termination date set forth above or one (1) year following such
termination of employment or relationship as a consultant or director; or
(b) such termination of employment or relationship as a consultant or
a director is due to your death, or your death occurs within three (3) months
after such termination of employment or relationship as a consultant or
director, in which event the option shall terminate on the earlier of the
termination date set forth above or eighteen (18) months after your death; or
(c) during any part of such three (3) month period the option is not
exercisable solely because of the condition set forth in paragraph 4 above, in
which event the option shall not terminate until the earlier of the termination
date set forth above or until it shall have been exercisable for an aggregate
period of three (3) months after the termination of your employment or
relationship as a consultant or a director; or
(d) exercise of the option within three (3) months after termination
of your employment or relationship as a consultant or a director with the
Company or with an affiliate of
4
<PAGE>
Acuson Corporation
Supplemental Stock Option Terms
the Company (as defined in the Plan) would result in liability under section
16(b) of the Securities Exchange Act of 1934, in which case the option will
terminate on the earlier of (i) the termination date set forth above, (ii) the
tenth (10th) day after the last date upon which exercise would result in such
liability, or (iii) six (6) months and ten (10) days after the termination of
your employment or relationship as a consultant or a director with the Company
or an affiliate of the Company (as defined in the Plan).
However, this option may be exercised following termination of your
employment or relationship as a consultant or a director only as to that number
of shares as to which it was exercisable on the date of your termination of
employment or relationship as a consultant or a director under the provisions of
paragraph 1 of this option.
6. (a) This option may be exercised, to the extent specified above, by
delivering a notice of exercise together with the exercise price to the
Secretary of the Company, or to such other person as the Company may designate,
during regular business hours, together with such additional documents as the
Company may then require pursuant to subparagraph 6(f) of the Plan.
(b) By exercising this option you agree that the Company may require
you to enter into an arrangement providing for the cash payment by you to the
Company of any tax withholding obligation of the Company arising by reason of
(i) the exercise of this option, (ii) the lapse of any substantial risk of
forfeiture to which the shares are subject at the time of exercise, or (iii) the
disposition of shares acquired upon such exercise.
7. This option is not transferable, except by will or by the laws of descent
and distribution, and is exercisable during your life only by you.
8. This option is not an employment contract, and nothing in this option shall
confer upon any eligible employee or consultant or director any right to
continue in the employ (or to continue acting as a consultant or director) of
the Company or any affiliate of the Company (as defined in the Plan) or shall
affect the right of the Company or any affiliate of the Company (as defined in
the Plan) to terminate the employment or consulting relationship or directorship
of any eligible employee or consultant or director with or without cause.
9. Any notices provided for in this option or the Plan shall be given in
writing and shall be deemed effectively given upon receipt or, in the case of
notices delivered by the Company to you, five (5) days after deposit in the
United States mail, postage prepaid, addressed to you at the address specified
in the Company's records or at such other address as you may designate by
written notice to the Company.
10. This option is subject to all the provisions of the Plan, a copy of which
is attached hereto, and its provisions are hereby made a part of this option,
including without limitation the provisions of paragraph 6 of the Plan relating
to option provisions, and is further subject to all interpretations, amendments,
rules, and regulations which may from time to time be promulgated and adopted
pursuant to the Plan. In the event of any conflict between the provisions of
this option and those of the Plan, the provisions of the Plan shall control.
This option is dated and effective as of the date of grant as set
forth in the Agreement.
5
<PAGE>
ACUSON CORPORATION EXHIBIT 10.22
- --------------------------------------------------------------------------------
ACUSON CORPORATION
1995 EMPLOYEE STOCK PURCHASE PLAN
Adopted by the Board of Directors on March 1, 1995
Approved by stockholders on May 31, 1995
Amended by the Board of Directors on February 19, 1999
The following constitute the provisions of the 1995 Employee Stock Purchase
Plan of Acuson Corporation.
1. Purpose. The purpose of the Plan is to provide employees of the
-------
Company and its Designated Subsidiaries with an opportunity to purchase Common
Stock of the Company through accumulated payroll deductions. The Company, by
means of the Plan, seeks to retain the services of its employees, to secure and
retain the services of new employees, and to provide incentives for such persons
to exert maximum efforts for the success of the Company by providing eligible
employees with an opportunity to participate as shareholders in the Company's
future growth. It is the intention of the Company to have the Plan qualify as an
"Employee Stock Purchase Plan" under Section 423 of the Code. Accordingly, the
provisions of the Plan, and the discretion granted to the Plan Administrator
hereunder shall be construed so as to extend and limit participation in a manner
consistent with the requirements of that section of the Code.
2. Definitions.
-----------
(a) "Applicable Discount" shall mean, with respect to any given
-------------------
Purchase Period, the discount fixed by the Plan Administrator pursuant to
paragraph 4(b) with respect to such Purchase Period, which discount shall be no
less than 0% and no more than 15% (in whole percentages).
(b) "Board" shall mean the Board of Directors of the Company.
-----
(c) "Code" shall mean the Internal Revenue Code of 1986, as amended.
----
(d) "Common Stock" shall mean the common stock, par value $.0001 per
------------
share, of the
(e) "Company" shall mean Acuson Corporation, a Delaware corporation.
-------
(f) "Compensation" shall mean, with respect to any given Purchase
------------
Period, the components of each Participant's total compensation that
1
<PAGE>
will be treated as compensation for purposes of the Plan during such Purchase
Period as determined by the Plan Administrator pursuant to paragraph 4(b).
(g) "Designated Subsidiaries" shall mean the Subsidiaries which have
-----------------------
been designated by the Plan Administrator from time to time in its sole
discretion as eligible to participate in the Plan.
(h) "Employee" shall mean any individual who is regularly engaged in
--------
the rendition of personal services to the Company or a Designated Subsidiary for
earnings considered wages under Section 3121(a) of the Code. For purposes of the
Plan, the employment relationship shall be treated as continuing intact while
the individual is on sick leave or other leave of absence approved by the
Company. Where the period of leave exceeds 90 days and the individual's right to
reemployment is not guaranteed either by statute or by contract, the employment
relationship will be deemed to have terminated on the 91st day of such leave.
(i) "Enrollment Date" shall mean the first day of each Purchase
---------------
Period.
(j) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
------------
amended.
(k) "Exercise Date" shall mean, with respect to any given Purchase
-------------
Period, the date or dates fixed by the Plan Administrator with respect to such
Purchase Period pursuant to paragraph 4(b).
(l) "Fair Market Value" shall mean, as of any date, the value of
-----------------
Common Stock determined as follows:
(1) If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the National
Market System of the National Association of Securities Dealers, Inc. Automated
Quotation ("NASDAQ") System, its Fair Market Value shall be the closing sales
price for such stock (or the closing bid, if no sales were reported), as quoted
on such exchange (or the exchange with the greatest volume of trading in the
Common Stock) or system on the day of such determination, if such day is a
Trading Day, or the previous Trading Day, if such day is not a Trading Day, as
reported in The Wall Street Journal or such other source as the Board deems
-----------------------
reliable; or
(2) If the Common Stock is quoted on the NASDAQ system (but not
on the National Market system thereof) or is regularly quoted by a recognized
securities dealer but selling prices are not reported, its Fair Market Value
shall be the mean between the high and low asked prices for the Common Stock on
the day of such determination, if such day is a Trading Day, or the previous
Trading Day, if such day is not a Trading Day, as reported in The Wall Street
---------------
Journal or such other source as the Board deems reliable; or
- -------
2
<PAGE>
(3) In the absence of an established market for the Common
Stock, the Fair Market Value thereof shall be determined in good faith by the
Board.
(m) "Participant" means an eligible Employee of the Company or
-----------
Designated Subsidiary who is actively participating in the Plan.
(n) "Plan" shall mean this Employee Stock Purchase Plan.
----
(o) "Plan Administrator" shall mean either the Board or a committee
------------------
of the Board that is responsible for the administration of the Plan.
(p) "Purchase Period" shall mean a purchase period established by the
---------------
Plan Administrator pursuant to paragraph 4 hereof.
(q) "Purchase Price" shall mean, with respect to any given Exercise
--------------
Date, the amount determined by applying the Applicable Discount to the lower of
(i) the Fair Market Value of the Common Stock as of such Exercise Date and (ii)
the Fair Market Value of the Common Stock as of the first date of the Purchase
Period in which such Exercise Date falls; provided, however, that the Plan
Administrator may, in its discretion, determine that the Purchase Price for all
Exercise Dates within a given Purchase Period shall be the amount determined by
applying the Applicable Discount to the Fair Market Value of the Common Stock as
of the first date of such Purchase Period, but only if the Plan Administrator
does so upon establishing such Purchase Period.
(r) "Replacement Purchase Period" shall mean a replacement purchase
---------------------------
period established pursuant to paragraph 4(e) hereof.
(s) "Reserves" shall mean the number of shares of Common Stock
--------
covered by all purchase rights granted under the Plan which have not yet been
exercised and the number of shares of Common Stock which have been authorized
for issuance under the Plan but as to which purchase rights have not yet been
granted (or as to which purchase rights have previously been granted but have
expired unexercised).
(t) "Subsidiary" shall mean a corporation, domestic or foreign, of
----------
which not less than 50% of the voting shares are held by the Company or a
Subsidiary, whether or not such corporation now exists or is hereafter organized
or acquired by the Company or a Subsidiary, except that as used in paragraph
18(b), "Subsidiary" shall have the meaning set forth in paragraph 18(c).
(u) "Trading Day" shall mean a day on which The New York Stock
-----------
Exchange is open for trading.
3
<PAGE>
3. Eligibility.
-----------
(a) Any Employee who has been continuously employed by the Company
prior to the applicable Enrollment Date for such minimum period of time (not to
exceed two years), if any, as the Plan Administrator may require and who is
employed by the Company on such Enrollment Date shall be eligible to participate
in the Plan for the Purchase Period commencing with such Enrollment Date.
Members of the Board who are eligible Employees are permitted to participate in
the Plan except to the extent limited by paragraph 13(b).
(b) Any provisions of the Plan to the contrary notwithstanding, no
Employee shall be granted purchase rights under the Plan (i) if, immediately
after the grant, such Employee (taking into account stock owned by any other
person whose stock would be attributed to such Employee pursuant to Section
424(d) of the Code) would own stock and/or hold outstanding options or rights to
purchase stock possessing five percent (5%) or more of the total combined voting
power or value of all classes of stock of the Company or of any Subsidiary, or
(ii) which permits his/her rights to purchase stock under all employee stock
purchase plans of the Company and its Subsidiaries to accrue at a rate which
exceeds Twenty-Five Thousand Dollars ($25,000) worth of stock (determined at the
Fair Market Value of the shares at the time such purchase right is granted) for
each calendar year in which such purchase right is outstanding at any time. The
determination of the accrual of the right to purchase stock shall be made in
accordance with Section 423(b)(8) of the Code and the regulations thereunder.
(c) Notwithstanding paragraph (a) above, the Plan Administrator shall
have the discretion to exclude any one or more of the following categories of
Employees from participation in the Plan: (i) Employees whose customary
employment is 20 hours or less per week; (ii) Employees whose customary
employment is five months or less in any calendar year; (iii) Employees who have
been employed by the Company or any Designated Subsidiary for less than two
years; and (iv) highly compensated Employees (within the meaning of Section
414(q) of the Code).
4. Purchase Periods.
----------------
(a) The Plan shall be implemented by Purchase Periods until such time
as (i) the maximum number of shares of Common Stock available for issuance under
the Plan shall have been purchased or (ii) the Plan shall have terminated in
accordance with paragraph 19 or paragraph 23 hereof. Each Purchase Period shall
be of such duration (not to exceed twenty-seven months per Purchase Period) as
determined by the Plan Administrator upon establishment of such Purchase Period.
Purchase Periods will commence on such dates as may be determined by the Plan
Administrator during the period in which the Plan remains in existence. The Plan
Administrator shall have the discretion to establish overlapping Purchase
Periods.
4
<PAGE>
(b) Upon establishing each Purchase Period, the Plan Administrator
shall fix (i) one or more Exercise Dates with respect to such Purchase Period,
one of which shall be on the last day of such Purchase Period, (ii) the
Applicable Discount with respect to such Purchase Period, (iii) the Compensation
with respect to such Purchase Period and (iv) the maximum number of shares that
may be purchased by any Participant on any Exercise Date during such Purchase
Period (the "Per-Participant Limit"). In addition, the Plan Administrator may,
in its discretion, fix a maximum number of shares of Common Stock that may be
purchased by all Participants in the aggregate during such Purchase Period
and/or on any given Exercise Date therein. Once fixed, the Exercise Date or
Dates, the Applicable Discount, the Compensation, the Per-Participant Limit and
any aggregate share purchase limits with respect to a given Purchase Period may
not be changed, except upon the occurrence of a Corporate Transaction as
provided in paragraph 18(b).
(c) A Participant shall be granted a separate purchase right for each
Purchase Period in which he/she participates. The purchase right shall be
granted on the first day of the Purchase Period and shall be automatically
exercised in successive installments on each Exercise Date during the Purchase
Period.
(d) If the Plan Administrator establishes overlapping Purchase
Periods, the Plan Administrator may, in its discretion, permit Participants to
participate in more than one Purchase Period at a time.
(e) If on the Trading Day following any Exercise Date in a Purchase
Period the Fair Market Value of the Common Stock is less than the Fair Market
Value of the Common Stock on the first day of such Purchase Period (after taking
into account any adjustment during the Purchase Period pursuant to paragraph
18(a)), the Plan Administrator may, in its discretion, provide that the Purchase
Period shall be terminated and that all Participants therein shall be enrolled
in a new Purchase Period, other than any such Participants who are not eligible
to participate in the Plan on that date or who have elected to terminate
participation in the Plan. Any such new Purchase Period (a "Replacement Purchase
Period") shall be established by the Plan Administrator pursuant to paragraph
4(a) and shall commence on the date that such previous Purchase Period is
terminated. The Plan Administrator shall fix one or more Exercise Dates, the
Applicable Discount, the Compensation and the Per-Participant Limit, and may fix
aggregate share purchase limits, pursuant to paragraph 4(b) with respect to such
Replacement Purchase Period.
(f) Except as specifically provided herein, the acquisition of Common
Stock through participation in the Plan for any Purchase Period shall neither
limit nor require the acquisition of Common Stock by a Participant in any
subsequent Purchase Period.
5
<PAGE>
5. Participation.
-------------
(a) An eligible Employee may become a Participant in the Plan by
completing a subscription agreement authorizing payroll deductions in a form
designated by the Company and filing it with the Company's payroll office prior
to the Enrollment Date for the Purchase Period in which such participation will
commence in accordance with the filing deadline established by the Company. Such
agreement will remain effective under subsequent Purchase Periods unless and
until such Employee files a new agreement or terminates his/her participation in
the Plan in accordance with paragraph 6(c), provided that such Employee must
file a new subscription agreement to enroll in any Purchase Period that overlaps
with a Purchase Period in which such Employee has previously enrolled.
(b) Payroll deductions for a Participant shall commence with the
first payroll following the Enrollment Date and shall end on the last complete
payroll period during the Purchase Period, unless sooner terminated by the
Participant as provided in paragraph 10.
6. Payroll Deductions.
------------------
(a) At the time a Participant files his/her subscription agreement,
he/she shall elect to have payroll deductions made on each pay day during the
Purchase Period in an amount from three to fifteen percent (in whole percentages
only) of the Compensation which he/she receives on each such pay day.
(b) All payroll deductions made for a Participant shall be credited
to his/her account under the Plan. A Participant may not make any additional
payments into such account.
(c) A Participant may discontinue his/her participation in the Plan
as provided in paragraph 10. A Participant's subscription agreement shall remain
in effect for successive Purchase Periods unless and until such Participant
files a new agreement or terminates his/her participation in the Plan as
provided in paragraph 10. The Plan Administrator may, in its discretion, permit
Participants to amend their subscription agreements to increase and/or decrease
the rate of their payroll deductions during any given Purchase Period.
(d) Notwithstanding the foregoing, to the extent necessary to comply
with Section 423(b)(8) of the Code and paragraph 3(b) herein, a Participant's
payroll deductions may be decreased to 0% at such time during any Purchase
Period which is scheduled to end during the current calendar year (the "Current
Purchase Period") that the aggregate of all payroll deductions which were
previously used to purchase stock under the Plan in any other Purchase Period
that ended or that will end during that calendar year plus all payroll
deductions accumulated with respect to the Current Purchase Period equal the
6
<PAGE>
maximum amount permitted under Section 423 of the Code. Payroll deductions shall
recommence at the rate provided in such Participant's subscription agreement at
the beginning of the first Purchase Period which is scheduled to end in the
following calendar year, unless terminated by the Participant as provided in
paragraph 10.
7. Grant of Purchase Right. On the first day of each Purchase Period,
-----------------------
each Participant in such Purchase Period shall be granted the right to purchase
on each Exercise Date of such Purchase Period (at the applicable Purchase Price)
up to a number of shares of Common Stock determined by dividing such
Participant's payroll deductions accumulated prior to such Exercise Date and
retained in the Participant's account as of the Exercise Date by the applicable
Purchase Price; provided that such purchase shall be subject to the limitations
set forth in paragraphs 3(b), 4(b), 6(d), 8(b) and 12(a) hereof. Exercise of the
purchase right shall occur as provided in paragraph 8, unless the Participant
has withdrawn from the Plan pursuant to paragraph 10, and the purchase right, to
the extent not exercised, shall expire on the last day of the Purchase Period.
8. Exercise of Purchase Right.
---------------------------
(a) Unless a Participant withdraws from the Plan as provided in
paragraph 10 below, his/her right to purchase shares will be exercised
automatically on each Exercise Date, and the maximum number of full shares
subject to such right shall be purchased for such Participant at the applicable
Purchase Price with the accumulated payroll deductions in his/her account. No
fractional shares will be purchased; any payroll deductions accumulated in a
Participant's account which are not sufficient to purchase a full share shall be
carried over to the next Exercise Date under the Plan or returned to the
Participant, provided that, if the next Exercise Date falls within a new
Purchase Period, such payroll deductions shall be carried over to such Exercise
Date only if the Participant participates in such new Purchase Period. Any
amount remaining in a Participant's account at the close of any Exercise Date
caused by anything other than a surplus due to fractional shares (including the
accumulated payroll deductions in any Participant's account as of any Exercise
Date that are in excess of the amount needed to purchase the maximum number of
full shares which may be purchased by such Participant based on the limitations
in paragraphs 3(b), 4(b), 6(d), 8(b) and 12(a) hereof) shall be refunded to the
Participant in cash as soon as practicable and shall not be carried over to the
next Exercise Date. During a Participant's lifetime, a Participant's right to
purchase shares hereunder is exercisable only by him/her.
(b) If, on a given Exercise Date, the aggregate purchase of shares
upon the exercise in full of all purchase rights would exceed the aggregate
share purchase limit, if any, fixed by the Plan Administrator pursuant to
paragraph 4(b) with respect to the applicable Purchase Period, the Company shall
make a pro-rata allocation of the available shares in as nearly uniform a manner
as shall be practicable and as it shall determine to be equitable.
7
<PAGE>
9. Delivery. The Company shall arrange the delivery to each Participant
--------
of a certificate representing the shares of Common Stock purchased upon exercise
of his/her purchase right based upon instructions provided to the Company by the
Participant from time to time, but subject to paragraph 12(c).
10. Withdrawal; Termination of Employment.
-------------------------------------
(a) A Participant may withdraw all but not less than all the payroll
deductions credited to his/her account and not yet used to exercise his/her
purchase right under the Plan at any time by giving written notice to the
Company in a form designated by the Company. All of the Participant's payroll
deductions credited to his/her account will be paid to such Participant as soon
as practicable after receipt of such notice of withdrawal. Upon receipt of such
notice of withdrawal, the Participant's purchase right for the Purchase Period
will be automatically terminated, and no further payroll deductions for the
purchase of shares will be made during the Purchase Period. If a Participant
withdraws from a Purchase Period, payroll deductions will not resume at the
beginning of the succeeding Purchase Period unless the Participant delivers to
the Company a new subscription agreement.
(b) Upon a Participant's ceasing to be an eligible Employee for any
reason other than retirement, the payroll deductions credited to such
Participant's account during the Purchase Period but not yet used to exercise
his/her purchase right will be returned to such Participant or, in the case of
his/her death, to the person or persons entitled thereto under paragraph 14, and
such Participant's purchase right will be automatically terminated .
(c) Upon a Participant's ceasing to be an eligible Employee by reason
of his/her retirement, the provisions of this paragraph 10(c) shall apply. If
such retirement occurs three months or less prior to the next Exercise Date, the
retired Participant shall have the option of withdrawing from the Plan as
provided in paragraph 10(a), or taking no action and thereby continuing
participation in the Purchase Period in which he/she was participating at the
time of retirement. If retirement occurs more than three months prior to the
next Exercise Date, the payroll deductions credited to such retired
Participant's account during the Purchase Period but not yet used to exercise
his/her purchase right will be returned to such Participant and such
Participant's purchase right will be automatically terminated. The Plan
Administrator shall have the discretion to shorten or lengthen such period from
time to time during the term of the Plan, but such period shall in no event
exceed three months .
11. Interest. No interest shall accrue on the payroll deductions of a
--------
Participant in the Plan.
8
<PAGE>
12. Stock.
-----
(a) The maximum number of shares of the Company's Common Stock which
shall be made available for sale under the Plan shall be 2,000,000 shares,
subject to adjustment upon changes in capitalization of the Company as provided
in paragraph 18. If on a given Exercise Date the aggregate number of shares with
respect to which purchase rights are to be exercised exceeds the number of
shares then available under the Plan, the Company shall make a pro rata
allocation of the shares remaining available for purchase in as uniform a manner
as shall be practicable and as it shall determine to be equitable. If any
purchase right granted under the Plan shall terminate for any reason without
having been exercised, the Common Stock not purchased under such right shall
again become available under the Plan.
(b) A Participant will have no interest or voting right in shares
covered by his/her purchase right until such shares are actually purchased on
the Participant's behalf in accordance with the applicable provisions of the
Plan. No adjustment shall be made for dividends, distributions or other rights
for which the record date is prior to the date of such purchase.
(c) Shares to be delivered to a Participant under the Plan will be
registered in the name of the Participant, in the name of the Participant and
his/her spouse, in the name of the stockbroker at which the Participant
maintains an account in accordance with instructions provided to the Company by
the Participant pursuant to paragraph 9 or in the name of any permitted
transferee of the Participant pursuant to paragraph 15.
(d) The Common Stock subject to the Plan may be unissued shares,
treasury shares or shares purchased by the Company on the open market or
otherwise.
13. Administration. The Plan shall be administered by the Plan
--------------
Administrator, which shall have full and exclusive discretionary authority to
construe, interpret and apply the terms of the Plan, to determine eligibility
and to adjudicate all disputed claims filed under the Plan. Every finding,
decision and determination made by the Plan Administrator shall, to the full
extent permitted by law, be final and binding upon all parties.
14. Designation of Beneficiary.
--------------------------
(a) Participants may file a written designation of a beneficiary, on a
form designated by the Company, who is to receive any shares and cash, if any,
from the Participant's account under the Plan in the event of such Participant's
death. If a Participant is married and the designated beneficiary is not the
spouse, spousal consent shall be required for such designation to be effective.
9
<PAGE>
(b) Such designation of beneficiary may be changed by the
Participant (and his/her spouse, if any) at any time by written notice. In
the event of the death of a Participant and in the absence of a beneficiary
validly designated under the Plan who is living at the time of such
Participant's death, the Company shall deliver such shares and/or cash to
the executor or administrator of the estate of the Participant, or if no
such executor or administrator has been appointed (to the knowledge of the
Company), the Company, in its discretion, may deliver such shares and/or
cash to the spouse or to any one or more dependents or relatives of the
Participant, or if no spouse, dependent or relative is known to the
Company, then to such other person as the Company may designate .
15. Transferability. Neither payroll deductions credited to a
---------------
Participant's account nor any rights with regard to the exercise of a purchase
right or to receive shares under the Plan may be assigned, transferred, pledged
or otherwise disposed of in any way (other than by will, the laws of descent and
distribution or as provided in paragraph 14 hereof) by the Participant. Any such
attempt at assignment, transfer, pledge or other disposition shall be without
effect, except that the Company may treat such act as an election to withdraw
funds from a Purchase Period in accordance with paragraph 10.
16. Use of Funds. All payroll deductions received or held by the Company
------------
under the Plan may be used by the Company for any corporate purpose, and the
Company shall not be obligated to segregate such payroll deductions.
17. Reports. Individual accounts will be maintained for each Participant
-------
in the Plan. Such accounts will be unfunded. Statements of account will be given
to Participants as soon as practicable following each Exercise Date, which
statements will set forth the amounts of payroll deductions, the Purchase Price,
the number of shares purchased and the remaining cash balance, if any.
18. Adjustments Upon Changes in Capitalization or Ownership.
-------------------------------------------------------
(a) Subject to any required action by the shareholders of the Company,
the Reserves, as well as the Purchase Price with respect to each purchase right
under the Plan that has not yet been exercised, shall be proportionately
adjusted for any increase or decrease in the number of issued shares of Common
Stock resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of the Common Stock, or any other increase or
decrease in the number of shares of Common Stock effected without receipt of
consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Such adjustment shall be made by the Plan
Administrator, whose determination in that respect shall be final, binding and
conclusive. Except as expressly provided herein, no issuance by the Company of
shares of stock of any class, or securities convertible into shares of
10
<PAGE>
stock of any class, shall affect, and no adjustment by reason thereof shall be
made with respect to, the number or price of shares of Common Stock subject to
purchase rights granted under the Plan. The Plan Administrator may, if it so
determines in the exercise of its sole discretion, make provision for adjusting
the Reserves, as well as the price per share of Common Stock covered by each
outstanding purchase right, in the event the Company effects one or more
reorganizations, recapitalizations, rights offerings or other increases or
reductions of shares of its outstanding Common Stock.
(b) In the event that any Corporate Transaction occurs or becomes
imminent, the Board may determine, in the exercise of its sole discretion, to
shorten any Purchase Period or Purchase Periods then in progress by setting a
new Exercise Date (the "New Exercise Date"). If it elects to fix a New Exercise
Date, the Board also may, in its discretion, change the Applicable Discount, the
Compensation, the Per-Participant Limit and any aggregate share purchase limits
previously established with respect to the shortened Purchase Period or Periods.
If the Board shortens any such Purchase Period, the Board shall notify each
Participant in writing that the Exercise Date for his/her purchase right has
been changed to the New Exercise Date and that his/her purchase right will be
exercised automatically on the New Exercise Date, unless prior to such date
he/she has withdrawn from such Purchase Period as provided in paragraph 10. Such
written notice shall also include a description of any changes made to the
Applicable Discount, the Compensation, the Per-Participant Limit and any
aggregate share purchase limits made pursuant to this paragraph 18(b) .
(c) For purposes of paragraph 18(b), the following definitions shall
apply:
"Acquiring Person" means any Person who or which, together with all
----------------
Affiliates and Associates of such Person, shall be the Beneficial
Owner of 20% or more of the Common Stock then outstanding, but shall
not include the Company, any Subsidiary of the Company or any employee
benefit plan of the Company or any Subsidiary of the Company, or any
entity holding Common Stock for or pursuant to the terms of any such
plan. Notwithstanding the foregoing, no Person shall become an
Acquiring Person as the result of an acquisition of Common Stock by
the Company which, by reducing the number of shares outstanding,
increases the proportionate number of shares beneficially owned by
such Person to 20% or more of the Common Stock of the Company then
outstanding; provided, however, that if a Person becomes the
-------- -------
Beneficial Owner of 20% or more of the Common Stock of the Company
then outstanding by reason of share purchases by the Company and
shall, after such share purchases by the Company, become the
Beneficial Owner of any additional Common Stock of the Company, then
such Person shall be deemed to be an Acquiring Person.
11
<PAGE>
"Affiliate" and "Associate" have the respective meanings ascribed to
---------- ----------
such terms in Rule 12b-2 of the General Rules and Regulations under
the Exchange Act.
"Approved Transaction" means any transaction that occurs at a time
--------------------
when Continuing Directors are in office and a majority of the
Continuing Directors then in office has determined that the
transaction is in the best interest of the Company and its
stockholders .
A Person shall be deemed the "Beneficial Owner" of and shall be deemed
----------------
to "beneficially own" any securities: (i) which such Person or any of
such Person's Affiliates or Associates beneficially owns, directly or
indirectly; (ii) which such Person or any of such Person's Affiliates
or Associates has (A) the right to acquire (whether such right is
exercisable immediately or only after the passage of time) pursuant to
any agreement, arrangement or understanding, or upon the exercise of
conversion rights, exchange rights, rights (other than the Rights),
warrants or options, or otherwise; provided, however, that a Person
-------- -------
shall not be deemed the Beneficial Owner of, or to beneficially own,
securities tendered pursuant to a tender or exchange offer made by or
on behalf of such Person or any of such Person's Affiliates or
Associates until such tendered securities are accepted for purchase or
exchange; or (B) the right to vote pursuant to any agreement,
arrangement or understanding; provided, however, that a Person shall
-------- -------
not be deemed the Beneficial Owner of ,or to be beneficially own,
security if the agreement, arrangement or understanding to vote such
security (1) arises solely from a revocable proxy or consent given to
such person in response to a public proxy or consent solicitation made
pursuant to, and in accordance with, the applicable rules and
regulations of the Exchange Act and (2) is not also then reportable on
Schedule 13D under the Exchange Act (or any comparable or successor
report); or (iii) which are beneficially owned, directly or
indirectly, by any other Person with which such Person or any of such
Person's Affiliates or Associates has any agreement, arrangement or
understanding for the purpose of acquiring, holding, voting (except to
the extent contemplated by the proviso to clause (ii)(B) of this
definition) or disposing of any securities of the Company; provided
further, however, that nothing in this paragraph 18 shall cause a
Person to be the Beneficial Owner of, or to beneficially own, any
securities (x) acquired through such Person's participation in the
business of underwriting securities in good faith in a firm commitment
underwriting until the expiration of forty days after the date of such
acquisition or (y) which such Person has reported on Schedule 13G
under the Exchange Act and has not
12
<PAGE>
ceased to be eligible to report on Schedule 13G pursuant to Rule 13d-1
under the Exchange Act.
"Common Stock" has the meaning set forth in paragraph 2(d).
------------
"Corporate Transaction" means any of the following events: (a) a share
---------------------
Acquisition Date; (b) a dissolution or liquidation of the Company; (c)
a merger or consolidation in which the Company is not the surviving
corporation; (d) a merger in which the Company is the surviving
corporation but the shares of Common Stock outstanding immediately
prior to the merger are converted by virtue of the merger into other
property, whether in the form of securities, cash or otherwise; (e)
any capital reorganization in which more than 50% of the shares of the
Company entitled to vote are exchanged; and (f) any other event that
the Board deems, in its discretion, to constitute a change in control
of the Company.
"Continuing Director" means (i) any member of the Board, while such
-------------------
Person is a member of the Board, who is not an Acquiring Person, or an
Affiliate or Associate of an Acquiring Person, or a representative of
an Acquiring Person or of any such Affiliate or Associate, and who
was, if applicable, a member of the Board prior to the time that any
Person becomes an Acquiring Person, or (ii) any Person who
subsequently becomes a member of the Board, while such Person is a
member of the Board, who is not an Acquiring Person, or an Affiliate
or Associate of an Acquiring Person, or a representative of an
Acquiring Person or of any such Affiliate or Associate, if such
Person's nomination for election or election to the Board is
recommended or approved by a majority of Continuing Directors.
"Exchange Act" has the meaning set forth in paragraph 2(j).
------------
"Person" means any individual, firm, partnership, corporation or other
------
entity, and shall include any successor (by merger or otherwise) of
such entity.
"Rights" means the rights granted to the Company's shareholders to
------
purchase additional Common Stock under certain circumstances, as
described in that certain Rights Agreement, dated as of May 5, 1988,
by and between the Company and The First National Bank of Boston, as
rights agent.
"Share Acquisition Date" means the first date of public announcement
----------------------
by the Company or an Acquiring Person that a Person has become an
Acquiring Person; provided, however, that no "Share Acquisition Date"
-------- -------
shall occur as a result of any Person
13
<PAGE>
becoming an Acquiring Person pursuant to an Approved Transaction.
"Subsidiary" of any Person means any corporation or other entity of
----------
which a majority of the voting power of the voting equity securities
or equity interest is owned, directly or indirectly, by such Person,
or which is otherwise controlled by such Person.
19. Amendment or Termination.
------------------------
(a) The Board may at any time and for any reason terminate or amend
the Plan. Except as provided in paragraph 18 and paragraph 19(b), no such
termination can affect purchase rights previously granted, provided that a
Purchase Period may be terminated by the Board on any Exercise Date if the Board
determines that the termination of the Plan is in the best interests of the
Company and its shareholders. Except as provided in paragraph 18, no amendment
may make any change in any purchase rights theretofore granted which adversely
affects the rights of any Participant. To the extent necessary to comply with
Rule 16b-3 under the Exchange Act or Section 423 of the Code (or any successor
rule or provision or any other applicable law or regulation), the Company shall
obtain shareholder approval of any amendment to the Plan in such a manner and to
such a degree as required .
(b) Without shareholder consent and without regard to whether any
Participant rights may be considered to have been "adversely affected," the Plan
Administrator shall be entitled to change Purchase Periods, limit the frequency
and/or number of changes in the amount withheld during Purchase Periods,
establish the exchange ratio applicable to amounts withheld in a currency other
than U.S. dollars, permit payroll withholding in excess of the amount designated
by a Participant in order to adjust for delays or mistakes in the Company's
processing of properly completed withholding elections, establish reasonable
waiting and adjustment periods and/or accounting and crediting procedures to
ensure that amounts applied toward the purchase of Common Stock for each
Participant properly correspond with amounts withheld from the Participant's
Compensation, and establish such other limitations or procedures as the Plan
Administrator determines in its sole discretion are advisable and that are
consistent with the Plan.
20. Notices. All notices or other communications by a Participant to the
-------
Company under or in connection with the Plan shall be deemed to have been duly
given when received in the form specified by the Company at the location, or by
the person, designated by the Company for the receipt thereof.
21. Conditions Upon Issuance of Shares. Shares of Common Stock shall not
-----------------------------------
be issued with respect to a purchase right unless the exercise of such purchase
right and the issuance and delivery of such shares pursuant thereto shall comply
with all applicable provisions of law, domestic or foreign, including,
14
<PAGE>
without limitation, the Securities Act of 1933, as amended, the Exchange Act,
the rules and regulations promulgated thereunder, and the requirements of any
stock exchange or any automated inter-dealer quotation system maintained by the
National Association of Securities Dealers, Inc. upon which the Common Stock may
then be listed, and shall be further subject to the approval of counsel for the
Company with respect to such compliance. As a condition to the exercise of a
purchase right, the Company may require the person exercising such purchase
right to represent and warrant at the time of any such exercise that the shares
are being purchased only for investment and without any present intention to
sell or distribute such shares if, in the opinion of counsel for the Company,
such a representation is required by any of the aforementioned applicable
provisions of law.
22. Effective Date. The Plan shall become effective on the date it is
--------------
approved by the stockholders (the "Effective Date").
23. Term of Plan. The Plan shall continue in effect for a term of ten (10)
------------
years after the Effective Date unless sooner terminated under paragraph 19. No
rights may be granted under the Plan following its termination.
24. Stockholder Approval. The Plan became effective when adopted by the
-------------------
Board on March 1, 1995 and was approved by the Company's stockholders on May 31,
1995. On February 19, 1999 the Board adopted and approved an amendment and
restatement of the Plan to reflect amendments promulgated by the Securities and
Exchange Commission to Rule 16b-3 applicable to the Plan which amendment and
restatement is not subject to stockholder approval.
25. No Employment Rights. The Plan does not, directly or indirectly,
--------------------
create any right for the benefit of any employee or class of employees to
purchase any shares under the Plan, or create in any employee or class of
employees any right with respect to continuation of employment by the Company,
and it shall not be deemed to interfere in any way with the Company's right to
terminate, or otherwise modify, an employee's employment at any time.
26. Effect of Plan. The provisions of the Plan shall, in accordance with
--------------
its terms, be binding upon, and inure to the benefit of, all successors of each
Participant, including, without limitation, such Participant's estate and the
executors, administrators or trustees thereof, heirs and legatees, and any
receiver, trustee in bankruptcy or representative of creditors of such
Participant.
27. Governing Law. The law of the State of California will govern all
-------------
matters relating to this Plan except to the extent it is superseded by the laws
of the United States.
15
<PAGE>
ACUSON CORPORATION EXHIBIT 10.23
- --------------------------------------------------------------------------------
ACUSON CORPORATION
1995 STOCK INCENTIVE PLAN
Adopted by the Board of Directors on March 1, 1995
Approved by stockholders on May 31, 1995
Amended by the Board of Directors on February 29, 1996
Amendment approved by stockholders on July 23, 1996
Amended by the Board of Directors on February 19, 1999
1. Establishment, Purpose, and Definitions.
---------------------------------------
(a) Acuson Corporation (the "Company") hereby adopts the Acuson
Corporation 1995 Stock Incentive Plan (the "Plan").
(b) The purpose of the Plan is to allow the Company to provide
incentives to Eligible Individuals (as defined in Section 4, below) for
employment, increased efforts and successful achievements on behalf of or
in the interests of the Company and its Affiliates and to maximize the
rewards due them for those efforts and achievements. In the case of
Employees (including officers and directors who are Employees) of the
Company and of its Affiliates such incentives include (i) an opportunity to
purchase shares of common stock, par value $.0001 per share, of the Company
("Stock") pursuant to options which may qualify as incentive stock options
(referred to as "incentive stock options") under Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code"), (ii) an opportunity
to purchase shares of Stock pursuant to options which are not described in
Sections 422 or 423 of the Code (referred to as "nonqualified stock
options"), (iii) the sale or bonus of restricted Stock ("Restricted
Stock"), and (iv) the grant of stock appreciation rights ("SARs"), either
separately or in relation ("tandem") with stock options, entitling holders
to compensation measured by appreciation in the value of Stock. The Plan
also provides for the grant of similar incentives (other than incentive
stock options) to independent contractors and consultants to the Company
and its Affiliates. Finally, the Plan provides for the automatic,
nondiscretionary grant of nonqualified stock options to directors of the
Company who are not Employees of the Company or any Affiliate ("Non-
Employee Directors").
(c) Except for purposes of Section 12, the term "Affiliate" means
parent or subsidiary corporations of the Company, as defined in Sections
424(e) and (f) of the Code (but substituting "the Company" for "employer
corporation"), including parents or subsidiaries of the Company that become
such after adoption of the Plan.
(d) The term "Employee" means any person, including officers and
directors, who is an employee of the Company or an Affiliate for purposes
of income tax withholding under the Code. Neither service as a director nor
1
<PAGE>
payment of a director's fee by the Company shall be sufficient to
constitute a person an Employee.
2. Administration of the Plan.
--------------------------
(a) The Plan may be administered by different committees with respect
to: (i) Non-Employee Directors; (ii) Eligible Individuals who are (A)
officers or directors subject to Section 16(b) of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), or (B) "covered employees"
within the meaning of Section 162(m)(3) of the Code ("Covered Employees");
and (iii) Eligible Individuals who are neither officers or directors
subject to Section 16(b) of the Exchange Act nor Covered Employees. Each
committee, in addition to satisfying any specific requirements imposed by
this Section 2, shall also satisfy any legal requirements relating to the
administration of stock-based compensation plans under applicable state
corporate and securities laws and the Code ("Applicable Laws"). References
herein to the "Plan Administrator" shall refer to the applicable
committee(s) or, if the Board of Directors of the Company (the "Board")
does not delegate administration of some aspects of the Plan to a
committee, shall be construed to refer to the Board.
(b) With respect to awards made to Eligible Individuals who are
officers or directors subject to Section 16(b) of the Exchange Act or
Covered Employees, the Plan shall be administered by a committee of the
Board, which committee shall be constituted (i) in such manner as to permit
such grants and related transactions under the Plan to be exempt from
Section 16(b) of the Exchange Act in accordance with Rule 16b-3 (or any
successor thereto) promulgated under the Exchange Act ("Rule 16b-3") and as
a (ii) "committee comprised solely of two or more outside directors" for
purposes of Section 162(m) of the Code. Once appointed, such committee
shall continue to serve in its designated capacity until otherwise directed
by the Board. From time to time, the Board may increase the size of the
committee and appoint additional members, remove members (with or without
cause) and substitute new members, fill vacancies (however caused), all to
the extent permitted by Rule 16b-3, Section 162(m) of the Code, the rules
and regulations with respect to each, and Applicable Laws. The committee
shall select one of its members as chair of the committee and shall hold
meetings at such times and places as it may determine. To the extent
permitted by Rule 16b-3, Section 162(m) of the Code, the rules and
regulations with respect to each, and Applicable Laws, a majority of the
committee shall constitute a quorum, and acts of the committee at which a
quorum is present, or acts reduced to or approved in writing by all the
members of the committee, shall be the valid acts of the committee.
(c) With respect to awards made to Eligible Individuals who are
neither officers nor directors subject to Section 16(b) of the Exchange Act
nor Covered Employees, the Plan shall be administered by (i) the Board; or
(ii) a committee of one or more persons (which may be the committee
established pursuant to Section 2(b), above) designated by the Board. Once
appointed, such committee
2
<PAGE>
shall continue to serve in its designated capacity until otherwise directed
by the Board. From time to time, the Board may increase the size of the
committee and appoint additional members, remove members (with or without
cause) and substitute new members, fill vacancies (however caused), and
remove all members of the committee and thereafter directly administer the
Plan, all to the extent permitted by Applicable Laws. The committee shall
select one of its members as chair of the committee and shall hold meetings
at such times and places as it may determine. To the extent permitted by
Applicable Laws, a majority of the committee shall constitute a quorum, and
acts of the committee at which a quorum is present, or acts reduced to or
approved in writing by all the members of the committee, shall be the valid
acts of the committee.
(d) The Plan Administrator shall determine which Eligible Individuals
shall be granted options under the Plan, the timing of such grants, the
terms thereof (including any restrictions on the Stock), and the number of
shares subject to such options.
(e) The Plan Administrator shall also determine which Eligible
Individuals shall be granted or issued SARs or Restricted Stock (other than
pursuant to the exercise of options) under the Plan, the timing of such
grants or issuances, the terms thereof (including any restrictions and the
consideration, if any, to be paid therefor) and the number of shares or
SARs to be granted.
(f) The Plan Administrator may amend the terms of any outstanding
option or SAR granted under this Plan, but any amendment that would
adversely affect the holder's rights under an outstanding option or SAR
shall not be made without the holder's written consent. The Plan
Administrator may, with the holder's written consent, cancel any
outstanding option or SAR or accept any outstanding option or SAR in
exchange for a new option or SAR. The Plan Administrator also may amend any
Restricted Stock purchase agreement or Restricted Stock bonus agreement
relating to sales or bonuses of Restricted Stock under the Plan, but any
amendment that would adversely affect the individual's rights to the
Restricted Stock shall not be made without his or her written consent.
(g) The Plan Administrator shall have the sole authority, in its
absolute discretion, to adopt, amend, and rescind such rules and
regulations as, in its opinion, may be advisable for the administration of
the Plan, to construe and interpret the Plan, the rules and the
regulations, and the instruments evidencing options, SARs or Restricted
Stock granted or issued under the Plan and to make all other determinations
deemed necessary or advisable for the administration of the Plan. All
decisions, determinations, and interpretations of the Plan Administrator
shall be binding on all participants.
3
<PAGE>
3. Stock Subject to the Plan.
-------------------------
(a) The maximum aggregate number of shares of Stock available for
issuance under the Plan and during the life of the Plan shall equal
3,500,000 shares, subject to adjustment from time to time in accordance
with this Section 3. The Stock subject to the Plan may be unissued shares,
treasury shares or shares purchased by the Company on the open market or
otherwise.
(b) For purposes of the limitation specified in Section 3(a), the
following principles shall apply:
(1) the following transactions, if granted pursuant to this
Plan, shall count against and decrease the number of shares of Stock that
may be issued for purposes of Section 3(a): (i) shares of Stock subject
to outstanding options, outstanding shares of Restricted Stock, and
shares subject to SARs granted independently of options (based upon a
good faith estimate by the Company or the Plan Administrator of the
maximum number of shares for which the SAR may be settled (assuming
payment in full in shares of Stock), and (ii) in the case of options
granted in tandem with SARs, the greater of the number of shares of Stock
that would be counted if one or the other alone was outstanding
(determined as described in clause (i) above);
(2) the following shall be added back to the number of shares of
Stock that may be issued for purposes of Section 3(a): (i) shares of
Stock with respect to which options, SARs granted independent of options,
or Restricted Stock awards expire, are cancelled, or otherwise terminate
without being exercised, converted, or vested, as applicable, and (ii) in
the case of options granted in tandem with SARs, shares of Stock as to
which an option has been surrendered in connection with the exercise of a
tandem SAR, to the extent the number surrendered exceeds the number
issued upon exercise of the SAR; provided that, in any case, the holder
-------------
of such awards did not receive any dividends or other benefits of
ownership with respect to the underlying shares being added back, other
than voting rights and the accumulation (but not payment) of dividends of
Stock;
(3) shares of Stock subject to SARs granted independently of
options (calculated as provided in clause (1) above) that are exercised
and paid in cash shall be added back to the number of shares of Stock
that may be issued for purposes of Section 3(a), provided that the holder
of such SAR did not receive any dividends or other benefits of ownership,
other than voting rights and the accumulation (but not payment) of
dividends, relative to the shares of Stock subject to the SARs;
(4) shares of Stock that are transferred by a holder of an award
(or withheld by the Company) as full or partial payment to the Company of
the purchase price of shares of Stock subject to an option or the
Company's or any Affiliate's tax withholding obligations shall not be
added back to the
4
<PAGE>
number of shares of Stock that may be issued for purposes of Section 3(a)
and shall not again be subject to awards; and
(5) if the number of shares of Stock counted against the number
of shares that may be issued for purposes of Section 3(a) is based upon
an estimate made by the Company or the Plan Administrator as provided in
clause (1) above and the actual number of shares of Stock issued pursuant
to the applicable award is greater or less than the estimated number,
then upon such issuance, the number of shares of Stock that may be issued
pursuant to Section 3(a) shall be further reduced by the excess issuance
or increased by the shortfall, as applicable.
(c) If there is any change in the Stock through merger,
consolidation, reorganization, recapitalization, reincorporation, stock
split, stock dividend (in excess of 2%), or other change in the capital
structure of the Company, appropriate adjustments shall be made by the Plan
Administrator, in order to preserve but not to increase the benefits to the
outstanding options, SARs and Restricted Stock purchase or Restricted Stock
bonus awards under the Plan, including adjustments to the aggregate number
and kind of shares subject to the Plan, or to outstanding Restricted Stock
purchase or Restricted Stock bonus agreements, or SAR agreements, and the
number and kind of shares and the price per share subject to outstanding
options.
(d) The Plan Administrator shall have the discretion, to the extent
permitted by Applicable Law, to include provisions in any agreements
evidencing awards granted under the Plan providing that, in the event of a
dissolution, liquidation, merger or consolidation of the Company, or any
other event that the Plan Administrator deems to have effected a change in
control of the Company, any such awards shall accelerate and become fully
vested, and all forfeiture and/or transfer restrictions with respect
thereto shall lapse, regardless of whether such awards are otherwise to be
assumed or replaced in connection with such event.
5
<PAGE>
4. Eligible Individuals. Individuals who shall be eligible to have the Plan
--------------------
Administrator grant to them options, SARs or Restricted Stock under the Plan
("Eligible Individuals") shall be such employees, officers (including officers
who are directors of the Company), independent contractors, and consultants of
the Company or an Affiliate as the Plan Administrator, in its discretion, shall
designate from time to time. Notwithstanding the foregoing, only Employees
shall be eligible to receive incentive stock options. Eligible Individuals
shall not include Non-Employee Directors. Non-Employee Directors shall receive
automatic and nondiscretionary option grants pursuant to Section 5 and will not
be otherwise eligible to receive any other option grants or awards of SARs or
Restricted Stock under the Plan or any other stock plan of the Company or any
Affiliate.
5. Automatic Option Grants to Non-Employee Directors.
-------------------------------------------------
(a) All grants of options pursuant to this Section 5 shall be
automatic and nondiscretionary and shall be made strictly in accordance
with the provisions of this Section 5. No person shall have any discretion
to determine which Non-Employee Directors shall be granted options, the
number of shares of Stock to be covered by options granted to Non-Employee
Directors, the timing of such option grants or the exercise price thereof.
(b) An option to purchase 7,500 shares of Stock shall be granted to
each Non-Employee Director continuing in office immediately following each
annual meeting of the Company's stockholders which occurs on or after the
date of approval of the Plan by the stockholders of the Company and prior
to the termination of the Plan.
(c) The term of each option granted pursuant to this Section 5 shall
be ten years from the date of grant, unless a shorter period is required to
comply with any Applicable Law, and except for the early termination
provisions contained in the written stock option agreement in the form of
Exhibit A hereto, in either of which cases such shorter period shall apply.
(d) Each option granted pursuant to this Section 5 shall vest and
become fully exercisable as to fifty percent (50%) of the shares subject to
the option on the date which is six (6) months from the date the option is
granted, then daily thereafter as to 1/365th of the total shares subject to
the option so that the option is fully exercisable no later than one year
following the date the option is granted.
(e) Each option grant to an Non-Employee Director pursuant to this
Section 5 shall be evidenced by a written stock option agreement, in the
form of Exhibit A hereto, executed by the Company and the Non-Employee
Director to whom such option is automatically granted.
6
<PAGE>
6. Terms and Conditions of Options.
-------------------------------
(a) Each option granted pursuant to the Plan will be evidenced by a
written stock option agreement executed by the Company and the person to
whom such option is granted.
(b) Except for options granted under Section 5 above, the Plan
Administrator shall determine the term of each option granted under the
Plan; provided, however, that the term of an incentive stock option shall
not be for more than ten years and that, in the case of an incentive stock
option granted to a person possessing more than 10% of the combined voting
power of the Company or an Affiliate on the date the option is granted, the
term of each incentive stock option shall be no more than five years.
(c) In the case of incentive stock options, the aggregate fair market
value (determined as of the time such option is granted) of the Stock with
respect to which incentive stock options are exercisable for the first time
by an Eligible Individual in any calendar year (under this Plan and any
other plans of the Company or its Affiliates) shall not exceed $100,000. If
the aggregate fair market value of the Stock with respect to which
incentive stock options are exercisable by an optionee for the first time
in any calendar year exceeds $100,000, such options shall be treated, to
the minimum extent required to preserve incentive stock option treatment
for as many options as possible, as nonqualified stock options. The rule
set forth in the preceding sentence shall be applied by taking options into
account in the order in which they were granted.
(d) The exercise price of each incentive stock option shall be not
less than the per share fair market value of the Stock subject to such
option on the date the option is granted. The exercise price of each
nonqualified stock option shall be as determined by the Plan Administrator.
Notwithstanding the foregoing, (i) in the case of an incentive stock option
granted to a person possessing more than 10% of the combined voting power
of the Company or an Affiliate on the date the option is granted, the
exercise price shall be not less than 110% of the fair market value of the
Stock on the date the option is granted, and (ii) in the case of an option
granted pursuant to Section 5 above, the exercise price shall be not less
than the per share fair market value of the Stock subject to such option on
the date the option is granted. The exercise price of an option shall be
subject to adjustment to the extent provided in Section 3(c), above.
(e) The stock option agreement may contain such other terms,
provisions, and conditions consistent with this Plan as may be determined
by the Plan Administrator. If an option, or any part thereof, is intended
to qualify as an incentive stock option, the stock option agreement shall
contain those terms and conditions which are necessary to so qualify it.
(f) The maximum number of shares of Stock with respect to which SARs
or options to acquire Stock may be granted to any individual during any
7
<PAGE>
calendar year shall not exceed 1,000,000 shares (which number may be
increased without stockholder approval to reflect adjustments under Section
3(c), above, to the extent such increase does not cause the grant to fail
to qualify as remuneration payable solely on account of one or more
performance goals within the meaning of Section 162(m) of the Code). To the
extent required by Section 162(m) of the Code or the regulations
thereunder, in applying the foregoing limitation with respect to any
employee, if any option is cancelled, the cancelled option shall continue
to count against the maximum number of shares for which options may be
granted to the employee under this Section 6(f). For this purpose, the
repricing of an option shall be treated as a cancellation of the existing
option and the grant of a new option to the extent required by Section
162(m) of the Code or the regulations thereunder.
7. Payment Upon Exercise of Options.
--------------------------------
(a) Payment of the purchase price upon exercise of any option granted
under this Plan shall be made in cash, by optionee's personal check, a
certified check, bank draft, or postal or express money order payable to
the order of the Company in lawful money of the United States
(collectively, "Cash Consideration"); provided, however, that, except for
options granted under Section 5 above, the Plan Administrator, in its sole
discretion, may permit an optionee to pay the option price in whole or in
part (i) with shares of Stock owned by the optionee or with shares of Stock
withheld from the shares otherwise deliverable to the optionee upon
exercise of an option; (ii) by delivery on a form prescribed by the Company
of an irrevocable direction to a securities broker approved by the Company
to sell shares of Stock and deliver all or a portion of the proceeds to the
Company in payment for the Stock; (iii) by delivery of the optionee's
promissory note with such recourse, interest, security, and redemption
provisions as the Plan Administrator in its discretion determines
appropriate; or (iv) in any combination of the foregoing. The exercise
price of any options granted under Section 5 above, shall be paid in Cash
Consideration, the consideration specified in clauses (i) or (ii) of the
preceding sentence or in any combination thereof. Any Stock used to
exercise options shall be valued at its fair market value on the date of
the exercise of the option. In addition, the Plan Administrator, in its
sole discretion, may authorize the surrender by an optionee of all or part
of an unexercised option (excluding options granted under Section 5 above)
and authorize a payment in consideration thereof of an amount equal to the
difference between the aggregate fair market value of the Stock subject to
such option and the aggregate option price of such Stock. In the Plan
Administrator's discretion, such payment may be made in cash, shares of
Stock with a fair market value on the date of surrender equal to the
payment amount, or some combination thereof.
(b) In the event that the exercise price is satisfied by shares
withheld from the shares of Stock otherwise deliverable to the optionee,
the Plan Administrator may issue the optionee an additional option, with
terms identical to the option agreement under which the option was
exercised, entitling the
8
<PAGE>
optionee to purchase additional shares of Stock equal to the number of
shares so withheld but at an exercise price equal to the fair market value
of the Stock on the grant date of the new option; provided, however, that
no Such additional options may be granted with respect to options granted
pursuant to Section 5, above.
8. Terms and Conditions of Restricted Stock Purchases and Bonuses.
--------------------------------------------------------------
(a) Each sale (other than upon exercise of options) or bonus grant of
Restricted Stock pursuant to the Plan will be evidenced by a written
Restricted Stock purchase or Restricted Stock bonus agreement, as
applicable, executed by the Company and the person to whom such Restricted
Stock is sold or granted.
(b) The Restricted Stock purchase agreement or Restricted Stock bonus
agreement may contain such terms, provisions, and conditions consistent
with this Plan as may be determined by the Plan Administrator, including
not by way of limitation, payment terms, restrictions on transfer,
forfeiture provisions, repurchase provisions, and vesting provisions.
(c) The Plan Administrator may condition the award or the exercise of
any right under an award under this Section 8 upon the attainment of one or
more preestablished objective performance goals meeting the requirements of
Section 162(m) of the Code and the regulations thereunder.
9. Terms and Conditions of SARs. The Plan Administrator may, under such terms
----------------------------
and conditions as it deems appropriate, authorize the issuance of SARs evidenced
by a written SAR agreement (which, in the case of tandem options, may be part of
the option agreement to which the SAR relates) executed by the Company and the
person to whom the SARs are granted. The SAR agreement shall specify the term
for the SARs covered thereby and contain such other terms, provisions and
conditions consistent with this Plan as may be determined by the Plan
Administrator.
10. Withholding Taxes.
-----------------
(a) No Stock shall be granted or sold under the Plan to any Eligible
Individual, and no SAR may be exercised, until the individual has made
arrangements acceptable to the Plan Administrator for the satisfaction of
federal, state, and local income and employment tax withholding
obligations, including without limitation obligations incident to the
receipt of Stock under the Plan, the lapsing of restrictions applicable to
such Stock, the failure to satisfy the conditions for treatment as
incentive stock options under applicable tax law, or the receipt of cash
payments. Upon the exercise of an option or the lapsing of a restriction on
Stock issued under the Plan, the Company (or the optionee's or
stockholder's employer) may withhold from the shares otherwise deliverable
to the optionee upon such exercise, or require the stockholder to surrender
shares of Stock as to which the restriction has lapsed, such number of
shares having a
9
<PAGE>
fair market value sufficient to satisfy federal, state and local income and
employment tax withholding obligations.
(b) In the event that such tax withholding is satisfied by the
Company or the optionee's employer withholding shares of Stock otherwise
deliverable to the optionee, the Plan Administrator may issue the optionee
an additional option, with terms identical to the option agreement under
which the option was exercised, entitling the optionee to purchase
additional shares of Stock equal to the number of shares so withheld but at
an exercise price equal to the fair market value of the Stock on the grant
date of the new option; provided, however, that no such additional options
may be granted with respect to options granted pursuant to Section 5,
above.
11. Assignability. Incentive stock options may not be sold, pledged, assigned,
-------------
hypothecated, transferred, or disposed of in any manner other than by will or by
the laws of descent or distribution and may be exercised, during the lifetime of
the optionee, only by the optionee. Nonqualified stock options and SARs shall
be transferable to the extent provided in the stock option or SAR agreement or
as determined by the Plan Administrator. Stock subject to a Restricted Stock
purchase agreement or a Restricted Stock bonus agreement shall be transferable
only as provided in such agreement.
12. Change in Control.
-----------------
(a) Notwithstanding anything to the contrary contained in the Plan,
each stock option, SAR, Restricted Stock bonus or Restricted Stock purchase
agreement (or an amendment thereto) evidencing an option, SAR, Restricted
Stock bonus or Restricted Stock purchase hereunder shall automatically and
without further action be fully vested, nonforfeitable and become
exercisable, and any Restricted Stock covered by such an agreement shall be
released from restrictions on transfer and repurchase or forfeiture rights,
on the twenty-second day after any Share Acquisition Date, unless prior to
such twenty-second day a majority of the Continuing Directors then in
office has determined that the transaction pursuant to which a Person has
become an Acquiring Person is an Approved Transaction.
(b) Certain Definitions. For purposes of this Section 12, the
-------------------
following definitions shall apply:
"Acquiring Person" means any Person who or which, together with all
----------------
Affiliates and Associates of such Person, shall be the Beneficial Owner of 20%
or more of the Common Shares then outstanding, but shall not include the
Company, any Subsidiary of the Company or any employee benefit plan of the
Company or any Subsidiary of the Company, or any entity holding Common Shares
for or pursuant to the terms of any such plan. Notwithstanding the foregoing,
no Person shall become an "Acquiring Person" as the result of an acquisition of
Common Shares by the Company which, by reducing the number of shares
outstanding, increases the proportionate number of shares beneficially owned by
such Person to 20% or more of the Common Shares of
10
<PAGE>
the Company then outstanding; provided, however, that if a Person becomes the
-------- -------
Beneficial Owner of 20% or more of the Common Shares of the Company then
outstanding by reason of share purchases by the Company and shall, after such
share purchases by the Company, becomes the Beneficial Owner of any additional
Common Shares of the Company, then such Person shall be deemed to be an
"Acquiring Person".
"Affiliate" and "Associate" have the respective meanings ascribed to such
--------- ---------
terms in Rule 12b-2 of the General Rules and Regulations under the Exchange Act.
"Approved Transaction" means any transaction that occurs at a time when
--------------------
Continuing Directors are in office and a majority of the Continuing Directors
then in office has determined that the transaction is in the best interest of
the Company and its stockholders.
A Person shall be deemed the "Beneficial Owner" of and shall be deemed to
----------------
"beneficially own" any securities: (i) which such Person or any of such Person's
Affiliates or Associates beneficially owns, directly or indirectly; (ii) which
such Person or any of such Person's Affiliates or Associates has (A) the right
to acquire (whether such right is exercisable immediately or only after the
passage of time) pursuant to any agreement, arrangement or understanding, or
upon the exercise of conversion rights, exchange rights, rights (other than the
Rights), warrants or options, or otherwise; provided, however, that a Person
-------- -------
shall not be deemed the Beneficial Owner of, or to beneficially own, securities
tendered pursuant to a tender or exchange offer made by or on behalf of such
Person or any of such Person's Affiliates or Associates until such tendered
securities are accepted for purchase or exchange; or (B) the right to vote
pursuant to any agreement, arrangement or understanding; provided, however, that
-------- -------
a Person shall not be deemed the Beneficial Owner of, or to beneficially own,
any security if the agreement, arrangement or understanding to vote such
security (1) arises solely from a revocable proxy or consent given to such
person in response to a public proxy or consent solicitation made pursuant to,
and in accordance with, the applicable rules and regulations of the Exchange Act
and (2) is not also then reportable on Schedule 13D under the Exchange Act (or
any comparable or successor report); or (iii) which are beneficially owned,
directly or indirectly, by any other Person with which such Person or any of
such Person's Affiliates or Associates has any agreement, arrangement or
understanding for the purpose of acquiring, holding, voting (except to the
extent contemplated by the proviso to clause (ii)(B) of this definition) or
disposing of any securities of the Company; provided further, however, that
nothing in this Section 12 shall cause a Person to be the Beneficial Owner of,
or to beneficially own, any securities (x) acquired through such Person's
participation in the business of underwriting securities in good faith in a firm
commitment underwriting until the expiration of forty days after the date of
such acquisition or (y) which such Person has reported on Schedule 13G under the
Exchange Act and has not ceased to be eligible to report on Schedule 13G
pursuant to Rule 13d-1 under the Exchange Act.
"Common Shares" means the shares of common stock, par value $.0001 per
-------------
share, of the Company.
11
<PAGE>
"Continuing Director" means (i) any member of the Board of Directors of the
-------------------
Company, while such Person is a member of the Board, who is not an Acquiring
Person, or an Affiliate or Associate of an Acquiring Person, or a representative
of an Acquiring Person or of any such Affiliate or Associate, and who was, if
applicable, a member of the Board prior to the time that any Person becomes an
Acquiring Person, or (ii) any Person who subsequently becomes a member of the
Board, while such Person is a member of the Board, who is not an Acquiring
Person, or an Affiliate or Associate of an Acquiring Person, or a representative
of an Acquiring Person or of any such Affiliate or Associate, if such Person's
nomination for election or election to the Board is recommended or approved by a
majority of Continuing Directors.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, and
------------
the rules and regulations promulgated thereunder.
"Person" means any individual, firm, partnership, corporation or other
------
entity, and shall include any successor (by merger or otherwise) of such entity.
"Rights" means the rights granted to the Company's shareholders to purchase
------
additional Common Shares under certain circumstances, as described in that
certain Rights Agreement, dated as of May 5, 1988, by and between the Company
and The First National Bank of Boston, as rights agent.
"Share Acquisition Date" means the first date of public announcement by the
----------------------
Company or an Acquiring Person that a Person has become an Acquiring Person.
"Subsidiary" of any Person means any corporation or other entity of which a
----------
majority of the voting power of the voting equity securities or equity interest
is owned, directly or indirectly, by such Person, or which is otherwise
controlled by such Person.
13. Amendment, Suspension, or Termination of the Plan.
-------------------------------------------------
(a) The Board may at any time amend, suspend or terminate the Plan as
it deems advisable; provided that such amendment, suspension or termination
complies with all applicable requirements of state and federal law,
including any applicable requirement that the Plan or an amendment to the
Plan be approved by the stockholders, and provided further that, except as
provided in Section 3(c) above, the Board shall in no event amend the Plan
in the following respects without the consent of stockholders then
sufficient to approve the Plan in the first instance:
(1) To materially increase the benefits accruing to participants
under the Plan;
(2) To materially increase the number of shares of Stock
available under the Plan or to increase the number of shares of Stock
available for grant of incentive stock options under the Plan; or
12
<PAGE>
(3) To materially modify the eligibility requirements for
participation in the Plan or the class of employees eligible to receive
options under the Plan or to change the designation or class of persons
eligible to receive incentive stock options under the Plan.
(b) No option or SAR may be granted nor may any Stock be issued
(other than upon exercise of outstanding options) under the Plan during any
suspension or after the termination of the Plan, and no amendment,
suspension, or termination of the Plan shall, without the affected
individual's consent, alter or impair any rights or obligations under any
option or SAR previously granted under the Plan.
14. Term of Plan. The Plan shall terminate with respect to the grant of
------------
additional awards on the tenth anniversary of the date the Plan is approved by
the stockholders, unless previously terminated by the Board pursuant to Section
13.
15. Use of Proceeds. Cash proceeds realized from the exercise of options
---------------
granted under the Plan or from other sales of Stock under the Plan shall
constitute general funds of the Company.
16. Stockholder Approval. The Plan was adopted by the Board on March 1, 1995
--------------------
and became effective when approved by the Company's stockholders on May 31,
1995. On February 29, 1996, the Board adopted and approved an amendment to
increase the automatic option grants to Non-Employee Directors from 5,000 to
7,500 shares of Stock which became effective when approved by the Company's
stockholders on July 23, 1996. On February 19, 1999, the Board adopted and
approved an amendment and restatement of the Plan to reflect amendments
promulgated by the Securities and Exchange Commission to Rule 16b-3 applicable
to the Plan, which amendment and restatement was not subject to stockholder
approval.
17. No Employment Right. Nothing in this Plan or any instrument executed or
-------------------
any award granted pursuant thereto shall confer upon any employee, independent
contractor, consultant or director any right to continue in the employ of the
Company or any Affiliate (or to continue acting as an independent contractor,
consultant or director) or shall affect the right of the Company or any
Affiliate to terminate the employment, contractual or consulting relationship or
directorship of any person, with or without cause.
13
<PAGE>
ACUSON CORPORATION
NON-EMPLOYEE DIRECTORS' NON-QUALIFIED STOCK OPTION AGREEMENT
This agreement (the "Agreement") is made as of __________ 199_ (the "Grant
Date") between Acuson Corporation (the "Company") and ("Optionee").
WITNESSETH:
WHEREAS, the Company has adopted the Acuson Corporation 1995 Stock
Incentive Plan (the "Plan"), which Plan is incorporated in this Agreement by
reference and made a part of it (capitalized terms shall have the meaning
ascribed to them in the Plan); and
WHEREAS, the Plan provides for automatic option grants to Non-Employee
Directors of the Company;
NOW, THEREFORE, in consideration of the mutual covenants hereinafter set
forth, the parties to this Agreement hereby agree as follows:
1. Option Grant. The Company hereby grants to Optionee the right and
------------
option to purchase from the Company on the terms and conditions hereinafter
set forth, all or any part of an aggregate of Seven Thousand Five Hundred
(7,500) shares of the Common Stock, $.0001 par value, of the Company (the
"Stock").The exercise price of the Stock subject to this option shall be $___
per share, which is not less than the fair market value per share of the Stock
on the Grant Date. This grant is an automatic option grant under Section 5 of
the Plan.
2. Option Period. This option shall be exercisable only during the period
-------------
(the "Option Period") commencing on the Grant Date and, except as provided in
paragraph 3, ending on the date (the "Terminal Date") which shall be ten years
from the Grant Date. During the Option Period, the exercisability of this option
shall be subject to the limitations of paragraph 3 and the vesting provisions of
paragraph 4.
3. Limits on Option Period. The Option Period may end before the Terminal
-----------------------
Date, as follows:
(a) If Optionee ceases to be a director on the Company's Board
of Directors (the "Board") for any reason other than death, disability
(within the meaning of subparagraph (c) below) or cause during the Option
Period, the Option Period shall terminate on the earlier of (i) the last
day of the period, beginning on the day next following the day on which the
Optionee ceases to be a director, which equals in length the most recent
period of the Optionee's continuous service as a director (including all
portions of such period prior to the Grant Date), (ii) three years after
the
14
<PAGE>
date Optionee ceases to be a director, or (iii) the Terminal Date. In each
case this option shall be exercisable only to the extent exercisable under
paragraph 4 on the date Optionee ceases to be a director.
(b) If Optionee should die while serving on the Board, the
Option Period shall terminate three years after the date of death or on the
Terminal Date, whichever shall first occur, and this option shall be
exercisable only to the extent exercisable under paragraph 4 on the date of
Optionee's death. In the event of Optionee's death, Optionee's executor or
administrator or the person or persons to whom Optionee's rights under this
option shall pass by will or by the applicable laws of descent and
distribution may exercise the entire unexercised portion of this option to
the extent exercisable on the date of Optionee's death.
(c) If Optionee ceases to be a director by reason of disability,
as defined below, the Option Period shall terminate three years after the
date Optionee ceases to be a director or on the Terminal Date, whichever
shall first occur, and this option shall be exercisable only to the extent
exercisable under paragraph 4 on the date Optionee ceases to be a director.
For purposes of this subparagraph (c), an individual is disabled if he or
she is unable to engage in any substantial gainful activity by reason of
any medically determinable physical or mental impairment which can be
expected to result in death or which has lasted or can be expected to last
for a continuous period of not less than 12 months. An individual shall not
be considered to be disabled unless he or she furnishes proof of the
existence thereof in such form and manner, and at such times, as the Board
may require.
(d) If Optionee is removed from the Board for cause during the
Option Period, the Option Period shall terminate on the date of such
Optionee's removal as a director and shall not thereafter be exercisable to
any extent.
4. Vesting of Right to Exercise Options.
------------------------------------
(a) This option shall vest as to fifty percent (50%) of the
number of shares originally covered by this option on the date which is six
months from the Grant Date, then daily thereafter in installments of
1/365th of the total shares subject to this option so that this option will
become fully vested and exercisable no later than one (1) year following
the Grant Date.
(b) Vesting of this option will cease prior to this option
becoming fully vested at such time that Optionee ceases to be a director of
the Company, including by reason of death or disability.
15
<PAGE>
(c) Fractional shares shall not vest until such time as
additional fractional shares included in other installments allocated to
this option can be combined with the existing fractional shares to
constitute one or more whole shares.
(d) Notwithstanding the foregoing, this option shall be fully
vested and nonforfeitable and shall become fully exercisable under the
circumstances specified in Section 12 of the Plan.
5. Method of Exercise.
------------------
(a) Optionee may exercise this option with respect to all or any
part of the shares of Stock then subject to such exercise by giving the
Company written notice of such exercise, specifying the number of such
shares as to which this option is exercised. Such notice shall be
accompanied by an amount equal to the exercise price of such shares, in any
of the forms permitted under Section 7 of the Plan.
(b) If required by the Company, Optionee shall give the Company
satisfactory assurance in writing, signed by Optionee or Optionee's legal
representative, as the case may be, that such shares are being purchased
for investment and not with a view to the distribution thereof, provided
that such assurance shall be deemed inapplicable to (i) any sale of such
shares by such Optionee made in accordance with the terms of a registration
statement covering such sale, which has heretofore been (or may hereafter
be) filed and become effective under the Securities Act of 1933, as
amended, and with respect to which no stop order suspending the
effectiveness thereof has been issued, and (ii) any other sale of such
shares with respect to which, in the opinion of counsel for the Company,
such assurance is not required to be given in order to comply with the
provisions of the Securities Act of 1933, as amended.
(c) As soon as practicable after receipt of the notice required
in paragraph 5(a) and satisfaction of the conditions set forth in paragraph
5(b), the Company shall, without transfer or issue tax and without other
incidental expense to Optionee, deliver to Optionee at the office of the
Company at 1220 Charleston Road, Mountain View, CA 94043, attention of the
Corporate Secretary, or such other place as may be mutually acceptable to
the Company and Optionee, a certificate or certificates for such shares of
Stock; provided, however, that the time of such delivery may be postponed
by the Company for such period as may be required for it with reasonable
diligence to comply with applicable registration requirements under the
Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as
amended, any applicable listing requirements of any national securities
exchange, and requirements under any other law or regulation applicable to
the issuance or transfer of such shares. If Optionee fails to accept
delivery of and pay for all or any part of
16
<PAGE>
the number of shares specified in such notice upon tender or delivery
thereof, Optionee's right to purchase such shares may be terminated by the
Company at its election. In no event shall the Company be required to issue
fractional shares upon the exercise of this option.
6. Withholding. Optionee agrees to make appropriate arrangements with
-----------
the Company for satisfaction of any applicable federal, state or local income
tax withholding requirements or social security requirements .
7. Changes in Capitalization. If there should be any change in a class
-------------------------
of Stock subject to this option, through merger, consolidation, reorganization,
recapitalization, reincorporation, stock split, stock dividend (in excess of two
percent) or other change in the capital structure of the Company, appropriate
adjustments shall be made in order to preserve, but not to increase, the
benefits to Optionee, including adjustments of the number and kind of shares of
such Stock subject to this option and of the price per share. Any adjustment
made pursuant to this paragraph 7 as a consequence of a change in the capital
structure of the Company shall not entitle Optionee to acquire a number of
shares of such Stock of the Company or shares of stock of any successor company
greater than the number of shares Optionee would receive if, prior to such
change, Optionee had actually held a number of shares of such Stock equal to the
number of shares subject to this option.
8. Transferability. This Option may be transferred by the Optionee in a
---------------
manner and to the extent acceptable to the Plan Administrator as evidenced by a
writing signed by the Company and the Optionee.
9. No Stockholder Rights. Neither Optionee nor any person entitled to
---------------------
exercise Optionee's rights in the event of Optionee's death shall have any of
the rights of a stockholder with respect to the shares of Stock subject to this
option except to the extent the certificates for such shares shall have been
issued upon the exercise of this option.
10. No Employment Right. Nothing in the Plan or this Agreement shall
--------------------
confer upon the Optionee any right to continue service as a director of the
Company or any Affiliate or shall affect the right of the Company or any
Affiliate or the shareholders of the Company or any Affiliate, as the case may
be, to terminate the directorship of Optionee, with or without cause.
11. Notice. Any notice required to be given to the Company under the
------
terms of this Agreement shall be given in writing and addressed to the Company
in care of its Corporate Secretary at the office of the Company at 1220
Charleston Road, Mountain View, CA 94043, and any notice to be given to Optionee
shall be given in writing and addressed to Optionee at the address given by
Optionee beneath Optionee's signature to this Agreement, or such other address
as either party to this Agreement may hereafter designate in writing to the
other. Any such notice shall be deemed to have been duly given when
17
<PAGE>
enclosed in a properly sealed envelope addressed as aforesaid, registered or
certified and deposited (postage and registration or certification fee prepaid)
in a post office or branch post office regularly maintained by the United
States.
12. Successors. This Agreement shall be binding upon and inure to the
----------
benefit of any successor or successors of the Company. Where the context
permits, "Optionee" as used in this Agreement shall include Optionee's executor,
administrator or other legal representative or the person or persons to whom
Optionee's rights pass by will or the applicable laws of descent and
distribution.
13. Applicable Law. The interpretation, performance, and enforcement of
--------------
this Agreement shall be governed by the laws of the State of California.
IN WITNESS WHEREOF, this Agreement has been executed as of the day and
year first written above.
Acuson Corporation
a Delaware corporation
By:___________________________________
Title:________________________________
Optionee
Signature:____________________________
Address:______________________________
______________________________
______________________________
18
<PAGE>
ACUSON CORPORATION EXHIBIT 10.24
- --------------------------------------------------------------------------------
SECOND AMENDMENT TO CREDIT AGREEMENT
------------------------------------
THIS SECOND AMENDMENT TO CREDIT AGREEMENT (this "Amendment"), dated as of
---------
October 5, 1998 is entered into by and among:
(1) ACUSON CORPORATION, a Delaware corporation ("Borrower");
--------
(2) Each of the financial institutions listed in Schedule I to the
-----------------
Credit Agreement referred to in Recital A below (collectively, the
---------------- ---------
"Lenders"); and
-------
(3) ABN AMRO BANK, N.V., acting through its San Francisco
International Branch, as agent for the Lenders (in such capacity, "Agent").
-----
RECITALS
--------
A. Borrower, the Lenders and Agent are parties to a Credit Agreement
dated as of March 28, 1997, as amended by a First Amendment to Credit Agreement
dated as of April 15, 1998 (as so amended, the "Credit Agreement").
----------------
B. Borrower has requested the Lenders and Agent to amend the Credit
Agreement in certain respects.
C. The Lenders and Agent are willing so to amend the Credit Agreement
upon the terms and subject to the conditions set forth below.
AGREEMENT
---------
NOW, THEREFORE, in consideration of the above recitals and for other good
and valuable consideration, the receipt and adequacy of which are hereby
acknowledged, Borrower, the Lenders and Agent hereby agree as follows:
1. DEFINITIONS, INTERPRETATION. All capitalized terms defined above and
---------------------------
elsewhere in this Amendment shall be used herein as so defined. Unless
otherwise defined herein, all other capitalized terms used herein shall have the
respective meanings given to those terms in the Credit Agreement, as amended by
this Amendment. The rules of construction set forth in Section I of the Credit
-----------------------
Agreement shall, to the extent not inconsistent with the terms of this
- ---------
Amendment, apply to this Amendment and are hereby incorporated by reference.
2. AMENDMENTS TO CREDIT AGREEMENT. Subject to the satisfaction of the
------------------------------
conditions set forth in Paragraph 5 below, the Credit Agreement is hereby
-----------
amended as follows:
(a) Paragraph 1.01 is amended by changing the definition of "Total
--------------
Commitment" set forth therein to read in its entirety as follows:
"Total Commitment" shall mean, at any time, One Hundred Million
----------------
Dollars ($100,000,000) or, if such amount is reduced pursuant to
Subparagraph 2.07(a), the amount to which so reduced and in effect at
--------------------
such time.
(b) Paragraph 4.01 is amended by (i) changing the designation of
--------------
Subparagraph (t) thereof to "(u)" and (ii) adding thereto, immediately
----------------
following Subparagraph (s), a new Subparagraph (t) to read in its entirety
---------------- ----------------
as follows:
<PAGE>
(t) Year 2000 Compatibility. Borrower and its Subsidiaries have
-----------------------
reviewed the areas within their business and operations which could be
adversely affected by, and have developed or are developing a program
to address on a timely basis, the "Year 2000 Problem" (that is, the
risk that computer applications used by Borrower and its Subsidiaries
may be unable to recognize and perform properly date-sensitive
functions involving certain dates prior to and any date on or after
December 31, 1999), and have made related appropriate inquiry of
material suppliers and vendors. Based on such review and program,
Borrower believes that the "Year 2000 Problem" will not have a
Material Adverse Effect.
(c) Subparagraph 5.01(a) is amended by changing clause (iii) thereof
-------------------- ------------
to read in its entirety as follows:
(iii) Contemporaneously with the quarterly and year-end
Financial Statements required by the foregoing clauses (i) and (ii), a
--------------------
compliance certificate of the chief financial officer or treasurer of
Borrower (a "Compliance Certificate") which (A) states that no Default
----------------------
has occurred and is continuing, or, if any such Default has occurred
and is continuing, a statement as to the nature thereof and what
action Borrower proposes to take with respect thereto; (B) sets forth,
for the four-fiscal quarter period ending on the last day of the
fiscal quarter or fiscal year covered by such Financial Statements or
as of the last day of such fiscal quarter or fiscal year (as the case
may be), the calculation of the financial ratios and tests provided in
Paragraph 5.03; (C) states that the Year 2000 remediation efforts of
--------------
Borrower and its Subsidiaries are proceeding as scheduled; and (D)
indicates whether an auditor, regulator or third party consultant has
issued a management letter or other communication regarding the Year
2000 exposure, program or progress of Borrower and/or its
Subsidiaries;
(d) Paragraph 5.01 is further amended by (i) changing the designation
--------------
of Subparagraph (h) thereof to "(i)" and (ii) adding thereto, immediately
----------------
following Subparagraph (g), a new Subparagraph (h) to read in its entirety
---------------- ----------------
as follows:
(h) Year 2000 Compatibility. Borrower and its Subsidiaries shall
-----------------------
take all acts reasonably necessary to ensure that all software,
hardware, firmware, equipment, goods and systems utilized by or
material to their business operations or financial condition will
properly perform date sensitive functions before, during and after the
year 2000. At the request of Agent, Borrower shall provide to Agent
such certifications or other evidence of compliance with this
Subparagraph 5.01(h) as Agent may reasonably require.
--------------------
(e) Subparagraph 5.02(a) is amended by changing clause (xi) thereof
-------------------- -----------
to read in its entirety as follows:
(xi) Other Indebtedness of Borrower and its Subsidiaries
(whether or not of a type listed in clauses (i) through (x) above),
-----------------------
provided that the aggregate principal amount of all such other
Indebtedness does not exceed $30,000,000 at any time.
(f) Subparagraph 5.02(e) is amended by changing clause (x) thereof to
-------------------- ----------
read in its entirety as follows:
(x) Other Investments, provided that the aggregate amount of
such other Investments incurred in any fiscal year does not exceed
$25,000,000.
(g) Subparagraph 5.02(f) is amended by deleting from the first line
--------------------
of clause (iii) thereof the words "not more than 4,000,000".
------------
(h) Subparagraph 5.03(a) is amended to read in its entirety as
--------------------
follows:
2
<PAGE>
(a) Current Ratio. Borrower shall not permit its Current Ratio
-------------
to be less than 1.25 to 1.00 on the last day of any fiscal quarter.
(i) Subparagraph 5.03(b) is amended to read in its entirety as
--------------------
follows:
(b) Leverage Ratio. Borrower shall not permit its Leverage Ratio
--------------
to be greater than 1.25 to 1.00 on the last day of any fiscal quarter.
(j) Schedule I is amended by changing the percentage set forth under
----------
the caption "Proportionate Share" opposite each Lender's name thereon as
follows:
<TABLE>
<CAPTION>
PROPORTIONATE
LENDER SHARE
------ ---------
<S> <C>
ABN AMRO BANK N.V. 34.10000000%
BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION 20.00000000%
BANQUE NATIONALE DE PARIS 16.70000000%
COMMERZBANK AKTIENGESELLSCHAFT LOS ANGELES BRANCH 16.70000000%
THE SANWA BANK LIMITED 12.50000000%
</TABLE>
3. REPRESENTATIONS AND WARRANTIES. Borrower hereby represents and
------------------------------
warrants to Agent and the Lenders that the following are true and correct on the
date of this Amendment and that, after giving effect to the amendments set forth
in Paragraph 2 above, the following will be true and correct on the Effective
-----------
Date (as defined below):
(a) The representations and warranties of Borrower set forth in
Paragraph 4.01 of the Credit Agreement and in the other Credit Documents
--------------------------------------
are true and correct in all material respects as if made on such date
(except for representations and warranties expressly made as of a specified
date, which shall be true as of such date);
(b) No Default has occurred and is continuing; and
(c) Each of the Credit Documents is in full force and effect.
(Without limiting the scope of the term "Credit Documents," Borrower expressly
acknowledges in making the representations and warranties set forth in this
Paragraph 3 that, on and after the date hereof, such term includes this
- -----------
Amendment.)
4. AMENDMENT FEE. Borrower shall pay to Agent, for the ratable benefit of
-------------
the Lenders increasing their Commitments under the Credit Agreement, an
amendment fee of $25,000 (the "Amendment Fee"). The Amendment Fee shall be
-------------
shared by such Lenders pro rata based upon the amounts of their respective
Commitment increases.
5. EFFECTIVE DATE. The amendments effected by Paragraph 2 above shall
-------------- -----------
become effective on October 5, 1998 (the "Effective Date"), subject to receipt
--------------
by Agent and the Lenders on or prior to October 5, 1998 of the following, each
in form and substance satisfactory to Agent, the Lenders and their respective
counsel:
3
<PAGE>
(a) This Amendment duly executed by Borrower, the Lenders and Agent;
(b) The Amendment Fee;
(c) A favorable written opinion from Charles H. Dearborn, Esq.,
General Counsel of Borrower, dated October 5, 1998, addressed to Agent for
the benefit of Agent and the Lenders, covering such legal matters as Agent
or Lenders may reasonably request and otherwise in form and substance
satisfactory to Agent;
(d) Payment of all fees and expenses of Agent's counsel incurred in
connection with this Amendment; and
(e) Such other evidence as Agent or any Lender may reasonably request
to establish the accuracy and completeness of the representations and
warranties and the compliance with the terms and conditions contained in
this Amendment and the other Credit Documents.
6. EFFECT OF THIS AMENDMENT. On and after the Effective Date, each
------------------------
reference in the Credit Agreement and the other Credit Documents to the Credit
Agreement shall mean the Credit Agreement as amended hereby. Except as
specifically amended above, (a) the Credit Agreement and the other Credit
Documents shall remain in full force and effect and are hereby ratified and
confirmed and (b) the execution, delivery and effectiveness of this Amendment
shall not, except as expressly provided herein, operate as a waiver of any
right, power, or remedy of the Lenders or Agent, nor constitute a waiver of any
provision of the Credit Agreement or any other Credit Document.
7. MISCELLANEOUS.
-------------
(a) Counterparts. This Amendment may be executed in any number of
------------
identical counterparts, any set of which signed by all the parties hereto
shall be deemed to constitute a complete, executed original for all
purposes.
(b) Headings. Headings in this Amendment are for convenience of
--------
reference only and are not part of the substance hereof.
(c) Governing Law. This Amendment shall be governed by and construed
-------------
in accordance with the laws of the State of California without reference to
conflicts of law rules.
[The signature pages follow.]
4
<PAGE>
IN WITNESS WHEREOF, Borrower, Agent and the Lenders have caused this
Amendment to be executed as of the day and year first above written.
BORROWER: ACUSON CORPORATION
By:__________________________________________
Name:
Title:
AGENT: ABN AMRO BANK N.V.
By: ________________________________________
Name: _________________________________
Title: _________________________________
By: ________________________________________
Name: _________________________________
Title: _________________________________
LENDERS: ABN AMRO BANK N.V.
By: ________________________________________
Name:___________________________________
Title:_________________________________
By: ________________________________________
Name: _________________________________
Title: _________________________________
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION
By: ________________________________________
Name: _________________________________
Title: _________________________________
BANQUE NATIONALE DE PARIS
By: ________________________________________
Name: _________________________________
Title: _________________________________
THE SANWA BANK LIMITED
By: ________________________________________
Name: _________________________________
Title: _________________________________
5
<PAGE>
COMMERZBANK AKTIENGESELLSCHAFT,
LOS ANGELES BRANCH
By: ________________________________________
Name: _________________________________
Title: _________________________________
By: ________________________________________
Name:___________________________________
Title: _________________________________
6
<PAGE>
ACUSON CORPORATION EXHIBIT 10.25
- --------------------------------------------------------------------------------
ACUSON MANAGEMENT INCENTIVE PLAN - OFFICERS - 1998
Acuson's Management Incentive Plan (MIP-Officer) has been established as a means
to reward and retain corporate officers and to provide incentives for them to
exert maximum efforts for the success of the Company. It is also intended to
reward individual performance against objectives for both individual and work
group goals, as well as to encourage teamwork among the Company's key employees
as a means of achieving ongoing company success.
PLAN DESIGN:
- ------------
Our MIP-Officer is a "Performance Based" plan, which links incentive award
directly to the achievement of goals and objectives and planned financial
results. The plan consists of personal objectives for achieving individual and
work group goals and corporate objectives. The target incentive bonus
percentage for plan participants is set by the Board of Directors Compensation
Committee.
For all officers other than the Chief Executive Officer, personal objectives
will be set by the officers' immediate supervisor and reviewed by the CEO. At
full achievement of personal objectives, for all officers other than the
Designated Officers as described below, the MIP will pay out the target bonus
percentage times the base salary paid during the measurement period. A
percentage of the full pay out amount may be linked to each objective. In order
for any amount to be paid for achievement of personal objectives, a satisfactory
level of overall personal performance must be maintained. The Company reserves
the right to modify objectives to meet changing business requirements by
notifying participants within 30 days of the change.
The Compensation Committee of the Board of Directors will determine the
percentage of target bonus to be paid to the CEO, the COO, the President, and
such other executive officers as the Committee may designate ("Designated
Officers"), based on its evaluation of a number of factors, which may include
the personal objectives described above as well as corporate and department
objectives such as financial results, orders, shipments, profit margins,
relative market share, meeting in a timely manner product development milestones
and expense controls, achievement vs. difficulty of corporate objectives and
positioning the Company for the future.
Depending on which corporate objectives are met, the plan will pay out to each
officer an additional amount (corporate match) of either 50% or 100% of the
determined percentage of the payout to such officer for the achievement of
personal objectives.
PARTICIPATION:
- --------------
Participation in Acuson's MIP-Officer is at the sole discretion of the
Compensation Committee of the Board of Directors, and is limited to executive
officers. Participation in this plan during one measurement period does not
entitle the officer to participate in any subsequent period or plan, should
there be one, as each period and plan will be independent of the other. Target
bonus percentage levels may vary from one measurement period to the next, and
within a measurement period, may vary among participants. Measurement periods
may vary from year to year.
Members of this plan will not participate in the company-wide profit sharing
program.
To participate, the employee must be an executive officer of the Company. To
receive a payout, the officer must be an active employee of the company on the
date of plan payout. Should an officer's job change during the measurement
period, s/he may be removed from this plan, and will then become eligible to
participate in the company-wide profit sharing plan.
PAYOUT:
- -------
Payout will occur during Q1 or Q2 1999. The Compensation Committee of the Board
of Directors will determine the measurement period for the target bonus for each
officer: either Q2 1998 through Q1 1999 or Fiscal Year 1998. The measurement
period for the corporate match is the Company fiscal 1998 earnings (i.e. January
1, 1998 - December 31, 1998).
1
<PAGE>
Participants hired after March 1st of the plan year will receive a payout for
individual objectives prorated by the number of months worked between January 1,
1998 and December 31, 1998.
Payment will be made in cash (less required taxes) and be immediately vested.
AUTHORITY:
- ----------
Full authority to set, interpret, administer, amend or terminate this plan
resides with the Compensation Committee of the Board of Directors. Decisions of
the Compensation Committee will be final. This plan and its provisions create
no vested rights. This plan and its provisions may be modified or terminated at
any time at the Company's discretion, including during any measurement period.
The plan is not an employment contract and neither this plan nor participation
in this plan shall confer upon any participant any right to continue in the
employ of the Company and shall not affect the Company's right to terminate the
employment of any person, with or without cause.
2
<PAGE>
Attachment A
1998 Target Bonuses
for
Named Executive Officers
(as defined in Item 402(a)(3) of Regulation S-K)
Samuel H. Maslak 30%
Robert J. Gallagher 25%
Daniel R. Dugan 25%
Edward P. Cornell 20%
Bradford C. Anker 20%
3
<PAGE>
ACUSON CORPORATION EXHIBIT 10.28
- --------------------------------------------------------------------------------
PROMISSORY NOTE
$10,000,000 SEPTEMBER 11, 1998
SAN FRANCISCO, CALIFORNIA
FOR VALUE RECEIVED, ACUSON CORPORATION ("Borrower"), hereby promises to pay
to the order of BANQUE NATIONALE DE PARIS ("BNP") or the holder hereof the
principal sum of $10 MILLION DOLLARS ($10,000,000), or such lesser amount(s) as
shall have been loaned by BNP to Borrower from time to time in one or more
advances (each an "Advance") pursuant to that certain letter agreement addressed
by BNP to Borrower on September 11, 1998 and accepted by Borrower (the
"Agreement"). Each Advance shall be payable either (i) on demand, but if no
prior demand is made, then on the demand maturity date applicable to such
Advance (a "Demand Advance") or (ii) upon the terms stated in the Terms of
Advance, as defined below (a "Term Advance"). Each Advance shall bear interest
from the date made until paid in full at the rate(s) of interest to be agreed
upon by Borrower and BNP at the time that such Advance is made. Interest shall
be payable with respect to each Advance at the time(s) to be agreed upon by
Borrower and BNP at the time that such Advance is made. If Borrower fails to
make any payment due in connection with this Note (including payments of
principal, interest, expenses or any other charges) such due but unpaid amount
shall bear interest from the date due until such amount is paid in full at a
rate equal to the Prime Rate plus two percent (2.0%) per annum. As used in this
Note the term "Prime Rate" shall mean that fluctuating rate of interest
determined from time to time by the San Francisco office of BNP to be in effect
as its prime rate. Any change in the Prime Rate shall take effect on the day
determined by BNP.
For each Advance made under this Note, BNP shall maintain a record as more
fully described in the Agreement (the "Terms of Advance"). The Terms of Advance
shall be maintained by BNP in such format, including computer records, as BNP
shall determine, and the Terms of Advance shall be binding upon Borrower absent
manifest error by BNP in respect to such records; provided, however, that
failure by BNP to maintain the Terms of Advance shall not affect the obligations
of Borrower to pay amounts due under this Note.
In the event that a Term Advance is made hereunder, any and each of the
following shall constitute an "event of default" under this Note: (i) Borrower's
failure promptly to make any payment under this Note in accordance with its
terms; (ii) Borrower's failure to perform any of its obligations contained in
this Note or in the Agreement; (iii) the filing of a petition in bankruptcy, or
for the appointment of a receiver in liquidation or a trustee, by or against
Borrower or for any of Borrower's property or the filing of the petition or
other proceeding by or against Borrower for reorganization, compromise,
adjustment, or other relief under the laws of the United States or of any state
relating to the relief of debtor which petition or other proceeding is in any
event not dismissed, set aside, or withdrawn or ceases to be in effect within
ten (10) days following the filing thereof; (iv) Borrower's making any general
assignment for the benefit of creditors or otherwise making or attempting an
assignment of all or substantially all of its assets; (v) any representation or
warranty of the Borrower in the Agreement or the Note shall prove to have been
false or misleading in any material respect when made or when deemed made; or
(vi) any material adverse change in the financial condition of the Borrower. BNP
may take any legal action available to collect all sums owing hereunder.
Borrower may prepay a Term Advance prior to the maturity date, or a Demand
Advance, prior to demand by BNP, or, if no demand has been made, prior to the
demand maturity date, or any portion thereof at any time without penalty,
provided, however, that each prepayment shall (a) be in an amount not less than
$100,000, (b) include payment of all accrued interest to the date of the
prepayment with respect to all prepaid principal, and (c) in the case of
prepayments of Advances or portions of Advances which bear interest at a rate
which does not fluctuate on a daily basis, include an amount, determined by BNP
in its sole discretion, equal to the losses and expenses incurred by BNP in
connection with such prepayment (BNP's calculation of such losses and expenses
shall be binding upon Borrower absent manifest error on the part of BNP in
making such calculation).
Payments due under this Note shall be made not later than 11:00 a.m. (San
Francisco time) on the day each such payment is due or, in the case of a demand
for payment, on the day immediately following the day demand for payment is made
telephonically or in writing by BNP. All payments shall be made in lawful money
of the United States of America by wire transfer of immediately available funds
into the following account or such other account as BNP shall designate to
Borrower in writing: Federal Reserve Bank of San Francisco, Account Number:
121027234, Reference: Acuson. All payments shall be made free and clear of, and
without deduction for or other withholding on account of, taxes. All payments
made hereunder shall be credited first against accrued and unpaid costs and
expenses of BNP, if any, then against accrued but unpaid interest and finally
against principal. Unless otherwise indicated in the Terms of Advance,
computations of
<PAGE>
interest (including default interest) and fees (if applicable) shall be made by
BNP on the basis of a year consisting of 360 days for the actual number of days
elapsed (including the first day but excluding the last) and when demand is made
for payment on or prior to the Demand Maturity Date, as set forth in the Terms
of Advance, with respect to a demand obligation hereunder, BNP shall notify
Borrower of the total amount owed hereunder. In the absence of manifest error,
BNP's determination of the amount owned hereunder shall be conclusive and
binding upon the Borrower.
Neither the acceptance of any partial or delinquent payment by BNP nor
BNP's failure to exercise any rights or remedies upon the occurrence and
continuance of any default shall, in and of itself, constitute a waiver of such
default, a modification of Borrower's obligations under this Note or a waiver of
any subsequent default. This Note, together with the Agreement and the Terms of
Advance with respect to each Advance, sets forth the entire agreement between
Borrower and BNP with regard to the matters referred to herein. No alteration,
amendment or extension of any provision of this Note nor consent to any
departure by Borrower from the terms hereof shall be effective unless the same
shall be in writing and signed by BNP, and then such waiver or consent shall be
effective only in the specific instance and for the specific purpose for which
given. Should any action or proceeding be brought to construe or enforce the
terms and conditions of this Note, the Agreement or any Terms of Advance, or the
rights of the parties hereunder or thereunder, the party prevailing in such
action or proceeding shall be entitled to recover from the other party all court
costs and reasonable attorneys' fees to be set by the court, as well as the
costs and fees incurred in enforcing any judgment entered thereon. All rights of
BNP hereunder shall inure to the benefit of its successors and assigns; all
obligations of Borrower shall bind its successors and assigns. Borrower's
obligations under this Note are not assignable. The construction of this Note
and the rights and liabilities of the parties hereto, shall be governed by the
laws of the State of California.
IN WITNESS WHEREOF, Borrower has caused this Note to be executed as of the
date and year first written above.
ACUSON CORPORATION
a ____________ corporation
______________________________
By: Title:
2
<PAGE>
ACUSON CORPORATION EXHIBIT 10.29
- ------------------------------------------------------------------------------
September 11, 1998
Acuson Corporation
1220 Charleston Road
P.O. Box 7393
Mountain View, CA 94039-7393
Attention: David Farwell, Assistant Treasurer
Ladies and Gentlemen:
Banque Nationale de Paris (BNP) is pleased to advise you that we have approved
the following facility for your use:
Borrower: Acuson Corporation.
Facility: Uncommitted line of credit for one or more advances (the
"Advance(s)"). Advances will be available for a period of up
to 90 days at the sole discretion of BNP and subject to the
terms and conditions of this agreement, the Note and the
Terms of Advance (each referred to below). The maximum
aggregate principal amount available under this Facility at
any one time is $10,000,000, and the minimum amount of any
one Advance is $100,000. The interest rate (or method of
calculation of interest) applicable to each advance will be
as agreed upon by Borrower and BNP at the time that such
Advance is made. Principal and interest on each Advance will
be payable at the times and in the manner agreed upon by
Borrower and BNP at the time that such Advance is made.
Request for Requests for Advances may be addressed to Don Hart or Debra
Advances: McAdam in writing or by telephone and may be made by any of
your Designated Officers (as that term is used in the
Borrowing Certificate referred to below).
Terms of For each Advance made under this agreement, BNP will
Advance: maintain a record of the terms and conditions of such
Advance (the "Terms of Advance"). BNP's records of such
terms and conditions shall be binding upon Borrower absent
manifest error. BNP will make a copy of the Terms of Advance
available to Borrower.
Documentation: Prior to the funding of the first Advance to be made
hereunder, Borrower will deliver to BNP: (a) this agreement,
(b) a Borrowing Certificate, and (c) a Promissory Note (the
"Note"), each fully executed and in a form acceptable to
BNP. Forms of Borrowing Certificate and Note are attached.
Representations: Borrower represents and warrants that (a) this agreement
and, when executed and delivered to us, the note (including
any substitute or additional Note), has been duly
authorized, executed and delivered by Borrower and
constitutes legally binding and enforceable obligations of
Borrower in accordance with its respective terms, and (b)
all financial information which Borrower has submitted or
will submit to BNP in connection with this agreement or any
request for an advance is (or will be at the time submitted)
true and complete, fairly presents the financial condition
of Borrower as of the date indicated, and has been prepared
in accordance with generally accepted accounting principles.
Upon the making of each request for an advance under this
Facility and upon receipt of each such
<PAGE>
Acuson Corporation
September 11, 1998
Page 2
Advance, Borrower will be deemed to have restated and
reaffirmed, as of the date of each such request and receipt,
each representation and warranty made above.
Notices: All notices required or permitted by this agreement or any Note
shall be made by telephone or in writing (but if by telephone,
shall promptly be confirmed in writing) and addressed to
Borrower at: 1220 Charleston Road, P.O. Box 7393, Mountain View,
CA 94039-7393; telephone number: (650) 694-5415; telefax
number: (650) 967-4791; and to BNP at: 180 Montgomery Street,
San Francisco, CA 94104; telephone number: (415) 956-2511;
telefax number: (415) 989-9041; unless either party gives notice
to the other of a change in address.
Kindly indicate your acceptance of this letter agreement by signing and
returning to us the original of this letter. The enclosed duplicate is for your
files. We are delighted to offer this Facility and look forward to continuing
our mutually satisfactory relationship.
Sincerely,
BANQUE NATIONALE DE PARIS
Kristine Nakano Mark McElwain
Vice President Assistant Vice President
ACCEPTED AND AGREED AS OF THIS ____________ DAY OF _______________,1998.
ACUSON CORPORATION
By: ______________________________
Title:
<PAGE>
ACUSON CORPORATION EXHIBIT 10.30
- --------------------------------------------------------------------------------
CHANGE IN CONTROL AGREEMENT
---------------------------
THIS CHANGE IN CONTROL AGREEMENT, made as of the 12th day of October,
1998, by and between Acuson Corporation, a company incorporated under the laws
of Delaware (the "Company"), and _____________ ("Executive").
WHEREAS, the Board of Directors of the Company (the "Board") recognizes
that the possibility of a Change in Control (as hereinafter defined) exists and
that the threat or the occurrence of a Change in Control can result in
significant distractions of its key management personnel because of the
uncertainties inherent in such a situation;
WHEREAS, the Board has determined that it is essential and in the best
interest of the Company and its stockholders to retain the services of Executive
in the event of a threat or occurrence of a Change in Control and to ensure
Executive's continued dedication and efforts in such event without undue concern
for Executive's personal financial and employment security; and
WHEREAS, in order to induce Executive to remain in the employ of the
Company, particularly in the event of a threat or the occurrence of a Change in
Control, the Company desires to enter into this Agreement with Executive to
provide Executive with certain benefits in the event Executive's employment is
terminated as a result of, or in connection with, a Change in Control;
NOW, THEREFORE, in consideration of the respective agreements of the
parties contained herein, it is agreed as follows:
1. Term of Agreement. This Agreement shall commence as of October 12,
-----------------
1998 (the "Effective Date") and shall continue in effect until the third
anniversary of the Effective Date; provided, that commencing on the third
anniversary of the Effective Date and on each subsequent anniversary thereof,
the term of this Agreement shall automatically be extended for one (1) year
unless either the Company or Executive shall have given written notice to the
other at least ninety (90) days prior thereto that the term of this Agreement
shall not be so extended; and provided, further, that notwithstanding any such
notice by the Company not to extend, the term of this Agreement shall not expire
prior to the expiration of thirteen (13) months after the occurrence of a Change
in Control.
2. Definitions.
-----------
2.1. Accrued Compensation. "Accrued Compensation" shall mean an
--------------------
amount which shall include all amounts earned or accrued through the Termination
1
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Date (as hereinafter defined) but not paid as of the Termination Date,
including, without limitation, (i) base salary, (ii) reimbursement for
reasonable and necessary expenses incurred by Executive on behalf of the Company
during the period ending on the Termination Date, (iii) paid time off (PTO) pay
and (iv) bonuses and incentive compensation.
2.2. Base Amount. "Base Amount" shall mean the amount of
-----------
Executive's annual base salary at the rate in effect immediately prior to the
Change in Control, and shall include all amounts of Executive's base salary that
are deferred under any qualified and non-qualified employee benefit plans of the
Company or any other agreement or arrangement.
2.3. Bonus Amount. "Bonus Amount" shall mean the greater of (i)
------------
Executive's incentive target for the fiscal year in which the Change in Control
occurs and as in place immediately prior to the Change in Control, or (ii)
Executive's incentive target for the fiscal year in which the Termination Date
occurs.
2.4. Cause. A termination of employment is for "Cause" if
-----
Executive has been convicted of a felony involving fraud or dishonesty or the
termination is evidenced by a resolution adopted in good faith by two-thirds of
the Board to the effect that Executive (i) intentionally and continually failed
substantially to perform Executive's reasonably assigned duties with the Company
(other than a failure resulting from Executive's incapacity due to physical or
mental illness or from Executive's assignment of duties that would constitute
Good Reason (as hereinafter defined)), which failure continued for a period of
at least thirty (30) days after a written notice of demand for substantial
performance has been delivered to Executive specifying the manner in which
Executive has failed substantially to perform, or (ii) intentionally engaged in
conduct which is demonstrably and materially injurious to the Company; provided,
--------
that no termination of Executive's employment shall be for Cause as set forth in
clause (ii) above until (a) there shall have been delivered to Executive a copy
of a written notice setting forth that Executive was guilty of the conduct set
forth in clause (ii) and specifying the particulars thereof in detail, and (b)
Executive shall have been provided an opportunity to be heard in person by the
Board (with the assistance of Executive's counsel if Executive so desires). No
act, nor failure to act, on Executive's part shall be considered "intentional"
unless Executive has acted, or failed to act, with a lack of good faith and with
a lack of reasonable belief that Executive's action or failure to act was in the
best interest of the Company.
2.5. Change in Control. "Change in Control" shall mean any of the
-----------------
following:
(a) An acquisition (other than directly from the Company) of any
voting securities of the Company (the "Voting Securities") by any Person (as the
term "person" is used for purposes of Section 13 or 14 of the Securities
Exchange Act of 1934, as amended (the "1934 Act")) immediately after which such
Person has Beneficial Ownership (as the term "beneficial ownership" is defined
under Rule 13d-3 promulgated
2
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under the 1934 Act) of (i) twenty percent (20%) or more of the combined voting
power of the Company's then outstanding Voting Securities, which acquisition is
not approved in advance by a majority of the Incumbent Board (as hereinafter
defined), or (ii) thirty three percent (33%) or more of the combined voting
power of the Company's then outstanding Voting Securities, which acquisition is
approved in advance by a majority of the Incumbent Board; provided, that in each
--------
case of (i) or (ii) above, in determining whether a Change in Control has
occurred, Voting Securities which are acquired in a Non-Control Acquisition (as
hereinafter defined) shall not constitute an acquisition which would cause a
Change in Control. A "Non-Control Acquisition" shall mean an acquisition by (1)
an employee benefit plan (or a trust forming a part thereof) maintained by (A)
the Company or (B) any corporation or other Person of which a majority of its
voting power or its equity securities or equity interest is owned directly or
indirectly by the Company (a "Subsidiary"), (2) the Company or any Subsidiary,
(3) any Person in connection with a Non-Control Transaction (as hereinafter
defined) or (4) Karl Johannsmeier of a percentage of the combined voting power
of the Company's then outstanding Voting Securities (the "Voting Power") which
does not cause the aggregate percentage of the Voting Power held by him to
exceed twenty-five percent (25%) when his aggregate percentage of the Voting
Power is combined with the aggregate percentage of the Voting Power held
collectively by all of Mr. Johannsmeier's associates, affiliates (other than the
Company) and Persons with whom he is acting in concert with respect to such
acquisition or acquisitions (collectively, the "Johannsmeier Group"); provided,
however, that if, after the date of this Agreement, Mr. Johannsmeier or any of
the Johannsmeier Group sells, donates, assigns or otherwise transfers the
Beneficial Ownership of any Voting Securities, including among themselves, then
any subsequent acquisition of Beneficial Ownership of Voting Securities (other
than pursuant to the exercise of options granted under a Company stock option
plan) shall not be deemed to be a Non-Control Acquisition pursuant to this
Section 2.5(a); provided, further that in the event of Mr. Johannsmeier's death
or incapacity due to physical or mental illness, any acquisition by the trustee
or other representative of Mr. Johannsmeier or his estate or any Person acting
on Mr. Johannsmeier's behalf shall also not be deemed to be Non-Control
Acquisition pursuant to this Section 2.5(a);
(b) The individuals who, as of the date this Agreement is approved by
the Board, are members of the Board (the "Incumbent Board"), cease for any
reason to constitute at least a majority of the Board; provided, that if the
--------
appointment, election or nomination for election by the Company's stockholders
of any new director was approved by a vote of two-thirds (2/3rds) of the
Incumbent Board, such new director shall, for purposes of this Agreement, be
considered a member of the Incumbent Board; and provided, further, that no
-------- -------
individual shall be considered a member of the Incumbent Board if such
individual initially assumed office as a result of either an actual or
threatened "Election Contest" (as described in Rule 14a-11 promulgated under the
1934 Act) or other actual or threatened solicitation of proxies or consents by
or on behalf of a Person other than the Board (a "Proxy Contest") including by
reason of any agreement intended to avoid or settle any Election Contest or
Proxy Contest;
3
<PAGE>
(c) Approval by stockholders of the Company of:
(i) A merger, consolidation or reorganization involving
the Company, unless such merger, consolidation or reorganization satisfies
the conditions set forth in clauses (A) through (C) below (the transactions
described by clauses (A) through (C) below being referred to herein as
"Non-Control Transactions"):
(A) the stockholders of the Company immediately before
such merger, consolidation or reorganization own, directly or
indirectly, immediately following such merger, consolidation or
reorganization, at least sixty percent (60%) of the combined voting
power of the outstanding voting securities of the corporation
resulting from such merger, consolidation or reorganization (the
"Surviving Corporation") in substantially the same proportion as their
ownership of the Voting Securities immediately before such merger,
consolidation or reorganization;
(B) the individuals who were members of the Incumbent
Board immediately prior to the execution of the agreement providing
for such merger, consolidation or reorganization constitute at least a
majority of the members of the board of directors of the Surviving
Corporation; and
(C) no Person (other than the Company, any Subsidiary,
any employee benefit plan (or any trust forming a part thereof)
maintained by the Company, the Surviving Corporation or any
Subsidiary, or any Person who, immediately prior to such merger,
consolidation or reorganization had Beneficial Ownership of twenty
percent (20%) or more of the then outstanding Voting Securities) has
Beneficial Ownership of twenty percent (20%) or more of the combined
voting power of the Surviving Corporation's then outstanding voting
securities;
(ii) A complete liquidation or dissolution of the Company;
or
(iii) An agreement for the sale or other disposition of all
or substantially all of the assets of the Company to any Person (other than
a transfer to a Subsidiary).
Notwithstanding the foregoing, a Change in Control shall not be deemed
to occur solely because any Person (the "Subject Person") acquired Beneficial
Ownership of more than the permitted amount of the outstanding Voting Securities
as a result of the acquisition of Voting Securities by the Company which, by
reducing the number of Voting Securities outstanding, increases the proportional
number of shares Beneficially Owned by the Subject Person; provided, that if a
--------
Change in Control would occur (but for
4
<PAGE>
the operation of this sentence) as a result of the acquisition of Voting
Securities by the Company, and after such share acquisition by the Company, the
Subject Person becomes the Beneficial Owner of any additional Voting Securities
(other than pursuant to the exercise of options granted under a Company stock
option plan or pursuant to a Capital Structure Change (as hereinafter defined))
which increases the percentage of the then outstanding Voting Securities
Beneficially Owned by the Subject Person in excess of the permitted amount of
the outstanding Voting Securities, then a Change in Control shall occur. For
purposes of this paragraph, a "Capital Structure Change" shall mean any change
made in the Voting Securities of the Company (including a stock dividend or
stock split) not involving the receipt of consideration by the Company.
(d) Notwithstanding anything contained in this Agreement to the
contrary, if Executive's employment is terminated prior to a Change in Control
and it is determined that such termination (i) was at the request of a third
party who has indicated an intention or taken steps reasonably calculated to
effect a Change in Control and who subsequently effectuates a Change in Control
(a "Third Party") or (ii) otherwise occurred in connection with, or in
anticipation of, a Change in Control which actually occurs, then, for all
purposes of this Agreement, the date of a Change in Control with respect to
Executive shall mean the date immediately prior to the date of such termination
of Executive's employment.
2.6. Company. The "Company" shall mean Acuson Corporation and
-------
shall include its "Successors and Assigns" (as hereinafter defined).
2.7. Disability. "Disability" shall mean a physical or mental
----------
infirmity which impairs Executive's ability to substantially perform Executive's
duties with the Company for a period of one hundred eighty (180) consecutive
days and Executive has not returned to Executive's full-time employment prior to
the Termination Date as stated in the Notice of Termination (as hereinafter
defined).
2.8. Good Reason.
-----------
(a) "Good Reason" shall mean the occurrence after a Change in
Control of any of the events or conditions described in subsections (i) through
(viii) hereof :
(i) (A) a change in Executive's status, title, position,
responsibilities (including reporting responsibilities) or working
conditions which represents an adverse change from Executive's status,
title, position, responsibilities or working conditions as in effect at any
time within ninety (90) days preceding the date of a Change in Control or
at any time thereafter; (B) the assignment to Executive of any duties or
responsibilities which are inconsistent with Executive's status, title,
position or responsibilities as in effect at any time within ninety (90)
days preceding the date of a Change in Control or at any time thereafter;
or (C) any removal of Executive from or failure to reappoint or reelect
Executive to any of such offices or positions, except in connection with
the
5
<PAGE>
termination of Executive's employment for Disability, Cause, as a result of
Executive's death or by Executive other than for Good Reason;
(ii) reduction in Executive's base salary to a level below
that in effect at any time within ninety (90) days preceding the date of a
Change in Control or at any time thereafter, or any failure to pay
Executive any compensation or benefits to which Executive is entitled
within five (5) days of the date due;
(iii) the Company's requiring Executive to be based at any
place outside a 50-mile radius from Executive's job location or residence
prior to the Change in Control, except for reasonably required travel on
the Company's business which is not materially greater than such travel
requirements prior to the Change in Control;
(iv) the failure by the Company to (A) continue in effect
(without reduction in benefit level and/or reward opportunities) any
material compensation or employee benefit plan in which Executive was
participating at any time within ninety (90) days preceding the date of the
Change in Control or at any time thereafter, including, but not limited to,
the plans listed on Appendix A (which shall include paid time off
policies), unless such plan is replaced with a plan that provides
substantially equivalent compensation or benefits to Executive, or (B)
provide Executive with compensation and benefits, in the aggregate, at
least equal (in terms of benefit levels and/or reward opportunities) to
those provided for under each other employee benefit plan, program and
practice in which Executive was participating at any time within ninety
(90) days preceding the date of the Change in Control or at any time
thereafter or which are provided to other similarly situated executives of
the Company;
(v) the insolvency or the filing (by any party, including
the Company) of a petition for bankruptcy of the Company, which petition is
not dismissed within sixty (60) days;
(vi) any material breach by the Company of any provision
of this Agreement;
(vii) any purported termination of Executive's employment
for Cause by the Company which does not comply with the terms of Section
2.4; or
(viii) the failure of the Company to obtain an agreement,
satisfactory to Executive, from any Successors and Assigns to assume and
agree to perform this Agreement, as contemplated in Section 6 hereof.
(b) Any event or condition described in this Section 2.8 which
occurs prior to a Change in Control, but which it is determined (i) was at the
request of a
6
<PAGE>
Third Party, or (ii) otherwise arose in connection with, or in anticipation of,
a Change in Control which actually occurs, shall constitute Good Reason for
purposes of this Agreement notwithstanding that it occurred prior to the Change
in Control.
(c) Executive's right to terminate Executive's employment
pursuant to this Section 2.8 shall not be affected by Executive's incapacity due
to physical or mental illness.
(d) For purposes of this Section 2.8, any good faith
determination of a Good Reason made by Executive shall be conclusive. In the
event Executive makes any such determination, Executive shall notify the Company
in writing and shall specify a last day of employment.
2.9. Notice of Termination. Following a Change in Control,
---------------------
"Notice of Termination" shall mean a written notice from the Company of
termination of Executive's employment which indicates the specific termination
provision in this Agreement relied upon and which sets forth in reasonable
detail the facts and circumstances claimed to provide a basis for termination of
Executive's employment under the provision so indicated.
2.10. Successors and Assigns. "Successors and Assigns" shall mean
----------------------
a corporation or other entity acquiring all or substantially all the assets and
business of the Company (including this Agreement), whether by operation of law
or otherwise.
2.11. Termination Date. "Termination Date" shall mean (i) in the
----------------
case of Executive's death, Executive's date of death, (ii) in the case of
termination of Executive's employment with the Company for Good Reason, the last
day of Executive's employment as specified by Executive pursuant to Section
2.8(d), and (iii) in all other cases, the date specified in the Notice of
Termination; provided, that if Executive's employment is terminated by the
--------
Company for Cause or due to Disability, the date specified in the Notice of
Termination shall be at least thirty (30) days from the date the Notice of
Termination is given to Executive; and provided, further, that in the case of
-------- -------
Disability, Executive shall not have returned to the full-time performance of
Executive's duties during such period of at least thirty (30) days.
3. Termination of Employment.
-------------------------
3.1. If, during the term of this Agreement, Executive's employment
with the Company shall be terminated within thirteen (13) months following a
Change in Control, Executive shall be entitled to the following compensation and
benefits:
(a) If Executive's employment with the Company shall be
terminated (i) by the Company for Cause or Disability, (ii) by reason of
Executive's death, (iii) due to Executive's retirement pursuant to the Company's
policies applying to executive offices generally, or (iv) by Executive other
than for Good Reason, the Company shall pay to Executive the Accrued
Compensation.
7
<PAGE>
(b) If Executive's employment with the Company shall be
terminated for any reason other than as specified in Section 3.1(a), Executive
shall be entitled to the following:
(i) the Company shall pay Executive all (A) Accrued
Compensation and (B) the Bonus Amount times a fraction, the numerator of
which is the number of days in the current fiscal year through the
Termination Date and the denominator of which is 365;
(ii) the Company shall pay Executive as severance pay and
in lieu of any further compensation for periods subsequent to the
Termination Date, an amount in cash equal to two (2) times the sum of (A)
the Base Amount and (B) the Bonus Amount;
(iii) the Company shall provide, at no cost to the
Executive, for a period of twenty four (24) months following the
Termination Date, the same or substantially equivalent employee benefits,
including without limitation, life insurance, medical, dental, prescription
and hospitalization benefits, in which Executive was participating at any
time within ninety (90) days preceding the date of the Change in Control or
at any time thereafter (and if Executive covered Executive's dependents
under such benefits, such dependents shall remain covered by such benefits
at Company's expense for such twenty four (24) month period), except to the
extent that Executive and/or Executive's dependents obtain employee
benefits of the same type offered by an entity to which Executive is then
providing his services, in which case such coverage provided by the Company
shall become secondary; and
(iv) the restrictions on any outstanding incentive awards
(including restricted stock and granted performance shares or units)
granted to Executive under the Company's stock option and other stock
incentive plans or under any other incentive plan or arrangement shall
lapse and such incentive awards shall become 100% vested, all stock options
and stock appreciation rights granted to Executive shall become immediately
exercisable and shall become 100% vested and all performance units granted
to Executive shall become 100% vested.
(c) The amounts provided for in Sections 3.1(a) and 3.1(b)(i) and
(ii) shall be paid in a single lump sum cash payment within ten (10) days after
the Termination Date (or earlier, if required by applicable law).
(d) The Executive shall not be required to mitigate the amount of
any payment provided for in this Agreement by seeking other employment or
otherwise, and no such payment shall be offset or reduced by the amount of any
compensation or benefits provided to Executive in any subsequent employment,
except as provided in Section 3.1(b)(iii).
8
<PAGE>
3.2. (a) The severance pay and benefits provided for in this Section
3 shall be in lieu of any other severance or termination pay to which Executive
may be entitled under any Company severance or termination plan, program,
practice or arrangement.
(b) The Executive's entitlement to any other compensation or
benefits shall be determined in accordance with the Company's employee benefit
plans (including the plans listed on Appendix A) and other applicable programs,
policies and practices then in effect.
4. Notice of Termination. Following a Change in Control, any purported
---------------------
termination of Executive's employment by the Company shall be communicated by a
Notice of Termination to Executive. For purposes of this Agreement, no such
purported termination shall be effective without such Notice of Termination.
5. Excise Tax Payments.
-------------------
5.1 Notwithstanding anything contained in this Agreement to the
contrary, to the extent that any payment or benefit (within the meaning of
Section 280G(b)(2) of the Internal Revenue Code of 1986, as amended (the
"Code")) to Executive or for Executive's benefit, paid or payable or distributed
or distributable pursuant to the terms of this Agreement or otherwise in
connection with, or arising out of, Executive's employment with the Company or a
Change in Control (a "Payment" or "Payments"), would be subject to the excise
tax imposed under Code Section 4999, or any interest or penalties are incurred
by Executive with respect to such excise tax (such excise tax, together with any
such interest and penalties, are hereinafter collectively referred to as the
"Excise Tax"), the Payments shall be reduced (but not below zero) if and to the
extent that a reduction in the Payments would result in Executive retaining a
larger amount, on an after-tax basis (taking into account federal, state and
local income, employment and any other applicable taxes in addition to the
Excise Tax), than if Executive received all of the Payments (any such reduced
amount is hereinafter referred to as the "Limited Payment Amount"). Unless
Executive shall have given written notice prior to the Determination (as
hereinafter defined) specifying a different order to the Company to effectuate
the Limited Payment Amount, the Company shall reduce or eliminate the Payments
by (i) first reducing or eliminating those Payments which have a "parachute
payment" value (as determined under Code Section 280G and the regulations
promulgated thereunder) equal to the value of the Payment, and then (ii) those
Payments in the order in which their "parachute payment" value comes the closest
to the value of the Payment, and then (iii) notwithstanding the foregoing
provisions, any employee benefits provided pursuant to Section 3.1(b)(iii) of
this Agreement. Any notice given by Executive pursuant to the preceding
sentence shall take precedence over the provisions of any other plan,
arrangement or agreement governing Executive's rights and entitlements to any
benefits or compensation.
5.2 An initial determination as to whether the Payments shall be
reduced to the Limited Payment Amount and the amount of such Limited Payment
9
<PAGE>
Amount shall be made, at the Company's expense, by the accounting firm that is
the Company's independent accounting firm as of the date of the Change in
Control (the "Accounting Firm"). The Accounting Firm shall provide its
determination (the "Determination"), together with detailed supporting
calculations and documentation, to the Company and Executive within five (5)
days of the Termination Date, if applicable, or such other time as requested by
the Company or by Executive (provided Executive reasonably believes that any of
the Payments may be subject to the Excise Tax) and, if the Accounting Firm
determines that no Excise Tax is payable by Executive with respect to a Payment
or Payments, it shall furnish Executive with an opinion reasonably acceptable to
Executive that no Excise Tax will be imposed with respect to any such Payment or
Payments. Within ten (10) days of the delivery of the Determination to
Executive, Executive shall have the right to dispute the Determination (the
"Dispute"). If there is no Dispute, the Determination shall be binding, final
and conclusive upon the Company and Executive, subject to the application of
Section 5.3 below.
5.3 As a result of the uncertainty in the application of Sections
4999 and 280G of the Code, it is possible that the Payments to be made to, or
provided for the benefit of, Executive either will be greater (an "Excess
Payment") or less (an "Underpayment") than the amounts provided for by the
limitations contained in Section 5.1.
(a) 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 an Excess Payment has been made, such
Excess Payment shall be deemed for all purposes to be a loan to Executive made
on the date Executive received the Excess Payment, which loan Executive must
repay to the Company together with interest at the applicable federal rate under
Code Section 7872(f)(2); provided, that no loan shall be deemed to have been
--------
made and no amount will be payable by Executive to the Company unless, and only
to the extent that, the deemed loan and payment would either reduce the amount
on which Executive is subject to tax under Code Section 4999 or generate a
refund of tax imposed under Code Section 4999.
(b) In the event that it is determined, by (i) 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, (ii) pursuant to a determination by a court, or (iii) upon the resolution
to Executive's satisfaction of the Dispute, that an Underpayment has occurred,
the Company shall pay an amount equal to the Underpayment to Executive within
ten (10) days of such determination or resolution, together with interest on
such amount at the applicable federal rate under Code Section 7872(f)(2) from
the date such amount would have been paid to Executive until the date of
payment.
6. Successors; Binding Agreement.
-----------------------------
6.1. This Agreement shall be binding upon and shall inure to the
benefit of the Company and its Successors and Assigns, and the Company shall
require
10
<PAGE>
any Successors and Assigns to expressly assume and agree to perform this
Agreement in the same manner and to the same extent that the Company would be
required to perform it if no such succession or assignment had taken place.
6.2. Neither this Agreement nor any right or interest hereunder
shall be assignable or transferable by Executive or Executive's beneficiaries or
legal representatives, except by will or by the laws of descent and
distribution. This Agreement shall inure to the benefit of and be enforceable
by Executive's legal personal representative.
7. Fees and Expenses. The Company shall pay in a timely manner all legal
-----------------
fees and related expenses (including the costs of experts, evidence and counsel)
incurred by Executive as they become due as a result of (a) Executive's
termination of employment (including all such fees and expenses, if any,
incurred in contesting or disputing any such termination of employment), (b)
Executive's seeking to obtain or enforce any right or benefit provided by this
Agreement (including but not limited to, any such fees and expenses incurred in
connection with any Dispute) or by any other plan or arrangement maintained by
the Company under which Executive is or may be entitled to receive benefits, and
(c) Executive's hearing before the Board as contemplated in Section 2.4 of this
Agreement; provided, that the circumstances set forth in clauses (a) and (b) of
this Section 7 (other than as a result of Executive's termination of employment
under circumstances described in Section 2.5(d)) occurred on or after a Change
in Control.
8. Notice. Notices and all other communications provided for in this
------
Agreement (including the Notice of Termination) shall be in writing and shall be
deemed to have been duly given when personally delivered or sent by certified
mail, return receipt requested, postage prepaid, addressed to the respective
addresses last given by each party to the other; provided, that all notices to
the Company shall be directed to the attention of the Board with a copy to the
Secretary of the Company. All notices and communications shall be deemed to
have been received on the date of delivery thereof or on the third business day
after the mailing thereof, except that notice of change of address shall be
effective only upon receipt.
9. Non-Exclusivity of Rights. Nothing in this Agreement shall prevent or
-------------------------
limit Executive's continuing or future participation in any benefit, bonus,
incentive or other plan or program provided by the Company (except for any
severance or termination policies, plans, programs or practices) and for which
Executive may qualify, nor shall anything herein limit or reduce such rights as
Executive may have under any other agreements with the Company (except for any
severance or termination agreement). Amounts which are vested benefits or which
Executive is otherwise entitled to receive under any plan or program of the
Company shall be payable in accordance with such plan or program, except as
explicitly modified by this Agreement.
10. Settlement of Claims. The Company's obligation to make the payments
--------------------
provided for in this Agreement and otherwise to perform its obligations
hereunder shall not be affected by any circumstances, including, without
limitation, any set-off,
11
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counterclaim, recoupment, defense or other right which the Company may have
against Executive or others.
11. Miscellaneous.
-------------
11.1 No provision of this Agreement may be modified, waived or
discharged unless such waiver, modification or discharge is agreed to in writing
and signed by Executive and the Company. No waiver by either party hereto at
any time of any breach by the other party hereto of, or compliance with, 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. No agreement or representation,
oral or otherwise, express or implied, with respect to the subject matter hereof
has been made by either party which is not expressly set forth in this
Agreement.
11.2 If there shall be any dispute between the Company and
Executive (i) in the event of any termination of Executive's employment by the
Company, concerning whether such termination was for Cause or (ii) in the event
of any termination of employment by Executive, concerning whether Good Reason
exists, then, unless and until there is a final, nonappealable judgment of a
court of competent jurisdiction declaring that such termination was for Cause or
that the determination by Executive of the existence of Good Reason was not made
in good faith, the Company shall pay all amounts, and provide all benefits, to
Executive and Executive's dependents, as the case may be, that the Company would
be required to pay or provide pursuant to Section 3 as though such termination
were by the Company without Cause or by Executive with Good Reason; provided,
--------
however, that the Company shall not be required to pay any disputed amounts
- -------
pursuant to this paragraph except upon receipt of an undertaking by or on behalf
of Executive to repay all such amounts to which the Executive is ultimately
adjudged by such court not to be entitled.
11.3 Executive and the Company acknowledge that the employment of
Executive by the Company is and shall continue to be "at will" and may be
terminated by either Executive or the Company at any time.
12. Governing Law. This Agreement shall be governed by and construed and
-------------
enforced in accordance with the internal laws of the State of California (as
permitted by Section 1646.5 of the California Civil Code or any similar
successor provision), without giving effect to any choice of law rule that would
cause the application of the laws of any jurisdiction other than the internal
laws of the State of California to the rights and duties of the parties. Any
action brought by any party to this Agreement shall be brought and maintained in
a court of competent jurisdiction in Santa Clara County in the State of
California.
13. Severability. The provisions of this Agreement shall be deemed
------------
severable, and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability of the other provisions hereof.
12
<PAGE>
14. Entire Agreement. This Agreement constitutes the entire agreement
----------------
between the parties hereto and supersedes all prior agreements, if any,
understandings and arrangements, oral or otherwise, between the parties hereto
with respect to the subject matter hereof.
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by
its duly authorized officer and Executive has executed this Agreement as of the
day and year first above written.
ACUSON CORPORATION
ATTEST: By:___________________________
Name:_____________________
_________________________ Title:____________________
Secretary
EXECUTIVE
______________________________
Signature
13
<PAGE>
APPENDIX A
----------
EMPLOYEE BENEFIT PLANS
----------------------
Medical
Dental
Vision
Prescription
Life Insurance
Accidental Death and Dismemberment
Long Term Disability
Paid Time Off
14
<PAGE>
ACUSON CORPORATION EXHIBIT 10.31
- --------------------------------------------------------------------------------
ACUSON CORPORATION
NON-QUALIFIED STOCK OPTION TERMS
Acuson Corporation (the "Company") has this day granted to you an option
(the "Option") to purchase shares of common stock of the Company. This Option
is granted pursuant to the Company's 1995 Stock Incentive Plan (the "Plan") and
is not intended to qualify as an "incentive stock option" within the meaning of
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code").
Details of this Option are contained in the Notice of Grant of Stock Options and
Grant Agreement (the "Notice") to which these Non-Qualified Stock Option Terms
(the "Option Terms") are attached (the Notice and the Option Terms collectively
the "Agreement"). Capitalized terms not otherwise defined herein have the
meanings given to them in the Plan.
The details of this Option are as follows:
1. (a) The total number of shares subject to this Option is set forth in the
Notice. Subject to the limitations contained herein, commencing on the date on
the Notice specified as the "Beginning Vesting Date", the share of this Option
shall vest and become exercisable as follows: twenty percent (20%) of the total
number of shares subject to this Option shall vest and become exercisable on the
first anniversary of the Beginning Vesting Date, twenty percent (20%) shall vest
and become exercisable on the second anniversary of such date, thirty percent
(30%) shall vest and become exercisable on the third anniversary of such date,
and the remaining thirty percent (30%) shall vest and become exercisable on the
fourth anniversary of such date. No share of this Option may be exercised until
such share has vested, and vesting will stop on the date of termination of your
employment or relationship as a consultant with the Company or an Affiliate of
the Company for any reason or no reason including death or disability. All
shares not vested as of such termination date shall be cancelled.
(b) Notwithstanding anything to the contrary contained in this paragraph
1, the total number of shares subject to this Option shall fully vest and become
exercisable, automatically and without any further action by the parties hereto,
upon the occurrence of certain events constituting a change in control of the
Company as provided in Section 12 of the Plan.
2. (a) The exercise price per share of the Stock subject to this Option is
set forth in the Notice.
(b) The purchase price of Stock acquired pursuant to this Option shall be
paid at the time of exercise, to the extent permitted by applicable statutes and
regulations, by (i) personal check, certified check, bank draft, or postal money
order payable to the order of Acuson Corporation in lawful money of the United
States (collectively, "Cash Consideration"); (ii) delivery on a form prescribed
by the Company of an irrevocable direction to a securities broker approved by
the Company to sell shares of Stock and deliver all or a portion of the proceeds
to the Company in payment for the Stock issuable upon exercise of this Option;
(iii) surrender to the Company of shares of Stock (or delivery of a properly
executed form of attestation of
1
<PAGE>
Acuson Corporation
Non-Qualified Stock Option Terms
ownership of shares of Stock) that have been held for the requisite period
necessary to avoid a charge to the Company's reported earnings and valued at the
fair market value on the date of exercise (determined by the closing sale price
per share of Stock for such date); or (iv) in any combination of the foregoing.
3. The minimum number of shares of Stock with respect to which this Option may
be exercised at any one time is twenty-five (25), except (i) with respect to an
installment subject to vesting, as set forth in paragraph 1, which amounts to
fewer than twenty-five (25) shares, in which case the minimum number of
exercisable shares for that installment shall be the number of shares in such
installment, and (ii) with respect to the final exercise of this Option no
minimum shall apply. In no event may this Option be exercised for anything but
whole shares.
4. Notwithstanding anything to the contrary contained herein, this Option may
not be exercised unless the shares issuable upon exercise of this Option are
then registered under the Securities Act of 1933, as amended (the "Securities
Act"), or, if such shares are not then so registered, the Company has determined
that such exercise and issuance would be exempt from the registration
requirements of the Securities Act.
5. The term of this Option commences on the grant date as set forth in the
Notice and, unless sooner terminated as set forth below or in the Plan,
terminates on the date set forth in the Notice (the "Scheduled Termination
Date"). Prior to the Scheduled Termination Date, this Option shall terminate
three (3) months after the termination of your employment or relationship as a
consultant with the Company or an Affiliate of the Company for any reason or for
no reason unless:
(a) such termination of employment or relationship as a consultant is due
to your permanent and total disability (within the meaning of Section 422(c)(6)
of the Code), in which event this Option shall terminate on the earlier of the
Scheduled Termination Date or one (1) year following such termination of
employment or relationship as a consultant; or
(b) such termination of employment or relationship as a consultant is due
to your death, or your death occurs within three (3) months after such
termination of employment or relationship as a consultant, in which event this
Option shall terminate on the earlier of the Scheduled Termination Date or
eighteen (18) months after your death; or
(c) during any part of such three (3) month period this Option is not
exercisable solely because of the condition set forth in paragraph 4 above, in
which event this Option shall not terminate until the earlier of the Scheduled
Termination Date or until it shall have been exercisable for an aggregate period
of three (3) months after the termination of your employment or relationship as
a consultant; or
(d) exercise of this Option within three (3) months after termination of
your employment or relationship as a consultant would result in liability under
section 16(b) of the Securities Exchange Act of 1934, as amended, in which case
this Option will terminate on the earliest of (i) the Scheduled Termination
Date, (ii) the tenth (10th) day after the last date upon
2
<PAGE>
Acuson Corporation
Non-Qualified Stock Option Terms
which exercise would result in such liability, or (iii) six (6) months and ten
(10) days after the termination of your employment or relationship as a
consultant.
This Option may not be exercised after it terminates. In addition, you may
exercise this Option only as to that number of shares vested on the date of your
termination of employment or relationship as a consultant under the provisions
of paragraph 1 of this Option.
6. (a) This Option may be exercised, to the extent specified above, by
delivering a notice of exercise together with the exercise price to the
Secretary of the Company, or to such other person as the Company may designate,
during regular business hours, together with such additional documents as the
Company may then require.
(b) By exercising this Option you agree that the Company may require you
to enter into an arrangement providing for the cash payment by you to the
Company of any tax withholding obligation of the Company arising by reason of
(i) the exercise of this Option, (ii) the lapse of any substantial risk of
forfeiture to which the shares are subject at the time of exercise, or (iii) the
disposition of shares acquired upon such exercise.
7. This Option is not transferable, except by will or by the laws of descent
and distribution, and is exercisable during your life only by you.
8. This Option is not an employment or consulting contract, and nothing in
this Option shall confer upon you any right to continue in the employ (or to
continue acting as a consultant) of the Company or an Affiliate of the Company
or shall affect the right of the Company or an Affiliate of the Company to
terminate your employment or consulting relationship with or without cause.
9. Any notices provided for in this Option or the Plan shall be given in
writing and shall be deemed effectively given upon receipt or, in the case of
notices delivered by the Company to you, five (5) days after deposit in the
United States mail, postage prepaid, addressed to you at the address specified
in the Company's records or at such other address as you may designate by
written notice to the Company.
10. This Option is subject to all the provisions of the Plan, a copy of which
is attached hereto and is incorporated by reference herein, and is further
subject to all interpretations, amendments, rules, and regulations which may
from time to time be promulgated and adopted pursuant to the Plan. In the event
of any conflict between the provisions of this Agreement and those of the Plan,
the provisions of the Plan shall control.
This Option is dated and effective as of the date of grant as set forth in
the Notice.
3
<PAGE>
ACUSON CORPORATION EXHIBIT 13.1
- --------------------------------------------------------------------------------
ACUSON CORPORATION
PORTION OF THE ANNUAL REPORT TO SECURITY HOLDERS
INCORPORATED BY REFERENCE INTO FORM 10-K
Financial Contents
Management's Discussion And Analysis Of
Financial Condition And Results Of Operations 2
Selected Consolidated Financial Data 8
Quarterly Data 8
Consolidated Statements of Operations and
Comprehensive Income 9
Consolidated Balance Sheets 10
Consolidated Statements of Cash Flows 11
Consolidated Statements of Stockholders' Equity 12
Notes to Consolidated Financial Statements 13
Report of Independent Public Accountants 24
Market for Registrant's Common Equity and
Related Stockholder Matters 25
- --------------------------------------------------------------------------------
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain items in the
consolidated statements of operations as percentages of total net sales and the
percentage change of each such item from the comparable prior period.
<TABLE>
<CAPTION>
Percentage of Net Sales Percentage Change
1998 1997
vs. vs.
Year Ended December 31, 1998 1997 1996 1997 1996
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales
Product 80.2% 80.5% 75.4% 3.6% 35.1%
Service 19.8 19.5 24.6 5.5 0.1
----- ----- -----
Total net sales 100.0 100.0 100.0 4.0 26.5
----- ----- -----
Cost of sales
Product 42.4 42.9 40.1 2.7 35.3
Service 10.3 9.9 12.0 8.6 4.2
----- ----- -----
Total cost of sales 52.7 52.8 52.1 3.8 28.1
----- ----- -----
Gross profit 47.3 47.2 47.9 4.2 24.7
----- ----- -----
Operating expenses
Selling, general and administrative 28.0 27.5 36.4 5.8 (4.4)
Product development 12.6 13.1 17.6 0.5 (6.0)
----- ----- -----
Total operating expenses 40.6 40.6 54.0 4.1 (4.9)
----- ----- -----
Income (loss) from operations 6.7 6.6 (6.1) 4.6 *
Interest expense (0.7) (0.3) (0.1) 165.4 227.5
Interest income 0.3 0.5 1.0 (26.9) (41.6)
----- ----- -----
Income (loss) before income taxes 6.3 6.8 (5.2) (3.9) *
Provision for (benefit from) income 1.7 1.7 (2.1) 5.1 *
taxes ----- ----- -----
Net income (loss) 4.6% 5.1% (3.1)% (6.9) *
===== ===== =====
</TABLE>
* not meaningful
1998 COMPARED WITH 1997
Net sales increased 4.0 percent to $455.1 million for the year ended December
31, 1998, compared with $437.8 million for 1997. Worldwide product revenue for
the year ended December 31, 1998, increased 3.6 percent to $365.1 million. The
increase in product revenue was primarily due to increased domestic sales,
mainly within the domestic cardiology market, partially offset by a decrease in
international sales. Worldwide sales of the Company's Sequoia and Aspen
ultrasound systems, introduced in April and October of 1996, respectively,
increased over the prior year. As greater numbers of Sequoia and Aspen systems
have been sold, the Company has experienced a decline in sales of its 128XP
ultrasound systems, first introduced in 1990. Worldwide service revenue
increased 5.5 percent to $90.0 million. The increase was due to greater service
contract revenue in connection with the Company's Sequoia and Aspen systems,
partially offset by a decline in service
2
<PAGE>
revenue from the Company's 128XP systems. As greater numbers of Sequoia and
Aspen systems have been sold, the Company has experienced a decline in service
revenue pertaining to the Company's 128XP systems. The Company expects service
revenue to increase in the future as the warranty periods on larger numbers of
its Sequoia and Aspen systems reach the end of their one-year terms. Domestic
revenue increased 8.3 percent to $316.7 million for the year ended December 31,
1998, compared with $292.5 million for 1997. Domestic sales accounted for 69.6
percent of total 1998 sales, compared with 66.8 percent for 1997. International
revenue decreased 4.7 percent in 1998 to $138.4 million. International revenues
were negatively impacted by economic weakness in selected markets in Asia, Latin
America and parts of Europe. Although international revenues grew during the
fourth quarter of 1998, the Company expects selected international markets to
remain depressed in 1999.
Cost of sales as a percentage of net sales remained relatively consistent
between 1998 and 1997. Cost of sales was 52.7 percent of net sales for the year
ended December 31, 1998, compared with 52.8 percent for 1997.
Selling, general and administrative expenses for the year ended December 31,
1998, were $127.5 million or 28.0 percent of net sales, compared with $120.5
million, or 27.5 percent of net sales, for 1997. The increase was primarily due
to higher selling expenses early in the year resulting from planned additions to
the Company's sales organization partially offset by company-wide cost reduction
efforts during the third quarter of the year. The Company expects selling,
general and administrative expenses to increase in 1999.
Product development spending for the year ended December 31, 1998, was $57.6
million, reflecting a slight increase over the 1997 amount of $57.3 million. The
Company aggressively supports new product development and anticipates an
increase in product development spending in 1999. As a percentage of net sales,
product development spending decreased to 12.6 percent in 1998 compared with
13.1 percent in 1997. The percentage decrease was primarily the result of higher
sales in 1998.
Interest income declined from the prior year primarily as a result of lower cash
and cash equivalent balances. Interest income was $1.5 million for the year
ended December 31, 1998, compared with $2.0 million in 1997.
Interest expense for the year ended December 31, 1998, was $3.1 million compared
with $1.2 million in 1997. The increase was the result of greater weighted
average short-term borrowings throughout the year.
Provision for income taxes was $7.8 million in 1998 compared with $7.5 million
in 1997. The Company's effective tax rate for 1998 was 27.4 percent compared
with 25.0 percent for 1997. The rate increase was primarily due to a change in
the Company's domestic and international sales mix. The reduced 1998 provision
rate, when compared to the Federal statutory rate of 35.0 percent, was primarily
the result of the research and development tax credit.
Net income was $20.8 million in 1998 compared with $22.4 million in 1997. The
decrease was primarily the result of higher interest expense incurred in 1998.
1997 COMPARED WITH 1996
Net sales increased 26.5 percent to $437.8 million for the year ended December
31, 1997, compared with $346.2 million for the year ended December 31, 1996. The
increase was primarily due to shipments of Sequoia ultrasound systems and Aspen
ultrasound systems, which began in July and November of 1996, respectively.
Worldwide service revenue remained relatively constant at $85.3 million compared
with $85.2 million for the years ended December 31, 1997 and 1996, respectively.
Domestic net sales increased 38.0 percent to $292.5 million for the year ended
December 31, 1997, compared with $212.0 million for 1996. Domestic net sales
accounted for 66.8 percent of total net sales in 1997, compared with 61.2
percent of total net sales in 1996. International net sales increased 8.3
percent to $145.3 million for the year ended December 31, 1997, compared with
$134.2 million for 1996. International net sales accounted for 33.2 percent of
total net sales in 1997 compared with 38.8 percent of total net sales in 1996.
Cost of sales increased as a percentage of net sales to 52.8 percent for 1997
compared with 52.1 percent for 1996. The increase was primarily due to product
mix changes and higher service costs.
Selling, general and administrative expenses for the year ended December 31,
1997, declined to 27.5 percent of net sales, or $120.5 million, compared with
36.4 percent of net sales, or $126.1 million, for 1996. In the prior year,
significant advertising and other product launch-related expenses were incurred
in connection with the introduction of the Sequoia and Aspen ultrasound systems.
3
<PAGE>
Product development spending for 1997 declined to $57.3 million, or 13.1 percent
of net sales, compared with $60.9 million, or 17.6 percent of net sales, for
1996. The decrease was primarily due to reduced prototype expenses from the 1996
period when the Company was completing development of the Sequoia and Aspen
products.
Provision for income taxes was $7.5 million in 1997 compared with a benefit of
$7.4 million in 1996. The Company's 1997 effective tax rate was a provision of
25.0 percent compared with a benefit of 41.1 percent in 1996. The reduced 1997
provision, when compared to the Federal statutory rate of 35.0 percent, was
primarily the result of the research and development tax credit. The prior year
benefit resulted from the carryback of 1996 losses to pre-1996 tax liabilities.
Net income was $22.4 million in 1997 compared with a net loss of $10.6 million
in 1996. The 1996 loss resulted primarily from substantial expenditures for
manufacturing, marketing and other product launch-related expenses in
conjunction with the worldwide introduction of the Company's Sequoia and Aspen
ultrasound systems.
INFLATION
To date, the Company has not experienced any significant effects from inflation.
LIQUIDITY AND CAPITAL RESOURCES
During 1998, the Company's cash and cash equivalents balance decreased $10.8
million to $11.9 million and short-term borrowings increased $33.0 million to
$65.0 million. The Company generated $17.0 million in cash from operations. The
primary source of cash from operations was net income of $20.8 million. The
primary uses of cash for operations were increases in accounts receivable and
inventory, which used $22.5 million and $7.3 million, respectively. The increase
in accounts receivable was primarily due to a high percentage of units shipped
during the last month of the fourth quarter, lengthening collection cycles and
an increase in fourth quarter sales. The increase in inventory was primarily the
result of higher inventory levels in anticipation of future sales. In addition,
lease receivables used $26.7 million in cash from the issuance of new lease
contracts and generated $20.0 million in proceeds from sales of existing
contracts.
The Company's investing and financing activities for 1998 used $28.1 million in
cash. The Company purchased $31.3 million of equipment during the year,
primarily consisting of computer equipment, software and implementation costs
associated with its new enterprise-wide, integrated business information system.
Included in 1998 financing activities were $10.5 million raised through employee
participation in the Company's stock option and stock purchase plans and net
short-term borrowings of $33.0 million. Also included in the financing
activities for 1998 was $40.0 million, including $2.8 million accrued in 1997,
used for share repurchases.
In 1996, the Board of Directors authorized the repurchase of 4,000,000 shares of
common stock over an unspecified period of time. During 1998, the Company
repurchased 2,264,600 shares at a total cost of $37.2 million. As of December
31, 1998, the Company had repurchased 3,527,400 shares toward the 4,000,000
share repurchase authorization at a cumulative cost of $62.4 million. Subsequent
to December 31, 1998, the Board of Directors authorized the repurchase of an
additional 4,000,000 shares of common stock over an unspecified period of time.
Working capital at December 31, 1998, decreased $19.2 million from the prior
year primarily due to reduced cash flow from operations and stock repurchases.
At December 31, 1998, the Company's working capital totaled $99.4 million.
The Company has a revolving, unsecured credit agreement for $100.0 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. At December 31, 1998, borrowings under this facility, which are
subject to certain debt covenants, totaled $65.0 million and the effective rate
was 6.3 percent.
The Company also has an uncommitted line of credit for up to 90-day advances not
to exceed an aggregate total of $10.0 million. At December 31, 1998, there were
no borrowings against this uncommitted line of credit.
4
<PAGE>
For the year ended December 31, 1998, the Company's weighted average borrowings
were $48.1 million and the weighted average interest rate was 6.4 percent.
Subsequent to December 31, 1998, the Company entered into a letter agreement
with a major financial institution to act as the Company's exclusive placement
agent in connection with the issuance of an initial series of unsecured senior
notes. The Company has obtained commitments for $75.0 million. The senior notes
will have an effective coupon of approximately 6.6 percent and a final maturity
of seven years with an average life of five years. After completing the due
diligence with the lenders, the Company expects to receive $75.0 million by
April 30, 1999 and anticipates using the proceeds to refinance existing debt and
for other working capital and general corporate needs. Subsequent series of
senior notes may be issued at the discretion of the Company for an additional
$5.0 million.
Based on its current operating plan, the Company believes that the liquidity
provided by its existing cash balance, cash generated from operations and the
borrowing arrangements described above will be sufficient to meet the Company's
projected operating and capital requirements for fiscal 1999.
INVESTMENT RISKS
The Shareholders' Letter, subsequent product discussion and the Management's
Discussion and Analysis of Financial Condition and Results of Operations
("MD&A") sections in this report contain 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, including those in the Strategic Focus and Future
Vision sections of the Shareholders' Letter, and in the MD&A, prospective
investors and shareholders should carefully consider the factors set forth
below.
The success of the Company's products in the market and the Company's financial
results depend on the timely completion of, and receipt of Food and Drug
Administration marketing clearance for, additional products (including the
Company's new AcuNav catheter), product capabilities and software updates;
efforts to reduce the cost of manufacturing the Sequoia and Aspen systems;
actual and perceived levels of product performance and quality 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 the introduction of competitive products,
pricing, intellectual property allegations and product positioning counter-
strategies.
International Operations and International Receivables
The Company's business is subject to risks from potential negative impacts of
weakness in certain markets in Asia, Latin America and Europe, and by adverse
economic impacts from currency fluctuations in its worldwide operations.
Political instability, currency fluctuations or other issues may impact the
ability of the Company to collect receivables in foreign countries. The
following table, in thousands, summarizes the Company's foreign receivables in
excess of $3.0 million at December 31, 1998:
December 31, 1998
-----------------
Italy $14,081
Brazil 12,567
France 7,034
Japan 6,221
China 5,744
Germany 5,506
Sweden 3,974
Switzerland 3,617
Company's Computing Environment
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 has been
5
<PAGE>
substantially completed and the second phase is currently scheduled to be
completed during the latter half of 2000. 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, during
and following the conversion, there are significant problems with the system.
OTHER FACTORS THAT MAY AFFECT FUTURE RESULTS
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 ready 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, completed in May 1998, included a comprehensive
inventory of the Company's systems by an experienced consulting firm and an
analysis and determination of the criticality of each system. 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. The second phase was completed in December
1998, and focused on confirming the year 2000 readiness of those systems
identified in phase one. 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 make all remaining critical systems and components year
2000 ready and to develop a contingency plan in the event any non-compliant
critical systems are not remedied by January 1, 2000. The Company expects the
project to be successfully completed during the third quarter of 1999 and has
established a year 2000 steering committee, comprised of senior executives, and
a dedicated program office to track and monitor the progress of the project.
However, if by January 1, 2000, systems material to the Company's operations
have not been made year 2000 ready, 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 have not been material and future
anticipated costs are not expected to be material.
The Company's products being shipped today are year 2000 ready and the Company
believes its products previously shipped are either year 2000 ready or can be
made year 2000 ready 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. The
Company primarily sells its products to hospitals, clinics, and other customers
within the healthcare industry. Should the year 2000 issue impact the ability
and willingness of these customers to purchase capital equipment, the year 2000
issue could have a material adverse impact on the Company's consolidated
financial statements.
Derivative Financial Instruments
The Company operates internationally and is subject to market risk due to
fluctuations in foreign currency exchange rates. The Company manages this risk
through established policies and procedures that include the use of derivative
financial instruments. The Company routinely enters into forward foreign
currency exchange contracts to hedge amounts due from selected subsidiaries
denominated in foreign currencies against fluctuations in exchange rates. The
purpose of the hedging activities is to minimize the effect of foreign exchange
rate movements on the Company's operating results and on the cash flows it
receives from its foreign subsidiaries. Currently, the Company neither engages
in foreign currency speculation nor holds or issues financial instruments for
trading purposes. Because the Company only enters into forward currency exchange
contracts as hedges, any change in currency rates would not result in a material
gain or loss, as any gain or loss on the underlying transaction being hedged
would be offset by the gain or loss on the forward currency contract. For this
reason, the Company believes that neither its exposure to foreign currency
exchange rate risk nor any potential near-term losses in future earnings, fair
values or cash flows from reasonably possible near-term changes in market rates
or prices would be material. Forward currency contract terms are typically not
more than three months and the counterparties to the exchange contracts are
major domestic
6
<PAGE>
and international financial institutions. See Note 2 to the consolidated
financial statements for additional information regarding the Company's forward
foreign currency exchange contracts and accounting treatment thereof.
Euro Conversion
On January 1, 1999, eleven of the fifteen member countries of the European Union
adopted the Euro as their common legal currency. Following the introduction of
the Euro, the local currencies of the participating countries are scheduled to
remain legal tender until June 30, 2002. During this transition period goods and
services may be paid for in either Euros or the participating country's local
currency. Thereafter, only the Euro will be legal tender in the participating
countries. The Company believes its current accounting systems are capable of
accommodating the Euro conversion with minimal intervention and that the
conversion will not have a material impact on the competitiveness of its
products in Europe. The Company also believes any costs of addressing the Euro
conversion will not have a material impact on the Company's financial
statements.
Potential Fluctuations in Quarterly Operating Results
The Company's quarterly revenues and operating results may fluctuate
significantly for a number of reasons. Factors that may affect the Company's
quarterly revenues and operating results generally include: the timing of
industry trade shows, capital spending patterns of the Company's customers, the
introduction of new products or product enhancements by the Company or its
competitors, changes in customer budgets, and general and industry specific
economic conditions. For example, the Company warrants its products for a period
of 12 months and provides for estimated warranty costs at the time of sale. As
the Company introduces new products and/or upgrades for existing products, if
warranty costs are greater than the Company has experienced historically, its
operating results, both quarterly and annually, may be adversely affected. The
Company's quarterly results have fluctuated in the past and are likely to
fluctuate in the future. Typically, revenues are lowest during the third quarter
of the fiscal year. As a result of such quarterly fluctuations, quarter to
quarter comparisons of the Company's operating results should not necessarily be
relied upon as indicators of future performance.
New Accounting Standards
Comprehensive Income: Effective January 1, 1998, the Company adopted Statement
of Financial Accounting Standards No. 130 ("SFAS 130"), "Reporting Comprehensive
Income." The adoption of SFAS 130 did not have a material impact on the
Company's consolidated financial statements. See Note 9 to the consolidated
financial statements for further discussion.
Segment Reporting: During 1998, the Company adopted Statement of Financial
Accounting Standards No. 131 ("SFAS 131"), "Disclosures About Segments of an
Enterprise and Related Information." The adoption of SFAS 131 did not have a
material effect on the Company's consolidated financial statements. See Note 10
to the consolidated financial statements for further discussion.
Accounting for Derivative Instruments and Hedging Activities: 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 will require companies to recognize all
derivatives, including those used for hedging foreign currency exposures, on the
balance sheet at fair value and is effective for all fiscal years beginning
after June 15, 1999. Management has not yet determined what the effect of SFAS
133 will be on the Company's consolidated financial statements.
The foregoing Investment Risks and Other Factors That May Affect Future Results
relate to the forward-looking statements contained in this document. For a
description of the general investment considerations and risks surrounding the
Company's overall business and financial prospects, refer to the Company's Form
10-K filed with the Securities and Exchange Commission for fiscal year 1998.
7
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
Year Ended December 31,
(In thousands, except per share amounts) 1998 1997 1996 1995 1994
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Consolidated Statements of Operations Data
Net sales $455,089 $437,762 $346,155 $328,922 $350,484
Net income (loss) 20,822 22,377 (10,613) 7,055 18,267
Earnings Per Share Data
Net income (loss)
Basic $ 0.75 $ 0.78 $ (0.39) $ 0.25 $ 0.64
Diluted $ 0.73 $ 0.73 $ (0.39) $ 0.25 $ 0.62
Weighted average common and common
equivalent shares outstanding
Basic 27,835 28,807 27,508 28,236 28,600
Diluted 28,601 30,627 27,508 28,662 29,393
Consolidated Balance Sheet Data
Working capital $ 99,396 $118,605 $110,315 $121,410 $138,336
Total assets 395,072 362,828 320,701 295,853 304,638
Stockholders' equity 205,588 210,099 195,056 195,997 207,785
</TABLE>
QUARTERLY DATA (Unaudited)
<TABLE>
<CAPTION>
1998 Quarter Ended
(In thousands, except per share amounts) DEC. 31 OCT. 3 JULY 4 APRIL 4
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $123,161 $102,857 $113,293 $115,778
Gross profit 58,314 48,181 53,540 55,314
Income before income taxes 8,896 5,642 5,913 8,210
Net income 6,761 4,175 4,139 5,747
Earnings per share
Basic $ 0.25 $ 0.15 $ 0.15 $ 0.20
Diluted $ 0.24 $ 0.15 $ 0.14 $ 0.20
<CAPTION>
1997 Quarter Ended
(In thousands, except per share amounts) DEC. 31 SEPT. 27 JUNE 28 MARCH 29
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $117,399 $100,090 $112,692 $107,581
Gross profit 56,620 47,539 51,839 50,761
Income before income taxes 7,610 5,664 7,899 8,660
Net income 6,259 4,529 5,744 5,845
Earnings per share
Basic $ 0.22 $ 0.16 $ 0.20 $ 0.20
Diluted $ 0.21 $ 0.15 $ 0.19 $ 0.19
</TABLE>
8
<PAGE>
ACUSON CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
Year Ended December 31,
(In thousands, except per share amounts) 1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET SALES
Product $365,111 $352,476 $260,975
Service 89,978 85,286 85,180
-------- -------- --------
Total net sales 455,089 437,762 346,155
-------- -------- --------
COST OF SALES
Product 192,736 187,737 138,800
Service 47,004 43,266 41,510
-------- -------- --------
Total cost of sales 239,740 231,003 180,310
-------- -------- --------
Gross profit 215,349 206,759 165,845
-------- -------- --------
OPERATING EXPENSES
Selling, general and administrative 127,450 120,499 126,067
Product development 57,598 57,286 60,926
-------- -------- --------
Total operating expenses 185,048 177,785 186,993
-------- -------- --------
Income (loss) from operations 30,301 28,974 (21,148)
Interest expense (3,129) (1,179) (360)
Interest income 1,489 2,038 3,487
-------- -------- --------
Income (loss) before income taxes 28,661 29,833 (18,021)
Provision for (benefit from) income taxes 7,839 7,456 (7,408)
-------- -------- --------
NET INCOME (LOSS) $ 20,822 $ 22,377 $(10,613)
======== ======== ========
EARNINGS (LOSS) PER SHARE
Basic $ 0.75 $ 0.78 $ (0.39)
======== ======== ========
Diluted $ 0.73 $ 0.73 $ (0.39)
======== ======== ========
Weighted average common and common
equivalent shares outstanding
Basic 27,835 28,807 27,508
======== ======== ========
Diluted 28,601 30,627 27,508
======== ======== ========
- ---------------------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) $ 20,822 $ 22,377 $(10,613)
OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX
Foreign currency translation adjustments 373 (1,999) 321
Unrealized holding loss on investment securities -- -- (37)
-------- -------- --------
COMPREHENSIVE INCOME (LOSS) $ 21,195 $ 20,378 $(10,329)
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
9
<PAGE>
ACUSON CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
(In thousands, except per share amounts) 1998 1997
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 11,914 $ 22,735
Accounts receivable, net of allowance for doubtful accounts
of $3,561 in 1998 and $3,475 in 1997 153,672 131,067
Inventories 82,794 75,517
Deferred income taxes 21,441 25,244
Other current assets 19,059 16,771
-------- --------
Total current assets 288,880 271,334
-------- --------
PROPERTY AND EQUIPMENT, AT COST
Furniture and fixtures 17,087 14,893
Test equipment 40,764 39,638
Machinery and equipment 144,467 125,429
Leasehold improvements 27,675 27,559
-------- --------
229,993 207,519
Accumulated depreciation and amortization (150,984) (136,888)
-------- --------
Total property and equipment, net 79,009 70,631
-------- --------
OTHER ASSETS
Net investment in leases, net of current portion 15,450 10,528
Other long-term assets, net 11,733 10,335
-------- --------
Total assets $395,072 $362,828
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Short-term borrowings $ 65,000 $ 32,000
Accounts payable 26,629 21,975
Accrued compensation 32,703 30,725
Deferred revenue 20,209 21,711
Accrued warranty 8,298 8,955
Accrued income taxes 11,378 14,177
Customer deposits 8,595 7,159
Other accrued liabilities 16,672 16,027
-------- --------
Total current liabilities 189,484 152,729
-------- --------
COMMITMENTS AND CONTINGENCIES (NOTE 5)
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, 26,746
shares in 1998 and 28,244 shares in 1997 125,015 123,968
Accumulated other comprehensive loss (1,099) (1,472)
Retained earnings 81,672 87,603
-------- --------
Total stockholders' equity 205,588 210,099
-------- --------
Total liabilities and stockholders' equity $395,072 $362,828
======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
10
<PAGE>
ACUSON CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
(In thousands) 1998 1997 1996
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 20,822 $ 22,377 $(10,613)
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities:
Depreciation and amortization 23,067 22,356 18,773
Provision for losses on accounts receivables 212 868 442
Tax benefit of employee stock transactions 975 6,970 4,035
Changes in:
Accounts receivable (22,513) (39,665) (15,722)
Leases receivable (26,688) (20,293) (21,143)
Proceeds from sales of leases receivable 19,976 18,595 27,604
Inventories (7,308) 7,439 (32,805)
Deferred income taxes 3,190 (3,697) (152)
Other current assets (686) 5,960 (10,783)
Accounts payable 4,540 1,950 3,945
Accrued compensation 1,788 2,976 4,371
Deferred revenue (1,501) (1,700) (615)
Accrued warranty (657) 2,931 1,584
Accrued income taxes (2,762) 4,182 858
Customer deposits 1,417 386 384
Other accrued liabilities 3,163 (358) 245
-------- -------- --------
Net cash provided by (used in) operating activities 17,035 31,277 (29,592)
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Decrease in short-term investments -- -- 9,983
Investment in property and equipment (31,288) (37,377) (36,699)
Sale of fixed assets 258 8,850 2,234
Decrease (increase) in other assets (618) (427) 1,893
-------- -------- --------
Net cash used in investing activities (31,648) (28,954) (22,589)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from short-term borrowings 50,500 35,000 18,000
Repayment of short-term borrowings (17,500) (16,000) (5,000)
Repurchase of common stock (39,977) (33,315) (14,591)
Issuance of common stock under stock option
and stock purchase plans 10,524 20,846 22,142
-------- -------- --------
Net cash provided by financing activities 3,547 6,531 20,551
-------- -------- --------
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS 245 (532) (92)
-------- -------- --------
Net increase (decrease) in cash and cash equivalents (10,821) 8,322 (31,722)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 22,735 14,413 46,135
-------- -------- --------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 11,914 $ 22,735 $ 14,413
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
11
<PAGE>
ACUSON CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Accumulated
Other
Comprehensive Total
For the Three Years Ended December 31, 1998 Common Stock Income Retained Stockholders'
-------------------
(In thousands, except per share amounts) Shares Amount (Loss) Earnings Equity
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1995 27,275 $ 79,702 $ 243 $116,052 $195,997
Net loss -- -- -- (10,613) (10,613)
Unrealized holding loss on investment
Securities -- -- (37) -- (37)
Foreign currency translation adjustments -- -- 321 -- 321
Exercise of stock options at $0.60 to
$19.83 per share 1,494 16,910 -- -- 16,910
Repurchase of common stock at $14.00 to
$16.03 per share (986) (3,122) -- (13,666) (16,788)
Issuance of stock under employee stock
purchase plan at $11.05 and $11.58 per share 463 5,231 -- -- 5,231
Tax benefit of employee stock transactions -- 4,035 -- -- 4,035
------ -------- -------- -------- --------
BALANCE, DECEMBER 31, 1996 28,246 102,756 527 91,773 195,056
Net income -- -- -- 22,377 22,377
Foreign currency translation adjustments -- -- (1,999) -- (1,999)
Exercise of stock options at $7.17 to
$20.63 per share 1,142 14,579 -- -- 14,579
Repurchase of common stock at $15.93 to
$28.75 per share (1,561) (6,604) -- (26,547) (33,151)
Issuance of stock under employee stock
purchase plan at $11.69 and $22.90 per share 417 6,267 -- -- 6,267
Tax benefit of employee stock transactions -- 6,970 -- -- 6,970
------ -------- -------- -------- --------
BALANCE, DECEMBER 31, 1997 28,244 123,968 (1,472) 87,603 210,099
Net income -- -- -- 20,822 20,822
Foreign currency translation adjustments -- -- 373 -- 373
Exercise of stock options at $10.75 to
$18.92 per share 373 4,994 -- -- 4,994
Repurchase of common stock at $13.75 to
$19.89 per share (2,265) (10,451) -- (26,753) (37,204)
Issuance of stock under employee stock
purchase plan at $15.62 and $12.43 per share 394 5,529 -- -- 5,529
Tax benefit of employee stock transactions -- 975 -- -- 975
------ -------- -------- -------- --------
BALANCE, DECEMBER 31, 1998 26,746 $125,015 $(1,099) $ 81,672 $205,588
====== ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
12
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. NATURE OF OPERATIONS
Founded in 1981, Acuson Corporation (the "Company") is a United States-based
multinational corporation. The Company is a leading manufacturer, worldwide
marketer and service provider of systems that generate, display, archive and
retrieve medical diagnostic ultrasound images. The markets for Acuson products
are North America, Europe, Australia, Asia, South America and the Middle East.
The Company's products are sold primarily to hospitals, private and governmental
institutions, healthcare agencies, medical equipment distributors and doctors'
offices.
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation The consolidated financial statements include the
accounts of the Company and its wholly owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated.
Use of Estimates in the Preparation of Financial Statements The preparation of
financial statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities, the disclosure of contingent assets and
liabilities at the date of the financial statements, and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
Translation of Foreign Currencies The functional currency of the Company's
foreign subsidiaries is the local currency. The Company translates all assets
and liabilities to U.S. dollars at current exchange rates as of the applicable
balance sheet date. Sales and expenses are translated at the average exchange
rates prevailing during the period. Gains and losses resulting from the
translation of the foreign subsidiaries' financial statements are reported as a
separate component of stockholders' equity.
Concentration of Credit Risk The Company provides credit in the form of trade
accounts receivable and leases to hospitals, private and governmental
institutions, healthcare agencies, medical equipment distributors and doctors'
offices. The Company's products are manufactured at its world headquarters in
Mountain View, California, and are sold through a direct sales force in North
America, Europe, Australia and Japan, and through independent distributors in
Europe, Asia, South America and the Middle East. The Company does not generally
require collateral to support customer receivables. The Company performs ongoing
credit evaluations of its customers and maintains allowances which management
believes are adequate for potential credit losses. Sales to distributors are on
the basis of an arms-length transaction and do not include any special return
rights and/or price protection features.
Financial Instruments and Credit Risk The Company enters into forward foreign
currency exchange contracts to hedge its exposure to fluctuations in foreign
currency exchange rates. The Company designates, and accordingly accounts for,
these transactions as hedges based upon the contracts' anticipated effectiveness
at reducing the Company's exposure to foreign currency exchange rate risk. Gains
and losses are recorded in income in the same period as gains and losses on the
underlying transactions being hedged. If an underlying transaction is terminated
earlier than anticipated, the offsetting gain or loss on the forward exchange
contract would be recorded in income in the same period. Currently, the Company
neither engages in foreign currency speculation nor holds or issues financial
instruments for trading purposes. Because the Company only enters into forward
currency exchange contracts as hedges, any change in currency rates would not
result in a material gain or loss, as any gain or loss on the underlying
transaction would be offset by the gain or loss on the forward currency
contract. The counterparties to foreign currency exchange contracts are major
domestic and international financial institutions and the contract terms are
typically not more than three months.
At December 31, 1998, the Company had outstanding forward foreign currency
exchange contracts of approximately $56.8 million. The contracts have maturity
dates ranging from January 1999 through February 1999. Included in the total
above are contracts to sell approximately $11.1 million in Italian lire, $10.7
million in Japanese yen, $9.4 million in French francs, $6.6 million in German
deutsche marks, $5.7 million in Swedish krona, $3.6 million in Australian
dollars and $3.6 million in Spanish peseta. The carrying value of these
contracts approximates their fair market value as of the year end.
13
<PAGE>
Derivatives The Company's only use of derivative securities is its routine
usage of forward foreign exchange contracts to hedge foreign currency exposure.
Accounting for Derivative Instruments and Hedging Activities In June 1998, the
Financial Accounting Standards Board issued Statement of Accounting Standards
No. 133 ("SFAS 133"), "Accounting for Derivative Instruments and Hedging
Activities." This statement will require companies to recognize all derivatives,
including those used for hedging foreign currency exposures, on the balance
sheet at fair value and is effective for all fiscal years beginning after June
15, 1999. Management has not yet determined what the effect of SFAS 133 will be
on the Company's consolidated financial statements.
Inventories Inventories are stated at the lower of cost (first-in, first-out)
or market and include material, labor and manufacturing overhead. The components
of inventories were as follows as of December 31:
(In thousands) 1998 1997
----------------------------------------------------------------------------
Raw materials $25,052 $29,057
Work-in-process 21,656 16,379
Finished goods 36,086 30,081
------- -------
Total inventories $82,794 $75,517
------- -------
Property and Equipment Property and equipment are stated at cost and are
depreciated or amortized using the straight-line method over the following
estimated useful lives:
----------------------------------------------------------------------------
Furniture and fixtures 5 years
Test equipment 3-5 years
Machinery and equipment 3-6 years
Leasehold improvements Term of lease
Revenue Recognition Revenues from equipment sales and sales-type leases are
generally recognized when the equipment has been shipped and lease contracts, if
applicable, have been executed. Estimated costs of installation, which are
minimal, are accrued at the time revenue is recognized. Service revenues are
recognized ratably over the contractual period or as the services are provided.
Product Warranty The Company provides at the time of sale for the estimated
cost to warrant its products for a period of one year. The amount accrued is
reduced ratably over the warranty period and the Company's warranty costs are
included in cost of product sales.
Advertising Costs The Company accounts for advertising costs in accordance with
Statement of Position No. 97-3, "Reporting on Advertising Costs." Advertising
costs are expensed during the period in which they are incurred. For the years
ended December 31, 1998, 1997 and 1996, the Company incurred advertising
expenses of $4.7 million, $5.6 million and $9.7 million, respectively.
Consolidated Statement of Cash Flows For purposes of the statement of cash
flows, the Company considers all highly liquid debt instruments purchased with
an original maturity of three months or less to be cash equivalents. For
purposes of the statements of cash flows, the Company classifies cash flows from
hedging contracts in the same category as the cash flow from the items being
hedged.
Cash paid for income taxes and interest expense were as follows for each of the
years ended December 31:
(In thousands) 1998 1997 1996
-----------------------------------------------------------------------------
Income taxes $3,058 $ 953 $ 183
Interest expense $2,945 $1,137 $ 322
In conjunction with the repurchase of common stock in 1998, 1997 and 1996 (see
Note 6), the Company incurred a liability due to the timing of the settlement
dates.
(In thousands) 1998 1997 1996
-----------------------------------------------------------------------------
14
<PAGE>
Repurchase of common stock $ 37,204 $ 33,151 $ 16,788
Cash paid for repurchase of common stock (39,977) (33,315) (14,591)
-------- -------- --------
Net cash effect $ (2,773) $ (164) $ 2,197
-------- -------- --------
Reclassifications Certain information reported in previous years has been
reclassified to conform to the 1998 presentation.
Comprehensive Income Effective January 1, 1998, the Company adopted Statement
of Financial Accounting Standards No. 130 ("SFAS 130"), "Reporting Comprehensive
Income." The adoption of SFAS 130 did not have a material impact on the
Company's consolidated financial statements. See Note 9 to the consolidated
financial statements for further discussion.
Segment Reporting During 1998, the Company adopted Statement of Financial
Accounting Standards No. 131 ("SFAS 131"), "Disclosures about Segments of an
Enterprise and Related Information." The adoption of SFAS 131 did not have a
material impact on the Company's consolidated financial statements. See Note 10
to the consolidated financial statements for further discussion.
NOTE 3. SHORT-TERM BORROWINGS
The Company has a revolving, unsecured credit agreement for $100.0 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. At December 31, 1998, borrowings under this facility, which are
subject to certain debt covenants, totaled $65.0 million and the effective rate
was 6.3 percent.
The Company also has an uncommitted line of credit for up to 90-day advances not
to exceed an aggregate total of $10.0 million. At December 31, 1998, there were
no borrowings against this uncommitted line of credit.
For the year ended December 31, 1998, the Company's weighted average borrowings
were $48.1 million and the weighted average interest rate was 6.4 percent.
Subsequent to December 31, 1998, the Company entered into a letter agreement
with a major financial institution to act as the Company's exclusive placement
agent in connection with the issuance of an initial series of unsecured senior
notes. The Company has obtained commitments for $75.0 million. The senior notes
will have an effective coupon of approximately 6.6 percent and a final maturity
of seven years with an average life of five years. After completing the due
diligence with the lenders, the Company expects to receive $75.0 million by
April 30, 1999 and anticipates using the proceeds to refinance existing debt and
for other working capital and general corporate needs. Subsequent series of
senior notes may be issued at the discretion of the Company for an additional
$5.0 million.
NOTE 4. NET INVESTMENT IN SALES-TYPE LEASES
The Company leases equipment to customers under sales-type leases as defined in
Statement of Financial Accounting Standards No. 13. The Company's leasing
operations consist of leases of medical equipment which expire over a period of
one to six years. The following lists the components of the net investment in
sales-type leases as of December 31, 1998 and 1997:
December 31, 1998 1997
- ------------------------------------------------------------------------------
(In thousands)
Minimum amounts receivable $22,063 $15,448
Less: Allowance for uncollectibles (682) (557)
-------- -------
Net minimum lease payments receivable 21,381 14,891
Estimated residual values of leased property 346 243
Less: Unearned interest income (259) (402)
-------- -------
15
<PAGE>
Net investment in leases 21,468 14,732
Less: Current portion (included in other current assets) (6,018) (4,204)
-------- -------
Long-term portion $15,450 $10,528
-------- -------
Minimum amounts receivable under existing leases as of December 31, 1998, were
as follows:
(In thousands) Amount
- --------------------------------------------------------------------------------
1999 $ 6,748
2000 5,940
2001 4,043
2002 2,224
2003 1,275
Thereafter 1,833
-------
Total minimum amounts receivable $22,063
-------
The Company frequently transfers future payments under many of its lease
contracts to a financing institution. Such transfers are accounted for under the
provisions of SFAS No. 125, "Accounting for Transfers and Servicing of Financial
Assets and Extinguishments of Liabilities." Transfers ace recorded as sales when
control of the related receivables has been surrendered. The Company records the
fair value of its estimated recourse liability upon completion of the transfer.
During 1998, 1997 and 1996, the Company sold portions of its lease portfolio for
approximately $20.0 million, $18.4 million and $23.4 million, respectively. At
December 31, 1998, the maximum recourse liability to the Company under these
transactions was approximately $8.0 million.
NOTE 5. COMMITMENTS AND CONTINGENCIES
The Company leases its facilities and certain other equipment under operating
lease agreements expiring through August 2007. Future minimum lease payments as
of December 31, 1998, were as follows:
(In thousands) Amount
- --------------------------------------------------------------------------------
1999 $12,170
2000 9,152
2001 6,545
2002 2,859
2003 395
Thereafter 576
-------
Total minimum amounts receivable $31,697
-------
Facility rent expense was approximately $12.5 million, $12.1 million and $11.5
million in 1998, 1997 and 1996, respectively.
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 6. COMMON STOCK
Preferred Stock Purchase Rights During 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 (a "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
16
<PAGE>
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 (or in certain
circumstances, 20 percent) or more of the Company's Common Stock or commences a
tender or exchange offer for at least 15 percent (or in certain circumstances,
20 percent) of the Company's Common Stock (as more fully described in the
Amended and Restated Rights Agreement incorporated herein by reference as
Exhibit 4.1 hereto). Each Right entitles the holder to purchase from the Company
one one-hundredth of a share of Series A Preferred Stock (a "Unit") at $120 per
Unit, subject to adjustments for dilutive events. If, after the Rights have been
distributed, either the acquiring party holds 15 percent (or in certain
circumstances, 20 percent) or more of the Company's Common Stock or the Company
is a party to a merger or other acquisition transaction (other than a merger or
other acquisition transaction pursuant to a merger or other acquisition
agreement approved by the Company's Board of Directors), then each Right (other
than those held by the acquiring party) will entitle the holder to receive, upon
exercise, that number of Units or shares of common stock of the surviving
company with a value equal to two times the exercise price of the Right. The
Board of Directors may redeem the Rights, at any time until the tenth day
following an announcement of the acquisition of 15 percent (or in certain
circumstances, 20 percent) or more of the Company's Common Stock, 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.
Stock Option Plans In May 1995, the stockholders approved the Company's 1995
Stock Incentive Plan (the "1995 Plan") which authorizes the issuance of up to
3,500,000 shares of common stock in the form of options, restricted stock grants
or bonuses and stock appreciation rights. In addition, the Company has in effect
a 1991 Stock Incentive Plan (the "1991 Plan"). Under the 1995 Plan and the 1991
Plan, incentive and supplemental stock options may be granted to employees,
directors and consultants to purchase common stock at a price which is not less
than 100 percent of the market value (or 10 percent for supplemental stock
options) of the shares at the grant date. The options can be granted for periods
of up to ten years and are subject to exercise and vesting schedules as
determined by the Board of Directors. Options covering 2,057,332 shares were
available for future grant at December 31, 1998.
On August 2, 1994, the Board of Directors approved an amendment to outstanding
non-qualified stock options that, in general, provides for accelerated vesting
of such options in the event that some person or entity acquires more than 20
percent of the Company's then outstanding stock without the approval of the
Board of Directors.
The following table summarizes option activity for the past three years:
<TABLE>
<CAPTION>
(In thousands, Weighted Average
except per share amounts) Shares Exercise Price
------------------------------------------------------------------------------------------------
<S> <C> <C>
OUTSTANDING AT DECEMBER 31, 1995 7,071 $12.77
Granted 1,433 $15.01
Exercised (1,495) $11.38
Expired or canceled (589) $14.45
------
OUTSTANDING AT DECEMBER 31, 1996 6,420 $13.44
Granted 490 $21.24
Exercised (1,142) $12.53
Expired or canceled (267) $14.55
------
OUTSTANDING AT DECEMBER 31, 1997 5,501 $14.27
Granted 1,082 $16.90
Exercised (373) $13.47
Expired or canceled (707) $16.33
------
OUTSTANDING AT DECEMBER 31, 1998 5,503 $14.57
------
</TABLE>
The following table summarizes information about stock options outstanding at
December 31, 1998:
Options Outstanding Options Exercisable
- -------------------------------------- --------------------------------------
17
<PAGE>
<TABLE>
<CAPTION>
Weighted
Average
Remaining Weighted Weighted
Range of Number Contractual Average Number Average
Exercise Prices Outstanding Life Exercise Price Exercisable Exercise Price
- -------------------------------------------------------------------------- --------------------------------------
<S> <C> <C> <C> <C> <C>
$10.75 1,023,723 4.42 $10.75 1,023,723 $10.75
$11.00 - $12.38 854,416 6.43 $11.78 609,457 $11.78
$12.38 - $13.13 597,136 4.85 $13.09 590,751 $13.09
$13.25 - $14.38 648,151 7.35 $14.13 277,682 $14.04
$14.38 - $15.06 579,578 8.09 $14.93 213,496 $14.86
$15.13 - $17.25 586,415 8.12 $16.76 169,277 $16.61
$17.31 - $18.00 609,710 8.80 $17.88 47,332 $17.51
$18.13 - $26.38 551,274 6.78 $20.45 246,238 $20.35
$26.59 - $36.13 52,400 7.47 $28.49 15,200 $29.17
$37.38 200 2.16 $37.38 200 $37.38
--------------------------------------------------------- --------------------------------------
$10.75 - $37.38 5,503,003 6.66 $14.57 3,193,356 $13.18
- -------------------------------------------------------------------------- --------------------------------------
</TABLE>
Employee Stock Purchase Plan In May 1995, the stockholders approved the
Company's 1995 Employee Stock Purchase Plan (the "1995 Purchase Plan"), which
authorizes the issuance of up to 2,000,000 shares of common stock, subject to
adjustment upon changes in capitalization of the Company. Offerings under the
1995 Purchase Plan commenced in September 1995, and as of December 31, 1998, the
Company had reserved 726,079 shares of common stock for future issuance.
Pursuant to the 1995 Purchase Plan, qualified employees elect to have between 3
percent and 15 percent of their salary withheld. The salary so withheld is then
used to purchase shares of the Company's common stock at a price not less than
85 percent of the market value of the stock on the specified dates determined at
the commencement of the offering period. Under the 1995 Purchase Plan the
Company has sold 394,272 shares, 417,017 shares and 462,632 shares in 1998, 1997
and 1996, respectively.
Pro Forma Stock Based Compensation Expense Effective January 1, 1996, the
Company adopted the disclosure provisions of Financial Accounting Standards No.
123 ("SFAS 123"), "Accounting for Stock-Based Compensation." In accordance with
the provisions of SFAS 123, the Company applies APB Opinion 25 and related
interpretations in accounting for its stock option plans. In accordance with the
disclosure requirements of SFAS 123, if the Company had elected to recognize
compensation cost based on the fair value of the options and stock purchase
rights as prescribed by SFAS 123, income (loss) and earnings (loss) per share
would have been reduced to the pro forma amounts indicated in the following
table. The pro forma effect on net income (loss) for 1998, 1997 and 1996 is not
representative of the pro forma effect on net income (loss) in future years
because it does not take into consideration pro forma compensation expense
related to stock options and purchase rights granted prior to 1995.
<TABLE>
<CAPTION>
In thousands, except per share amounts 1998 1997 1996
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income (loss) - as reported $20,822 $22,377 $(10,613)
Net income (loss) - pro forma 16,731 19,239 (13,668)
Earnings (loss) per share - as reported
Basic 0.75 0.78 (0.39)
Diluted 0.73 0.73 (0.39)
Earnings (loss) per share - pro forma
Basic 0.60 0.67 (0.50)
Diluted 0.58 0.63 (0.50)
</TABLE>
The following assumptions and resulting fair values were used to determine the
pro forma compensation expense using the Black-Scholes option-pricing model:
<TABLE>
<CAPTION>
Stock Options: 1998 1997 1996
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Expected dividend yield 0.0 % 0.0 % 0.0 %
Expected stock volatility 40.8 - 46.9 % 40.5 - 50.4 % 29.8 - 42.4 %
Risk-free interest rate 5.2 - 5.5 % 5.2 - 6.5 % 5.4 - 6.3 %
Expected life of options from vest date 1.3 years 1.2 years 1.1 years
Forfeiture rate Actual Actual Actual
</TABLE>
18
<PAGE>
<TABLE>
<S> <C> <C> <C>
Weighted average fair value $6.47 $8.40 $4.40
</TABLE>
<TABLE>
<CAPTION>
Employee Stock Purchase Plan: 1998 1997 1996
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Expected dividend yield 0.0 % 0.0 % 0.0 %
Expected stock volatility 35.6 - 55.1 % 42.9 - 59.4 % 38.5 - 48.5 %
Risk-free interest rate 5.1 - 5.7 % 5.4 - 5.7 % 5.1 - 5.4 %
Expected life of options from vest date 0.5 years 0.5 years 0.5 years
Weighted average fair values:
March to August $4.74 $7.19 $3.68
September to February $4.70 $8.33 $3.67
</TABLE>
Common Stock Repurchase Program In 1996, the Board of Directors authorized the
repurchase of 4,000,000 shares of common stock over an unspecified period of
time. During 1998, the Company repurchased 2,264,600 shares at a total cost of
$37.2 million. As of December 31, 1998, the Company had repurchased 3,527,400
shares toward the 4,000,000 share repurchase authorization at a cumulative cost
of $62.4 million. The difference between the average original issue price and
the repurchase price has been accounted for as a reduction in retained earnings.
Subsequent to December 31, 1998, the Board of Directors authorized the
repurchase of an additional 4,000,000 shares of common stock over an unspecified
period of time.
NOTE 7. INCOME TAXES
Income before provision for income taxes and the components of the provision for
income taxes consisted of the following:
<TABLE>
<CAPTION>
Year Ended December 31, 1998 1997 1996
(In thousands)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income (loss) before provision for income taxes:
Domestic $32,661 $32,256 $(14,480)
Foreign (3,670) (1,317) (2,444)
Eliminations (330) (1,106) (1,097)
------- ------- --------
Total income (loss) before provision $28,661 $29,833 $(18,021)
======= ======= ========
Provision for income taxes:
Federal
Current $ 5,968 $10,056 $ (187)
Deferred 4,702 (2,607) (5,764)
------- ------- --------
10,670 7,449 (5,951)
------- ------- --------
State
Current 535 1,700 200
Deferred (2,334) (2,043) (2,226)
------- ------- --------
(1,799) (343) (2,026)
------- ------- --------
Foreign
Current (902) 244 1,111
Deferred (130) 106 (542)
------- ------- --------
(1,032) 350 569
------- ------- --------
Total provision (benefit) $ 7,839 $ 7,456 $ (7,408)
======= ======= ========
</TABLE>
The provision for income taxes differs from the amounts obtained by applying the
federal statutory rate to income before taxes as follows:
<TABLE>
<CAPTION>
1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Federal statutory tax rate 35.0% 35.0% 35.0%
Research and development tax credits and foreign tax credits (6.8) (9.7) 10.3
</TABLE>
19
<PAGE>
<TABLE>
<S> <C> <C> <C>
State taxes, net of federal income tax benefit (4.1) (0.7) 7.3
Foreign Sales Corp. benefits (0.8) (1.3) 0.9
Foreign subsidiary income 2.0 1.3 (7.6)
Non-deductible expenses 1.7 2.0 (3.8)
Other 0.4 (1.6) (1.0)
---- ---- ----
Provision rate 27.4% 25.0% 41.1%
==== ==== ====
</TABLE>
The Company has recorded deferred tax assets of $27.6 million. Although
realization is not assured, management believes it is more likely than not that
all of the deferred tax assets will be realized. The amount of the deferred tax
assets considered realizable, however, could be reduced in the near term if
estimates of the future taxable income are reduced.
The components of deferred tax assets at year end were as follows:
<TABLE>
<CAPTION>
December 31, 1998 1997
(In thousands)
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
Reserves not currently deductible $11,473 $12,432
State research and development credit carryforward 6,460 3,450
Accruals not currently deductible 4,663 5,405
Vacation accrual 4,218 3,113
Inventory reserves 4,114 3,395
State manufacturers investment credit carryforward 1,477 789
Federal research and development credit 684 1,657
Federal alternative minimum tax credit carryforward 287 287
Capitalized assets 253 253
Foreign tax credit carryforward -- 214
State income tax accruals (3,151) (1,703)
Depreciation (2,629) 599
Other (207) 921
------- -------
Deferred tax assets $27,642 $30,812
======= =======
</TABLE>
The Company has tax credits, deductions and net operating losses which will be
carried forward. The following lists the carryforward credits, deductions and
losses and their year of expiration.
<TABLE>
<CAPTION>
Year Ended December 31,
(In thousands) 2004 2005 2006 2012 UNLIMITED
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
State research & development credit $ -- $ -- $ -- $ -- $ 6,460
State manufacturers' investment credit 789 344 344 -- --
Federal alternative minimum tax credit
carryforward -- -- -- -- 287
State alternative minimum tax credit -- -- -- -- 59
carryforward
Federal research & development credit -- -- -- 684 --
</TABLE>
NOTE 8. 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 prior three years:
<TABLE>
<CAPTION>
Dilutive
Effect of Options
(In thousands, except per share amounts) Basic Outstanding Diluted
----------------------------------------------------------------
<S> <C> <C> <C>
</TABLE>
20
<PAGE>
<TABLE>
<S> <C> <C> <C>
Year Ended December 31, 1996
Net loss (numerator) $(10,613) $(10,613)
Weighted average number of
shares outstanding (denominator) 27,508 -- 27,508
Loss per share $ (0.39) $ (0.39)
============ ===========
Year Ended December 31, 1997
Net income (numerator) $ 22,377 $ 22,377
Weighted average number of
shares outstanding (denominator) 28,807 1,820 30,627
Earnings per share $ 0.78 $ 0.73
============ ===========
Year Ended December 31, 1998
Net income (numerator) $ 20,822 $ 20,822
Weighted average number of
shares outstanding (denominator) 27,835 766 28,601
Earnings per share $ 0.75 $ 0.73
============ ===========
</TABLE>
Options to purchase approximately 1.3 million and 0.1 million weighted average
shares of common stock were outstanding during 1998 and 1997, respectively, but
were 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.
During 1996, options to purchase approximately 7.1 million weighted average
shares of common stock were outstanding but were not included in the computation
of diluted earnings per share. Of this total, options to purchase approximately
0.5 million weighted average shares were excluded because the exercise prices
were greater than the average market price of the common shares. The remaining
options to purchase approximately 6.6 million weighted average shares were
excluded as a result of their antidilutive effect due to the loss available to
common shareholders.
NOTE 9. 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 is a summary, in thousands, of the accumulated other comprehensive
loss balance:
<TABLE>
<CAPTION>
Accumulated
Other
Comprehensive
Loss
---------------
<S> <C>
Year ended December 31, 1998
Beginning balance $(1,472)
Current-period change
Foreign currency items 373
-------
Ending balance $(1,099)
=======
</TABLE>
The following is a summary, in thousands, 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
-----------------------------------------------------
<S> <C> <C> <C>
Year ended December 31, 1996
Foreign currency translation adjustments $ 545 $(224) $ 321
Unrealized holding loss on
</TABLE>
21
<PAGE>
<TABLE>
<S> <C> <C> <C>
investment securities $ (63) $ 26 (37)
------- ----- -------
Other comprehensive income $ 482 $(198) $ 284
======= ===== =======
Year ended December 31, 1997
Foreign currency translation adjustments $(2,665) $ 666 $(1,999)
======= ===== =======
Year ended December 31, 1998
Foreign currency translation adjustments $ 513 $(140) $ 373
======= ===== =======
</TABLE>
NOTE 10. INDUSTRY SEGMENT AND GEOGRAPHIC INFORMATION
During 1998 the Company adopted Statement of Financial Accounting Standards No.
131 ("SFAS 131"), "Disclosures About Segments of an Enterprise and Related
Information."
The Company is organized based upon the nature of the products and services it
offers. Under this organizational structure, the Company operates in two
fundamental business segments: product and service. The product segment includes
the development, manufacture and sale of the Company's systems that generate,
display, archive and retrieve medical diagnostic ultrasound images. The service
segment provides service and support for the Company's products in accordance
with the various service contracts and other purchase arrangements the Company
makes available to its customers. The Company's products are manufactured at its
world headquarters in Mountain View, California, and are sold through a direct
sales force in North America, Europe, Australia and Japan, and through
independent distributors in Europe, Asia, South America and the Middle East.
The information in the following tables is derived directly from the Company's
internal financial reporting used for corporate management purposes. The Company
evaluates its segments' performance based on several factors, of which the
primary financial measure is controllable contribution. Controllable
contribution is gross margin less selling expenses. Unallocated costs include
corporate and other costs not allocated to business segments for management
reporting purposes. The accounting policies followed by the Company's business
segments are the same as those described in Note 2 to the consolidated financial
statements. Except for inventory, the Company does not allocate assets by
segment for management reporting purposes.
<TABLE>
<CAPTION>
Revenue from external customers
Year ended December 31, 1998 1997 1996
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
(In thousands)
Product $365,111 $352,476 $260,975
Service 89,978 85,286 85,180
-------- -------- --------
Total net sales $455,089 $437,762 $346,155
======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
Income (loss) before income taxes
Year ended December 31, 1998 1997 1996
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
(In thousands)
Product $ 71,169 $ 67,284 $ 23,242
Service 41,871 41,770 43,546
-------- -------- --------
Controllable contribution 113,040 109,054 66,788
Unallocated expense (82,739) (80,080) (87,936)
Interest expense (3,129) (1,179) (360)
Interest income 1,489 2,038 3,487
-------- -------- --------
Income (loss) before income taxes $ 28,661 $ 29,833 $(18,021)
======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
Segment Assets
Year ended December 31, 1998 1997 1996
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
(In thousands)
</TABLE>
22
<PAGE>
<TABLE>
<S> <C> <C> <C>
Product $69,381 $58,757 $67,103
Service 13,413 16,760 16,093
------- ------- -------
Total inventory 82,794 75,517 83,196
======= ======= =======
</TABLE>
Geographic area information is as follows:
<TABLE>
<CAPTION>
Revenue from external customers
Year ended December 31, 1998 1997 1996
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
(In thousands)
United States $316,656 $292,479 $211,961
Europe 98,468 92,442 85,638
Other foreign 39,965 52,841 48,556
-------- -------- --------
Total net sales $455,089 $437,762 $346,155
======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
Assets
Year ended December 31, 1998 1997 1996
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
(In thousands)
United States $370,115 $338,992 $292,865
Europe 72,454 60,635 50,898
Other foreign 18,677 14,557 14,862
Eliminations (66,174) (51,356) (37,924)
-------- -------- --------
Total assets $395,072 $362,828 $320,701
======== ======== ========
</TABLE>
Geographic revenue from external customers represents shipments to foreign
customers from both domestic and foreign operations. As of and for the years
ended December 31, 1998, 1997 and 1996, operations in any single non-U.S.
country did not account for more than 10 percent of consolidated net sales or
total assets. Also, during 1998, 1997 and 1996, no single customer or group
under common control represented 10 percent or more of the Company's sales.
23
<PAGE>
________________________________________________________________________________
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Acuson Corporation:
We have audited the accompanying consolidated balance sheets of Acuson
Corporation (a Delaware corporation) and subsidiaries as of December 31, 1998
and 1997, and the related consolidated statements of operations and
comprehensive income, stockholders' equity and cash flows for each of the three
years in the period ended December 31, 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Acuson Corporation and
subsidiaries as of December 31, 1998 and 1997, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1998 in conformity with generally accepted accounting principles.
/s/ Arthur Andersen LLP
San Jose, California
January 29, 1999
24
<PAGE>
MARKET FOR REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS
Acuson's Common Stock, par value $0.0001, trades on the New York Stock Exchange
under the symbol ACN. The following table sets forth the high and low closing
sales prices on the New York Stock Exchange for 1998 and 1997.
<TABLE>
<CAPTION>
1998 High LOW
<S> <C> <C>
1/st/ Quarter $20.19 $16.88
2/nd/ Quarter 19.69 17.31
3/rd/ Quarter 18.19 14.63
4/th/ Quarter 19.06 13.63
</TABLE>
<TABLE>
<CAPTION>
1997 High LOW
<S> <C> <C>
1/st/ Quarter $29.50 $24.38
2/nd/ Quarter 26.38 21.38
3/rd/ Quarter 27.88 19.75
4/th/ Quarter 27.38 15.94
</TABLE>
The approximate number of shareholders of record of the Company's Common Stock
as of December 31, 1998 was 1,300. Acuson has not paid any cash dividends since
its inception and does not anticipate paying cash dividends in the foreseeable
future.
25
<PAGE>
ACUSON CORPORATION EXHIBIT 21.1
SUBSIDIARIES OF THE COMPANY
Acuson Corporation has the following wholly-owned subsidiaries:
1. Acuson Pty. Ltd., organized under the laws of Australia.
2. Acuson GesmbH, organized under the laws of Austria.
3. Acuson Belgium SA/NV, organized under the laws of Belgium.
4. Acuson Canada Ltd., organized under the laws of Ontario, Canada.
5. Acuson A/S, organized under the laws of Denmark.
6. Acuson OY, organized under the laws of Finland.
7. Acuson S.A.R.L., organized under the laws of France.
8. Acuson GmbH, organized under the laws of Germany.
9. Acuson Hong Kong Ltd., organized under the laws of Hong Kong.
10. Acuson S.p.A., organized under the laws of Italy.
11. Acuson Nippon K.K., organized under the laws of Japan.
12. Acuson BV, organized under the laws The Netherlands.
13. Acuson A/S, organized under the laws of Norway.
14. Acuson Singapore Ltd., organized under the laws of Singapore.
15. Acuson Iberica SA, organized under the laws of Spain.
16. Acuson AB, organized under the laws of Sweden.
17. Acuson Ltd., organized under the laws of the United Kingdom.
18. Acuson Foreign Sales Corporation, organized under the laws of the Virgin
Islands.
19. Acuson International Sales Corporation, organized under the laws of the
State of California.
20. Acuson Worldwide Sales Corporation, organized under the laws of the State
of California.
21. Sound Technology, Inc., organized under the laws of the State of
Pennsylvania.
<PAGE>
ACUSON CORPORATION EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation of our reports included (or incorporated by reference) in this
Form 10-K, into the Company's previously filed Registration Statements on Form
S-8, File Nos. 33-29596, 33-43606, 33-59707 and 33-61691.
/s/ Arthur Andersen LLP
San Jose, California
March 29, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-K
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 11,914
<SECURITIES> 0
<RECEIVABLES> 157,233
<ALLOWANCES> 3,561
<INVENTORY> 82,794
<CURRENT-ASSETS> 288,880
<PP&E> 229,993
<DEPRECIATION> 150,984
<TOTAL-ASSETS> 395,072
<CURRENT-LIABILITIES> 189,484
<BONDS> 0
0
0
<COMMON> 125,015
<OTHER-SE> 80,573
<TOTAL-LIABILITY-AND-EQUITY> 395,072
<SALES> 365,111
<TOTAL-REVENUES> 455,089
<CGS> 192,736
<TOTAL-COSTS> 239,740
<OTHER-EXPENSES> 185,048
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,640
<INCOME-PRETAX> 28,661
<INCOME-TAX> 7,839
<INCOME-CONTINUING> 20,822
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 20,822
<EPS-PRIMARY> 0.75
<EPS-DILUTED> 0.73
</TABLE>
