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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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SCHEDULE 14D-9
SOLICITATION/RECOMMENDATION STATEMENT
PURSUANT TO SECTION 14(D) (4)
OF THE SECURITIES EXCHANGE ACT OF 1934
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ATL ULTRASOUND, INC.
(Name of Subject Company)
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ATL ULTRASOUND, INC.
(Name of Person(s) Filing Statement)
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COMMON STOCK, PAR VALUE $0.01 PER SHARE
(INCLUDING THE ASSOCIATED RIGHTS TO PURCHASE
SERIES A PARTICIPATING CUMULATIVE PREFERRED STOCK)
(Title of Class of Securities)
00207N 10 0
(CUSIP Number of Class of Securities)
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W. BRINTON YORKS, JR.
VICE PRESIDENT AND GENERAL COUNSEL
ATL ULTRASOUND, INC.
22100 BOTHELL EVERETT HIGHWAY
P.O. BOX 3003
BOTHELL, WASHINGTON 98041-3003
(425) 487-7152
(Name, Address and Telephone Number of Person Authorized to Receive
Notices and Communications on Behalf of the Person(s) Filing Statement)
WITH A COPY TO:
ROBERT I. TOWNSEND, III, ESQ.
CRAVATH, SWAINE & MOORE
WORLDWIDE PLAZA
825 EIGHTH AVENUE
NEW YORK, NEW YORK 10019
(212) 474-1000
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INTRODUCTION
This Solicitation/Recommendation Statement on Schedule 14D-9 (this "Schedule
14D-9") relates to an offer by Philips Acquisition, Inc., a Washington
corporation ("Merger Sub") and a wholly owned subsidiary of Philips Electronics
North America Corporation, a Delaware corporation ("Parent"), and an indirect
wholly owned subsidiary of Koninklijke Philips Electronics N.V., a company
organized under the laws of The Netherlands ("Royal Philips"), to purchase all
of the Shares (as defined below) of ATL Ultrasound, Inc., a Washington
corporation (the "Company").
ITEM 1. SECURITY AND SUBJECT COMPANY.
The name and address of the principal executive offices of the Company is
ATL Ultrasound, Inc., 22100 Bothell Everett Highway, P.O. Box 3003, Bothell,
Washington 98041-3003. This Schedule 14D-9 relates to the Company's Common
Stock, par value $0.01 per share (the "Common Stock"), including the associated
rights to purchase Series A Participating Cumulative Preferred Stock (the
"Rights" and, together with the Common Stock, the "Shares").
ITEM 2. TENDER OFFER OF THE BIDDER.
This Schedule 14D-9 relates to the tender offer made by Merger Sub,
disclosed in a Tender Offer Statement on Schedule 14D-1 (as amended or
supplemented from time to time, the "Schedule 14D-1") dated August 4, 1998, to
purchase all the outstanding Shares at a price (the "Offer Price") of $50.50 per
Share, net to the seller in cash, without interest, upon the terms and subject
to the conditions set forth in the Offer to Purchase dated August 4, 1998 (as
amended or supplemented from time to time, the "Offer to Purchase"), and the
related Letter of Transmittal (which, together with any amendments or
supplements thereto, collectively constitute the "Offer"), copies of which are
filed as Exhibits (a)(1) and (a)(2) hereto, respectively, and incorporated
herein by reference.
The Offer is being made pursuant to an Agreement and Plan of Merger dated as
of July 29, 1998, among the Company, Merger Sub and Parent (the "Merger
Agreement"), which provides for the making of the Offer by Merger Sub, subject
to the conditions and upon the terms of the Merger Agreement, and (subject to
Section 2.1(b) of Merger Agreement, pursuant to which at Parent's option the
Company will be merged into Merger Sub) for the subsequent merger of Merger Sub
with and into the Company (either such merger, the "Merger"). In the Merger,
each Share outstanding at the Effective Time (as defined in the Merger
Agreement) (other than Shares held in the treasury of the Company or held by
Parent, Merger Sub or any other subsidiary of Parent, or shares held by
shareholders validly exercising dissenters' rights pursuant to Section
23B.13.020 of the Washington Business Corporation Act) will, by virtue of the
Merger and without any action by the holder thereof, be converted into the right
to receive, without interest, an amount in cash equal to $50.50 per Share or
such greater amount per Share which may be paid pursuant to the Offer (the
"Merger Consideration"). The Merger Agreement, a copy of which is filed as
Exhibit (c)(1) hereto, is summarized in Section 11 of the Offer to Purchase and
incorporated herein by reference.
The Schedule 14D-1 states that the principal executive offices of Merger Sub
and Parent are located at 1251 Avenue of the Americas, New York, New York 10020.
ITEM 3. IDENTITY AND BACKGROUND.
(a) The name and business address of the Company, which is the person filing
this statement, are set forth in Item 1 above, which information is incorporated
herein by reference.
(b)(1) GENERAL. The information contained in Section 11 of the Offer to
Purchase is incorporated herein by reference. Certain contracts, agreements,
arrangements and understandings between the Company and certain of its executive
officers are described in the Information Statement dated August 4, 1998,
included as Exhibit A to this Schedule 14D-9 and incorporated herein by
reference. The Information Statement will be furnished to the Company's
shareholders pursuant to Section 14(f) of the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), and Rule 14f-1 issued under the Exchange Act in
connection with Parent's right (after consummation of the Offer) to designate
persons to be appointed
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to the Board of Directors of the Company (the "Board") other than at a meeting
of the shareholders of the Company. Other such contracts, arrangements and
understandings known to the Company are described below or are summarized in
Section 10 of the Offer to Purchase, which is incorporated herein by reference.
(2) CERTAIN EXECUTIVE COMPENSATION AND OTHER EMPLOYEE-RELATED MATTERS IN
CONNECTION WITH THE MERGER.
EMPLOYMENT AGREEMENTS. Prior to the execution of the Merger Agreement, the
Company and five of its executive officers (the "Senior Officers") were parties
to change in control/severance agreements which provided for, among other
things, the payment of severance amounts and benefits upon certain terminations
of employment in connection with a "Change in Control" of the Company. The
Senior Officers have entered into new employment arrangements with the Company
that are generally effective as of the Effective Time and that replace the
existing change in control agreements. If the Merger Agreement is terminated,
the new employment agreements will not take effect and the existing change in
control agreements will continue in effect. Copies of the new employment
agreements are filed as Exhibits (c)(2), (c)(3), (c)(4), (c)(5) and (c)(6) and
incorporated herein by reference, and the following summary is qualified in its
entirety by reference to those agreements.
EMPLOYMENT AGREEMENT OF MR. FILL. The new employment agreement (the "Fill
Agreement") for Dennis C. Fill, Chairman and Chief Executive Officer of the
Company, provides that Mr. Fill will remain the Chief Executive Officer and
President of the Company until December 31, 1998 (the "Fill Employment Period"),
at which point he will retire from the Company. During the Fill Employment
Period, Mr. Fill will continue to be paid his current rate of base salary and
will receive an annual bonus for 1998 equal to his base salary. In addition, the
Fill Agreement continues the current postretirement consulting arrangements
between Mr. Fill and the Company on similar terms. For the five years following
his retirement (the "Fill Consulting Period"), Mr. Fill will provide consulting
services to the Company. In consideration for these services, Mr. Fill will be
paid $1,150,000 on or about the Effective Time and will be paid $60,000 at the
beginning of each of the 20 calendar quarters beginning on January 1, 1999. The
Company will also (i) pay Mr. Fill's Medicare premiums for life and (ii) cancel
all current life insurance arrangements for Mr. Fill and make a cash payment in
an amount sufficient to enable Mr. Fill to purchase a paid-up $300,000 life
insurance policy.
If Mr. Fill is involuntarily terminated without cause (as defined in the
Fill Agreement) or he voluntarily terminates due to a material breach of the
Fill Agreement by the Company, he will be paid the base salary, bonus and
consulting fees that the Company would otherwise have paid during the Fill
Employment Period and the Fill Consulting Period.
The Fill Agreement prohibits Mr. Fill from competing with the business of
the Company and Philips Medical Systems during, and for one year after, the Fill
Employment Period and the Fill Consulting Period.
EMPLOYMENT AGREEMENTS OF MESSRS. BLEM AND SOUQUET AND MS. DUNLAP. The new
employment agreements (the "Employment Agreements") with Donald D. Blem, Senior
Vice President, Operations, Jacques Souquet, Senior Vice President, Product
Generation and Pamela L. Dunlap, Senior Vice President, Finance and
Administration, and Chief Financial Officer (the "Executives"), are effective
during the period beginning on the effective time of the Merger (the "Effective
Time") and ending on December 31, 2001 (the "Employment Period"). Pursuant to
the Employment Agreements, Messrs. Blem and Souquet and Ms. Dunlap will serve as
Senior Vice President of Operations, Senior Vice President-Chief Technology
Officer and Senior Vice President of Finance and Administration and Chief
Financial Officer, respectively, of the Company with base salaries of $245,000,
$255,000 and $200,000, respectively. Each Executive will be entitled to an
annual bonus upon achievement of specified targets with a target bonus
opportunity of 50 percent of base salary which may be higher or lower depending
upon performance. On January 1, 1999, the Executives will be paid a bonus for
1998 equal to a pro rata portion (based on the number of days
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elapsed in 1998 through the Effective Time) of the bonus payable based on the
Company's annualized performance through the end of the last fiscal quarter
before the Effective Time.
Messrs. Blem and Souquet and Ms. Dunlap will be granted stock options
("Options") to acquire 5,000, 7,000 and 5,000 shares, respectively, of common
stock of Royal Philips. Such Options will become exercisable ratably over a
three-year period. Pursuant to the Employment Agreements, the Company shall
establish a Long-Term Performance Unit Plan (the "New LTIP") that will provide
each Executive with a bonus (the "Incentive Bonus") equal to that Executive's
base salary, if the Executive is an employee of the Company on December 31,
2001, and 75 percent of the Strategic Plan (as such term is defined in the
Employment Agreements) has been achieved during the 1999-2001 performance period
(the "Performance Period"). If 100 percent of the Strategic Plan is achieved
during the Performance Period, each Executive's Incentive Bonus shall be two
times base salary and if 100 percent of the Strategic Plan is achieved,
including synergies, the Incentive Bonus shall be three times base salary.
Following December 31, 1999, and December 31, 2000, each Executive shall receive
a payment equal to 20 percent of base salary (each an "Advance Bonus") which
shall reduce the Incentive Bonus, on a dollar for dollar basis, otherwise
payable under the New LTIP.
If any Executive's employment is terminated by the Company without cause (as
defined in such Executive's Employment Agreement) or if an Executive terminates
due to a material breach of such Executive's Employment Agreement by the
Company, the Company will pay such Executive a lump sum equal to the remaining
salary and bonus for the remaining Employment Period and a pro rata Incentive
Bonus to be paid when such bonuses would have otherwise become payable. In
addition, all Options held by such Executive will become immediately exercisable
and will remain exercisable for at least one year following termination of
employment.
The Employment Agreements prohibit the Executives from competing with the
business of the Company and Philips Medical Systems during, and for one year
after, the Employment Period.
EMPLOYMENT AND CONSULTING AGREEMENT OF MR. DIAZ. Mr. Castor F. Diaz, Senior
Vice President, Worldwide Sales and Marketing of the Company, has entered into
an employment and consulting agreement (the "Diaz Agreement") with the Company
that is effective as of the Effective Time. Under the Diaz Agreement, Mr. Diaz
will be employed as Senior Vice President-Worldwide Sales and Marketing of the
Company at an annual salary of $285,000 from the Effective Time until December
31, 1999 (the "Diaz Employment Period"). Mr. Diaz will be entitled to an annual
bonus upon achievement of certain targets with a target bonus opportunity of 50
percent of base salary which may be higher or lower depending upon performance.
On January 1, 1999, Mr. Diaz will be paid a bonus for 1998 equal to a pro rata
portion (based on the number of days elapsed in 1998 through the Effective Time)
of the bonus payable based on the Company's annualized performance through the
end of the last fiscal quarter before the Effective Time.
Mr. Diaz will be granted Options to acquire 5,000 shares of common stock of
Royal Philips. Such Options will become exercisable at a rate of 50 percent on
July 31, 1999, and 50 percent on December 31, 1999. Unless Mr. Diaz is
terminated by the Company for cause (as such term is defined in the Diaz
Agreement) or voluntarily resigns, his Options will remain exercisable for at
least one year following the Diaz Term (as defined below). In addition, Mr. Diaz
shall be eligible for an Incentive Bonus under the New LTIP, on the same basis
as described above for the Executives, pro rated, based on the ratio of the
number of days in the Diaz Employment Period to the number of days in the
Performance Period. Under the New LTIP, Mr. Diaz will receive a bonus of 20
percent of base salary upon completion of the first year of the New LTIP, which
shall reduce, on a dollar for dollar basis, the amount of Mr. Diaz's Incentive
Bonus otherwise payable under the New LTIP.
Immediately following the expiration of the Diaz Employment Period, Mr. Diaz
will serve as a consultant for two additional years (the "Diaz Consulting
Period" and, together with the Diaz Employment Period, the "Diaz Term"). During
the Diaz Consulting Period, the Company shall pay Mr. Diaz a consulting fee of
$200,000 per year. In addition, until Mr. Diaz is entitled to Medicare, he shall
be entitled
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to receive medical benefits (or the after tax cost of such benefits if they
cannot be provided pursuant to the Company's medical plans) from the Company.
If Mr. Diaz's employment or consultancy is terminated by the Company without
cause or if Mr. Diaz terminates upon a material breach of the Diaz Agreement by
the Company, he will be paid the base salary, average bonus and consulting fees
that the Company otherwise would have paid during the Diaz Term.
The Diaz Agreement prohibits Mr. Diaz from competing with the business of
the Company and Philips Medical Systems during, and for one year after, the Diaz
Term.
EMPLOYMENT AGREEMENTS WITH OTHER OFFICERS. Under the Merger Agreement, the
Company shall use its best efforts to enter into 15 employment contracts with
vice president-level employees of the Company that provide for one year after
the Effective Time (i) base salary and annual bonus opportunity equal to those
provided by the Company before the Effective Time, (ii) severance benefits in an
amount equal to the base salary that would be paid through the remainder of the
term in the event of an involuntary termination of employment or a termination
after a material breach of the agreements by the Company and (iii) participation
in the New LTIP.
EFFECT OF THE MERGER ON EMPLOYEE BENEFIT AND STOCK PLANS. In addition to
the provisions relating to employment agreements described above, the Merger
Agreement contemplates that certain additional actions will be taken in respect
of employee benefit and stock plans in which executive officers of the Company
are eligible to participate. Parent shall cause the Company (or if Merger Sub
will be the surviving entity in the Merger, Merger Sub) (the "Surviving
Corporation") to honor all benefit obligations accrued as of the Effective Time.
For a period of two years after the Effective Time, the Surviving Corporation
will provide benefits (other than stock-related benefits) to Company employees
that are substantially similar to those provided by the Company before the
Effective Time.
In accordance with the Merger Agreement, the Company will use its reasonable
best efforts to cause each option to purchase Shares (whether or not
exercisable) to be surrendered and canceled as of the Effective Time for a cash
payment equal to the product of (i) the number of Shares subject to the option
and (ii) the difference between the Merger Consideration and the per Share
exercise price of the option.
In addition, the transactions contemplated by the Merger Agreement will
constitute a "Change in Control" for purposes of certain compensation and
benefit programs of the Company. As a result, all outstanding options will
immediately become vested and exercisable, the restrictions on all restricted
stock awards will vest and the current long term bonus cycles will be terminated
and paid out.
ITEM 4. THE SOLICITATION OR RECOMMENDATION.
(a) RECOMMENDATIONS OF THE BOARD OF DIRECTORS
At a meeting held on July 28, 1998, the Board unanimously (i) adopted the
Merger Agreement and approved the Offer and the Merger, (ii) determined that the
terms of the Offer and the Merger are fair to, and in the best interest of,
holders of Shares and (iii) recommended that holders of Shares accept the Offer
and tender their Shares pursuant to the Offer. Accordingly, the Board
unanimously recommends that the shareholders of the Company tender their Shares
pursuant to the Offer. Copies of the Company's press release announcing the
Merger Agreement and the transactions contemplated thereby and a letter to the
shareholders of the Company communicating the Board's recommendation are filed
as Exhibits (a) (3) and (a) (4) hereto, respectively, and are incorporated
herein by reference.
(b)(1) BACKGROUND.
In September 1997, Frank Low, an independent consultant who has been
retained from time to time by the Company to advise the Company with respect to
the diagnostic imaging industry, including the review of possible strategic
alliances, called representatives of Royal Philips and Parent (for purposes of
this Item 4, references to Parent or its representatives include Royal Philips
or its representatives) and the
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Company to explore the possibility of interest in a strategic transaction
between the two companies. On October 8, 1997, Parent and the Company entered
into a confidentiality agreement to govern the exchange of nonpublic information
between them.
In October and November 1997, Mr. Diaz and Harvey N. Gillis, then Chief
Financial Officer of the Company, held discussions to exchange information
regarding potential strategic opportunities with representatives of Parent. In
early December 1997, Messrs. Fill and Souquet met with Henk Bodt, Executive Vice
President of Royal Philips, to further discuss potential synergies of a
strategic transaction. In mid-December 1997, Mr. Fill was informed that Parent
had decided that it had no further interest in an acquisition of the Company.
In June 1998, Mr. Low called Mr. Fill to tell him that Parent had a renewed
interest in a possible acquisition of the Company. Mr. Low forwarded to Mr. Fill
a request he had received from Parent for Mr. Fill to meet with representatives
of Parent. Mr. Fill responded that he would be willing to meet with Parent's
representatives.
On June 22, 1998, Messrs. Fill, Diaz and Souquet met with Mr. Cor Boonstra,
Chief Executive Officer of Royal Philips, and Mr. Jan Hommen, Chief Financial
Officer of Royal Philips, in Parent's New York City offices. Messrs. Boonstra
and Hommen indicated that Parent had reevaluated its diagnostic imaging business
during the spring and had decided to grow such business, including through
possible acquisitions, and for that reason were interested in recommencing
discussions with the Company about a possible business combination. During the
meeting, representatives of the Company presented a profile of the Company which
had been presented at a recent financial analysts' conference and presented an
overview of the Company's business and technology. Representatives of Parent
presented an overview of Parent's diagnostic imaging business and indicated that
there could be benefits of a combination of the diagnostic imaging businesses of
both companies. During the course of the meeting, Parent's representatives and
Mr. Fill held preliminary discussions regarding valuation and other material
issues concerning a potential acquisition of the Company.
Representatives of Parent stated that any discussions of a possible merger
would have to be facilitated by a due diligence investigation by Parent of the
Company's business. The parties agreed at this meeting to enter into an
exclusivity agreement whereby the Company would discuss the possibility of a
business combination only with Parent during the period from June 22 to July 17,
1998. This agreement was signed the following day.
From June 29 to July 2, 1998, the parties met in Bellevue, Washington to
conduct a due diligence exchange of information. Representatives of Parent and
Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch"), financial
advisor to Parent, led by Mr. Jan van Leeuwen of Royal Philips' mergers and
acquisitions department, met with representatives of the Company, led by Mr.
Fill and including a representative of BT Alex. Brown Incorporated ("BT Alex.
Brown"), financial advisor to the Company. At the conclusion of these meetings,
Parent's representatives announced that they would review the results of the
meetings before proceeding with any further discussions.
On July 8, 1998, Messrs. Fill and Hommen spoke by telephone regarding the
potential valuation of an acquisition of the Company. A few days after such
discussion, Mr. Hommen stated that a further round of due diligence
investigation by Parent was necessary. Mr. Fill said that the Company would
participate with Parent in further due diligence review in meetings on July 15
to July 17 in Seattle, Washington, in which representatives of Parent, led by
Mr. van Leeuwen, and representatives of Merrill Lynch met with the
representatives of the Company who participated in the previous due diligence
meetings. Messrs. Fill and Hommen met in New York City on July 17 and discussed
a number of issues posed by a possible acquisition of the Company. Messrs. Fill
and Hommen agreed to continue these discussions the following week after all
parties gave further consideration to the issues.
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On July 20 through July 27, 1998, representatives of the parties and their
financial and legal advisors further discussed valuation and other issues and,
during the same period, the parties' legal advisors negotiated the terms of the
draft Merger Agreement and the employment agreements with the Senior Officers
and the parties engaged in further due diligence exchanges.
At a meeting held on the morning of July 28, 1998, in Seattle, Washington,
the Board of Directors of the Company met to consider the terms of the proposed
acquisition. At such meeting, the Board of Directors reviewed and discussed the
latest terms of the proposed acquisition and received reports from and asked
questions of its management and legal and financial advisors. During that
afternoon, Messrs. Fill and Hommen further negotiated, and ultimately agreed
upon, a price per Share of $50.50 for the Offer and the Merger and
representatives of the parties and their legal advisors negotiated and agreed
upon the other terms of the Merger Agreement and the employment agreements with
the Senior Officers. The Board of Directors of the Company met again late in the
afternoon of July 28, at which time the advisors described the final terms of
the proposed acquisition, the Board received an oral opinion (which opinion was
subsequently confirmed by delivery of a written opinion dated July 29, 1998, the
date of execution of the Merger Agreement) from BT Alex. Brown as to the
fairness, from a financial point of view, of the $50.50 per Share cash
consideration to the holders of Shares (other than Parent and its affiliates)
and unanimously voted to adopt the Merger Agreement, to approve the terms of the
Offer and the Merger and to recommend to holders of Shares that they tender
their Shares pursuant to the Offer. The Merger Agreement and the employment
agreements with the Senior Officers were executed and delivered by the parties
and the acquisition was publicly announced in press releases issued on the
morning of July 29, 1998, prior to the opening of the New York stock markets.
(2) REASONS FOR RECOMMENDATION.
In making the determinations and recommendations set forth in subparagraph
(a) above, the Board considered a number of factors, including, without
limitation, the following:
(i) the amount of consideration to be received by the Company's
shareholders in the Offer and the Merger;
(ii) the Company's prospects if it were to remain independent, including
the risks and benefits inherent in remaining independent, including the risk
that the medical imaging device industry may become increasingly competitive
with the entry of larger companies offering a full range of medical imaging
devices, and the potential competitive advantages to the Company of offering
products only in the portions of the industry in which it has a
technological advantage;
(iii) the possible alternatives to the Offer and the Merger (including
the possibility of continuing to operate the Company as an independent
entity), the range of possible benefits to the Company's shareholders of
such alternatives and the timing and likelihood of accomplishing the goal of
any of such alternatives;
(iv) information with regard to the financial condition, results of
operations, business and prospects of the Company, the regulatory approvals
required to consummate the Offer and the Merger as well as current economic
and market conditions (including current conditions in the industry in which
the Company is engaged);
(v) the historical and recent market prices of the Shares and the fact
that the Offer and the Merger will enable the holders of the Shares to
realize a significant premium over the prices at which the Shares traded
prior to the execution of the Merger Agreement;
(vi) the financial analysis and presentation of BT Alex. Brown to the
Board on July 28, 1998, and the oral opinion of BT Alex. Brown (which
opinion was subsequently confirmed by delivery of a written opinion dated
July 29, 1998, the date of execution of the Merger Agreement) to the effect
that, as of the date of such opinion and based upon and subject to certain
matters stated in such
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opinion, the $50.50 per Share cash consideration to be received by holders
of Shares (other than Parent and its affiliates) in the Offer and the Merger
was fair, from a financial point of view, to such holders. The full text of
BT Alex. Brown's written opinion dated July 29, 1998, which sets forth the
assumptions made, matters considered and limitations on the review
undertaken by BT Alex. Brown, is attached hereto as Exhibit B and is
incorporated herein by reference. BT Alex. Brown's opinion is directed only
to the fairness, from a financial point of view, of the cash consideration
to be received in the Offer and the Merger by holders of Shares (other than
Philips and its affiliates) and is not intended to constitute, and does not
constitute, a recommendation as to whether any shareholder should tender
Shares pursuant to the Offer. Holders of Shares are urged to read such
opinion carefully in its entirety;
(vii) the high likelihood that the proposed acquisition would be
consummated, in light of the experience, reputation and financial
capabilities of Parent, and that the proposed acquisition would be
consummated more quickly than a cash merger; and
(viii) the terms of the Merger Agreement, including the parties'
representations, warranties and covenants and the conditions to their
respective obligations.
The Board did not assign relative weights to the above factors or determine
that any factor was of particular importance. Rather, the Board viewed its
position and recommendations as being based on the totality of the information
presented to and considered by it. In addition, it is possible that different
members of the Board assigned different weights to the various factors described
above.
ITEM 5. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED.
The Company has retained BT Alex. Brown as its financial advisor in
connection with the Offer and the Merger. Pursuant to the terms of BT Alex.
Brown's engagement, the Company has agreed to pay BT Alex. Brown for its
services an aggregate financial advisory fee equal to 1 percent of the total
consideration (including liabilities assumed) payable in connection with the
Offer and the Merger. The Company also has agreed to reimburse BT Alex. Brown
for reasonable out-of-pocket expenses, including fees and disbursements of
counsel, and to indemnify BT Alex. Brown and certain related parties against
certain liabilities, including liabilities under the federal securities laws,
arising out of BT Alex. Brown's engagement. BT Alex. Brown has in the past
provided investment banking services to the Company unrelated to the Offer and
the Merger, for which services BT Alex. Brown has received compensation. In the
ordinary course of business, BT Alex. Brown and its affiliates may actively
trade or hold the securities of the Company, Parent and Royal Philips for their
own account and those of their customers and, accordingly, may at any time hold
a long or short position in such securities.
Neither the Company nor any person acting on its behalf currently intends to
employ, retain or compensate any person to make solicitations or recommendations
to shareholders on its behalf concerning the Offer.
ITEM 6. RECENT TRANSACTIONS AND INTENT WITH RESPECT TO SECURITIES.
(a) During the past 60 days, neither the Company nor any subsidiary of the
Company nor, to the best of the Company's knowledge, any executive officer,
director or affiliate of the Company has effected a transaction in Shares.
(b) To the best of the Company's knowledge, its executive officers,
directors and affiliates currently intend to tender their Shares to Merger Sub
pursuant to the Offer.
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ITEM 7. CERTAIN NEGOTIATIONS AND TRANSACTIONS BY THE SUBJECT
COMPANY.
(a) Other than as set forth in Item 3(b) or 4, no negotiation is being
undertaken or is underway by the Company in response to the Offer which relates
to or would result in:
(1) an extraordinary transaction, such as a merger or reorganization,
involving the Company or any subsidiary of the Company;
(2) a purchase, sale or transfer of a material amount of assets by the
Company or any subsidiary of the Company;
(3) a tender offer for or other acquisition of securities by or of the
Company; or
(4) any material change in the present capitalization or dividend policy
of the Company.
(b) Except as described above or in Item 3(b) of this Schedule 14D-9, there
are no transactions, board resolutions, agreements in principle or signed
contracts in response to the Offer which relate to or would result in one or
more of the matters referred to in Item 7(a).
ITEM 8. ADDITIONAL INFORMATION TO BE FURNISHED.
Reference is hereby made to the Offer to Purchase and the related Letter of
Transmittal which are attached as Exhibits (a) (1) and (a) (2), respectively,
and are incorporated herein by reference in their entirety.
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ITEM 9. MATERIALS TO BE FILED AS EXHIBITS.
*+(a)(1) Offer to Purchase dated August 4, 1998.
*+(a)(2) Letter of Transmittal.
(a)(3) Text of press release issued by the Company dated July 29, 1998.
* (a)(4) Letter to shareholders of the Company dated August 4, 1998.
+ (a)(5) Form of Summary Advertisement dated August 4, 1998.
* (a)(6) Opinion of BT Alex. Brown Incorporated.
(b) Not applicable.
+ (c)(1) Agreement and Plan of Merger dated as of July 29, 1998.
(c)(2) Employment Agreement of Mr. Fill dated as of July 29, 1998.
(c)(3) Employment Agreement of Mr. Diaz dated as of July 29, 1998.
(c)(4) Employment Agreement of Mr. Blem dated as of July 29, 1998.
(c)(5) Employment Agreement of Mr. Souquet dated as of July 29, 1998.
(c)(6) Employment Agreement of Ms. Dunlap dated as of July 29, 1998.
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* Included in materials delivered to shareholders of the Company.
+ Filed as an exhibit to the Merger Sub's Tender Offer Statement on Schedule
14D-1 dated August 4, 1998, and incorporated herein by reference.
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SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
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ATL ULTRASOUND, INC.
By: /s/ DENNIS C. FILL
-----------------------------------------
Name: Dennis C. Fill
Title: Chairman and Chief
Executive Officer
</TABLE>
Dated as of August 4, 1998
10
<PAGE>
ANNEX A
ATL ULTRASOUND, INC.
22100 BOTHELL EVERETT HIGHWAY
P.O. BOX 3003
BOTHELL, WASHINGTON 98041-3003
INFORMATION STATEMENT PURSUANT TO
SECTION 14(F) OF THE SECURITIES
EXCHANGE ACT OF 1934, AS AMENDED, AND RULE 14F-1 THEREUNDER
------------------------
NO VOTE OR OTHER ACTION OF THE COMPANY'S SHAREHOLDERS IS REQUIRED IN
CONNECTION WITH THIS INFORMATION STATEMENT. NO PROXIES ARE BEING
SOLICITED AND YOU ARE REQUESTED NOT TO SEND THE COMPANY A PROXY.
------------------------
This Information Statement is being mailed on or about August 4, 1998, as a
part of the Solicitation/ Recommendation Statement on Schedule 14D-9 (the
"Schedule 14D-9") of ATL Ultrasound, Inc. (the "Company") to the holders of
record of shares of Common Stock, par value $0.01 per share (including the
associated rights to purchase Series A Participating Cumulative Preferred Stock,
the "Shares"), of the Company. You are receiving this Information Statement in
connection with the possible election of persons designated by Merger Sub (as
defined below) to a majority of the seats on the Board of Directors of the
Company (the "Board"). Capitalized terms used herein and not otherwise defined
herein shall have the meaning set forth in the Schedule 14D-9.
On July 29, 1998, the Company, Philips Electronics North America
Corporation, a Delaware corporation ("Parent"), and Philips Acquisition, Inc., a
Washington corporation and a wholly owned subsidiary of Parent ("Merger Sub"),
entered into an Agreement and Plan of Merger dated as of July 29, 1998 (the
"Merger Agreement"), in accordance with the terms and subject to the conditions
of which Merger Sub commenced the Offer. The Offer is scheduled to expire at
Midnight, New York City time, on Monday, August 31, 1998, unless the Offer is
extended.
The Merger Agreement requires the Company to cause the directors designated
by Parent to be elected to the Board under the circumstances described therein
following consummation of the Offer.
This Information Statement is required by Section 14(f) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and Rule 14f-1
thereunder. You are urged to read this Information Statement carefully. You are
not, however, required to take any action at this time.
The information contained in the Information Statement (including
information incorporated by reference) concerning Parent and Merger Sub and the
Parent Designees (as defined herein) has been furnished to the Company by Parent
and Merger Sub, and the Company assumes no responsibility for the accuracy or
completeness of such information.
GENERAL INFORMATION REGARDING THE COMPANY
The Shares are the only class of voting securities of the Company
outstanding. Each Share has one vote. As of July 3, 1998, there were 14,759,713
Shares outstanding. The Board currently consists of one class with eight
members. At each annual meeting of shareholders, all the directors are elected
for one-year terms. The officers of the Company serve at the discretion of the
Board.
INFORMATION WITH RESPECT TO PARENT DESIGNEES
Pursuant to the Merger Agreement, immediately following the acceptance for
payment of, and payment for, any Shares by Merger Sub pursuant to and subject to
the conditions (including the Minimum Condition, which condition may not be
waived by Merger Sub) of the Offer, the Company shall take all
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<PAGE>
necessary actions to cause such number of such persons designated by Parent to
become members of the Board (the "Parent Designees") as is at least equal to the
product of (x) the number of directors on the Board and (y) the percentage of
outstanding Shares accepted for payment and paid for plus Shares beneficially
owned by Parent or Parent's affiliates, subject to compliance with Section 14(f)
of the Exchange Act; PROVIDED, HOWEVER, that prior to the Effective Time the
Board shall always have at least three directors (the "Independent Directors")
who are neither officers of Parent nor designees, shareholders or affiliates of
Parent or Parent's affiliates ("Parent Insiders"); and, PROVIDED FURTHER that,
in such event, if the number of Independent Directors shall be reduced below
three for any reason whatsoever, any remaining Independent Directors (or
Independent Director, if there shall be only one remaining) shall be entitled to
designate persons to fill such vacancies who shall be deemed to be Independent
Directors for purposes of the Merger Agreement or, if no Independent Directors
then remain, the other directors of the Company shall designate three persons to
fill such vacancies who shall not be officers or affiliates of Parent or any of
its affiliates, and such persons shall be deemed to be Independent Directors for
purposes of the Merger Agreement.
Parent has informed the Company that it will choose the Parent Designees
from the persons listed below. Parent has informed the Company that each of the
Parent Designees has consented to act as a director, if so designated.
Biographical information concerning each of the Parent Designees is presented
below.
Unless otherwise indicated below, each occupation set forth opposite an
individual's name refers to employment with Parent.
<TABLE>
<CAPTION>
AGE; POSITION WITH PARENT OR AFFILIATE;
NAME AND BUSINESS ADDRESS 5-YEAR EMPLOYMENT HISTORY
- -------------------------------------------------------- --------------------------------------------------------
<S> <C>
J. M. Barella........................................... Age 55; Chairman and Chief Executive Officer of Philips
Philips Medical Systems Medical Systems since March 1997; senior member of
Veenpluis 4-6 management of Philips Medical Systems prior to March
5684 PC Best 1997.
The Netherlands
William E. Curran....................................... Age 49; Senior Vice President and Chief Financial
Philips Electronics North America Corporation Officer since February 1996; Vice President, Chief
1251 Avenue of the Americas Operating Officer and Chief Financial Officer of Philips
New York, NY 10020-1104 Medical Systems from February 1987 to February 1996.
Michael P. Moakley...................................... Age 62; President and Chief Executive Officer since
Philips Electronics North America Corporation April 1996; President and Chief Executive Officer of
1251 Avenue of the Americas Philips Medical Systems from January 1989 to April 1996.
New York, NY 10020-1104 Mr. Moakley beneficially owns 2,000 Shares.
W.J.R.J. Punte.......................................... Age 54; Chief Financial Officer of Philips Medical
Philips Medical Systems Systems since September 1996; Chief Financial Officer of
Veenpluis 4-6 Philips GmbH from August 1994 to September 1996; Chief
5684 PC Best Financial Officer of Polygram Germany GmbH from July
The Netherlands 1990 to August 1994.
Samuel J. Rozel......................................... Age 63; Senior Vice President, General Counsel,
Philips Electronics North America Corporation Secretary and Director since 1989.
1251 Avenue of the Americas
New York, NY 10020-1104
</TABLE>
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<PAGE>
Each such person is a citizen of the United States except Messrs. Barella
and Punte, who are citizens of The Netherlands. Parent has advised the Company
that each of the Parent Designees has consented to act as a director. Parent has
also advised the Company that none of the Parent Designees (i) has during the
last five years been convicted in a criminal proceeding (excluding traffic
violations and similar misdemeanors) or was a party to a civil proceeding of a
judicial or adminstrative body of competent jurisdiction and as a result of such
proceeding was, or is, subject to a judgement, decree or final order enjoining
future violations of, or prohibiting activities subject to, federal or state
securities laws or finding any violation of such laws, (ii) is currently a
director of, or holds any position with, the Company, (iii) beneficially owns
any securities (or rights to acquire any securities) of the Company with the
exception of Mr. Moakley, who beneficially owns 2,000 Shares purchased on
October 20, 1995, or (iv) has been involved in any transaction with the Company
or any of its directors, executive officers or affiliates which is required to
be disclosed pursuant to the rules and regulations of the Securities and
Exchange Commission (the "SEC"), except as may be disclosed herein or in the
Schedule 14D-9.
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
Biographical information concerning each of the Company's current directors
and executive officers as of July 31, 1998, is as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION(S)
- --------------------------------------------- --------- -----------------------------------------------------------
<S> <C> <C>
Dennis C. Fill............................... 69 Chairman and Chief Executive Officer
Kirby L. Cramer.............................. 61 Director
Harvey Feigenbaum............................ 64 Director
Eugene A. Larson............................. 55 Director
Ernest Mario................................. 60 Director
John R. Miller............................... 60 Director
Phillip M. Nudelman.......................... 62 Director
Harry Woolf.................................. 74 Director
Donald D. Blem............................... 54 Senior Vice President, Operations
Castor F. Diaz............................... 59 Senior Vice President, Worldwide Sales and Marketing
Pamela L. Dunlap............................. 38 Senior Vice President, Finance and Administration, and
Chief Financial Officer
Jacques Souquet.............................. 51 Senior Vice President, Product Generation
</TABLE>
DENNIS C. FILL. Mr. Fill has served as a director, Chairman and Chief
Executive Officer of the Company and as a member of the Executive Committee of
the Company since November 11, 1986. From 1978 through December 1986, he served
as a member of the board of directors of Squibb Corporation (the former parent
of the Company) and as its President and Chief Operating Officer. Mr. Fill was
also a member of the executive committee and the finance committee of the Squibb
Corporation board of directors. Mr. Fill attended Ealing College, the Institute
of Export and Borough Polytechnic. He also served in the Royal Air Force. Mr.
Fill is a member of the boards of directors of Beckman Coulter, Inc. and Morton
International, Inc.
KIRBY L. CRAMER. Mr. Cramer has served as a director since February 26,
1993. Mr. Cramer serves as Chairman of the Organization and Nominating Committee
and is a member of the Audit Committee and the Executive Committee. Mr. Cramer
is the Chairman Emeritus of Hazelton Laboratories Corporation, a
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contract biological and chemical research laboratory which was acquired by
Corning Incorporated in 1987. He is Chairman of the boards of Northwestern Trust
Company and SonoSight, Inc. and also President of Keystone Capital Company, an
investment company. Mr. Cramer received his Bachelor of Arts degree from
Northwestern University and Master of Business Administration degree from the
University of Washington and is a graduate of the Harvard Business School's
Advanced Management Program. In 1988 he received an honorary Doctor of Laws
degree from James Madison University. Mr. Cramer chairs the major gifts
committee of the University of Washington Foundation and is past Chairman of the
Advisory Board of the University of Washington School of Business
Administration. He is the past President and Trustee Emeritus of the Darden
School Foundation of the University of Virginia. Mr. Cramer is also a member of
the boards of directors of Immunex Corporation, Unilab Corporation, The Commerce
Bank of Washington, N.A., Landec Corporation and Pharmaceutical Product
Development, Inc.
HARVEY FEIGENBAUM, M.D. Dr. Feigenbaum has served as a director since
January 2, 1987. He is a member of the Organization and Nominating Committee and
the Executive Committee and is Chairman of the Scientific Advisory Board. Dr.
Feigenbaum has been a Distinguished Professor of Medicine at the Indiana
University Medical Center since 1980 and joined its faculty in 1962. He was
elected to Phi Beta Kappa and received a Bachelor's degree summa cum laude from
Indiana University in 1955, an M.D. from the Indiana School of Medicine in 1958,
and his Cardiovascular Subspecialty, American Board of Internal Medicine in
1969. Dr. Feigenbaum is a fellow of the American College of Physicians, the
American College of Cardiology, the Council on Clinical Cardiology of the
American Heart Association and the American Institute of Ultrasound in Medicine,
as well as a member of the Editorial Boards of the American Heart Journal, the
American Journal of Cardiology and the journal Circulation. He is the editor of
the Journal of the American Society of Echocardiography. Dr. Feigenbaum is a
director of Regentrief Foundation for Delivery of Healthcare and SpaceLabs
Medical, Inc.
EUGENE A. LARSON. Mr. Larson has served as a director and a member of the
Scientific Advisory Board since December 22, 1992, and is a member of the
Organization and Nominating Committee and the Executive Committee. Mr. Larson
previously served as a director and President of the Company from June 1988 to
January 1990. He has served as a consultant to the Company since January 1993.
From January 1991 to December 1992 he served as Executive Vice President of the
Company. Mr. Larson also served as a consultant to Westmark and the Company in
1987 and 1990 and as the Company's Vice President, Technology from February 1988
to June 1988. He was Professor of Entrepreneurship and Innovation, Department of
Engineering, Pennsylvania State University in 1986 and 1987. Mr. Larson was
founder and President of Echo Ultrasound, Inc., a manufacturer of medical
ultrasound devices, which was acquired by Johnson & Johnson in 1982. Previously,
he was founder and President of Aerotech Laboratories, a manufacturer of
industrial ultrasound electronics which was acquired by Smith Kline & French in
1970. He has served as a director of Geisinger Medical Center and president and
director of Lewistown Hospital. In 1988, he was awarded the Pioneer in
Ultrasound Award by the American Institute of Ultrasound in Medicine. Mr. Larson
is a member of the board of directors of Cytran Corporation.
ERNEST MARIO, PH.D. Dr. Mario has been a director since December 4, 1996,
and serves as Chairman of the Compensation Committee and is a member of the
Organization and Nominating Committee and the Audit Committee. He is chairman of
the board and chief executive officer of ALZA Corporation. Dr. Mario joined ALZA
in 1993. Prior to joining ALZA, Dr. Mario served as CEO of Glaxo Holdings p.l.c.
in London, England from 1989 and in 1992 was named to the additional position of
deputy chairman. Dr. Mario earned a bachelor of science degree in pharmacy at
Rutgers University and master's and doctorate degrees in physical sciences at
the University of Rhode Island. Dr. Mario is an adjunct professor of pharmacy at
the University of Rhode Island and holds honorary doctorate degrees from both
the University of Rhode Island and Rutgers. Dr. Mario is active in numerous
education and healthcare organizations, including chairman of the American
Foundation for Pharmaceutical Education and is a trustee of Duke and Rockefeller
Universities. He also serves on the boards of directors of Catalytica, Inc., Cor
Therapeutics Inc. and Pharmaceutical Product Development, Inc.
A-4
<PAGE>
JOHN R. MILLER. Mr. Miller has served as a director since July 16, 1993, and
is a member of the Compensation Committee. He is currently a senior advisor to
Chanen, Painter & Company, Ltd., an investment bank with offices in Seattle. Mr.
Miller is also a board member of the Discovery Institute and Chairman of
Discovery's Cascadia Project in Seattle. From 1985 to 1992, Mr. Miller served as
a U.S. Congressman for the First District of Washington State. While a member of
Congress, he served on the Budget Committee and the Foreign Affairs Committee,
including the Subcommittee on International Economic Policy and Trade and the
Subcommittee on International Operations. Mr. Miller is a member of Phi Beta
Kappa and received his Bachelor of Arts degree from Bucknell University and a
Doctor of Laws degree and Master of Economics degree from Yale University Law
and Graduate Schools, respectively. He is a member of the board of directors of
Sino Seattle Snack Foods and Coach Master International.
PHILLIP M. NUDELMAN, PH.D. Dr. Nudelman has served as a director since
October 28, 1994, and is Chairman of the Audit Committee. Dr. Nudelman is
currently Chairman and President of Kaiser Group Health. He has served as Chief
Executive Officer and President of Group Health Cooperative of Puget Sound from
February 1991 to August 1997. Dr. Nudelman joined Group Health in 1973 as
Director of Professional Services and has held positions of increasing
responsibility since then. He received his Bachelor of Science degree in
microbiology, zoology and pharmacy from the University of Washington and holds
Master of Business Administration and Doctor of Philosophy degrees in Health
Systems Management from Pacific Western University. Dr. Nudelman is a member of
the Board and Chair-elect of the American Association of Health Plans. Dr.
Nudelman is a member of the boards of directors of Cell Therapeutics, Inc.,
Intensiva, Inc. and SpaceLabs Medical, Inc. He also serves on the boards of
directors of Pacific Science Center, the Association of Washington Business, and
is Chair of the Woodland Park Zoological Society.
HARRY WOOLF, PH.D. Dr. Woolf has served as a director and a member of the
Compensation Committee since January 2, 1987. He has also served as Chairman and
a member of the Scientific Advisory Board since May 1, 1987. In 1987, Dr. Woolf
completed an 11-year appointment as the director of The Institute of Advanced
Study, Princeton, New Jersey, and is currently Professor Emeritus at the
Institute. Dr. Woolf received his Bachelor of Science and Master of Arts degrees
from the University of Chicago and his Doctor of Philosophy degree from Cornell
University. He has also received honorary doctorates from Whitman College,
American University, Johns Hopkins University and St. Lawrence University. Dr.
Woolf has been honored by election to the Academie Internationale d'Histoire des
Sciences, American Philosophical Society, Sigma Xi, Phi Beta Kappa and American
Academy of Arts and Sciences. He was a trustee of the Rockefeller Foundation
(1984-1994) and of Reed College (1992-1997). Dr. Woolf was a member of the board
of directors of Alex. Brown Mutual Funds until December 31, 1996, and now serves
as President of the BT Alex. Brown Flag Funds. He is a member of the board of
directors of Research America. He is also a director of the Johns Hopkins
Program for International Education on Gynecology and Obstetrics and Family
Health International.
EXECUTIVE OFFICERS OF THE COMPANY
DONALD D. BLEM. Mr. Blem has served as Senior Vice President, Operations
since October, 1993. He served as Vice President, Operations from February 1988
to October 1993.
CASTOR F. DIAZ. Mr. Diaz has served as Senior Vice President, Worldwide
Sales and Marketing, since February 1995 and as Senior Vice President, ATL
Europe from October 1988 to February 1995. He also held various sales and
marketing positions with the Company from May 1987 to October 1988.
PAMELA L. DUNLAP. Ms. Dunlap has served as Senior Vice President, Finance
and Administration, and Chief Financial Officer since February 1998. She served
as Vice President and Treasurer from May 1996 to February 1998 and as Treasurer
from August 1995 to May 1996. From 1992 until August 1995, Ms. Dunlap served as
Assistant Treasurer. Prior to that time, she held various financial and
administrative positions since joining the Company in March 1987. Prior to
joining the Company, Ms. Dunlap was an auditor with Arthur Anderson and Company.
A-5
<PAGE>
JACQUES SOUQUET, PH.D. Dr. Souquet has served as Senior Vice President,
Product Generation since October 1993. He served as Vice President, Product
Generation from October 1992 to October 1993, as Vice President, Strategic
Marketing and Product Planning from July 1990 to October 1992 and as Director of
Strategic Marketing and Product Planning from March 1989 to June 1990.
All officers serve at the discretion of the Board. There are no family
relationships between directors or executive officers of the Company.
BOARD MEETINGS AND COMMITTEES
The Board held a total of four meetings during the fiscal year ended
December 31, 1997. The Audit Committee held four meetings, the Board Affairs
Committee held three meetings, the Compensation Committee held four meetings,
the Executive Committee held one meeting and the Organization and Nominating
Committee held no meetings during the fiscal year ended December 31, 1997. Each
director attended at least 75 percent of Board and, where applicable, committee
meetings held during fiscal 1997.
Messrs. Cramer, Mario and Nudelman currently serve on the Audit Committee.
The purpose of the Audit Committee is to review the accounting principles,
internal accounting controls, audit plan and financial results of the Company in
order to safeguard its assets and to provide for the reliability of its
financial records.
Messrs. Mario, Miller and Woolf currently serve on the Compensation
Committee. The purpose of the Compensation Committee is to establish salaries,
incentives and other forms of compensation for directors, officers and other
executives of the Company and its subsidiaries. This Committee also administers
the Company's various incentive compensation and benefit plans and establishes
policies relating to these plans.
Messrs. Cramer, Feigenbaum, Larson and Mario currently serve on the
Organization and Nominating Committee. The Organization and Nominating Committee
has authority to set policy regarding the organization of the Board and its
committees and to recommend changes to the By-laws of the Company (the
"By-laws") pertaining to such matters. This Committee also identifies and
nominates new individuals to serve on the Board. The Organization and Nominating
Committee will consider nominations of director candidates submitted by
shareholders in accordance with the By-laws, which require shareholders
submitting nominations to provide certain information regarding such nomination
at least 90 days before the shareholders annual meeting and, in certain
instances, within 10 days after the date the shareholders annual meeting is
announced.
Messrs. Cramer, Feigenbaum, Fill and Larson currently serve on the Executive
Committee. The Executive Committee has authority, subject to limitations
prescribed by the Board, to exercise the powers of the full Board during the
intervals between meetings of the Board. The Executive Committee is also
available on a standby basis for use in an emergency or when scheduling makes it
impractical to bring the full Board together for a meeting.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
In 1997, Dr. Woolf received $50,000 in his capacity as Chairman of the
Scientific Advisory Board. Further, each member of the Compensation Committee
received, in his capacity as a director, stock option grants pursuant to the
"Nonemployee Directors Stock Option Plan" described below. There are otherwise
no interlocks between the Board and the boards of directors of other companies.
COMPENSATION OF DIRECTORS
During fiscal 1997, directors who were employees of the Company did not
receive any fee for their services as directors. Directors who were not
employees of the Company were paid an annual retainer of $30,000 and received an
additional fee of $500 for attendance at each meeting of the Board plus $500 for
attendance at each committee meeting. A nonemployee director serving as a
committee chairman received an additional $1,000 per annum. Directors who were
not employees of the Company also received stock options granted pursuant to the
"Amended Nonemployee Directors Stock Option Plan" described below.
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EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth information concerning compensation for
fiscal 1997, 1996 and 1995 for services in all capacities to the Company and its
subsidiaries by persons who, as of December 31, 1997, were the Chief Executive
Officer and four most highly compensated executive officers of the Company other
than the Chief Executive Officer (collectively, the "Senior Officers").
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
----------------------
PAYOUT
----------- AWARDS
ANNUAL COMPENSATION RESTRICTED ---------
------------------------------- STOCK LTIP ALL OTHER
SALARY BONUS(1) AWARDS(2) PAYOUTS COMPENSATION(3)
NAME AND PRINCIPAL POSITION YEAR ($) ($) ($) ($) ($)
- ------------------------------------------------- --------- --------- --------- ----------- --------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Dennis C. Fill................................... 1997 605,769 300,000 433,380 164,375 14,902
Chairman and Chief 1996 547,019 500,000 320,000 0 13,965
Executive Officer 1995 481,730 500,000 0 0 9,240
Harvey N. Gillis(4).............................. 1997 262,115 90,000 463,380(4) 55,650 6,154
Senior Vice President and Chief 1996 247,308 150,000 331,313 0 5,993
Financial Officer 1995 233,800 145,000 0 0 9,000
Castor F. Diaz................................... 1997 262,115 84,000 0 55,650 7,517
Senior Vice President, 1996 250,000 140,000 331,313 0 6,430
Worldwide Sales and Marketing 1995 251,014 100,000 78,075 0 52,425(5)
Donald D. Blem................................... 1997 226,153 84,000 180,575 48,300 6,154
Senior Vice President, 1996 207,115 140,000 331,313 0 4,733
Operations 1995 192,000 130,000 0 0 6,030
Jacques Souquet.................................. 1997 234,231 84,000 288,920 50,400 4,966
Senior Vice President, 1996 207,115 140,000 395,313 0 5,031
Product Generation 1995 185,846 130,000 0 0 9,240
</TABLE>
- ------------------------
(1) Includes bonuses earned during the fiscal year under the Company's
Management Incentive Compensation Plan.
(2) Restricted stock awards generally have a vesting period of four years with
25 percent of the award amount vesting each year on the anniversary date of
the award. The rights of a restricted shareholder include the right to
receive any dividends or other distributions made or paid with respect to
such shares. The amounts reported in this table represent the market value
of the shares at the date of grant based upon the fair market value of the
Shares reported on the Nasdaq National Market on such date. At December 31,
1997, Messrs. Fill, Gillis, Diaz, Blem and Souquet held 69,500, 21,750
(10,250 of which were canceled upon his resignation as of February 27,
1998), 8,500, 14,750 and 19,250 shares of restricted stock, respectively,
having a market value of $3,200,648, $1,001,641, $391,446, $679,274 and
$886,510, respectively, based on the market price of the Shares reported on
the Nasdaq National Market System on December 31, 1997.
(3) Includes both group term life and employer-matching contributions made to
the ISSOP/401(k) Plan.
(4) Mr. Gillis resigned from his position with the Company as of February 27,
1998. 10,250 shares of the 12,000 restricted shares granted to Mr. Gillis in
1997 were subsequently canceled, due to his resignation. The position of
Senior Vice President, Finance and Administration, and Chief Financial
Officer is now held by Ms. Dunlap.
(5) Includes $18,084 in expatriate benefits and $7,755 and $17,326 in automobile
and housing allowance, respectively. In 1995 Mr. Diaz returned from overseas
assignment in Germany.
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RETIREMENT PLAN
The Company's Retirement Plan (the "Retirement Plan") was amended effective
January 1, 1995, and provides that upon retirement a participant will receive a
monthly benefit equal to one percent of the participant's final average monthly
earnings multiplied by the participant's years of credited service with the
Company. The executive officers participate in the same manner as other eligible
employees in the Retirement Plan, which pays to vested employees the estimated
maximum annual retirement benefits at age 65. A participant is vested upon the
completion of five years of service. Benefits are also provided to a
participant's surviving spouse in the event of the participant's death prior to
retirement.
The following table shows the estimated annual benefits of an employee,
assuming annual benefits to an employee for retirement on January 1, 1998, at
age 65 after selected periods of service under the Retirement Plan and including
amounts to be paid pursuant to the ATL Supplemental Benefit Plan (the
"Supplemental Plan"), if applicable.
<TABLE>
<CAPTION>
ANNUAL RETIREMENT BENEFIT FOR CREDITABLE SERVICE ($)
------------------------------------------------------------------
AVERAGE ANNUAL EARNINGS ($) 5 YEARS 10 YEARS 15 YEARS 20 YEARS 25 YEARS 30 YEARS
- -------------------------------------------------- --------- ----------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
100,000........................................... 5,000 10,000 15,000 20,000 25,000 30,000
200,000........................................... 10,000 20,000 30,000 40,000 50,000 60,000
300,000........................................... 15,000 30,000 45,000 60,000 75,000 90,000
400,000........................................... 20,000 40,000 60,000 80,000 100,000 120,000
500,000........................................... 25,000 50,000 75,000 100,000 125,000 150,000
600,000........................................... 30,000 60,000 90,000 120,000 150,000 180,000
700,000........................................... 35,000 70,000 105,000 140,000 175,000 210,000
800,000........................................... 40,000 80,000 120,000 160,000 200,000 240,000
</TABLE>
Amounts shown in the above table will be reduced by the actuarial equivalent
value of amounts distributed from the Discretionary Contribution Plan, which was
terminated in 1989, but in no event will such amounts be less than zero.
Retirement benefits are not offset for Social Security benefits. The Employee
Retirement Income Security Act of 1974 and the Internal Revenue Code of 1986, as
amended (the "Code") generally limit the amount of annual pension which may be
paid from a federal income tax qualified plan to varying amounts (currently
$130,000) and the annual earnings which may be taken into account for purposes
of calculation of benefits under a federal income tax qualified plan (currently
$160,000). The actual amounts paid under the Retirement Plan will be limited to
comply with such legislation.
As of December 31, 1997, the number of years of creditable service under the
Retirement Plan for Messrs. Fill, Gillis, Diaz, Souquet and Blem were
approximately 11, 5, 10, 8 and 9, respectively. The 1997 earnings for purposes
of calculation of benefits under this Retirement Plan for Messrs. Fill, Gillis,
Diaz, Souquet and Blem are $918,269, $394,615, $394,615, $354,231 and $341,154,
respectively. Subject to the limitations imposed by the Code, as stated above,
1997 annual earnings in excess of $160,000 shall be disregarded.
The Supplemental Plan is an unfunded plan, not qualified for federal income
tax purposes, that covers any employee whose benefit under the Retirement Plan
is limited by certain provisions of the Code. Based on earnings as defined in
the Retirement Plan, Messrs. Fill, Gillis, Diaz, Souquet and Blem would be
eligible for benefits under the Supplemental Plan.
LONG TERM INCENTIVE PLAN
The Long Term Incentive Plan (the "LTIP") was designed to provide cash
awards based on the increase in the average of earnings per share over three
years. In 1997, participants each received a payout of approximately 25 percent
of his or her annual salary as an award based upon objectives of corporate
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performance set by the Compensation Committee in 1995. The amount of
compensation actually paid under this plan is variable because it is tied
directly to achievement of increased corporate earnings.
The following table sets forth certain information regarding the Company's
LTIP awards granted through December 31, 1997, to the Senior Officers.
AWARDS UNDER THE LONG TERM INCENTIVE PLAN FOR FISCAL YEAR 1997(1)
<TABLE>
<CAPTION>
NUMBER ESTIMATED FUTURE PAYOUTS
OF PERFORMANCE OR UNDER NONSTOCK PRICE BASED
SHARES, OTHER PERIOD PLANS(2)(3)
UNITS UNDER ---------------------------------------
OR OTHER MATURATION THRESHOLD TARGET MAXIMUM
NAME RIGHTS OR PAYOUT ($) ($) ($)
- --------------------------------------------------- ----------- --------------- --------------- --------- -----------
<S> <C> <C> <C> <C> <C>
Dennis C. Fill..................................... -- 1997-1999 0 156,250 437,500
Harvey N. Gillis (4)............................... -- 1997-1999 0 66,250 185,500
Castor F. Diaz..................................... -- 1997-1999 0 66,250 185,500
Donald D. Blem..................................... -- 1997-1999 0 57,500 161,000
Jacques Souquet.................................... -- 1997-1999 0 60,000 168,000
</TABLE>
- ------------------------
(1) Similar awards granted in 1993 and 1994 had no value at maturity at the end
of 1995 and 1996, respectively. Awards granted in 1995 had payouts as shown
in the Summary Compensation Table. The prospects for awards granted in 1996
remain unknown.
(2) No payouts will be made to the end of the maturation period on December 31,
1999.
(3) Awards are payable in cash and are determined as a percentage (from zero to
70) of a recipient's base salary. In 1997, the base salaries of Messrs.
Fill, Gillis, Diaz, Blem and Souquet were $625,000, $265,000, $265,000
$230,000 and $240,000, respectively.
(4) Mr. Gillis resigned from his position with the Company as of February 27,
1998.
STOCK PLANS
The following is a brief summary of the Company's stock plans in effect
during fiscal 1997, under which executive officers and directors of the Company
received benefits. These are the Amended 1992 Option, Stock Appreciation Right,
Restricted Stock, Stock Grant and Performance Unit Plan, the 1992 Nonofficer
Employee Stock Plan and the Amended Nonemployee Directors Stock Option Plan
(collectively, the "Stock Plans"). The closing sale price per Share on August 3,
1998, as reported by the Nasdaq National Market System, was $50.13.
AMENDED 1992 OPTION, STOCK APPRECIATION RIGHT, RESTRICTED STOCK, STOCK GRANT AND
PERFORMANCE UNIT PLAN
There are 1,700,000 Shares reserved for issuance upon exercise of stock
options and restricted and unrestricted shares as of December 31, 1997, under
the Amended 1992 Option, Stock Appreciation Right, Restricted Stock, Stock Grant
and Performance Unit Plan (the "Option Plan"). The Option Plan permits the grant
of both "Incentive Stock Options" (within the meaning of Section 422 of the
Code) and stock options that do not qualify as such (such options, "Nonstatutory
Options") to employees and officers of, and consultants to, the Company.
Further, Nonstatutory Options may under certain circumstances be redeemed for an
amount in cash or Shares (or a combination thereof) equal to the appreciated
value of the Shares underlying the options.
The Option Plan is administered by a committee appointed by the Board and
comprised of members of the Board. The committee determines, subject to the
express provisions of the Option Plan, the terms
A-9
<PAGE>
and provisions of restricted stock performance unit, stock appreciation right
and option agreements. The exercise price of all options under the Option Plan
must be at least equal to the fair market value of such shares on the date of
grant, and the maximum term of each option is 10 years. The committee in its
sole discretion may provide that an option holder's options immediately vest in
the event that his or her services have been terminated.
1992 NONOFFICER EMPLOYEE STOCK PLAN
There are 520,000 Shares reserved for either issuance of restricted stock or
upon exercise of options granted pursuant to the 1992 Nonofficer Employee Stock
Plan (the "NESP"). The NESP permits the granting only of options that do not
qualify as Incentive Stock Options. Only employees who are not directors or
officers at the time such securities are awarded are eligible to participate in
the NESP.
The NESP is administered by a committee appointed by the Board and comprised
of members of the Board. The committee determines, subject to the express
provisions of the NESP, to whom, when and in what amount restricted stock or
options shall be granted. The exercise price of options under the NESP must be
at least equal to the average fair market value of such shares over any
continuous period of trading days within 30 days of grant, and the maximum term
of each option is 10 years.
AMENDED NONEMPLOYEE DIRECTORS STOCK OPTION PLAN
A total of 105,000 Shares are reserved for issuance under the Company's
Amended Nonemployee Directors Stock Option Plan (the "Nonemployee Directors
Plan"). This plan is administered by the Board. Only nonemployee directors are
eligible to participate in the Nonemployee Directors Plan, and they
automatically receive an option to purchase 5,000 Shares on July 1 of each year
that the director serves. Options under the Nonemployee Directors Plan vest on
July 1 of the year following the year in which they were granted and expire five
years after the date upon which they were granted; PROVIDED that all outstanding
options under the Nonemployee Directors Plan will vest immediately following
consummation of the Offer. The exercise price of an option granted under the
Nonemployee Directors Plan is the average of the high and low sales prices of
the Shares as reported on the Nasdaq National Market System on the date the
option is granted.
The following table summarizes activity under the Stock Plans as of December
31, 1997:
ACTIVITY UNDER THE STOCK PLANS AS OF DECEMBER 31, 1997
<TABLE>
<CAPTION>
NUMBER OF
SHARES
----------
<S> <C>
Reserved Under the Stock Plans................................................... 3,320,000
Outstanding Options at a Weighted Average Exercise Price of $23.44 per Share..... 1,847,000
Available for Grant of Future Options............................................ 108,300
</TABLE>
OPTION/SAR GRANTS IN FISCAL 1997
No option or SAR grants were made to the Senior Officers during fiscal 1997.
A-10
<PAGE>
AGGREGATE OPTION EXERCISES IN FISCAL 1997
AND OPTION VALUES AS OF DECEMBER 31, 1997
The following table sets forth certain information regarding options for the
purchase of Shares that were exercised or held by the Senior Officers during
fiscal 1997.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
SHARES OPTIONS AT DECEMBER 31, OPTIONS AT
ACQUIRED VALUE 1997 DECEMBER 31, 1997($)(1)
ON EXERCISE REALIZED -------------------------- -------------------------
NAME (#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- -------------------------------------- ----------- ---------- ----------- ------------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
Dennis C. Fill........................ -- -- 257,500 37,500 7,604,243 532,968
Harvey N. Gillis(2)................... 48,000 1,026,984 6,750 10,250 177,421 226,640
Castor F. Diaz........................ 19,000 429,094 28,000 27,250 810,625 735,265
Donald D. Blem........................ 10,000 229,718 1,750 17,500 24,609 440,718
Jacques Souquet....................... 8,500 250,750 25,500 20,500 712,843 460,656
</TABLE>
- ------------------------
(1) This amount is the aggregate number of the outstanding options multiplied by
the difference between the closing sale price on December 31, 1997, as
reported on the Nasdaq National Market System, and the exercise price of
such options.
(2) Mr. Gillis resigned from his position with the Company as of February 27,
1998.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership, as of July 31, 1998, of the Shares as to (i) each director, (ii) each
of the Senior Officers listed in the Summary Compensation Table above, (iii) all
executive officers and directors as a group and (iv) each person known by the
Company to be the beneficial owner of five percent or more of the outstanding
Shares.
<TABLE>
<CAPTION>
NUMBER OF SHARES
BENEFICIALLY OWNED
DIRECTORS, EXECUTIVE OFFICERS AND FIVE PERCENT SHAREHOLDERS (1) (2) PERCENTAGE
- ------------------------------------------------------------------------------- -------------------- -------------
<S> <C> <C>
Chancellor LGT Asset Management, Inc........................................... 1,388,400(3) 9.4
Fifty California Street, 27th Floor
San Francisco, CA 94111
ICM Asset Management, Inc...................................................... 1,301,834(4) 8.8
601 W. Main Avenue, Suite 600
Spokane, WA 99201
Kopp Investment Advisors, Inc.................................................. 943,600(5) 6.3
6600 France Avenue So.
Edina, MN 55435
Wellington Management Company.................................................. 731,950(6) 4.95
75 State Street
Boston, MA 02109
Donald D. Blem................................................................. 19,846(7) *
Kirby L. Cramer................................................................ 29,483 *
Castor F. Diaz................................................................. 47,582(7) *
Harvey Feigenbaum.............................................................. 15,889(8) *
Dennis C. Fill................................................................. 415,726(7) 2.8
Harvey N. Gillis............................................................... 697 *
Eugene A. Larson............................................................... 15,113 *
Ernest Mario................................................................... 5,142 *
John R. Miller................................................................. 17,268 *
Phillip M. Nudelman............................................................ 10,384 *
Jacques Souquet................................................................ 60,914(7) *
Harry Woolf.................................................................... 21,454 *
All Directors and Senior Officers as a Group (12 Persons)...................... 659,498(2)(7) 4.5
</TABLE>
A-11
<PAGE>
- ------------------------
* Under one percent.
(1) The persons named in the table, to the Company's knowledge, have sole voting
and investment power with respect to all Shares shown as beneficially owned
by them, subject to community property laws where applicable and the
information contained in the footnotes hereunder.
(2) Includes director and Senior Officer stock options exercisable within 60
days of July 31, 1998.
(3) A wholly owned subsidiary of LGT Asset Management, Inc., along with its
wholly owned subsidiary Chancellor LGT Trust Company, with sole power to
vote and dispose of 1,388,400 Shares, based upon publicly available
information reported as of December 31, 1997.
(4) Sole power to vote 983,719 Shares and sole power to dispose of 1,301,834
Shares, based upon publicly available information reported as of December
31, 1997.
(5) Sole power to vote 138,500 Shares, sole power to dispose of 105,000 Shares
and shared power to dispose of 838,600 Shares based upon publicly available
information reported as of December 31, 1997.
(6) Shared power to vote 48,650 Shares and shared power to dispose of 731,950
Shares, based upon publicly available information reported as of December
31, 1997.
(7) Includes Shares held by the Trustee of the Company's Incentive Savings and
Stock Ownership Plan (the "ISSOP/401(k)") for each such Senior Officer
and/or director who is a participant in the ISSOP/401(k). Does not include
Shares purchased by the trustee of the ISSOP/401(k) after December 31, 1997,
which Shares have not yet been allocated by such trustee to the accounts of
participants in the ISSOP/401(k).
(8) Includes 163 Shares owned by Dr. Feigenbaum's wife. Dr. Feigenbaum disclaims
beneficial ownership as to all such Shares.
The closing sale price per Share on August 3, 1998, as reported by the
NASDAQ National Market System, was $50.13.
CHIEF EXECUTIVE OFFICER COMPENSATION
Mr. Fill received a restricted stock award for 12,000 Shares in 1997. Mr.
Fill's restricted stock award vests at retirement. In 1997, the Compensation
Committee, upon the advice of an outside compensation consultant, amended Mr.
Fill's employment agreement by resetting the terms of his post-retirement
consulting agreement in consideration of the delayed start of such agreement and
provided an opportunity for Mr. Fill to earn up to 25,000 Shares of restricted
stock, vesting upon retirement, if certain key objectives were achieved by the
Company over the next few years. In May 1997, the Compensation Committee set Mr.
Fill's salary at $625,000 in consideration of the continued progress of the
Company toward its key objective of return on equity. Mr. Fill received a 1997
bonus of $300,000 in consideration of the Company's near record level revenue
and earnings performance for 1997, which was 60 percent of the bonus received by
Mr. Fill for 1996. Mr. Fill also received a LTIP payment of $164,375 for the
Company's performance during the period 1995-97 in accordance with the criteria
set out by the Compensation Committee in 1995 for this award cycle.
EMPLOYMENT AGREEMENTS AND CHANGE IN CONTROL ARRANGEMENTS
The Company has entered into an employment agreement with Mr. Fill that
provides for him to serve the Company until retirement in the capacity of Chief
Executive Officer at a base salary of $625,000. Thereafter, Mr. Fill will serve
as a consultant to the Company for five years with compensation of $500,000 per
year. Mr. Fill has also agreed to certain noncompetition provisions. This
employment agreement will be superceded at the Effective Time by the Fill
Agreement described in Item 3 to the Schedule 14D-9.
A-12
<PAGE>
Each of the Senior Officers has entered into an employment agreement that
provides for continued employment for three years after a "Change in Control"
(as defined in such agreements) upon terms equivalent to those immediately prior
to such Change in Control. A lump sum payment equal to three years of salary and
bonus is immediately triggered if, following a Change in Control, employment is
terminated (i) by the employee for good cause or during the six month window
period one year after the Change in Control or (ii) by the employer without
cause. Consummation of the Offer as contemplated would constitute such a Change
in Control, however, the employment agreements entered into by the Senior
Officers in connection with the Offer replace these Change in Control Agreements
in their entirety as of the Effective Time.
A Change in Control triggers for all of the Company's employees an
acceleration of vesting of restricted stock and stock options and payment of the
spread between the exercise price of options and the fair market value of the
Shares. Consummation of the Offer as contemplated would constitute such a Change
in Control.
For a summary of the employment agreements entered into between the Company
and each of the Senior Officers in connection with the Offer, see Item 3 of the
Schedule 14D-9 to which this Information Statement is attached, which Item 3 is
incorporated by reference herein.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Commitee has developed and directs a comprehensive program
of compensation policies that aligns the compensation of the executive officers
with goals and objectives that are consistent with the Company's business
strategies. These business strategies are designed to enhance the Company's
financial performance and customer satisfaction and are thereby aligned with the
overall corporate objective of enhancing shareholder value. The Company's
compensation policies are designed to attract and retain key employees,
including executive officers, in the face of competition with other high
technology companies that endeavor to attract such employees.
The Compensation Committee is advised by an outside compensation consultant
on all aspects of compensation, including base salaries, bonus awards and
incentives, such as restricted stock, stock options and long term incentive
awards.
The total compensation program for executive officers in 1997, including the
Chief Executive Officer, was balanced among base salary, an annual bonus, long
term incentives, restricted stock and stock option grants vesting over multiple
periods. The Compensation Committee considered the advice of an outside
consultant in the area of executive compensation in determining each element of
compensation and each individual's total incentive compensation.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company's executive officers
and directors and persons who own more than ten percent of a registered class of
the Company's equity securities to file reports of ownership on Form 3 and
changes in ownership on Form 4 or Form 5 with the SEC. Such officers, directors
and ten percent shareholders are also required by SEC rules to furnish the
Company with copies of all Section 16(a) reports they file.
Based solely on its review of the copies of such forms received by it to
date, or written representations from certain reporting persons that Forms 5
have been filed for such persons as required, the Company believes that, during
the year ended December 31, 1997, all reporting persons complied with Section
16(a) filing requirements applicable to them, except that in April 1997 Mr. Fill
amended a March 1997 Form 4 to include the sale of 5,000 Shares and Mr. Diaz was
late in filing a Form 5 reporting his contribution of 10 Shares to the Kirkland
Performing Arts Association.
A-13
<PAGE>
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN
The table set forth below represents the five-year cumulative total return
on the Shares, the S&P 500 Stock Index and a Peer Group Industry Index resulting
from an initial assumed investment of $100 in each. The Peer Group Industry
Index is a representative grouping of 98 companies from SIC Code 3845--
Electromedical & Electrotherapeutic Apparatus* and includes the reinvestment of
both cash and stock dividends. The table has been prepared by an outside
consulting firm to the Company. The cumulative return upon the Shares is
computed as required by the rules of the SEC to comprise the cumulative total
return on such stock from 1992 through 1997.
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN AMONG THE COMPANY,
S&P 500 STOCK INDEX AND PEER GROUP INDUSTRY INDEX* ($)
<TABLE>
<CAPTION>
MEASUREMENT PERIOD
(FISCAL YEAR COVERED) THE COMPANY INDUSTRY INDEX BROAD MARKET
- -------------------------------------------------------------------- ------------- --------------- -------------
<S> <C> <C> <C>
Measurement Pt-1992................................................. 100.00 100.00 100.00
1993................................................................ 95.71 86.73 110.08
1994................................................................ 105.71 96.04 111.54
1995................................................................ 140.00 168.84 153.45
1996................................................................ 177.14 178.22 188.69
1997................................................................ 262.86 221.46 251.64
</TABLE>
- ------------------------
* A list of the component companies in this Industry Index will be provided,
at no charge to shareholders, upon request.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In 1997, Dr. Feigenbaum received $45,000 for his service as a member of the
Scientific Advisory Board. In 1997, Mr. Larson received $188,500 for consulting
services to the Company, a $50,000 one time bonus for his assistance in the
execution of two projects of a strategic importance to the Company and $40,000
for his services as a member of the Scientific Advisory Board.
See also "Compensation Committee Interlocks and Insider Participation"
above. The matters set forth elsewhere in this Information Statement and in Item
3 of the Schedule 14D-9 are hereby incorporated by reference herein.
A-14
<PAGE>
ANNEX B
[LETTERHEAD OF BT ALEX. BROWN INCORPORATED]
July 29, 1998
Board of Directors
ATL Ultrasound, Inc.
22100 Bothell Everett Highway
Bothell, Washington 98041
Members of the Board:
BT Alex. Brown Incorporated ("BT Alex. Brown") has acted as financial advisor to
ATL Ultrasound, Inc. ("ATL") in connection with the proposed merger transaction
involving ATL and Philips Electronics North America Corporation ("Philips")
pursuant to an Agreement and Plan of Merger, dated as of July 29, 1998 (the
"Merger Agreement"), among ATL, Philips and Philips Acquisition, Inc., a wholly
owned subsidiary of Philips ("Sub"), which provides, among other things, for (i)
the commencement by Sub of a tender offer to purchase all outstanding shares of
the common stock, par value $0.01 per share, of ATL (the "ATL Common Stock" and,
such tender offer, the "Tender Offer") at a purchase price of $50.50 per share,
net to the seller in cash (the "Cash Consideration") and (ii) subsequent to the
Tender Offer, the merger of Sub with ATL (the "Merger" and, together with the
Tender Offer, the "Transaction") pursuant to which each outstanding share of ATL
Common Stock not previously tendered will be converted into the right to receive
the Cash Consideration. The terms and conditions of the Transaction are more
fully set forth in the Merger Agreement.
You have requested BT Alex. Brown's opinion as to the fairness, from a financial
point of view, of the Cash Consideration to be received in the Transaction by
holders of ATL Common Stock (other than Philips and its affiliates).
In connection with BT Alex. Brown's role as financial advisor to ATL, and in
arriving at its opinion, BT Alex. Brown has reviewed certain publicly available
financial and other information concerning ATL and certain internal analyses and
other information furnished to it by ATL and/or its advisors. BT Alex. Brown has
also held discussions with members of the senior management of ATL regarding the
business and prospects of ATL. In addition, BT Alex. Brown has (i) reviewed the
reported prices and trading activity for ATL Common Stock, (ii) compared certain
financial and stock market information for ATL with similar information for
certain other companies whose securities are publicly traded, (iii) reviewed the
financial terms of certain recent business combinations which it deemed
comparable in whole or in part, (iv) reviewed the terms of the Merger Agreement,
and (v) performed such other studies and analyses and considered such other
factors as it deemed appropriate.
BT Alex. Brown has not assumed responsibility for independent verification of,
and has not independently verified, any information, whether publicly available
or furnished to it, concerning ATL, including, without limitation, any financial
information, forecasts or projections considered in connection with the
rendering of its opinion. Accordingly, for purposes of its opinion, BT Alex.
Brown has assumed and relied upon the accuracy and completeness of all such
information and BT Alex. Brown has not conducted a physical inspection of any of
the properties or assets, and has not prepared or obtained any independent
evaluation or appraisal of any of the assets or liabilities, of ATL. With
respect to the financial forecasts and projections made available to BT Alex.
Brown and used in its analyses, BT Alex. Brown has assumed that they have been
reasonably prepared on bases reflecting the best currently available estimates
and judgments of the management of ATL as to the matters covered thereby. In
rendering its opinion, BT Alex. Brown expresses no view as to the reasonableness
of such forecasts and projections or the assumptions on which they are based. BT
Alex. Brown's opinion is necessarily based upon economic, market and other
conditions as in effect on, and the information made available to it as of, the
date hereof.
B-1
<PAGE>
Board of Directors
ATL Ultrasound, Inc.
July 29, 1998
Page 2
For purposes of rendering its opinion, BT Alex. Brown has assumed that, in all
respects material to its analysis, the Transaction will be consummated on the
terms and subject to the conditions described in the Merger Agreement and that
all conditions to the consummation of the Transaction will be satisfied without
any waiver thereof.
This opinion is addressed to, and for the use and benefit of, the Board of
Directors of ATL and is not a recommendation to any shareholder as to whether or
not such shareholder should tender shares of ATL Common Stock in the Tender
Offer or how such shareholder should vote on the proposed Merger. This opinion
is limited to the fairness, from a financial point of view, of the Cash
Consideration to be received in the Transaction by the holders of ATL Common
Stock (other than Philips and its affiliates), and BT Alex. Brown expresses no
opinion as to the merits of the underlying decision by ATL to engage in the
Transaction.
BT Alex. Brown, as a customary part of its investment banking business, is
engaged in the valuation of businesses and their securities in connection with
mergers and acquisitions, negotiated underwritings, private placements and
valuations for estate, corporate and other purposes. BT Alex. Brown will receive
a fee for its services as financial advisor to ATL in connection with the
Transaction, a significant portion of which is contingent upon the consummation
of the Transaction and a portion of which is payable upon the delivery of this
opinion. BT Alex. Brown also acted as financial advisor to ATL with respect to
the spin-off in April 1998 of SonoSight, Inc., formerly a business division of
ATL, for which services BT Alex. Brown has received compensation. BT Alex. Brown
maintains a market in ATL Common Stock and regularly publishes research reports
regarding the medical device and equipment industry and the businesses and
securities of ATL and other publicly owned companies in the medical device and
equipment industry. In the ordinary course of business, BT Alex. Brown and its
affiliates may actively trade or hold the securities and other instruments and
obligations of ATL and Philips or their respective affiliates for their own
accounts and for the accounts of their customers and, accordingly, may at any
time hold a long or short position in such securities, instruments and
obligations.
Based upon and subject to the foregoing, it is BT Alex. Brown's opinion that, as
of the date of this letter, the Cash Consideration to be received in the
Transaction by the holders of ATL Common Stock (other than Philips and its
affiliates) is fair, from a financial point of view, to such holders.
Very truly yours,
/s/ BT Alex. Brown Incorporated
BT ALEX. BROWN INCORPORATED
B-2
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION PAGE NO.
- --------- -------------------------------------------------------------------------------------------- ---------
<C> <S> <C>
*+(a)(1) Offer to Purchase dated August 4, 1998. ....................................................
*+(a)(2) Letter of Transmittal. .....................................................................
(a)(3) Text of press release issued by the Company dated July 29, 1998. ...........................
* (a)(4) Letter to shareholders of the Company dated August 4, 1998. ................................
+ (a)(5) Form of Summary Advertisement dated August 4, 1998. ........................................
* (a)(6) Opinion of BT Alex. Brown Incorporated. ....................................................
(b) Not applicable. ............................................................................
+ (c)(1) Agreement and Plan of Merger dated as of July 29, 1998. ....................................
(c)(2) Employment Agreement of Mr. Fill dated as of July 29, 1998. ................................
(c)(3) Employment Agreement of Mr. Diaz dated as of July 29, 1998. ................................
(c)(4) Employment Agreement of Mr. Blem dated as of July 29, 1998. ................................
(c)(5) Employment Agreement of Mr. Souquet dated as of July 29, 1998. .............................
(c)(6) Employment Agreement of Ms. Dunlap dated as of July 29, 1998. ..............................
</TABLE>
- ------------------------
* Included in materials delivered to shareholders of the Company.
+ Filed as an exhibit to Merger Sub's Tender Offer Statement on Schedule 14D-1
dated August 4, 1998, and incorporated herein by reference.
<PAGE>
Exhibit 99(a)(3)
PRESS RELAEASE
- --------------------------------------------------------------------------------
[LOGO]
FOR IMMEDIATE RELEASE
CONTACT: ANNE BUGGE, U.S.A., (425) 487-7427
JEREMY COHEN, AMSTERDAM, 31 20 59 77213
PHILIPS TO ACQUIRE ATL IN $800 MILLION TRANSACTION
AMSTERDAM AND SEATTLE, JULY 29, 1998--Royal Philips Electronics of the
Netherlands (AEX:PHI, NYSE:PHG) and ATL Ultrasound of the United States
(NASDAQ:ATLI) announced today that ATL and Philips have signed a definitive
merger agreement for Philips to acquire all of the outstanding shares of ATL
for approximately $800 million or $50.50 per share for each outstanding share
of ATL common stock.
The transaction will be a cash tender offer followed by a cash merger to
acquire any shares not previously tendered. As a result of the transaction,
ATL will become a wholly owned subsidiary of Philips Medical Systems. The
ATL Board of Directors has unanimously approved the transaction. Philips
expects to commence its cash tender offer August 4, 1998. The cash tender
offer is subject to Philips receiving at least a majority of the fully
diluted shares of ATL in the tender offer as well as the receipt of customary
regulatory approvals.
ATL, with annual revenues of $430 million in 1997 and 2,600 employees,
pioneered the development of broadband digital ultrasound and software
technologies and is a leader in the high performance ultrasound market. The
ultrasound sector is the only part of the diagnostic imaging business in
which Philips Medical Systems does not play a major role. "ATL is a
technological leader in diagnostic ultrasound and offers a key growth
opportunity for Philips Medical," says Hans (J.M.) Barella, Chairman and CEO
of Philips Medical Systems. "This acquisition underscores our commitment to
global leadership in worldwide diagnostic imaging by building on the success
of ATL." Philips Medical Systems is already a global leader in the x-ray
business and diagnostic imaging systems and services.
<PAGE>
2
ATL has an especially strong presence in the United States and Europe. The
complementary businesses of Philips Medical Systems and ATL allow for the
building of significant synergies. ATL's strong management, solid financial
performance and business growth opportunity make this an excellent
acquisition for Philips.
The merger will provide ATL access to Philips Medical Systems' considerable
research and technology base, expand its service support and further increase
sales. "Combining the strengths of Philips Medical Systems and ATL creates a
diagnostic imaging business second to none," said Dennis C. Fill, ATL
Chairman and CEO. "With essentially no overlap in our products and
technologies, we believe this combination is the perfect match for both
companies. This merger is particularly good for the long-term prospects of
ATL and all our employees as we will become the worldwide center of Philips
for ultrasound with our headquarters remaining in Bothell. ATL will be an
even stronger force in ultrasound than it already is."
Ultrasound is the fastest growing sector of the medical imaging business
today, and worldwide revenues for ultrasound are approximately $2.5 billion
per year. Ultrasound is a non-invasive technology that uses high frequency
soundwaves to image the body's organs, soft tissue and blood flow in real
time. Three-dimensional imaging has led to a growing diagnostic role for
ultrasound.
Philips has recently stated that it would only look for acquisitions that
would strengthen its existing portfolio, and this agreement reflects that
strategy. The transaction affirms Philips' commitment to its Medical
Division as one of the building blocks of the company and one where value can
be added and increasing profits realized. Philips Medical Systems is
delivering a consistently profitable performance with steady growth and a
strong cash flow, and this merger will enable the division to contribute more
significantly to the sales and results of the Philips Group. The transaction
is expected to have a positive impact on earnings per share for Philips.
For further information, please contact:
Anne Bugge, ATL Corporate and Investor Relations, U.S.A., (425) 487-7427
Jeremy Cohen, Philips Media Relations, Amsterdam, 31 20 59 77213
Bulletin International has pictures for broadcast free of use. For more
information or a Beta SP copy, contact Amelia Elphink at Bulletin, 44 171 278
6070, or e-mail at [email protected].
<PAGE>
3
ATL , with headquarters near Seattle, Washington, U.S.A., is a worldwide
leader in the development, manufacture, distribution and service of
diagnostic medical ultrasound systems. With approximately 50% of revenues
coming from international markets, the company serves customers in over 100
countries through 15 subsidiaries and an extensive distributor network.
Press releases and other corporate information are available on ATL's web
site at http://www.atl.com. Press releases are also available on PR
Newswire's Company News-On-Call at http://www.prnewswire.com.
Philips Medical Systems is a leading supplier of diagnostic imaging systems
and related services worldwide employing 9,000 people in more than 100
countries. Philips' products are backed by a worldwide network of research
and development and sales and service organizations. Philips Medical Systems
is part of Royal Philips Electronics of the Netherlands.
Royal Philips Electronics of the Netherlands is one of the world's biggest
electronics companies with sales of over U.S. $39 billion in 1997. It is a
global leader in color television sets, lighting, home telephony products,
electric shavers and recorded music (PolyGram). Its 264,700 employees in
more than 60 countries are active in the areas of semiconductors and
components, consumer products, professional products and systems, lighting
and software and services. Philips is quoted on the NYSE, London,
Frankfurt, Amsterdam and other stock exchanges. News from Philips is located
at www.news.philips.com.
FORWARD LOOKING INFORMATION STATEMENTS AND THE PRIVATE SECURITIES LITIGATION
REFORM ACT OF 1995
Certain statements in this news release relating to the tender offer and
consummation and success of the merger are forward looking statements which
involve a number of risks and uncertainties which could cause actual results
to differ materially from those anticipated in the forward looking
statements. These include securing all necessary governmental and other
approvals, the satisfaction of all conditions to the merger, changing
business or other market conditions, and the success of the business
combination as planned by the parties. These and other factors could
adversely affect the outcome and financial effects of the plans and events
described herein.
###
072998/208
<PAGE>
[LOGO]
August 4, 1998
ATL Ultrasound, Inc.
22100 Bothell Everett Highway
P.O. Box 3003
Bothell, WA 98041-3003
To the Shareholders of ATL Ultrasound, Inc.:
I am pleased to report that on July 29, 1998, ATL Ultrasound, Inc. (the
"Company") entered into an Agreement and Plan of Merger (the "Merger Agreement")
with Philips Acquisition, Inc., a Washington corporation ("Merger Sub") and a
wholly owned subsidiary of Philips Electronics North America Corporation, a
Delaware corporation ("Parent"), that provides for the acquisition of all of the
Common Stock, par value $0.01 per share (including the associated rights to
purchase Series A Participating Cumulative Preferred Stock, the "Shares"), of
the Company by Merger Sub at a price of $50.50 per Share net to the seller in
cash, without interest. Under the terms of the proposed transaction, Merger Sub
has commenced a tender offer (the "Offer") for all outstanding Shares at $50.50
per Share net to the seller in cash, without interest. The Offer is currently
scheduled to expire at 12:00 Midnight, New York City time, on August 31, 1998,
unless the Offer is extended.
Following the successful completion of the Offer and upon approval by
shareholder vote, if required, Merger Sub will be merged with and into the
Company (subject to Parent's option to merge the Company into Merger Sub)
(either such merger, the "Merger") and all Shares not purchased in the Offer
will be converted into the right to receive, without interest, an amount in cash
equal to $50.50 per Share or such greater amount which may be paid pursuant to
the Offer.
YOUR BOARD OF DIRECTORS HAS UNANIMOUSLY ADOPTED THE MERGER AGREEMENT,
APPROVED THE OFFER AND THE MERGER, DETERMINED THAT THE OFFER AND THE MERGER ARE
FAIR TO, AND IN THE BEST INTERESTS OF, THE HOLDERS OF SHARES AND RECOMMENDS THAT
ALL HOLDERS OF SHARES ACCEPT THE OFFER AND TENDER THEIR SHARES PURSUANT TO THE
OFFER.
Accompanying this letter is a copy of the Company's
Solicitation/Recommendation Statement on Schedule 14D-9 and the Company's
Information Statement pursuant to Section 14(f), each filed by the Company with
the Securities and Exchange Commission. The Board of Directors of the Company
has received an opinion dated July 29, 1998 of BT Alex. Brown Incorporated,
financial advisor to the Company, as to the fairness, from a financial point of
view, of the $50.50 per Share cash consideration to the holders of Shares (other
than Parent and its affiliates), a copy of which is attached to the Schedule
14D-9.
Also accompanying this letter is a copy of the Offer to Purchase and related
materials of Parent, including a Letter of Transmittal for use in tendering
Shares. These documents set forth the terms and conditions of the Offer and
provide instructions as to how to tender your Shares.
WE URGE YOU TO READ EACH OF THE ENCLOSED MATERIALS CAREFULLY.
The management and directors of ATL Ultrasound, Inc. thank you for the
support you have given the Company.
Sincerely,
[LOGO]
Dennis C. Fill
Chairman and Chief Executive Officer
<PAGE>
[LETTERHEAD OF BT ALEX. BROWN INCORPORATED]
July 29, 1998
Board of Directors
ATL Ultrasound, Inc.
22100 Bothell Everett Highway
Bothell, Washington 98041
Members of the Board:
BT Alex. Brown Incorporated ("BT Alex. Brown") has acted as financial advisor to
ATL Ultrasound, Inc. ("ATL") in connection with the proposed merger transaction
involving ATL and Philips Electronics North America Corporation ("Philips")
pursuant to an Agreement and Plan of Merger, dated as of July 29, 1998 (the
"Merger Agreement"), among ATL, Philips and Philips Acquisition, Inc., a wholly
owned subsidiary of Philips ("Sub"), which provides, among other things, for (i)
the commencement by Sub of a tender offer to purchase all outstanding shares of
the common stock, par value $0.01 per share, of ATL (the "ATL Common Stock" and,
such tender offer, the "Tender Offer") at a purchase price of $50.50 per share,
net to the seller in cash (the "Cash Consideration") and (ii) subsequent to the
Tender Offer, the merger of Sub with ATL (the "Merger" and, together with the
Tender Offer, the "Transaction") pursuant to which each outstanding share of ATL
Common Stock not previously tendered will be converted into the right to receive
the Cash Consideration. The terms and conditions of the Transaction are more
fully set forth in the Merger Agreement.
You have requested BT Alex. Brown's opinion as to the fairness, from a financial
point of view, of the Cash Consideration to be received in the Transaction by
holders of ATL Common Stock (other than Philips and its affiliates).
In connection with BT Alex. Brown's role as financial advisor to ATL, and in
arriving at its opinion, BT Alex. Brown has reviewed certain publicly available
financial and other information concerning ATL and certain internal analyses and
other information furnished to it by ATL and/or its advisors. BT Alex. Brown has
also held discussions with members of the senior management of ATL regarding the
business and prospects of ATL. In addition, BT Alex. Brown has (i) reviewed the
reported prices and trading activity for ATL Common Stock, (ii) compared certain
financial and stock market information for ATL with similar information for
certain other companies whose securities are publicly traded, (iii) reviewed the
financial terms of certain recent business combinations which it deemed
comparable in whole or in part, (iv) reviewed the terms of the Merger Agreement,
and (v) performed such other studies and analyses and considered such other
factors as it deemed appropriate.
BT Alex. Brown has not assumed responsibility for independent verification of,
and has not independently verified, any information, whether publicly available
or furnished to it, concerning ATL, including, without limitation, any financial
information, forecasts or projections considered in connection with the
rendering of its opinion. Accordingly, for purposes of its opinion, BT Alex.
Brown has assumed and relied upon the accuracy and completeness of all such
information and BT Alex. Brown has not conducted a physical inspection of any of
the properties or assets, and has not prepared or obtained any independent
evaluation or appraisal of any of the assets or liabilities, of ATL. With
respect to the financial forecasts and projections made available to BT Alex.
Brown and used in its analyses, BT Alex. Brown has assumed that they have been
reasonably prepared on bases reflecting the best currently available estimates
and judgments of the management of ATL as to the matters covered thereby. In
rendering its opinion, BT Alex. Brown expresses no view as to the reasonableness
of such forecasts and projections or the assumptions on which they are based. BT
Alex. Brown's opinion is necessarily based upon economic, market and other
conditions as in effect on, and the information made available to it as of, the
date hereof.
For purposes of rendering its opinion, BT Alex. Brown has assumed that, in all
respects material to its analysis, the Transaction will be consummated on the
terms and subject to the conditions described in the
<PAGE>
Board of Directors
ATL Ultrasound, Inc.
July 29, 1998
Page 2
Merger Agreement and that all conditions to the consummation of the Transaction
will be satisfied without any waiver thereof.
This opinion is addressed to, and for the use and benefit of, the Board of
Directors of ATL and is not a recommendation to any shareholder as to whether or
not such shareholder should tender shares of ATL Common Stock in the Tender
Offer or how such shareholder should vote on the proposed Merger. This opinion
is limited to the fairness, from a financial point of view, of the Cash
Consideration to be received in the Transaction by the holders of ATL Common
Stock (other than Philips and its affiliates), and BT Alex. Brown expresses no
opinion as to the merits of the underlying decision by ATL to engage in the
Transaction.
BT Alex. Brown, as a customary part of its investment banking business, is
engaged in the valuation of businesses and their securities in connection with
mergers and acquisitions, negotiated underwritings, private placements and
valuations for estate, corporate and other purposes. BT Alex. Brown will receive
a fee for its services as financial advisor to ATL in connection with the
Transaction, a significant portion of which is contingent upon the consummation
of the Transaction and a portion of which is payable upon the delivery of this
opinion. BT Alex. Brown also acted as financial advisor to ATL with respect to
the spin-off in April 1998 of SonoSight, Inc., formerly a business division of
ATL, for which services BT Alex. Brown has received compensation. BT Alex. Brown
maintains a market in ATL Common Stock and regularly publishes research reports
regarding the medical device and equipment industry and the businesses and
securities of ATL and other publicly owned companies in the medical device and
equipment industry. In the ordinary course of business, BT Alex. Brown and its
affiliates may actively trade or hold the securities and other instruments and
obligations of ATL and Philips or their respective affiliates for their own
accounts and for the accounts of their customers and, accordingly, may at any
time hold a long or short position in such securities, instruments and
obligations.
Based upon and subject to the foregoing, it is BT Alex. Brown's opinion that, as
of the date of this letter, the Cash Consideration to be received in the
Transaction by the holders of ATL Common Stock (other than Philips and its
affiliates) is fair, from a financial point of view, to such holders.
Very truly yours,
/s/ BT Alex. Brown Incorporated
BT ALEX. BROWN INCORPORATED
2
<PAGE>
EMPLOYMENT AND CONSULTING AGREEMENT
AGREEMENT, dated as of July 29, 1998, by and between ATL Ultrasound,
Inc. (the "Company") and Dennis C. Fill ("Executive").
WHEREAS, Executive's current employer, ATL Ultrasound, Inc., has
entered into an Agreement and Plan of Merger, dated as of July 29, 1998 with
Philips Acquisition, Inc. and Philips Electronics North America Corporation
(the "Merger Agreement"); and
WHEREAS, the Company desires to secure the continued employment of
Executive following the successful consummation of the Offer (as such term is
defined in the Merger Agreement); and
WHEREAS, Executive and the Company desire to enter into an agreement
setting forth the terms and conditions of the employment of Executive with the
Company on and after the successful consummation of the Offer;
NOW, THEREFORE, IN CONSIDERATION OF the mutual covenants herein
contained, and other good and valuable consideration, the parties hereto agree
as follows:
1. EMPLOYMENT. Subject to the successful consummation of the Offer,
the Company hereby agrees to employ Executive, and Executive agrees to serve as
an employee of the Company, on the terms and conditions set forth in this
Agreement, effective as of the date of this Agreement. The continuation of such
employment shall be expressly conditioned on and subject to the consummation of
the transactions contemplated by the Merger Agreement. This Agreement shall
become null and void, and shall have no force or effect, if the transactions
contemplated under the Merger Agreement are not consummated; PROVIDED, THAT,
Sections 21, 24 and 25 of this Agreement shall be deemed to be effective as of
the successful consummation of the Offer. Following the Employment Period (as
defined below) the Company shall engage Executive as a consultant of the Company
in accordance with Section 6 hereof.
2. TERM. The period of employment of Executive by the Company
hereunder (the "Employment Period") shall commence as of the Effective Time (as
defined in the Merger Agreement) (the "Commencement Date") and shall continue
until December 31, 1998, at which time Executive shall retire from the Company.
In accordance with Section 6 hereof, Executive shall serve as a consultant to
the Company until December 31, 2003 (the "Consulting Period") following the
Employment Period
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(the Employment Period and Consulting Period collectively referred to as the
"Term"). The Term may be sooner terminated by either party in accordance with
Section 6 of this Agreement.
3. DUTIES AND RESPONSIBILITIES. During the Employment Period,
Executive shall serve as the Chief Executive Officer and President of the
Company with such duties and responsibilities that are customary for such a
position. During the Employment Period, Executive shall devote substantially
all of his working time, attention and energies during normal business hours
(other than absences due to illness or vacation) to the performance of his
duties for the Company. Executive may serve as a member of the board of
directors of other companies or engage in other outside activities, provided
that such activities do not interfere with Executive's duties hereunder.
4. PLACE OF PERFORMANCE. The principal place of employment of
Executive shall be at the Company's executive offices in Seattle, Washington.
5. COMPENSATION AND RELATED MATTERS.
(a) BASE SALARY AND BONUS. During the Employment Period the
Company shall pay Executive a base salary at the rate of not less than $675,000
per year ("Base Salary"). Executive's Base Salary shall be paid in
approximately equal installments in accordance with the Company's customary
payroll practices. On or about January 1, 1999, Executive shall be paid an
annual bonus for 1998 in the amount of $675,000.
(b) BENEFIT PLANS. During the Employment Period, Executive
shall be entitled to participate in such employee benefit plans and insurance
programs offered by the Company, or which it may adopt from time to time, for
its executive management or supervisory personnel generally, in accordance with
the eligibility requirements for participation therein. Notwithstanding the
foregoing, Executive shall not be entitled to receive severance pursuant to the
Company's severance plan if he is entitled to receive payments pursuant to
Section 9(b) of this Agreement. Nothing herein shall be construed so as to
prevent the Company from modifying or terminating any employee benefit plans or
programs, or employee fringe benefits, it may adopt from time to time.
(c) VACATION AND SICK LEAVE. During the Employment Period,
Executive shall be entitled to the amount of paid vacation and sick leave that
is provided to other executive offices, in accordance with the Company's
customary practices.
(d) EXPENSES. The Company shall promptly reimburse Executive
for all reasonable business expenses incurred during the Term upon the
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<PAGE>
presentation of reasonably itemized statements of such expenses in accordance
with the Company's policies and procedures now in force or as such policies and
procedures may be modified with respect to all executive officers of the
Company.
6. CONSULTING ARRANGEMENT. Immediately following the Employment
Period, Executive shall serve as a consultant to the Company during the
Consulting Period. During the Consulting Period, Executive shall make himself
available, upon the mutual consent of Executive and the President of Philips
Medical Systems, for consultation and advice on matters affecting the business
affairs of the Company. Immediately prior to the Effective Time, Executive
shall receive a lump-sum consulting fee of $1,150,000 and an additional $60,000
on January 1, 1999, and on the first day of each calendar quarter thereafter to
and including October 1, 2003 (the "Consulting Fee"). In addition, beginning on
the commencement of the Consulting Period and continuing for the life of
Executive, the Company shall pay any premiums required by Medicare for the
Executive's post-retirement Medicare coverage. On January 1, 1999, the Company
shall cancel all life insurance agreements covering Executive and pay to
Executive the cash amount required by Executive to purchase a paid up policy for
$300,000 of life insurance on such date.
7. TERMINATION. This Agreement shall be terminated upon the
earliest to occur of the following:
(a) EXPIRATION. The expiration of the Term.
(b) DEATH. The death of Executive. Notwithstanding the
foregoing, if Executive should die during the Consulting Period, Executive's
beneficiaries or his estate, as the case may be, shall continue to receive the
Consulting Fee until the end of the year in which his death occurs.
(c) CAUSE. The Company terminates Executive for Cause during
the Employment Period. For purposes of this Agreement, the Company shall have
"Cause" to terminate Executive upon Executive's (i) willful misconduct (but
excluding any action that Executive reasonably believes is in the best interests
of the Company), which is materially economically injurious to the Company or to
any entity in control of, controlled by or under common control with the Company
(an "Affiliate"), including, but not limited to, any breach of Sections 10 and
11 hereof or (ii) the conviction of, or plea of guilty or nolo contendere to, a
felony involving moral turpitude. The Company may not terminate Executive for
Cause during the Consulting Period.
(d) WITHOUT CAUSE. The Company terminates Executive hereunder
without Cause by providing Executive with a Notice of Termination.
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<PAGE>
(e) VOLUNTARY TERMINATION. Executive terminates this Agreement
at any time upon ninety (90) days prior written notice to the Company.
(f) MATERIAL BREACH. Executive terminates his employment for a
material breach of this Agreement by the Company. For purposes of this
Agreement, a "material breach" shall be deemed to occur upon a failure by the
Company to comply with any material provision of this Agreement without
Executive's written consent, including, but not limited to, (i) a material
diminution in Executive's position, duties, status, authority or responsibility
as set forth under the terms of this Agreement, (ii) a reduction in Base Salary
or bonus, or (iii) a relocation of the Executive to a location more than 50
miles from his present location, which in the case of any alleged violation of
this paragraph (f), has not been cured in all material respects within thirty
(30) days after written notice of such noncompliance has been given by Executive
to the Company.
8. TERMINATION PROCEDURE.
(a) NOTICE OF TERMINATION. Any termination of Executive by the
Company or by Executive (other than termination pursuant to Section 7(a) or (b)
hereof) shall be communicated by written Notice of Termination to the other
party hereto in accordance with Section 14. For purposes of this Agreement, a
"Notice of Termination" shall mean a notice which shall indicate the specific
termination provision in this Agreement relied upon and shall set forth in
reasonable detail the facts and circumstances claimed to provide a basis for
termination of Executive under the provisions so indicated.
(b) DATE OF TERMINATION. "Date of Termination" shall mean
(i) if Executive is terminated by the expiration of this Agreement, the date of
expiration, (ii) if Executive is terminated by his death, the date of his death,
and (iii) if Executive is terminated pursuant to Sections 7(c), 7(d), 7(e), or
7(f) the date specified in the Notice of Termination.
9. AMOUNTS DUE UPON TERMINATION. In the event Executive's
relationship with the Company terminates during the Term, the Company shall
provide Executive with the payments set forth below. Executive acknowledges and
agrees that the payments set forth in this Section 9 constitute liquidated
damages for termination of this Agreement during the Term.
(a) If Executive is terminated pursuant to Sections 7(a), 7(b),
7(c), or 7(e) the Company shall pay Executive his accrued, but unpaid Base
Salary, bonus specified in Section 5(a) and Bonus or Consulting Fee, as the case
may be, pro rata for the year in which terminated through the Date of
Termination at the rate in effect at the time Notice of Termination is given,
and (subject to 7(b)) the Company shall have no
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<PAGE>
further obligations to Executive under this Agreement; PROVIDED, THAT, Executive
shall be entitled to any other benefit or payment provided pursuant to any plan
or policy of the Company in accordance with such plan's or policy's terms.
(b) If Executive's employment is terminated pursuant to Sections
7(d) or 7(f), the Company shall pay to Executive his (A) Base Salary or
Consulting Fee, as the case may be, accrued through the Date of Termination and
(B) a lump-sum payment equal to all remaining amounts that would have been paid
under Sections 5(a) and 6 had this Agreement continued through to the end of the
Term (the "Remaining Period"). All such payments shall be made as soon as
administratively feasible following such termination. Executive shall also be
entitled to any other benefits or payments provided pursuant to any plan or
policy of the Company in accordance with such plan's or policy's terms, except
as provided in Section 5(b).
(c) CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY.
(i) Notwithstanding anything in this Agreement to the contrary,
in the event it shall be determined that any payment, award, benefit or
distribution (or any acceleration of any payment, award, benefit or
distribution) by the Company (or any of its affiliated entities) or any entity
which effectuates (or has previously effectuated) a change in control (or any of
its affiliated entities) to or for the benefit of Executive (whether pursuant to
the terms of this Agreement or otherwise) (the "Payments") would be subject to
the excise tax (the "Excise Tax") under Section 4999 of the Internal Revenue
Code of 1986, as amended (the "Code"), then the amounts payable to Executive
under this Agreement shall be the greater of (A) the Payment, if the result of
subtracting the Excise Tax from the Payment is more than the Safe Harbor Cap and
(B) the Payment, reduced to the maximum amount as will result in no portion of
the Payments being subject to the Excise Tax (the "Safe Harbor Cap"), reducing
first the payments under Section 9(b)(B), unless an alternative method of
reduction is elected by Executive. For purposes of reducing the Payments to the
Safe Harbor Cap, only amounts payable to Executive under this Agreement (and no
other Payments) shall be reduced, unless consented to by Executive.
(ii) All determinations required to be made under this Section 9
shall be made by the nationally recognized public accounting firm that is
selected by Executive (the "Accounting Firm"). If payments are reduced to the
Safe Harbor Cap, the Accounting Firm shall provide a reasonable opinion to
Executive that he is not required to report any Excise Tax on his federal income
tax return. All fees, costs and expenses (including, but not limited to, the
costs of retaining experts) of the Accounting Firm shall be borne by the
Company. The determination by the Accounting Firm shall be binding upon the
Company and Executive (except as provided in paragraph (iii) below).
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<PAGE>
(iii) If payments are reduced to the Safe Harbor Cap as
provided in Section 9(c)(i)(B) and if it is established pursuant to a final
determination of a court or an Internal Revenue Service (the "IRS") proceeding
which has been finally and conclusively resolved, that Payments have been made
to, or provided for the benefit of, Executive by the Company, which are in
excess of the limitations provided in this Section 9(c)(i)(B) (hereinafter
referred to as an "Excess Payment"), such Excess Payment shall be deemed for all
purposes to be a loan to Executive made on the date Executive received the
Excess Payment and Executive shall repay the Excess Payment to the Company on
demand, together with interest on the Excess Payment at the applicable federal
rate (as defined in Section 1274(d) of the Code) from the date of Executive's
receipt of such Excess Payment until the date of such repayment. As a result of
the uncertainty in the application of Section 4999 of the Code at the time of
the determination, it is possible that Payments which will not have been made by
the Company should have been made (an "Underpayment"), consistent with the
calculations required to be made under this Section 8. In the event that it is
determined (A) by the Accounting Firm, the Company (which shall include the
position taken by the Company, or together with its consolidated group, on its
federal income tax return) or the IRS or (B) pursuant to a determination by a
court, that an Underpayment has occurred, the Company shall pay an amount equal
to such Underpayment to Executive within ten (10) days of such determination
together with interest on such amount at the applicable federal rate from the
date such amount would have been paid to Executive until the date of payment.
10. CONFIDENTIAL INFORMATION; REMOVAL OF DOCUMENTS AND
NON-DISPARAGEMENT.
(a) Executive agrees to keep secret and retain in the strictest
confidence all Confidential Information which relates to the Company and any of
its Affiliates. "Confidential Information" (a) means information (i) that is
learned by Executive from the Company or any Affiliate before or after the date
of this Agreement (other than Confidential Information that was known by
Executive on a nonconfidential basis prior to the disclosure thereof); (ii) that
is commercially valuable to the Company and (iii) that is not published or of
public record or otherwise generally known (other than through failure of
Executive to fully perform his obligations hereunder), and (b) includes, without
limitation, customer lists, client lists, trade secrets, pricing policies and
other business affairs of the Company and any of its Affiliates. Executive
agrees not to disclose any such Confidential Information to anyone outside the
Company or any of its Affiliates, whether during or after his period of service
with the Company, except (x) as such disclosure may be required or appropriate
in connection with his service or (y) when required to do so by a court of law,
by any governmental agency or by any administrative or legislative body
(including a committee thereof) with apparent jurisdiction to order him to
divulge, disclose or make accessible such information. Executive agrees to give
the Company advance written notice of any disclosure pursuant to clause (y) of
the
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<PAGE>
preceding sentence and to cooperate with any efforts by the Company to limit the
extent of such disclosure.
(b) All records, files, drawings, documents, models, equipment,
and the like containing Confidential Information or needed in the Company's
business, which Executive has control over shall not be removed from the
Company's premises without its written consent, unless such removal is in the
furtherance of the Company's business or is in connection with Executive's
carrying out his duties under this Agreement and, if so removed, shall be
returned to the Company promptly after termination of Executive's employment
hereunder, or otherwise promptly after removal if such removal occurs following
termination. Executive's rolodex, telephone directory and similar type items,
and furniture, art work and property owned by Executive or otherwise not owned
by the Company shall not be deemed Company property and shall not be covered by
this Section 10(b). The Company shall be the owner of all trade secrets and
other products relating to the Company's business developed by Executive alone
or in conjunction with others as part of his services with the Company.
(c) Executive agrees that during the Term and for a period of
one year thereafter, he will not and that his attorneys, agents, or other
representatives shall not (i) take any action or make or publish any statement,
whether oral or written, which disparages in any way the Company or any or all
of its present or former employees, principals, directors, partners, or
Affiliates, including, without limitation, any disparaging statement which
interferes in any way with the ability of the Company or any of its affiliates
to market their services, products, to retain existing client relationships, or
to obtain new client relationships; (ii) make any statements in any public forum
or statements intended for publication in the public media, which are reasonably
likely to negatively affect the standing of the Company or its Affiliates.
11. NON-COMPETITION.
(a) In consideration of the benefits to be provided to Executive
hereunder, Executive covenants that he will not, without the prior written
consent of the Company, during the Term and the twelve (12) month period
thereafter or, if terminated pursuant to Sections 7(d) or 7(e) hereof, the
Remaining Period, if greater (the "Restriction Period"), engage in any way,
directly or indirectly, in any business whose product or activities directly
compete with the products or activities of Philips Medical Systems or the
Company anywhere where Philips Medical Systems or the Company conducts such
businesses, other than in his capacity as an employee or consultant of the
Company.
(b) Executive hereby covenants and agrees that, at all times
during the Restriction Period, Executive shall not employ or seek to employ any
person employed at that time by Philips Medical Systems or the Company or any of
its
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<PAGE>
subsidiaries or its Affiliates, or otherwise encourage or entice such person or
entity to leave such employment.
(c) Executive hereby covenants and agrees that, at all times
during the Restriction Period, Executive will not (i) pursue or attempt to
develop any project known to Executive and which Philips Medical Systems or the
Company or any Affiliates are pursuing, developing or attempting to develop as
of the Date of Termination ("Project"), directly or indirectly, alone, in
association with or as a shareholder, principal, agent, partner, officer,
director, employee or consultant of any other organization or (ii) divert to any
entity which is engaged in any business conducted by Philips Medical Systems or
the Company or any Affiliates in the same geographic area as Philips Medical
Systems or the Company or any Affiliates, any Project or any customer of Philips
Medical Systems or the Company or any Affiliates.
(d) Executive acknowledges that the restrictions, prohibitions
and other provisions of this Section 11 are reasonable, fair and equitable in
scope, terms and duration, are necessary to protect the legitimate business
interests of the Company and are a material inducement to the Company to enter
into this Agreement. It is the intention of the parties hereto that the
restrictions contained in this paragraph be enforceable to the fullest extent
permitted by applicable law. Therefore, to the extent any court of competent
jurisdiction shall determine that any portion of the foregoing restrictions is
excessive, such provision shall not be entirely void, but rather shall be
limited or revised only to the extent necessary to make it enforceable.
12. REMEDY. Should Executive engage in or perform any of the acts
prohibited by Sections 10 and 11, it is agreed that the Company shall be
entitled to full injunctive relief, to be issued by any competent court of
equity, enjoining and restraining Executive and each and every other person,
firm, organization, association, or corporation concerned therein, from the
continuance of such violative acts. The foregoing remedy available to Company
shall not be deemed to limit or prevent the exercise by the Company of any or
all further rights and remedies which may be available to the Company hereunder
or at law or in equity.
13. SUCCESSORS; BINDING AGREEMENT. This Agreement shall be binding
upon and shall inure to the benefit of Executive, his heirs, executors,
administrators, beneficiaries and assigns and shall be binding upon and shall
inure to the benefit of the Company and its successors.
14. NOTICE. For the purposes of this Agreement, notices, demands and
all other communications provided for in this Agreement shall be in writing and
shall be deemed to have been duly given when delivered either personally or by
United States certified or registered mail, return receipt requested, postage
prepaid, addressed, in case
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of Executive, to the last address on file with the Company and if to the
Company, to its executive offices or to such other address as any party may have
furnished to the others in writing in accordance herewith, except that notices
of change of address shall be effective only upon receipt.
15. RESOLUTION OF DIFFERENCES OVER BREACHES OF AGREEMENT. The
parties shall use good faith efforts to resolve any controversy or claim arising
out of, or relating to this Agreement or the breach thereof, first in accordance
with the Company's internal review procedures, except that this requirement
shall not apply to any claim or dispute under or relating to Sections 10 or 11
of this Agreement. If despite their good faith efforts, the parties are unable
to resolve such controversy or claim through the Company's internal review
procedures, then such controversy or claim shall be resolved by a court of law
having jurisdiction thereof. If any contest or dispute shall arise between the
Company and Executive regarding any provision of this Agreement, each of the
parties shall be responsible for paying all of its own legal fees and expenses
incurred in connection with such contest or dispute.
16. GOVERNING LAW. This Agreement is governed by, and is to be
construed and enforced in accordance with, the laws of the State of Washington,
without regard to principles of conflicts of laws. If, under such law, any
portion of this Agreement is at any time deemed to be in conflict with any
applicable statute, rule, regulation or ordinance, such portion shall be deemed
to be modified or altered to conform thereto or, if that is not possible, to be
omitted from this Agreement, and the invalidity of any such portion shall not
affect the force, effect and validity of the remaining portion hereof.
17. AMENDMENT. No provisions of this Agreement may be amended,
modified, or waived unless such amendment or modification is agreed to in
writing signed by Executive and by a duly authorized officer of the Company, and
such waiver is set forth in writing and signed by the party to be charged. No
waiver by either party hereto at any time of any breach by the other party
hereto of any condition or provision of this Agreement to be performed by such
other party shall be deemed a waiver of similar or dissimilar provisions or
conditions at the same or at any prior or subsequent time.
18. SURVIVAL. The respective obligations of, and benefits afforded
to, Executive and Company as provided in Sections 10 and 11 of this Agreement
shall survive the termination of this Agreement.
19. NO CONFLICT OF INTEREST. During the Employment Period, Executive
shall not directly, or indirectly render service, or undertake any employment or
consulting agreement with another entity without the express written consent of
the Company.
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20. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
21. ENTIRE AGREEMENT. This Agreement sets forth the entire agreement
of the parties hereto (and in the case of the Company, its predecessors) in
respect of the subject matter contained herein and supersede all prior
agreements, promises, covenants, arrangements, communications, representations
or warranties, whether oral or written, by any officer, employee or
representative of any party hereto in respect of such subject matter, including,
but not limited to, the Employment Agreement by and between ATL Ultrasound, Inc.
and Executive, dated as of the second day of November, 1990 and any and all
amendments made subsequent thereto (the "Prior Agreement") and, as of the
successful consummation of the Offer, such Prior Agreement shall be void and of
no further force or effect. Any prior agreement of the parties hereto in
respect of the subject matter contained herein is hereby terminated and
canceled, as of the successful consummation of the Offer; PROVIDED THAT, except
as provided in Section 24 hereof, this Agreement shall not modify or terminate
the provisions of any compensation or benefit plan providing benefits upon a
change in control of the Company (excluding the Prior Agreement); PROVIDED,
FURTHER, that Executive acknowledges and agrees that he will be paid an
aggregate amount of no more than $388,125 with respect to the 1996-98, 1997-99
and 1998-00 performance cycles under the Company's Long Term Incentive Plan (the
"Plan"), effective as of January 1, 1993 and waives all rights for any other
payments under such Plan upon payment of such amounts. Executive acknowledges
that in consideration of the benefits to be provided hereunder, he has, as of
the successful consummation of the Offer, waived all of his rights under the
Prior Agreement, including, but not limited to Section 6 thereof.
22. INDEPENDENT CONTRACTOR. During the Consulting Period, in
performing services hereunder, Executive will at all times and for all purposes,
constitute an independent contractor and not an employee or agent of the Company
or any of its subsidiaries or affiliates. In no event will Executive be, or
represent himself to be, an officer, employee or agent of the Company or any
subsidiary or affiliate thereof nor will Executive bind, or attempt to bind, the
Company or any subsidiary or affiliate thereof to any contract, agreement,
liability or obligation of any nature. Except as expressly provided herein, the
Company will not be required to provide any benefits to Executive which it
provides to its employees including without limitation retirement plans,
insurance programs and vacation based on services rendered during the Consulting
Period.
23. SECTION HEADINGS. The section headings in this Agreement are for
convenience of reference only, and they form no part of this Agreement and shall
not affect its interpretation.
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24. RESTRICTED STOCK. Executive and the Company agree that Executive
shall waive the accelerated vesting of any shares of common stock of the Company
that are currently subject to a vesting requirement (the "Restricted Stock")
until immediately prior to the Effective Time. Immediately before the Effective
Time, all shares of Restricted Stock shall immediately vest.
25. COOPERATION. Executive agrees to use his best efforts to
cooperate with and assist Philips Medical Systems in its efforts to execute
employment agreements with the executives of the Company, selected by Philips
Medical Systems, under terms and conditions satisfactory to Philips Medical
Systems.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
ATL Ultrasound, Inc.
By: /s/ Pamela L. Dunlap
------------------------------
/s/ Dennis C. Fill
---------------------------------
DENNIS C. FILL
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EMPLOYMENT AND CONSULTING AGREEMENT
AGREEMENT, dated as of July 29, 1998, by and between ATL Ultrasound,
Inc. (the "Company") and Castor F. Diaz ("Executive").
WHEREAS, Executive's current employer, ATL Ultrasound, Inc., has
entered into an Agreement and Plan of Merger, dated as of July 29, 1998 with
Philips Acquisition, Inc. and Philips Electronics North America Corporation (the
"Merger Agreement"); and
WHEREAS, the Company desires to secure the continued employment of
Executive following the successful consummation of the Offer (as such term is
defined in the Merger Agreement); and
WHEREAS, Executive and the Company desire to enter into an agreement
setting forth the terms and conditions of the employment of Executive with the
Company on and after the successful consummation of the Offer;
NOW, THEREFORE, IN CONSIDERATION OF the mutual covenants herein
contained, and other good and valuable consideration, the parties hereto agree
as follows:
1. EMPLOYMENT. Subject to the successful consummation of the Offer,
the Company hereby agrees to employ Executive, and Executive agrees to serve as
an employee of the Company, on the terms and conditions set forth in this
Agreement, effective as of the date of this Agreement. The continuation of such
employment shall be expressly conditioned on and subject to the consummation of
the transactions contemplated by the Merger Agreement. This Agreement shall
become null and void, and shall have no force or effect, if the transactions
contemplated under the Merger Agreement are not consummated; PROVIDED, THAT,
Section 21 of this Agreement shall be deemed to be effective as of the
successful consummation of the Offer. Following the Employment Period (as
defined below) the Company shall engage Executive as a consultant of the Company
in accordance with Section 6 hereof.
2. TERM. The period of employment of Executive by the Company
hereunder (the "Employment Period") shall commence as of the Effective Time (as
defined in the Merger Agreement) (the "Commencement Date") and shall continue
until December 31, 1999, at which time Executive's employment with the Company
shall cease. In accordance with Section 6 hereof, Executive shall serve as a
consultant to the Company for two additional years (the "Consulting Period")
following the Employment Period (the Employment Period and Consulting Period
collectively referred to as the "Term"); PROVIDED, THAT, prior to the
commencement of the Consulting Period, the parties
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may agree by mutual consent to extend the Consulting Period. The Term may be
sooner terminated by either party in accordance with Section 6 of this
Agreement.
3. DUTIES AND RESPONSIBILITIES. During the Employment Period, the
Executive shall serve as the Senior Vice President -- Worldwide Sales and
Marketing of the Company with such duties and responsibilities that are
customary for such a position and shall include those that are assigned to him
by the Company during the Employment Period that are not inconsistent with such
position. During the Employment Period, Executive shall devote substantially
all of his working time, attention and energies during normal business hours
(other than absences due to illness or vacation) to the performance of his
duties for the Company. Upon the prior written approval of the Chief Executive
Officer of the Philips Medical Systems, Executive may serve as a member of the
board of directors of other companies or engage in other outside activities,
provided that such activities do not interfere with Executive's duties
hereunder; provided, further, that if Executive is already a member of any such
board of directors, as set forth on Exhibit A hereof, he shall be entitled to
remain on such board without violating the terms of this Agreement.
4. PLACE OF PERFORMANCE. The principal place of employment of
Executive shall be at the Company's executive offices in Seattle, Washington.
5. COMPENSATION AND RELATED MATTERS.
(a) BASE SALARY AND BONUS. During the Employment Period the
Company shall pay Executive a base salary at the rate of not less than $285,000
per year ("Base Salary") which shall be reviewed annually by the Company.
Executive's Base Salary shall be paid in approximately equal installments in
accordance with the Company's customary payroll practices. If Executive's Base
Salary is increased by the Company, such increased Base Salary shall then
constitute the Base Salary for all purposes of the Agreement. On or about
January 1, 1999, Executive shall be paid an annual bonus equal to the pro rata
portion (based on the number of days elapsed in 1998 through and including the
Effective Time) of the annual bonus that would have been payable under
Executive's annual bonus arrangement in effect on the date hereof based on the
Company's annualized performance through the last full fiscal quarter completed
before the Effective Time; PROVIDED, THAT, for purposes of this sentence,
Executive's maximum annual bonus opportunity shall be deemed to be 50% of Base
Salary. For the remaining period of 1998 following the Effective Time (for
which a bonus may be paid, prorated in the proportion that the number of days
after the Effective Time through December 31, 1998 bears to 365) and during each
subsequent year of the Employment Period, Executive shall be entitled to an
annual incentive bonus ("Bonus"), based upon the achievement of performance
targets, such targets as determined in the sole discretion of the Company, to be
payable at the same time as bonuses are paid to other executive
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officers. Executive's target Bonus shall be 50% of Base Salary, but may be more
or less upon achievement of performance targets.
(b) STOCK OPTION. The Executive shall be granted stock options
(the "Stock Option") to acquire 5,000 shares of the common stock of Royal
Philips Electronics (the "Stock"), pursuant to the Philips Electronics North
America Corporation 1998 Stock Incentive Plan (the "Option Plan"). The Stock
Option shall be granted on the Commencement Date, and shall be granted at an
exercise price per share equal to the fair market value of the Stock
on the date of grant and shall be subject to the general terms of the Option
Plan and the stock option agreement thereunder (the "Option Agreement").
Stock Options granted pursuant to this Section 5(b) shall become exercisable
at a rate of 50% on July 31, 1999 and 50% on December 31, 1999, provided
Executive was an employee on such date, and shall expire ten (10) years
following the date of grant, except as otherwise provided in the Option Plan
or Option Agreement. Notwithstanding the foregoing, the Stock Option shall
remain exercisable until at least the first anniversary of the end of the
Term (not to exceed ten (10) years) unless Executive's employment is
terminated pursuant to Sections 7(d) or 7(f) hereof.
(c) LONG-TERM PERFORMANCE UNIT PLAN. The Company shall
establish the Long-Term Performance Unit Plan which shall provide Executive with
an incentive bonus (the "Incentive Bonus") equal to Executive's Base Salary to
be paid in the first quarter following the end of the Performance Period (the
"Payment Date"), if Executive was either an employee or consultant at the end of
the Term and 75% of the base case strategic plan, as attached as Exhibit B (the
"Strategic Plan") has been achieved during the 1999-2001 performance period (the
"Performance Period") pro-rated, based on the ratio of the number of days in
the Employment Period bears to the number of days in the Performance Period. If
100% of the Strategic Plan is achieved during the Performance Period,
Executive's Incentive Bonus shall be two times Base Salary pro-rated, based on
the ratio of the number of days in the Employment Period bears to the number of
days in the Performance Period. If 100% of the Strategic Plan is achieved,
including synergies, the Incentive Bonus shall be three times Base Salary,
pro-rated, based on the ratio of the number of days in the Employment Period
bears to the number of days in the Performance Period. In the first quarter
following December 31, 1999, Executive shall receive a payment equal to 20% of
Base Salary (an "Advance Payment") which shall reduce the Incentive Bonus, on a
dollar for dollar basis, otherwise payable under this paragraph.
Notwithstanding, the foregoing, if Executive is terminated pursuant to Section
7(e) or 7(g) hereof, Executive shall be entitled to a pro-rata Incentive Bonus,
based on the ratio the number of days worked in the Employment Period bears to
the total number of days in the Performance Period, to be paid on the Payment
Date.
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(d) BENEFIT PLANS. During the Employment Period, Executive
shall be entitled to participate in such employee benefit plans and insurance
programs offered by the Company, or which it may adopt from time to time, for
its executive management or supervisory personnel generally, in accordance with
the eligibility requirements for participation therein. Notwithstanding the
foregoing, Executive shall not be entitled to receive severance pursuant to the
Company's severance plan if he is entitled to receive payments pursuant to
Section 9(c) of this Agreement. Nothing herein shall be construed so as to
prevent the Company from modifying or terminating any employee benefit plans or
programs, or employee fringe benefits, it may adopt from time to time.
(e) VACATION AND SICK LEAVE. During the Employment Period,
Executive shall be entitled to the amount of paid vacation and sick leave that
is provided to other executive offices, in accordance with the Company's
customary practices.
(f) EXPENSES. The Company shall promptly reimburse Executive
for all reasonable business expenses incurred during the Term upon the
presentation of reasonably itemized statements of such expenses in accordance
with the Company's policies and procedures now in force or as such policies and
procedures may be modified with respect to all executive officers of the
Company.
6. CONSULTING ARRANGEMENT. Immediately following the Employment
Period, Executive shall serve as a consultant to the Company during the
Consulting Period. During the Consulting Period, Executive shall make himself
available, at the reasonable request of the Company, for consultation and advice
on matters affecting the business affairs of the Company, by telephonic
conference if reasonably practicable. During the Consulting Period, the Company
shall pay Executive an annual consulting fee equal to $200,000 (the "Consulting
Fee") per year, to be paid in approximately equal installments in accordance
with the Company's customary practices. In addition, until Executive is
eligible for Medicare, he shall be entitled to receive medical benefits (or the
after tax cost of such benefits if they cannot be provided pursuant to the
Company's medical plans) from the Company.
7. TERMINATION. This Agreement shall be terminated upon the
earliest to occur of the following:
(a) EXPIRATION. The expiration of the Term.
(b) DEATH. The death of Executive. Notwithstanding the
foregoing, if Executive should die during the Consulting Period, Executive's
beneficiaries or his estate, as the case may be, shall continue to receive the
Consulting Fee until the end of the year in which his death occurs.
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(c) DISABILITY. If, as a result of Executive's Disability
during the Employment Period, Executive shall have been substantially unable to
perform his duties hereunder for a period of six (6) consecutive months and
within thirty (30) days after written Notice of Termination is given by the
Company after such six (6) month period, Executive shall not have returned to
the substantial performance of his duties. For purposes of this Agreement,
"Disability" shall have the same meaning as that term is defined in the
Company's Long Term Disability Plan; PROVIDED, THAT, if no such plan exists,
"Disability" shall have the same meaning as provided in Section 22(e)(3) of the
Code.
(d) CAUSE. The Company terminates Executive for Cause during
the Employment Period. For purposes of this Agreement, the Company shall have
"Cause" to terminate Executive upon Executive's (i) willful and continued
failure to substantially perform his duties with the Company (other than any
such failure resulting from his incapacity due to physical or mental illness)
after a written demand for substantial performance is delivered to Executive
which identifies the manner in which the Company believes that Executive has not
substantially performed his duties, or (ii) willful misconduct (but excluding
any action that Executive reasonably believes is in the best interests of the
Company) which is materially economically injurious to the Company or to any
entity in control of, controlled by or under common control with the Company (an
"Affiliate"), including, but not limited to, any breach of Sections 10 and 11
hereof, or (iii) the conviction of, or plea of guilty or nolo contendere to, a
felony involving moral turpitude, or (iv) habitual drug or alcohol abuse by
Executive. The Company may not terminate Executive for Cause during the
Consulting Period.
(e) WITHOUT CAUSE. The Company terminates Executive hereunder
without Cause by providing Executive with a Notice of Termination.
(f) VOLUNTARY TERMINATION. Executive terminates this Agreement
at any time upon ninety (90) days prior written notice to the Company.
(g) MATERIAL BREACH. Executive terminates his employment for a
material breach of this Agreement by the Company. For purposes of this
Agreement, a "material breach" shall be deemed to occur upon a failure by the
Company to comply with any material provision of this Agreement without
Executive's written consent, including, but not limited to, (i) a material
diminution in Executive's position, duties, status, authority or responsibility
as set forth under the terms of this Agreement, (ii) a reduction in Base Salary,
Bonus or Incentive Bonus opportunity, or (iii) a relocation of the Executive to
a location more than 50 miles from his present location, which in the case of
any alleged violation of this paragraph (g), has not been cured in all material
respects within thirty (30) days after written notice of such noncompliance has
been given by Executive to the Company.
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8. TERMINATION PROCEDURE.
(a) NOTICE OF TERMINATION. Any termination of Executive by the
Company or by Executive (other than termination pursuant to Section 7(a) or (b)
hereof) shall be communicated by written Notice of Termination to the other
party hereto in accordance with Section 14. For purposes of this Agreement, a
"Notice of Termination" shall mean a notice which shall indicate the specific
termination provision in this Agreement relied upon and shall set forth in
reasonable detail the facts and circumstances claimed to provide a basis for
termination of Executive under the provisions so indicated.
(b) DATE OF TERMINATION. "Date of Termination" shall mean
(i) if Executive is terminated by the expiration of this Agreement, the date of
expiration, (ii) if Executive is terminated by his death, the date of his death,
(iii) if Executive is terminated pursuant to Section 7(c) hereof, thirty (30)
days after Notice of Termination is given (provided that Executive shall not
have again become available for service on a regular basis during such thirty
(30) day period), (iv) if Executive is terminated pursuant to Sections 7(d),
7(e), 7(f), or 7(g) the date specified in the Notice of Termination, and (v) if
Executive is terminated for any other reason, the date on which a Notice of
Termination is given.
9. AMOUNTS DUE UPON TERMINATION OR DURING DISABILITY. In the event
Executive is disabled or his relationship with the Company terminates during the
Term, the Company shall provide Executive with the payments set forth below.
Executive acknowledges and agrees that the payments set forth in this Section 9
constitute liquidated damages for termination of this Agreement during the Term.
(a) During any period that Executive fails to perform his duties
hereunder during the Employment Period as a result of Disability ("disability
period"), Executive shall continue to receive his Base Salary, as the case may
be, at the rate then in effect for such period until this Agreement is
terminated pursuant to Section 7(c) hereof; PROVIDED, THAT, payments so made to
Executive during the first six (6) months of the disability period shall be
reduced by the sum of the amounts, if any, paid to the Executive at or prior to
the time of any such payment under disability benefit plans of the Company or
under the Social Security disability insurance program, and which amounts were
not previously applied to reduce any such payment. Executive shall also be
entitled to any other benefits or payments provided pursuant to any plan or
policy of the Company in accordance with such plan's or policy's terms.
(b) If Executive is terminated pursuant to Sections 7(a), 7(b),
7(d), or 7(f) the Company shall pay Executive his accrued, but unpaid Base
Salary and Bonus or Consulting Fee, as the case may be, through the Date of
Termination at the rate
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in effect at the time Notice of Termination is given, and (subject to 7(b)) the
Company shall have no further obligations to Executive under this Agreement;
PROVIDED, THAT, Executive shall be entitled to any other benefit or payment
provided pursuant to any plan or policy of the Company in accordance with such
plan's or policy's terms.
(c) If Executive's employment is terminated pursuant to Sections
7(e) or 7(g), the Company shall pay to Executive his (A) Base Salary or
Consulting Fee, as the case may be, accrued through the Date of Termination, (B)
if during the Employment Term, a lump-sum payment equal to the remaining Base
Salary, Average Bonus (as defined below) and Consulting Fee that would have been
paid to Executive had this Agreement continued through the Term (the "Remaining
Term"), and (C) if during the Consulting Term, all remaining amounts that would
have been paid under Section 6 had this Agreement continued through the end of
the Term. All such payments shall be made as soon as administratively feasible
following such termination. Executive shall also be entitled to any other
benefits or payments provided pursuant to any plan or policy of the Company in
accordance with such plan's or policy's terms, except as provided in Section
5(d). For purposes of the foregoing, "Average Bonus" means the average annual
bonus paid to Executive by the Company (or its successors) during the three year
period immediately preceding his Date of Termination.
(d) CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY.
(i) Notwithstanding anything in this Agreement to the
contrary, in the event it shall be determined that any payment, award, benefit
or distribution (or any acceleration of any payment, award, benefit or
distribution) by the Company (or any of its affiliated entities) or any entity
which effectuates (or has previously effectuated) a change in control (or any of
its affiliated entities) to or for the benefit of Executive (whether pursuant to
the terms of this Agreement or otherwise) (the "Payments") would be subject to
the excise tax (the "Excise Tax") under Section 4999 of the Internal Revenue
Code of 1986, as amended (the "Code"), then the amounts payable to Executive
under this Agreement shall be the greater of (A) the Payment, if the result of
subtracting the Excise Tax from the Payment is more than the Safe Harbor Cap and
(B) the Payment, reduced to the maximum amount as will result in no portion of
the Payments being subject to the Excise Tax (the "Safe Harbor Cap"), reducing
first the payments under Section 9(c)(B), unless an alternative method of
reduction is elected by Executive. For purposes of reducing the Payments to the
Safe Harbor Cap, only amounts payable to Executive under this Agreement (and no
other Payments) shall be reduced, unless consented to by Executive.
(ii) All determinations required to be made under this
Section 9 shall be made by the nationally recognized public accounting firm that
is selected by Executive (the "Accounting Firm"). If payments are reduced to
the Safe
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Harbor Cap, the Accounting Firm shall provide a reasonable opinion to Executive
that he is not required to report any Excise Tax on his federal income tax
return. All fees, costs and expenses (including, but not limited to, the costs
of retaining experts) of the Accounting Firm shall be borne by the Company. The
determination by the Accounting Firm shall be binding upon the Company and
Executive (except as provided in paragraph (iii) below).
(iii) If payments are reduced to the Safe Harbor Cap as
provided in Section 9(d)(i)(B) and if it is established pursuant to a final
determination of a court or an Internal Revenue Service (the "IRS") proceeding
which has been finally and conclusively resolved, that Payments have been made
to, or provided for the benefit of, Executive by the Company, which are in
excess of the limitations provided in this Section 9(d)(i)(B) (hereinafter
referred to as an "Excess Payment"), such Excess Payment shall be deemed for all
purposes to be a loan to Executive made on the date Executive received the
Excess Payment and Executive shall repay the Excess Payment to the Company on
demand, together with interest on the Excess Payment at the applicable federal
rate (as defined in Section 1274(d) of the Code) from the date of Executive's
receipt of such Excess Payment until the date of such repayment. As a result of
the uncertainty in the application of Section 4999 of the Code at the time of
the determination, it is possible that Payments which will not have been made by
the Company should have been made (an "Underpayment"), consistent with the
calculations required to be made under this Section 8. In the event that it is
determined (A) by the Accounting Firm, the Company (which shall include the
position taken by the Company, or together with its consolidated group, on its
federal income tax return) or the IRS or (B) pursuant to a determination by a
court, that an Underpayment has occurred, the Company shall pay an amount equal
to such Underpayment to Executive within ten (10) days of such determination
together with interest on such amount at the applicable federal rate from the
date such amount would have been paid to Executive until the date of payment.
10. CONFIDENTIAL INFORMATION; REMOVAL OF DOCUMENTS AND
NON-DISPARAGEMENT.
(a) Executive shall hold in a fiduciary capacity for the benefit
of the Company all secret or confidential information, knowledge or data
relating to the Company or any Affiliate, and their respective businesses
("Confidential Information") which shall have been obtained by Executive during
Executive's employment by the Company or any Affiliate and which shall not be or
become public knowledge (other than by acts by Executive or representatives of
Executive in violation of this Agreement). After termination of Executive's
employment with the Company, Executive shall not, without the prior written
consent of the Company or as may otherwise be required by law or legal process,
communicate or divulge any such information, knowledge or data to anyone other
than the Company and those designated by it.
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(b) All records, files, drawings, documents, models, equipment,
and the like containing Confidential Information or needed in the Company's
business which Executive has control over shall not be removed from the
Company's premises without its written consent, unless such removal is in the
furtherance of the Company's business or is in connection with Executive's
carrying out his duties under this Agreement and, if so removed, shall be
returned to the Company promptly after termination of Executive's employment
hereunder, or otherwise promptly after removal if such removal occurs following
termination. Executive's rolodex, telephone directory and similar type items,
and furniture, art work and property owned by Executive or otherwise not owned
by the Company shall not be deemed Company property and shall not be covered by
this Section 10(b). The Company shall be the owner of all trade secrets and
other products relating to the Company's business developed by Executive alone
or in conjunction with others as part of his services with the Company.
(c) Executive agrees that during the Term and for a period of one
year thereafter, he will not and that his attorneys, agents, or other
representatives shall not (i) take any action or make or publish any statement,
whether oral or written, which disparages in any way the Company or any or all
of its present or former employees, principals, directors, partners, or
affiliates, including, without limitation, any disparaging statement which
interferes in any way with the ability of the Company or any of its affiliates
to market their services, products, to retain existing client relationships, or
to obtain new client relationships; (ii) make any statements in any public forum
or statements intended for publication in the public media, which are reasonably
likely to negatively affect the standing of the Company or its affiliates.
11. NON-COMPETITION.
(a) In consideration of the benefits to be provided to Executive
hereunder, Executive covenants that he will not, without the prior written
consent of the Company, during the Term and the twelve (12) month period
thereafter or, if terminated pursuant to Sections 7(e) or 7(g) hereof, the
Remaining Period, if greater (the "Restriction Period"), engage in any way,
directly or indirectly, in any business whose product or activities directly
compete with the products or activities of Philips Medical Systems or the
Company anywhere where Philips Medical Systems or the Company conducts such
businesses, other than in his capacity as an employee or consultant of the
Company.
(b) Executive hereby covenants and agrees that, at all times
during the Restriction Period, Executive shall not employ or seek to employ any
person employed at that time by Philips Medical Systems or the Company, or
otherwise encourage or entice such person or entity to leave such employment.
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(c) Executive hereby covenants and agrees that, at all times
during the Restriction Period, Executive will not (i) pursue or attempt to
develop any project known to Executive and which Philips Medical Systems or the
Company are pursuing, developing or attempting to develop as of the Date of
Termination ("Project"), directly or indirectly, alone, in association with or
as a shareholder, principal, agent, partner, officer, director, employee or
consultant of any other organization or (ii) divert to any entity which is
engaged in any business conducted by Philips Medical Systems or the Company in
the same geographic area as Philips Medical Systems or the Company, any Project
or any customer of Philips Medical Systems or the Company.
(d) Executive acknowledges that the restrictions, prohibitions
and other provisions of this Section 11 are reasonable, fair and equitable in
scope, terms and duration, are necessary to protect the legitimate business
interests of the Company and are a material inducement to the Company to enter
into this Agreement. It is the intention of the parties hereto that the
restrictions contained in this paragraph be enforceable to the fullest extent
permitted by applicable law. Therefore, to the extent any court of competent
jurisdiction shall determine that any portion of the foregoing restrictions is
excessive, such provision shall not be entirely void, but rather shall be
limited or revised only to the extent necessary to make it enforceable.
12. REMEDY. Should Executive engage in or perform any of the acts
prohibited by Sections 10 and 11, it is agreed that the Company shall be
entitled to full injunctive relief, to be issued by any competent court of
equity, enjoining and restraining Executive and each and every other person,
firm, organization, association, or corporation concerned therein, from the
continuance of such violative acts. The foregoing remedy available to Company
shall not be deemed to limit or prevent the exercise by the Company of any or
all further rights and remedies which may be available to the Company hereunder
or at law or in equity.
13. SUCCESSORS; BINDING AGREEMENT. This Agreement shall be binding
upon and shall inure to the benefit of Executive, his heirs, executors,
administrators, beneficiaries and assigns and shall be binding upon and shall
inure to the benefit of the Company and its successors.
14. NOTICE. For the purposes of this Agreement, notices, demands and
all other communications provided for in this Agreement shall be in writing and
shall be deemed to have been duly given when delivered either personally or by
United States certified or registered mail, return receipt requested, postage
prepaid, addressed, in case
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of Executive, to the last address on file with the Company and if to the
Company, to its executive offices or to such other address as any party may have
furnished to the others in writing in accordance herewith, except that notices
of change of address shall be effective only upon receipt.
15. RESOLUTION OF DIFFERENCES OVER BREACHES OF AGREEMENT. The
parties shall use good faith efforts to resolve any controversy or claim arising
out of, or relating to this Agreement or the breach thereof, first in accordance
with the Company's internal review procedures, except that this requirement
shall not apply to any claim or dispute under or relating to Sections 10 or 11
of this Agreement. If despite their good faith efforts, the parties are unable
to resolve such controversy or claim through the Company's internal review
procedures, then such controversy or claim shall be resolved by a court of law.
If any contest or dispute shall arise between the Company and Executive
regarding any provision of this Agreement, the each party shall be responsible
for paying all of its own legal fees and expenses incurred in connection with
such contest or dispute.
16. GOVERNING LAW. This Agreement is governed by, and is to be
construed and enforced in accordance with, the laws of the State of Washington,
without regard to principles of conflicts of laws. If, under such law, any
portion of this Agreement is at any time deemed to be in conflict with any
applicable statute, rule, regulation or ordinance, such portion shall be deemed
to be modified or altered to conform thereto or, if that is not possible, to be
omitted from this Agreement, and the invalidity of any such portion shall not
affect the force, effect and validity of the remaining portion hereof.
17. AMENDMENT. No provisions of this Agreement may be amended,
modified, or waived unless such amendment or modification is agreed to in
writing signed by Executive and by a duly authorized officer of the Company, and
such waiver is set forth in writing and signed by the party to be charged. No
waiver by either party hereto at any time of any breach by the other party
hereto of any condition or provision of this Agreement to be performed by such
other party shall be deemed a waiver of similar or dissimilar provisions or
conditions at the same or at any prior or subsequent time.
18. SURVIVAL. The respective obligations of, and benefits afforded
to, Executive and Company as provided in Sections 10 and 11 of this Agreement
shall survive the termination of this Agreement.
19. NO CONFLICT OF INTEREST. During the Employment Period, Executive
shall not directly, or indirectly render service, or undertake any employment or
consulting agreement with another entity without the express written consent of
the Company.
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20. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
21. ENTIRE AGREEMENT. This Agreement sets forth the entire agreement
of the parties hereto (and in the case of the Company, its predecessors) in
respect of the subject matter contained herein and supersede all prior
agreements, promises, covenants, arrangements, communications, representations
or warranties, whether oral or written, by any officer, employee or
representative of any party hereto in respect of such subject matter, including,
but not limited to, the Employment Agreement by and between ATL Ultrasound, Inc.
and Executive, dated as of the first day of January, 1997 and any and all
amendments made subsequent thereto (the "Prior Agreement"), as of the successful
consummation of the Offer, and such Prior Agreement shall be void and of no
further force or effect. Any prior agreement of the parties hereto in respect
of the subject matter contained herein is hereby terminated and canceled, as of
the successful consummation of the Offer; PROVIDED THAT, this Agreement shall
not modify or terminate the provisions of any compensation or benefit plan
providing benefits upon a change in control of the Company (excluding the Prior
Agreement); PROVIDED, FURTHER, that Executive acknowledges and agrees that he
will be paid no more than 23%, 0.0% and 23.4% of Base Salary under the 1996-98,
1997-99 and 1998-00 performance cycles, respectively, under the Company's Long
Term Incentive Plan (the "Plan"), effective as of January 1, 1993 and waives all
rights for any other payments under such Plan upon payment of such amounts.
Executive acknowledges that in consideration of the benefits to be provided
hereunder, he has waived, as of the successful consummation of the Offer, all of
his rights under the Prior Agreement, including, but not limited to Section 6
thereof.
22. INDEPENDENT CONTRACTOR. During the Consulting Period, in
performing services hereunder, Executive will at all times and for all purposes,
constitute an independent contractor and not an employee or agent of the Company
or any of its subsidiaries or affiliates. In no event will Executive be, or
represent himself to be, an officer, employee or agent of the Company or any
subsidiary or affiliate thereof nor will Executive bind, or attempt to bind, the
Company or any subsidiary or affiliate thereof to any contract, agreement,
liability or obligation of any nature. Except as expressly provided herein, the
Company will not be required to provide any benefits to Executive which it
provides to its employees including without limitation retirement plans,
insurance programs and vacation based on services rendered during the Consulting
Period.
23. SECTION HEADINGS. The section headings in this Agreement are for
convenience of reference only, and they form no part of this Agreement and shall
not affect its interpretation.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
ATL Ultrasound, Inc.
By: /s/ Dennis C. Fill
-------------------------------
/s/ Castor F. Diaz
----------------------------------
CASTOR F. DIAZ
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EXHIBIT A
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EXHIBIT B
1999-2001 Strategic Plan (*)
Income Statement 1999 2000 2001
- ------------------------------------------------------------------
Total Product Revenue 427.9 466.5 511.0
Product Gross Profit 233.9 266.2 292.6
- ------------------------------------------------------------------
Service Revenue 103.4 109.4 115.7
Service Gross Profit 43.9 47.2 50.6
- ------------------------------------------------------------------
Total Revenue $ 531.3 $ 575.9 $ 626.7
Total Gross Profit $ 277.8 $ 313.4 $ 343.2
Gross Margin 52.3% 54.4% 54.8%
- ------------------------------------------------------------------
Operating Expenses
Selling and Marketing 110.1 118.0 126.8
% Revenue 20.7% 20.5% 20.2%
General & Admin 41.6 43.6 46.1
% Revenue 7.8% 7.6% 7.4%
R&D Expense 63.2 67.0 72.0
% Revenue 11.9% 11.6% 11.5%
Other 3.6 6.2 7.8
- ------------------------------------------------------------------
Total Operating Expense $ 218.5 $ 234.8 $ 252.6
41% 41% 40%
- ------------------------------------------------------------------
Operating Income $ 59.3 $ 78.6 $ 90.6
- ------------------------------------------------------------------
- --------------------------
(*) The synergies expected to be realized as a result of the Merger will be
between $50 and $70 million, as mutually agreed upon by the parties.
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EMPLOYMENT AGREEMENT
AGREEMENT, dated as of July 29, 1998, by and between ATL Ultrasound,
Inc. (the "Company") and Donald Blem ("Executive").
WHEREAS, Executive's current employer, ATL Ultrasound, Inc., has
entered into an Agreement and Plan of Merger, dated as of July 29, 1998 with
Philips Acquisition, Inc. and Philips Electronics North America Corporation (the
"Merger Agreement"); and
WHEREAS, the Company desires to secure the continued employment of
Executive following the successful consummation of the Offer (as such term is
defined in the Merger Agreement); and
WHEREAS, Executive and the Company desire to enter into an agreement
setting forth the terms and conditions of the employment of Executive with the
Company on and after the successful consummation of the Offer;
NOW, THEREFORE, IN CONSIDERATION OF the mutual covenants herein
contained, and other good and valuable consideration, the parties hereto agree
as follows:
1. EMPLOYMENT. Subject to the successful consummation of the Offer,
the Company hereby agrees to employ Executive, and Executive agrees to serve as
an employee of the Company, on the terms and conditions set forth in this
Agreement, effective as of the date of this Agreement. The continuation of such
employment shall be expressly conditioned on and subject to the consummation of
the transactions contemplated by the Merger Agreement; PROVIDED, THAT, Section
20 of this Agreement shall be deemed to be effective as of successful
consummation of the Offer. This Agreement shall become null and void, and shall
have no force or effect, if the transactions contemplated under the Merger
Agreement are not consummated.
2. EMPLOYMENT PERIOD. The "Employment Period" shall be the period
commencing on the Effective Time (as defined in the Merger Agreement) and ending
on December 31, 2001.
3. DUTIES AND RESPONSIBILITIES. During the Employment Period,
Executive shall serve as the Senior Vice President of Operations of the Company
with such duties and responsibilities that are customary for such position and
shall include those that are assigned to him by the Company during the
Employment Period that are not inconsistent with such position. Executive shall
devote substantially all of his working time, attention and energies during
normal business hours (other than absences
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due to illness or vacation) to the performance of his duties for the Company.
Upon the prior written approval of the Chief Executive Officer of the Philips
Medical Systems, Executive may serve as a member of the board of directors of
other companies or engage in other outside activities, provided that such
activities do not interfere with Executive's duties hereunder; provided,
further, that if Executive is already a member of any such board of directors,
as set forth on Exhibit A hereof, he shall be entitled to remain on such board
without violating the terms of this Agreement.
4. PLACE OF PERFORMANCE. The principal place of employment of
Executive shall be at the Company's executive offices in Seattle, Washington.
5. COMPENSATION AND RELATED MATTERS.
(a) BASE SALARY AND BONUS. During the Employment Period the
Company shall pay Executive a base salary at the rate of not less than $ 245,000
per year ("Base Salary") which shall be annually reviewed by the Company.
Executive's Base Salary shall be paid in approximately equal installments in
accordance with the Company's customary payroll practices. If Executive's Base
Salary is increased by the Company, such increased Base Salary shall then
constitute the Base Salary for all purposes of the Agreement. On or about
January 1, 1999, Executive shall be paid an annual bonus equal to the pro rata
portion (based on the number of days elapsed in 1998 through and including the
Effective Time) of the annual bonus that would have been payable under
Executive's annual bonus arrangement in effect on the date hereof based on the
Company's annualized performance through the last full fiscal quarter completed
before the Effective Time; PROVIDED, THAT for purposes of this sentence,
Executive's maximum annual bonus opportunity shall be deemed to be 50% of Base
Salary. For the remaining period of 1998 following the Effective Time (for
which a bonus may be paid, prorated in the proportion that the number of days
after the Effective Time through December 31, 1998 bears to 365) and during each
subsequent year of the Employment Period, Executive shall be entitled to an
annual incentive bonus ("Bonus"), based upon the achievement of performance
targets, such targets as determined in the sole discretion of the Company, to be
payable at the same time as bonuses are paid to other executive officers.
Executive's target Bonus shall be 50% of Base Salary, but may be more or less
upon achievement of performance targets.
(b) STOCK OPTION. (i) The Executive shall be granted stock
options (the "Stock Option") to acquire 5,000 shares of the common stock of
Royal Philips Electronics (the "Stock"), pursuant to the Philips Electronics
North America Corporation 1998 Stock Incentive Plan (the "Option Plan"). The
Stock Option shall be granted on the Effective Time, and shall be granted at
an exercise price per share equal to the fair market value of the Stock on
the date of grant and shall be subject to the general terms of the Option
Plan and the stock
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option agreement thereunder (the "Option Agreement"). Stock Options granted
pursuant to this Section 5(b)(i) shall become exercisable at a rate of
33-1/3% on each of the first, second and third anniversaries of the date of
grant, provided Executive remains an employee on such date, and shall expire
ten (10) years following the date of grant, except as otherwise provided in
the Option Plan or Option Agreement. Notwithstanding the foregoing, if
Executive is terminated pursuant to Sections 6(e) or 6(g) hereof, such Stock
Option shall become immediately exercisable and shall remain exercisable for
one-year following such termination.
(ii) Beginning in the year 2000, Executive shall be eligible for
option grants on the same basis as other senior executives of the Company.
(c) LONG-TERM PERFORMANCE UNIT PLAN. The Company shall
establish the Long-Term Performance Unit Plan which shall provide Executive with
a bonus (the "Incentive Bonus") equal to Executive's Base Salary, to be paid in
the first quarter following the end of the Performance Period (the "Payment
Date"), if Executive is an employee on the last day of the Performance Period
and 75% of the base case strategic plan, as attached as Exhibit B (the
"Strategic Plan") has been achieved during the 1999-2001 performance period (the
"Performance Period"). If 100% of the Strategic Plan is achieved during the
Performance Period, Executive's Incentive Bonus shall be two times Base Salary
and if 100% of the Strategic Plan is achieved, including synergies, the
Incentive Bonus shall be three times Base Salary. In the first quarter
following December 31, 1999 and December 31, 2000, Executive shall receive a
payment equal to 20% of Base Salary (each, an "Advance Bonus") which shall
reduce the Incentive Bonus, on a dollar for dollar basis, otherwise payable
under this paragraph. Notwithstanding the foregoing, if Executive is terminated
pursuant to Sections 6(e) or 6(g) hereof, Executive shall be entitled to a
pro-rata Incentive Bonus, based on the ratio the number of days worked in the
Performance Period bears to the total number of days in the Performance Period,
to be paid on the Payment Date.
(d) BENEFIT PLANS. Executive shall be entitled to participate
in such employee benefit plans and insurance programs offered by the Company, or
which it may adopt from time to time, for its executive management or
supervisory personnel generally, in accordance with the eligibility requirements
for participation therein. Notwithstanding the foregoing, Executive shall not
be entitled to receive severance pursuant to the Company's severance plan if he
is entitled to receive payments pursuant to Section 8(c) of this Agreement.
Nothing herein shall be construed so as to prevent the Company from modifying or
terminating any employee benefit plans or programs, or employee fringe benefits,
it may adopt from time to time.
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(e) VACATION AND SICK LEAVE. Executive shall be entitled to the
amount of paid vacation and sick leave that is provided to other executive
officers, in accordance with the Company's customary practices.
(f) EXPENSES. The Company shall promptly reimburse Executive
for all reasonable business expenses upon the presentation of reasonably
itemized statements of such expenses in accordance with the Company's policies
and procedures now in force or as such policies and procedures may be modified
with respect to all executive officers of the Company.
6. TERMINATION. This Agreement shall be terminated upon the
earliest to occur of the following:
(a) EXPIRATION. The expiration of the Employment Period.
(b) DEATH. The death of Executive.
(c) DISABILITY. If, as a result of Executive's Disability,
Executive shall have been substantially unable to perform his duties hereunder
for a period of six (6) consecutive months and within thirty (30) days after
written Notice of Termination is given by the Company after such six (6) month
period, Executive shall not have returned to the substantial performance of his
duties on a full-time basis. For purposes of this Agreement, "Disability" shall
have the same meaning as that term is defined in the Company's Long Term
Disability Plan; PROVIDED, THAT, if no such plan exists, "Disability" shall have
the same meaning as provided in Section 22(e)(3) of the Code.
(d) CAUSE. The Company terminates Executive for Cause. For
purposes of this Agreement, the Company shall have "Cause" to terminate
Executive's employment upon Executive's (i) willful and continued failure to
substantially perform his duties with the Company (other than any such failure
resulting from his incapacity due to physical or mental illness) after a written
demand for substantial performance is delivered to Executive which identifies
the manner in which the Company believes that Executive has not substantially
performed his duties, or (ii) willful misconduct (but excluding any action that
Executive reasonably believes is in the best interests of the Company) which is
materially economically injurious to the Company or to any entity in control of,
controlled by or under common control with the Company (an "Affiliate"),
including, but not limited to, any breach of Sections 9 and 10 hereof, or
(iii) the conviction of, or plea of guilty or nolo contendere to, a felony
involving moral turpitude, or (iv) habitual drug or alcohol abuse by Executive.
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(e) WITHOUT CAUSE. The Company terminates Executive's
employment hereunder without Cause by providing Executive with a Notice of
Termination.
(f) VOLUNTARY TERMINATION. Executive terminates this Agreement
and Executive's employment hereunder at any time upon ninety (90) days prior
written notice to the Company.
(g) MATERIAL BREACH. Executive terminates his employment for a
material breach of this Agreement by the Company. For purposes of this
Agreement, a "material breach" shall be deemed to occur upon a failure by the
Company to comply with any material provision of this Agreement without
Executive's written consent, including, but not limited to, (i) a material
diminution in Executive's position, duties, status, authority or responsibility
as set forth under the terms of this Agreement, (ii) a reduction in Base Salary,
Bonus or Incentive Bonus opportunity, or (iii) a relocation of the Executive to
a location more than 50 miles from his present location, which in the case of
any alleged violation of this paragraph (g), has not been cured in all material
respects within thirty (30) days after written notice of such noncompliance has
been given by Executive to the Company.
7. TERMINATION PROCEDURE.
(a) NOTICE OF TERMINATION. Any termination of Executive by the
Company or by Executive (other than termination pursuant to Section 6(a) or (b)
hereof) shall be communicated by written Notice of Termination to the other
party hereto in accordance with Section 13. For purposes of this Agreement, a
"Notice of Termination" shall mean a notice which shall indicate the specific
termination provision in this Agreement relied upon and shall set forth in
reasonable detail the facts and circumstances claimed to provide a basis for
termination of Executive under the provisions so indicated.
(b) DATE OF TERMINATION. "Date of Termination" shall mean
(i) if Executive's employment is terminated by the expiration of this Agreement,
the date of expiration, (ii) if Executive's employment is terminated by his
death, the date of his death, (iii) if Executive's employment is terminated
pursuant to Section 6(c) hereof, thirty (30) days after Notice of Termination is
given (provided that Executive shall not have again become available for service
on a regular basis during such thirty (30) day period), (iv) if Executive's
employment is terminated pursuant to Sections 6(d), 6(e), or 6(g) the date
specified in the Notice of Termination, and (v) if Executive's employment is
terminated for any other reason, the date on which a Notice of Termination is
given.
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8. AMOUNTS DUE UPON TERMINATION OR DURING DISABILITY. In the event
Executive is disabled or his employment terminates during the Employment Period,
the Company shall provide Executive with the payments set forth below.
Executive acknowledges and agrees that the payments set forth in this Section 8
constitute liquidated damages for termination of his employment during the
Employment Period.
(a) During any period that Executive fails to perform his duties
hereunder as a result of Disability ("disability period"), Executive shall
continue to receive his Base Salary at the rate then in effect for such period
until his employment is terminated pursuant to Section 6(c) hereof; PROVIDED,
THAT, payments so made to Executive during the first six (6) months of the
disability period shall be reduced by the sum of the amounts, if any, paid to
the Executive at or prior to the time of any such payment under disability
benefit plans of the Company or under the Social Security disability insurance
program, and which amounts were not previously applied to reduce any such
payment. Executive shall also be entitled to any other benefits or payments
provided pursuant to any plan or policy of the Company in accordance with such
plan's or policy's terms.
(b) If Executive is terminated pursuant to Sections 6(a), 6(b),
6(d), or 6(f) the Company shall pay Executive his accrued, but unpaid Base
Salary and Bonus through the Date of Termination at the rate in effect at the
time Notice of Termination is given, and the Company shall have no further
obligations to Executive under this Agreement; PROVIDED, THAT, Executive shall
be entitled to any other benefit or payment provided pursuant to any plan or
policy of the Company in accordance with such plan's or policy's terms.
(c) If Executive's employment is terminated pursuant to Sections
6(e) or 6(g), the Company shall pay to Executive his (A) Base Salary accrued
through the Date of Termination and (B) a lump-sum payment equal to the
remaining Base Salary and Average Bonus (as defined below) that would have been
paid to Executive had his employment continued through the Employment Period
(the "Remaining Period"); PROVIDED THAT, Executive shall be entitled to a
minimum payment of one (1) times Executive's then current Base Salary and
Average Bonus. All such payments shall be made as soon as administratively
feasible following such termination. Executive shall also be entitled to any
other benefits or payments provided pursuant to any plan or policy of the
Company in accordance with such plan's or policy's terms, except as provided in
Section 5(d). For purposes of the foregoing, "Average Bonus" means the average
annual Bonus paid to Executive by the Company (or its successors) during the
three year period immediately preceding his Date of Termination.
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(d) CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY.
(i) Notwithstanding anything in this Agreement to the contrary,
in the event it shall be determined that any payment, award, benefit or
distribution (or any acceleration of any payment, award, benefit or
distribution) by the Company (or any of its affiliated entities) or any entity
which effectuates (or has previously effectuated) a change in control (or any of
its affiliated entities) to or for the benefit of Executive (whether pursuant to
the terms of this Agreement or otherwise) (the "Payments") would be subject to
the excise tax (the "Excise Tax") under Section 4999 of the Internal Revenue
Code of 1986, as amended (the "Code"), then the amounts payable to Executive
under this Agreement shall be the greater of (A) the Payment, if the result of
subtracting the Excise Tax from the Payment is more than the Safe Harbor Cap and
(B) the Payment, reduced to the maximum amount as will result in no portion of
the Payments being subject to the Excise Tax (the "Safe Harbor Cap"), reducing
first the payments under Section 8(c)(B), unless an alternative method of
reduction is elected by Executive. For purposes of reducing the Payments to the
Safe Harbor Cap, only amounts payable to Executive under this Agreement (and no
other Payments) shall be reduced, unless consented to by Executive.
(ii) All determinations required to be made under this Section 8
shall be made by the nationally recognized public accounting firm that is
selected by Executive (the "Accounting Firm"). If payments are reduced to the
Safe Harbor Cap, the Accounting Firm shall provide a reasonable opinion to
Executive that he is not required to report any Excise Tax on his federal income
tax return. All fees, costs and expenses (including, but not limited to, the
costs of retaining experts) of the Accounting Firm shall be borne by the
Company. The determination by the Accounting Firm shall be binding upon the
Company and Executive (except as provided in paragraph (iii) below).
(iii) If payments are reduced to the Safe Harbor Cap as
provided in Section 8(d)(i)(B) and if it is established pursuant to a final
determination of a court or an Internal Revenue Service (the "IRS") proceeding
which has been finally and conclusively resolved, that Payments have been made
to, or provided for the benefit of, Executive by the Company, which are in
excess of the limitations provided in this Section 8(d)(i)(B) (hereinafter
referred to as an "Excess Payment"), such Excess Payment shall be deemed for all
purposes to be a loan to Executive made on the date Executive received the
Excess Payment and Executive shall repay the Excess Payment to the Company on
demand, together with interest on the Excess Payment at the applicable federal
rate (as defined in Section 1274(d) of the Code) from the date of Executive's
receipt of such Excess Payment until the date of such repayment. As a result of
the uncertainty in the application of Section 4999 of the Code at the time of
the determination, it is possible that Payments which will not have been made by
the Company should have been made (an "Underpayment"), consistent with the
calculations required to be made under this
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Section 8. In the event that it is determined (A) by the Accounting Firm, the
Company (which shall include the position taken by the Company, or together with
its consolidated group, on its federal income tax return) or the IRS or (B)
pursuant to a determination by a court, that an Underpayment has occurred, the
Company shall pay an amount equal to such Underpayment to Executive within ten
(10) days of such determination together with interest on such amount at the
applicable federal rate from the date such amount would have been paid to
Executive until the date of payment.
9. CONFIDENTIAL INFORMATION AND REMOVAL OF DOCUMENTS.
(a) Executive shall hold in a fiduciary capacity for the benefit
of the Company all secret or confidential information, knowledge or data
relating to the Company or any Affiliate, and their respective businesses
("Confidential Information"), which shall have been obtained by Executive during
Executive's employment by the Company or any Affiliate and which shall not be or
become public knowledge (other than by acts by Executive or representatives of
Executive in violation of this Agreement). After termination of Executive's
employment with the Company, Executive shall not, without the prior written
consent of the Company or as may otherwise be required by law or legal process,
communicate or divulge any such information, knowledge or data to anyone other
than the Company and those designated by it.
(b) All records, files, drawings, documents, models, equipment,
and the like containing Confidential Information or needed in the Company's
business which Executive has control over shall not be removed from the
Company's premises without its written consent, unless such removal is in the
furtherance of the Company's business or is in connection with Executive's
carrying out his duties under this Agreement and, if so removed, shall be
returned to the Company promptly after termination of Executive's employment
hereunder, or otherwise promptly after removal if such removal occurs following
termination of employment. Executive's rolodex, telephone directory and similar
type items, and furniture, art work and property owned by Executive or otherwise
not owned by the Company shall not be deemed Company property and shall not be
covered by this Section 9(b). The Company shall be the owner of all trade
secrets and other products relating to the Company's business developed by
Executive alone or in conjunction with others as part of his employment with the
Company.
10. NON-COMPETITION.
(a) In consideration of the benefits to be provided to Executive
hereunder, Executive covenants that he will not, without the prior written
consent of the Company, during the Employment Period and the twelve (12) month
period following his termination of employment for any reason or, if terminated
pursuant to Section 6(e)
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hereof, the Remaining Period, if greater (the "Restriction Period"), engage in
any way, directly or indirectly, in any business whose product or activities
directly compete with the products or activities of Philips Medical Systems or
the Company anywhere where Philips Medical Systems or the Company conducts its
businesses, other than in his capacity as an employee of the Company.
(b) Executive hereby covenants and agrees that, at all times
during the Employment Period and for a period of one (1) years immediately
following his termination for any reason, Executive shall not employ or seek to
employ any person employed at that time by Philips Medical Systems or the
Company, or otherwise encourage or entice such person or entity to leave such
employment.
(c) Executive hereby covenants and agrees that, at all times
during the Restriction Period, Executive will not (i) pursue or attempt to
develop any project known to Executive and which Philips Medical Systems or the
Company are pursuing, developing or attempting to develop as of the Date of
Termination ("Project"), directly or indirectly, alone, in association with or
as a shareholder, principal, agent, partner, officer, director, employee or
consultant of any other organization or (ii) divert to any entity which is
engaged in any business conducted by Philips Medical Systems or the Company in
the same geographic area as Philips Medical Systems or the Company, any Project
or any customer of Philips Medical Systems or the Company.
(d) Executive acknowledges that the restrictions, prohibitions
and other provisions of this Section 10 are reasonable, fair and equitable in
scope, terms and duration, are necessary to protect the legitimate business
interests of the Company and are a material inducement to the Company to enter
into this Agreement. It is the intention of the parties hereto that the
restrictions contained in this paragraph be enforceable to the fullest extent
permitted by applicable law. Therefore, to the extent any court of competent
jurisdiction shall determine that any portion of the foregoing restrictions is
excessive, such provision shall not be entirely void, but rather shall be
limited or revised only to the extent necessary to make it enforceable.
11. REMEDY. Should Executive engage in or perform any of the acts
prohibited by Sections 9 and 10, it is agreed that the Company shall be entitled
to full injunctive relief, to be issued by any competent court of equity,
enjoining and restraining Executive and each and every other person, firm,
organization, association, or corporation concerned therein, from the
continuance of such violative acts. The foregoing remedy available to Company
shall not be deemed to limit or prevent the exercise by the Company of any or
all further rights and remedies which may be available to the Company hereunder
or at law or in equity.
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12. SUCCESSORS; BINDING AGREEMENT. This Agreement shall be binding
upon and shall inure to the benefit of Executive, his heirs, executors,
administrators, beneficiaries and assigns and shall be binding upon and shall
inure to the benefit of the Company and its successors.
13. NOTICE. For the purposes of this Agreement, notices, demands and
all other communications provided for in this Agreement shall be in writing and
shall be deemed to have been duly given when delivered either personally or by
United States certified or registered mail, return receipt requested, postage
prepaid, addressed, in case of Executive, to the last address on file with the
Company and if to the Company, to its executive offices or to such other address
as any party may have furnished to the others in writing in accordance herewith,
except that notices of change of address shall be effective only upon receipt.
14. RESOLUTION OF DIFFERENCES OVER BREACHES OF AGREEMENT. The
parties shall use good faith efforts to resolve any controversy or claim arising
out of, or relating to this Agreement or the breach thereof, first in accordance
with the Company's internal review procedures, except that this requirement
shall not apply to any claim or dispute under or relating to Sections 9 or 10 of
this Agreement. If despite their good faith efforts, the parties are unable to
resolve such controversy or claim through the Company's internal review
procedures, then such controversy or claim shall be resolved by a court of law
having jurisdiction thereof. If any contest or dispute shall arise between the
Company and Executive regarding any provision of this Agreement, the parties
shall be responsible for paying all of its own legal fees and expenses incurred
in connection with such contest or dispute.
15. GOVERNING LAW. This Agreement is governed by, and is to be
construed and enforced in accordance with, the laws of the State of Washington,
without regard to principles of conflicts of laws. If, under such law, any
portion of this Agreement is at any time deemed to be in conflict with any
applicable statute, rule, regulation or ordinance, such portion shall be deemed
to be modified or altered to conform thereto or, if that is not possible, to be
omitted from this Agreement, and the invalidity of any such portion shall not
affect the force, effect and validity of the remaining portion hereof.
16. AMENDMENT. No provisions of this Agreement may be amended,
modified, or waived unless such amendment or modification is agreed to in
writing signed by Executive and by a duly authorized officer of the Company, and
such waiver is set forth in writing and signed by the party to be charged. No
waiver by either party hereto at any time of any breach by the other party
hereto of any condition or provision of this Agreement to be performed by such
other party shall be deemed a waiver of
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similar or dissimilar provisions or conditions at the same or at any prior or
subsequent time.
17. SURVIVAL. The respective obligations of, and benefits afforded
to, Executive and Company as provided in Sections 9 and 10 of this Agreement
shall survive the termination of this Agreement.
18. NO CONFLICT OF INTEREST. During the Employment Period, Executive
shall not directly, or indirectly render service, or undertake any employment or
consulting agreement with another entity without the express written consent of
the Company.
19. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
20. ENTIRE AGREEMENT. This Agreement sets forth the entire agreement
of the parties hereto (and in the case of the Company, its predecessors) in
respect of the subject matter contained herein and supersede all prior
agreements, promises, covenants, arrangements, communications, representations
or warranties, whether oral or written, by any officer, employee or
representative of any party hereto in respect of such subject matter, including,
but not limited to, the Employment Agreement by and between ATL Ultrasound, Inc.
and Executive, dated as of the first day of January, 1997 and any and all
amendments made subsequent thereto (the "Prior Agreement"), and as of the
successful consummation of the Offer, such Prior Agreement shall be void and of
no further force or effect. Any prior agreement of the parties hereto in
respect of the subject matter contained herein is hereby terminated and
canceled, as of the successful consummation of the Offer; PROVIDED THAT, this
Agreement shall not modify or terminate the provisions of any compensation or
benefit plan providing benefits upon a change in control of the Company
(excluding the Prior Agreement); PROVIDED, FURTHER, that Executive acknowledges
and agrees that he will be paid no more than 23%, 0.0% and 23.4% of Base Salary
under the 1996-98, 1997-99 and 1998-00 performance cycles, respectively, under
the Company's Long Term Incentive Plan (the "Plan"), effective as of January 1,
1993 and waives all rights for any other payments under such Plan upon payment
of such amounts Executive acknowledges that in consideration of the benefits to
be provided hereunder, he has waived, as of the successful consummation of the
Offer, all of his rights under the Prior Agreement, including, but not limited
to Section 6 thereof.
21. SECTION HEADINGS. The section headings in this Agreement are for
convenience of reference only, and they form no part of this Agreement and shall
not affect its interpretation.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
ATL Ultrasound, Inc.
By: /s/ Dennis C. Fill
-------------------------------
/s/ Donald Blem
----------------------------------
Donald Blem
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EXHIBIT A
Sisters of Providence Health Systems
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EXHIBIT B
1999-2001 Strategic Plan (*)
Income Statement 1999 2000 2001
- ------------------------------------------------------------------
Total Product Revenue 427.9 466.5 511.0
Product Gross Profit 233.9 266.2 292.6
- ------------------------------------------------------------------
Service Revenue 103.4 109.4 115.7
Service Gross Profit 43.9 47.2 50.6
- ------------------------------------------------------------------
Total Revenue $ 531.3 $ 575.9 $ 626.7
Total Gross Profit $ 277.8 $ 313.4 $ 343.2
Gross Margin 52.3% 54.4% 54.8%
- ------------------------------------------------------------------
Operating Expenses
Selling and Marketing 110.1 118.0 126.8
% Revenue 20.7% 20.5% 20.2%
General & Admin 41.6 43.6 46.1
% Revenue 7.8% 7.6% 7.4%
R&D Expense 63.2 67.0 72.0
% Revenue 11.9% 11.6% 11.5%
Other 3.6 6.2 7.8
- ------------------------------------------------------------------
Total Operating Expense $ 218.5 $ 234.8 $ 252.6
41% 41% 40%
- ------------------------------------------------------------------
Operating Income $ 59.3 $ 78.6 $ 90.6
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- --------------------------
(*) The synergies expected to be realized as a result of the Merger will be
between $50 and $70 million, as mutually agreed upon by the parties.
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EMPLOYMENT AGREEMENT
AGREEMENT, dated as of July 29, 1998, by and between ATL Ultrasound,
Inc. (the "Company") and Jacques Souquet ("Executive").
WHEREAS, Executive's current employer, ATL Ultrasound, Inc., has
entered into an Agreement and Plan of Merger, dated as of July 29, 1998 with
Philips Acquisition, Inc. and Philips Electronics North America Corporation (the
"Merger Agreement"); and
WHEREAS, the Company desires to secure the continued employment of
Executive following the successful consummation of the Offer (as such term is
defined in the Merger Agreement); and
WHEREAS, Executive and the Company desire to enter into an agreement
setting forth the terms and conditions of the employment of Executive with the
Company on and after the successful consummation of the Offer;
NOW, THEREFORE, IN CONSIDERATION OF the mutual covenants herein
contained, and other good and valuable consideration, the parties hereto agree
as follows:
1. EMPLOYMENT. Subject to the successful consummation of the Offer,
the Company hereby agrees to employ Executive, and Executive agrees to serve as
an employee of the Company, on the terms and conditions set forth in this
Agreement, effective as of the date of this Agreement. The continuation of such
employment shall be expressly conditioned on and subject to the consummation of
the transactions contemplated by the Merger Agreement; PROVIDED, THAT, Section
20 of this Agreement shall be deemed to be effective as of the successful
consummation of the Offer. This Agreement shall become null and void, and shall
have no force or effect, if the transactions contemplated under the Merger
Agreement are not consummated.
2. EMPLOYMENT PERIOD. The "Employment Period" shall be the period
commencing on the Effective Time (as defined in the Merger Agreement) and ending
on December 31, 2001.
3. DUTIES AND RESPONSIBILITIES. During the Employment Period,
Executive shall serve as the Senior Vice President -- Chief Technology Officer
of the Company with such duties and responsibilities that are customary for
such position and shall include those that are assigned to him by the Company
during the Employment Period that are not inconsistent with such position.
Executive shall devote substantially all of his working time, attention and
energies during normal business hours (other than
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absences due to illness or vacation) to the performance of his duties for the
Company. Upon the prior written approval of the Chief Executive Officer of the
Philips Medical Systems, Executive may serve as a member of the board of
directors of other companies or engage in other outside activities, provided
that such activities do not interfere with Executive's duties hereunder;
provided, further, that if Executive is already a member of any such board of
directors, as set forth on Exhibit A hereof, he shall be entitled to remain on
such board without violating the terms of this Agreement.
4. PLACE OF PERFORMANCE. The principal place of employment of
Executive shall be at the Company's executive offices in Seattle, Washington.
5. COMPENSATION AND RELATED MATTERS.
(a) BASE SALARY AND BONUS. During the Employment Period the
Company shall pay Executive a base salary at the rate of not less than $ 255,000
per year ("Base Salary") which shall be annually reviewed by the Company.
Executive's Base Salary shall be paid in approximately equal installments in
accordance with the Company's customary payroll practices. If Executive's Base
Salary is increased by the Company, such increased Base Salary shall then
constitute the Base Salary for all purposes of the Agreement. On or about
January 1, 1999, Executive shall be paid an annual bonus equal to the pro rata
portion (based on the number of days elapsed in 1998 through and including the
Effective Time) of the annual bonus that would have been payable under
Executive's annual bonus arrangement in effect on the date hereof based on the
Company's annualized performance through the last full fiscal quarter completed
before the Effective Time; PROVIDED, THAT for purposes of this sentence,
Executive's maximum annual bonus opportunity shall be deemed to be 50% of Base
Salary. For the remaining period of 1998 following the Effective Time (for
which a bonus may be paid, prorated in the proportion that the number of days
after the Effective Time through December 31, 1998 bears to 365) and during each
subsequent year of the Employment Period, Executive shall be entitled to an
annual incentive bonus ("Bonus"), based upon the achievement of performance
targets, such targets as determined in the sole discretion of the Company, to be
payable at the same time as bonuses are paid to other executive officers.
Executive's target Bonus shall be 50% of Base Salary, but may be more or less
upon achievement of performance targets.
(b) STOCK OPTION. (i) The Executive shall be granted stock
options (the "Stock Option") to acquire 7,000 shares of the common stock of
Royal Philips Electronics (the "Stock"), pursuant to the Philips Electronics
North America Corporation 1998 Stock Incentive Plan (the "Option Plan"). The
Stock Option shall be granted on the Commencement Date, and shall be granted
at an exercise price per share equal to the fair market value of the Stock on
the date of grant and shall be subject to the general terms of the Option
Plan and the stock
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option agreement thereunder (the "Option Agreement"). Stock Options granted
pursuant to this Section 5(b)(i) shall become exercisable at a rate of
33-1/3% on each of the first, second and third anniversaries of the date of
grant, provided Executive remains an employee on such date, and shall expire
ten (10) years following the date of grant, except as otherwise provided in
the Option Plan or Option Agreement. Notwithstanding the foregoing, if
Executive is terminated pursuant to Section 6(e) or 6(g) hereof, such Stock
Option shall become immediately exercisable and shall remain exercisable for
one year following such termination.
(ii) Beginning in the year 2000, Executive shall be eligible for
option grants on the same basis as other senior executives of the Company.
(c) LONG-TERM PERFORMANCE UNIT PLAN. The Company shall
establish the Long-Term Performance Unit Plan which shall provide Executive with
a bonus (the "Incentive Bonus") equal to Executive's Base Salary, to be paid in
the first quarter following the end of the Performance Period (the "Payment
Date"), if Executive is an employee on the last day of the Performance Period
and 75% of the base case strategic plan, as attached as Exhibit B (the
"Strategic Plan") has been achieved during the 1999-2001 performance period (the
"Performance Period"). If 100% of the Strategic Plan is achieved during the
Performance Period, Executive's Incentive Bonus shall be two times Base Salary
and if 100% of the Strategic Plan is achieved, including synergies, the
Incentive Bonus shall be three times Base Salary. In the first quarter
following December 31, 1999 and December 31, 2000, Executive shall receive a
payment equal to 20% of Base Salary (each, an "Advance Bonus") which shall
reduce the Incentive Bonus, on a dollar for dollar basis, otherwise payable
under this paragraph. Notwithstanding the foregoing, if Executive is terminated
pursuant to Sections 6(e) or 6(g) hereof, Executive shall be entitled to a
pro-rata Incentive Bonus, based on the ratio the number of days worked in the
Performance Period bears to the total number of days in the Performance Period,
to be paid on the Payment Date.
(d) BENEFIT PLANS. Executive shall be entitled to participate
in such employee benefit plans and insurance programs offered by the Company, or
which it may adopt from time to time, for its executive management or
supervisory personnel generally, in accordance with the eligibility requirements
for participation therein. Notwithstanding the foregoing, Executive shall not
be entitled to receive severance pursuant to the Company's severance plan if he
is entitled to receive payments pursuant to Section 8(c) of this Agreement.
Nothing herein shall be construed so as to prevent the Company from modifying or
terminating any employee benefit plans or programs, or employee fringe benefits,
it may adopt from time to time.
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(e) VACATION AND SICK LEAVE. Executive shall be entitled to the
amount of paid vacation and sick leave that is provided to other executive
officers, in accordance with the Company's customary practices.
(f) EXPENSES. The Company shall promptly reimburse Executive
for all reasonable business expenses upon the presentation of reasonably
itemized statements of such expenses in accordance with the Company's policies
and procedures now in force or as such policies and procedures may be modified
with respect to all executive officers of the Company.
6. TERMINATION. This Agreement shall be terminated upon the
earliest to occur of the following:
(a) EXPIRATION. The expiration of the Employment Period.
(b) DEATH. The death of Executive.
(c) DISABILITY. If, as a result of Executive's Disability,
Executive shall have been substantially unable to perform his duties hereunder
for a period of six (6) consecutive months and within thirty (30) days after
written Notice of Termination is given by the Company after such six (6) month
period, Executive shall not have returned to the substantial performance of his
duties on a full-time basis. For purposes of this Agreement, "Disability" shall
have the same meaning as that term is defined in the Company's Long Term
Disability Plan; PROVIDED, THAT, if no such plan exists, "Disability" shall have
the same meaning as provided in Section 22(e)(3) of the Code.
(d) CAUSE. The Company terminates Executive for Cause. For
purposes of this Agreement, the Company shall have "Cause" to terminate
Executive's employment upon Executive's (i) willful and continued failure to
substantially perform his duties with the Company (other than any such failure
resulting from his incapacity due to physical or mental illness) after a written
demand for substantial performance is delivered to Executive which identifies
the manner in which the Company believes that Executive has not substantially
performed his duties, or (ii) willful misconduct (but excluding any action that
Executive reasonably believes is in the best interests of the Company) which is
materially economically injurious to the Company or to any entity in control of,
controlled by or under common control with the Company (an "Affiliate"),
including, but not limited to, any breach of Sections 9 and 10 hereof, or
(iii) the conviction of, or plea of guilty or nolo contendere to, a felony
involving moral turpitude, or (iv) habitual drug or alcohol abuse by Executive.
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(e) WITHOUT CAUSE. The Company terminates Executive's
employment hereunder without Cause by providing Executive with a Notice of
Termination.
(f) VOLUNTARY TERMINATION. Executive terminates this Agreement
and Executive's employment hereunder at any time upon ninety (90) days prior
written notice to the Company.
(g) MATERIAL BREACH. Executive terminates his employment for a
material breach of this Agreement by the Company. For purposes of this
Agreement, a "material breach" shall be deemed to occur upon a failure by the
Company to comply with any material provision of this Agreement without
Executive's written consent, including, but not limited to, (i) a material
diminution in Executive's position, duties, status, authority or responsibility
as set forth under the terms of this Agreement, (ii) a reduction in Base Salary,
Bonus or Incentive Bonus opportunity, or (iii) a relocation of the Executive to
a location more than 50 miles from his present location, which in the case of
any alleged violation of this paragraph (g), has not been cured in all material
respects within thirty (30) days after written notice of such noncompliance has
been given by Executive to the Company.
7. TERMINATION PROCEDURE.
(a) NOTICE OF TERMINATION. Any termination of Executive by the
Company or by Executive (other than termination pursuant to Section 6(a) or (b)
hereof) shall be communicated by written Notice of Termination to the other
party hereto in accordance with Section 13. For purposes of this Agreement, a
"Notice of Termination" shall mean a notice which shall indicate the specific
termination provision in this Agreement relied upon and shall set forth in
reasonable detail the facts and circumstances claimed to provide a basis for
termination of Executive under the provisions so indicated.
(b) DATE OF TERMINATION. "Date of Termination" shall mean
(i) if Executive's employment is terminated by the expiration of this Agreement,
the date of expiration, (ii) if Executive's employment is terminated by his
death, the date of his death, (iii) if Executive's employment is terminated
pursuant to Section 6(c) hereof, thirty (30) days after Notice of Termination is
given (provided that Executive shall not have again become available for service
on a regular basis during such thirty (30) day period), (iv) if Executive's
employment is terminated pursuant to Sections 6(d), 6(e), or 6(g) the date
specified in the Notice of Termination, and (v) if Executive's employment is
terminated for any other reason, the date on which a Notice of Termination is
given.
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8. AMOUNTS DUE UPON TERMINATION OR DURING DISABILITY. In the event
Executive is disabled or his employment terminates during the Employment Period,
the Company shall provide Executive with the payments set forth below.
Executive acknowledges and agrees that the payments set forth in this Section 8
constitute liquidated damages for termination of his employment during the
Employment Period.
(a) During any period that Executive fails to perform his duties
hereunder as a result of Disability ("disability period"), Executive shall
continue to receive his Base Salary at the rate then in effect for such period
until his employment is terminated pursuant to Section 6(c) hereof; PROVIDED,
THAT, payments so made to Executive during the first six (6) months of the
disability period shall be reduced by the sum of the amounts, if any, paid to
the Executive at or prior to the time of any such payment under disability
benefit plans of the Company or under the Social Security disability insurance
program, and which amounts were not previously applied to reduce any such
payment. Executive shall also be entitled to any other benefits or payments
provided pursuant to any plan or policy of the Company in accordance with such
plan's or policy's terms.
(b) If Executive is terminated pursuant to Sections 6(a), 6(b),
6(d), or 6(f) the Company shall pay Executive his accrued, but unpaid Base
Salary and Bonus through the Date of Termination at the rate in effect at the
time Notice of Termination is given, and the Company shall have no further
obligations to Executive under this Agreement; PROVIDED, THAT, Executive shall
be entitled to any other benefit or payment provided pursuant to any plan or
policy of the Company in accordance with such plan's or policy's terms.
(c) If Executive's employment is terminated pursuant to Sections
6(e) or 6(g), the Company shall pay to Executive his (A) Base Salary accrued
through the Date of Termination and (B) a lump-sum payment equal to the
remaining Base Salary and Average Bonus (as defined below) that would have been
paid to Executive had his employment continued through the Employment Period
(the "Remaining Period"); PROVIDED THAT, Executive shall be entitled to a
minimum payment of one (1) times Executive's then current Base Salary and
Average Bonus. All such payments shall be made as soon as administratively
feasible following such termination. Executive shall also be entitled to any
other benefits or payments provided pursuant to any plan or policy of the
Company in accordance with such plan's or policy's terms, except as provided in
Section 5(d). For purposes of the foregoing, "Average Bonus" means the average
annual Bonus paid to Executive by the Company (or its successors) during the
three year period immediately preceding his Date of Termination.
(d) CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY.
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(i) Notwithstanding anything in this Agreement to the contrary,
in the event it shall be determined that any payment, award, benefit or
distribution (or any acceleration of any payment, award, benefit or
distribution) by the Company (or any of its affiliated entities) or any entity
which effectuates (or has previously effectuated) a change in control (or any of
its affiliated entities) to or for the benefit of Executive (whether pursuant to
the terms of this Agreement or otherwise) (the "Payments") would be subject to
the excise tax (the "Excise Tax") under Section 4999 of the Internal Revenue
Code of 1986, as amended (the "Code"), then the amounts payable to Executive
under this Agreement shall be the greater of (A) the Payment, if the result of
subtracting the Excise Tax from the Payment is more than the Safe Harbor Cap and
(B) the Payment, reduced to the maximum amount as will result in no portion of
the Payments being subject to the Excise Tax (the "Safe Harbor Cap"), reducing
first the payments under Section 8(c)(B), unless an alternative method of
reduction is elected by Executive. For purposes of reducing the Payments to the
Safe Harbor Cap, only amounts payable to Executive under this Agreement (and no
other Payments) shall be reduced, unless consented to by Executive.
(ii) All determinations required to be made under this Section 8
shall be made by the nationally recognized public accounting firm that is
selected by Executive (the "Accounting Firm"). If payments are reduced to the
Safe Harbor Cap, the Accounting Firm shall provide a reasonable opinion to
Executive that he is not required to report any Excise Tax on his federal income
tax return. All fees, costs and expenses (including, but not limited to, the
costs of retaining experts) of the Accounting Firm shall be borne by the
Company. The determination by the Accounting Firm shall be binding upon the
Company and Executive (except as provided in paragraph (iii) below).
(iii) If payments are reduced to the Safe Harbor Cap as
provided in Section 8(d)(i)(B) and if it is established pursuant to a final
determination of a court or an Internal Revenue Service (the "IRS") proceeding
which has been finally and conclusively resolved, that Payments have been made
to, or provided for the benefit of, Executive by the Company, which are in
excess of the limitations provided in this Section 8(d)(i)(B) (hereinafter
referred to as an "Excess Payment"), such Excess Payment shall be deemed for all
purposes to be a loan to Executive made on the date Executive received the
Excess Payment and Executive shall repay the Excess Payment to the Company on
demand, together with interest on the Excess Payment at the applicable federal
rate (as defined in Section 1274(d) of the Code) from the date of Executive's
receipt of such Excess Payment until the date of such repayment. As a result of
the uncertainty in the application of Section 4999 of the Code at the time of
the determination, it is possible that Payments which will not have been made by
the Company should have been made (an "Underpayment"), consistent with the
calculations required to be made under this Section 8. In the event that it is
determined (A) by the Accounting Firm, the Company (which shall include the
position taken by the Company, or together with its consolidated
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group, on its federal income tax return) or the IRS or (B) pursuant to a
determination by a court, that an Underpayment has occurred, the Company shall
pay an amount equal to such Underpayment to Executive within ten (10) days of
such determination together with interest on such amount at the applicable
federal rate from the date such amount would have been paid to Executive until
the date of payment.
9. CONFIDENTIAL INFORMATION AND REMOVAL OF DOCUMENTS.
(a) Executive shall hold in a fiduciary capacity for the benefit
of the Company all secret or confidential information, knowledge or data
relating to the Company or any Affiliate, and their respective businesses
("Confidential Information"), which shall have been obtained by Executive during
Executive's employment by the Company or any Affiliate and which shall not be or
become public knowledge (other than by acts by Executive or representatives of
Executive in violation of this Agreement). After termination of Executive's
employment with the Company, Executive shall not, without the prior written
consent of the Company or as may otherwise be required by law or legal process,
communicate or divulge any such information, knowledge or data to anyone other
than the Company and those designated by it.
(b) All records, files, drawings, documents, models, equipment,
and the like containing Confidential Information or needed in the Company's
business which Executive has control over shall not be removed from the
Company's premises without its written consent, unless such removal is in the
furtherance of the Company's business or is in connection with Executive's
carrying out his duties under this Agreement and, if so removed, shall be
returned to the Company promptly after termination of Executive's employment
hereunder, or otherwise promptly after removal if such removal occurs following
termination of employment. Executive's rolodex, telephone directory and similar
type items, and furniture, art work and property owned by Executive or otherwise
not owned by the Company shall not be deemed Company property and shall not be
covered by this Section 9(b). The Company shall be the owner of all trade
secrets and other products relating to the Company's business developed by
Executive alone or in conjunction with others as part of his employment with the
Company.
10. NON-COMPETITION.
(a) In consideration of the benefits to be provided to Executive
hereunder, Executive covenants that he will not, without the prior written
consent of the Company, during the Employment Period and the twelve (12) month
period following his termination of employment for any reason or, if terminated
pursuant to Section 6(e) hereof, the Remaining Period, if greater (the
"Restriction Period"), engage in any way, directly or indirectly, in any
business whose product or activities directly compete with
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the products or activities of Philips Medical Systems or the Company anywhere
where Philips Medical Systems or the Company conducts its businesses, other than
in his capacity as an employee of the Company.
(b) Executive hereby covenants and agrees that, at all times
during the Employment Period and for a period of one (1) years immediately
following his termination for any reason, Executive shall not employ or seek to
employ any person employed at that time by Philips Medical Systems or the
Company, or otherwise encourage or entice such person or entity to leave such
employment.
(c) Executive hereby covenants and agrees that, at all times
during the Restriction Period, Executive will not (i) pursue or attempt to
develop any project known to Executive and which Philips Medical Systems or the
Company are pursuing, developing or attempting to develop as of the Date of
Termination ("Project"), directly or indirectly, alone, in association with or
as a shareholder, principal, agent, partner, officer, director, employee or
consultant of any other organization or (ii) divert to any entity which is
engaged in any business conducted by Philips Medical Systems or the Company in
the same geographic area as Philips Medical Systems or the Company, any Project
or any customer of Philips Medical Systems or the Company.
(d) Executive acknowledges that the restrictions, prohibitions
and other provisions of this Section 10 are reasonable, fair and equitable in
scope, terms and duration, are necessary to protect the legitimate business
interests of the Company and are a material inducement to the Company to enter
into this Agreement. It is the intention of the parties hereto that the
restrictions contained in this paragraph be enforceable to the fullest extent
permitted by applicable law. Therefore, to the extent any court of competent
jurisdiction shall determine that any portion of the foregoing restrictions is
excessive, such provision shall not be entirely void, but rather shall be
limited or revised only to the extent necessary to make it enforceable.
11. REMEDY. Should Executive engage in or perform any of the acts
prohibited by Sections 9 and 10, it is agreed that the Company shall be entitled
to full injunctive relief, to be issued by any competent court of equity,
enjoining and restraining Executive and each and every other person, firm,
organization, association, or corporation concerned therein, from the
continuance of such violative acts. The foregoing remedy available to Company
shall not be deemed to limit or prevent the exercise by the Company of any or
all further rights and remedies which may be available to the Company hereunder
or at law or in equity.
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12. SUCCESSORS; BINDING AGREEMENT. This Agreement shall be binding
upon and shall inure to the benefit of Executive, his heirs, executors,
administrators, beneficiaries and assigns and shall be binding upon and shall
inure to the benefit of the Company and its successors.
13. NOTICE. For the purposes of this Agreement, notices, demands and
all other communications provided for in this Agreement shall be in writing and
shall be deemed to have been duly given when delivered either personally or by
United States certified or registered mail, return receipt requested, postage
prepaid, addressed, in case of Executive, to the last address on file with the
Company and if to the Company, to its executive offices or to such other address
as any party may have furnished to the others in writing in accordance herewith,
except that notices of change of address shall be effective only upon receipt.
14. RESOLUTION OF DIFFERENCES OVER BREACHES OF AGREEMENT. The
parties shall use good faith efforts to resolve any controversy or claim arising
out of, or relating to this Agreement or the breach thereof, first in accordance
with the Company's internal review procedures, except that this requirement
shall not apply to any claim or dispute under or relating to Sections 9 or 10 of
this Agreement. If despite their good faith efforts, the parties are unable to
resolve such controversy or claim through the Company's internal review
procedures, then such controversy or claim shall be resolved by a court of law
having jurisdiction thereof. If any contest or dispute shall arise between the
Company and Executive regarding any provision of this Agreement, the parties
shall be responsible for paying all of its own legal fees and expenses incurred
in connection with such contest or dispute.
15. GOVERNING LAW. This Agreement is governed by, and is to be
construed and enforced in accordance with, the laws of the State of Washington,
without regard to principles of conflicts of laws. If, under such law, any
portion of this Agreement is at any time deemed to be in conflict with any
applicable statute, rule, regulation or ordinance, such portion shall be deemed
to be modified or altered to conform thereto or, if that is not possible, to be
omitted from this Agreement, and the invalidity of any such portion shall not
affect the force, effect and validity of the remaining portion hereof.
16. AMENDMENT. No provisions of this Agreement may be amended,
modified, or waived unless such amendment or modification is agreed to in
writing signed by Executive and by a duly authorized officer of the Company, and
such waiver is set forth in writing and signed by the party to be charged. No
waiver by either party hereto at any time of any breach by the other party
hereto of any condition or provision of this Agreement to be performed by such
other party shall be deemed a waiver of
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<PAGE>
similar or dissimilar provisions or conditions at the same or at any prior or
subsequent time.
17. SURVIVAL. The respective obligations of, and benefits afforded
to, Executive and Company as provided in Sections 9 and 10 of this Agreement
shall survive the termination of this Agreement.
18. NO CONFLICT OF INTEREST. During the Employment Period, Executive
shall not directly, or indirectly render service, or undertake any employment or
consulting agreement with another entity without the express written consent of
the Company.
19. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
20. ENTIRE AGREEMENT. This Agreement sets forth the entire agreement
of the parties hereto (and in the case of the Company, its predecessors) in
respect of the subject matter contained herein and supersede all prior
agreements, promises, covenants, arrangements, communications, representations
or warranties, whether oral or written, by any officer, employee or
representative of any party hereto in respect of such subject matter, including,
but not limited to, the Employment Agreement by and between ATL Ultrasound, Inc.
and Executive, dated as of the first day of January, 1997 and any and all
amendments made subsequent thereto (the "Prior Agreement"), and as of the
successful consummation of the Offer, such Prior Agreement shall be void and of
no further force or effect. Any prior agreement of the parties hereto in
respect of the subject matter contained herein is hereby terminated and
canceled, as of the successful consummation of the Offer; PROVIDED THAT, this
Agreement shall not modify or terminate the provisions of any compensation or
benefit plan providing benefits upon a change in control of the Company
(excluding the Prior Agreement); PROVIDED, FURTHER, that Executive acknowledges
and agrees that he will be paid no more than 23%, 0.0% and 23.4% of Base Salary
under the 1996-98, 1997-99 and 1998-00 performance cycles, respectively, under
the Company's Long Term Incentive Plan (the "Plan"), effective as of January 1,
1993 and waives all rights for any other payments under such Plan upon payment
of such amounts. Executive acknowledges that in consideration of the benefits
to be provided hereunder, he has waived, as of the successful consummation of
the Offer, all of his rights under the Prior Agreement, including, but not
limited to Section 6 thereof.
21. SECTION HEADINGS. The section headings in this Agreement are for
convenience of reference only, and they form no part of this Agreement and shall
not affect its interpretation.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
ATL Ultrasound, Inc.
By: /s/ Dennis C. Fill
----------------------------
/s/ Jacques Souquet
-------------------------------
Jacques Souquet
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<PAGE>
EXHIBIT A
French Chamber of Commerce in Seattle
Sonosight, Inc.
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<PAGE>
EXHIBIT B
1999-2001 Strategic Plan (*)
Income Statement 1999 2000 2001
- ------------------------------------------------------------------
Total Product Revenue 427.9 466.5 511.0
Product Gross Profit 233.9 266.2 292.6
- ------------------------------------------------------------------
Service Revenue 103.4 109.4 115.7
Service Gross Profit 43.9 47.2 50.6
- ------------------------------------------------------------------
Total Revenue $ 531.3 $ 575.9 $ 626.7
Total Gross Profit $ 277.8 $ 313.4 $ 343.2
Gross Margin 52.3% 54.4% 54.8%
- ------------------------------------------------------------------
Operating Expenses
Selling and Marketing 110.1 118.0 126.8
% Revenue 20.7% 20.5% 20.2%
General & Admin 41.6 43.6 46.1
% Revenue 7.8% 7.6% 7.4%
R&D Expense 63.2 67.0 72.0
% Revenue 11.9% 11.6% 11.5%
Other 3.6 6.2 7.8
- ------------------------------------------------------------------
Total Operating Expense $ 218.5 $ 234.8 $ 252.6
41% 41% 40%
- ------------------------------------------------------------------
Operating Income $ 59.3 $ 78.6 $ 90.6
- ------------------------------------------------------------------
- --------------------------
(*) The synergies expected to be realized as a result of the Merger will be
between $50 and $70 million, as mutually agreed upon by the parties.
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<PAGE>
EMPLOYMENT AGREEMENT
AGREEMENT, dated as of July 29, 1998, by and between ATL Ultrasound,
Inc. (the "Company") and Pamela Dunlap ("Executive").
WHEREAS, Executive's current employer, ATL Ultrasound, Inc., has
entered into an Agreement and Plan of Merger, dated as of July 29, 1998 with
Philips Acquisition, Inc. and Philips Electronics North America Corporation (the
"Merger Agreement"); and
WHEREAS, the Company desires to secure the continued employment of
Executive following the successful consummation of the Offer (as such term is
defined in the Merger Agreement); and
WHEREAS, Executive and the Company desire to enter into an agreement
setting forth the terms and conditions of the employment of Executive with the
Company on and after the successful consummation of the Offer;
NOW, THEREFORE, IN CONSIDERATION OF the mutual covenants herein
contained, and other good and valuable consideration, the parties hereto agree
as follows:
1. EMPLOYMENT. Subject to the successful consummation of the Offer,
the Company hereby agrees to employ Executive, and Executive agrees to serve as
an employee of the Company, on the terms and conditions set forth in this
Agreement, effective as of the date of this Agreement. The continuation of such
employment shall be expressly conditioned on and subject to the consummation of
the transactions contemplated by the Merger Agreement; PROVIDED, THAT, Section
20 of this Agreement shall be deemed to be effective as of the consummation of
the Offer. This Agreement shall become null and void, and shall have no force
or effect, if the transactions contemplated under the Merger Agreement are not
consummated.
2. EMPLOYMENT PERIOD. The "Employment Period" shall be the period
commencing on the Effective Time (as defined in the Merger Agreement) and ending
on December 31, 2001.
3. DUTIES AND RESPONSIBILITIES. During the Employment Period,
Executive shall serve as the Senior Vice President and CFO of the Company with
such duties and responsibilities that are customary for such position and shall
include those that are assigned to her by the Company during the Employment
Period that are not inconsistent with such position. Executive shall devote
substantially all of her working time, attention and energies during normal
business hours (other than absences due to
<PAGE>
illness or vacation) to the performance of her duties for the Company. Upon the
prior written approval of the Chief Executive Officer of the Philips Medical
Systems, Executive may serve as a member of the board of directors of other
companies or engage in other outside activities, provided that such activities
do not interfere with Executive's duties hereunder; provided, further, that if
Executive is already a member of any such board of directors, as set forth on
Exhibit A hereof, she shall be entitled to remain on such board without
violating the terms of this Agreement.
4. PLACE OF PERFORMANCE. The principal place of employment of
Executive shall be at the Company's executive offices in Seattle, Washington.
5. COMPENSATION AND RELATED MATTERS.
(a) BASE SALARY AND BONUS. During the Employment Period the
Company shall pay Executive a base salary at the rate of not less than $ 200,000
per year ("Base Salary") which shall be annually reviewed by the Company.
Executive's Base Salary shall be paid in approximately equal installments in
accordance with the Company's customary payroll practices. If Executive's Base
Salary is increased by the Company, such increased Base Salary shall then
constitute the Base Salary for all purposes of the Agreement. On or about
January 1, 1999, Executive shall be paid an annual bonus equal to the pro rata
portion (based on the number of days elapsed in 1998 through and including the
Effective Time) of the annual bonus that would have been payable under
Executive's annual bonus arrangement in effect on the date hereof based on the
Company's annualized performance through the last full fiscal quarter completed
before the Effective Time; PROVIDED, THAT for purposes of this sentence,
Executive's maximum annual bonus opportunity shall be deemed to be 50% of Base
Salary. For the remaining period of 1998 following the Effective Time (for
which a bonus may be paid, prorated in the proportion that the number of days
after the Effective Time through December 31, 1998 bears to 365) and during each
subsequent year of the Employment Period, Executive shall be entitled to an
annual incentive bonus ("Bonus"), based upon the achievement of performance
targets, such targets as determined in the sole discretion of the Company, to be
payable at the same time as bonuses are paid to other executive officers.
Executive's target Bonus shall be 50% of Base Salary, but may be more or less
upon achievement of performance targets.
(b) STOCK OPTION. (i) The Executive shall be granted stock
options (the "Stock Option") to acquire 5,000 shares of the common stock of
Royal Philips Electronics (the "Stock"), pursuant to the Philips Electronics
North America Corporation 1998 Stock Incentive Plan (the "Option Plan"). The
Stock Option shall be granted on the Effective Time, and shall be granted at an
exercise price per share equal to the fair market value of the Stock on the
date of grant and shall be subject to the general terms of the Option Plan
and the stock
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<PAGE>
option agreement thereunder (the "Option Agreement"). Stock Options granted
pursuant to this Section 5(b)(i) shall become exercisable at a rate of
33-1/3% on each of the first, second and third anniversaries of the date of
grant, provided Executive remains an employee on such date, and shall expire
ten (10) years following the date of grant, except as otherwise provided in
the Option Plan or Option Agreement. Notwithstanding the foregoing, if
Executive is terminated pursuant to Sections 6(e) or 6(g) hereof, such Stock
Option shall become immediately exercisable and shall remain exercisable for
one-year following such termination.
(ii) Beginning in the year 2000, Executive shall be eligible for
option grants on the same basis as other senior executives of the Company.
(c) LONG-TERM PERFORMANCE UNIT PLAN. The Company shall
establish the Long-Term Performance Unit Plan which shall provide Executive with
a bonus (the "Incentive Bonus") equal to Executive's Base Salary, to be paid in
the first quarter following the end of the Performance Period (the "Payment
Date"), if Executive is an employee on the last day of the Performance Period
and 75% of the base case strategic plan, as attached as Exhibit B (the
"Strategic Plan") has been achieved during the 1999-2001 performance period (the
"Performance Period"). If 100% of the Strategic Plan is achieved during the
Performance Period, Executive's Incentive Bonus shall be two times Base Salary
and if 100% of the Strategic Plan is achieved, including synergies, the
Incentive Bonus shall be three times Base Salary. In the first quarter
following December 31, 1999 and December 31, 2000, Executive shall receive a
payment equal to 20% of Base Salary (each, an "Advance Bonus") which shall
reduce the Incentive Bonus, on a dollar for dollar basis, otherwise payable
under this paragraph. Notwithstanding the foregoing, if Executive is terminated
pursuant to Sections 6(e) or 6(g) hereof, Executive shall be entitled to a
pro-rata Incentive Bonus, based on the ratio the number of days worked in the
Performance Period bears to the total number of days in the Performance Period,
to be paid on the Payment Date.
(d) BENEFIT PLANS. Executive shall be entitled to participate
in such employee benefit plans and insurance programs offered by the Company, or
which it may adopt from time to time, for its executive management or
supervisory personnel generally, in accordance with the eligibility requirements
for participation therein. Notwithstanding the foregoing, Executive shall not
be entitled to receive severance pursuant to the Company's severance plan if she
is entitled to receive payments pursuant to Section 8(c) of this Agreement.
Nothing herein shall be construed so as to prevent the Company from modifying or
terminating any employee benefit plans or programs, or employee fringe benefits,
it may adopt from time to time.
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<PAGE>
(e) VACATION AND SICK LEAVE. Executive shall be entitled to the
amount of paid vacation and sick leave that is provided to other executive
officers, in accordance with the Company's customary practices.
(f) EXPENSES. The Company shall promptly reimburse Executive
for all reasonable business expenses upon the presentation of reasonably
itemized statements of such expenses in accordance with the Company's policies
and procedures now in force or as such policies and procedures may be modified
with respect to all executive officers of the Company.
6. TERMINATION. This Agreement shall be terminated upon the
earliest to occur of the following:
(a) EXPIRATION. The expiration of the Employment Period.
(b) DEATH. The death of Executive.
(c) DISABILITY. If, as a result of Executive's Disability,
Executive shall have been substantially unable to perform her duties hereunder
for a period of six (6) consecutive months and within thirty (30) days after
written Notice of Termination is given by the Company after such six (6) month
period, Executive shall not have returned to the substantial performance of her
duties on a full-time basis. For purposes of this Agreement, "Disability" shall
have the same meaning as that term is defined in the Company's Long Term
Disability Plan; PROVIDED, THAT, if no such plan exists, "Disability" shall have
the same meaning as provided in Section 22(e)(3) of the Code.
(d) CAUSE. The Company terminates Executive for Cause. For
purposes of this Agreement, the Company shall have "Cause" to terminate
Executive's employment upon Executive's (i) willful and continued failure to
substantially perform her duties with the Company (other than any such failure
resulting from her incapacity due to physical or mental illness) after a written
demand for substantial performance is delivered to Executive which identifies
the manner in which the Company believes that Executive has not substantially
performed her duties, or (ii) willful misconduct (but excluding any action that
Executive reasonably believes is in the best interests of the Company) which is
materially economically injurious to the Company or to any entity in control of,
controlled by or under common control with the Company (an "Affiliate"),
including, but not limited to, any breach of Sections 9 and 10 hereof, or
(iii) the conviction of, or plea of guilty or nolo contendere to, a felony
involving moral turpitude, or (iv) habitual drug or alcohol abuse by Executive.
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<PAGE>
(e) WITHOUT CAUSE. The Company terminates Executive's
employment hereunder without Cause by providing Executive with a Notice of
Termination.
(f) VOLUNTARY TERMINATION. Executive terminates this Agreement
and Executive's employment hereunder at any time upon ninety (90) days prior
written notice to the Company.
(g) MATERIAL BREACH. Executive terminates her employment for a
material breach of this Agreement by the Company. For purposes of this
Agreement, a "material breach" shall be deemed to occur upon a failure by the
Company to comply with any material provision of this Agreement without
Executive's written consent, including, but not limited to, (i) a material
diminution in Executive's position, duties, status, authority or responsibility
as set forth under the terms of this Agreement, (ii) a reduction in Base Salary,
Bonus or Incentive Bonus opportunity, or (iii) a relocation of the Executive to
a location more than 50 miles from her present location, which in the case of
any alleged violation of this paragraph (g), has not been cured in all material
respects within thirty (30) days after written notice of such noncompliance has
been given by Executive to the Company.
7. TERMINATION PROCEDURE.
(a) NOTICE OF TERMINATION. Any termination of Executive by the
Company or by Executive (other than termination pursuant to Section 6(a) or (b)
hereof) shall be communicated by written Notice of Termination to the other
party hereto in accordance with Section 13. For purposes of this Agreement, a
"Notice of Termination" shall mean a notice which shall indicate the specific
termination provision in this Agreement relied upon and shall set forth in
reasonable detail the facts and circumstances claimed to provide a basis for
termination of Executive under the provisions so indicated.
(b) DATE OF TERMINATION. "Date of Termination" shall mean
(i) if Executive's employment is terminated by the expiration of this Agreement,
the date of expiration, (ii) if Executive's employment is terminated by her
death, the date of her death, (iii) if Executive's employment is terminated
pursuant to Section 6(c) hereof, thirty (30) days after Notice of Termination is
given (provided that Executive shall not have again become available for service
on a regular basis during such thirty (30) day period), (iv) if Executive's
employment is terminated pursuant to Sections 6(d), 6(e), or 6(g) the date
specified in the Notice of Termination, and (v) if Executive's employment is
terminated for any other reason, the date on which a Notice of Termination is
given.
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<PAGE>
8. AMOUNTS DUE UPON TERMINATION OR DURING DISABILITY. In the event
Executive is disabled or her employment terminates during the Employment Period,
the Company shall provide Executive with the payments set forth below.
Executive acknowledges and agrees that the payments set forth in this Section 8
constitute liquidated damages for termination of her employment during the
Employment Period.
(a) During any period that Executive fails to perform her duties
hereunder as a result of Disability ("disability period"), Executive shall
continue to receive her Base Salary at the rate then in effect for such period
until her employment is terminated pursuant to Section 6(c) hereof; PROVIDED,
THAT, payments so made to Executive during the first six (6) months of the
disability period shall be reduced by the sum of the amounts, if any, paid to
the Executive at or prior to the time of any such payment under disability
benefit plans of the Company or under the Social Security disability insurance
program, and which amounts were not previously applied to reduce any such
payment. Executive shall also be entitled to any other benefits or payments
provided pursuant to any plan or policy of the Company in accordance with such
plan's or policy's terms.
(b) If Executive is terminated pursuant to Sections 6(a), 6(b),
6(d), or 6(f) the Company shall pay Executive her accrued, but unpaid Base
Salary and Bonus through the Date of Termination at the rate in effect at the
time Notice of Termination is given, and the Company shall have no further
obligations to Executive under this Agreement; PROVIDED, THAT, Executive shall
be entitled to any other benefit or payment provided pursuant to any plan or
policy of the Company in accordance with such plan's or policy's terms.
(c) If Executive's employment is terminated pursuant to Sections
6(e) or 6(g), the Company shall pay to Executive her (A) Base Salary accrued
through the Date of Termination and (B) a lump-sum payment equal to the
remaining Base Salary and Average Bonus (as defined below) that would have been
paid to Executive had her employment continued through the Employment Period
(the "Remaining Period"); PROVIDED THAT, Executive shall be entitled to a
minimum payment of one (1) times Executive's then current Base Salary and
Average Bonus. All such payments shall be made as soon as administratively
feasible following such termination. Executive shall also be entitled to any
other benefits or payments provided pursuant to any plan or policy of the
Company in accordance with such plan's or policy's terms, except as provided in
Section 5(d). For purposes of the foregoing, "Average Bonus" means the average
annual Bonus paid to Executive by the Company (or its successors) during the
three year period immediately preceding her Date of Termination.
(d) CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY.
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<PAGE>
(i) Notwithstanding anything in this Agreement to the contrary,
in the event it shall be determined that any payment, award, benefit or
distribution (or any acceleration of any payment, award, benefit or
distribution) by the Company (or any of its affiliated entities) or any entity
which effectuates (or has previously effectuated) a change in control (or any of
its affiliated entities) to or for the benefit of Executive (whether pursuant to
the terms of this Agreement or otherwise) (the "Payments") would be subject to
the excise tax (the "Excise Tax") under Section 4999 of the Internal Revenue
Code of 1986, as amended (the "Code"), then the amounts payable to Executive
under this Agreement shall be the greater of (A) the Payment, if the result of
subtracting the Excise Tax from the Payment is more than the Safe Harbor Cap and
(B) the Payment, reduced to the maximum amount as will result in no portion of
the Payments being subject to the Excise Tax (the "Safe Harbor Cap"), reducing
first the payments under Section 8(c)(B), unless an alternative method of
reduction is elected by Executive. For purposes of reducing the Payments to the
Safe Harbor Cap, only amounts payable to Executive under this Agreement (and no
other Payments) shall be reduced, unless consented to by Executive.
(ii) All determinations required to be made under this Section 8
shall be made by the nationally recognized public accounting firm that is
selected by Executive (the "Accounting Firm"). If payments are reduced to the
Safe Harbor Cap, the Accounting Firm shall provide a reasonable opinion to
Executive that she is not required to report any Excise Tax on her federal
income tax return. All fees, costs and expenses (including, but not limited to,
the costs of retaining experts) of the Accounting Firm shall be borne by the
Company. The determination by the Accounting Firm shall be binding upon the
Company and Executive (except as provided in paragraph (iii) below).
(iii) If payments are reduced to the Safe Harbor Cap as
provided in Section 8(d)(i)(B) and if it is established pursuant to a final
determination of a court or an Internal Revenue Service (the "IRS") proceeding
which has been finally and conclusively resolved, that Payments have been made
to, or provided for the benefit of, Executive by the Company, which are in
excess of the limitations provided in this Section 8(d)(i)(B) (hereinafter
referred to as an "Excess Payment"), such Excess Payment shall be deemed for all
purposes to be a loan to Executive made on the date Executive received the
Excess Payment and Executive shall repay the Excess Payment to the Company on
demand, together with interest on the Excess Payment at the applicable federal
rate (as defined in Section 1274(d) of the Code) from the date of Executive's
receipt of such Excess Payment until the date of such repayment. As a result of
the uncertainty in the application of Section 4999 of the Code at the time of
the determination, it is possible that Payments which will not have been made by
the Company should have been made (an "Underpayment"), consistent with the
calculations required to be made under this Section 8. In the event that it is
determined (A) by the Accounting Firm, the Company (which shall include the
position taken by the Company, or together with its consolidated
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<PAGE>
group, on its federal income tax return) or the IRS or (B) pursuant to a
determination by a court, that an Underpayment has occurred, the Company shall
pay an amount equal to such Underpayment to Executive within ten (10) days of
such determination together with interest on such amount at the applicable
federal rate from the date such amount would have been paid to Executive until
the date of payment.
9. CONFIDENTIAL INFORMATION AND REMOVAL OF DOCUMENTS.
(a) Executive shall hold in a fiduciary capacity for the benefit
of the Company all secret or confidential information, knowledge or data
relating to the Company or any Affiliate, and their respective businesses
("Confidential Information"), which shall have been obtained by Executive during
Executive's employment by the Company or any Affiliate and which shall not be or
become public knowledge (other than by acts by Executive or representatives of
Executive in violation of this Agreement). After termination of Executive's
employment with the Company, Executive shall not, without the prior written
consent of the Company or as may otherwise be required by law or legal process,
communicate or divulge any such information, knowledge or data to anyone other
than the Company and those designated by it.
(b) All records, files, drawings, documents, models, equipment,
and the like containing Confidential Information or needed in the Company's
business which Executive has control over shall not be removed from the
Company's premises without its written consent, unless such removal is in the
furtherance of the Company's business or is in connection with Executive's
carrying out her duties under this Agreement and, if so removed, shall be
returned to the Company promptly after termination of Executive's employment
hereunder, or otherwise promptly after removal if such removal occurs following
termination of employment. Executive's rolodex, telephone directory and similar
type items, and furniture, art work and property owned by Executive or otherwise
not owned by the Company shall not be deemed Company property and shall not be
covered by this Section 9(b). The Company shall be the owner of all trade
secrets and other products relating to the Company's business developed by
Executive alone or in conjunction with others as part of her employment with the
Company.
10. NON-COMPETITION.
(a) In consideration of the benefits to be provided to Executive
hereunder, Executive covenants that she will not, without the prior written
consent of the Company, during the Employment Period and the twelve (12) month
period following her termination of employment for any reason or, if terminated
pursuant to Section 6(e) hereof, the Remaining Period, if greater (the
"Restriction Period"), engage in any way, directly or indirectly, in any
business whose product or activities directly compete with
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<PAGE>
the products or activities of Philips Medical Systems or the Company anywhere
where Philips Medical Systems or the Company conducts its businesses, other than
in her capacity as an employee of the Company.
(b) Executive hereby covenants and agrees that, at all times
during the Employment Period and for a period of one (1) years immediately
following her termination for any reason, Executive shall not employ or seek to
employ any person employed at that time by Philips Medical Systems or the
Company, or otherwise encourage or entice such person or entity to leave such
employment.
(c) Executive hereby covenants and agrees that, at all times
during the Restriction Period, Executive will not (i) pursue or attempt to
develop any project known to Executive and which Philips Medical Systems or the
Company are pursuing, developing or attempting to develop as of the Date of
Termination ("Project"), directly or indirectly, alone, in association with or
as a shareholder, principal, agent, partner, officer, director, employee or
consultant of any other organization or (ii) divert to any entity which is
engaged in any business conducted by Philips Medical Systems or the Company in
the same geographic area as Philips Medical Systems or the Company, any Project
or any customer of Philips Medical Systems or the Company.
(d) Executive acknowledges that the restrictions, prohibitions
and other provisions of this Section 10 are reasonable, fair and equitable in
scope, terms and duration, are necessary to protect the legitimate business
interests of the Company and are a material inducement to the Company to enter
into this Agreement. It is the intention of the parties hereto that the
restrictions contained in this paragraph be enforceable to the fullest extent
permitted by applicable law. Therefore, to the extent any court of competent
jurisdiction shall determine that any portion of the foregoing restrictions is
excessive, such provision shall not be entirely void, but rather shall be
limited or revised only to the extent necessary to make it enforceable.
11. REMEDY. Should Executive engage in or perform any of the acts
prohibited by Sections 9 and 10, it is agreed that the Company shall be entitled
to full injunctive relief, to be issued by any competent court of equity,
enjoining and restraining Executive and each and every other person, firm,
organization, association, or corporation concerned therein, from the
continuance of such violative acts. The foregoing remedy available to Company
shall not be deemed to limit or prevent the exercise by the Company of any or
all further rights and remedies which may be available to the Company hereunder
or at law or in equity.
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<PAGE>
12. SUCCESSORS; BINDING AGREEMENT. This Agreement shall be binding
upon and shall inure to the benefit of Executive, her heirs, executors,
administrators, beneficiaries and assigns and shall be binding upon and shall
inure to the benefit of the Company and its successors.
13. NOTICE. For the purposes of this Agreement, notices, demands and
all other communications provided for in this Agreement shall be in writing and
shall be deemed to have been duly given when delivered either personally or by
United States certified or registered mail, return receipt requested, postage
prepaid, addressed, in case of Executive, to the last address on file with the
Company and if to the Company, to its executive offices or to such other address
as any party may have furnished to the others in writing in accordance herewith,
except that notices of change of address shall be effective only upon receipt.
14. RESOLUTION OF DIFFERENCES OVER BREACHES OF AGREEMENT. The
parties shall use good faith efforts to resolve any controversy or claim arising
out of, or relating to this Agreement or the breach thereof, first in accordance
with the Company's internal review procedures, except that this requirement
shall not apply to any claim or dispute under or relating to Sections 9 or 10 of
this Agreement. If despite their good faith efforts, the parties are unable to
resolve such controversy or claim through the Company's internal review
procedures, then such controversy or claim shall be resolved by a court of law
having jurisdiction thereof. If any contest or dispute shall arise between the
Company and Executive regarding any provision of this Agreement, the parties
shall be responsible for paying all of its own legal fees and expenses incurred
in connection with such contest or dispute.
15. GOVERNING LAW. This Agreement is governed by, and is to be
construed and enforced in accordance with, the laws of the State of Washington,
without regard to principles of conflicts of laws. If, under such law, any
portion of this Agreement is at any time deemed to be in conflict with any
applicable statute, rule, regulation or ordinance, such portion shall be deemed
to be modified or altered to conform thereto or, if that is not possible, to be
omitted from this Agreement, and the invalidity of any such portion shall not
affect the force, effect and validity of the remaining portion hereof.
16. AMENDMENT. No provisions of this Agreement may be amended,
modified, or waived unless such amendment or modification is agreed to in
writing signed by Executive and by a duly authorized officer of the Company, and
such waiver is set forth in writing and signed by the party to be charged. No
waiver by either party hereto at any time of any breach by the other party
hereto of any condition or provision of this Agreement to be performed by such
other party shall be deemed a waiver of
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<PAGE>
similar or dissimilar provisions or conditions at the same or at any prior or
subsequent time.
17. SURVIVAL. The respective obligations of, and benefits afforded
to, Executive and Company as provided in Sections 9 and 10 of this Agreement
shall survive the termination of this Agreement.
18. NO CONFLICT OF INTEREST. During the Employment Period, Executive
shall not directly, or indirectly render service, or undertake any employment or
consulting agreement with another entity without the express written consent of
the Company.
19. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
20. ENTIRE AGREEMENT. This Agreement sets forth the entire agreement
of the parties hereto (and in the case of the Company, its predecessors) in
respect of the subject matter contained herein and supersede all prior
agreements, promises, covenants, arrangements, communications, representations
or warranties, whether oral or written, by any officer, employee or
representative of any party hereto in respect of such subject matter, including,
but not limited to, the Employment Agreement by and between ATL Ultrasound, Inc.
and Executive, dated as of the first day of January, 1997 and any and all
amendments made subsequent thereto (the "Prior Agreement"), and as of the
successful consummation of the Offer, such Prior Agreement shall be void and of
no further force or effect. Any prior agreement of the parties hereto in
respect of the subject matter contained herein is hereby terminated and
canceled, as of the successful consummation of the Offer; PROVIDED THAT, this
Agreement shall not modify or terminate the provisions of any compensation or
benefit plan providing benefits upon a change in control of the Company
(excluding the Prior Agreement); PROVIDED, FURTHER, that Executive acknowledges
and agrees that she will be paid no more than 23%, 0.0% and 23.4% of Base Salary
under the 1996-98, 1997-99 and 1998-00 performance cycles, respectively, under
the Company's Long Term Incentive Plan (the "Plan"), effective as of January 1,
1993 and waives all rights for any other payments under such Plan upon payment
of such amounts. Executive acknowledges that in consideration of the benefits
to be provided hereunder, she has waived, as of the successful consummation of
the Offer, all of her rights under the Prior Agreement, including, but not
limited to Section 6 thereof.
21. SECTION HEADINGS. The section headings in this Agreement are for
convenience of reference only, and they form no part of this Agreement and shall
not affect its interpretation.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
ATL Ultrasound, Inc.
By: /s/ Dennis C. Fill
-------------------------------
/s/ Pamela Dunlap
----------------------------------
Pamela Dunlap
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<PAGE>
EXHIBIT A
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<PAGE>
EXHIBIT B
1999-2001 Strategic Plan (*)
Income Statement 1999 2000 2001
- ------------------------------------------------------------------
Total Product Revenue 427.9 466.5 511.0
Product Gross Profit 233.9 266.2 292.6
- ------------------------------------------------------------------
Service Revenue 103.4 109.4 115.7
Service Gross Profit 43.9 47.2 50.6
- ------------------------------------------------------------------
Total Revenue $ 531.3 $ 575.9 $ 626.7
Total Gross Profit $ 277.8 $ 313.4 $ 343.2
Gross Margin 52.3% 54.4% 54.8%
- ------------------------------------------------------------------
Operating Expenses
Selling and Marketing 110.1 118.0 126.8
% Revenue 20.7% 20.5% 20.2%
General & Admin 41.6 43.6 46.1
% Revenue 7.8% 7.6% 7.4%
R&D Expense 63.2 67.0 72.0
% Revenue 11.9% 11.6% 11.5%
Other 3.6 6.2 7.8
- ------------------------------------------------------------------
Total Operating Expense $ 218.5 $ 234.8 $ 252.6
41% 41% 40%
- ------------------------------------------------------------------
Operating Income $ 59.3 $ 78.6 $ 90.6
- ------------------------------------------------------------------
- --------------------------
(*) The synergies expected to be realized as a result of the Merger will be
between $50 and $70 million, as mutually agreed upon by the parties.
