-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, FoXlHLiepdOO8M4IsIYxdX5PSy8HRKisUTszMqYwiAkCcpQShSrm0HVr+8q7ths2 Edq18l1/AwxLnHv1TGb+8w== 0001012870-97-000998.txt : 19970514 0001012870-97-000998.hdr.sgml : 19970514 ACCESSION NUMBER: 0001012870-97-000998 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19970329 FILED AS OF DATE: 19970513 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: ACUSON CORP CENTRAL INDEX KEY: 0000717014 STANDARD INDUSTRIAL CLASSIFICATION: ELECTROMEDICAL & ELECTROTHERAPEUTIC APPARATUS [3845] IRS NUMBER: 942784998 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-10068 FILM NUMBER: 97602402 BUSINESS ADDRESS: STREET 1: 1220 CHARLESTON RD STREET 2: PO BOX 7393 CITY: MOUNTAIN VIEW STATE: CA ZIP: 94039 BUSINESS PHONE: 4159699112 MAIL ADDRESS: STREET 1: P O BOX 7393 STREET 2: 1220 CHARLESTON RD CITY: MOUNTAIN VIEW STATE: CA ZIP: 74039 10-Q 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 -------------- FORM 10-Q (Mark One) [X] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended March 29, 1997 or [_] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from ____________ to ___________ Commission file number 0-14953 ACUSON CORPORATION (Exact name of registrant as specified in its charter) Delaware 94-2784998 (State of Incorporation) (IRS Employer Identification No.) 1220 Charleston Road P. O. Box 7393 Mountain View, CA 94039-7393 (Address of principal executive offices) Registrant's telephone number, including area code, is (415) 969-9112 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Common Stock, $0.0001 par value 28,913,489 shares ------------------------------- --------------------------- (Class) Outstanding at May 3, 1997 - -------------------------------------------------------------------------------- FORM 10-Q ACUSON CORPORATION INDEX Page Number PART I. FINANCIAL INFORMATION ITEM 1. Financial Statements Condensed Consolidated Balance Sheets as of March 29, 1997 and December 31, 1996 1 Condensed Consolidated Statements of Operations for the Three Months Ended March 29, 1997 and March 30, 1996 2 Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 29, 1997 and March 30, 1996 3 Notes to Condensed Consolidated Financial Statements 4 ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 6 PART II. OTHER INFORMATION ITEM 1. Legal Proceedings 9 ITEM 6. Exhibits and Reports on Form 8-K 9 Signature 10 - -------------------------------------------------------------------------------- ACUSON CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands, except per share amounts)
March 29, December 31, 1997 1996 - ---------------------------------------------------------------------------------------------------------------- Assets Current Assets Cash and cash equivalents $ 21,987 $ 14,413 Accounts receivable, net 111,137 93,647 Inventories 77,920 83,196 Deferred income taxes 21,303 22,316 Other current assets 22,009 22,388 -------- --------- Total current assets 254,356 235,960 Property and Equipment, at cost, net of accumulated depreciation and amortization of $122,173 and $118,518 in 1997 and 1996, respectively 61,173 65,884 Other assets, net 18,021 18,857 -------- --------- Total Assets $333,550 $320,701 ======== ======== Liabilities and Stockholders' Equity Current Liabilities Short-term borrowings $ 18,000 $ 13,000 Accounts payable 20,567 20,235 Other accrued liabilities 87,227 92,410 -------- --------- Total current liabilities 125,794 125,645 -------- --------- Commitments and contingencies (Note 4) Stockholders' Equity Preferred stock, par value $0.0001: authorized, 10,000 shares; outstanding, none -- -- Common stock and additional paid-in capital, common stock par value $0.0001: authorized, 50,000 shares; outstanding, 28,873 shares and 28,246 shares in 1997 and 1996, respectively 115,560 102,756 Cumulative translation adjustment (544) 527 Retained earnings 92,740 91,773 -------- --------- Total stockholders' equity 207,756 195,056 -------- --------- Total Liabilities and Stockholders' Equity $333,550 $320,701 ======== ======== ===================================================================================================================
See accompanying notes to the condensed consolidated financial statements. 1 - -------------------------------------------------------------------------------- ACUSON CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share amounts)
Three Months Ended --------------------------------- March 29, March 30, 1997 1996 - -------------------------------------------------------------------------------------------------------- Net sales Product $87,503 $64,337 Service 20,078 20,489 ------- ------ Total net sales 107,581 84,826 Cost of sales Product 46,753 30,950 Service 10,067 9,833 ------- ------ Total cost of sales 56,820 40,783 ------- ------ Gross profit 50,761 44,043 ------- ------ Operating expenses Selling, general and administrative 28,961 26,767 Product development 13,224 16,372 ------- ------ Total operating expenses 42,185 43,139 ------- ------ Income from operations 8,576 904 Interest income, net 84 899 ------- ------ Income before income taxes 8,660 1,803 Provision for income taxes 2,815 541 ------- ------ Net income $ 5,845 $ 1,262 ======== ======== Earnings per share $ 0.19 $ 0.05 ======== ======== Weighted average common shares outstanding 30,666 27,197 ======== ======== - -------------------------------------------------------------------------------------------------------------------
See accompanying notes to the condensed consolidated financial statements. 2 - -------------------------------------------------------------------------------- ACUSON CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands)
Three Months Ended ------------------------------- March 29, March 30, 1997 1996 - ---------------------------------------------------------------------------------------------------------------- Cash flows from operating activities Net income $ 5,845 $ 1,262 Adjustments to reconcile net income to cash provided by (used in) operating activities: Depreciation and amortization 6,026 4,784 Tax benefit of employee stock transactions 2,976 82 Changes in: Accounts receivable (18,091) 641 Leases receivable (237) (6,524) Inventories 5,190 (8,475) Deferred income taxes 968 270 Other current assets 861 68 Accounts payable 455 8,740 Other accrued liabilities (2,193) (2,376) ------- ------ Net cash provided by (used in) operating activities 1,800 (1,528) ------- ------ Cash flows from investing activities Decrease in short-term investments -- 3,948 Investment in property and equipment (2,018) (7,098) Other 198 717 ------- ------ Net cash used in investing activities (1,820) (2,433) ------- ------ Cash flows from financing activities Borrowings under short-term borrowing agreement 5,000 -- Repurchase of common stock (7,807) (9,930) Issuance of common stock under stock option and stock purchase plans 10,665 3,393 ------- ------ Net cash provided by (used in) financing activities 7,858 (6,537) ------- ------ Effect of exchange rate changes on cash (264) (33) ------- ------ Net increase (decrease) in cash and cash equivalents 7,574 (10,531) Cash and cash equivalents, beginning of period 14,413 46,135 ------- ------ Cash and cash equivalents, end of period $21,987 $35,604 ======= ======= - -------------------------------------------------------------------------------------------------------------------
See accompanying notes to the condensed consolidated financial statements. 3 - -------------------------------------------------------------------------------- ACUSON CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Note 1 - Interim Statements In the opinion of management, the unaudited interim condensed consolidated financial statements include all adjustments, which include only normal recurring adjustments, necessary to summarize fairly Acuson Corporation's (the "Company's") condensed consolidated financial position as of March 29, 1997 and its condensed consolidated results of operations and cash flows for the three-month periods ended March 29, 1997 and March 30, 1996. The results of operations for the three months ended March 29, 1997 are not necessarily indicative of the results to be expected for the entire year ending December 31, 1997. Certain information reported in the prior year has been reclassified to conform to the 1997 presentation. The Company's principle accounting policies are set forth in the financial statements for the year ended December 31, 1996 and notes thereto, contained in the Company's Annual Report filed with the Securities and Exchange Commission. Note 2 - Inventories The components of inventories were as follows (in thousands): March 29, December 31, 1997 1996 ------------------ --------------- Raw materials $35,182 $38,224 Work-in-process 14,962 18,740 Finished goods 27,776 26,232 ------ ------ Total inventories $77,920 $83,196 ======= ======= Note 3 - Short-Term Borrowings At March 29, 1997, the Company temporarily had two revolving, unsecured credit facilities in place. The first unsecured credit agreement was for $50.0 million, had originated in April 1995 and expired March 31, 1997. Under the terms of this revolving, unsecured credit agreement, no compensating balances were required and the interest rate was determined at the time of borrowing based on the London interbank offered rate plus a margin, or prime rate. The weighted average borrowings were $16.3 million during the first quarter and the weighted average interest rate was 6.0%. At March 29, 1997, borrowings under this facility totalled $18.0 million and the effective rate was 6.3%. Borrowing under this facility was subject to certain debt covenants and the Company was in compliance with those covenants. The new unsecured credit agreement is for $75.0 million and is in effect through March 2000. Under the terms of the agreement, no compensating balances are required and the interest rate is determined at the time of borrowing based on the London interbank offered rate plus a margin, or prime rate. At March 29, 1997, there were no borrowings under this new facility. Subsequent to the quarter end, the outstanding balance of $18.0 million was transferred from the original agreement to the new agreement and the original agreement was terminated. This new agreement is also subject to certain debt covenants and the Company is in compliance with those covenants. 4 Note 4 - Legal Contingencies On October 27, 1994, the Company was sued in Ghent, Belgium, by Cormedica NV, in connection with the Company's termination of its distributor relationship with Cormedica. In the suit, Cormedica seeks indemnities and damages in the amount of approximately $2.5 million. The Company intends to defend this suit vigorously. Management believes that the ultimate outcome of this matter will not have a material adverse effect on the Company's financial condition. Note 5 - Disclosure of the Impact That a Recently Issued Financial Standard Will Have on the Financial Statements When Adopted in a Future Period In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128, ("SFAS No. 128"), "Earnings Per Share." SFAS No. 128 replaces the presentation of primary earnings per share with a presentation of basic earnings per share, which excludes dilution. SFAS No. 128 also requires dual presentation of basic and diluted earnings per share on the face of the income statement. Diluted earnings per share is computed similarly to fully diluted earnings per share pursuant to existing pronouncements. SFAS No. 128 is effective for financial statements with periods ending after December 15, 1997. This statement requires restatement of all prior-period earnings per share data presented. The Company anticipates adopting SFAS No. 128 and this adoption will not have a material effect on its financial statements. Calculated under SFAS No. 128, the basic earnings per share for the first quarter is $0.20 and the diluted earnings per share is $0.19. In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 129, ("SFAS No. 129"), "Disclosure of Information about Capital Structure", which will be adopted in the fourth quarter of 1997. SFAS No. 129 requires companies to disclose certain information about their capital structure. The Company anticipates this adoption will not have a material effect on its financial statements. - -------------------------------------------------------------------------------- 5 - -------------------------------------------------------------------------------- ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations The Company reported record revenues for the first quarter ended March 29, 1997, representing a 26.8% increase over the 1996 first quarter revenues. Net revenues for the quarter ended March 29, 1997, were $107.6 million compared with $84.8 million in the quarter ended March 30, 1996. The change in the first quarter revenue resulted, in part, from shipments of the Sequoia(TM) ultrasound systems and the Aspen(TM) ultrasound system which began in July and November 1996, respectively. Worldwide service revenue remained relatively stable at $20.1 million compared with $20.5 million in the quarter ended March 30, 1996. International revenue increased 6.9% to $37.1 million in the first quarter compared with $34.8 million in the first quarter of 1996. Cost of sales increased as a percentage of net sales to 52.8% for 1997 compared with 48.1% for 1996. The percentage increase in 1997 was primarily a reflection of the product mix and start-up and warranty costs on new product installations. Selling, general and administrative costs were $29.0 million or 26.9% of net sales in the quarter ended March 29, 1997, as compared with $26.8 million or 31.6% of net sales in the same period of the prior year. The spending increase was primarily attributable to the investments in the Company's worldwide distribution network. Product development spending for the first quarter of 1997 declined to $13.2 million or 12.3% of net sales, compared with $16.4 million or 19.3% of net sales in the first quarter of 1996. The $3.1 million decline in 1997 spending represented a planned reduction following the new product introductions. Although product development expenses have decreased from 1996, the Company maintains a strong commitment to product development programs to develop proprietary technologies. The provision for income taxes for the first quarter was $2.8 million compared with $0.5 million in 1996. The effective tax rate for the three months ended March 29, 1997, was 32.5% compared with 30.0% in the same period in the prior year. In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128, ("SFAS No. 128"), "Earnings Per Share." The Company will adopt adopting SFAS No. 128 and anticipates that the adoption will not have a material effect on its financial statements. Please see Note 5 to the condensed consolidated financial statements for further discussion. In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 129, ("SFAS No. 129"), "Disclosure of Information about Capital Structure." The Company anticipates that this adoption will not have a material effect on its financial statements. Please see note 5 to the condensed consolidated financial statements for further discussion. Liquidity and Capital Resources The Company's cash and cash equivalents balance increased $7.6 million during the three months ended March 29, 1997, to $22.0 million. During the quarter, the Company generated $1.8 million in cash from operations, as compared with 1996 when operations used $1.5 million in cash, due primarily to improved profitability and a reduction in inventory. Inventories provided $5.2 million during the quarter from a reduction in inventories as a result of new product introduction. Accounts receivable used $18.1 million in cash due primarily to higher revenues. The Company's investing and financing activities for the three months ended March 29, 1997, provided $6.0 million in cash. Included in the financing activities for the three months of 1997, was $10.7 million raised through employee participation in the Company's stock option and stock purchase plans, which is offset by $7.8 million used for common 6 stock repurchases. In the same period a year ago, employee participation in the Company's stock plans generated $3.4 million while the repurchases of common stock used $9.9 million. In 1993, the Board of Directors authorized the repurchase of 4,000,000 shares of common stock, over an unspecified period of time, to reduce the dilutive effect of the Company's stock plans. During the first quarter of 1997, the Company repurchased 213,100 shares at a total cost of $5.7 million. As of March 29, 1997, the Company had repurchased 3,914,000 shares toward the 4,000,000 share repurchase authorization at a cumulative cost of $55.9 million. On October 15, 1996, the Board of Directors authorized the repurchase of an additional 4,000,000 shares of common stock over an unspecified period of time. There have been no purchases toward this authorization. As with all purchases thus far, the Company intends to fund future purchases by utilizing the Company's cash balances. Working capital in the first quarter increased over the corresponding prior-year period due primarily to increased cash flow from operations which resulted in higher cash and accounts receivable. At March 29, 1997, the Company's working capital totalled $128.6 million. At March 29, 1997, the Company temporarily had two revolving, unsecured credit facilities in place. The first unsecured credit agreement was for $50.0 million, had originated in April 1995 and expired March 31, 1997. Under the terms of this revolving, unsecured credit agreement, no compensating balances were required and the interest rate was determined at the time of borrowing based on the London interbank offered rate plus a margin, or prime rate. The weighted average borrowings were $16.3 million during the first quarter and the weighted average interest rate was 6.0%. At March 29, 1997, borrowings under this facility totalled $18.0 million and the effective rate was 6.3%. Borrowing under this facility was subject to certain debt covenants and the Company was in compliance with those covenants. The new unsecured credit agreement is for $75.0 million and is in effect through March 2000. Under the terms of the agreement, no compensating balances are required and the interest rate is determined at the time of borrowing based on the London interbank offered rate plus a margin, or prime rate. At March 29, 1997, there were no borrowings under this new facility. Subsequent to the quarter end, the outstanding balance of $18.0 million was transferred from the original agreement to the new agreement and the original agreement was terminated. This new agreement is also subject to certain debt covenants and the Company is in compliance with those covenants. Based on its current operating plan, the Company believes that the liquidity provided by its existing cash, cash generated from operations, and the borrowing arrangements described above will be sufficient to meet the Company's operating and capital requirements for fiscal 1997. Investment Risks The Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") section in this report contains forward-looking statements regarding the Company and its products. These forward-looking statements are based on current expectations and the Company assumes no obligation to update this information. The Company's actual results could differ materially from these discussed in this document. In evaluating the forward- looking statements contained in this document, prospective investors and shareholders should carefully consider the factors set forth below. The Sequoia and Aspen ultrasound platforms raise several risk factors. Specifically, the success of these products depends on actual and perceived levels of product performance in a clinical environment; market acceptance of the products and their pricing; competitor responses including competing products and pricing, intellectual property allegations and product positioning counterstrategies, and timely completion of future product capabilities. The realizable value of inventory and/or fixed assets for all of the Company's products is dependent on the timing and success of product introduction to the marketplace and market acceptance. In addition, while the Company believes that there has recently been a positive momentum in the worldwide ultrasound market, there can be no assurance that this momentum will continue. Also, the Company's business is subject to further risks from developments in other imaging modalities and changes in government regulation of the marketing of ultrasound equipment. 7 The foregoing Investment Risks relate to the forward-looking statements contained in this document. For a description of the general investment considerations and risks surrounding Acuson's overall business and financial prospects, refer to the Company's Form 10-K filed with the Securities and Exchange Commission on March 31, 1997. Acuson is a registered trademark and Aspen and Sequoia are trademarks of Acuson Corporation. - -------------------------------------------------------------------------------- 8 - -------------------------------------------------------------------------------- PART II ITEM 1 LEGAL PROCEEDINGS The current status is the same as previously reported in the Company's Form 10-K for the fiscal year ended December 31, 1996. ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K a) Exhibits -------- 4.1 Credit Agreement, dated March 28, 1997, between Acuson Corporation and ABN AMRO Bank N. V., as Agent for Lenders 10.1 1995 Employee Stock Purchase Plan, as amended 10.2 1995 Stock Incentive Plan, as amended 10.3 1991 Stock Incentive Plan, as amended 27.1 Financial Data Schedule b) Reports on Form 8-K ------------------- The Company filed no reports on Form 8-K during the quarter ended March 29, 1997. - -------------------------------------------------------------------------------- 9 - -------------------------------------------------------------------------------- SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. ACUSON CORPORATION (Registrant) May 12, 1997 By /s/ Stephen T. Johnson ----------------------- Stephen T. Johnson Vice President, Chief Financial Officer (duly authorized Officer and Principal Financial and Accounting Officer) 10 EX-4.1 2 CREDIT AGREEMENT DATED MARCH 28, 1997 ACUSON CORPORATION EXHIBIT 4.1 - -------------------------------------------------------------------------------- ________________________________________________________________________________ ________________________________________________________________________________ CREDIT AGREEMENT AMONG ACUSON CORPORATION AND THE LENDERS NAMED HEREIN AND ABN AMRO BANK N.V., AS AGENT FOR THE LENDERS MARCH 28, 1997 ________________________________________________________________________________ ________________________________________________________________________________ CREDIT AGREEMENT ---------------- TABLE OF CONTENTS ----------------- SECTION I. INTERPRETATION 1.01. Definitions................................. 1 1.02. GAAP........................................ 19 1.03. Headings.................................... 19 1.04. Plural Terms................................ 19 1.05. Time........................................ 19 1.06. Governing Law............................... 19 1.07. Construction................................ 19 1.08. Entire Agreement............................ 20 1.09. Calculation of Interest and Fees............ 20 1.10. Other Interpretive Provisions............... 20 SECTION II. CREDIT FACILITY 2.01. Revolving Loans............................. 21 2.02. Notice of Borrowing......................... 21 2.03. Interest Rates.............................. 22 2.04. LIBOR Loan Interest Periods................. 22 2.05. Scheduled Payments.......................... 23 2.06. Purpose..................................... 23 2.07. Commitment Reductions, Etc.................. 24 2.08. Fees........................................ 24 2.09. Prepayments................................. 25 2.10. Other Payment Terms......................... 25 2.11. Notes and Interest Account.................. 27 2.12. Loan Funding................................ 27 2.13. Pro Rata Treatment.......................... 28 2.14. Change of Circumstances..................... 30 2.15. Taxes on Payments........................... 33 2.16. Funding Loss Indemnification................ 36 2.17. Replacement of Lenders...................... 37 2.18. Maturity Date Extensions.................... 37 SECTION III. CONDITIONS PRECEDENT 3.01. Initial Conditions Precedent................ 38 3.02. Conditions Precedent to Each Credit Event... 38 3.03. Covenant to Deliver......................... 38 SECTION IV. REPRESENTATIONS AND WARRANTIES 4.01. Borrower's Representations and Warranties... 39 4.02. Reaffirmation............................... 44 SECTION V. COVENANTS 5.01. Affirmative Covenants....................... 44 5.02. Negative Covenants.......................... 47 5.03. Financial Covenants......................... 54 SECTION VI. DEFAULT i 6.01. Events of Default........................... 56 6.02. Remedies.................................... 58 SECTION VII. THE AGENT AND RELATIONS AMONG LENDERS 7.01. Appointment, Powers and Immunities.......... 59 7.02. Reliance by Agent........................... 59 7.03. Defaults.................................... 59 7.04. Indemnification............................. 60 7.05. Non-Reliance................................ 60 7.06. Resignation or Removal of Agent............. 61 7.07. Authorization............................... 61 7.08. Agent in its Individual Capacity............ 61 SECTION VIII. MISCELLANEOUS 8.01. Notices..................................... 62 8.02. Expenses.................................... 63 8.03. Indemnification............................. 63 8.04. Waivers; Amendments......................... 64 8.05. Successors and Assigns...................... 66 8.06. Setoff; Security Interest................... 69 8.07. No Third Party Rights....................... 70 8.08. Partial Invalidity.......................... 70 8.09. Jury Trial.................................. 70 8.10. Counterparts................................ 70 8.11. Confidentiality............................. 70 NOTE: NO SCHEDULES AND EXHIBITS INCLUDED IN THIS COPY. ii THIS CREDIT AGREEMENT, dated as of March 28, 1997, is entered into by and among: (1) ACUSON CORPORATION, a Delaware corporation ("Borrower"); -------- (2) Each of the financial institutions from time to time listed in Schedule I hereto, as amended from time to time (such financial ---------- institutions to be referred to herein collectively as the "Lenders"); and ------- (3) ABN AMRO BANK N.V., acting through its San Francisco International Branch, as agent for the Lenders (in such capacity, "Agent"). ----- RECITALS -------- A. Borrower has requested the Lenders to provide a revolving credit facility to Borrower. B. The Lenders are willing to provide such credit facility upon the terms and subject to the conditions set forth herein. AGREEMENT --------- NOW, THEREFORE, in consideration of the above Recitals and the mutual covenants herein contained, the parties hereto hereby agree as follows: SECTION I. INTERPRETATION. -------------- 1.01. Definitions. Unless otherwise indicated in this Agreement or ----------- any other Credit Document, each term set forth below, when used in this Agreement or any other Credit Document, shall have the respective meaning given to that term below or in the provision of this Agreement or other document, instrument or agreement referenced below. "Affiliate" shall mean, with respect to any Person, (a) each Person --------- that, directly or indirectly, owns or controls, whether beneficially or as a trustee, guardian or other fiduciary, five percent (5%) or more of any class of Equity Securities of such Person, (b) each Person that controls, is controlled by or is under common control with such Person or any Affiliate of such Person or (c) each of such Person's officers, directors, joint venturers and partners; provided, however, that in no case shall -------- ------- Agent or any Lender be deemed to be an Affiliate of Borrower or any of its Subsidiaries for purposes of this Agreement. For the purpose of this definition, "control" of a Person shall mean the possession, directly or indirectly, of the power to direct or cause the direction of its management or policies, whether through the ownership of voting securities, by contract or otherwise. "Agent" shall have the meaning given to that term in clause (3) of the ----- ----------------- introductory paragraph hereof. ---------------------- "Agent's Fee Letter" shall mean the letter agreement dated as of March ------------------ 12, 1997, between Borrower and Agent. "Agreement" shall mean this Credit Agreement. --------- "Applicable Lending Office" shall mean, with respect to any Lender, ------------------------- (a) initially, its office designated as such in Schedule I (or, in the case ---------- of any Lender which becomes a Lender by an assignment pursuant to Subparagraph 8.05(c), its office designated as such in the applicable -------------------- Assignment Agreement) and (b) subsequently, such other office or offices as such Lender may designate to Agent as the office at which such Lender's Loans will thereafter be maintained and for the account of which all payments of principal of, and interest on, such Lender's Loans will thereafter be made. "Applicable Margin" shall mean: ----------------- (a) With respect to any Base Rate Loan, zero percent (0%); and (b) With respect to any LIBOR Loan at any time, the per annum margin which is determined pursuant to the Pricing Grid and added to the LIBO Rate for such Loan; provided, however, that each Applicable Margin set forth in subparagraphs -------- ------- ------------- (a) and (b) of this definition shall be increased by two percent (2.0%) ------------------------------ immediately upon the occurrence of any Event of Default described in Subparagraph 6.01(a), 6.01(f) or 6.01(g) or upon receipt of ---------------------------------------- written notice from Agent after the occurrence of any other Event of Default and shall continue at such increased rate unless and until such Event of Default is waived in accordance with this Agreement. "Assignee Lender" shall have the meaning given to that term in --------------- Subparagraph 8.05(c). -------------------- "Assignment" shall have the meaning given to that term in Subparagraph ---------- ------------ 8.05(c). ------- 2 "Assignment Agreement" shall have the meaning given to that term in -------------------- Subparagraph 8.05(c). -------------------- "Assignment Effective Date" shall have, with respect to each ------------------------- Assignment Agreement, the meaning set forth therein. "Assignor Lender" shall have the meaning given to that term in --------------- Subparagraph 8.05(c). -------------------- "Base Rate" shall mean, on any day, the greater of (a) the Prime Rate --------- in effect on such date and (b) the Federal Funds Rate for such day plus ---- one-half percent (0.50%). "Base Rate Loan" shall mean, at any time, a Loan which then bears -------------- interest as provided in Subparagraph 2.03(a). -------------------- "Borrower" shall have the meaning given to that term in clause (1) of -------- ------------- the introductory paragraph hereof. -------------------------- "Borrowing" shall mean a borrowing by Borrower consisting of the Loans --------- made by each of the Lenders on the same date and of the same Type pursuant to a single Notice of Borrowing. "Borrowing Base" shall have the meaning given to that term in -------------- Subparagraph 2.01(b). -------------------- "Borrowing Base Certificate" shall have the meaning given to that term -------------------------- in Subparagraph 5.01(a). -------------------- "Business Day" shall mean any day on which (a) commercial banks are ------------ not authorized or required to close in San Francisco, California or New York, New York and (b) if such Business Day is related to a LIBOR Loan, dealings in Dollar deposits are carried out in the London interbank market. "Capital Adequacy Requirement" shall have the meaning given to that ---------------------------- term in Subparagraph 2.14(d). -------------------- "Capital Leases" shall mean any and all lease obligations that, in -------------- accordance with GAAP, are required to be capitalized on the books of a lessee. "Cash Equivalents" shall mean: ---------------- (a) Direct obligations of, or obligations the principal and interest on which are unconditionally guaranteed by, the United States of America or obligations of any agency of the United States of America to the extent such obligations are backed by the full faith and credit of the United States of 3 America, in each case maturing within one year from the date of acquisition thereof; (b) Certificates of deposit maturing within one year from the date of acquisition thereof issued by a commercial bank or trust company organized under the laws of the United States of America or a state thereof or that is a Lender, provided that (A) such deposits are denominated in Dollars, (B) such bank or trust company has capital, surplus and undivided profits of not less than $100,000,000 and (C) such bank or trust company has certificates of deposit or other debt obligations rated at least A-1 (or its equivalent) by Standard and Poor's Ratings Group or P-1 (or its equivalent) by Moody's Investors Service, Inc.; (c) Open market commercial paper maturing within 270 days from the date of acquisition thereof issued by a corporation organized under the laws of the United States of America or a state thereof, provided such commercial paper is rated at least A-1 (or its equivalent) by Standard and Poor's Ratings Group or P-1 (or its equivalent) by Moody's Investors Service, Inc.; and (d) Any repurchase agreement entered into with a commercial bank or trust company organized under the laws of the United States of America or a state thereof or that is a Lender, provided that (A) such bank or trust company has capital, surplus and undivided profits of not less than $100,000,000, (B) such bank or trust company has certificates of deposit or other debt obligations rated at least A-1 (or its equivalent) by Standard and Poor's Ratings Group or P-1 (or its equivalent) by Moody's Investors Service, Inc., (C) the repurchase obligations of such bank or trust company under such repurchase agreement are fully secured by a perfected security interest in a security or instrument of the type described in clause (a), (b) or (c) ---------------------- above and (D) such security or instrument so securing the repurchase obligations has a fair market value at the time such repurchase agreement is entered into of not less than 100% of such repurchase obligations. "Change of Control" shall mean, with respect to Borrower, the ----------------- acquisition by any person or group of persons (within the meaning of Section 13 or 14 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), but exclusive of the holdings of any person who is a director of Borrower on the date of this Agreement and exclusive of the holdings of any person or group of persons which has reported or may report on Schedule 13G under the Exchange Act and has not ceased to be eligible to report on Schedule 4 13G pursuant to Rule 13d-1 of the Exchange Act) of (i) beneficial ownership (within the meaning of Rule 13d-3 promulgated by the Securities and Exchange Commission under the Exchange Act) of twenty-five percent (25%) or more of the outstanding Equity Securities of Borrower entitled to vote for members of the board of directors, or (ii) all or substantially all of the assets of Borrower and its Subsidiaries taken as a whole. "Change of Law" shall have the meaning given to that term in ------------- Subparagraph 2.14(b). -------------------- "Closing Date" shall mean the date, not later than April 15, 1997, ------------ designated by Borrower in the initial Notice of Borrowing as the date for the initial Borrowing hereunder. "Commitment" shall mean, with respect to any Lender at any time, such ---------- Lender's Proportionate Share at such time of the Total Commitment at such time. "Commitment Fee Percentage" shall mean, with respect to the Unused ------------------------- Commitment at any time, the per annum rate which is determined pursuant to the Pricing Grid and used to calculate the Commitment Fees. "Commitment Fees" shall have the meaning given to that term in --------------- Subparagraph 2.08(b). --------------------- "Compliance Certificate" shall have the meaning given to that term in ---------------------- Subparagraph 5.01(a). -------------------- "Contingent Obligation" shall mean, with respect to any Person, (a) --------------------- any Guaranty Obligation of that Person; and (b) any direct or indirect obligation or liability, contingent or otherwise, of that Person (i) in respect of any Surety Instrument issued for the account of that Person or as to which that Person is otherwise liable for reimbursement of drawings or payments, (ii) as a partner or joint venturer in any partnership or joint venture, (iii) to purchase any materials, supplies or other property from, or to obtain the services of, another Person if the relevant contract or other related document or obligation requires that payment for such materials, supplies or other property, or for such services, shall be made regardless of whether delivery of such materials, supplies or other property is ever made or tendered, or such services are ever performed or tendered, or (iv) in respect to any Rate Contract that is not entered into in connection with a bona fide hedging operation that provides offsetting benefits to such Person. The amount of any Contingent Obligation shall (subject, in the case of Guaranty Obligations, to the last sentence of the definition of "Guaranty Obligation") be deemed equal to 5 the maximum reasonably anticipated liability in respect thereof, and shall, with respect to item (b)(iv) of this definition be marked to market on a ------------ current basis. "Contractual Obligation" of any Person shall mean, any indenture, ---------------------- note, lease, loan agreement, security, deed of trust, mortgage, security agreement, guaranty, instrument, contract, agreement or other form of contractual obligation or undertaking to which such Person is a party or by which such Person or any of its property is bound. "Credit Documents" shall mean and include this Agreement, the Notes ---------------- and the Agent's Fee Letter; all other documents, instruments and agreements delivered to Agent or any Lender pursuant to Paragraph 3.01; and all other -------------- documents, instruments and agreements delivered by Borrower or any of its Subsidiaries to Agent or any Lender in connection with this Agreement on or after the date of this Agreement. "Credit Event" shall mean the making of any Loan or the selection of a ------------ new Interest Period for any LIBOR Loan. "Current Ratio" shall mean, with respect to Borrower at any time, the ------------- ratio, determined on a consolidated basis in accordance with GAAP, of: (a) The current assets of Borrower and its Subsidiaries at such time; to -- (b) The sum (without duplication) of (i) the current liabilities of Borrower and its Subsidiaries at such time plus (ii) the outstanding principal amount of the Loans at such time. "Default" shall mean an Event of Default or any event or circumstance ------- not yet constituting an Event of Default which, with the giving of any notice or the lapse of any period of time or both, would become an Event of Default. "Defaulting Lender" shall mean (a) a Lender which has failed to fund ----------------- its portion of any Borrowing which it is required to fund under this Agreement and has continued in such failure for three (3) Business Days after written notice from Agent or (b) a Lender for which a receiver or conservator has been appointed. "Disclosure Letter" shall mean the letter designated as such dated ----------------- March 28, 1997 from Borrower to Agent. "Dollars" and "$" shall mean the lawful currency of the ------- - 6 United States of America and, in relation to any payment under this Agreement, same day or immediately available funds. "EBIRT" shall mean, with respect to Borrower for any period, the sum, ----- determined on a consolidated basis in accordance with GAAP, of the following: (a) The net income or net loss of Borrower and its Subsidiaries for such period before provision for income taxes; plus ---- (b) The sum (to the extent deducted in calculating net income or loss in clause (a) above) of (i) all Interest Expenses of ---------- Borrower and its Subsidiaries accruing during such period and (ii) all operating lease expenses of Borrower and its Subsidiaries accruing during such period. "EBITDA" shall mean, with respect to Borrower for any period, the sum, ------ determined on a consolidated basis in accordance with GAAP, of the following: (a) The net income or net loss of Borrower and its Subsidiaries for such period before provision for income taxes; plus ---- (b) The sum (to the extent deducted in calculating net income or loss in clause (a) above) of (i) all Interest Expenses of ---------- Borrower and its Subsidiaries accruing during such period and (ii) all depreciation and amortization expenses of Borrower and its Subsidiaries accruing during such period. "Eligible Accounts" shall mean, with respect to Borrower, the ----------------- aggregate net book value of all accounts receivable of Borrower determined in accordance with GAAP. "Eligible Assignee" shall mean (a) a commercial bank organized under ----------------- the laws of the United States, or any state thereof, and having a combined capital and surplus of at least $100,000,000; (b) a commercial bank organized under the laws of any other country which is a member of the Organization for Economic Cooperation and Development (the "OECD"), or a political subdivision of any such country, and having a combined capital and surplus of at least $100,000,000, provided that such bank is acting through a branch or agency located in the United States; or (c) a Person that is primarily engaged in the business of 7 commercial banking and that is (i) a Subsidiary of a Lender, (ii) a Subsidiary of a Person of which a Lender is a Subsidiary, or (iii) a Person of which a Lender is a Subsidiary. "Eligible Inventory" shall mean, with respect to Borrower, the ------------------ aggregate net book value of all inventory of Borrower determined in accordance with GAAP. "Employee Benefit Plan" shall mean any employee benefit plan within --------------------- the meaning of section 3(3) of ERISA maintained or contributed to by Borrower or any ERISA Affiliate, other than a Multiemployer Plan. "Environmental Laws" shall mean the Clean Air Act, 42 U.S.C. Section ------------------ 7401 et seq.; the Federal Water Pollution Control Act, 33 U.S.C. Section -- --- 1251 et seq.; the Resource Conservation and Recovery Act of 1976, 42 U.S.C. -- --- Section 6901 et seq.; the Comprehensive Environment Response, Compensation -- --- and Liability Act of 1980 (including the Superfund Amendments and Reauthorization Act of 1986, "CERCLA"), 42 U.S.C. Section 9601 et seq.; the -- --- Toxic Substances Control Act, 15 U.S.C. Section 2601 et seq.; the -- --- Occupational Safety and Health Act, 29 U.S.C. Section 651; the Emergency Planning and Community Right-to-Know Act of 1986, 42 U.S.C. Section 11001 et seq.; the Mine Safety and Health Act of 1977, 30 U.S.C. Section 801 et -- --- -- seq.; the Safe Drinking Water Act, 42 U.S.C. Section 300f et seq.; and all --- -- --- other Governmental Rules relating to the protection of human health and the environment, including all Governmental Rules pertaining to reporting, licensing, permitting, transportation, storage, disposal, investigation, and remediation of emissions, discharges, releases, or threatened releases of Hazardous Materials into the air, surface water, groundwater, or land, or relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport, or handling of Hazardous Materials. "Equity Securities" of any Person shall mean (a) all common stock, ----------------- preferred stock, participations, shares, partnership interests or other equity interests in and of such Person (regardless of how designated and whether or not voting or non-voting) and (b) all warrants, options and other rights to acquire any of the foregoing. "ERISA" shall mean the Employee Retirement Income Security Act of ----- 1974, as the same may from time to time be amended or supplemented, including any rules or regulations issued in connection therewith. "ERISA Affiliate" shall mean any Person which is treated as a single --------------- employer with Borrower under Section 414 8 of the IRC. "Event of Default" shall have the meaning given to that term in ---------------- Paragraph 6.01. -------------- "Federal Funds Rate" shall mean, for any day, the rate per annum set ------------------ forth in the weekly statistical release designated as H.15(519), or any successor publication, published by the Federal Reserve Board (including any such successor publication, "H.15 (519)") for such day opposite the caption "Federal Funds (Effective)". If on any relevant day, such rate is not yet published in H.15 (519), the rate for such day shall be the rate set forth in the daily statistical release designated as the Composite 3:30 p.m. Quotations for U.S. Government Securities, or any successor publication, published by the Federal Reserve Bank of New York (including any such successor publication, the "Composite 3:30 p.m. Quotations") for such day under the caption "Federal Funds Effective Rate". If on any relevant day, such rate is not yet published in either H.15 (519) or the Composite 3:30 p.m. Quotations, the rate for such day shall be the arithmetic means, as determined by Agent, of the rates quoted to Agent for such day by three (3) Federal funds brokers of recognized standing selected by Agent. "Federal Reserve Board" shall mean the Board of Governors of the --------------------- Federal Reserve System. "Financial Statements" shall mean, with respect to any accounting -------------------- period for any Person, statements of income and cash flows of such Person for such period, and a balance sheet of such Person as of the end of such period, setting forth in each case in comparative form figures for the corresponding period in the preceding fiscal year if such period is less than a full fiscal year or, if such period is a full fiscal year, corresponding figures from the preceding annual audit, all prepared in reasonable detail and in accordance with GAAP. "Fixed Charge Coverage Ratio" shall mean, with respect to Borrower for --------------------------- any consecutive four-fiscal quarter period, the ratio, determined on a consolidated basis in accordance with GAAP, of (a) EBIRT of Borrower and its Subsidiaries for such period to (b) the Fixed Charges of Borrower and its Subsidiaries for such period. "Fixed Charges" shall mean, with respect to any Person for any period, ------------- the sum, determined on a consolidated basis in accordance with GAAP, of (a) all payments on Funded Indebtedness (including interest) paid or scheduled to be paid by such Person and its Subsidiaries during such period, plus (b) ---- all payments on operating leases paid or scheduled to be paid by such Person and its Subsidiaries during such 9 period. "Funded Indebtedness" of any Person shall mean, without duplication: ------------------- (a) All obligations of such Person evidenced by notes, bonds, debentures or other similar instruments and all other obligations of such Person for borrowed money (including obligations to repurchase receivables and other assets sold with recourse); (b) All obligations of such Person for the deferred purchase price of property or services (including obligations under letters of credit and other credit facilities which secure or finance such purchase price and obligations under "synthetic" leases), other than trade payables incurred by such Person in the ordinary course of its business on ordinary terms and not overdue; (c) All obligations of such Person under conditional sale or other title retention agreements with respect to property acquired by such Person (to the extent of the value of such property if the rights and remedies of the seller or lender under such agreement in the event of default are limited solely to repossession or sale of such property); and (d) All obligations of such Person as lessee under or with respect to Capital Leases. "Funded Indebtedness/EBITDA Ratio" shall mean, with respect to -------------------------------- Borrower for any consecutive four-fiscal quarter period, the ratio, determined on a consolidated basis in accordance with GAAP, of (a) the Funded Indebtedness of Borrower and its Subsidiaries on the last day of such period to (b) the EBITDA of Borrower and its Subsidiaries for such period. "GAAP" shall mean generally accepted accounting principles and ---- practices as in effect in the United States of America from time to time, consistently applied. "Governmental Authority" shall mean any domestic or foreign national, ---------------------- state or local government, any political subdivision thereof, any department, agency, authority or bureau of any of the foregoing, or any other entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government, including, without limitation, the Federal Deposit Insurance Corporation, the Federal Reserve Board, the Comptroller of the Currency, any central bank or any comparable authority. 10 "Governmental Charges" shall mean, with respect to any Person, all -------------------- levies, assessments, fees, claims or other charges imposed by any Governmental Authority upon such Person or any of its property or otherwise payable by such Person. "Governmental Rule" shall mean any law, rule, regulation, ordinance, ----------------- order, code interpretation, judgment, decree, directive, guidelines, policy or similar form of decision of any Governmental Authority. "Guaranty Obligation" shall mean, with respect to any Person, any ------------------- direct or indirect liability of that Person with respect to any indebtedness, lease, dividend, letter of credit or other obligation (the "primary obligations") of another Person (the "primary obligor"), including any obligation of that Person, whether or not contingent, (a) to purchase, repurchase or otherwise acquire such primary obligations or any property constituting direct or indirect security therefor, or (b) to advance or provide funds (i) for the payment or discharge of any such primary obligation, or (ii) to maintain working capital or equity capital of the primary obligor or otherwise to maintain the net worth or solvency or any balance sheet item, level of income or financial condition of the primary obligor, or (c) to purchase property, securities or services primarily for the purpose of assuring the owner of any such primary obligation of the ability of the primary obligor to make payment of such primary obligation, or (d) otherwise to assure or hold harmless the holder of any such primary obligation against loss in respect thereof. The amount of any Guaranty Obligation shall be deemed equal to the stated or determinable amount of the primary obligation in respect of which such Guaranty Obligation is made or, if not stated or if indeterminable, the maximum reasonably anticipated liability in respect thereof. "Hazardous Materials" shall mean all materials, substances and wastes ------------------- which are classified or regulated as "hazardous," "toxic" or similar descriptions under any Environmental Law or which are hazardous, toxic, harmful or dangerous to human health. "Indebtedness" of any Person shall mean, without duplication: ------------ (a) All obligations of such Person evidenced by notes, bonds, debentures or other similar instruments and all other obligations of such Person for borrowed money (including obligations to repurchase receivables and other assets sold with recourse); (b) All obligations of such Person for the 11 deferred purchase price of property or services (including obligations under letters of credit and other credit facilities which secure or finance such purchase price and obligations under "synthetic" leases); (c) All obligations of such Person under conditional sale or other title retention agreements with respect to property acquired by such Person (to the extent of the value of such property if the rights and remedies of the seller or lender under such agreement in the event of default are limited solely to repossession or sale of such property); (d) All obligations of such Person as lessee under or with respect to Capital Leases; (e) All non-contingent payment or reimbursement obligations of such Person under or with respect to Surety Instruments; (f) All net obligations of such Person, contingent or otherwise, under or with respect to Rate Contracts; (g) All Guaranty Obligations of such Person with respect to the obligations of other Persons of the types described in clauses (a) ----------- - (f) above and all other Contingent Obligations of such Person; and ----- (h) All obligations of other Persons of the types described in clauses (a) - (f) above to the extent secured by (or for which any ----------------- holder of such obligations has an existing right, contingent or otherwise, to be secured by) any Lien in any property (including accounts and contract rights) of such Person, even though such Person has not assumed or become liable for the payment of such obligations. "Indemnitee" shall have the meaning given to that term in Paragraph ---------- --------- 8.03. ---- "Interest Account" shall have the meaning given to that term in ---------------- Subparagraph 2.11(b). -------------------- "Interest Expenses" shall mean, with respect to any Person for any ----------------- period, the sum, determined on a consolidated basis in accordance with GAAP, of (a) all interest accruing on the Indebtedness of such Person during such period (including, without limitation, interest attributable to Capital Leases) plus (b) all letter of credit fees payable by such Person ---- accruing during such period. 12 "Interest Period" shall mean, with respect to any LIBOR Loan, the time --------------- period selected by Borrower pursuant to Subparagraph 2.02(c) which -------------------- commences on the first day of such Loan and ends on the last day of such time period, and thereafter, each subsequent time period selected by Borrower pursuant to Subparagraph 2.04(b) which commences on the last day -------------------- of the immediately preceding time period and ends on the last day of that time period. "Investment" of any Person shall mean any loan or advance of funds by ---------- such Person to any other Person (other than advances to employees of such Person for moving and travel expenses, drawing accounts and similar expenditures in the ordinary course of business), any purchase or other acquisition of any Equity Securities or Indebtedness of any other Person, any capital contribution by such Person to or any other investment by such Person in any other Person (including any Guaranty Obligations of such Person and any indebtedness of such Person of the type described in clause ------ (h) of the definition of "Indebtedness" on behalf of any other Person); --- provided, however, that Investments shall not include (a) accounts -------- ------- receivable or other indebtedness owed by customers of such Person which are current assets and arose from sales of inventory in the ordinary course of such Person's business or (b) prepaid expenses of such Person incurred and prepaid in the ordinary course of business. "IRC" shall mean the Internal Revenue Code of 1986, as amended from --- time to time. "Lenders" shall have the meaning given to that term in clause (2) of ------- ------------- the introductory paragraph hereof. --------------------------------- "Leverage Ratio" shall mean, with respect to Borrower at any time, the -------------- ratio, determined on a consolidated basis, of: (a) The sum (without duplication) of (i) the total liabilities of Borrower and its Subsidiaries at such time determined in accordance with GAAP plus (ii) all other Indebtedness of Borrower and its Subsidiaries at such time; to -- (b) The Tangible Net Worth of Borrower and its Subsidiaries at such time. "LIBO Rate" shall mean, with respect to any Interest Period for the --------- Loans in any Borrowing consisting of LIBOR Loans, a rate per annum equal to the quotient of (a) the arithmetic mean (rounded upward if necessary to the nearest 1/16 of one percent) of the rates per annum appearing on 13 Telerate Page 3750 (or any successor publication) on the second Business Day prior to the first day of such Interest Period at or about 11:00 a.m. (London time) (for delivery on the first day of such Interest Period) for a term comparable to such Interest Period, divided by (b) one minus the ---------- Reserve Requirement for such Loans in effect from time to time. If for any reason rates are not available as provided in clause (a) of the preceding ---------- sentence, the rate to be used in clause (a) shall be, at the Agent's ---------- discretion, (i) the rate per annum at which Dollar deposits are offered to Agent in the London interbank eurodollar currency market or (ii) the rate at which Dollar deposits are offered to Agent in, or by Agent to major banks in, any offshore interbank eurodollar market selected by Agent, in each case on the second Business Day prior to the commencement of such Interest Period at or about 10:00 a.m. (New York time) (for delivery on the first day of such Interest Period) for a term comparable to such Interest Period and in an amount approximately equal to the amount of the Loan to be made or funded by Agent as part of such Borrowing. The LIBO Rate shall be adjusted automatically as to all LIBOR Loans then outstanding as of the effective date of any change in the Reserve Requirement. "LIBOR Loan" shall mean, at any time, a Loan which then bears interest ---------- as provided in Subparagraph 2.03(b). -------------------- "Lien" shall mean, with respect to any property, any security ---- interest, mortgage, pledge, lien, charge or other encumbrance in, of, or on such property or the income therefrom, including, without limitation, the interest of a vendor or lessor under a conditional sale agreement, Capital Lease or other title retention agreement, or any agreement to provide any of the foregoing, and the filing of any financing statement or similar instrument under the Uniform Commercial Code or comparable law of any jurisdiction (other than the filing of a cautionary lessor financing statement against a lessee covering the property subject to a true lease). "Loan" shall have the meaning given to that term in Paragraph 2.01. ---- -------------- "Margin Period" shall mean (a) the period commencing on the date of ------------- this Agreement and ending on May 31, 1997, (b) the three-calendar month period commencing June 1, 1997 and ending August 31, 1997 and (c) each consecutive three-calendar month period thereafter which commences on the day following the last day of the immediately preceding three-calendar month period and ends on the last day of that time period. "Margin Stock" shall have the meaning given to that ------------ 14 term in Regulation U issued by the Federal Reserve Board, as amended from time to time, and any successor regulation thereto. "Material Adverse Effect" shall mean a material adverse effect on (a) ----------------------- the business, assets, operations or financial or other condition of Borrower and its Subsidiaries, taken as a whole; (b) the ability of Borrower to pay or perform the Obligations in accordance with the terms of this Agreement and the other Credit Documents; or (c) the rights and remedies of Agent or any Lender under this Agreement, the other Credit Documents or any related document, instrument or agreement. "maturity" shall mean, with respect to any Loan, interest, fee or -------- other amount payable by Borrower under this Agreement or the other Credit Documents, the date such Loan, interest, fee or other amount becomes due, whether upon the stated maturity or due date, upon acceleration or otherwise. "Maturity Date" shall mean March 31, 2000 or, if such date is extended ------------- from time to time pursuant to Paragraph 2.18, any later date to which so -------------- extended. "Multiemployer Plan" shall mean any multiemployer plan within the ------------------ meaning of section 3(37) of ERISA maintained or contributed to by Borrower or any ERISA Affiliate. "Net Proceeds" shall mean, with respect to any sale or issuance of any ------------ Equity Security by any Person, the aggregate consideration received by such Person from such sale or issuance less the sum of the actual amount of the ---- reasonable fees and commissions payable to Persons other than such Person or any Affiliate of such Person, the reasonable legal expenses and the other reasonable costs and expenses directly related to such sale or issuance that are to be paid by such Person. "Note" shall have the meaning given to that term in Subparagraph ---- ------------ 2.11(a). ------- "Notice of Borrowing" shall have the meaning given to that term in ------------------- Paragraph 2.02. -------------- "Notice of Interest Period Selection" shall have the meaning given to ----------------------------------- that term in Subparagraph 2.04(b). -------------------- "Obligations" shall mean and include, with respect to Borrower, all ----------- loans, advances, debts, liabilities, and obligations, howsoever arising, owed by Borrower to Agent or any Lender of every kind and description (whether or not evidenced by any note or instrument and whether or not for the payment of money), direct or indirect, absolute or 15 contingent, due or to become due, now existing or hereafter arising pursuant to the terms of this Agreement or any of the other Credit Documents, including all interest, fees, charges, expenses, attorneys' fees and accountants' fees chargeable to Borrower or payable by Borrower hereunder or thereunder. "Participant" shall have the meaning given to that term in ----------- Subparagraph 8.05(b). -------------------- "PBGC" shall mean the Pension Benefit Guaranty Corporation, or any ---- successor thereto. "Permitted Indebtedness" shall have the meaning given to that term in ---------------------- Subparagraph 5.02(a). -------------------- "Permitted Liens" shall have the meaning given to that term in --------------- Subparagraph 5.02(b). -------------------- "Person" shall mean and include an individual, a partnership, a ------ corporation (including a business trust), a joint stock company, an unincorporated association, a limited liability company, a joint venture, a trust or other entity or a Governmental Authority. "Pricing Grid" shall mean Schedule 1.01. ------------ ------------- "Prime Rate" shall mean the per annum rate publicly announced by Agent ---------- from time to time at its Chicago office as its prime rate. The Prime Rate is determined by Agent from time to time as a means of pricing credit extensions to some customers and is neither directly tied to any external rate of interest or index nor necessarily the lowest rate of interest charged by Agent at any given time for any particular class of customers or credit extensions. Any change in the Base Rate resulting from a change in the Prime Rate shall become effective on the Business Day on which each change in the Prime Rate occurs. "Prior Credit Agreement" shall have the meaning given to that term in ---------------------- Subparagraph 2.06. ----------------- "Proportionate Share" shall mean, with respect to each Lender, the ------------------- percentage set forth under the caption "Proportionate Share" opposite such Lender's name on Schedule I, or, if changed, such percentage as may be set ---------- forth for such Lender in the Register. "Rate Contracts" shall mean swap agreements (as that term is defined -------------- in Section 101 of the Federal Bankruptcy Reform Act of 1978, as amended) and any other agreements or arrangements designed to provide protection against fluctuations in interest or currency exchange rates. 16 "Register" shall have the meaning given to that term in Subparagraph -------- ------------ 8.05(d). ------- "Reportable Event" shall have the meaning given to that term in ERISA ---------------- and applicable regulations thereunder. "Required Lenders" shall mean (a) at any time Loans are outstanding, ---------------- Lenders holding more than fifty percent (50%) of the aggregate principal amount of such Loans and (b) at any time no Loans are outstanding, Lenders whose Proportionate Shares exceed fifty percent (50%). "Requirement of Law" applicable to any Person shall mean (a) the ------------------ Articles or Certificate of Incorporation and By-laws, Partnership Agreement or other organizational or governing documents of such Person, (b) any Governmental Rule applicable to such Person, (c) any license, permit, approval or other authorization granted by any Governmental Authority to or for the benefit of such Person or (d) any judgment, decision or determination of any Governmental Authority or arbitrator, in each case applicable to or binding upon such Person or any of its property or to which such Person or any of its property is subject. "Reserve Requirement" shall mean, with respect to any day in an ------------------- Interest Period for a LIBOR Loan, the aggregate of the reserve requirement rates (expressed as a decimal) in effect on such day for eurocurrency funding (currently referred to as "Eurocurrency liabilities" in Regulation D of the Federal Reserve Board) maintained by a member bank of the Federal Reserve System. As used herein, the term "reserve requirement" shall include, without limitation, any basic, supplemental or emergency reserve requirements imposed on Lender by any Governmental Authority. "Solvent" shall mean, with respect to any Person on any date, that on ------- such date (a) the fair value of the property of such Person is greater than the fair value of the liabilities (including, without limitation, contingent liabilities) of such Person, (b) the present fair saleable value of the assets of such Person is not less than the amount that will be required to pay the probable liability of such Person on its debts as they become absolute and matured, (c) such Person does not intend to, and does not believe that it will, incur debts or liabilities beyond such Person's ability to pay as such debts and liabilities mature and (d) such Person is not engaged in business or a transaction, and is not about to engage in business or a transaction, for which such Person's property would constitute an unreasonably small capital. "Subsidiary" of any Person shall mean (a) any ---------- 17 corporation of which more than 50% of the issued and outstanding Equity Securities having ordinary voting power to elect a majority of the Board of Directors of such corporation (irrespective of whether at the time capital stock of any other class or classes of such corporation shall or might have voting power upon the occurrence of any contingency) is at the time directly or indirectly owned or controlled by such Person, by such Person and one or more of its other Subsidiaries or by one or more of such Person's other Subsidiaries, (b) any partnership, joint venture, or other association of which more than 50% of the equity interest having the power to vote, direct or control the management of such partnership, joint venture or other association is at the time owned and controlled by such Person, by such Person and one or more of the other Subsidiaries or by one or more of such Person's other Subsidiaries or (c) any other Person included in the Financial Statements of such Person on a consolidated basis. "Surety Instruments" shall mean all letters of credit (including ------------------ standby and commercial), banker's acceptances, bank guaranties, shipside bonds, surety bonds and similar instruments. "Tangible Net Worth" shall mean, with respect to any Person at any ------------------ time, the remainder at such time, determined on a consolidated basis in accordance with GAAP, of (a) the total assets of such Person and its Subsidiaries, minus (b) the sum (without limitation and without duplication ----- of deductions) of (i) the total liabilities of such Person and its Subsidiaries, (ii) all reserves established by such Person and its Subsidiaries for anticipated losses and expenses (to the extent not deducted in calculating total assets in clause (a) above) and (iii) all ---------- intangible assets of such Person and its Subsidiaries (to the extent included in calculating total assets in clause (a) above), including, ---------- without limitation, goodwill (including any amounts, however designated on the balance sheet, representing the cost of acquisition of businesses and investments in excess of underlying tangible assets), trademarks, trademark rights, trade name rights, copyrights, patents, patent rights, licenses, unamortized debt discount, marketing expenses, organizational expenses, non-compete agreements and deferred research and development. "Taxes" shall have the meaning given to such term in Subparagraph ----- ------------ 2.15(a). ------- "Total Commitment" shall mean, at any time, seventy-five million ---------------- Dollars ($75,000,000) or, if such amount is reduced pursuant to Subparagraph 2.07(a), the amount to which so reduced and in effect at such -------------------- time. 18 "Type" shall mean, with respect to any Loan or Borrowing at any time, ---- the classification of such Loan or Borrowing by the type of interest rate it then bears, whether an interest rate based upon the Base Rate or the LIBO Rate. "Unused Commitment" shall mean, at any time, the remainder of (a) the ----------------- Total Commitment at such time minus (b) the aggregate principal amount of all Loans outstanding at such time. 1.02. GAAP. Unless otherwise indicated in this Agreement or any ---- other Credit Document, all accounting terms used in this Agreement or any other Credit Document shall be construed, and all accounting and financial computations hereunder or thereunder shall be computed, in accordance with GAAP. If GAAP changes during the term of this Agreement such that any covenants contained herein would then be calculated in a different manner or with different components, Borrower, the Lenders and Agent agree to negotiate in good faith to amend this Agreement in such respects as are necessary to conform those covenants as criteria for evaluating Borrower's financial condition to substantially the same criteria as were effective prior to such change in GAAP; provided, however, that, until Borrower, the Lenders and Agent so amend this - -------- ------- Agreement, all such covenants shall be calculated in accordance with GAAP as in effect immediately prior to such change. 1.03. Headings. Headings in this Agreement and each of the other -------- Credit Documents are for convenience of reference only and are not part of the substance hereof or thereof. 1.04. Plural Terms. All terms defined in this Agreement or any other ------------ Credit Document in the singular form shall have comparable meanings when used in the plural form and vice versa. ---- ----- 1.05. Time. All references in this Agreement and each of the other ---- Credit Documents to a time of day shall mean New York, New York time, unless otherwise indicated. 1.06. Governing Law. This Agreement and each of the other Credit ------------- Documents (unless otherwise provided in such other Credit Documents) shall be governed by and construed in accordance with the laws of the State of California without reference to conflicts of law rules. 1.07. Construction. This Agreement is the result of negotiations ------------ among, and has been reviewed by, Borrower, each Lender, Agent and their respective counsel. Accordingly, this Agreement shall be deemed to be the product of all parties hereto, and no ambiguity shall be construed in favor of or against Borrower, any Lender or Agent. 19 1.08. Entire Agreement. This Agreement and each of the other Credit ---------------- Documents, taken together, constitute and contain the entire agreement of Borrower, the Lenders and Agent and supersede any and all prior agreements, negotiations, correspondence, understandings and communications among the parties, whether written or oral, respecting the subject matter hereof (including the commitment letter dated as of February 18, 1997 between Borrower and ABN AMRO Bank N.V.) 1.09. Calculation of Interest and Fees. All calculations of interest -------------------------------- and fees under this Agreement and the other Credit Documents for any period (a) shall include the first day of such period and exclude the last day of such period and (b) shall be calculated on the basis of a year of 360 days for actual days elapsed, except that during any period any Loan bears interest based upon the Prime Rate, such interest shall be calculated on the basis of a year of 365 or 366 days, as appropriate, for actual days elapsed. 1.10. Other Interpretive Provisions. References in this Agreement to ----------------------------- "Recitals," "Sections," "Paragraphs," "Subparagraphs," "Exhibits" and "Schedules" are to recitals, sections, paragraphs, subparagraphs, exhibits and schedules herein and hereto unless otherwise indicated. References in this Agreement and each of the other Credit Documents to any document, instrument or agreement (a) shall include all exhibits, schedules and other attachments thereto, (b) shall include all documents, instruments or agreements issued or executed in replacement thereof, and (c) shall mean such document, instrument or agreement, or replacement or predecessor thereto, as amended, modified and supplemented from time to time and in effect at any given time. References in this Agreement and each of the other Credit Documents to any statue or other law (i) shall include any successor statue or law, (ii) shall include all rules and regulations promulgated under such statue or law (or any successor statue or law), and (iii) shall mean such statue or law (or successor statue or law) and such rules and regulations, as amended, modified, codified or reenacted from time to time and in effect at any given time. The words "hereof," "herein" and "hereunder" and words of similar import when used in this Agreement or any other Credit Document shall refer to this Agreement or such other Credit Document, as the case may be, as a whole and not to any particular provision of this Agreement or such other Credit Document, as the case may be. The words "include" and "including" and words of similar import when used in this Agreement or any other Credit Document shall not be construed to be limiting or exclusive. In the event of any inconsistency between the terms of this Agreement and the terms of any other Credit Document, the terms of this Agreement shall govern. 20 SECTION II. CREDIT FACILITY. --------------- 2.01. Revolving Loans. Subject to the terms and conditions of this --------------- Agreement, each Lender severally agrees to advance to Borrower from time to time during the period beginning on the Closing Date and ending on the Maturity Date such loans as Borrower may request under this Section II (individually, a ---------- "Loan"); provided, however, that the aggregate principal amount of all Loans ---- -------- ------- outstanding at any time shall not exceed the lesser of: (a) Total Commitment. The Total Commitment at such time; and ---------------- (b) Borrowing Base. An amount (the "Borrowing Base") equal to -------------- -------------- the sum at such time of: (i) Sixty-four percent (64%) of Eligible Accounts; and (ii) Fifty percent (50%) of Eligible Inventory. (For the purposes of this Agreement, the Borrowing Base on any date of determination shall be presumed to be the Borrowing Base determined pursuant to the latest Borrowing Base Certificate delivered by Borrower prior to such date of determination.) All Loans shall be made on a pro rata basis by the Lenders in accordance with their respective Proportionate Shares, with each Borrowing to be comprised of a Loan by each Lender equal to such Lender's Proportionate Share of such Borrowing. Except as otherwise provided herein, Borrower may borrow, repay and reborrow Loans until the Maturity Date. 2.02. Notice of Borrowing. Borrower shall request each Borrowing by ------------------- delivering to Agent an irrevocable written notice in the form of Exhibit A, --------- appropriately completed (a "Notice of Borrowing"), which specifies, among other ------------------- things: (a) Amount. The principal amount of the requested Borrowing, which ------ shall be in the amount of (i) $1,000,000 or an integral multiple of $100,000 in excess thereof in the case of a Borrowing consisting of Base Rate Loans; or (ii) $2,000,000 or an integral multiple of $1,000,000 in excess thereof in the case of a Borrowing consisting of LIBOR Loans; (b) Type. Whether the requested Borrowing is to consist of Base Rate ---- Loans or LIBOR Loans; 21 (c) Interest Period. If the requested Borrowing is to consist of --------------- LIBOR Loans, the initial Interest Period selected by Borrower for such Loans in accordance with Subparagraph 2.04(a); and -------------------- (d) Date. The date of the requested Borrowing, which shall be a ---- Business Day; Provided, however, that all Borrowings made during the period commencing on the - -------- ------- date of this Agreement and ending three (3) Business Days thereafter shall consist solely of Base Rate Loans. Borrower shall give each Notice of Borrowing to Agent at least three (3) Business Days before the date of the requested Borrowing in the case of a Borrowing consisting of LIBOR Loans and at least one (1) Business Day before the date of the requested Borrowing in the case of a Borrowing consisting of Base Rate Loans. Each Notice of Borrowing shall be delivered by first-class mail or facsimile to Agent at the office or facsimile number and during the hours specified in Paragraph 8.01; provided, however, that -------------- -------- ------- Borrower shall promptly deliver to Agent the original of any Notice of Borrowing initially delivered by facsimile. Agent shall promptly notify each Lender of the contents of each Notice of Borrowing and of the amount and Type of (and, if applicable, the Interest Period for) each Loan to be made by such Lender as part of the requested Borrowing. 2.03. Interest Rates. Borrower shall pay interest on the unpaid -------------- principal amount of each Loan from the date of such Loan until the maturity thereof, at one of the following rates per annum: (a) Base Rate Loans. During such periods as such Loan is a Base Rate --------------- Loan, at a rate per annum equal to the Base Rate plus the Applicable Margin ---- therefor, such rate to change from time to time as the Applicable Margin or Base Rate shall change; and (b) LIBOR Loans. During such periods as such Loan is a LIBOR Loan, at ----------- a rate per annum equal at all times during each Interest Period for such LIBOR Loan to the LIBO Rate for such Interest Period plus the Applicable ---- Margin for such Loan, such rate to change from time to time during such Interest Period as the Applicable Margin shall change. (The Applicable Margins for LIBOR Loans shall be determined as provided in the Pricing Grid and may change for each Margin Period.) All Loans in each Borrowing shall, at any given time prior to maturity, bear interest at one, and only one, of the above rates. 2.04. LIBOR Loan Interest Periods. --------------------------- (a) Terms. The initial and each subsequent Interest ----- 22 Period selected by Borrower for a LIBOR Loan shall be one (1), two (2), three (3) or six (6) months (or, with the consent of each Lender, twelve (12) months); provided, however, that (i) any Interest Period which would -------- ------- otherwise end on a day which is not a Business Day shall be extended to the next succeeding Business Day unless such next Business Day falls in another calendar month, in which case such Interest Period shall end on the immediately preceding Business Day; (ii) any Interest Period which begins on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall end on the last Business Day of a calendar month; and (iii) no Interest Period shall end after the Maturity Date. (b) Notice of Interest Period Selection. Borrower shall notify Agent ----------------------------------- by an irrevocable written notice in the form of Exhibit B, appropriately --------- completed (a "Notice of Interest Period Selection"), at least three (3) ----------------------------------- Business Days prior to the last day of each Interest Period for LIBOR Loans of the Interest Period selected by Borrower for the next succeeding Interest Period for such Loans. Each Notice of Interest Period Selection shall be given by first-class mail or facsimile to the office or the facsimile number and during the hours specified in Paragraph 8.01; -------------- provided, however, that Borrower shall promptly deliver to Agent the -------- ------- original of any Notice of Interest Period Selection initially delivered by facsimile. If Borrower fails to notify Agent of the next Interest Period for LIBOR Loans in accordance with this Subparagraph 2.04(b), such Loans -------------------- shall automatically convert to Base Rate Loans on the last day of the current Interest Period therefor. 2.05. Scheduled Payments. ------------------ (a) Principal. Borrower shall repay the principal amount of the Loans --------- on the Maturity Date. (b) Interest. Borrower shall pay accrued interest on the unpaid -------- principal amount of each Loan in arrears (i) in the case of a Base Rate Loan, on the last day in each calendar quarter, (ii) in the case of a LIBOR Loan, on the last day of each Interest Period therefor (and, if any such Interest Period is longer than three (3) months, every three (3) months); and (iii) in the case of all Loans, upon prepayment (to the extent thereof) and at maturity. 2.06. Purpose. Borrower shall use the proceeds of the Loans, first, ------- to repay on the Closing Date all indebtedness outstanding under the Amended and Restated Credit Agreement dated as of April 14, 1995 among Borrower, the lending institutions party thereto and the First National Bank of Boston as agent for such lending institutions (as amended from time to time, the 23 "Prior Credit Agreement") and, thereafter, for Borrower's general corporate --------------------- needs. 2.07. Commitment Reductions, Etc. --------------------------- (a) Reduction or Cancellation of Commitments. Borrower may, upon ---------------------------------------- three (3) Business Days written notice to Agent, permanently reduce the Total Commitment by the amount of five million Dollars ($5,000,000) or an integral multiple of one million Dollars ($1,000,000) in excess thereof or cancel the Total Commitment in its entirety; provided, however, that: -------- ------- (i) Borrower may not reduce the Total Commitment prior to the Maturity Date, if, after giving effect to such reduction, the aggregate principal amount of all Loans then outstanding would exceed the Total Commitment; and (ii) Borrower may not cancel the Total Commitment prior to the Maturity Date, if, after giving effect to such cancellation, any Loan would then remain outstanding. (b) Effect of Commitment Reductions. From the effective date of any ------------------------------- reduction of the Total Commitment, the Commitment Fees payable pursuant to Subparagraph 2.08(b) shall be computed on the basis of the Total Commitment -------------------- as so reduced. Once reduced or cancelled, the Total Commitment may not be increased or reinstated without the prior written consent of all Lenders. Any reduction of the Total Commitment pursuant to Subparagraph 2.07(a) -------------------- shall be applied ratably to reduce each Lender's Commitment in accordance with clause (i) of Subparagraph 2.13(a). ---------------------------------- 2.08. Fees. ---- (a) Agent's Fee. Borrower shall pay to Agent, for its own account, ----------- agent's fees and other compensation in the amounts and at the times set forth in the Agent's Fee Letter. (b) Commitment Fees. Borrower shall pay to Agent, for the ratable --------------- benefit of the Lenders as provided in clause (iv) of Subparagraph 2.13(a), ----------------------------------- commitment fees (the "Commitment Fees") equal to the Commitment Fee --------------- Percentage on the daily average Unused Commitment for the period beginning on the date of this Agreement and ending on the Maturity Date. (The Commitment Fee Percentage shall be determined as provided in the Pricing Grid and may change for each Margin Period.) Borrower shall pay the Commitment Fees in arrears on the last day in each March, June, September and December (commencing June 30, 1997) and on the Maturity Date (or if 24 the Total Commitment is cancelled on a date prior to the Maturity Date, on such prior date). 2.09. Prepayments. ----------- (a) Terms of all Prepayments. Upon the prepayment of any Loan ------------------------ (whether such prepayment is an optional prepayment under Subparagraph ------------ 2.09(b), a mandatory prepayment required by Subparagraph 2.09(c) or a ------- -------------------- mandatory prepayment required by any other provision of this Agreement or the other Credit Documents, including, without limitation, a prepayment upon acceleration), Borrower shall pay to the Lender which made such Loan (i) all accrued interest to the date of such prepayment on the amount prepaid and (ii) if such prepayment is the prepayment of a LIBOR Loan on a day other than the last day of an Interest Period for such LIBOR Loan, all amounts payable to such Lender pursuant to Paragraph 2.16. -------------- (b) Optional Prepayments. At its option, Borrower may, upon three (3) -------------------- Business Days notice to Agent, prepay the Loans in any Borrowing in part, in an aggregate principal amount of $2,000,000 or more, or in whole. (c) Mandatory Prepayments. If, at any time, the aggregate principal --------------------- amount of all Loans then outstanding exceeds the lesser of the Total Commitment and the Borrowing Base at such time, Borrower shall immediately prepay Loans in an aggregate principal amount equal to such excess. 2.10. Other Payment Terms. ------------------- (a) Place and Manner. Borrower shall make all payments due to each ---------------- Lender or Agent hereunder by payments to Agent at Agent's office located at the address specified in Paragraph 8.01, with each payment due to a Lender -------------- to be for the account of such Lender and such Lender's Applicable Lending Office. Borrower shall make all payments hereunder in lawful money of the United States and in same day or immediately available funds not later than 2:00 p.m. on the date due. Agent shall promptly disburse to each Lender each payment received by Agent for the account of such Lender. (b) Date. Whenever any payment due hereunder shall fall due on a day ---- other than a Business Day, such payment shall be made on the next succeeding Business Day, and such extension of time shall be included in the computation of interest or fees, as the case may be. (c) Late Payments. If any amounts required to be paid by Borrower ------------- under this Agreement or the other Credit Documents (including, without limitation, principal or interest payable on any Loan, any fees or other amounts) remain unpaid after such amounts are due, Borrower shall pay 25 interest on the aggregate, outstanding balance of such amounts from the date due until those amounts are paid in full at a per annum rate equal to the Base Rate plus two percent (2.0%), such rate to change from time to ---- time as the Base Rate shall change. (d) Application of Payments. All payments hereunder shall be applied ----------------------- first to unpaid fees, costs and expenses then due and payable under this Agreement or the other Credit Documents, second to accrued interest then due and payable under this Agreement or the other Credit Documents and finally to reduce the principal amount of outstanding Loans. (e) Failure to Pay Agent. Unless Agent shall have received notice -------------------- from Borrower at least one (1) Business Day prior to the date on which any payment is due to the Lenders hereunder that Borrower will not make such payment in full, Agent shall be entitled to assume that Borrower has made or will make such payment in full to Agent on such date and Agent may, in reliance upon such assumption, cause to be paid to the Lenders on such due date an amount equal to the amount then due such Lenders. If and to the extent Borrower shall not have so made such payment in full to Agent, each such Lender shall repay to Agent forthwith on demand such amount distributed to such Lender together with interest thereon, for each day from the date such amount is distributed to such Lender until the date such Lender repays such amount to Agent, at (i) the Federal Funds Rate for the first three (3) days and (ii) the per annum rate applicable to Base Rate Loans thereafter. A certificate of Agent submitted to any Lender with respect to any amounts owing by such Lender under this Subparagraph 2.10(e) -------------------- shall be conclusive absent manifest error. 26 2.11. Notes and Interest Account. -------------------------- (a) Notes. The obligation of Borrower to repay the Loans made by each ----- Lender and to pay interest thereon at the rates provided herein shall be evidenced by a promissory note in the form of Exhibit C (individually, a --------- "Note") which Note shall be (i) payable to the order of such Lender, (ii) ----- in the amount of such Lender's Commitment, (iii) dated the Closing Date and (iv) otherwise appropriately completed. Borrower authorizes each Lender to record on the schedule annexed to such Lender's Note the date and amount of each Loan made by such Lender and of each payment or prepayment of principal thereon made by Borrower, and agrees that all such notations shall constitute prima facie evidence of the matters noted; provided, -------- however, that any failure by a Lender to make any such notation shall not ------- affect the Obligations. Borrower further authorizes each Lender to attach to and make a part of such Lender's Note continuations of the schedule attached thereto as necessary. (b) Interest Account. Borrower authorizes Agent to record in an ---------------- account or accounts maintained by Agent on its books (the "Interest -------- Account") (i) the interest rates applicable to all Loans and the effective dates of all changes thereto, (ii) the Interest Period for each LIBOR Loan, (iii) the date and amount of each principal and interest payment on each Loan and (iv) such other information as Agent may determine is necessary for the computation of interest payable by Borrower hereunder. 2.12. Loan Funding. ------------ (a) Lender Funding and Disbursement to Borrower. Each Lender shall, ------------------------------------------- before 2:00 p.m. on the date of each Borrowing, make available to Agent at Agent's office specified in Paragraph 8.01, in same day or immediately -------------- available funds, such Lender's Proportionate Share of such Borrowing. After Agent's receipt of such funds and upon satisfaction of the applicable conditions set forth in Section III, Agent shall promptly disburse such ----------- funds to Borrower in same day or immediately available funds. Unless otherwise directed by Borrower, Agent shall disburse the proceeds of each Borrowing by disbursement to the account or accounts specified in the applicable Notice of Borrowing. (b) Lender Failure to Fund. Unless Agent shall have received notice ---------------------- from a Lender prior to the date of any Borrowing that such Lender will not make available to Agent such Lender's Proportionate Share of such Borrowing, Agent shall be entitled to assume that such Lender has made or will make such portion available to Agent on the date of such Borrowing in accordance with Subparagraph 2.12(a), and -------------------- 27 Agent may on such date, in reliance upon such assumption, disburse or otherwise credit to Borrower a corresponding amount. If any Lender does not make the amount of its Proportionate Share of any Borrowing available to Agent on or prior to the date of such Borrowing, such Lender shall pay to Agent, on demand, interest which shall accrue on such amount from the date of such Borrowing until such amount is paid to Agent at rates equal to (i) the daily Federal Funds Rate during the period from the date of such Borrowing through the third Business Day thereafter and (ii) the rate applicable to Base Rate Loans thereafter. A certificate of Agent submitted to any Lender with respect to any amounts owing under this Subparagraph ------------ 2.12(b) shall be conclusive absent manifest error. If the amount of any ------- Lender's Proportionate Share of any Borrowing is not paid to Agent by such Lender within three (3) Business Days after the date of such Borrowing, Borrower shall repay such amount to Agent, on demand, together with interest thereon, for each day from the date such amount was disbursed to Borrower until the date such amount is repaid to Agent, at the interest rate applicable at the time to the Loans comprising such Borrowing. (c) Lenders' Obligations Several. The failure of any Lender to make ---------------------------- the Loan to be made by it as part of any Borrowing shall not relieve any other Lender of its obligation hereunder to make its Loan on the date of such Borrowing, but no Lender shall be obligated in any way to make any Loan which another Lender has failed or refused to make or otherwise be in any way responsible for the failure or refusal of any other Lender to make any Loan required to be made by such other Lender on the date of any Borrowing. 2.13. Pro Rata Treatment. ------------------ (a) Borrowings, Commitment Reductions, Etc. Except as otherwise --------------------------------------- provided herein: (i) Each Borrowing and reduction of the Total Commitment shall be made or shared among the Lenders pro rata according to their respective Proportionate Shares; (ii) Each payment of principal of Loans in any Borrowing shall be shared among the Lenders which made or funded the Loans in such Borrowing pro rata according to the respective unpaid principal amounts of such Loans so made or funded by such Lenders; (iii) Each payment of interest on Loans in any Borrowing shall be shared among the Lenders which made or funded the Loans in such Borrowing pro rata according to (A) the respective unpaid principal 28 amounts of such Loans so made or funded by such Lenders and (B) the dates on which such Lenders so made or funded such Loans; (iv) Each payment of Commitment Fees shall be shared among the Lenders (except for Defaulting Lenders) pro rata according to (A) their respective Proportionate Shares and (B) in the case of each Lender which becomes a Lender hereunder after the date hereof, the date upon which such Lender so became a Lender; (v) Each payment of interest (other than interest on Loans) shall be shared among the Lenders and Agent owed the amount upon which such interest accrues pro rata according to (A) the respective amounts so owed such Lenders and Agent and (B) the dates on which such amounts became owing to such Lenders and Agent; and (vi) All other payments under this Agreement and the other Credit Documents shall be for the benefit of the Person or Persons specified. (b) Sharing of Payments, Etc. If any Lender shall obtain any payment ------------------------- (whether voluntary, involuntary, through the exercise of any right of setoff, or otherwise) on account of Loans owed to it in excess of its ratable share of payments on account of such Loans obtained by all Lenders entitled to such payments, such Lender shall forthwith purchase from the other Lenders such participations in the Loans as shall be necessary to cause such purchasing Lender to share the excess payment ratably with each of them; provided, however, that if all or any portion of such excess -------- ------- payment is thereafter recovered from such purchasing Lender, such purchase shall be rescinded and each other Lender shall repay to the purchasing Lender the purchase price to the extent of such recovery together with an amount equal to such other Lender's ratable share (according to the proportion of (i) the amount of such other Lender's required repayment to (ii) the total amount so recovered from the purchasing Lender) of any interest or other amount paid or payable by the purchasing Lender in respect of the total amount so recovered. Borrower agrees that any Lender so purchasing a participation from another Lender pursuant to this Subparagraph 2.13(b) may, to the fullest extent permitted by law, exercise -------------------- all its rights of payment (including the right of setoff) with respect to such participation as fully as if such Lender were the direct creditor of Borrower in the amount of such participation. 29 2.14. Change of Circumstances. ----------------------- (a) Inability to Determine Rates. If, on or before the first day of ---------------------------- any Interest Period for any LIBOR Loan, Agent shall determine that (i) the LIBO Rate for such Interest Period cannot be adequately and reasonably determined due to the unavailability of funds in or other circumstances affecting the London interbank market or (ii) the rate of interest for such Loan does not adequately and fairly reflect the cost to any Lender of making or maintaining such LIBOR Loan, Agent shall immediately give notice of such condition to Borrower and the other Lenders. After the giving of any such notice and until Agent shall otherwise notify Borrower that the circumstances giving rise to such condition no longer exist, Borrower's right to request the making of, and the Lenders' obligations to make LIBOR Loans shall be suspended. Any LIBOR Loans outstanding at the commencement of any such suspension shall be converted at the end of the then current Interest Period for such LIBOR Loans into Base Rate Loans unless such suspension has then ended. (b) Illegality. If, after the date of this Agreement, the adoption of ---------- any Governmental Rule, any change in any Governmental Rule or the application or requirements thereof (whether such change occurs in accordance with the terms of such Governmental Rule as enacted, as a result of amendment or otherwise), any change in the interpretation or administration of any Governmental Rule by any Governmental Authority, or compliance by any Lender with any request or directive (whether or not having the force of law) of any Governmental Authority (a "Change of Law") ------------- shall make it unlawful or impossible for any Lender to make or maintain any LIBOR Loan, such Lender shall immediately notify Agent and Borrower of such Change of Law. Upon receipt of such notice, (i) Borrower's right to request the making of, and such Lender's obligation to make LIBOR Loans shall be terminated, and (ii) Borrower shall, at the request of such Lender, either (A) repay any such then outstanding LIBOR Loans at the end of the current Interest Period for such LIBOR Loans or (B) immediately repay any such LIBOR Loans if such Lender shall notify Borrower that such Lender may not lawfully continue to fund and maintain such LIBOR Loans. Any prepayment of LIBOR Loans made pursuant to the preceding sentence prior to the last day of an Interest Period for such LIBOR Loans shall be deemed a prepayment thereof for purposes of Paragraph 2.16. After any Lender notifies Agent and Borrower of such a Change of Law and until such Lender notifies Agent and Borrower that it is no longer unlawful or impossible for such Lender to make or maintain a LIBOR Loan, all Loans of such Lender shall be Base Rate Loans. 30 (c) Increased Costs. If, after the date of this Agreement, any Change --------------- of Law: (i) Shall subject any Lender to any tax, duty or other charge with respect to any LIBOR Loan, or shall change the basis of taxation of payments by Borrower to any Lender on such a LIBOR Loan or in respect to such a LIBOR Loan under this Agreement (except for changes in the rate of taxation on the overall net income of any Lender imposed by its jurisdiction of incorporation or the jurisdiction in which its principal executive office is located); or (ii) Shall impose, modify or hold applicable any reserve (excluding any Reserve Requirement or other reserve to the extent included in the calculation of the LIBO Rate for any Loans), special deposit or similar requirement against assets held by, deposits or other liabilities in or for the account of, advances or loans by, or any other acquisition of funds by any Lender for any LIBOR Loan; or (iii) Shall impose on any Lender any other condition related to any LIBOR Loan or such Lender's Commitment; And the effect of any of the foregoing is to increase the cost to such Lender of making, renewing, or maintaining any such LIBOR Loan or its Commitment or to reduce any amount receivable by such Lender hereunder; then Borrower shall from time to time, within five (5) Business Days after demand by such Lender, pay to such Lender additional amounts sufficient to reimburse such Lender for such increased costs or to compensate such Lender for such reduced amounts. A certificate as to the amount of such increased costs or reduced amounts, submitted by such Lender to Borrower shall, in the absence of manifest error, be conclusive and binding on Borrower for all purposes. The obligations of Borrower under this Subparagraph 2.14(c) -------------------- shall survive the payment and performance of the Obligations and the termination of this Agreement. (d) Capital Requirements. If, after the date of this Agreement, any -------------------- Lender determines that (i) any Change of Law affects the amount of capital required or expected to be maintained by such Lender or any Person controlling such Lender (a "Capital Adequacy Requirement") and (ii) the ---------------------------- amount of capital maintained by such Lender or such Person which is attributable to or based upon the Loans, the Commitments or this Agreement must be increased as a result of such Capital Adequacy Requirement (taking into account such Lender's or such Person's policies with respect to capital adequacy), Borrower shall pay to such Lender or such 31 Person, within five (5) Business Days after demand by such Lender, such amounts as such Lender or such Person shall determine are necessary to compensate such Lender or such Person for the increased costs to such Lender or such Person of such increased capital. A certificate of any Lender setting forth in reasonable detail the computation of any such increased costs, delivered by such Lender to Borrower shall, in the absence of manifest error, be conclusive and binding on Borrower for all purposes. The obligations of Borrower under this Subparagraph 2.14(d) shall survive -------------------- the payment and performance of the Obligations and the termination of this Agreement. (e) Mitigation. Any Lender which becomes aware of (i) any Change of ---------- Law which will make it unlawful or impossible for such Lender to make or maintain any LIBOR Loan or (ii) any Change of Law or other event or condition which will obligate Borrower to pay any amount pursuant to Subparagraph 2.14(c) or Subparagraph 2.14(d) shall notify Borrower and -------------------- -------------------- Agent thereof as promptly as practical. If any Lender has given notice of any such Change of Law or other event or condition and thereafter becomes aware that such Change of Law or other event or condition has ceased to exist, such Lender shall notify Borrower and Agent thereof as promptly as practical. Each Lender affected by any Change of Law which makes it unlawful or impossible for such Lender to make or maintain any LIBOR Loan or to which Borrower is obligated to pay any amount pursuant to Subparagraph 2.14(c) or Subparagraph 2.14(d) shall use reasonable -------------------- -------------------- commercial efforts (including changing the jurisdiction of its Applicable Lending Office) to avoid the effect of such Change of Law or to avoid or materially reduce any amounts which Borrower is obligated to pay pursuant to Subparagraph 2.14(c) or Subparagraph 2.14(d) if, in the reasonable -------------------- -------------------- opinion of such Lender, such efforts would not be disadvantageous to such Lender or contrary to such Lender's normal banking practices. 32 2.15. Taxes on Payments. ----------------- (a) Payments Free of Taxes. All payments made by Borrower under this ---------------------- Agreement and the other Credit Documents shall be made free and clear of, and without deduction or withholding for or on account of, any present or future income, stamp or other taxes, levies, imposts, duties, charges, fees, deductions or withholdings, now or hereafter imposed, levied, collected, withheld or assessed by any Governmental Authority (except net income taxes and franchise taxes in lieu of net income taxes imposed on Agent or any Lender by its jurisdiction of incorporation or the jurisdiction in which its Applicable Lending Office is located) (all such non-excluded taxes, levies, imposts, duties, charges, fees, deductions and withholdings being hereinafter called "Taxes"). Subject to Subparagraphs ----- ------------- 2.15(c) and 2.15(d), if any Taxes are required to be withheld from any ------------------- amounts payable to Agent or any Lender hereunder or under the other Credit Documents, the amounts so payable to Agent or such Lender shall be increased to the extent necessary to yield to Agent or such Lender (after payment of all Taxes) interest or any such other amounts payable hereunder at the rates or in the amounts specified in this Agreement and the other Credit Documents. Whenever any Taxes are payable by Borrower, as promptly as possible thereafter, Borrower shall send to Agent for its own account or for the account of such Lender, as the case may be, a certified copy of an original official receipt received by Borrower showing payment thereof. If Borrower fails to pay any Taxes when due to the appropriate taxing authority or fails to remit to Agent the required receipts or other required documentary evidence, Borrower shall indemnify Agent and the Lenders for any incremental taxes, interest or penalties that may become payable by Agent or any Lender as a result of any such failure. The obligations of Borrower under this Subparagraph 2.15(a) shall survive the -------------------- payment and performance of the Obligations and the termination of this Agreement. (b) Withholding Exemption Certificates, Etc. If Agent or any Lender --------------------------------------- is not organized under the laws of the United States of America or a state thereof, such Person agrees as set forth below in this Subparagraph ------------ 2.15(b). (i) If any such Person is a "bank" within the meaning of Section 881(c)(3)(A) of the IRC, it shall, no later than the Closing Date (or, in the case of a Lender which becomes a Lender hereunder pursuant to Subparagraph 8.05(c) after the Closing Date, the date upon -------------------- which such Lender so becomes a Lender hereunder) deliver to Borrower and Agent two (2) accurate and complete signed originals of IRS Form 4224 or any 33 successor thereto ("Form 4224"), or two accurate and complete signed originals of IRS Form 1001 or any successor thereto ("Form 1001"), as appropriate, in each case indicating that such Person is, on the date of delivery thereof, entitled to receive payments of principal, interest and fees under this Agreement free from withholding of United States Federal income tax. If at any time such Person makes any changes necessitating a new Form 4224 or Form 1001, it shall, within thirty (30) days after such change becomes effective, deliver to Borrower and Agent in replacement for, or in addition to, the forms previously delivered by it hereunder, two accurate and complete signed originals of Form 4224, or two accurate and complete signed originals of Form 1001, as appropriate, in each case indicating that such Person is, on the date of delivery thereof, entitled to receive payments of principal, interest and fees under this Agreement free from withholding of United States Federal income tax. (ii) If any such Person is not a "bank" within the meaning of Section 881(c)(3)(A) of the IRC, it shall, no later than the Closing Date (or, in the case of a Lender which becomes a Lender hereunder pursuant to Subparagraph 8.05(c) after the Closing Date, the date upon -------------------- which such Lender so becomes a Lender hereunder) deliver to Borrower and Agent two (2) accurate and complete signed originals of IRS Form W-8 or any successor thereto ("Form W-8") certifying to such Person's legal entitlement (assuming compliance by Borrower with the terms of this Agreement) to an exemption whereby such Person is on the date of delivery thereof entitled to receive payments of principal, interest and fees under this Agreement free from withholding of United States Federal income tax. If at any time any such Person makes any changes necessitating a new Form W-8, it shall, within thirty (30) days after such change becomes effective, deliver to Borrower and Agent in replacement for, or in addition to, the forms previously delivered by it hereunder, two accurate and complete signed originals of Form W-8 certifying to such Person's legal entitlement (assuming compliance by Borrower with the terms of this Agreement) to an exemption whereby such Person is on the date of delivery thereof entitled to receive payments of principal, interest and fees under this Agreement free from withholding of United States Federal income tax. (iii) Each such Person shall, before or within thirty (30) days after the occurrence of any event (including the passing of time but excluding any event mentioned in clause (i) or (ii) above) ------------------ requiring a 34 change in or renewal of the most recent Form 4224, Form 1001 or Form W-8 previously delivered by such Person, deliver to Borrower and Agent two accurate and complete original signed copies of Form 4224, Form 1001 or Form W-8 in replacement for the forms previously delivered by such Person. (iv) Each such Person shall, promptly upon the reasonable request of Agent, deliver to Agent such other forms or similar documentation as may be required from time to time by any applicable Governmental Rule in order to establish such Lender's tax status for withholding purposes. (c) Non-Compliance, Etc. Borrower will not be required to pay any ------------------- additional amounts in respect of United States Federal income tax pursuant to Subparagraph 2.15(a) to Agent or any Lender subject to Subparagraph -------------------- ------------ 2.15(b) if: ------- (i) The obligation to pay such additional amounts would not have arisen but for a failure by such Person to comply with its obligations under Subparagraph 2.15(b); or -------------------- (ii) Such Person is not entitled to exemption from deduction or withholding of United States Federal income tax for payments by Borrower to such Person hereunder for the account of its Applicable Lending Office for any reason other than a Change of Law after the date of delivery by such Person of Form 4224, Form 1001 or Form W-8, as the case may be. (d) Mitigation. If Agent or any Lender claims any additional amounts ---------- to be payable to it pursuant to this Paragraph 2.15, such Person shall use -------------- reasonable commercial efforts to file any certificate or document requested in writing by Borrower (including without limitation copies of Internal Revenue Service Form 1001 (or successor forms) reflecting a reduced rate of withholding) or to change the jurisdiction of its Applicable Lending Office if the making of such a filing or such change in the jurisdiction of its Applicable Lending Office would avoid the need for or materially reduce the amount of any such additional amounts which may thereafter accrue and if, in the reasonable opinion of such Person, in the case of a change in the jurisdiction of its Applicable Lending Office, such change would not be disadvantageous to such Person or contrary to such Person's normal banking practices. (e) Tax Returns. Nothing contained in this Paragraph 2.15 shall ----------- -------------- require Agent or any Lender to make available any of its tax returns (or any other information relating to its taxes which it deems to be confidential). 35 2.16. Funding Loss Indemnification. If Borrower shall (a) repay or ---------------------------- prepay any LIBOR Loan on any day other than the last day of an Interest Period therefor (whether a scheduled payment, an optional prepayment, a mandatory prepayment or a payment upon acceleration or otherwise) or (b) fail to borrow any LIBOR Loan for which a Notice of Borrowing has been delivered to Agent (whether as a result of the failure to satisfy any applicable conditions or otherwise), Borrower shall, upon demand by any Lender, reimburse such Lender for and hold such Lender harmless from all costs and losses incurred by such Lender as a result of such repayment, prepayment or failure. Borrower understands that such costs and losses may include losses incurred by a Lender as a result of funding and other contracts entered into by such Lender to fund a LIBOR Loan. Each Lender demanding payment under this Paragraph 2.16 shall deliver to -------------- Borrower, with a copy to Agent, a certificate setting forth the amount of costs and losses for which demand is made, which certificate shall set forth in reasonable detail the calculation of the amount demanded. Such a certificate so delivered to Borrower shall constitute prima facie evidence of such costs and ----- ----- losses. The obligations of Borrower under this Paragraph 2.16 shall survive the -------------- payment and performance of the Obligations and the termination of this Agreement. 36 2.17. Replacement of Lenders. If any Lender shall (a) become a ---------------------- Defaulting Lender, (b) suspend its obligation to make or maintain LIBOR Loans pursuant to Subparagraph 2.14(b) for a reason which is not applicable to any -------------------- other Lender or (c) demand any payment under Subparagraph 2.14(c), 2.14(d) or -------------------------------- 2.15(a) for a reason which is not applicable to any other Lender, then Agent may - ------- (or shall, upon the written request of Borrower if no Event of Default has occurred and is continuing) replace such Lender (the "affected Lender"), or cause such affected Lender to be replaced, with another lender (the "replacement Lender") satisfying the requirements of an Assignee Lender under Subparagraph ------------ 8.05(c), by having the affected Lender sell and assign all of its rights and - ------- obligations under this Agreement and the other Credit Documents to the replacement Lender pursuant to Subparagraph 8.05(c); provided, however, that if -------------------- -------- ------- Borrower seeks to exercise such right, it must give Agent written notice of its intent to do so within thirty (30) days after it first knows or should have known of the occurrence of the event or events giving rise to such right and must effect such replacement within sixty (60) days of giving such notice. Neither Agent nor any Lender shall have any obligation to identify or locate a replacement Lender for Borrower. Upon receipt by any affected Lender of a written notice from Agent stating that Agent is exercising the replacement right set forth in this Paragraph 2.17, such affected Lender shall sell and assign all -------------- of its rights and obligations under this Agreement and the other Credit Documents to the replacement Lender pursuant to an Assignment Agreement and Subparagraph 8.05(c) for a purchase price equal to the sum of the principal - -------------------- amount of the affected Lender's Loans so sold and assigned, all accrued and unpaid interest thereon and its ratable share of all fees to which it is entitled. 2.18. Maturity Date Extensions. Borrower may, at any time, request ------------------------ the Lenders to extend the Maturity Date then in effect for an additional one- year period by delivering a written request to Agent. Agent shall promptly deliver to each Lender a copy of any such extension request received by Agent. If a Lender, in its sole and absolute discretion, consents to any Extension Request, such Lender shall so notify Agent in writing not later than any time specified by Agent. Any failure by any Lender so to notify Agent shall be deemed a denial thereof. (Borrower acknowledges and agrees that no Lender has promised, either expressly or impliedly, or has any obligation or commitment, to consent to such a request at any time.) If all Lenders consent to an extension request, Agent shall so notify Borrower and the Lenders and shall prepare an amendment to reflect the requested extension. If no Lender or less than all Lenders shall consent to an extension request, Agent shall so notify Borrower and the Lenders, and the Maturity Date then in effect shall remain in effect. 37 SECTION III. CONDITIONS PRECEDENT. -------------------- 3.01. Initial Conditions Precedent. The obligations of the Lenders ---------------------------- to make the Loans comprising the initial Borrowing are subject to receipt by Agent, on or prior to the Closing Date, of each item listed in Schedule 3.01, ------------- each in form and substance satisfactory to Agent and each Lender, and with sufficient copies for, Agent and each Lender. Agent shall notify Borrower and Lenders upon Agent's receipt of such items. 3.02. Conditions Precedent to Each Credit Event. The occurrence of ----------------------------------------- each Credit Event (including the initial Borrowing) is subject to the further conditions that: (a) Borrower shall have delivered to Agent the Notice of Borrowing or Notice of Interest Period Selection, as the case may be, for such Credit Event in accordance with this Agreement; and (b) On the date such Credit Event is to occur and after giving effect to such Credit Event, the following shall be true and correct: (i) The representations and warranties of Borrower and its Subsidiaries set forth in Paragraph 4.01 and in the other Credit -------------- Documents are true and correct in all material respects as if made on such date (except for representations and warranties expressly made as of a specified date, which shall be true as of such date); (ii) No Default has occurred and is continuing or will result from such Credit Event; and (iii) All of the Credit Documents are in full force and effect. The submission by Borrower to Agent of each Notice of Borrowing and each Notice of Interest Period Selection shall be deemed to be a representation and warranty by Borrower that each of the statements set forth above in this Subparagraph 3.02(b) is true and correct as of the date -------------------- of such notice. 3.03. Covenant to Deliver. Borrower agrees (not as a condition but ------------------- as a covenant) to deliver to Agent each item required to be delivered to Agent as a condition to the occurrence of any Credit Event if such Credit Event occurs. Borrower expressly agrees that the occurrence of any such Credit Event prior to the receipt by Agent of any such item shall not constitute a waiver by Agent or any Lender of Borrower's 38 obligation to deliver such item. SECTION IV. REPRESENTATIONS AND WARRANTIES. ------------------------------ 4.01. Borrower's Representations and Warranties. In order to induce ----------------------------------------- Agent and the Lenders to enter into this Agreement, Borrower hereby represents and warranties to Agent and the Lenders as follows: (a) Due Incorporation, Qualification, etc. Each of Borrower and -------------------------------------- Borrower's Subsidiaries (i) is a corporation duly organized, validly existing and in good standing under the laws of its jurisdiction of organization; (ii) has the power and authority to own, lease and operate its properties and carry on its business as now conducted; and (iii) is duly qualified, licensed to do business and in good standing as a foreign corporation in each jurisdiction where the failure to be so qualified or licensed is reasonably likely to have a Material Adverse Effect. (b) Authority. The execution, delivery and performance by Borrower of --------- each Credit Document executed, or to be executed, by Borrower and the consummation of the transactions contemplated thereby (i) are within the power of Borrower and (ii) have been duly authorized by all necessary actions on the part of Borrower. (c) Enforceability. Each Credit Document executed, or to be executed, -------------- by Borrower has been, or will be, duly executed and delivered by Borrower and constitutes, or will constitute, a legal, valid and binding obligation of Borrower, enforceable against Borrower in accordance with its terms, except as limited by bankruptcy, insolvency or other laws of general application relating to or affecting the enforcement of creditors' rights generally and general principles of equity. (d) Non-Contravention. The execution and delivery by Borrower of the ----------------- Credit Documents executed by Borrower and the performance and consummation of the transactions contemplated thereby do not (i) violate any Requirement of Law applicable to Borrower; (ii) violate any provision of, or result in the breach or the acceleration of, or entitle any other Person to accelerate (whether after the giving of notice or lapse of time or both), any Contractual Obligation of Borrower; or (iii) result in the creation or imposition of any Lien (or the obligation to create or impose any Lien) upon any property, asset or revenue of Borrower (except such Liens as may be created in favor of Agent pursuant to this Agreement or the other Credit Documents). (e) Approvals. No consent, approval, order or --------- 39 authorization of, or registration, declaration or filing with, any Governmental Authority or other Person (including, without limitation, the shareholders of any Person) is required in connection with the execution and delivery of the Credit Documents executed by Borrower and the performance and consummation of the transactions contemplated thereby. (f) No Violation or Default. Neither Borrower nor any of its ----------------------- Subsidiaries is in violation of or in default with respect to (i) any Requirement of Law applicable to such Person; (ii) any Contractual Obligation of such Person (nor is there any waiver in effect which, if not in effect, would result in such a violation or default), where, in each case, such violation or default is reasonably likely to have a Material Adverse Effect. Without limiting the generality of the foregoing, except as set forth in the Disclosure Letter, neither Borrower nor any of its Subsidiaries (A) has violated any Environmental Laws, (B) has any liability under any Environmental Laws or (C) has received notice or other communication of an investigation or is under investigation by any Governmental Authority having authority to enforce Environmental Laws, where such violation, liability or investigation is reasonably likely to have a Material Adverse Effect. No Default has occurred and is continuing. (g) Litigation. Except as set forth in the Disclosure Letter, no ---------- actions (including, without limitation, derivative actions), suits, proceedings or investigations are pending or, to the knowledge of Borrower, threatened against Borrower or any of its Subsidiaries at law or in equity in any court or before any other Governmental Authority which (i) is reasonably likely (alone or in the aggregate) to have a Material Adverse Effect or (ii) seeks to enjoin, either directly or indirectly, the execution, delivery or performance by Borrower of the Credit Documents or the transactions contemplated thereby. (h) Title; Possession under Leases. Borrower and its Subsidiaries own ------------------------------ and have good and marketable title, or a valid leasehold interest in, all their respective properties and assets as reflected in the most recent Financial Statements delivered to Agent (except those assets and properties disposed of in the ordinary course of business or otherwise in compliance with this Agreement since the date of such Financial Statements) and all respective assets and properties acquired by Borrower and its Subsidiaries since such date (except those disposed of in the ordinary course of business or otherwise in compliance with this Agreement). Such assets and properties are subject to no Lien, except for Permitted Liens. Each of Borrower and its Subsidiaries has complied with all material obligations under all material leases to which it is a party and all such leases 40 are in full force and effect. Each of Borrower and its Subsidiaries enjoys peaceful and undisturbed possession under such leases, except where any failure to enjoy such possession (alone or in the aggregate with other such failures) is not reasonably likely to have a Material Adverse Effect. (i) Financial Statements. The Financial Statements of Borrower and -------------------- its Subsidiaries which have been delivered to Agent, (i) are in accordance with the books and records of Borrower and its Subsidiaries, which have been maintained in accordance with good business practice; (ii) have been prepared in conformity with GAAP; and (iii) fairly present the financial conditions and results of operations of Borrower and its Subsidiaries as of the date thereof and for the period covered thereby. As of the date of, and except as disclosed in the audited Financial Statements dated December 31, 1996 furnished by Borrower to Agent prior to the date hereof and in the Financial Statements delivered to Agent pursuant to clause (i) or (ii) of --------------------- Subparagraph 5.01(a), neither Borrower nor any of its Subsidiaries has any -------------------- Contingent Obligations, liability for taxes or other outstanding obligations which are material in the aggregate. (j) No Agreements to Sell Assets; Etc. Neither Borrower nor any of --------------------------------- its Subsidiaries has any legal obligation, absolute or contingent, to any Person to sell the assets of Borrower or any of its Subsidiaries (other than sales in the ordinary course of business), or to effect any merger, consolidation or other reorganization of Borrower or any of its Subsidiaries or to enter into any agreement with respect thereto. (k) Employee Benefit Plans. ---------------------- (i) Based on the latest valuation of each Employee Benefit Plan that either Borrower or any ERISA Affiliate maintains or contributes to, or has any obligation under (which valuation occurred within twelve months of the date of this representation), the aggregate benefit liabilities of such plan within the meaning of (S) 4001 of ERISA did not exceed the aggregate value of the assets of such plan. Neither Borrower nor any ERISA Affiliate has any liability with respect to any post-retirement benefit under any Employee Benefit Plan which is a welfare plan (as defined in section 3(1) of ERISA), other than liability for health plan continuation coverage described in Part 6 of Title I(B) of ERISA, which liability for health plan contribution coverage is not reasonably likely to have a Material Adverse Effect. (ii) Each Employee Benefit Plan complies, in both 41 form and operation, in all material respects, with its terms, ERISA and the IRC, and no condition exists or event has occurred with respect to any such plan which, individually or in the aggregate, is reasonably likely to have a Material Adverse Effect. Each Employee Benefit Plan, related trust agreement, arrangement and commitment of Borrower or any ERISA Affiliate is legally valid and binding and in full force and effect. No Employee Benefit Plan is being audited or investigated by any government agency or is subject to any pending or threatened claim or suit (other than routine benefits claims). Neither Borrower nor any ERISA Affiliate nor any fiduciary of any Employee Benefit Plan has engaged in a prohibited transaction under section 406 of ERISA or section 4975 of the IRC which, individually or in the aggregate, is reasonably likely to have a Material Adverse Effect. (iii) Neither Borrower nor any ERISA Affiliate contributes to or has any material contingent obligations to any Multiemployer Plan. Neither Borrower nor any ERISA Affiliate has incurred any material liability (including secondary liability) to any Multiemployer Plan as a result of a complete or partial withdrawal from such Multiemployer Plan under Section 4201 of ERISA or as a result of a sale of assets described in Section 4204 of ERISA. Neither Borrower nor any ERISA Affiliate has been notified that any Multiemployer Plan is in reorganization or insolvent under and within the meaning of Section 4241 or Section 4245 of ERISA or that any Multiemployer Plan intends to terminate or has been terminated under Section 4041A of ERISA. (l) Other Regulations. Borrower is not subject to regulation under ----------------- the Investment Company Act of 1940, the Public utility Holding Company Act of 1935, the Federal Power Act, the Interstate Commerce Act, any state public utilities code or to any other Governmental Rule limiting its ability to incur indebtedness. (m) Patent and Other Rights. Borrower and its Subsidiaries own or ----------------------- license under validly existing agreements, and have the full right to license without the consent of any other Person, all patents, licenses, trademarks, trade names, trade secrets, service marks, copyrights and all rights with respect thereto, which are required to conduct their businesses as now conducted, except where any failure so to own, license or have the right to license without consent (alone or in the aggregate with other such failures) is not reasonably likely to have a Material Adverse Effect. 42 (n) Governmental Charges. Borrower and its Subsidiaries have filed or -------------------- caused to be filed all tax returns which are required to be filed by them. Borrower and its Subsidiaries have paid, or made provision for the payment of, all taxes and other Governmental Charges which have or may have become due pursuant to said returns or otherwise and all other indebtedness, except such Governmental Charges or indebtedness, if any, which are being contested in good faith and as to which adequate reserves (determined in accordance with GAAP) have been provided or which are not reasonably likely to have a Material Adverse Effect if unpaid. (o) Margin Stock. Borrower owns no Margin Stock which, in the ------------ aggregate, would constitute a substantial part of the assets of Borrower, and no proceeds of any Loan will be used to purchase or carry, directly or indirectly, any Margin Stock or to extend credit, directly or indirectly, to any Person for the purpose of purchasing or carrying any Margin Stock. (p) Subsidiaries, etc. Set forth in Schedule 4.01(p) (as supplemented ------------------ ---------------- by Borrower from time to time in a written notice to Agent) is a complete list of all of Borrower's Subsidiaries, the jurisdiction of incorporation of each, the classes of Equity Securities of each and the percentages of shares of each such class owned directly or indirectly by Borrower. Except for such Subsidiaries, Borrower has no other Subsidiaries, is not a partner in any partnership or a joint venturer in any joint venture. (q) Solvency, Etc. Borrower is Solvent and, after the execution and -------------- delivery of the Credit Documents and the consummation of the transactions contemplated thereby, will be Solvent. (r) Catastrophic Events. Neither Borrower nor any of its Subsidiaries ------------------- and none of their properties is affected by any fire, explosion, accident, strike, lockout or other labor dispute, drought, storm, hail, earthquake, embargo, act of God or other casualty that is reasonably likely to have a Material Adverse Effect. There are no disputes presently subject to grievance procedure, arbitration or litigation under any of the collective bargaining agreements, employment contracts or employee welfare or incentive plans to which Borrower or any of its Subsidiaries is a party, and there are no strikes, lockouts, work stoppages or slowdowns, or, to the best knowledge of Borrower, jurisdictional disputes or organizing activities occurring or threatened which alone or in the aggregate are reasonably likely to have a Material Adverse Effect. (s) No Material Adverse Effect. No event has occurred -------------------------- 43 and no condition exists which is reasonably likely to have a Material Adverse Effect. (t) Accuracy of Information Furnished. None of the Credit Documents --------------------------------- and none of the other certificates, statements or information furnished to Agent or any Lender by or on behalf of Borrower or any of its Subsidiaries in connection with the Credit Documents or the transactions contemplated thereby contains or will contain any untrue statement of a material fact or omits or will omit to state a material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. 4.02. Reaffirmation. Borrower shall be deemed to have reaffirmed, ------------- for the benefit of the Lenders and Agent, each representation and warranty contained in Paragraph 4.01 on and as of the date of each Credit Event (except -------------- for representations and warranties expressly made as of a specified date, which shall be true as of such date). SECTION V. COVENANTS. --------- 5.01. Affirmative Covenants. Until the termination of this Agreement --------------------- and the satisfaction in full by Borrower of all Obligations, Borrower will comply, and will cause compliance, with the following affirmative covenants, unless Required Lenders shall otherwise consent in writing: (a) Financial Statements, Reports, etc. Borrower shall furnish to ----------------------------------- Agent, with sufficient copies for each Lender, the following, each in such form and such detail as Agent or the Required Lenders shall reasonably request: (i) As soon as available and in no event later than fifty- five (55) days after the last day of each fiscal quarter of Borrower, a copy of the Financial Statements of Borrower and its Subsidiaries (prepared on a consolidated basis) for such fiscal quarter and for the fiscal year to date, certified by the president or chief financial officer of Borrower to present fairly the financial condition, results of operations and other information reflected therein and to have been prepared in accordance with GAAP (subject to normal year-end audit adjustments); (ii) As soon as available and in no event later than one hundred (100) days after the close of each fiscal year of Borrower, (A) copies of the audited Financial Statements of Borrower and its Subsidiaries (prepared on a consolidated basis) for such fiscal year, prepared by independent certified public 44 accountants of recognized national standing acceptable to Agent and (B) copies of the unqualified opinions (or qualified opinions reasonably acceptable to Required Lenders) and management letters delivered by such accountants in connection with all such Financial Statements; (iii) Contemporaneously with the quarterly and year-end Financial Statements required by the foregoing clauses (i) and (ii), a -------------------- compliance certificate of the chief financial officer of Borrower (a "Compliance Certificate") which (A) states that no Default has ----------------------- occurred and is continuing, or, if any such Default has occurred and is continuing, a statement as to the nature thereof and what action Borrower proposes to take with respect thereto and (B) sets forth, for the four-fiscal quarter period ending on the last day of the fiscal quarter or fiscal year covered by such Financial Statements or as of the last day of such fiscal quarter or fiscal year (as the case may be), the calculation of the financial ratios and tests provided in Paragraph 5.03 and the Funded Indebtedness/EBITDA Ratio; -------------- (iv) As soon as possible and in no event later than ten (10) Business Days after any officer of Borrower knows of the occurrence or existence of (A) any Reportable Event under any Employee Benefit Plan or Multiemployer Plan; (B) any actual or threatened litigation, suits, claims or disputes against Borrower or any of its Subsidiaries involving potential monetary damages payable by Borrower or its Subsidiaries of $3,000,000 or more (alone or in the aggregate); (C) any other event or condition which is reasonably likely to have a Material Adverse Effect; or (D) any Default; the statement of the president or chief financial officer of Borrower setting forth details of such event, condition or Default and the action which Borrower proposes to take with respect thereto; (v) As soon as available and in no event later than five (5) Business Days after they are sent, made available or filed, copies of (A) all registration statements and reports filed by Borrower or any of its Subsidiaries with any securities exchange or the Securities and Exchange Commission (including, without limitation, all 10-Q, 10-K and 8-Q reports); and (B) all reports, proxy statements and financial statements sent or made available by Borrower or any of its Subsidiaries to its security holders; (vi) As soon as available and in no event later 45 than twenty (20) days after the last day of each fiscal month, a certificate (a "Borrowing Base Certificate") which sets forth the -------------------------- calculation of the Borrowing Base as of such last day of such fiscal month, certified by the chief financial officer of Borrower; and (vii) Such other instruments, agreements, certificates, opinions, statements, documents and information relating to the operations or condition (financial or otherwise) of Borrower or its Subsidiaries, and compliance by Borrower with the terms of this Agreement and the other Credit Documents as Agent may from time to time reasonably request. (b) Books and Records. Borrower and its Subsidiaries shall at all ----------------- times keep proper books of record and account in which full, true and correct entries will be made of their transactions in accordance with GAAP. (c) Inspections. Borrower and its Subsidiaries shall permit any ----------- Person designated by any Lender, upon reasonable notice and during normal business hours, to visit and inspect any of the properties and offices of Borrower and its Subsidiaries, to examine the books and records of Borrower and its Subsidiaries and make copies thereof and to discus the affairs, finances and business of Borrower and its Subsidiaries with, and to be advised as to the same by, their officers, auditors and accountants, all at such times and intervals as any Lender may reasonably request. (d) Insurance. Borrower and its Subsidiaries shall carry and maintain --------- insurance of the types and in the amounts customarily carried from time to time during the term of this Agreement by others engaged in substantially the same business as such Person and operating in the same geographic area as such Person, including, but not limited to, fire, public liability, property damage and worker's compensation. (e) Governmental Charges. Borrower and its Subsidiaries shall -------------------- promptly pay and discharge when due all taxes and other Governmental Charges prior to the date upon which penalties accrue thereon, except such taxes and other Governmental Charges as may in good faith be contested or disputed, or for which arrangements for deferred payment have been made, provided that in each such case appropriate reserves are maintained in accordance with GAAP. (f) Use of Proceeds. Borrower shall use the proceeds of the Loans --------------- only for the respective purposes set forth in Paragraph 2.06. Borrower -------------- shall not use any part of the proceeds of any Loan, directly or indirectly, for the purpose of purchasing or carrying any Margin Stock or for the purpose of purchasing or carrying or trading in any 46 securities under such circumstances as to involve Borrower, any Lender or Agent in a violation of Regulations G, T, or X issued by the Federal Reserve Board. (g) General Business Operations. Each of Borrower and its --------------------------- Subsidiaries shall (i) preserve and maintain its corporate existence and all of its rights, privileges and franchises reasonably necessary to the conduct of its business, (ii) conduct its business activities in compliance with all Requirements of Law and Contractual Obligations applicable to such Person, the violation of which is reasonably likely to have a Material Adverse Effect and (iii) keep all property useful and necessary in its business in good working order and condition, ordinary wear and tear excepted. Borrower shall maintain its chief executive office and principal place of business in the United States and shall not relocate its chief executive office or principal place of business outside of California except upon not less than thirty (30) days prior written notice to Agent. (h) Pari Passu Ranking. Borrower shall take, or cause to be taken, ------------------ all actions necessary to ensure that the Obligations of Borrower are and continue to rank at least pari passu in right of payment with all other ---- ----- unsecured Indebtedness of Borrower. 5.02. Negative Covenants. Until the termination of this Agreement ------------------ and the satisfaction in full by Borrower of all Obligations, Borrower will comply, and will cause compliance, with the following negative covenants, unless Required Lenders shall otherwise consent in writing: (a) Indebtedness. Neither Borrower nor any of its Subsidiaries shall ------------ create, incur, assume or permit to exist any Indebtedness, except for the following ("Permitted Indebtedness"): ---------------------- (i) The Obligations of Borrower under the Credit Documents; (ii) Indebtedness of Borrower and its Subsidiaries existing on the date of this Agreement; provided that (A) such Indebtedness is reflected in the audited Financial Statements of Borrower for the year ended December 31, 1996 delivered to Agent pursuant to Paragraph 3.01 -------------- and (B) each item of such Indebtedness of $1,000,000 or more, is listed in Schedule 5.02(a); ---------------- (iii) Indebtedness of Borrower and its Subsidiaries arising from the endorsement of instruments for collection in the ordinary course of Borrower's or a Subsidiary's business; 47 (iv) Indebtedness of Borrower and its Subsidiaries for trade accounts payable, provided that (A) such accounts arise in the ordinary course of business and (B) no material part of any such account is more than ninety (90) days past due (unless subject to a bona fide dispute and for which adequate reserves have been established); (v) Indebtedness of Borrower and its Subsidiaries under Rate Contracts, provided that all such Rate Contracts are entered into in connection with bona fide hedging operations and not for speculation; (vi) Indebtedness of Borrower and its Subsidiaries under purchase money loans and Capital Leases incurred by Borrower or any of its Subsidiaries to finance the acquisition by such Person of real property, fixtures, equipment or Borrower's demonstration systems, provided that (A) in each case involving real property, fixtures and equipment, such Indebtedness is incurred by such Person at the time of, or not later than thirty (30) days after, the acquisition by such Person of the property so financed, (B) in each case, such Indebtedness does not exceed the purchase price of the property so financed and (C) the aggregate amount of such Indebtedness outstanding at any time does not exceed $15,000,000; (vii) Indebtedness of Borrower and its Subsidiaries under initial or successive refinancings of any Indebtedness permitted by clause (ii) above, provided that (A) the principal amount of any such ----------- refinancing does not exceed the principal amount of the Indebtedness being refinanced and (B) the material terms and provisions of any such refinancing (including maturity, redemption, prepayment, default and subordination provisions) are no less favorable to the Lenders than the Indebtedness being refinanced; (viii) Indebtedness of Borrower and its Subsidiaries with respect to surety, appeal, indemnity, performance or other similar bonds in the ordinary course of business; (ix) Guaranty Obligations of Borrower in respect of Permitted Indebtedness of its Subsidiaries; (x) Indebtedness of Borrower to any of its Subsidiaries, Indebtedness of any of Borrower's Subsidiaries to Borrower or Indebtedness of any of Borrower's Subsidiaries to any of Borrower's other Subsidiaries; and 48 (xi) Other Indebtedness of Borrower and its Subsidiaries (whether or not of a type listed in clauses (i) through (x) above), ----------------------- provided that the aggregate principal amount of all such other Indebtedness does not exceed $10,000,000 at any time. (b) Liens. Neither Borrower nor any of its Subsidiaries shall create, ----- incur, assume or permit to exist any Lien on or with respect to any of its assets or property of any character, whether now owned or hereafter acquired, except for the following ("Permitted Liens"): --------------- (i) Liens in favor of Agent or any Lender securing the Obligations; (ii) Liens of Borrower and its Subsidiaries existing on the date of this Agreement; provided that each Lien securing Indebtedness of $100,000 or more is listed in Schedule 5.02(b); ---------------- (iii) Liens for taxes or other Governmental Charges not at the time delinquent or thereafter payable without penalty or being contested in good faith, provided that adequate reserves for the payment thereof have been established in accordance with GAAP; (iv) Liens of carriers, warehousemen, mechanics, materialmen, vendors, and landlords and other similar Liens imposed by law incurred in the ordinary course of business for sums not overdue or being contested in good faith, provided that adequate reserves for the payment thereof have been established in accordance with GAAP; (v) Deposits under workers' compensation, employment insurance and social security laws in the ordinary course of business; (vi) Deposits to secure the performance of bids, tenders, contracts (other than for the repayment of borrowed money) or leases or to secure indemnity, performance or other similar bonds in the ordinary course of business; (vii) Deposits to secure, or in lieu of, surety, appeal or customs bonds in proceedings involving Borrower or any of its Subsidiaries; (viii) Zoning restrictions, easements, rights-of-way, title irregularities and other similar encumbrances, which alone or in the aggregate are not substantial in amount and do not materially detract 49 from the value of the property subject thereto or interfere with the ordinary conduct of the business of Borrower or any of its Subsidiaries; (ix) Banker's Liens and similar Liens (including set-off rights) in respect of bank deposits; (x) Liens on property or assets acquired by Borrower or any of its Subsidiaries after the date of this Agreement or on property or assets of any corporation which becomes a Subsidiary of Borrower after the date of this Agreement, provided that (A) such Liens exist at the time such property or assets or the stock of such corporation is acquired by Borrower and (B) such Liens were not created in contemplation of such acquisition by Borrower; (xi) Judgement Liens, provided that such Liens do not constitute an Event of Default under Subparagraph 6.01(h); -------------------- (xii) Rights of vendors or lessors under conditional sale agreements, Capital Leases or other title retention agreements, provided that, in each case, (A) such rights secure or otherwise relate to Permitted Indebtedness, (B) such rights do not extend to any property other than property acquired with the proceeds of such Permitted Indebtedness and (C) such rights do not secure any Indebtedness other than such Permitted Indebtedness; (xiii) Liens in favor of customs and revenue authorities arising as a matter of law to secure payment of customs duties and in connection with the importation of goods in the ordinary course of Borrower's and its Subsidiaries' businesses; (xiv) Liens securing Indebtedness which constitutes Permitted Indebtedness under clause (vi) of Subparagraph 5.02(a) provided that, ----------------------------------- in each case, such Lien (A) covers only those assets, the acquisition of which was financed by such Permitted Indebtedness, and (B) secures only such Permitted Indebtedness; (xv) Liens on the property or assets of any Subsidiary of Borrower in favor of Borrower or any other Subsidiary of Borrower; (xvi) Liens incurred in connection with the extension, renewal or refinancing of the Indebtedness secured by the Liens described in clause (ii) or (xiv) above, provided that any extension, -------------------- renewal or replacement Lien (A) is limited to the property covered 50 by the existing Lien and (B) secures Indebtedness which is no greater in amount and has material terms no less favorable to the Lenders than the Indebtedness secured by the existing Lien; and (xvii) Liens on insurance proceeds in favor of insurance companies with respect to the financing of insurance premiums. (c) Asset Dispositions. Neither Borrower nor any of its Subsidiaries ------------------ shall sell, lease, transfer or otherwise dispose of any of its assets or property, whether now owned or hereafter acquired, except for the following: (i) Sales of inventory by Borrower and its Subsidiaries in the ordinary course of their businesses; (ii) Sales of surplus, damaged, worn or obsolete equipment or inventory for not less than fair market value; (iii) Sales or other dispositions of Investments permitted by clauses (i), (ii), (iii) and (iv) of Subparagraph 5.02(e) for not less --------------------------------------------------------- than fair market value; (iv) Sales or assignments of defaulted receivables to a collection agency in the ordinary course of business; (v) Sales of lease receivables, provided that (A) no Default has occurred and is continuing at the time of, or will arise as a result of, any such sale and (B) each such sale is for not less than fair market value; (vi) Sales or other dispositions of assets and property by Borrower to any of Borrower's Subsidiaries or by any of Borrower's Subsidiaries to Borrower or any of its other Subsidiaries; and (vii) Other sales, leases, transfers and disposals of assets and property, provided that the aggregate value of all such assets and property (based upon the greater of the fair market or book value of such assets and property) so sold, leased, transferred or otherwise disposed of in any fiscal year does not exceed $10,000,000. (d) Mergers, Acquisitions, Etc. Neither Borrower nor any of its --------------------------- Subsidiaries shall consolidate with or merge into any other Person or permit any other Person to merge into it, acquire any Person as a new Subsidiary or acquire all or 51 substantially all of the assets of any other Person, except for the following: (i) Any wholly-owned Subsidiary of Borrower may merge into Borrower or any other wholly-owned Subsidiary of Borrower; and (ii) Borrower and its Subsidiaries may acquire other Persons and all or substantially all of the assets of other Persons, provided that (A) no Default has occurred and is continuing at the time of, or will arise as a result of any such acquisition and (B) the aggregate cost to Borrower and its Subsidiaries of all such acquisitions in any fiscal year does not exceed 7.5% of Borrower's Tangible Net Worth on the last day of the immediately preceding fiscal year. (e) Investments. Neither Borrower nor any of its Subsidiaries shall ----------- make any Investment except for Investments in the following: (i) Investments of Borrower and its Subsidiaries in Cash Equivalents; (ii) Investments permitted by the investment policy attached hereto as Exhibit D, provided that such policy has been approved by --------- the Board of Directors of Borrower; (iii) Investments of Borrower and its Subsidiaries existing on the date of this Agreement; provided that (A) such Investments are reflected in the audited Financial Statements of Borrower for the year ended December 31, 1996 delivered to Agent pursuant to Paragraph 3.01 -------------- and (B) each Investment of $1,000,000 or more, is listed in Schedule -------- 5.02(e); ------- (iv) Investments received by Borrower and its Subsidiaries in connection with the bankruptcy or reorganization of customers and suppliers and in settlement of delinquent obligations of, and other disputes with, customers and suppliers arising in the ordinary course of business; (v) Investments arising from rights received by Borrower and its Subsidiaries upon the required payment of any permitted Contingent Obligations of Borrower and its Subsidiaries; (vi) Investments by Borrower and its Subsidiaries in Subsidiaries of Borrower and Investments by Borrower's Subsidiaries in Borrower; 52 (vii) Investments consisting of loans to employees, officers and directors, the proceeds of which shall be used to purchase equity securities of Borrower or its Subsidiaries and other loans or advances of funds to employees, officers and directors; (viii) Investments in receivables arising from the sale of goods in international markets in the ordinary course of business; (ix) Investments permitted by Subparagraph 5.02(a) or -------------------- Subparagraph 5.02(d); and -------------------- (x) Other Investments, provided that the aggregate amount of such other Investments incurred in any fiscal year does not exceed $7,000,000. (f) Dividends, Redemptions, Etc. Neither Borrower nor any of its ---------------------------- Subsidiaries shall pay any dividends or make any distributions on its Equity Securities; purchase, redeem, retire, defease or otherwise acquire for value any of its Equity Securities; return any capital to any holder of its Equity Securities as such; make any distribution of assets, Equity Securities, obligations or securities to any holder of its Equity Securities as such; or set apart any sum for any such purpose; except as follows: (i) Either Borrower or any of its Subsidiaries may pay dividends on its capital stock payable solely in such Person's own capital stock; (ii) Any Subsidiary of Borrower may pay dividends to Borrower; and (iii) Borrower may repurchase not more than 4,000,000 shares of its outstanding common stock, provided that (A) no Default has occurred and is continuing at the time of, or will arise as a result of, any such repurchase; (B) the Borrower's Funded Indebtedness/EBITDA Ratio for the four-fiscal quarter period most recently ended prior to the date of such purchase, as reflected in the most recent Compliance Certificate delivered to Agent pursuant to clause (iii) of --------------- Subparagraph 5.01(a), is less than 2.00 to 1.00; and (C) the aggregate -------------------- cost of all such repurchases after the date of this Agreement does not exceed $140,000,000; provided further, that (1) during the fiscal quarter ending June 28, 1997, the condition set forth in clause (B) ---------- above shall be deemed satisfied if Borrower's Funded Indebtedness/EBITDA for the fiscal quarter ending March 29, 1997 (calculated with EBITDA for such quarter annualized) is less than 2.00 to 1.00 and (2) Borrower may not make any repurchases under 53 this clause (iii) until Agent receives a Compliance Certificate ------------ setting forth the calculation of Borrower's Funded Indebtedness/EBITDA Ratio for the fiscal quarter ending March 29, 1997 (calculated with EBITDA for such quarter annualized). (g) Change in Business. Neither Borrower nor any of its Subsidiaries ------------------ shall engage, either directly or indirectly through Affiliates, in any business substantially different from its present business. (h) ERISA. Neither Borrower nor any ERISA Affiliate shall (i) adopt ----- or institute any Employee Benefit Plan that is an employee pension benefit plan within the meaning of Section 3(2) of ERISA, (ii) take any action which will result in the partial or complete withdrawal, within the meanings of sections 4203 and 4205 of ERISA, from a Multiemployer Plan, (iii) engage or permit any Person to engage in any transaction prohibited by section 406 of ERISA or section 4975 of the IRC involving any Employee Benefit Plan or Multiemployer Plan which would subject either Borrower or any ERISA Affiliate to any tax, penalty or other liability including a liability to indemnify, (iv) incur or allow to exist any accumulated funding deficiency (within the meaning of section 412 of the IRC or section 302 of ERISA), (v) fail to make full payment when due of all amounts due as contributions to any Employee Benefit Plan or Multiemployer Plan, (vi) fail to comply with the requirements of section 4980B of the IRC or Part 6 of Title I(B) of ERISA, or (vii) adopt any amendment to any Employee Benefit Plan which would require the posting of security pursuant to section 401(a)(29) of the IRC, where, singly or cumulatively, any such actions described above would have a Material Adverse Effect. (i) Transactions With Affiliates. Neither Borrower nor any of its ---------------------------- Subsidiaries shall enter into any Contractual Obligation with any Affiliate or engage in any other transaction with any Affiliate except upon terms at least as favorable to Borrower or such Subsidiary as an arms-length transaction with unaffiliated Persons. (j) Accounting Changes. Neither Borrower nor any of its Subsidiaries ------------------ shall change (i) its fiscal year (currently January 1 through December 31) or (ii) its accounting practices except as required by GAAP. 5.03. Financial Covenants. Until the termination of this Agreement ------------------- and the satisfaction in full by Borrower of all Obligations, Borrower will comply, and will cause compliance, with the following financial covenants, unless Required Lenders shall otherwise consent in writing: 54 (a) Current Ratio. Borrower shall not permit its Current Ratio to be ------------- less than 1.50 to 1.00 on the last day of any fiscal quarter. (b) Leverage Ratio. Borrower shall not permit its Leverage Ratio to -------------- be greater than 1.00 to 1.00 on the last day of any fiscal quarter. (c) Fixed Charge Coverage Ratio. Borrower shall not permit its Fixed --------------------------- Charge Coverage Ratio for any consecutive four-fiscal quarter period ending on the date nearest a date set forth below to be less than the ratio set forth opposite such date below: June 30, 1997; September 30, 1997; December 31, 1997; or March 31, 1998.........................1.25 to 1.00; June 30, 1998; September 30, 1998; December 31, 1998; or March 31, 1999.........................2.00 to 1.00; The last day of each fiscal quarter thereafter..............2.50 to 1.00. (d) Tangible Net Worth. Borrower shall not permit its Tangible Net ------------------ Worth on the last day of any fiscal quarter (such date to be referred to herein as a "determination date") which occurs after December 31, 1996 (such date to be referred to herein as the "base date") to be less than the sum on such determination date of the following: (i) One hundred seventy five million Dollars ($175,000,000); plus ---- (ii) Eighty percent (80%) of the sum of Borrower's consolidated quarterly net income (ignoring any quarterly losses) for each fiscal quarter after the base date through and including the fiscal quarter ending immediately prior to the determination date; plus ---- (iii) One hundred percent (100%) of the Net Proceeds of all Equity Securities issued by Borrower and its Subsidiaries (to Persons other than Borrower or its Subsidiaries) during the period commencing on the base date and ending on the determination date; minus ----- 55 (iv) The aggregate cost to Borrower of repurchasing its common stock to the extent permitted by clause (iii) of Subparagraph ---------------------------- 5.02(f). ------- SECTION VI. DEFAULT. ------- 6.01. Events of Default. The occurrence or existence of any one or ----------------- more of the following shall constitute an "Event of Default" hereunder: -------- ------- (a) Non-Payment. Borrower shall (i) fail to pay when due any principal ----------- of any Loan, (ii) fail to pay within two (2) Business Days after the same becomes due, any interest or fees required under the terms of this Agreement or any of the other Credit Documents, or (iii) fail to pay within three (3) Business Days after the same becomes due, any other amount required under the terms of this Agreement or any of the other Credit Documents; or (b) Specific Defaults. Borrower or any of its Subsidiaries shall fail ----------------- to observe or perform any covenant, obligation, condition or agreement set forth in Subparagraph 5.01(d), Paragraph 5.02 or Paragraph 5.03; or -------------------- -------------- -------------- (c) Other Defaults. Borrower or any of its Subsidiaries shall fail to -------------- observe or perform any other covenant, obligation, condition or agreement contained in this Agreement or the other Credit Documents and such failure shall continue for fifteen (15) days after Borrower first knows (whether through a notice from Agent or otherwise) or should have known of such failure; or (d) Representations and Warranties. Any representation, warranty, ------------------------------ certificate, information or other statement (financial or otherwise) made or furnished by or on behalf of Borrower or any of its Subsidiaries to Agent or any Lender in or in connection with this Agreement or any of the other Credit Documents, or as an inducement to Agent or any Lender to enter into this Agreement, shall be false, incorrect, incomplete or misleading in any material respect when made or furnished; or (e) Cross-Default. (i) Borrower or any of its Subsidiaries shall fail ------------- to make any payment when due on account of any Indebtedness of such Person (other than the Obligations) and such failure shall continue beyond any period of grace provided with respect thereto, if the amount of such Indebtedness exceeds $3,000,000 or the effect of such failure is to cause, or permit the holder or holders thereof to cause, Indebtedness of Borrower and its Subsidiaries (other than the Obligations) in an aggregate amount exceeding $3,000,000 to become due or (ii) Borrower 56 or any of its Subsidiaries shall otherwise fail to observe or perform any agreement, term or condition contained in any agreement or instrument relating to any Indebtedness of such Person (other than the Obligations), or any other event shall occur or condition shall exist, if the effect of such failure, event or condition is to cause, or permit the holder or holders thereof to cause, Indebtedness of Borrower and its Subsidiaries (other than the Obligations) in an aggregate amount exceeding $3,000,000 to become due (and/or to be secured by cash collateral); or (f) Insolvency, Voluntary Proceedings. Borrower or any of its --------------------------------- Subsidiaries shall (i) apply for or consent to the appointment of a receiver, trustee, liquidator or custodian of itself or of all or a substantial part of its property, (ii) be unable, or admit in writing its inability, to pay its debts generally as they mature, (iii) make a general assignment for the benefit of its or any of its creditors, (iv) be dissolved or liquidated in full or in part, (v) become insolvent (as such term may be defined or interpreted under any applicable statue), (vi) commence a voluntary case or other proceeding seeking liquidation, reorganization or other relief with respect to itself or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or consent to any such relief or to the appointment of or taking possession of its property by any official in an involuntary case or other proceeding commenced against it, or (vi) take any action for the purpose of effecting any of the foregoing; or (g) Involuntary Proceedings. Proceedings for the appointment of a ----------------------- receiver, trustee, liquidator or custodian of Borrower or any of its Subsidiaries or of all or a substantial part of the property thereof, or an involuntary case or other proceedings seeking liquidation, reorganization or other relief with respect to Borrower or any of its Subsidiaries or the debts thereof under any bankruptcy, insolvency or other similar law now or hereafter in effect shall be commenced and an order for relief entered or such proceeding shall not be dismissed or discharged within sixty (60) days of commencement; or (h) Judgments. (i) One or more judgments, orders, decrees or --------- arbitration awards requiring Borrower and/or its Subsidiaries to pay an aggregate amount of $3,000,000 or more shall be rendered against Borrower and/or any of its Subsidiaries in connection with any single or related series of transactions, incidents or circumstances and the same shall not be vacated or stayed for a period of twenty (20) consecutive days; (ii) any judgment, writ, assessment, warrant of attachment, tax lien or execution or similar process shall be issued or levied against a substantial part of the property of Borrower or any of its Subsidiaries and 57 the same shall not be released, stayed, vacated or otherwise dismissed within twenty (20) days after issue or levy; or (iii) any other judgments, orders, decrees, arbitration awards, writs, assessments, warrants of attachment, tax liens or executions or similar processes which, alone or in the aggregate, are reasonably likely to have a Material Adverse Effect are rendered, issued or levied; or (i) Credit Documents. Any Credit Document or any material term ---------------- thereof shall cease to be, or be asserted by Borrower or any of its Subsidiaries not to be, a legal, valid and binding obligation of Borrower or any of its Subsidiaries enforceable in accordance with its terms; or (j) ERISA. Any Reportable Event which constitutes grounds for the ----- termination of any Employee Benefit Plan by the PBGC or for the appointment of a trustee by the PBGC to administer any Employee Benefit Plan shall occur, or any Employee Benefit Plan shall be terminated within the meaning of Title IV of ERISA or a trustee shall be appointed by the PBGC to administer any Employee Benefit Plan; or (k) Change of Control. Any Change of Control shall occur. ----------------- 6.02. Remedies. At any time after the occurrence and during the -------- continuance of any Event of Default (other than an Event of Default referred to in Subparagraph 6.01(f) or 6.01(g)), Agent may, with the consent of the Required -------------------- ------- Lenders, or shall, upon instructions from the Required Lenders, by written notice to Borrower, (a) terminate the Commitments and the obligations of the Lenders to make Loans and/or (b) declare all outstanding Obligations payable by Borrower to be immediately due and payable without presentment, demand, protest or any other notice of any kind, all of which are hereby expressly waived, anything contained herein or in the Notes to the contrary notwithstanding. Upon the occurrence or existence of any Event of Default described in Subparagraph ------------ 6.01(f) or 6.01(g), immediately and without notice, (1) the Commitments and the - ------- ------- obligations of the Lenders to make Loans shall automatically terminate and (2) all outstanding Obligations payable by Borrower hereunder shall automatically become immediately due and payable, without presentment, demand, protest or any other notice of any kind, all of which are hereby expressly waived, anything contained herein or in the Notes to the contrary notwithstanding. In addition to the foregoing remedies, upon the occurrence or existence of any Event of Default, Agent may exercise any other right, power or remedy available to it under any of the Credit Documents or otherwise by law, either by suit in equity or by action at law, or both. SECTION VII. THE AGENT AND RELATIONS AMONG LENDERS. ------------------------------------- 58 7.01. Appointment, Powers and Immunities. Each Lender hereby ---------------------------------- appoints and authorizes Agent to act as its agent hereunder and under the other Credit Documents with such powers as are expressly delegated to Agent by the terms of this Agreement and the other Credit Documents, together with such other powers as are reasonably incidental thereto. Agent shall not have any duties or responsibilities except those expressly set forth in this Agreement or in any other Credit Document, be a trustee for any Lender or have any fiduciary duty to any Lender. Notwithstanding anything to the contrary contained herein Agent shall not be required to take any action which is contrary to this Agreement or any other Credit Document or any applicable Governmental Rule. Neither Agent nor any Lender shall be responsible to any other Lender for any recitals, statements, representations or warranties made by Borrower or any of its Subsidiaries contained in this Agreement or in any other Credit Document, for the value, validity, effectiveness, genuineness, enforceability or sufficiency of this Agreement or any other Credit Document or for any failure by Borrower or any of its Subsidiaries to perform their respective obligations hereunder or thereunder. Agent may employ agents and attorneys-in-fact and shall not be responsible to any Lender for the negligence or misconduct of any such agents or attorneys-in-fact selected by it with reasonable care. Neither Agent nor any of its directors, officers, employees, agents or advisors shall be responsible to any Lender for any action taken or omitted to be taken by it or them hereunder or under any other Credit Document or in connection herewith or therewith, except for its or their own gross negligence or willful misconduct. Except as otherwise provided under this Agreement, Agent shall take such action with respect to the Credit Documents as shall be directed by the Required Lenders. 7.02. Reliance by Agent. Agent shall be entitled to rely upon any ----------------- certificate, notice or other document (including any cable, telegram, facsimile or telex) believed by it in good faith to be genuine and correct and to have been signed or sent by or on behalf of the proper Person or Persons, and upon advice and statements of legal counsel, independent accountants and other experts selected by Agent with reasonable care. As to any other matters not expressly provided for by this Agreement, Agent shall not be required to take any action or exercise any discretion, but shall be required to act or to refrain from acting upon instructions of the Required Lenders and shall in all cases be fully protected by the Lenders in acting, or in refraining from acting, hereunder or under any other Credit Document in accordance with the instructions of the Required Lenders, and such instructions of the Required Lenders and any action taken or failure to act pursuant thereto shall be binding on all of the Lenders. 7.03. Defaults. Agent shall not be deemed to have -------- 59 knowledge or notice of the occurrence of any Default unless Agent has received a written notice from a Lender or Borrower, referring to this Agreement, describing such Default and stating that such notice is a "Notice of Default". If Agent receives such a notice of the occurrence of a Default, Agent shall give prompt notice thereof to the Lenders. Agent shall take such action with respect to such Default as shall be reasonably directed by the Required Lenders; provided, however, that until Agent shall have received such directions, Agent - -------- ------- may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Default as it shall deem advisable in the best interest of the Lenders. 7.04. Indemnification. Without limiting the Obligations of Borrower --------------- hereunder, each Lender agrees to indemnify Agent, ratably in accordance with their Proportionate Shares, for any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever which may at any time be imposed on, incurred by or asserted against Agent in any way relating to or arising out of this Agreement or any documents contemplated by or referred to herein or therein or the transactions contemplated hereby or thereby or the enforcement of any of the terms hereof or thereof; provided, however, that no Lender shall be liable for -------- ------- any of the foregoing to the extent they arise from Agent's gross negligence or willful misconduct. Agent shall be fully justified in refusing to take or in continuing to take any action hereunder unless it shall first be indemnified to its satisfaction by the Lenders against any and all liability and expense which may be incurred by it by reason of taking or continuing to take any such action. The obligations of each Lender under this Paragraph 7.04 shall survive the -------------- payment and performance of the Obligations, the termination of this Agreement and any Lender ceasing to be a party to this Agreement (with respect to events which occurred prior to the time such Lender ceased to be a Lender hereunder). 7.05. Non-Reliance. Each Lender represents that it has, ------------ independently and without reliance on Agent, or any other Lender, and based on such documents and information as it has deemed appropriate, made its own appraisal of the business, prospects, management, financial condition and affairs of Borrower and the Subsidiaries and its own decision to enter into this Agreement and agrees that it will, independently and without reliance upon Agent or any other Lender, and based on such documents and information as it shall deem appropriate at the time, continue to make its own appraisals and decisions in taking or not taking action under this Agreement. Neither Agent nor any of its affiliates nor any of their respective directors, officers, employees, agents or advisors shall (a) be required to keep any Lender informed as to the performance or observance by Borrower or any of its Subsidiaries of the obligations under this Agreement or any other document referred to or provided for herein or to make inquiry of, or to inspect the properties or 60 books of Borrower or any of its Subsidiaries; (b) have any duty or responsibility to provide any Lender with any credit or other information concerning Borrower or any of its Subsidiaries which may come into the possession of Agent, except for notices, reports and other documents and information expressly required to be furnished to the Lenders by Agent hereunder; or (c) be responsible to any Lender for (i) any recital, statement, representation or warranty made by Borrower or any officer, employee or agent of Borrower in this Agreement or in any of the other Credit Documents, (ii) the value, validity, effectiveness, genuineness, enforceability or sufficiency of this Agreement or any Credit Document, (iii) the value or sufficiency of any collateral or the validity or perfection of any of the liens or security interests intended to be created by the Credit Documents, or (iv) any failure by Borrower to perform its obligations under this Agreement or any other Credit Document. 7.06. Resignation or Removal of Agent. Agent may resign at any time ------------------------------- by giving thirty (30) days prior written notice thereof to Borrower and the Lenders, and Agent may be removed at any time with or without cause by the Required Lenders. Upon any such resignation or removal, the Required Lenders shall have the right to appoint a successor Agent, which Agent, if not a Lender, shall be reasonably acceptable to Borrower; provided, however, that Borrower -------- ------- shall have no right to approve a successor Agent if a Default has occurred and is continuing. Upon the acceptance of any appointment as Agent hereunder by a successor Agent, such successor Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Agent, and the retiring Agent shall be discharged from the duties and obligations thereafter arising hereunder. After any retiring Agent's resignation or removal hereunder as Agent, the provisions of this Section VII shall continue in effect ----------- for its benefit in respect of any actions taken or omitted to be taken by it while it was acting as Agent. 7.07. Authorization. Agent is hereby authorized by the Lenders to ------------- execute, deliver and perform, each of the Credit Documents to which Agent is or is intended to be a party and each Lender agrees to be bound by all of the agreements of Agent contained in the Credit Documents. 7.08. Agent in its Individual Capacity. Agent and its affiliates may -------------------------------- make loans to, accept deposits from and generally engage in any kind of banking or other business with Borrower and its Subsidiaries and affiliates as though Agent were not Agent hereunder. With respect to Loans, if any, made by Agent in its capacity as a Lender, Agent in its capacity as a Lender shall have the same rights and powers under this Agreement and the other Credit Documents as any other Lender and may exercise the same as though it were not Agent, and the terms "Lender" or "Lenders" shall include Agent in its capacity as a Lender. 61 SECTION VIII. MISCELLANEOUS. ------------- 8.01. Notices. Except as otherwise provided herein, all notices, ------- requests, demands, consents, instructions or other communications to or upon Borrower, any Lender or Agent under this Agreement or the other Credit Documents shall be in writing and faxed, mailed or delivered, if to Borrower or Agent, at its respective facsimile number or address set forth below or, if to any Lender, at the address or facsimile number specified beneath the heading "Address for Notices" under the name of such Lender in Schedule I (or to such other facsimile ---------- number or address for any party as indicated in any notice given by that party to the other parties). All such notices and communications shall be effective (a) when sent by Federal Express or other overnight courier of recognized standing, on the Business Day following the deposit with such service; (b) when mailed, first class postage prepaid and addressed as aforesaid through the United States Postal Service, upon receipt; (c) when delivered by hand, upon delivery; and (d) when faxed, upon confirmation of receipt; provided, however, -------- ------- that any notice delivered to Agent under Section II shall not be effective until ---------- received by Agent. Agent: ABN AMRO Bank N.V. ABN AMRO Bank North America, Inc. Capital Markets-Syndications Group 1325 Avenue of the Americas, 9th Floor New York, NY 10019 Attn: Linda Boardman Telephone: (212) 314-1724 Fax: (212) 314-1709 With a copy to: ABN AMRO Bank N.V. ABN AMRO Bank North America, Inc. 101 California Street, Suite 4550 San Francisco, CA 94111-5812 Attn: Gina Brusatori Telephone: (415) 984-3702 Fax: (415) 362-3524 Borrower: If by courier: Acuson Corporation 1220 Charleston Road Mountain View, CA 94043 Attn: Treasurer If by mail: Acuson Corporation 62 P.O. Box 7393 Mountain View, CA 94039-7393 Attn: Treasurer Telephone: (415) 694-5598 Fax: (415) 962-8018 With a copy to: Cooley Godward LLP One Maritime Plaza, 20th Floor San Francisco, CA 94111-3580 Attn: Joseph A. Scherer, Esq. Telephone: (415) 693-2017 Fax: (415) 951-3699 Each Notice of Borrowing and Notice of Interest Period Selection shall be given by Borrower to Agent's office located at the address referred to above during Agent's normal business hours; provided, however, that any such notice received -------- ------- by Agent after 1:00 p.m. on any Business Day shall be deemed received by Agent on the next Business Day. In any case where this Agreement authorizes notices, requests, demands or other communications by Borrower to Agent or any Lender to be made by telephone or facsimile, Agent or any Lender may conclusively presume that anyone purporting to be a person designated in any incumbency certificate or other similar document received by Agent or a Lender is such a person. 8.02. Expenses. Borrower shall pay on demand, whether or not any -------- Loan is made hereunder, (a) all reasonable out-of-pocket fees and expenses, including reasonable out-of-pocket attorneys' fees and expenses, incurred by Agent in connection with the preparation, negotiation, execution and delivery of, and the exercise of its duties under, this Agreement and the other Credit Documents, and the preparation, negotiation, execution and delivery of amendments and waivers hereunder and thereunder and (b) all reasonable out-of- pocket fees and expenses, including reasonable out-of-pocket attorneys' fees and expenses, incurred by Agent and the Lenders in the enforcement or attempted enforcement of any of the Obligations or in preserving any of Agent's or the Lenders' rights and remedies (including, without limitation, all such fees and expenses incurred in connection with any "workout" or restructuring affecting the Credit Documents or the Obligations or any bankruptcy or similar proceeding involving Borrower or any of its Subsidiaries). The obligations of Borrower under this Paragraph 8.02 shall survive the payment and performance of the -------------- Obligations and the termination of this Agreement. 8.03. Indemnification. To the fullest extent permitted by law, --------------- Borrower agrees to protect, indemnify, defend and hold harmless Agent, the Lenders and their Affiliates and their 63 respective directors, officers, employees, agents and advisors ("Indemnitee") ---------- from and against any and all liabilities, losses, damages or expenses of any kind or nature and from any suits, claims or demands (including in respect of or for reasonable attorney's fees and other expenses) arising on account of or in connection with any matter or thing or action or failure to act by Indemnitee, or any of them, arising out of or relating to the Credit Documents or any transaction contemplated thereby, including without limitation any use by Borrower of any proceeds of the Loans, except to the extent such liability arises from the willful misconduct or gross negligence of such Indemnitee. Upon receiving knowledge of any suit, claim or demand asserted by a third party that Agent or any Lender believes is covered by this indemnity, Agent or such Lender shall give Borrower notice of the matter and an opportunity to defend it, at Borrower's sole cost and expense, with legal counsel satisfactory to Agent or such Lender, as the case may be. Agent or such Lender may also require Borrower to defend the matter. Any failure or delay of Agent or any Lender to notify Borrower of any such suit, claim or demand shall not relieve Borrower of its obligations under this Paragraph 8.03 but shall reduce such obligations to the -------------- extent of any increase in those obligations caused solely by any such failure or delay which is unreasonable. The obligations of Borrower under this Paragraph --------- 8.03 shall survive the payment and performance of the Obligations and the - ---- termination of this Agreement. 8.04. Waivers; Amendments. Any term, covenant, agreement or ------------------- condition of this Agreement or any other Credit Document may be amended or waived, and any consent under this Agreement or any other Credit Document may be given, if such amendment, waiver or consent is in writing and is signed by Borrower and the Required Lenders (or Agent on behalf of the Required Lenders with the written approval of the Required Lenders); provided, however that: -------- ------- (a) Any amendment, waiver or consent which would (i) increase the Total Commitment, (ii) extend the Maturity Date, (iii) reduce the principal of or interest on any Loan or any fees or other amounts payable for the account of the Lenders hereunder, (iv) extend any scheduled principal, interest or fee payment date, (v) amend this Paragraph 8.04, or (vi) amend -------------- the definition of Required Lenders, must be in writing and signed or approved in writing by all Lenders; (b) Any amendment, waiver or consent which increases or decreases the Proportionate Share of any Lender must be in writing and signed by such Lender; and (c) Any amendment, waiver or consent which affects the rights or obligations of Agent must be in writing and signed by Agent. 64 No failure or delay by Agent or any Lender in exercising any right under this Agreement or any other Credit Document shall operate as a waiver thereof or of any other right hereunder or thereunder nor shall any single or partial exercise of any such right preclude any other further exercise thereof or of any other right hereunder or thereunder. Unless otherwise specified in such waiver or consent, a waiver or consent given hereunder shall be effective only in the specific instance and for the specific purpose for which given. 65 8.05. Successors and Assigns. ---------------------- (a) Binding Effect. This Agreement and the other Credit Documents -------------- shall be binding upon and inure to the benefit of Borrower, the Lenders, Agent, all future holders of the Notes and their respective successors and permitted assigns, except that Borrower may not assign or transfer any of its rights or obligations under any Credit Document without the prior written consent of Agent and each Lender. All references in this Agreement to any Person shall be deemed to include all successors and assigns of such Person. (b) Participations. Any Lender may at any time sell to one or more -------------- banks or other financial institutions ("Participants") participating ------------ interests in any Loan owing to such Lender, any Note held by such Lender, any Commitment of such Lender or any other interest of such Lender under this Agreement and the other Credit Documents. In the event of any such sale by a Lender of participating interests, such Lender's obligations under this Agreement shall remain unchanged, such Lender shall remain solely responsible for the performance thereof, such Lender shall remain the holder of its Notes for all purposes under this Agreement and Borrower and Agent shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under this Agreement. Any agreement pursuant to which any such sale is effected may require the selling Lender to obtain the consent of the Participant in order for such Lender to agree in writing to any amendment, waiver or consent of a type specified in clause (i), (ii), (iii) or (iv) of Subparagraph 8.04(a) but ------------------------------------------------------- may not otherwise require the selling Lender to obtain the consent of such Participant to any other amendment, waiver or consent hereunder. Borrower agrees that if amounts outstanding under this Agreement and the other Credit Documents are not paid when due (whether upon acceleration or otherwise), each Participant shall, to the fullest extent permitted by law, be deemed to have the right of setoff in respect of its participating interest in amounts owing under this Agreement and any other Credit Documents to the same extent as if the amount of its participating interest were owing directly to it as a Lender under this Agreement or any other Credit Documents; provided, however, that (i) no Participant shall exercise -------- ------- any rights under this sentence without the consent of Agent, (ii) no Participant shall have any rights under this sentence which are greater than those of the selling Lender and (iii) such rights of setoff shall be subject to the obligation of such Participant to share the payment so obtained with all of the Lenders as provided in Subparagraph 2.13(b). -------------------- Borrower also agrees that any Lender which has transferred any participating interest in its Commitment or Loans shall, notwithstanding any such transfer, be entitled to the full benefits accorded such Lender under Paragraph --------- 66 2.14, Paragraph 2.15, and Paragraph 2.16, as if such Lender ---- -------------- -------------- had not made such transfer. (c) Assignments. Any Lender may, at any time, sell and assign to any ----------- Lender or any Eligible Assignee (individually, an "Assignee Lender") all or --------------- a portion of its rights and obligations under this Agreement and the other Credit Documents (such a sale and assignment to be referred to herein as an "Assignment") pursuant to an assignment agreement in the form of Exhibit E ---------- --------- (an "Assignment Agreement"), executed by each Assignee Lender and such -------------------- assignor Lender (an "Assignor Lender") and delivered to Agent for its --------------- acceptance and recording in the Register; provided, however, that: -------- ------- (i) Without the written consent of Agent and, if no Default has occurred and is continuing, Borrower (which consent of Agent and Borrower shall not be unreasonably withheld), no Lender may make any Assignment to any Assignee Lender which is not, immediately prior to such Assignment, a Lender hereunder or an Affiliate thereof; or (ii) Without the written consent of Agent and, if no Default has occurred and is continuing, Borrower (which consent of Agent and Borrower shall not be unreasonably withheld), no Lender may make any Assignment to any Assignee Lender if, after giving effect to such Assignment, the Commitment of such Lender or such Assignee Lender would be less than Ten Million Dollars ($10,000,000) (except that a Lender may make an Assignment which reduces its Commitment to zero without the written consent of Borrower and Agent); or (iii) Without the written consent of Agent and, if no Default has occurred and is continuing, Borrower (which consent of Agent and Borrower shall not be unreasonably withheld), no Lender may make any Assignment which does not assign and delegate an equal pro rata interest in such Lender's Loans, Commitment and all other rights, duties and obligations of such Lender under this Agreement and the other Credit Documents. Upon such execution, delivery, acceptance and recording of each Assignment Agreement, from and after the Assignment Effective Date determined pursuant to such Assignment Agreement, (A) each Assignee Lender thereunder shall be a Lender hereunder with a Proportionate Share as set forth on Attachment 1 to such Assignment Agreement (under the caption ----------------------------------------- "Proportionate Share After Assignment") and shall have the rights, duties and obligations of such a Lender under this Agreement and the other Credit Documents, and (B) the 67 Assignor Lender thereunder shall be a Lender with a Proportionate Share as set forth on Attachment 1 to such Assignment Agreement (under the caption ----------------------------------------- "Proportionate Share After Assignment"), or, if the Proportionate Share of the Assignor Lender has been reduced to 0%, the Assignor Lender shall cease to be a Lender and to have any obligation to make any Loan; provided, -------- however, that any such Assignor Lender which ceases to be a Lender shall ------- continue to be entitled to the benefits of any provision of this Agreement which by its terms survives the termination of this Agreement. Each Assignment Agreement shall be deemed to amend Schedule I to the extent, and ---------- only to the extent, necessary to reflect the addition of each Assignee Lender, the deletion of each Assignor Lender which reduces its Proportionate Share to 0% and the resulting adjustment of Proportionate Shares arising from the purchase by each Assignee Lender of all or a portion of the rights and obligations of an Assignor Lender under this Agreement and the other Credit Documents. On or prior to the Assignment Effective Date determined pursuant to each Assignment Agreement, Borrower, at its own expense, shall execute and deliver to Agent, in exchange for the surrendered Note of the Assignor Lender thereunder, a new Note to the order of each Assignee Lender thereunder (with each new Note to be in an amount equal to the Commitment assumed by such Assignee Lender) and, if the Assignor Lender is continuing as a Lender hereunder, a new Note to the order of the Assignor Lender (with the new Note to be in an amount equal to the Commitment retained by it). Each such new Note shall be dated the Closing Date and otherwise in the form of the Note replaced thereby. The Notes surrendered by the Assignor Lender shall be returned by Agent to Borrower marked "replaced". Each Assignee Lender which was not previously a Lender hereunder and which is not incorporated under the laws of the United States of America or a state thereof shall, within three (3) Business Days of becoming a Lender, deliver to Borrower and Agent two duly completed copies of United States Internal Revenue Service Form 1001 or 4224 (or successor applicable form), as the case may be, certifying in each case that such Lender is entitled to receive payments under this Agreement without deduction or withholding of any United States federal income taxes. (d) Register. Agent shall maintain at its address referred to in -------- Paragraph 8.01 a copy of each Assignment Agreement delivered to it and a -------------- register (the "Register") for the recordation of the names and addresses of -------- the Lenders and the Proportionate Shares of each Lender from time to time. The entries in the Register shall be conclusive in the absence of manifest error, and Borrower, Agent and the Lenders may treat each Person whose name is recorded in the Register as the owner of the Loans recorded therein for all proposes of this Agreement. The Register 68 shall be available for inspection by Borrower or any Lender at any reasonable time and from time to time upon reasonable prior notice. (e) Registration. Upon its receipt of an Assignment Agreement ------------ executed by an Assignor Lender and an Assignee Lender (and, to the extent required by Subparagraph 8.05(c), by Borrower and Agent) together with -------------------- payment to Agent by Assignor Lender of a registration and processing fee of $2,500, Agent shall (i) promptly accept such Assignment Agreement and (ii) on the "Assignment Effective Date" determined pursuant thereto record the information contained therein in the Register and give notice of such acceptance and recordation to the Lenders and Borrower. Agent may, from time to time at its election, prepare and deliver to the Lenders and Borrower a revised Schedule I reflecting the names, addresses and ---------- respective Proportionate Shares of all Lenders then parties hereto. (f) Confidentiality. Agent and the Lenders may disclose the Credit --------------- Documents and any financial or other information relating to Borrower or any Subsidiary to each other or to any potential Participant or Assignee Lender that has executed a confidentiality letter in the form of Exhibit F. --------- 8.06. Setoff; Security Interest. ------------------------- (a) Setoff. In addition to any rights and remedies of the Lenders ------ provided by law, each Lender shall have the right, with the prior consent of Agent but without prior notice to or consent of Borrower, any such notice and consent being expressly waived by Borrower to the extent permitted by applicable law, upon the occurrence and during the continuance of an Event of Default, to set-off and apply against the Obligations any amount owing from such Lender to Borrower. The aforesaid right of set-off may be exercised by such Lender against Borrower or against any trustee in bankruptcy, debtor in possession, assignee for the benefit of creditors, receiver or execution, judgment or attachment creditor of Borrower or against anyone else claiming through or against Borrower or such trustee in bankruptcy, debtor in possession, assignee for the benefit of creditors, receiver, or execution, judgment or attachment creditor, notwithstanding the fact that such right of set-off may not have been exercised by such Lender at any prior time. Each Lender agrees promptly to notify Borrower after any such set-off and application made by such Lender, provided that -------- the failure to give such notice shall not affect the validity of such set- off and application. (b) Security Interest. As security for the Obligations, Borrower ----------------- hereby grants to Agent and each 69 Lender, for the benefit of all Lenders, a continuing security interest in any and all deposit accounts or moneys of Borrower now or hereafter maintained with such Lender. Each Lender shall have all of the rights of a secured party with respect to such security interest. 8.07. No Third Party Rights. Nothing expressed in or to be implied --------------------- from this Agreement is intended to give, or shall be construed to give, any Person, other than the parties hereto and their permitted successors and assigns hereunder, any benefit or legal or equitable right, remedy or claim under or by virtue of this Agreement or under or by virtue of any provision herein. 8.08. Partial Invalidity. If at any time any provision of this ------------------ Agreement is or becomes illegal, invalid or unenforceable in any respect under the law or any jurisdiction, neither the legality, validity or enforceability of the remaining provisions of this Agreement nor the legality, validity or enforceability of such provision under the law of any other jurisdiction shall in any way be affected or impaired thereby. 8.09. Jury Trial. EACH OF BORROWER, THE LENDERS AND AGENT, TO THE ---------- FULLEST EXTENT PERMITTED BY APPLICABLE LAW, HEREBY IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY AS TO ANY ISSUE RELATING HERETO IN ANY ACTION, PROCEEDING, OR COUNTERCLAIM ARISING OUT OF OR RELATING TO ANY CREDIT DOCUMENT. 8.10. Counterparts. This Agreement may be executed in any number of ------------ identical counterparts, any set of which signed by all the parties hereto shall be deemed to constitute a complete, executed original for all proposes. 8.11. Confidentiality. Each Lender shall, at or prior to the time it --------------- becomes a party to this Agreement, execute and deliver to Agent and Borrower a confidentiality letter in the form of Exhibit F. Any disclosure made by any --------- Lender in violation of any such confidentiality letter may entitle Borrower to damages or injunctive relief but shall not affect the obligations of Borrower and its Subsidiaries under this Agreement and the other Credit Documents. [The first signature page follows.] 70 IN WITNESS WHEREOF, Borrower, the Lenders and Agent have caused this Agreement to be executed as of the day and year first above written. BORROWER: ACUSON CORPORATION - -------- By:___________________________ Name:______________________ Title:_____________________ AGENT: ABN AMRO BANK N.V. - ----- By:___________________________ Name:______________________ Title:_____________________ By:___________________________ Name:______________________ Title:_____________________ LENDERS: ABN AMRO BANK N.V. - ------- By:___________________________ Name:______________________ Title:_____________________ By:___________________________ Name:______________________ Title:_____________________ BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION By:___________________________ Name:______________________ Title:_____________________ 71 BANQUE NATIONALE DE PARIS By:___________________________ Name:______________________ Title:_____________________ By:___________________________ Name:______________________ Title:_____________________ THE SANWA BANK LIMITED By:___________________________ Name:______________________ Title:_____________________ COMMERZBANK AKTIENGESELLSCHAFT, LOS ANGELES BRANCH By:___________________________ Name:______________________ Title:_____________________ By:___________________________ Name:______________________ Title:_____________________ 72 EX-10.1 3 1995 EMPLOYEE STOCK PURCHASE PLAN ACUSON CORPORATION EXHIBIT 10.1 - -------------------------------------------------------------------------------- 1995 EMPLOYEE STOCK PURCHASE PLAN The following constitute the provisions of the 1995 Employee Stock Purchase Plan of Acuson Corporation. 1. Purpose. The purpose of the Plan is to provide employees of the ------- Company and its Designated Subsidiaries with an opportunity to purchase Common Stock of the Company through accumulated payroll deductions. The Company, by means of the Plan, seeks to retain the services of its employees, to secure and retain the services of new employees, and to provide incentives for such persons to exert maximum efforts for the success of the Company by providing eligible employees with an opportunity to participate as shareholders in the Company's future growth. It is the intention of the Company to have the Plan qualify as an "Employee Stock Purchase Plan" under Section 423 of the Code. Accordingly, the provisions of the Plan, and the discretion granted to the Plan Administrator hereunder shall be construed so as to extend and limit participation in a manner consistent with the requirements of that section of the Code. 2. Definitions. ----------- (a) "Applicable Discount" shall mean, with respect to any given Purchase ------------------- Period, the discount fixed by the Plan Administrator pursuant to paragraph 4(b) with respect to such Purchase Period, which discount shall be no less than 0% and no more than 15% (in whole percentages). (b) "Board" shall mean the Board of Directors of the Company. ----- (c) "Code" shall mean the Internal Revenue Code of 1986, as amended. ---- (d) "Common Stock" shall mean the common stock, par value $.0001 per ------------ share, of the Company. (e) "Company" shall mean Acuson Corporation, a Delaware corporation. ------- (f) "Compensation" shall mean, with respect to any given Purchase Period, ------------ the components of each Participant's total compensation that will be treated as compensation for purposes of the Plan during such Purchase Period as determined by the Plan Administrator pursuant to paragraph 4(b). (g) "Designated Subsidiaries" shall mean the Subsidiaries which have been ----------------------- designated by the Plan Administrator from time to time in its sole discretion as eligible to participate in the Plan. (h) "Employee" shall mean any individual who is regularly engaged in the -------- rendition of personal services to the Company or a Designated Subsidiary for earnings considered wages under Section 3121(a) of the Code. For purposes of the Plan, the employment relationship shall be treated as continuing intact while the individual is on sick leave or other leave of absence approved by the Company. Where the period of leave exceeds 90 days and the individual's right to reemployment is not guaranteed either by statute or by contract, the employment relationship will be deemed to have terminated on the 91st day of such leave. (i) "Enrollment Date" shall mean the first day of each Purchase Period. --------------- -1- (j) "Exchange Act" shall mean the Securities Exchange Act of 1934, as ------------ amended. (k) "Exercise Date" shall mean, with respect to any given Purchase ------------- Period, the date or dates fixed by the Plan Administrator with respect to such Purchase Period pursuant to paragraph 4(b). (l) "Fair Market Value" shall mean, as of any date, the value of Common ----------------- Stock determined as follows: (1) If the Common Stock is listed on any established stock exchange or a national market system, including without limitation the National Market System of the National Association of Securities Dealers, Inc. Automated Quotation ("NASDAQ") System, its Fair Market Value shall be the closing sales price for such stock (or the closing bid, if no sales were reported), as quoted on such exchange (or the exchange with the greatest volume of trading in the Common Stock) or system on the day of such determination, if such day is a Trading Day, or the previous Trading Day, if such day is not a Trading Day, as reported in The Wall Street Journal ----------------------- or such other source as the Board deems reliable; or (2) If the Common Stock is quoted on the NASDAQ system (but not on the National Market system thereof) or is regularly quoted by a recognized securities dealer but selling prices are not reported, its Fair Market Value shall be the mean between the high and low asked prices for the Common Stock on the day of such determination, if such day is a Trading Day, or the previous Trading Day, if such day is not a Trading Day, as reported in The Wall Street Journal or such other source as the ----------------------- Board deems reliable; or (3) In the absence of an established market for the Common Stock, the Fair Market Value thereof shall be determined in good faith by the Board. (m) "Participant" means an eligible Employee of the Company or ------------- Designated Subsidiary who is actively participating in the Plan. (n) "Plan" shall mean this Employee Stock Purchase Plan. ------ (o) "Plan Administrator" shall mean either the Board or a committee of -------------------- the Board that is responsible for the administration of the Plan. (p) "Purchase Period" shall mean a purchase period established by the ----------------- Plan Administrator pursuant to paragraph 4 hereof. (q) "Purchase Price" shall mean, with respect to any given Exercise ---------------- Date, the amount determined by applying the Applicable Discount to the lower of (i) the Fair Market Value of the Common Stock as of such Exercise Date and (ii) the Fair Market Value of the Common Stock as of the first date of the Purchase Period in which such Exercise Date falls; provided, however, that the Plan Administrator may, in its discretion, determine that the Purchase Price for all Exercise Dates within a given Purchase Period shall be the amount determined by applying the Applicable Discount to the Fair Market Value of the Common Stock as of the first date of such Purchase Period, but only if the Plan Administrator does so upon establishing such Purchase Period. (r) "Replacement Purchase Period" shall mean a replacement purchase ----------------------------- period established pursuant to paragraph 4(e) hereof. (s) "Reserves" shall mean the number of shares of Common Stock covered ---------- by all purchase rights granted under the Plan which have not yet been exercised and the number of shares of Common Stock which have been authorized for issuance under the Plan but as to which purchase rights -2- have not yet been granted (or as to which purchase rights have previously been granted but have expired unexercised). (t) "Subsidiary" shall mean a corporation, domestic or foreign, of which ------------ not less than 50% of the voting shares are held by the Company or a Subsidiary, whether or not such corporation now exists or is hereafter organized or acquired by the Company or a Subsidiary, except that as used in paragraph 18(b), "Subsidiary" shall have the meaning set forth in paragraph 18(c). (u) "Trading Day" shall mean a day on which The New York Stock Exchange ------------- is open for trading. 3. Eligibility. ----------- (a) Any Employee who has been continuously employed by the Company prior to the applicable Enrollment Date for such minimum period of time (not to exceed two years), if any, as the Plan Administrator may require and who is employed by the Company on such Enrollment Date shall be eligible to participate in the Plan for the Purchase Period commencing with such Enrollment Date. Members of the Board who are eligible Employees are permitted to participate in the Plan except to the extent limited by paragraph 13(b). (b) Any provisions of the Plan to the contrary notwithstanding, no Employee shall be granted purchase rights under the Plan (i) if, immediately after the grant, such Employee (taking into account stock owned by any other person whose stock would be attributed to such Employee pursuant to Section 424(d) of the Code) would own stock and/or hold outstanding options or rights to purchase stock possessing five percent (5%) or more of the total combined voting power or value of all classes of stock of the Company or of any Subsidiary, or (ii) which permits his/her rights to purchase stock under all employee stock purchase plans of the Company and its Subsidiaries to accrue at a rate which exceeds Twenty-Five Thousand Dollars ($25,000) worth of stock (determined at the Fair Market Value of the shares at the time such purchase right is granted) for each calendar year in which such purchase right is outstanding at any time. The determination of the accrual of the right to purchase stock shall be made in accordance with Section 423(b)(8) of the Code and the regulations thereunder. (c) Notwithstanding paragraph (a) above, the Plan Administrator shall have the discretion to exclude any one or more of the following categories of Employees from participation in the Plan: (i) Employees whose customary employment is 20 hours or less per week; (ii) Employees whose customary employment is five months or less in any calendar year; (iii) Employees who have been employed by the Company or any Designated Subsidiary for less than two years; and (iv) highly compensated Employees (within the meaning of Section 414(q) of the Code). 4. Purchase Periods. ---------------- (a) The Plan shall be implemented by Purchase Periods until such time as (i) the maximum number of shares of Common Stock available for issuance under the Plan shall have been purchased or (ii) the Plan shall have terminated in accordance with paragraph 19 or paragraph 24 hereof. Each Purchase Period shall be of such duration (not to exceed twenty-seven months per Purchase Period) as determined by the Plan Administrator upon establishment of such Purchase Period. Purchase Periods will commence on such dates as may be determined by the Plan Administrator during the period in which the Plan remains in existence. The Plan Administrator shall have the discretion to establish overlapping Purchase Periods. (b) Upon establishing each Purchase Period, the Plan Administrator shall fix (i) one or more Exercise Dates with respect to such Purchase Period, one of which shall be on the last day of such Purchase Period, (ii) the Applicable Discount with respect to such Purchase Period, (iii) the Compensation with respect to such Purchase Period and (iv) the maximum number of shares that may be -3- purchased by any Participant on any Exercise Date during such Purchase Period (the "Per-Participant Limit"). In addition, the Plan Administrator may, in its discretion, fix a maximum number of shares of Common Stock that may be purchased by all Participants in the aggregate during such Purchase Period and/or on any given Exercise Date therein. Once fixed, the Exercise Date or Dates, the Applicable Discount, the Compensation, the Per-Participant Limit and any aggregate share purchase limits with respect to a given Purchase Period may not be changed, except upon the occurrence of a Corporate Transaction as provided in paragraph 18(b). (c) A Participant shall be granted a separate purchase right for each Purchase Period in which he/she participates. The purchase right shall be granted on the first day of the Purchase Period and shall be automatically exercised in successive installments on each Exercise Date during the Purchase Period. (d) If the Plan Administrator establishes overlapping Purchase Periods, the Plan Administrator may, in its discretion, permit Participants to participate in more than one Purchase Period at a time. (e) If on the Trading Day following any Exercise Date in a Purchase Period the Fair Market Value of the Common Stock is less than the Fair Market Value of the Common Stock on the first day of such Purchase Period (after taking into account any adjustment during the Purchase Period pursuant to paragraph 18(a)), the Plan Administrator may, in its discretion, provide that the Purchase Period shall be terminated and that all Participants therein shall be enrolled in a new Purchase Period, other than any such Participants who are not eligible to participate in the Plan on that date or who have elected to terminate participation in the Plan. Any such new Purchase Period (a "Replacement Purchase Period") shall be established by the Plan Administrator pursuant to paragraph 4(a) and shall commence on the date that such previous Purchase Period is terminated. The Plan Administrator shall fix one or more Exercise Dates, the Applicable Discount, the Compensation and the Per-Participant Limit, and may fix aggregate share purchase limits, pursuant to paragraph 4(b) with respect to such Replacement Purchase Period. (f) Except as specifically provided herein, the acquisition of Common Stock through participation in the Plan for any Purchase Period shall neither limit nor require the acquisition of Common Stock by a Participant in any subsequent Purchase Period. 5. Participation. ------------- (a) An eligible Employee may become a Participant in the Plan by completing a subscription agreement authorizing payroll deductions in a form designated by the Company and filing it with the Company's payroll office prior to the Enrollment Date for the Purchase Period in which such participation will commence in accordance with the filing deadline established by the Company. Such agreement will remain effective under subsequent Purchase Periods unless and until such Employee files a new agreement or terminates his/her participation in the Plan in accordance with paragraph 6(c), provided that such Employee must file a new subscription agreement to enroll in any Purchase Period that overlaps with a Purchase Period in which such Employee has previously enrolled. (b) Payroll deductions for a Participant shall commence with the first payroll following the Enrollment Date and shall end on the last complete payroll period during the Purchase Period, unless sooner terminated by the Participant as provided in paragraph 10. 6. Payroll Deductions. ------------------ (a) At the time a Participant files his/her subscription agreement, he/she shall elect to have payroll deductions made on each pay day during the Purchase Period in an amount from three to -4- fifteen percent (in whole percentages only) of the Compensation which he/she receives on each such pay day. (b) All payroll deductions made for a Participant shall be credited to his/her account under the Plan. A Participant may not make any additional payments into such account. (c) A Participant may discontinue his/her participation in the Plan as provided in paragraph 10. A Participant's subscription agreement shall remain in effect for successive Purchase Periods unless and until such Participant files a new agreement or terminates his/her participation in the Plan as provided in paragraph 10. The Plan Administrator may, in its discretion, permit Participants to amend their subscription agreements to increase and/or decrease the rate of their payroll deductions during any given Purchase Period. (d) Notwithstanding the foregoing, to the extent necessary to comply with Section 423(b)(8) of the Code and paragraph 3(b) herein, a Participant's payroll deductions may be decreased to 0% at such time during any Purchase Period which is scheduled to end during the current calendar year (the "Current Purchase Period") that the aggregate of all payroll deductions which were previously used to purchase stock under the Plan in any other Purchase Period that ended or that will end during that calendar year plus all payroll deductions accumulated with respect to the Current Purchase Period equal the maximum amount permitted under Section 423 of the Code. Payroll deductions shall recommence at the rate provided in such Participant's subscription agreement at the beginning of the first Purchase Period which is scheduled to end in the following calendar year, unless terminated by the Participant as provided in paragraph 10. 7. Grant of Purchase Right. On the first day of each Purchase Period, ----------------------- each Participant in such Purchase Period shall be granted the right to purchase on each Exercise Date of such Purchase Period (at the applicable Purchase Price) up to a number of shares of Common Stock determined by dividing such Participant's payroll deductions accumulated prior to such Exercise Date and retained in the Participant's account as of the Exercise Date by the applicable Purchase Price; provided that such purchase shall be subject to the limitations set forth in paragraphs 3(b), 4(b), 6(d), 8(b) and 12(a) hereof. Exercise of the purchase right shall occur as provided in paragraph 8, unless the Participant has withdrawn from the Plan pursuant to paragraph 10, and the purchase right, to the extent not exercised, shall expire on the last day of the Purchase Period. 8. Exercise of Purchase Right. -------------------------- (a) Unless a Participant withdraws from the Plan as provided in paragraph 10 below, his/her right to purchase shares will be exercised automatically on each Exercise Date, and the maximum number of full shares subject to such right shall be purchased for such Participant at the applicable Purchase Price with the accumulated payroll deductions in his/her account. No fractional shares will be purchased; any payroll deductions accumulated in a Participant's account which are not sufficient to purchase a full share shall be carried over to the next Exercise Date under the Plan or returned to the Participant, provided that, if the next Exercise Date falls within a new Purchase Period, such payroll deductions shall be carried over to such Exercise Date only if the Participant participates in such new Purchase Period. Any amount remaining in a Participant's account at the close of any Exercise Date caused by anything other than a surplus due to fractional shares (including the accumulated payroll deductions in any Participant's account as of any Exercise Date that are in excess of the amount needed to purchase the maximum number of full shares which may be purchased by such Participant based on the limitations in paragraphs 3(b), 4(b), 6(d), 8(b) and 12(a) hereof) shall be refunded to the Participant in cash as soon as practicable and shall not be carried over to the next Exercise Date. During a Participant's lifetime, a Participant's right to purchase shares hereunder is exercisable only by him/her. (b) If, on a given Exercise Date, the aggregate purchase of shares upon the exercise in full of all purchase rights would exceed the aggregate share purchase limit, if any, fixed by the Plan -5- Administrator pursuant to paragraph 4(b) with respect to the applicable Purchase Period, the Company shall make a pro-rata allocation of the available shares in as nearly uniform a manner as shall be practicable and as it shall determine to be equitable. 9. Delivery. The Company shall arrange the delivery to each Participant -------- of a certificate representing the shares of Common Stock purchased upon exercise of his/her purchase right based upon instructions provided to the Company by the Participant from time to time, but subject to paragraph 12(c). 10 Withdrawal; Termination of Employment. ------------------------------------- (a) A Participant may withdraw all but not less than all the payroll deductions credited to his/her account and not yet used to exercise his/her purchase right under the Plan at any time by giving written notice to the Company in a form designated by the Company. All of the Participant's payroll deductions credited to his/her account will be paid to such Participant as soon as practicable after receipt of such notice of withdrawal. Upon receipt of such notice of withdrawal, the Participant's purchase right for the Purchase Period will be automatically terminated, and no further payroll deductions for the purchase of shares will be made during the Purchase Period. If a Participant withdraws from a Purchase Period, payroll deductions will not resume at the beginning of the succeeding Purchase Period unless the Participant delivers to the Company a new subscription agreement. (b) Upon a Participant's ceasing to be an eligible Employee for any reason other than retirement, the payroll deductions credited to such Participant's account during the Purchase Period but not yet used to exercise his/her purchase right will be returned to such Participant or, in the case of his/her death, to the person or persons entitled thereto under paragraph 14, and such Participant's purchase right will be automatically terminated. (c) Upon a Participant's ceasing to be an eligible Employee by reason of his/her retirement, the provisions of this paragraph 10(c) shall apply. If such retirement occurs three months or less prior to the next Exercise Date, the retired Participant shall have the option of withdrawing from the Plan as provided in paragraph 10(a), or taking no action and thereby continuing participation in the Purchase Period in which he/she was participating at the time of retirement. If retirement occurs more than three months prior to the next Exercise Date, the payroll deductions credited to such retired Participant's account during the Purchase Period but not yet used to exercise his/her purchase right will be returned to such Participant and such Participant's purchase right will be automatically terminated. The Plan Administrator shall have the discretion to shorten or lengthen such period from time to time during the term of the Plan, but such period shall in no event exceed three months. 11. Interest. No interest shall accrue on the payroll deductions of a -------- Participant in the Plan. 12. Stock. ----- (a) The maximum number of shares of the Company's Common Stock which shall be made available for sale under the Plan shall be 2,000,000 shares, subject to adjustment upon changes in capitalization of the Company as provided in paragraph 18. If on a given Exercise Date the aggregate number of shares with respect to which purchase rights are to be exercised exceeds the number of shares then available under the Plan, the Company shall make a pro rata allocation of the shares remaining available for purchase in as uniform a manner as shall be practicable and as it shall determine to be equitable. If any purchase right granted under the Plan shall terminate for any reason without having been exercised, the Common Stock not purchased under such right shall again become available under the Plan. -6- (b) A Participant will have no interest or voting right in shares covered by his/her purchase right until such shares are actually purchased on the Participant's behalf in accordance with the applicable provisions of the Plan. No adjustment shall be made for dividends, distributions or other rights for which the record date is prior to the date of such purchase. (c) Shares to be delivered to a Participant under the Plan will be registered in the name of the Participant, in the name of the Participant and his/her spouse, in the name of the stockbroker at which the Participant maintains an account in accordance with instructions provided to the Company by the Participant pursuant to paragraph 9 or in the name of any permitted transferee of the Participant pursuant to paragraph 15. (d) The Common Stock subject to the Plan may be unissued shares, treasury shares or shares purchased by the Company on the open market or otherwise. 13. Administration. -------------- (a) The Plan shall be administered by the Plan Administrator, which shall have full and exclusive discretionary authority to construe, interpret and apply the terms of the Plan, to determine eligibility and to adjudicate all disputed claims filed under the Plan. Every finding, decision and determination made by the Plan Administrator shall, to the full extent permitted by law, be final and binding upon all parties. (b) Notwithstanding the provisions of paragraph 13(a), in the event that Rule 16b-3 promulgated under the Exchange Act or any successor provision ("Rule 16b-3") provides specific requirements for the administrators of plans of this type, the Plan shall be only administered by such a body and in such a manner as shall comply with the applicable requirements of Rule 16b-3. 14. Designation of Beneficiary. -------------------------- (a) Participants may file a written designation of a beneficiary, on a form designated by the Company, who is to receive any shares and cash, if any, from the Participant's account under the Plan in the event of such Participant's death. If a Participant is married and the designated beneficiary is not the spouse, spousal consent shall be required for such designation to be effective. (b) Such designation of beneficiary may be changed by the Participant (and his/her spouse, if any) at any time by written notice. In the event of the death of a Participant and in the absence of a beneficiary validly designated under the Plan who is living at the time of such Participant's death, the Company shall deliver such shares and/or cash to the executor or administrator of the estate of the Participant, or if no such executor or administrator has been appointed (to the knowledge of the Company), the Company, in its discretion, may deliver such shares and/or cash to the spouse or to any one or more dependents or relatives of the Participant, or if no spouse, dependent or relative is known to the Company, then to such other person as the Company may designate. 15. Transferability. Neither payroll deductions credited to a --------------- Participant's account nor any rights with regard to the exercise of a purchase right or to receive shares under the Plan may be assigned, transferred, pledged or otherwise disposed of in any way (other than by will, the laws of descent and distribution or as provided in paragraph 14 hereof) by the Participant. Any such attempt at assignment, transfer, pledge or other disposition shall be without effect, except that the Company may treat such act as an election to withdraw funds from a Purchase Period in accordance with paragraph 10. 16. Use of Funds. All payroll deductions received or held by the Company ------------ under the Plan may be used by the Company for any corporate purpose, and the Company shall not be obligated to segregate such payroll deductions. -7- 17. Reports. Individual accounts will be maintained for each Participant ------- in the Plan. Such accounts will be unfunded. Statements of account will be given to Participants as soon as practicable following each Exercise Date, which statements will set forth the amounts of payroll deductions, the Purchase Price, the number of shares purchased and the remaining cash balance, if any. 18. Adjustments Upon Changes in Capitalization or Ownership. ------------------------------------------------------- (a) Subject to any required action by the shareholders of the Company, the Reserves, as well as the Purchase Price with respect to each purchase right under the Plan that has not yet been exercised, shall be proportionately adjusted for any increase or decrease in the number of issued shares of Common Stock resulting from a stock split, reverse stock split, stock dividend, combination or reclassification of the Common Stock, or any other increase or decrease in the number of shares of Common Stock effected without receipt of consideration by the Company; provided, however, that conversion of any convertible securities of the Company shall not be deemed to have been "effected without receipt of consideration." Such adjustment shall be made by the Plan Administrator, whose determination in that respect shall be final, binding and conclusive. Except as expressly provided herein, no issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of shares of Common Stock subject to purchase rights granted under the Plan. The Plan Administrator may, if it so determines in the exercise of its sole discretion, make provision for adjusting the Reserves, as well as the price per share of Common Stock covered by each outstanding purchase right, in the event the Company effects one or more reorganizations, recapitalizations, rights offerings or other increases or reductions of shares of its outstanding Common Stock. (b) In the event that any Corporate Transaction occurs or becomes imminent, the Board may determine, in the exercise of its sole discretion, to shorten any Purchase Period or Purchase Periods then in progress by setting a new Exercise Date (the "New Exercise Date"). If it elects to fix a New Exercise Date, the Board also may, in its discretion, change the Applicable Discount, the Compensation, the Per-Participant Limit and any aggregate share purchase limits previously established with respect to the shortened Purchase Period or Periods. If the Board shortens any such Purchase Period, the Board shall notify each Participant in writing that the Exercise Date for his/her purchase right has been changed to the New Exercise Date and that his/her purchase right will be exercised automatically on the New Exercise Date, unless prior to such date he/she has withdrawn from such Purchase Period as provided in paragraph 10. Such written notice shall also include a description of any changes made to the Applicable Discount, the Compensation, the Per-Participant Limit and any aggregate share purchase limits made pursuant to this paragraph 18(b). (c) For purposes of paragraph 18(b), the following definitions shall apply: "Acquiring Person" means any Person who or which, together with all ------------------ Affiliates and Associates of such Person, shall be the Beneficial Owner of 20% or more of the Common Stock then outstanding, but shall not include the Company, any Subsidiary of the Company or any employee benefit plan of the Company or any Subsidiary of the Company, or any entity holding Common Stock for or pursuant to the terms of any such plan. Notwithstanding the foregoing, no Person shall become an Acquiring Person as the result of an acquisition of Common Stock by the Company which, by reducing the number of shares outstanding, increases the proportionate number of shares beneficially owned by such Person to 20% or more of the Common Stock of the Company then outstanding; provided, -------- however, that if a Person becomes the Beneficial Owner of 20% or more of ------- the Common Stock of the Company then outstanding by reason of share purchases by the Company and shall, after such share purchases by the Company, become the Beneficial Owner of any additional Common Stock of the Company, then such Person shall be deemed to be an Acquiring Person. -8- "Affiliate" and "Associate" have the respective meanings ascribed to such ----------- ----------- terms in Rule 12b-2 of the General Rules and Regulations under the Exchange Act. "Approved Transaction" means any transaction that occurs at a time when ---------------------- Continuing Directors are in office and a majority of the Continuing Directors then in office has determined that the transaction is in the best interest of the Company and its stockholders. A Person shall be deemed the "Beneficial Owner" of and shall be deemed to ------------------ "beneficially own" any securities: (i) which such Person or any of such Person's Affiliates or Associates beneficially owns, directly or indirectly; (ii) which such Person or any of such Person's Affiliates or Associates has (A) the right to acquire (whether such right is exercisable immediately or only after the passage of time) pursuant to any agreement, arrangement or understanding, or upon the exercise of conversion rights, exchange rights, rights (other than the Rights), warrants or options, or otherwise; provided, however, that a Person shall ----------------- not be deemed the Beneficial Owner of, or to beneficially own, securities tendered pursuant to a tender or exchange offer made by or on behalf of such Person or any of such Person's Affiliates or Associates until such tendered securities are accepted for purchase or exchange; or (B) the right to vote pursuant to any agreement, arrangement or understanding; provided, however, that a Person shall not be deemed the Beneficial Owner ----------------- of, or to beneficially own, any security if the agreement, arrangement or understanding to vote such security (1) arises solely from a revocable proxy or consent given to such person in response to a public proxy or consent solicitation made pursuant to, and in accordance with, the applicable rules and regulations of the Exchange Act and (2) is not also then reportable on Schedule 13D under the Exchange Act (or any comparable or successor report); or (iii) which are beneficially owned, directly or indirectly, by any other Person with which such Person or any of such Person's Affiliates or Associates has any agreement, arrangement or understanding for the purpose of acquiring, holding, voting (except to the extent contemplated by the proviso to clause (ii)(B) of this definition) or disposing of any securities of the Company; provided further, however, that nothing in this paragraph 18 shall cause a Person to be the Beneficial Owner of, or to beneficially own, any securities (x) acquired through such Person's participation in the business of underwriting securities in good faith in a firm commitment underwriting until the expiration of forty days after the date of such acquisition or (y) which such Person has reported on Schedule 13G under the Exchange Act and has not ceased to be eligible to report on Schedule 13G pursuant to Rule 13d-1 under the Exchange Act. "Common Stock" has the meaning set forth in paragraph 2(d). -------------- "Corporate Transaction" means any of the following events: (a) a Share ----------------------- Acquisition Date; (b) a dissolution or liquidation of the Company; (c) a merger or consolidation in which the Company is not the surviving corporation; (d) a merger in which the Company is the surviving corporation but the shares of Common Stock outstanding immediately prior to the merger are converted by virtue of the merger into other property, whether in the form of securities, cash or otherwise; (e) any capital reorganization in which more than 50% of the shares of the Company entitled to vote are exchanged; and (f) any other event that the Board deems, in its discretion, to constitute a change in control of the Company. "Continuing Director" means (i) any member of the Board, while such --------------------- Person is a member of the Board, who is not an Acquiring Person, or an Affiliate or Associate of an Acquiring Person, or a representative of an Acquiring Person or of any such Affiliate or Associate, and who was, if applicable, a member of the Board prior to the time that any Person becomes an Acquiring Person, or (ii) any Person who subsequently becomes a member of the Board, while such Person is a member of the Board, who is not an Acquiring Person, or an Affiliate or Associate of an Acquiring Person, or a representative of an Acquiring Person or of any -9- such Affiliate or Associate, if such Person's nomination for election or election to the Board is recommended or approved by a majority of Continuing Directors. "Exchange Act" has the meaning set forth in paragraph 2(j). -------------- "Person" means any individual, firm, partnership, corporation or other -------- entity, and shall include any successor (by merger or otherwise) of such entity. "Rights" means the rights granted to the Company's shareholders to -------- purchase additional Common Stock under certain circumstances, as described in that certain Rights Agreement, dated as of May 5, 1988, by and between the Company and The First National Bank of Boston, as rights agent. "Share Acquisition Date" means the first date of public announcement by ------------------------ the Company or an Acquiring Person that a Person has become an Acquiring Person; provided, however, that no "Share Acquisition Date" shall occur ----------------- as a result of any Person becoming an Acquiring Person pursuant to an Approved Transaction. "Subsidiary" of any Person means any corporation or other entity of which ------------ a majority of the voting power of the voting equity securities or equity interest is owned, directly or indirectly, by such Person, or which is otherwise controlled by such Person. 19. Amendment or Termination. ------------------------ (a) The Board may at any time and for any reason terminate or amend the Plan. Except as provided in paragraph 18 and paragraph 19(b), no such termination can affect purchase rights previously granted, provided that a Purchase Period may be terminated by the Board on any Exercise Date if the Board determines that the termination of the Plan is in the best interests of the Company and its shareholders. Except as provided in paragraph 18, no amendment may make any change in any purchase rights theretofore granted which adversely affects the rights of any Participant. To the extent necessary to comply with Section 423 of the Code (or any successor rule or provision or any other applicable law or regulation), the Company shall obtain shareholder approval of any amendment to the Plan in such a manner and to such a degree as required. (b) Without shareholder consent and without regard to whether any Participant rights may be considered to have been "adversely affected," the Plan Administrator shall be entitled to change Purchase Periods, limit the frequency and/or number of changes in the amount withheld during Purchase Periods, establish the exchange ratio applicable to amounts withheld in a currency other than U.S. dollars, permit payroll withholding in excess of the amount designated by a Participant in order to adjust for delays or mistakes in the Company's processing of properly completed withholding elections, establish reasonable waiting and adjustment periods and/or accounting and crediting procedures to ensure that amounts applied toward the purchase of Common Stock for each Participant properly correspond with amounts withheld from the Participant's Compensation, and establish such other limitations or procedures as the Plan Administrator determines in its sole discretion are advisable and that are consistent with the Plan. 20. Notices. All notices or other communications by a Participant to the ------- Company under or in connection with the Plan shall be deemed to have been duly given when received in the form specified by the Company at the location, or by the person, designated by the Company for the receipt thereof. 21. Conditions Upon Issuance of Shares. Shares of Common Stock shall not ---------------------------------- be issued with respect to a purchase right unless the exercise of such purchase right and the issuance and delivery of such shares pursuant thereto shall comply with all applicable provisions of law, domestic or foreign, -10- including, without limitation, the Securities Act of 1933, as amended, the Exchange Act, the rules and regulations promulgated thereunder, and the requirements of any stock exchange or any automated inter-dealer quotation system maintained by the National Association of Securities Dealers, Inc. upon which the Common Stock may then be listed, and shall be further subject to the approval of counsel for the Company with respect to such compliance. As a condition to the exercise of a purchase right, the Company may require the person exercising such purchase right to represent and warrant at the time of any such exercise that the shares are being purchased only for investment and without any present intention to sell or distribute such shares if, in the opinion of counsel for the Company, such a representation is required by any of the aforementioned applicable provisions of law. 22. Additional Restrictions of Rule 16b-3. The terms and conditions of -------------------------------------- purchase rights granted hereunder to, and the purchase of shares by, persons subject to Section 16 of the Exchange Act shall comply with the applicable provisions of Rule 16b-3. This Plan shall be deemed to contain, such purchase rights shall contain, and the shares issued upon exercise thereof shall be subject to, such additional conditions and restrictions as may be required by Rule 16b-3 to qualify for the maximum exemption from Section 16 of the Exchange Act with respect to Plan transactions. 23. Effective Date. The Plan shall become effective on the date it is -------------- approved by the stockholders (the "Effective Date"). 24. Term of Plan. The Plan shall continue in effect for a term of ten ------------ (10) years after the Effective Date unless sooner terminated under paragraph 19. No rights may be granted under the Plan following its termination. 25. Shareholder Approval. Continuance of the Plan shall be subject to approval by the shareholders of the Company within twelve (12) months before or after the date the Plan is adopted by the Board. If such shareholder approval is obtained at a duly held shareholders' meeting, the Plan must be approved by a majority of the votes cast at a shareholders' meeting at which a quorum (consisting of at least a majority of all outstanding voting stock of the Company) is, either in person or by proxy, present and voting on the Plan, or, if such shareholder approval is obtained by written consent, it must be obtained by the written consent of the holders of a majority of all outstanding voting stock of the Company; provided, however, that approval at a meeting or by written consent may be obtained by a lesser degree of shareholder approval if the Board determines, in its discretion after consultation with the Company's legal counsel, that such a lesser degree of shareholder approval will comply with all applicable laws and will not adversely affect the qualification of the Plan under Section 423 of the Code. 26. No Employment Rights. The Plan does not, directly or indirectly, -------------------- create any right for the benefit of any employee or class of employees to purchase any shares under the Plan, or create in any employee or class of employees any right with respect to continuation of employment by the Company, and it shall not be deemed to interfere in any way with the Company's right to terminate, or otherwise modify, an employee's employment at any time. 27. Effect of Plan. The provisions of the Plan shall, in accordance with -------------- its terms, be binding upon, and inure to the benefit of, all successors of each Participant, including, without limitation, such Participant's estate and the executors, administrators or trustees thereof, heirs and legatees, and any receiver, trustee in bankruptcy or representative of creditors of such Participant. 28. Governing Law. The law of the State of California will govern all ------------- matters relating to this Plan except to the extent it is superseded by the laws of the United States. -11- EX-10.2 4 1995 STOCK INCENTIVE PLAN ACUSON CORPORATION EXHIBIT 10.2 - -------------------------------------------------------------------------------- 1995 STOCK INCENTIVE PLAN ------------------------- 1. Establishment, Purpose, and Definitions. --------------------------------------- (a) Acuson Corporation (the "Company") hereby adopts the Acuson Corporation 1995 Stock Incentive Plan (the "Plan"). (b) The purpose of the Plan is to allow the Company to provide incentives to Eligible Individuals (as defined in Section 4, below) for employment, increased efforts and successful achievements on behalf of or in the interests of the Company and its Affiliates and to maximize the rewards due them for those efforts and achievements. In the case of Employees (including officers and directors who are Employees) of the Company and of its Affiliates such incentives include (i) an opportunity to purchase shares of common stock, par value $.0001 per share, of the Company ("Stock") pursuant to options which may qualify as incentive stock options (referred to as "incentive stock options") under Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), (ii) an opportunity to purchase shares of Stock pursuant to options which are not described in Sections 422 or 423 of the Code (referred to as "nonqualified stock options"), (iii) the sale or bonus of restricted Stock ("Restricted Stock"), and (iv) the grant of stock appreciation rights ("SARs"), either separately or in relation ("tandem") with stock options, entitling holders to compensation measured by appreciation in the value of Stock. The Plan also provides for the grant of similar incentives (other than incentive stock options) to independent contractors and consultants to the Company and its Affiliates. Finally, the Plan provides for the automatic, nondiscretionary grant of nonqualified stock options to directors of the Company who are not Employees of the Company or any Affiliate ("Non-Employee Directors"). (c) Except for purposes of Section 12, the term "Affiliate" means parent or subsidiary corporations of the Company, as defined in Sections 424(e) and (f) of the Code (but substituting "the Company" for "employer corporation"), including parents or subsidiaries of the Company that become such after adoption of the Plan. (d) The term "Employee" means any person, including officers and directors, who is an employee of the Company or an Affiliate for purposes of income tax withholding under the Code. Neither service as a director nor payment of a director's fee by the Company shall be sufficient to constitute a person an Employee. 2. Administration of the Plan. -------------------------- (a) The Plan may be administered by different committees with respect to: (i) Non-Employee Directors; (ii) Eligible Individuals who are (A) officers or directors subject to Section 16(b) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or (B) officers and other employees who are both "employees" within the meaning of Section 422 of the Code and "covered employees" within the meaning of Section 162(m)(3) of the Code ("Covered Employees"); and (iii) Eligible Individuals who are neither officers or directors subject to Section 16(b) of the Exchange Act nor Covered Employees. Each committee, in addition to satisfying any specific requirements imposed by this Section 2, shall also satisfy any legal requirements relating to the administration of stock-based compensation plans under applicable state corporate and securities laws and the Code ("Applicable Laws"). References herein to the "Plan Administrator" shall refer to the applicable committee(s) or, if the Board of Directors of the Company (the "Board") does not delegate administration of some aspects of the Plan to a committee, shall be construed to refer to the Board. -1- (b) The Secretary of the Company shall administer the provisions of Section 5 of the Plan (providing for stock option grants to Non-Employee Directors). This function shall be limited to matters of interpretation and administrative oversight. (c) With respect to awards made to Eligible Individuals who are officers or directors subject to Section 16(b) of the Exchange Act or Covered Employees, the Plan shall be administered by a committee of the Board, which committee shall be composed solely of "Non-Employee Directors" as defined in Rule 16b-3. In addition, awards intended to qualify as "performance based compensation" under Section 162(m) of the Code ("Performance Based Compensation") that are made to Covered Employees shall be made only by a committee (or subcommittee thereof) "comprised solely of two or more outside directors" as provided under that Section. Once appointed, a committee shall continue to serve in its designated capacity until otherwise directed by the Board. From time to time, the Board may increase the size of the committee and appoint additional members, remove members (with or without cause) and substitute new members, fill vacancies (however caused), all to the extent permitted by Section 162(m) of the Code, the rules and regulations with respect to each, and Applicable Laws. The committee shall select one of its members as chair of the committee and shall hold meetings at such times and places as it may determine. To the extent permitted by Section 162(m) of the Code, the rules and regulations with respect to each, and Applicable Laws, a majority of the committee shall constitute a quorum, and acts of the committee at which a quorum is present, or acts reduced to or approved in writing by all the members of the committee, shall be the valid acts of the committee. (d) With respect to awards made to Eligible Individuals who are neither officers nor directors subject to Section 16(b) of the Exchange Act nor Covered Employees, the Plan shall be administered by (i) the Board; or (ii) a committee of one or more persons (which may be the committee established pursuant to Section 2(c), above) designated by the Board. Once appointed, such committee shall continue to serve in its designated capacity until otherwise directed by the Board. From time to time, the Board may increase the size of the committee and appoint additional members, remove members (with or without cause) and substitute new members, fill vacancies (however caused), and remove all members of the committee and thereafter directly administer the Plan, all to the extent permitted by Applicable Laws. The committee shall select one of its members as chair of the committee and shall hold meetings at such times and places as it may determine. To the extent permitted by Applicable Laws, a majority of the committee shall constitute a quorum, and acts of the committee at which a quorum is present, or acts reduced to or approved in writing by all the members of the committee, shall be the valid acts of the committee. (e) The Plan Administrator shall determine which Eligible Individuals shall be granted options under the Plan, the timing of such grants, the terms thereof (including any restrictions on the Stock), and the number of shares subject to such options. (f) The Plan Administrator shall also determine which Eligible Individuals shall be granted or issued SARs or Restricted Stock (other than pursuant to the exercise of options) under the Plan, the timing of such grants or issuances, the terms thereof (including any restrictions and the consideration, if any, to be paid therefor) and the number of shares or SARs to be granted. (g) Except for options granted to Non-Employee Directors pursuant to Section 5, the Plan Administrator may amend the terms of any outstanding option or SAR granted under this Plan, but any amendment that would adversely affect the holder's rights under an outstanding option or SAR shall not be made without the holder's written consent. The Plan Administrator may, with the holder's written consent, cancel any outstanding option or SAR or accept any outstanding option or SAR in exchange for a new option or SAR. The Plan Administrator also may amend any Restricted Stock purchase agreement or Restricted Stock bonus agreement relating to sales or bonuses of Restricted Stock under the Plan, but any amendment that would adversely affect the individual's rights to the Restricted Stock shall not be made without his or her written consent. -2- (h) The Plan Administrator shall have the sole authority, in its absolute discretion, to adopt, amend, and rescind such rules and regulations as, in its opinion, may be advisable for the administration of the Plan, to construe and interpret the Plan, the rules and the regulations, and the instruments evidencing options, SARs or Restricted Stock granted or issued under the Plan and to make all other determinations deemed necessary or advisable for the administration of the Plan. All decisions, determinations, and interpretations of the Plan Administrator shall be binding on all participants. Notwithstanding the foregoing, the Plan Administrator shall not exercise any discretionary functions with respect to options granted to Non-Employee Directors pursuant to Section 5. 3. Stock Subject to the Plan. ------------------------- (a) The maximum aggregate number of shares of Stock available for issuance under the Plan and during the life of the Plan shall equal 3,500,000 shares, subject to adjustment from time to time in accordance with this Section 3. The Stock subject to the Plan may be unissued shares, treasury shares or shares purchased by the Company on the open market or otherwise. (b) For purposes of the limitation specified in Section 3(a), the following principles shall apply: (1) the following transactions, if granted pursuant to this Plan, shall count against and decrease the number of shares of Stock that may be issued for purposes of Section 3(a): (i) shares of Stock subject to outstanding options, outstanding shares of Restricted Stock, and shares subject to SARs granted independently of options (based upon a good faith estimate by the Company or the Plan Administrator of the maximum number of shares for which the SAR may be settled (assuming payment in full in shares of Stock), and (ii) in the case of options granted in tandem with SARs, the greater of the number of shares of Stock that would be counted if one or the other alone was outstanding (determined as described in clause (i) above); (2) the following shall be added back to the number of shares of Stock that may be issued for purposes of Section 3(a): (i) shares of Stock with respect to which options, SARs granted independent of options, or Restricted Stock awards expire, are cancelled, or otherwise terminate without being exercised, converted, or vested, as applicable, and (ii) in the case of options granted in tandem with SARs, shares of Stock as to which an option has been surrendered in connection with the exercise of a tandem SAR, to the extent the number surrendered exceeds the number issued upon exercise of the SAR; provided that, in any case, the ------------- holder of such awards did not receive any dividends or other benefits of ownership with respect to the underlying shares being added back, other than voting rights and the accumulation (but not payment) of dividends of Stock; (3) shares of Stock subject to SARs granted independently of options (calculated as provided in clause (1) above) that are exercised and paid in cash shall be added back to the number of shares of Stock that may be issued for purposes of Section 3(a), provided that the holder of such SAR did not receive any dividends or other benefits of ownership, other than voting rights and the accumulation (but not payment) of dividends, relative to the shares of Stock subject to the SARs; (4) shares of Stock that are transferred by a holder of an award (or withheld by the Company) as full or partial payment to the Company of the purchase price of shares of Stock subject to an option or the Company's or any Affiliate's tax withholding obligations shall not be added back to the number of shares of Stock that may be issued for purposes of Section 3(a) and shall not again be subject to awards; and -3- (5) if the number of shares of Stock counted against the number of shares that may be issued for purposes of Section 3(a) is based upon an estimate made by the Company or the Plan Administrator as provided in clause (1) above and the actual number of shares of Stock issued pursuant to the applicable award is greater or less than the estimated number, then upon such issuance, the number of shares of Stock that may be issued pursuant to Section 3(a) shall be further reduced by the excess issuance or increased by the shortfall, as applicable. (c) If there is any change in the Stock through merger, consolidation, reorganization, recapitalization, reincorporation, stock split, stock dividend (in excess of 2%), or other change in the capital structure of the Company, appropriate adjustments shall be made by the Plan Administrator, in order to preserve but not to increase the benefits to the outstanding options, SARs and Restricted Stock purchase or Restricted Stock bonus awards under the Plan, including adjustments to the aggregate number and kind of shares subject to the Plan, or to outstanding Restricted Stock purchase or Restricted Stock bonus agreements, or SAR agreements, and the number and kind of shares and the price per share subject to outstanding options. (d) The Plan Administrator shall have the discretion, to the extent permitted by Applicable Law, to include provisions in any agreements evidencing awards granted under the Plan providing that, in the event of a dissolution, liquidation, merger or consolidation of the Company, or any other event that the Plan Administrator deems to have effected a change in control of the Company, any such awards shall accelerate and become fully vested, and all forfeiture and/or transfer restrictions with respect thereto shall lapse, regardless of whether such awards are otherwise to be assumed or replaced in connection with such event. 4. Eligible Individuals. Individuals who shall be eligible to have the Plan -------------------- Administrator grant to them options, SARs or Restricted Stock under the Plan ("Eligible Individuals") shall be such employees, officers (including officers who are directors of the Company), independent contractors, and consultants of the Company or an Affiliate as the Plan Administrator, in its discretion, shall designate from time to time. Notwithstanding the foregoing, only Employees shall be eligible to receive incentive stock options. Eligible Individuals shall not include Non-Employee Directors. Non-Employee Directors shall receive automatic and nondiscretionary option grants pursuant to Section 5 and will not be otherwise eligible to receive any other option grants or awards of SARs or Restricted Stock under the Plan or any other stock plan of the Company or any Affiliate. 5. Automatic Option Grants to Non-Employee Directors. ------------------------------------------------- (a) All grants of options pursuant to this Section 5 shall be automatic and nondiscretionary and shall be made strictly in accordance with the provisions of this Section 5. No person shall have any discretion to determine which Non-Employee Directors shall be granted options, the number of shares of Stock to be covered by options granted to Non-Employee Directors, the timing of such option grants or the exercise price thereof. (b) An option to purchase 7,500 shares of Stock shall be granted to each Non-Employee Director continuing in office immediately following each annual meeting of the Company's stockholders which occurs on or after the date of approval of the Plan by the stockholders of the Company and prior to the termination of the Plan. (c) The term of each option granted pursuant to this Section 5 shall be ten years from the date of grant, unless a shorter period is required to comply with any Applicable Law, and except for the early termination provisions contained in the written stock option agreement in the form of Exhibit A hereto, in either of which cases such shorter period shall apply. -4- (d) Each option granted pursuant to this Section 5 shall vest and become fully exercisable as to fifty percent (50%) of the shares subject to the option on the date which is six (6) months from the date the option is granted, then daily thereafter as to 1/365th of the total shares subject to the option so that the option is fully exercisable no later than one year following the date the option is granted. (e) Each option grant to an Non-Employee Director pursuant to this Section 5 shall be evidenced by a written stock option agreement, in the form of Exhibit A hereto, executed by the Company and the Non-Employee Director to whom such option is automatically granted. 6. Terms and Conditions of Options. ------------------------------- (a) Each option granted pursuant to the Plan will be evidenced by a written stock option agreement executed by the Company and the person to whom such option is granted. (b) Except for options granted under Section 5 above, the Plan Administrator shall determine the term of each option granted under the Plan; provided, however, that the term of an incentive stock option shall not be for more than ten years and that, in the case of an incentive stock option granted to a person possessing more than 10% of the combined voting power of the Company or an Affiliate on the date the option is granted, the term of each incentive stock option shall be no more than five years. (c) In the case of incentive stock options, the aggregate fair market value (determined as of the time such option is granted) of the Stock with respect to which incentive stock options are exercisable for the first time by an Eligible Individual in any calendar year (under this Plan and any other plans of the Company or its Affiliates) shall not exceed $100,000. If the aggregate fair market value of the Stock with respect to which incentive stock options are exercisable by an optionee for the first time in any calendar year exceeds $100,000, such options shall be treated, to the minimum extent required to preserve incentive stock option treatment for as many options as possible, as nonqualified stock options. The rule set forth in the preceding sentence shall be applied by taking options into account in the order in which they were granted. (d) The exercise price of each incentive stock option shall be not less than the per share fair market value of the Stock subject to such option on the date the option is granted. The exercise price of each nonqualified stock option shall be as determined by the Plan Administrator. Notwithstanding the foregoing, (i) in the case of an incentive stock option granted to a person possessing more than 10% of the combined voting power of the Company or an Affiliate on the date the option is granted, the exercise price shall be not less than 110% of the fair market value of the Stock on the date the option is granted, and (ii) in the case of an option granted pursuant to Section 5 above and an option intended to qualify as Performance Based Compensation, the exercise price shall be not less than the per share fair market value of the Stock subject to such option on the date the option is granted. The exercise price of an option shall be subject to adjustment to the extent provided in Section 3(c), above. (e) Except for options granted under Section 5 above, the stock option agreement may contain such other terms, provisions, and conditions consistent with this Plan as may be determined by the Plan Administrator. If an option, or any part thereof, is intended to qualify as an incentive stock option, the stock option agreement shall contain those terms and conditions which are necessary to so qualify it. (f) The maximum number of shares of Stock with respect to which SARs or options to acquire Stock may be granted to any individual during any calendar year shall not exceed 1,000,000 shares (which number may be increased without stockholder approval to reflect adjustments under Section 3(c), above, to the extent such increase does not cause the grant to fail to qualify as remuneration payable solely on account of one or more performance goals within the meaning of Section 162(m) of the Code). To the extent required by Section 162(m) of the Code or the regulations thereunder, in applying the foregoing limitation with respect to any employee, if any option is cancelled, the cancelled option -5- shall continue to count against the maximum number of shares for which options may be granted to the employee under this Section 6(f). For this purpose, the repricing of an option shall be treated as a cancellation of the existing option and the grant of a new option to the extent required by Section 162(m) of the Code or the regulations thereunder. 7. Payment Upon Exercise of Options. -------------------------------- (a) Payment of the purchase price upon exercise of any option granted under this Plan shall be made in cash, by optionee's personal check, a certified check, bank draft, or postal or express money order payable to the order of the Company in lawful money of the United States (collectively, "Cash Consideration"); provided, however, that, except for options granted under Section 5 above, the Plan Administrator, in its sole discretion, may permit an optionee to pay the option price in whole or in part (i) with shares of Stock owned by the optionee or with shares of Stock withheld from the shares otherwise deliverable to the optionee upon exercise of an option; (ii) by delivery on a form prescribed by the Company of an irrevocable direction to a securities broker approved by the Company to sell shares of Stock and deliver all or a portion of the proceeds to the Company in payment for the Stock; (iii) by delivery of the optionee's promissory note with such recourse, interest, security, and redemption provisions as the Plan Administrator in its discretion determines appropriate; or (iv) in any combination of the foregoing. The exercise price of any options granted under Section 5 above, shall be paid in Cash Consideration, the consideration specified in clauses (i) or (ii) of the preceding sentence or in any combination thereof. Any Stock used to exercise options shall be valued at its fair market value on the date of the exercise of the option. In addition, the Plan Administrator, in its sole discretion, may authorize the surrender by an optionee of all or part of an unexercised option (excluding options granted under Section 5 above) and authorize a payment in consideration thereof of an amount equal to the difference between the aggregate fair market value of the Stock subject to such option and the aggregate option price of such Stock. In the Plan Administrator's discretion, such payment may be made in cash, shares of Stock with a fair market value on the date of surrender equal to the payment amount, or some combination thereof. (b) In the event that the exercise price is satisfied by shares withheld from the shares of Stock otherwise deliverable to the optionee, the Plan Administrator may issue the optionee an additional option, with terms identical to the option agreement under which the option was exercised, entitling the optionee to purchase additional shares of Stock equal to the number of shares so withheld but at an exercise price equal to the fair market value of the Stock on the grant date of the new option; provided, however, that no such additional options may be granted with respect to options granted pursuant to Section 5, above. 8 Terms and Conditions of Restricted Stock Purchases and Bonuses -------------------------------------------------------------- (a) Each sale (other than upon exercise of options) or bonus grant of Restricted Stock pursuant to the Plan will be evidenced by a written Restricted Stock purchase or Restricted Stock bonus agreement, as applicable, executed by the Company and the person to whom such Restricted Stock is sold or granted. (b) The Restricted Stock purchase agreement or Restricted Stock bonus agreement may contain such terms, provisions, and conditions consistent with this Plan as may be determined by the Plan Administrator, including not by way of limitation, payment terms, restrictions on transfer, forfeiture provisions, repurchase provisions, and vesting provisions. (c) The Plan Administrator may condition the award or the exercise of any right under an award under this Section 8 upon the attainment of one or more preestablished objective performance goals meeting the requirements of Section 162(m) of the Code and the regulations thereunder. 9. Terms and Conditions of SARs. The Plan Administrator may, under such terms ---------------------------- and conditions as it deems appropriate, authorize the issuance of SARs evidenced by a written SAR agreement (which, in -6- the case of tandem options, may be part of the option agreement to which the SAR relates) executed by the Company and the person to whom the SARs are granted. The SAR agreement shall specify the term for the SARs covered thereby and contain such other terms, provisions and conditions consistent with this Plan as may be determined by the Plan Administrator. 10. Withholding Taxes. ----------------- (a) No Stock shall be granted or sold under the Plan to any Eligible Individual, and no SAR may be exercised, until the individual has made arrangements acceptable to the Plan Administrator for the satisfaction of federal, state, and local income and employment tax withholding obligations, including without limitation obligations incident to the receipt of Stock under the Plan, the lapsing of restrictions applicable to such Stock, the failure to satisfy the conditions for treatment as incentive stock options under applicable tax law, or the receipt of cash payments. Upon the exercise of an option or the lapsing of a restriction on Stock issued under the Plan, the Company (or the optionee's or stockholder's employer) may withhold from the shares otherwise deliverable to the optionee upon such exercise, or require the stockholder to surrender shares of Stock as to which the restriction has lapsed, such number of shares having a fair market value sufficient to satisfy federal, state and local income and employment tax withholding obligations. (b) In the event that such tax withholding is satisfied by the Company or the optionee's employer withholding shares of Stock otherwise deliverable to the optionee, the Plan Administrator may issue the optionee an additional option, with terms identical to the option agreement under which the option was exercised, entitling the optionee to purchase additional shares of Stock equal to the number of shares so withheld but at an exercise price equal to the fair market value of the Stock on the grant date of the new option; provided, however, that no such additional options may be granted with respect to options granted pursuant to Section 5, above. 11. Assignability. Incentive Stock Options shall be transferable by the holder ------------- only by operation of law or by will or the laws of descent and distribution. Any other option or SAR shall be transferable to the extent provided in the option agreement or SAR agreement covering the option or SAR, and the Plan Administrator shall have the discretion to amend any such outstanding option or SAR to provide for broader transferability of the option or SAR as the Plan Administrator may authorize within the limitations of Rule 16b-3. Stock subject to a Restricted Stock purchase agreement or a Restricted Stock bonus agreement shall be transferable only as provided in such agreement. Notwithstanding the foregoing, if required by the Code, each incentive stock option under the Plan shall be transferable by the optionee only by will or the laws of descent and distribution, and, during the optionee's lifetime, be exercisable only by the optionee. In the event of any Rule 16b-3 permitted transfer of an option hereunder, the transferee shall be entitled to exercise the option in the same manner and only to the same extent as the optionee (or his/her personal representative or the person who would have acquired the right to exercise the option by bequest or intestate succession) would have been entitled to exercise the option under Sections 5, 6 and 7 had the option not been transferred. 12. Change in Control. ----------------- (a) Notwithstanding anything to the contrary contained in the Plan, each stock option, SAR, Restricted Stock bonus or Restricted Stock purchase agreement (or an amendment thereto) evidencing an option, SAR, Restricted Stock bonus or Restricted Stock purchase hereunder shall automatically and without further action be fully vested, nonforfeitable and become exercisable, and any Restricted Stock covered by such an agreement shall be released from restrictions on transfer and repurchase or forfeiture rights, on the twenty- second day after any Share Acquisition Date, unless prior to such twenty-second day a majority of the Continuing Directors then in office has determined that the transaction pursuant to which a Person has become an Acquiring Person is an Approved Transaction. (b) Certain Definitions. For purposes of this Section 12, the following ------------------- definitions shall apply: -7- "Acquiring Person" means any Person who or which, together with all Affiliates ---------------- and Associates of such Person, shall be the Beneficial Owner of 20% or more of the Common Shares then outstanding, but shall not include the Company, any Subsidiary of the Company or any employee benefit plan of the Company or any Subsidiary of the Company, or any entity holding Common Shares for or pursuant to the terms of any such plan. Notwithstanding the foregoing, no Person shall become an "Acquiring Person" as the result of an acquisition of Common Shares by the Company which, by reducing the number of shares outstanding, increases the proportionate number of shares beneficially owned by such Person to 20% or more of the Common Shares of the Company then outstanding; provided, however, that if ----------------- a Person becomes the Beneficial Owner of 20% or more of the Common Shares of the Company then outstanding by reason of share purchases by the Company and shall, after such share purchases by the Company, becomes the Beneficial Owner of any additional Common Shares of the Company, then such Person shall be deemed to be an "Acquiring Person". "Affiliate" and "Associate" have the respective meanings ascribed to such terms --------- --------- in Rule 12b-2 of the General Rules and Regulations under the Exchange Act. "Approved Transaction" means any transaction that occurs at a time when -------------------- Continuing Directors are in office and a majority of the Continuing Directors then in office has determined that the transaction is in the best interest of the Company and its stockholders. A Person shall be deemed the "Beneficial Owner" of and shall be deemed to ---------------- "beneficially own" any securities: (i) which such Person or any of such Person's Affiliates or Associates beneficially owns, directly or indirectly; (ii) which such Person or any of such Person's Affiliates or Associates has (A) the right to acquire (whether such right is exercisable immediately or only after the passage of time) pursuant to any agreement, arrangement or understanding, or upon the exercise of conversion rights, exchange rights, rights (other than the Rights), warrants or options, or otherwise; provided, however, that a Person ----------------- shall not be deemed the Beneficial Owner of, or to beneficially own, securities tendered pursuant to a tender or exchange offer made by or on behalf of such Person or any of such Person's Affiliates or Associates until such tendered securities are accepted for purchase or exchange; or (B) the right to vote pursuant to any agreement, arrangement or understanding; provided, however, that ----------------- a Person shall not be deemed the Beneficial Owner of, or to beneficially own, any security if the agreement, arrangement or understanding to vote such security (1) arises solely from a revocable proxy or consent given to such person in response to a public proxy or consent solicitation made pursuant to, and in accordance with, the applicable rules and regulations of the Exchange Act and (2) is not also then reportable on Schedule 13D under the Exchange Act (or any comparable or successor report); or (iii) which are beneficially owned, directly or indirectly, by any other Person with which such Person or any of such Person's Affiliates or Associates has any agreement, arrangement or understanding for the purpose of acquiring, holding, voting (except to the extent contemplated by the proviso to clause (ii)(B) of this definition) or disposing of any securities of the Company; provided further, however, that nothing in this Section 12 shall cause a Person to be the Beneficial Owner of, or to beneficially own, any securities (x) acquired through such Person's participation in the business of underwriting securities in good faith in a firm commitment underwriting until the expiration of forty days after the date of such acquisition or (y) which such Person has reported on Schedule 13G under the Exchange Act and has not ceased to be eligible to report on Schedule 13G pursuant to Rule 13d-1 under the Exchange Act. "Common Shares" means the shares of common stock, par value $.0001 per share, of ------------- the Company. -8- "Continuing Director" means (i) any member of the Board of Directors of the ------------------- Company, while such Person is a member of the Board, who is not an Acquiring Person, or an Affiliate or Associate of an Acquiring Person, or a representative of an Acquiring Person or of any such Affiliate or Associate, and who was, if applicable, a member of the Board prior to the time that any Person becomes an Acquiring Person, or (ii) any Person who subsequently becomes a member of the Board, while such Person is a member of the Board, who is not an Acquiring Person, or an Affiliate or Associate of an Acquiring Person, or a representative of an Acquiring Person or of any such Affiliate or Associate, if such Person's nomination for election or election to the Board is recommended or approved by a majority of Continuing Directors. "Exchange Act" means the Securities Exchange Act of 1934, as amended, and the ------------ rules and regulations promulgated thereunder. "Person" means any individual, firm, partnership, corporation or other entity, ------ and shall include any successor (by merger or otherwise) of such entity. "Rights" means the rights granted to the Company's shareholders to purchase ------ additional Common Shares under certain circumstances, as described in that certain Rights Agreement, dated as of May 5, 1988, by and between the Company and The First National Bank of Boston, as rights agent. "Share Acquisition Date" means the first date of public announcement by the ---------------------- Company or an Acquiring Person that a Person has become an Acquiring Person. "Subsidiary" of any Person means any corporation or other entity of which a ---------- majority of the voting power of the voting equity securities or equity interest is owned, directly or indirectly, by such Person, or which is otherwise controlled by such Person. 13. Amendment, Suspension, or Termination of the Plan. ------------------------------------------------- (a) The Board may at any time amend, suspend or terminate the Plan as it deems advisable; provided that such amendment, suspension or termination complies with all applicable requirements of state and federal law, including any applicable requirement that the Plan or an amendment to the Plan be approved by the stockholders, and provided further that, except as provided in Section 3(c) above, the Board shall in no event amend the Plan in the following respects without the consent of stockholders then sufficient to approve the Plan in the first instance: (1) To materially increase the benefits accruing to participants under the Plan; (2) To materially increase the number of shares of Stock available under the Plan or to increase the number of shares of Stock available for grant of incentive stock options under the Plan; or (3) To materially modify the eligibility requirements for participation in the Plan or the class of employees eligible to receive options under the Plan or to change the designation or class of persons eligible to receive incentive stock options under the Plan. (b) No option or SAR may be granted nor may any Stock be issued (other than upon exercise of outstanding options) under the Plan during any suspension or after the termination of the Plan, and no amendment, suspension, or termination of the Plan shall, without the affected individual's consent, alter or impair any rights or obligations under any option or SAR previously granted under the Plan. -9- (c) In addition to the limitations on amendments provided in Sections 13(a) and 13(b) above, the provisions set forth in Section 5 of the Plan (and any other sections of the Plan that affect the formula award terms of option grants to Non-Employee Directors required to be specified in the Plan by Rule 16b-3) shall not be amended periodically and in no event more than once every six months, other than to comport with changes in the Code, the Employee Retirement Income Security Act of 1974, as amended, or any applicable rules and regulations thereunder. 14. Term of Plan. The Plan shall terminate with respect to the grant of ------------ additional awards on the tenth anniversary of the date the Plan is approved by the stockholders, unless previously terminated by the Board pursuant to Section 13. 15. Use of Proceeds. Cash proceeds realized from the exercise of options --------------- granted under the Plan or from other sales of Stock under the Plan shall constitute general funds of the Company. 16. Stockholder Approval. The Plan shall become effective, and awards may be -------------------- granted hereunder, only upon approval by the holders of a majority of the Company's shares voting (in person or by proxy) at a stockholders' meeting held within 12 months of the Board's adoption of the Plan. 17. Rule 16b-3 Compliance. Transactions under the Plan are intended to comply --------------------- with all applicable conditions of Rule 16b-3 or its successors under the Exchange Act. To the extent any provision of the Plan or action by the Board or the Plan Administrator fails to so comply, it shall be deemed null and void, to the extent permitted by law and deemed advisable by the Board or the Plan Administrator. Moreover, in the event the Plan does not include a provision required by Rule 16b-3 to be stated therein in order to qualify the grants under Section 5 hereof as grants under a non-discretionary formula under Rule 16b-3 such provision (other than one relating to eligibility requirements, or the price and amount of awards) shall be deemed automatically to be incorporated by reference into the Plan with respect to grants of options to Non-Employee Directors. 18. No Employment Right. Nothing in this Plan or any instrument executed or ------------------- any award granted pursuant thereto shall confer upon any employee, independent contractor, consultant or director any right to continue in the employ of the Company or any Affiliate (or to continue acting as an independent contractor, consultant or director) or shall affect the right of the Company or any Affiliate to terminate the employment, contractual or consulting relationship or directorship of any person, with or without cause. -10- EXHIBIT A --------- ACUSON CORPORATION NON-EMPLOYEE DIRECTORS' NON-QUALIFIED STOCK OPTION AGREEMENT ------------------------------------------------------------ This agreement (the "Agreement") is made as of __________ __, 199__ (the "Grant Date") between Acuson Corporation (the "Company") and _________________ ("Optionee"). WITNESSETH: WHEREAS, the Company has adopted the Acuson Corporation 1995 Stock Incentive Plan (the "Plan"), which Plan is incorporated in this Agreement by reference and made a part of it (capitalized terms shall have the meaning ascribed to them in the Plan); and WHEREAS, the Plan provides for automatic option grants to Non-Employee Directors of the Company; NOW, THEREFORE, in consideration of the mutual covenants hereinafter set forth, the parties to this Agreement hereby agree as follows: 1. Option Grant. The Company hereby grants to Optionee the right and ------------ option to purchase from the Company on the terms and conditions hereinafter set forth, all or any part of an aggregate of seven thousand five hundred (7,500) shares of the Common Stock, $.0001 par value, of the Company (the "Stock"). The exercise price of the Stock subject to this option shall be $_______ per share, which is not less than the fair market value per share of the Stock on the Grant Date. This grant is an automatic option grant under Section 5 of the Plan. 2. Option Period. This option shall be exercisable only during the ------------- period (the "Option Period") commencing on the Grant Date and, except as provided in paragraph 3, ending on the date (the "Terminal Date") which shall be ten years from the Grant Date. During the Option Period, the exercisability of this option shall be subject to the limitations of paragraph 3 and the vesting provisions of paragraph 4. 3. Limits on Option Period. The Option Period may end before the ----------------------- Terminal Date, as follows: (a) If Optionee ceases to be a director on the Company's Board of Directors (the "Board") for any reason other than death, disability (within the meaning of subparagraph (c) below) or cause during the Option Period, the Option Period shall terminate on the earlier of (i) the last day of the period, beginning on the day next following the day on which the Optionee ceases to be a director, which equals in length the most recent period of the Optionee's continuous service as a director (including all portions of such period prior to the Grant Date), (ii) three years after the date Optionee ceases to be a director, or (iii) the Terminal Date. In each case this option shall be exercisable only to the extent exercisable under paragraph 4 on the date Optionee ceases to be a director. (b) If Optionee should die while serving on the Board, the Option Period shall terminate three years after the date of death or on the Terminal Date, whichever shall first occur, and this option shall be exercisable only to the extent exercisable under paragraph 4 on the date of Optionee's -11- death. In the event of Optionee's death, Optionee's executor or administrator or the person or persons to whom Optionee's rights under this option shall pass by will or by the applicable laws of descent and distribution may exercise the entire unexercised portion of this option to the extent exercisable on the date of Optionee's death. (c) If Optionee ceases to be a director by reason of disability, as defined below, the Option Period shall terminate three years after the date Optionee ceases to be a director or on the Terminal Date, whichever shall first occur, and this option shall be exercisable only to the extent exercisable under paragraph 4 on the date Optionee ceases to be a director. For purposes of this subparagraph (c), an individual is disabled if he or she is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or which has lasted or can be expected to last for a continuous period of not less than 12 months. An individual shall not be considered to be disabled unless he or she furnishes proof of the existence thereof in such form and manner, and at such times, as the Board may require. (d) If Optionee is removed from the Board for cause during the Option Period, the Option Period shall terminate on the date of such Optionee's removal as a director and shall not thereafter be exercisable to any extent. 4. Vesting of Right to Exercise Options. ------------------------------------ (a) This option shall vest as to fifty percent (50%) of the number of shares originally covered by this option on the date which is six months from the Grant Date, then daily thereafter in installments of 1/365th of the total shares subject to this option so that this option will become fully vested and exercisable no later than one (1) year following the Grant Date. (b) Vesting of this option will cease prior to this option becoming fully vested at such time that Optionee ceases to be a director of the Company, including by reason of death or disability. (c) Fractional shares shall not vest until such time as additional fractional shares included in other installments allocated to this option can be combined with the existing fractional shares to constitute one or more whole shares. (d) Notwithstanding the foregoing, this option shall be fully vested and nonforfeitable and shall become fully exercisable under the circumstances specified in Section 12 of the Plan. 5. Method of Exercise. ------------------ (a) Optionee may exercise this option with respect to all or any part of the shares of Stock then subject to such exercise by giving the Company written notice of such exercise, specifying the number of such shares as to which this option is exercised. Such notice shall be accompanied by an amount equal to the exercise price of such shares, in any of the forms permitted under Section 7 of the Plan. (b) If required by the Company, Optionee shall give the Company satisfactory assurance in writing, signed by Optionee or Optionee's legal representative, as the case may be, that such shares are being purchased for investment and not with a view to the distribution thereof, provided that such assurance shall be deemed inapplicable to (i) any sale of such shares by such Optionee made in accordance with the terms of a registration statement covering such sale, which has heretofore been (or may hereafter be) filed and become effective under the Securities Act of 1933, as amended, and with respect to which no stop order suspending the effectiveness thereof has been issued, and (ii) any other sale of such shares with respect to which, in the opinion of counsel for the Company, such assurance is -12- not required to be given in order to comply with the provisions of the Securities Act of 1933, as amended. (c) As soon as practicable after receipt of the notice required in paragraph 5(a) and satisfaction of the conditions set forth in paragraph 5(b), the Company shall, without transfer or issue tax and without other incidental expense to Optionee, deliver to Optionee at the office of the Company at 1220 Charleston Road, Mountain View, CA 94043, attention of the Corporate Secretary, or such other place as may be mutually acceptable to the Company and Optionee, a certificate or certificates for such shares of Stock; provided, however, that the time of such delivery may be postponed by the Company for such period as may be required for it with reasonable diligence to comply with applicable registration requirements under the Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as amended, any applicable listing requirements of any national securities exchange, and requirements under any other law or regulation applicable to the issuance or transfer of such shares. If Optionee fails to accept delivery of and pay for all or any part of the number of shares specified in such notice upon tender or delivery thereof, Optionee's right to purchase such shares may be terminated by the Company at its election. In no event shall the Company be required to issue fractional shares upon the exercise of this option. 6. Withholding. Optionee agrees to make appropriate arrangements with ----------- the Company for satisfaction of any applicable federal, state or local income tax withholding requirements or social security requirements. 7. Changes in Capitalization. If there should be any change in a class ------------------------- of Stock subject to this option, through merger, consolidation, reorganization, recapitalization, reincorporation, stock split, stock dividend (in excess of two percent) or other change in the capital structure of the Company, appropriate adjustments shall be made in order to preserve, but not to increase, the benefits to Optionee, including adjustments of the number and kind of shares of such Stock subject to this option and of the price per share. Any adjustment made pursuant to this paragraph 7 as a consequence of a change in the capital structure of the Company shall not entitle Optionee to acquire a number of shares of such Stock of the Company or shares of stock of any successor company greater than the number of shares Optionee would receive if, prior to such change, Optionee had actually held a number of shares of such Stock equal to the number of shares subject to this option. 8. Limitations on Transfer. To the extent required by Rule 16b-3 under ----------------------- the Securities Exchange Act of 1934, as amended, this option shall not be transferable by Optionee other than by operation of law or by will or by the laws of descent or distribution; provided that, if Rule 16b-3 is amended after the Board's adoption of the Plan to permit greater transferability, this option shall be transferable to the fullest extent provided by Rule 16b-3 as so amended. In the event of any Rule 16b-3 permitted transfer of this option, the transferee shall be entitled to exercise this option in the same manner and only to the same extent as the Optionee (or his or her personal representative or the person who would have acquired the right to exercise this option by bequest or intestate succession) would have been entitled to exercise this option had this option not been transferred. 9. No Stockholder Rights. Neither Optionee nor any person to whom this --------------------- option is transferred pursuant to paragraph 8 nor any person entitled to exercise Optionee's rights in the event of Optionee's death shall have any of the rights of a stockholder with respect to the shares of Stock subject to this option except to the extent the certificates for such shares shall have been issued upon the exercise of this option. 10. No Employment Right. Nothing in the Plan or this Agreement shall ------------------- confer upon the Optionee any right to continue service as a director of the Company or any Affiliate or shall affect the right of the Company or any Affiliate or the shareholders of the Company or any Affiliate, as the case may be, to terminate the directorship of Optionee, with or without cause. -13- 11. Notice. Any notice required to be given to the Company under the ------ terms of this Agreement shall be given in writing and addressed to the Company in care of its Corporate Secretary at the office of the Company at 1220 Charleston Road, Mountain View, CA 94043, and any notice to be given to Optionee shall be given in writing and addressed to Optionee at the address given by Optionee beneath Optionee's signature to this Agreement, or such other address as either party to this Agreement may hereafter designate in writing to the other. Any such notice shall be deemed to have been duly given when enclosed in a properly sealed envelope addressed as aforesaid, registered or certified and deposited (postage and registration or certification fee prepaid) in a post office or branch post office regularly maintained by the United States. 12. Successors. This Agreement shall be binding upon and inure to the ---------- benefit of any successor or successors of the Company. Where the context permits, "Optionee" as used in this Agreement shall include Optionee's executor, administrator or other legal representative or the person or persons to whom Optionee's rights pass by will or the applicable laws of descent and distribution. 13. Applicable Law. The interpretation, performance, and enforcement of -------------- this Agreement shall be governed by the laws of the State of California. IN WITNESS WHEREOF, this Agreement has been executed as of the day and year first written above. Acuson Corporation a Delaware corporation By: _________________________________ Title: ______________________________ Optionee Signature: __________________________ Address: ____________________________ ____________________________ ____________________________ -14- ATTACHMENT A ------------ CONSENT OF SPOUSE I, _________________________, spouse of ________________, have read and approved the foregoing Agreement. In consideration of granting to my spouse the right to purchase shares of Acuson Corporation as set forth in the Agreement, I hereby appoint my spouse as my attorney-in-fact with respect to the exercise of any rights of the Agreement insofar as I may have any rights under such community property laws or similar laws relating to marital property in effect in the state of our residence as of the date of the signing of the foregoing Agreement. Dated: _______________ By: ____________________________ -15- EX-10.3 5 1991 STOCK INCENTIVE PLAN ACUSON CORPORATION EXHIBIT 10.3 - -------------------------------------------------------------------------------- 1991 STOCK INCENTIVE PLAN 1. PURPOSE. ------- (a) The purpose of the Plan is to provide a means by which selected employees and directors (as provided under paragraph 5 or paragraph 6) of and consultants to Acuson Corporation, a Delaware Corporation (the "Company"), and its Affiliates, as defined in subparagraph 1(b), may be given an opportunity to purchase stock of the Company. It is intended that this purpose will be effected through the granting of (a) incentive stock options and (b) nonstatutory stock options. (b) The word "Affiliate" as used in the Plan means any parent corporation or subsidiary corporation of the Company, as those terms are defined in Sections 424(e) and (f), respectively, of the Internal Revenue Code of 1986, as amended (the "Code"). (c) The Company, by means of the Plan, seeks to retain the services of persons now employed by or serving as consultants or directors to the Company, to secure and retain the services of persons capable of filling such positions, and to provide incentives for such persons to exert maximum efforts for the success of the Company. (d) The Company intends that the stock options granted under the Plan ("Stock Awards") shall, in the discretion of the Board of Directors of the Company (the "Board") or any committee to which responsibility for administration of the Plan has been delegated pursuant to subparagraph 2(c), be either: incentive stock options as that term is used in Section 422 of the Code ("Incentive Stock Options"), or options which do not qualify as incentive stock options ("Supplemental Stock Options"). All options shall be separately designated Incentive Stock Options or Supplemental Stock Options at the time of grant, and in such form as issued pursuant to paragraph 7, and a separate certificate or certificates shall be issued for shares purchased on exercise of each type of option. An option designated as a Supplemental Stock Option will not be treated as an Incentive Stock Option. 2. ADMINISTRATION. -------------- (a) The Plan shall be administered by the Board unless and until the Board delegates administration to a committee, as provided in subparagraphs 2(c) and 2(e). (b) The Board shall have the power, subject to, and within the limitations of, the express provisions of the Plan: (1) To determine from time to time which of the persons eligible under the Plan shall be granted Stock Awards; when and how the Stock Awards shall be granted; whether a Stock Award will be an Incentive Stock Option, a Supplemental Stock Option, or a combination of the foregoing, the provisions of each Stock Award granted (which need not be identical), including the time or times when a person shall be permitted to purchase or receive stock pursuant to a Stock Award; and the number of shares with respect to which Stock Awards shall be granted to each such person. (2) To construe and interpret the Plan and Stock Awards granted under it, and to establish, amend and revoke rules and regulations for its administration. The Board, in the exercise of this power, may correct any defect, omission or inconsistency in the Plan or in any Stock Award, in a manner and to the extent it shall deem necessary or expedient to make the Plan fully effective. (3) To amend the Plan as provided in paragraph 13. (4) Generally, to exercise such powers and to perform such acts as the Board deems necessary or expedient to promote the best interests of the Company. (c) The Board may delegate administration of the Plan to one or more committees (each a "Committee"). In the case of Stock Awards by a Committee to officers of the Company or members of the Board, the Committee shall be composed of not fewer than two (2) members, all of the members of which Committee shall be persons who in the -1- opinion of counsel to the Company are Non-Employee Directors within the meaning of Rule 16b-3 under the Securities Exchange Act of 1934, as amended (the "Exchange Act"). The board may delegate to a committee of one (1) or more members of the Board the authority to grant options to eligible persons who are not officers of the Company or members of the Board. If administration is delegated to a Committee, the Committee shall have, in connection with the administration of the Plan, the powers theretofore possessed by the Board, subject, however, to such resolutions, not inconsistent with the provisions of the Plan, as may be adopted from time to time by the Board. Subject to subparagraph 2(d) the Board may abolish the Committee at any time and revest in the Board the administration of the Plan. (d) The Board may delegate to a committee of one (1) or more members of the Board the authority to grant options to eligible persons who are not officers of the Company or members of the Board. 3. STRUCTURE OF THE PLAN. --------------------- (a) The Plan shall be divided into two (2) separate components: an option grant program whereby certain employees, directors and consultants to the Company described in paragraph 5 shall be eligible for option grants in the discretion of the Board (the "Regular Option Grant Program") and the automatic option grant program described in paragraph 6 (the "Automatic Option Grant Program"). Under the Automatic Option Grant Program, directors who are not otherwise employees of the Company or any Affiliate of the Company ("Non- Employee Directors") shall automatically be granted options to purchase shares of common stock of the Company. 4. SHARES SUBJECT TO THE PLAN. -------------------------- (a) Subject to the provisions of paragraph 12 relating to adjustments upon changes in stock, the stock that may be sold pursuant to Stock Awards granted under the Plan shall not exceed in the aggregate five million (5,000,000) shares of the Company's common stock. If any Stock Award granted under the Plan shall for any reason expire or otherwise terminate without having been exercised in full, the stock not purchased under such option shall again become available for the Plan. (b) The stock subject to the Plan may be unissued shares or reacquired shares bought on the market or otherwise. (c) An Incentive Stock Option may be granted to an eligible person under the Plan only if the aggregate fair market value (determined at the time the option is granted) of the stock with respect to which Incentive Stock Options ( as defined in the Code) granted after 1986 are exercisable for the first time by such optionee during any calendar year under all incentive stock option plans of the Company and its Affiliates does not exceed one hundred thousand dollars ($100,000). 5. ELIGIBILITY. ----------- (a) Incentive Stock Options may be granted only to employees (including officers) of the Company or its Affiliates. A director of the Company who is not an employee of the Company shall only be eligible to receive Stock Awards pursuant to Section 6 of the Plan. Stock Awards other than Incentive Stock Options may be granted only to directors, officers or employees of or consultants to the Company or its Affiliates. (b) No person shall be eligible for the grant of an Incentive Stock Option under the Plan if, at the time of grant, such person owns (or is deemed to own pursuant to Section 424(d) of the Code) stock possessing more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or of any of its Affiliates unless the exercise price of such Incentive Stock Option is at least one hundred ten percent (110%) of the fair market value of such stock at the date of grant and the term of the option does not exceed five (5) years from the date of grant. -2- 6. NON-DISCRETIONARY GRANTS. ------------------------ Each Non-Employee Director shall automatically be granted an option to purchase five thousand (5,000) shares of the Company's common stock upon the date of the first annual meeting of the Company following the adoption of the Plan by the Board and at each subsequent annual meeting of the Company at which such Non-Employee Director is elected or re-elected as a director of the Company, and each Non-Employee Director who is also a member of the Executive Committee of the Board of Directors shall automatically be granted an option to purchase an additional five thousand (5,000) shares of the Company's common stock upon the date of each such annual meeting; provided, however, that no option shall become exercisable under the Plan until stockholder approval of the Plan has been obtained. The Company intends that the options issued to such Non-Employee Directors not be Incentive Stock Options as that term is used in Section 422 of the Code. 7. OPTION PROVISIONS. ----------------- Each option shall be in such form and shall contain such terms and conditions as the Board or the Committee shall deem appropriate. The provisions of separate options need not be identical, but each option shall include (through incorporation of provisions hereof by reference in the option or otherwise) the substance of each of the following provisions: (a) The term of any option shall not be exercisable after the expiration of ten (10) years from the date it was granted. (b) The exercise price of each Incentive Stock Option and each option granted pursuant to the Automatic Option Grant Program shall be not less than one hundred percent (100%) of the fair market value of the stock subject to the option on the date the option is granted. The exercise price of each Supplemental Stock Option shall be not less than ten percent (10%) of the fair market value of the stock subject to the option on the date the option is granted. (c) The purchase price of stock acquired pursuant to an option shall be paid, to the extent permitted by applicable statutes and regulations, either (i) in cash at the time the option is exercised, or (ii) at the discretion of the Board or the Committee, either at the time of the grant or exercise of the option, (A) by delivery to the Company of shares of common stock of the Company that have been held for the requisite period necessary to avoid a charge to the Company's reported earnings and valued at the fair market value on the date of exercise (determined by the closing sale price per share of Common Stock for such date as reported by the New York Stock Exchange), (B) according to a deferred payment or other arrangement (which may include, without limiting the generality of the foregoing, the use of other common stock of the Company) with the person to whom the option is granted or to whom the option is transferred pursuant to subparagraph 7(d), or (C) in any other form of legal consideration that may be acceptable to the Board or the Committee. With regard to payment of the purchase price of common stock of the Company received upon exercise of an option granted under the Automatic Option Grant Program, payment shall be in the form specified in paragraph 7(c)(i), in the form specified in paragraph 7(c)(ii)(A), or by a combination of such methods of payment. In the case of any deferred payment arrangement, interest shall be payable at least annually and shall be charged at the minimum rate of interest necessary to avoid the treatment as interest, under any applicable provisions of the Code, of any amounts other than amounts stated to be interest under the deferred payment arrangement. (d) An option shall not be transferable except by will or by the laws of descent and distribution, and shall be exercisable during the lifetime of the person to whom the option is granted only by such person. (e) The total number of shares of stock subject to an option may, but need not, be allotted in periodic installments (which may, but need not, be equal). From time to time during each of such installment periods, the option may become exercisable ("vest") with respect to some or all of the shares allotted to that period, and if vested, may be exercised with respect to some or all of the shares allotted to such period and/or any prior period as to which the option was not fully exercised. During the remainder of the term of the option (if its term extends beyond the end of the installment periods), the option may be exercised from time to time with respect to any shares then remaining subject to the option. The provisions of this subparagraph 7(e) are subject to any option provisions governing the minimum number of shares as to which an option may be exercised. Each option granted pursuant to the Automatic Option Grant Program shall remain -3- unvested for six (6) months. On the day following the expiration of six (6) months from the date of grant, each such option shall become fifty (50%) percent vested, with the remaining shares subject to such options vesting in daily installments of 1/365 of the total number of shares subject to such option. (f) The Company may as a condition of issuing any stock pursuant to the Plan, require any person who is to acquire such stock, (1) to give written assurances satisfactory to the Company as to such person's knowledge and experience in financial and business matters and/or to employ a purchaser representative reasonably satisfactory to the Company who is knowledgeable and experienced in financial and business matters, and that he or she is capable of evaluating, alone or together with the purchaser representative, the merits and risks of exercising the option; and (2) to give written assurances satisfactory to the Company stating that such person is acquiring the stock for such person's own account and not with any present intention of selling or otherwise distributing the stock. These requirements, and any assurances given pursuant to such requirements, shall be inoperative if (i) the issuance of the shares has been registered under the Securities Act of 1933, as amended (the "Securities Act"), or (ii) as to any particular requirement, a determination is made by counsel for the Company that such requirement need not be met in the circumstances under the then applicable securities laws. (g) An option shall terminate three (3) months after termination of the optionee's employment or relationship as a consultant or director with the Company or an Affiliate, unless (i) such termination is due to such person's permanent and total disability, within the meaning of Section 422(c)(6) of the Code, in which case the option may, but need not, provide that it may be exercised at any time within one (1) year following such termination of employment or relationship as a consultant or director; or (ii) the optionee dies while in the employ of or while serving as a consultant or director to the Company or an Affiliate, or within not more than three (3) months after termination of such employment or relationship, in which case the option may, but need not, provide that it may be exercised at any time within eighteen (18) months following the death of the optionee by the person or persons to whom the optionee's rights under such option pass by will or by the laws of descent and distribution; or (iii) the option by its terms specifies either (A) that it shall terminate sooner than three (3) months after termination of the optionee's employment or relationship as a consultant or director, or (B) that it may be exercised more than three (3) months after termination of such employment or relationship with the Company or an Affiliate. This subparagraph 7(g) shall not be construed to extend the term of any option or to permit anyone to exercise the option after expiration of its term, nor shall it be construed to increase the number of shares as to which any option is exercisable from the amount exercisable on the date of termination of the optionee's employment or relationship as a consultant or director. (h) The option may, but need not, include a provision whereby the optionee may elect at any time during the term of his or her employment or relationship as a consultant or director with the Company or any Affiliate to exercise the option as to any part or all of the shares subject to the option prior to the stated vesting date of the option or of any installment or installments specified in the option. Any shares so purchased from any unvested installment or option may be subject to a repurchase right in favor of the Company or to any other restriction the Board or the Committee determines to be appropriate. 8. COVENANTS OF THE COMPANY. ------------------------ (a) During the terms of the options granted under the Plan, the Company shall keep available at all times the number of shares of stock required to satisfy such options. (b) The Company shall seek to obtain from each regulatory commission or agency having jurisdiction over the Plan such authority as may be required to issue and sell shares of stock upon grant or exercise of Stock Awards under the Plan; provided, however, that this undertaking shall not require the Company to register under the Securities Act either the Plan, any Stock Award granted under the Plan or any stock issued or issuable pursuant to any such Stock Awards. If, after reasonable efforts, the Company is unable to obtain from any such regulatory commission or agency the authority which counsel for the Company deems necessary for the lawful issuance and sale of stock under the Plan, the Company shall be relieved from any liability for failure to issue and sell stock upon exercise of such Stock Awards unless and until such authority is obtained. 9. USE OF PROCEEDS FROM STOCK. --------------------------- -4- Proceeds from the sale of stock pursuant to Stock Awards granted under the Plan shall constitute general funds of the Company. 10. MISCELLANEOUS. ------------- (a) The Board or the Committee shall have the power to accelerate the time at which a Stock Award may first be exercised or the time during which an option or stock acquired pursuant to a Stock Award or any part thereof will vest, notwithstanding the provisions in the Stock Award stating the time at which it may first be exercised or the time during which it will vest. (b) Neither a recipient of a Stock Award nor any person to whom a Stock Award is transferred under subparagraph 7(d) or 8(b) shall be deemed to be the holder of, or to have any of the rights of a holder with respect to, any shares subject to such Stock Award unless and until such person has satisfied all requirements for exercise of the Stock Award pursuant to its terms. (c) Nothing in the Plan or any instrument executed or Stock Award granted pursuant thereto shall confer upon any eligible employee, consultant or director any right to continue in the employ of the Company or any Affiliate (or to continue acting as a consultant or director) or shall affect the right of the Company or any Affiliate to terminate the employment or consulting relationship or directorship of any eligible employee, consultant or director with or without cause. In the event that a Stock Award recipient is permitted or otherwise entitled to take a leave of absence, the Company shall have the unilateral right to (i) determine whether such leave of absence will be treated as a termination of employment for purposes of his or her Stock Award, and (ii) suspend or otherwise delay the time or times at which the shares subject to the Stock Award would otherwise vest. (d) At the discretion of the Board or the Committee, the recipient may satisfy any federal, state or local tax withholding obligation relating to the exercise of such Stock Award by any of the following means or by a combination of such means: (1) tendering a cash payment; (2) authorizing the Company to withhold from the shares of the common stock otherwise issuable to the participant as a result of the exercise of the Stock Award a number of shares having a fair market value less than or equal to the amount of the withholding tax obligation; or (3) delivering to the Company owned and unencumbered shares of the common stock having a fair market value less than or equal to the amount of the withholding tax obligation. 11. CANCELLATION AND RE-GRANT OF OPTIONS. ------------------------------------ (a) The Board or the Committee shall have the authority to effect, at any time and from time to time, with the consent of the affected option holders, (i) the repricing of any or all outstanding options (excluding Incentive Stock Options) under the Plan and/or (ii) the cancellation of any or all outstanding options under the Plan and the grant in substitution therefor new options under the Plan covering the same or different numbers of shares of Common Stock but having an option price per share not less than ten percent (10%) of the fair market value (one hundred percent (100%) of the fair market value in the case of an Incentive Stock Option or, in the case of a ten percent (10%) stockholder ( as defined in subparagraph 5(c)), not less than one hundred and ten percent (110%) of the fair market value) per share of Common Stock on the new grant date. 12. ADJUSTMENTS UPON CHANGES IN STOCK. --------------------------------- (a) If any change is made in the stock subject to the Plan, or subject to any Stock Award granted under the Plan (through merger, consolidation, reorganization, recapitalization, stock dividend, dividend in property other than cash, stock split, liquidating dividend, combination of shares, exchange of shares, change in corporate structure or otherwise), the Plan and outstanding Stock Awards will be appropriately adjusted in the class(es) and maximum number of shares subject to the Plan and the class(es) and number of shares and price per share of stock subject to outstanding Stock Awards. (b) In the event of: (1) a dissolution or liquidation of the Company; (2) a merger or consolidation in which the Company is not the surviving corporation; (3) a reverse merger in which the Company is the surviving corporation but the shares of the Company's common stock outstanding immediately preceding the merger are converted by virtue of the merger into other property, whether in the form of securities, cash or otherwise; or (4) any other capital reorganization in -5- which more than fifty percent (50%) of the shares of the Company entitled to vote are exchanged; then to the extent permitted by applicable law (i) any surviving corporation shall assume any Stock Awards outstanding under the Plan or shall substitute similar rights for those outstanding under the Plan, or (ii) such Stock Awards shall continue in full force and effect. In the event any surviving corporation refuses to assume or continue such Stock Awards, or to substitute similar Stock Awards for those outstanding under the Plan, then, with respect to Stock Awards held by persons then performing services as employees, directors or consultants for the Company, the time during which such options may be exercised shall be accelerated and the Stock Awards terminated if not exercised prior to such event. 13. AMENDMENT OF THE PLAN. --------------------- (a) The Board at any time, and from time to time, may amend the Plan. However, except as provided in paragraph 12 relating to adjustments upon changes in stock, no amendment shall be effective unless approved by the stockholders of the Company within twelve (12) months before or after the adoption of the amendment, where the amendment will: (i) Increase the number of shares reserved for issuance under the Plan; (ii) Modify the requirements as to eligibility for participation in the Plan (to the extent such modification requires stockholder approval in order for the Plan to satisfy the requirements of Section 422(b) of the Code); or (iii) Modify the Plan in any other way if such modification requires stockholder approval in order for the Plan to satisfy the requirements of Section 422(b) of the Code. (b) It is expressly contemplated that the Board may amend the Plan in any respect the Board deems necessary or advisable to provide eligible employees, directors or consultants with the maximum benefits provided or to be provided under the provisions of the Code and the regulations promulgated thereunder relating to employee stock options and/or to bring the Plan and/or options granted under it into compliance therewith. (c) Rights and obligations under any Stock Award granted before amendment of the Plan shall not be altered or impaired by any amendment of the Plan unless (i) the Company requests the consent of the person to whom the option was granted and (ii) such person consents in writing. 14. TERMINATION OR SUSPENSION OF THE PLAN. ------------------------------------- (a) The Board may suspend or terminate the Plan at any time. Unless sooner terminated, the Plan shall terminate within ten (10) years from the date the Plan is adopted by the Board or approved by the stockholders of the Company, whichever is earlier. No Stock Awards may be granted under the Plan while the Plan is suspended or after it is terminated. (b) Rights and obligations under any Stock Award granted while the Plan is in effect shall not be altered or impaired by suspension or termination of the Plan, except with the consent of the person to whom the Stock Award was granted. 15. EFFECTIVE DATE OF PLAN. ---------------------- The Plan shall become effective as determined by the Board, but no Stock Award granted under the Plan shall be exercised unless and until the Plan has been approved by the stockholders of the Company. -6- EX-27.1 6 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 3-MOS DEC-31-1997 JAN-01-1997 MAR-29-1997 21,987 0 114,100 (2,963) 77,920 254,356 183,346 (122,173) 333,550 125,794 0 0 0 115,560 92,196 333,550 87,503 107,581 46,753 56,820 42,185 0 (84) 8,660 2,815 5,845 0 0 0 5,845 0.19 0.19
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