-----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, EYIznjfBS5zFxE144boRBoRt7fDMbHyiPa19bJGRqA1iJn1rOPuLhOrDoItvD4fD y9xuCzFwWfqceGdLQRjl2g== 0001012870-98-002188.txt : 19980819 0001012870-98-002188.hdr.sgml : 19980819 ACCESSION NUMBER: 0001012870-98-002188 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19980704 FILED AS OF DATE: 19980818 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: SEC FILE NUMBER: 001-10068 FILM NUMBER: 98693525 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 FOR PERIOD ENDED 07/04/1998 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ---------------------- FORM 10-Q (Mark One) [X] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended JULY 4, 1998 or ------------ [ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from ________ to __________ Commission file number 1-10068 ------- ACUSON CORPORATION (Exact name of registrant as specified in its charter) DELAWARE 94-2784998 ------------------------ --------------------------------- (State of Incorporation) (IRS Employer Identification No.) 1220 CHARLESTON ROAD P. O. BOX 7393 MOUNTAIN VIEW, CA 94039-7393 (Address of principal executive offices) Registrant's telephone number, including area code, is (650) 969-9112 -------------- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Common Stock, $0.0001 par value 28,015,394 shares -------------------------------- ----------------------------- (Class) Outstanding at August 8, 1998 ________________________________________________________________________________ FORM 10-Q ACUSON CORPORATION INDEX
PAGE NUMBER PART I. FINANCIAL INFORMATION ITEM 1. Financial Statements - ---- --- -------------------------------------------------------------------- Condensed Consolidated Balance Sheets as of July 4, 1998 and December 31, 1997 1 Condensed Consolidated Statements of Operations for the Three Months Ended July 4, 1998 and June 28, 1997 and for the Six Months Ended July 4, 1998 and June 28, 1997 2 Condensed Consolidated Statements of Cash Flows for the Six Months Ended July 4, 1998 and June 28, 1997 3 Notes to Condensed Consolidated Financial Statements 4 ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8 PART II. OTHER INFORMATION ITEM 1. Legal Proceedings 11 ITEM 2. Changes in Securities and Use of Proceeds 11 ITEM 4. Submission of Matters to a Vote of Security Holders 11 ITEM 6. Exhibits and Reports on Form 8-K 12 Signature 13
________________________________________________________________________________ ACUSON CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands, except per share amounts)
July 4, DECEMBER 31, 1998 1997 - -------------------------------------------------------------------------------------------------------------------- ASSETS CURRENT ASSETS Cash and cash equivalents $ 16,752 $ 22,735 Accounts receivable, net of allowance for doubtful accounts of $3,469 in 1998 and $3,475 in 1997 132,718 131,067 Inventories 80,705 75,517 Deferred income taxes 25,523 25,244 Other current assets 15,118 16,771 -------- -------- Total current assets 270,816 271,334 PROPERTY AND EQUIPMENT, at cost, net of accumulated depreciation and amortization of $143,049 and $136,888 in 1998 and 1997, respectively 74,196 70,631 OTHER ASSETS, NET 23,805 20,863 -------- -------- Total Assets $368,817 $362,828 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Short-term borrowings $ 40,000 $ 32,000 Accounts payable 22,608 21,975 Other accrued liabilities 92,697 98,754 -------- -------- Total current liabilities 155,305 152,729 -------- -------- COMMITMENTS AND CONTINGENCIES (NOTE 6) STOCKHOLDERS' EQUITY Preferred stock, par value $0.0001: authorized, 10,000 shares; outstanding, none - - Common stock and additional paid-in capital, common stock par value $0.0001: authorized, 50,000 shares; outstanding, 28,006 shares and 28,244 shares in 1998 and 1997, respectively 128,581 123,968 Accumulated other comprehensive loss (1,570) (1,472) Retained earnings 86,501 87,603 -------- -------- Total stockholders' equity 213,512 210,099 -------- -------- Total Liabilities and Stockholders' Equity $368,817 $362,828 ======== ========
________________________________________________________________________________ The accompanying notes are an integral part of these statements. ________________________________________________________________________________ ACUSON CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share amounts)
THREE MONTHS ENDED SIX MONTHS ENDED -------------------------------- ------------------------------ JULY 4, JUNE 28, JULY 4, JUNE 28, 1998 1997 1998 1997 - ----------------------------------------------------------------------------------------------------------------- NET SALES Product $ 90,961 $ 91,316 $184,540 $178,819 Service 22,332 21,376 44,531 41,454 -------- -------- -------- -------- Total net sales 113,293 112,692 229,071 220,273 -------- -------- -------- -------- COST OF SALES Product 48,124 49,407 96,575 96,160 Service 11,629 11,446 23,642 21,513 -------- -------- -------- -------- Total cost of sales 59,753 60,853 120,217 117,673 -------- -------- -------- -------- Gross profit 53,540 51,839 108,854 102,600 -------- -------- -------- -------- OPERATING EXPENSES Selling, general and administrative 32,497 29,802 64,527 58,763 Product development 14,933 14,388 29,823 27,612 -------- -------- -------- -------- Total operating expenses 47,430 44,190 94,350 86,375 -------- -------- -------- -------- Income from operations 6,110 7,649 14,504 16,225 INTEREST INCOME (EXPENSE), NET (197) 250 (381) 334 -------- -------- -------- -------- Income before income taxes 5,913 7,899 14,123 16,559 PROVISION FOR INCOME TAXES 1,774 2,155 4,237 4,970 -------- -------- -------- -------- Net income $ 4,139 $ 5,744 $ 9,886 $ 11,589 ======== ======== ======== ======== EARNINGS PER SHARE Basic $ 0.15 $ 0.20 $ 0.35 $ 0.40 ======== ======== ======== ======== Diluted $ 0.14 $ 0.19 $ 0.34 $ 0.38 ======== ======== ======== ======== WEIGHTED AVERAGE COMMON AND COMMON EQUIVALENT SHARES OUTSTANDING Basic 28,028 28,916 28,153 28,778 ======== ======== ======== ======== Diluted 28,954 30,687 29,043 30,684 ======== ======== ======== ======== - --------------------------------------------------------------------------------------------------------------- NET INCOME $ 4,139 $ 5,744 $ 9,886 $ 11,589 OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX Foreign currency translation adjustments 115 (217) (98) (1,288) -------- -------- -------- -------- Comprehensive income $ 4,254 $ 5,527 $ 9,788 $ 10,301 ======== ======== ======== ========
________________________________________________________________________________ The accompanying notes are an integral part of these statements. ________________________________________________________________________________ ACUSON CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands)
SIX MONTHS ENDED --------------------------------- JULY 4, JUNE 28, 1998 1997 - ----------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 9,886 $ 11,589 Adjustments to reconcile net income to cash provided by operating activities: Depreciation and amortization 11,295 11,123 Tax benefit of employee stock transactions 592 4,473 Changes in: Accounts receivable (1,372) (27,891) Leases receivable (3,425) (984) Inventories (5,177) 7,514 Deferred income taxes (253) 205 Other current assets 1,757 8,401 Accounts payable 668 5,250 Other accrued liabilities (2,834) 1,442 ------- -------- Net cash provided by operating activities 11,137 21,122 ------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Investment in property and equipment (15,294) (11,600) Sale of fixed assets 134 5,396 Other (109) 265 ------- ------- Net cash used in investing activities (15,269) (5,939) ------- ------- CASH FLOWS FROM FINANCING ACTIVITIES Repayments of short-term borrowings (11,000) (6,000) Proceeds from short-term borrowings 19,000 5,000 Repurchase of common stock (17,164) (16,612) Issuance of common stock under stock option and stock purchase plans 7,423 13,901 ------- ------- Net cash used in financing activities (1,741) (3,711) ------- ------- EFFECT OF EXCHANGE RATE CHANGES ON CASH (110) (327) ------- ------- Net increase (decrease) in cash (5,983) 11,145 CASH, BEGINNING OF PERIOD 22,735 14,413 ------- ------- CASH, END OF PERIOD $16,752 $25,558 ======= =======
________________________________________________________________________________ The accompanying notes are an integral part of these statements. ________________________________________________________________________________ ACUSON CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 - INTERIM STATEMENTS In the opinion of management, the unaudited interim condensed consolidated financial statements include all adjustments, which include only normal recurring adjustments, necessary to summarize fairly Acuson Corporation's (the "Company's") condensed consolidated financial position as of July 4, 1998, and its condensed consolidated results of operations and cash flows for the six- month periods ended July 4, 1998 and June 28, 1997. The results of operations for the three and six-month periods ended July 4, 1998, are not necessarily indicative of the results to be expected for the entire year ending December 31, 1998. Certain information reported in the prior year has been reclassified to conform to the 1998 presentation. The Company's principle accounting policies are set forth in the financial statements for the year ended December 31, 1997, and notes thereto, contained in the Company's Annual Report filed with the Securities and Exchange Commission. NOTE 2. COMPREHENSIVE INCOME (LOSS) Effective January 1, 1998, the Company adopted Statement of Financial Accounting Standards No. 130 ("SFAS 130"), "Reporting Comprehensive Income." SFAS 130 requires that items defined as other comprehensive income, such as changes in foreign currency translation adjustments, be separately reported in the financial statements and that the accumulated balance of other comprehensive income be reported separately from retained earnings and additional paid-in capital in the equity section of the balance sheet. The following tables present the components, and related tax effect, of accumulated other comprehensive income:
The following is a summary of the accumulated other comprehensive loss balance Accumulated Foreign Other Currency Comprehensive Items Loss (in thousands) (in thousands) ----------------------------------------- Six months ended July 4, 1998 Beginning balance $(1,472) $(1,472) Current-period change (98) (98) ------- ------- Ending balance $(1,570) $(1,570) ======= =======
The following is a summary of the related tax effect allocated to each component of other comprehensive income (loss)
Tax Before-Tax (Expense) Net-of-Tax Amount or Benefit Amount (in thousands) (in thousands) (in thousands) ----------------------------------------------------------- Three months ended June 28, 1997 Foreign currency translation adjustments $ (298) $ 81 $ (217) ======= ==== ======= Six months ended June 28, 1997 Foreign currency translation adjustments $(1,840) $552 $(1,288) ======= ==== =======
Three months ended July 4, 1998 Foreign currency translation adjustments $ 164 $(49) $ 115 ====== ==== ======= Six months ended July 4, 1998 Foreign currency translation adjustments $ (140) $ 42 $ (98) ====== ==== =======
NOTE 3 - EARNINGS PER SHARE Basic earnings per share excludes dilution and is computed by dividing net income by the weighted average number of common shares outstanding. Diluted earnings per share reflects the potential dilution that could occur if the Company's outstanding, "in the money," stock options were exercised. Diluted earnings per share is computed by dividing net income by the weighted average number of common and common equivalent shares outstanding during the period. Common equivalent shares are calculated using the treasury stock method and represent incremental shares issuable upon the exercise of the Company's outstanding options. The following table provides reconciliations of the numerators and denominators used in calculating basic and diluted earnings per share for the three and six-month periods ended June 28, 1997 and July 4, 1998:
Dilutive Effect of Options Basic Outstanding Diluted (in thousands, except per share amounts) --------------------------------------------------------- Three months ended June 28, 1997 Net income (numerator) $ 5,744 $ 5,744 Weighted average number of shares outstanding (denominator) 28,916 1,771 30,687 Earnings per share $ 0.20 $ 0.19 ======= ======= Six months ended June 28, 1997 Net income (numerator) $11,589 $11,589 Weighted average number of shares outstanding (denominator) 28,778 1,906 30,684 Earnings per share $ 0.40 $ 0.38 ======= ======= Three months ended July 4, 1998 Net income (numerator) $ 4,139 $ 4,139 Weighted average number of shares outstanding (denominator) 28,028 926 28,954 Earnings per share $ 0.15 $ 0.14 ======= ======= Six months ended July 4, 1998 Net income (numerator) $ 9,886 $ 9,886 Weighted average number of shares outstanding (denominator) 28,153 890 29,043 Earnings per share $ 0.35 $ 0.34 ======= =======
For the three and six-month periods ended July 4, 1998 approximately 570,000 and 677,000 weighted average options to purchase shares of common stock, respectively, were antidilutive and were therefore not included in the computation of diluted earnings per share because the exercise prices were greater than the average market price of the common shares. Approximately 91,000 and 58,000 antidilutive weighted average options were outstanding during the three and six-month periods ended June 28, 1997, respectively. NOTE 4 - INVENTORIES The components of inventories were as follows (in thousands):
JULY 4, DEC. 31, 1998 1997 ------------------------------ Raw materials $27,867 $29,057 Work-in-process 18,012 16,379 Finished goods 34,826 30,081 ------- ------- Total inventories $80,705 $75,517 ======= =======
NOTE 5 - SHORT-TERM BORROWINGS The Company has a revolving, unsecured credit agreement for $75.0 million which is in effect through March 2000. Under the terms of the agreement, no compensating balances are required and the interest rate is determined at the time of borrowing based on the London interbank offered rate plus a margin, or prime rate. For the quarter ended July 4, 1998, the weighted average borrowings were $40.2 million and the weighted average interest rate was 6.4 percent. For the six months ended July 4, 1998, the weighted average borrowings were $36.9 million and the weighted average interest rate was 6.6 percent. On July 4, 1998, borrowings under this facility, which are subject to certain debt covenants, totaled $40.0 million and the effective rate was 6.4 percent. NOTE 6 - LEGAL CONTINGENCIES On October 27, 1994, the Company was sued in Ghent, Belgium, by Cormedica NV, in connection with the Company's termination of its distributor relationship with Cormedica. In the suit, Cormedica seeks indemnities and damages in the amount of approximately $2.5 million, plus interest. The Company intends to defend this suit vigorously. This suit is still in the fact finding stage. NOTE 7 - COMMON STOCK On May 27, 1998, the Company authorized and declared a dividend distribution of one preferred stock purchase Right for each outstanding share of Common Stock to stockholders of record at the close of business on June 8, 1998, and authorized the issuance of one preferred stock purchase Right with each future share of Common Stock issued by the Company before the Rights become exercisable, or before the Rights are redeemed by the Company, or before the Rights expire on June 8, 2008. The Rights will attach to all certificates representing shares of outstanding Company Common Stock and will not be exercisable or transferable apart from the Common Stock until ten days after another person or group of persons acquires 15 percent of the Company's Common Stock or commences a tender or exchange offer for at least 15 percent of the Company's Common Stock. Each Right entitles the holder to purchase from the Company one one-hundredth of a share (a "Unit") of Series A Preferred Stock at $120 per Unit, subject to adjustments for dilutive events. In certain circumstances, each Right will entitle its holder to purchase a larger number of shares of common stock in an acquiring company. The Board of Directors may redeem the Rights, at any time, at $0.01 per Right, payable in cash, common shares or other consideration. In addition, the Board may also, without consent of the holders of the Rights, amend the terms of the Rights to lower the threshold for exercisability of the Rights. NOTE 8 - DISCLOSURE OF THE IMPACT THAT RECENTLY ISSUED FINANCIAL STANDARDS WILL HAVE ON THE FINANCIAL STATEMENTS WHEN ADOPTED IN A FUTURE PERIOD In June 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 131 ("SFAS 131"), "Disclosures About Segments of an Enterprise and Related Information." This statement is effective for fiscal years beginning after December 15, 1997 but need not be applied to interim financial statements in the initial year of application; however, comparative information for interim periods in the initial year of application will be reported in the financial statements for interim periods in fiscal year 1999. The adoption of SFAS 131 will not have a material effect on the Company's financial statements. In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133 ("SFAS 133"), "Accounting for Derivative Instruments and Hedging Activities." This statement establishes accounting and reporting standards for derivative instruments and hedging activities and is effective for all fiscal years beginning after June 15, 1999. The Company anticipates the adoption of SFAS 133 will not have a material effect on the Company's financial statements. _______________________________________________________________________________ _______________________________________________________________________________ ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS Net sales for the quarter ended July 4, 1998, were $113.3 million compared with $112.7 million for the quarter ended June 28, 1997. For the first six months of 1998, net sales were $229.1 million compared to $220.3 for the same period in 1997. Worldwide service revenue increased 4.5 percent to $22.3 million for the second quarter of 1998, compared with $21.4 million for the second quarter of 1997. For the six months ended July 4, 1998, worldwide service revenue increased 7.4 percent to $44.5 million. Domestic net sales for the quarter ended July 4, 1998 increased 9.2 percent to $81.9 million while international net sales decreased 16.6 percent to $31.4 million. Domestic net sales for the first six months of 1998 increased 10.7 percent to $161.1 million while international net sales decreased 9.1 percent to $68.0 million. International revenues were negatively impacted by the continued economic weakness in Asia and by the current strength of the U.S. dollar. The Company expects these trends to continue at least through the third quarter of 1998. Gross profit for the second quarter of 1998 increased to 47.3 percent compared with 46.0 percent for the second quarter of 1997. For the six months ended July 4, 1998, gross profit increased to 47.5 percent compared with 46.6 percent for the same period in 1997. The increases were primarily due to reduced warranty costs on new product installations. Selling, general and administrative expenses for the quarter ended July 4, 1998, were $32.5 million or 28.7 percent of net sales, compared with $29.8 million or 26.4 percent of net sales for the quarter ended June 28, 1997. For the six months ended July 4, 1998, selling, general and administrative costs were $64.5 million or 28.2 percent of net sales, compared with $58.8 million or 26.7 percent of net sales for the same period in 1997. The increases were primarily due to higher selling expenses resulting from planned additions to the Company's sales infrastructure. Product development spending for the second quarter of 1998 was $14.9 million or 13.2 percent of net sales, compared with $14.4 million or 12.8 percent of net sales for the second quarter of 1997. For the six months ended July 4, 1998, product development costs were $29.8 million or 13.0 percent of net sales, compared with $27.6 million or 12.5 percent of net sales for the same period in 1997. The increases were primarily due to increased contracted services in support of new product development. Net interest expense for the three months ended July 4, 1998 was $0.2 million compared with net interest income of $0.3 million for the three months ended June 28, 1997. For the first six months of 1998, net interest expense was $0.4 million compared with net interest income of $0.3 million for the same period in 1997. The increases in net interest expense were primarily due to the Company's increased short-term borrowings. The provision for income taxes was $1.8 million for the second quarter of 1998, compared with a provision of $2.2 million for the second quarter of 1997. For the six months ended July 4, 1998, the provision for income taxes was $4.2 million compared with a provision of $5.0 million for the same period in 1997. The effective tax rate for both the second quarter and first six months of 1998 was a provision of 30.0 percent compared with provisions of 27.3 percent and 30.0 percent for the second quarter and first six months of 1997, respectively. In June 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 131 ("SFAS 131"), "Disclosures About Segments of an Enterprise and Related Information." This statement is effective for fiscal years beginning after December 15, 1997, but need not be applied to interim financial statements in the initial year of application; however, comparative information for interim periods in the initial year of application will be reported in the financial statements for interim periods in fiscal year 1999. The adoption of SFAS 131 will not have a material effect on the Company's financial statements. In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133 ("SFAS 133"), "Accounting for Derivative Instruments and Hedging Activities." This statement establishes accounting and reporting standards for derivative instruments and hedging activities and is effective for all fiscal years beginning after June 15, 1999. The Company anticipates the adoption of SFAS 133 will not have a material effect on the Company's financial statements. LIQUIDITY AND CAPITAL RESOURCES During the six months ended July 4, 1998, the Company's cash and cash equivalents balance decreased $6.0 million to $16.8 million, and short-term borrowings increased $8.0 million to $40.0 million. During the first six months of 1998 the Company generated $11.1 million in cash from operations. The primary source of cash from operations was net income of $9.9 million and the primary use of cash was an increase in inventory of $5.2 million. The increase in inventory was primarily the result of higher inventory levels due to the Native/TM/ Tissue Harmonic Imaging (NTHI) upgrade for the Company's Aspen/TM/ ultrasound system. Shipments of Aspen systems with the NTHI option are expected to begin in the third quarter of 1998. The Company's investing and financing activities for the six months ended July 4, 1998, used $17.0 million in cash. The Company purchased $15.3 million of equipment during the year, primarily consisting of computer equipment. Included in the financing activities for the first half of 1998, was $7.4 million raised through employee participation in the Company's stock option and stock purchase plans. The Company used $17.2 million, including $2.7 million accrued in 1997, for share repurchases. Also included in the financing activities for the first half of 1998 were net short-term borrowings of $8.0 million. On October 15, 1996, the Board of Directors authorized the repurchase of 4,000,000 shares of common stock over an unspecified period of time. During the second quarter of 1998, the Company repurchased 251,900 shares at a total cost of $4.8 million. As of July 4, 1998, the Company had repurchased 2,014,700 shares toward the 4,000,000 share repurchase authorization at a cumulative cost of $39.6 million. Working capital at July 4, 1998 decreased $3.1 million from the year ended December 31, 1997. At July 4, 1998, the Company's working capital totaled $115.5 million. The Company has a revolving, unsecured credit agreement for $75.0 million which is in effect through March 2000. Under the terms of the agreement, no compensating balances are required and the interest rate is determined at the time of borrowing based on the London interbank offered rate plus a margin, or prime rate. For the quarter ended July 4, 1998, the weighted average borrowings were $40.2 million and the weighted average interest rate was 6.4 percent. For the six months ended July 4, 1998, the weighted average borrowings were $36.9 million and the weighted average interest rate was 6.6 percent. On July 4, 1998, borrowings under this facility, which are subject to certain debt covenants, totaled $40.0 million and the effective rate was 6.4 percent. Based on its current operating plan, the Company believes that the liquidity provided by its existing cash, cash generated from operations, and the borrowing arrangement described above will be sufficient to meet the Company's projected operating and capital requirements for at least fiscal 1998. INVESTMENT RISKS The Management's Discussion and Analysis of Financial Condition and Results of Operations section in this report contains forward-looking statements regarding the Company and its products. These forward-looking statements are based on current expectations and the Company assumes no obligation to update this information. The Company's actual results could differ materially from those discussed in this document. In evaluating the forward-looking statements contained in this document, prospective investors and shareholders should carefully consider the factors set forth below. The success of Acuson's products depends on the timely completion of additional product capabilities and software updates; actual and perceived levels of product performance in a clinical environment compared to other imaging modalities and competitive ultrasound systems; continued market acceptance of the products and their pricing; and competitor responses including recently introduced competitive products, pricing, intellectual property allegations and product positioning counter-strategies. The Company's business is also subject to risks from potential negative impacts of weakness in certain markets in Asia and Europe and by the current strength of the U.S. dollar. As the Company's international business has grown, the Company has an increasing percentage of its receivables in other countries. In both Italy and Brazil the amount of receivables exceeds $11,000,000. In France the amount of receivables exceeds $5,000,000 and in China and Germany the amount of receivables exceeds $4,000,000. Political instability or other issues may impact the ability of the Company to collect receivables in foreign countries. During 1997, the Company initiated a two phase project to replace its outdated computing environment with an enterprise-wide, integrated business information system to control many of its operating systems including order administration, service and financial and manufacturing processes. The first phase of this project is currently scheduled to become operational during the third quarter of 1998 and the Company has retained an experienced consulting organization to assist in the conversion. However, the Company's future shipments and results could be adversely impacted if, following the conversion, there are significant problems with the system. YEAR 2000 The Company is taking steps to ensure its products and services will continue to operate on and after January 1, 2000. In addition to the new business information system noted above, which is year 2000 compliant and will be replacing a significant portion of the Company's critical systems, the Company is currently engaged in a three phase project to evaluate and remedy those systems not being replaced. The first phase was completed in May 1998 and included a comprehensive inventory of the Company's systems and an analysis and determination of the criticality of each system by an experienced consulting firm. This phase included the evaluation of both information technology ("IT") and non-IT systems. Non-IT systems include systems or hardware containing embedded technology such as microcontrollers. Phase two will focus on confirming the year 2000 compliance of those systems identified in phase one and is expected to be completed during the first quarter of 1999. The third and final phase, which is expected to be completed during the third quarter of 1999, will involve taking any needed corrective action to bring all remaining critical systems and components into compliance and to develop a contingency plan in the event any non-compliant critical systems are not remedied by January 1, 2000. Upon completion of this project, if systems material to the Company's operations have not been made year 2000 compliant, the year 2000 issue could have a material impact on the Company's financial statements. To date, the costs incurred by the Company with respect to this project are not material. Future anticipated costs will be difficult to estimate until after the completion of phase two, however with the implementation of the Company's new business information system, the Company does not anticipate those costs to be material. The Company's products being shipped today are year 2000 compliant and the Company believes its products previously shipped are either year 2000 compliant or can be made year 2000 compliant by customer purchase of an upgrade. The Company has also been communicating with suppliers and others it does business with to coordinate year 2000 readiness. The responses received by the Company to date have indicated that steps are currently being undertaken to address this concern. Based upon the steps being taken to address this issue and the progress to date, the Company does not expect the financial impact of the year 2000 date conversion to be material to its financial position or results of operations. However, if preventative and/or corrective actions by the Company or those the Company does business with are not made in a timely manner, the year 2000 issue could have a material adverse effect on the Company's financial statements. For a description of the general investment considerations and risks surrounding Acuson's overall business and financial prospects, refer to the Company's Form 10-K filed with the Securities and Exchange Commission for the year ended December 31, 1997. Acuson and Sequoia are registered trademarks and Aspen and Native are trademarks of Acuson Corporation. ________________________________________________________________________________ ________________________________________________________________________________ PART II ITEM 1 LEGAL PROCEEDINGS The current status is the same as previously reported in Company's Form 10-K for the fiscal year ended December 31, 1997. ITEM 2 CHANGES IN SECURITIES AND USE OF PROCEEDS On May 27, 1998, the Company authorized and declared a dividend distribution of one preferred stock purchase Right for each outstanding share of Common Stock to stockholders of record at the close of business on June 8, 1998, and authorized the issuance of one preferred stock purchase Right with each future share of Common Stock issued by the Company before the Rights become exercisable, or before the Rights are redeemed by the Company, or before the Rights expire on June 8, 2008. The Rights will attach to all certificates representing shares of outstanding Company Common Stock and will not be exercisable or transferable apart from the Common Stock until ten days after another person or group of persons acquires 15 percent of the Company's Common Stock or commences a tender or exchange offer for at least 15 percent of the Company's Common Stock. Each Right entitles the holder to purchase from the Company one one-hundredth of a share (a "Unit") of Series A Preferred Stock at $120 per Unit, subject to adjustments for dilutive events. In certain circumstances, each Right will entitle its holder to purchase a larger number of shares of common stock in an acquiring company. The Board of Directors may redeem the Rights, at any time, at $0.01 per Right, payable in cash, common shares or other consideration. In addition, the Board may also, without consent of the holders of the Rights, amend the terms of the Rights to lower the threshold for exercisability of the Rights. ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS a) The Annual Meeting of Stockholders of the Company was held on May 27, 1998. b) The result of Stockholders' votes at the Annual Meeting were as follows: (i) All nominees for director of the Company were elected by the following vote: Name Votes For Votes Withheld ---- --------- -------------- Robert J. Gallagher 23,209,518 85,450 Albert L. Greene 23,212,277 82,691 Karl H. Johannsmeier 23,207,737 87,231 Samuel H. Maslak 23,208,803 86,165 Alan C. Mendelson 23,209,827 85,141 (ii) Ratification of appointment of Arthur Andersen LLP as independent public accountants of the Company. Broker Votes For Votes Against Abstain Non-Vote --------- ------------- ------- -------- 23,229,054 20,837 44,890 187 ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K a) Exhibits --------
The following Exhibits are filed as part of, or incorporated by reference into, this Form 10-Q: 4.1 Rights Agreement, dated June 8, 1998, between Acuson Corporation and * BankBoston, N.A., as Rights Agent (Exhibit 1) 10.1 Non-Negotiable Secured Promissory Note, dated April 24, 1998, of Edward P. Cornell 10.2 Deed of Trust, dated April 24, 1998, between Edward P. Cornell and Commonwealth Land Title Company, as Trustee 27.1 Financial Data Schedule
b) Reports on Form 8-K ------------------- The Company filed no reports on Form 8-K during the quarter ended July 4, 1998. * Incorporated by reference to the indicated exhibit in the Company's Form 8-A12B dated June 5, 1998 ________________________________________________________________________________ ________________________________________________________________________________ SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. ACUSON CORPORATION (Registrant) August 18, 1998 By /s/ Robert J. Gallagher ------------------------ Robert J. Gallagher Vice Chairman and Chief Operating Officer (duly authorized Officer and Principal Financial Officer) EX-10.1 2 NON-NEGOTIABLE SECURED PROMISSORY NOTE ACUSON CORPORATION EXHIBIT 10.1 - ------------------------------------------------------------------------------- NON-NEGOTIABLE SECURED PROMISORY NOTE ------------------------------------- $400,000 Mountain View, California April 24, 1998 For value received, Edward P. Cornell ("Cornell") and Carol S. Cornell, husband and wife (collectively "Borrower"), promise to pay to the order of Acuson Corporation, a Delaware corporation ("Lender"), in lawful money of the United States, the principal amount of FOUR HUNDRED THOUSAND DOLLARS ($400,000). This Note shall not bear interest, except as otherwise provided herein. All sums payable hereunder shall be payable to Lender at its office, 1220 Charleston Road, Mountain View, California 94039-7393, or at such other place or places as may from time to time be designated by Lender. All amounts payable under this Note are payable in lawful money of the United States, without notice, demand, offset or deduction. Checks will constitute payment only when collected. All payments made hereunder (including any prepayments) shall be credited first to any accrued and unpaid interest and the remainder to principal. Borrower shall have the right to pay, without penalty, all or any portion of principal and any interest owing under this Note at any time. This Note is secured by a deed of trust ("Deed of Trust") of even date herewith executed by Borrower, as trustor, and Lender, as Beneficiary, on the real property described therein (the "Subject Property") Subject to the terms hereof, Lender shall automatically and without any action by any person or entity forgive on a daily basis the principal amount outstanding under this Note at a rate of $156.43 per day commencing on September 2, 1997 and ending on September 2, 2004. Lender will provide Borrower upon request a statement of the principal amount then outstanding under this Note. Upon termination of Cornell's employment by Lender or by any of Lender's subsidiaries (collectively, "Employer"), whether by Cornell voluntarily or by Employer with "Cause" (as defined below), but not including termination by reason of Cornell's death, then Lender shall cease any further daily forgiveness under this Note and the entire principal amount hereof then outstanding (i.e., --- amounts not forgiven or prepaid) shall be due and payable at the earliest of (a) the second anniversary of the date of the termination of employment, (b) the date of "Sale" (as defined below) of all or any part of the Subject Property, and (c) the date the Subject Property is no longer used as Borrower's "Primary Residence" (as defined below). If the Subject Property was at one time Borrower's Primary Residence, but then is no longer used as Borrower's Primary Residence pending sale or other transfer thereof, then subparagraph (c) above shall not be applicable, but the other subparagraphs above shall be unaffected. Upon (w) Cornell's death, (x) termination of Cornell's employment by Employer without Cause, (y) reduction of Cornell's target compensation (with a base salary of not less than $176,000 per year) from Employer to an amount less than $200,000 per year, or (z) a "Change in Control" (as defined below) of Lender, the entire principal amount of this Note then outstanding shall automatically and without any action by any person or entity be immediately forgiven. Lender agrees to indemnify Borrower on an after-tax basis for the federal and California income tax consequences of this Note and the forgiveness of the principal amount hereof. Borrower agrees (i) to take all such actions as Lender may reasonably request to minimize the liability of Lender pursuant to this indemnity and (ii) to repay to Lender any tax savings to Borrower resulting from any repayment of this Note. As used herein, the following terms shall have the definitions indicated: "Cause" shall mean (i) gross malfeasance by Cornell, (ii) Cornell's conviction of a felony involving moral turpitude or (iii) Cornell's refusal to perform reasonable duties (consistent with his position as a Vice President of Lender) for Employer for a period of 30 days even though he is mentally and physically able to perform such duties; "Change in Control" shall mean the occurrence of any of the following: (i) any "person" (including a group of persons), as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934 (the "Exchange Act") (other than Employer or any employee benefit plan of Employer, including any Trustee of such plan acting as Trustee, or any member of the Board of Directors of Lender on the date hereof) is or becomes the "beneficial owner" (as that term is defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of Lender representing 30% or more of the combined voting power of Lender's then outstanding securities, or (ii) any merger, reorganization or other transaction pursuant to which the holders, as a group, of all of the shares of Lender outstanding prior to the transaction hold, as a group, less than 70% of the shares of Lender after the transaction, or (iii) any other event which the Board of Directors of Lender determines, in its discretion, would materially alter the ownership and management of Lender; "Primary Residence" shall mean use of the Subject Property by either Cornell or Carol Cornell as an established, fixed, permanent, or ordinary dwelling place; provided that if Cornell ceases to use the Subject Property as his established, fixed, permanent, or ordinary dwelling place, the Subject Property shall be deemed a Primary Residence for purposes of this Note only for so long as Cornell remains personally liable for all indebtedness secured by the Subject Property and Cornell provides Lender adequate security for this Note; and "Sale" shall mean the sale, hypothecation, encumbrance or other transfer, whether voluntary, involuntary, or by operation of law, of all or any part of the Subject Property. Upon the Subject Property no longer being used as Borrower's Primary Residence, or upon the Sale of all or any part of the Subject Property or any interest therein, Lender shall cease any further daily forgiveness under this Note and the entire principal amount then owing under this Note shall be immediately due and payable (the "Sale Acceleration"); Provided, however, that --------- ------- if (a) Cornell is then employed by Employer, (b) Borrower immediately upon such Sale or cessation of use either owns or purchases a new primary residence within 40 miles of Lender's principal executive offices in Mountain View, California, and (c) in connection with such purchase Borrower executes and properly records a deed of trust, in substantially the form of the Deed of Trust, securing this Note (which shall thereafter be applied by treating such new primary residence as the Subject Property for all purposes of this Note), then (x) any Sale Acceleration shall apply only to the extent that one-half of the cost of such new primary residence is less than $400,000, and (y) the daily forgiveness of this Note shall be adjusted to an amount determined by dividing the principal amount outstanding hereunder immediately prior to the Sale Acceleration minus the amount of the Sale Acceleration by the number of days from the date of the Sale Acceleration to and including September 2, 2004, and (z) the principal amount of this Note shall be reduced to an amount equal to the principal amount outstanding hereunder immediately prior to the Sale Acceleration minus the amount of the Sale Acceleration. If Borrower defaults in the payment of principal or interest hereunder or otherwise fails in any material respect to comply with any of the provisions of this Note or defaults in any material respect in the performance of any covenant, condition, provision, or term in the Deed of Trust or any 2 other instrument securing this Note and such default or failure continues uncured for a period of 30 days after written notice thereof, the entire principal of this Note then outstanding, and any accrued but unpaid interest, at the option of Lender, shall be and become immediately due and payable without demand or notice. In the event of such default or failure, the principal balance of this Note then outstanding shall bear interest at the lesser of eighteen percent (18%) per annum or the maximum rate permitted by law from the date of such default or failure until principal and interest hereunder are paid in full. A default under this Note shall constitute a default under the Deed of Trust. Borrower hereby certifies to Lender that Borrower reasonably expects to be entitled to, and will, itemize deductions for federal and California income tax purposes for each year that this Note is outstanding. In the event any action or proceeding is commenced to enforce any rights under this Note, the prevailing party shall be entitled to recover from the other party its costs and reasonable attorneys' fees. No exercise of any right or remedy by Lender hereunder shall constitute a waiver of any other right or remedy contained herein or in the Deed of Trust or provided by law. The acceptance of any sum less than the amount then due shall not be construed as a waiver of the default in the payment of the full amount then due. If any provision of this Note is held invalid by a court of competent jurisdiction, the remainder of this Note shall not be affected thereby and shall remain in full force and effect. This Note shall be governed by the laws of the State of California, both in interpretation and performance. This Note is not negotiable and may not be assigned by any party hereto, except that this Note may be assigned by Lender to a wholly owned subsidiary of Lender or in connection with a merger, consolidation, sale of all or substantially all of Lender's assets or a reorganization of Lender. If Borrower consists of more than one person or entity, their obligations under this Note shall be joint and several. Borrower for themselves, their heirs, legal representatives, successors and assigns, jointly and severally waive presentment, demand, protest, and notice of dishonor and waive any right to be released by reason of any extension of time or change in terms of payment or any change, alteration, or release of any security given for the payment hereof. 3 THIS NOTE IS SUBJECT TO SECTION 2966 OF THE CIVIL CODE, WHICH PROVIDES THAT THE HOLDER OF THIS NOTE SHALL GIVE WRITTEN NOTICE TO THE PAYOR, OR HIS SUCCESSOR IN INTEREST, OF PRESCRIBED INFORMATION AT LEAST NINETY (90) BUT NOT MORE THAN ONE HUNDRED FIFTY (150) DAYS BEFORE ANY BALLOON PAYMENT IS DUE. /s/ Edward P. Cornell /s/ Carol S. Cornell - ----------------------- ----------------------- Edward P. Cornell Carol S. Cornell ACUSON CORPORATION By: /s/ Robert J. Gallagher ----------------------- Robert J. Gallagher Chief Operating Officer 4 EX-10.2 3 DEED OF TRUST ACUSON CORPORATION EXHIBIT 10.2 - -------------------------------------------------------------------------------- When Recorded Mail to: Acuson Corporation 1220 Charleston Road P.O. Box 7393 Mountain View, California 94039-7393 Attn: Charles H. Dearborn, Esq. DEED OF TRUST ------------- THE PARTIES TO THIS DEED OF TRUST, made as of the 24th day of April, 1998 are EDWARD P. CORNELL and CAROL S. CORNELL, husband and wife (collectively, "Trustor"), COMMONWEALTH LAND TITLE COMPANY ("Trustee"), and ACUSON CORPORATION, a Delaware corporation ("Beneficiary"). RECITALS -------- Trustor and Beneficiary hereby acknowledge and agree as follows: 1. Edward P. Cornell ("Employee") is employed by Beneficiary as of the date of this Deed of Trust. 2. In consideration of Employee's services, Beneficiary has agreed to lend to Trustor an aggregate of Four Hundred Thousand Dollars ($400,000) principal amount as partial financing of a primary residence. 3. The loan by Beneficiary is evidenced by that certain promissory note referred to below. Such note bears interest at a rate substantially below the currently prevailing rate of interest on loans of like principal amounts secured by a second deed of trust on residential real property. 4. Beneficiary is willing to make the loan to Trustor as a benefit of employment and is willing to charge a rate of interest below the market rate as a form of compensation for services rendered by Employee while an employee of Beneficiary. GRANT IN TRUST -------------- Trustor irrevocably grants and assigns to Trustee, in trust, with power of sale and right of entry and possession, all of that certain real property located in the County of Santa Clara, State of California and more particularly described in Exhibit A attached hereto and incorporated herein by this reference, together with all easements and other rights now or hereafter made appurtenant thereto, all improvements now or hereafter located thereon, and all fixtures, additions, and accretions thereto. Said real property, appurtenances, improvements, fixtures, additions, and accretions are hereinafter called the "Subject Property." Trustor makes the foregoing grant to 1 Trustee to hold the Subject Property in trust for the benefit of Beneficiary, and for the purpose and upon the terms and conditions hereinafter set forth. A. OBLIGATIONS SECURED. Trustor makes the foregoing grant and assignment for the purpose of securing: 1. Payment to Beneficiary of all indebtedness evidenced by and arising under the promissory note of even date herewith payable to Beneficiary, in the principal amount of FOUR HUNDRED THOUSAND DOLLARS ($400,000), together with interest thereon as specified therein (the "Promissory Note") and any modifications, extension or renewals thereof; 2. Payment of such further sums and performance of such further obligations or both, as the case may be, as the then record owner of the Subject Property may undertake to pay or perform or both pay and perform, as the case may be (whether as principal, surety, or guarantor), for the benefit of Beneficiary, its successor or assigns, when said borrowing or obligation or both, as the case may be, are evidenced by a writing or writings reciting that it or they are so secured; and 3. Performance of each agreement of Trustor herein contained or incorporated herein by reference and payment of each fee, cost and expense by Trustor as herein set forth. TO PROTECT THE SECURITY OF THIS DEED OF TRUST, THE PARTIES AGREE AS FOLLOWS: 1. Title. Trustor warrants that, except as otherwise disclosed to ----- Beneficiary in writing, Trustor lawfully holds and possesses the Subject Property in fee simple, without limitation on the right to encumber. Trustor further warrants that the Subject, subject to paragraph C.11 below, may become subject to a deed of trust recorded immediately prior to this Deed of Trust in the official records of Santa Clara County, California, for the benefit of such lender as Beneficiary may approve, to secure indebtedness in the principal sum of up to $500,000 (the "Prior Deed of Trust"), which will rank prior in right to this deed of trust. 2. Taxes. Assessments and Fees. Trustor shall pay, at least ten (10) --------------------------- days prior to delinquency, all taxes, assessments, levies and charges affecting the Subject Property and all costs, fees and expenses arising out of or levied or imposed as a consequence of this Deed of Trust, whether imposed upon Trustor, Trustee or Beneficiary, but not including taxes payable by Beneficiary that are measured by and imposed upon Beneficiary's net income. 3. Insurance. Trustor shall insure the Subject Property against loss --------- or damage by fire and such other risks as Beneficiary shall from time to time reasonably require. Trustor shall carry public liability insurance, flood insurance required under any applicable law, and other insurance as Beneficiary may reasonably require. Trustor shall maintain all required insurance in companies, amounts, coverages, and forms reasonably satisfactory to Beneficiary. All such policies or certificates of insurance shall name Beneficiary as a loss payee subordinate in right only to the beneficiary under the Prior Deed of Trust, and they shall also provide that they cannot be terminated as to Beneficiary except upon thirty (30) days prior written notice to Beneficiary. Trustor shall deliver certificates evidencing such insurance to Beneficiary upon request. 4. Liens and Encumbrances. Trustor shall pay, at or prior to the ---------------------- maturity date thereof, all obligations secured by or reducible to liens and encumbrances which shall now or 2 hereafter encumber or appear to encumber the Subject Property or any part thereof or interest therein, whether senior or subordinate to the lien of this Deed of Trust, including, without limitation, all claims for work or labor performed, or materials or supplies furnished in connection with any work of demolition, alteration, or improvement of, or construction upon, the Subject Property. 5. Disposition of Insurance and Condemnation Proceeds Trustor assigns -------------------------------------------------- to Beneficiary (i) all awards for damages suffered or compensation paid by reason of a taking for public use of, or an action in eminent domain affecting all or any part of, the Subject Property or any interest therein, and (ii) all proceeds of any insurance policies paid by reason of loss sustained to the Subject Property or any part thereof, subject, however, to the prior right of the beneficiary under the Prior Deed of Trust to receive such proceeds and make application thereof. Beneficiary shall release to Trustor such insurance proceeds received as a result of damage or destruction of the Subject Property as required to pay for the repair and restoration of such damage or destruction. Beneficiary may apply any sum in excess of the amount required to repair or restore said damage or destruction and any other such sum to any indebtedness or obligation secured hereby and in such order as Beneficiary may, at its sole option, determine. Subject to the prior rights of the beneficiary under the Prior Deed of Trust, Beneficiary shall be entitled to settle and adjust all claims under insurance policies provided hereunder. However, Beneficiary may, at the absolute discretion of Beneficiary and regardless of any impairment of security or lack of impairment of security, release to Trustor all or any part of the entire amount so collected upon any conditions Beneficiary chooses. Application of all or any portion of said funds, or the release thereof, shall not be deemed to constitute an admission that any repair or replacement resulting from the application or release of said funds satisfies Trustor's obligations under Paragraph A.6 and shall not cure or waive any default or notice of default hereunder or invalidate any acts done pursuant to such notice. 6. Maintenance and Preservation of the Property Trustor covenants: -------------------------------------------- (i) to keep the Subject Property in good condition and repair; (ii) not to remove or demolish the Subject Property or any part thereof; (iii) to complete or restore promptly and in good and workmanlike manner the Subject Property or any part thereof which may be damaged or destroyed; (iv) to comply with all laws, ordinances, regulations, and standards which affect the Subject Property or require alteration or improvement thereto or demolition thereof; (v) not to commit or permit waste thereof; (vi) not to commit, suffer or permit any act upon the Subject Property in violation of any law, ordinance, regulation or standard; (vii) to do all other acts which from the character or use of the Subject Property may be reasonably necessary to maintain and preserve its value; (viii) except for the Prior Deed of Trust or any New Loan, as defined in C.11 below, not to create any deed of trust or encumbrance upon the Subject Property subsequent to the date of this Deed of Trust, without specifically providing therein that the same is subject to this Deed of Trust for the full amount secured hereby, including (without limitation) extensions, renewals, and future advances, together with interest thereon, and subject to all of the terms and provisions hereof; and (ix) to execute and, where appropriate, acknowledge and deliver such further instruments as Beneficiary or Trustee deems necessary or appropriate to preserve, continue, perfect, and enjoy the security provided for herein. 7. Defense and Notice of Actions. Trustor shall, without liability, ----------------------------- cost, or expense to Beneficiary or Trustee, protect, preserve, and defend title to the Subject Property, the security hereof, and the rights and powers of Beneficiary or Trustee hereunder. Trustor shall give Beneficiary and Trustee prompt notice in writing of the filing of any such action or proceeding. 8. Right of Inspection. Beneficiary and its agents or employees may ------------------- enter the Subject Property at any reasonable time for the purpose of inspecting the Subject Property and 3 ascertaining Trustor's compliance with the terms hereof. 9. Acceptance of Trust. Notice of Indemnification. Trustee accepts ---------------------------------------------- this trust when this Deed of Trust, duly executed and acknowledged, becomes a public record as provided by law. Trustee is not obligated to notify any party hereto of pending sale under any other deed of trust or of any action or proceeding in which Trustor, Beneficiary, or Trustee shall be a party unless Trustee brings such action. Trustee shall not be obligated to perform any act required of it hereunder unless the performance of such act is requested in writing and Trustee is reasonably indemnified against loss, liability, and expense. 10. Powers of Trustee. From time to time upon written request of ----------------- Beneficiary and presentation of this Deed of Trust for endorsement, and without affecting the personal liability of any person for payment of any indebtedness or performance of the obligation secured hereby, Trustee may, without liability therefor and without notice: reconvey all or any part of the Subject Property; consent to the making of any map or plat thereof; join in granting any easement thereon; or join in any extension agreement or any agreement subordinating the lien or charge hereof. Trustee or Beneficiary may from time to time apply to any court of competent jurisdiction for aid and direction in the execution of the trust hereunder and the enforcement of the rights and remedies available hereunder, and Trustee or Beneficiary may obtain orders or decrees directing or confirming or approving acts in the execution of said trusts and the enforcement of said remedies. Trustee has no obligation to notify any party of any pending sale or any action or proceeding unless held or commenced and maintained by Trustee under this Deed of Trust. Trustor shall pay to Trustee reasonable compensation and reimbursement for services and expenses in the administration of the trust created hereunder, including reasonable attorneys' fees. Trustor shall indemnify Trustee and Beneficiary against all losses, claims, demands, and liabilities, including reasonable attorneys' fees, which either may incur, suffer, or sustain in the execution of the trusts created hereunder or in the performance of any act required or permitted hereunder or by law. 11. Substitution of Trustees. From time to time, by a writing signed ------------------------ and acknowledged by Beneficiary and recorded in the Office of the Recorder of the County in which the Subject Property is situated, Beneficiary may appoint another trustee to act in the place and stead of Trustee or any successor. Such writing shall refer to this Deed of Trust and set forth the date, book, and page of its recordation. The recordation of such instrument of substitution shall discharge Trustee herein named and shall appoint the new trustee as the trustee hereunder with the same effect as if originally named Trustee herein. A writing recorded pursuant to the provisions of this paragraph shall be conclusive proof of the proper substitution of such new trustee. 12. Acceleration upon Sale or Encumbrance or Termination of ------------------------------------------------------- Employment. Upon the sale, hypothecation, encumbrance or other transfer, - ---------- whether voluntary,involuntary, or by operation of law, of all or any part of the Subject Property or any rights or interest therein ("Sale"), or upon the Subject Property no longer being used as Trustor's Primary Residence (as defined below), then at its sole option Beneficiary may, by written notice to Trustor, declare all obligations secure d hereby immediately due and payable; provided, however, that if (a) Employee is then employed by Beneficiary, (b) - -------- ------- Employee immediately upon such Sale or cessation of use either owns or purchases a new Primary Residence within 40 miles of Beneficiary's principal executive offices in Mountain View, California, and (c) in connection with such purchase, Trustor executes and properly records a deed of trust, in substantially the form of this Deed of Trust, securing the Promissory Note, then any such acceleration shall apply only to the extent that one-half of the cost of such new Primary Residence is less than $400,000. Upon termination of employment of Employee by Beneficiary or by any of Beneficiary's subsidiaries (collectively "Employer"), whether by Employee voluntarily or 4 by Employer with "Cause" (as defined below), but not including termination by reason of Employee's death, then at its sole option Beneficiary may, by written notice to Trustor, declare all obligations secured hereby due and payable at the earliest of (x) the second anniversary of the date of the termination of employment, (y) the date of Sale of all or any part of the Subject Property, and (z) the date the Subject Property is no longer used as Trustor's Primary Residence. If the Subject Property was at one time Borrower's Primary Residence, but then is no longer used as Borrower's Primary Residence pending sale or other transfer thereof, then subparagraph (z) above shall not be applicable, but the other subparagraphs above shall be unaffected. Trustor shall notify Beneficiary promptly in writing of any transaction or event which may give rise to a right of acceleration hereunder. As used herein, the following terms shall have the definitions indicated: "Cause" shall mean (i) gross malfeasance by Employee, (ii) Employee's conviction of a felony involving moral turpitude or (iii) Employee's refusal to perform reasonable duties (consistent with his position as a Vice President of Beneficiary) for Employer for a period of 30 days even though he is mentally and physically able to perform such duties; and "Primary Residence" shall mean use of the Subject Property by Trustor as an established, fixed, permanent, or ordinary dwelling place. 13. Reconveyance Upon Beneficiary's written request, and upon ------------ surrender to Trustee for cancellation of this Deed of Trust and any note, instrument, or instruments, setting forth all obligations secured hereby, Trustee shall reconvey, without warranty, the Subject Property or that portion thereof then held hereunder. The recitals of any matters or facts in any reconveyance executed hereunder shall be conclusive proof of the truthfulness thereof. To the extent permitted by law, the reconveyance may describe the grantee as "the person or persons legally entitled thereto." Neither Beneficiary nor Trustee shall have any duty to determine the rights of persons claiming to be rightful grantees of any reconveyance. B. DEFAULT PROVISIONS. 1. Rights and Remedies. At any time after default in the payment or ------------------- performance in any material respect of any obligation secured or imposed hereby, by the Promissory Note, or by the Prior Deed of Trust, Beneficiary and Trustee shall have the following rights and remedies: (a) With or without notice, to declare all obligations secured hereby immediately due and payable; (b) With or without notice, and without releasing Trustor from any obligation hereunder, to cure any default of Trustor and, in connection therewith, to enter upon the Subject Property and to do such acts and things as Beneficiary or Trustee deem necessary or desirable to protect the security hereof including, without limitation, to appear in and defend any action or proceeding purporting to affect the security hereof or the rights or powers of Beneficiary or Trustee hereunder, to pay, purchase, contest, or compromise any encumbrance, charge, lien, or claim of lien which, in the judgment of either Beneficiary or Trustee, is prior or superior hereto, the judgment of Beneficiary or Trustee being conclusive as between the parties hereto; to pay any premiums or charges with respect to insurance required to be carried hereunder; and to employ counsel, accountants, contractors, and other appropriate persons to assist them; (c) To commence and maintain an action or actions in any court of competent jurisdiction to foreclose this instrument as a mortgage or to obtain specific enforcement of the covenants of Trustor hereunder, and Trustor agrees that such covenants shall be specifically enforceable by injunction or any other appropriate equitable remedy and that for the purposes of any 5 suit brought under this subparagraph, Trustor waives the defense of laches and any applicable statute of limitations; (d) To execute a written notice of such default and of its election to cause the Subject Property to be sold to satisfy the obligation secured hereby. Trustee shall give and record such notice as the law then requires as a condition precedent to a Trustee's sale. When the minimum period of time required by law after such notice has elapsed, Trustee, without notice to or demand upon Trustor except as otherwise required by law, shall sell the Subject Property at the time and place of sale fixed by it in the notice of sale, either as a whole or in separate parcels and in such order as it or Beneficiary may determine, at public auction to the highest bidder for cash, in lawful money of the United States payable at the time of sale (the obligations hereby secured being the equivalent of cash for purposes of said sale). Trustor shall have no right to direct the order in which the Subject Property is sold. Trustee may postpone sale of all or any portion of the Subject Property by public announcement at such time and place of sale, and from time to time thereafter may postpone such sale by public announcement at such time fixed by the preceding postponement. Trustee shall deliver to the purchaser at such sale a deed conveying the Subject Property or portion thereof so sold, but without any covenant or warranty, express or implied. The recitals in such deed of any matters of facts shall be conclusive proof of the truthfulness thereof. Any person, including Trustee, Trustor, or Beneficiary, may purchase at such sale. After deducting all costs, fees, and expenses of Trustee, and of this trust, including cost of evidence of title and reasonable attorneys' fees in connection with such sale, Trustee shall apply the proceeds of sale to payment of: all sums so expended under the terms hereof not then repaid, with accrued interest at the rate of ten percent (10%) per annum; the payment of all other sums then secured hereby; and the remainder, if any, to the person or persons legally entitled thereto. Subject to the rights of the beneficiary under the Prior Deed of Trust, all sums realized by Beneficiary under this paragraph B.1(d), less all costs and expenses incurred by Beneficiary under this paragraph B.1(d), including reasonable attorneys' fees, and less such sum as Beneficiary reasonably deems appropriate as a reserve to meet future expenses under this paragraph B.1(d), shall be applied on any indebtedness or obligation secured hereby in such order as Beneficiary shall determine. Neither application of said sums to said indebtedness nor any other action taken by Beneficiary or Trustee under this paragraph shall cure or waive any default or notice of default. Beneficiary or Trustee, or any employee or agent of Beneficiary or Trustee, or a receiver appointed by a court, may take any action or proceeding, without regard to (i) the adequacy of the security for the indebtedness or obligations secured hereunder, (ii) the existence of a declaration that the indebtedness secured hereby has been declared immediately due and payable, or (iii) the filing of a notice of default. 2. Payment of Costs, Expenses and Attorneys' Fees. All costs and ---------------------------------------------- expenses incurred by Trustee and Beneficiary pursuant to subparagraphs (a) through (d) inclusive of paragraph B.1 (including, without limitation, court costs and attorneys' fees, whether incurred in litigation or not) shall bear interest at the maximum lawful rate from the date of expenditure until said sums have been paid. Beneficiary shall be entitled to bid, at the sale of the Subject Property held pursuant to subparagraph B.1(d) above, the amount of said costs, expenses and interest in addition to the amount of the other obligations hereby secured as a credit bid, the equivalent of cash. 3. Remedies Cumulative. All rights and remedies of Beneficiary and ------------------- Trustee hereunder are cumulative and in addition to all rights and remedies provided by law or in other 6 agreements between Trustor and Beneficiary. 4. Releases, Extensions, Modifications and Additional Security. ----------------------------------------------------------- Without affecting the liability of any person for payment of any indebtedness secured hereby, or the lien or priority of this Deed of Trust upon the Subject Property, Beneficiary may, from time to time, with or without notice, do one or more of the following: release any person's liability for the payment of an indebtedness secured hereby, make any agreement or take any action extending the maturity or otherwise altering the terms or increasing the amount of any indebtedness secured hereby, and accept additional security or release all or a portion of the Subject Property and other security held to secure the indebtedness secured hereby. C. MISCELLANEOUS PROVISIONS. 1. Subordination to Prior Deed of Trust. Subject to paragraph C.11, ------------------------------------ (a) this Deed of Trust and the lien created hereunder shall be and the same are hereby made subject and subordinate to the lien created by, and the terms, covenants, and conditions contained in, the Prior Deed of Trust, as well as to extensions, consolidations, modifications, and supplements thereto, provided that any increase in the indebtedness secured thereby is advanced or incurred under any of the express provisions of the Prior Deed of Trust or any extension, consolidation, modification or supplement thereto; the extensions, consolidations, modifications, and supplements herein referred to shall not be deemed to include any extension, consolidation, modification, or supplement which expands the rights of the holders of the Prior Deed of Trust to make additional advances beyond those described in the Prior Deed of Trust; (b) Neither the Trustee nor Beneficiary hereunder, nor their respective successors or assigns nor any other legal holder hereof, shall acquire by subrogation, contract, or otherwise any lien upon another estate, right, or interest in the Subject Property (including but not limited to any which may arise in respect to real estate taxes, assessments, or other governmental charges) which is or may be prior in right to the Prior Deed of Trust or any extension, consolidation, modification, or supplement thereto unless within sixty (60) days following written notice of such intention from the Trustee or Beneficiary or their respective successors or assigns, the then beneficiary under the Prior Deed of Trust shall fail or refuse to purchase or acquire by subrogation or otherwise such prior lien, estate, right, or interest, or shall fail within such period to commence, and thereafter proceed diligently, to purchase or acquire the same; (c) This Deed of Trust and the lien hereof shall be expressly subject and subordinate to any and all advances in whatever amounts and whenever made, with interest thereon, and to any expenses, charges, and fees secured thereby, including any and all of such advances, interest, expenses, charges, and fees which may increase the indebtedness secured by the Prior Deed of Trust above the original principal amount thereof, provided the same is advanced or incurred under any of the express provisions of the Prior Deed of Trust or any extension, consolidation, modification, or supplement thereto. The extensions, consolidations, modifications, and supplements herein referred to shall not be deemed to include any extension, consolidation, modification, or supplement which expands the rights of the beneficiary under the Prior Deed of Trust to make additional advances beyond those described in the Prior Deed of Trust; (d) The Trustee and Beneficiary hereunder, their successors and assigns or any other legal holder of this Deed of Trust shall agree to assign and release unto the legal beneficiary of the Prior Deed of Trust: 7 (i) All of their right, title, interest, or claim, if any, in and to the proceeds of all policies of insurance covering the Subject Property to be applied upon the indebtedness secured by or disposed of in accordance with the provisions of the Prior Deed of Trust; and (ii) All of their right, title, and interest or claim, if any, in and to all awards or other compensation made for any taking of any part of the Subject Property to be applied upon the indebtedness secured by or disposed of in accordance with the provisions of the Prior Deed of Trust; provided however, that in the event that following any such application and disposition of the insurance proceeds or compensation award or other compensation, any balance remains, it shall be made payable to the order of Beneficiary or its successors or assigns for application in the manner prescribed by paragraph B.1 hereof. If, after such application, any balance remains, it shall be made payable to the order of Trustor or its successors or assigns; (e) If the beneficiary under the Prior Deed of Trust shall at any time release to the Trustor any such insurance proceeds or condemnation award for the purpose of restoration of the Subject Property, such release shall not be deemed to be an additional advance under the Prior Deed of Trust nor shall it otherwise be deemed to be in violation of any restriction of this Deed of Trust upon the amount permitted to be secured by the Prior Deed of Trust and to which this Deed of Trust is subordinate; and (f) So long as the Prior Deed of Trust shall remain upon the Subject Property or any part thereof, the assigns of Trustee, or any other legal holder hereof, shall execute, acknowledge, and deliver, upon demand, at any time or times, any and all further subordination or other instruments in recordable form reasonably sufficient for the foregoing purposes or that the Trustor or the Trustee or Beneficiary, or their respective successors or assigns, or the legal holders of the Prior Deed of Trust, may hereafter reasonably require for carrying out the true purpose and intent of the foregoing covenants. 2. Non-Waiver. By accepting payment of any sum secured hereby after ---------- its due date or later performance of any obligation secured hereby, Beneficiary shall not waive its right against any person obligated directly or indirectly hereunder or on any obligation hereby secured, either to require prompt payment when due of all other sums so secured or to declare default for failure to make such prompt payment. No exercise of any right or remedy by Beneficiary or Trustee hereunder shall constitute a waiver of any other right or remedy herein contained or provided by law. 3. Execution of Documents. Trustor agrees, upon demand by ---------------------- Beneficiary or Trustee, to execute any and all documents and instruments required to effectuate the provisions hereof. 4. Statements of Condition. From time to time as required, ----------------------- Beneficiary shall furnish to Trustor such statements as may be required concerning the condition of the obligations secured hereby. Upon demand by Beneficiary, Trustor covenants and agrees to pay the maximum amount allowed by law for such statements. 5. Obligations of Trustor Joint and Several If more than one person ---------------------------------------- has 8 executed this deed of trust as "Trustor," the obligations of all such persons hereunder shall be joint and several. 6. Recourse to Separate Property. Any married person who executes ----------------------------- this Deed of Trust as a Trustor and who also executes a note or other evidence of obligation reciting that its payment or performance is secured by this Deed of Trust agrees that Beneficiary may have recourse against that person's separate property and any community property, whether or not such property is part of the Subject Property, of which that person is a manager for payment of all notes and other obligations of that married person which are secured by this Deed of Trust. This Deed of Trust does not create a lien on any property other than the Subject Property. 7. Beneficiary Defined. The word "Beneficiary" hereunder means the ------------------- Beneficiary named herein or any future owner or holder, including pledgee, of any note, notes or instrument secured hereby. 8. Severability If any terms of this Deed of Trust or the ------------ application thereof to any person or circumstances shall to any extent be invalid or unenforceable, the remainder of this Deed of Trust, or the application of such term to persons or circumstances other than those as to which it is invalid or unenforceable, shall not be affected thereby, and each term of this Deed of Trust shall be valid and enforceable to the fullest extent permitted by law. 9. Successors in Interest. The terms, covenants, and conditions ---------------------- herein contained shall be binding upon and inure to the benefit of the heirs, successors, and assigns of the parties hereto. 10. Governing Law. This Deed of Trust shall be governed by the laws ------------- of the State of California, both in interpretation and performance. 11. Beneficiary Subordination to Prior Deed of Trust and Refinancing ---------------------------------------------------------------- Thereof. In the event Trustor desires to enter into the Prior Deed of Trust, or - ------- to pay in full the loan secured by the Prior Deed of Trust and to replace such loan with new financing secured by the Subject Property (a "New Loan"), Trustor shall be entitled to require that Beneficiary subordinate the lien of this Deed of Trust to the lien of the Prior Deed of Trust or then New Loan pursuant to the terms of this paragraph. Beneficiary shall have no obligation to so subordinate the lien of this Deed of Trust unless each and all of the following conditions for Beneficiary's sole benefit are satisfied: (a) At least thirty (30) days and no more than sixty (60) days prior to the date that Trustor desires to effectuate such subordination, Trustor requests by written notice to Beneficiary that Beneficiary so subordinate the lien of this Deed of Trust to the lien of the Prior Deed of Trust or the lien of the deed of trust or mortgage securing the New Loan, and submits in writing to Beneficiary a copy of the promissory note, deed of trust or mortgage, and other documentation regarding the Prior Deed of Trust or the New Loan, together with a copy of the form of subordination agreement that the new lender desires Beneficiary to sign, and together with a current appraisal of the Subject Property prepared by the appraiser for the new lender evidencing the then current fair market value thereof. (b) The Prior Deed of Trust encumbers only the Subject Property and the New Loan is secured by a deed of trust or mortgage encumbering only the Subject Property. 9 (c) Beneficiary shall not be required to execute any instrument which would obligate Beneficiary to pay any loan or any part thereof. (d) Trustor shall not be in default under the terms of this Deed of Trust or the Promissory Note at the time any request to subordinate is made. (e) There shall be no balloon payment required under the terms of the financing giving rise to the Prior Deed of Trust or the New Loan prior to the last date on which the Promissory Note must be paid in full or is fully forgiven (nothing herein shall be construed to prevent Trustor from obtaining a loan or loans which are voluntarily prepayable before such date). (f) The loan secured by the Prior Deed of Trust and the New Loan shall be procured from an institutional lender (i.e. a bank, or federal or California savings and loan association). (g) The interest, points, loans fees and charges of the loan secured by the Prior Deed of Trust or the New Loan shall not exceed the norm in the lending community in and for the County of Santa Clara for secured residential loans at such time. (h) The principal amount of the indebtedness secured by any such Prior Deed of Trust or the New Loan shall not exceed such amount as Trustor and Beneficiary may agree in writing. (i) The proceeds of the loan secured by the Prior Deed of Trust or the New Loan shall be used solely to pay for the construction of Trustor's principal residence on the Subject Property or to pay the construction lender who loaned Trustor the funds to construct Trustor's principal residence on the Subject Property. (j) None of the provisions of this Deed of Trust or the Promissory Note are changed. The Prior Deed of Trust or any such new deed of trust or mortgage securing the New Loan shall provide that notice of any default under the terms thereof shall be given by the lender to Trustor and Beneficiary and Beneficiary shall have the right, but not the obligation, to cure such default. Trustor shall furnish Beneficiary with a true copy of the Prior Deed of Trust any such new deed of trust or mortgage, the promissory note secured thereby, and all other loan documents evidencing the loan required by the lender to be signed by Trustor. Provided the foregoing conditions are met, Beneficiary shall cooperate with Trustor and such new lender in effecting the Prior Deed of Trust or any such new deed of trust or mortgage, and shall sign such subordination documentation as may be required solely to subordinate the lien of this Deed of Trust to the lien of the Prior Deed of Trust or the lien of the deed of trust or mortgage securing the New Loan. IN WITNESS WHEREOF, Trustor and Beneficiary have executed this Deed of Trust on the day and year set forth above. (Any Trustor whose address is set forth below hereby requests that a copy of notice of default and notice of sale be mailed to him at that address. Failure to insert an address shall constitute a waiver of the right to receive a copy of a notice of default.) 10 TRUSTOR PLEASE NOTE: IN THE EVENT OF YOUR DEFAULT, CALIFORNIA PROCEDURE PERMITS THE TRUSTEE TO SELL THE SUBJECT PROPERTY AT A SALE HELD WITHOUT SUPERVISION BY ANY COURT AFTER EXPIRATION OF A PERIOD PRESCRIBED BY LAW. SEE SUBPARAGRAPH B.1.(d) ABOVE FOR A DESCRIPTION OF THIS PROCEDURE. UNLESS YOU PROVIDE AN ADDRESS FOR THE GIVING OF NOTICE, YOU MAY NOT BE ENTITLED TO NOTICE OF THE COMMENCEMENT OF SALE PROCEEDINGS. BY EXECUTION OF THIS DEED OF TRUST, YOU CONSENT TO SUCH PROCEDURE. IF YOU HAVE ANY QUESTIONS CONCERNING IT, YOU SHOULD CONSULT YOUR LEGAL ADVISOR. BENEFICIARY URGES YOU TO GIVE IT PROMPT NOTICE OF ANY CHANGE IN YOUR ADDRESS SO THAT YOU MAY RECEIVE PROMPTLY ANY NOTICE GIVEN PURSUANT TO THIS DEED OF TRUST. EDWARD P. CORNELL /s/ EDWARD P. CORNELL ------------------------------------ CAROL S. CORNELL /s/ CAROL S. CORNELL ------------------------------------ ACUSON CORPORATION, Beneficiary By: /s/ Robert J. Gallagher --------------------------------- Robert J. Gallagher, Chief Operating Officer 11 STATE OF CALIFORNIA ) ) ss. COUNTY OF SANTA CLARA ) On April 27, 1998 before me, the undersigned, a Notary Public in and for said -------------- County and State, personally appeared EDWARD P. CORNELL and CAROL S. CORNELL, personally known to me to be the person(s) whose name(s) are subscribed to the within instrument and acknowledged to me that they executed the same in their authorized capacity(ies), and that by their signature on the instrument the person(s), or the entity(ies) upon behalf of which the person(s) acted, executed the instrument. WITNESS my hand and official seal. /s/ Bonnie F. Belisle - ----------------------------------------- Signature of Notary Public BONNIE F. BELISLE Commission # 114998 Notary Public--California Santa Clara County My Comm. Expires Nov 8, 2000 (This area for official notarial seal) STATE OF CALIFORNIA ) ) ss. COUNTY OF SANTA CLARA ) On April 27, 1998 before me, the undersigned, a Notary Public in and for said -------------- County and State, personally appeared ROBERT J. GALLAGHER, personally known to me to be the person whose name is subscribed to the within instrument and acknowledged to me that he executed the same in his authorized capacity, and that by his signature on the instrument the person, or the entity upon behalf of which the person acted, executed the instrument. WITNESS my hand and official seal. /s/ Bonnie F. Belisle - ----------------------------------------- Signature of Notary Public BONNIE F. BELISLE Commission # 114998 Notary Public--California Santa Clara County My Comm. Expires Nov 8, 2000 (This area for official notarial seal) 12 EX-27.1 4 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 6-MOS DEC-31-1998 JAN-01-1998 JUL-04-1998 16,752 0 136,187 3,469 80,705 270,816 217,245 143,049 368,817 155,305 0 0 0 128,581 84,931 368,817 184,540 229,071 96,575 120,217 94,350 0 381 14,123 4,237 9,886 0 0 0 9,886 0.35 0.34
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