-----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, V0dcwNJA1krEiXY/0wdVvLD4W+ersWe1NQ8GEHuJLi0BHvcfRkwjd54pp2B5WrX6 2QDt+Z2+F/xowpvJzxv55g== 0001012870-99-000889.txt : 19990330 0001012870-99-000889.hdr.sgml : 19990330 ACCESSION NUMBER: 0001012870-99-000889 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 16 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990329 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-K405 SEC ACT: SEC FILE NUMBER: 001-10068 FILM NUMBER: 99576754 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-K405 1 FORM 10-K405 FOR FISCAL YEAR ENDED 12/31/1998 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ____________________ FORM 10-K (Mark One) [X] Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the fiscal year ended DECEMBER 31, 1998 or ----------------- [_] 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 -------------- ___________________ Securities registered pursuant to Section 12(b) of the Act: Title of Each Class Name of Each Exchange on Which Registered - ------------------------------- ------------------------------------------- Common Stock, $0.0001 par value New York Stock Exchange Preferred Stock Purchase Rights New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None ___________________ Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [_] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] The aggregate market value of the Registrant's voting stock held by non- affiliates on March 5, 1999 (based upon the NYSE closing price on such date) was approximately $413,114,184. As of March 5, 1999, there were 26,760,433 shares of the Registrant's Common Stock outstanding. DOCUMENTS INCORPORATED BY REFERENCE Parts of the following documents are incorporated by reference in Parts II and III of this Form 10-K Report: (1) Proxy Statement for registrant's Annual Meeting of Stockholders to be held June 8, 1999 (other than the Compensation Committee Report and Performance Graph contained therein) (Part III), and (2) registrant's Annual Report to Stockholders for the fiscal year ended December 31, 1998 (Part II). _______________________________________________________________________________ PART I ITEM 1 BUSINESS GENERAL BUSINESS Acuson Corporation ("Acuson" or the "Company") is a manufacturer, worldwide marketer and service provider of high-performance systems that generate, display, archive and retrieve medical diagnostic ultrasound images. Hospitals, clinics and healthcare delivery systems throughout the world use Acuson products for a broad range of clinical applications including radiology, cardiology, obstetrical/gynecological ("ob/gyn") and peripheral vascular. Set forth below is a description of the Company's business. This description includes forward-looking statements that involve risks and uncertainties. These forward-looking statements are based on current expectations and the Company assumes no obligation to update this information. The Company's actual results could differ materially from those discussed here. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in the "Investment Risks" section set forth below as well as in the sections entitled "Competition" and "Government Regulation." COMPANY HISTORY The Company was incorporated in California in 1981 and changed its state of incorporation to Delaware in 1986. Since its inception, the Company has focused exclusively on systems that generate, display, archive and retrieve medical diagnostic ultrasound images. The first generation system, the Acuson 128 ultrasound system, launched in 1983, was based on an advanced computer-based ultrasound architecture. Over its seven- year life, the system grew to support many additional new ultrasound modes, transducers (the hand-held device that transmits and receives the ultrasound signals) and other capabilities. Acuson's second generation system, the Acuson 128XP(R) ultrasound system, was introduced in July 1990. This more configurable system provides a greater number of application-specific configurations for a broader range of clinical use. The system's greater flexibility has allowed the Company to address a wider spectrum of clinical specialties and pricing segments in both the domestic and international ultrasound markets. The AEGIS(R) digital image and data management system was introduced by Acuson in October 1992. The AEGIS system is a Picture Archiving and Communication System (PACS) product and provides capabilities for the capture and storage of ultrasound examinations for on-line review, archiving and transmission within the hospital and/or clinical environment and over wide-area networks. This system also enables the images produced by Acuson's platforms to be effectively translated into final reports, which can be faxed to the referring physician. During 1996, Acuson introduced two new ultrasound platforms, the Sequoia (R) ultrasound systems and the Aspen(TM) ultrasound system, to be sold along with the 128XP system. The Sequoia 512 ultrasound system for general imaging applications and the Sequoia C256 echocardiography system for cardiology applications were introduced in April 1996, and began shipping in July 1996. The Sequoia platform is Acuson's highest performance ultrasound platform. In October 1996, Acuson announced its second major ultrasound product introduction of the year: the Aspen ultrasound system. The Aspen system resulted from a convergence of select technologies from the Sequoia platform and other Acuson innovations to create a high-performance platform that is sold at a lower price than the Sequoia systems but at a premium to the 128XP system. The Aspen system began shipping in November 1996. During 1997, Acuson introduced Native(TM) Tissue Harmonic Imaging (NTHI), the first major upgrade to the Sequoia platform. When compared to images not using NTHI, NTHI produces significantly clearer diagnostic images for a portion of the patient population that is considered difficult to image. Difficult-to-image patients may be obese, elderly, extremely muscular or may suffer from the side effects of chemotherapy, smoking or cardiac surgery. NTHI overcomes the imaging challenges posed by this patient population by transmitting the echoes at lower frequencies to improve 2 penetration into the body, while receiving and processing only the higher frequency echoes produced by the body's inherent harmonic characteristics. The result is a significant improvement in image clarity and tissue contrast resolution. During 1998, the Company introduced the Advanced Imaging Option for the Aspen system. This option combines into one high-performance upgrade, NTHI and DELTA(R) differential echo amplification, which enhances contrast resolution while maintaining detail resolution. A second major product introduction in 1997 was the MICROSON(TM) high-resolution transducer family. MICROSON transducers enable clinicians to visualize with extraordinary detail tiny structures that are very close to the surface of the skin. MICROSON transducers are particularly useful in musculoskeletal examinations to look at nerves, tendons and muscles and in imaging small parts, such as breasts, thyroid glands and testicles. MICROSON transducers are available for Sequoia, Aspen and 128XP systems. Also during 1997, Acuson introduced several new products for the digital storage, transmission and review of ultrasound images, expanding the Company's role in providing products to enhance the productivity and efficiency of the ultrasound department. In May 1997, the Company introduced the WorkPro(TM) productivity package, an upgrade to the AEGIS system. In June 1997, the Company introduced the ViewPro(TM) image review software package and the WebPro(TM) web- based package, two other cost-effective solutions that allow ultrasound images to be reviewed off-line and transferred to remote sites via the Internet or an intranet. In November 1998, the Company launched the WS3000(TM) Ultrasound PACS Workstation. The WS3000 Workstation is a complete Windows(R) NT hardware/software solution for use with the AEGIS system and includes features that enable increased exam review productivity and the ability to create final reports on-line. During 1998, the Company introduced the Perspective(TM) Advanced Display Option for the Sequoia and Aspen systems. This option provides a practical and comprehensive package of display capabilities, including FreeStyle(TM) Extended Imaging, 3D fetal assessment surface rendering and 3D organ assessment volumetric rendering. In 1998, Acuson announced that the Company was developing a new intracardiac ultrasound catheter called the AcuNav (TM) Diagnostic Ultrasound Catheter. The AcuNav catheter contains a fully functional ultrasound transducer miniaturized to fit into the tip of a catheter just over 3 millimeters in diameter. The catheter is inserted through the femoral vein directly into the heart, and is intended to increase image clarity and allow physicians to clearly visualize chambers, valves and devices within the heart. The Company is currently conducting clinical trials of the AcuNav catheter in preparation for submission of a 510(k) application to obtain premarket clearance from the United States Food and Drug Administration. ACUSON'S PRODUCTS AND TECHNOLOGIES The Company's ultrasound platforms - the Sequoia ultrasound platform, the Aspen ultrasound platform and the 128XP ultrasound platform - are designed to bring cost-effective solutions to clinical applications such as radiology, cardiology, ob/gyn and peripheral vascular. Acuson believes that this family of ultrasound systems provides the following benefits when compared with other ultrasound technologies. IMAGING PERFORMANCE. Acuson's systems are designed to provide superior image quality through greater detail resolution, contrast resolution and image uniformity. In addition, Acuson systems provide superior clinical sensitivity for a broad range of Doppler and color Doppler applications, which are used to detect, measure and depict blood flows. VERSATILITY. Acuson's breadth of product offerings provides customers with a wide range of choices depending on their budgetary and clinical needs. RELIABILITY. The Company's thousands of ultrasound systems under warranty or full-service contract in North America have averaged more than 99.9% cumulative uptime since 1983. UPGRADABILITY. Acuson's ultrasound systems have an upgradable core architecture. Every Acuson 128 system shipped since 1983 can be upgraded to perform every diagnostic capability the Company now offers on new 128XP systems. In many cases, the changes are accomplished simply with new software. In other cases, customers purchase new hardware options or transducers, which also include new software to control 3 performance. All three of the Company's ultrasound platforms are designed to follow the same philosophy of upgradability that was established with the Acuson 128 platform. EASE OF USE. Acuson's philosophy of system design and its system architecture allow for greater ease of use. The portability and maneuverability of the Sequoia and Aspen platforms help increase hospital efficiency and productivity, while the ergonomic design of the new systems and transducers enhances both doctor and patient comfort levels. SEQUOIA ULTRASOUND PLATFORM. The Sequoia platform relies on four proprietary cornerstones: Coherent Image Formation, Doppler technology, transducer technology with patented connectors and the DIMAQ(TM) integrated ultrasound workstation. The list price of a Sequoia system starts at $200,000. COHERENT IMAGE FORMATION. Sequoia systems use patented coherent image formation technology and scan with digital processing channels to acquire and encode phase and amplitude data. These encoded data are then assembled to create images based on full echo information. DOPPLER TECHNOLOGY. Acuson's advances in Doppler technology on the Sequoia systems include SST(TM) Color Doppler and Solo(TM) Spectral Doppler. SST COLOR DOPPLER. With SST Color Doppler, the Sequoia C256 and Sequoia 512 systems use multiple beamformers to produce high spatial resolution color Doppler images at high frame rates. SOLO SPECTRAL DOPPLER. The Sequoia systems use a dedicated audio beamformer for spectral Doppler. This results in a high degree of sensitivity and clarity of information throughout the entire spectral waveform. TRANSDUCER TECHNOLOGY. The Sequoia platform includes a new family of transducers that feature new acoustic, connector and ergonomic design. These transducers offer a new level of high frequency capability and low noise performance. The new patented Sequoia transducer connector features a pinless design, while maintaining 612 simultaneous connections. In addition, these transducers offer expanded MultiHertz(R) multiple frequency imaging capabilities. DIMAQ INTEGRATED ULTRASOUND WORKSTATION. The Sequoia platform integrates a special-purpose ultrasound workstation into the system architecture. The DIMAQ integrated ultrasound workstation has direct access to exam data generated in the system. It offers real-time digital image processing, such as DELTA differential echo amplification, and runs special application programs. DELTA differential echo amplification is a patented, real-time processing technique for improving wall visualization and tissue conspicuity. The DIMAQ workstation provides connectivity and DICOM (the medical industry standard for digital imaging and communication) capability. ASPEN ULTRASOUND PLATFORM. The Aspen ultrasound system resulted from a convergence of select technologies from the Sequoia ultrasound platform and other Acuson innovations to create a high-performance platform at a lower price than the Sequoia systems. The Aspen platform is built on four major cornerstones: technology convergence, value engineering, transducer technology and the DIMAQ integrated ultrasound workstation. The list price of an Aspen system starts at $150,000. TECHNOLOGY CONVERGENCE. As mentioned above, the Aspen platform represents a convergence of select technologies from the Sequoia platform and other Acuson innovations. One example of these innovations that is currently unique to the Aspen system is Convergent(TM) Color Doppler, which improves color Doppler performance in such applications as renal, obstetric, gynecological and small parts imaging. VALUE ENGINEERING. Value engineering provides versatility and upgradability, system portability and ergonomics. The Aspen system is compact, lightweight and provides a keyboard design that places the most frequently used controls at the user's fingertips. 4 TRANSDUCER TECHNOLOGY. The Aspen platform supports more than 20 transducers addressing all major ultrasound clinical applications. The Aspen system accommodates new transducers designed specifically for the Aspen platform as well as select transducers from both the 128XP and the Sequoia systems. DIMAQ INTEGRATED ULTRASOUND WORKSTATION. Similar to the Sequoia platform, the DIMAQ workstation is a special-purpose ultrasound workstation that is completely integrated within the Aspen architecture. The DIMAQ workstation, which includes the hardware foundation for DICOM software and real-time JPEG compression and decompression, has direct access to exam data generated in the system. It offers real-time digital image processing and runs special application programs. 128XP ULTRASOUND PLATFORM. The Acuson 128XP system is a clinically versatile, cost-effective ultrasound system. Since its introduction in 1990, several major upgrades to the 128XP system have been introduced, including Color Doppler Energy, Acoustic Response Technology/Tissue Contrast Resolution ("ART/TCR"), DTI(TM) Doppler Tissue Imaging, EF(TM) Extended Frequency upgrade and the PerformancePlus(TM) update. The 128XP system also has incorporated features and functions from the Sequoia and Aspen platforms, such as a wide array of transducer technologies and new diagnostic functions. The Company currently plans to introduce the NTHI upgrade option on its 128XP system during 1999. The list price of a 128XP system starts at $80,000. PICTURE ARCHIVING AND COMMUNICATION SYSTEM (PACS) PRODUCTS. The AEGIS system is a PACS product that enables the capture and storage of ultrasound examinations for on-line review, archiving and transmission within the hospital and over wide-area networks, improving the effectiveness of the overall ultrasound system and aiding in improving the timeliness and quality of the diagnosis. The AEGIS system allows connectivity to DICOM PACS and printers and supports ultrasound systems from Acuson and from other manufacturers. The list price of the AEGIS system depends on the size and capability of the network with a typical system ranging in list price from $125,000 to $350,000. Acuson attempts to protect its intellectual property through a combination of trade secrets and, where appropriate, copyrights, trademarks and patents. The Company also relies substantially on its unpatented proprietary know-how. See "Investment Risks - Patents and Proprietary Technology" for a detailed discussion as well as certain risk factors. SERVICE The Company employs a staff of full-time service engineers who service Acuson systems in North America and in the countries where Acuson has international subsidiaries. Service to customers in other international areas is provided through the Company's independent distributors. Acuson warrants its products for 12 months and thereafter provides service through service contracts and other time and material arrangements. All domestic ultrasound systems under Acuson warranty or full-service contracts are guaranteed to have 99.0% uptime, and such systems have averaged more than 99.9% cumulative uptime since 1983. Systems under warranty or service contract receive periodic maintenance by Acuson service engineers, who also install new system capabilities or software upgrades and respond to customer service requests. These services may be purchased from the Company's service organization by customers who do not have a service contract with Acuson. Service revenue was 19.8%, 19.5% and 24.6% of total net sales in 1998, 1997 and 1996, respectively. See Part II, Item 7 - "Management's Discussion and Analysis of Financial Condition and Results of Operations." See also "Investment Risks - Service" below for certain risk factors related to the Company's service business. MARKETING AND SALES The Company sells its products primarily to hospitals, clinics, private and governmental institutions and healthcare agencies and doctors' offices. The Company and its subsidiaries employ their own full-time sales, service and applications staff in North America, certain European countries, Australia and Japan. Acuson sells through independent distributors in other European countries, Asia, Latin America and the Middle East. The Company typically sells its products below the list price, as part of its marketing strategy, and also leases its equipment to customers under sales- 5 type leases. See Note 4 of Notes to Consolidated Financial Statements contained in Part II, Item 8 for additional information on the Company's sales-type leasing activities. The Company targets the high-end segments of the ultrasound market and focuses its efforts on the following major hospital-based ultrasound market segments: United States General Imaging, United States Cardiovascular and International. The Company entered the United States General Imaging market in 1983. The major sub-segments of this market include radiology, peripheral vascular and ob/gyn. Radiology includes examinations of abdominal organs, the gastrointestinal tract, the urinary tract, the musculoskeletal structure and small parts such as the breasts, testes and thyroid. The peripheral vascular sub-segment focuses primarily on examinations of the vessels of the leg and neck. Applications of ob/gyn center on examinations of the female reproductive system and the developing fetus. The Company entered the United States Cardiovascular market in 1988. Cardiology applications center on examinations of the heart and proximate vessels, while cardiovascular applications extend to include the entire vascular system. The Company entered the international market segment in 1984. International markets generally include the same range of clinical ultrasound applications as the domestic market. See Note 10 of Notes to Consolidated Financial Statements contained in Part II, Item 8 for information concerning the Company's operating segments and additional geographic information. The sales process for ultrasound systems typically requires six to eighteen months between initial customer contact and placement of an order. On-site demonstrations are often part of the customer's evaluation process, and customers frequently make side-by-side comparisons of performance and other features of competing systems. Acuson employs a staff of applications personnel who operate the system during sales demonstrations and who also train physicians and ultrasound technicians on the use of the system after delivery. COMPETITION Acuson competes primarily on the basis of the major clinical and efficiency benefits of the imaging performance, versatility, reliability, upgradability, digital image management, ease of use and price of its products. The Company believes that its product capabilities can enable physicians to make earlier, more accurate and/or more confident diagnoses and also can provide superior long-term economic value. As do virtually all companies in the industry, Acuson offers on-site system demonstrations to customers during the sales process, and customers frequently evaluate equipment performance and other factors. The markets for the Company's products have become increasingly competitive and price is often a factor in the purchase decision. The Company's ultrasound equipment competes with systems offered by a number of companies and their affiliates abroad, including ATL Ultrasound, Inc. ("ATL"), a division of Philips Medical Systems; Aloka Co., Ltd.; General Electric Company; Hewlett-Packard Company; Hitachi Corporation; Siemens Medical Systems, Inc. and Toshiba Medical Systems, Inc. All of these competitors have significantly greater financial and other resources and generally compete in more medical imaging and other market segments and countries than Acuson. While the Company believes that its Sequoia and Aspen systems provide superior and advanced capabilities and features, the products offered to date by these competitors in some cases include features and capabilities not currently offered by Acuson and in some cases are substantially less expensive than Acuson's products. See "Investment Risks - Competition" below. Diagnostic ultrasound is generally less expensive than other competing imaging modalities such as computed tomography and magnetic resonance imaging, and, in certain applications, offers capabilities that make it the modality of choice regardless of cost. However, no assurance can be given that such price and/or performance advantages can be maintained in comparison to other current or future imaging modalities. In addition, ultrasound systems compete with other imaging modalities for limited hospital funding. See "Investment Risks - Ultrasound Market Changes" below. PRODUCT DEVELOPMENT 6 One of Acuson's fundamental beliefs is that technological innovations can provide the best solutions for cost-constrained medical environments. The Company spent $57,600,000, $57,300,000 and $60,900,000 on product development in 1998, 1997 and 1996, respectively. See "Company History" and "Acuson's Products and Technologies" above. Since Acuson's founding, virtually all product development has taken place at the Company's headquarters in Mountain View, California. The Company maintains a strong commitment to product development programs to develop proprietary technologies. Product development is subject to certain risk factors. See "Investment Risks - Products" below. GOVERNMENT REGULATION As a manufacturer of medical devices, Acuson is subject to extensive regulation by federal, state and local governmental authorities, such as, the United States Food and Drug Administration (the "FDA") and the California Department of Health Services. Obtaining FDA clearances or approvals of the Company's products can be time consuming, lengthy, uncertain and expensive and can delay the marketing and sale of the Company's products. The Company's products generally require either FDA 510(k) premarket clearance or a premarket approval ("PMA"). The review of a PMA application generally takes one to two years from the date the PMA is accepted for filing, but may take significantly longer. It generally takes from four to twelve months from submission to obtain 510(k) premarket clearance, but may take longer. The FDA has recently been more rigorous in its 510(k) clearance process, which has generally resulted in a longer review period. See "Investment Risks - Regulation by Government Agencies" below. Congress also recently passed the FDA Modernization Act of 1997, which enacts significant changes in how FDA regulates medical devices. The practical effects of this new law on the Company are not known at this time. Manufacturers of medical devices marketed in the United States are required to adhere to FDA's applicable Quality Systems Regulations ("QSR") which include testing, design, control and documentation requirements. Manufacturers also must comply with Medical Device Reporting ("MDR") requirements that a firm report to the FDA certain adverse events associated with the Company's devices. The Company is subject to routine inspection by the FDA and certain state agencies for compliance with QSR requirements, MDR requirements and other applicable regulations. The FDA uses its statutory authority vigorously during inspections of companies and in other enforcement matters. The FDA has recently finalized changes to the QSR regulations and has promulgated new MDR regulations, both of which will likely increase the cost of compliance with QSR requirements. The Company also is subject to numerous federal, state and local laws relating to such matters as healthcare "fraud and abuse," safe working conditions, manufacturing practices, environmental protection, fire hazard control and disposal of hazardous or potentially hazardous substances. Changes in existing requirements and implementation and adoption of new requirements could have a material adverse effect on the Company's business, financial condition and results of operations. Although Acuson believes that it is in compliance with all applicable regulations of the FDA, the State of California and other federal, state, and local governmental authorities, current regulations depend heavily on administrative interpretation, and there can be no assurance that the Company will not incur significant costs to comply with laws and regulation in the future or that laws and regulations will not have a material adverse effect upon the Company's business, financial condition or results of operations. In addition, the potential effects on the Company of heightened enforcement of federal, state and local regulations cannot be predicted. The Federal government regulates hospital and physician payments for diagnostic examinations furnished to Medicare beneficiaries, including related capital equipment acquisition costs. For inpatient services, hospitals are reimbursed under the Medicare prospective payment system ("PPS") that pays hospitals a fixed amount for services provided to an inpatient based on the patient's diagnosis-related group ("DRG"), which is established based on principal and secondary diagnoses and discharge status, rather than reimbursing the hospital for its actual costs incurred. For capital costs related to inpatient services, in 1991 Medicare began to phase in over a ten-year period a prospective payment system that incorporates an add-on to the DRG-based payment. Under the Balanced Budget Act of 1997 ("BBA"), capital payments to hospitals will be reduced by 2.1 percent between October 1, 1997 and September 30, 2002. For certain hospital outpatient services, including ultrasound examinations, reimbursement currently is based on the lesser of the hospital's costs or charges, or a blended amount composed of the hospital's reasonable costs and the fee schedule amount that Medicare reimburses for such services when furnished in a physician's office. The BBA required 7 hospital outpatient reimbursement to shift to a prospective payment system by 1999. However, because the Health Care Financing Administration ("HCFA") is experiencing Year 2000 problems, implementation of the outpatient PPS has been delayed until April 2000 at the earliest. Since final regulations implementing this new payment system have not been issued, it is unclear what impact this new system will have on payment for ultrasound services. Until January 2000, capital acquisition costs for services furnished to hospital outpatients will be reimbursed on the basis of 90 percent of the reasonable costs actually incurred by the hospital. Thereafter, payment for capital will be folded into the new outpatient PPS methodology. In general, prospective payment systems for both inpatient and outpatient hospital services, where reimbursement is based on a fixed fee rather than actual costs incurred, could have a negative impact on hospital purchases of expensive equipment. Physicians are reimbursed for Medicare services according to a fee schedule. Fee schedule payments include a component to reimburse physicians for the practice expenses incurred in their office practices, including expenses such as the purchase of ultrasound devices. On January 1, 1999, HCFA revised the manner in which practice expenses are valued from the current historical charge basis to a resource basis. For 1999, physician payments for ultrasound services experienced very little change under the new payment system. However, these values are considered interim for the next four years and still could change significantly over this period. The Administration and Congress from time to time consider various Medicare and other healthcare reform proposals. Some of these proposals could affect significantly both private and public reimbursement for healthcare services, including diagnostic devices, and could adversely affect the demand for such devices. Reimbursement for services rendered to Medicaid beneficiaries is determined pursuant to each state's Medicaid plan, which is established by state law and regulations, subject to requirements of federal law and regulations. The BBA has allowed states even more control over coverage and payment issues. The impact on the Company of this greater state control on Medicaid payment for diagnostic services is uncertain. Federal and state laws also regulate the sale of medical devices, the referral of patients for diagnostic examinations utilizing such devices, and the submission of claims to third party payers (including Medicare and Medicaid). These laws include physician self-referral prohibitions, antikickback laws, and false claims laws. The Company seeks to structure its arrangements with hospitals, physicians, and other customers to be in compliance with these federal and state laws, and to keep up-to-date on developments concerning their application by various means including consultation with legal counsel. However, the Company is unable to predict how these laws will be applied in the future, and no assurances can be given that its arrangements will not become subject to scrutiny under them. Since June 1998, medical device companies wishing to sell products into those European countries that are members of the European Union are required to place the CE mark on their products. To be able to place that mark on its products, Acuson must comply with the standards of the European Medical Device Directive (the "MDD"), and be subject to annual surveillance audits by a certified organization to assure conformity to the MDD. The Company is currently certified as compliant with the relevant requirements of the MDD and the Company will undertake activities designed to assure continued compliance; however, no assurance can be given that the Company will continue to be able to place the CE mark on its products. If the Company loses its ability to place the CE mark on its products, the Company will not be able to sell its products into the European Union. In 1998, sales into the European Union accounted for approximately 19.0% of the Company's revenues. MANUFACTURING The Company primarily manufactures its products at its Mountain View, California facility. In October 1994, Acuson acquired Sound Technology Incorporated ("STI"), a transducer manufacturer located in State College, Pennsylvania. STI provides complementary technical capabilities to the Company's established Transducer Division. For other sub-assemblies, the Company generally subcontracts with outside vendors for assembly and fabrication and in addition, produces some components at its own facility in Canoga Park, California. Sub- assemblies are produced according to the Company's designs or specifications. The Company performs assembly, testing and quality assurance at various stages of completion. 8 Component parts and microprocessors for the Company's products and some specialty transducers are purchased from outside vendors. A number of such items currently have limited or single sources of supply. See "Investment Risks - Manufacturing" below. The Company builds units to a marketing forecast that is updated periodically and utilizes a commercially available computer system for manufacturing, accounting and sales order processing. Because it builds to forecast, the Company does not consider its backlog a significant indicator of business levels. EMPLOYEES As of December 31, 1998, the Company had 1,894 full-time employees. The Company considers its relations with its employees to be good. INVESTMENT RISKS In evaluating and understanding Acuson's business and financial prospects and the potential success of any Acuson product, and in evaluating any forward- looking statement contained in this document or otherwise, prospective investors and stockholders should carefully consider the factors set forth below. PRODUCTS. During 1996, Acuson introduced two major new products, the Sequoia and Aspen ultrasound systems. There is no guarantee that sales of such products will increase or continue at their current rate. As more Aspen and Sequoia systems enter the clinical environment, continued market acceptance will depend in part on the actual and perceived performance and quality of these products in that clinical environment. In addition, the Company believes that the continued success of these products will also depend on the timely and successful completion of future product enhancements and capabilities. The Company has a number of these new product enhancements and capabilities as well as additional new products, including the AcuNav ultrasound catheter, under development at any time. There is no guarantee, however, as to when, if ever, the development of such products and product enhancements and capabilities will be completed. COMPETITION. Diagnostic ultrasound is a well-established field in which there are a number of competitors. The Company competes with several companies and their affiliates such as ATL, Aloka Co., Ltd., General Electric Company, Hewlett-Packard Company, Hitachi Corporation, Siemens Medical Systems, Inc., and Toshiba Medical Systems, Inc., all of which have significantly greater financial and other resources. In addition, most of these companies compete in more medical imaging and other market segments and countries than the Company. While the Company believes that its Sequoia and Aspen systems provide superior and advanced capabilities and features, the products offered to date by these competitors in some cases include features and capabilities not currently offered by the Company and in some cases are substantially less expensive than the Company's products. Market success in diagnostic ultrasound is heavily dependent on the purchaser's evaluation of the system's diagnostic value, cost, ease of use and safety. Any established or new ultrasound company may introduce a system or upgrades to an existing system that is equal to or superior to the Company's products in quality or performance and no assurance can be given that the Company's products will remain competitive with existing or future products. If a competitor introduces a new product, customers may delay submitting new orders to the Company and may cancel orders in the backlog. ULTRASOUND MARKET CHANGES. Diagnostic ultrasound is generally less expensive than other competing imaging modalities such as computed tomography and magnetic resonance imaging, and, in certain applications, offers capabilities that make it the modality of choice regardless of cost. However, these price and/or performance advantages may not continue in comparison to other current or future imaging modalities. In addition, ultrasound systems compete with other imaging modalities for limited hospital funding. The trends of health care provider consolidation, medical cost containment and intense competitive pressures are continuing in the market. These factors have placed increased pressures on ultrasound system pricing and along with start-up and other manufacturing costs of the Company's new product lines, have contributed to the decline in the 9 Company's gross margins over the last several years. For example, the Company's gross margins have declined from 61.3% in 1990 to 47.3% in 1998. Further, the U.S. government is continuing to consider Medicare reforms. The Company believes that future revenues and profitability will continue to be impacted by these uncertainties, especially in the Company's domestic markets. Although some portions of the international ultrasound markets are experiencing some economic growth, it is uncertain whether this is a temporary or permanent trend. As health care provider consolidation and medical cost containment continue in the market, customers are relying to an increased degree on national sales contracts. In 1997, the Company was awarded a number of national contracts, some of which are exclusive for a number of years. If the Company is unsuccessful at obtaining future national contracts, the Company may be precluded from selling to certain large customers or buying groups. In addition, the exclusive contracts may be canceled during their term by the customer or may not be renewed. PATENTS AND PROPRIETARY TECHNOLOGY. Acuson attempts to protect its intellectual property through a combination of trade secrets and, where appropriate, copyrights, trademarks and patents. The Company owns or has rights to greater than 100 U.S. patents (plus many international counterparts), covering certain aspects of its systems, and it has over 150 U.S. patent applications pending (plus many international counterparts). No assurances can be given as to the breadth or degree of protection patents, copyrights, trademarks or trade secrets will afford the Company. The Company's competitors also rely on patents to protect their technology, and numerous physicians, universities and other individuals or entities in the ultrasound field are patenting many ultrasound inventions. The Company has from time to time received notices from such competitors and other entities or individuals that the Company may need a license to one or more of their patents in order to continue to sell its products. Such a competitor, individual or entity may have, or may be granted, a patent to which the Company must obtain a license if it wishes to market and sell any one or more of its products. To date, patent disputes involving the Company have ultimately been resolved through licensing arrangements, sometimes involving the payment of royalties by the Company. There can be no assurance that the Company will be able to obtain a license to any patent (if so required) or that such a license will be available on reasonable financial or other terms. The Company also relies heavily on its unpatented proprietary know-how. No assurance can be given that others will not be able to develop substantially equivalent proprietary information to the Company's, or otherwise obtain access to the Company's know-how. REGULATION BY GOVERNMENT AGENCIES. As a manufacturer of medical devices, Acuson is subject to extensive regulation by federal, state and local governmental authorities, such as the FDA and the California Department of Health Services. Obtaining FDA market clearances or approvals can be time consuming, lengthy and expensive and there can be no assurance that the necessary clearance or approval will be granted the Company or that FDA review will not involve delays adversely affecting the Company. For example, the Company believes that the time it takes to obtain clearance for new products has increased and the FDA has been more rigorous in its 510(k) clearance process. Manufacturers of medical devices marketed in the United States are required to adhere to numerous regulations, including Quality Systems Regulations ("QSR"), which address testing, design, control and documentation requirements. Manufacturers also must comply with Medical Device Reporting ("MDR") requirements that a firm report to the FDA certain adverse events associated with a Company's devices. The Company is subject to routine inspection by the FDA and certain state agencies for compliance with QSR requirements, MDR requirements and other applicable regulations. The Company believes the FDA is using its statutory authority more vigorously during inspections of companies and in other enforcement matters. The FDA has recently finalized changes to the QSR regulations and has promulgated new MDR regulations, both of which will likely increase the cost of compliance with QSR requirements. Congress also recently passed the FDA Modernization Act of 1997, which enacts significant changes in how the FDA regulates medical devices. The Company also is subject to numerous federal, state and local laws relating to such matters as health care "fraud and abuse," safe working conditions, manufacturing practices, environmental protection, fire hazard control and disposal of hazardous or potentially hazardous substances. Changes in existing requirements and implementation and adoption of new requirements could have a material adverse effect on the Company's business, financial condition and results of operations. Although Acuson believes that it is in compliance with all applicable regulations of the FDA, the State of California and other federal, state and local governmental authorities, current regulations depend heavily on administrative interpretation, and there can be no assurance that the Company will not incur significant costs to comply with laws and regulations in the future or that laws and regulations will not have a material adverse effect upon the 10 Company's business, financial condition or results of operations. In addition, the potential effects on the Company of heightened enforcement of federal, state and local regulations cannot be predicted. Federal and state regulations also govern or influence the reimbursement to health care providers of fees and capital equipment costs in connection with medical examinations of certain patients. Changes in current policies, including implementation of a new hospital outpatient reimbursement system, could impact reimbursement for the purchase and/or operation of the Company's equipment by such providers and thereby adversely affect future sales of the Company's products. In particular, the Clinton Administration and the Congress continue to debate and consider various Medicare and other health care reform proposals that could significantly affect both private and public reimbursement for health care services. Some of these proposals, if enacted into law, could reduce reimbursement for or the incentive to use diagnostic devices and procedures and thus could adversely affect the demand for diagnostic devices, including the Company's products. Acuson and its customers are subject to various federal and state laws pertaining to physician self-referral prohibitions, antikickback laws and false claims laws. Acuson seeks to structure its sales, marketing and other activities to comply with these and other laws. However, given the broad reach of these laws, there can be no assurance that Acuson's activities would not be subject to scrutiny and/or challenge at some time in the future. Since June 1998, medical device companies wishing to sell products into those European countries that are members of the European Union have been required to place the CE mark on their products. To be able to place that mark on its products, Acuson must comply with the standards of the MDD, and be subject to annual surveillance audits by a certified organization to assure conformity to the MDD. The Company is currently certified as compliant to the relevant requirements of the MDD and the Company will undertake activities designed to assure continued compliance; however, no assurance can be given that the Company will continue to be able to place the CE mark on its products. If the Company loses its ability to place the CE mark on its products, the Company will not be able to sell its products into the European Union. In 1998, sales into the European Union accounted for approximately 19.0% of the Company's revenues. EMPLOYEES. Acuson believes that its continued success and future growth will depend on, among other factors, its ability to continue to attract and retain skilled employees. The loss of a significant number of employees could adversely affect its business, most significantly by delaying the development of new products and product enhancements. The job market in the Silicon Valley area is very competitive, especially for skilled electrical and software engineers. There can be no assurance that the Company will be able to retain or hire key employees. MANUFACTURING. Component parts and microprocessors for the Company's products and some specialty transducers are purchased from outside vendors. A number of such items currently have limited or single sources of supply, and disruption or termination of those sources could have a temporary adverse effect on shipments and the financial results of the Company. The Company believes that it could ultimately develop alternate sources for all such items, but that sales could be lost or deferred as a result of doing so. SERVICE. Approximately 19.8% of the Company's 1998 revenues were derived from the Company's service activities, including the sales of service contracts and time and material services. Increasing cost containment pressures in the market have adversely impacted the number of customers purchasing service contracts and the prices of those contracts, but this impact has been somewhat offset by the Company's increased installed base and an increase in time and material services. The Company believes that the trend away from service contracts will continue and there can be no assurance that the Company will be able to continue to maintain its current levels of service contract revenue. Further, the introduction of the Sequoia and Aspen products by the Company will continue to reduce sales of new service contracts and options to the 128XP system installed base. In addition, the Company has made significant expenditures in establishing remote diagnostic and other service programs unique to the Sequoia and Aspen systems. There can be no assurance that this investment will be profitable, as the success of the Aspen and Sequoia service program will depend in part on the number of Aspen and Sequoia systems sold. Finally, the Company has seen an increasing trend for hospitals to purchase asset management contracts, in which all of the hospital's medical equipment and in some cases, other assets, are managed and serviced by third parties. As Acuson does not sell asset management services and only services Acuson ultrasound systems, this increased trend toward asset management contracts could have an adverse impact on the Company's sales of service contracts and its time and materials service business. 11 INTERNATIONAL OPERATIONS AND INTERNATIONAL RECEIVABLES. The Company's international business is subject to risks of potential negative impacts from economic weakness in certain countries in Asia, Latin America and Europe and by adverse economic impacts from currency fluctuations in its worldwide operations. As the Company's international business has grown, the Company has an increasing percentage of its receivables in other countries. Political instability, currency fluctuations or other issues may impact the ability of the Company to collect receivables in foreign countries. The following table, in thousands, summarizes the Company's foreign receivables in excess of $3.0 million at December 31, 1998: December 31, 1998 ------------------------ Italy $14,081 Brazil 12,567 France 7,034 Japan 6,221 China 5,744 Germany 5,506 Sweden 3,974 Switzerland 3,617 DERIVATIVE FINANCIAL INSTRUMENTS. The Company is subject to market risk due to fluctuations in foreign currency exchange rates. The Company manages this risk through established policies and procedures that include the use of derivative financial instruments. The Company routinely enters into forward foreign currency exchange contracts to hedge amounts due from selected subsidiaries denominated in foreign currencies against fluctuations in exchange rates. The purpose of the hedging activities is to minimize the effect of foreign exchange rate movements on the Company's operating results and on the cash flows it receives from its foreign subsidiaries. Currently, the Company neither engages in foreign currency speculation nor holds or issues financial instruments for trading purposes. Because the Company only enters into forward currency exchange contracts as hedges, any change in currency rates would not result in a material gain or loss, as any gain or loss on the underlying transaction being hedged would be offset by the gain or loss on the forward currency contract. For this reason, the Company believes that neither its exposure to foreign currency exchange rate risk nor any potential near-term losses in future earnings, fair values or cash flows from reasonably possible near-term changes in market rates or prices would be material. Forward currency contract terms are typically not more than three months and the counterparties to the exchange contracts are major domestic and international financial institutions. See Note 2 of Notes to Consolidated Financial Statements contained in Part II, Item 8 for additional information regarding the Company's forward foreign currency exchange contracts and accounting treatment thereof. EURO CONVERSION. On January 1, 1999, eleven of the fifteen member countries of the European Union adopted the Euro as their common legal currency. Following the introduction of the Euro, the local currencies of the participating countries are scheduled to remain legal tender until June 30, 2002. During this transition period goods and services may be paid for in either Euros or the participating country's local currency. Thereafter, only the Euro will be legal tender in the participating countries. The Company believes its current accounting systems are capable of accommodating the Euro conversion with minimal intervention and that the conversion will not have a material impact on the competitiveness of its products in Europe. The Company also believes any costs of addressing the Euro conversion will not have a material impact on the Company's financial statements. COMPANY'S COMPUTING ENVIRONMENT. The Company uses a centralized computing environment to control its order administration, financial and manufacturing processes. During 1997, the company initiated a two-phase project to replace its outdated computing environment with an enterprise-wide, integrated business information system to control many of its operating systems including order administration, service and financial and manufacturing processes. The first phase of this project was substantially completed during 1998 and the second phase is currently scheduled to be completed during the latter half of 2000. The Company has retained an experienced consulting organization to assist in the conversion, however, the Company's future shipments and results could be adversely impacted if, during and following the conversion, there are significant problems with the system. YEAR 2000 READINESS. The Company is taking steps to ensure its products and services will continue to operate on and after January 1, 2000. In addition to the new business information system noted above, which is year 2000 ready and will be replacing a significant portion of the Company's critical systems, the Company is currently engaged in a three- 12 phase project to evaluate and remedy those systems not being replaced. The first phase, completed in May 1998, included a comprehensive inventory of the Company's systems by an experienced consulting firm and an analysis and determination of the criticality of each system. This phase included the evaluation of both information technology ("IT") and non-IT systems. Non-IT systems include systems or hardware containing embedded technology such as microcontrollers. The second phase was completed in December 1998, and focused on confirming the year 2000 readiness of those systems identified in phase one. The third and final phase, which is expected to be completed during the third quarter of 1999, will involve taking any needed corrective action to make all remaining critical systems and components year 2000 ready and to develop a contingency plan in the event any non-compliant critical systems are not remedied by January 1, 2000. The Company expects the project to be successfully completed during the third quarter of 1999 and has established a year 2000 steering committee, comprised of senior executives, and a dedicated program office to track and monitor the progress of the project. However, if by January 1, 2000, systems material to the Company's operations have not been made year 2000 ready, the year 2000 issue could have a material impact on the Company's financial statements. To date, the costs incurred by the Company with respect to this project have not been material and future anticipated costs are not expected to be material. The Company's products being shipped today are year 2000 ready and the Company believes its products previously shipped are either year 2000 ready or can be made year 2000 ready by customer purchase of an upgrade. The Company has also been communicating with suppliers and others it does business with to coordinate year 2000 readiness. The responses received by the Company to date have indicated that steps are currently being undertaken to address this concern. Based upon the steps being taken to address this issue and the progress to date, the Company does not expect the financial impact of the year 2000 date conversion to be material to its financial position or results of operations. However, if preventative and/or corrective actions by the Company or those the Company does business with are not made in a timely manner, the year 2000 issue could have a material adverse effect on the Company's financial statements. The Company primarily sells its products to hospitals, clinics and other customers within the healthcare industry. Should the year 2000 issue impact the ability and willingness of these customers to purchase capital equipment, the year 2000 issue could have a material adverse impact on the Company's financial statements. INDUSTRY CONSOLIDATION. During 1998, Philips Medical Systems completed its acquisition of ATL Ultrasound, Inc. The Company believes that consolidations such as this may provide its competitors with significantly greater financial and other resources with which to compete in the marketplace. As companies attempt to strengthen or hold their market positions, future consolidation within the industry could lead to increased variability in the Company's operating results and could have a material adverse impact on the Company's financial statements. EARTHQUAKE. The Company's research and development and manufacturing activities, its corporate headquarters and other critical business operations are located near major earthquake faults. In the event of a major earthquake, the ultimate impact on the Company, significant suppliers and the general infrastructure is unknown, but operating results could be materially affected. The Company is not insured for losses and interruptions caused by earthquakes. Acuson, AEGIS, DELTA, MultiHertz, Sequoia and 128XP are registered trademarks and AcuNav, Aspen, Convergent, DIMAQ, DTI, EF, FreeStyle, MICROSON, Native, PerformancePlus, Perspective, Solo, SST, ViewPro, WS3000, WebPro and WorkPro are trademarks of Acuson Corporation. Windows is a registered trademark of Microsoft Corporation. ================================================================================ 13 ITEM 2 PROPERTIES The Company leases its facilities under operating leases. The principal offices and manufacturing space are located in Mountain View, California. In addition, the Company leases manufacturing facilities in Canoga Park, California and State College, Pennsylvania, and sales and service facilities in various locations in the United States and abroad. The Company believes its facilities are adequate for its present needs, in good condition and suitable for their intended uses. ================================================================================ ITEM 3 LEGAL PROCEEDINGS On October 27, 1994, the Company was sued in Ghent, Belgium, by Cormedica NV, in connection with the Company's termination of its distributor relationship with Cormedica. In the suit, Cormedica seeks indemnities and damages in the amount of approximately $2.5 million, plus interest. This suit is still in the fact- finding stage. The Company intends to defend this suit vigorously. ================================================================================ ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of security holders during the fourth quarter of the fiscal year covered by this report. ================================================================================ ITEM 4A DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. The directors and executive officers of the Company and their ages as of March 31, 1999 are as follows:
NAME AGE POSITION ---- --- -------- Samuel H. Maslak 50 Chairman of the Board and Chief Executive Officer Robert J. Gallagher 55 Vice Chairman of the Board and Senior Vice President Albert L. Greene 49 Director Karl H. Johannsmeier 70 Director Daniel R. Dugan 44 President Barry Zwarenstein 50 Vice President, Chief Financial Officer Edward P. Cornell 54 Senior Vice President, Engineering Rick E. Smith 52 Senior Vice President, Worldwide Sales and Marketing Bradford C. Anker 53 Vice President, Manufacturing Charles H. Dearborn 46 Vice President, Human Resources and Legal Affairs, General Counsel and Secretary L. Thomas Morse 55 Vice President, Corporate Controller
SAMUEL H. MASLAK co-founded the Company in September 1981, and has been Chief Executive Officer and a director since that date. He was President of the Company from September 1981 until May 1995. He was appointed Chairman of the Board in May 1995. ROBERT J. GALLAGHER joined Acuson in January 1983 as Vice President, Finance and Chief Financial Officer. Mr. Gallagher became Executive Vice President in March 1991, was Chief Operating Officer from January 1994 until March 1999, and was President of the Company from May 1995 until November 1997, when he was appointed Vice Chairman of the Board. He retired as Chief Operating Officer in March 1999 and is currently a Senior Vice President of the Company. 14 ALBERT L. GREENE is the President, Chief Executive Officer and Co-founder of HealthCentral.com, a web-based software and information services company. Mr. Greene served from 1990-1998 as Chief Executive Officer of Sutter Health East Bay, Alta Bates Health Systems and Alta Bates Medical Center in Berkeley. He was Chair of The California Healthcare Association in 1998. Mr. Greene is also a director of Quadramed (NASDAQ, QMDC), a healthcare information technology and solutions provider. KARL H. JOHANNSMEIER served as a director of the Company from September 1981 to May 1994 and has also served as a director from March 1995 to the present. He founded Optimetrix Corporation, a semiconductor processing equipment company, where he served as President and Chief Executive Officer from 1976 to 1981 and as Chairman of the Board of Directors from 1976 to 1984. Optimetrix Corporation was acquired by Eaton Corporation in 1982. Mr. Johannsmeier has been a private investor over the last twenty years. DANIEL R. DUGAN joined the Company in 1984 in a sales management role. He has held several senior positions in sales and marketing including Senior Vice President, Worldwide Sales, Service and Marketing to which he was promoted in 1994. In 1997 he was promoted to President and is currently responsible for all functional areas of the Company. BARRY ZWARENSTEIN joined the Company in November 1998 as Vice President, Chief Financial Officer. Prior to working for Acuson, Mr. Zwarenstein served as Chief Financial Officer, FMC Europe from 1992 to 1996 and as Senior Vice President, Finance & Business Development and Chief Financial Officer for Logitech, S.A. from 1996 to 1998. EDWARD P. CORNELL joined the Company in September 1997 as Vice President, Engineering and was promoted to Senior Vice President, Engineering in November 1997. From 1990 to 1997, Mr. Cornell was Vice President of Engineering and Product Development for Pitney Bowes, Inc. in Stamford, CT. For the prior 16 years, Mr. Cornell was employed by General Electric at their Corporate R&D Center and in Operations. RICK E. SMITH joined the Company in 1992 as Director of Sales, General Imaging and was promoted to Vice President, General Imaging Business Unit in 1995 and Vice President, North America Business Operations in June 1998. He became Senior Vice President, Worldwide Sales and Marketing in March 1999. BRADFORD C. ANKER joined the Company in December 1983 and has served as Vice President, Manufacturing since that date. CHARLES H. DEARBORN joined the Company in October 1988 and has served as General Counsel since that date. He was elected Secretary of the Company in February 1991 and Vice President in February 1995. He was appointed Vice President, Human Resources and Legal Affairs in June 1997. L. THOMAS MORSE joined the Company in July 1983 and has served as Corporate Controller since that date. He was elected an officer of the Company in March 1989 and Vice President, Corporate Controller in February 1991. ================================================================================ 15 PART II ITEM 5 MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The information required by Item 5 of Form 10-K is incorporated by reference to the information contained in the section captioned "Market for Registrant's Common Equity and Related Stockholder Matters" in the Company's Annual Report to Stockholders for the fiscal year ended December 31, 1998 (the "1998 Annual Report"). ================================================================================ ITEM 6 SELECTED CONSOLIDATED FINANCIAL DATA The information required by Item 6 of Form 10-K is incorporated by reference to the information contained in the section captioned "Selected Consolidated Financial Data" in the Company's 1998 Annual Report. ================================================================================ ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The information required by Item 7 of Form 10-K is incorporated by reference to the information contained in the section captioned "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the Company's 1998 Annual Report. ================================================================================ ITEM 7A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The information required by Item 7A of Form 10-K is incorporated by reference to the information contained in the section captioned "Management's Discussion and Analysis of Financial Condition and Results of Operations" and Note 2 of "Notes to Consolidated Financial Statements" in the Company's 1998 Annual Report. ================================================================================ ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The information required by Item 8 of Form 10-K is incorporated by reference to the consolidated financial statements and notes thereto, and to the section captioned "Quarterly Data" in the Company's 1998 Annual Report. ================================================================================ ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. ================================================================================ With the exception of the information specifically incorporated by reference from the 1998 Annual Report in Part II of this Form 10-K, the Company's 1998 Annual Report is not to be deemed filed as part of this Form 10-K. ================================================================================ 16 PART III ITEM 10 DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT DIRECTORS. The information required by Item 10 of Form 10-K with respect to directors is incorporated by reference to the information contained in the sections captioned "Nomination and Election of Directors" and "Section 16(a) Beneficial Ownership Reporting Compliance" in the Registrant's definitive Proxy Statement for the Annual Meeting of Stockholders to be held on June 8, 1999 (the "Proxy Statement"). See also pages 14 and 15 of this Form 10-K. EXECUTIVE OFFICERS. See pages 14 and 15 of this Form 10-K. ================================================================================ ITEM 11 EXECUTIVE COMPENSATION The information required by Item 11 of Form 10-K is incorporated by reference to the information contained in the sections captioned "Compensation of Directors and Executive Officers," "Options Granted to Executive Officers," "Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option Values," "Employment Contracts, Termination of Employment and Change in Control Arrangements" and "Compensation Committee Interlocks and Insider Participation" in the Proxy Statement. ================================================================================ ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by Item 12 of Form 10-K is incorporated by reference to the information contained in the section captioned "Share Ownership of Directors, Executive Officers and Certain Beneficial Owners" in the Proxy Statement. ================================================================================ ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by Item 13 of Form 10-K is incorporated by reference to the information contained in the section captioned "Certain Relationships and Other Transactions" in the Proxy Statement. ================================================================================ 17 PART IV ITEM 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K NOTE: This copy of the Company's Form 10-K does not include Exhibits. (a) The following documents are filed as part of this Form 10-K: (1) Financial Statements. The following consolidated financial statements of Acuson Corporation and Report of Independent Public Accountants are incorporated into this Form 10-K Report by reference to the section entitled "Financial Contents" of the Company's 1998 Annual Report: Consolidated Statements of Operations and Comprehensive Income -- For the Three Years Ended December 31, 1998 Consolidated Balance Sheets -- As of December 31, 1998 and 1997 Consolidated Statements of Stockholders' Equity -- For the Three Years Ended December 31, 1998 Consolidated Statements of Cash Flows -- For the Three Years Ended December 31, 1998 Notes to Consolidated Financial Statements Report of Independent Public Accountants Supplementary Information Quarterly Data (Unaudited) (2) Financial Statement Schedules. The following financial statement schedule of Acuson Corporation for the three years ended December 31, 1998 is filed as part of this Form 10-K: Page ---- Report of Independent Public Accountants on Valuation and Qualifying Accounts Schedule S-1 Valuation and Qualifying Accounts For The Three Years Ended December 31, 1998 (Schedule II) S-2 All other schedules are omitted because they are not applicable or the required information is shown in the consolidated financial statements or notes incorporated herein by reference to the Company's 1998 Annual Report. 18 (3) Exhibits. The following Exhibits are filed as part of, or incorporated by reference into, this Form 10-K: 3.1 Restated Certificate of Incorporation, as amended (Exhibit 3.8) * 3.2 Bylaws, as amended 4.1 Rights Agreement, dated as of June 8, 1998, between Acuson Corporation *** and BankBoston, N.A., as Rights Agent, as amended (Exhibit 1) 10.1 The Company's 1986 Supplemental Stock Option Plan, as amended (Exhibit ///(1) 10.3) 10.2 Form of Supplemental Stock Option (Exhibit 10.7) /(1) 10.3 Series A Preferred Stock Purchase Agreement, dated January 6, 1982, * between the Company and the Purchasers listed on Schedule A thereto (Exhibit 10.8) 10.4 Series B Preferred Stock Purchase Agreement, dated March 29, 1983, * between the Company and the Purchasers listed on Schedule A thereto (Exhibit 10.9) 10.5 Series C Convertible Preferred Stock Purchase Agreement, dated March 30, * 1984, between the Company and the Purchasers listed on Exhibit A thereto (Exhibit 10.10) 10.6 Lease of office space, dated May 15, 1990, between Shoreline Investments ++ III and the Company (Exhibit 19.1) 10.7 Lease of office space, dated May 15, 1990, between Shoreline Investments ++ III and the Company (Exhibit 19.2) 10.8 Lease of office space, dated May 15, 1990, between Shoreline Investments ++ III and the Company (Exhibit 19.3) 10.9 Lease of office space, dated May 15, 1990, between Shoreline Investments ++ VI and the Company (Exhibit 19.4) 10.10 Lease of office space, dated May 15, 1990, between Shoreline Investments ++ V and the Company (Exhibit 19.5) 10.11 Lease of office space, dated May 15, 1990, between Shoreline Investments ++ VI and the Company (Exhibit 19.6) 10.12 Lease of office space, dated May 15, 1990, between Shoreline Investments ++ VI and the Company (Exhibit 19.7) 10.13 Lease of office space, dated May 15, 1990, between Shoreline Investments ++ VII and the Company (Exhibit 19.8) 10.14 The Company's 1991 Stock Incentive Plan, as amended (1) 10.15 Form of the Company's Supplemental and Non-Employee Director Supplemental (1) Options under the 1991 Stock Incentive Plan and related exercise documents, as amended 10.16 Non-Negotiable Secured Promissory Note, dated August 8, 1991, of Daniel ++++(1) R. Dugan (Exhibit 19.1) 10.17 Second Deed of Trust, dated August 8, 1991, between Daniel R. Dugan and ++++ First American Title Insurance Company, as Trustee (Exhibit 19.2) 10.18 Lease of office space, dated July 31, 1991, between Shoreline Investments ++++ V and the Company (Exhibit 19.3)
19 10.19 Lease of office space, dated January 31, 1992, between Shoreline Investments V ## and the Company (Exhibit 19.1) 10.20 Form of Amendment Number 1 to Supplemental Stock Option Terms Under the Company's ////(1) 1986 Supplemental Stock Plan and 1991 Stock Incentive Plan (Exhibit 10.1) 10.21 Form of Supplemental Stock Option Terms Under the Company's 1991 Stock Incentive ////(1) Plan (Exhibit 10.2) 10.22 The Company's 1995 Employee Stock Purchase Plan, as amended (1) 10.23 The Company's 1995 Stock Incentive Plan, as amended (1) 10.24 Credit Agreement, dated March 28, 1997, between Acuson Corporation and ABN AMRO Bank N. V., as Agent for Lenders, as amended 10.25 Acuson Management Incentive Plan, as amended (1) 10.26 Non-Negotiable Secured Promissory Note, dated April 24, 1998, of Edward P. & Cornell (Exhibit 10.1) 10.27 Deed of Trust, dated April 24, 1998, between Edward P. Cornell and Commonwealth & Land Title Company, as Trustee 10.28 Promissory Note, dated September 11, 1998, between Acuson Corporation and Banque Nationale de Paris 10.29 Letter agreement, dated September 11, 1998, between Acuson Corporation and Banque Nationale de Paris 10.30 Form of Change of Control Agreement for Certain Executive Officers of the Company (1) 10.31 Form of the Company's 1995 Stock Incentive Plan (1) 11.1 Statement regarding computation of per share earnings for the fiscal year ended @ December 31, 1994 (Exhibit 11.6) 13.1 The portion of the Annual Report to security holders for the fiscal year ended December 31, 1998, which is incorporated by reference 21.1 Subsidiaries of the Company 23.1 Consent of Independent Public Accountants 27.1 Financial Data Schedule for the year ended December 31, 1998
(b) The Company filed no reports on Form 8-K during the fourth quarter of the fiscal year covered by this report. * Incorporated by reference to the indicated exhibit in the Company's Registration Statement on Form S-1 (File No. 33-7838), as amended. *** Incorporated by reference to the indicated exhibit in the Company's Form 8-A dated December 31, 1998. ++ Incorporated by reference to the indicated exhibit in the Company's Form 10-Q Quarterly Report for the quarterly period ended June 30, 1990. ++++ Incorporated by reference to the indicated exhibit in the Company's Form 10-Q Quarterly Report for the quarterly period ended September 28, 1991. 20 ## Incorporated by reference to the indicated exhibit in the Company's Form 10-Q Quarterly Report for the quarterly period ended March 28, 1992. / Incorporated by reference to the indicated exhibit in the Company's Form 10-K Annual Report for the fiscal year ended December 31, 1993. /// Incorporated by reference to the indicated exhibit in the Company's Form 10-Q Quarterly Report for the quarterly period ended July 2, 1994. //// Incorporated by reference to the indicated exhibit in the Company's Form 10-Q Quarterly Report for the quarterly period ended October 1, 1994. @ Incorporated by reference to the indicated exhibit in the Company's Form 10-K Annual Report for the fiscal year ended December 31, 1994. & Incorporated by reference to the indicated exhibit in the Company's Form 10-Q Quarterly Report for the quarterly period ended July 4, 1998. (1) Management contract or compensatory plan required to be filed as an exhibit. 21 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. ACUSON CORPORATION March 29, 1999 By /s/ Samuel H. Maslak --------------------- Samuel H. Maslak Chairman and Chief Executive Officer March 29, 1999 By /s/ Barry Zwarenstein --------------------- Barry Zwarenstein Vice President, Chief Financial Officer (Principal Financial Officer) March 29, 1999 By /s/ L. Thomas Morse ------------------- L. Thomas Morse Vice President, Corporate Controller (Principal Accounting Officer) 22 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE Date - ----------------------------------------------------------------------------------------------------------------------- /s/ Samuel H. Maslak Chairman and Chief Executive Officer March 29, 1999 - ----------------------- (Samuel H. Maslak) /s/ Robert J. Gallagher Vice Chairman and Senior Vice President March 29, 1999 - ----------------------- (Robert J. Gallagher) /s/ Barry Zwarenstein Vice President, Chief Financial Officer March 29, 1999 - ----------------------- (Barry Zwarenstein) (Principal Financial Officer) /s/ L. Thomas Morse Vice President, Corporate Controller March 29, 1999 - ----------------------- (Principal Accounting Officer) (L. Thomas Morse) /s/ Albert L. Greene Director March 29, 1999 - ----------------------- (Albert L. Greene) /s/ Karl H. Johannsmeier Director March 29, 1999 - ------------------------ (Karl H. Johannsmeier)
23 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULE We have audited in accordance with generally accepted auditing standards, the financial statements included in Acuson Corporation's Annual Report to Shareholders incorporated by reference in this Form 10-K, and have issued our report thereon dated January 29, 1999. Our audit was made for the purpose of forming an opinion on those statements taken as a whole. The schedule listed at Part IV, Item 14(a)(2) is the responsibility of the Company's management and is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. /s/ Arthur Andersen LLP San Jose, California January 29, 1999 S-1 ACUSON CORPORATION SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS FOR THE THREE YEARS ENDED DECEMBER 31, 1998 (In thousands)
BALANCE AT CHARGED TO BEGINNING COSTS AND BALANCE AT END OF PERIOD EXPENSES WRITE-OFFS OF PERIOD ----------- ----------- ------------- -------------- ALLOWANCE FOR DOUBTFUL ACCOUNTS: Year ended: December 31, 1996 $2,998 $ 442 $ (472) $2,968 December 31, 1997 $2,968 $ 868 $ (361) $3,475 December 31, 1998 $3,475 $ 212 $ (126) $3,561 ACCRUED WARRANTY: Year ended: December 31, 1996 $4,440 $ 9,526 $ (7,942) $6,024 December 31, 1997 $6,024 $15,207 $(12,276) $8,955 December 31, 1998 $8,955 $14,357 $(15,014) $8,298
S-2 EX-3.2 2 BYLAWS, AS AMENDED ACUSON CORPORATION EXHIBIT 3.2 - -------------------------------------------------------------------------------- BYLAWS OF ACUSON CORPORATION INDEX -----
Page ---- ARTICLE I - Offices....................................................... 1 Section 1. Registered Office........................................ 1 Section 2. Other Offices............................................ 1 ARTICLE II - Corporate Seal............................................... 1 Section 3. Corporate Seal........................................... 1 ARTICLE III - Stockholders' Meetings...................................... 1 Section 4. Place of Meetings........................................ 1 Section 5. Annual Meeting Stockholder Proposals at Annual Meetings.. 1 Section 6. Notice of Meetings....................................... 2 Section 7. Quorum................................................... 2 Section 8. Adjournment and Notice of Adjourned Meetings............................................. 2 Section 9. Voting Rights............................................ 2 Section 10. Joint Owners of Stock.................................... 3 Section 11. List of Stockholders..................................... 3 Section 12. Action without Meeting................................... 3 Section 13. Organization............................................. 3 ARTICLE IV - Directors.................................................... 4 Section 14. Number and Term of Office................................ 4 Section 15. Powers................................................... 4 Section 16. Vacancies................................................ 4 Section 17. Resignation.............................................. 4 Section 18. Removal.................................................. 5 Section 19. Meetings................................................. 5 (a) Annual Meetings............................................. 5 (b) Regular Meetings............................................ 5 (c) Special Meetings............................................ 5 (d) Telephone Meetings.......................................... 5 (e) Notice of Meetings.......................................... 5 (f) Waiver of Notice............................................ 5
i. Section 20. Quorum and Voting......................................... 6 (a) Quorum........................................................ 6 (b) Majority Vote................................................. 6 Section 21. Action without Meeting.................................... 6 Section 22. Fees and Compensation..................................... 6 Section 23. Committees................................................ 7 (a) Executive Committee........................................... 7 (b) Other Committees.............................................. 7 (c) Term.......................................................... 7 (d) Meetings...................................................... 8 Section 24. Organization.............................................. 8 ARTICLE V - Officers........................................................ 8 Section 25. Officers Designated....................................... 8 Section 26. Tenure and Duties of Officers............................. 9 (a) General....................................................... 9 (b) Duties of Chairman of the Board of Directors.................. 9 (c) Duties of Chief Executive Officer............................. 9 (d) Duties of President........................................... 9 (e) Duties of Other Officers...................................... 9 (f) Duties of Secretary........................................... 9 (g) Duties of Chief Financial Officer............................. 10 Section 27. Resignations.............................................. 10 Section 28. Removal................................................... 10 ARTICLE VI - Execution of Corporate Instruments and Voting of Securities Owned by the Corporation................. 10 Section 29. Execution of Corporate Instruments.........................10 Section 30. Voting of Securities Owned by the Corporation............................................... 11
ii. ARTICLE VII - Shares of Stock............................................... 11 Section 31. Form and Execution of Certificates........................ 11 Section 32. Lost Certificates......................................... 11 Section 33. Transfers................................................. 12 Section 34. Fixing Record Dates....................................... 12 Section 35. Registered Stockholders................................... 12 ARTICLE VIII - Other Securities of the Corporation.......................... 12 Section 36. Execution of Other Securities............................. 12 ARTICLE IX - Dividends...................................................... 13 Section 37. Declaration of Dividends.................................. 13 Section 38. Dividend Reserve.......................................... 13 ARTICLE X - Fiscal Year..................................................... 13 Section 39. Fiscal Year............................................... 13 ARTICLE XI - Indemnification of Directors, Officers, Employees and Other Agents...................................... 14 Section 40. Indemnification of Directors, Officers, Employees and Other Agents................................. 14 (a) Directors and Executive Officers.............................. 14 (b) Other Officers, Employees and Other Agents.................... 14 (c) Good Faith.................................................... 14 (d) Expenses...................................................... 14 (e) Enforcement................................................... 15 (f) Non-Exclusivity of Rights..................................... 15 (g) Survival of Rights............................................ 16 (h) Amendments.................................................... 16 (i) Savings Clause................................................ 16 ARTICLE XII - Notices....................................................... 16 Section 41. Notices................................................... 16 (a) Notice to Stockholders........................................ 16 (b) Notice to Directors........................................... 16
iii. (c) Address Unknown............................................... 16 (d) Affidavit of Mailing.......................................... 16 (e) Time Notices Deemed Given..................................... 16 (f) Methods of Notice............................................. 17 (g) Failure to Receive Notice..................................... 17 (h) Notice to Person with Whom Communication Is Unlawful...................................................... 17 ARTICLE XIII - Amendments................................................... 17 Section 42. Amendments................................................ 17 ARTICLE XIV - Loans of Officers and Others.................................. 18 Section 43. Certain Corporate Loans and Guaranties.................... 18
iv. BYLAWS ACUSON CORPORATION (A Delaware corporation) ARTICLE I Offices Section 1. Registered Office. The registered office of the corporation in ----------------- the State of Delaware shall be in the City of Dover, County of Kent. (Del. Code Ann., tit. 8, (S) 131) Section 2. Other Offices. The corporation shall also have and maintain an ------------- office or principal place of business at such place as may be fixed by the Board of Directors, and may also have offices at such other places, both within and without the State of Delaware as the Board of Directors may from time to time determine or the business of the corporation may require. (Del. Code Ann., tit. 8, (S) 122(8)) ARTICLE II Corporate Seal Section 3. Corporate Seal. The corporate seal shall consist of a die -------------- bearing the name of the corporation and the inscription, "Corporate Seal- Delaware." Said seal may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced or otherwise. (Del. Code Ann., tit. 8, (S) 122(3)) ARTICLE III Stockholders' Meetings Section 4. Place of Meetings. Meetings of the stockholders of the ----------------- corporation shall be held at such place, either within or without the State of Delaware, as may be designated from time to time by the Board of Directors, or, if not so designated, then at the office of the corporation required to be maintained pursuant to Section 2 hereof. (Del. Code Ann., tit. 8, (S) 211(a)) Section 5. Annual Meeting: Stockholder Proposals at Annual Meetings. The -------------------------------------------------------- annual meeting of the stockholders of the corporation shall be held on any date and time which may from time to time be designated by the Board of Directors. At such annual meeting, directors shall be elected and only such other business may be transacted as shall have been properly brought before the meeting. (Del. Code Ann., tit. 8, (S) 211(b)) 1. To be properly brought before an annual meeting, business must be specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board of Directors, otherwise properly brought before the meeting by or at the direction of the Board of Directors or otherwise properly brought before the meeting by a stockholder. In addition to any other applicable requirements, for business to be properly brought before an annual meeting by a stockholder, the stockholder must have given timely notice thereof in writing to the Secretary of the corporation. To be timely, a stockholder's notice must be delivered to or mailed and received at the principal executive offices of the corporation, not less than 45 days nor more than 75 days prior to the date on which the corporation first mailed its proxy materials for the previous year's annual meeting of stockholders (or the date on which the corporation mails its proxy materials for the current year if during the prior year the corporation did not hold an annual meeting or if the date of the annual meeting was changed more than 30 days from the prior year). A stockholder's notice to the Secretary shall set forth as to each matter the stockholder proposes to bring before the annual meeting (i) a brief description of the business desired to be brought before the annual meeting and the reasons for conducting such business at the annual meeting, (ii) the name and record address of the stockholder proposing such business, (iii) the class and number of shares of the corporation which are beneficially owned by the stockholder, and (iv) any material interest of the stockholder in such business. Notwithstanding anything in the Bylaws to the contrary, no business shall be conducted at the annual meeting except in accordance with the procedures set forth in this Section 5, provided, however, that nothing in this Section 5 shall be deemed to preclude discussion by any stockholder of any business properly brought before the annual meeting in accordance with said procedure. The chairman of an annual meeting shall, if the facts warrant, determine and declare to the meeting that business was not properly brought before the meeting in accordance with the provisions of this Section 5, and if he should so determine he shall so declare to the meeting, and any such business not properly brought before the meeting shall not be transacted. Nothing in this Section 5 shall affect the right of a stockholder to request inclusion of a proposal in the corporation's proxy statement to the extent that such right is provided by an applicable rule of the Securities and Exchange Commission." Section 5. Notice of Meetings. Except as otherwise provided by law or the ------------------ Certificate of Incorporation, written notice of each meeting of stockholders shall be given not less than ten (10) nor more than sixty (60) days before the date of the meeting to each stockholder entitled to vote at such meeting, such notice to specify the place, date and hour and purpose or purposes of the meeting. Notice of the time, place and purpose of any meeting of stockholders may be waived in writing, signed by the person entitled to notice thereof, either before or after such meeting, and will be waived by any stockholder by his attendance thereat in person or by proxy, except when the stockholder attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting 2. is not lawfully called or convened. Any stockholder so waiving notice of such meeting shall be bound by the proceedings of any such meeting in all respects as if due notice thereof had been given. (Del. Code Ann., tit. 8, (S)(S) 222, 229) Section 6. Quorum. At all meetings of stockholders, except where otherwise ------ provided by statute or by the Certificate of Incorporation, or by these Bylaws, the presence, in person or by proxy duly authorized, of the holders of a majority of the outstanding shares of stock entitled to vote shall constitute a quorum for the transaction of business. Any shares, the voting of which at said meeting has been enjoined, or which for any reason cannot be lawfully voted at such meeting, shall not be counted to determine a quorum at such meeting. In the absence of a quorum any meeting of stockholders may be adjourned, from time to time, by vote of the holders of a majority of the shares represented thereat, but no other business shall be transacted at such meeting. The stockholders present at a duly called or convened meeting, at which a quorum is present, may continue to transact business until adjournment, notwithstanding the withdrawal of enough stockholders to leave less than a quorum. Except as otherwise provided by law, the Certificate of Incorporation or these Bylaws, all action taken by the holders of a majority of the voting power represented at any meeting at which a quorum is present shall be valid and binding upon the corporation. (Del. Code Ann., tit. 8, (S) 216) Section 7. Adjournment and Notice of Adjourned Meetings. Any meeting of --------------------------------------------- stockholders, whether annual or special, may be adjourned from time to time (i) by the vote of a majority of the shares, the holders of which are present either in person or by proxy, or (ii) by the chairman of an annual or special meeting. When a meeting is adjourned to another time or place, notice need not be given of the adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken. At the adjourned meeting the corporation may transact any business which might have been transacted at the original meeting. If the adjournment is for more than thirty (30) days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. (Del. Code Ann., tit. 8, (S) 222(c)) Section 8. Voting Rights. For the purpose of determining those ------------- stockholders entitled to vote at any meeting of the stockholders, except as otherwise provided by law, only persons in whose names shares stand on the stock records of the corporation on the record date, as provided in Section 11 of these Bylaws, shall be entitled to vote at any meeting of stockholders. Every person entitled to vote or execute consents shall have the right to do so either in person or by an agent or agents authorized by a written proxy executed by such person or his duly authorized agent, which proxy shall be filed with the Secretary at or before the meeting at which it is to be used. An agent so appointed need not be a stockholder. No proxy shall be voted on after three (3) years from its date of creation unless the proxy provides for a longer period. All elections of Directors shall be by written ballot, unless otherwise provided in the Certificate of Incorporation. (Del. Code Ann., tit. 8, (S)(S) 211(e), 212(b)) 3. Section 9. Joint Owners of Stock. If shares or other securities having --------------------- voting power stand of record in the names of two (2) or more persons, whether fiduciaries, members of a partnership, joint tenants, tenants in common, tenants by the entirety, or otherwise, or if two (2) or more persons have the same fiduciary relationship respecting the same shares, unless the Secretary is given written notice to the contrary and is furnished with a copy of the instrument or order appointing them or creating the relationship wherein it is so provided, their acts with respect to voting shall have the following effect: (a) if only one (1) votes, his act binds all; (b) if more than one (1) votes, the act of the majority so voting binds all; (c) if more than one (1) votes, but the vote is evenly split on any particular matter, each faction may vote the securities in question proportionally, or may apply to the Delaware Court of Chancery for relief as provided in the General Corporation Law of Delaware, Section 217(b). If the instrument filed with the Secretary shows that any such tenancy is held in unequal interests, a majority or even-split for the purpose of this subsection (c) shall be a majority or even-split in interest. (Del. Code Ann., tit. 8, (S) 217(b)) Section 10. List of Stockholders. The Secretary shall prepare and make, at -------------------- least ten (10) days before every meeting of stockholders, a complete list of the stockholders entitled to vote at said meeting, arranged in alphabetical order, showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten (10) days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not specified, at the place where the meeting is to be held. The list shall be produced and kept at the time and place of meeting during the whole time thereof, and may be inspected by any stockholder who is present. (Del. Code Ann., tit. 8, (S) 219(a)) Section 11. Action Without Meeting. Unless otherwise provided in the ---------------------- Certificate of Incorporation, any action required by statute to be taken at any annual or special meeting of stockholders of the corporation, or any action which may be taken at any annual or special meeting of such stockholders, may be taken without a meeting, without prior notice and without a vote, if a consent or consents in writing, setting forth the action so taken, are signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. To be effective, a written consent must be delivered to the corporation by delivery to its registered office in Delaware, its principal place of business, or an officer or agent of the corporation having custody of the book in which proceedings of meetings of stockholders are recorded. Delivery made to a corporation's registered office shall be by hand or by certified or registered mail, return receipt requested. Every written consent shall bear the date of signature of each stockholder who signs the consent and no written consent shall be effective to take the corporate action referred to therein unless, within sixty days of the earliest dated consent delivered in the manner required by this Section to the corporation, written consents signed by a sufficient number of holders to take action are delivered to the corporation in accordance with this Section. Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall be given to those stockholders who have not consented in writing. 4. Section 12. Organization. At every meeting of stockholders, the Chairman ------------ of the Board, or, if the Chairman of the Board is absent, the Chief Executive Officer or, if the Chief Executive Officer is absent, the most senior officer present, or in the absence of any such officer, a chairman of the meeting chosen by a majority in interest of the stockholders entitled to vote, present in person or by proxy, shall act as chairman. The Secretary, or, in his absence, an Assistant Secretary directed to do so by the Chairman of the Board, shall act as secretary of the meeting. ARTICLE IV Directors Section 13. Number and Term of Office. The authorized number of directors ------------------------- of the corporation shall be fixed from time to time by the board of directors either by a resolution or a bylaw duly adopted by the board of directors. The number of directors presently authorized is five. Except as provided in Section 16, the Directors shall be elected by the stockholders at their annual meeting in each year and shall hold office until the next annual meeting and until their successors shall be duly elected and qualified. Directors need not be stockholders unless so required by the Certificate of Incorporation. If for any cause, the Directors shall not have been elected at an annual meeting, they may be elected as soon thereafter as convenient at a special meeting of the stockholders called for that purpose in the manner provided in these Bylaws. (Del. Code Ann., tit. 8, (S)(S) 141(b), 211(b), (c)) Section 14. Powers. The powers of the corporation shall be exercised, its ------ business conducted and its property controlled by the Board of Directors, except as may be otherwise provided by statute or by the Certificate of Incorporation. (Del. Code Ann., tit. 8, (S) 141(a)) Section 15. Vacancies. Unless otherwise provided in the Certificate of --------- Incorporation, vacancies and newly created directorships resulting from any increase in the authorized number of Directors may be filled by a majority of the Directors then in office, although less than a quorum, or by a sole remaining Director, and each Director so elected shall hold office for the unexpired portion of the term of the Director whose place shall be vacant and until his successor shall have been duly elected and qualified. A vacancy in the Board of Directors shall be deemed to exist under this Section 16 in the case of the death, removal or resignation of any Director, or if the stockholders fail at any meeting of stockholders at which Directors are to be elected (including any meeting referred to in Section 19 below) to elect the number of Directors then constituting the whole Board of Directors. (Del. Code Ann., tit. 8, (S) 223(a), (b)) Section 16. Resignation. Any Director may resign at any time by delivering ----------- his written resignation to the Secretary, such resignation to specify whether it will be effective at a particular time, upon receipt by the Secretary or at the pleasure of the Board of Directors. If no such specification is made, it shall be deemed effective at the pleasure of the Board of Directors. When one or more Directors shall resign from the Board of Directors, effective at a future date, a majority of 5. the Directors then in office, including those who have so resigned, shall have power to fill such vacancy or vacancies, the vote thereon to take effect when such resignation or resignations shall become effective, and each Director so chosen shall hold office for the unexpired portion of the term of the Director whose place shall be vacated and until his successor shall have been duly elected and qualified. (Del. Code Ann., tit. 8, (S)(S) 141(b), 223(d)) Section 17. Removal. At a special meeting of stockholders called for the ------- purpose in the manner hereinabove provided, the Board of Directors, or any individual Director, may be removed from office, with or without cause, and a new Director or Directors elected by a vote of stockholders holding a majority of the outstanding shares entitled to vote at an election of Directors. (Del. Code Ann., tit. 8, (S) 141(k)) Section 18. Meetings. -------- (a) Annual Meetings. The annual meeting of the Board of Directors --------------- shall be held immediately after the annual meeting of stockholders and at the place where such meeting is held. No notice of an annual meeting of the Board of Directors shall be necessary and such meeting shall be held for the purpose of electing officers and transacting such other business as may lawfully come before it. (b) Regular Meetings. Except as hereinafter otherwise provided, ---------------- regular meetings of the Board of Directors shall be held in the office of the corporation required to be maintained pursuant to Section 2 hereof. Unless otherwise restricted by the Certificate of Incorporation, regular meetings of the Board of Directors may also be held at any place within or without the State of Delaware which has been designated by resolution of the Board of Directors or the written consent of all Directors. (Del. Code Ann., tit. 8, (S) 141(g)) (c) Special Meetings. Unless otherwise restricted by the Certificate ---------------- of Incorporation, special meetings of the Board of Directors may be held at any time and place within or without the State of Delaware whenever called by the Chairman of the Board, the Chief Executive Officer, the President or a majority of the Directors. (Del. Code Ann., tit. 8, (S) 141(g)) (d) Telephone Meetings. Any member of the Board of Directors, or of ------------------ any committee thereof, may participate in a meeting by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and participation in a meeting by such means shall constitute presence in person at such meeting. (Del. Code Ann., tit. 8, (S) 141(i)) (e) Notice of Meetings. Written notice of the time and place of all ------------------ regular and special meetings of the Board of Directors shall be given at least one (1) day before the date of the meeting. Notice of any meeting may be waived in writing at any time before or after the meeting and will be waived by any Director by attendance thereat, except when the Director attends the meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of 6. any business because the meeting is not lawfully called or convened. (Del. Code Ann., tit. 8, (S) 229) (f) Waiver of Notice. The transaction of all business at any meeting of the ---------------- Board of Directors, or any committee thereof, however called or noticed, or wherever held, shall be as valid as though had at a meeting duly held after regular call and notice, if a quorum be present and if, either before or after the meeting, each of the Directors not present shall sign a written waiver of notice, or a consent to holding such meeting, or an approval of the minutes thereof. All such waivers, consents or approvals shall be filed with the corporate records or made a part of the minutes of the meeting. (Del. Code Ann., tit. 8, (S) 229) Section 19. Quorum and Voting. ----------------- (a) Quorum. Unless the Certificate of Incorporation requires a greater ------ number, a quorum of the Board of Directors shall consist of a majority of the exact number of Directors fixed from time to time in accordance with Section 14 of these Bylaws, but not less than one (l); provided, however, at any meeting whether a quorum be present or otherwise, a majority of the Directors present may adjourn from time to time until the time fixed for the next regular meeting of the Board of Directors, without notice other than by announcement at the meeting. (Del. Code Ann., tit. 8, (S) 141(b)) (b) Majority Vote. At each meeting of the Board of Directors at which a ------------- quorum is present all questions and business shall be determined by a vote of a majority of the Directors present, unless a different vote be required by law, the Certificate of Incorporation or these Bylaws. (Del. Code Ann., tit. 8, (S) 141(b)) Section 20. Action without Meeting. Unless otherwise restricted by the ---------------------- Certificate of Incorporation or these Bylaws, any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof may be taken without a meeting, if all members of the Board of Directors or committee, as the case may be, consent thereto in writing, and such writing or writings are filed with the minutes of proceedings of the Board of Directors or committee. (Del. Code Ann., tit. 8, (S) 141(f)) Section 21. Fees and Compensation. Directors shall not receive any stated --------------------- salary for their services as Directors, but by resolution of the Board of Directors a fixed fee, with or without expense of attendance, may be allowed for attendance at each meeting and at each meeting of any committee of the Board of Directors. Nothing herein contained shall be construed to preclude any Director from serving the corporation in any other capacity as an officer, agent, employee, or otherwise and receiving compensation therefor. (Del. Code Ann., tit. 8, (S) 141(h)) 7. Section 22. Committees. ---------- (a) Executive Committee. The Board of Directors may by resolution ------------------- passed by a majority of the whole Board of Directors, appoint an Executive Committee to consist of one (l) or more members of the Board of Directors. The Executive Committee, to the extent permitted by law and specifically granted by the Board of Directors, shall have and may exercise when the Board of Directors is not in session all powers of the Board of Directors in the management of the business and affairs of the corporation, including, without limitation, the power and authority to declare a dividend or to authorize the issuance of stock, except such committee shall not have the power or authority to amend the Certificate of Incorporation (except that the committee may, to the extent authorized in the resolution or resolutions providing for the issuance of shares of stock adopted by the Board of Directors as provided by law, fix any of the preferences or rights of such shares relating to dividends, redemption, dissolution, any distribution of assets of the corporation or the conversion into, or the exchange of such shares for shares of any other class or classes or any other series of the same or any other class or classes of stock of the corporation), to adopt an agreement of merger or consolidation, to recommend to the stockholders the sale, lease or exchange of all or substantially all of the corporation's property and assets, to recommend to the stockholders a dissolution of the corporation or a revocation of a dissolution or to amend these Bylaws. (Del. Code Ann., tit. 8, (S) 141(c)) (b) Other Committees. The Board of Directors may, by resolution ---------------- passed by a majority of the whole Board of Directors, from time to time appoint such other committees as may be permitted by law. Such other committees appointed by the Board of Directors shall consist of one (1) or more members of the Board of Directors, and shall have such powers and perform such duties as may be prescribed by the resolution or resolutions creating such committees, but in no event shall such committee have the powers denied to the Executive Committee in these Bylaws. (Del. Code Ann., tit. 8, (S) 141(c)) (c) Term. The members of all committees of the Board of Directors ---- shall serve a term coexistent with that of the Board of Directors which shall have appointed such committee. The Board of Directors, subject to the provisions of subsections (a) or (b) of this Section 24, may at any time increase or decrease the number of members of a committee or terminate the existence of a committee. The membership of a committee member shall terminate on the date of his death or voluntary resignation. The Board of Directors may at any time for any reason remove any individual committee member and the Board of Directors may fill any committee vacancy created by death, resignation, removal or increase in the number of members of the committee. The Board of Directors may designate one or more Directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee, and, in addition, in the absence or disqualification of any member of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member. (Del. Code Ann., tit. 8, (S)141(c)) 8. (d) Meetings. Unless the Board of Directors shall otherwise provide, -------- regular meetings of the Executive Committee or any other committee appointed pursuant to this Section 24 shall be held at such times and places as are determined by the Board of Directors, or by any such committee, and when notice thereof has been given to each member of such committee, no further notice of such regular meetings need be given thereafter. Special meetings of any such committee may be held at the principal office of the corporation required to be maintained pursuant to Section 2 hereof, or at any place which has been designated from time to time by resolution of such committee or by written consent of all members thereof, and may be called by any Director who is a member of such committee, upon written notice to the members of such committee of the time and place of such special meeting given in the manner provided for the giving of written notice to members of the Board of Directors of the time and place of special meetings of the Board of Directors. Notice of any special meeting of any committee may be waived in writing at any time before or after the meeting and will be waived by any Director by attendance thereat, except when the Director attends such special meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. A majority of the authorized number of members of any such committee shall constitute a quorum for the transaction of business, and the act of a majority of those present at any meeting at which a quorum is present shall be the act of such committee. (Del. Code Ann., tit. 8, (S)(S) 141(c), 229) Section 23. Organization. At every meeting of the Directors, the Chairman ------------ of the Board of Directors, or, if a Chairman has not been appointed or is absent, the President or if the President is absent, the most senior Vice President, or, in the absence of any such officer, a chairman of the meeting chosen by a majority of the Directors present, shall preside over the meeting. The Secretary, or in his absence, an Assistant Secretary directed to do so by the Chairman of the Board, shall act as secretary of the meeting. ARTICLE V Officers Section 24. Officers Designated. The officers of the corporation shall be ------------------- the Chief Executive Officer, the President, the Chief Financial Officer and the Secretary, all of whom shall be elected at the annual meeting of the Board of Directors. The Board of Directors may also appoint a Chairman of the Board of Directors and such other officers and agents with such powers and duties as it shall deem necessary. The order of the seniority of the officers other than the Chief Executive Officer and the President shall be in the order of their nomination, unless otherwise determined by the Board of Directors. The Board of Directors may assign such additional titles to one or more of the officers as it shall deem appropriate. Any one person may hold any number of offices of the corporation at any one time unless specifically prohibited therefrom by law. The salaries and other compensation of the officers of the corporation shall be fixed by or in the manner designated by the Board of Directors. (Del. Code Ann., tit. 8, (S)(S) 122(5), 142(a), (b)) 9. Section 25. Tenure and Duties of Officers. ----------------------------- (a) General. All officers shall hold office at the pleasure of the ------- Board of Directors and until their successors shall have been duly elected and qualified, unless sooner removed. Any officer elected or appointed by the Board of Directors may be removed at any time by the Board of Directors. If the office of any officer becomes vacant for any reason, the vacancy may be filled by the Board of Directors. (Del. Code Ann., tit. 8, (S) 141(b), (e)) (b) Duties of Chairman of the Board of Directors. The Chairman of the -------------------------------------------- Board of Directors shall preside at all meetings of the stockholders and of the Board of Directors. The Chairman of the Board of Directors shall perform other duties commonly incident to his office and shall also perform such other duties and have such other powers as the Board of Directors shall designate from time to time. (Del. Code Ann., tit. 8, (S) 142(a)) (c) Duties of Chief Executive Officer. The Chief Executive Officer shall be the chief executive officer of the corporation and shall, subject to the control of the Board of Directors, have general supervision, direction and control of the business and officers of the corporation. The Chief Executive Officer shall perform other duties and have other powers commonly incident to his office, including the power to appoint a Treasurer and one or more Assistant Treasurers with powers and duties commonly incident to such offices, and shall also perform such other duties and have such other powers as the Board of Directors shall designate from time to time. (Del. Code Ann., tit. 8, (S) 142(a)) (d) Duties of President. The President may assume and perform the ------------------- duties of the Chief Executive Officer in the absence or disability of the Chief Executive Officer or whenever the office of the Chief Executive Officer is vacant. The President shall perform such other duties and have such other powers as the Board of Directors or the Chief Executive Officer shall designate from time to time. (Del. Code Ann., tit. 8, (S) 142(a)) (e) Duties of Other Officers. The other officers, in the order of ------------------------ their seniority, may assume and perform the duties of the Chief Executive Officer in the absence or disability of the Chief Executive Officer and the President or whenever the offices of the Chief Exective Officer and the President are vacant. The officers shall perform other duties commonly incident to their office and shall perform such other duties and have such other powers as the Board of Directors or the Chief Executive Officer shall designate from time to time. (Del. Code Ann., tit. 8, (S) 142(a)) (f) Duties of Secretary. The Secretary or Assistant Secretary shall ------------------- attend all meetings of the stockholders and of the Board of Directors, and shall record all acts and proceedings thereof in the minute book of the corporation. The Secretary shall give notice in conformity with these Bylaws of all meetings of the stockholders, and of all meetings of the Board of Directors and any committee thereof requiring notice. The Secretary shall perform all other duties given him in these Bylaws and other duties commonly incident to his office and shall also 10. perform such other duties and have such other powers as the Board of Directors shall designate from time to time. The Chief Executive Officer may direct any Assistant Secretary to assume and perform the duties of the Secretary in the absence or disability of the Secretary, and each Assistant Secretary shall perform other duties commonly incident to his office and shall also perform such other duties and have such other powers as the Board of Directors or the Chief Executive Officer shall designate from time to time. (Del. Code Ann., tit. 8, (S) 142(a)) (g) Duties of Chief Financial Officer. The Chief Financial --------------------------------- Officer shall keep or cause to be kept the books of account of the corporation in a thorough and proper manner, and shall render statements of the financial affairs of the corporation in such form and as often as required by THE Board of Directors or the Chief Executive Officer. The Chief Financial Officer, subject to the order of the Board of Directors, shall have the custody of all funds and securities of the corporation. The Chief Financial Officer shall perform other duties commonly incident to his office and shall also perform such other duties and have such other powers as the Board of Directors or the Chief Executive Officer shall designate from time to time. The Chief Executive Officer may direct the Treasurer or any Assistant Treasurer to assume and perform the duties of the Chief Financial Officer in the absence or disability of the Chief Financial Officer. The Treasurer and each Assistant Treasurer shall perform other duties commonly incident to their offices and shall also perform such other duties and have such other powers as the Board of Directors or the Chief Executive Officer shall designate from time to time. (Del. Code Ann., tit. 8,(S) 142(a)) Section 26. Resignations. Any officer may resign at any time by giving ------------ written notice to the Board of Directors or to the Chief Executive Officer or to the President or to the Secretary. Any such resignation shall be effective when received by the person or persons to whom such notice is given, unless a later time is specified therein, in which event the resignation shall become effective at such later time. Unless otherwise specified in such notice, the acceptance of any such resignation shall not be necessary to make it effective. (Del. Code Ann., tit. 8, (S) 142(b)) Section 27. Removal. Any officer may be removed from office at any time ------- either with or without cause, by the Chief Executive Officer or by the vote or written consent of a majority of the Directors in office at the time, or by any committee of superior officers upon whom such power of removal may have been conferred by the Board of Directors. ARTICLE VI Execution of Corporate Instruments and Voting of Securities Owned by the Corporation Section 28. Execution of Corporate Instruments. The Board of Directors ---------------------------------- may, in its discretion, determine the method and designate the signatory officer or officers, or other person or persons, to execute on behalf of the corporation any corporate instrument or document, or to sign on behalf of the corporation the corporate name without limitation, or to enter into contracts on behalf of the corporation, except where otherwise provided by law or these Bylaws, and such 11. execution or signature shall be binding upon the corporation. (Del. Code Ann., tit. 8, (S)(S) 103(a), 142(a), 158) Unless otherwise specifically determined by the Board of Directors or otherwise required by law, promissory notes, deeds of trust, mortgages and other evidences of indebtedness of the corporation, and other corporate instruments or documents requiring the corporate seal, and certificates of shares of stock owned by the corporation, shall be executed, signed or endorsed by the Chairman of the Board of Directors, the Chief Executive Officer, the President, the Chief Financial Officer, the Secretary or any other officer. All other instruments and documents requiring the corporate signature, but not requiring the corporate seal, may be executed as aforesaid or in such other manner as may be directed by the Board of Directors. (Del. Code Ann., tit. 8, (S)(S) 103(a) 142(a), 158) All checks and drafts drawn on banks or other depositaries on funds to the credit of the corporation or in special accounts of the corporation shall be signed by such person or persons as the Board of Directors shall authorize so to do. (Del. Code Ann., tit. 8, (S)(S) 103(a), 142(a), 158) Section 29. Voting of Securities Owned by the Corporation. All stock and --------------------------------------------- other securities of other corporations owned or held by the corporation for itself, or for other parties in any capacity, shall be voted, and all proxies with respect thereto shall be executed, by the person authorized so to do by resolution of the Board of Directors, or, in the absence of such authorization, by the Chairman of the Board of Directors, the Chief Executive Officer, the President, the Secretary or any other officer. (Del. Code Ann., tit. 8, (S) 123) ARTICLE VII Shares of Stock Section 30. Form and Execution of Certificates. The shares of the ---------------------------------- corporation shall be represented by certificates, provided that the Board of Directors of the corporation may provide by resolution or resolutions that some or all of any or all classes or series of its stock shall be uncertificated shares. Any such resolution shall not apply to shares represented by a certificate until such certificate is surrendered to the corporation. Notwithstanding the adoption of such a resolution by the Board of Directors, every holder of stock represented by certificates and upon request every holder of uncertificated shares shall be entitled to have a certificate signed by, or in the name of the corporation by the chairman or vice-chairman of the Board of Directors, the Chief Executive Officer, the President or any other officer, and by the Secretary or an Assistant Secretary, or the Treasurer or an Assistant Treasurer of the corporation representing the number of shares registered in certificate form. Any or all the signatures on the certificate may be a facsimile. In case any officer, transfer agent, or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the corporation with the same effect as if he were such officer, transfer agent or registrar at the date of issue. (Del. Code Ann., tit. 8, (S)158) 12. Section 31. Lost Certificates. The corporation may issue a new certificate ----------------- of stock or uncertificated shares in place of any certificate theretofore issued by the corporation alleged to have been lost, stolen, or destroyed, and the corporation may require the owner of such lost, stolen, or destroyed certificate, or his legal representative, to give the corporation a bond sufficient to indemnify it against any claim that may be made against the corporation on account of the alleged loss, theft or destruction of any such certificate or the issuance of such new certificate or uncertificated shares. (Del. Code Ann., tit. 8, (S) 167) Section 32. Transfers. Transfers of record of shares of stock of the --------- corporation shall be made only upon its books by the holders thereof, in person or by attorney duly authorized, and upon the surrender of a properly endorsed certificate or certificates for a like number of shares. (Del. Code Ann., tit. 6, (S) 8-401(1)) Section 33. Fixing Record Dates. In order that the corporation may ------------------- determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or to express consent to corporate action in writing without a meeting, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board of Directors may fix, in advance, a record date, which shall not be more than sixty (60) nor less than ten (10) days before the date of such meeting, nor more than sixty (60) days prior to any other action. If no record date is fixed: (a) the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held; (b) the record date for determining stockholders entitled to express consent to corporate action in writing without a meeting, when no prior action by the Board of Directors is necessary, shall be the day on which the first written consent is expressed; and (c) the record date for determining stockholders for any other purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting. (Del. Code Ann., tit. 8, (S) 213) Section 34. Registered Stockholders. The corporation shall be entitled to ----------------------- recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends, and to vote as such owner, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of Delaware. (Del. Code Ann., tit. 8, (S)(S) 213(a), 219) 13. ARTICLE VIII Other Securities of the Corporation Section 35. Execution of Other Securities. All bonds, debentures and ----------------------------- other corporate securities of the corporation, other than stock certificates, may be signed by the Chairman of the Board of Directors, the Chief Executive Officer, the President or any other officers, or such other person as may be authorized by the Board of Directors, and the corporate seal impressed thereon or a facsimile of such seal imprinted thereon and attested by the signature of the Secretary or an Assistant Secretary, the Chief Financial Officer or the Treasurer or an Assistant Treasurer; provided, however, that where any such bond, debenture or other corporate security shall be authenticated by the manual signature of a trustee under an indenture pursuant to which such bond, debenture or other corporate security shall be issued, the signatures of the persons signing and attesting the corporate seal on such bond, debenture or other corporate security may be the imprinted facsimile of the signatures of such persons. Interest coupons appertaining to any such bond, debenture or other corporate security, authenticated by a trustee as aforesaid, shall be signed by the Chief Financial Officer or by the Treasurer or an Assistant Treasurer of the corporation or such other person as may be authorized by the Board of Directors, or bear imprinted thereon the facsimile signature of such person. In case any officer who shall have signed or attested any bond, debenture or other corporate security, or whose facsimile signature shall appear thereon or on any such interest coupon, shall have ceased to be such officer before the bond, debenture or other corporate security so signed or attested shall have been delivered, such bond, debenture or other corporate security nevertheless may be adopted by the corporation and issued and delivered as though the person who signed the same or whose facsimile signature shall have been used thereon had not ceased to be such officer of the corporation. ARTICLE IX Dividends Section 36. Declaration of Dividends. Dividends upon the capital ------------------------ stock of the corporation, subject to the provisions of the Certificate of Incorporation, if any, may be declared by the Board of Directors pursuant to law at any regular or special meeting. Dividends may be paid in cash, in property, or in shares of the capital stock, subject to the provisions of the Certificate of Incorporation. (Del. Code Ann., tit. 8, (S)(S) 170, 173) Section 37. Dividend Reserve. Before payment of any dividend, there may ---------------- beset aside out of any funds of the corporation available for dividends such sum or sums as the Board of Directors from time to time, in their absolute discretion, think proper as a reserve or reserves to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the corporation, or for such other purpose as the Board of Directors shall think conducive to the 14. interests of the corporation, and the Board of Directors may modify or abolish any such reserve in the manner in which it was created. (Del. Code Ann., tit. 8, (S) 171) ARTICLE X Fiscal Year Section 38. Fiscal Year. Unless otherwise fixed by resolution of the ----------- Board of Directors, the fiscal year of the corporation shall end December 31 of each year. ARTICLE XI Indemnification of Directors, Officers, Employees and Other Agents Section 39. Indemnification of Directors, Officers, Employees and -------------------------------------------------------- Other Agents. ------------- (a) Directors and Executive Officers. The corporation shall --------------------------------- indemnify its directors and executive officers to the full extent permitted by the Delaware General Corporation Law, as the same exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the corporation to provide broader indemnification rights than said Law permitted the corporation to provide prior to such amendment); provided, however, that the corporation may limit the extent of such indemnification by individual contracts with its directors and executive officers; and, provided, further, that the corporation shall not be required to indemnify any director or executive officer in connection with any proceeding (or part thereof) initiated by such person or any proceeding by such person against the corporation or its directors, officers, employees or other agents unless (i) such indemnification is expressly required to be made by law, (ii) the proceeding was authorized by the board of directors of the corporation or (iii) such indemnification is provided by the corporation, in its sole discretion, pursuant to the powers vested in the corporation under the Delaware General Corporation Law. (b) Other Officers, Employees and Other Agents. The ------------------------------------------ corporation shall have power to indemnify its other officers, employees and other agents as set forth in the Delaware General Corporation Law. (c) Good Faith. For purposes of any determination under this ---------- By-Law, a director or executive officer shall be deemed to have acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, to have had no reasonable cause to believe that his conduct was unlawful, if his action is based on the records or books of account of the corporation or another enterprise, or on information supplied to him by the officers of the corporation or another enterprise in the course of their duties, or on the advice of legal counsel for the corporation or another enterprise or on information or records given or reports made to the corporation or another 15. enterprise by an independent certified public accountant or by an appraiser or other expert selected with reasonable care by the corporation or another enterprise. The term "another enterprise" as used in this paragraph (c) shall mean any other corporation or any partnership, joint venture, trust or other enterprise, including any employee benefit plan, of which such person is or was serving at the request of the corporation as a director, officer, employee or other agent. The provisions of this paragraph (c) shall not be deemed to be exclusive or to limit in any way the circumstances in which a person may be deemed to have met the applicable standard of conduct set forth by the Delaware General Corporation Law. (d) Expenses. The corporation shall advance, prior to the -------- final disposition of any proceeding, promptly following request therefor, all expenses incurred by any director or executive officer in connection with such proceeding upon receipt of an undertaking by or on behalf of such person to repay said amounts if it should be determined ultimately that such person is not entitled to be indemnified under this By-Law or otherwise. Notwithstanding the foregoing, unless otherwise determined pursuant to paragraph (e) of this By-Law, no advance shall be made by the corporation if a determination is reasonably and promptly made (1) by the board of directors by a majority vote of a quorum consisting of directors who were not parties to the proceeding, or (2) if such quorum is not obtainable, or, even if obtainable, a quorum of disinterested directors so directs, by independent legal counsel in a written opinion that, based upon the facts known to the decision making party at the time such determination is made, such person acted in bad faith or in a manner that such person did not believe to be in or not opposed to the best interests of the corporation, or, with respect to any criminal proceeding, such person believed or had reasonable cause to believe that his conduct was unlawful. (e) Enforcement. Without the necessity of entering into an ----------- express contract, all rights to indemnification and advances under this By-Law shall be deemed to be contractual rights and be effective to the same extent and as if provided for in a contract between the corporation and the director or executive officer who serves in such capacity at any time while this By-Law and other relevant provisions of the Delaware General Corporation Law and other applicable law, if any, are in effect. Any right to indemnification or advances granted by this By-Law to a director or executive officer shall be enforceable by or on behalf of the person holding such right in any court of competent jurisdiction if (i) the claim for indemnification or advances is denied, in whole or in part, or (ii) no disposition of such claim is made within ninety (90) days of request therefor. The claimant in such enforcement action, if successful in whole shall be entitled to be paid also the expense of prosecuting his claim. It shall be a defense to any such action that the claimant has not met the standards of conduct which make it permissible under the Delaware General Corporation Law for the corporation to indemnify the claimant for the amount claimed, but the burden of proving such defense shall be on the corporation. Neither the failure of the corporation (including its board of directors, independent legal counsel or its stockholders) to have made a determination prior to the commencement of such action that indemnification of the claimant is proper in the circumstances because he has met the applicable standard of conduct set forth in the Delaware 16. General Corporation Law, nor an actual determination by the corporation (including its board of directors, independent legal counsel or its stockholders) that the claimant has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that claimant has not met the applicable standard of conduct. (f) Non-Exclusivity of Rights. The rights conferred on any ------------------------- person by this By-Law shall not be exclusive of any other right which such person may have or hereafter acquire under any statute, provision of the Certificate of Incorporation, By-Laws, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in his official capacity and as to action in another capacity while holding office. The corporation is specifically authorized to enter into individual contracts with any or all of its directors, officers, employees or agents respecting indemnification and advances, as provided by law. (g) Survival of Rights. The rights conferred on any person by ------------------ this By-Law shall continue as to a person who has ceased to be a director, officer, employee or other agent and shall inure to the benefit of the heirs, executors and administrators of such a person. (h) Amendments. Any repeal or modification of this By-Law ---------- shall only be prospective and shall not affect the rights under this By-Law in effect at the time of the alleged occurrence of any action or omission to act that is the cause of any proceeding against any agent of the corporation. (i) Savings Clause. If this By-Law or any portion hereof shall -------------- be invalidated on any ground by any court of competent jurisdiction, then the corporation shall nevertheless indemnify each agent to the full extent permitted any applicable portion of this By-Law that shall not have been invalidated, or by any other applicable law. ARTICLE XII Notices Section 40. Notices. ------- (a) Notice to Stockholders. Whenever, under any provisions of ---------------------- these Bylaws, notice is required to be given to any stockholder, it shall be given in writing, timely and duly deposited in the United States mail, postage prepaid, and addressed to his last known post office address as shown by the stock record of the corporation or its transfer agent. (Del. Code Ann., tit. 8, (S) 222) (b) Notice to Directors. Any notice required to be given to ------------------- any Director may be given by the method stated in subsection (a), or by telegram, except that such notice other than one which is delivered personally shall be sent to such address as such Director shall have filed in writing with the Secretary, or, in the absence of such filing, to the last known post office address of such Director. 17. (c) Address Unknown. If no address of a stockholder or --------------- Director be known, notice may be sent to the office of the corporation required to be maintained pursuant to Section 2 hereof. (d) Affidavit of Mailing. An affidavit of mailing, executed by -------------------- a duly authorized and competent employee of the corporation or its transfer agent appointed with respect to the class of stock affected, specifying the name and address or the names and addresses of the stockholder or stockholders, or Director or Directors, to whom any such notice or notices was or were given, and the time and method of giving the same, shall be conclusive evidence of the statements therein contained. (Del. Code Ann., tit. 8, (S) 222) (e) Time Notices Deemed Given. All notices given by mail, as ------------------------- as above provided, shall be deemed to have been given as at the time of mailing and all notices given by telegram shall be deemed to have been given as at the sending time recorded by the telegraph company transmitting the notices. (f) Methods of Notice. It shall not be necessary that the same ----------------- method of notice be employed in respect of all Directors, but one permissible method may be employed in respect of any one or more, and any other permissible method or methods may be employed in respect of any other or others. (g) Failure to Receive Notice. The period or limitation of ------------------------- time within which any stockholder may exercise any option or right, or enjoy any privilege or benefit, or be required to act, or within which any Director may exercise any power or right, or enjoy any privilege, pursuant to any notice sent him in the manner above provided, shall not be affected or extended in any manner by the failure of such stockholder or such Director to receive such notice. (h) Notice to Person with Whom Communication Is Unlawful. ---------------------------------------------------- Whenever notice is required to be given, under any provision of law or of the Certificate of Incorporation or Bylaws of the corporation, to any person with whom communication is unlawful, the giving of such notice to such person shall not be required and there shall be no duty to apply to any governmental authority or agency for a license or permit to give such notice to such person. Any action or meeting which shall be taken or held without notice to any such person with whom communication is unlawful shall have the same force and affect as if such notice had been duly given. In the event that the action taken by the corporation is such as to require the filing of a certificate under any provision of the Delaware General Corporation Law, the certificate shall state, if such is the fact and if notice is required, that notice was given to all persons entitled to receive notice except such persons with whom communication is unlawful. (Del. Code Ann., tit. 8, (S) 230) 18. ARTICLE XIII Amendments Section 41. Amendments. These Bylaws may be repealed, altered or amended ---------- or new Bylaws adopted by the stockholders. The Board of Directors shall also have the authority, if such authority is conferred upon the Board of Directors by the Certificate of Incorporation, to repeal, alter or amend these Bylaws or adopt new Bylaws (including, without limitation, the amendment of any Bylaw setting forth the number of Directors who shall constitute the whole Board of Directors) subject to the power of the stockholders to change or repeal such Bylaws and provided that the Board of Directors shall not make or alter any Bylaws fixing the qualifications, classifications, term of office or compensation of Directors. (Del. Code Ann., tit. 8, (S)(S) 109(a), 122(6)) ARTICLE XIV Loans of Officers and Others Section 42. Certain Corporate Loans and Guaranties. If the corporation has -------------------------------------- outstanding shares held of record by 100 or more persons on the date of approval by the Board of Directors, the corporation may make loans of money or property to, or guarantee the obligations of, any officer of the corporation or its parent or any subsidiary, whether or not a director of the corporation or its parent or any subsidiary, or adopt an employee benefit plan or plans authorizing such loans or guaranties, upon the approval of the Board of Directors alone, by a vote sufficient without counting the vote of any interested director or directors, if the Board of Directors determines that such a loan or guaranty or plan may reasonably be expected to benefit the corporation. 19. EX-10.14 3 THE COMPANY'S 1991 STOCK INCENTIVE ACUSON CORPORATION EXHIBIT 10.14 - ------------------------------------------------------------------------------- ACUSON CORPORATION 1991 STOCK INCENTIVE PLAN Adopted by the Board of Directors on February 5, 1991 Approved by stockholders on May 6, 1991 Amended by the Board of Directors effective on May 31, 1995 Amended by the Board of Directors on February 19, 1999 1. PURPOSE. ------- (a) The purpose of the Plan is to provide a means by which selected employees of and consultants to Acuson Corporation, a Delaware Corporation (the "Company"), and its Affiliates, as defined in subparagraph 1(b), may be given an opportunity to purchase stock of the Company. It is intended that this purpose will be effected through the granting of (i) incentive stock options and (ii) nonstatutory stock options. (b) The word "Affiliate" as used in the Plan means any parent corporation or subsidiary corporation of the Company, as those terms are defined in Sections 424(e) and (f), respectively, of the Internal Revenue Code of 1986, as amended (the "Code"). (c) The Company, by means of the Plan, seeks to retain the services of persons now employed by or serving as consultants to the Company, to secure and retain the services of persons capable of filling such positions, and to provide incentives for such persons to exert maximum efforts for the success of the Company. (d) The Company intends that the stock options granted under the Plan ("Stock Awards") shall, in the discretion of the Board of Directors of the Company (the "Board") or any committee to which responsibility for administration of the Plan has been delegated pursuant to subparagraph 2(c), be either: incentive stock options as that term is used in Section 422 of the Code ("Incentive Stock Options"), or options which do not qualify as incentive stock options ("Supplemental Stock Options"). All options shall be separately designated Incentive Stock Options or Supplemental Stock Options at the time of grant, and in such form as issued pursuant to paragraph 6, and a separate certificate or certificates shall be issued for shares purchased on exercise of each type of option. An option designated as a Supplemental Stock Option will not be treated as an Incentive Stock Option. 2. ADMINISTRATION. -------------- (a) The Plan shall be administered by the Board unless and until the Board delegates administration to a committee, as provided in subparagraphs 2(c) and 2(d). (b) The Board shall have the power, subject to, and within the limitations of, the express provisions of the Plan: (i) To determine from time to time which of the persons eligible under the Plan shall be granted Stock Awards; when and how the Stock Awards shall be granted; whether a Stock Award will be an Incentive Stock Option, a Supplemental Stock Option, or a combination of the foregoing; the provisions of each Stock Award granted (which need not be identical), including the time or times when a person shall be permitted to purchase or receive stock pursuant to a Stock Award; and the number of shares with respect to which Stock Awards shall be granted to each such person. (ii) To construe and interpret the Plan and Stock Awards granted under it, and to establish, amend and revoke rules and regulations for its administration. The Board, in the exercise of this power, may correct any defect, omission or inconsistency in the Plan or in any Stock Award, in a manner and to the extent it shall deem necessary or expedient to make the Plan fully effective. (iii) To amend the Plan as provided in paragraph 12. (iv) Generally, to exercise such powers and to perform such acts as the Board deems necessary or expedient to promote the best interests of the Company. (c) With respect to options granted to officers of the Company subject to Section 16(b) of the Exchange Act, the Plan may be administered by a committee of the Board (the "Committee"), which committee shall be constituted in such manner as to permit such grants and related transactions under the Plan to be exempt from Section 16(b) of the Securities Exchange Act of 1934, as amended (the "Exchange Act") in accordance with Rule 16b-3 (or any successor thereto) promulgated under the Exchange Act ("Rule 16b-3"). If administration is delegated to a Committee, the Committee shall have, in connection with the administration of the Plan, the powers theretofore possessed by the Board, subject, however, to such resolutions, not inconsistent with the provisions of the Plan, as may be adopted from time to time by the Board. Subject to subparagraph 2(d) the Board may abolish the Committee at any time and revest in the Board the administration of the Plan. (d) Notwithstanding anything in this paragraph 2 to the contrary, the Board may delegate to a committee of one (1) or more members of the Board the authority to grant options to eligible persons who are not officers or directors of the Company. 2 3. STRUCTURE OF THE PLAN. --------------------- The Plan shall consist of an option grant program whereby certain employees and consultants to the Company described in paragraph 5 shall be eligible for option grants in the discretion of the Board. 4. SHARES SUBJECT TO THE PLAN. -------------------------- (a) Subject to the provisions of paragraph 11 relating to adjustments upon changes in stock, the stock that may be sold pursuant to Stock Awards granted under the Plan shall not exceed in the aggregate five million (5,000,000) shares of the Company's common stock. If any Stock Award granted under the Plan shall for any reason expire or otherwise terminate without having been exercised in full, the stock not purchased under such option shall again become available for the Plan. (b) The stock subject to the Plan may be unissued shares or reacquired shares bought on the market or otherwise. (c) An Incentive Stock Option may be granted to an eligible person under the Plan only if the aggregate fair market value (determined at the time the option is granted) of the stock with respect to which Incentive Stock Options (as defined in the Code) granted after 1986 are exercisable for the first time by such optionee during any calendar year under all incentive stock option plans of the Company and its Affiliates does not exceed one hundred thousand dollars ($100,000). 5. ELIGIBILITY. ----------- (a) Incentive Stock Options may be granted only to employees (including officers) of the Company or its Affiliates. A director of the Company who is not an employee of the Company shall not be eligible to receive Stock Awards pursuant to the Plan. Stock Awards other than Incentive Stock Options may be granted only to officers or employees of or consultants to the Company or its Affiliates. (b) No person shall be eligible for the grant of an Incentive Stock Option under the Plan if, at the time of grant, such person owns (or is deemed to own pursuant to Section 424(d) of the Code) stock possessing more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or of any of its Affiliates unless the exercise price of such Incentive Stock Option is at least one hundred ten percent (110%) of the fair market value of such stock at the date of grant and the term of the option does not exceed five (5) years from the date of grant. 3 6. OPTION PROVISIONS. ----------------- Each option shall be in such form and shall contain such terms and conditions as the Board or the Committee shall deem appropriate. The provisions of separate options need not be identical, but each option shall include (through incorporation of provisions hereof by reference in the option or otherwise) the substance of each of the following provisions: (a) The term of any option shall not be exercisable after the expiration of ten (10) years from the date it was granted. (b) The exercise price of each Incentive Stock Option shall be not less than one hundred percent (100%) of the fair market value of the stock subject to the option on the date the option is granted. The exercise price of each Supplemental Stock Option shall be not less than ten percent (10%) of the fair market value of the stock subject to the option on the date the option is granted. (c) The purchase price of stock acquired pursuant to an option shall be paid, to the extent permitted by applicable statutes and regulations, either (i) in cash at the time the option is exercised, or (ii) at the discretion of the Board or the Committee, either at the time of the grant or exercise of the option, (A) by delivery to the Company of shares of common stock of the Company that have been held for the requisite period necessary to avoid a charge to the Company's reported earnings and valued at the fair market value on the date of exercise (determined by the closing sale price per share of Common Stock for such date as reported by the New York Stock Exchange), (B) according to a deferred payment or other arrangement (which may include, without limiting the generality of the foregoing, the use of other common stock of the Company) with the person to whom the option is granted or to whom the option is transferred pursuant to subparagraph 6(d), or (C) in any other form of legal consideration that may be acceptable to the Board or the Committee. In the case of any deferred payment arrangement, interest shall be payable at least annually and shall be charged at the minimum rate of interest necessary to avoid the treatment as interest, under any applicable provisions of the Code, of any amounts other than amounts stated to be interest under the deferred payment arrangement. (d) An option shall not be transferable except by will or by the laws of descent and distribution, and shall be exercisable during the lifetime of the person to whom the option is granted only by such person. (e) The total number of shares of stock subject to an option may, but need not, be allotted in periodic installments (which may, but need not, be equal). From time to time during each of such installment periods, the option may become exercisable ("vest") with respect to some or all of the shares allotted to that period, and if vested, may be exercised with respect to some or all of the 4 shares allotted to such period and/or any prior period as to which the option was not fully exercised. During the remainder of the term of the option (if its term extends beyond the end of the installment periods), the option may be exercised from time to time with respect to any shares then remaining subject to the option. The provisions of this subparagraph 6(e) are subject to any option provisions governing the minimum number of shares as to which an option may be exercised. (f) The Company may as a condition of issuing any stock pursuant to the Plan, require any person who is to acquire such stock, (i) to give written assurances satisfactory to the Company as to such person's knowledge and experience in financial and business matters and/or to employ a purchaser representative reasonably satisfactory to the Company who is knowledgeable and experienced in financial and business matters, and that he or she is capable of evaluating, alone or together with the purchaser representative, the merits and risks of exercising the option; and (ii) to give written assurances satisfactory to the Company stating that such person is acquiring the stock for such person's own account and not with any present intention of selling or otherwise distributing the stock. These requirements, and any assurances given pursuant to such requirements, shall be inoperative if (i) the issuance of the shares has been registered under the Securities Act of 1933, as amended (the "Securities Act"), or (ii) as to any particular requirement, a determination is made by counsel for the Company that such requirement need not be met in the circumstances under the then applicable securities laws. (g) An option shall terminate three (3) months after termination of the optionee's employment or relationship as a consultant with the Company or an Affiliate, unless (i) such termination is due to such person's permanent and total disability, within the meaning of Section 422(c)(6) of the Code, in which case the option may, but need not, provide that it may be exercised at any time within one (1) year following such termination of employment or relationship as a consultant; or (ii) the optionee dies while in the employ of or while serving as a consultant to the Company or an Affiliate, or within not more than three (3) months after termination of such employment or relationship, in which case the option may, but need not, provide that it may be exercised at any time within eighteen (18) months following the death of the optionee by the person or persons to whom the optionee's rights under such option pass by will or by the laws of descent and distribution; or (iii) the option by its terms specifies either (A) that it shall terminate sooner than three (3) months after termination of the optionee's employment or relationship as a consultant, or (B) that it may be exercised more than three (3) months after termination of such employment or relationship with the Company or an Affiliate. This subparagraph 6(g) shall not be construed to extend the term of any option or to permit anyone to exercise the option after expiration of its term, nor shall it be construed to increase the number of shares as to which any option is exercisable from the amount exercisable on the date of termination of the optionee's employment or relationship as a consultant. 5 (h) The option may, but need not, include a provision whereby the optionee may elect at any time during the term of his or her employment or relationship as a consultant with the Company or any Affiliate to exercise the option as to any part or all of the shares subject to the option prior to the stated vesting date of the option or of any installment or installments specified in the option. Any shares so purchased from any unvested installment or option may be subject to a repurchase right in favor of the Company or to any other restriction the Board or the Committee determines to be appropriate. 7. COVENANTS OF THE COMPANY. ------------------------ (a) During the terms of the options granted under the Plan, the Company shall keep available at all times the number of shares of stock required to satisfy such options. (b) The Company shall seek to obtain from each regulatory commission or agency having jurisdiction over the Plan such authority as may be required to issue and sell shares of stock upon grant or exercise of Stock Awards under the Plan; provided, however, that this undertaking shall not require the Company to register under the Securities Act either the Plan, any Stock Award granted under the Plan, or any stock issued or issuable pursuant to any such Stock Awards. If, after reasonable efforts, the Company is unable to obtain from any such regulatory commission or agency the authority which counsel for the Company deems necessary for the lawful issuance and sale of stock under the Plan, the Company shall be relieved from any liability for failure to issue and sell stock upon exercise of such Stock Awards unless and until such authority is obtained. 8. USE OF PROCEEDS FROM STOCK. -------------------------- Proceeds from the sale of stock pursuant to Stock Awards granted under the Plan shall constitute general funds of the Company. 9. MISCELLANEOUS. ------------- (a) The Board or the Committee shall have the power to accelerate the time at which a Stock Award may first be exercised or the time during which an option or stock acquired pursuant to a Stock Award or any part thereof will vest, notwithstanding the provisions in the Stock Award stating the time at which it may first be exercised or the time during which it will vest. (b) Neither a recipient of a Stock Award nor any person to whom a Stock Award is transferred under subparagraph 6(d) shall be deemed to be the holder of, or to have any of the rights of a holder with respect to, any shares subject to such Stock Award unless and until such person has satisfied all requirements for exercise of the Stock Award pursuant to its terms. 6 (c) Nothing in the Plan or an instrument executed or Stock Award granted pursuant thereto shall confer upon any eligible employee or consultant any right to continue in the employ of the Company or any Affiliate (or to continue acting as a consultant) or shall affect the right of the Company or any Affiliate to terminate the employment or consulting relationship of any eligible employee or consultant with or without cause. In the event that a Stock Award recipient is permitted or otherwise entitled to take a leave of absence, the Company shall have the unilateral right to (i) determine whether such leave of absence will be treated as a termination of employment for purposes of his or her Stock Award, and (ii) suspend or otherwise delay the time or times at which the shares subject to the Stock Award would otherwise vest. (d) At the discretion of the Board or the Committee, the recipient may satisfy any federal, state or local tax withholding obligation relating to the exercise of such Stock Award by any of the following means or by a combination of such means: (i) tendering a cash payment; (ii) authorizing the Company to withhold from the shares of the common stock otherwise issuable to the participant as a result of the exercise of the Stock Award a number of shares having a fair market value less than or equal to the amount of the withholding tax obligation; or (iii) delivering to the Company owned and unencumbered shares of the common stock of the Company having a fair market value less than or equal to the amount of the withholding tax obligation. 10. CANCELLATION AND RE-GRANT OF OPTIONS. ------------------------------------ The Board or the Committee shall have the authority to effect, at any time and from time to time, with the consent of the affected option holders, (i) the repricing of any or all outstanding options (excluding Incentive Stock Options) under the Plan and/or (ii) the cancellation of any or all outstanding options under the Plan and the grant in substitution therefor new options under the Plan covering the same or different numbers of shares of common stock but having an option price per share not less than ten percent (10%) of the fair market value (one hundred percent (100%) of the fair market value in the case of an Incentive Stock Option or, in the case of a ten percent (10%) stockholder (as defined in subparagraph 5(b)), not less than one hundred and ten percent (110%) of the fair market value) per share of common stock on the new grant date. 11. ADJUSTMENTS UPON CHANGES IN STOCK. --------------------------------- (a) If any change is made in the stock subject to the Plan, or subject to any Stock Award granted under the Plan (through merger, consolidation, reorganization, recapitalization, stock dividend, dividend in property other than cash, stock split, liquidating dividend, combination of shares, exchange of shares, change in corporate structure or otherwise), the Plan and outstanding Stock Awards will be appropriately adjusted in the class(es) and number of shares and price per share of stock subject to outstanding Stock Awards. 7 (b) In the event of: (i) a dissolution or liquidation of the Company; (ii) a merger or consolidation in which the Company is not the surviving corporation; (iii) a reverse merger in which the Company is the surviving corporation but the shares of the Company's common stock outstanding immediately preceding the merger are converted by virtue of the merger into other property, whether in the form of securities, cash or otherwise; or (iv) any other capital reorganization in which more than fifty percent (50%) of the shares of the Company entitled to vote are exchanged, then to the extent permitted by applicable law (x) any surviving corporation shall assume any Stock Awards outstanding under the Plan or shall substitute similar rights for those outstanding under the Plan, or (y) such Stock Awards shall continue in full force and effect. In the event any surviving corporation refuses to assume or continue such Stock Awards, or to substitute similar Stock Awards for those outstanding under the Plan, then, with respect to Stock Awards held by persons then performing services as employees or consultants for the Company, the time during which such options may be exercised shall be accelerated and the Stock Awards terminated if not exercised prior to such event. 12. AMENDMENT OF THE PLAN. --------------------- (a) The Board at any time, and from time to time, may amend the Plan. However, except as provided in paragraph 11 relating to adjustments upon changes in stock, no amendment shall be effective unless approved by the stockholders of the Company within twelve (12) months before or after the adoption of the amendment, where the amendment will: (i) Increase the number of shares reserved for issuance under the Plan; (ii) Modify the requirements as to eligibility for participation in the Plan (to the extent such modification requires stockholder approval in order for the Plan to satisfy the requirements of Section 422(b) of the Code); or (iii) Modify the Plan in any other way if such modification requires stockholder approval in order for the Plan to satisfy the requirements of Section 422(b) of the Code or to comply with the requirements of Rule 16b-3. (b) It is expressly contemplated that the Board may amend the Plan in any respect the Board deems necessary or advisable to provide eligible employees or consultants with the maximum benefits provided or to be provided under the provisions of the Code and the regulations promulgated thereunder relating to employee stock options and/or to bring the Plan and/or options granted under it into compliance therewith. (c) Rights and obligations under any Stock Award granted before amendment of the Plan shall not be altered or impaired by any amendment of the 8 Plan unless (i) the Company requests the consent of the person to whom the option was granted and (ii) such person consents in writing. 13. TERMINATION OR SUSPENSION OF THE PLAN. ------------------------------------- (a) The Board may suspend or terminate the Plan at any time. Unless sooner terminated, the Plan shall terminate within ten (10) years from the date the Plan is adopted by the Board or approved by the stockholders of the Company, whichever is earlier. No Stock Awards may be granted under the Plan while the Plan is suspended or after it is terminated. (b) Rights and obligations under any Stock Award granted while the Plan is in effect shall not be altered or impaired by suspension or termination of the Plan, except with the consent of the person to whom the Stock Award was granted. 14. EFFECTIVE DATE AND STOCKHOLDER APPROVAL OF PLAN. ----------------------------------------------- The Plan become effective when adopted by the Board on February 5, 1991 and was approved by the Company's stockholders on May 6, 1991. Effective May 31, 1995, the Board amended the Plan to terminate the automatic option grant program for non-employee directors which was replaced by a similar program under the Company's 1995 Stock Incentive Plan, which amendment did not require stockholder approval. On February 19, 1999, the Board adopted and approved an amendment and restatement of the Plan to reflect amendments promulgated by the Securities and Exchange Commission to Rule 16b-3 applicable to the Plan, which amendment did not require stockholder approval. 9 EX-10.15 4 FORM OF COMPANY'S SUPPLEMENTAL OPTIONS ACUSON CORPORATION EXHIBIT 10.15 - -------------------------------------------------------------------------------- ACUSON CORPORATION SUPPLEMENTAL STOCK OPTION TERMS Acuson Corporation (the "Company"), pursuant to its 1991 Stock Incentive Plan (the "Plan"), has this day granted to you, the optionee named on the Notice of Grant of Stock Options and Grant Agreement to which these Supplemental Stock Option Terms are attached (the "Agreement"), an option to purchase shares of the common stock of the Company ("Common Stock"). This option is not intended to qualify as an "incentive stock option" within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"). Whenever used herein, "this option" refers to the Agreement together with these Supplemental Stock Option Terms. The details of your option are as follows: 1. The total number of shares subject to this option is set forth in the Agreement. Subject to the limitations contained herein, this option shall be exercisable with respect to each installment shown below on or after the date of vesting applicable to such installment, as follows: (a) Except as otherwise provided in this paragraph 1, commencing on the date specified as the "Beginning Vesting Date" in the Agreement, shares shall be allocated to this option, and shall vest and become exercisable, in four installments, as follows: twenty percent (20%) on the first anniversary of the Beginning Vesting Date, twenty percent (20%) on the second anniversary of such date, thirty percent (30%) on the third anniversary of such date, and the remaining thirty percent (30%) on the fourth anniversary of such date. The shares subject to this option shall be allocated, and shall vest and become exercisable, in accordance with the preceding sentence only until the earlier of (i) the date on which all such shares have been allocated hereto or (ii) the date of termination of your employment or relationship as a consultant or director with the Company or an affiliate of the Company (as defined in the Plan) for any reason or no reason, including your death or disability. You shall have no right to exercise this option as to any share until such share has been allocated hereto and has vested, and you shall have no right to exercise this option as to any fractional share. Fractional shares, if any, included in an installment shall not vest before such time as additional fractional shares, or portions thereof, included in other installments allocated to this option can be combined with the existing fractional share to constitute one or more whole shares. (b) Notwithstanding anything to the contrary contained in this paragraph 1, the total number of shares subject to this option shall be allocated hereto and shall vest fully, automatically and without any further action by the parties hereto on the twenty-second day after any Share Acquisition Date, unless prior to such twenty-second day a majority of the Continuing Directors then in office has determined that the transaction pursuant to which a Person has become an Acquiring Person is an Approved Transaction. (c) For purposes of paragraph 1(b), the following definitions shall apply: Acuson Corporation Supplemental Stock Option Terms "Acquiring Person" means any Person who or which, together with all ---------------- Affiliates and Associates of such Person, shall be the Beneficial Owner of 20% or more of the Common Stock then outstanding, but shall not include the Company, any Subsidiary of the Company or any employee benefit plan of the Company or any Subsidiary of the Company, or any entity holding Common Stock for or pursuant to the terms of any such plan. Notwithstanding the foregoing, no Person shall become an Acquiring Person as the result of an acquisition of Common Stock by the Company which, by reducing the number of shares outstanding, increases the proportionate number of shares beneficially owned by such Person to 20% or more of the Common Stock of the Company then outstanding; provided, however, that if a Person becomes the -------- ------- Beneficial Owner of 20% or more of the Common Stock of the Company then outstanding by reason of share purchases by the Company and shall, after such share purchases by the Company, become the Beneficial Owner of any additional Common Stock of the Company, then such Person shall be deemed to be an Acquiring Person. "Affiliate" and "Associate" have the respective meanings ascribed to --------- --------- such terms in Rule 12b-2 of the General Rules and Regulations under the Exchange Act, as in effect on the date of this grant. "Approved Transaction" means any transaction that occurs at a time -------------------- when Continuing Directors are in office and a majority of the Continuing Directors then in office has determined that the transaction is in the best interest of the Company and its stockholders. A Person shall be deemed the "Beneficial Owner" of and shall be deemed ---------------- to "beneficially own" any securities: (i) which such Person or any of such Person's Affiliates or Associates beneficially owns, directly or indirectly; (ii) which such Person or any of such Person's Affiliates or Associates has (A) the right to acquire (whether such right is exercisable immediately or only after the passage of time) pursuant to any agreement, arrangement or understanding, or upon the exercise of conversion rights, exchange rights, rights (other than the Rights), warrants or options, or otherwise; provided, however, that a Person shall not be deemed the -------- ------- Beneficial Owner of, or to beneficially own, securities tendered pursuant to a tender or exchange offer made by or on behalf of such Person or any of such Person's Affiliates or Associates until such tendered securities are accepted for purchase or exchange; or (B) the right to vote pursuant to any agreement, arrangement or understanding; provided, however, that a Person -------- ------- shall not be deemed the Beneficial Owner of, or to beneficially own, any security if the agreement, arrangement or understanding to vote such security (1) arises solely from a revocable proxy or consent given to such person in response to a public proxy or consent solicitation made pursuant to, and in accordance with, the applicable rules and regulations of the Exchange Act and (2) is not also then reportable on Schedule 13D under the Exchange Act (or any comparable or successor report), or (iii) which are beneficially owned, directly or indirectly, by any other Person with which such Person or any of such Person's Affiliates or Associates has any agreement, arrangement or understanding for the purpose of acquiring, holding, voting (except to the extent contemplated by the proviso to clause (ii) (B) of this definition) or disposing of any securities of the Company; provided further, however, that nothing in this paragraph shall -------- ------- ------- 2 Acuson Corporation Supplemental Stock Option Terms cause a Person to be the Beneficial Owner of, or to beneficially own, any securities (x) acquired through such Person's participation in the business of underwriting securities in good faith in a firm commitment underwriting until the expiration of forty days after the date of such acquisition or (y) which such Person has reported on Schedule 13G under the Exchange Act and has not ceased to be eligible to report on Schedule 13G pursuant to Rule 13d-1 under the Exchange Act. "Common Stock" means the shares of common stock, par value $.0001 ------------ per share, of the Company. "Continuing Director" means (i) any member of the Board of ------------------- Directors of the Company, while such Person is a member of the Board, who is not an Acquiring Person, or an Affiliate or Associate of an Acquiring Person, or a representative of an Acquiring Person or of any such Affiliate or Associate, and who was, if applicable, a member of the Board prior to the time that any Person becomes an Acquiring Person, or (ii) any Person who subsequently becomes a member of the Board, while such Person is a member of the Board who is not an Acquiring Person, or an Affiliate or Associate of an Acquiring Person or a representative of an Acquiring Person or of any such Affiliate or Associate, if such Person's nomination for election or election to the Board is recommended or approved by a majority of Continuing Directors. "Exchange Act" means the Securities Exchange Act of 1934, as ------------ amended, and the rules and regulations promulgated thereunder. "Person" means any individual, firm, partnership, corporation or ------ other entity, and shall include any successor (by merger or otherwise) of such entity. "Rights" means the rights granted to the Company's shareholders ------ to purchase additional Common Stock under certain circumstances, as described in that certain Rights Agreement, dated as of May 5, 1988, by and between the Company and The First National Bank of Boston, as rights agent. "Share Acquisition Date" means the first date of public ---------------------- announcement by the Company or an Acquiring Person that a Person has become an Acquiring Person. "Subsidiary" of any Person means any corporation or other entity ---------- of which a majority of the voting power of the voting equity securities or equity interest is owned, directly or indirectly, by such Person, or which is otherwise controlled by such Person. 2. (a) The exercise price per share of this option is set forth in the Agreement, being not less than ten percent (10%) of the fair market value of the Common Stock on the date of grant of this option. (b) The purchase price of stock acquired pursuant to this option shall be paid at the time of exercise, to the extent permitted by applicable statutes and regulations, by (i) personal check, certified check, bank draft, or postal money order payable to the order of Acuson Corporation in lawful money of the United States (collectively, "Cash Consideration"); 3 Acuson Corporation Supplemental Stock Option Terms (ii) delivery on a form prescribed by the Company of an irrevocable direction to a securities broker approved by the Company to sell shares of common stock of the Company and deliver all or a portion of the proceeds to the Company in payment for the stock issuable upon exercise of this option; (iii) surrender to the Company of shares of common stock of the Company (or delivery of a properly executed form of attestation of ownership of shares of common stock of the Company) that have been held for the requisite period necessary to avoid a charge to the Company's reported earnings and valued at the fair market value on the date of exercise (determined by the closing sale price per share of common stock of the Company for such date); or (iv) in any combination of the foregoing. 3. The minimum number of shares with respect to which this option may be exercised at any one time is ten (10), except as to an installment subject to exercise, as set forth in paragraph 1, which amounts to fewer than ten (10) shares, in which case, as to the exercise of that installment, the number of such shares in such installment shall be the minimum number of shares. In no event may this option be exercised for any number of shares which would require the issuance of anything other than whole shares. 4. Notwithstanding anything to the contrary contained herein, this option may not be exercised unless the shares issuable upon exercise of this option are then registered under the Securities Act of 1933, as amended (the "Securities Act"), or, if such shares are not then so registered, the Company has determined that such exercise and issuance would be exempt from the registration requirements of the Securities Act. 5. The term of this option commences on the grant date as set forth in the Agreement and, unless sooner terminated as set forth below or in the Plan, terminates on the date set forth in the Agreement (which date shall be no more than ten (10) years from the date this option is granted). In no event may this option be exercised on or after the date on which it terminates. This option shall terminate prior to the expiration of its term as follows: three (3) months after the termination of your employment or relationship as a consultant or director with the Company or an affiliate of the Company (as defined in the Plan) for any reason or for no reason unless: (a) such termination of employment or relationship as a consultant or director is due to your permanent and total disability (within the meaning of Section 422(c)(6) of the Code), in which event the option shall terminate on the earlier of the termination date set forth above or one (1) year following such termination of employment or relationship as a consultant or director; or (b) such termination of employment or relationship as a consultant or a director is due to your death, or your death occurs within three (3) months after such termination of employment or relationship as a consultant or director, in which event the option shall terminate on the earlier of the termination date set forth above or eighteen (18) months after your death; or (c) during any part of such three (3) month period the option is not exercisable solely because of the condition set forth in paragraph 4 above, in which event the option shall not terminate until the earlier of the termination date set forth above or until it shall have been exercisable for an aggregate period of three (3) months after the termination of your employment or relationship as a consultant or a director; or (d) exercise of the option within three (3) months after termination of your employment or relationship as a consultant or a director with the Company or with an affiliate of 4 Acuson Corporation Supplemental Stock Option Terms the Company (as defined in the Plan) would result in liability under section 16(b) of the Securities Exchange Act of 1934, in which case the option will terminate on the earlier of (i) the termination date set forth above, (ii) the tenth (10th) day after the last date upon which exercise would result in such liability, or (iii) six (6) months and ten (10) days after the termination of your employment or relationship as a consultant or a director with the Company or an affiliate of the Company (as defined in the Plan). However, this option may be exercised following termination of your employment or relationship as a consultant or a director only as to that number of shares as to which it was exercisable on the date of your termination of employment or relationship as a consultant or a director under the provisions of paragraph 1 of this option. 6. (a) This option may be exercised, to the extent specified above, by delivering a notice of exercise together with the exercise price to the Secretary of the Company, or to such other person as the Company may designate, during regular business hours, together with such additional documents as the Company may then require pursuant to subparagraph 6(f) of the Plan. (b) By exercising this option you agree that the Company may require you to enter into an arrangement providing for the cash payment by you to the Company of any tax withholding obligation of the Company arising by reason of (i) the exercise of this option, (ii) the lapse of any substantial risk of forfeiture to which the shares are subject at the time of exercise, or (iii) the disposition of shares acquired upon such exercise. 7. This option is not transferable, except by will or by the laws of descent and distribution, and is exercisable during your life only by you. 8. This option is not an employment contract, and nothing in this option shall confer upon any eligible employee or consultant or director any right to continue in the employ (or to continue acting as a consultant or director) of the Company or any affiliate of the Company (as defined in the Plan) or shall affect the right of the Company or any affiliate of the Company (as defined in the Plan) to terminate the employment or consulting relationship or directorship of any eligible employee or consultant or director with or without cause. 9. Any notices provided for in this option or the Plan shall be given in writing and shall be deemed effectively given upon receipt or, in the case of notices delivered by the Company to you, five (5) days after deposit in the United States mail, postage prepaid, addressed to you at the address specified in the Company's records or at such other address as you may designate by written notice to the Company. 10. This option is subject to all the provisions of the Plan, a copy of which is attached hereto, and its provisions are hereby made a part of this option, including without limitation the provisions of paragraph 6 of the Plan relating to option provisions, and is further subject to all interpretations, amendments, rules, and regulations which may from time to time be promulgated and adopted pursuant to the Plan. In the event of any conflict between the provisions of this option and those of the Plan, the provisions of the Plan shall control. This option is dated and effective as of the date of grant as set forth in the Agreement. 5 EX-10.22 5 THE COMPANY'S 1995 EMPLOYEE STOCK PURCHASE PLAN ACUSON CORPORATION EXHIBIT 10.22 - -------------------------------------------------------------------------------- ACUSON CORPORATION 1995 EMPLOYEE STOCK PURCHASE PLAN Adopted by the Board of Directors on March 1, 1995 Approved by stockholders on May 31, 1995 Amended by the Board of Directors on February 19, 1999 The following constitute the provisions of the 1995 Employee Stock Purchase Plan of Acuson Corporation. 1. Purpose. The purpose of the Plan is to provide employees of the ------- Company and its Designated Subsidiaries with an opportunity to purchase Common Stock of the Company through accumulated payroll deductions. The Company, by means of the Plan, seeks to retain the services of its employees, to secure and retain the services of new employees, and to provide incentives for such persons to exert maximum efforts for the success of the Company by providing eligible employees with an opportunity to participate as shareholders in the Company's future growth. It is the intention of the Company to have the Plan qualify as an "Employee Stock Purchase Plan" under Section 423 of the Code. Accordingly, the provisions of the Plan, and the discretion granted to the Plan Administrator hereunder shall be construed so as to extend and limit participation in a manner consistent with the requirements of that section of the Code. 2. Definitions. ----------- (a) "Applicable Discount" shall mean, with respect to any given ------------------- Purchase Period, the discount fixed by the Plan Administrator pursuant to paragraph 4(b) with respect to such Purchase Period, which discount shall be no less than 0% and no more than 15% (in whole percentages). (b) "Board" shall mean the Board of Directors of the Company. ----- (c) "Code" shall mean the Internal Revenue Code of 1986, as amended. ---- (d) "Common Stock" shall mean the common stock, par value $.0001 per ------------ share, of the (e) "Company" shall mean Acuson Corporation, a Delaware corporation. ------- (f) "Compensation" shall mean, with respect to any given Purchase ------------ Period, the components of each Participant's total compensation that 1 will be treated as compensation for purposes of the Plan during such Purchase Period as determined by the Plan Administrator pursuant to paragraph 4(b). (g) "Designated Subsidiaries" shall mean the Subsidiaries which have ----------------------- been designated by the Plan Administrator from time to time in its sole discretion as eligible to participate in the Plan. (h) "Employee" shall mean any individual who is regularly engaged in -------- the rendition of personal services to the Company or a Designated Subsidiary for earnings considered wages under Section 3121(a) of the Code. For purposes of the Plan, the employment relationship shall be treated as continuing intact while the individual is on sick leave or other leave of absence approved by the Company. Where the period of leave exceeds 90 days and the individual's right to reemployment is not guaranteed either by statute or by contract, the employment relationship will be deemed to have terminated on the 91st day of such leave. (i) "Enrollment Date" shall mean the first day of each Purchase --------------- Period. (j) "Exchange Act" shall mean the Securities Exchange Act of 1934, as ------------ amended. (k) "Exercise Date" shall mean, with respect to any given Purchase ------------- Period, the date or dates fixed by the Plan Administrator with respect to such Purchase Period pursuant to paragraph 4(b). (l) "Fair Market Value" shall mean, as of any date, the value of ----------------- Common Stock determined as follows: (1) If the Common Stock is listed on any established stock exchange or a national market system, including without limitation the National Market System of the National Association of Securities Dealers, Inc. Automated Quotation ("NASDAQ") System, its Fair Market Value shall be the closing sales price for such stock (or the closing bid, if no sales were reported), as quoted on such exchange (or the exchange with the greatest volume of trading in the Common Stock) or system on the day of such determination, if such day is a Trading Day, or the previous Trading Day, if such day is not a Trading Day, as reported in The Wall Street Journal or such other source as the Board deems ----------------------- reliable; or (2) If the Common Stock is quoted on the NASDAQ system (but not on the National Market system thereof) or is regularly quoted by a recognized securities dealer but selling prices are not reported, its Fair Market Value shall be the mean between the high and low asked prices for the Common Stock on the day of such determination, if such day is a Trading Day, or the previous Trading Day, if such day is not a Trading Day, as reported in The Wall Street --------------- Journal or such other source as the Board deems reliable; or - ------- 2 (3) In the absence of an established market for the Common Stock, the Fair Market Value thereof shall be determined in good faith by the Board. (m) "Participant" means an eligible Employee of the Company or ----------- Designated Subsidiary who is actively participating in the Plan. (n) "Plan" shall mean this Employee Stock Purchase Plan. ---- (o) "Plan Administrator" shall mean either the Board or a committee ------------------ of the Board that is responsible for the administration of the Plan. (p) "Purchase Period" shall mean a purchase period established by the --------------- Plan Administrator pursuant to paragraph 4 hereof. (q) "Purchase Price" shall mean, with respect to any given Exercise -------------- Date, the amount determined by applying the Applicable Discount to the lower of (i) the Fair Market Value of the Common Stock as of such Exercise Date and (ii) the Fair Market Value of the Common Stock as of the first date of the Purchase Period in which such Exercise Date falls; provided, however, that the Plan Administrator may, in its discretion, determine that the Purchase Price for all Exercise Dates within a given Purchase Period shall be the amount determined by applying the Applicable Discount to the Fair Market Value of the Common Stock as of the first date of such Purchase Period, but only if the Plan Administrator does so upon establishing such Purchase Period. (r) "Replacement Purchase Period" shall mean a replacement purchase --------------------------- period established pursuant to paragraph 4(e) hereof. (s) "Reserves" shall mean the number of shares of Common Stock -------- covered by all purchase rights granted under the Plan which have not yet been exercised and the number of shares of Common Stock which have been authorized for issuance under the Plan but as to which purchase rights have not yet been granted (or as to which purchase rights have previously been granted but have expired unexercised). (t) "Subsidiary" shall mean a corporation, domestic or foreign, of ---------- which not less than 50% of the voting shares are held by the Company or a Subsidiary, whether or not such corporation now exists or is hereafter organized or acquired by the Company or a Subsidiary, except that as used in paragraph 18(b), "Subsidiary" shall have the meaning set forth in paragraph 18(c). (u) "Trading Day" shall mean a day on which The New York Stock ----------- Exchange is open for trading. 3 3. Eligibility. ----------- (a) Any Employee who has been continuously employed by the Company prior to the applicable Enrollment Date for such minimum period of time (not to exceed two years), if any, as the Plan Administrator may require and who is employed by the Company on such Enrollment Date shall be eligible to participate in the Plan for the Purchase Period commencing with such Enrollment Date. Members of the Board who are eligible Employees are permitted to participate in the Plan except to the extent limited by paragraph 13(b). (b) Any provisions of the Plan to the contrary notwithstanding, no Employee shall be granted purchase rights under the Plan (i) if, immediately after the grant, such Employee (taking into account stock owned by any other person whose stock would be attributed to such Employee pursuant to Section 424(d) of the Code) would own stock and/or hold outstanding options or rights to purchase stock possessing five percent (5%) or more of the total combined voting power or value of all classes of stock of the Company or of any Subsidiary, or (ii) which permits his/her rights to purchase stock under all employee stock purchase plans of the Company and its Subsidiaries to accrue at a rate which exceeds Twenty-Five Thousand Dollars ($25,000) worth of stock (determined at the Fair Market Value of the shares at the time such purchase right is granted) for each calendar year in which such purchase right is outstanding at any time. The determination of the accrual of the right to purchase stock shall be made in accordance with Section 423(b)(8) of the Code and the regulations thereunder. (c) Notwithstanding paragraph (a) above, the Plan Administrator shall have the discretion to exclude any one or more of the following categories of Employees from participation in the Plan: (i) Employees whose customary employment is 20 hours or less per week; (ii) Employees whose customary employment is five months or less in any calendar year; (iii) Employees who have been employed by the Company or any Designated Subsidiary for less than two years; and (iv) highly compensated Employees (within the meaning of Section 414(q) of the Code). 4. Purchase Periods. ---------------- (a) The Plan shall be implemented by Purchase Periods until such time as (i) the maximum number of shares of Common Stock available for issuance under the Plan shall have been purchased or (ii) the Plan shall have terminated in accordance with paragraph 19 or paragraph 23 hereof. Each Purchase Period shall be of such duration (not to exceed twenty-seven months per Purchase Period) as determined by the Plan Administrator upon establishment of such Purchase Period. Purchase Periods will commence on such dates as may be determined by the Plan Administrator during the period in which the Plan remains in existence. The Plan Administrator shall have the discretion to establish overlapping Purchase Periods. 4 (b) Upon establishing each Purchase Period, the Plan Administrator shall fix (i) one or more Exercise Dates with respect to such Purchase Period, one of which shall be on the last day of such Purchase Period, (ii) the Applicable Discount with respect to such Purchase Period, (iii) the Compensation with respect to such Purchase Period and (iv) the maximum number of shares that may be purchased by any Participant on any Exercise Date during such Purchase Period (the "Per-Participant Limit"). In addition, the Plan Administrator may, in its discretion, fix a maximum number of shares of Common Stock that may be purchased by all Participants in the aggregate during such Purchase Period and/or on any given Exercise Date therein. Once fixed, the Exercise Date or Dates, the Applicable Discount, the Compensation, the Per-Participant Limit and any aggregate share purchase limits with respect to a given Purchase Period may not be changed, except upon the occurrence of a Corporate Transaction as provided in paragraph 18(b). (c) A Participant shall be granted a separate purchase right for each Purchase Period in which he/she participates. The purchase right shall be granted on the first day of the Purchase Period and shall be automatically exercised in successive installments on each Exercise Date during the Purchase Period. (d) If the Plan Administrator establishes overlapping Purchase Periods, the Plan Administrator may, in its discretion, permit Participants to participate in more than one Purchase Period at a time. (e) If on the Trading Day following any Exercise Date in a Purchase Period the Fair Market Value of the Common Stock is less than the Fair Market Value of the Common Stock on the first day of such Purchase Period (after taking into account any adjustment during the Purchase Period pursuant to paragraph 18(a)), the Plan Administrator may, in its discretion, provide that the Purchase Period shall be terminated and that all Participants therein shall be enrolled in a new Purchase Period, other than any such Participants who are not eligible to participate in the Plan on that date or who have elected to terminate participation in the Plan. Any such new Purchase Period (a "Replacement Purchase Period") shall be established by the Plan Administrator pursuant to paragraph 4(a) and shall commence on the date that such previous Purchase Period is terminated. The Plan Administrator shall fix one or more Exercise Dates, the Applicable Discount, the Compensation and the Per-Participant Limit, and may fix aggregate share purchase limits, pursuant to paragraph 4(b) with respect to such Replacement Purchase Period. (f) Except as specifically provided herein, the acquisition of Common Stock through participation in the Plan for any Purchase Period shall neither limit nor require the acquisition of Common Stock by a Participant in any subsequent Purchase Period. 5 5. Participation. ------------- (a) An eligible Employee may become a Participant in the Plan by completing a subscription agreement authorizing payroll deductions in a form designated by the Company and filing it with the Company's payroll office prior to the Enrollment Date for the Purchase Period in which such participation will commence in accordance with the filing deadline established by the Company. Such agreement will remain effective under subsequent Purchase Periods unless and until such Employee files a new agreement or terminates his/her participation in the Plan in accordance with paragraph 6(c), provided that such Employee must file a new subscription agreement to enroll in any Purchase Period that overlaps with a Purchase Period in which such Employee has previously enrolled. (b) Payroll deductions for a Participant shall commence with the first payroll following the Enrollment Date and shall end on the last complete payroll period during the Purchase Period, unless sooner terminated by the Participant as provided in paragraph 10. 6. Payroll Deductions. ------------------ (a) At the time a Participant files his/her subscription agreement, he/she shall elect to have payroll deductions made on each pay day during the Purchase Period in an amount from three to fifteen percent (in whole percentages only) of the Compensation which he/she receives on each such pay day. (b) All payroll deductions made for a Participant shall be credited to his/her account under the Plan. A Participant may not make any additional payments into such account. (c) A Participant may discontinue his/her participation in the Plan as provided in paragraph 10. A Participant's subscription agreement shall remain in effect for successive Purchase Periods unless and until such Participant files a new agreement or terminates his/her participation in the Plan as provided in paragraph 10. The Plan Administrator may, in its discretion, permit Participants to amend their subscription agreements to increase and/or decrease the rate of their payroll deductions during any given Purchase Period. (d) Notwithstanding the foregoing, to the extent necessary to comply with Section 423(b)(8) of the Code and paragraph 3(b) herein, a Participant's payroll deductions may be decreased to 0% at such time during any Purchase Period which is scheduled to end during the current calendar year (the "Current Purchase Period") that the aggregate of all payroll deductions which were previously used to purchase stock under the Plan in any other Purchase Period that ended or that will end during that calendar year plus all payroll deductions accumulated with respect to the Current Purchase Period equal the 6 maximum amount permitted under Section 423 of the Code. Payroll deductions shall recommence at the rate provided in such Participant's subscription agreement at the beginning of the first Purchase Period which is scheduled to end in the following calendar year, unless terminated by the Participant as provided in paragraph 10. 7. Grant of Purchase Right. On the first day of each Purchase Period, ----------------------- each Participant in such Purchase Period shall be granted the right to purchase on each Exercise Date of such Purchase Period (at the applicable Purchase Price) up to a number of shares of Common Stock determined by dividing such Participant's payroll deductions accumulated prior to such Exercise Date and retained in the Participant's account as of the Exercise Date by the applicable Purchase Price; provided that such purchase shall be subject to the limitations set forth in paragraphs 3(b), 4(b), 6(d), 8(b) and 12(a) hereof. Exercise of the purchase right shall occur as provided in paragraph 8, unless the Participant has withdrawn from the Plan pursuant to paragraph 10, and the purchase right, to the extent not exercised, shall expire on the last day of the Purchase Period. 8. Exercise of Purchase Right. --------------------------- (a) Unless a Participant withdraws from the Plan as provided in paragraph 10 below, his/her right to purchase shares will be exercised automatically on each Exercise Date, and the maximum number of full shares subject to such right shall be purchased for such Participant at the applicable Purchase Price with the accumulated payroll deductions in his/her account. No fractional shares will be purchased; any payroll deductions accumulated in a Participant's account which are not sufficient to purchase a full share shall be carried over to the next Exercise Date under the Plan or returned to the Participant, provided that, if the next Exercise Date falls within a new Purchase Period, such payroll deductions shall be carried over to such Exercise Date only if the Participant participates in such new Purchase Period. Any amount remaining in a Participant's account at the close of any Exercise Date caused by anything other than a surplus due to fractional shares (including the accumulated payroll deductions in any Participant's account as of any Exercise Date that are in excess of the amount needed to purchase the maximum number of full shares which may be purchased by such Participant based on the limitations in paragraphs 3(b), 4(b), 6(d), 8(b) and 12(a) hereof) shall be refunded to the Participant in cash as soon as practicable and shall not be carried over to the next Exercise Date. During a Participant's lifetime, a Participant's right to purchase shares hereunder is exercisable only by him/her. (b) If, on a given Exercise Date, the aggregate purchase of shares upon the exercise in full of all purchase rights would exceed the aggregate share purchase limit, if any, fixed by the Plan Administrator pursuant to paragraph 4(b) with respect to the applicable Purchase Period, the Company shall make a pro-rata allocation of the available shares in as nearly uniform a manner as shall be practicable and as it shall determine to be equitable. 7 9. Delivery. The Company shall arrange the delivery to each Participant -------- of a certificate representing the shares of Common Stock purchased upon exercise of his/her purchase right based upon instructions provided to the Company by the Participant from time to time, but subject to paragraph 12(c). 10. Withdrawal; Termination of Employment. ------------------------------------- (a) A Participant may withdraw all but not less than all the payroll deductions credited to his/her account and not yet used to exercise his/her purchase right under the Plan at any time by giving written notice to the Company in a form designated by the Company. All of the Participant's payroll deductions credited to his/her account will be paid to such Participant as soon as practicable after receipt of such notice of withdrawal. Upon receipt of such notice of withdrawal, the Participant's purchase right for the Purchase Period will be automatically terminated, and no further payroll deductions for the purchase of shares will be made during the Purchase Period. If a Participant withdraws from a Purchase Period, payroll deductions will not resume at the beginning of the succeeding Purchase Period unless the Participant delivers to the Company a new subscription agreement. (b) Upon a Participant's ceasing to be an eligible Employee for any reason other than retirement, the payroll deductions credited to such Participant's account during the Purchase Period but not yet used to exercise his/her purchase right will be returned to such Participant or, in the case of his/her death, to the person or persons entitled thereto under paragraph 14, and such Participant's purchase right will be automatically terminated . (c) Upon a Participant's ceasing to be an eligible Employee by reason of his/her retirement, the provisions of this paragraph 10(c) shall apply. If such retirement occurs three months or less prior to the next Exercise Date, the retired Participant shall have the option of withdrawing from the Plan as provided in paragraph 10(a), or taking no action and thereby continuing participation in the Purchase Period in which he/she was participating at the time of retirement. If retirement occurs more than three months prior to the next Exercise Date, the payroll deductions credited to such retired Participant's account during the Purchase Period but not yet used to exercise his/her purchase right will be returned to such Participant and such Participant's purchase right will be automatically terminated. The Plan Administrator shall have the discretion to shorten or lengthen such period from time to time during the term of the Plan, but such period shall in no event exceed three months . 11. Interest. No interest shall accrue on the payroll deductions of a -------- Participant in the Plan. 8 12. Stock. ----- (a) The maximum number of shares of the Company's Common Stock which shall be made available for sale under the Plan shall be 2,000,000 shares, subject to adjustment upon changes in capitalization of the Company as provided in paragraph 18. If on a given Exercise Date the aggregate number of shares with respect to which purchase rights are to be exercised exceeds the number of shares then available under the Plan, the Company shall make a pro rata allocation of the shares remaining available for purchase in as uniform a manner as shall be practicable and as it shall determine to be equitable. If any purchase right granted under the Plan shall terminate for any reason without having been exercised, the Common Stock not purchased under such right shall again become available under the Plan. (b) A Participant will have no interest or voting right in shares covered by his/her purchase right until such shares are actually purchased on the Participant's behalf in accordance with the applicable provisions of the Plan. No adjustment shall be made for dividends, distributions or other rights for which the record date is prior to the date of such purchase. (c) Shares to be delivered to a Participant under the Plan will be registered in the name of the Participant, in the name of the Participant and his/her spouse, in the name of the stockbroker at which the Participant maintains an account in accordance with instructions provided to the Company by the Participant pursuant to paragraph 9 or in the name of any permitted transferee of the Participant pursuant to paragraph 15. (d) The Common Stock subject to the Plan may be unissued shares, treasury shares or shares purchased by the Company on the open market or otherwise. 13. Administration. The Plan shall be administered by the Plan -------------- Administrator, which shall have full and exclusive discretionary authority to construe, interpret and apply the terms of the Plan, to determine eligibility and to adjudicate all disputed claims filed under the Plan. Every finding, decision and determination made by the Plan Administrator shall, to the full extent permitted by law, be final and binding upon all parties. 14. Designation of Beneficiary. -------------------------- (a) Participants may file a written designation of a beneficiary, on a form designated by the Company, who is to receive any shares and cash, if any, from the Participant's account under the Plan in the event of such Participant's death. If a Participant is married and the designated beneficiary is not the spouse, spousal consent shall be required for such designation to be effective. 9 (b) Such designation of beneficiary may be changed by the Participant (and his/her spouse, if any) at any time by written notice. In the event of the death of a Participant and in the absence of a beneficiary validly designated under the Plan who is living at the time of such Participant's death, the Company shall deliver such shares and/or cash to the executor or administrator of the estate of the Participant, or if no such executor or administrator has been appointed (to the knowledge of the Company), the Company, in its discretion, may deliver such shares and/or cash to the spouse or to any one or more dependents or relatives of the Participant, or if no spouse, dependent or relative is known to the Company, then to such other person as the Company may designate . 15. Transferability. Neither payroll deductions credited to a --------------- Participant's account nor any rights with regard to the exercise of a purchase right or to receive shares under the Plan may be assigned, transferred, pledged or otherwise disposed of in any way (other than by will, the laws of descent and distribution or as provided in paragraph 14 hereof) by the Participant. Any such attempt at assignment, transfer, pledge or other disposition shall be without effect, except that the Company may treat such act as an election to withdraw funds from a Purchase Period in accordance with paragraph 10. 16. Use of Funds. All payroll deductions received or held by the Company ------------ under the Plan may be used by the Company for any corporate purpose, and the Company shall not be obligated to segregate such payroll deductions. 17. Reports. Individual accounts will be maintained for each Participant ------- in the Plan. Such accounts will be unfunded. Statements of account will be given to Participants as soon as practicable following each Exercise Date, which statements will set forth the amounts of payroll deductions, the Purchase Price, the number of shares purchased and the remaining cash balance, if any. 18. Adjustments Upon Changes in Capitalization or Ownership. ------------------------------------------------------- (a) Subject to any required action by the shareholders of the Company, the Reserves, as well as the Purchase Price with respect to each purchase right under the Plan that has not yet been exercised, shall be proportionately adjusted for any increase or decrease in the number of issued shares of Common Stock resulting from a stock split, reverse stock split, stock dividend, combination or reclassification of the Common Stock, or any other increase or decrease in the number of shares of Common Stock effected without receipt of consideration by the Company; provided, however, that conversion of any convertible securities of the Company shall not be deemed to have been "effected without receipt of consideration." Such adjustment shall be made by the Plan Administrator, whose determination in that respect shall be final, binding and conclusive. Except as expressly provided herein, no issuance by the Company of shares of stock of any class, or securities convertible into shares of 10 stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of shares of Common Stock subject to purchase rights granted under the Plan. The Plan Administrator may, if it so determines in the exercise of its sole discretion, make provision for adjusting the Reserves, as well as the price per share of Common Stock covered by each outstanding purchase right, in the event the Company effects one or more reorganizations, recapitalizations, rights offerings or other increases or reductions of shares of its outstanding Common Stock. (b) In the event that any Corporate Transaction occurs or becomes imminent, the Board may determine, in the exercise of its sole discretion, to shorten any Purchase Period or Purchase Periods then in progress by setting a new Exercise Date (the "New Exercise Date"). If it elects to fix a New Exercise Date, the Board also may, in its discretion, change the Applicable Discount, the Compensation, the Per-Participant Limit and any aggregate share purchase limits previously established with respect to the shortened Purchase Period or Periods. If the Board shortens any such Purchase Period, the Board shall notify each Participant in writing that the Exercise Date for his/her purchase right has been changed to the New Exercise Date and that his/her purchase right will be exercised automatically on the New Exercise Date, unless prior to such date he/she has withdrawn from such Purchase Period as provided in paragraph 10. Such written notice shall also include a description of any changes made to the Applicable Discount, the Compensation, the Per-Participant Limit and any aggregate share purchase limits made pursuant to this paragraph 18(b) . (c) For purposes of paragraph 18(b), the following definitions shall apply: "Acquiring Person" means any Person who or which, together with all ---------------- Affiliates and Associates of such Person, shall be the Beneficial Owner of 20% or more of the Common Stock then outstanding, but shall not include the Company, any Subsidiary of the Company or any employee benefit plan of the Company or any Subsidiary of the Company, or any entity holding Common Stock for or pursuant to the terms of any such plan. Notwithstanding the foregoing, no Person shall become an Acquiring Person as the result of an acquisition of Common Stock by the Company which, by reducing the number of shares outstanding, increases the proportionate number of shares beneficially owned by such Person to 20% or more of the Common Stock of the Company then outstanding; provided, however, that if a Person becomes the -------- ------- Beneficial Owner of 20% or more of the Common Stock of the Company then outstanding by reason of share purchases by the Company and shall, after such share purchases by the Company, become the Beneficial Owner of any additional Common Stock of the Company, then such Person shall be deemed to be an Acquiring Person. 11 "Affiliate" and "Associate" have the respective meanings ascribed to ---------- ---------- such terms in Rule 12b-2 of the General Rules and Regulations under the Exchange Act. "Approved Transaction" means any transaction that occurs at a time -------------------- when Continuing Directors are in office and a majority of the Continuing Directors then in office has determined that the transaction is in the best interest of the Company and its stockholders . A Person shall be deemed the "Beneficial Owner" of and shall be deemed ---------------- to "beneficially own" any securities: (i) which such Person or any of such Person's Affiliates or Associates beneficially owns, directly or indirectly; (ii) which such Person or any of such Person's Affiliates or Associates has (A) the right to acquire (whether such right is exercisable immediately or only after the passage of time) pursuant to any agreement, arrangement or understanding, or upon the exercise of conversion rights, exchange rights, rights (other than the Rights), warrants or options, or otherwise; provided, however, that a Person -------- ------- shall not be deemed the Beneficial Owner of, or to beneficially own, securities tendered pursuant to a tender or exchange offer made by or on behalf of such Person or any of such Person's Affiliates or Associates until such tendered securities are accepted for purchase or exchange; or (B) the right to vote pursuant to any agreement, arrangement or understanding; provided, however, that a Person shall -------- ------- not be deemed the Beneficial Owner of ,or to be beneficially own, security if the agreement, arrangement or understanding to vote such security (1) arises solely from a revocable proxy or consent given to such person in response to a public proxy or consent solicitation made pursuant to, and in accordance with, the applicable rules and regulations of the Exchange Act and (2) is not also then reportable on Schedule 13D under the Exchange Act (or any comparable or successor report); or (iii) which are beneficially owned, directly or indirectly, by any other Person with which such Person or any of such Person's Affiliates or Associates has any agreement, arrangement or understanding for the purpose of acquiring, holding, voting (except to the extent contemplated by the proviso to clause (ii)(B) of this definition) or disposing of any securities of the Company; provided further, however, that nothing in this paragraph 18 shall cause a Person to be the Beneficial Owner of, or to beneficially own, any securities (x) acquired through such Person's participation in the business of underwriting securities in good faith in a firm commitment underwriting until the expiration of forty days after the date of such acquisition or (y) which such Person has reported on Schedule 13G under the Exchange Act and has not 12 ceased to be eligible to report on Schedule 13G pursuant to Rule 13d-1 under the Exchange Act. "Common Stock" has the meaning set forth in paragraph 2(d). ------------ "Corporate Transaction" means any of the following events: (a) a share --------------------- Acquisition Date; (b) a dissolution or liquidation of the Company; (c) a merger or consolidation in which the Company is not the surviving corporation; (d) a merger in which the Company is the surviving corporation but the shares of Common Stock outstanding immediately prior to the merger are converted by virtue of the merger into other property, whether in the form of securities, cash or otherwise; (e) any capital reorganization in which more than 50% of the shares of the Company entitled to vote are exchanged; and (f) any other event that the Board deems, in its discretion, to constitute a change in control of the Company. "Continuing Director" means (i) any member of the Board, while such ------------------- Person is a member of the Board, who is not an Acquiring Person, or an Affiliate or Associate of an Acquiring Person, or a representative of an Acquiring Person or of any such Affiliate or Associate, and who was, if applicable, a member of the Board prior to the time that any Person becomes an Acquiring Person, or (ii) any Person who subsequently becomes a member of the Board, while such Person is a member of the Board, who is not an Acquiring Person, or an Affiliate or Associate of an Acquiring Person, or a representative of an Acquiring Person or of any such Affiliate or Associate, if such Person's nomination for election or election to the Board is recommended or approved by a majority of Continuing Directors. "Exchange Act" has the meaning set forth in paragraph 2(j). ------------ "Person" means any individual, firm, partnership, corporation or other ------ entity, and shall include any successor (by merger or otherwise) of such entity. "Rights" means the rights granted to the Company's shareholders to ------ purchase additional Common Stock under certain circumstances, as described in that certain Rights Agreement, dated as of May 5, 1988, by and between the Company and The First National Bank of Boston, as rights agent. "Share Acquisition Date" means the first date of public announcement ---------------------- by the Company or an Acquiring Person that a Person has become an Acquiring Person; provided, however, that no "Share Acquisition Date" -------- ------- shall occur as a result of any Person 13 becoming an Acquiring Person pursuant to an Approved Transaction. "Subsidiary" of any Person means any corporation or other entity of ---------- which a majority of the voting power of the voting equity securities or equity interest is owned, directly or indirectly, by such Person, or which is otherwise controlled by such Person. 19. Amendment or Termination. ------------------------ (a) The Board may at any time and for any reason terminate or amend the Plan. Except as provided in paragraph 18 and paragraph 19(b), no such termination can affect purchase rights previously granted, provided that a Purchase Period may be terminated by the Board on any Exercise Date if the Board determines that the termination of the Plan is in the best interests of the Company and its shareholders. Except as provided in paragraph 18, no amendment may make any change in any purchase rights theretofore granted which adversely affects the rights of any Participant. To the extent necessary to comply with Rule 16b-3 under the Exchange Act or Section 423 of the Code (or any successor rule or provision or any other applicable law or regulation), the Company shall obtain shareholder approval of any amendment to the Plan in such a manner and to such a degree as required . (b) Without shareholder consent and without regard to whether any Participant rights may be considered to have been "adversely affected," the Plan Administrator shall be entitled to change Purchase Periods, limit the frequency and/or number of changes in the amount withheld during Purchase Periods, establish the exchange ratio applicable to amounts withheld in a currency other than U.S. dollars, permit payroll withholding in excess of the amount designated by a Participant in order to adjust for delays or mistakes in the Company's processing of properly completed withholding elections, establish reasonable waiting and adjustment periods and/or accounting and crediting procedures to ensure that amounts applied toward the purchase of Common Stock for each Participant properly correspond with amounts withheld from the Participant's Compensation, and establish such other limitations or procedures as the Plan Administrator determines in its sole discretion are advisable and that are consistent with the Plan. 20. Notices. All notices or other communications by a Participant to the ------- Company under or in connection with the Plan shall be deemed to have been duly given when received in the form specified by the Company at the location, or by the person, designated by the Company for the receipt thereof. 21. Conditions Upon Issuance of Shares. Shares of Common Stock shall not ----------------------------------- be issued with respect to a purchase right unless the exercise of such purchase right and the issuance and delivery of such shares pursuant thereto shall comply with all applicable provisions of law, domestic or foreign, including, 14 without limitation, the Securities Act of 1933, as amended, the Exchange Act, the rules and regulations promulgated thereunder, and the requirements of any stock exchange or any automated inter-dealer quotation system maintained by the National Association of Securities Dealers, Inc. upon which the Common Stock may then be listed, and shall be further subject to the approval of counsel for the Company with respect to such compliance. As a condition to the exercise of a purchase right, the Company may require the person exercising such purchase right to represent and warrant at the time of any such exercise that the shares are being purchased only for investment and without any present intention to sell or distribute such shares if, in the opinion of counsel for the Company, such a representation is required by any of the aforementioned applicable provisions of law. 22. Effective Date. The Plan shall become effective on the date it is -------------- approved by the stockholders (the "Effective Date"). 23. Term of Plan. The Plan shall continue in effect for a term of ten (10) ------------ years after the Effective Date unless sooner terminated under paragraph 19. No rights may be granted under the Plan following its termination. 24. Stockholder Approval. The Plan became effective when adopted by the ------------------- Board on March 1, 1995 and was approved by the Company's stockholders on May 31, 1995. On February 19, 1999 the Board adopted and approved an amendment and restatement of the Plan to reflect amendments promulgated by the Securities and Exchange Commission to Rule 16b-3 applicable to the Plan which amendment and restatement is not subject to stockholder approval. 25. No Employment Rights. The Plan does not, directly or indirectly, -------------------- create any right for the benefit of any employee or class of employees to purchase any shares under the Plan, or create in any employee or class of employees any right with respect to continuation of employment by the Company, and it shall not be deemed to interfere in any way with the Company's right to terminate, or otherwise modify, an employee's employment at any time. 26. Effect of Plan. The provisions of the Plan shall, in accordance with -------------- its terms, be binding upon, and inure to the benefit of, all successors of each Participant, including, without limitation, such Participant's estate and the executors, administrators or trustees thereof, heirs and legatees, and any receiver, trustee in bankruptcy or representative of creditors of such Participant. 27. Governing Law. The law of the State of California will govern all ------------- matters relating to this Plan except to the extent it is superseded by the laws of the United States. 15 EX-10.23 6 THE COMPANY'S STOCK INCENTIVE PLAN ACUSON CORPORATION EXHIBIT 10.23 - -------------------------------------------------------------------------------- ACUSON CORPORATION 1995 STOCK INCENTIVE PLAN Adopted by the Board of Directors on March 1, 1995 Approved by stockholders on May 31, 1995 Amended by the Board of Directors on February 29, 1996 Amendment approved by stockholders on July 23, 1996 Amended by the Board of Directors on February 19, 1999 1. Establishment, Purpose, and Definitions. --------------------------------------- (a) Acuson Corporation (the "Company") hereby adopts the Acuson Corporation 1995 Stock Incentive Plan (the "Plan"). (b) The purpose of the Plan is to allow the Company to provide incentives to Eligible Individuals (as defined in Section 4, below) for employment, increased efforts and successful achievements on behalf of or in the interests of the Company and its Affiliates and to maximize the rewards due them for those efforts and achievements. In the case of Employees (including officers and directors who are Employees) of the Company and of its Affiliates such incentives include (i) an opportunity to purchase shares of common stock, par value $.0001 per share, of the Company ("Stock") pursuant to options which may qualify as incentive stock options (referred to as "incentive stock options") under Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), (ii) an opportunity to purchase shares of Stock pursuant to options which are not described in Sections 422 or 423 of the Code (referred to as "nonqualified stock options"), (iii) the sale or bonus of restricted Stock ("Restricted Stock"), and (iv) the grant of stock appreciation rights ("SARs"), either separately or in relation ("tandem") with stock options, entitling holders to compensation measured by appreciation in the value of Stock. The Plan also provides for the grant of similar incentives (other than incentive stock options) to independent contractors and consultants to the Company and its Affiliates. Finally, the Plan provides for the automatic, nondiscretionary grant of nonqualified stock options to directors of the Company who are not Employees of the Company or any Affiliate ("Non- Employee Directors"). (c) Except for purposes of Section 12, the term "Affiliate" means parent or subsidiary corporations of the Company, as defined in Sections 424(e) and (f) of the Code (but substituting "the Company" for "employer corporation"), including parents or subsidiaries of the Company that become such after adoption of the Plan. (d) The term "Employee" means any person, including officers and directors, who is an employee of the Company or an Affiliate for purposes of income tax withholding under the Code. Neither service as a director nor 1 payment of a director's fee by the Company shall be sufficient to constitute a person an Employee. 2. Administration of the Plan. -------------------------- (a) The Plan may be administered by different committees with respect to: (i) Non-Employee Directors; (ii) Eligible Individuals who are (A) officers or directors subject to Section 16(b) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or (B) "covered employees" within the meaning of Section 162(m)(3) of the Code ("Covered Employees"); and (iii) Eligible Individuals who are neither officers or directors subject to Section 16(b) of the Exchange Act nor Covered Employees. Each committee, in addition to satisfying any specific requirements imposed by this Section 2, shall also satisfy any legal requirements relating to the administration of stock-based compensation plans under applicable state corporate and securities laws and the Code ("Applicable Laws"). References herein to the "Plan Administrator" shall refer to the applicable committee(s) or, if the Board of Directors of the Company (the "Board") does not delegate administration of some aspects of the Plan to a committee, shall be construed to refer to the Board. (b) With respect to awards made to Eligible Individuals who are officers or directors subject to Section 16(b) of the Exchange Act or Covered Employees, the Plan shall be administered by a committee of the Board, which committee shall be constituted (i) in such manner as to permit such grants and related transactions under the Plan to be exempt from Section 16(b) of the Exchange Act in accordance with Rule 16b-3 (or any successor thereto) promulgated under the Exchange Act ("Rule 16b-3") and as a (ii) "committee comprised solely of two or more outside directors" for purposes of Section 162(m) of the Code. Once appointed, such committee shall continue to serve in its designated capacity until otherwise directed by the Board. From time to time, the Board may increase the size of the committee and appoint additional members, remove members (with or without cause) and substitute new members, fill vacancies (however caused), all to the extent permitted by Rule 16b-3, Section 162(m) of the Code, the rules and regulations with respect to each, and Applicable Laws. The committee shall select one of its members as chair of the committee and shall hold meetings at such times and places as it may determine. To the extent permitted by Rule 16b-3, Section 162(m) of the Code, the rules and regulations with respect to each, and Applicable Laws, a majority of the committee shall constitute a quorum, and acts of the committee at which a quorum is present, or acts reduced to or approved in writing by all the members of the committee, shall be the valid acts of the committee. (c) With respect to awards made to Eligible Individuals who are neither officers nor directors subject to Section 16(b) of the Exchange Act nor Covered Employees, the Plan shall be administered by (i) the Board; or (ii) a committee of one or more persons (which may be the committee established pursuant to Section 2(b), above) designated by the Board. Once appointed, such committee 2 shall continue to serve in its designated capacity until otherwise directed by the Board. From time to time, the Board may increase the size of the committee and appoint additional members, remove members (with or without cause) and substitute new members, fill vacancies (however caused), and remove all members of the committee and thereafter directly administer the Plan, all to the extent permitted by Applicable Laws. The committee shall select one of its members as chair of the committee and shall hold meetings at such times and places as it may determine. To the extent permitted by Applicable Laws, a majority of the committee shall constitute a quorum, and acts of the committee at which a quorum is present, or acts reduced to or approved in writing by all the members of the committee, shall be the valid acts of the committee. (d) The Plan Administrator shall determine which Eligible Individuals shall be granted options under the Plan, the timing of such grants, the terms thereof (including any restrictions on the Stock), and the number of shares subject to such options. (e) The Plan Administrator shall also determine which Eligible Individuals shall be granted or issued SARs or Restricted Stock (other than pursuant to the exercise of options) under the Plan, the timing of such grants or issuances, the terms thereof (including any restrictions and the consideration, if any, to be paid therefor) and the number of shares or SARs to be granted. (f) The Plan Administrator may amend the terms of any outstanding option or SAR granted under this Plan, but any amendment that would adversely affect the holder's rights under an outstanding option or SAR shall not be made without the holder's written consent. The Plan Administrator may, with the holder's written consent, cancel any outstanding option or SAR or accept any outstanding option or SAR in exchange for a new option or SAR. The Plan Administrator also may amend any Restricted Stock purchase agreement or Restricted Stock bonus agreement relating to sales or bonuses of Restricted Stock under the Plan, but any amendment that would adversely affect the individual's rights to the Restricted Stock shall not be made without his or her written consent. (g) The Plan Administrator shall have the sole authority, in its absolute discretion, to adopt, amend, and rescind such rules and regulations as, in its opinion, may be advisable for the administration of the Plan, to construe and interpret the Plan, the rules and the regulations, and the instruments evidencing options, SARs or Restricted Stock granted or issued under the Plan and to make all other determinations deemed necessary or advisable for the administration of the Plan. All decisions, determinations, and interpretations of the Plan Administrator shall be binding on all participants. 3 3. Stock Subject to the Plan. ------------------------- (a) The maximum aggregate number of shares of Stock available for issuance under the Plan and during the life of the Plan shall equal 3,500,000 shares, subject to adjustment from time to time in accordance with this Section 3. The Stock subject to the Plan may be unissued shares, treasury shares or shares purchased by the Company on the open market or otherwise. (b) For purposes of the limitation specified in Section 3(a), the following principles shall apply: (1) the following transactions, if granted pursuant to this Plan, shall count against and decrease the number of shares of Stock that may be issued for purposes of Section 3(a): (i) shares of Stock subject to outstanding options, outstanding shares of Restricted Stock, and shares subject to SARs granted independently of options (based upon a good faith estimate by the Company or the Plan Administrator of the maximum number of shares for which the SAR may be settled (assuming payment in full in shares of Stock), and (ii) in the case of options granted in tandem with SARs, the greater of the number of shares of Stock that would be counted if one or the other alone was outstanding (determined as described in clause (i) above); (2) the following shall be added back to the number of shares of Stock that may be issued for purposes of Section 3(a): (i) shares of Stock with respect to which options, SARs granted independent of options, or Restricted Stock awards expire, are cancelled, or otherwise terminate without being exercised, converted, or vested, as applicable, and (ii) in the case of options granted in tandem with SARs, shares of Stock as to which an option has been surrendered in connection with the exercise of a tandem SAR, to the extent the number surrendered exceeds the number issued upon exercise of the SAR; provided that, in any case, the holder ------------- of such awards did not receive any dividends or other benefits of ownership with respect to the underlying shares being added back, other than voting rights and the accumulation (but not payment) of dividends of Stock; (3) shares of Stock subject to SARs granted independently of options (calculated as provided in clause (1) above) that are exercised and paid in cash shall be added back to the number of shares of Stock that may be issued for purposes of Section 3(a), provided that the holder of such SAR did not receive any dividends or other benefits of ownership, other than voting rights and the accumulation (but not payment) of dividends, relative to the shares of Stock subject to the SARs; (4) shares of Stock that are transferred by a holder of an award (or withheld by the Company) as full or partial payment to the Company of the purchase price of shares of Stock subject to an option or the Company's or any Affiliate's tax withholding obligations shall not be added back to the 4 number of shares of Stock that may be issued for purposes of Section 3(a) and shall not again be subject to awards; and (5) if the number of shares of Stock counted against the number of shares that may be issued for purposes of Section 3(a) is based upon an estimate made by the Company or the Plan Administrator as provided in clause (1) above and the actual number of shares of Stock issued pursuant to the applicable award is greater or less than the estimated number, then upon such issuance, the number of shares of Stock that may be issued pursuant to Section 3(a) shall be further reduced by the excess issuance or increased by the shortfall, as applicable. (c) If there is any change in the Stock through merger, consolidation, reorganization, recapitalization, reincorporation, stock split, stock dividend (in excess of 2%), or other change in the capital structure of the Company, appropriate adjustments shall be made by the Plan Administrator, in order to preserve but not to increase the benefits to the outstanding options, SARs and Restricted Stock purchase or Restricted Stock bonus awards under the Plan, including adjustments to the aggregate number and kind of shares subject to the Plan, or to outstanding Restricted Stock purchase or Restricted Stock bonus agreements, or SAR agreements, and the number and kind of shares and the price per share subject to outstanding options. (d) The Plan Administrator shall have the discretion, to the extent permitted by Applicable Law, to include provisions in any agreements evidencing awards granted under the Plan providing that, in the event of a dissolution, liquidation, merger or consolidation of the Company, or any other event that the Plan Administrator deems to have effected a change in control of the Company, any such awards shall accelerate and become fully vested, and all forfeiture and/or transfer restrictions with respect thereto shall lapse, regardless of whether such awards are otherwise to be assumed or replaced in connection with such event. 5 4. Eligible Individuals. Individuals who shall be eligible to have the Plan -------------------- Administrator grant to them options, SARs or Restricted Stock under the Plan ("Eligible Individuals") shall be such employees, officers (including officers who are directors of the Company), independent contractors, and consultants of the Company or an Affiliate as the Plan Administrator, in its discretion, shall designate from time to time. Notwithstanding the foregoing, only Employees shall be eligible to receive incentive stock options. Eligible Individuals shall not include Non-Employee Directors. Non-Employee Directors shall receive automatic and nondiscretionary option grants pursuant to Section 5 and will not be otherwise eligible to receive any other option grants or awards of SARs or Restricted Stock under the Plan or any other stock plan of the Company or any Affiliate. 5. Automatic Option Grants to Non-Employee Directors. ------------------------------------------------- (a) All grants of options pursuant to this Section 5 shall be automatic and nondiscretionary and shall be made strictly in accordance with the provisions of this Section 5. No person shall have any discretion to determine which Non-Employee Directors shall be granted options, the number of shares of Stock to be covered by options granted to Non-Employee Directors, the timing of such option grants or the exercise price thereof. (b) An option to purchase 7,500 shares of Stock shall be granted to each Non-Employee Director continuing in office immediately following each annual meeting of the Company's stockholders which occurs on or after the date of approval of the Plan by the stockholders of the Company and prior to the termination of the Plan. (c) The term of each option granted pursuant to this Section 5 shall be ten years from the date of grant, unless a shorter period is required to comply with any Applicable Law, and except for the early termination provisions contained in the written stock option agreement in the form of Exhibit A hereto, in either of which cases such shorter period shall apply. (d) Each option granted pursuant to this Section 5 shall vest and become fully exercisable as to fifty percent (50%) of the shares subject to the option on the date which is six (6) months from the date the option is granted, then daily thereafter as to 1/365th of the total shares subject to the option so that the option is fully exercisable no later than one year following the date the option is granted. (e) Each option grant to an Non-Employee Director pursuant to this Section 5 shall be evidenced by a written stock option agreement, in the form of Exhibit A hereto, executed by the Company and the Non-Employee Director to whom such option is automatically granted. 6 6. Terms and Conditions of Options. ------------------------------- (a) Each option granted pursuant to the Plan will be evidenced by a written stock option agreement executed by the Company and the person to whom such option is granted. (b) Except for options granted under Section 5 above, the Plan Administrator shall determine the term of each option granted under the Plan; provided, however, that the term of an incentive stock option shall not be for more than ten years and that, in the case of an incentive stock option granted to a person possessing more than 10% of the combined voting power of the Company or an Affiliate on the date the option is granted, the term of each incentive stock option shall be no more than five years. (c) In the case of incentive stock options, the aggregate fair market value (determined as of the time such option is granted) of the Stock with respect to which incentive stock options are exercisable for the first time by an Eligible Individual in any calendar year (under this Plan and any other plans of the Company or its Affiliates) shall not exceed $100,000. If the aggregate fair market value of the Stock with respect to which incentive stock options are exercisable by an optionee for the first time in any calendar year exceeds $100,000, such options shall be treated, to the minimum extent required to preserve incentive stock option treatment for as many options as possible, as nonqualified stock options. The rule set forth in the preceding sentence shall be applied by taking options into account in the order in which they were granted. (d) The exercise price of each incentive stock option shall be not less than the per share fair market value of the Stock subject to such option on the date the option is granted. The exercise price of each nonqualified stock option shall be as determined by the Plan Administrator. Notwithstanding the foregoing, (i) in the case of an incentive stock option granted to a person possessing more than 10% of the combined voting power of the Company or an Affiliate on the date the option is granted, the exercise price shall be not less than 110% of the fair market value of the Stock on the date the option is granted, and (ii) in the case of an option granted pursuant to Section 5 above, the exercise price shall be not less than the per share fair market value of the Stock subject to such option on the date the option is granted. The exercise price of an option shall be subject to adjustment to the extent provided in Section 3(c), above. (e) The stock option agreement may contain such other terms, provisions, and conditions consistent with this Plan as may be determined by the Plan Administrator. If an option, or any part thereof, is intended to qualify as an incentive stock option, the stock option agreement shall contain those terms and conditions which are necessary to so qualify it. (f) The maximum number of shares of Stock with respect to which SARs or options to acquire Stock may be granted to any individual during any 7 calendar year shall not exceed 1,000,000 shares (which number may be increased without stockholder approval to reflect adjustments under Section 3(c), above, to the extent such increase does not cause the grant to fail to qualify as remuneration payable solely on account of one or more performance goals within the meaning of Section 162(m) of the Code). To the extent required by Section 162(m) of the Code or the regulations thereunder, in applying the foregoing limitation with respect to any employee, if any option is cancelled, the cancelled option shall continue to count against the maximum number of shares for which options may be granted to the employee under this Section 6(f). For this purpose, the repricing of an option shall be treated as a cancellation of the existing option and the grant of a new option to the extent required by Section 162(m) of the Code or the regulations thereunder. 7. Payment Upon Exercise of Options. -------------------------------- (a) Payment of the purchase price upon exercise of any option granted under this Plan shall be made in cash, by optionee's personal check, a certified check, bank draft, or postal or express money order payable to the order of the Company in lawful money of the United States (collectively, "Cash Consideration"); provided, however, that, except for options granted under Section 5 above, the Plan Administrator, in its sole discretion, may permit an optionee to pay the option price in whole or in part (i) with shares of Stock owned by the optionee or with shares of Stock withheld from the shares otherwise deliverable to the optionee upon exercise of an option; (ii) by delivery on a form prescribed by the Company of an irrevocable direction to a securities broker approved by the Company to sell shares of Stock and deliver all or a portion of the proceeds to the Company in payment for the Stock; (iii) by delivery of the optionee's promissory note with such recourse, interest, security, and redemption provisions as the Plan Administrator in its discretion determines appropriate; or (iv) in any combination of the foregoing. The exercise price of any options granted under Section 5 above, shall be paid in Cash Consideration, the consideration specified in clauses (i) or (ii) of the preceding sentence or in any combination thereof. Any Stock used to exercise options shall be valued at its fair market value on the date of the exercise of the option. In addition, the Plan Administrator, in its sole discretion, may authorize the surrender by an optionee of all or part of an unexercised option (excluding options granted under Section 5 above) and authorize a payment in consideration thereof of an amount equal to the difference between the aggregate fair market value of the Stock subject to such option and the aggregate option price of such Stock. In the Plan Administrator's discretion, such payment may be made in cash, shares of Stock with a fair market value on the date of surrender equal to the payment amount, or some combination thereof. (b) In the event that the exercise price is satisfied by shares withheld from the shares of Stock otherwise deliverable to the optionee, the Plan Administrator may issue the optionee an additional option, with terms identical to the option agreement under which the option was exercised, entitling the 8 optionee to purchase additional shares of Stock equal to the number of shares so withheld but at an exercise price equal to the fair market value of the Stock on the grant date of the new option; provided, however, that no Such additional options may be granted with respect to options granted pursuant to Section 5, above. 8. Terms and Conditions of Restricted Stock Purchases and Bonuses. -------------------------------------------------------------- (a) Each sale (other than upon exercise of options) or bonus grant of Restricted Stock pursuant to the Plan will be evidenced by a written Restricted Stock purchase or Restricted Stock bonus agreement, as applicable, executed by the Company and the person to whom such Restricted Stock is sold or granted. (b) The Restricted Stock purchase agreement or Restricted Stock bonus agreement may contain such terms, provisions, and conditions consistent with this Plan as may be determined by the Plan Administrator, including not by way of limitation, payment terms, restrictions on transfer, forfeiture provisions, repurchase provisions, and vesting provisions. (c) The Plan Administrator may condition the award or the exercise of any right under an award under this Section 8 upon the attainment of one or more preestablished objective performance goals meeting the requirements of Section 162(m) of the Code and the regulations thereunder. 9. Terms and Conditions of SARs. The Plan Administrator may, under such terms ---------------------------- and conditions as it deems appropriate, authorize the issuance of SARs evidenced by a written SAR agreement (which, in the case of tandem options, may be part of the option agreement to which the SAR relates) executed by the Company and the person to whom the SARs are granted. The SAR agreement shall specify the term for the SARs covered thereby and contain such other terms, provisions and conditions consistent with this Plan as may be determined by the Plan Administrator. 10. Withholding Taxes. ----------------- (a) No Stock shall be granted or sold under the Plan to any Eligible Individual, and no SAR may be exercised, until the individual has made arrangements acceptable to the Plan Administrator for the satisfaction of federal, state, and local income and employment tax withholding obligations, including without limitation obligations incident to the receipt of Stock under the Plan, the lapsing of restrictions applicable to such Stock, the failure to satisfy the conditions for treatment as incentive stock options under applicable tax law, or the receipt of cash payments. Upon the exercise of an option or the lapsing of a restriction on Stock issued under the Plan, the Company (or the optionee's or stockholder's employer) may withhold from the shares otherwise deliverable to the optionee upon such exercise, or require the stockholder to surrender shares of Stock as to which the restriction has lapsed, such number of shares having a 9 fair market value sufficient to satisfy federal, state and local income and employment tax withholding obligations. (b) In the event that such tax withholding is satisfied by the Company or the optionee's employer withholding shares of Stock otherwise deliverable to the optionee, the Plan Administrator may issue the optionee an additional option, with terms identical to the option agreement under which the option was exercised, entitling the optionee to purchase additional shares of Stock equal to the number of shares so withheld but at an exercise price equal to the fair market value of the Stock on the grant date of the new option; provided, however, that no such additional options may be granted with respect to options granted pursuant to Section 5, above. 11. Assignability. Incentive stock options may not be sold, pledged, assigned, ------------- hypothecated, transferred, or disposed of in any manner other than by will or by the laws of descent or distribution and may be exercised, during the lifetime of the optionee, only by the optionee. Nonqualified stock options and SARs shall be transferable to the extent provided in the stock option or SAR agreement or as determined by the Plan Administrator. Stock subject to a Restricted Stock purchase agreement or a Restricted Stock bonus agreement shall be transferable only as provided in such agreement. 12. Change in Control. ----------------- (a) Notwithstanding anything to the contrary contained in the Plan, each stock option, SAR, Restricted Stock bonus or Restricted Stock purchase agreement (or an amendment thereto) evidencing an option, SAR, Restricted Stock bonus or Restricted Stock purchase hereunder shall automatically and without further action be fully vested, nonforfeitable and become exercisable, and any Restricted Stock covered by such an agreement shall be released from restrictions on transfer and repurchase or forfeiture rights, on the twenty-second day after any Share Acquisition Date, unless prior to such twenty-second day a majority of the Continuing Directors then in office has determined that the transaction pursuant to which a Person has become an Acquiring Person is an Approved Transaction. (b) Certain Definitions. For purposes of this Section 12, the ------------------- following definitions shall apply: "Acquiring Person" means any Person who or which, together with all ---------------- Affiliates and Associates of such Person, shall be the Beneficial Owner of 20% or more of the Common Shares then outstanding, but shall not include the Company, any Subsidiary of the Company or any employee benefit plan of the Company or any Subsidiary of the Company, or any entity holding Common Shares for or pursuant to the terms of any such plan. Notwithstanding the foregoing, no Person shall become an "Acquiring Person" as the result of an acquisition of Common Shares by the Company which, by reducing the number of shares outstanding, increases the proportionate number of shares beneficially owned by such Person to 20% or more of the Common Shares of 10 the Company then outstanding; provided, however, that if a Person becomes the -------- ------- Beneficial Owner of 20% or more of the Common Shares of the Company then outstanding by reason of share purchases by the Company and shall, after such share purchases by the Company, becomes the Beneficial Owner of any additional Common Shares of the Company, then such Person shall be deemed to be an "Acquiring Person". "Affiliate" and "Associate" have the respective meanings ascribed to such --------- --------- terms in Rule 12b-2 of the General Rules and Regulations under the Exchange Act. "Approved Transaction" means any transaction that occurs at a time when -------------------- Continuing Directors are in office and a majority of the Continuing Directors then in office has determined that the transaction is in the best interest of the Company and its stockholders. A Person shall be deemed the "Beneficial Owner" of and shall be deemed to ---------------- "beneficially own" any securities: (i) which such Person or any of such Person's Affiliates or Associates beneficially owns, directly or indirectly; (ii) which such Person or any of such Person's Affiliates or Associates has (A) the right to acquire (whether such right is exercisable immediately or only after the passage of time) pursuant to any agreement, arrangement or understanding, or upon the exercise of conversion rights, exchange rights, rights (other than the Rights), warrants or options, or otherwise; provided, however, that a Person -------- ------- shall not be deemed the Beneficial Owner of, or to beneficially own, securities tendered pursuant to a tender or exchange offer made by or on behalf of such Person or any of such Person's Affiliates or Associates until such tendered securities are accepted for purchase or exchange; or (B) the right to vote pursuant to any agreement, arrangement or understanding; provided, however, that -------- ------- a Person shall not be deemed the Beneficial Owner of, or to beneficially own, any security if the agreement, arrangement or understanding to vote such security (1) arises solely from a revocable proxy or consent given to such person in response to a public proxy or consent solicitation made pursuant to, and in accordance with, the applicable rules and regulations of the Exchange Act and (2) is not also then reportable on Schedule 13D under the Exchange Act (or any comparable or successor report); or (iii) which are beneficially owned, directly or indirectly, by any other Person with which such Person or any of such Person's Affiliates or Associates has any agreement, arrangement or understanding for the purpose of acquiring, holding, voting (except to the extent contemplated by the proviso to clause (ii)(B) of this definition) or disposing of any securities of the Company; provided further, however, that nothing in this Section 12 shall cause a Person to be the Beneficial Owner of, or to beneficially own, any securities (x) acquired through such Person's participation in the business of underwriting securities in good faith in a firm commitment underwriting until the expiration of forty days after the date of such acquisition or (y) which such Person has reported on Schedule 13G under the Exchange Act and has not ceased to be eligible to report on Schedule 13G pursuant to Rule 13d-1 under the Exchange Act. "Common Shares" means the shares of common stock, par value $.0001 per ------------- share, of the Company. 11 "Continuing Director" means (i) any member of the Board of Directors of the ------------------- Company, while such Person is a member of the Board, who is not an Acquiring Person, or an Affiliate or Associate of an Acquiring Person, or a representative of an Acquiring Person or of any such Affiliate or Associate, and who was, if applicable, a member of the Board prior to the time that any Person becomes an Acquiring Person, or (ii) any Person who subsequently becomes a member of the Board, while such Person is a member of the Board, who is not an Acquiring Person, or an Affiliate or Associate of an Acquiring Person, or a representative of an Acquiring Person or of any such Affiliate or Associate, if such Person's nomination for election or election to the Board is recommended or approved by a majority of Continuing Directors. "Exchange Act" means the Securities Exchange Act of 1934, as amended, and ------------ the rules and regulations promulgated thereunder. "Person" means any individual, firm, partnership, corporation or other ------ entity, and shall include any successor (by merger or otherwise) of such entity. "Rights" means the rights granted to the Company's shareholders to purchase ------ additional Common Shares under certain circumstances, as described in that certain Rights Agreement, dated as of May 5, 1988, by and between the Company and The First National Bank of Boston, as rights agent. "Share Acquisition Date" means the first date of public announcement by the ---------------------- Company or an Acquiring Person that a Person has become an Acquiring Person. "Subsidiary" of any Person means any corporation or other entity of which a ---------- majority of the voting power of the voting equity securities or equity interest is owned, directly or indirectly, by such Person, or which is otherwise controlled by such Person. 13. Amendment, Suspension, or Termination of the Plan. ------------------------------------------------- (a) The Board may at any time amend, suspend or terminate the Plan as it deems advisable; provided that such amendment, suspension or termination complies with all applicable requirements of state and federal law, including any applicable requirement that the Plan or an amendment to the Plan be approved by the stockholders, and provided further that, except as provided in Section 3(c) above, the Board shall in no event amend the Plan in the following respects without the consent of stockholders then sufficient to approve the Plan in the first instance: (1) To materially increase the benefits accruing to participants under the Plan; (2) To materially increase the number of shares of Stock available under the Plan or to increase the number of shares of Stock available for grant of incentive stock options under the Plan; or 12 (3) To materially modify the eligibility requirements for participation in the Plan or the class of employees eligible to receive options under the Plan or to change the designation or class of persons eligible to receive incentive stock options under the Plan. (b) No option or SAR may be granted nor may any Stock be issued (other than upon exercise of outstanding options) under the Plan during any suspension or after the termination of the Plan, and no amendment, suspension, or termination of the Plan shall, without the affected individual's consent, alter or impair any rights or obligations under any option or SAR previously granted under the Plan. 14. Term of Plan. The Plan shall terminate with respect to the grant of ------------ additional awards on the tenth anniversary of the date the Plan is approved by the stockholders, unless previously terminated by the Board pursuant to Section 13. 15. Use of Proceeds. Cash proceeds realized from the exercise of options --------------- granted under the Plan or from other sales of Stock under the Plan shall constitute general funds of the Company. 16. Stockholder Approval. The Plan was adopted by the Board on March 1, 1995 -------------------- and became effective when approved by the Company's stockholders on May 31, 1995. On February 29, 1996, the Board adopted and approved an amendment to increase the automatic option grants to Non-Employee Directors from 5,000 to 7,500 shares of Stock which became effective when approved by the Company's stockholders on July 23, 1996. On February 19, 1999, the Board adopted and approved an amendment and restatement of the Plan to reflect amendments promulgated by the Securities and Exchange Commission to Rule 16b-3 applicable to the Plan, which amendment and restatement was not subject to stockholder approval. 17. No Employment Right. Nothing in this Plan or any instrument executed or ------------------- any award granted pursuant thereto shall confer upon any employee, independent contractor, consultant or director any right to continue in the employ of the Company or any Affiliate (or to continue acting as an independent contractor, consultant or director) or shall affect the right of the Company or any Affiliate to terminate the employment, contractual or consulting relationship or directorship of any person, with or without cause. 13 ACUSON CORPORATION NON-EMPLOYEE DIRECTORS' NON-QUALIFIED STOCK OPTION AGREEMENT This agreement (the "Agreement") is made as of __________ 199_ (the "Grant Date") between Acuson Corporation (the "Company") and ("Optionee"). WITNESSETH: WHEREAS, the Company has adopted the Acuson Corporation 1995 Stock Incentive Plan (the "Plan"), which Plan is incorporated in this Agreement by reference and made a part of it (capitalized terms shall have the meaning ascribed to them in the Plan); and WHEREAS, the Plan provides for automatic option grants to Non-Employee Directors of the Company; NOW, THEREFORE, in consideration of the mutual covenants hereinafter set forth, the parties to this Agreement hereby agree as follows: 1. Option Grant. The Company hereby grants to Optionee the right and ------------ option to purchase from the Company on the terms and conditions hereinafter set forth, all or any part of an aggregate of Seven Thousand Five Hundred (7,500) shares of the Common Stock, $.0001 par value, of the Company (the "Stock").The exercise price of the Stock subject to this option shall be $___ per share, which is not less than the fair market value per share of the Stock on the Grant Date. This grant is an automatic option grant under Section 5 of the Plan. 2. Option Period. This option shall be exercisable only during the period ------------- (the "Option Period") commencing on the Grant Date and, except as provided in paragraph 3, ending on the date (the "Terminal Date") which shall be ten years from the Grant Date. During the Option Period, the exercisability of this option shall be subject to the limitations of paragraph 3 and the vesting provisions of paragraph 4. 3. Limits on Option Period. The Option Period may end before the Terminal ----------------------- Date, as follows: (a) If Optionee ceases to be a director on the Company's Board of Directors (the "Board") for any reason other than death, disability (within the meaning of subparagraph (c) below) or cause during the Option Period, the Option Period shall terminate on the earlier of (i) the last day of the period, beginning on the day next following the day on which the Optionee ceases to be a director, which equals in length the most recent period of the Optionee's continuous service as a director (including all portions of such period prior to the Grant Date), (ii) three years after the 14 date Optionee ceases to be a director, or (iii) the Terminal Date. In each case this option shall be exercisable only to the extent exercisable under paragraph 4 on the date Optionee ceases to be a director. (b) If Optionee should die while serving on the Board, the Option Period shall terminate three years after the date of death or on the Terminal Date, whichever shall first occur, and this option shall be exercisable only to the extent exercisable under paragraph 4 on the date of Optionee's death. In the event of Optionee's death, Optionee's executor or administrator or the person or persons to whom Optionee's rights under this option shall pass by will or by the applicable laws of descent and distribution may exercise the entire unexercised portion of this option to the extent exercisable on the date of Optionee's death. (c) If Optionee ceases to be a director by reason of disability, as defined below, the Option Period shall terminate three years after the date Optionee ceases to be a director or on the Terminal Date, whichever shall first occur, and this option shall be exercisable only to the extent exercisable under paragraph 4 on the date Optionee ceases to be a director. For purposes of this subparagraph (c), an individual is disabled if he or she is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or which has lasted or can be expected to last for a continuous period of not less than 12 months. An individual shall not be considered to be disabled unless he or she furnishes proof of the existence thereof in such form and manner, and at such times, as the Board may require. (d) If Optionee is removed from the Board for cause during the Option Period, the Option Period shall terminate on the date of such Optionee's removal as a director and shall not thereafter be exercisable to any extent. 4. Vesting of Right to Exercise Options. ------------------------------------ (a) This option shall vest as to fifty percent (50%) of the number of shares originally covered by this option on the date which is six months from the Grant Date, then daily thereafter in installments of 1/365th of the total shares subject to this option so that this option will become fully vested and exercisable no later than one (1) year following the Grant Date. (b) Vesting of this option will cease prior to this option becoming fully vested at such time that Optionee ceases to be a director of the Company, including by reason of death or disability. 15 (c) Fractional shares shall not vest until such time as additional fractional shares included in other installments allocated to this option can be combined with the existing fractional shares to constitute one or more whole shares. (d) Notwithstanding the foregoing, this option shall be fully vested and nonforfeitable and shall become fully exercisable under the circumstances specified in Section 12 of the Plan. 5. Method of Exercise. ------------------ (a) Optionee may exercise this option with respect to all or any part of the shares of Stock then subject to such exercise by giving the Company written notice of such exercise, specifying the number of such shares as to which this option is exercised. Such notice shall be accompanied by an amount equal to the exercise price of such shares, in any of the forms permitted under Section 7 of the Plan. (b) If required by the Company, Optionee shall give the Company satisfactory assurance in writing, signed by Optionee or Optionee's legal representative, as the case may be, that such shares are being purchased for investment and not with a view to the distribution thereof, provided that such assurance shall be deemed inapplicable to (i) any sale of such shares by such Optionee made in accordance with the terms of a registration statement covering such sale, which has heretofore been (or may hereafter be) filed and become effective under the Securities Act of 1933, as amended, and with respect to which no stop order suspending the effectiveness thereof has been issued, and (ii) any other sale of such shares with respect to which, in the opinion of counsel for the Company, such assurance is not required to be given in order to comply with the provisions of the Securities Act of 1933, as amended. (c) As soon as practicable after receipt of the notice required in paragraph 5(a) and satisfaction of the conditions set forth in paragraph 5(b), the Company shall, without transfer or issue tax and without other incidental expense to Optionee, deliver to Optionee at the office of the Company at 1220 Charleston Road, Mountain View, CA 94043, attention of the Corporate Secretary, or such other place as may be mutually acceptable to the Company and Optionee, a certificate or certificates for such shares of Stock; provided, however, that the time of such delivery may be postponed by the Company for such period as may be required for it with reasonable diligence to comply with applicable registration requirements under the Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as amended, any applicable listing requirements of any national securities exchange, and requirements under any other law or regulation applicable to the issuance or transfer of such shares. If Optionee fails to accept delivery of and pay for all or any part of 16 the number of shares specified in such notice upon tender or delivery thereof, Optionee's right to purchase such shares may be terminated by the Company at its election. In no event shall the Company be required to issue fractional shares upon the exercise of this option. 6. Withholding. Optionee agrees to make appropriate arrangements with ----------- the Company for satisfaction of any applicable federal, state or local income tax withholding requirements or social security requirements . 7. Changes in Capitalization. If there should be any change in a class ------------------------- of Stock subject to this option, through merger, consolidation, reorganization, recapitalization, reincorporation, stock split, stock dividend (in excess of two percent) or other change in the capital structure of the Company, appropriate adjustments shall be made in order to preserve, but not to increase, the benefits to Optionee, including adjustments of the number and kind of shares of such Stock subject to this option and of the price per share. Any adjustment made pursuant to this paragraph 7 as a consequence of a change in the capital structure of the Company shall not entitle Optionee to acquire a number of shares of such Stock of the Company or shares of stock of any successor company greater than the number of shares Optionee would receive if, prior to such change, Optionee had actually held a number of shares of such Stock equal to the number of shares subject to this option. 8. Transferability. This Option may be transferred by the Optionee in a --------------- manner and to the extent acceptable to the Plan Administrator as evidenced by a writing signed by the Company and the Optionee. 9. No Stockholder Rights. Neither Optionee nor any person entitled to --------------------- exercise Optionee's rights in the event of Optionee's death shall have any of the rights of a stockholder with respect to the shares of Stock subject to this option except to the extent the certificates for such shares shall have been issued upon the exercise of this option. 10. No Employment Right. Nothing in the Plan or this Agreement shall -------------------- confer upon the Optionee any right to continue service as a director of the Company or any Affiliate or shall affect the right of the Company or any Affiliate or the shareholders of the Company or any Affiliate, as the case may be, to terminate the directorship of Optionee, with or without cause. 11. Notice. Any notice required to be given to the Company under the ------ terms of this Agreement shall be given in writing and addressed to the Company in care of its Corporate Secretary at the office of the Company at 1220 Charleston Road, Mountain View, CA 94043, and any notice to be given to Optionee shall be given in writing and addressed to Optionee at the address given by Optionee beneath Optionee's signature to this Agreement, or such other address as either party to this Agreement may hereafter designate in writing to the other. Any such notice shall be deemed to have been duly given when 17 enclosed in a properly sealed envelope addressed as aforesaid, registered or certified and deposited (postage and registration or certification fee prepaid) in a post office or branch post office regularly maintained by the United States. 12. Successors. This Agreement shall be binding upon and inure to the ---------- benefit of any successor or successors of the Company. Where the context permits, "Optionee" as used in this Agreement shall include Optionee's executor, administrator or other legal representative or the person or persons to whom Optionee's rights pass by will or the applicable laws of descent and distribution. 13. Applicable Law. The interpretation, performance, and enforcement of -------------- this Agreement shall be governed by the laws of the State of California. IN WITNESS WHEREOF, this Agreement has been executed as of the day and year first written above. Acuson Corporation a Delaware corporation By:___________________________________ Title:________________________________ Optionee Signature:____________________________ Address:______________________________ ______________________________ ______________________________ 18 EX-10.24 7 CREDIT AMENDMENT, DATED MARCH 28, 1997 ACUSON CORPORATION EXHIBIT 10.24 - -------------------------------------------------------------------------------- SECOND AMENDMENT TO CREDIT AGREEMENT ------------------------------------ THIS SECOND AMENDMENT TO CREDIT AGREEMENT (this "Amendment"), dated as of --------- October 5, 1998 is entered into by and among: (1) ACUSON CORPORATION, a Delaware corporation ("Borrower"); -------- (2) Each of the financial institutions listed in Schedule I to the ----------------- Credit Agreement referred to in Recital A below (collectively, the ---------------- --------- "Lenders"); and ------- (3) ABN AMRO BANK, N.V., acting through its San Francisco International Branch, as agent for the Lenders (in such capacity, "Agent"). ----- RECITALS -------- A. Borrower, the Lenders and Agent are parties to a Credit Agreement dated as of March 28, 1997, as amended by a First Amendment to Credit Agreement dated as of April 15, 1998 (as so amended, the "Credit Agreement"). ---------------- B. Borrower has requested the Lenders and Agent to amend the Credit Agreement in certain respects. C. The Lenders and Agent are willing so to amend the Credit Agreement upon the terms and subject to the conditions set forth below. AGREEMENT --------- NOW, THEREFORE, in consideration of the above recitals and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, Borrower, the Lenders and Agent hereby agree as follows: 1. DEFINITIONS, INTERPRETATION. All capitalized terms defined above and --------------------------- elsewhere in this Amendment shall be used herein as so defined. Unless otherwise defined herein, all other capitalized terms used herein shall have the respective meanings given to those terms in the Credit Agreement, as amended by this Amendment. The rules of construction set forth in Section I of the Credit ----------------------- Agreement shall, to the extent not inconsistent with the terms of this - --------- Amendment, apply to this Amendment and are hereby incorporated by reference. 2. AMENDMENTS TO CREDIT AGREEMENT. Subject to the satisfaction of the ------------------------------ conditions set forth in Paragraph 5 below, the Credit Agreement is hereby ----------- amended as follows: (a) Paragraph 1.01 is amended by changing the definition of "Total -------------- Commitment" set forth therein to read in its entirety as follows: "Total Commitment" shall mean, at any time, One Hundred Million ---------------- Dollars ($100,000,000) or, if such amount is reduced pursuant to Subparagraph 2.07(a), the amount to which so reduced and in effect at -------------------- such time. (b) Paragraph 4.01 is amended by (i) changing the designation of -------------- Subparagraph (t) thereof to "(u)" and (ii) adding thereto, immediately ---------------- following Subparagraph (s), a new Subparagraph (t) to read in its entirety ---------------- ---------------- as follows: (t) Year 2000 Compatibility. Borrower and its Subsidiaries have ----------------------- reviewed the areas within their business and operations which could be adversely affected by, and have developed or are developing a program to address on a timely basis, the "Year 2000 Problem" (that is, the risk that computer applications used by Borrower and its Subsidiaries may be unable to recognize and perform properly date-sensitive functions involving certain dates prior to and any date on or after December 31, 1999), and have made related appropriate inquiry of material suppliers and vendors. Based on such review and program, Borrower believes that the "Year 2000 Problem" will not have a Material Adverse Effect. (c) Subparagraph 5.01(a) is amended by changing clause (iii) thereof -------------------- ------------ to read in its entirety as follows: (iii) Contemporaneously with the quarterly and year-end Financial Statements required by the foregoing clauses (i) and (ii), a -------------------- compliance certificate of the chief financial officer or treasurer of Borrower (a "Compliance Certificate") which (A) states that no Default ---------------------- has occurred and is continuing, or, if any such Default has occurred and is continuing, a statement as to the nature thereof and what action Borrower proposes to take with respect thereto; (B) sets forth, for the four-fiscal quarter period ending on the last day of the fiscal quarter or fiscal year covered by such Financial Statements or as of the last day of such fiscal quarter or fiscal year (as the case may be), the calculation of the financial ratios and tests provided in Paragraph 5.03; (C) states that the Year 2000 remediation efforts of -------------- Borrower and its Subsidiaries are proceeding as scheduled; and (D) indicates whether an auditor, regulator or third party consultant has issued a management letter or other communication regarding the Year 2000 exposure, program or progress of Borrower and/or its Subsidiaries; (d) Paragraph 5.01 is further amended by (i) changing the designation -------------- of Subparagraph (h) thereof to "(i)" and (ii) adding thereto, immediately ---------------- following Subparagraph (g), a new Subparagraph (h) to read in its entirety ---------------- ---------------- as follows: (h) Year 2000 Compatibility. Borrower and its Subsidiaries shall ----------------------- take all acts reasonably necessary to ensure that all software, hardware, firmware, equipment, goods and systems utilized by or material to their business operations or financial condition will properly perform date sensitive functions before, during and after the year 2000. At the request of Agent, Borrower shall provide to Agent such certifications or other evidence of compliance with this Subparagraph 5.01(h) as Agent may reasonably require. -------------------- (e) Subparagraph 5.02(a) is amended by changing clause (xi) thereof -------------------- ----------- to read in its entirety as follows: (xi) Other Indebtedness of Borrower and its Subsidiaries (whether or not of a type listed in clauses (i) through (x) above), ----------------------- provided that the aggregate principal amount of all such other Indebtedness does not exceed $30,000,000 at any time. (f) Subparagraph 5.02(e) is amended by changing clause (x) thereof to -------------------- ---------- read in its entirety as follows: (x) Other Investments, provided that the aggregate amount of such other Investments incurred in any fiscal year does not exceed $25,000,000. (g) Subparagraph 5.02(f) is amended by deleting from the first line -------------------- of clause (iii) thereof the words "not more than 4,000,000". ------------ (h) Subparagraph 5.03(a) is amended to read in its entirety as -------------------- follows: 2 (a) Current Ratio. Borrower shall not permit its Current Ratio ------------- to be less than 1.25 to 1.00 on the last day of any fiscal quarter. (i) Subparagraph 5.03(b) is amended to read in its entirety as -------------------- follows: (b) Leverage Ratio. Borrower shall not permit its Leverage Ratio -------------- to be greater than 1.25 to 1.00 on the last day of any fiscal quarter. (j) Schedule I is amended by changing the percentage set forth under ---------- the caption "Proportionate Share" opposite each Lender's name thereon as follows:
PROPORTIONATE LENDER SHARE ------ --------- ABN AMRO BANK N.V. 34.10000000% BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION 20.00000000% BANQUE NATIONALE DE PARIS 16.70000000% COMMERZBANK AKTIENGESELLSCHAFT LOS ANGELES BRANCH 16.70000000% THE SANWA BANK LIMITED 12.50000000%
3. REPRESENTATIONS AND WARRANTIES. Borrower hereby represents and ------------------------------ warrants to Agent and the Lenders that the following are true and correct on the date of this Amendment and that, after giving effect to the amendments set forth in Paragraph 2 above, the following will be true and correct on the Effective ----------- Date (as defined below): (a) The representations and warranties of Borrower set forth in Paragraph 4.01 of the Credit Agreement and in the other Credit Documents -------------------------------------- are true and correct in all material respects as if made on such date (except for representations and warranties expressly made as of a specified date, which shall be true as of such date); (b) No Default has occurred and is continuing; and (c) Each of the Credit Documents is in full force and effect. (Without limiting the scope of the term "Credit Documents," Borrower expressly acknowledges in making the representations and warranties set forth in this Paragraph 3 that, on and after the date hereof, such term includes this - ----------- Amendment.) 4. AMENDMENT FEE. Borrower shall pay to Agent, for the ratable benefit of ------------- the Lenders increasing their Commitments under the Credit Agreement, an amendment fee of $25,000 (the "Amendment Fee"). The Amendment Fee shall be ------------- shared by such Lenders pro rata based upon the amounts of their respective Commitment increases. 5. EFFECTIVE DATE. The amendments effected by Paragraph 2 above shall -------------- ----------- become effective on October 5, 1998 (the "Effective Date"), subject to receipt -------------- by Agent and the Lenders on or prior to October 5, 1998 of the following, each in form and substance satisfactory to Agent, the Lenders and their respective counsel: 3 (a) This Amendment duly executed by Borrower, the Lenders and Agent; (b) The Amendment Fee; (c) A favorable written opinion from Charles H. Dearborn, Esq., General Counsel of Borrower, dated October 5, 1998, addressed to Agent for the benefit of Agent and the Lenders, covering such legal matters as Agent or Lenders may reasonably request and otherwise in form and substance satisfactory to Agent; (d) Payment of all fees and expenses of Agent's counsel incurred in connection with this Amendment; and (e) Such other evidence as Agent or any Lender may reasonably request to establish the accuracy and completeness of the representations and warranties and the compliance with the terms and conditions contained in this Amendment and the other Credit Documents. 6. EFFECT OF THIS AMENDMENT. On and after the Effective Date, each ------------------------ reference in the Credit Agreement and the other Credit Documents to the Credit Agreement shall mean the Credit Agreement as amended hereby. Except as specifically amended above, (a) the Credit Agreement and the other Credit Documents shall remain in full force and effect and are hereby ratified and confirmed and (b) the execution, delivery and effectiveness of this Amendment shall not, except as expressly provided herein, operate as a waiver of any right, power, or remedy of the Lenders or Agent, nor constitute a waiver of any provision of the Credit Agreement or any other Credit Document. 7. MISCELLANEOUS. ------------- (a) Counterparts. This Amendment may be executed in any number of ------------ identical counterparts, any set of which signed by all the parties hereto shall be deemed to constitute a complete, executed original for all purposes. (b) Headings. Headings in this Amendment are for convenience of -------- reference only and are not part of the substance hereof. (c) Governing Law. This Amendment shall be governed by and construed ------------- in accordance with the laws of the State of California without reference to conflicts of law rules. [The signature pages follow.] 4 IN WITNESS WHEREOF, Borrower, Agent and the Lenders have caused this Amendment to be executed as of the day and year first above written. BORROWER: ACUSON CORPORATION By:__________________________________________ Name: Title: AGENT: ABN AMRO BANK N.V. By: ________________________________________ Name: _________________________________ Title: _________________________________ By: ________________________________________ Name: _________________________________ Title: _________________________________ LENDERS: ABN AMRO BANK N.V. By: ________________________________________ Name:___________________________________ Title:_________________________________ By: ________________________________________ Name: _________________________________ Title: _________________________________ BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION By: ________________________________________ Name: _________________________________ Title: _________________________________ BANQUE NATIONALE DE PARIS By: ________________________________________ Name: _________________________________ Title: _________________________________ THE SANWA BANK LIMITED By: ________________________________________ Name: _________________________________ Title: _________________________________ 5 COMMERZBANK AKTIENGESELLSCHAFT, LOS ANGELES BRANCH By: ________________________________________ Name: _________________________________ Title: _________________________________ By: ________________________________________ Name:___________________________________ Title: _________________________________ 6 EX-10.25 8 ACUSON MANAGEMENT INCENTIVE PLAN ACUSON CORPORATION EXHIBIT 10.25 - -------------------------------------------------------------------------------- ACUSON MANAGEMENT INCENTIVE PLAN - OFFICERS - 1998 Acuson's Management Incentive Plan (MIP-Officer) has been established as a means to reward and retain corporate officers and to provide incentives for them to exert maximum efforts for the success of the Company. It is also intended to reward individual performance against objectives for both individual and work group goals, as well as to encourage teamwork among the Company's key employees as a means of achieving ongoing company success. PLAN DESIGN: - ------------ Our MIP-Officer is a "Performance Based" plan, which links incentive award directly to the achievement of goals and objectives and planned financial results. The plan consists of personal objectives for achieving individual and work group goals and corporate objectives. The target incentive bonus percentage for plan participants is set by the Board of Directors Compensation Committee. For all officers other than the Chief Executive Officer, personal objectives will be set by the officers' immediate supervisor and reviewed by the CEO. At full achievement of personal objectives, for all officers other than the Designated Officers as described below, the MIP will pay out the target bonus percentage times the base salary paid during the measurement period. A percentage of the full pay out amount may be linked to each objective. In order for any amount to be paid for achievement of personal objectives, a satisfactory level of overall personal performance must be maintained. The Company reserves the right to modify objectives to meet changing business requirements by notifying participants within 30 days of the change. The Compensation Committee of the Board of Directors will determine the percentage of target bonus to be paid to the CEO, the COO, the President, and such other executive officers as the Committee may designate ("Designated Officers"), based on its evaluation of a number of factors, which may include the personal objectives described above as well as corporate and department objectives such as financial results, orders, shipments, profit margins, relative market share, meeting in a timely manner product development milestones and expense controls, achievement vs. difficulty of corporate objectives and positioning the Company for the future. Depending on which corporate objectives are met, the plan will pay out to each officer an additional amount (corporate match) of either 50% or 100% of the determined percentage of the payout to such officer for the achievement of personal objectives. PARTICIPATION: - -------------- Participation in Acuson's MIP-Officer is at the sole discretion of the Compensation Committee of the Board of Directors, and is limited to executive officers. Participation in this plan during one measurement period does not entitle the officer to participate in any subsequent period or plan, should there be one, as each period and plan will be independent of the other. Target bonus percentage levels may vary from one measurement period to the next, and within a measurement period, may vary among participants. Measurement periods may vary from year to year. Members of this plan will not participate in the company-wide profit sharing program. To participate, the employee must be an executive officer of the Company. To receive a payout, the officer must be an active employee of the company on the date of plan payout. Should an officer's job change during the measurement period, s/he may be removed from this plan, and will then become eligible to participate in the company-wide profit sharing plan. PAYOUT: - ------- Payout will occur during Q1 or Q2 1999. The Compensation Committee of the Board of Directors will determine the measurement period for the target bonus for each officer: either Q2 1998 through Q1 1999 or Fiscal Year 1998. The measurement period for the corporate match is the Company fiscal 1998 earnings (i.e. January 1, 1998 - December 31, 1998). 1 Participants hired after March 1st of the plan year will receive a payout for individual objectives prorated by the number of months worked between January 1, 1998 and December 31, 1998. Payment will be made in cash (less required taxes) and be immediately vested. AUTHORITY: - ---------- Full authority to set, interpret, administer, amend or terminate this plan resides with the Compensation Committee of the Board of Directors. Decisions of the Compensation Committee will be final. This plan and its provisions create no vested rights. This plan and its provisions may be modified or terminated at any time at the Company's discretion, including during any measurement period. The plan is not an employment contract and neither this plan nor participation in this plan shall confer upon any participant any right to continue in the employ of the Company and shall not affect the Company's right to terminate the employment of any person, with or without cause. 2 Attachment A 1998 Target Bonuses for Named Executive Officers (as defined in Item 402(a)(3) of Regulation S-K) Samuel H. Maslak 30% Robert J. Gallagher 25% Daniel R. Dugan 25% Edward P. Cornell 20% Bradford C. Anker 20% 3 EX-10.28 9 PROMISSORY NOTE DATED SEPTEMBER 11, 1998 ACUSON CORPORATION EXHIBIT 10.28 - -------------------------------------------------------------------------------- PROMISSORY NOTE $10,000,000 SEPTEMBER 11, 1998 SAN FRANCISCO, CALIFORNIA FOR VALUE RECEIVED, ACUSON CORPORATION ("Borrower"), hereby promises to pay to the order of BANQUE NATIONALE DE PARIS ("BNP") or the holder hereof the principal sum of $10 MILLION DOLLARS ($10,000,000), or such lesser amount(s) as shall have been loaned by BNP to Borrower from time to time in one or more advances (each an "Advance") pursuant to that certain letter agreement addressed by BNP to Borrower on September 11, 1998 and accepted by Borrower (the "Agreement"). Each Advance shall be payable either (i) on demand, but if no prior demand is made, then on the demand maturity date applicable to such Advance (a "Demand Advance") or (ii) upon the terms stated in the Terms of Advance, as defined below (a "Term Advance"). Each Advance shall bear interest from the date made until paid in full at the rate(s) of interest to be agreed upon by Borrower and BNP at the time that such Advance is made. Interest shall be payable with respect to each Advance at the time(s) to be agreed upon by Borrower and BNP at the time that such Advance is made. If Borrower fails to make any payment due in connection with this Note (including payments of principal, interest, expenses or any other charges) such due but unpaid amount shall bear interest from the date due until such amount is paid in full at a rate equal to the Prime Rate plus two percent (2.0%) per annum. As used in this Note the term "Prime Rate" shall mean that fluctuating rate of interest determined from time to time by the San Francisco office of BNP to be in effect as its prime rate. Any change in the Prime Rate shall take effect on the day determined by BNP. For each Advance made under this Note, BNP shall maintain a record as more fully described in the Agreement (the "Terms of Advance"). The Terms of Advance shall be maintained by BNP in such format, including computer records, as BNP shall determine, and the Terms of Advance shall be binding upon Borrower absent manifest error by BNP in respect to such records; provided, however, that failure by BNP to maintain the Terms of Advance shall not affect the obligations of Borrower to pay amounts due under this Note. In the event that a Term Advance is made hereunder, any and each of the following shall constitute an "event of default" under this Note: (i) Borrower's failure promptly to make any payment under this Note in accordance with its terms; (ii) Borrower's failure to perform any of its obligations contained in this Note or in the Agreement; (iii) the filing of a petition in bankruptcy, or for the appointment of a receiver in liquidation or a trustee, by or against Borrower or for any of Borrower's property or the filing of the petition or other proceeding by or against Borrower for reorganization, compromise, adjustment, or other relief under the laws of the United States or of any state relating to the relief of debtor which petition or other proceeding is in any event not dismissed, set aside, or withdrawn or ceases to be in effect within ten (10) days following the filing thereof; (iv) Borrower's making any general assignment for the benefit of creditors or otherwise making or attempting an assignment of all or substantially all of its assets; (v) any representation or warranty of the Borrower in the Agreement or the Note shall prove to have been false or misleading in any material respect when made or when deemed made; or (vi) any material adverse change in the financial condition of the Borrower. BNP may take any legal action available to collect all sums owing hereunder. Borrower may prepay a Term Advance prior to the maturity date, or a Demand Advance, prior to demand by BNP, or, if no demand has been made, prior to the demand maturity date, or any portion thereof at any time without penalty, provided, however, that each prepayment shall (a) be in an amount not less than $100,000, (b) include payment of all accrued interest to the date of the prepayment with respect to all prepaid principal, and (c) in the case of prepayments of Advances or portions of Advances which bear interest at a rate which does not fluctuate on a daily basis, include an amount, determined by BNP in its sole discretion, equal to the losses and expenses incurred by BNP in connection with such prepayment (BNP's calculation of such losses and expenses shall be binding upon Borrower absent manifest error on the part of BNP in making such calculation). Payments due under this Note shall be made not later than 11:00 a.m. (San Francisco time) on the day each such payment is due or, in the case of a demand for payment, on the day immediately following the day demand for payment is made telephonically or in writing by BNP. All payments shall be made in lawful money of the United States of America by wire transfer of immediately available funds into the following account or such other account as BNP shall designate to Borrower in writing: Federal Reserve Bank of San Francisco, Account Number: 121027234, Reference: Acuson. All payments shall be made free and clear of, and without deduction for or other withholding on account of, taxes. All payments made hereunder shall be credited first against accrued and unpaid costs and expenses of BNP, if any, then against accrued but unpaid interest and finally against principal. Unless otherwise indicated in the Terms of Advance, computations of interest (including default interest) and fees (if applicable) shall be made by BNP on the basis of a year consisting of 360 days for the actual number of days elapsed (including the first day but excluding the last) and when demand is made for payment on or prior to the Demand Maturity Date, as set forth in the Terms of Advance, with respect to a demand obligation hereunder, BNP shall notify Borrower of the total amount owed hereunder. In the absence of manifest error, BNP's determination of the amount owned hereunder shall be conclusive and binding upon the Borrower. Neither the acceptance of any partial or delinquent payment by BNP nor BNP's failure to exercise any rights or remedies upon the occurrence and continuance of any default shall, in and of itself, constitute a waiver of such default, a modification of Borrower's obligations under this Note or a waiver of any subsequent default. This Note, together with the Agreement and the Terms of Advance with respect to each Advance, sets forth the entire agreement between Borrower and BNP with regard to the matters referred to herein. No alteration, amendment or extension of any provision of this Note nor consent to any departure by Borrower from the terms hereof shall be effective unless the same shall be in writing and signed by BNP, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. Should any action or proceeding be brought to construe or enforce the terms and conditions of this Note, the Agreement or any Terms of Advance, or the rights of the parties hereunder or thereunder, the party prevailing in such action or proceeding shall be entitled to recover from the other party all court costs and reasonable attorneys' fees to be set by the court, as well as the costs and fees incurred in enforcing any judgment entered thereon. All rights of BNP hereunder shall inure to the benefit of its successors and assigns; all obligations of Borrower shall bind its successors and assigns. Borrower's obligations under this Note are not assignable. The construction of this Note and the rights and liabilities of the parties hereto, shall be governed by the laws of the State of California. IN WITNESS WHEREOF, Borrower has caused this Note to be executed as of the date and year first written above. ACUSON CORPORATION a ____________ corporation ______________________________ By: Title: 2 EX-10.29 10 LETTER AGREEMENT DATED SEPTEMBER 11, 1998 ACUSON CORPORATION EXHIBIT 10.29 - ------------------------------------------------------------------------------ September 11, 1998 Acuson Corporation 1220 Charleston Road P.O. Box 7393 Mountain View, CA 94039-7393 Attention: David Farwell, Assistant Treasurer Ladies and Gentlemen: Banque Nationale de Paris (BNP) is pleased to advise you that we have approved the following facility for your use: Borrower: Acuson Corporation. Facility: Uncommitted line of credit for one or more advances (the "Advance(s)"). Advances will be available for a period of up to 90 days at the sole discretion of BNP and subject to the terms and conditions of this agreement, the Note and the Terms of Advance (each referred to below). The maximum aggregate principal amount available under this Facility at any one time is $10,000,000, and the minimum amount of any one Advance is $100,000. The interest rate (or method of calculation of interest) applicable to each advance will be as agreed upon by Borrower and BNP at the time that such Advance is made. Principal and interest on each Advance will be payable at the times and in the manner agreed upon by Borrower and BNP at the time that such Advance is made. Request for Requests for Advances may be addressed to Don Hart or Debra Advances: McAdam in writing or by telephone and may be made by any of your Designated Officers (as that term is used in the Borrowing Certificate referred to below). Terms of For each Advance made under this agreement, BNP will Advance: maintain a record of the terms and conditions of such Advance (the "Terms of Advance"). BNP's records of such terms and conditions shall be binding upon Borrower absent manifest error. BNP will make a copy of the Terms of Advance available to Borrower. Documentation: Prior to the funding of the first Advance to be made hereunder, Borrower will deliver to BNP: (a) this agreement, (b) a Borrowing Certificate, and (c) a Promissory Note (the "Note"), each fully executed and in a form acceptable to BNP. Forms of Borrowing Certificate and Note are attached. Representations: Borrower represents and warrants that (a) this agreement and, when executed and delivered to us, the note (including any substitute or additional Note), has been duly authorized, executed and delivered by Borrower and constitutes legally binding and enforceable obligations of Borrower in accordance with its respective terms, and (b) all financial information which Borrower has submitted or will submit to BNP in connection with this agreement or any request for an advance is (or will be at the time submitted) true and complete, fairly presents the financial condition of Borrower as of the date indicated, and has been prepared in accordance with generally accepted accounting principles. Upon the making of each request for an advance under this Facility and upon receipt of each such Acuson Corporation September 11, 1998 Page 2 Advance, Borrower will be deemed to have restated and reaffirmed, as of the date of each such request and receipt, each representation and warranty made above. Notices: All notices required or permitted by this agreement or any Note shall be made by telephone or in writing (but if by telephone, shall promptly be confirmed in writing) and addressed to Borrower at: 1220 Charleston Road, P.O. Box 7393, Mountain View, CA 94039-7393; telephone number: (650) 694-5415; telefax number: (650) 967-4791; and to BNP at: 180 Montgomery Street, San Francisco, CA 94104; telephone number: (415) 956-2511; telefax number: (415) 989-9041; unless either party gives notice to the other of a change in address. Kindly indicate your acceptance of this letter agreement by signing and returning to us the original of this letter. The enclosed duplicate is for your files. We are delighted to offer this Facility and look forward to continuing our mutually satisfactory relationship. Sincerely, BANQUE NATIONALE DE PARIS Kristine Nakano Mark McElwain Vice President Assistant Vice President ACCEPTED AND AGREED AS OF THIS ____________ DAY OF _______________,1998. ACUSON CORPORATION By: ______________________________ Title: EX-10.30 11 FORM OF CHANGE OF CONTROL ACUSON CORPORATION EXHIBIT 10.30 - -------------------------------------------------------------------------------- CHANGE IN CONTROL AGREEMENT --------------------------- THIS CHANGE IN CONTROL AGREEMENT, made as of the 12th day of October, 1998, by and between Acuson Corporation, a company incorporated under the laws of Delaware (the "Company"), and _____________ ("Executive"). WHEREAS, the Board of Directors of the Company (the "Board") recognizes that the possibility of a Change in Control (as hereinafter defined) exists and that the threat or the occurrence of a Change in Control can result in significant distractions of its key management personnel because of the uncertainties inherent in such a situation; WHEREAS, the Board has determined that it is essential and in the best interest of the Company and its stockholders to retain the services of Executive in the event of a threat or occurrence of a Change in Control and to ensure Executive's continued dedication and efforts in such event without undue concern for Executive's personal financial and employment security; and WHEREAS, in order to induce Executive to remain in the employ of the Company, particularly in the event of a threat or the occurrence of a Change in Control, the Company desires to enter into this Agreement with Executive to provide Executive with certain benefits in the event Executive's employment is terminated as a result of, or in connection with, a Change in Control; NOW, THEREFORE, in consideration of the respective agreements of the parties contained herein, it is agreed as follows: 1. Term of Agreement. This Agreement shall commence as of October 12, ----------------- 1998 (the "Effective Date") and shall continue in effect until the third anniversary of the Effective Date; provided, that commencing on the third anniversary of the Effective Date and on each subsequent anniversary thereof, the term of this Agreement shall automatically be extended for one (1) year unless either the Company or Executive shall have given written notice to the other at least ninety (90) days prior thereto that the term of this Agreement shall not be so extended; and provided, further, that notwithstanding any such notice by the Company not to extend, the term of this Agreement shall not expire prior to the expiration of thirteen (13) months after the occurrence of a Change in Control. 2. Definitions. ----------- 2.1. Accrued Compensation. "Accrued Compensation" shall mean an -------------------- amount which shall include all amounts earned or accrued through the Termination 1 Date (as hereinafter defined) but not paid as of the Termination Date, including, without limitation, (i) base salary, (ii) reimbursement for reasonable and necessary expenses incurred by Executive on behalf of the Company during the period ending on the Termination Date, (iii) paid time off (PTO) pay and (iv) bonuses and incentive compensation. 2.2. Base Amount. "Base Amount" shall mean the amount of ----------- Executive's annual base salary at the rate in effect immediately prior to the Change in Control, and shall include all amounts of Executive's base salary that are deferred under any qualified and non-qualified employee benefit plans of the Company or any other agreement or arrangement. 2.3. Bonus Amount. "Bonus Amount" shall mean the greater of (i) ------------ Executive's incentive target for the fiscal year in which the Change in Control occurs and as in place immediately prior to the Change in Control, or (ii) Executive's incentive target for the fiscal year in which the Termination Date occurs. 2.4. Cause. A termination of employment is for "Cause" if ----- Executive has been convicted of a felony involving fraud or dishonesty or the termination is evidenced by a resolution adopted in good faith by two-thirds of the Board to the effect that Executive (i) intentionally and continually failed substantially to perform Executive's reasonably assigned duties with the Company (other than a failure resulting from Executive's incapacity due to physical or mental illness or from Executive's assignment of duties that would constitute Good Reason (as hereinafter defined)), which failure continued for a period of at least thirty (30) days after a written notice of demand for substantial performance has been delivered to Executive specifying the manner in which Executive has failed substantially to perform, or (ii) intentionally engaged in conduct which is demonstrably and materially injurious to the Company; provided, -------- that no termination of Executive's employment shall be for Cause as set forth in clause (ii) above until (a) there shall have been delivered to Executive a copy of a written notice setting forth that Executive was guilty of the conduct set forth in clause (ii) and specifying the particulars thereof in detail, and (b) Executive shall have been provided an opportunity to be heard in person by the Board (with the assistance of Executive's counsel if Executive so desires). No act, nor failure to act, on Executive's part shall be considered "intentional" unless Executive has acted, or failed to act, with a lack of good faith and with a lack of reasonable belief that Executive's action or failure to act was in the best interest of the Company. 2.5. Change in Control. "Change in Control" shall mean any of the ----------------- following: (a) An acquisition (other than directly from the Company) of any voting securities of the Company (the "Voting Securities") by any Person (as the term "person" is used for purposes of Section 13 or 14 of the Securities Exchange Act of 1934, as amended (the "1934 Act")) immediately after which such Person has Beneficial Ownership (as the term "beneficial ownership" is defined under Rule 13d-3 promulgated 2 under the 1934 Act) of (i) twenty percent (20%) or more of the combined voting power of the Company's then outstanding Voting Securities, which acquisition is not approved in advance by a majority of the Incumbent Board (as hereinafter defined), or (ii) thirty three percent (33%) or more of the combined voting power of the Company's then outstanding Voting Securities, which acquisition is approved in advance by a majority of the Incumbent Board; provided, that in each -------- case of (i) or (ii) above, in determining whether a Change in Control has occurred, Voting Securities which are acquired in a Non-Control Acquisition (as hereinafter defined) shall not constitute an acquisition which would cause a Change in Control. A "Non-Control Acquisition" shall mean an acquisition by (1) an employee benefit plan (or a trust forming a part thereof) maintained by (A) the Company or (B) any corporation or other Person of which a majority of its voting power or its equity securities or equity interest is owned directly or indirectly by the Company (a "Subsidiary"), (2) the Company or any Subsidiary, (3) any Person in connection with a Non-Control Transaction (as hereinafter defined) or (4) Karl Johannsmeier of a percentage of the combined voting power of the Company's then outstanding Voting Securities (the "Voting Power") which does not cause the aggregate percentage of the Voting Power held by him to exceed twenty-five percent (25%) when his aggregate percentage of the Voting Power is combined with the aggregate percentage of the Voting Power held collectively by all of Mr. Johannsmeier's associates, affiliates (other than the Company) and Persons with whom he is acting in concert with respect to such acquisition or acquisitions (collectively, the "Johannsmeier Group"); provided, however, that if, after the date of this Agreement, Mr. Johannsmeier or any of the Johannsmeier Group sells, donates, assigns or otherwise transfers the Beneficial Ownership of any Voting Securities, including among themselves, then any subsequent acquisition of Beneficial Ownership of Voting Securities (other than pursuant to the exercise of options granted under a Company stock option plan) shall not be deemed to be a Non-Control Acquisition pursuant to this Section 2.5(a); provided, further that in the event of Mr. Johannsmeier's death or incapacity due to physical or mental illness, any acquisition by the trustee or other representative of Mr. Johannsmeier or his estate or any Person acting on Mr. Johannsmeier's behalf shall also not be deemed to be Non-Control Acquisition pursuant to this Section 2.5(a); (b) The individuals who, as of the date this Agreement is approved by the Board, are members of the Board (the "Incumbent Board"), cease for any reason to constitute at least a majority of the Board; provided, that if the -------- appointment, election or nomination for election by the Company's stockholders of any new director was approved by a vote of two-thirds (2/3rds) of the Incumbent Board, such new director shall, for purposes of this Agreement, be considered a member of the Incumbent Board; and provided, further, that no -------- ------- individual shall be considered a member of the Incumbent Board if such individual initially assumed office as a result of either an actual or threatened "Election Contest" (as described in Rule 14a-11 promulgated under the 1934 Act) or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board (a "Proxy Contest") including by reason of any agreement intended to avoid or settle any Election Contest or Proxy Contest; 3 (c) Approval by stockholders of the Company of: (i) A merger, consolidation or reorganization involving the Company, unless such merger, consolidation or reorganization satisfies the conditions set forth in clauses (A) through (C) below (the transactions described by clauses (A) through (C) below being referred to herein as "Non-Control Transactions"): (A) the stockholders of the Company immediately before such merger, consolidation or reorganization own, directly or indirectly, immediately following such merger, consolidation or reorganization, at least sixty percent (60%) of the combined voting power of the outstanding voting securities of the corporation resulting from such merger, consolidation or reorganization (the "Surviving Corporation") in substantially the same proportion as their ownership of the Voting Securities immediately before such merger, consolidation or reorganization; (B) the individuals who were members of the Incumbent Board immediately prior to the execution of the agreement providing for such merger, consolidation or reorganization constitute at least a majority of the members of the board of directors of the Surviving Corporation; and (C) no Person (other than the Company, any Subsidiary, any employee benefit plan (or any trust forming a part thereof) maintained by the Company, the Surviving Corporation or any Subsidiary, or any Person who, immediately prior to such merger, consolidation or reorganization had Beneficial Ownership of twenty percent (20%) or more of the then outstanding Voting Securities) has Beneficial Ownership of twenty percent (20%) or more of the combined voting power of the Surviving Corporation's then outstanding voting securities; (ii) A complete liquidation or dissolution of the Company; or (iii) An agreement for the sale or other disposition of all or substantially all of the assets of the Company to any Person (other than a transfer to a Subsidiary). Notwithstanding the foregoing, a Change in Control shall not be deemed to occur solely because any Person (the "Subject Person") acquired Beneficial Ownership of more than the permitted amount of the outstanding Voting Securities as a result of the acquisition of Voting Securities by the Company which, by reducing the number of Voting Securities outstanding, increases the proportional number of shares Beneficially Owned by the Subject Person; provided, that if a -------- Change in Control would occur (but for 4 the operation of this sentence) as a result of the acquisition of Voting Securities by the Company, and after such share acquisition by the Company, the Subject Person becomes the Beneficial Owner of any additional Voting Securities (other than pursuant to the exercise of options granted under a Company stock option plan or pursuant to a Capital Structure Change (as hereinafter defined)) which increases the percentage of the then outstanding Voting Securities Beneficially Owned by the Subject Person in excess of the permitted amount of the outstanding Voting Securities, then a Change in Control shall occur. For purposes of this paragraph, a "Capital Structure Change" shall mean any change made in the Voting Securities of the Company (including a stock dividend or stock split) not involving the receipt of consideration by the Company. (d) Notwithstanding anything contained in this Agreement to the contrary, if Executive's employment is terminated prior to a Change in Control and it is determined that such termination (i) was at the request of a third party who has indicated an intention or taken steps reasonably calculated to effect a Change in Control and who subsequently effectuates a Change in Control (a "Third Party") or (ii) otherwise occurred in connection with, or in anticipation of, a Change in Control which actually occurs, then, for all purposes of this Agreement, the date of a Change in Control with respect to Executive shall mean the date immediately prior to the date of such termination of Executive's employment. 2.6. Company. The "Company" shall mean Acuson Corporation and ------- shall include its "Successors and Assigns" (as hereinafter defined). 2.7. Disability. "Disability" shall mean a physical or mental ---------- infirmity which impairs Executive's ability to substantially perform Executive's duties with the Company for a period of one hundred eighty (180) consecutive days and Executive has not returned to Executive's full-time employment prior to the Termination Date as stated in the Notice of Termination (as hereinafter defined). 2.8. Good Reason. ----------- (a) "Good Reason" shall mean the occurrence after a Change in Control of any of the events or conditions described in subsections (i) through (viii) hereof : (i) (A) a change in Executive's status, title, position, responsibilities (including reporting responsibilities) or working conditions which represents an adverse change from Executive's status, title, position, responsibilities or working conditions as in effect at any time within ninety (90) days preceding the date of a Change in Control or at any time thereafter; (B) the assignment to Executive of any duties or responsibilities which are inconsistent with Executive's status, title, position or responsibilities as in effect at any time within ninety (90) days preceding the date of a Change in Control or at any time thereafter; or (C) any removal of Executive from or failure to reappoint or reelect Executive to any of such offices or positions, except in connection with the 5 termination of Executive's employment for Disability, Cause, as a result of Executive's death or by Executive other than for Good Reason; (ii) reduction in Executive's base salary to a level below that in effect at any time within ninety (90) days preceding the date of a Change in Control or at any time thereafter, or any failure to pay Executive any compensation or benefits to which Executive is entitled within five (5) days of the date due; (iii) the Company's requiring Executive to be based at any place outside a 50-mile radius from Executive's job location or residence prior to the Change in Control, except for reasonably required travel on the Company's business which is not materially greater than such travel requirements prior to the Change in Control; (iv) the failure by the Company to (A) continue in effect (without reduction in benefit level and/or reward opportunities) any material compensation or employee benefit plan in which Executive was participating at any time within ninety (90) days preceding the date of the Change in Control or at any time thereafter, including, but not limited to, the plans listed on Appendix A (which shall include paid time off policies), unless such plan is replaced with a plan that provides substantially equivalent compensation or benefits to Executive, or (B) provide Executive with compensation and benefits, in the aggregate, at least equal (in terms of benefit levels and/or reward opportunities) to those provided for under each other employee benefit plan, program and practice in which Executive was participating at any time within ninety (90) days preceding the date of the Change in Control or at any time thereafter or which are provided to other similarly situated executives of the Company; (v) the insolvency or the filing (by any party, including the Company) of a petition for bankruptcy of the Company, which petition is not dismissed within sixty (60) days; (vi) any material breach by the Company of any provision of this Agreement; (vii) any purported termination of Executive's employment for Cause by the Company which does not comply with the terms of Section 2.4; or (viii) the failure of the Company to obtain an agreement, satisfactory to Executive, from any Successors and Assigns to assume and agree to perform this Agreement, as contemplated in Section 6 hereof. (b) Any event or condition described in this Section 2.8 which occurs prior to a Change in Control, but which it is determined (i) was at the request of a 6 Third Party, or (ii) otherwise arose in connection with, or in anticipation of, a Change in Control which actually occurs, shall constitute Good Reason for purposes of this Agreement notwithstanding that it occurred prior to the Change in Control. (c) Executive's right to terminate Executive's employment pursuant to this Section 2.8 shall not be affected by Executive's incapacity due to physical or mental illness. (d) For purposes of this Section 2.8, any good faith determination of a Good Reason made by Executive shall be conclusive. In the event Executive makes any such determination, Executive shall notify the Company in writing and shall specify a last day of employment. 2.9. Notice of Termination. Following a Change in Control, --------------------- "Notice of Termination" shall mean a written notice from the Company of termination of Executive's employment which indicates the specific termination provision in this Agreement relied upon and which sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of Executive's employment under the provision so indicated. 2.10. Successors and Assigns. "Successors and Assigns" shall mean ---------------------- a corporation or other entity acquiring all or substantially all the assets and business of the Company (including this Agreement), whether by operation of law or otherwise. 2.11. Termination Date. "Termination Date" shall mean (i) in the ---------------- case of Executive's death, Executive's date of death, (ii) in the case of termination of Executive's employment with the Company for Good Reason, the last day of Executive's employment as specified by Executive pursuant to Section 2.8(d), and (iii) in all other cases, the date specified in the Notice of Termination; provided, that if Executive's employment is terminated by the -------- Company for Cause or due to Disability, the date specified in the Notice of Termination shall be at least thirty (30) days from the date the Notice of Termination is given to Executive; and provided, further, that in the case of -------- ------- Disability, Executive shall not have returned to the full-time performance of Executive's duties during such period of at least thirty (30) days. 3. Termination of Employment. ------------------------- 3.1. If, during the term of this Agreement, Executive's employment with the Company shall be terminated within thirteen (13) months following a Change in Control, Executive shall be entitled to the following compensation and benefits: (a) If Executive's employment with the Company shall be terminated (i) by the Company for Cause or Disability, (ii) by reason of Executive's death, (iii) due to Executive's retirement pursuant to the Company's policies applying to executive offices generally, or (iv) by Executive other than for Good Reason, the Company shall pay to Executive the Accrued Compensation. 7 (b) If Executive's employment with the Company shall be terminated for any reason other than as specified in Section 3.1(a), Executive shall be entitled to the following: (i) the Company shall pay Executive all (A) Accrued Compensation and (B) the Bonus Amount times a fraction, the numerator of which is the number of days in the current fiscal year through the Termination Date and the denominator of which is 365; (ii) the Company shall pay Executive as severance pay and in lieu of any further compensation for periods subsequent to the Termination Date, an amount in cash equal to two (2) times the sum of (A) the Base Amount and (B) the Bonus Amount; (iii) the Company shall provide, at no cost to the Executive, for a period of twenty four (24) months following the Termination Date, the same or substantially equivalent employee benefits, including without limitation, life insurance, medical, dental, prescription and hospitalization benefits, in which Executive was participating at any time within ninety (90) days preceding the date of the Change in Control or at any time thereafter (and if Executive covered Executive's dependents under such benefits, such dependents shall remain covered by such benefits at Company's expense for such twenty four (24) month period), except to the extent that Executive and/or Executive's dependents obtain employee benefits of the same type offered by an entity to which Executive is then providing his services, in which case such coverage provided by the Company shall become secondary; and (iv) the restrictions on any outstanding incentive awards (including restricted stock and granted performance shares or units) granted to Executive under the Company's stock option and other stock incentive plans or under any other incentive plan or arrangement shall lapse and such incentive awards shall become 100% vested, all stock options and stock appreciation rights granted to Executive shall become immediately exercisable and shall become 100% vested and all performance units granted to Executive shall become 100% vested. (c) The amounts provided for in Sections 3.1(a) and 3.1(b)(i) and (ii) shall be paid in a single lump sum cash payment within ten (10) days after the Termination Date (or earlier, if required by applicable law). (d) The Executive shall not be required to mitigate the amount of any payment provided for in this Agreement by seeking other employment or otherwise, and no such payment shall be offset or reduced by the amount of any compensation or benefits provided to Executive in any subsequent employment, except as provided in Section 3.1(b)(iii). 8 3.2. (a) The severance pay and benefits provided for in this Section 3 shall be in lieu of any other severance or termination pay to which Executive may be entitled under any Company severance or termination plan, program, practice or arrangement. (b) The Executive's entitlement to any other compensation or benefits shall be determined in accordance with the Company's employee benefit plans (including the plans listed on Appendix A) and other applicable programs, policies and practices then in effect. 4. Notice of Termination. Following a Change in Control, any purported --------------------- termination of Executive's employment by the Company shall be communicated by a Notice of Termination to Executive. For purposes of this Agreement, no such purported termination shall be effective without such Notice of Termination. 5. Excise Tax Payments. ------------------- 5.1 Notwithstanding anything contained in this Agreement to the contrary, to the extent that any payment or benefit (within the meaning of Section 280G(b)(2) of the Internal Revenue Code of 1986, as amended (the "Code")) to Executive or for Executive's benefit, paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise in connection with, or arising out of, Executive's employment with the Company or a Change in Control (a "Payment" or "Payments"), would be subject to the excise tax imposed under Code Section 4999, or any interest or penalties are incurred by Executive with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the "Excise Tax"), the Payments shall be reduced (but not below zero) if and to the extent that a reduction in the Payments would result in Executive retaining a larger amount, on an after-tax basis (taking into account federal, state and local income, employment and any other applicable taxes in addition to the Excise Tax), than if Executive received all of the Payments (any such reduced amount is hereinafter referred to as the "Limited Payment Amount"). Unless Executive shall have given written notice prior to the Determination (as hereinafter defined) specifying a different order to the Company to effectuate the Limited Payment Amount, the Company shall reduce or eliminate the Payments by (i) first reducing or eliminating those Payments which have a "parachute payment" value (as determined under Code Section 280G and the regulations promulgated thereunder) equal to the value of the Payment, and then (ii) those Payments in the order in which their "parachute payment" value comes the closest to the value of the Payment, and then (iii) notwithstanding the foregoing provisions, any employee benefits provided pursuant to Section 3.1(b)(iii) of this Agreement. Any notice given by Executive pursuant to the preceding sentence shall take precedence over the provisions of any other plan, arrangement or agreement governing Executive's rights and entitlements to any benefits or compensation. 5.2 An initial determination as to whether the Payments shall be reduced to the Limited Payment Amount and the amount of such Limited Payment 9 Amount shall be made, at the Company's expense, by the accounting firm that is the Company's independent accounting firm as of the date of the Change in Control (the "Accounting Firm"). The Accounting Firm shall provide its determination (the "Determination"), together with detailed supporting calculations and documentation, to the Company and Executive within five (5) days of the Termination Date, if applicable, or such other time as requested by the Company or by Executive (provided Executive reasonably believes that any of the Payments may be subject to the Excise Tax) and, if the Accounting Firm determines that no Excise Tax is payable by Executive with respect to a Payment or Payments, it shall furnish Executive with an opinion reasonably acceptable to Executive that no Excise Tax will be imposed with respect to any such Payment or Payments. Within ten (10) days of the delivery of the Determination to Executive, Executive shall have the right to dispute the Determination (the "Dispute"). If there is no Dispute, the Determination shall be binding, final and conclusive upon the Company and Executive, subject to the application of Section 5.3 below. 5.3 As a result of the uncertainty in the application of Sections 4999 and 280G of the Code, it is possible that the Payments to be made to, or provided for the benefit of, Executive either will be greater (an "Excess Payment") or less (an "Underpayment") than the amounts provided for by the limitations contained in Section 5.1. (a) If it is established, pursuant to a final determination of a court or an Internal Revenue Service (the "IRS") proceeding which has been finally and conclusively resolved, that an Excess Payment has been made, such Excess Payment shall be deemed for all purposes to be a loan to Executive made on the date Executive received the Excess Payment, which loan Executive must repay to the Company together with interest at the applicable federal rate under Code Section 7872(f)(2); provided, that no loan shall be deemed to have been -------- made and no amount will be payable by Executive to the Company unless, and only to the extent that, the deemed loan and payment would either reduce the amount on which Executive is subject to tax under Code Section 4999 or generate a refund of tax imposed under Code Section 4999. (b) In the event that it is determined, by (i) the Accounting Firm, the Company (which shall include the position taken by the Company, or together with its consolidated group, on its federal income tax return) or the IRS, (ii) pursuant to a determination by a court, or (iii) upon the resolution to Executive's satisfaction of the Dispute, that an Underpayment has occurred, the Company shall pay an amount equal to the Underpayment to Executive within ten (10) days of such determination or resolution, together with interest on such amount at the applicable federal rate under Code Section 7872(f)(2) from the date such amount would have been paid to Executive until the date of payment. 6. Successors; Binding Agreement. ----------------------------- 6.1. This Agreement shall be binding upon and shall inure to the benefit of the Company and its Successors and Assigns, and the Company shall require 10 any Successors and Assigns to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession or assignment had taken place. 6.2. Neither this Agreement nor any right or interest hereunder shall be assignable or transferable by Executive or Executive's beneficiaries or legal representatives, except by will or by the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by Executive's legal personal representative. 7. Fees and Expenses. The Company shall pay in a timely manner all legal ----------------- fees and related expenses (including the costs of experts, evidence and counsel) incurred by Executive as they become due as a result of (a) Executive's termination of employment (including all such fees and expenses, if any, incurred in contesting or disputing any such termination of employment), (b) Executive's seeking to obtain or enforce any right or benefit provided by this Agreement (including but not limited to, any such fees and expenses incurred in connection with any Dispute) or by any other plan or arrangement maintained by the Company under which Executive is or may be entitled to receive benefits, and (c) Executive's hearing before the Board as contemplated in Section 2.4 of this Agreement; provided, that the circumstances set forth in clauses (a) and (b) of this Section 7 (other than as a result of Executive's termination of employment under circumstances described in Section 2.5(d)) occurred on or after a Change in Control. 8. Notice. Notices and all other communications provided for in this ------ Agreement (including the Notice of Termination) shall be in writing and shall be deemed to have been duly given when personally delivered or sent by certified mail, return receipt requested, postage prepaid, addressed to the respective addresses last given by each party to the other; provided, that all notices to the Company shall be directed to the attention of the Board with a copy to the Secretary of the Company. All notices and communications shall be deemed to have been received on the date of delivery thereof or on the third business day after the mailing thereof, except that notice of change of address shall be effective only upon receipt. 9. Non-Exclusivity of Rights. Nothing in this Agreement shall prevent or ------------------------- limit Executive's continuing or future participation in any benefit, bonus, incentive or other plan or program provided by the Company (except for any severance or termination policies, plans, programs or practices) and for which Executive may qualify, nor shall anything herein limit or reduce such rights as Executive may have under any other agreements with the Company (except for any severance or termination agreement). Amounts which are vested benefits or which Executive is otherwise entitled to receive under any plan or program of the Company shall be payable in accordance with such plan or program, except as explicitly modified by this Agreement. 10. Settlement of Claims. The Company's obligation to make the payments -------------------- provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any circumstances, including, without limitation, any set-off, 11 counterclaim, recoupment, defense or other right which the Company may have against Executive or others. 11. Miscellaneous. ------------- 11.1 No provision of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing and signed by Executive and the Company. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. No agreement or representation, oral or otherwise, express or implied, with respect to the subject matter hereof has been made by either party which is not expressly set forth in this Agreement. 11.2 If there shall be any dispute between the Company and Executive (i) in the event of any termination of Executive's employment by the Company, concerning whether such termination was for Cause or (ii) in the event of any termination of employment by Executive, concerning whether Good Reason exists, then, unless and until there is a final, nonappealable judgment of a court of competent jurisdiction declaring that such termination was for Cause or that the determination by Executive of the existence of Good Reason was not made in good faith, the Company shall pay all amounts, and provide all benefits, to Executive and Executive's dependents, as the case may be, that the Company would be required to pay or provide pursuant to Section 3 as though such termination were by the Company without Cause or by Executive with Good Reason; provided, -------- however, that the Company shall not be required to pay any disputed amounts - ------- pursuant to this paragraph except upon receipt of an undertaking by or on behalf of Executive to repay all such amounts to which the Executive is ultimately adjudged by such court not to be entitled. 11.3 Executive and the Company acknowledge that the employment of Executive by the Company is and shall continue to be "at will" and may be terminated by either Executive or the Company at any time. 12. Governing Law. This Agreement shall be governed by and construed and ------------- enforced in accordance with the internal laws of the State of California (as permitted by Section 1646.5 of the California Civil Code or any similar successor provision), without giving effect to any choice of law rule that would cause the application of the laws of any jurisdiction other than the internal laws of the State of California to the rights and duties of the parties. Any action brought by any party to this Agreement shall be brought and maintained in a court of competent jurisdiction in Santa Clara County in the State of California. 13. Severability. The provisions of this Agreement shall be deemed ------------ severable, and the invalidity or unenforceability of any provision shall not affect the validity or enforceability of the other provisions hereof. 12 14. Entire Agreement. This Agreement constitutes the entire agreement ---------------- between the parties hereto and supersedes all prior agreements, if any, understandings and arrangements, oral or otherwise, between the parties hereto with respect to the subject matter hereof. IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by its duly authorized officer and Executive has executed this Agreement as of the day and year first above written. ACUSON CORPORATION ATTEST: By:___________________________ Name:_____________________ _________________________ Title:____________________ Secretary EXECUTIVE ______________________________ Signature 13 APPENDIX A ---------- EMPLOYEE BENEFIT PLANS ---------------------- Medical Dental Vision Prescription Life Insurance Accidental Death and Dismemberment Long Term Disability Paid Time Off 14 EX-10.31 12 FORM OF THE COMPANY'S 1995 STOCK INCENTIVE PLAN ACUSON CORPORATION EXHIBIT 10.31 - -------------------------------------------------------------------------------- ACUSON CORPORATION NON-QUALIFIED STOCK OPTION TERMS Acuson Corporation (the "Company") has this day granted to you an option (the "Option") to purchase shares of common stock of the Company. This Option is granted pursuant to the Company's 1995 Stock Incentive Plan (the "Plan") and is not intended to qualify as an "incentive stock option" within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"). Details of this Option are contained in the Notice of Grant of Stock Options and Grant Agreement (the "Notice") to which these Non-Qualified Stock Option Terms (the "Option Terms") are attached (the Notice and the Option Terms collectively the "Agreement"). Capitalized terms not otherwise defined herein have the meanings given to them in the Plan. The details of this Option are as follows: 1. (a) The total number of shares subject to this Option is set forth in the Notice. Subject to the limitations contained herein, commencing on the date on the Notice specified as the "Beginning Vesting Date", the share of this Option shall vest and become exercisable as follows: twenty percent (20%) of the total number of shares subject to this Option shall vest and become exercisable on the first anniversary of the Beginning Vesting Date, twenty percent (20%) shall vest and become exercisable on the second anniversary of such date, thirty percent (30%) shall vest and become exercisable on the third anniversary of such date, and the remaining thirty percent (30%) shall vest and become exercisable on the fourth anniversary of such date. No share of this Option may be exercised until such share has vested, and vesting will stop on the date of termination of your employment or relationship as a consultant with the Company or an Affiliate of the Company for any reason or no reason including death or disability. All shares not vested as of such termination date shall be cancelled. (b) Notwithstanding anything to the contrary contained in this paragraph 1, the total number of shares subject to this Option shall fully vest and become exercisable, automatically and without any further action by the parties hereto, upon the occurrence of certain events constituting a change in control of the Company as provided in Section 12 of the Plan. 2. (a) The exercise price per share of the Stock subject to this Option is set forth in the Notice. (b) The purchase price of Stock acquired pursuant to this Option shall be paid at the time of exercise, to the extent permitted by applicable statutes and regulations, by (i) personal check, certified check, bank draft, or postal money order payable to the order of Acuson Corporation in lawful money of the United States (collectively, "Cash Consideration"); (ii) delivery on a form prescribed by the Company of an irrevocable direction to a securities broker approved by the Company to sell shares of Stock and deliver all or a portion of the proceeds to the Company in payment for the Stock issuable upon exercise of this Option; (iii) surrender to the Company of shares of Stock (or delivery of a properly executed form of attestation of 1 Acuson Corporation Non-Qualified Stock Option Terms ownership of shares of Stock) that have been held for the requisite period necessary to avoid a charge to the Company's reported earnings and valued at the fair market value on the date of exercise (determined by the closing sale price per share of Stock for such date); or (iv) in any combination of the foregoing. 3. The minimum number of shares of Stock with respect to which this Option may be exercised at any one time is twenty-five (25), except (i) with respect to an installment subject to vesting, as set forth in paragraph 1, which amounts to fewer than twenty-five (25) shares, in which case the minimum number of exercisable shares for that installment shall be the number of shares in such installment, and (ii) with respect to the final exercise of this Option no minimum shall apply. In no event may this Option be exercised for anything but whole shares. 4. Notwithstanding anything to the contrary contained herein, this Option may not be exercised unless the shares issuable upon exercise of this Option are then registered under the Securities Act of 1933, as amended (the "Securities Act"), or, if such shares are not then so registered, the Company has determined that such exercise and issuance would be exempt from the registration requirements of the Securities Act. 5. The term of this Option commences on the grant date as set forth in the Notice and, unless sooner terminated as set forth below or in the Plan, terminates on the date set forth in the Notice (the "Scheduled Termination Date"). Prior to the Scheduled Termination Date, this Option shall terminate three (3) months after the termination of your employment or relationship as a consultant with the Company or an Affiliate of the Company for any reason or for no reason unless: (a) such termination of employment or relationship as a consultant is due to your permanent and total disability (within the meaning of Section 422(c)(6) of the Code), in which event this Option shall terminate on the earlier of the Scheduled Termination Date or one (1) year following such termination of employment or relationship as a consultant; or (b) such termination of employment or relationship as a consultant is due to your death, or your death occurs within three (3) months after such termination of employment or relationship as a consultant, in which event this Option shall terminate on the earlier of the Scheduled Termination Date or eighteen (18) months after your death; or (c) during any part of such three (3) month period this Option is not exercisable solely because of the condition set forth in paragraph 4 above, in which event this Option shall not terminate until the earlier of the Scheduled Termination Date or until it shall have been exercisable for an aggregate period of three (3) months after the termination of your employment or relationship as a consultant; or (d) exercise of this Option within three (3) months after termination of your employment or relationship as a consultant would result in liability under section 16(b) of the Securities Exchange Act of 1934, as amended, in which case this Option will terminate on the earliest of (i) the Scheduled Termination Date, (ii) the tenth (10th) day after the last date upon 2 Acuson Corporation Non-Qualified Stock Option Terms which exercise would result in such liability, or (iii) six (6) months and ten (10) days after the termination of your employment or relationship as a consultant. This Option may not be exercised after it terminates. In addition, you may exercise this Option only as to that number of shares vested on the date of your termination of employment or relationship as a consultant under the provisions of paragraph 1 of this Option. 6. (a) This Option may be exercised, to the extent specified above, by delivering a notice of exercise together with the exercise price to the Secretary of the Company, or to such other person as the Company may designate, during regular business hours, together with such additional documents as the Company may then require. (b) By exercising this Option you agree that the Company may require you to enter into an arrangement providing for the cash payment by you to the Company of any tax withholding obligation of the Company arising by reason of (i) the exercise of this Option, (ii) the lapse of any substantial risk of forfeiture to which the shares are subject at the time of exercise, or (iii) the disposition of shares acquired upon such exercise. 7. This Option is not transferable, except by will or by the laws of descent and distribution, and is exercisable during your life only by you. 8. This Option is not an employment or consulting contract, and nothing in this Option shall confer upon you any right to continue in the employ (or to continue acting as a consultant) of the Company or an Affiliate of the Company or shall affect the right of the Company or an Affiliate of the Company to terminate your employment or consulting relationship with or without cause. 9. Any notices provided for in this Option or the Plan shall be given in writing and shall be deemed effectively given upon receipt or, in the case of notices delivered by the Company to you, five (5) days after deposit in the United States mail, postage prepaid, addressed to you at the address specified in the Company's records or at such other address as you may designate by written notice to the Company. 10. This Option is subject to all the provisions of the Plan, a copy of which is attached hereto and is incorporated by reference herein, and is further subject to all interpretations, amendments, rules, and regulations which may from time to time be promulgated and adopted pursuant to the Plan. In the event of any conflict between the provisions of this Agreement and those of the Plan, the provisions of the Plan shall control. This Option is dated and effective as of the date of grant as set forth in the Notice. 3 EX-13.1 13 ANNUAL REPORT PORTION ACUSON CORPORATION EXHIBIT 13.1 - -------------------------------------------------------------------------------- ACUSON CORPORATION PORTION OF THE ANNUAL REPORT TO SECURITY HOLDERS INCORPORATED BY REFERENCE INTO FORM 10-K Financial Contents Management's Discussion And Analysis Of Financial Condition And Results Of Operations 2 Selected Consolidated Financial Data 8 Quarterly Data 8 Consolidated Statements of Operations and Comprehensive Income 9 Consolidated Balance Sheets 10 Consolidated Statements of Cash Flows 11 Consolidated Statements of Stockholders' Equity 12 Notes to Consolidated Financial Statements 13 Report of Independent Public Accountants 24 Market for Registrant's Common Equity and Related Stockholder Matters 25 - -------------------------------------------------------------------------------- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS The following table sets forth, for the periods indicated, certain items in the consolidated statements of operations as percentages of total net sales and the percentage change of each such item from the comparable prior period.
Percentage of Net Sales Percentage Change 1998 1997 vs. vs. Year Ended December 31, 1998 1997 1996 1997 1996 - ----------------------------------------------------------------------------------------------------------------------------- Net sales Product 80.2% 80.5% 75.4% 3.6% 35.1% Service 19.8 19.5 24.6 5.5 0.1 ----- ----- ----- Total net sales 100.0 100.0 100.0 4.0 26.5 ----- ----- ----- Cost of sales Product 42.4 42.9 40.1 2.7 35.3 Service 10.3 9.9 12.0 8.6 4.2 ----- ----- ----- Total cost of sales 52.7 52.8 52.1 3.8 28.1 ----- ----- ----- Gross profit 47.3 47.2 47.9 4.2 24.7 ----- ----- ----- Operating expenses Selling, general and administrative 28.0 27.5 36.4 5.8 (4.4) Product development 12.6 13.1 17.6 0.5 (6.0) ----- ----- ----- Total operating expenses 40.6 40.6 54.0 4.1 (4.9) ----- ----- ----- Income (loss) from operations 6.7 6.6 (6.1) 4.6 * Interest expense (0.7) (0.3) (0.1) 165.4 227.5 Interest income 0.3 0.5 1.0 (26.9) (41.6) ----- ----- ----- Income (loss) before income taxes 6.3 6.8 (5.2) (3.9) * Provision for (benefit from) income 1.7 1.7 (2.1) 5.1 * taxes ----- ----- ----- Net income (loss) 4.6% 5.1% (3.1)% (6.9) * ===== ===== =====
* not meaningful 1998 COMPARED WITH 1997 Net sales increased 4.0 percent to $455.1 million for the year ended December 31, 1998, compared with $437.8 million for 1997. Worldwide product revenue for the year ended December 31, 1998, increased 3.6 percent to $365.1 million. The increase in product revenue was primarily due to increased domestic sales, mainly within the domestic cardiology market, partially offset by a decrease in international sales. Worldwide sales of the Company's Sequoia and Aspen ultrasound systems, introduced in April and October of 1996, respectively, increased over the prior year. As greater numbers of Sequoia and Aspen systems have been sold, the Company has experienced a decline in sales of its 128XP ultrasound systems, first introduced in 1990. Worldwide service revenue increased 5.5 percent to $90.0 million. The increase was due to greater service contract revenue in connection with the Company's Sequoia and Aspen systems, partially offset by a decline in service 2 revenue from the Company's 128XP systems. As greater numbers of Sequoia and Aspen systems have been sold, the Company has experienced a decline in service revenue pertaining to the Company's 128XP systems. The Company expects service revenue to increase in the future as the warranty periods on larger numbers of its Sequoia and Aspen systems reach the end of their one-year terms. Domestic revenue increased 8.3 percent to $316.7 million for the year ended December 31, 1998, compared with $292.5 million for 1997. Domestic sales accounted for 69.6 percent of total 1998 sales, compared with 66.8 percent for 1997. International revenue decreased 4.7 percent in 1998 to $138.4 million. International revenues were negatively impacted by economic weakness in selected markets in Asia, Latin America and parts of Europe. Although international revenues grew during the fourth quarter of 1998, the Company expects selected international markets to remain depressed in 1999. Cost of sales as a percentage of net sales remained relatively consistent between 1998 and 1997. Cost of sales was 52.7 percent of net sales for the year ended December 31, 1998, compared with 52.8 percent for 1997. Selling, general and administrative expenses for the year ended December 31, 1998, were $127.5 million or 28.0 percent of net sales, compared with $120.5 million, or 27.5 percent of net sales, for 1997. The increase was primarily due to higher selling expenses early in the year resulting from planned additions to the Company's sales organization partially offset by company-wide cost reduction efforts during the third quarter of the year. The Company expects selling, general and administrative expenses to increase in 1999. Product development spending for the year ended December 31, 1998, was $57.6 million, reflecting a slight increase over the 1997 amount of $57.3 million. The Company aggressively supports new product development and anticipates an increase in product development spending in 1999. As a percentage of net sales, product development spending decreased to 12.6 percent in 1998 compared with 13.1 percent in 1997. The percentage decrease was primarily the result of higher sales in 1998. Interest income declined from the prior year primarily as a result of lower cash and cash equivalent balances. Interest income was $1.5 million for the year ended December 31, 1998, compared with $2.0 million in 1997. Interest expense for the year ended December 31, 1998, was $3.1 million compared with $1.2 million in 1997. The increase was the result of greater weighted average short-term borrowings throughout the year. Provision for income taxes was $7.8 million in 1998 compared with $7.5 million in 1997. The Company's effective tax rate for 1998 was 27.4 percent compared with 25.0 percent for 1997. The rate increase was primarily due to a change in the Company's domestic and international sales mix. The reduced 1998 provision rate, when compared to the Federal statutory rate of 35.0 percent, was primarily the result of the research and development tax credit. Net income was $20.8 million in 1998 compared with $22.4 million in 1997. The decrease was primarily the result of higher interest expense incurred in 1998. 1997 COMPARED WITH 1996 Net sales increased 26.5 percent to $437.8 million for the year ended December 31, 1997, compared with $346.2 million for the year ended December 31, 1996. The increase was primarily due to shipments of Sequoia ultrasound systems and Aspen ultrasound systems, which began in July and November of 1996, respectively. Worldwide service revenue remained relatively constant at $85.3 million compared with $85.2 million for the years ended December 31, 1997 and 1996, respectively. Domestic net sales increased 38.0 percent to $292.5 million for the year ended December 31, 1997, compared with $212.0 million for 1996. Domestic net sales accounted for 66.8 percent of total net sales in 1997, compared with 61.2 percent of total net sales in 1996. International net sales increased 8.3 percent to $145.3 million for the year ended December 31, 1997, compared with $134.2 million for 1996. International net sales accounted for 33.2 percent of total net sales in 1997 compared with 38.8 percent of total net sales in 1996. Cost of sales increased as a percentage of net sales to 52.8 percent for 1997 compared with 52.1 percent for 1996. The increase was primarily due to product mix changes and higher service costs. Selling, general and administrative expenses for the year ended December 31, 1997, declined to 27.5 percent of net sales, or $120.5 million, compared with 36.4 percent of net sales, or $126.1 million, for 1996. In the prior year, significant advertising and other product launch-related expenses were incurred in connection with the introduction of the Sequoia and Aspen ultrasound systems. 3 Product development spending for 1997 declined to $57.3 million, or 13.1 percent of net sales, compared with $60.9 million, or 17.6 percent of net sales, for 1996. The decrease was primarily due to reduced prototype expenses from the 1996 period when the Company was completing development of the Sequoia and Aspen products. Provision for income taxes was $7.5 million in 1997 compared with a benefit of $7.4 million in 1996. The Company's 1997 effective tax rate was a provision of 25.0 percent compared with a benefit of 41.1 percent in 1996. The reduced 1997 provision, when compared to the Federal statutory rate of 35.0 percent, was primarily the result of the research and development tax credit. The prior year benefit resulted from the carryback of 1996 losses to pre-1996 tax liabilities. Net income was $22.4 million in 1997 compared with a net loss of $10.6 million in 1996. The 1996 loss resulted primarily from substantial expenditures for manufacturing, marketing and other product launch-related expenses in conjunction with the worldwide introduction of the Company's Sequoia and Aspen ultrasound systems. INFLATION To date, the Company has not experienced any significant effects from inflation. LIQUIDITY AND CAPITAL RESOURCES During 1998, the Company's cash and cash equivalents balance decreased $10.8 million to $11.9 million and short-term borrowings increased $33.0 million to $65.0 million. The Company generated $17.0 million in cash from operations. The primary source of cash from operations was net income of $20.8 million. The primary uses of cash for operations were increases in accounts receivable and inventory, which used $22.5 million and $7.3 million, respectively. The increase in accounts receivable was primarily due to a high percentage of units shipped during the last month of the fourth quarter, lengthening collection cycles and an increase in fourth quarter sales. The increase in inventory was primarily the result of higher inventory levels in anticipation of future sales. In addition, lease receivables used $26.7 million in cash from the issuance of new lease contracts and generated $20.0 million in proceeds from sales of existing contracts. The Company's investing and financing activities for 1998 used $28.1 million in cash. The Company purchased $31.3 million of equipment during the year, primarily consisting of computer equipment, software and implementation costs associated with its new enterprise-wide, integrated business information system. Included in 1998 financing activities were $10.5 million raised through employee participation in the Company's stock option and stock purchase plans and net short-term borrowings of $33.0 million. Also included in the financing activities for 1998 was $40.0 million, including $2.8 million accrued in 1997, used for share repurchases. In 1996, the Board of Directors authorized the repurchase of 4,000,000 shares of common stock over an unspecified period of time. During 1998, the Company repurchased 2,264,600 shares at a total cost of $37.2 million. As of December 31, 1998, the Company had repurchased 3,527,400 shares toward the 4,000,000 share repurchase authorization at a cumulative cost of $62.4 million. Subsequent to December 31, 1998, the Board of Directors authorized the repurchase of an additional 4,000,000 shares of common stock over an unspecified period of time. Working capital at December 31, 1998, decreased $19.2 million from the prior year primarily due to reduced cash flow from operations and stock repurchases. At December 31, 1998, the Company's working capital totaled $99.4 million. The Company has a revolving, unsecured credit agreement for $100.0 million which is in effect through March 2000. Under the terms of the agreement, no compensating balances are required and the interest rate is determined at the time of borrowing based on the London interbank offered rate plus a margin, or prime rate. At December 31, 1998, borrowings under this facility, which are subject to certain debt covenants, totaled $65.0 million and the effective rate was 6.3 percent. The Company also has an uncommitted line of credit for up to 90-day advances not to exceed an aggregate total of $10.0 million. At December 31, 1998, there were no borrowings against this uncommitted line of credit. 4 For the year ended December 31, 1998, the Company's weighted average borrowings were $48.1 million and the weighted average interest rate was 6.4 percent. Subsequent to December 31, 1998, the Company entered into a letter agreement with a major financial institution to act as the Company's exclusive placement agent in connection with the issuance of an initial series of unsecured senior notes. The Company has obtained commitments for $75.0 million. The senior notes will have an effective coupon of approximately 6.6 percent and a final maturity of seven years with an average life of five years. After completing the due diligence with the lenders, the Company expects to receive $75.0 million by April 30, 1999 and anticipates using the proceeds to refinance existing debt and for other working capital and general corporate needs. Subsequent series of senior notes may be issued at the discretion of the Company for an additional $5.0 million. Based on its current operating plan, the Company believes that the liquidity provided by its existing cash balance, cash generated from operations and the borrowing arrangements described above will be sufficient to meet the Company's projected operating and capital requirements for fiscal 1999. INVESTMENT RISKS The Shareholders' Letter, subsequent product discussion and the Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") sections in this report contain forward-looking statements regarding the Company and its products. These forward-looking statements are based on current expectations and the Company assumes no obligation to update this information. The Company's actual results could differ materially from those discussed in this document. In evaluating the forward-looking statements contained in this document, including those in the Strategic Focus and Future Vision sections of the Shareholders' Letter, and in the MD&A, prospective investors and shareholders should carefully consider the factors set forth below. The success of the Company's products in the market and the Company's financial results depend on the timely completion of, and receipt of Food and Drug Administration marketing clearance for, additional products (including the Company's new AcuNav catheter), product capabilities and software updates; efforts to reduce the cost of manufacturing the Sequoia and Aspen systems; actual and perceived levels of product performance and quality in a clinical environment compared to other imaging modalities and competitive ultrasound systems; continued market acceptance of the products and their pricing; and competitor responses including the introduction of competitive products, pricing, intellectual property allegations and product positioning counter- strategies. International Operations and International Receivables The Company's business is subject to risks from potential negative impacts of weakness in certain markets in Asia, Latin America and Europe, and by adverse economic impacts from currency fluctuations in its worldwide operations. Political instability, currency fluctuations or other issues may impact the ability of the Company to collect receivables in foreign countries. The following table, in thousands, summarizes the Company's foreign receivables in excess of $3.0 million at December 31, 1998: December 31, 1998 ----------------- Italy $14,081 Brazil 12,567 France 7,034 Japan 6,221 China 5,744 Germany 5,506 Sweden 3,974 Switzerland 3,617 Company's Computing Environment During 1997, the Company initiated a two-phase project to replace its outdated computing environment with an enterprise-wide, integrated business information system to control many of its operating systems including order administration, service and financial and manufacturing processes. The first phase of this project has been 5 substantially completed and the second phase is currently scheduled to be completed during the latter half of 2000. The Company has retained an experienced consulting organization to assist in the conversion, however, the Company's future shipments and results could be adversely impacted if, during and following the conversion, there are significant problems with the system. OTHER FACTORS THAT MAY AFFECT FUTURE RESULTS Year 2000 The Company is taking steps to ensure its products and services will continue to operate on and after January 1, 2000. In addition to the new business information system noted above, which is year 2000 ready and will be replacing a significant portion of the Company's critical systems, the Company is currently engaged in a three-phase project to evaluate and remedy those systems not being replaced. The first phase, completed in May 1998, included a comprehensive inventory of the Company's systems by an experienced consulting firm and an analysis and determination of the criticality of each system. This phase included the evaluation of both information technology ("IT") and non-IT systems. Non-IT systems include systems or hardware containing embedded technology such as microcontrollers. The second phase was completed in December 1998, and focused on confirming the year 2000 readiness of those systems identified in phase one. The third and final phase, which is expected to be completed during the third quarter of 1999, will involve taking any needed corrective action to make all remaining critical systems and components year 2000 ready and to develop a contingency plan in the event any non-compliant critical systems are not remedied by January 1, 2000. The Company expects the project to be successfully completed during the third quarter of 1999 and has established a year 2000 steering committee, comprised of senior executives, and a dedicated program office to track and monitor the progress of the project. However, if by January 1, 2000, systems material to the Company's operations have not been made year 2000 ready, the year 2000 issue could have a material impact on the Company's financial statements. To date, the costs incurred by the Company with respect to this project have not been material and future anticipated costs are not expected to be material. The Company's products being shipped today are year 2000 ready and the Company believes its products previously shipped are either year 2000 ready or can be made year 2000 ready by customer purchase of an upgrade. The Company has also been communicating with suppliers and others it does business with to coordinate year 2000 readiness. The responses received by the Company to date have indicated that steps are currently being undertaken to address this concern. Based upon the steps being taken to address this issue and the progress to date, the Company does not expect the financial impact of the year 2000 date conversion to be material to its financial position or results of operations. However, if preventative and/or corrective actions by the Company or those the Company does business with are not made in a timely manner, the year 2000 issue could have a material adverse effect on the Company's financial statements. The Company primarily sells its products to hospitals, clinics, and other customers within the healthcare industry. Should the year 2000 issue impact the ability and willingness of these customers to purchase capital equipment, the year 2000 issue could have a material adverse impact on the Company's consolidated financial statements. Derivative Financial Instruments The Company operates internationally and is subject to market risk due to fluctuations in foreign currency exchange rates. The Company manages this risk through established policies and procedures that include the use of derivative financial instruments. The Company routinely enters into forward foreign currency exchange contracts to hedge amounts due from selected subsidiaries denominated in foreign currencies against fluctuations in exchange rates. The purpose of the hedging activities is to minimize the effect of foreign exchange rate movements on the Company's operating results and on the cash flows it receives from its foreign subsidiaries. Currently, the Company neither engages in foreign currency speculation nor holds or issues financial instruments for trading purposes. Because the Company only enters into forward currency exchange contracts as hedges, any change in currency rates would not result in a material gain or loss, as any gain or loss on the underlying transaction being hedged would be offset by the gain or loss on the forward currency contract. For this reason, the Company believes that neither its exposure to foreign currency exchange rate risk nor any potential near-term losses in future earnings, fair values or cash flows from reasonably possible near-term changes in market rates or prices would be material. Forward currency contract terms are typically not more than three months and the counterparties to the exchange contracts are major domestic 6 and international financial institutions. See Note 2 to the consolidated financial statements for additional information regarding the Company's forward foreign currency exchange contracts and accounting treatment thereof. Euro Conversion On January 1, 1999, eleven of the fifteen member countries of the European Union adopted the Euro as their common legal currency. Following the introduction of the Euro, the local currencies of the participating countries are scheduled to remain legal tender until June 30, 2002. During this transition period goods and services may be paid for in either Euros or the participating country's local currency. Thereafter, only the Euro will be legal tender in the participating countries. The Company believes its current accounting systems are capable of accommodating the Euro conversion with minimal intervention and that the conversion will not have a material impact on the competitiveness of its products in Europe. The Company also believes any costs of addressing the Euro conversion will not have a material impact on the Company's financial statements. Potential Fluctuations in Quarterly Operating Results The Company's quarterly revenues and operating results may fluctuate significantly for a number of reasons. Factors that may affect the Company's quarterly revenues and operating results generally include: the timing of industry trade shows, capital spending patterns of the Company's customers, the introduction of new products or product enhancements by the Company or its competitors, changes in customer budgets, and general and industry specific economic conditions. For example, the Company warrants its products for a period of 12 months and provides for estimated warranty costs at the time of sale. As the Company introduces new products and/or upgrades for existing products, if warranty costs are greater than the Company has experienced historically, its operating results, both quarterly and annually, may be adversely affected. The Company's quarterly results have fluctuated in the past and are likely to fluctuate in the future. Typically, revenues are lowest during the third quarter of the fiscal year. As a result of such quarterly fluctuations, quarter to quarter comparisons of the Company's operating results should not necessarily be relied upon as indicators of future performance. New Accounting Standards Comprehensive Income: Effective January 1, 1998, the Company adopted Statement of Financial Accounting Standards No. 130 ("SFAS 130"), "Reporting Comprehensive Income." The adoption of SFAS 130 did not have a material impact on the Company's consolidated financial statements. See Note 9 to the consolidated financial statements for further discussion. Segment Reporting: During 1998, the Company adopted Statement of Financial Accounting Standards No. 131 ("SFAS 131"), "Disclosures About Segments of an Enterprise and Related Information." The adoption of SFAS 131 did not have a material effect on the Company's consolidated financial statements. See Note 10 to the consolidated financial statements for further discussion. Accounting for Derivative Instruments and Hedging Activities: In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133 ("SFAS 133"), "Accounting for Derivative Instruments and Hedging Activities." This statement will require companies to recognize all derivatives, including those used for hedging foreign currency exposures, on the balance sheet at fair value and is effective for all fiscal years beginning after June 15, 1999. Management has not yet determined what the effect of SFAS 133 will be on the Company's consolidated financial statements. The foregoing Investment Risks and Other Factors That May Affect Future Results relate to the forward-looking statements contained in this document. For a description of the general investment considerations and risks surrounding the Company's overall business and financial prospects, refer to the Company's Form 10-K filed with the Securities and Exchange Commission for fiscal year 1998. 7 SELECTED CONSOLIDATED FINANCIAL DATA
Year Ended December 31, (In thousands, except per share amounts) 1998 1997 1996 1995 1994 - --------------------------------------------------------------------------------------------------- Consolidated Statements of Operations Data Net sales $455,089 $437,762 $346,155 $328,922 $350,484 Net income (loss) 20,822 22,377 (10,613) 7,055 18,267 Earnings Per Share Data Net income (loss) Basic $ 0.75 $ 0.78 $ (0.39) $ 0.25 $ 0.64 Diluted $ 0.73 $ 0.73 $ (0.39) $ 0.25 $ 0.62 Weighted average common and common equivalent shares outstanding Basic 27,835 28,807 27,508 28,236 28,600 Diluted 28,601 30,627 27,508 28,662 29,393 Consolidated Balance Sheet Data Working capital $ 99,396 $118,605 $110,315 $121,410 $138,336 Total assets 395,072 362,828 320,701 295,853 304,638 Stockholders' equity 205,588 210,099 195,056 195,997 207,785
QUARTERLY DATA (Unaudited)
1998 Quarter Ended (In thousands, except per share amounts) DEC. 31 OCT. 3 JULY 4 APRIL 4 - -------------------------------------------------------------------------------------------------------------------------------- Net sales $123,161 $102,857 $113,293 $115,778 Gross profit 58,314 48,181 53,540 55,314 Income before income taxes 8,896 5,642 5,913 8,210 Net income 6,761 4,175 4,139 5,747 Earnings per share Basic $ 0.25 $ 0.15 $ 0.15 $ 0.20 Diluted $ 0.24 $ 0.15 $ 0.14 $ 0.20 1997 Quarter Ended (In thousands, except per share amounts) DEC. 31 SEPT. 27 JUNE 28 MARCH 29 - -------------------------------------------------------------------------------------------------------------------------------- Net sales $117,399 $100,090 $112,692 $107,581 Gross profit 56,620 47,539 51,839 50,761 Income before income taxes 7,610 5,664 7,899 8,660 Net income 6,259 4,529 5,744 5,845 Earnings per share Basic $ 0.22 $ 0.16 $ 0.20 $ 0.20 Diluted $ 0.21 $ 0.15 $ 0.19 $ 0.19
8 ACUSON CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
Year Ended December 31, (In thousands, except per share amounts) 1998 1997 1996 - --------------------------------------------------------------------------------------------------------------------------- NET SALES Product $365,111 $352,476 $260,975 Service 89,978 85,286 85,180 -------- -------- -------- Total net sales 455,089 437,762 346,155 -------- -------- -------- COST OF SALES Product 192,736 187,737 138,800 Service 47,004 43,266 41,510 -------- -------- -------- Total cost of sales 239,740 231,003 180,310 -------- -------- -------- Gross profit 215,349 206,759 165,845 -------- -------- -------- OPERATING EXPENSES Selling, general and administrative 127,450 120,499 126,067 Product development 57,598 57,286 60,926 -------- -------- -------- Total operating expenses 185,048 177,785 186,993 -------- -------- -------- Income (loss) from operations 30,301 28,974 (21,148) Interest expense (3,129) (1,179) (360) Interest income 1,489 2,038 3,487 -------- -------- -------- Income (loss) before income taxes 28,661 29,833 (18,021) Provision for (benefit from) income taxes 7,839 7,456 (7,408) -------- -------- -------- NET INCOME (LOSS) $ 20,822 $ 22,377 $(10,613) ======== ======== ======== EARNINGS (LOSS) PER SHARE Basic $ 0.75 $ 0.78 $ (0.39) ======== ======== ======== Diluted $ 0.73 $ 0.73 $ (0.39) ======== ======== ======== Weighted average common and common equivalent shares outstanding Basic 27,835 28,807 27,508 ======== ======== ======== Diluted 28,601 30,627 27,508 ======== ======== ======== - --------------------------------------------------------------------------------------------------------------------------- NET INCOME (LOSS) $ 20,822 $ 22,377 $(10,613) OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX Foreign currency translation adjustments 373 (1,999) 321 Unrealized holding loss on investment securities -- -- (37) -------- -------- -------- COMPREHENSIVE INCOME (LOSS) $ 21,195 $ 20,378 $(10,329) ======== ======== ========
The accompanying notes are an integral part of these statements. 9 ACUSON CORPORATION CONSOLIDATED BALANCE SHEETS
December 31, (In thousands, except per share amounts) 1998 1997 - -------------------------------------------------------------------------------------------------------------------------------- ASSETS CURRENT ASSETS Cash and cash equivalents $ 11,914 $ 22,735 Accounts receivable, net of allowance for doubtful accounts of $3,561 in 1998 and $3,475 in 1997 153,672 131,067 Inventories 82,794 75,517 Deferred income taxes 21,441 25,244 Other current assets 19,059 16,771 -------- -------- Total current assets 288,880 271,334 -------- -------- PROPERTY AND EQUIPMENT, AT COST Furniture and fixtures 17,087 14,893 Test equipment 40,764 39,638 Machinery and equipment 144,467 125,429 Leasehold improvements 27,675 27,559 -------- -------- 229,993 207,519 Accumulated depreciation and amortization (150,984) (136,888) -------- -------- Total property and equipment, net 79,009 70,631 -------- -------- OTHER ASSETS Net investment in leases, net of current portion 15,450 10,528 Other long-term assets, net 11,733 10,335 -------- -------- Total assets $395,072 $362,828 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Short-term borrowings $ 65,000 $ 32,000 Accounts payable 26,629 21,975 Accrued compensation 32,703 30,725 Deferred revenue 20,209 21,711 Accrued warranty 8,298 8,955 Accrued income taxes 11,378 14,177 Customer deposits 8,595 7,159 Other accrued liabilities 16,672 16,027 -------- -------- Total current liabilities 189,484 152,729 -------- -------- COMMITMENTS AND CONTINGENCIES (NOTE 5) STOCKHOLDERS' EQUITY Preferred stock, par value $0.0001: authorized, 10,000 shares; Outstanding, none -- -- Common stock and additional paid-in capital, common stock par value $0.0001: authorized, 50,000 shares; outstanding, 26,746 shares in 1998 and 28,244 shares in 1997 125,015 123,968 Accumulated other comprehensive loss (1,099) (1,472) Retained earnings 81,672 87,603 -------- -------- Total stockholders' equity 205,588 210,099 -------- -------- Total liabilities and stockholders' equity $395,072 $362,828 ======== ========
The accompanying notes are an integral part of these statements. 10 ACUSON CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31, (In thousands) 1998 1997 1996 - -------------------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss) $ 20,822 $ 22,377 $(10,613) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization 23,067 22,356 18,773 Provision for losses on accounts receivables 212 868 442 Tax benefit of employee stock transactions 975 6,970 4,035 Changes in: Accounts receivable (22,513) (39,665) (15,722) Leases receivable (26,688) (20,293) (21,143) Proceeds from sales of leases receivable 19,976 18,595 27,604 Inventories (7,308) 7,439 (32,805) Deferred income taxes 3,190 (3,697) (152) Other current assets (686) 5,960 (10,783) Accounts payable 4,540 1,950 3,945 Accrued compensation 1,788 2,976 4,371 Deferred revenue (1,501) (1,700) (615) Accrued warranty (657) 2,931 1,584 Accrued income taxes (2,762) 4,182 858 Customer deposits 1,417 386 384 Other accrued liabilities 3,163 (358) 245 -------- -------- -------- Net cash provided by (used in) operating activities 17,035 31,277 (29,592) -------- -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Decrease in short-term investments -- -- 9,983 Investment in property and equipment (31,288) (37,377) (36,699) Sale of fixed assets 258 8,850 2,234 Decrease (increase) in other assets (618) (427) 1,893 -------- -------- -------- Net cash used in investing activities (31,648) (28,954) (22,589) -------- -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from short-term borrowings 50,500 35,000 18,000 Repayment of short-term borrowings (17,500) (16,000) (5,000) Repurchase of common stock (39,977) (33,315) (14,591) Issuance of common stock under stock option and stock purchase plans 10,524 20,846 22,142 -------- -------- -------- Net cash provided by financing activities 3,547 6,531 20,551 -------- -------- -------- EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS 245 (532) (92) -------- -------- -------- Net increase (decrease) in cash and cash equivalents (10,821) 8,322 (31,722) CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 22,735 14,413 46,135 -------- -------- -------- CASH AND CASH EQUIVALENTS, END OF YEAR $ 11,914 $ 22,735 $ 14,413 ======== ======== ========
The accompanying notes are an integral part of these statements. 11 ACUSON CORPORATION CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Accumulated Other Comprehensive Total For the Three Years Ended December 31, 1998 Common Stock Income Retained Stockholders' ------------------- (In thousands, except per share amounts) Shares Amount (Loss) Earnings Equity - --------------------------------------------------------------------------------------------------------------- BALANCE, DECEMBER 31, 1995 27,275 $ 79,702 $ 243 $116,052 $195,997 Net loss -- -- -- (10,613) (10,613) Unrealized holding loss on investment Securities -- -- (37) -- (37) Foreign currency translation adjustments -- -- 321 -- 321 Exercise of stock options at $0.60 to $19.83 per share 1,494 16,910 -- -- 16,910 Repurchase of common stock at $14.00 to $16.03 per share (986) (3,122) -- (13,666) (16,788) Issuance of stock under employee stock purchase plan at $11.05 and $11.58 per share 463 5,231 -- -- 5,231 Tax benefit of employee stock transactions -- 4,035 -- -- 4,035 ------ -------- -------- -------- -------- BALANCE, DECEMBER 31, 1996 28,246 102,756 527 91,773 195,056 Net income -- -- -- 22,377 22,377 Foreign currency translation adjustments -- -- (1,999) -- (1,999) Exercise of stock options at $7.17 to $20.63 per share 1,142 14,579 -- -- 14,579 Repurchase of common stock at $15.93 to $28.75 per share (1,561) (6,604) -- (26,547) (33,151) Issuance of stock under employee stock purchase plan at $11.69 and $22.90 per share 417 6,267 -- -- 6,267 Tax benefit of employee stock transactions -- 6,970 -- -- 6,970 ------ -------- -------- -------- -------- BALANCE, DECEMBER 31, 1997 28,244 123,968 (1,472) 87,603 210,099 Net income -- -- -- 20,822 20,822 Foreign currency translation adjustments -- -- 373 -- 373 Exercise of stock options at $10.75 to $18.92 per share 373 4,994 -- -- 4,994 Repurchase of common stock at $13.75 to $19.89 per share (2,265) (10,451) -- (26,753) (37,204) Issuance of stock under employee stock purchase plan at $15.62 and $12.43 per share 394 5,529 -- -- 5,529 Tax benefit of employee stock transactions -- 975 -- -- 975 ------ -------- -------- -------- -------- BALANCE, DECEMBER 31, 1998 26,746 $125,015 $(1,099) $ 81,672 $205,588 ====== ======== ======== ======== ========
The accompanying notes are an integral part of these statements. 12 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1. NATURE OF OPERATIONS Founded in 1981, Acuson Corporation (the "Company") is a United States-based multinational corporation. The Company is a leading manufacturer, worldwide marketer and service provider of systems that generate, display, archive and retrieve medical diagnostic ultrasound images. The markets for Acuson products are North America, Europe, Australia, Asia, South America and the Middle East. The Company's products are sold primarily to hospitals, private and governmental institutions, healthcare agencies, medical equipment distributors and doctors' offices. NOTE 2. SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant intercompany accounts and transactions have been eliminated. Use of Estimates in the Preparation of Financial Statements The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Translation of Foreign Currencies The functional currency of the Company's foreign subsidiaries is the local currency. The Company translates all assets and liabilities to U.S. dollars at current exchange rates as of the applicable balance sheet date. Sales and expenses are translated at the average exchange rates prevailing during the period. Gains and losses resulting from the translation of the foreign subsidiaries' financial statements are reported as a separate component of stockholders' equity. Concentration of Credit Risk The Company provides credit in the form of trade accounts receivable and leases to hospitals, private and governmental institutions, healthcare agencies, medical equipment distributors and doctors' offices. The Company's products are manufactured at its world headquarters in Mountain View, California, and are sold through a direct sales force in North America, Europe, Australia and Japan, and through independent distributors in Europe, Asia, South America and the Middle East. The Company does not generally require collateral to support customer receivables. The Company performs ongoing credit evaluations of its customers and maintains allowances which management believes are adequate for potential credit losses. Sales to distributors are on the basis of an arms-length transaction and do not include any special return rights and/or price protection features. Financial Instruments and Credit Risk The Company enters into forward foreign currency exchange contracts to hedge its exposure to fluctuations in foreign currency exchange rates. The Company designates, and accordingly accounts for, these transactions as hedges based upon the contracts' anticipated effectiveness at reducing the Company's exposure to foreign currency exchange rate risk. Gains and losses are recorded in income in the same period as gains and losses on the underlying transactions being hedged. If an underlying transaction is terminated earlier than anticipated, the offsetting gain or loss on the forward exchange contract would be recorded in income in the same period. Currently, the Company neither engages in foreign currency speculation nor holds or issues financial instruments for trading purposes. Because the Company only enters into forward currency exchange contracts as hedges, any change in currency rates would not result in a material gain or loss, as any gain or loss on the underlying transaction would be offset by the gain or loss on the forward currency contract. The counterparties to foreign currency exchange contracts are major domestic and international financial institutions and the contract terms are typically not more than three months. At December 31, 1998, the Company had outstanding forward foreign currency exchange contracts of approximately $56.8 million. The contracts have maturity dates ranging from January 1999 through February 1999. Included in the total above are contracts to sell approximately $11.1 million in Italian lire, $10.7 million in Japanese yen, $9.4 million in French francs, $6.6 million in German deutsche marks, $5.7 million in Swedish krona, $3.6 million in Australian dollars and $3.6 million in Spanish peseta. The carrying value of these contracts approximates their fair market value as of the year end. 13 Derivatives The Company's only use of derivative securities is its routine usage of forward foreign exchange contracts to hedge foreign currency exposure. Accounting for Derivative Instruments and Hedging Activities In June 1998, the Financial Accounting Standards Board issued Statement of Accounting Standards No. 133 ("SFAS 133"), "Accounting for Derivative Instruments and Hedging Activities." This statement will require companies to recognize all derivatives, including those used for hedging foreign currency exposures, on the balance sheet at fair value and is effective for all fiscal years beginning after June 15, 1999. Management has not yet determined what the effect of SFAS 133 will be on the Company's consolidated financial statements. Inventories Inventories are stated at the lower of cost (first-in, first-out) or market and include material, labor and manufacturing overhead. The components of inventories were as follows as of December 31: (In thousands) 1998 1997 ---------------------------------------------------------------------------- Raw materials $25,052 $29,057 Work-in-process 21,656 16,379 Finished goods 36,086 30,081 ------- ------- Total inventories $82,794 $75,517 ------- ------- Property and Equipment Property and equipment are stated at cost and are depreciated or amortized using the straight-line method over the following estimated useful lives: ---------------------------------------------------------------------------- Furniture and fixtures 5 years Test equipment 3-5 years Machinery and equipment 3-6 years Leasehold improvements Term of lease Revenue Recognition Revenues from equipment sales and sales-type leases are generally recognized when the equipment has been shipped and lease contracts, if applicable, have been executed. Estimated costs of installation, which are minimal, are accrued at the time revenue is recognized. Service revenues are recognized ratably over the contractual period or as the services are provided. Product Warranty The Company provides at the time of sale for the estimated cost to warrant its products for a period of one year. The amount accrued is reduced ratably over the warranty period and the Company's warranty costs are included in cost of product sales. Advertising Costs The Company accounts for advertising costs in accordance with Statement of Position No. 97-3, "Reporting on Advertising Costs." Advertising costs are expensed during the period in which they are incurred. For the years ended December 31, 1998, 1997 and 1996, the Company incurred advertising expenses of $4.7 million, $5.6 million and $9.7 million, respectively. Consolidated Statement of Cash Flows For purposes of the statement of cash flows, the Company considers all highly liquid debt instruments purchased with an original maturity of three months or less to be cash equivalents. For purposes of the statements of cash flows, the Company classifies cash flows from hedging contracts in the same category as the cash flow from the items being hedged. Cash paid for income taxes and interest expense were as follows for each of the years ended December 31: (In thousands) 1998 1997 1996 ----------------------------------------------------------------------------- Income taxes $3,058 $ 953 $ 183 Interest expense $2,945 $1,137 $ 322 In conjunction with the repurchase of common stock in 1998, 1997 and 1996 (see Note 6), the Company incurred a liability due to the timing of the settlement dates. (In thousands) 1998 1997 1996 ----------------------------------------------------------------------------- 14 Repurchase of common stock $ 37,204 $ 33,151 $ 16,788 Cash paid for repurchase of common stock (39,977) (33,315) (14,591) -------- -------- -------- Net cash effect $ (2,773) $ (164) $ 2,197 -------- -------- -------- Reclassifications Certain information reported in previous years has been reclassified to conform to the 1998 presentation. Comprehensive Income Effective January 1, 1998, the Company adopted Statement of Financial Accounting Standards No. 130 ("SFAS 130"), "Reporting Comprehensive Income." The adoption of SFAS 130 did not have a material impact on the Company's consolidated financial statements. See Note 9 to the consolidated financial statements for further discussion. Segment Reporting During 1998, the Company adopted Statement of Financial Accounting Standards No. 131 ("SFAS 131"), "Disclosures about Segments of an Enterprise and Related Information." The adoption of SFAS 131 did not have a material impact on the Company's consolidated financial statements. See Note 10 to the consolidated financial statements for further discussion. NOTE 3. SHORT-TERM BORROWINGS The Company has a revolving, unsecured credit agreement for $100.0 million which is in effect through March 2000. Under the terms of the agreement, no compensating balances are required and the interest rate is determined at the time of borrowing based on the London interbank offered rate plus a margin, or prime rate. At December 31, 1998, borrowings under this facility, which are subject to certain debt covenants, totaled $65.0 million and the effective rate was 6.3 percent. The Company also has an uncommitted line of credit for up to 90-day advances not to exceed an aggregate total of $10.0 million. At December 31, 1998, there were no borrowings against this uncommitted line of credit. For the year ended December 31, 1998, the Company's weighted average borrowings were $48.1 million and the weighted average interest rate was 6.4 percent. Subsequent to December 31, 1998, the Company entered into a letter agreement with a major financial institution to act as the Company's exclusive placement agent in connection with the issuance of an initial series of unsecured senior notes. The Company has obtained commitments for $75.0 million. The senior notes will have an effective coupon of approximately 6.6 percent and a final maturity of seven years with an average life of five years. After completing the due diligence with the lenders, the Company expects to receive $75.0 million by April 30, 1999 and anticipates using the proceeds to refinance existing debt and for other working capital and general corporate needs. Subsequent series of senior notes may be issued at the discretion of the Company for an additional $5.0 million. NOTE 4. NET INVESTMENT IN SALES-TYPE LEASES The Company leases equipment to customers under sales-type leases as defined in Statement of Financial Accounting Standards No. 13. The Company's leasing operations consist of leases of medical equipment which expire over a period of one to six years. The following lists the components of the net investment in sales-type leases as of December 31, 1998 and 1997: December 31, 1998 1997 - ------------------------------------------------------------------------------ (In thousands) Minimum amounts receivable $22,063 $15,448 Less: Allowance for uncollectibles (682) (557) -------- ------- Net minimum lease payments receivable 21,381 14,891 Estimated residual values of leased property 346 243 Less: Unearned interest income (259) (402) -------- ------- 15 Net investment in leases 21,468 14,732 Less: Current portion (included in other current assets) (6,018) (4,204) -------- ------- Long-term portion $15,450 $10,528 -------- ------- Minimum amounts receivable under existing leases as of December 31, 1998, were as follows: (In thousands) Amount - -------------------------------------------------------------------------------- 1999 $ 6,748 2000 5,940 2001 4,043 2002 2,224 2003 1,275 Thereafter 1,833 ------- Total minimum amounts receivable $22,063 ------- The Company frequently transfers future payments under many of its lease contracts to a financing institution. Such transfers are accounted for under the provisions of SFAS No. 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities." Transfers ace recorded as sales when control of the related receivables has been surrendered. The Company records the fair value of its estimated recourse liability upon completion of the transfer. During 1998, 1997 and 1996, the Company sold portions of its lease portfolio for approximately $20.0 million, $18.4 million and $23.4 million, respectively. At December 31, 1998, the maximum recourse liability to the Company under these transactions was approximately $8.0 million. NOTE 5. COMMITMENTS AND CONTINGENCIES The Company leases its facilities and certain other equipment under operating lease agreements expiring through August 2007. Future minimum lease payments as of December 31, 1998, were as follows: (In thousands) Amount - -------------------------------------------------------------------------------- 1999 $12,170 2000 9,152 2001 6,545 2002 2,859 2003 395 Thereafter 576 ------- Total minimum amounts receivable $31,697 ------- Facility rent expense was approximately $12.5 million, $12.1 million and $11.5 million in 1998, 1997 and 1996, respectively. LEGAL CONTINGENCIES On October 27, 1994, the Company was sued in Ghent, Belgium, by Cormedica NV, in connection with the Company's termination of its distributor relationship with Cormedica. In the suit, Cormedica seeks indemnities and damages in the amount of approximately $2.5 million, plus interest. The Company intends to defend this suit vigorously. This suit is still in the fact-finding stage. NOTE 6. COMMON STOCK Preferred Stock Purchase Rights During 1998, the Company authorized and declared a dividend distribution of one preferred stock purchase Right for each outstanding share of Common Stock to stockholders of record at the close of business on June 8, 1998, and authorized the issuance of one preferred stock purchase Right (a "Right") with each future share of Common Stock issued by the Company before the Rights become exercisable, or before the Rights are redeemed by the Company, or before the Rights expire on June 8, 2008. The Rights will attach to all certificates 16 representing shares of outstanding Company Common Stock and will not be exercisable or transferable apart from the Common Stock until ten days after another person or group of persons acquires 15 percent (or in certain circumstances, 20 percent) or more of the Company's Common Stock or commences a tender or exchange offer for at least 15 percent (or in certain circumstances, 20 percent) of the Company's Common Stock (as more fully described in the Amended and Restated Rights Agreement incorporated herein by reference as Exhibit 4.1 hereto). Each Right entitles the holder to purchase from the Company one one-hundredth of a share of Series A Preferred Stock (a "Unit") at $120 per Unit, subject to adjustments for dilutive events. If, after the Rights have been distributed, either the acquiring party holds 15 percent (or in certain circumstances, 20 percent) or more of the Company's Common Stock or the Company is a party to a merger or other acquisition transaction (other than a merger or other acquisition transaction pursuant to a merger or other acquisition agreement approved by the Company's Board of Directors), then each Right (other than those held by the acquiring party) will entitle the holder to receive, upon exercise, that number of Units or shares of common stock of the surviving company with a value equal to two times the exercise price of the Right. The Board of Directors may redeem the Rights, at any time until the tenth day following an announcement of the acquisition of 15 percent (or in certain circumstances, 20 percent) or more of the Company's Common Stock, at $0.01 per Right, payable in cash, common shares or other consideration. In addition, the Board may also, without consent of the holders of the Rights, amend the terms of the Rights to lower the threshold for exercisability of the Rights. Stock Option Plans In May 1995, the stockholders approved the Company's 1995 Stock Incentive Plan (the "1995 Plan") which authorizes the issuance of up to 3,500,000 shares of common stock in the form of options, restricted stock grants or bonuses and stock appreciation rights. In addition, the Company has in effect a 1991 Stock Incentive Plan (the "1991 Plan"). Under the 1995 Plan and the 1991 Plan, incentive and supplemental stock options may be granted to employees, directors and consultants to purchase common stock at a price which is not less than 100 percent of the market value (or 10 percent for supplemental stock options) of the shares at the grant date. The options can be granted for periods of up to ten years and are subject to exercise and vesting schedules as determined by the Board of Directors. Options covering 2,057,332 shares were available for future grant at December 31, 1998. On August 2, 1994, the Board of Directors approved an amendment to outstanding non-qualified stock options that, in general, provides for accelerated vesting of such options in the event that some person or entity acquires more than 20 percent of the Company's then outstanding stock without the approval of the Board of Directors. The following table summarizes option activity for the past three years:
(In thousands, Weighted Average except per share amounts) Shares Exercise Price ------------------------------------------------------------------------------------------------ OUTSTANDING AT DECEMBER 31, 1995 7,071 $12.77 Granted 1,433 $15.01 Exercised (1,495) $11.38 Expired or canceled (589) $14.45 ------ OUTSTANDING AT DECEMBER 31, 1996 6,420 $13.44 Granted 490 $21.24 Exercised (1,142) $12.53 Expired or canceled (267) $14.55 ------ OUTSTANDING AT DECEMBER 31, 1997 5,501 $14.27 Granted 1,082 $16.90 Exercised (373) $13.47 Expired or canceled (707) $16.33 ------ OUTSTANDING AT DECEMBER 31, 1998 5,503 $14.57 ------
The following table summarizes information about stock options outstanding at December 31, 1998: Options Outstanding Options Exercisable - -------------------------------------- -------------------------------------- 17
Weighted Average Remaining Weighted Weighted Range of Number Contractual Average Number Average Exercise Prices Outstanding Life Exercise Price Exercisable Exercise Price - -------------------------------------------------------------------------- -------------------------------------- $10.75 1,023,723 4.42 $10.75 1,023,723 $10.75 $11.00 - $12.38 854,416 6.43 $11.78 609,457 $11.78 $12.38 - $13.13 597,136 4.85 $13.09 590,751 $13.09 $13.25 - $14.38 648,151 7.35 $14.13 277,682 $14.04 $14.38 - $15.06 579,578 8.09 $14.93 213,496 $14.86 $15.13 - $17.25 586,415 8.12 $16.76 169,277 $16.61 $17.31 - $18.00 609,710 8.80 $17.88 47,332 $17.51 $18.13 - $26.38 551,274 6.78 $20.45 246,238 $20.35 $26.59 - $36.13 52,400 7.47 $28.49 15,200 $29.17 $37.38 200 2.16 $37.38 200 $37.38 --------------------------------------------------------- -------------------------------------- $10.75 - $37.38 5,503,003 6.66 $14.57 3,193,356 $13.18 - -------------------------------------------------------------------------- --------------------------------------
Employee Stock Purchase Plan In May 1995, the stockholders approved the Company's 1995 Employee Stock Purchase Plan (the "1995 Purchase Plan"), which authorizes the issuance of up to 2,000,000 shares of common stock, subject to adjustment upon changes in capitalization of the Company. Offerings under the 1995 Purchase Plan commenced in September 1995, and as of December 31, 1998, the Company had reserved 726,079 shares of common stock for future issuance. Pursuant to the 1995 Purchase Plan, qualified employees elect to have between 3 percent and 15 percent of their salary withheld. The salary so withheld is then used to purchase shares of the Company's common stock at a price not less than 85 percent of the market value of the stock on the specified dates determined at the commencement of the offering period. Under the 1995 Purchase Plan the Company has sold 394,272 shares, 417,017 shares and 462,632 shares in 1998, 1997 and 1996, respectively. Pro Forma Stock Based Compensation Expense Effective January 1, 1996, the Company adopted the disclosure provisions of Financial Accounting Standards No. 123 ("SFAS 123"), "Accounting for Stock-Based Compensation." In accordance with the provisions of SFAS 123, the Company applies APB Opinion 25 and related interpretations in accounting for its stock option plans. In accordance with the disclosure requirements of SFAS 123, if the Company had elected to recognize compensation cost based on the fair value of the options and stock purchase rights as prescribed by SFAS 123, income (loss) and earnings (loss) per share would have been reduced to the pro forma amounts indicated in the following table. The pro forma effect on net income (loss) for 1998, 1997 and 1996 is not representative of the pro forma effect on net income (loss) in future years because it does not take into consideration pro forma compensation expense related to stock options and purchase rights granted prior to 1995.
In thousands, except per share amounts 1998 1997 1996 - ------------------------------------------------------------------------------------------------------------ Net income (loss) - as reported $20,822 $22,377 $(10,613) Net income (loss) - pro forma 16,731 19,239 (13,668) Earnings (loss) per share - as reported Basic 0.75 0.78 (0.39) Diluted 0.73 0.73 (0.39) Earnings (loss) per share - pro forma Basic 0.60 0.67 (0.50) Diluted 0.58 0.63 (0.50)
The following assumptions and resulting fair values were used to determine the pro forma compensation expense using the Black-Scholes option-pricing model:
Stock Options: 1998 1997 1996 - ------------------------------------------------------------------------------------------------------------ Expected dividend yield 0.0 % 0.0 % 0.0 % Expected stock volatility 40.8 - 46.9 % 40.5 - 50.4 % 29.8 - 42.4 % Risk-free interest rate 5.2 - 5.5 % 5.2 - 6.5 % 5.4 - 6.3 % Expected life of options from vest date 1.3 years 1.2 years 1.1 years Forfeiture rate Actual Actual Actual
18 Weighted average fair value $6.47 $8.40 $4.40
Employee Stock Purchase Plan: 1998 1997 1996 - ----------------------------------------------------------------------------------------------------------------- Expected dividend yield 0.0 % 0.0 % 0.0 % Expected stock volatility 35.6 - 55.1 % 42.9 - 59.4 % 38.5 - 48.5 % Risk-free interest rate 5.1 - 5.7 % 5.4 - 5.7 % 5.1 - 5.4 % Expected life of options from vest date 0.5 years 0.5 years 0.5 years Weighted average fair values: March to August $4.74 $7.19 $3.68 September to February $4.70 $8.33 $3.67
Common Stock Repurchase Program In 1996, the Board of Directors authorized the repurchase of 4,000,000 shares of common stock over an unspecified period of time. During 1998, the Company repurchased 2,264,600 shares at a total cost of $37.2 million. As of December 31, 1998, the Company had repurchased 3,527,400 shares toward the 4,000,000 share repurchase authorization at a cumulative cost of $62.4 million. The difference between the average original issue price and the repurchase price has been accounted for as a reduction in retained earnings. Subsequent to December 31, 1998, the Board of Directors authorized the repurchase of an additional 4,000,000 shares of common stock over an unspecified period of time. NOTE 7. INCOME TAXES Income before provision for income taxes and the components of the provision for income taxes consisted of the following:
Year Ended December 31, 1998 1997 1996 (In thousands) - --------------------------------------------------------------------------------------------------------------------- Income (loss) before provision for income taxes: Domestic $32,661 $32,256 $(14,480) Foreign (3,670) (1,317) (2,444) Eliminations (330) (1,106) (1,097) ------- ------- -------- Total income (loss) before provision $28,661 $29,833 $(18,021) ======= ======= ======== Provision for income taxes: Federal Current $ 5,968 $10,056 $ (187) Deferred 4,702 (2,607) (5,764) ------- ------- -------- 10,670 7,449 (5,951) ------- ------- -------- State Current 535 1,700 200 Deferred (2,334) (2,043) (2,226) ------- ------- -------- (1,799) (343) (2,026) ------- ------- -------- Foreign Current (902) 244 1,111 Deferred (130) 106 (542) ------- ------- -------- (1,032) 350 569 ------- ------- -------- Total provision (benefit) $ 7,839 $ 7,456 $ (7,408) ======= ======= ========
The provision for income taxes differs from the amounts obtained by applying the federal statutory rate to income before taxes as follows:
1998 1997 1996 - --------------------------------------------------------------------------------------------------------------------- Federal statutory tax rate 35.0% 35.0% 35.0% Research and development tax credits and foreign tax credits (6.8) (9.7) 10.3
19 State taxes, net of federal income tax benefit (4.1) (0.7) 7.3 Foreign Sales Corp. benefits (0.8) (1.3) 0.9 Foreign subsidiary income 2.0 1.3 (7.6) Non-deductible expenses 1.7 2.0 (3.8) Other 0.4 (1.6) (1.0) ---- ---- ---- Provision rate 27.4% 25.0% 41.1% ==== ==== ====
The Company has recorded deferred tax assets of $27.6 million. Although realization is not assured, management believes it is more likely than not that all of the deferred tax assets will be realized. The amount of the deferred tax assets considered realizable, however, could be reduced in the near term if estimates of the future taxable income are reduced. The components of deferred tax assets at year end were as follows:
December 31, 1998 1997 (In thousands) - ------------------------------------------------------------------------------------------------------- Reserves not currently deductible $11,473 $12,432 State research and development credit carryforward 6,460 3,450 Accruals not currently deductible 4,663 5,405 Vacation accrual 4,218 3,113 Inventory reserves 4,114 3,395 State manufacturers investment credit carryforward 1,477 789 Federal research and development credit 684 1,657 Federal alternative minimum tax credit carryforward 287 287 Capitalized assets 253 253 Foreign tax credit carryforward -- 214 State income tax accruals (3,151) (1,703) Depreciation (2,629) 599 Other (207) 921 ------- ------- Deferred tax assets $27,642 $30,812 ======= =======
The Company has tax credits, deductions and net operating losses which will be carried forward. The following lists the carryforward credits, deductions and losses and their year of expiration.
Year Ended December 31, (In thousands) 2004 2005 2006 2012 UNLIMITED - ---------------------------------------------------------------------------------------------------------------------- State research & development credit $ -- $ -- $ -- $ -- $ 6,460 State manufacturers' investment credit 789 344 344 -- -- Federal alternative minimum tax credit carryforward -- -- -- -- 287 State alternative minimum tax credit -- -- -- -- 59 carryforward Federal research & development credit -- -- -- 684 --
NOTE 8. EARNINGS PER SHARE Basic earnings per share excludes dilution and is computed by dividing net income by the weighted average number of common shares outstanding. Diluted earnings per share reflects the potential dilution that could occur if the Company's outstanding, "in the money," stock options were exercised. Diluted earnings per share is computed by dividing net income by the weighted average number of common and common equivalent shares outstanding during the period. Common equivalent shares are calculated using the treasury stock method and represent incremental shares issuable upon the exercise of the Company's outstanding options. The following table provides reconciliations of the numerators and denominators used in calculating basic and diluted earnings per share for the prior three years:
Dilutive Effect of Options (In thousands, except per share amounts) Basic Outstanding Diluted ----------------------------------------------------------------
20 Year Ended December 31, 1996 Net loss (numerator) $(10,613) $(10,613) Weighted average number of shares outstanding (denominator) 27,508 -- 27,508 Loss per share $ (0.39) $ (0.39) ============ =========== Year Ended December 31, 1997 Net income (numerator) $ 22,377 $ 22,377 Weighted average number of shares outstanding (denominator) 28,807 1,820 30,627 Earnings per share $ 0.78 $ 0.73 ============ =========== Year Ended December 31, 1998 Net income (numerator) $ 20,822 $ 20,822 Weighted average number of shares outstanding (denominator) 27,835 766 28,601 Earnings per share $ 0.75 $ 0.73 ============ ===========
Options to purchase approximately 1.3 million and 0.1 million weighted average shares of common stock were outstanding during 1998 and 1997, respectively, but were not included in the computation of diluted earnings per share because the exercise prices were greater than the average market price of the common shares. During 1996, options to purchase approximately 7.1 million weighted average shares of common stock were outstanding but were not included in the computation of diluted earnings per share. Of this total, options to purchase approximately 0.5 million weighted average shares were excluded because the exercise prices were greater than the average market price of the common shares. The remaining options to purchase approximately 6.6 million weighted average shares were excluded as a result of their antidilutive effect due to the loss available to common shareholders. NOTE 9. COMPREHENSIVE INCOME (LOSS) Effective January 1, 1998, the Company adopted Statement of Financial Accounting Standards No. 130 ("SFAS 130"), "Reporting Comprehensive Income." SFAS 130 requires that items defined as other comprehensive income, such as changes in foreign currency translation adjustments, be separately reported in the financial statements and that the accumulated balance of other comprehensive income be reported separately from retained earnings and additional paid-in capital in the equity section of the balance sheet. The following is a summary, in thousands, of the accumulated other comprehensive loss balance:
Accumulated Other Comprehensive Loss --------------- Year ended December 31, 1998 Beginning balance $(1,472) Current-period change Foreign currency items 373 ------- Ending balance $(1,099) =======
The following is a summary, in thousands, 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 ----------------------------------------------------- Year ended December 31, 1996 Foreign currency translation adjustments $ 545 $(224) $ 321 Unrealized holding loss on
21 investment securities $ (63) $ 26 (37) ------- ----- ------- Other comprehensive income $ 482 $(198) $ 284 ======= ===== ======= Year ended December 31, 1997 Foreign currency translation adjustments $(2,665) $ 666 $(1,999) ======= ===== ======= Year ended December 31, 1998 Foreign currency translation adjustments $ 513 $(140) $ 373 ======= ===== =======
NOTE 10. INDUSTRY SEGMENT AND GEOGRAPHIC INFORMATION During 1998 the Company adopted Statement of Financial Accounting Standards No. 131 ("SFAS 131"), "Disclosures About Segments of an Enterprise and Related Information." The Company is organized based upon the nature of the products and services it offers. Under this organizational structure, the Company operates in two fundamental business segments: product and service. The product segment includes the development, manufacture and sale of the Company's systems that generate, display, archive and retrieve medical diagnostic ultrasound images. The service segment provides service and support for the Company's products in accordance with the various service contracts and other purchase arrangements the Company makes available to its customers. The Company's products are manufactured at its world headquarters in Mountain View, California, and are sold through a direct sales force in North America, Europe, Australia and Japan, and through independent distributors in Europe, Asia, South America and the Middle East. The information in the following tables is derived directly from the Company's internal financial reporting used for corporate management purposes. The Company evaluates its segments' performance based on several factors, of which the primary financial measure is controllable contribution. Controllable contribution is gross margin less selling expenses. Unallocated costs include corporate and other costs not allocated to business segments for management reporting purposes. The accounting policies followed by the Company's business segments are the same as those described in Note 2 to the consolidated financial statements. Except for inventory, the Company does not allocate assets by segment for management reporting purposes.
Revenue from external customers Year ended December 31, 1998 1997 1996 - ------------------------------------------------------------------------------------------------- (In thousands) Product $365,111 $352,476 $260,975 Service 89,978 85,286 85,180 -------- -------- -------- Total net sales $455,089 $437,762 $346,155 ======== ======== ========
Income (loss) before income taxes Year ended December 31, 1998 1997 1996 - --------------------------------------------------------------------------------------------------- (In thousands) Product $ 71,169 $ 67,284 $ 23,242 Service 41,871 41,770 43,546 -------- -------- -------- Controllable contribution 113,040 109,054 66,788 Unallocated expense (82,739) (80,080) (87,936) Interest expense (3,129) (1,179) (360) Interest income 1,489 2,038 3,487 -------- -------- -------- Income (loss) before income taxes $ 28,661 $ 29,833 $(18,021) ======== ======== ========
Segment Assets Year ended December 31, 1998 1997 1996 - ------------------------------------------------------------------------------------------------- (In thousands)
22 Product $69,381 $58,757 $67,103 Service 13,413 16,760 16,093 ------- ------- ------- Total inventory 82,794 75,517 83,196 ======= ======= =======
Geographic area information is as follows:
Revenue from external customers Year ended December 31, 1998 1997 1996 - ------------------------------------------------------------------------------------------------- (In thousands) United States $316,656 $292,479 $211,961 Europe 98,468 92,442 85,638 Other foreign 39,965 52,841 48,556 -------- -------- -------- Total net sales $455,089 $437,762 $346,155 ======== ======== ========
Assets Year ended December 31, 1998 1997 1996 - --------------------------------------------------------------------------------------------------- (In thousands) United States $370,115 $338,992 $292,865 Europe 72,454 60,635 50,898 Other foreign 18,677 14,557 14,862 Eliminations (66,174) (51,356) (37,924) -------- -------- -------- Total assets $395,072 $362,828 $320,701 ======== ======== ========
Geographic revenue from external customers represents shipments to foreign customers from both domestic and foreign operations. As of and for the years ended December 31, 1998, 1997 and 1996, operations in any single non-U.S. country did not account for more than 10 percent of consolidated net sales or total assets. Also, during 1998, 1997 and 1996, no single customer or group under common control represented 10 percent or more of the Company's sales. 23 ________________________________________________________________________________ REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To Acuson Corporation: We have audited the accompanying consolidated balance sheets of Acuson Corporation (a Delaware corporation) and subsidiaries as of December 31, 1998 and 1997, and the related consolidated statements of operations and comprehensive income, stockholders' equity and cash flows for each of the three years in the period ended December 31, 1998. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Acuson Corporation and subsidiaries as of December 31, 1998 and 1997, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1998 in conformity with generally accepted accounting principles. /s/ Arthur Andersen LLP San Jose, California January 29, 1999 24 MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Acuson's Common Stock, par value $0.0001, trades on the New York Stock Exchange under the symbol ACN. The following table sets forth the high and low closing sales prices on the New York Stock Exchange for 1998 and 1997.
1998 High LOW 1/st/ Quarter $20.19 $16.88 2/nd/ Quarter 19.69 17.31 3/rd/ Quarter 18.19 14.63 4/th/ Quarter 19.06 13.63
1997 High LOW 1/st/ Quarter $29.50 $24.38 2/nd/ Quarter 26.38 21.38 3/rd/ Quarter 27.88 19.75 4/th/ Quarter 27.38 15.94
The approximate number of shareholders of record of the Company's Common Stock as of December 31, 1998 was 1,300. Acuson has not paid any cash dividends since its inception and does not anticipate paying cash dividends in the foreseeable future. 25 EX-21.1 14 SUBSIDIARIES OF THE COMPANY ACUSON CORPORATION EXHIBIT 21.1 SUBSIDIARIES OF THE COMPANY Acuson Corporation has the following wholly-owned subsidiaries: 1. Acuson Pty. Ltd., organized under the laws of Australia. 2. Acuson GesmbH, organized under the laws of Austria. 3. Acuson Belgium SA/NV, organized under the laws of Belgium. 4. Acuson Canada Ltd., organized under the laws of Ontario, Canada. 5. Acuson A/S, organized under the laws of Denmark. 6. Acuson OY, organized under the laws of Finland. 7. Acuson S.A.R.L., organized under the laws of France. 8. Acuson GmbH, organized under the laws of Germany. 9. Acuson Hong Kong Ltd., organized under the laws of Hong Kong. 10. Acuson S.p.A., organized under the laws of Italy. 11. Acuson Nippon K.K., organized under the laws of Japan. 12. Acuson BV, organized under the laws The Netherlands. 13. Acuson A/S, organized under the laws of Norway. 14. Acuson Singapore Ltd., organized under the laws of Singapore. 15. Acuson Iberica SA, organized under the laws of Spain. 16. Acuson AB, organized under the laws of Sweden. 17. Acuson Ltd., organized under the laws of the United Kingdom. 18. Acuson Foreign Sales Corporation, organized under the laws of the Virgin Islands. 19. Acuson International Sales Corporation, organized under the laws of the State of California. 20. Acuson Worldwide Sales Corporation, organized under the laws of the State of California. 21. Sound Technology, Inc., organized under the laws of the State of Pennsylvania. EX-23.1 15 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS ACUSON CORPORATION EXHIBIT 23.1 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our reports included (or incorporated by reference) in this Form 10-K, into the Company's previously filed Registration Statements on Form S-8, File Nos. 33-29596, 33-43606, 33-59707 and 33-61691. /s/ Arthur Andersen LLP San Jose, California March 29, 1999 EX-27.1 16 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-K AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 YEAR DEC-31-1998 JAN-01-1998 DEC-31-1998 11,914 0 157,233 3,561 82,794 288,880 229,993 150,984 395,072 189,484 0 0 0 125,015 80,573 395,072 365,111 455,089 192,736 239,740 185,048 0 1,640 28,661 7,839 20,822 0 0 0 20,822 0.75 0.73
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