-----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, MARhNXvEib35YRNbCHOeRx4Ocx/m/+8EIDc5d/5h9Bg8fXuw2I8S0Ykf/20t+HGb HqBRwVBpyeEwdadcjos1bg== 0001032210-98-000943.txt : 19980817 0001032210-98-000943.hdr.sgml : 19980817 ACCESSION NUMBER: 0001032210-98-000943 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19980703 FILED AS OF DATE: 19980814 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: ATL ULTRASOUND INC CENTRAL INDEX KEY: 0000806086 STANDARD INDUSTRIAL CLASSIFICATION: ELECTROMEDICAL & ELECTROTHERAPEUTIC APPARATUS [3845] IRS NUMBER: 911353386 STATE OF INCORPORATION: WA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-15160 FILM NUMBER: 98691608 BUSINESS ADDRESS: STREET 1: 22100 BOTHELL EVERETT HWY SE STREET 2: PO BOX 3003 CITY: BOTHELL STATE: WA ZIP: 98041-3003 BUSINESS PHONE: 2064877000 MAIL ADDRESS: STREET 1: 22100 BOTHELL EVERETT HWY STREET 2: PO BOX 3003 CITY: BOTHELL STATE: WA ZIP: 98041-3003 FORMER COMPANY: FORMER CONFORMED NAME: ADVANCED TECHNOLOGY LABORATORIES INC DATE OF NAME CHANGE: 19960329 FORMER COMPANY: FORMER CONFORMED NAME: ADVANCED TECHNOLOGY LABORATORIES INC/ DATE OF NAME CHANGE: 19930414 10-Q 1 FORM 10-Q FOR THE PERIOD ENDED 7/03/1998 SECURITIES EXCHANGE COMMISSION Washington, D.C. 20549 - ------------------------------------------------------------------------------ FORM 10-Q X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) --- OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period Ended July 3, 1998 TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) --- OF THE SECURITIES EXCHANGE ACT OF 1934 For the Transition Period From _____ to _____ - ------------------------------------------------------------------------------ Commission File Number 0-15160 ATL ULTRASOUND, INC. (Exact name of registrant as specified in its charter) Washington 91-1353386 (State of incorporation) (IRS Employee Identification No.) 22100 Bothell-Everett Highway Post Office Box 3003 Bothell, Washington 98041-3003 (Address of principal executive offices) (Zip Code) (425) 487-7000 (Telephone number) Common stock, $0.01 par value; 14,789,665 shares outstanding as of July 31, 1998 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___ --- ATL ULTRASOUND, INC. TABLE OF CONTENTS
PART I FINANCIAL INFORMATION Page No. - ------ --------------------- ------- Item 1. Financial Statements -------------------- Condensed Consolidated Balance Sheets - July 3, 1998 (Unaudited) and December 31, 1997......................................3 Condensed Consolidated Statements of Income (Unaudited) - Three Months and Six Months Ended July 3, 1998 and June 27, 1997.......................................................................4 Condensed Consolidated Statements of Cash Flows (Unaudited) - Six Months Ended July 3, 1998 and June 27, 1997.....................................5 Notes to Condensed Consolidated Financial Statements....................................6 Item 2. Management's Discussion and Analysis of Financial ------------------------------------------------- Condition and Results of Operations................................................10 ----------------------------------- PART II OTHER INFORMATION - ------- ----------------- Item 1. Legal Proceedings......................................................................14 ----------------- Item 2. Changes in Securities..................................................................14 --------------------- Item 3. Defaults Upon Senior Securities........................................................14 ------------------------------- Item 4. Submission of Matters to a Vote of Security Holders....................................14 --------------------------------------------------- Item 5. Other Information......................................................................15 ----------------- Item 6. Exhibits and Reports on Form 8-K.......................................................15 --------------------------------
2 PART I FINANCIAL INFORMATION - ------ --------------------- Item 1. Financial Statements -------------------- ATL ULTRASOUND, INC. CONDENSED CONSOLIDATED BALANCE SHEETS
- -------------------------------------------------------------------------------------------------------------------------- (In thousands, except per share data) 7/3/98 12/31/97 - -------------------------------------------------------------------------------------------------------------------------- (Unaudited) ASSETS CURRENT ASSETS Cash and cash equivalents $ 46,375 $ 30,821 Receivables, net 116,424 136,351 Inventories 97,339 98,677 Prepaid expenses 3,568 2,207 Deferred income taxes, net 14,286 13,668 --------------------------------------- Total current assets 277,992 281,724 PROPERTY, PLANT AND EQUIPMENT, NET 82,654 74,630 OTHER ASSETS, NET 5,238 5,456 --------------------------------------- $ 365,884 $ 361,810 ======================================= LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Short-term borrowings $ 687 $ 654 Current portion of long-term debt 754 449 Accounts payable and accrued expenses 65,649 80,529 Payable to SonoSight, Inc. 12,061 - Deferred revenue 16,538 15,831 Taxes on income 8,382 1,457 --------------------------------------- Total current liabilities 104,071 98,920 LONG-TERM DEBT 28,778 12,307 OTHER LONG-TERM LIABILITIES 22,326 20,862 SHAREHOLDERS' EQUITY 210,709 229,721 --------------------------------------- $ 365,884 $ 361,810 ======================================= - -------------------------------------------------------------------------------------------------------------------------- Common shares outstanding 14,760 14,413 - --------------------------------------------------------------------------------------------------------------------------
See accompanying notes to condensed consolidated financial statements. 3 ATL ULTRASOUND, INC. CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
Three months ended Six months ended - ----------------------------------------------------------------------------------------------------------------------------- (In thousands, except per share data) 7/3/98 6/27/97 7/3/98 6/27/97 - ----------------------------------------------------------------------------------------------------------------------------- REVENUES Product sales $ 88,617 $ 78,148 $ 170,616 $ 155,862 Service 23,095 22,660 46,512 45,064 --------------------------------------------------------------------- 111,712 100,808 217,128 200,926 --------------------------------------------------------------------- COST OF SALES Cost of product sales 40,369 37,657 78,684 77,473 Cost of service 14,930 13,725 29,234 26,247 --------------------------------------------------------------------- 55,299 51,382 107,918 103,720 --------------------------------------------------------------------- GROSS PROFIT 56,413 49,426 109,210 97,206 OPERATING EXPENSES, NET Selling, general and administrative 35,271 31,264 68,927 61,572 Research and development 14,032 15,216 28,966 29,980 Other expense, net 478 60 2,097 416 --------------------------------------------------------------------- 49,781 46,540 99,990 91,968 --------------------------------------------------------------------- INCOME FROM OPERATIONS 6,632 2,886 9,220 5,238 Interest income 501 1,207 927 2,163 Interest expense (390) (908) (676) (1,650) -------------------------------------------------------------------- INCOME BEFORE INCOME TAXES 6,743 3,185 9,471 5,751 Income tax expense 1,293 636 1,838 1,150 --------------------------------------------------------------------- NET INCOME $ 5,450 $ 2,549 $ 7,633 $ 4,601 ===================================================================== Net income per share: Basic $ 0.38 $ 0.18 $ 0.53 $ 0.33 Diluted $ 0.35 $ 0.17 $ 0.50 $ 0.31 Weighted average common shares and equivalents outstanding: Basic 14,480 13,990 14,392 13,981 Diluted 15,450 14,891 15,230 14,864 - ----------------------------------------------------------------------------------------------------------------------------
See accompanying notes to condensed consolidated financial statements. 4 ATL ULTRASOUND, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Six months ended - ---------------------------------------------------------------------------------------------------- (In thousands) 7/3/98 6/27/97 - ---------------------------------------------------------------------------------------------------- OPERATING ACTIVITIES Net income $ 7,633 $ 4,601 Adjustments to reconcile net income to cash provided by operating activities: Depreciation and amortization 9,494 8,040 Deferred income tax benefit (618) (37) Changes in: Receivables, net 18,672 16,474 Inventories 710 (4,506) Accounts payable and accrued expenses (14,358) 1,678 Deferred revenue 1,897 (2,691) Taxes on income 7,012 (1,774) Other (1,205) (914) ---------------------------------- Cash provided by operations 29,237 20,871 INVESTING ACTIVITIES Investment in property, plant and equipment (15,351) (7,096) Proceeds from sale of business interests - 4,500 ---------------------------------- Cash used by investing activities (15,351) (2,596) FINANCING ACTIVITIES Increase in short-term borrowings 33 965 Proceeds from issuance of long-term debt 17,000 - Repayment of long-term debt (224) (463) Repurchase of common shares (919) (4,393) Exercise of stock options 4,058 3,983 Capital contribution to SonoSight, Inc. (18,270) - ---------------------------------- Cash provided by financing activities 1,678 92 Effect of exchange rate changes (10) (101) ---------------------------------- Increase in cash and cash equivalents 15,554 18,266 Cash and cash equivalents, beginning of period 30,821 63,262 ---------------------------------- Cash and cash equivalents, end of period $ 46,375 $ 81,528 ================================== - ------------------------------------------------------------------------------------------------------------------- Non-cash financing transaction: Accrual of capital contribution to SonoSight, Inc. $ 12,061 - - -------------------------------------------------------------------------------------------------------------------
See accompanying notes to condensed consolidated financial statements. 5 ATL ULTRASOUND, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands) 1. BASIS OF PRESENTATION The accompanying condensed consolidated financial statements include the accounts of ATL Ultrasound, Inc. (ATL), which includes its subsidiaries and is referred to as the "Company". The Company is a worldwide leader in the development, manufacture, distribution and service of diagnostic medical ultrasound systems and related accessories and supplies. The Company sells its products to hospitals, clinics and physicians for use in radiology, cardiology, women's health care, vascular, musculoskeletal and intraoperative applications. The accompanying condensed consolidated financial statements and related notes have been prepared pursuant to the Securities and Exchange Commission rules and regulations for Form 10- Q. Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. The accompanying condensed consolidated financial statements and related notes should be read in conjunction with the consolidated financial statements and notes thereto incorporated by reference in the Company's 1997 Form 10-K. The information furnished reflects, in the opinion of management, all adjustments necessary for a fair presentation of the results for the interim periods presented. Interim results are not necessarily indicative of results for a full year. 2. CASH AND CASH EQUIVALENTS The Company considers short-term investments with maturity dates of three months or less at the date of purchase to be cash equivalents. 3. INVENTORIES
7/3/98 12/31/97 --------------- --------------- Materials and work in process $34,526 $36,717 Finished products 21,377 20,545 Demonstrator equipment 23,950 23,838 Customer service 17,486 17,577 --------------- --------------- $97,339 $98,677 =============== ===============
6 ATL ULTRASOUND, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands) 4. PER SHARE DATA In accordance with Statement of Financial Accounting Standards (FAS) No. 128, Earnings Per Share, the Company has reported both basic and diluted net income per common share for each period presented. Basic earnings per share (EPS) is calculated based on the weighted average number of common shares outstanding during the period. The computation of diluted EPS includes the effect of all dilutive potential common shares outstanding. Conversion of dilutive potential common shares is assumed based on the average market price of common shares outstanding during the period. All previously reported EPS have been restated to conform with the provisions of FAS 128. The schedules below represent a reconciliation of the numerators and denominators of the basic and diluted EPS calculations for the second quarter of 1998 and 1997 as well as year-to-date (YTD) 1998 and 1997.
Q2 1998 Q2 1997 --------------------------------- --------------------------------------- Income Shares EPS Income Shares EPS --------------------------------- ---------------------------------------- Weighted-average shares outstanding 14,674 14,119 Weighted-average unvested restricted stock (194) (129) ---------- ---------- Basic EPS $5,450 14,480 $0.38 $2,549 13,990 $0.18 Effect of dilutive securities: Restricted stock 99 35 Common stock equivalents 871 866 ---------- ---------- Diluted EPS $5,450 15,450 $0.35 $2,549 14,891 $0.17
Common stock equivalents totaling 536 and 44 shares in the second quarter of 1998 and 1997, respectively, were excluded from the calculation of diluted EPS as they were antidilutive.
YTD 1998 YTD 1997 ------------------------------------- ------------------------------------ Income Shares EPS Income Shares EPS ------------------------------------- ------------------------------------ Weighted-average shares outstanding 14,562 14,105 Weighted-average unvested restricted stock (170) (124) ---------- ---------- Basic EPS $7,633 14,392 $0.53 $4,601 13,981 $0.33 Effect of dilutive securities: Restricted stock 74 46 Common stock equivalents 764 837 ---------- ---------- Diluted EPS $7,633 15,230 $0.50 $4,601 14,864 $0.31
Common stock equivalents totaling 541 and 190 shares YTD 1998 and 1997, respectively, were excluded from the calculation of diluted EPS as they were antidilutive. 7 ATL ULTRASOUND, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands) 5. COMPREHENSIVE INCOME In June 1997, the Financial Accounting Standards Board issued FAS No. 130, Reporting Comprehensive Income, which became effective for fiscal years beginning after December 15, 1997. FAS 130 requires that an entity report an amount representing total comprehensive income in condensed financial statements of interim periods issued to Company shareholders. Reclassification of financial statements for earlier periods provided for comparative purposes is required. Comprehensive income represents the change in equity of a business enterprise during a period from transactions and other events and circumstances from non-owner sources and includes net income as well as items referred to as other comprehensive income or loss. For the periods presented, the only item of other comprehensive loss for the Company is the foreign currency translation adjustment resulting from the consolidation of foreign operations. The table below provides a reconciliation of net income to total comprehensive income for each period presented.
Three months ended Six months ended ------------------------------ ---------------------------------- 7/3/98 6/27/97 7/3/98 6/27/97 ------------------------------ ---------------------------------- Net income $5,450 $2,549 $7,633 $4,601 Foreign currency translation adjustments resulting in other comprehensive loss (303) (828) (1,325) (3,191) ------------------------------ ------------------------------- Comprehensive income $5,147 $1,721 $6,308 $1,410 ============================== ===============================
At July 3, 1998, the accumulated total of other comprehensive loss relating to foreign currency translation adjustments was $7.7 million. 6. RECLASSIFICATIONS Certain amounts reported in the previous year have been reclassified to conform to the 1998 presentation. 8 ATL ULTRASOUND, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands) 7. Distribution On February 2, 1998, the Company approved a plan to spin-off its handheld business division as an independent, publicly owned company (SonoSight, Inc.) to its shareholders. A registration statement on Form 10 was filed with the Securities and Exchange Commission in the name of SonoSight, Inc. and became effective on April 2, 1998. The spin-off was effected through a tax-free distribution of SonoSight shares to ATL shareholders on April 6, 1998 (the "Distribution"). The Company's shareholders received one share of SonoSight common stock for each three shares of the Company's common stock held. In connection with the Distribution, the Company contributed to SonoSight additional funding of $18,000 in cash on the Distribution date and will contribute $12,000 in cash in January 1999. The Company and SonoSight have entered into a number of agreements to facilitate the Distribution and the transition of the company to an independent business. Handheld business division spending totaled approximately $1,200 for the three month period ended June 27, 1997. The EPS impact of the handheld business net operating expenses was approximately $0.07 in the second quarter of 1997. There was no handheld spending during the second quarter of 1998. Handheld business division spending totaled approximately $2,500 and $2,200, respectively, for the six month periods ended July 3, 1998 and June 27, 1997. The EPS impact of the handheld business net operating expenses was approximately $0.13 and $0.12, respectively, for the first half of 1998 and 1997. In connection with the Distribution, the Company incurred stock distribution expenses of approximately $1,300 in the first quarter of 1998. The EPS impact of the stock distribution expenses was approximately $0.07 for the first six months of 1998. 8. Subsequent Event On July 29, 1998, Royal Philips Electronics (Philips) of the Netherlands and the Company announced the signing of an Agreement and Plan of Merger for Philips to acquire all of the outstanding shares of the Company for approximately $800,000 or $50.50 per share for each outstanding share of the Company's common stock. The transaction will be a cash tender offer followed by a cash merger to acquire any shares not previously tendered. As a result of the transaction, the Company will become a wholly owned subsidiary of Philips. The Company's Board of Directors unanimously approved the transaction. Philips commenced its cash tender offer on August 4, 1998. The cash tender offer is subject to Philips receiving at least a majority of the fully diluted shares of the Company as well as the receipt of customary regulatory approvals. Completion of the transaction is expected in September 1998 provided the above conditions are met. 9 Item 2. Management's Discussion and Analysis of Financial Condition and --------------------------------------------------------------- Results of Operations --------------------- RESULTS OF OPERATIONS ---------------------
Three months ended Six months ended - ------------------------------------------------------------------------------------------------------------------------------------ (In millions, except per share data) 7/3/98 6/27/97 % Change 7/3/98 6/27/97 % Change - ------------------------------------------------------------------------------------------------------------------------------------ Revenues $111.7 $100.8 10.8% $217.1 $200.9 8.1% Gross Profit $ 56.4 $ 49.4 14.1% $109.2 $ 97.2 12.3% Operating Expenses $ 49.8 $ 46.5 7.0% $100.0 $ 92.0 8.7% Net Income $ 5.5 $ 2.5 113.8% $ 7.6 $ 4.6 65.9% Diluted Net Income per Share $ 0.35 $ 0.17 106.1% $ 0.50 $ 0.31 61.6% - ------------------------------------------------------------------------------------------------------------------------------------
The Company reported net income of $5.5 million or $0.35 per share in the second quarter of 1998 compared with net income of $2.5 million or $0.17 per share in the second quarter of 1997. For the first six months, the Company reported net income of $7.6 million or $0.50 per share in 1998 compared with net income of $4.6 million or $0.31 per share in 1997. The impact on YTD net income and net income per share from the SonoSight, Inc. stock distribution expenses incurred during the first quarter of 1998 was approximately $1.0 million and $0.07 per share, respectively. All per share amounts are stated on a diluted basis. REVENUES AND GROSS PROFIT - ------------------------- The Company's worldwide revenues increased 10.8% to $111.7 million in the second quarter of 1998 compared with $100.8 million in the second quarter of 1997. The majority of this growth can be attributed to product sales which increased by $10.5 million or 13.4% in the second quarter of 1998 compared to the same period in the prior year. The increase in product sales reflects strong worldwide demand for the Company's HDI(R) 5000 and HDI 3000 systems, partially offset by the foreign exchange impact of the stronger U.S. dollar on international business and the sale of the Company's image management business in the second quarter of 1997. Service revenues approximated amounts reported in the same period of 1997. For the first six months of 1998, worldwide revenues increased 8.1% to $217.1 million compared with $200.9 million in the prior year for the reasons noted above. Gross profit was $56.4 million in the second quarter of 1998, an increase of $7.0 million compared with gross profit of $49.4 million in the same quarter of the prior year. Total gross margin for the second quarter of 1998 increased to 50.5% compared with 49.0% in the prior year. The improvement in gross margin reflects the favorable shift in product mix to the Company's higher margin HDI products. Gross profit rose on higher unit volumes of both the HDI 5000 and HDI 3000, partially offset by the impact of a stronger U.S. dollar on international business and the sale of the Company's image management business. For the first six months of 1998, gross profit was $109.2 million compared to $97.2 million for the same period of 1997. YTD gross margin increased to 50.3% from 48.4% in 1997 for the reasons noted above. 10 Item 2. Management's Discussion and Analysis of Financial Condition and --------------------------------------------------------------- Results of Operations --------------------- (Continued) OPERATING EXPENSES, NET - ----------------------- Operating expenses increased to $49.8 million in the second quarter of 1998 from $46.5 million in the same period of 1997. Selling, general and administrative expenses were $35.3 million, an increase of 12.8% over the second quarter of 1997. The increase in selling, general, and administrative expenses reflects higher sales volumes over the prior year and increased market development expenditures in Asia and Latin America. These increases were partially offset by the spin-off of SonoSight in April 1998, favorable impacts of foreign exchange and the sale of the Company's image management business in 1997. Research and development (R&D) expenses decreased 7.8% to $14.0 million in the second quarter of 1998 compared with $15.2 million in the second quarter of 1997. The decrease in R&D expenses is primarily due to the spin-off of SonoSight and the sale of the Company's image management business as discussed above. Handheld business division spending totaled approximately $1.2 million for the three month period ended June 27, 1997. The EPS impact of the handheld business net operating expenses was approximately $0.07 in the second quarter of 1997. There was no handheld spending during the second quarter of 1998. For the first six months of 1998, operating expenses increased to $100.0 million or 46.1% of total revenues compared to $92.0 million or 45.8% of total revenues in 1997. This increase is primarily due to one-time stock distribution expenses of approximately $1.3 million incurred during the first quarter of 1998 for the spin-off of SonoSight as well as the factors noted above. Handheld business division spending totaled approximately $2.5 million and $2.2 million, respectively, for the six month periods ended July 3, 1998 and June 27, 1997. The EPS impact of the handheld business net operating expenses was approximately $0.13 and $0.12, respectively, for the first half of 1998 and 1997. INTEREST INCOME AND EXPENSE - --------------------------- The Company earned net interest income of $0.1 million during the second quarter of 1998 compared with net interest income of $0.3 million during the same period in 1997. Net interest income includes interest income earned on cash balances available for investment, extended term receivables and leasing activity, offset by interest expense on long-term debt. 1997 interest expense also includes post-judgment interest expense accrued on patent litigation damages which were fully paid in the fourth quarter of 1997. TAXES AND NET INCOME - -------------------- For the second quarter of 1998, the Company reported an income tax expense of $1.3 million, which represents a 19.2% effective tax rate for U.S. federal, state and foreign income. For the second quarter of 1997, the Company reported income tax expense of $0.6 million which represents a 20% effective tax rate for U.S. federal, state and foreign income. 11 Item 2. Management's Discussion and Analysis of Financial Condition and --------------------------------------------------------------- Results of Operations --------------------- (Continued)
CAPITAL RESOURCES AND LIQUIDITY ------------------------------- - ----------------------------------------------------------------------------------------------- (In millions) 7/3/98 12/31/97 - ----------------------------------------------------------------------------------------------- Cash and cash equivalents $ 46.4 $ 30.8 Total Assets $ 365.9 $ 361.8 Long-term debt $ 28.8 $ 12.3 Shareholders' Equity $ 210.7 $ 229.7 - -----------------------------------------------------------------------------------------------
Cash and cash equivalents totaled $46.4 million at July 3, 1998 compared with $30.8 million at December 31, 1997. As shown in the Condensed Consolidated Statement of Cash Flows, during the first six months of 1998, the Company generated $29.2 million from operating activities while financing activities provided cash of $1.7 million. At July 3, 1998, receivables, net, decreased $18.7 million and accounts payable and accrued expenses decreased $14.4 million from December 31, 1997 reflecting seasonally high activity levels in the fourth quarter of 1997. During the second quarter of 1998, the Company borrowed approximately $17 million to finance the construction of a new building on its corporate campus and contributed $18 million of cash to SonoSight in connection with the spin-off (see detailed discussion of items below). In addition, $4.1 million was generated from the exercise of employee stock options during the first six months of 1998. The Company began to take occupancy of the new 101,000 square foot building on its corporate campus in July 1998. The building has an estimated completion cost of approximately $15 to $16 million. Initial funding for the project came from working capital with the transition to long-term debt in the second quarter of 1998. The Company spun-off its handheld business on April 6, 1998 (the "Distribution"). In connection with the spin-off, the Company contributed capital of $18 million in cash on the Distribution date and will contribute an additional $12 million in cash in January 1999 (see Note 7 to the Condensed Consolidated Financial Statements, Distribution). The Company repurchased 16,700 shares of its own common stock in the open market for $0.7 million during the second quarter of 1998 under repurchase programs intended to service the Company's benefit programs. The Company repurchased 5,000 shares totaling $0.2 million during the first quarter of 1998 and 343,000 shares totaling $11.9 million in 1997. In May 1997, the Board of Directors authorized the Company to purchase up to 1,000,000 shares of its common stock, subject to certain criteria. 12 Item 2. Management's Discussion and Analysis of Financial Condition and --------------------------------------------------------------- Results of Operations --------------------- (Continued) In addition to its cash balances, the Company has available domestic credit facilities of $35 million, including a committed line of credit of $25 million. Barring any unforeseen circumstances or events, management expects existing cash, available credit lines and funds from operations to be sufficient to meet the Company's operating requirements for 1998 (see Forward Looking Information). FORWARD LOOKING INFORMATION - --------------------------- As an update to the forward looking information provided in the Company's 1997 Annual Report to Shareholders and the Form 10-Q filing for the first quarter of 1998, the Company provides the following information. The Company reiterates the guidance provided at the end of the first quarter of 1998 that it is targeting earnings for the 1998 fiscal year to be in the range of approximately $2.35 per share. Certain statements in this report relating to the sufficiency of credit lines and funds from operations, the tender offer and consummation and success of the merger, and anticipated financial results for the balance of 1998 are forward looking statements which involve a number of risks and uncertainties which could cause actual results to differ materially from those anticipated in the forward looking statements. Among the ongoing factors that could cause actual results to differ materially from the above are the following considerations. Growth in the ultrasound market in Europe remains slow and certain Asian markets are troubled by turbulent economic conditions, which may cause revenue growth to fall short of expectations. Worldwide competition in the ultrasound market continues at an intense level, and the Company may lose sales to other product offerings. These factors may adversely impact the Company's sales volume or selling prices or both. Unanticipated events, such as delays in the Company's product development and cost reduction programs, the unavailability of components critical to the Company's products due to natural disasters, changes in vendor businesses or otherwise, economic instability in Asian and other markets, the stronger U.S. dollar, delays in receiving necessary regulatory approvals, or other unforeseen events could adversely impact the Company's financial results for 1998. The factors which may impede the merger and its outcome include securing all necessary governmental and other approvals, the satisfaction of all conditions to the merger, changing business or other market conditions, and the success of the business combination as planned by the parties. If the merger is not completed the Company will nonetheless bear significant legal, investment banking, and other costs attendant to preparation for the merger, and the price of the Company's stock can become volatile. These and other factors could adversely affect the outcome and financial effects of the plans and events described herein. 13 PART II OTHER INFORMATION - ------- ----------------- Item 1. Legal Proceedings - None. ----------------- Item 2. Changes in Securities - None. --------------------- Item 3. Defaults Upon Senior Securities - None. ------------------------------- Item 4. Submission of Matters to a Vote of Security Holders --------------------------------------------------- (a) The Annual General Meeting of Shareholders was held on May 5, 1998 (b) At the Annual General Meeting of Shareholders there were four matters submitted to a vote of security holders. Proxies were solicited pursuant to Regulation 14 of the Securities and Exchange Act of 1934 and there was no solicitation in opposition to management's nominees as listed in the proxy statement. Each director nominated and proposal submitted to a vote passed and the voting outcome of each proposal is as follows: (1) Election of Directors: Kirby L. Cramer For: 12,789,282 Withheld: 39,595 Harvey Feigenbaum For: 12,794,692 Withheld: 43,185 Dennis C. Fill For: 12,793,116 Withheld: 44,761 Eugene A. Larson For: 12,795,913 Withheld: 41,964 Ernest Mario For: 12,786,976 Withheld: 50,901 John R. Miller For: 12,792,438 Withheld: 45,439 Phillip M. Nudelman For: 12,790,007 Withheld: 47,870 Harry Woolf For: 12,789,873 Withheld: 48,004 (2) The adoption of an amendments to the 1992, Option, Stock Appreciation Right, Restricted Stock, Stock Grant and Performance Unit Plan, including an increase in the number of shares issuable under the plan by 850,000: For: 8,567,911 Opposed: 2,441,328 Abstained: 122,695 Broker Non- votes: 1,705,943 (3) The adoption of an amendment to the Nonemployee Director Stock Option Plan to increase the number of shares issuable under the plan by 100,000: For: 9,906,014 Opposed: 1,096,822 Abstained: 52,966 Broker Non- votes: 1,782,075 (4) Ratification of Auditors - The Company proposal to approve the appointment of KPMG Peat Marwick LLP as independent auditors for the Company for 1998: For: 12,780,081 Withheld: 18,220 Abstained: 39,576 14 Item 5. Other Information ----------------- On July 29, 1998, Royal Philips Electronics (Philips) of the Netherlands and the Company announced the signing of an Agreement and Plan of Merger for Philips to acquire all of the outstanding shares of the Company for approximately $800,000 or $50.50 per share for each outstanding share of the Company's common stock. The transaction will be a cash tender offer followed by a cash merger to acquire any shares not previously tendered. As a result of the transaction, the Company will become a wholly owned subsidiary of Philips. The Company's Board of Directors unanimously approved the transaction. Philips commenced its cash tender offer on August 4, 1998. The cash tender offer is subject to Philips receiving at least a majority of the fully diluted shares of the Company as well as the receipt of customary regulatory approvals. Completion of the transaction is expected in September 1998 provided the above conditions are met. Item 6. Exhibits and Reports on Form 8-K -------------------------------- (a) Exhibits - Financial Data Schedule Exhibit Description ------- ----------- l0.1 Revolving Credit Loan Agreement and Guaranty by and among Advanced Technology Laboratories, Inc., ATL Ultrasound, Inc. and Seafirst Bank, dated as of July 1, 1997. 10.2 Revolving Credit Loan Modification Agreement, dated as of April 21, 1998, to Revolving Credit Loan Agreement, by and among Advanced Technology Laboratories, Inc., ATL Ultrasound, Inc. and Seafirst Bank. 10.3 Loan Modification Agreement between Seafirst Bank, Advanced Technology Laboratories, Inc., and ATL Ultrasound, Inc. dated as of June 16, 1998. 10.4 Guaranty of Payment and Performance by ATL Ultrasound, Inc. to Seafirst Bank, dated as of June 16, 1998. 10.5 Promissory Note to Seafirst Bank, made by Advanced Technology Laboratories, Inc., dated as of June16, 1998. 10.6(A) Form of Employment Agreements between ATL Ultrasound, Inc. and Donald D. Blem, Castor F. Diaz, Pamela L. Dunlap, and Jacques Souquet, effective as of January 1, 1997. 10.7 Agreement and Plan of Merger, dated as of July 29, 1998 among ATL Ultrasound, Inc. Philips North America Corporation and Philips Acquisition, Inc. (Incorporated by reference from Philips Acquisition Inc. Tender Offer Statement on Schedule 14D-1 dated August 4, 1998.) ---------- (A) Management Contracts and Compensatory Arrangements. (b) Reports of Form 8-K - None. 15 SIGNATURE --------- Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. ATL ULTRASOUND, INC. (Registrant) Date: August 13, 1998 BY: /s/ Pamela L. Dunlap ______________________________ Pamela L. Dunlap Senior Vice President Finance and Administration and Chief Financial Officer 16 EX-10.1 2 1997 REVOLVING CREDIT LOAN EXHIBIT 10.1 REVOLVING CREDIT LOAN AGREEMENT AND GUARANTY BY AND AMONG ADVANCED TECHNOLOGY LABORATORIES, INC., A WASHINGTON CORPORATION AS BORROWER, ATL ULTRASOUND, INC., A WASHINGTON CORPORATION AS GUARANTOR, AND BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION DOING BUSINESS AS SEAFIRST BANK AS LENDER. TABLE OF CONTENTS ARTICLE 1 DEFINITIONS........................................................... 1 Section 1.1 Certain Defined Terms..................................... 1 --------------------- Section 1.2 General Principles Applicable to Definitions.............. 7 -------------------------------------------- Section 1.3 Accounting Terms.......................................... 7 ---------------- ARTICLE 2 U.S. DOLLAR FACILITY.................................................. 7 Section 2.1 Loans..................................................... 7 ----- Section 2.2 Manner of Borrowing a Loan................................ 7 -------------------------- Section 2.3 Reduction of Commitment................................... 7 ----------------------- Section 2.4 Repayment of Principal.................................... 7 ---------------------- Section 2.5 Interest on Loans......................................... 7 ----------------- Section 2.6 Prepayments............................................... 10 ----------- Section 2.7 Revolving Note............................................ 10 -------------- Section 2.8 Manner of Payments........................................ 11 ------------------ Section 2.9 Commitment Fees........................................... 11 --------------- Section 2.10 Extension of Maturity Date................................ 11 -------------------------- ARTICLE 3 MULTICURRENCY FACILITY................................................ 11 Section 3.1 Multicurrency Advances.................................... 11 ---------------------- Section 3.2 Multicurrency Note........................................ 12 ------------------ ARTICLE 4 STANDBY LETTER OF CREDIT FACILITY..................................... 12 Section 4.1 Issuance.................................................. 12 -------- Section 4.2 Fees...................................................... 12 ---- Section 4.3 Yield Indemnity........................................... 12 --------------- Section 4.4 Collateral................................................ 12 ---------- ARTICLE 5 CONDITIONS OF LENDING................................................. 13 Section 5.1 Conditions to Initial Loan................................ 13 -------------------------- Section 5.2 Conditions to All Loans................................... 13 ----------------------- ARTICLE 6 REPRESENTATIONS AND WARRANTIES........................................ 14 Section 6.1 Corporate Existence and Power............................. 14 ----------------------------- Section 6.2 Corporate Authorization................................... 14 ----------------------- Section 6.3 Government Approvals, Etc................................. 14 ------------------------- Section 6.4 Binding Obligations, Etc.................................. 14 ------------------------ Section 6.5 Litigation................................................ 14 ---------- Section 6.6 Financial Condition....................................... 14 ------------------- Section 6.7 Title and Liens........................................... 15 --------------- Section 6.8 Taxes..................................................... 15 ----- Section 6.9 Laws, Orders; Other Agreements............................ 15 ------------------------------ Section 6.10 Federal Reserve Regulations............................... 15 --------------------------- Section 6.11 ERISA..................................................... 16 ----- Section 6.12 Subsidiaries.............................................. 16 ------------ Section 6.13 Patents, Licenses, Franchises............................. 16 ----------------------------- Section 6.14 Investment Company; Public Utility Holding Company........ 16 -------------------------------------------------- ARTICLE 7 AFFIRMATIVE COVENANTS................................................. 16 Section 7.1 Use of Proceeds........................................... 17 --------------- Section 7.2 Financial Statements...................................... 17 -------------------- Section 7.3 Inspection of Property.................................... 17 ---------------------- Section 7.4 Payment of Taxes.......................................... 17 ---------------- Section 7.5 Preservation of Corporate Existence....................... 17 ----------------------------------- Section 7.6 Maintenance of Property................................... 18 ----------------------- Section 7.7 Insurance................................................. 18 --------- Section 7.8 Records and Accounts...................................... 18 -------------------- Section 7.9 Additional Payments; Additional Tax....................... 18 ----------------------------------- Section 7.10 Notification.............................................. 18 ------------ Section 7.11 Maintenance of Quick Ratio................................ 18 -------------------------- Section 7.12 Maintenance of Current Ratio.............................. 18 ---------------------------- Section 7.13 Maintenance of Tangible Net Worth......................... 19 --------------------------------- ARTICLE 8 NEGATIVE COVENANTS.................................................... 19 Section 8.1 Limitations on Liens...................................... 19 -------------------- Section 8.2 Limitations on Indebtedness............................... 19 --------------------------- Section 8.3 Limitations on Dividends.................................. 20 ------------------------ Section 8.4 Limitations on Stock Repurchases.......................... 20 -------------------------------- Section 8.5 Limitation on Investments................................. 20 ------------------------- Section 8.6 Merger or Sale of Assets.................................. 21 ------------------------ Section 8.7 Limitation on Capital Expenditures........................ 21 ---------------------------------- Section 8.8 Maintenance of Leverage Ratio............................. 21 ----------------------------- Section 8.9 Limitation on Net Losses.................................. 22 ------------------------ Section 8.10 Transactions with Affiliates.............................. 22 ---------------------------- ARTICLE 9 EVENTS OF DEFAULT.................................................... 22 Section 9.1 Events of Default......................................... 22 ----------------- Section 9.2 Consequences of Default................................... 23 ----------------------- ARTICLE 10 GUARANTY.............................................................. 24 Section 10.1 Guaranteed Obligations.................................... 24 ---------------------- Section 10.2 Guarantor's Consent....................................... 24 ------------------- Section 10.3 Guarantor's Waiver........................................ 24 ------------------ Section 10.4 Unconditional Guaranty.................................... 24 ---------------------- Section 10.5 Waiver of Subrogation..................................... 24 --------------------- ARTICLE 11 MISCELLANEOUS......................................................... 25 Section 11.1 No Waiver; Remedies Cumulative............................ 25 ------------------------------ Section 11.2 Governing Law............................................. 25 ------------- Section 11.3 Consent to Jurisdiction................................... 25 ----------------------- Section 11.4 Notices................................................... 25 ------- Section 11.5 Assignment................................................ 25 ---------- Section 11.6 Severability.............................................. 25 ------------ Section 11.7 Survival.................................................. 26 -------- Section 11.8 Conditions Not Fulfilled.................................. 26 ------------------------ Section 11.9 Entire Agreement; Amendment............................... 26 --------------------------- Section 11.10 Headings.................................................. 26 -------- Section 11.11 Prevailing Party Attorney's Fees.......................... 26 -------------------------------- Section 11.12 Counterparts.............................................. 26 ------------ Section 11.13 Confidentiality........................................... 26 --------------- Section 11.14 CONCERNING ORAL AGREEMENTS................................ 26 -------------------------- SCHEDULES Schedule 1 Prepayment Fees Schedule 2 Borrower and Subsidiary Schedule Schedule 3 Notice Addresses EXHIBITS Exhibit A Form of Revolving Note Exhibit B Form of Multicurrency Note Exhibit C Form of Multicurrency Borrowing Notice Exhibit D Form of Quarterly Officer's Certificate REVOLVING CREDIT LOAN AGREEMENT AND GUARANTY -------------------------------------------- THIS REVOLVING CREDIT AGREEMENT AND GUARANTY ("Agreement") is made effective as of July 1, 1997, by and among Bank of America National Trust and Savings Association, doing business as SEAFIRST BANK, successor by merger to Seattle-First National Bank, (the "Lender"), ADVANCED TECHNOLOGY LABORATORIES, INC., a Washington corporation (the "Borrower") and ATL ULTRASOUND, INC., a Washington corporation, (the "Guarantor"). This Agreement replaces the Revolving Credit Loan Agreement and Guaranty dated as of June 26, 1992, and all amendments thereto. ARTICLE 1 DEFINITIONS ----------- Section 1.1 Certain Defined Terms. As used in this Agreement, the --------------------- following terms have the following meanings: "Aggregate Collateral Value" shall mean (i) the market value of -------------------------- Marketable Securities pledged to secure the L/C Obligations, multiplied by (ii) the following percentages as to the category of Marketable Securities indicated:
======================================================================================================= SECURITY TYPE ADVANCE PERCENTAGE ------------------------------------------------------------------------------------------------------- Seafirst Bank Time Deposits 100% ------------------------------------------------------------------------------------------------------- Money Market Mutual Funds 90% ------------------------------------------------------------------------------------------------------- U.S. Common Stocks (by S&P Rating) other than Bank America Corporation: A+, A, A- 75% B+ 60% B 50% ------------------------------------------------------------------------------------------------------- Bank America Corporation Common or 70% Preferred Stock ------------------------------------------------------------------------------------------------------- U.S. Corporate and Municipal Bonds S&P AAA & AA or Moody's Aaa & Aa 80% S&P A or Moody's A 75% S&P BBB or Moody's Baa 50% ------------------------------------------------------------------------------------------------------- U.S. Government Issued or Guaranteed (Treasury Bills, Treasury Notes, Treasury Bonds), by years to maturity: less than 1 year 90% 1 to 5 years 85% more than 5 years 80% ------------------------------------------------------------------------------------------------------- U.S. Government Sponsored (e.g., Farm 75% Credit System, Federal Home Loan Bank, FNMA) ------------------------------------------------------------------------------------------------------- Bankers Acceptances (Accepting bank is 90% Seafirst Bank or another Bank America Corporation affiliate ------------------------------------------------------------------------------------------------------- Commercial Paper issued by U.S. companies and rated: A1/P1 90% =======================================================================================================
1
======================================================================================================= SECURITY TYPE ADVANCE PERCENTAGE ------------------------------------------------------------------------------------------------------- A2/P2 85% =======================================================================================================
"Applicable Interest Period" means, with respect to any Loan accruing -------------------------- interest at a Fixed Rate, or any Multicurrency Advance, the period commencing on the first date the Borrower elects to have such Fixed Rate apply to such Loan pursuant to Section 2.5(d) or, as the case may be, the day of funding a Multicurrency Advance, and ending: (a) No less than seven (7) and no more than thirty (30) days thereafter in the case of a Quoted Rate Loan as specified in the Interest Rate Notice given in respect of such loan; or (b) One, two, three or six months thereafter in the case of a LIBOR Loan as specified in the Interest Rate Notice given in respect of such Loan, or in the case of a Multicurrency Advance specified in the Multicurrency Borrowing Notice given in respect of such Multicurrency Advance; provided, however, that no Applicable Interest Period may be selected if it - -------- ------- extends beyond the Maturity Date. "Applicable Interest Rate" means for each Loan, the Reference Rate, the ------------------------ Quoted Rate or LIBOR Rate as designated by the Borrower in an Interest Rate Notice given with respect to such Loan (or portion thereof) or otherwise determined pursuant to Section 2.5(d). "Available Amount" means the Commitment, minus the outstanding ---------------- principal balances of all Loans outstanding, minus the sum of the U.S. dollar equivalent of the outstanding principal balance of all Multicurrency Advances, based on the Exchange Rate for each such Multicurrency Advance. "Borrower" means Advanced Technology Laboratories, Inc., a Washington -------- corporation, and any permitted Successor or assign pursuant to the terms of this Agreement. "Business Day" means any day other than Saturday, Sunday or another day ------------ on which banks are authorized or obligated to close in Seattle, Washington, except in the context of the selection of a LIBOR Loan or the calculation of the LIBOR Rate for any Applicable Interest Period, in which event "Business Day" means any day other than Saturday or Sunday on which dealings in foreign currencies and exchange between banks may be carried on in London, England and Seattle, Washington. "Code" means the Internal Revenue Code of 1986, as amended from time to ---- time. "Collateral Account" shall mean an account established by Borrower with ------------------ the Custodian, pledged by Borrower to Lender to secure the L/C Obligations, and subject to a custodial agreement and pledge instructions satisfactory to Lender. "Commitment" and "Commitment Period" have the meanings given in Section ---------- ----------------- 2.1. "Consolidated Net Income" means for any period the consolidated net ----------------------- income of the Guarantor, Borrower, and Borrower's Consolidated Subsidiaries, excluding all extraordinary items (other than utilization of net operating loss carry-forwards), after eliminating all intercompany items and portions of earnings properly attributable to minority interests in stock of any Subsidiary of Borrower, all computed in accordance with generally accepted accounting principles. "Consolidated Subsidiaries" means those Subsidiaries that are included ------------------------- in determining the consolidated financial condition of Guarantor or Borrower in accordance with generally accepted accounting principles. "Controlled Group" means all members of a controlled group of ---------------- corporations and all trades or businesses (whether or not incorporated) under common control which, together with the Borrower, are treated as a single employer under Section 414(b) or 414(c) of the Code. 2 "Custodian" shall mean BNY Western Trust Company or other custodian --------- satisfactory to Lender in its sole discretion. "Default" means any event which but for the passage of time or the giving ------- of notice or both would be an Event of Default. "ERISA" means the Employee Retirement Income Security Act of 1974, as ----- amended from time to time. "Event of Default" has the meaning given in Section 9.1. ---------------- "Exchange Rate" shall mean the rate of exchange actually obtained by Lender ------------- for a given currency in funding a Multicurrency Advance in such currency. "Fixed Rate" means the Quoted Rate or the LIBOR Rate, as applicable. ---------- "Fixed Rate Loan" means any Quoted Rate Loan or LIBOR Loan. --------------- "Fiscal Year" means the year, for accounting purposes, which ends on ----------- December 31st of each calendar year. "Guarantor" means ATL Ultrasound, Inc., a Washington corporation. --------- "Government Approval" means an approval, permit, license, authorization, ------------------- certificate, or consent of any Governmental Authority. "Governmental Authority" means the government of the United States or any ---------------------- State or any foreign country or any political subdivision of any thereof or any branch, department, agency, instrumentality, court, tribunal or regulatory authority which constitutes a part or exercises any sovereign power of any of the foregoing. "Indebtedness" means for any person (i) all items of indebtedness or ------------ liability (except capital, surplus, deferred taxes and deferred revenues as such) which would be included in determining total liabilities as shown on the liability side of a balance sheet as of the date as of which indebtedness is determined, (ii) indebtedness secured by any Lien, whether or not such indebtedness shall have been assumed, (iii) any other indebtedness or liability for borrowed money or for the deferred purchase price of property or services for which such person is directly or contingently liable as obligor, guarantor, or otherwise, or in respect of which such person otherwise assures a creditor against loss, (iv) any other obligations of such person under leases which shall have been or should be recorded as capital leases and (v) obligations of such person for unsatisfied judgments or orders; provided, however, Indebtedness does -------- ------- not include accounts payable and accrued expenses arising in the ordinary course of such person's business, payable on terms customary in the trade. "Interest Rate Notice" shall have the meaning given in Section 2.5(d). -------------------- "L/C Agreement" shall have the meaning given in Section 4.1. ------------- "L/C Obligations" shall have the meaning given in Section 4.4. --------------- "Lender" means Bank of America National Trust and Savings Association, ------ doing business as Seafirst Bank, and any Successors thereto or permitted assigns thereof. "Letter of Credit" shall have the meaning given in Section 4.1. ---------------- "LIBOR Loan" means any Loan or portion thereof bearing interest at the ---------- LIBOR Rate. 3 "LIBOR Rate" shall mean, with respect to any LIBOR Loan for any Applicable ---------- Interest Period, an interest rate per annum equal to the sum of (a) the applicable Usage Factor and (b) the product of (i) the Euro-dollar Rate in effect for such Applicable Interest Period and (ii) the Euro-dollar Reserves in effect on the first day of such Applicable Interest Period. The "Euro-dollar Rate" will be determined on the basis of the offered rate for deposits in U.S. Dollars for the Applicable Interest Period commencing on the first day of such Applicable Interest Period (the "Reset Date") which appears on the display designated as the "LIBO" page in the Reuters Monitor Money Rates Service (or such other page as may replace the LIBO page on that service for the purpose of displaying London interbank offered rates of major banks; or such other financial news service provider to which Lender and Borrower mutually agree) as of 11:00 o'clock a.m., London time, on the day that is two Business Days preceding the Reset Date. If at least two such offered rates appear on such Reuters screen LIBO page, the Euro-dollar Rate in respect of that Reset Date will be the arithmetic mean of such offered rates. If fewer than two offered rates appear, the Euro-dollar Rate will be determined on the basis of the rates at which deposits in U.S. Dollars are offered by four major banks (selected by Lender) in the London interbank market at approximately 11:00 o'clock a.m., London time, on the day that is two Business Days preceding the Reset Date to prime banks in the London interbank market for the Applicable Interest Period. The Lender will request the principal London office of each of the four banks to provide a quotation of its rate. If at least two such quotations are provided, the Euro-dollar Rate will be the arithmetic mean of the quotations. If fewer than two quotations are provided as requested, the Euro-dollar Rate in respect of that Reset Date will be the arithmetic mean of the rates quoted by major banks in New York City (selected by the Lender) at approximately 11:00 o'clock a.m., New York city time, on that Reset Date for loans in U.S. Dollars in an amount equal to the applicable Loan to leading banks in Europe for the Applicable Interest Period. As used herein, the term "Euro-dollar Reserves" means a fraction (expressed as a decimal), the numerator of which is the number one and the denominator of which is the number one minus the aggregate of the maximum reserve percentages (including, without limitation, any special, supplemental, marginal or emergency reserves) expressed as a decimal established by the Board of Governors of the Federal Reserve System or any other banking authority to which the Lenders are subject for Eurocurrency Liability (as defined in Regulation D of such Board of Governors). It is agreed that for purposes hereof, each Loan shall be deemed to constitute a Eurocurrency Liability and to be subject to the reserve requirements of Regulation D, without benefit of credit or proration, exemptions or offsets which might otherwise be available to the Lenders from time to time under such Regulation D. Each LIBOR Rate shall be adjusted automatically on and as of the effective date of any change in the Euro-dollar Reserves. "Lien" means, for any person, any security interest, pledge, mortgage, ---- charge, assignment, hypothecation, encumbrance, attachment, garnishment, execution or other voluntary or involuntary lien upon or affecting the revenues of such person or any real or personal property in which such person has or hereafter acquires any interest, except (i) liens for Taxes which are not ------ delinquent or which remain payable without penalty or the validity or amount of which is being contested in good faith by appropriate proceedings upon stay of execution of the enforcement thereof; (ii) liens imposed by law (such as mechanics' liens) incurred in good faith in the ordinary course of business which are not delinquent or which remain payable without penalty or the validity or amount of which is being contested in good faith by appropriate proceedings upon stay of execution of the enforcement thereof; and (iii) deposits or pledges under worker's compensation, unemployment insurance, social security or other similar laws or made to secure the performance of bids, tenders, contracts (except for repayment of borrowed money), or leases, or to secure statutory obligations or surety or appeal bonds or to secure indemnity, performance or other similar bonds given in the ordinary course of business. "Loan Documents" means this Agreement, the Multicurrency Note, the L/C -------------- Agreement, and the Revolving Note. 4 "Loans" has the meaning given in Section 2.1. ----- "Marketable Securities" shall mean securities of the types listed under the --------------------- definition of "Aggregate Collateral Value" above; provided, that only securities having a minimum per-share price of $15 shall be deemed "Marketable Securities." "Maturity Date" means June 30, 2000 or such later date as shall be ------------- established pursuant to Section 2.10 hereof. "Multicurrency Advances" shall have the meaning given in Subsection 3.1. ---------------------- "Multicurrency Borrowing Notice" shall have the meaning given in Section ------------------------------ 3.1. "Multicurrency Note" shall have the meaning given in Section 3.2. ------------------ "Multicurrency Rate" shall mean for each Multicurrency Advance (i) the per ------------------ annum rate for the currency advanced, calculated on the basis of actual number of days elapsed over a year of 365/366 days as to Canadian Dollars and British Pounds Sterling, and on the basis of actual number of days elapsed over a year of 360 days as to all other currency, determined by Lender to be the applicable borrowing rate for such currency in an amount and for the Applicable Interest Period of the Multicurrency Advance requested, as determined between 6:30 a.m. and 7:00 a.m., Seattle time, on the day which is (a) two Business Days prior to the date of such Multicurrency Advance as to all currencies other than Canadian Dollars, and (b) one Business Day prior to the date of such Multicurrency Advance as to Canadian Dollars; which rate shall be a rate within 0.125% of the index rate appearing on the display designated as "Page 3740" and "Page 3750" on the Telerate Service, or such other financial news service provided to which Lender and Borrower mutually agree, for such currency between 6:30 a.m. and 7:00 a.m. on the same date; plus (ii) the applicable Usage Factor. "Notice of Borrowing" means a request for a Loan from Borrower delivered to ------------------- Lender and containing the information set forth in Section 2.2 which shall be delivered prior to 10:00 a.m. (Seattle time) on the requested date of borrowing of a Reference Rate Loan or a Quoted Rate Loan and at least three (3) Business Days before the requested date of borrowing in the case of a LIBOR Loan. Requests for borrowing received after the designated hour will be deemed received on the next succeeding Business Day. A Notice of Borrowing may be given in writing or telephonically (but if given telephonically, shall be confirmed in writing prior to 12:00 noon (Seattle time) on the first day of the Applicable Interest Period). "Officer's Certificate" means a certificate signed in the name of the --------------------- Borrower or Guarantor, as the case may be, by its Chairman, President, senior financial officer, or Treasurer. "PBGC" means the Pension Benefit Guaranty Corporation or any entity ---- succeeding to any or all of its functions under ERISA. "Pension Plan" means an "employee pension benefit plan" (as such term is ------------ defined in ERISA) from time to time maintained by the Borrower or a member of the Controlled Group. "Permitted Foreign Governments" shall mean the governments of the nations ----------------------------- of Canada, United Kingdom, Germany, France, Belgium, Austria, Netherlands, Australia, Italy, Argentina, China, and Singapore, or any agencies thereof entitled to commit the full faith and credit of such national government. "Person" shall mean any natural person, corporation, unincorporated ------ organization, limited liability company, trust, joint stock company, joint venture, association, company, partnership or government, or any agency or political subdivision of any government. "Plan" shall mean, at any time, an employee pension benefit plan which is ---- covered by Title IV of ERISA or subject to the minimum funding standards under Section 412 of the Code and is either (a) maintained by the Borrower or any member of a Controlled Group for employees of the Borrower or any 5 member of such Controlled Group or (b) maintained pursuant to a collective bargaining agreement or any other arrangement under which more than one employer makes contributions and to which the Borrower or any member of a Controlled Group is then making or accruing an obligation to make contributions or has within the preceding five (5) plan years made contributions. "Quoted Rate" means, with respect to any Quoted Rate Loan for any ----------- Applicable Interest Period, an interest rate per annum, as determined by Lender in its sole discretion and quoted to Borrower. "Quoted Rate Loan" means a Loan or portion thereof bearing interest at the ---------------- Quoted Rate. "Reference Rate" means the rate of interest publicly announced from time to -------------- time by Lender in San Francisco, California, as its "Reference Rate." The Reference Rate is set based on various factors, including Lender's costs and desired return, general economic conditions, and other factors, and is used as a reference point for pricing some loans. Any change in the Reference Rate shall take effect at the opening of business on the day specified in the public announcement of a change in the Reference Rate. "Reference Rate Loan" means a Loan or portion thereof bearing interest at ------------------- the Reference Rate. "Revolving Note" has the meaning given in Section 2.7. -------------- "Subsidiary" means any corporation of which a majority (by number of shares ---------- or by number of votes) of any class of outstanding capital stock normally entitled to vote for the election of one or more directors (regardless of any contingency which does or may suspend or dilute the voting rights of such class) is at such time owned directly or indirectly by the Guarantor or Borrower. "Successor" means, for any corporation or banking association, any --------- successor by merger or consolidation, or by acquisition of substantially all of the assets of the predecessor. "Tangible Net Worth" shall have the meaning given in Section 7.3. ------------------ "Tax" means for any person any tax, assessment, duty, levy, impost or other --- charge imposed by any Governmental Authority on such person or on any property, revenue, income, or franchise of such person and any interest or penalty with respect to any of the foregoing, provided, however, as used herein a "Tax" -------- ------- imposed on or assessed against the Lender shall not include any income tax, business and occupation tax, gross receipts tax, value added tax, franchise tax, tax penalty (unless the tax penalty is the result of Borrower's failure to perform its obligations hereunder) or any other tax imposed generally upon the business of the Lender if any of the above taxes are imposed by a Governmental Authority of a jurisdiction (including a municipal, state, national or federal jurisdiction) under the laws of which Lender is organized, maintains a place of business or would otherwise be subject to taxation without regard to the transactions with Borrower and Guarantor contemplated by this Agreement or the activities of Borrower and Guarantor. "Unfunded Vested Liabilities" shall mean, with respect to any Plan, at any --------------------------- time, the amount (if any) by which (a) the present value of all vested nonforfeitable benefits under such Plan exceeds (b) the fair market value of all Plan assets allocable to such benefits, all determined as of the then most recent valuation date for such Plan, but only to the extent that such excess represents a potential liability of the Borrower or any member of the Controlled Group to the PBGC or the Plan under Title IV of ERISA. "Usage Factor" means, in any calendar quarter, the percentage set forth ------------ below for any LIBOR Loan, expressed as a function of the average daily principal balance of Loans outstanding during such quarter: Average Daily Balance of Loans Usage Factor ------------ and U.S. Dollar equivalent of Multicurrency Advances Outstanding ---------------------------------- Less than $7.5 million 5/8% 6 $7.5 million or more 3/4% Section 1.2 General Principles Applicable to Definitions. Definitions --------------------------------------------- given in Section 1.1 shall be equally applicable to both singular and plural forms of the terms therein defined and references herein to he or it shall be applicable to persons whether masculine, feminine or neuter. References herein to any document including, but without limitation, this Agreement shall be deemed a reference to such document as it now exists, and as, from time to time hereafter, the same may be amended. Section 1.3 Accounting Terms Except as otherwise provided herein, ---------------- accounting terms not specifically defined shall be construed, and all accounting procedures shall be performed, in accordance with generally accepted United States accounting principles consistently applied. ARTICLE 2 U.S. DOLLAR FACILITY -------------------- Section 2.1 Loans. Lender agrees on the terms and conditions of this ----- Agreement to make loans ("Loans") to the Borrower from time to time on Business Days during the period beginning on the date hereof and ending on the Maturity Date (the "Commitment Period"), up to the Available Amount, in an aggregate principal amount not exceeding Fifteen Million Dollars ($15,000,000) less any reductions made pursuant to Section 2.3 (the "Commitment"). Section 2.2 Manner of Borrowing a Loan. The Borrower shall give Lender -------------------------- the required Notice of Borrowing specifying the date of the borrowing of any Loan and the amount thereof, which shall be in integral multiples of Five Hundred Thousand Dollars ($500,000) and, for a Quoted Rate Loan, in a minimum amount of Five Million Dollars ($5,000,000). Such notice shall be irrevocable and shall be deemed to constitute a representation and warranty by the Borrower that as of the date of the notice the statements set forth in Article 6 hereof are true and correct and that no Default or Event of Default has occurred and is continuing. Upon fulfillment to the Lender's satisfaction of the applicable conditions set forth in Article 5, the Lender will promptly make such immediately available funds available to the Borrower by depositing them to the ordinary checking account maintained by the Borrower with the Lender. Section 2.3 Reduction of Commitment. Upon not less than ten (10) Business ----------------------- Days' written notice to the Lender, the Borrower may terminate the Commitment in whole or in part, provided that in no event may the Commitment be reduced to an -------- amount less than the outstanding principal balance of the Loans plus the U.S. Dollar equivalent of the outstanding principal balance of all Multicurrency Advances. Section 2.4 Repayment of Principal. The Borrower shall repay to the ---------------------- Lender the principal amount of each Loan on the Maturity Date. Section 2.5 Interest on Loans. ----------------- (a) Interest Rate. The Borrower agrees to pay to Lender interest ------------- on the unpaid principal amount of each Loan from the date of such Loan until such Loan shall be due and payable at a per annum rate equal to the Applicable Interest Rate, and, if default shall occur in the payment when due of any such Loan, from the maturity of that Loan until it is paid in full at a per annum rate equal to two percentage points (2%) above the Reference Rate (changing as the Reference Rate changes). (b) Interest Payment Dates. Accrued but unpaid interest on each ---------------------- Fixed Rate Loan shall be paid on the last day of each Applicable Interest Period, on the date of any principal payment (to the extent accrued on the principal amount paid), and at maturity and, in the case of a LIBOR Loan for which the Applicable Interest Period is six months, on the day that is three months after the commencement of such Applicable Interest Period. Accrued but unpaid interest on each Reference Rate Loan shall be paid on the last Business Day of each calendar quarter commencing 7 on June 30, 1997, and continuing on the last Business Day of each March, June, September and December thereafter and on the date of any principal payment (to the extent accrued on the principal amount paid) and at maturity. Unpaid interest accruing on amounts in default shall be payable on demand. (c) Adjustments in Interest Rate Resulting from Usage Factor Changes. ---------------------------------------------------------------- During any calendar quarter, interest shall initially accrue and be paid on LIBOR Loans based on the Usage Factor that would apply if, during such calendar quarter, the average daily outstanding balance of Loans was less than $7,500,000 (the "Preliminary Usage Factor"). The interest as so accrued and paid shall be subject to adjustment as provided in this Section at the end of the calendar quarter for the actual Usage Factor for such quarter. At the end of each calendar quarter, Lender shall determine the actual daily outstanding balance of Loans during the preceding calendar quarter and the correspondingly appropriate Usage Factor to be used in determining the actual interest rate for each LIBOR Loan outstanding during such calendar quarter (the "Actual Usage Factor"). The Lender shall calculate the adjustments to be made in interest accruing or paid on each LIBOR Loan resulting from the difference between the Actual Usage Factor and the Preliminary Usage Factor and shall so notify the Borrower. To the extent that such adjustment relates to LIBOR Loans for which interest was previously paid in such calendar quarter, Borrower's demand deposit account with Lender shall be debited for the amount of such adjustment on the day following such notice (and Borrower shall assure that there are available funds in such account to permit such withdrawal). To the extent the adjustment relates to LIBOR Loans for which interest has accrued during such calendar quarter but not been paid, the interest, as adjusted, shall be paid on the dates scheduled for interest payment pursuant to Section 2.5(d). (d) Selection of Alternative Rates. ------------------------------ (i) The Borrower may, subject to the requirements of this Section 2.5(d), on same-day notice (in the case of a selection of Reference Rate or Quoted Rate) or three (3) Business Days' prior notice (in the case of a selection of a LIBOR Rate) elect to have interest accrue on any Loan or any portion thereof at a Fixed Rate for an Applicable Interest Period. Such notice (herein, an "Interest Rate Notice") shall be deemed delivered on receipt by Lender except that the Interest Rate Notice received by the Lender after 10:00 a.m., (Seattle time), on any Business Day, shall be deemed to be received on the immediately succeeding Business Day. An Interest Rate Notice may be given in writing or telephonically (but, if given telephonically, shall be confirmed in writing prior to 12:00 noon (Seattle time) on the first day of the Applicable Interest Period). Such Interest Rate Notice shall identify, subject to the conditions of this Section 2.5(d), the Loan or portions thereof, the Fixed Rate and the Applicable Interest Period which the Borrower selects. Any such Interest Rate Notice shall be irrevocable and shall constitute a representation and warranty by the Borrower that as of the date of such Interest Rate Notice no Event of Default or Default has occurred and is continuing. (ii) Borrower's right to select a Fixed Rate to apply to a Loan or any portion thereof shall be subject to the following conditions: (i) the aggregate of all Loans or portions thereof to accrue interest at a particular LIBOR Rate for the same Applicable Interest Period shall be an integral multiple of Five Hundred Thousand Dollars ($500,000); (ii) the Quoted Rate may not be selected for any Loan or portion thereof which is less than Five Million Dollars ($5,000,000); (iii) a Fixed Rate may not be selected for any Loan or portion thereof which is already accruing interest at a Fixed Rate unless such selection is only to become effective at the maturity of the Applicable Interest Period then in effect; (iv) the Lender shall not have given notice pursuant to Section 2.5(f) that the selected LIBOR Rate is not available on or before the day the Borrower gave the Interest Rate Notice; and (v) no Default or Event of Default shall have occurred and be continuing. (iii) In the absence of an effective request for the application of a Fixed Rate, the Loans or remaining portions thereof shall accrue interest at the Reference Rate. 8 (iv) The Interest Rate Notice may be given with and contained in any Notice of Borrowing. (v) If the Borrower delivers an Interest Rate Notice and a condition precedent to the making of the applicable Loan set forth in Article 5 or the conversion to the requested interest rate set forth in this section 2.5 is not satisfied or waived in writing by Lender, Borrower shall indemnify the Lender for all losses and any costs which the Lender sustains as a consequence thereof including, without limitation, the costs of re-employment of funds at rates lower than the cost to the Lender of such funds. A certificate of the Lender setting forth the amount due to it pursuant to this subparagraph (v) and the basis for, and the calculation of, such amount shall be prima facie evidence of the amount due to it hereunder, absent manifest error. Payment of the amount owed shall be due within fifteen (15) days after the Borrower's receipt of such certificate. (e) Applicable Days For Computation of Interest. Computations of ------------------------------------------- interest shall be made on the basis of a year of three hundred sixty days (360), in each case, for the actual number of days (including the first day but excluding the last day) occurring in the period for which such interest is payable. (f) Unavailable LIBOR Rate. If Lender determines that for any reason ---------------------- beyond Lender's control fair and adequate means do not exist for establishing a particular LIBOR Rate or that a specific LIBOR Rate will not adequately and fairly reflect the cost to it of making or maintaining the principal amount of a particular LIBOR Loan or that accruing interest on any Loan at a LIBOR Rate by Lender has become unlawful, Lender may give notice of that fact to the Borrower and such determination shall be conclusive and binding absent manifest error. After such notice has been given and until Lender notifies the Borrower that the circumstances giving rise to such notice no longer exist, the interest rate or rates so identified in such notice shall no longer be available. If, notwithstanding such notice, Borrower shall thereafter select a LIBOR Rate, the Lender shall promptly notify the Borrower again that a LIBOR Rate is unavailable. Thereafter, any subsequent request by the Borrower to have interest accrue at a LIBOR Rate shall be deemed to be a request for interest to accrue at the Reference Rate. If the circumstances giving rise to the notice described herein no longer exist, the Lender shall notify the Borrower in writing of that fact, and the Borrower shall then once again become entitled to request that a LIBOR Rate apply to the Loans in accordance with Section 2.5(d) hereof. (g) Compensation for Increased Costs. In the event that after the -------------------------------- date hereof any change occurs in any applicable law, regulation, treaty or directive or interpretation thereof by any authority charged with the administration or interpretation thereof, or any condition is imposed by any authority after the date hereof or any change occurs in any condition imposed by any authority on or prior to the date hereof which: (i) subjects Lender to any Tax, or changes the basis of taxation of any payments to Lender on account of principal of or interest on the Fixed Rate Loans, the Revolving Note (to the extent the Revolving Note evidences Fixed Rate Loans) or fees in respect of Lender's obligation to make Fixed Rate Loans or other amounts payable with respect to its Fixed Rate Loans (other than a change in the rate of tax based solely on the overall net or gross income of Lender); or (ii) imposes, modifies or determines applicable any reserve, deposit or similar requirements against any assets held by, deposits with or for the account of, or loans or commitments by, any office of Lender in connection with its Fixed Rate Loans to the extent the amount of which is in excess of, or was not applicable at the time of computation of, the amounts provided for in the definition of the applicable Fixed Rate; or (iii) affects the amount of capital required or expected to be maintained by 9 banks generally or corporations controlling banks and Lender determines the amount by which Lender or any corporation controlling Lender is required or expected to maintain or increase its capital is increased by, or based upon, the existence of this Agreement or the Loans or the Commitment hereunder; (iv) imposes upon Lender any other condition with respect to the Fixed Rate Loans or the obligation to make Fixed Rate Loans; which, as a result thereof, (1) increases the cost to Lender of making or maintaining the Loans or its commitment hereunder, or (2) reduces the net amount of any payment received by Lender in respect of its Fixed Rate Loans (whether of principal, interest, commitment fees or otherwise), or (3) requires Lender to make any payment on or calculated by reference to the gross amount of any sum received by it in respect of its Fixed Rate Loans, then and in any such case Lender shall, as soon as reasonably practical after becoming aware of such event, notify Borrower thereof, and, the Borrower shall pay to Lender on demand such amount or amounts as will compensate Lender for any such increased cost, deduction or payment actually incurred or made by Lender. The demand for payment by Lender shall be delivered to the Borrower and shall state the subjection or change which occurred or the reserve or deposit requirements or other conditions which have been imposed upon Lender or the request, direction or requirement with which it has complied, together with the date thereof, the amount of such cost, reduction or payment and the manner in which such amount has been calculated. The statement of Lender as to the additional amounts payable pursuant to this Section 2.5(g) shall be prima facie evidence of the amounts due hereunder, unless manifest error. The protection of this Section 2.5(g) shall be available to Lender regardless of any possible contention of invalidity or inapplicability of the relevant law, regulation, treaty, directive, condition or interpretation thereof. In the event that the Borrower pays Lender the amount necessary to compensate Lender for any charge, deduction or payment incurred or made by Lender as provided in this Section 2.5(g), and such charge, deduction or payment or any part thereof is subsequently returned to Lender as a result of the final determination of the invalidity or inapplicability of the relevant law, regulation, treaty, directive or condition, then Lender shall remit to the Borrower the amount paid by the Borrower which has actually been returned to Lender (together with any interest actually paid to Lender on such returned amount), less the percentage share of Lender's costs and expenses incurred in connection with such governmental regulation or any challenge made by Lender with respect to its validity or applicability that is proportionate to the percentage that the affected Loan or Commitment bears to all of Lender's affected assets. Section 2.6 Prepayments. Reference Rate Loans may be repaid at any time ----------- without penalty or premium. Quoted Rate Loans may not be voluntarily repaid prior to the end of the Applicable Interest Period. LIBOR Loans may be repaid prior to the end of the Applicable Interest Period. A fee computed in the manner set out in Schedule 1 shall be assessed and paid at the time of such early repayment of a LIBOR Loan or refinancing. Such fee shall apply in all circumstances where a LIBOR Loan is paid prior to the end of the Applicable Interest Period, regardless of whether such payment is voluntary, mandatory or the result of the Lender's collection efforts. Section 2.7 Revolving Note. The Loans shall be evidenced by a promissory -------------- note of the Borrower substantially in the form of Exhibit A hereto, payable to the order of Lender, dated as of the date hereof, and in the face amount of the Commitment (the "Revolving Note"). Lender is hereby authorized to record the date and amount of Loans it makes and the date and amount of each payment of principal and interest thereon on a schedule or computer-generated statement constituting part of its Revolving Note; provided, however, that the failure to -------- ------- make any such recordation or any error in any such recordation shall not affect the obligations of the Borrower hereunder or under the Revolving Note. 10 Section 2.8 Manner of Payments. ------------------ (a) All payments and prepayments of principal and interest on any Loan or Multicurrency Advance and all other amounts payable hereunder by the Borrower or Guarantor to Lender shall be made by paying the same in United States Dollars or the currency that was advanced and in immediately available funds to the Lender at its Commercial Loan Service Center, Seattle, Washington not later than 10:00 o'clock a.m., Seattle time, on the date on which such payment or prepayment shall become due. If such payment is received after 10:00 o'clock a.m., then it will be deemed received on the next Business Day. (b) The Borrower and Guarantor hereby authorize the Lender, if and to the extent any payment is not promptly made pursuant to this Agreement or any other Loan Document, to charge from time to time against any or all of the accounts of the Borrower or Guarantor with the Lender. (c) Whenever any payment hereunder or under any other Loan Document shall be stated to be due or whenever the last day of any interest period would otherwise occur on a day other than a Business Day, such payment shall be made and the last day of such interest period shall occur on the next succeeding Business Day and such extension of time shall in such case be included in the computation and payment of interest or commitment fees, as the case may be, unless such extension would cause such payment to be made or the last day of such interest period to occur in the next following calendar month, in which case such payment shall be due and the last day of such interest period shall occur on the next preceding Business Day. Section 2.9 Commitment Fees. During the Commitment Period, Borrower --------------- agrees to pay to the Lender a commitment fee computed daily at the rate of one- fourth of one percent (1/4%) per annum on the difference between the Commitment and the combined outstanding principal balance of the Loans and Multicurrency Advances (based on U.S. Dollar equivalent determined on the date of funding such Multicurrency Advance) payable in arrears at quarterly intervals commencing on June 30, 1997, and payable on the last Business Day of each March, June, September and December thereafter, except that accrued commitment fees shall be payable on the Maturity Date and on demand after Default. Computations of commitment fees shall be made on the basis of a year of three hundred sixty (360) days for the actual number of days (including the first day but excluding the last day) occurring in the period for which such fees are payable. Section 2.10 Extension of Maturity Date. The Borrower may request that -------------------------- Lender extend the Maturity Date for successive one-year periods by notifying the Lender in writing at any time before a date one (1) year prior to the then- existing Maturity Date. If Lender consents in writing to such an extension within sixty (60) days of such request, the Maturity Date shall be extended for one (1) additional year. ARTICLE 3 MULTICURRENCY FACILITY ---------------------- Section 3.1 Multicurrency Advances. Borrower may request a loan in ---------------------- Australian Dollars, British Pounds Sterling, Canadian Dollars, French Francs, German Marks, Hong Kong Dollars, Japanese Yen, Italian Lire, Dutch Guilders, Belgian Francs, Danish Kroner, Finnish Marks, Norwegian Kroner, Swedish Kroner, Swiss Francs, Singapore Dollars, Austrian Shillings, and/or Spanish Pesetas (each a "Multicurrency Advance"), up to the U.S. Dollar equivalent of the Available Amount, as determined by the Exchange Rate for each such currency, as determined on the date the interest rate for such Multicurrency Advance is determined, by delivering its borrowing notice to Lender in the form of Exhibit C attached ("Multicurrency Borrowing Notice"), on or before 9:30 a.m., Seattle time, on a London Banking Day at least three Business Days prior to the date the Multicurrency Advance is to be made. Such notice shall specify the currency, principal amount, and Applicable Interest Period requested. Each Multicurrency Advance shall be in a minimum amount equivalent to U.S.$500,000. 11 Section 3.2 Multicurrency Note. The obligation of Borrower to repay the ------------------ Multicurrency Advances shall be evidenced by a promissory note (including all renewals, modifications, and extensions thereof, the "Multicurrency Note"), made by Borrower to the order of Lender. The Multicurrency Note shall be unsecured, and shall be in substantially the same form as Exhibit B attached. (a) Interest. Each Multicurrency Advance shall bear interest -------- from the date of advance until the end of its Applicable Interest Period at the Multicurrency Rate determined by Lender. All interest accrued on each such Multicurrency Advance shall be due and payable in full on the last day of the Applicable Interest Period applicable to such Multicurrency Advance. (b) Principal. Borrower shall repay in full the outstanding --------- principal balance of each Multicurrency Advance, in the currency advanced, on the last day of its Applicable Interest Period. Such repayment may be effected either (a) by making payment to Lender in immediately available funds in the same manner as provided in Section 2.8, or (b) by obtaining a Multicurrency Advance, pursuant to the procedures of Section 3.1, in the same currency and at least the same amount as the maturing Multicurrency Advance (but in any case not to exceed the Available Amounts), with instructions to Lender to apply the proceeds of such new Multicurrency Advance to the maturing Multicurrency Advance before disbursing the balance (if any) to Borrower. Lender shall have no liability for, nor bear any of the risk of, intra-day fluctuations in foreign exchange rates. Multicurrency Advances may not be prepaid prior to the end of their respective Applicable Interest Periods. ARTICLE 4 STANDBY LETTER OF CREDIT FACILITY --------------------------------- Section 4.1 Issuance. Upon Borrower's execution of Lender's standard -------- form Application and Agreement for Standby Credit ("L/C Agreement"), Lender shall issue for Borrower's account a standby letter of credit ("Letter of Credit") in an amount not to exceed $40,000,000, with an expiration date (or a right to terminate under an evergreen expiration clause) no later than December 31, 1998, to an entity providing a supersedeas bond on Borrower's behalf to stay the SRI Judgment (as defined in Section 8.9 of the Agreement). If there is a draw under the Letter of Credit, Borrower shall on demand immediately reimburse Lender for the amount of the draw, together with interest on the amount drawn, from the date drawn, until paid, at the default rate of interest set forth in Section 2.5(a) of the Agreement. Lender shall in addition have all rights provided in the L/C Agreement. Any default in the L/C Agreement shall be an Event of Default under the Agreement. Section 4.2 Fees. Borrower shall pay to Lender quarterly in advance a ---- commitment fee determined according to the following formula, on the date of issuance of the Letter of Credit, and on the same day of every third month thereafter until the Letter of Credit is no longer outstanding: 0.25% per annum of the face amount of the Letter of Credit. Borrower shall additionally, on demand, pay transaction fees according to Lender's then-outstanding standard fee schedule on all drafts, transfers, extensions, and other transactions with regard to the Letter of Credit, and reimburse Lender for all out-of-pocket costs, legal fees, and expenses. Section 4.3 Yield Indemnity. If any law or regulation imposes or --------------- increases any reserve, special deposit, or similar requirement against letters of credit issued by Lender or subjects Lender to any tax, charge, fee, deduction, or withholding of any kind in regard to the Letter of Credit, Borrower shall promptly on demand indemnify Lender for any such increased costs, taxes, or charges. Section 4.4 Collateral. All of Borrower's obligations under the L/C ---------- Agreement (the "L/C Obligations") shall be secured by: Marketable Securities having an Aggregate Collateral Value equal to the face amount of the Letter of Credit. Borrower hereby grants to Lender a security interest in investments held in the Collateral Account. Upon an Event of Default, Lender may instruct the Custodian to liquidate investments and disburse to Lender all amounts necessary for the payment in full of the L/C Obligations. If at any time Lender shall determine that the Aggregate Collateral Value of the Marketable Securities in the Collateral Account is less than the amount required under this Section, Borrower (or Guarantor if necessary) 12 shall, within three Business Days of demand by Lender, deliver for deposit to the Collateral Account additional Marketable Securities so that the total in the Collateral Account shall again equal the Aggregate Collateral Value. ARTICLE 5 CONDITIONS OF LENDING --------------------- Section 5.1 Conditions to Initial Loan. In addition to the conditions -------------------------- set forth in Section 5.2, the obligation of the Lender to make the initial Loan and Multicurrency Advance hereunder is subject to fulfillment of the following conditions: (a) Loan Documents. Lender shall have received all of the Loan -------------- Documents, each duly executed and delivered by the respective parties thereto, and satisfactory to Lender in form and substance. (b) Corporate Certificates. The Lender shall have received all ---------------------- of the following, each satisfactory to the Lender in form and substance: (i) Certified copies of the Articles of Incorporation and Bylaws of the Borrower and Guarantor; (ii) Certificate of good standing issued by the Secretary of State of the applicable state of incorporation with respect to the Borrower and Guarantor; (iii) Borrower's Officers' Certificate attaching copies of the resolutions adopted by the Board of Directors of the Borrower authorizing the execution, delivery and performance by the Borrower of this Agreement, the Multicurrency Note and the Revolving Note; and (iv) Guarantor's Officers' Certificate attaching copies of the resolutions adopted by the Board of Directors of Guarantor authorizing the execution, delivery and performance by Guarantor of this Agreement; (v) Incumbency certificates describing the office and identifying the specimen signatures of the individuals signing the Loan Documents on behalf of the Borrower and Guarantor. (c) Certificates. The Lender shall have received a certificate ------------ of the Borrower's Chief Financial Officer, President, or Treasurer as to the accuracy of the Borrower's representations and warranties set forth in Article 6. Section 5.2 Conditions to All Loans. The obligation of the Lender to ----------------------- make any Loans and Multicurrency Advances hereunder, including the initial Loan and/or Multicurrency Advance, is subject to fulfillment of the following conditions: (a) Prior Conditions. All of the conditions set forth in Section ---------------- 5.1 shall have been satisfied. (b) Notice of Borrowing. The Lender shall have received the ------------------- Notice of Borrowing in respect of such Loan or the Multicurrency Borrowing Notice as to such Multicurrency Advance. (c) No Default. At the date of the Loan or Multicurrency ---------- Advance, no Default or Event of Default shall have occurred and be continuing or will have occurred as the result of the making of the Loans or Multicurrency Advances; and the representations and warranties in Article 6 shall be true on and as of such date with the same force and effect as if made on and as of such date. 13 (d) Other Information. The Lender shall have received such other ----------------- statements, certificates, documents and information as it may reasonably request in order to satisfy itself that the foregoing conditions have been fulfilled. ARTICLE 6 REPRESENTATIONS AND WARRANTIES ------------------------------ The Borrower and Guarantor, jointly and severally, represents and warrant to the Lender as follows: Section 6.1 Corporate Existence and Power. Guarantor, Borrower, and ----------------------------- Borrower's Subsidiaries are each a corporation duly incorporated, validly existing and in good standing under the laws of its respective jurisdiction of incorporation. The Guarantor, Borrower, and Borrower's Subsidiaries are each duly qualified to do business in each other jurisdiction where the nature of their respective activities or the ownership of their respective properties requires such qualification. The Borrower and Guarantor each has full corporate power, authority and legal right to carry on its business as presently conducted, to own and operate its properties and assets, and to execute, deliver and perform the Loan Documents to which it is a party. Section 6.2 Corporate Authorization. The execution, delivery and ----------------------- performance by the Borrower of this Agreement, the Multicurrency Note and the Revolving Note, and any borrowing hereunder or thereunder, and the execution, delivery and performance by Guarantor of this Agreement have been duly authorized by all necessary corporate action of the Borrower or the Guarantor, as the case may be, do not require any shareholder approval or the approval or consent of any trustee or the holders of any Indebtedness of the Borrower or Guarantor, except such as have been obtained (certified copies thereof having been delivered to the Lender), do not contravene any law, regulation, rule or order binding on the Borrower or Guarantor or the Articles of Incorporation or Bylaws of the Borrower or Guarantor and do not contravene the provisions of or constitute a default under any indenture, mortgage, contract or other agreement or instrument to which the Borrower or Guarantor is a party or by which the Borrower or Guarantor or any of their properties may be bound or affected. Section 6.3 Government Approvals, Etc. No Government Approval or filing -------------------------- or registration with any Governmental Authority is required for the making and performance by the Borrower or Guarantor of the Loan Documents to which it is a party or in connection with any of the transactions contemplated hereby or thereby, except such as have been heretofore obtained and are in full force and effect (certified copies thereof having been delivered to the Lender). Section 6.4 Binding Obligations, Etc. This Agreement, the Multicurrency ------------------------ Note and the Revolving Note have been duly executed and delivered by the Borrower and constitute the legal, valid and binding obligation of the Borrower enforceable against the Borrower in accordance with their respective terms. This Agreement has been duly executed and delivered by the Guarantor and constitutes the legal, valid and binding obligation of Guarantor enforceable against it in accordance with its terms. Section 6.5 Litigation. Except for the SRI judgement defined in Section ---------- 8.9, there are no actions, proceedings, investigations, or claims against or affecting the Guarantor, Borrower or any of Borrower's Subsidiaries now pending before any court, arbitrator or Governmental Authority (nor to the knowledge of Borrower or Guarantor has any thereof been threatened, nor to the knowledge of Borrower or Guarantor does any basis exist therefor) which if determined adversely to the Guarantor, Borrower, or any of the Borrower's Subsidiaries would be likely to have a material adverse effect on the consolidated financial condition of the Guarantor or the Borrower or on the ability of the Borrower or Guarantor to perform its obligations under the Loan Documents. Section 6.6 Financial Condition. The consolidated balance sheet of the ------------------- Guarantor (which includes Borrower and Borrower's Subsidiaries) as of December 31, 1996, and the related consolidated statements of income, cash flows, and shareholders' equity for the Fiscal Year then ended and the 14 consolidated balance sheet of the Guarantor (which includes Borrower and Borrower's Subsidiaries) as of March 28, 1997, and the related consolidated statements of income and cash flows for the quarter then ended copies of which have been furnished to Lender, fairly present the consolidated financial condition of the Guarantor, Borrower, and Borrower's Subsidiaries as at such dates and the results of consolidated operations of the Guarantor, Borrower, and Borrower's Subsidiaries for the periods then ended, all in accordance with generally accepted accounting principles consistently applied. The Guarantor, Borrower and the Borrower's Subsidiaries did not have on such dates any material contingent liabilities for Taxes, unusual forward or long-term commitments or unrealized or anticipated losses from any unfavorable commitments, except as referred to or reflected or provided for in that balance sheet and in the notes to those financial statements. Since March 28, 1997, there have been no material changes to the operations, business or financial condition of Guarantor, Borrower and the Borrower's Subsidiaries that would be sufficient to impair the Borrower's ability to repay any outstanding or requested Loans or Multicurrency Advances or that have resulted in, or are forecast by Borrower or Guarantor to result in, a Default or Event of Default. Section 6.7 Title and Liens. The Guarantor, Borrower, and Borrower's --------------- Subsidiaries have good and marketable title to each of the properties and assets reflected in the balance sheet referred to in Section 6.6 (except such as have been since sold or otherwise disposed of in the ordinary course of business or in compliance with the terms of Section 8.6 hereof). No assets or revenues of the Guarantor, the Borrower, or Borrower's Subsidiaries are subject to any material Lien except as required or permitted by this Agreement or disclosed in the balance sheets referred to in Section 6.6 or otherwise disclosed to the Lender in writing prior to the date of this Agreement. All properties of the Guarantor, Borrower, and Borrower's Subsidiaries and their respective use thereof comply in all material respects with all applicable material zoning and use restrictions and with applicable material laws and regulations relating to the environment. Section 6.8 Taxes. As of the date of this Agreement, the Guarantor, ----- Borrower and Borrower's Subsidiaries have filed all material tax returns and reports required of them, have paid all material Taxes which are due and payable, and have provided adequate reserves for payment of any Tax whose payment is being contested. The charges, accruals and reserves on the books of the Guarantor, Borrower, and Borrower's Subsidiaries in respect of Taxes for all fiscal periods to date of this Agreement are accurate to the best of their knowledge. There are no questions or disputes between the Guarantor, Borrower, or any Subsidiaries of Borrower and any Governmental Authority with respect to any material Taxes except as disclosed in the balance sheets referred to in Section 6.6 or otherwise disclosed to the Lender in writing prior to the date of this Agreement and except disputes which if resolved adversely to the positions being asserted by the Guarantor, Borrower, or any Subsidiary of Borrower would not result in a material adverse change in the consolidated financial condition of the Guarantor, Borrower, and Borrower's Subsidiaries. Section 6.9 Laws, Orders; Other. Except as described in the financial ------------------- statements delivered to Lender pursuant to Section 6.6 neither the Guarantor nor Borrower, is in violation of or subject to any contingent liability on account of any material laws, statutes, rules, regulations and orders of any Governmental Authority. Neither the Guarantor nor Borrower is in material breach of or default under any agreement to which it is a party or which is binding on it or any of its assets. Section 6.10 Federal Reserve Regulations. Neither the Borrower nor the --------------------------- Guarantor is engaged principally or as one of its important activities in the business of extending credit for the purpose of purchasing or carrying any margin stock (within the meaning of Federal Reserve Regulation U), and no part of the proceeds of any Loan or Multicurrency Advance will be used to purchase or carry any such margin stock or to extend credit to others for the purpose of purchasing or carrying any such margin stock or for any other purpose that violates the applicable provisions of any Federal Reserve Regulation. The Borrower will furnish to the Lender on request a statement conforming with the requirements of Regulation U. 15 Section 6.11 ERISA. ----- (a) The present value of all benefits vested under all Pension Plans did not, as of the most recent valuation date of such Pension Plans, exceed the value of the assets of the Pension Plans allocable to such vested benefits by an amount which would represent a potential material liability of the Guarantor and the Borrower, taken as a whole, or affect materially the ability of the Borrower and Guarantor to perform this Agreement. (b) Except as disclosed to the Lender in writing prior to the date hereof, no Plan or trust created thereunder, or any trustee or administrator thereof, has engaged in a "prohibited transaction" (as such term is defined in Section 406 or Section 2003(a) of ERISA) which could subject such Plan or any other Plan, any trust created thereunder, or any trustee or administrator thereof, or any party dealing with any Plan or any such trust to the tax or penalty on prohibited transactions imposed by Section 502 or Section 2003(a) of ERISA. (c) No Pension Plan or trust has been terminated, except in accordance with the Code, ERISA, and the regulations of the Internal Revenue Service and the PBGC as applicable to solvent plans in which benefits of participants are fully protected. No "reportable event" as defined in Section 4043 of ERISA has occurred for which notice has not been waived or for which alternative notice procedures are permitted. (d) No Pension Plan or trust created thereunder has incurred any "accumulated funding deficiency" (as such term is defined in Section 302 of ERISA) whether or not waived, since the effective date of ERISA. (e) The required allocations and contributions to Pension Plans will not violate Section 415 of the Code. Section 6.12 Subsidiaries. Schedule 2 to this Agreement sets forth as of ------------ the date of this Agreement a list of Guarantor's and Borrower's Subsidiaries. Except as noted otherwise, all subsidiaries are wholly owned by Guarantor, Borrower or Subsidiaries of Borrower. Section 6.13 Patents, Licenses, Franchises. To the best of their ----------------------------- knowledge, the Guarantor, Borrower, and each of Borrower's Subsidiaries owns or possesses all the patents, trademarks, service marks, trade names, copyrights, licenses, franchises, permits and rights with respect to the foregoing necessary to own and operate its properties and to carry on its business as presently conducted and presently planned to be conducted without material conflict with the valid rights of others except as previously disclosed in writing to the Lender prior to the date hereof. Section 6.14 Investment Company; Public Utility Holding Company. Neither -------------------------------------------------- the Borrower nor the Guarantor is (a) an "investment company" or a company "controlled" by an investment company within the meaning of the Investment Company Act of 1940, as amended; or (b) a "holding company" or a "subsidiary company" of a "holding company" or an "affiliate" of either a "holding company" or a "subsidiary company" within the meaning of the Public Utility Holding Company Act of 1935, as amended. ARTICLE 7 AFFIRMATIVE COVENANTS --------------------- So long as Lender shall have any commitment hereunder and, until payment in full of each Loan and the Revolving Note, each Multicurrency Advance and the Multicurrency Note and performance of all other obligations of the Borrower and the Guarantor under this Agreement and the L/C Agreement, the Borrower and Guarantor, as applicable, agree to do all of the following unless the Lender shall otherwise consent in writing. 16 Section 7.1 Use of Proceeds. The proceeds of all Loans and Multicurrency --------------- Advances shall be used by Borrower solely for general corporate purposes of Borrower. Section 7.2 Financial Statements. The Borrower covenants and agrees that -------------------- it will deliver to Lender: (i) as soon as practicable and in any event within forty- five (45) days after the end of each quarterly period (other than the last quarterly period) in each Fiscal Year, the consolidated statements of income and of cash flows of the Guarantor (which includes Borrower and Borrower's Subsidiaries) for such quarterly period and for the period from the beginning of the current Fiscal Year to the end of such quarterly period, and a consolidated balance sheet of the Guarantor (which includes Borrower, and Borrower's Subsidiaries) as at the end of such quarterly period, setting forth in each case in comparative form figures for the corresponding period in the preceding Fiscal Year, all in reasonable detail and certified by an authorized financial officer of the Guarantor, subject to changes resulting from year-end adjustments; (ii) as soon as practicable and in any event within ninety (90) days after the end of each Fiscal Year, consolidated statements of income, cash flows, and shareholders' equity of the Guarantor (which includes the Borrower and Borrower's Subsidiaries) for such year, and a consolidated balance sheet of the Guarantor (which includes the Borrower and Borrower's Subsidiaries) as at the end of such year, setting forth in each case in comparative form corresponding figures from the preceding annual financial statements, all in reasonable detail and satisfactory in scope to the Lender. The annual consolidated financial statements shall be certified to the Guarantor (or to its Board of Directors and Shareholders) by independent public accountants of recognized standing selected by the Guarantor whose certificate shall be in scope and substance satisfactory to Lender; and (iii) promptly after transmission thereof, copies of all such financial statements, proxy statements, notices and reports as Guarantor shall send to its stockholders and copies of all registration statements (without exhibits) and all reports, if any, which it files with the Securities and Exchange Commission (or any governmental body or agency succeeding to the functions of the Securities and Exchange Commission). Together with each delivery of financial statements required by clauses (i) and (ii) above, the Borrower will deliver to Lender an Officer's Certificate of Guarantor in the form of Exhibit D. Section 7.3 Inspection of Property. The Borrower and Guarantor each ---------------------- covenant and agree that it will permit Lender on reasonable notice, at Lender's expense (unless a Default or Event of Default shall have occurred, in which event the expense of such visit and inspection shall be for the Borrower's account), to visit and inspect any of the properties of the Guarantor and the Borrower, to examine the corporate books and financial records of the Guarantor and the Borrower, and to make copies thereof or extracts therefrom and to discuss the affairs, finances and accounts of the Guarantor and the Borrower with the principal officers of the Borrower or Guarantor and its independent public accountants, all at such reasonable times as Lender may reasonably request. Section 7.4 Payment of Taxes. During the term of this Agreement, the ---------------- Borrower and Guarantor shall each cause to be paid and discharged all material Taxes imposed upon the Guarantor, Borrower, or any Subsidiary of Borrower before the same shall be in default, as well as all lawful claims for labor, materials and supplies which, if unpaid, might become a lien or charge upon such property or any part thereof; provided, however, that the Borrower, Guarantor, and any -------- ------- Subsidiary of Borrower shall not be required to cause to be paid or discharged any such Tax or claim so long as the validity thereof shall be contested in good faith by appropriate proceedings, and the Borrower, Guarantor, and the Subsidiary of Borrower shall have set aside on their books adequate reserves with respect thereto. Section 7.5 Preservation of Corporate Existence. The Borrower and ----------------------------------- Guarantor shall each 17 cause to be done all things necessary to preserve and keep in full force and effect their corporate existence and shall comply with all laws applicable to the Guarantor or Borrower. Section 7.6 Maintenance of Property. The Borrower and Guarantor shall, ----------------------- and shall cause the Subsidiaries of Borrower to at all times keep, maintain, preserve and protect all the property of the Borrower, Guarantor and Subsidiaries of Borrower in good repair, working order and condition and from time to time make all needful and proper repairs, renewals, replacements, betterments and improvements thereto, so that the business carried on in connection therewith may be properly and advantageously conducted at all times. Section 7.7 Insurance. The Borrower and Guarantor shall, and shall cause --------- the Borrower's Subsidiaries to, at all times keep adequately insured, by financially sound and reputable insurers, all property of the Guarantor, Borrower, and the Borrower's Subsidiaries of the character usually insured by corporations engaged in the same or similar business against loss or damage of the kinds customarily insured against by such corporations, and carry such other insurance as is usually carried by corporations engaged in the same or similar business. Section 7.8 Records and Accounts. The Borrower and Guarantor shall at all -------------------- times keep true and complete books of record and accounts in accordance with generally accepted accounting principles. Section 7.9 Additional Payments; Additional Tax. From time to time, the ----------------------------------- Borrower shall (a) pay or reimburse the Lender for all out-of-pocket expenses, including reasonable legal fees, actually incurred by the Lender in connection with the preparation or making of this Agreement or the other Loan Documents, or the making of any Loan or any Multicurrency Advance, or, except as provided in Section 11.11, incurred by Lender in connection with the enforcement by judicial proceedings or otherwise of any of the rights of the Lender under this Agreement or the other Loan Documents, only if Lender is the prevailing party; (b) upon Lender's request, obtain and promptly furnish to Lender evidence of all such Government Approvals as may be required to enable the Borrower and Guarantor to comply with their obligations under this Agreement and the other Loan Documents; and (c) execute and deliver all such instruments and perform all such other acts as the Lender may reasonably request to carry out the transactions contemplated by this Agreement. Section 7.10 Notification. Promptly after learning thereof, Borrower or ------------ Guarantor will notify the Lender of (a) the details of any action, proceeding, investigation or claim against or affecting Guarantor or Borrower instituted before any court, arbitrator or Governmental Authority or, to Borrower's or Guarantor's knowledge threatened to be instituted, which, if determined adversely to Guarantor or Borrower would be likely to result in a material adverse change in the consolidated financial condition of the Guarantor or Borrower; (b) any labor controversy which has resulted in or, to Borrower's or Guarantor's knowledge, threatens to result in a strike which would significantly affect the consolidated financial condition of Guarantor or Borrower; (c) if Borrower, Guarantor or any member of the Controlled Group gives or is required to give notice to the PBGC of any "reportable event" (as defined in subsections (b)(1), (2), (5) or (6) of Section 4043 of ERISA) with respect to any Plan (or the Internal Revenue Service gives notice to the PBGC of any "reportable event" as defined in subsection (c)(2) of Section 4043 of ERISA and Borrower or Guarantor obtains knowledge thereof) which might constitute grounds for a termination of such Plan under Title IV of ERISA, or knows that the plan administrator of any Plan has given or is required to give notice of any such reportable event, a copy of the notice of such reportable event given or required to be given to the PBGC; and (d) if any Event of Default or Default exists, the nature and period of existence thereof and any action Borrower or Guarantor has taken or proposes to take with respect thereto. Section 7.11 Maintenance of Quick Ratio. Based on the consolidated -------------------------- financial statements of Guarantor and the Consolidated Subsidiaries, the Guarantor shall maintain, as of the end of each fiscal quarter of Guarantor, a Quick Ratio of not less than 1.0 to 1.0. The "Quick Ratio" shall be the ratio of (a) the sum of Cash and Cash Equivalents plus Short Term Marketable Securities plus Receivables (net of the allowance for doubtful receivables and sales returns) of Guarantor and the Consolidated Subsidiaries to (b) consolidated Current Liabilities of Guarantor and the Consolidated Subsidiaries, all as reflected on the quarterly consolidated financial statements required to be furnished hereunder. Section 7.12 Maintenance of Current Ratio. Based on the consolidated ---------------------------- financial statements of 18 Guarantor and the Consolidated Subsidiaries, Guarantor shall maintain, as of the end of each fiscal quarter of Guarantor, a Current Ratio of not less than 1.8 to 1.0. The "Current Ratio" shall be the ratio of (a) consolidated current assets of Guarantor and the Consolidated Subsidiaries to (b) consolidated current liabilities of Guarantor and the Consolidated Subsidiaries, all as reflected on the quarterly consolidated financial statements required to be furnished hereunder. Section 7.13 Maintenance of Tangible Net Worth. Based on the consolidated --------------------------------- financial statements of Guarantor and the Consolidated Subsidiaries, Guarantor shall maintain, as of the end of each fiscal quarter of Guarantor, a minimum consolidated Tangible Net Worth equal to at least the sum of (i) 90% of the actual consolidated Tangible Net Worth of Guarantor and the Consolidated Subsidiaries as of December 31, 1996, plus (ii) 50% of Consolidated Net Income (if positive) in each fiscal quarter of Guarantor ending after December 31, 1996, plus (iii) one hundred percent (100%) of the contribution to Tangible Net Worth arising since December 31, 1996, from the raising or contribution of additional equity to Guarantor or any of the Consolidated Subsidiaries or the conversion of any subordinated debt of Guarantor or any Consolidated Subsidiary to equity in Guarantor or any Consolidated Subsidiary (excluding equity adjustments arising from employee stock compensation plans). "Tangible Net Worth" means the excess of the total assets over total liabilities of Guarantor and the Consolidated Subsidiaries (excluding from such difference the cumulative foreign currency translation adjustment appearing on the applicable consolidated balance sheet of Guarantor and the Consolidated Subsidiaries); provided, -------- however, that for purposes of this section, the determination of total assets - ------- shall exclude (i) all assets which should be classified as intangible assets (such as goodwill, patents, trademarks, copyrights, franchises, unamortized debt discount, capitalized research and development costs, capitalized software costs and organization costs) (ii) cash held in a sinking or other similar fund established for the purpose of redemption or other retirement of capital stock, (iii) to the extent not already deducted from total assets, reserves for depreciation, depletion, obsolescence or amortization of properties and other reserves or appropriations of retained earnings which have been or should be established in connection with the business conducted by the relevant corporation, and (iv) any revaluation or other write-up in book value of assets subsequent to December 31, 1996. ARTICLE 8 NEGATIVE COVENANTS ------------------ So long as Lender shall have any commitment hereunder and, until payment in full of each Loan and the Revolving Note, each Multicurrency Advance and the Multicurrency Note and performance of all other obligations of the Borrower and the Guarantor under this Agreement and the L/C Agreement, the Borrower and the Guarantor, as applicable, agree not to do any of the following unless the Lender shall otherwise consent in writing. Section 8.1 Limitations on Liens. -------------------- (a) The Guarantor and the Borrower will not, and will not permit any Subsidiary of Borrower to, create or suffer to be created or to exist any Lien upon any of its property or assets; provided, however, that the -------- ------- foregoing shall not apply to: (i) Liens on property acquired by the Guarantor, Borrower, or a Subsidiary of Borrower to secure the payment of all or any part of the purchase price or construction cost thereof; provided, however, -------- ------- that such Lien shall not extend to other property; (ii) Any Lien on assets of the Guarantor, Borrower, or a Subsidiary of Borrower located outside the United States of America; provided, however, that the aggregate amount of the Indebtedness -------- ------- secured by such assets shall not exceed Six Million Dollars ($6,000,000); (iii) Tax liens and routine mechanics' and materialmen's liens incurred in the ordinary course of business; and 19 (v) Any Lien renewing, extending, refunding or replacing any Lien permitted above by clauses (i) through (iv), inclusive, provided that the principal amount of Indebtedness secured thereby -------- shall not exceed the principal amount of Indebtedness secured at the time of such renewal, extension, refunding or replacement, and that such renewal, extension, refunding or replacement Lien shall be limited to all or part of the same property (plus improvements, additions, extensions, repairs and replacements to or on such property) which secured the Lien renewed, extended, refunded or replaced. (b) Nothing in this Section 8.1 shall be construed to permit the Guarantor, Borrower, or a Subsidiary of Borrower to incur any Indebtedness the incurrence of which would at the time be prohibited pursuant to the provisions of Section 8.2. Section 8.2 Limitations on Indebtedness. The Guarantor and Borrower will --------------------------- not, and will not permit any Subsidiary of Borrower to, create, incur, or become liable for any Indebtedness except: (a) Taxes; (b) Indebtedness of Guarantor to Borrower, or of Borrower to a Subsidiary of Borrower, or of Borrower or Guarantor to Lender; (c) Indebtedness for the payment of obligations under operating leases in an amount not exceeding Nine Million Dollars ($9,000,000) in any Fiscal Year; (d) Indebtedness in addition to that described in clauses (a) -(d) the aggregate outstanding principal amount of which does not at any time exceed Fifteen Million Dollars ($15,000,000) (or its equivalent in foreign currencies); and (e) Guarantees by Guarantor or Borrower of Indebtedness of a Subsidiary that is permitted hereunder. Section 8.3 Limitations on Dividends. The Guarantor will not declare or ------------------------ pay any dividend on, or make any distribution to the holders of, any shares of its capital stock of any class for a consideration other than shares of capital stock of the Guarantor nor make any payment on account thereof, if, after giving effect to such dividend or distribution or payment and to any other such dividend declared but not yet paid, the sum of the aggregate of all such dividends and distributions declared after December 31, 1996, would exceed fifty percent (50%) of Consolidated Net Income as of the most current reporting periof. Section 8.4 Limitations on Stock Repurchases. The Guarantor and Borrower -------------------------------- will not, and will not permit any Subsidiary of Borrower to, purchase, redeem, or otherwise acquire any shares of capital stock of any class of the Guarantor or such Subsidiary of Borrower if, after giving effect to such purchase, redemption, or acquisition, the cumulative, aggregate amount paid for the purchase, redemption, or acquisition of such capital stock during any Fiscal Year commencing after the Closing Date would exceed Twenty Million Dollars ($20,000,000). Section 8.5 Limitation on Investments. The Guarantor and Borrower will ------------------------- not, and will not permit any Subsidiary of Borrower to, make or permit to remain outstanding any loan or advance to any Person or purchase or otherwise acquire the capital stock, shares, voting trust certificates, bonds, debentures, notes or instruments or other securities or evidences of indebtedness of, or any interest in, or make any capital contribution to, any Person (collectively, "Investments") except that the Guarantor, Borrower, and Subsidiaries of Borrower may: (a) Make or permit to remain outstanding loans or advances to any Subsidiary; (b) Own, purchase or acquire stock, obligations or securities of a corporation that, upon such ownership, purchase or acquisition, shall be a Subsidiary; 20 (c) Own, purchase or acquire (i) obligations including, but not limited to, time deposits maturing within one year of commercial banks having combined capital and surplus in excess of $100,000,000 (or the equivalent in a foreign currency), organized or licensed to conduct a banking business under the laws of the United States of America, any state thereof, or a Permitted Foreign Government; (ii) obligations of the United States government, any agency thereof or of a Permitted Foreign Government; (iii) obligations guaranteed by the United States government or a Permitted Foreign Government; and (iv) short-term commercial paper rated in the highest available class by Moody's Investors Services or Standard & Poor's Corporation; and (d) Make additional Investments in an amount not exceeding, in the aggregate for Guarantor, Borrower, and all Subsidiaries of Borrower for all such additional Investments, Fifteen Million Dollars ($15,000,000) which are consistent with the guidelines adopted from time to time by the Guarantor's and Borrower's Board of Directors. Section 8.6 Merger or Sale of Assets. The Borrower and Guarantor will not ------------------------ and will cause the Subsidiaries of Borrower not to merge or consolidate with any other corporation or sell, lease or transfer or otherwise dispose of any portion of its or their business or assets, to any Person (either in a single transaction or in a series of transactions during any Fiscal Year), except that: (a) Any Subsidiary may merge with the Borrower (provided that the Borrower shall be the continuing or surviving corporation); (b) Any Subsidiary may sell, lease, transfer or otherwise dispose of any of its assets to the Borrower, Guarantor, or another subsidiary or Guarantor; (c) The Guarantor may merge with any other corporation, provided -------- that (a) the Guarantor shall be the continuing or surviving corporation, and (b) immediately after such merger, no Default or Event of Default shall exist; (d) Guarantor, Borrower and Subsidiaries of Borrower may, in the aggregate, enter into leases for assets not exceeding 10% of Guarantor's total consolidated assets; (e) The Borrower and its Subsidiaries may sell their products in the ordinary course of business; and (f) The Guarantor, Borrower, and the Borrower's Subsidiaries may sell assets in addition to those described in clauses (a) through (d) above in an aggregate amount for all sales by Guarantor, Borrower, and the Borrower's Subsidiaries in any Fiscal Year not to exceed Fifteen Million Dollars ($15,000,000); provided, that the sales of notes receivable and leases of ultrasound equipment including service contracts to Borrower's end customers by Guarantor or any of the Borrower's Subsidiaries shall not be deemed sales of assets for purposes of this subsection. Guarantor shall notify Lender in writing of all asset sales by Guarantor or any subsidiary that involve a sales price of more than Five Million Dollars ($5,000,000) and that are outside the ordinary course of business. Section 8.7 Limitation on Capital Expenditures. The Guarantor and ---------------------------------- Borrower shall not, and shall not permit any Subsidiary of Borrower to, make expenditures for fixed assets or other capital expenditures which in any Fiscal Year exceed, in the aggregate for Guarantor and the Consolidated Subsidiaries combined, based on the consolidated financial statements, the sum of Twenty-Five Million Dollars ($25,000,000). Nothing in this Section 8.7 shall be construed to permit the Guarantor or any subsidiary to incur any Indebtedness the incurrence of which would at the time be prohibited pursuant to the provisions of Section 8.2. Section 8.8 Maintenance of Leverage Ratio. Based on the consolidated ----------------------------- financial statements of Guarantor and the Consolidated Subsidiaries, the Guarantor shall not, as of the end of any Fiscal Year, permit the ratio of the consolidated total liabilities of Guarantor to consolidated Tangible Net Worth of 21 Guarantor to exceed 1.2 to 1.0. Section 8.9 Limitation on Net Losses. Based on the consolidated financial ------------------------ statements of Guarantor and the Consolidated Subsidiaries, the consolidated net loss of Guarantor shall not exceed in any one fiscal quarter the amount of Ten Million Dollars ($10,000,000) and shall not exceed in any period of four consecutive fiscal quarters, the aggregate amount of Twenty Million Dollars ($20,000,000); provided, that the effects of the judgment entered against Borrower in favor of SRI International (the "SRI Judgment") by the U.S. District Court for the Northern District of California in a case involving alleged patent violations shall not be included when calculating compliance with this covenant, up to a maximum amount excluded of $40,000,000. Section 8.10 Transactions with Affiliates. Neither Guarantor, Borrower ---------------------------- nor any Subsidiary of Borrower shall enter into or be a party to any transaction or arrangement with any Affiliate, as defined below, except in the ordinary course of and pursuant to the reasonable requirements of Guarantor's, Borrower's or such Subsidiary's business, and upon fair and reasonable terms no less favorable to Guarantor, Borrower or such Subsidiary of Borrower than the Guarantor, Borrower or Subsidiary of Borrower would obtain in a comparable arms' length transaction with a Person other than an Affiliate. Notwithstanding the foregoing, Guarantor or Borrower may enter into or be a party to a transaction or arrangement with an Affiliate which, in the reasonable business judgement of Borrower and Guarantor serves a legitimate business purpose and is in the best interest of the Guarantor or Borrower. "Affiliate" shall mean any Person that, directly or indirectly, through one or more intermediaries, controls, or is controlled by or is under common control with, Guarantor or any Consolidated Subsidiary, or 5% or more of the equity interest of which is held beneficially or of record by Guarantor or a Consolidated Subsidiary. The term "control" means the possession, directly or indirectly, of the power to cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract, or otherwise. ARTICLE 9 EVENTS OF DEFAULT ----------------- Section 9.1 Events of Default. The occurrence of any of the following ----------------- events shall constitute an "Event of Default" hereunder. (a) Payment Default. The Borrower shall fail to pay when due any --------------- amount of principal of or interest on any Loan or Multicurrency Advance or the Borrower or Guarantor shall fail to pay when due any other amount payable by it hereunder; or (b) Breach of Warranty. Any representation or warranty made by ------------------ the Borrower or Grantor under or in connection with this Agreement or the other Loan Documents shall prove to have been incorrect in any material respect when made; or (c) Breach of Certain Covenants. The Borrower or Guarantor shall --------------------------- fail to perform or observe the covenant set forth in clause (d) of Section 7.10; or (d) Breach of Other Covenants. The Borrower shall fail to perform ------------------------- or observe any other covenant, obligation or term of this Agreement to be performed by and such failure shall remain unremedied for thirty (30) days after written notice thereof shall have been given to the Borrower by the Lender; or (e) Cross-default. The Guarantor, Borrower, or any Subsidiary of ------------- Borrower shall fail to pay when due (whether by scheduled maturity, required prepayment, acceleration, demand or otherwise) any Indebtedness having an outstanding principal balance in the aggregate in excess of Five Hundred Thousand Dollars ($500,000) (except any Loan or Multicurrency Advance) or any interest or premium thereon and such failure shall continue after the applicable grace period, if any, specified in the agreement or instrument relating to such Indebtedness; or (f) Voluntary Bankruptcy, Etc. The Guarantor, Borrower, or ------------------------- Subsidiary of Borrower 22 shall: (1) file a petition seeking relief for itself under Title 11 of the United States Code, as now constituted or hereafter amended, or file an answer consenting to, admitting the material allegations of or otherwise not controverting, or fail timely to controvert a petition filed against it seeking relief under Title 11 of the United States Code, as now constituted or hereafter amended, or (2) file such petition or answer with respect to relief under the provisions of any other now existing or future applicable bankruptcy, insolvency, or other similar law of the United States of America or any state thereof or of any other country or jurisdiction providing for the reorganization, winding-up or liquidation of corporations or an arrangement, composition, extension or adjustment with creditors, unless such act or failure to act described in Section 9.1(f) with respect ------ to Subsidiaries of Borrower has no material adverse affect on the consolidated financial condition of Guarantor or Borrower or on the ability of Guarantor or Borrower to perform its obligations under the Loan Documents; or (g) Involuntary Bankruptcy, Etc. An order for relief shall be entered --------------------------- against the Guarantor, Borrower, or Subsidiary of Borrower under Title 11 of the United States Code, as now constituted or hereafter amended, which order is not stayed; or upon the entry of an order, judgment or decree by operation of law or by a court having jurisdiction in the premises which is not stayed adjudging it a bankrupt or insolvent under, or ordering relief against it under, or approving as properly filed a petition seeking relief against it under the provisions of any other now existing or future applicable bankruptcy, insolvency or other similar law of the United States of America or any state thereof or of any other country or jurisdiction providing for the reorganization, winding-up or liquidation of corporations or any arrangement, composition, extension or adjustment with creditors, or appointing a receiver, liquidator, assignee, sequestrator, trustee or custodian of the Guarantor, Borrower, or any Subsidiary of Borrower or of any substantial part of its property, or ordering the reorganization, winding-up or liquidation of its affairs, or upon the expiration of thirty (30) days after the filing of any involuntary petition against it seeking any of the relief specified in Section 9.1(f) or this Section 9.1(g) without the petition being dismissed prior to that time, unless such ------ occurrence described in this Section 9.1(g) with respect to Subsidiaries of Borrower has no material adverse affect on the consolidated financial condition of Guarantor or Borrower or on the ability of Guarantor or Borrower to perform its obligations under the Loan Documents; or (h) Insolvency, Etc. The Guarantor, Borrower, or any Subsidiary of --------------- Borrower shall (i) make a general assignment for the benefit of its creditors or (ii) consent to the appointment of or taking possession by a receiver, liquidator, assignee, trustee, or custodian of all or a substantial part of the property of the Guarantor, Borrower, or any Subsidiary of Borrower, or (iii) admit its insolvency or inability to pay its debts generally as they become due, or (iv) fail generally to pay its debts as they become due, or (v) take any action (or suffer any action to be taken by its directors or shareholders) looking to the dissolution or liquidation of the Borrower, unless such occurrence described above in (i) ------ through (v) with respect to Subsidiaries of Borrower has no material adverse affect on the consolidated financial condition of Guarantor or Borrower or on the ability of Guarantor or Borrower to perform its obligations under the Loan Documents; or (i) ERISA. The Borrower or any member of the Controlled Group shall ----- fail to pay when due an amount or amounts aggregating in excess of Five Hundred Thousand Dollars ($500,000) which it shall have become liable to pay to the PBGC or to a Plan under Section 515 of ERISA or Title IV of ERISA; or notice of intent to terminate a Plan or Plans (other than a multi-employer plan, as defined in Section 4001(3) of ERISA), having aggregate Unfunded Vested Liabilities in excess of Five Hundred Thousand Dollars ($500,000) shall be filed under Title IV of ERISA by the Borrower, any member of the Controlled Group, any plan administrator or any combination of the foregoing; or the PBGC shall institute proceedings under Title IV of ERISA to terminate any such Plan or Plans; or (j) Borrower's Status as Wholly-Owned Subsidiary. Borrower shall -------------------------------------------- cease to be a wholly-owned Subsidiary of Guarantor. Section 9.2 Consequences of Default. If any of the Events of Default ----------------------- described in Section 9.1(f) or Section 9.1(g) shall occur, the Commitment shall immediately terminate, the principal of and the interest on 23 Loans, Multicurrency Advances and all other sums payable by Borrower hereunder and under the Revolving Note and the Multicurrency Note shall become immediately due and payable, and shall become immediately due and payable all without protest, presentment, notice or demand, all of which the Borrower and Guarantor expressly waive. If any other Event of Default shall occur and be continuing, then in any such case and at any time thereafter so long as any such Event of Default shall be continuing, the Lender may immediately terminate the Commitment and, if Loans or Multicurrency Advances shall have been made, the Lender may declare the principal of and the interest on the Loans and the Revolving Note, and on the Multicurrency Advances and the Multicurrency Note, and all other sums payable by the Borrower or Guarantor hereunder or thereunder to be immediately due and payable, whereupon the same shall become immediately due and payable all without protest, presentment, notice, or demand, all of which the Borrower and Guarantor expressly waive. ARTICLE 10 GUARANTY -------- Section 10.1 Guaranteed Obligations. The Guarantor absolutely and ---------------------- unconditionally guarantees payment to the Lender when due (whether by scheduled maturity, required prepayment, acceleration, demand or otherwise) of all indebtedness, liabilities and obligations whatsoever of the Borrower owing to the Lender hereunder or under the Revolving Note or the Multicurrency Note or the L/C Agreement, whether presently existing or hereafter arising (collectively, the "Obligations"), without set-off, counterclaim, recoupment or deduction of any amounts owing or alleged to be owing by Lender to Borrower. This guaranty is a guaranty of payment and not merely of collection. Section 10.2 Guarantor's Consent. The Guarantor hereby consents that the ------------------- Lender may without further consent or disclosure and without affecting or releasing the obligations of Guarantor hereunder: (a) waive or delay the exercise of any rights or remedies of the Lender against the Borrower; and (b) renew, extend, waive or modify the terms of any Obligation or any instrument or agreement evidencing the same. Section 10.3 Guarantor's Waiver. The Guarantor waives any action on ------------------ delinquency in respect of the Obligations or any part thereof, including any right to require Lender to sue Borrower. Guarantor further waives notice of (a) any default by the Borrower; (b) the obtaining of any guaranty or surety agreement (in addition to this guaranty); (c) the obtaining of any pledge, assignment or other security for any Obligations; (d) any renewal, extension or modification of the terms of any Obligation or of the obligations or liabilities of any surety or guarantor or any instruments or agreements evidencing the same; (e) any other demands or notices whatsoever with respect to the Obligation or this guaranty. Section 10.4 Unconditional Guaranty. The obligations of the Guarantor ---------------------- under this guaranty are absolute and unconditional without regard to the obligations of any other party or person. The obligations of the Guarantor hereunder shall not be in any way limited or effected by any circumstances whatsoever including, without limitation, (a) any failure by the Borrower or any other guarantor or surety to perform or comply with the Obligations or the terms of any instrument or agreement relating thereto; (b) any change in the name, purpose, capital stock or constitution of the Borrower; (c) any irregularity or defect by Lender (excluding negligent or willful misconduct), Borrower or any other guarantor or surety or any of their respective officers, directors or other agents in executing and delivering any instrument or agreements relating to the Obligations or in carrying out or attempting to carry out the terms of any such agreements; (d) any insolvency, bankruptcy, reorganization or similar proceeding by or against Borrower, Lender, Guarantor or any other surety or guarantor; (e) any setoff, counterclaim, recoupment, deduction, defense or other right which Guarantor may have against Lender, Borrower or any other person for any reason whatsoever whether related to the Obligations or otherwise; or (f) any other circumstances which might constitute a legal or equitable discharge or defense, in whole or in part, of a surety or guarantor. Guarantor hereby waives all defenses of a surety to which it may be entitled by statute or otherwise. Section 10.5 Waiver of Subrogation. Guarantor hereby irrevocably waives --------------------- all claims it has or may acquire against Borrower in respect of the Obligations, including rights of exoneration, reimbursement and subrogation. 24 ARTICLE 11 MISCELLANEOUS ------------- Section 11.1 No Waiver; Remedies Cumulative. No failure by Lender, ------------------------------ Guarantor or the Borrower to exercise, and no delay in exercising, any right, power or remedy under this Agreement or any other Loan Document shall operate as a waiver thereof, nor shall any single or partial exercise of any right, power or remedy under this Agreement or any other Loan Document preclude any other or further exercise thereof or the exercise of any other right, power, or remedy. The exercise of any right, power, or remedy shall in no event constitute a cure or waiver of any Event of Default under this Agreement or any other Loan Document nor prejudice any party's rights in the exercise of any powers hereunder or thereunder. The rights and remedies provided herein and therein are cumulative and not exclusive of any right or remedy provided by law. Section 11.2 Governing Law. This Agreement and the other Loan Documents ------------- shall be governed by and construed in accordance with the laws of the State of Washington, U.S.A. Section 11.3 Consent to Jurisdiction. Each party hereto irrevocably ----------------------- submits to the nonexclusive jurisdiction of any state or federal court sitting in Seattle, King County, Washington, in any action or proceeding brought to enforce or otherwise arising out of or relating to this Agreement or any other Loan Document and agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in any other jurisdiction by suit on the judgment or in any other manner provided by law. Nothing in this Section 11.3 shall impair the right of any party to bring any action or proceeding hereunder in the courts of any other jurisdiction, and the Borrower and Guarantor irrevocably submit to the nonexclusive jurisdiction of the appropriate courts of the jurisdiction in which any property or an office of the Borrower or Guarantor is located. Section 11.4 Notices. All notices and other communications provided for ------- in this Agreement shall be in writing or (unless otherwise specified) by telex, facsimile transmission, telegram or cable and shall be mailed (with first class postage prepaid) or sent or delivered to each party at the address set forth under its name on Schedule 3 hereof, or at such other address as shall be designated by such party in a written notice to each other party. Except as otherwise specified all notices sent by mail, if duly given, shall be effective three (3) Business Days after deposit into the mails, all notices sent by a nationally recognized overnight courier service, if duly given, shall be effective one (1) Business Day after delivery to such courier service, and all other notices and communications if duly given or made shall be effective upon receipt. Section 11.5 Assignment. This Agreement shall be binding upon and inure ---------- to the benefit of the parties and their respective Successors and assigns, provided that the Borrower or Guarantor may not assign or otherwise transfer all - -------- or any part of its rights or obligations hereunder or under any other Loan Document without the prior written consent of the Lender. Except as provided herein, Lender shall not have the right to sell or assign all or any portion of the Loans or Multicurrency Advances or of its right, title and interest therein or thereto or in or to this Agreement or any other Loan Document to any other person without the Borrower's prior written consent; provided, however, Lender -------- ------- may grant participations in all or any portion of its Loans or Multicurrency Advances, or the Commitment, but Lender's obligations under the Loan Documents shall remain unchanged, and the Borrower and Guarantor shall continue to deal solely and directly with the Lender in connection with Lender's rights and obligations under the Loan Documents. Section 11.6 Severability. Any provision of this Agreement or any other ------------ Loan Document which is prohibited or unenforceable in any jurisdiction shall as to such jurisdiction be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof or affecting the validity or enforceability of such provision in any other jurisdiction. To the extent permitted by applicable law, the parties waive any provision of law which renders any provision hereof prohibited or unenforceable in any respect. 25 Section 11.7 Survival. All representations, warranties and indemnities of -------- the Borrower, Guarantor or the Lender shall survive the execution and delivery of this Agreement and the other Loan Documents and the making of any Loan or Multicurrency Advance. Notwithstanding anything in this Agreement or implied by law to the contrary, the indemnities of Borrower and Guarantor in favor of the Lender, and the obligations of Borrower and Guarantor contained herein to pay fees to, and expenses incurred by, the Lender shall survive the payment of the Loans and Revolving Note and the Multicurrency Advances and the Multicurrency Note, and the termination of the Commitment and this Agreement. Section 11.8 Conditions Not Fulfilled. If the Commitment is not borrowed, ------------------------ owing to nonfulfillment of any condition precedent specified in Article 5, no party hereto shall be responsible to any other party for any damage or loss by reason thereof, except that the Borrower shall in any event be liable to pay the fees, Taxes, and expenses for which it is obligated hereunder and the Guarantor's obligations under Article 10 hereof shall extend to the Borrower's responsibility to pay such amounts. Section 11.9 Entire Agreement; Amendment. This Agreement comprises the --------------------------- entire agreement of the parties and may not be amended or modified except by written agreement, executed in conformance with the terms of Section 11.1 hereof. No provision of this Agreement may be waived except in writing and then only in the specific instance and for the specific purpose for which given. Section 11.10 Headings. The headings of the various provisions of this -------- Agreement are for convenience of reference only, do not constitute a part hereof, and shall not affect the meaning or construction of any provision hereof. Section 11.11 Prevailing Party Attorney's Fees. If a final judgment is -------------------------------- rendered in any judicial proceeding brought by any party against any other party to enforce the provisions of this Agreement or any other Loan Document, the party in whose favor such judgment is rendered shall be entitled to recovery of its reasonable attorney's fees and costs, including the allocated cost of in- house counsel. Section 11.12 Counterparts. This Agreement may be executed in any number ------------ of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original, and all of which taken together shall constitute one and the same Agreement. Section 11.13 Confidentiality. Lender agrees during the term of this --------------- Agreement and for three years thereafter, except as required by applicable law or regulation or as is necessary to the enforcement of the Loan Documents, to maintain in confidence any confidential information provided by Borrower or Guarantor which is not or does not become publicly known without breach of this provision. Lender agrees to use such confidential information only in connection with the administration of the Loans, the Multicurrency Advances and the Letter of Credit. Section 11.14 CONCERNING ORAL. ORAL AGREEMENTS OR ORAL COMMITMENTS TO --------------- LOAN MONEY, EXTEND CREDIT OR TO FORBEAR FROM ENFORCING PAYMENT OF A DEBT ARE NOT ENFORCEABLE UNDER WASHINGTON LAW (RCW 19.36). IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective officers or agents thereunto duly authorized as of the date first above written. 26 BORROWER: ADVANCED TECHNOLOGY LABORATORIES, INC., a Washington corporation By: /s/ Pamela L. Dunlap ________________________________ Its: Vice President & Treasurer _______________________________ GUARANTOR: ATL ULTRASOUND, INC., a Washington corporation By: /s/ Pamela L. Dunlap ________________________________ Its: Vice President & Treasurer _______________________________ LENDER: BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, dba SEAFIRST BANK By: /s/ [signature illegible] ________________________________ Its: Vice President _______________________________ 27 EXHIBIT A REVOLVING NOTE $15,000,000 July _____,1997 Seattle, Washington FOR VALUE RECEIVED, the undersigned, ADVANCED TECHNOLOGY LABORATORIES, INC. a Washington corporation (the "Borrower"), hereby promises to pay to the order of Bank of America National Trust and Savings Association, doing business as SEAFIRST BANK (the "Lender") on the Maturity Date the unpaid principal balance of all loans made under this Note, in a maximum amount not to exceed Fifteen Million Dollars ($15,000,000), together with interest thereon from the date hereof until maturity at a per annum rate equal to the Interest Rate (changing as the Interest Rate changes), and, if default shall occur in the payment when due (whether by acceleration or otherwise) of any principal amount hereunder, from the maturity of that amount until it is paid in full at a per annum rate equal to the Reference Rate (changing as the Reference Rate changes), plus two percent (2%). Notwithstanding anything herein to the contrary, interest shall not accrue at a rate in excess of the maximum rate permitted by applicable law. The Borrower further agrees as follows: 1. All payments of principal and interest on this Note shall be made to Seafirst Bank, at its Commercial Loan Service Center, Seattle, Washington, in immediately available funds. 2. As used herein "Interest Rate" shall mean the Reference Rate unless the Borrower shall elect to have some or all of the loans made hereunder accrue interest at the Quoted Rate or the LIBOR Rate as provided in Section 2.5(d) of the Revolving Credit Agreement and Guaranty dated July ______, 1997, among Lender, Borrower, and ATL ULTRASOUND, INC., as "Guarantor" ("Loan Agreement"). Accrued but unpaid interest on loans bearing interest at the Reference Rate shall be paid on (i) the last Business Day of each calendar quarter commencing on June 30, 1997, and continuing on the last Business Day of each March, June, September and December thereafter, (ii) the date of any principal payment (to the extent accrued on the principal amount paid) and (iii) at maturity. Accrued but unpaid interest on each Quoted Rate Loan or LIBOR Loan shall be paid (i) on the last day of each Applicable Interest Period, (ii) the date of any principal payment (to the extent accrued on the principal amount paid), (iii) at maturity and (iv) for LIBOR Loans for which the Applicable Interest Period is six months, interest shall also be payable on a day 90 days or three months, respectively, after the commencement of such Applicable Interest Period. Unpaid interest accruing on amounts in default shall be payable on demand. 3. This Note is issued under and is subject to the terms of the Loan Agreement. In the event of any conflict between the terms of this Note and the Loan Agreement, the Loan Agreement shall control. Capitalized terms not defined herein have the meanings set forth in the Loan Agreement. 4. It is expressly provided that if any of the Events of Default defined in Sections 9.1(f) or 9.1(g) of the Loan Agreement shall occur, the entire unpaid balance of the principal and interest hereunder shall be immediately due and payable in accordance with the terms of the Loan Agreement. It is also expressly provided that upon the occurrence of any other Event of Default, the entire remaining unpaid balance of the principal and interest may be declared by the Lender to be immediately due and payable in accordance with the terms of the Loan Agreement. 5. The unpaid principal balance of the Loans made hereunder shall be the total amount advanced hereunder, less the amount of the principal payments made hereon. This Note is given to avoid the execution of an individual note for each Loan by the Lender to the Borrower. This Note evidences a revolving credit and within the limits and on the conditions set forth in the Loan Agreement, prior to the Maturity Date, the Borrower may borrow, repay and reborrow hereunder. The Lender is hereby 1 authorized to record on a schedule or computer-generated statement the date and amount of each Loan it makes hereunder and the date and amount of each payment of principal and interest thereon, and such schedule or statement shall constitute a part of this Note. Any such recordation by the Lender shall constitute prima facie evidence of the accuracy of the information so recorded; provided, however, that the failure to make any such recordation or any error in any such recordation shall not affect the obligations of the Borrower hereunder. 6. Each maker, surety, guarantor and endorser of this Note expressly waives all notices, demands for payment, presentations for payment, notices of intention to accelerate the maturity, protest and notice of protest. 7. In the event this Note is placed in the hands of an attorney for collection, or suit is brought on the same, or the same is collected through bankruptcy or other judicial proceedings, except as provided in Section 11.11 of the Loan Agreement, the Borrower agrees and promises to pay reasonable attorneys' fees and collection costs, including all out-of-pocket expenses incurred by the Lender, and the allocated cost of in-house counsel. 8. This Note has been executed and delivered in and shall be governed by and construed in accordance with the internal laws of the State of Washington. The Borrower hereby irrevocably submits to the nonexclusive jurisdiction of any state or federal court sitting in Seattle, King County, Washington, in any action or proceeding brought to enforce or otherwise arising out of or relating to this Note. 2 BORROWER: ADVANCED TECHNOLOGY LABORATORIES, INC., a Washington corporation By:_________________________________ Its:________________________________ 2 EXHIBIT B MULTICURRENCY NOTE July _____, 1997 Seattle, Washington FOR VALUE RECEIVED, the undersigned, ADVANCED TECHNOLOGY LABORATORIES, a Washington corporation (the "Borrower"), hereby promises to pay to the order of Bank of America National Trust and Savings Association, doing business as SEAFIRST BANK (the "Lender") on the Maturity Date, in immediately available funds, all principal amounts advanced under this Note, pursuant to the terms, conditions, and definitions of the Revolving Credit Agreement and Guaranty dated July ______, 1997, among Lender, Borrower, and ATL ULTRASOUND, INC., as "Guarantor" ("Loan Agreement"), together with interest on the daily unpaid principal balance from the date of each Multicurrency Advance until paid in full in accordance with the Loan Agreement. This Note is the Multicurrency Note referred to in the Loan Agreement, and the Loan Agreement is incorporated herein. Each Multicurrency Advance shall be repaid in the currency which was advanced, and shall be repaid on the last day of its Applicable Interest Period. Interest accrued on each Multicurrency Advance under this Note shall be paid as provided in the Loan Agreement. 1. All payments of principal and interest on this Note shall be made to Seafirst Bank, at its Commercial Loan Service Center, Seattle, Washington, in immediately available funds. 2. This Note is issued under and is subject to the terms of the Loan Agreement. In the event of any conflict between the terms of this Note and the Loan Agreement, the Loan Agreement shall control. Capitalized terms not defined herein have the meanings set forth in the Loan Agreement. 3. It is expressly provided that if any of the Events of Default defined in Sections 9.1(f) or 9.1(g) of the Loan Agreement shall occur, the entire unpaid balance of the principal and interest hereunder shall be immediately due and payable in accordance with the terms of the Loan Agreement. It is also expressly provided that upon the occurrence of any other Event of Default, the entire remaining unpaid balance of the principal and interest may be declared by the Lender to be immediately due and payable in accordance with the terms of the Loan Agreement. 4. The unpaid principal balance of the Multicurrency Advances made hereunder shall be the total amount advanced hereunder, less the amount of the principal payments made hereon. This Note is given to avoid the execution of an individual note for each Multicurrency Advance by the Lender to the Borrower. This Note evidences a revolving credit and within the limits and on the conditions set forth in the Loan Agreement, prior to the Maturity Date, the Borrower may borrow, repay and reborrow hereunder. The Lender is hereby authorized to record on a schedule or computer-generated statement the date and amount of each Loan it makes hereunder and the date and amount of each payment of principal and interest thereon, and such schedule or statement shall constitute a part of this Note. Any such recordation by the Lender shall constitute prima facie evidence of the accuracy of the information so recorded; provided, however, that the failure to make any such recordation or any error in any such recordation shall not affect the obligations of the Borrower hereunder. 5. Each maker, surety, guarantor and endorser of this Note expressly waives all notices, demands for payment, presentations for payment, notices of intention to accelerate the maturity, protest and notice of protest. 6. In the event this Note is placed in the hands of an attorney for collection, or suit is brought 1 on the same, or the same is collected through bankruptcy or other judicial proceedings, except as provided in Section 11.11 of the Loan Agreement, the Borrower agrees and promises to pay reasonable attorneys' fees and collection costs, including all out-of-pocket expenses incurred by the Lender, and the allocated cost of in-house counsel. 7. This Note has been executed and delivered in and shall be governed by and construed in accordance with the internal laws of the State of Washington. The Borrower hereby irrevocably submits to the nonexclusive jurisdiction of any state or federal court sitting in Seattle, King County, Washington, in any action or proceeding brought to enforce or otherwise arising out of or relating to this Note. BORROWER: ADVANCED TECHNOLOGY LABORATORIES, INC., a Washington corporation By:___________________________________ Its:__________________________________ 2 EXHIBIT C MULTICURRENCY BORROWING NOTICE TO: Seafirst Bank Metropolitan Commercial Team 2 701 Fifth Ave., 11th Floor Seattle, Washington 98104 Att'n: Hank Knottnerus Phone: (206) 358-3369 Fax: (206) 358-3113 BORROWING INSTRUCTIONS: Date of Borrowing: ______________ Specify New Advance or Rollover: ______________ Currency Type: ______________ Amount requested in applicable Currency: ______________ Interest Period (1, 2, 3, or 6 months): ______________ WIRE INSTRUCTIONS: Bank Name: ______________ SWIFT Code: ______________ Account Name: ______________ Account Number: ______________ Attention: ______________ Phone Number: ______________ DATED as of this __________ day of _____________________________, 19______. ADVANCED TECHNOLOGY LABORATORIES By___________________________________ Title________________________________ ________________________________________________________________________________ Bank Use Only: Currency Borrowing Rate: ______________ Plus Usage Factor (0.625% or 0.75%) ______________ All-In Rate: ______________ Accrual Basis (actual/360 or actual/365/66) ______________ U.S.$ Equivalent: ______________ EXHIBIT D QUARTERLY COMPLIANCE CERTIFICATE The undersigned, being the _______________________ of ATL ULTRASOUND, INC., a Washington corporation, (the "Guarantor"), does hereby certify to Bank of America National Trust and Savings Association, doing business as SEAFIRST BANK, (the "Lender"), as follows: (a) This Certificate is given pursuant to Section 7.2 of that certain Revolving Credit Loan Agreement (the "Credit Agreement") dated as of July ______, 1997, among the Lender, the Guarantor and Advanced Technology Laboratories, Inc., a Washington corporation (the "Borrower"). (b) The financial statements for the Fiscal Year [fiscal quarter] ended _________________ delivered with this Certificate pursuant to the requirements of Section 7.2 of the Credit Agreement have been prepared in accordance with generally accepted accounting principles consistently applied and present fairly the financial position and the results of operations of the Guarantor and the Consolidated Subsidiaries as of the end of and for such fiscal period. (c) Since the Fiscal Year-end report previously provided to the Lender pursuant to Section 6.6 or Section 7.2(ii) of the Credit Agreement, there have been no changes to the operations, business or financial condition of the Guarantor and the Consolidated Subsidiaries that would be sufficient to impact the Borrower's ability to repay any outstanding or requested Loans or that have resulted in, or are forecast by Borrower to result in, a Default or Event of Default. (d) There has not existed during the fiscal quarter ended _______________________ and there does not now exist any Event of Default or Default under the Credit Agreement. (e) If an Event of Default has existed or does exist, the nature of such event is as follows: ________________________________. Such Event of Default occurred on ________________ and existed for a period of ____________________. Guarantor or Borrower took the following action, or propose to take the following action with respect to such Event of Default:_______________________ (f) The computations and descriptions set forth in Schedule 1 hereto demonstrate compliance with Sections 7.11-7.13, 8.3-8.9 of the Credit Agreement. (g) Capitalized terms used herein and not otherwise defined shall have the meanings defined in the Credit Agreement. DATED this _____ day of _______________, 19___. ATL ULTRASOUND, INC., a Washington corporation By: ______________________________ Its:______________________________ 1 SCHEDULE 1 TO QUARTERLY COMPLIANCE CERTIFICATE Section 7.11 Quick Ratio - ------------------------ Actual Quick Ratio ------------------ 1. Cash and Cash Equivalents $__________ 2. Short Term Marketable Securities $__________ 3. Receivables (net of allowance for doubtful receivables and sales returns) $__________ 4. Sum of 1, 2 & 3 $__________ 5. Total Current Liabilities $__________ 6. Actual Quick Ratio (clause 4 divided by clause 5) __________ Permitted Minimum Quick Ratio Not less than 1.1 to 1 Section 7.12 Current Ratio - -------------------------- 1. Consolidated Current Assets $________ 2. Consolidated Current Liabilities $________ 3. Current Ratio (clause 1 divided by clause 2) ________ Permitted Minimum Current Ratio Not less than 1.8 to 1.0 Section 7.13 Tangible Net Worth - ------------------------------- Actual Tangible Net Worth as of 199 ------------------------- 1. Total assets as reflected on balance sheet $__________ Page 1 Less excluded assets: a. intangible assets $__________ b. cash in fund for redemption or retire- ment of capital stock $__________ c. reserves to the extent not already deducted from total assets $__________ d. revaluation or write-up of book value of assets subsequent to Fiscal Year ended December 31, 1996 $__________ 2. Sum of non-excluded assets $__________ 3. Total Liabilities (as used in Section 7.13) $__________ 4. Difference between 2 and 3 $__________ 5. Cumulative Foreign Currency Translation Adjustments Excluded $__________ 6. Actual Tangible Net Worth (difference between 4 and 5) $__________ Required Tangible Net Worth --------------------------- 1. 90% of consolidated Tangible Net Worth of Borrower and its Subsidiaries as of December 31, 1996 $__________ 2. 50% of Consolidated Net Income since December 31, 1996 (if positive) $__________ 3. Contribution to Tangible Net Worth arising since December 31, 1996, from additional equity (excluding equity adjustments arising from stock compensation plans) $__________ Page 2 4. Required Tangible Net Worth: (sum of 1, 2 and 3) $__________ Section 8.3 Dividends - --------------------- 1. Actual dividends since December 31, 1996 $__________ 2. Permitted dividends: 50% of Consolidated Net Income since December 31, 1996 $__________ Section 8.4 Stock Repurchases - ----------------------------- 1. Actual amount paid for acquisition of Guarantor stock during fiscal quarter ended ___________________ $__________ 2. Total actual amount paid for acquisition of Guarantor stock in applicable Fiscal Year through quarter ended ___________________ $__________ 3. Permitted amount to be paid for acquisition of Guarantor stock during any Fiscal Year $20,000,000 Section 8.5 Investments - ----------------------- 1. Actual amount invested in any related business during fiscal quarter ended ________________ (other than investments specifically permitted by subsections (a)-(b) of Section 8.5) $__________ 2. Total actual amount invested in any related business in applicable Fiscal Year through quarter ended ___________________ (other than investments specifically permitted by subsections (a)-(b) of Section 8.5) $__________ Page 3 3. Permitted amount to be invested in any related business during any Fiscal Year (other than amounts specifically permitted in subsections (a)-(b) of Section 8.5) $15,000,000 Section 8.6 Merger or Sale of Assets - ------------------------------------ 1. Aggregate sales price of assets sold in fiscal quarter ended _______________ (other than sales permitted by clauses (a)-(e) of Section 8.6) $__________ 2. Aggregate sales price of assets sold in applicable Fiscal Year through quarter ended ___________________ (other than sales permitted by clauses (a)-(e) of Section 8.6) $__________ 3. Permitted asset sales during any Fiscal Year (other than sales permitted by clauses (a)-(e) of Section 8.6) $15,000,000 Description of asset sales of Guarantor or a Subsidiary that involve a sales price of more than $5,000,000 and are outside the ordinary course of business: ________________________________________________________________ __________________________________________________________________________ __________________________________________________________________________ Section 8.7 Capital Expenditures - -------------------------------- 1. Aggregate capital expenditures of Guarantor and Subsidiaries for fiscal quarter ended _____________ $__________ 2. Aggregate capital expenditures of Guarantor and Subsidiaries in applicable Fiscal Year through quarter ended ___________________ $__________ 3. Permitted aggregate capital expenditures of Guarantor and Subsidiaries for any Fiscal Year $25,000,000 Page 4 Section 8.8 Leverage Ratio (Fiscal Year End Only) - -------------------------- Actual Leverage Ratio as of ______________ --------------------- 1. Consolidated total liabilities of Guarantor and Subsidiaries $__________ 2. Consolidated Tangible Net Worth (as defined in Section 7.13) of Guarantor and Subsidiaries $__________ 3. Leverage Ratio (clause 1 divided by clause 2) __________ Permitted Maximum Leverage Ratio Not greater -------------------------------- than 1.2 to 1.0 Section 8.9 - ----------- Consolidated Net Losses (Most recent quarter) 1. Consolidated Net Losses of Guarantor and its Subsidiaries During Quarter Ending ________ $__________ 2. Permitted Consolidated Net Losses of Guarantor and its Subsidiaries $10,000,000 Quarter Ending ------- Consolidated Net Losses (Most recent 4 consecutive quarters) 1. Consolidated Net Losses _________ $___________ of Guarantor and its _________ $___________ Subsidiaries _________ $___________ _________ $___________ Total $___________ 2. Permitted consolidated Net Losses of Guarantor and its Subsidiaries in any period of four consecutive fiscal quarters $20,000,000 Page 5 SCHEDULE 3 NOTICE ADDRESSES BORROWER: ADVANCED TECHNOLOGY LABORATORIES Advanced Technology Laboratories. 22100 Bothell Highway S.E. Bothell, Washington 98021 Attn: Senior Vice President, Finance and Administration Phone: (206) 487-7000 Fax: (206) 485-3680 GUARANTOR: ATL ULTRASOUND, INC. ATL Ultrasound, Inc. 22100 Bothell Highway S.E. Bothell, Washington 98021 Attn: Senior Vice President, Finance and Administration Phone: (206) 487-7000 Fax: (206) 485-3680 LENDER: SEAFIRST BANK Seafirst Bank Metropolitan Wholesale, Team 2 701 Fifth Avenue, 11th Floor Seattle, Washington 98104 Att: Mr. Hendrikus T. Knottnerus, Vice President Phone: (206) 358-3369 Fax: (206) 358-3124 EX-10.2 3 LOAN MODIFICATION AGREEMENT DATED 4/21/1998 EXHIBIT 10.2 [LETTERHEAD OF SEAFIRST BANK APPEARS HERE] LOAN MODIFICATION AGREEMENT This Amendment amends the Revolving Credit Loan Agreement and Guaranty dated July 2, 1997 ("Agreement") executed by ADVANCED TECHNOLOGY LABORATORIES, INC., a Washington corporation ("Borrower"), ATLULTRASOUND, INC., a Washington corporation ("Guarantor"), and BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, DOING BUSINESS AS SEAFIRST AK ("Lender"), regarding a revolving loan in the maximum principal amount of $15,000,000 (the "Loan"), and also amends the "Revolving Note," as such term is defined in the Agreement. All terms defined in the Agreement shall have the same meaning when used in this Amendment, except as may be otherwise provided in this Amendment. For mutual consideration, Borrower and Lender agree to amend the Agreement as follows: 1. Commitment. Section 2.1 of the Agreement is amended to provide that ---------- the "Commitment" shall mean $25,000,000 less any reductions made pursuant to Section 2.3 of the Agreement. 2. Revolving Note. The maximum principal amount of the Revolving Note is --------------- hereby amended to be $25,000,000 3. Maturity Date. Section 1.1 of the Agreement is amended to amend the ------------- definition of "Maturity Date" to read as follows: "Maturity Date" means June 30, 2001, or such later date as shall be established pursuant to Section 2.10 hereof. 4. Tangible Net Worth. Section 1.1 of the Agreement is amended to amend ------------------ the definition of "Tangible Net Worth" to read as follows: "Tangible Net Worth" shall have the meaning given in Section 7.13. and the first sentence of Section 7.13 of the Agreement is amended to read as follows: Based on the consolidated financial statements of Guarantor and the Consolidated Subsidiaries, Guarantor shall maintain, as of the end of each fiscal quarter of Guarantor, a minimum consolidated Tangible Net Worth equal to at least the sum of (i) 90% of the actual consolidated Tangible Net Worth of Guarantor and the Consolidated Subsidiaries as of December 31, 1997, minus (ii) $30,000,000, plus (iii) 50% of Consolidated Net Income (if positive) in each fiscal quarter of Guarantor ending after December 31, 1997, plus (iv) one hundred percent (100%) of the contribution to Tangible Net Worth arising since December 31, 1997, from the raising or contribution of additional equity to Guarantor or any of the Consolidated Subsidiaries or the conversion of any subordinated debt of Guarantor or any Consolidated Subsidiary to equity in Guarantor or any Consolidated Subsidiary (excluding equity adjustments arising from employee stock compensation plans). 5. Dividends. A dividend of up to $30,000,000 may be paid in connection --------- with the spinoff and capitalization of Borrower's hand-held business division into a separate, publicly-held corporation, without regard to Section 8.3 of the Agreement, and such dividend shall not be counted in calculating compliance with said Section 8.3. 6. Other Terms. Except as specifically amended by this Amendment or any ----------- prior amendment, all other terms, conditions, and definitions of the Agreement and all other guaranties, notes, and other instruments or agreements entered into with regard to the Loan shall remain in full force and effect. DATED April 21, 1998. Lender: Borrower: SEAFIRST BANK ADVANCED TECHNOLOGY LABORATORIES, INC., a Washington corporation By /s/ [SIGNATURE ILLEGIBLE] By: /s/ Pamela L. Dunlap -------------------------------- ------------------------------- Pamela L. Dunlap, Title VP S.V.P. & CFO ----------------------------- Guarantor: ATL ULTRASOUND, INC., a Washington corporation By: /s/ Pamela L. Dunlap ------------------------------- Pamela L. Dunlap, S.V.P. & CFO EX-10.3 4 LOAN MODIFICATION AGREEMENT DATED 6/16/1998 EXHIBIT 10.3 WHEN RECORDED RETURN TO: SEAFIRST BANK CREG, LOAN ADMINISTRATION P.O. BOX 3686 (CSC-15) SEATTLE, WA 98124-3686 ATTN: LOIS GUNNISON Document Title: Loan Modification Agreement GRANTOR: Advanced Technology Laboratories, Inc. GRANTEE: Bank of America National Trust and Savings Association, doing business as Seafirst Bank, the successor in interest by merger to Seattle-First National Bank LEGAL DESCRIPTION: ABBREVIATED LEGAL DESCRIPTION: SW Quarter, NE Quarter, Section 30, Township 27 N, Range 5 E FULL LEGAL DESCRIPTION: See Schedule A attached ---------- ASSESSOR'S TAX PARCEL NO.: 302705-1-028-0004; 302705-4-005-0005; and 302705-4- 006-0004 REFERENCE NOS. OF DOCUMENTS RELEASED OR ASSIGNED: N/A - -------------------------------------------------------------------------------- LOAN NOS.: 186603-7 AND 3031697 LOAN MODIFICATION AGREEMENT THIS AGREEMENT is made as of June 16, 1998, between BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, doing business as SEAFIRST BANK ("LENDER"), the successor in interest by merger to SEATTLE-FIRST NATIONAL BANK ("SEAFIRST"); ADVANCED TECHNOLOGY LABORATORIES, INC., a Washington corporation ("BORROWER"); and ATL ULTRASOUND INC., a Washington corporation, formerly known as ADVANCED TECHNOLOGY LABORATORIES , INC., a Delaware corporation ("GUARANTOR"). -1- RECITALS: A. Seafirst made a loan to Borrower in the original principal amount of $11,500,000 (the "LOAN") evidenced by a Promissory Note dated December 28, 1994, made by Borrower, payable to Seafirst or order (the "NOTE"). The Loan is secured by a Deed of Trust, Security Agreement and Fixture Filing with Assignment of Leases and Rents dated December 28, 1994 (the "DEED OF TRUST"), made by Borrower as Grantor, for the benefit of Seafirst, which constitutes a first lien encumbrance on the real property described on Schedule A attached to ---------- this Agreement, and the collateral described in the Deed of Trust or in any uniform commercial code financing statement filed with respect thereto (collectively the "PROPERTY"). The Deed of Trust is recorded in the real property records of Snohomish County, Washington under Recording No. 9412290067. The Note, the Deed of Trust and all other documents evidencing and securing the Loan are collectively referred to in this Agreement as the "LOAN DOCUMENTS". In addition to the Loan Documents, Borrower executed and delivered to Seafirst in connection with the Loan, a Certificate and Indemnity Agreement Regarding Building Laws and Hazardous Substances, dated as of December 28, 1994 (the "CERTIFICATE AND INDEMNITY"). B. Guarantor guaranteed the payment and performance of Borrower's obligations under the Loan Documents and the Certificate and Indemnity pursuant to a separate Guaranty of Payment and Performance dated December 28, 1994 (the "GUARANTY"). C. Lender is the present holder of the Note and of all of the rights and interests of Seafirst under the Loan Documents, the Certificate and Indemnity and the Guaranty. Borrower and Lender have agreed to make certain modifications to the Loan Documents, and Lender has agreed to make an additional loan to Borrower which will be secured by the Deed of Trust and guaranteed by Guarantor. AGREEMENT: In consideration of the mutual covenants contained in this Agreement, Borrower, Lender and Guarantor agree as follows: 1. Modification to Loan Documents. ------------------------------ (a) Note. From and after the effective date of this Agreement, the Note ---- is amended as follows: (i) The Variable Rate applicable to the Note will be adjusted to an interest equal to the "LIBOR Index" (as defined in the Note) as of the effective date of this -2- Agreement, plus nine-tenths of one percentage point (.90%) per annum. Monthly principal and interest payments at such Variable Rate will commence on July 20, 1998, and the next Interest Change Date for purposes of the Note will be December 20, 1998. (ii) Subparagraph 2(a)(ii) is amended to read as follows: Before each Interest Change Date, if applicable, the Holder will calculate the new Variable Rate which shall be equal to the Current Index, plus nine- tenths of one percentage point (.90%) per annum. This new interest rate will be the new Variable Rate until the next Interest Change Date. (iii) The first sentence of subparagraph 2(b)(i) is amended to read as follows: If Maker elects to have a Fixed Rate apply to this Note, interest shall accrue on the principal balance of this Note at a per annum rate equal to Lender's reserve adjusted "FIXED RATE INDEX" as quoted by Lender on the date the interest rate is fixed, for a period equivalent to the applicable Fixed Rate Period, plus nine-tenths of one percentage point (.90%) per annum. (iv) Paragraph 3 is amended to provide that the required monthly payments of principal and interest shall be due on the twentieth (20th) day of each month during the term of the Note. (v) Paragraph 16 is amended to read as follows: 16. CROSS DEFAULT. Maker, as borrower, Lender, as lender, and ATL ------------- Ultrasound Inc., as guarantor, are parties to a Revolving Credit Loan Agreement and Guaranty dated July 1, 1997, as amended from time to time (the "LOAN AGREEMENT"). In addition, Lender is the current holder of a Promissory Note dated June 3, 1998, in the original principal amount of $17,000,000, also secured by the Deed of Trust, made by Maker and payable to the order of Lender (the "ADDITIONAL NOTE "). Maker agrees if Maker or ATL Ultrasound Inc. defaults under the Loan Agreement, or if Maker defaults under the Additional Note, and in either case the default is not cured prior to the expiration of the applicable cure period, if any, such default will constitute a default under this Note and the other Loan Documents and no additional notice of default shall be required under Paragraph 6 of this Note. (b) Deed of Trust. Paragraph 5(a) of Article I of the Deed of Trust ------------- is hereby amended as follows: -3- (a) Payment of the sum of ELEVEN MILLION FIVE HUNDRED THOUSAND DOLLARS ($11,500,000), or so much thereof as may be advanced, with interest thereon according to the terms of a Promissory Note dated December 28, 1994, including all renewals, amendments, modifications, extensions and substitutions therefor (the "EXISTING NOTE"), and payment of the sum of SEVENTEEN MILLION DOLLARS ($17,000,000), or so much thereof as may be advanced, with interest thereon according to the terms of a Promissory Note dated June 3, 1998, including all renewals, amendments, modifications, extensions and substitutions therefor (the "ADDITIONAL NOTE"). The Existing Note and the Additional Note are referred to collectively as the "NOTE". THE NOTE MAY CONTAIN PROVISIONS ALLOWING FOR CHANGES IN THE INTEREST RATE. 2. Representations and Warranties. Borrower and Guarantor represent and ------------------------------ warrant: (a) Borrower and Guarantor have full legal power and authority to enter into this Agreement, all necessary consents and approvals for the execution and performance of this Agreement have been obtained, and once signed by each of the parties, this Agreement will be the legal, binding and enforceable obligation of Borrower and Guarantor. (b) Borrower owns and is vested in title to all of the Property and, except for security interests in the Property granted to Lender pursuant to the Deed of Trust or the Loan Agreement, the lien of real estate taxes and assessments not yet due, and other exceptions to title approved in writing by Lender, there exists no lien, charge or encumbrance against the Property created or arising subsequent to the recording date of the Deed of Trust. (c) Borrower has no known defense, claim or setoff, legal or equitable, to the full payment and performance of Borrower's obligations to Lender under the Loan Documents or the Certificate and Indemnity, as the same may be modified pursuant to this Agreement. (d) Guarantor has no known defense, claim or setoff, legal or equitable, to the full payment and performance of its obligations to Lender under the Guaranty. (e) Borrower and Guarantor have read this Agreement and all other documents required by Lender in connection with this Agreement, are familiar with their respective terms and conditions, and have had the opportunity for the advice of counsel of -4- their own selection in regard to the terms, meaning and effect of this Agreement and all other such documents. Borrower and Guarantor further acknowledge they have made and entered into this Agreement freely and voluntarily, without duress, and in reliance of no promise or representation of Lender or by which Lender is bound not expressly set forth in this Agreement. 3. Conditions. Lender's agreement to modify the Loan Documents and the ---------- Certificate and Indemnity as provided in this Agreement is subject to the satisfaction of each of the following conditions by not later than June 15, 1998, time being of the essence. Each condition is for the exclusive benefit of Lender, may be waived by Lender but any waiver must be in writing and signed by Lender in order to be effective. The "EFFECTIVE DATE" of this Agreement shall be the date all of the conditions set forth in this paragraph are met to Lender's satisfaction or waived in writing by Lender. (a) There are no uncured events of default under the Loan Documents or the Certificate and Indemnity, or any event or condition which, with notice or the passage of time or both would be an event of default under the Loan Documents or the Certificate and Indemnity. (b) Lender shall have received a modification endorsement or endorsements, in form satisfactory to Lender, from the title insurance company insuring the priority of the Deed of Trust, bringing the effective date of such title policy current to the date of the recording of this Agreement, insuring that the modifications provided for in this Agreement shall not impair the continued validity, priority and enforceability of the Deed of Trust, increasing the amount of the title insurance coverage by the amount of the Additional Note, and insuring that the Additional Note shall have the same priority as the initial advances made by Lender pursuant to the Loan Documents. (c) This Agreement and all other documents and agreements required by Lender as set forth in this Agreement shall have been fully signed, acknowledged and delivered by Borrower and Guarantor, and recorded in the real property records of Snohomish County, Washington. 4. Release. As additional consideration for the modifications of the Loan ------- pursuant to this Agreement, each party hereby releases and forever discharges the other, every participant in the Loan and each and every of their respective employees, agents, directors, officers, subsidiaries, parent corporations and affiliates (collectively the "RELEASED PARTIES") of and from all damage, loss, claims, demands, liabilities, obligations, actions and causes of action whatsoever which it may have or claim to have against the Released Parties or any of them as of the date of this Agreement, whether presently known or unknown, on account of or in any way concerning, arising out of or founded upon the Loan including, but -5- not limited to, all such loss or damage of any kind heretofore sustained, or that may arise as a consequence of the dealings between the parties related to the transactions contemplated by this Agreement up to and including the date of this Agreement. The foregoing release and the covenants contained in this paragraph are contractual and not a mere recital. The parties agree no liability is admitted except Borrower's indebtedness to Lender under the Loan Documents and the Certificate and Indemnity, and all agreements and understandings between Borrower and Lender concerning the Loan are express and embodied in the Loan Documents and the Certificate and Indemnity, as modified pursuant to this Agreement. 5. Guaranty. Guarantor acknowledges and agrees its obligations under the -------- Guaranty are in full force and effect and the modifications to the Loan Documents, the Certificate and Indemnity and the Loan contained in this Agreement do not in any way impair the continued validity of the Guaranty. 6. General. ------- (a) Entire Agreement. This Agreement constitutes the entire agreement ---------------- among the parties with respect to the foregoing modification of the Loan and may not be amended except in writing signed by all parties. (b) Ratification. All of the Loan Documents and the Certificate and ------------ Indemnity, as modified pursuant to this Agreement, are ratified and affirmed and shall be and remain in full force and effect. Borrower shall promptly pay and perform as and when due all the Borrower's obligations under the Loan Documents, the Certificate and Indemnity and this Agreement. This Agreement is not intended to and shall not be construed to impair the validity, priority or enforceability of the Deed of Trust or the other Loan Documents or the Certificate and Indemnity. (c) Cross Default. Any default by Borrower under this Agreement shall ------------- constitute a default under the Loan Documents and the Certificate and Indemnity, and each of them, and any default by Borrower under any Loan Document or the Certificate and Indemnity shall constitute a default under this Agreement. (d) Lender Expenses. Borrower shall pay all costs and expenses of Lender --------------- incurred in connection with this Agreement, including without limitation appraisal fees, title insurance charges, and charges of outside legal counsel. (e) Governing Law. This Agreement shall be construed and enforced under ------------- the laws of the State of Washington. -6- NOTICE: ORAL AGREEMENTS OR ORAL COMMITMENTS TO LOAN MONEY, EXTEND CREDIT OR FOREBEAR FROM ENFORCING REPAYMENT OF A DEBT ARE NOT ENFORCEABLE UNDER WASHINGTON LAW. Dated as of the day and year first written above. LENDER: SEAFIRST BANK By /s/ Karla Kirkwood ________________________________________ Its Vice President ____________________________________ BORROWER: ADVANCED TECHNOLOGY LABORATORIES, INC., a Washington corporation By /s/ Pamela L. Dunlap ________________________________________ Its Sr. V.P., Finance and Admin., CFO ____________________________________ GUARANTOR: ATL ULTRASOUND, INC., a Washington corporation By /s/ Pamela L. Dunlap ________________________________________ Its Sr. V.P., Finance and Admin., CFO ____________________________________ -7- STATE OF WASHINGTON ) ) ss. COUNTY OF KING ) On this 17th day of June 1998, before me, a Notary Public in and for the State of Washington, duly commissioned and sworn, personally appeared Karla Kirkwood, to me known to be the Vice President of SEAFIRST BANK, the national banking association named in and which executed the foregoing instrument; and he/she acknowledged to me that he/she signed the same as the free and voluntary act and deed of said national banking association for the uses and purposes therein mentioned. I certify that I know or have satisfactory evidence that the person appearing before me and making this acknowledgment is the person whose true signature appears on this document. WITNESS my hand and official seal the day and year in this certificate above written. /s/ Lois R. Gunnison -------------------------------- Signature Lois R. Gunnison [SEAL] -------------------------------- Print Name NOTARY PUBLIC in and for the State of Washington, residing at Mukilteo. My commission expires 6-19-98. -8- STATE OF WASHINGTON ) ) ss. COUNTY OF SNOHOMISH ) On this 16th day of June, 1998, before me, the undersigned, a Notary Public in and for the State of Washington, duly commissioned and sworn personally appeared Pamela L. Dunlap, known to me to be the Sr. V.P. & CFO of ADVANCED TECHNOLOGY LABORATORIES, INC., a Washington corporation, the corporation that executed the foregoing instrument, and acknowledged the said instrument to be the free and voluntary act and deed of said corporation, for the purposes therein mentioned, and on oath stated that he/she was authorized to execute said instrument. I certify that I know or have satisfactory evidence that the person appearing before me and making this acknowledgment is the person whose true signature appears on this document. WITNESS my hand and official seal hereto affixed the day and year in the certificate above written. /s/ Kevin J. Grady ---------------------------------- Signature Kevin J. Grady [SEAL] ---------------------------------- Print Name NOTARY PUBLIC in and for the State of Washington, residing at Seattle. My commission expires 6/15/99. -9- STATE OF WASHINGTON ) ) ss. COUNTY OF SNOHOMISH ) On this 16th day of June, 1998, before me, the undersigned, a Notary Public in and for the State of Washington, duly commissioned and sworn personally appeared Pamela L. Dunlap, known to me to be the Sr. V.P. & CFO of ATL ULTRASOUND, INC., a Washington corporation, the corporation that executed the foregoing instrument, and acknowledged the said instrument to be the free and voluntary act and deed of said corporation, for the purposes therein mentioned, and on oath stated that he/she was authorized to execute said instrument. I certify that I know or have satisfactory evidence that the person appearing before me and making this acknowledgment is the person whose true signature appears on this document. WITNESS my hand and official seal hereto affixed the day and year in the certificate above written. /s/ Kevin J. Grady --------------------------------- Signature Kevin J. Grady [SEAL] --------------------------------- Print Name NOTARY PUBLIC in and for the State of Washington, residing at Seattle. My commission expires 6/19/99. -10- EX-10.4 5 GUARANTY OF PAYMENT AND PERFORMANCE EXHIBIT 10.4 LOAN NO. 3031697 GUARANTY OF PAYMENT AND PERFORMANCE This Guaranty is made as of June 16th, 1998 by ATL ULTRASOUND, INC., a Washington corporation, formerly known as ADVANCED TECHNOLOGY LABORATORIES, INC., a Delaware corporation ("GUARANTOR"), to BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, doing business as SEAFIRST BANK, and its successors, participants and assigns ("LENDER"). RECITALS: A. Pursuant to a Promissory Note of even date executed by Borrower to the order of Lender, Lender has agreed to make a loan (the "LOAN") to ADVANCED TECHNOLOGY LABORATORIES, INC., a Washington corporation ("BORROWER"), in the amount of Seventeen Million Dollars ($17,000,000). The Loan is secured by a Deed of Trust, Security Agreement and Fixture Filing with Assignment of Leases and Rents dated December 28, 1994, made by Borrower as Grantor, recorded in the real property records of Snohomish County, Washington under Recording No. 9412790067, as amended by a Loan Modification Agreement of even date among Lender, Borrower and Guarantor. In addition to the foregoing documents, Borrower has executed and delivered to Lender in connection with the Loan certain other documents, all of which are collectively referred to in this Guaranty as the "LOAN DOCUMENTS"; except the term Loan Documents does not include that certain Certificate and Indemnity Agreement Regarding Hazardous Substances and Building Laws dated December 28, 1994 made by Borrower for the benefit of Lender (the "CERTIFICATE AND INDEMNITY AGREEMENT"). B. Guarantor has agreed to unconditionally guarantee the full and punctual payment and performance of the "GUARANTEED OBLIGATIONS" (defined below). As used in this Guaranty, the term "GUARANTEED OBLIGATIONS" means all debts, duties, undertakings, obligations, covenants and conditions to be paid or performed by Borrower in connection with the Loan, including without limitation all of Borrower's obligations under the Loan Documents, the Certificate and Indemnity Agreement, and under each and every existing or future "swap" transaction (i.e., any transactions governed by an ISDA master agreement) between Lender and Borrower (or any other obligor of the Loan), in which this Guaranty is expressly referred to as a credit support document, and any and all extensions, renewals or modifications thereof, including the obligations to pay as and when due principal, interest, attorneys' fees and all other debts of Borrower arising under and by reason of the Loan Documents and the Certificate and Indemnity Agreement. AGREEMENT: For good and valuable consideration, the receipt and sufficiency of which are acknowledged, Guarantor agrees as follows: -1- 1. Guarantee. Guarantor unconditionally guarantees to and for the benefit of --------- Lender the full, prompt and complete payment and performance by Borrower of the Guaranteed Obligations. If any of Borrower's obligations, covenants, and agreements under the Loan Documents or under the Certificate and Indemnity Agreement are not paid or performed as and when such payment or performance is due or required, on demand from Lender, Guarantor will pay or perform the same. 2. Independent Obligation. This Guaranty is an independent obligation of ---------------------- Guarantor, separate and distinct from the Guaranteed Obligations. A separate action may be brought or prosecuted against Guarantor, whether or not any such action is brought or prosecuted against Borrower or whether Borrower is joined in any such action or actions. This Guaranty is an absolute guarantee of payment and performance, and not a guarantee of collection. The obligations of Guarantor under this Guaranty are direct and primary, regardless of the validity or enforceability of the Loan Documents or the Certificate and Indemnity Agreement or any renewal, extension or modification thereof. Guarantor shall continue to be liable under this Guaranty even if all or part of the Guaranteed Obligations become uncollectible by operation of law or otherwise. 3. Waivers. Guarantor waives (a) notice of Lender's acceptance of this ------- Guaranty; (b) notice of any advances made by Lender pursuant to the Loan Documents or the Certificate and Indemnity Agreement, or pursuant to any extension, renewal or modification thereof; (c) any defense arising from or out of the exercise by Lender of any right or remedy it may have with respect to the Guaranteed Obligations; (d) grace, demand, presentment, notice of dishonor and protest with respect to the Guaranteed Obligations; (e) any defense based upon any change in the name, location, composition or structure of Borrower, or any change in the type of business conducted by Borrower, or any other change in the financial condition, identity or legal status of Borrower; (f) the benefit of suretyship defenses generally; and (g) any defense based upon any failure by Lender to obtain a similar guaranty from any other person or entity, or file a creditor's claim in the estate of any person or entity, including Borrower, whether in administration, bankruptcy or any other proceeding. 4. Rights of Lender. Lender shall not be bound to exhaust its recourse or ---------------- take any action against Borrower or against any other person or entity, or proceed against any collateral or against any particular collateral, but Lender may make such demands and take such actions as it deems advisable, and Lender, without affecting the liability of any Guarantor under this Guaranty, may with or without notice or consideration (i) release any other person or entity liable for the Guaranteed Obligations; (ii) extend the maturity, modify the terms, grant any indulgence or forbearance or postpone the time of payment of the Guaranteed Obligations or otherwise amend or modify the terms of any agreement or instrument giving rise to all or any of the Guaranteed Obligations; and (iii) release all or any part of the existing or any future security for the Guaranteed Obligations. All rights and remedies of Lender under this Guaranty, at law or in equity are separate and cumulative and may be pursued separately, successively, or concurrently, or not pursued, -2- without affecting or limiting any other right or remedy of Lender and without affecting or impairing the liability of Guarantor under this Guaranty. 5. Waiver of Subrogation and Reimbursement Rights. To the fullest extent ---------------------------------------------- permitted by applicable law, Guarantor releases and waives any claim, right or remedy which Guarantor may have against Borrower arising from this Guaranty and/or from the performance by Guarantor of his, her or its obligations under this Guaranty, including any claim, remedy or right of subrogation, reimbursement, exoneration, contribution, indemnification or participation in any claim, right or remedy of Lender against Borrower, or any security which Lender now has or hereafter acquires, whether such claim, right or remedy arises under contract, by statute, under common law or otherwise. 6. Subordination of Debt. Any present or future indebtedness of Borrower to --------------------- Guarantor is hereby subordinated to the Guaranteed Obligations. Any payment of such indebtedness of Borrower to Guarantor shall be collected, enforced and received by Guarantor in trust for the benefit of Lender and promptly paid over to Lender on account of the Guaranteed Obligations, but without reducing or affecting in any manner the liability of such Guarantor under the other provisions of this Guaranty. 7. Guaranty Survives Foreclosure. Lender, at its option and in its sole ----------------------------- discretion, may proceed against any collateral securing the Guaranteed Obligations by way of either judicial or non-judicial foreclosure and the obligations of Guarantor under this Guaranty shall survive such foreclosure. Guarantor understands a non-judicial foreclosure of any deed of trust securing the Guaranteed Obligations could impair or eliminate any subrogation or reimbursement rights Guarantor may have against Borrower; nevertheless Guarantor hereby waives and relinquishes any defense based upon the loss of any such reimbursement or subrogation rights and any other defense which may arise out of RCW 61.24, as now or hereafter amended or any legislation in substitution or replacement thereof, including without limitation any defense based upon the Washington Anti-Deficiency Statute, RCW 61.24.100, as now or hereafter amended, and any defense that may arise out of election of remedies, or discharge or satisfaction of the Guaranteed Obligations pursuant to RCW 61.24.100. If any deed of trust securing the Guaranteed Obligations is foreclosed judicially or non-judicially before Lender proceeds against Guarantor under this Guaranty, Guarantor's liability for the obligations secured by such deed of trust shall be the deficiency resulting from the judicial or non-judicial sale; i.e., the difference between the amount of the obligations secured by the deed of trust on the day of the foreclosure sale (including without limitation principal, accrued interest, attorneys' fees, late charges and costs of foreclosure) and the amount of the successful bid at the foreclosure sale. Guarantor further waives the right to object to the amount which may be bid by Lender at any foreclosure sale. 8. Application of Payments. Lender may apply any payments received by it ----------------------- from any source against any portion of the Guaranteed Obligations in such order and priority as Lender may deem appropriate. -3- 9. Continuing Guaranty. This Guaranty covers any and all of the Guaranteed ------------------- Obligations, whether presently outstanding or arising subsequent to the date of this Guaranty. This Guaranty shall continue until each and every Guaranteed Obligation is paid and performed in full. If at any time payment or performance of all or any part of the Guaranteed Obligations is rescinded or must otherwise be restored or returned by Lender as a result of the insolvency, bankruptcy or reorganization of Borrower or otherwise, this Guaranty shall be reinstated. Guarantor hereby assigns to Lender all rights against Borrower, related to the Guaranteed Obligations, which Guarantor may have in any proceedings under the United States Bankruptcy Code or in any receivership or other insolvency proceeding. This Guaranty is binding upon and enforceable against Guarantor and its devisees, personal representatives, successors and assigns. This Guaranty is intended for and shall be binding upon and inure to the benefit of Lender and each and every person or entity who, by assignment, endorsement, participation agreement or otherwise, succeeds to all or any part of Lender's rights under the Guaranteed Obligations, irrespective whether such transfer is voluntary or involuntary or occurs by operation of law. 10. Financial Statements. Except as otherwise agreed in writing by Lender, -------------------- within ninety (90) days after the end of each of its fiscal years, Guarantor shall provide Lender with a CPA audited financial statement showing its financial condition as of the end of the most recent fiscal year, prepared in accordance with generally accepted accounting principles, consistently applied. Upon request, Guarantor will provide Lender with a copy of his, her or its United States federal income tax return for the tax year most recently ended. 11. Governing Law; Jurisdiction; Venue. This Guaranty shall be governed by ---------------------------------- and construed in accordance with the laws of the State of Washington. Guarantor hereby submits irrevocably to the non-exclusive jurisdiction and venue of any state or federal court in the State of Washington selected by Lender in any action relating to or arising out of the enforcement or interpretation of this Guaranty and Guarantor hereby irrevocably agrees that all claims in respect to any such action or proceeding may be heard and determined in such Washington State Court or such United States District Court sitting in the State of Washington and to all the courts to which an appeal may be taken from such courts. Guarantor expressly waives, to the fullest extent it may effectively do so under applicable law, any objection it may at any time have: (a) as to venue in such courts; (b) that any action or proceeding therein has been brought in an inconvenient forum; (c) that any such court lacks jurisdiction over it; or (d) as to service of process upon it in accordance with applicable law. 12. Costs and Expenses. Whether or not suit is brought, Guarantor shall pay ------------------ on demand all costs and expenses, including reasonable attorneys' fees incurred by or on behalf of Lender in connection with the enforcement against or collection from Borrower of all or any of the Guaranteed Obligations, or any security therefor, or in connection with the enforcement, interpretation or defense of this Guaranty to the extent Lender is the prevailing party. Without limiting the generality of the foregoing, if Borrower or Guarantor becomes the subject of any bankruptcy or other insolvency proceeding, Guarantor shall pay all reasonable costs and expenses incurred by Lender in connection with such bankruptcy or insolvency proceeding. -4- 13. Representations and Warranties. Guarantor represents and warrants to ------------------------------ Lender that it (a) is adequately informed of the financial condition of Borrower; (b) has not relied on any financial information about Borrower furnished by Lender; and (c) does not expect Lender to provide any such information in the future. Furthermore, Guarantor acknowledges Lender would not make the Loan to Borrower without this Guaranty, and Guarantor has reviewed the Loan Documents and the Certificate and Indemnity and is otherwise fully familiar with the Guaranteed Obligations. 14. Miscellaneous. The obligations of Guarantor under this Guaranty shall be ------------- independent of the obligations of Borrower and any other persons or entities guaranteeing the payment or performance of the Guaranteed Obligations. The obligations and liabilities of Guarantor hereunder shall not be limited in any manner by any nonrecourse or other provisions in the Loan Documents or in the Certificate and Indemnity Agreement which may limit the liability or obligations of Borrower with respect to the Guaranteed Obligations. This Guaranty may be executed in multiple counterparts, each counterpart shall be an original, but all counterparts together will constitute one and the same agreement. 15. DISPUTED OBLIGATIONS. ALL COMMUNICATIONS CONCERNING DISPUTED DEBTS AND -------------------- OBLIGATIONS OF GUARANTOR UNDER THIS GUARANTY, INCLUDING WITHOUT LIMITATION DISPUTES AS TO THE AMOUNT OF ANY PAYMENT, FEE OR CHARGE, AND INCLUDING AN INSTRUMENT TENDERED AS FULL SATISFACTION OF A DISPUTED DEBT, MUST BE IN WRITING AND MUST BE SENT TO THE FOLLOWING ADDRESS, OR TO SUCH OTHER ADDRESS AS LENDER MAY HEREAFTER SPECIFY: BANK OF AMERICA NT & SA ATTENTION: COMMERCIAL MORTGAGE LOAN SERVICING MANAGER 333 S. BEAUDRY, 26TH FLOOR LOS ANGELES, CA 90017 ANY SUCH COMMUNICATION SHOULD INCLUDE THE NAME OF GUARANTOR, THE APPLICABLE LOAN NUMBER, A DESCRIPTION OF THE DISPUTE AND THE RELIEF OR REMEDY REQUESTED, AND AN ADDRESS AND TELEPHONE NUMBER WHERE THE PERSON SENDING THE NOTICE CAN BE CONTACTED. NOTICES: A. THIS GUARANTY AGREEMENT RESULTS IN YOUR WAIVER OF CERTAIN LEGAL RIGHTS AND DEFENSES, INCLUDING WITHOUT LIMITATION YOUR SUBROGATION RIGHTS AND ANY DEFENSES BASED ON THE WASHINGTON ANTI-DEFICIENCY JUDGMENT STATUTE, RCW 61.24.100, AND ANY DEFENSES BASED ON THE LENDER'S ELECTION OF REMEDIES. IT IS RECOMMENDED THAT YOU CONSULT YOUR OWN ATTORNEY BEFORE ENTERING INTO THIS AGREEMENT. -5- B. ORAL AGREEMENTS OR ORAL COMMITMENTS TO LOAN MONEY, EXTEND CREDIT OR TO FOREBEAR FROM ENFORCING REPAYMENT OF A DEBT ARE NOT ENFORCEABLE UNDER WASHINGTON LAW. GUARANTOR: ATL ULTRASOUND, INC., a Washington corporation By /s/ Pamela L. Dunlap ____________________________________ Its Sr. V.P., Finance and Admin., CFO ____________________________________ Address for Notices: ________________________________ ________________________________ -6- STATE OF WASHINGTON ) ) ss. COUNTY OF SNOHOMISH ) On this 16th day of June, 1998, before me, the undersigned, a Notary Public in and for the State of Washington, duly commissioned and sworn personally appeared Pamela L. Dunlap, known to me to be the Sr. V.P. & CFO of ATL ULTRASOUND, INC., the corporation that executed the foregoing instrument, and acknowledged the said instrument to be the free and voluntary act and deed of said corporation, for the purposes therein mentioned, and on oath stated that he/she was authorized to execute said instrument. I certify that I know or have satisfactory evidence that the person appearing before me and making this acknowledgment is the person whose true signature appears on this document. WITNESS my hand and official seal hereto affixed the day and year in the certificate above written. /s/ Kevin J. Grady ------------------------------------- Signature Kevin J. Grady ------------------------------------- Print Name NOTARY PUBLIC in and for the State of Washington, residing at Seattle. My commission expires 6/15/99. -7- EX-10.5 6 PROMISSORY NOTE TO SEAFIRST BANK EXHIBIT 10.5 LOAN NO. 3031697 PROMISSORY NOTE $17,000,000 June 16, 1998 Seattle, Washington FOR VALUE RECEIVED, the undersigned ("MAKER") promise(s) to pay to the order of BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, doing business as SEAFIRST BANK ("LENDER"), at its principal office in Seattle, Washington, or at such other place or places or to such other party as the "HOLDER" (defined below) may from time to time designate in writing, the principal sum of SEVENTEEN MILLION AND 00/100 DOLLARS ($17,000,000), or so much thereof as may be advanced, in lawful money of the United States of America, together with interest thereon, on the following agreements, terms and conditions. The term "HOLDER" as used in this Note means Lender or any future holder of this Note, and its successors and assigns. 1. TERM. The unpaid principal balance of this Note and all unpaid accrued ---- interest thereon and other sums payable by Maker in connection with this Note shall be due and payable in full one hundred twenty (120) months from the first day of the first calendar month following the initial advance by the Holder under this Note (the "MATURITY DATE"). 2. INTEREST. Interest shall commence to run on each advance under this Note -------- from the date of the advance and will be computed on the unpaid principal balance of this Note as it exists from time to time. Interest shall accrue on the principal balance of this Note either at a variable interest rate as provided in subparagraph 2(a) below (the "VARIABLE RATE"), or at a fixed interest rate as provided in subparagraph 2(b) below (the "FIXED RATE"). If Maker elects a Fixed Rate pursuant to subparagraph 2(b) below for a "Fixed Rate Period" (defined below) less then full term of this Note (or the remainder thereof, as applicable), after the expiration of the applicable Fixed Rate Period, interest on this Note shall be calculated at a Variable Rate unless Maker again elects to have interest calculated at a Fixed Rate pursuant to subparagraph 2(b) below. The Holder still shall have no duty or obligation to notify Maker that a Fixed Rate Period is about to expire and that the interest rate on this Note is about to revert to the Variable Rate. After maturity, or after default, interest shall accrue on the unpaid principal balance of this Note at an annual rate equal to four percentage points (4%) per annum above the interest rate otherwise applicable to this Note. Interest on this Note shall be calculated using a 30-day month and a 360-day year. (a) Variable Rate. Unless Maker elects to have interest calculated at the ------------- Fixed Rate pursuant to subparagraph 2(b) below, interest shall accrue on the principal balance of this Note at the Variable Rate. The initial Variable Rate shall be equal to the "LIBOR INDEX" (defined below) as of the date of the initial advance under this Note, plus nine-tenths of one percentage point (.90%) per annum. The Variable Rate, if applicable, will change five (5) months after the first payment date at the applicable Variable Rate, as stated in Paragraph 3 below, and every sixth (6th) month thereafter (each such date being referred to in this Note as an "INTEREST CHANGE DATE"). -1- (i) LIBOR INDEX - CURRENT INDEX - Changes in the Variable Rate will be based on changes in the 180-day LIBOR as defined below (the "LIBOR INDEX"). If the LIBOR Index is no longer available, the Holder and Maker will choose a new index based upon comparable information. The most recently available LIBOR Index fifteen (15) Business Days before each Interest Change Date is the "CURRENT INDEX". (ii) CALCULATION OF VARIABLE RATE - Before each Interest Change Date, if applicable, the Holder will calculate the new Variable Rate which shall be equal to the Current Index, plus nine-tenths of one percentage point (.90%) per annum. This new interest rate will be the new Variable Rate until the next Interest Change Date. (iii) LIBOR MEANS THE LONDON INTERBANK OFFER RATE, adjusted at the Holder's option for governmentally mandated statutory reserves, deposit insurance, regulatory capital, taxes and assessments, if any, and is the average of the rates of interest, on a per annum basis, at which deposits in United States dollars having a term of 180 days are offered by major banks in immediately available funds to prime banks in the London Interbank market at 11:00 A.M. (London time) on the date of the initial advance, or the day which is fifteen (15) Business Days prior to the applicable Interest Change Date, as applicable. This rate is reported on Telerate, a national and international medium which provides interest rate quotations daily, as quoted by the British Bankers Association as Interest Settlement Rates on page 3750 (or such other page as may replace it). Such interest rate quotation, as provided by Telerate, shall be deemed conclusive and final with respect to LIBOR determinations for so long as Telerate continues to make such interest rate reports. If Telerate or the British Bankers Association report is no longer available for 180-day maturities, a comparable publication or report containing such information selected by the Holder and Maker will be used. If there is no such publication or comparable publication containing such information, the 180-day LIBOR shall be the average rate (rounded if necessary to the nearest one-thousandth of a percent) at which dollar deposits having a maturity of 180 days are offered by at least two major banks in an interbank market where Eurodollars are being traded, to prime banks in immediately available funds on the LIBOR determination date described above or as soon thereafter as such offer quotes can be obtained. (iv) BUSINESS DAY means a day on which commercial banks are generally open for business in Seattle, Washington and London, England. (v) THE AMOUNT OF ADJUSTMENT for reserves, deposit insurance, regulatory capital, taxes and assessments may change on any Interest Change Date depending on such charges being assessed against the Holder at that time, provided that the adjustments are of general application to similar obligations held by the Holder and not specific to this Note. Such charges may change due to various factors, including but not limited to, changes in the requirements for reserves and capital adequacy promulgated by the Federal Reserve System of the United States and/or other state and federal regulatory agencies, statutory changes affecting the Holder, and/or imposition of taxes, FDIC fees and/or assessments. Each determination of an adjustment amount shall be made by the Holder in its reasonable discretion and shall be conclusive and binding upon Maker absent manifest error by the Holder. If the circumstances giving rise to an -2- adjustment pursuant to this subparagraph cease to exist, the Holder will make an appropriate re-adjustment with respect to interest rate determinations occurring thereafter. (b) Fixed Rate. Prior to the date of the initial advance by Lender under ---------- this Note, Maker may elect by written notice (a "FIXED RATE NOTICE") to the Holder to have interest on the entire principal amount of this Note calculated at a Fixed Rate for a Fixed Rate Period, the duration of which is the entire term of this Note or a lesser period of three (3) years, five (5) years or seven (7) years. Further, so long as Maker is not in default under the terms of this Note or any other documents or instruments executed by Maker in connection with the loan (the "LOAN") evidenced by this Note (collectively with this Note, the "LOAN DOCUMENTS"), Maker, at its option, may elect by a Fixed Rate Notice to the Holder to have interest calculated on the entire unpaid principal balance of this Note at a Fixed Rate calculated as provided below for a Fixed Rate Period, the duration of which is the remainder of the term of this Note or a lesser period of three (3) years, five (5) years or seven (7) years; provided no Fixed Rate Period may extend beyond the Maturity Date. Notwithstanding any of the foregoing, Maker's option to fix the interest rate on this Note is subject to the availability to the Holder of matchfunding opportunities for a time period equivalent to the applicable Fixed Rate Period. For purposes of this Note, the term "Fixed Rate Period" means the period of time for which a Fixed Rate applies as specified in a Fixed Rate Notice from Maker to the Holder. (i) CALCULATION OF FIXED RATE - If Maker elects to have a Fixed Rate apply to this Note, interest shall accrue on the principal balance of this Note at a per annum rate equal to Lender's reserve adjusted "FIXED RATE INDEX" as quoted by Lender on the date the interest rate is fixed, for a period equivalent to the applicable Fixed Rate Period, plus nine-tenths of one percentage point (.90%) per annum. The Fixed Rate Index may be adjusted at the Holder's option to reflect governmentally mandated statutory reserves, deposit insurance, regulatory capital, taxes and assessments, if any, as set forth in subparagraph 2(a)(v) above. (ii) DATE OF CONVERSION - The interest rate applicable to this Note will be converted to the Fixed Rate on the date the Holder receives a Fixed Rate Notice, provided the Fixed Rate Notice is received before noon, Seattle time, on a Business Day. If a Fixed Rate Notice is received by Holder after noon, Seattle time, on a Business Day, the interest rate applicable to this Note will convert to a Fixed Rate on the next Business Day. For purposes of this subparagraph 2(b)(ii) only, the term "BUSINESS DAY" means a day on which commercial banks are generally open for business in Seattle, Washington. 3. PAYMENTS. Maker shall make monthly payments of principal and interest to -------- the Holder in amounts sufficient to fully amortize the principal balance of this Note over a twenty-five (25) year amortization period in substantially equal monthly payments, based on the interest rate applicable to this Note, calculated as provided below. Such monthly payments of principal and interest shall be due on the twentieth (20th) day of each calendar month during the term of this Note, commencing on the twentieth (20th) day of the first calendar month following the month in which the Holder initially disburses funds under this Note, or if the interest rate reverts to a Variable Rate after the expiration of a Fixed Rate Period, on the twentieth (20th) day of the first calendar month following the month in which the Fixed Rate Period expires. On the Maturity Date, the unpaid -3- principal balance of this Note, all unpaid accrued interest and all other sums then due and owing pursuant to this Note or any other Loan Documents shall be due and payable in full. Each payment shall be applied first, at Holder's option, to any unpaid late charges or other sums payable by Maker under this Note or any other Loan Document, then to interest to the due date of the payment, and then to the principal balance of this Note. At the option of the Holder, all payments under this Note, including payments at maturity, shall be made in same day funds. The monthly payments required on this Note shall be calculated as follows: (a) Variable Rate Payments. If interest is accruing on this Note at a ---------------------- Variable Rate, the amount of the monthly payments shall be sufficient to fully amortize the principal balance of this Note at the applicable Variable Rate, in substantially equal monthly payments over the amortization period specified above, or the balance thereof as applicable. AT OR PROMPTLY AFTER THE CLOSING OF THE LOAN (OR AFTER THE EXPIRATION OF A FIXED RATE PERIOD, AS APPLICABLE), THE HOLDER WILL PROVIDE MAKER WITH A CLOSING STATEMENT (OR OTHER WRITTEN NOTICE) WHICH WILL CONFIRM THE VARIABLE RATE AND THE AMOUNT OF THE PRINCIPAL AND INTEREST PAYMENTS DUE UNDER THIS NOTE. The monthly payment will change after each Interest Change Date to an amount sufficient to repay the then unpaid principal balance of this Note in full at the then current interest rate, in substantially equal monthly payments over the balance of the amortization period specified above. Until the payment is again changed, Maker shall pay the new monthly payment each month beginning on the twentieth (20th) day of the first calendar month after the applicable Interest Change Date. The Holder will mail or deliver to Maker a notice of any changes in the Variable Rate applicable to this Note, and any resulting changes in the monthly payments required under this Note, prior to the date the first payment is due after the applicable Interest Change Date. (b) Fixed Rate Payments. If interest is accruing on this Note at a Fixed ------------------- Rate, the amount of the monthly payments shall be in an amount sufficient to fully amortize the principal balance of this Note at the applicable Fixed Rate, in substantially equal monthly payments over the amortization period specified above, or the remainder thereof, as applicable. THE APPLICABLE FIXED RATE AND THE AMOUNT OF THE MONTHLY PRINCIPAL AND INTEREST PAYMENTS DUE UNDER THIS NOTE SHALL BE CONFIRMED IN WRITING BY THE HOLDER (EITHER PURSUANT TO A CLOSING STATEMENT OR OTHER WRITTEN NOTICE) AFTER THE RATE IS FIXED AND BEFORE THE DATE THE FIRST PAYMENT AT THE FIXED RATE IS DUE. 4. LATE CHARGES; RETURNED ITEM FEE. If any payment due hereunder is not ------------------------------- received by the Holder within fifteen (15) days following the due date, at the option of the Holder without waiving such default or any of its remedies, a late charge shall be added to the delinquent payment in the amount of four percent (4%) of the full payment not timely paid. Any such late charge shall be due and payable on demand, and the Holder, at its option, may (a) refuse any late payment or any subsequent payment unless accompanied by the applicable late charge, (b) add the late charge to the principal balance of this Note, (c) pay any late charge with advances of the undisbursed proceeds of the Loan, if any, or (d) treat the failure to pay the late charge as demanded as a default under this Note. If a late charge is added to the principal balance of this Note, it shall bear interest at the same rate as the principal balance of this Note. Any payment to Holder by check, draft or other item shall be received by Holder subject to collection and will constitute payment when collected not when received. For each "nsf" or returned check, draft or other item, -4- in addition to any applicable late charge, Maker shall pay to the Holder on demand a returned item fee in accordance with the Holder's schedule of such fees then in effect. 5. PREPAYMENT. So long as interest is calculated on this Note at a Variable ---------- Rate, this Note may be prepaid in whole or in part at any time without the payment of a prepayment fee. During any period when a Fixed Rate is applicable to this Note, this Note may be prepaid only as set forth in Exhibit A attached. --------- Partial prepayments, if permitted, shall not postpone nor reduce the amount of the monthly payments required under this Note, provided the amount of the required monthly payments will be recalculated at the end of the applicable LIBOR period or Fixed Rate Period to reflect the reduction in the principal balance of this Note. 6. DEFAULT. After a default under any of the Loan Documents, or if Maker ------- fails to make any payment under this Note when due, the then Holder, at its option, without notice to Maker (except as provided below), may declare the entire principal balance of this Note and all unpaid accrued interest thereon and other charges payable by Maker pursuant to this Note or any other Loan Document, immediately due and payable in full, and the Holder may exercise any and all other rights or remedies available to it under any Loan Document, at law or in equity. Any additional interest due because of a default shall accrue from the date of default and shall be paid as a condition to the curing of the default. Notwithstanding the foregoing, the Holder will not accelerate the Maturity Date (a) because of a monetary default by Maker under this Note or any other Loan Document unless the default is not cured within ten (10) days following the date on which the Holder mails or delivers written notice of the default to Maker, or (b) because of a nonmonetary default by Maker under this Note or any other Loan Document unless the default is not cured within thirty (30) days following the date on which the Holder mails or delivers written notice of the default to Maker. For purposes of this Note, the term "MONETARY DEFAULT" means a failure by Maker to make any payment required pursuant to this Note or any other Loan Document, and the term "NONMONETARY DEFAULT" shall mean a failure by Maker to perform any obligation contained in this Note or any other Loan Document, other than the obligation to make the payments provided for in this Note or any other Loan Document. If the nonmonetary default is capable of being cured and cannot reasonably be made within the thirty (30) day cure period, the cure period shall be extended up to ninety (90) days so long as Maker has commenced action to cure within the thirty (30) day cure period, and in the Holder's reasonable opinion, Maker is proceeding to cure the default with due diligence. None of the foregoing shall be construed to obligate the Holder to forbear in any other manner from exercising its remedies and the Holder may pursue any other rights or remedies which the Holder may have because of the default. 7. CUMULATIVE REMEDIES. The rights and remedies of any Holder under this ------------------- Note or any other Loan Document, or at law or in equity, shall be cumulative and concurrent, may be pursued singly, successively or together against Maker, any guarantor of this Note, or any security for this Note. A failure by any Holder to exercise its option to accelerate this Note upon the occurrence of a default or to exercise any other rights to which it may be entitled shall not constitute a waiver of the right to exercise such option or any such rights in the event of any subsequent default, whether of the same or a different nature. -5- 8. WAIVERS. Maker and all endorsers, guarantors and all other persons or ------- entities who may become liable for all or any part of the obligations evidenced by this Note, jointly and severally: waive diligence, presentment, protest and demand, and also notice of protest, demand, non-payment, dishonor or maturity and also recourse to suretyship defenses generally; and consent to any and all renewals, extensions and modifications of the terms of this Note or any other Loan Document, including the time for payment, and agree any such renewal, extension or modification or the release or substitution of any security for the indebtedness evidenced by this Note or any other indulgences, shall not affect the liability of said parties for the indebtedness evidenced by this Note. Any such renewals, extensions, modifications, releases or indulgences may be made without notice to such parties. 9. COSTS AND EXPENSES. Whether or not suit is brought Maker shall pay on ------------------ demand all costs and expenses, including reasonable attorneys' fees and costs incurred by or on behalf of the Holder in connection with this Note, including without limitation costs incurred in the collection of this Note, in protecting the security for this Note or in foreclosing or enforcing this Note or any other Loan Document, or resulting from the Holder being made a party to any litigation because of the existence of this Note or any other Loan Document to the extent the Holder is the prevailing party. Without limiting the generality of the foregoing, if Maker becomes the subject of any bankruptcy or insolvency proceeding, Maker shall pay all reasonable fees and expenses incurred by the Holder in connection with such bankruptcy or insolvency proceeding. 10. MAXIMUM INTEREST. Maker represents and warrants the proceeds of this ---------------- Note shall be used solely for commercial, investment and business purposes, and not for personal, family or household purposes. Notwithstanding any other provision of this Note or any other Loan Document, interest, loan fees and charges payable by reason of the indebtedness evidenced by this Note shall not exceed the maximum, if any, permitted by applicable law. If by virtue of applicable law, sums in excess of such maximum would otherwise be payable, then such excess sums shall be construed as having been immediately applied by the Holder to the principal balance of this Note when received. If at the time any such sum is received by the Holder, the principal balance of this Note has been paid in full, such sums shall be promptly refunded by the Holder to Maker, less any sums due to the Holder. 11. SECURITY. This Note is secured by a Deed of Trust, Security Agreement -------- and Fixture Filing with Assignment of Leases and Rents (the "DEED OF TRUST") made by Borrower, dated December 28, 1994, recorded in the real property records of Snohomish County, Washington under recording no. 9412290067, as amended by a Loan Modification Agreement of even date among Maker, Lender and ATL Ultrasound, Inc. ("ATL"). The Deed of Trust encumbers certain real property of Maker located in Snohomish County, Washington (the "PROPERTY"). Unless otherwise specified in this Note, all notices given pursuant to this Note must be in writing and will be effectively given if given in accordance with the terms of the Deed of Trust. 12. GENERAL. This Note shall be binding upon Maker and Maker's successors ------- and assigns. If Maker consists of more than one person or entity, all of such persons and entities shall be jointly and severally liable for Maker's obligations under this Note. This Note is governed by and shall be construed in accordance with the laws of the State of Washington. Each person or -6- entity executing this Note consents to the non-exclusive personal jurisdiction and venue of the courts of the State of Washington and the United States federal courts located therein, in any action relating to or arising out of the enforcement or interpretation of this Note or any other Loan Document. Each such person or entity further agrees not to assert in any such action that the proceeding has been brought in an inconvenient forum. 13. ARBITRATION. Any dispute relating to this Note or the Loan (whether in ----------- contract or tort) shall be settled by arbitration if requested by Maker, the Holder or any other party to the dispute (such as a guarantor); provided, both -------- Maker and the Holder must consent to a request for arbitration relating to an obligation secured by real property. The arbitration proceedings shall be held in Seattle, Washington in accordance with the commercial arbitration rules of the American Arbitration Association, and the United States Arbitration Act (i.e., Title 9, U.S.C.). There shall be one arbitrator who shall decide whether an issue is arbitrable or whether any claim is barred by a statute of limitations. Judgment on the arbitration award may be entered in any court having jurisdiction. Commencement of a lawsuit shall not constitute a waiver of the right of any party to request arbitration if the lawsuit is contested. Each party shall have the right before, during and after the commencement of any arbitration proceeding to exercise any of the following remedies, in any order or concurrently: (i) self-help remedies such as setoff or repossession; (ii) judicial or nonjudicial foreclosure against real or personal property collateral; and (iii) provisional remedies including injunction, appointment of receiver, attachment, claim and delivery and replevin. The exercise of any such remedy shall not waive a party's right to request arbitration. Nothing in this paragraph shall limit in any way any right the Holder may have to foreclose the Deed of Trust judicially as a mortgage, or nonjudicially pursuant to the power of sale. 14. DISPUTED OBLIGATIONS. ALL COMMUNICATIONS CONCERNING DISPUTED DEBTS AND -------------------- OBLIGATIONS OF MAKER UNDER THIS NOTE OR ANY OTHER LOAN DOCUMENT, INCLUDING WITHOUT LIMITATION DISPUTES AS TO THE AMOUNT OF ANY PAYMENT, FEE OR CHARGE, AND INCLUDING AN INSTRUMENT TENDERED AS FULL SATISFACTION OF A DISPUTED DEBT, MUST BE IN WRITING AND MUST BE SENT TO THE FOLLOWING ADDRESS, OR TO SUCH OTHER ADDRESS AS THE HOLDER MAY HEREAFTER SPECIFY: BANK OF AMERICA NT & SA ATTENTION: COMMERCIAL MORTGAGE LOAN SERVICING MANAGER 333 S. BEAUDRY, 26TH FLOOR LOS ANGELES, CA 90017 ANY SUCH COMMUNICATION SHOULD INCLUDE THE NAME OF MAKER, THE APPLICABLE LOAN NUMBER, A DESCRIPTION OF THE DISPUTE AND THE RELIEF OR REMEDY REQUESTED, AND AN ADDRESS AND TELEPHONE NUMBER WHERE THE PERSON SENDING THE NOTICE CAN BE CONTACTED. 15. LOAN FEE. In consideration of Lender's agreement to make the Loan, Maker -------- shall pay Lender a loan fee in the amount of $42,500.00 (the "LOAN FEE"). The Loan Fee shall be due and payable without condition on the date of the first disbursement hereunder. 16. CROSS DEFAULT. Maker, as borrower, Lender, as lender, and ATL, as ------------- guarantor, are parties to a Revolving Credit Loan Agreement and Guaranty dated July 1, 1997, as amended -7- from time to time (the "LOAN AGREEMENT"). In addition, Lender is the current holder of a Promissory Note dated December 28, 1994, in the original principal amount of $11,500,000, also secured by the Deed of Trust, made by Maker and payable to the order of Seattle-First National Bank (the "EXISTING NOTE"). Maker agrees if Maker or ATL defaults under the Loan Agreement, or if Maker defaults under the Existing Note, and in either case the default is not cured prior to the expiration of the applicable cure period, if any, such default will constitute a default under this Note and the other Loan Documents and no additional notice of default shall be required under Paragraph 6 of this Note. NOTICE: ORAL AGREEMENTS OR ORAL COMMITMENTS TO LOAN MONEY, EXTEND CREDIT OR FORBEAR FROM ENFORCING REPAYMENT OF A DEBT ARE NOT ENFORCEABLE UNDER WASHINGTON LAW. MAKER: ADVANCED TECHNOLOGY LABORATORIES, INC., a Washington corporation By /S/ Pamela L. Dunlap ___________________________ Its Sr. V.P., Finance and Admin., CFO __________________________________ -8- EXHIBIT A --------- PREPAYMENT If the interest rate converts to the Fixed Rate the principal balance of this Note may be prepaid in whole or in part, at any time provided (i) a prepayment fee is paid as set forth below, (ii) each partial prepayment is in an amount of $10,000 or more, and (iii) partial prepayments may be no more frequent than once per month. THE PREPAYMENT FEE SHALL BE DUE AND PAYABLE WHETHER THE PREPAYMENT IS BY VOLUNTARY PREPAYMENT, OPERATION OF LAW, ACCELERATION OR OTHERWISE. The amount of the prepayment fee depends on the following: 1. The amount by which certain "REFERENCE RATES", as defined below, have changed between the time this Note is prepaid and the date the interest rate converts to the Fixed Rate. 2. A prepayment fee factor (see "PREPAYMENT FEE FACTOR SCHEDULE" below). 3. The amount of principal prepaid. DEFINITION OF REFERENCE RATES The "REFERENCE RATE" used to represent interest rate levels shall be the bond equivalent yield of the average U.S. Treasury Securities having maturities equivalent to the remaining period to maturity of the Loan or the last day of the Fixed Rate Period, as applicable, rounded upward to the nearest month. The "INITIAL REFERENCE RATE" shall be the Reference Rate assigned to the Loan by the Holder at the time the interest rate converts to the Fixed Rate. The "FINAL REFERENCE RATE" shall be the Reference Rate assigned to the Loan by the Holder at the time of the prepayment. The applicable Reference Rates shall be determined from the Federal Reserve Statistical Release (Publication H.15) as displayed on Page 119 of the Dow Jones Telerate Service (or such other page or service as may replace that page or service for the purpose of displaying rates comparable to said U.S. Treasury Securities). If the publishing of the foregoing Statistical Release is ever discontinued, the applicable Reference Rate shall be based on the publication by the Board of Governors of the United States Federal Reserve System in replacement thereof, or if none, the publication which in the Holder's discretion most nearly corresponds. CALCULATION OF PREPAYMENT FEE 1. If the Initial Reference Rate is less than or equal to the Final Reference Rate, there is no prepayment fee. 2. If the Initial Reference Rate is greater than the Final Reference Rate, the prepayment fee shall be equal to the difference between the Initial Reference Rate and the Final Reference Rate (expressed as a decimal), multiplied by the appropriate factor from the Prepayment Fee Factor Schedule, multiplied by the principal amount of the Loan being prepaid. -9- EXAMPLE OF PREPAYMENT FEE CALCULATION An amortizing loan with remaining principal of $250,000 is fully prepaid with twenty-four (24) months remaining until maturity. An Initial Reference Rate of 9.000% was assigned to the loan at the time the loan was closed. The Final Reference Rate (as determined by the current 24-month U.S. Treasury Rate on Page 119 of Telerate) is 7.500%. Rates therefore have dropped 1.500% since the loan was closed and a prepayment fee applies. A prepayment fee factor of 1.3% is determined from Table 1 below and the prepayment fee is computed as follows: Prepayment Fee = (0.09 - 0.075) x (1.3) x ($250,000) = $4,875.00 PREPAYMENT FEE FACTOR SCHEDULES TABLE 1 - FULLY AMORTIZING LOANS
Proportion of Remaining Principal Amount Being Prepaid Months Remaining to Maturity or Expiration of the Applicable Fixed Rate Period/1/ 0 3 6 9 12 24 36 48 60 84 120 240 360 - ----------------------------------------------------------------------------- 90 - 100% 0 .21 .36 .52 .67 1.3 1.9 2.5 3.1 4.3 5.9 10.3 13.1 60 - 89% 0 .24 .44 .63 .83 1.6 2.4 3.1 3.9 5.4 7.5 13.2 17.0 30 - 59% 0 .28 .53 .78 1.02 2.0 3.0 4.0 5.0 7.0 9.9 18.5 24.4 0 - 29% 0 .31 .63 .92 1.22 2.4 3.7 5.0 6.3 9.0 13.4 28.3 41.8
TABLE 2 - PARTIALLY AMORTIZING LOANS Proportion of Remaining Principal Amount Being Prepaid Months Remaining to Maturity or Expiration of the Applicable Fixed Rate Period/1/ 0 3 6 9 12 24 36 48 60 84 120 240 360 - ----------------------------------------------------------------------------- 90 - 100% 0 .26 .49 .71 .94 1.8 2.7 3.4 4.2 5.6 7.4 11.6 14.0 60 - 89% 0 .30 .59 .86 1.15 2.2 3.3 4.3 5.3 7.1 9.4 15.0 18.1 30 - 59% 0 .31 .63 .95 1.27 2.6 3.9 5.3 6.6 9.1 12.6 21.2 26.2 0 - 29% 0 .31 .63 .95 1.27 2.6 4.0 5.4 7.0 10.2 15.7 33.4 46.0
/1/If the remaining Fixed Rate Period is between any two time periods shown in the above schedules, interpolate between the corresponding factors to the closest month. The Holder of this Note is not required to actually reinvest the prepaid principal in any U.S. Government Treasury Securities, or otherwise prove its actual losses, as a condition to receiving a prepayment fee as calculated above. Maker agrees this prepayment fee is the bargained-for consideration to the Holder for permitting prepayment and the above is not a liquidated damages provision. This prepayment fee provision is to be interpreted in a manner that would make it enforceable to the fullest extent permitted by law, with any portion of the fee that is unenforceable being stricken or otherwise changed to cause the fee, as revised, to be enforced. -10- EX-10.6 7 FORM OF EMPLOYMENT AGREEMENTS EXHIBIT 10.6 EMPLOYMENT AGREEMENT -------------------- AGREEMENT by and between ATL Ultrasound, Inc., a Washington corporation (the "Company") and _________ (the "Executive"), dated as of the 1st day of January, 1997 (the "Start Date"). The Board of Directors of the Company (the "Board"), has determined that it is in the best interests of the Company and its shareholders to assure that the Company will have the continued dedication of the Executive, notwithstanding the possibility, threat or occurrence of a Change of Control (as defined in Section 2) of the Company. The Board believes it is imperative to diminish the inevitable distraction of the Executive by virtue of the personal uncertainties and risks created by a pending or threatened Change of Control and to encourage the Executive's full attention and dedication to the Company currently and in the event of any threatened or pending Change of Control, and to provide the Executive with compensation and benefits arrangements upon a Change of Control which ensure that the compensation and benefits expectations of the Executive will be satisfied and which are competitive with those of other corporations. Therefore, in order to accomplish these objectives, the Board has caused the Company to enter into this Agreement. NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS: 1. Certain Definitions. (a) The "Effective Date" shall mean the first ------------------- date during the Change of Control Period (as defined in Section 1(b)) on which a Change of Control occurs. Anything in this Agreement to the contrary notwithstanding, if a Change of Control occurs and if the Executive's employment with the Company is terminated prior to the date on which the Change of Control occurs, and if it is reasonably demonstrated by the Executive that such termination of employment (I) was at the request of a third party who has taken steps reasonably calculated to effect the Change of Control or (ii) otherwise arose in connection with or anticipation of the Change of Control, then for all purposes of this Agreement the "Effective Date" shall mean the date immediately prior to the date of such termination of employment. (b) The "Change of Control Period" shall mean the period commencing on the Start Date of this Agreement stated above and ending on the third anniversary of such date; provided, however, that commencing on the date one year after the Start Date, and on each annual anniversary of such date (such date and each annual anniversary thereof shall be hereinafter referred to as the "Renewal Date"), the Change of Control Period shall be automatically extended so as to terminate three years from such Renewal Date, unless at least 60 days prior to the Renewal Date the Company shall give notice to the Executive that the Change of Control Period shall not be so extended. 2. Change of Control. For the purpose of this Agreement, a "Change of ----------------- Control" shall mean: (a) Individuals who, as of the date hereof, constitute the Board (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board; provided, however, that for all purposes of this Agreement any individual becoming a director subsequent to the date hereof whose election, or nomination for election by the Company's shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member or the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of either an actual or threatened election contest (as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board; or -2- (b) The acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) (a "Person") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of (i) 20% or more of either (A) the then outstanding shares of common stock of the Company (the "Outstanding Company Common Stock") or (B) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the "Outstanding Company Voting Securities"), in the case of either (A) or (B) of this clause (i) which acquisition is not approved in advance by a majority of the Incumbent Board, or (ii) 33% or more of either (A) the Outstanding Company Common Stock or (B) the Outstanding Company Voting Securities, in the case of either (A) or (B) of this clause (ii), which acquisition is approved in advance by a majority of the Incumbent Board; provided, however, that the following acquisitions shall not constitute a Change of Control: (x) any acquisition by the Company, (y) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company or (z) any acquisition by any corporation pursuant to a reorganization, merger or consolidation, if, following such reorganization, merger or consolidation, the conditions described in clauses (i), (ii) and (iii) of subsection (c) of this Section 2 are satisfied; or (c) Approval by the shareholders of the Company of a reorganization, merger or consolidation, in each case, unless, following such reorganization, merger or consolidation, (i) more than 60% of, respectively, the then outstanding shares of common stock of the corporation resulting from such reorganization, merger or consolidation and the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors is then beneficially owned, directly or indirectly, by all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such reorganization, merger or consolidation in substantially the same proportions as their ownership, immediately prior to such reorganization, merger or consolidation, of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be, (ii) no Person (excluding the Company, any employee benefit plan (or related trust) of the Company or such corporation resulting from such reorganization, merger or consolidation and any Person beneficially owning, immediately prior to such reorganization, merger or consolidation, directly or indirectly, 33% or more of the Outstanding Company Common Stock or Outstanding Voting Securities, as the case may be) beneficially owns, directly or indirectly, 33% or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such reorganization, merger or consolidation or the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors and (iii) at least a majority of the members of the board of directors of the corporation resulting from such reorganization, merger or consolidation were members of the Incumbent Board at the time of the execution of the initial agreement providing for such reorganization, merger or consolidation; or (d) Approval by the shareholders of the Company of (i) a complete liquidation or dissolution of the Company or (ii) the sale or other disposition of all or substantially all of the assets of the Company, other than to a corporation, with respect to which following such sale or other disposition, (A) more than 60% of, respectively, the then outstanding shares of common stock of such corporation and the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors is then beneficially owned, directly or indirectly, by all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such -3- sale or other disposition in substantially the same proportion as their ownership, immediately prior to such sale or other disposition, of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be, (B) no Person (excluding the Company and any employee benefit plan (or related trust) of the Company or such corporation and any Person beneficially owning, immediately prior to such sale or other disposition, directly or indirectly, 33% or more of the Outstanding Company Common Stock or Outstanding Company Voting Securities, as the case may be) beneficially owns, directly or indirectly, 33% or more of, respectively, the then outstanding shares of common stock of such corporation and the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors and (C) at least a majority of the members of the board of directors of such corporation were approved by a majority of the Incumbent Board at the time of the execution of the initial agreement or action of the Board providing for such sale or other disposition of assets of the Company. 3. Employment Period. The Company hereby agrees to continue the Executive ----------------- in its employ, and the Executive hereby agrees to remain in the employ of the Company, in accordance with the terms and provisions of this Agreement, for the period commencing on the Effective Date and ending on the third anniversary of such date (the "Employment Period"), in the capacity of Senior Vice President and Chief Financial Officer. The Company agrees that it will not take any action, or make any inappropriate demands on the Executive or demands which may be deemed to arbitrarily, unreasonably or unnecessarily interfere with the performance of the services to be rendered by the Executive hereunder. 4. Terms of Employment. (a) Duties. (i) During the Employment Period, ------------------- ------ (A) the Executive's reporting requirements, authority, duties and responsibilities shall be at least commensurate in all material respects with the most significant of those held, exercised and assigned at any time during the 90-day period immediately preceding the Effective Date and (B) the Executive's services shall be performed at the location where the Executive was employed immediately preceding the Effective Date or any office which is the headquarters of the Company and is less than 5 miles from such location. (ii) During the Employment Period, and excluding any periods of vacation and sick leave to which the Executive is entitled, the Executive agrees to devote reasonable attention and time during normal business hours to the business and affairs of the Company and, to the extent necessary to discharge the responsibilities assigned to the Executive hereunder, to use the Executive's reasonable best efforts to perform faithfully and efficiently such responsibilities. During the Employment Period it shall not be a violation of this Agreement for the Executive to (A) serve on corporate, civic or charitable boards or committees, (B) deliver lectures, fulfill speaking engagements or teach at educational institutions and (C) manage personal investments, so long as such activities do not significantly interfere with the performance of the Executive's responsibilities as an employee of the Company in accordance with this Agreement. It is expressly understood and agreed that to the extent that any such activities have been conducted by the Executive prior to the Effective Date, the continued conduct of such activities (or the conduct of activities similar in nature and scope thereto) subsequent to the Effective Date shall not thereafter be deemed to interfere with the performance of the Executive's responsibilities to the Company. (b) Compensation. (i) Base Salary. During the Employment Period, the ------------ ------------- Executive shall receive an annual base salary ("Annual Base Salary"), which shall be paid in equal installments on a monthly basis, at least equal to twelve times the highest monthly base salary paid or payable to the Executive by the Company and its affiliated companies in respect of the twelve-month period immediately preceding the month in which the Effective Date occurs. During the Employment Period, the Annual Base Salary shall be reviewed at least annually and shall be increased at any time and from time to time as shall be substantially consistent with increases in base salary generally awarded in the -4- ordinary course of business to other peer executives of the Company and its affiliated companies. Any increase in Annual Base Salary shall not serve to limit or reduce any other obligation to the Executive under this Agreement. Annual Base Salary shall not be reduced after any such increase and the term Annual Base Salary as utilized in this Agreement shall refer to Annual Base Salary as so increased. As used in this Agreement, the term "affiliated companies" shall include any company controlled by, controlling or under common control with the Company. (ii) Annual Bonus. In addition to Annual Base Salary, the Executive ------------ shall be awarded, for each fiscal year ending during the Employment Period, an annual bonus (the "Annual Bonus") in cash at least equal to the average annualized (for any fiscal year consisting of less than twelve full months or with respect to which the Executive has been employed by the Company for less than twelve full months) bonus paid or payable, including by reason of any deferral, to the Executive by the Company and its affiliated companies in respect of the three fiscal years immediately preceding the fiscal year in which the Effective Date occurs (the "Recent Average Bonus"). Each such Annual Bonus shall be paid no later than the end of the third month of the fiscal year next following the fiscal year for which the Annual Bonus is awarded, unless the Executive shall elect to defer the receipt of such Annual Bonus. (iii) Incentive, Savings and Retirement Plans. During the Employment --------------------------------------- Period, the Executive shall be entitled to participate in all incentive, savings and retirement plans, practices, policies and programs applicable generally to other peer executives of the Company and its affiliated companies, but in no event shall such plans, practices, policies and programs provide the Executive with incentive opportunities (measured with respect to both regular and special incentive opportunities, to the extent, if any, that such distinction is applicable), savings opportunities and retirement benefit opportunities, in each case, less favorable, in the aggregate, than the most favorable of those provided by the Company and its affiliated companies for the Executive under such plans, practices, policies and programs as in effect at any time during the 90-day period immediately preceding the Effective Date or if more favorable to the Executive, those provided generally at any time after the Effective Date to other peer executives of the Company and its affiliated companies. (iv) Welfare Benefit Plans. During the Employment Period, the --------------------- Executive and/or the Executive's family, as the case may be, shall be eligible for participation in and shall receive all benefits under welfare benefit plans, practices, policies and programs provided by the Company and its affiliated companies (including, without limitation, medical, prescription, dental, disability, salary continuance, employee life, group life, accidental death and travel accident insurance plans and programs) to the extent applicable generally to other peer executives of the Company and its affiliated companies, but in no event shall such plans, practices, policies and programs provide the Executive with benefits which are less favorable, in the aggregate, than the most favorable of such plans, practices, policies and programs in effect for the Executive at any time during the 90-day period immediately preceding the Effective Date or, if more favorable to the Executive, those provided generally at any time after the Effective Date to other peer executives of the Company and its affiliated companies. (v) Expenses. During the Employment Period, the Executive shall be -------- entitled to receive prompt reimbursement for all reasonable employment expenses incurred by the Executive in accordance with the most favorable policies, practices and procedures of the Company and its affiliated companies in effect for the Executive at any time during the 90-day period immediately preceding the Effective Date or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies. -5- (vi) Fringe Benefits. During the Employment Period, the Executive --------------- shall be entitled to fringe benefits in accordance with the most favorable plans, practices, programs and policies of the Company and its affiliated companies in effect for the Executive at any time during the 90-day period immediately preceding the Effective Date or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies. (vii) Office and Support Staff. During the Employment Period, the ------------------------ Executive shall be entitled to an office or offices of a size and with furnishings and other appointments, and to exclusive personal secretarial and other assistance, at least equal to the most favorable of the foregoing provided to the Executive by the Company and its affiliated companies at any time during the 90-day period immediately preceding the Effective Date or, if more favorable to the Executive, as provided generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies. (viii) Vacation. During the Employment Period, the Executive shall be -------- entitled to paid vacation in accordance with the most favorable plans, policies, programs and practices of the Company and its affiliated companies as in effect for the Executive at any time during the 90-day period immediately preceding the Effective Date or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies. 5. Termination of Employment. (a) Death or Disability. The Executive's -------------------------- ------------------- employment shall terminate automatically upon the Executive's death during the Employment Period. If the Company determines in good faith that the Disability of the Executive has occurred during the Employment Period (pursuant to the definition of Disability set forth below), it may give to the Executive written notice in accordance with Section 12(b) of its intention to terminate the Executive's employment. In such event, the Executive's employment with the Company shall terminate effective on the 30th day after receipt of such notice by the Executive (the "Disability Effective Date"), provided that, within the 30 days after such receipt, the Executive shall not have returned to full-time performance of the Executive's duties. For purposes of this Agreement, "Disability" shall mean the absence of the Executive from the Executive's duties with the Company on a full-time basis for 180 consecutive business days as a result of incapacity due to mental or physical illness which is determined to be total and permanent by a physician selected by the Company or its insurers and acceptable to the Executive or the Executive's legal representative (such agreement as to acceptability not to be withheld unreasonably). (b) Cause. The Company may terminate the Executive's employment during the ----- Employment Period for Cause. For purposes of this Agreement, "Cause" shall mean (i) a material breach by the Executive of the Executive's obligations under Section 4(a) (other than as a result of incapacity due to physical or mental illness) which is demonstrably willful and deliberate on the Executive's part, which is committed in bad faith or without reasonable belief that such breach is in the best interests of the Company and which is not remedied in a reasonable period of time after receipt of written notice from the Company specifying such breach or (ii) the conviction of the Executive of a felony involving moral turpitude. (c) Good Reason. The Executive's employment may be terminated during the ----------- Employment Period by the Executive for Good Reason. For purposes of this Agreement, "Good Reason" shall mean (i) the assignment to the Executive of any duties inconsistent in any respect with the Executive's position (including status, offices, titles and reporting requirements), authority, duties or responsibilities -6- as contemplated by Sections 3 and 4(a) or any other action by the Company which results in a diminution in such position, authority, duties or responsibilities, excluding for this purpose an isolated, insubstantial and inadvertent action not taken in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by the Executive; (ii) any failure by the Company to comply with any of the provisions of Section 4(b), other than an isolated, insubstantial and inadvertent failure not occurring in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by the Executive; (iii) the Company's requiring the Executive to be based at any office or location other than that described in Section 4(a)(i)(B); (iv) any purported termination by the Company of the Executive's employment otherwise than as expressly permitted by this Agreement; or (v) any failure by the Company to comply with and satisfy Section ll(c), provided that such successor has received at least ten days prior written notice from the Company or the Executive of the requirements of Section 11(c). For purposes of this Section 5(c), any good faith determination of "Good Reason" made by the Executive shall be conclusive. Anything in this Agreement to the contrary notwithstanding, a termination by the Executive for any reason during the six month period immediately following the first anniversary of the Change of Control Date shall be deemed to be a termination for Good Reason for all purposes of this Agreement. (d) Notice of Termination. Any termination by the Company for Cause or by --------------------- the Executive for Good Reason shall be communicated by Notice of Termination to the other party hereto given in accordance with Section 12(b). For purposes of this Agreement, a "Notice of Termination" means a written notice which (i) indicates the specific termination provision in this Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for term nation of the Executive's employment under the provision so indicated and (iii) if the Date of Termination (as defined below) is other than the date of receipt of such notice, specifies the termination date (which date shall be not more than 15 days after the giving of such notice). The failure by the Executive or the Company to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Good Reason or Cause shall not waive any right of the Executive or the Company hereunder or preclude the Executive or the Company from asserting such fact or circumstance in enforcing the Executive's or the Company's rights hereunder. (e) Date of Termination. "Date of Termination" means (i) if the ------------------- Executive's employment is terminated by the Company for Cause, or by the Executive for Good Reason, the date of receipt of the Notice of Termination or any later date specified therein, as the case may be, (ii) if the Executive's employment is terminated by the Company other than for Cause or Disability, the Date of Termination shall be the date on which the Company notifies the Executive of such termination and (iii) if the Executive's employment is terminated by reason of death or Disability, the Date of Termination shall be the date of death of the Executive or the Disability Effective Date, as the case may be. 6. Obligations of the Company upon Termination. (a) Good Reason; Other ------------------------------------------- ------------------ Than for Cause, Death or Disability. If, during the Employment Period, the - ----------------------------------- Company shall terminate the Executive's employment other than for Cause or Disability or the Executive shall terminate employment for Good Reason: -7- (i) the Company shall pay to the Executive in a lump sum in cash within 30 days after the Date of Termination the aggregate of the following amounts: A. the sum of (1) the Executive's Annual Base Salary through the Date of Termination to the extent not theretofore paid, (2) the product of (x) the greater of (i) the Annual Bonus paid or payable, including by reason of any deferral, to the Executive (and annualized for any fiscal year consisting of less than twelve full months or for which the Executive has been employed for less than twelve full months) for the most recently completed fiscal year during the Employment Period, if any, and (ii) the Recent Average Bonus (such greater amount shall be hereinafter referred to as the "Highest Annual Bonus"), and (y) a fraction, the numerator of which is the number of days in the current fiscal year through the Date of Termination, and the denominator of which is 365 and (3) any compensation previously deferred by the Executive (together with any accrued interest or earnings thereon) and any accrued vacation pay, in each case to the extent not theretofore paid (the sum of the amounts described in clauses (1), (2) and (3) shall be hereinafter referred to as the "Accrued Obligations"); and B. the amount equal to the product of (1) three and (2) the sum of (x) the Executive's Annual Base Salary and (y) the Highest Annual Bonus; and C. a separate lump-sum supplemental retirement benefit equal to the difference between (1) the actuarial equivalent (utilizing for this purpose the actuarial assumptions utilized with respect to the ATL Ultrasound, Inc. Retirement Plan (or any successor plan thereto) (the "Retirement Plan") during the 90-day period immediately preceding the Effective Date) of the benefit payable under the Retirement Plan and any supplemental and/or excess retirement plan of the Company and its affiliated companies providing benefits for the Executive (the "SERP") which the Executive would receive if the Executive's employment continued at the compensation level provided for in Sections 4(b)(i) and 4(b)(ii) for the remainder of the Employment Period, assuming for this purpose that all accrued benefits are fully vested and that benefit accrual formulas are no less advantageous to the Executive than those in effect during the 90-day period immediately proceeding the Effective Date, and (2) the actuarial equivalent (utilizing for this purpose the actuarial assumptions utilized with respect to the Retirement Plan during the 90-day period immediately preceding the Effective Date) of the Executive's actual benefit (paid or payable), if any, under the Retirement Plan and the SERP; and (ii) for the remainder of the Employment Period, or such longer period as any plan, program, practice or policy may provide, the Company shall continue benefits to the Executive and/or the Executive's family at least equal to those which would have been provided to them in accordance with the plans, programs, practices and policies described in Section 4(b)(iv) and 4(b)(vi) if the Executive's employment had not been terminated in accordance with the most favorable plans, practices, programs or policies of the Company and its affiliated companies as in effect and applicable generally to other peer executives and their families during the 90-day period immediately preceding the Effective Date or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies and their families, provided, however, that if the Executive becomes reemployed with another employer and is eligible to receive medical or other welfare benefits under another employer provided -8- plan, the medical and other welfare benefits described herein shall be secondary to those provided under such other plan during such applicable period of eligibility (such continuation of such benefits for the applicable period herein set forth shall be hereinafter referred to as "Welfare Benefit Continuation"). For purposes of determining eligibility of the Executive for retiree benefits pursuant to such plans, practices, programs and policies, the Executive shall be considered to have remained employed until the end of the Employment Period and to have retired on the last day of such period; provided, however, that the Executive shall be entitled to the more favorable of the retiree benefits in effect on the Date of Termination or the retiree benefits in effect on the date that would have been the last date of the Employment Period if the Executive had remained employed; and (iii) to the extent not theretofore paid or provided, the Company shall timely pay or provide to the Executive and/or the Executive's family any other amounts or benefits required to be paid or provided or which the Executive and/or the Executive's family is eligible to receive pursuant to this Agreement and under any plan, program, policy or practice or contract or agreement of the Company and its affiliated companies as in effect and applicable generally to other peer executives and their families during the 90-day period immediately preceding the Effective Date or, if more favorable to the Executive, as in effect generally thereafter with respect to other peer executives of the Company and its affiliated companies and their families (such other amounts and benefits shall be hereinafter referred to as the "Other Benefits"). (b) Death. If the Executive's employment is terminated by reason of the ----- Executive's death during the Employment Period, this Agreement shall terminate without further obligations to the Executive's legal representatives under this Agreement, other than for payment of Accrued Obligations (which shall be paid to the Executive's estate or beneficiary, as applicable, in a lump sum in cash within 30 days of the Date of Termination) and the timely payment or provision of the Welfare Benefit Continuation and Other Benefits. (c) Disability. If the Executive's employment is terminated by reason of ---------- the Executive's Disability during the Employment Period, this Agreement shall terminate without further obligations to the Executive, other than for payment of Accrued Obligations (which shall be paid to the Executive in a lump sum in cash within 30 days of the Date of Termination) and the timely payment or provision of the Welfare Benefit Continuation and Other Benefits. (d) Cause; Other than for Good Reason. If the Executive's employment shall --------------------------------- be terminated for Cause during the Employment Period, this Agreement shall terminate without further obligations to the Executive other than the obligation to pay to the Executive Annual Base Salary through the Date of Termination plus the amount of any compensation previously deferred by the Executive, in each case to the extent theretofore unpaid. If the Executive terminates employment during the Employment Period, other than for Good Reason, this Agreement shall terminate without further obligations to the Executive, other than for Accrued Obligations and the timely payment or provision of Other Benefits. In such case, all Accrued Obligations shall be paid to the Executive in a lump sum in cash within 30 days of the Date of Termination. 7. Non-exclusivity of Rights. Nothing in this Agreement shall prevent or --------------------------- limit the Executive's continuing or future participation in any plan, program, policy or practice provided by the Company or any of its affiliated companies and for which the Executive may qualify, nor shall anything herein limit or otherwise affect such rights as the Executive may have under any contract or agreement with the Company or any of its affiliated companies. Amounts which are vested benefits or which the Executive is otherwise entitled to receive under any plan, policy, practice or program, of or any contract or agreement -9- with the Company or any of its affiliated companies at or subsequent to the Date of Termination shall be payable in accordance with such plan, policy, practice or program or contract or agreement except as explicitly modified by this Agreement. 8. Full Settlement; Resolution of Disputes. (a) 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 set-off, counterclaim, recoupment, defense or other claim, right or action which the Company may have against the Executive or others. In no event shall the Executive be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to the Executive under any of the provisions of this Agreement and, except as provided in Section 6(a)(ii), such amounts shall not be reduced whether or not the Executive obtains other employment. The Company agrees to pay promptly upon invoice, to the full extent permitted by law, all legal fees and expenses which the Executive may incur as a result of any contest (regardless of the outcome thereof) by the Company, the Executive or others of the validity or enforceability of, or liability under, any provision of this Agreement or any guarantee of performance thereof (including as a result of any contest by the Executive about the amount of any payment pursuant to this Agreement). (b) If there shall be any dispute between the Company and the Executive (i) in the event of any termination of the Executive's employment by the Company, whether such termination was for Cause, or (ii) in the event of any termination of employment by the Executive, whether Good Reason existed, then, unless and until there is a final, nonappealable judgment by a court of competent jurisdiction declaring that such termination was for Cause or that the determination by the Executive of the existence of Good Reason was not made in good faith, the Company shall pay all amounts, and provide all benefits, to the Executive and/or the Executive's family or other beneficiaries, as the case may be, that the Company would be required to pay or provide pursuant to Section 6(a) as though such termination were by the Company without Cause or by the 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 the Executive to repay all such amounts to which the Executive is ultimately adjudged by such court not to be entitled. 9. Certain Adjustments. (a) For purposes of this section, (i) A Payment ------------------- shall mean any payment or distribution in the nature of compensation to or for the benefit of Executive, whether paid or payable pursuant to this Agreement or otherwise (including the vesting of stock options, the lapse of restrictions on restricted stock and any other events that result in a "payment in the nature of compensation" within the meaning of Section 280G of the Internal Revenue Code of 1986, as amended (the "Code")); (ii) Agreement Payment shall mean a Payment paid or payable pursuant to this Agreement (disregarding this Section 9); (iii) Net After Tax Receipt shall mean the Present Value of a Payment net of all taxes imposed on Executive with respect thereto under Sections 1 and 4999 of the Code determined by applying the highest marginal rate under Section l of the Code which applied to the Executive's taxable income for the immediately preceding taxable year; (iv) "Present Value" shall mean such value determined in accordance with Section 280G(d)(4) of the Code; and (v) "Reduced Amount" shall mean the largest aggregate amount of Payments which is less than the sum of all Payments and if paid to the Executive would result in aggregate Net After Tax Receipts which are equal to or greater than the Net After Tax Receipts which would result if the Executive were paid an amount equal to the sum of the aggregate Payments. Anything in this Agreement to the contrary notwithstanding, in the event it shall be determined that receipt of all Agreement Payments would subject Executive to the excise tax under Section 4999 of the Code (together with any -10- interest or penalties imposed thereon, "Excise Tax") a determination shall be made whether there is a "Reduced Amount". If there is a Reduced Amount, the aggregate Payments shall be reduced to such Reduced Amount. (b) All determinations required to be made under this Section 9, including whether there is a Reduced Amount, shall be made by KPMG Peat Marwick (the "Accounting Firm") which shall provide detailed supporting calculations both to the Company and the Executive within 15 business days of the receipt of notice from the Executive that there has been a Payment, or such earlier time as is requested by the Company. In the event that the Accounting Firm is serving as accountant or auditor for the individual, entity or group effecting the Change of Control, the Executive may appoint another nationally recognized accounting firm to make the determinations required hereunder (which accounting firm shall then be referred to as the Accounting Firm hereunder). All fees and expenses of the Accounting Firm shall be borne solely by the Company. If the Accounting Firm determines that no Excise Tax is payable by the Executive, it shall furnish the Executive with a written opinion that failure to report the Excise Tax on the Executive's applicable federal income tax return would not result in the imposition of a negligence or similar penalty. If the Accounting Firm determines that aggregate Payments should be reduced to the Reduced Amount, the Company shall promptly give Executive notice to that effect and a copy of the detailed calculation thereof. As promptly as practicable following such determination, the Company shall pay to or distribute for the benefit of Executive such Agreement Payments as are then due to Executive under this Agreement and shall promptly pay to or distribute for the benefit of Executive in the future such Agreement Payments as become due to Executive under this Agreement. Any determination by the Accounting Firm shall be binding upon the Company and the Executive. While it is the intention of the Company and the Executive to reduce the amounts payable or distributable to Executive hereunder only if the aggregate Net After Tax Receipts to Executive would thereby be increased, as a result of the uncertainty in the application of Section 4999 of the Code at the time of the initial determination by Accounting firm hereunder, it is possible that amounts will not have been paid or distributed by the Company to or for the benefit of Executive pursuant to this Agreement which should not have been so paid or distributed ("Overpayment") or that additional amounts which will have not been paid or distributed by the Company to or for the benefit of Executive pursuant to this Agreement could have been so paid or distributed ("Underpayment"), in each case, consistent with the calculation of the Reduced Amount hereunder. In the event that Accounting Firm, based either upon the assertion of a deficiency by the Internal Revenue Service against the Company or Executive which Accounting Firm believes has a high probability of success determines that an Overpayment has been made, any such Overpayment paid or distributed by the Company to or for the benefit of Executive shall be treated for all purposes as a loan to Executive which Executive shall repay to the Company together with interest at the applicable federal rate provided for in Section 7872(f)(2) of the Code; provided, however, that no such loan shall be deemed to have been made and no amount shall be payable by Executive to the Company if and to the extent such deemed loan and payment would not either reduce the amount on which the Executive is subject to tax under Section 1 and Section 4999 of the Code or generate a refund of such taxes. In the event that Accounting Firm, based upon controlling precedent or substantial authority, determines that an Underpayment has occurred, any such Underpayment shall be promptly paid by the Company to or for the benefit of the Executive together with interest at the applicable federal rate provided for in Section 7872(f)t2) of the Code. 10. Confidential Information. The Executive shall hold in a fiduciary ------------------------ capacity for the benefit of the Company all secret or confidential information, knowledge or data relating to the Company or any of its affiliated companies, and their respective businesses, which shall have been obtained by the Executive during the Executive's employment by the Company or any of its affiliated companies and which shall not be or become public knowledge (other than by acts -11- by the Executive or representatives of the Executive in violation of this Agreement). After termination of the Executive's employment with the Company, the Executive shall not, without the prior written consent of the Company or as may otherwise be required by law or legal process, communicate or divulge any such information, knowledge or data to anyone other than the Company and those designated by it. In no event shall an asserted violation of the provisions of this Section 10 constitute a basis for deferring or withholding any amounts otherwise payable to the Executive under this Agreement. 11. Successors. (a) This Agreement is personal to the Executive and ---------- without the prior written consent of the Company shall not be assignable by the Executive otherwise than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by the Executive's legal representatives. (b) This Agreement shall inure to the benefit of and be binding upon the company and its successors and assigns. (c) The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to assume expressly 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 had taken place. As used in this Agreement, "Company" shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise. 12. Miscellaneous. (a) This Agreement shall be governed by and construed ------------- in accordance with the laws of the State of Washington, without reference to principles of conflict of laws. This captions of this Agreement are not part of the provisions hereof and shall have no force or effect. This Agreement may not be amended or modified otherwise than by a written agreement executed by the parties hereto or their respective successors and legal representatives. (b) All notices and other communications hereunder shall be in writing and shall be given by hand delivery to the other party or by registered or certified mail, return receipt requested, postage prepaid, addressed as follows: If to the Executive: ------------------- ------------------------ ------------------------ ------------------------ ------------------------ -12- If to the Company: ----------------- ATL Ultrasound, Inc. 22100 Bothell Everett Highway P.O. Box 3003 Bothell, Washington 98041-3003 Attention: General Counsel or to such other address as either party shall have furnished to the other in writing in accordance herewith. Notice and communications shall be effective when actually received by the addressee. (c) The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement. (d) The Company may withhold from any amounts payable under this Agreement such Federal, state or local taxes as shall be required to be withheld pursuant to any applicable law or regulation. (e) The Executive's or the Company's failure to insist upon strict compliance with any provision hereof or any other provision of this Agreement or the failure to assert any right the Executive or the Company may have hereunder, including, without limitation, the right of the Executive to terminate employment for Good Reason pursuant to Section 5(c)(i)-(v), shall not be deemed to be a waiver of such provision or right or any other provision or right of this Agreement. (f) The Executive and the Company acknowledge that, except as may otherwise be provided under any other written agreement between the Executive and the Company, the employment of the Executive by the Company is "at will" and, prior to the Effective Date, may be terminated by either the Executive or the Company at any time. Moreover, if prior to the Effective Date, the Executive's employment with the Company terminates, then the Executive shall have no further rights under this Agreement. IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand and, pursuant to the authorization from its Board of Directors, the Company has caused these presents to be executed in its name on its behalf, all as of the day and year first above written. _________________________________ [Executive] ATL ULTRASOUND, INC. By: _____________________________ EX-27 8 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONDENSED CONSOLIDATED BALANCE SHEET AS OF JULY 3, 1998 AND THE CONDENSED CONSOLIDATED STATEMENT OF INCOME FOR THE SIX MONTHS ENDED JULY 3, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 6-MOS DEC-31-1998 JAN-01-1998 JUL-03-1998 46,375 0 116,424 0 97,339 277,992 82,654 0 365,884 104,071 28,778 0 0 0 0 365,884 170,616 217,128 78,684 107,918 99,990 0 676 9,471 1,838 7,633 0 0 0 7,633 .53 .50
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