-----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, NbECHLzeqrlMfropj0dAowb1lk2jc3lzPdXNHhykGvcf/zobIlMDzLsl+T7qZnsK 2Pdcvl1i3iyIWMqITM5X8A== 0001047469-98-029238.txt : 19980805 0001047469-98-029238.hdr.sgml : 19980805 ACCESSION NUMBER: 0001047469-98-029238 CONFORMED SUBMISSION TYPE: SC 14D1 PUBLIC DOCUMENT COUNT: 15 FILED AS OF DATE: 19980804 SROS: NONE SUBJECT COMPANY: 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: SC 14D1 SEC ACT: SEC FILE NUMBER: 005-39058 FILM NUMBER: 98676694 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 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: PHILIPS ELECTRONICS N V CENTRAL INDEX KEY: 0000313216 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRONIC & OTHER ELECTRICAL EQUIPMENT (NO COMPUTER EQUIP) [3600] STATE OF INCORPORATION: P7 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 14D1 BUSINESS ADDRESS: STREET 1: GROENEVOUDSEWEG 1 STREET 2: 5621 BA EINDHOVEN CITY: THE NETHERLANDS STATE: P7 BUSINESS PHONE: 0113140791 MAIL ADDRESS: STREET 1: SULLIVAN & CROMWELL 125 BROAD ST STREET 2: C/O W LOEBER LANDAU CITY: NEW YORK STATE: NY ZIP: 10004 SC 14D1 1 SC 14D1 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ SCHEDULE 14D-1 TENDER OFFER STATEMENT (PURSUANT TO SECTION 14(D)(1) OF THE SECURITIES EXCHANGE ACT OF 1934) ------------------------ ATL ULTRASOUND, INC. (Name of Subject Company) KONINKLIJKE PHILIPS ELECTRONICS N.V. (ROYAL PHILIPS ELECTRONICS) PHILIPS ELECTRONICS NORTH AMERICA CORPORATION PHILIPS ACQUISITION, INC. (Bidder) COMMON STOCK, PAR VALUE $.01 PER SHARE (INCLUDING THE ASSOCIATED RIGHTS TO PURCHASE SERIES A PARTICIPATING CUMULATIVE PREFERRED STOCK) (Title of Class of Securities) 00207N100 (CUSIP Number of Class of Securities) SAMUEL J. ROZEL COMPANY SECRETARY 1251 AVENUE OF THE AMERICAS 20TH FLOOR NEW YORK, NEW YORK 10020 212-536-0500 (Name, Address and Telephone Number of Person Authorized to Receive Notices and Communications on Behalf of Bidders) COPY TO: NEIL T. ANDERSON, ESQ. SULLIVAN & CROMWELL 125 BROAD STREET NEW YORK, NEW YORK 10004 (212) 558-4000 CALCULATION OF FILING FEE:
TRANSACTION VALUATION* AMOUNT OF FILING FEE** $860,820,424.50 $172,164.09
* For purposes of calculating the filing fee only. This calculation assumes 17,045,949 Shares (equal to the sum of (i) 14,789,665 Shares issued and outstanding as of July 31, 1998, according to ATL Ultrasound, Inc. (the "Company") and (ii) 2,256,284 Shares subject to issuance pursuant to outstanding options under the Company's stock option plans. ** 1/50 of 1% of transaction valuation / / Check box if any part of the fee is offset as provided by Rule 0-11(a)(2) and identify the filing with which the offsetting fee was previously paid. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. Amount Previously Paid: Filing Party: Form or Registration No.: Date Filed:
- -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SCHEDULE 14D-1 CUSIP NO. 00207N100
1. NAME OF REPORTING PERSON S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON Koninklijke Philips Electronics N.V. (Royal Philips Electronics) 2. CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a) / / (b) / / 3. SEC USE ONLY 4. SOURCE OF FUNDS WC; OO 5. CHECK IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(e) OR 2(f) / / 6. CITIZENSHIP OR PLACE OF ORGANIZATION The Netherlands 7. AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 0 8. CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (7) EXCLUDES CERTAIN SHARES / / 9. PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (7) 0% 10. TYPE OF REPORTING PERSON CO
SCHEDULE 14D-1 CUSIP NO. 00207N100
1. NAME OF REPORTING PERSON S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON Philips Electronics North America Corporation 2. CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a) / / (b) / / 3. SEC USE ONLY 4. SOURCE OF FUNDS AF 5. CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(e) OR 2(f) / / 6. CITIZENSHIP OR PLACE OF ORGANIZATION Delaware 7. AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 0 8. CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (7) EXCLUDES CERTAIN SHARES / / 9. PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (7) 0% 10. TYPE OF REPORTING PERSON CO
SCHEDULE 14D-1 CUSIP NO. 00207N100
1. NAME OF REPORTING PERSON S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON Philips Acquisition, Inc. 2. CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a) / / (b) / / 3. SEC USE ONLY 4. SOURCE OF FUNDS AF 5. CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(e) OR 2(f) / / 6. CITIZENSHIP OR PLACE OF ORGANIZATION Washington 7. AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 0 8. CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (7) EXCLUDES CERTAIN SHARES / / 9. PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (7) 0% 10. TYPE OF REPORTING PERSON CO
Item 1. SECURITY AND SUBJECT COMPANY. (a) The name of the subject company is ATL Ultrasound, Inc., a Washington corporation (the "Company"), and the address of its principal executive offices is 22100 Bothell Everett Highway, Bothell, Washington 98041. (b) The class of the securities to which this statement relates is the Common Stock, par value $0.01 per share (including the associated rights to purchase Series A Participating Cumulative Preferred Stock (the "Rights" and, collectively with the Common Stock, the "Shares")), of the Company. The information set forth in the introductory section and Section 1 of the Offer to Purchase (the "Offer to Purchase") annexed hereto as Exhibit (a)(1) is incorporated herein by reference. (c) The information set forth in the introductory section and in Section 6 of the Offer to Purchase is incorporated herein by reference. Item 2. IDENTITY AND BACKGROUND. (a)-(d); (g) The information set forth in Section 9 of the Offer of Purchase is incorporated herein by reference. The name, business address, present principal occupation or employment, the material occupations, positions, offices or employment for the past five years and citizenship of each director and executive officer of Koninklijke Philips Electronics N.V. ("Royal Philips"), a company incorporated under the laws of The Netherlands, Philips Electronics North America Corporation, a Delaware corporation ("Parent"), Philips Holding USA Inc., a Delaware corporation ("Holding") and Philips Acquisition, Inc., a Washington corporation ("Merger Sub") are set forth in Schedule A to the Offer to Purchase and are incorporated herein by reference. (e)-(f) During the last five years, none of Merger Sub, Parent, Holding, Royal Philips, or to the best of their respective knowledge, any of the directors and executive officers of Merger Sub, Parent, Holding or Royal Philips has been convicted in a criminal proceeding (excluding traffic violations or similar misdemeanors) or has been a party to a civil proceeding of a judicial or administrative body of competent jurisdiction as a result of which any such person was or is subject to a judgment, decree or final order enjoining future violations of, or prohibiting activities subject to, federal or state securities laws or finding any violation of such law. Item 3. PAST CONTACTS, TRANSACTIONS OR NEGOTIATIONS WITH THE SUBJECT COMPANY. (a)-(b) The information set forth in Sections 9, 10, 11 and Schedule A of the Offer to Purchase is incorporated herein by reference. Item 4. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION. (a)-(c) The information set forth in Section 12 of the Offer to Purchase is incorporated herein by reference. Item 5. PURPOSE OF THE TENDER OFFER AND PLANS OR PROPOSALS OF THE BIDDER. (a)-(g) The information set forth in the introductory section and in Sections 7, 10 and 11 of the Offer to Purchase is incorporated herein by reference. Except as set forth in such sections of the Offer to Purchase, none of Merger Sub, Parent or Royal Philips currently has any plans or proposals which relate to or would result in: (a) an extraordinary corporate transaction, such as a merger, reorganization or liquidation involving the Company or any of its subsidiaries; (b) a sale or transfer of a material amount of assets of the Company or any of its subsidiaries; (c) any change in the present board of directors or management of the Company including, but not limited to, any plans or proposals to change the number or the term of directors or to fill any existing vacancies on the board of directors of the Company; (d) any material change in the present capitalization or dividend policy of the Company; (e) any other material change in the Company's corporate structure or business; (f) causing a class of securities of the Company to be delisted from a national securities exchange or to cease to be authorized to be quoted in an inter-dealer quotation system of a registered national securities association; or (g) a class of equity securities of the Company becoming eligible for termination of registration pursuant to Section 12(g)(4) of the Securities Exchange Act of 1934, as amended. Item 6. INTEREST IN SECURITIES OF THE SUBJECT COMPANY. (a)-(b) The information set forth in Sections 9, 10 and Schedule A of the Offer to Purchase is incorporated herein by reference. Item 7. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH RESPECT TO THE SUBJECT COMPANY'S SECURITIES. The information set forth in the introductory section and Sections 9, 10 and 11 of the Offer to Purchase is incorporated herein by reference. Item 8. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED. The information set forth in Section 16 of the Offer to Purchase is incorporated herein by reference. Item 9. FINANCIAL STATEMENTS OF CERTAIN BIDDERS. The information set forth in Section 9 to the Offer to Purchase is incorporated herein by reference. Item 10. ADDITIONAL INFORMATION. (a) The information set forth in Section 10 of the Offer of Purchase is incorporated herein by reference. (b)-(d) The information set forth in Section 15 of the Offer of Purchase is incorporated herein by reference. (e)-(f) Not applicable. Item 11. MATERIAL TO BE FILED AS EXHIBITS.
EXHIBIT NO. DESCRIPTION - --------- -------------------------------------------------------------------------------------------------------- (a)(1) Offer to Purchase, dated August 4, 1998. (a)(2) Form of Letter of Transmittal with respect to the Shares. (a)(3) Form of letter, dated August 4, 1998, to brokers, dealers, commercial banks, trust companies and other nominees. (a)(4) Form of letter to be used by brokers, dealers, commercial banks, trust companies, and nominees to their clients. (a)(5) Press Release issued by Parent, dated July 29, 1998. (a)(6) Form of newspaper advertisement, dated August 4, 1998. (a)(7) Notice of Guaranteed Delivery. (a)(8) Guidelines for Substitute Form W-9. (c)(1) Agreement and Plan of Merger, dated as of July 29, 1998, by and among the Company, Parent and Purchaser. (g)(1) Employment and Consulting Agreement, dated as of July 29, 1998 between the Company and Dennis C. Fill. (g)(2) Employment Agreement, dated as of July 29, 1998 by and between the Company and Pamela Dunlop. (g)(3) Employment Agreement dated as of July 29, 1998 between the Company and Donald Blem. (g)(4) Employment Agreement dated as of July 29, 1998 between the Company and Jacques Souquet. (g)(5) Employment and Consulting Agreement dated as of July 29, 1998 between the Company and Castor F. Diaz.
SIGNATURES After due inquiry and to the best of my knowledge and belief, I certify that the information set forth in this statement is true, complete and correct. Dated: August 4, 1998 KONINKLIJKE PHILIPS ELECTRONICS N.V. By: /s/ GUIDO R. C. DIERICK -------------------------------------- Name: Guido R. C. Dierick Title: Director and Deputy Secretary PHILIPS ELECTRONICS NORTH AMERICA CORPORATION By: /s/ WILLIAM E. CURRAN -------------------------------------- Name: William E. Curran Title: Senior Vice President and Chief Financial Officer PHILIPS ACQUISITION, INC. By: /s/ WILLIAM E. CURRAN -------------------------------------- Name: William E. Curran Title: President
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION - --------- -------------------------------------------------------------------------------------------------------- (a)(1) Offer to Purchase, dated August 4, 1998. (a)(2) Form of Letter of Transmittal with respect to the Shares. (a)(3) Form of letter, dated August 4, 1998, to brokers, dealers, commercial banks, trust companies and other nominees. (a)(4) Form of letter to be used by brokers, dealers, commercial banks, trust companies, and nominees to their clients. (a)(5) Press Release issued by the Parent, dated July 29, 1998. (a)(6) Form of newspaper advertisement, dated August 4, 1998. (a)(7) Notice of Guaranteed Delivery. (a)(8) Guidelines for Substitute Form W-9. (c)(1) Agreement and Plan of Merger, dated as of July 29, 1998, by and among the Company, Parent and Purchaser. (g)(1) Employment and Consulting Agreement, dated as of July 29, 1998 by and between the Company and Dennis C. Fill. (g)(2) Employment Agreement, dated as of July 29, 1998 by and between the Company and Pamela Dunlop. (g)(3) Employment Agreement dated as of July 29, 1998 between the Company and Donald Blem. (g)(4) Employment Agreement dated as of July 29, 1998 between the Company and Jacques Souquet. (g)(5) Employment and Consulting Agreement dated as of July 29, 1998 between the Company and Castor F. Diaz.
EX-99.(A)(1) 2 OFFER TO PURCHASE OFFER TO PURCHASE FOR CASH ALL OUTSTANDING SHARES OF COMMON STOCK (INCLUDING THE ASSOCIATED PREFERRED STOCK PURCHASE RIGHTS) OF ATL ULTRASOUND, INC. AT $50.50 NET PER SHARE BY PHILIPS ACQUISITION, INC. A WHOLLY OWNED SUBSIDIARY OF PHILIPS ELECTRONICS NORTH AMERICA CORPORATION AND AN INDIRECT WHOLLY OWNED SUBSIDIARY OF KONINKLIJKE PHILIPS ELECTRONICS N.V. (ROYAL PHILIPS ELECTRONICS) THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON MONDAY, AUGUST 31, 1998, UNLESS THE OFFER IS EXTENDED. THE OFFER (AS DEFINED BELOW) IS CONDITIONED UPON, AMONG OTHER THINGS, (1) THERE BEING VALIDLY TENDERED AND NOT WITHDRAWN PRIOR TO THE EXPIRATION OF THE OFFER A NUMBER OF SHARES OF COMMON STOCK, PAR VALUE $0.01 PER SHARE (THE "COMMON STOCK") (INCLUDING THE ASSOCIATED RIGHTS TO PURCHASE SERIES A PARTICIPATING CUMULATIVE PREFERRED STOCK (THE "RIGHTS" AND, COLLECTIVELY WITH THE COMMON STOCK, THE "SHARES") OF ATL ULTRASOUND, INC. (THE "COMPANY") REPRESENTING A MAJORITY OF THE TOTAL VOTING POWER OF ALL SHARES OF CAPITAL STOCK OF THE COMPANY OUTSTANDING ON A FULLY DILUTED BASIS AND AS WILL PERMIT MERGER SUB (AS DEFINED BELOW) TO EFFECT THE MERGER (AS DEFINED BELOW) WITHOUT THE VOTE OF ANY PERSON OTHER THAN MERGER SUB AND (2) ANY APPLICABLE WAITING PERIOD UNDER THE HART-SCOTT-RODINO ANTITRUST IMPROVEMENTS ACT OF 1976, AS AMENDED, AND THE REGULATIONS THEREUNDER AND UNDER THE ANTITRUST OR COMPETITION LAWS OF AUSTRIA AND GERMANY WITH RESPECT TO THE OFFER AND/OR THE MERGER HAVING EXPIRED OR BEEN TERMINATED. CERTAIN OTHER CONDITIONS TO CONSUMMATION OF THE OFFER ARE DESCRIBED IN SECTION 13. THE BOARD OF DIRECTORS OF THE COMPANY HAS UNANIMOUSLY ADOPTED THE MERGER AGREEMENT (AS DEFINED BELOW), APPROVED THE OFFER AND THE MERGER, DETERMINED THAT THE OFFER AND THE MERGER ARE FAIR TO, AND IN THE BEST INTERESTS OF, THE HOLDERS OF SHARES AND RECOMMENDS THAT HOLDERS OF SHARES ACCEPT THE OFFER AND TENDER THEIR SHARES PURSUANT TO THE OFFER. -------------------------- IMPORTANT Any shareholder desiring to tender all or any portion of such shareholder's Shares should (1) complete and sign the Letter of Transmittal or a facsimile thereof in accordance with the instructions in the Letter of Transmittal, including any required signature guarantees, and mail or deliver the Letter of Transmittal or such facsimile with such shareholder's certificate(s) for the tendered Shares and any other required documents to the Depositary (as defined below), (2) follow the procedure for book-entry transfer of Shares set forth in Section 3 or (3) request such shareholder's broker, dealer, commercial bank, trust company or other nominee to effect the transaction for such shareholder. Shareholders having Shares registered in the name of a broker, dealer, commercial bank, trust company or other nominee must contact such broker, dealer, commercial bank, trust company or other nominee if they desire to tender Shares so registered. Unless the context requires otherwise, all references to Shares herein shall include the associated Rights. The Rights are presently evidenced by the certificates for the Common Stock and a tender by a shareholder of such shareholder's shares of Common Stock will also constitute a tender of the associated Rights. A shareholder who desires to tender Shares and whose certificates for such Shares are not immediately available, or who cannot comply with the procedure for book-entry transfer on a timely basis, may tender such Shares by following the procedures for guaranteed delivery set forth in Section 3. Questions and requests for assistance may be directed to the Information Agent (as defined below) or to the Dealer Manager (as defined below) at their respective addresses and telephone numbers set forth on the back cover of this Offer to Purchase. Requests for additional copies of this Offer to Purchase and the Letter of Transmittal may be directed to the Information Agent or to brokers, dealers, commercial banks or trust companies. -------------------------- THE DEALER MANAGER FOR THE OFFER IS: MERRILL LYNCH & CO. --------------- August 4, 1998 TABLE OF CONTENTS
SECTION PAGE - ------------- ----------- Introduction.............................................................................................. 1 The Tender Offer 1. Terms of the Offer......................................................................... 2 2. Acceptance for Payment and Payment for Shares.............................................. 4 3. Procedure for Tendering Shares............................................................. 5 4. Rights of Withdrawal....................................................................... 8 5. Certain United States Federal Income Tax Consequences of the Offer......................... 9 6. Price Range of Shares; Dividends........................................................... 10 7. Effect of the Offer on the Market for the Shares; Stock Quotation, Margin Regulations and Exchange Act Registration........................................... 10 8. Certain Information Concerning the Company................................................. 11 9. Certain Information Concerning Merger Sub, Parent and Royal Philips........................ 13 10. Background of the Offer; Contacts with the Company; Employment Agreements.................. 16 11. Purpose of the Offer; Plans for the Company; the Merger.................................... 20 12. Source and Amount of Funds................................................................. 29 13. Certain Conditions of the Offer............................................................ 30 14. Dividends and Distributions................................................................ 31 15. Certain Legal Matters...................................................................... 32 16. Fees and Expenses.......................................................................... 34 17. Miscellaneous.............................................................................. 35 Schedule A Information Concerning the Directors and Executive Officers of Royal Philips, Holding, Parent and Merger Sub...................................................................... A-1
TO THE HOLDERS OF SHARES OF ATL ULTRASOUND, INC.: INTRODUCTION Philips Acquisition, Inc., a Washington corporation ("Merger Sub"), a wholly owned subsidiary of Philips Electronics North America Corporation, a Delaware corporation ("Parent"), and an indirect wholly owned subsidiary of Koninklijke Philips Electronics N.V., a company incorporated under the laws of The Netherlands ("Royal Philips"), hereby offers to purchase all of the outstanding shares of Common Stock, par value $0.01 per share (the "Common Stock"), of ATL Ultrasound, Inc., a Washington corporation (the "Company"), including the associated rights to purchase Series A Participating Cumulative Preferred Stock (the "Rights" and, together with the Common Stock, the "Shares") issued pursuant to the Amended and Restated Rights Agreement, dated as of June 26, 1992 (the "Rights Agreement"), between the Company and First Chicago Trust Company at $50.50 per Share, net to the seller in cash, without interest, upon the terms and subject to the conditions set forth in this Offer to Purchase and in the related Letter of Transmittal (which, together with any amendments or supplements hereto or thereto, collectively constitute the "Offer"). Tendering shareholders will not be obligated to pay brokerage fees or commissions or, subject to Instruction 6 of the Letter of Transmittal, transfer taxes on the purchase of Shares by Merger Sub pursuant to the Offer. Merger Sub will pay all charges and expenses of Citibank, N.A. (the "Depositary") and D.F. King & Co., Inc. (the "Information Agent"). Unless the context requires otherwise, all references to Shares herein shall include the associated Rights, and all references to the Rights shall include all benefits that may inure to the holders of the Rights pursuant to the Rights Agreement. THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, (1) THERE BEING VALIDLY TENDERED AND NOT WITHDRAWN PRIOR TO THE EXPIRATION OF THE OFFER A NUMBER OF SHARES REPRESENTING A MAJORITY OF THE TOTAL VOTING POWER OF ALL SHARES OF CAPITAL STOCK OF THE COMPANY OUTSTANDING ON A FULLY DILUTED BASIS AND AS WILL PERMIT MERGER SUB TO EFFECT THE MERGER (AS DEFINED BELOW) WITHOUT THE VOTE OF ANY PERSON OTHER THAN MERGER SUB AND (2) ANY APPLICABLE WAITING PERIOD UNDER THE HART-SCOTT-RODINO ANTITRUST IMPROVEMENTS ACT OF 1976, AS AMENDED (THE "HSR ACT"), AND THE REGULATIONS THEREUNDER AND UNDER THE ANTITRUST OR COMPETITION LAWS OF AUSTRIA AND GERMANY WITH RESPECT TO THE OFFER AND/OR THE MERGER HAVING EXPIRED OR BEEN TERMINATED. CERTAIN OTHER CONDITIONS TO CONSUMMATION OF THE OFFER ARE DESCRIBED IN SECTION 13. THE BOARD OF DIRECTORS OF THE COMPANY HAS UNANIMOUSLY ADOPTED THE MERGER AGREEMENT, APPROVED THE OFFER AND THE MERGER, DETERMINED THAT THE OFFER AND THE MERGER ARE FAIR TO, AND IN THE BEST INTERESTS OF, THE HOLDERS OF SHARES AND RECOMMENDS THAT HOLDERS OF SHARES ACCEPT THE OFFER AND TENDER THEIR SHARES PURSUANT TO THE OFFER. The Offer is being made pursuant to an Agreement and Plan of Merger (the "Merger Agreement"), dated as of July 29, 1998, by and among the Company, Parent and Merger Sub, pursuant to which, after completion of the Offer (subject to Section 2.1(b) of the Merger Agreement, pursuant to which at Parent's election the Company will be merged with and into Merger Sub), Merger Sub will be merged with and into the Company (either such merger, the "Merger") and each issued and outstanding Share (other than Shares owned by Parent, Merger Sub or any other subsidiary of Parent (collectively, the "Parent Companies") or Shares which are held by shareholders ("Dissenting Shareholders") exercising dissenters' rights pursuant to Section 23B.13.020 of the Washington Business Corporation Act (the "WBCA")) shall, by virtue of the Merger and without any action on the part of the holder thereof, be converted into and represent the right to receive an amount in cash, without interest, equal to the price paid for each Share pursuant to the Offer (the "Merger Consideration"). The Merger Agreement is more fully described in Section 11. THIS OFFER TO PURCHASE AND THE RELATED LETTER OF TRANSMITTAL CONTAIN IMPORTANT INFORMATION WHICH SHOULD BE READ IN THEIR ENTIRETY BEFORE ANY DECISION IS MADE WITH RESPECT TO THE OFFER. 1. TERMS OF THE OFFER. Upon the terms and subject to the conditions set forth in the Offer (including the terms and conditions set forth in Section 13 (the "Offer Conditions") and if the Offer is extended or amended, the terms and conditions of such extension or amendment), Merger Sub will accept for payment, and pay for, all Shares validly tendered on or prior to the Expiration Date and not withdrawn as permitted by Section 4. The term "Expiration Date" means 12:00 Midnight, New York City time, on Monday, August 31, 1998, unless and until Merger Sub shall, subject to the terms of the Merger Agreement, in its sole discretion, have extended the period for which the Offer is open, in which event the term "Expiration Date" shall mean the latest time and date on which the Offer, as so extended by Merger Sub, shall expire. The Offer is conditioned on, among other things, the Minimum Condition (as defined in Section 13) being satisfied. See Section 13. ACCORDING TO THE COMPANY, AS OF JULY 31, 1998, THERE WERE 14,789,665 SHARES ISSUED AND OUTSTANDING AND 2,256,284 SHARES RESERVED FOR ISSUANCE UNDER THEN-CURRENT OUTSTANDING STOCK OPTIONS PURSUANT TO THE COMPANY'S STOCK OPTION AND INCENTIVE PLANS. Based on the foregoing, Merger Sub believes that if all of the Shares reserved for issuance as set forth above are considered to be outstanding on a fully diluted basis on the Expiration Date, the Minimum Condition would be satisfied if at least 8,522,975 Shares are validly tendered and not withdrawn prior to the Expiration Date. Rights are presently evidenced by the certificates for the Common Stock and the tender by a shareholder of such shareholder's shares of Common Stock will also constitute a tender of the associated Rights. Pursuant to the Offer, no separate payment will be made by Merger Sub for the Rights. Pursuant to the Merger Agreement, the Board of Directors of the Company, at its meeting on July 28, 1998, approved an amendment of the Rights Agreement (the "Rights Amendment") to provide that the execution of the Merger Agreement or the commencement of the Offer or the consummation of the Merger or the other transactions contemplated thereby will not cause (i) either Parent, Merger Sub or any of their respective "affiliates" or "associates" (each as defined in the Rights Agreement) to be deemed an Acquiring Person (as defined in the Rights Agreement), (ii) a Distribution Date (as defined in the Rights Agreement) to occur or (iii) the Rights to separate from the Shares. Pursuant to the Merger Agreement, the Company has agreed to take all necessary action with respect to all of the outstanding Rights, so that the Company, as of the time immediately prior to the purchase of any Shares by any of the Parent Companies pursuant to the Offer, will have no obligations under the Rights or the Rights Agreement and the holders will have no rights under the Rights or the Rights Agreement, in each case, other than the right to receive the redemption payment of $0.01 per Right in cash as provided in the Rights Agreement. Subject to the terms of the Merger Agreement (see Section 11) and applicable rules and regulations of the Securities and Exchange Commission (the "SEC"), Merger Sub expressly reserves the right, in its sole discretion, at any time or from time to time, to extend the period of time during which the Offer is open by giving oral or written notice of such extension to the Depositary. During any such extension, all Shares previously tendered and not withdrawn will remain subject to the Offer, subject to the right of a tendering shareholder to withdraw such shareholder's Shares. See Section 4. Subject to the terms of the Merger Agreement and the applicable rules and regulations of the SEC, Merger Sub also expressly reserves the right, in its sole discretion, at any time or from time to time, (i) to delay acceptance for payment of or (regardless of whether such Shares were theretofore accepted for payment) payment for, any tendered Shares, or to terminate or amend the Offer as to any Shares not then paid for, on the occurrence of any of the conditions specified in Section 13 and (ii) to waive any condition (other than the Minimum Condition) and to set forth or change any other term and condition of the Offer, by giving oral or written notice of such delay, termination or amendment to the Depositary and by making a public announcement thereof; PROVIDED that, Merger Sub will not, without the prior written consent of the Company (such consent to be authorized by the Board of Directors of the Company) (i) waive the Minimum Condition, (ii) decrease the price per Share or change the form of consideration payable in the Offer, (iii) decrease the number of Shares sought in the Offer, (iv) impose additional conditions to the Offer, (v) change any Offer Condition or amend any other term of the Offer if any such change or amendment would be in any manner adverse to the holders of Shares or (vi) except as provided below, extend the Offer if all of the Offer Conditions have been satisfied. Merger Sub reserves the right, in its sole discretion, to extend the Offer after all of the Offer 2 Conditions have been satisfied or waived if it reasonably determines such extension is appropriate in order to enable it to purchase at least 90% of the outstanding Shares in the Offer (in which case Merger Sub may extend the expiration date on one occasion for up to ten business days beyond the time it would otherwise be required to accept validly tendered Shares for payment). If Merger Sub accepts any Shares for payment pursuant to the terms of the Offer, it will accept for payment all Shares validly tendered prior to the Expiration Date and not withdrawn, and, subject to the terms and conditions of the Offer, including but not limited to the Offer Conditions, it will accept for payment and promptly pay for all Shares so accepted for payment. Merger Sub confirms that its reservation of the right to delay payment for Shares which it has accepted for payment is limited by Rule 14e-1(c) under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), which requires that a tender offeror pay the consideration offered or return the tendered securities promptly after the termination or withdrawal of a tender offer. Pursuant to the Merger Agreement, (i) in the event of the failure of one or more of the Offer Conditions set forth in Section 13 to be satisfied or waived on any date the Offer would otherwise expire, Merger Sub shall from time to time extend the Offer until such time as such condition is or conditions are satisfied or waived, PROVIDED that, except as set forth below, Merger Sub shall not be required to extend the Offer beyond October 30, 1998, and (ii) in the event, after October 30, 1998, of the failure of the Regulatory Condition (as defined in Section 13) to be satisfied or waived on the date the Offer would otherwise expire (and the satisfaction or waiver on such date of the other Offer Conditions other than the Minimum Condition), Merger Sub shall give the Company notice thereof and, at the request of the Company, from time to time extend the Offer until the earlier of (1) five business days after such time as the Regulatory Condition is satisfied or waived and (2) the date chosen by the Company which shall not be later than the earlier of (x) December 31, 1998 or (y) five business days after the earliest date on which the Company reasonably believes the Regulatory Condition will be satisfied, PROVIDED that if such condition is not satisfied by any date chosen by the Company as described in this clause (y), the Company may request further extensions of the Offer in accordance with the terms of the Merger Agreement. Any extension, delay, termination or amendment of the Offer will be followed as promptly as practicable by public announcement thereof, such announcement in the case of an extension to be issued no later than 9:00 A.M., New York City time, on the next business day after the previously scheduled Expiration Date. Subject to applicable law (including Rules 14d-4(c), 14d-6(d) and 14e-1 under the Exchange Act, which require that any material change in the information published, sent or given to shareholders in connection with the Offer be promptly disseminated to shareholders in a manner reasonably designed to inform shareholders of such change) and without limiting the manner in which the Merger Sub may choose to make any public announcement, Merger Sub shall have no obligation to publish, advertise or otherwise communicate any such public announcement other than by issuing a press release or other announcement. Merger Sub confirms that if it makes a material change in the terms of the Offer or the information concerning the Offer, or if it waives a material condition of the Offer, Merger Sub will extend the Offer to the extent required by Rules 14d-4(c), 14d-6(d) and 14e-1 under the Exchange Act. If, prior to the Expiration Date, Merger Sub, if previously approved by the Company in writing, shall decrease the percentage of Shares being sought or the consideration offered to holders of Shares, such decrease shall be applicable to all holders whose Shares are accepted for payment pursuant to the Offer and, if at the time notice of any increase or decrease is first published, sent or given to holders of Shares, the Offer is scheduled to expire at any time earlier than the tenth business day from and including the date that such notice is first so published, sent or given, the Offer will be extended until the expiration of such ten business day period. For purposes of the Offer, a "business day" means any day other than a Saturday, Sunday or federal holiday and consists of the time period from 12:01 A.M. through 12:00 Midnight, New York City time. The Company has provided Merger Sub with the Company's shareholder lists and security position listings for the purpose of disseminating the Offer to holders of the Shares. This Offer to Purchase, the related Letter of Transmittal and other relevant materials will be mailed by Merger Sub to record holders of Shares and will be furnished by Merger Sub to brokers, dealers, commercial banks, trust companies and 3 similar persons whose names, or the names of whose nominees, appear on the shareholder lists or, if applicable, who are listed as participants in a clearing agency's security position listing, for subsequent transmittal to beneficial owners of Shares. 2. ACCEPTANCE FOR PAYMENT AND PAYMENT FOR SHARES. Upon the terms and subject to the conditions of the Offer (including the Offer Conditions and, if the Offer is extended or amended, the terms and conditions of any such extension or amendment), Merger Sub will accept for payment, and will pay for, Shares validly tendered and not withdrawn as soon as practicable after the later of (i) the expiration or termination of all applicable waiting periods under the HSR Act and under any applicable waiting periods under the antitrust or competition laws and regulations of Austria and Germany (the "Foreign Filings"), in each case with respect to the Offer and/or the Merger and (ii) the Expiration Date, if at the time of the later of the occurrence of (i) or (ii) above, the Minimum Condition has been satisfied or waived; PROVIDED, HOWEVER, that Merger Sub shall not waive the Minimum Condition without the prior written consent of the Company. In addition, subject to applicable rules of the SEC, Merger Sub expressly reserves the right to delay acceptance for payment of or payment for Shares in order to comply, in whole or in part, with any applicable law. Notwithstanding the foregoing, Merger Sub reserves the right, in its sole discretion, to extend the Offer notwithstanding the prior satisfaction of the Offer Conditions if it reasonably determines such extension is appropriate in order to enable it to purchase at least 90% of the outstanding Shares in the Offer (in which case Merger Sub may extend the expiration date on one occasion for up to ten business days beyond the time it would otherwise be required to accept validly tendered Shares for payment). See Sections 13 and 15. Royal Philips filed a Notification and Report Form under the HSR Act on August 3, 1998 and, accordingly, unless earlier terminated or extended by a request for additional information, the waiting period under the HSR Act is scheduled to expire at 11:59 p.m., New York City time, on August 18, 1998. See Section 15. In all cases, payment for Shares tendered and accepted for payment pursuant to the Offer will be made only after timely receipt by the Depositary of certificates for such Shares (or a confirmation of a book-entry transfer of such Shares (a "Book-Entry Confirmation") into the Depositary's account at The Depository Trust Company (the "Book-Entry Transfer Facility")), a properly completed and duly executed Letter of Transmittal (or facsimile thereof) (or, in the case of a book-entry transfer, an Agent's Message (as defined below)) and any other documents required by the Letter of Transmittal. For purposes of the Offer, Merger Sub will be deemed to have accepted for payment Shares validly tendered and not withdrawn as, if and when Merger Sub gives oral or written notice to the Depositary of its acceptance for payment of such Shares pursuant to the Offer. Payment for Shares accepted for payment pursuant to the Offer will be made by deposit of the purchase price therefor with the Depositary, which will act as agent for the tendering shareholders for the purpose of receiving payments from Merger Sub and transmitting such payments to the tendering shareholders. UNDER NO CIRCUMSTANCES WILL INTEREST ON THE PURCHASE PRICE FOR SHARES BE PAID, REGARDLESS OF ANY EXTENSION OF THE OFFER OR ANY DELAY IN MAKING SUCH PAYMENT. If any tendered Shares are not accepted for payment pursuant to the terms and conditions of the Offer for any reason, or if certificates are submitted for more Shares than are tendered, certificates for such unpurchased Shares will be returned, without expense to the tendering shareholder (or, in the case of Shares tendered by book-entry transfer of such Shares into the Depositary's account at the Book-Entry Transfer Facility pursuant to the procedures set forth in Section 3, such Shares will be credited to an account maintained with the Book-Entry Transfer Facility), as soon as practicable following expiration or termination of the Offer. Merger Sub reserves the right to transfer or assign in whole or in part from time to time to one or more direct or indirect subsidiaries of Parent the right to purchase all or any portion of the Shares tendered pursuant to the Offer, but any such transfer or assignment will not relieve Merger Sub of its obligations under the Offer and will in no way prejudice the rights of tendering shareholders to receive payment for Shares validly tendered and accepted for payment pursuant to the Offer. 4 3. PROCEDURE FOR TENDERING SHARES. VALID TENDER. To tender Shares pursuant to the Offer, (a) a properly completed and duly executed Letter of Transmittal (or a facsimile thereof) in accordance with the instructions of the Letter of Transmittal, with any required signature guarantees, certificates for Shares to be tendered, and any other documents required by the Letter of Transmittal, must be received by the Depositary prior to the Expiration Date at one of its addresses set forth on the back cover of this Offer to Purchase, (b) such Shares must be delivered pursuant to the procedures for book-entry transfer described below (and a Book-Entry Confirmation of such delivery received by the Depositary, including an Agent's Message if the tendering shareholder has not delivered a Letter of Transmittal), prior to the Expiration Date, or (c) the tendering shareholder must comply with the guaranteed delivery procedures set forth below. The term "Agent's Message" means a message transmitted by the Book-Entry Transfer Facility to, and received by, the Depositary and forming a part of a Book-Entry Confirmation, which states that the Book-Entry Transfer Facility has received an express acknowledgment from the participant in the Book-Entry Transfer Facility tendering the Shares which are the subject of such Book-Entry Confirmation, that such participant has received and agrees to be bound by the terms of the Letter of Transmittal and that Merger Sub may enforce such agreement against the participant. Pursuant to the Rights Agreement, until the close of business on the Distribution Date, the Rights will be transferred with and only with the certificates for Common Stock and the surrender for transfer of any certificates for Common Stock will also constitute the transfer of the Rights associated with the Common Stock represented by such certificates. Pursuant to the Rights Amendment, no Distribution Date will occur by reason of the commencement of the Offer or the consummation of the Merger or the other transactions contemplated by the Merger Agreement. If separate certificates representing the Rights are issued to holders of Common Stock prior to the time a holder's Shares are tendered pursuant to the Offer, certificates representing a number of Rights equal to the number of shares of Common Stock tendered must be delivered to the Depositary, or, if available, a Book-Entry Confirmation received by the Depositary with respect thereto, in order for such shares of Common Stock to be validly tendered. If the Distribution Date occurs and separate certificates representing the Rights are not distributed prior to the time shares of Common Stock are tendered pursuant to the Offer, Rights may be tendered prior to a shareholder receiving the certificates for Rights by use of the guaranteed delivery procedure described below. A tender of shares of Common Stock constitutes an agreement by the tendering shareholder to deliver certificates representing all Rights formerly associated with the number of shares of Common Stock tendered pursuant to the Offer to the Depositary prior to expiration of the period permitted by such guaranteed delivery procedures for delivery of certificates for, or a Book-Entry Confirmation with respect to, Rights (the "Rights Delivery Period"). However, after expiration of the Rights Delivery Period, Merger Sub may elect to reject as invalid a tender of shares of Common Stock with respect to which certificates for, or a Book-Entry Confirmation with respect to, the number of Rights required to be tendered with such Common Stock have not been received by the Depositary. Nevertheless, Merger Sub will be entitled to accept for payment shares of Common Stock tendered by a shareholder prior to receipt of the certificates for the Rights required to be tendered with such shares of Common Stock, or a Book-Entry Confirmation with respect to such Rights, and either (a) subject to complying with applicable rules and regulations of the SEC, withhold payment for such shares of Common Stock pending receipt of the certificates for, or a Book-Entry Confirmation with respect to, such Rights or (b) make payment for shares of Common Stock accepted for payment pending receipt of the certificates for, or a Book-Entry Confirmation with respect to, such Rights in reliance upon the agreement of a tendering shareholder to deliver Rights and such guaranteed delivery procedures. Any determination by Merger Sub to make payment for shares of Common Stock in reliance upon such agreement and such guaranteed delivery procedures or, after expiration of the Rights Delivery Period, to reject a tender as invalid will be made in the sole and absolute discretion of Merger Sub. BOOK-ENTRY DELIVERY. The Depositary will establish an account with respect to the Shares at the Book-Entry Transfer Facility for purposes of the Offer within two business days after the date of this Offer to 5 Purchase. Any financial institution that is a participant in the Book-Entry Transfer Facility's system may make book-entry transfer of Shares by causing the Book-Entry Transfer Facility to transfer such Shares into the Depositary's account in accordance with the Book-Entry Transfer Facility's procedures for such transfer. However, although delivery of Shares may be effected through book-entry transfer, either the Letter of Transmittal (or facsimile thereof), properly completed and duly executed, together with any required signature guarantees, or an Agent's Message in lieu of the Letter of Transmittal, and any other required documents, must, in any case, be transmitted to and received by the Depositary at one of its addresses set forth on the back cover of this Offer to Purchase by the Expiration Date, or the tendering shareholder must comply with the guaranteed delivery procedures described below. If the Distribution Date occurs, the Depositary will also make a request to establish an account with respect to the Rights at the Book-Entry Transfer Facility, but no assurance can be given that book-entry transfer of Rights will be available. If book-entry transfer of Rights is available, the foregoing book-entry transfer procedures will also apply to Rights. If book-entry transfer of Rights is not available and the Distribution Date occurs, a tendering shareholder will be required to tender Rights by means of physical delivery of certificates for Rights to the Depositary (in which event references in this Offer to Purchase to Book-Entry Confirmations with respect to Rights will be inapplicable). The confirmation of a book-entry transfer of Shares or Rights into the Depositary's account at the Book-Entry Transfer Facility as described above is referred to herein as a "Book-Entry Confirmation." DELIVERY OF DOCUMENTS TO THE BOOK-ENTRY TRANSFER FACILITY IN ACCORDANCE WITH THE BOOK-ENTRY TRANSFER FACILITY'S PROCEDURES DOES NOT CONSTITUTE DELIVERY TO THE DEPOSITARY. THE METHOD OF DELIVERY OF SHARES, RIGHTS, THE LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS, INCLUDING DELIVERY THROUGH THE BOOK-ENTRY TRANSFER FACILITY, IS AT THE ELECTION AND RISK OF THE TENDERING SHAREHOLDER. SHARES WILL BE DEEMED DELIVERED ONLY WHEN ACTUALLY RECEIVED BY THE DEPOSITARY (INCLUDING, IN THE CASE OF A BOOK-ENTRY TRANSFER, BY BOOK-ENTRY CONFIRMATION). IF DELIVERY IS BY MAIL, IT IS RECOMMENDED THAT THE SHAREHOLDER USE PROPERLY INSURED REGISTERED MAIL WITH RETURN RECEIPT REQUESTED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ENSURE TIMELY DELIVERY. SIGNATURE GUARANTEES. Except as otherwise provided below, all signatures on a Letter of Transmittal must be guaranteed by a financial institution (including most commercial banks, savings and loan associations and brokerage houses) that is a participant in the Security Transfer Agents Medallion Program, the New York Stock Exchange Medallion Signature Guarantee Program or the Stock Exchange Medallion Program (each, an "Eligible Institution"). Signatures on a Letter of Transmittal need not be guaranteed (a) if the Letter of Transmittal is signed by the registered holders (which term, for purposes of this section, includes any participant in the Book-Entry Transfer Facility's system whose name appears on a security position listing as the owner of the Shares or Rights) of Shares and Rights tendered therewith and such registered holder has not completed the box entitled "Special Payment Instructions" or the box entitled "Special Delivery Instructions" on the Letter of Transmittal or (b) if such Shares and Rights are tendered for the account of an Eligible Institution. See Instructions 1 and 5 of the Letter of Transmittal. If the certificates for Shares or Rights are registered in the name of a person other than the signer of the Letter of Transmittal, or if payment is to be made or certificates for Shares or Rights not tendered or not accepted for payment are to be returned to a person other than the registered holder of the certificates surrendered, then the tendered certificates must be endorsed or accompanied by appropriate stock powers, in either case signed exactly as the name or names of the registered holders or owners appear on the certificates, with the signatures on the certificates or stock powers guaranteed as described above. See Instructions 1 and 5 of the Letter of Transmittal. GUARANTEED DELIVERY. A shareholder who desires to tender Shares (or Rights, if applicable) pursuant to the Offer and whose certificates for Shares (or Rights, if applicable) are not immediately available (including because certificates for Rights have not yet been distributed by the Rights Agent), or who cannot comply with the procedure for book-entry transfer on a timely basis, or who cannot deliver all 6 required documents to the Depositary prior to the Expiration Date, may tender such Shares (and/or Rights, if applicable) by following all of the procedures set forth below: (i) such tender is made by or through an Eligible Institution; (ii) a properly completed and duly executed Notice of Guaranteed Delivery, substantially in the form provided by Merger Sub, is received by the Depositary, as provided below, prior to the Expiration Date; and (iii) the certificates for all tendered Shares and/or Rights, in proper form for transfer (or a Book-Entry Confirmation with respect to all such Shares and/or Rights), together with a properly completed and duly executed Letter of Transmittal (or facsimile thereof), with any required signature guarantees (or, in the case of a book-entry transfer, an Agent's Message in lieu of the Letter of Transmittal), and any other required documents, are received by the Depositary within (a) in the case of Shares, three trading days after the date of execution of such Notice of Guaranteed Delivery or (b) in the case of Rights, a period ending on the later of (1) three trading days after the date of execution of such Notice of Guaranteed Delivery or (2) three trading days after the date certificates for Rights are distributed to shareholders by the Rights Agent. A "trading day" is any day on which the New York Stock Exchange, Inc. (the "NYSE") is open for business. The Notice of Guaranteed Delivery may be delivered by hand to the Depositary or transmitted by facsimile transmission or mail to the Depositary and must include a guarantee by an Eligible Institution in the form set forth in such Notice of Guaranteed Delivery. OTHER REQUIREMENTS. Notwithstanding any provision hereof, payment for Shares accepted for payment pursuant to the Offer will in all cases be made only after timely receipt by the Depositary of (a) certificates for (or a timely Book-Entry Confirmation with respect to) such Shares and, if the Distribution Date occurs, certificates for (or a timely Book-Entry Confirmation, if available, with respect to) the associated Rights (unless Merger Sub elects to make payment for such Shares pending receipt of the certificates for, or a Book-Entry Confirmation with respect to, such Rights as described above), (b) a Letter of Transmittal (or facsimile thereof), properly completed and duly executed, with any required signature guarantees (or, in the case of a book-entry transfer, an Agent's Message in lieu of the Letter of Transmittal) and (c) any other documents required by the Letter of Transmittal. Accordingly, tendering shareholders may be paid at different times depending upon when certificates for Shares (or Rights) or Book-Entry Confirmations with respect to Shares (or Rights, if available) are actually received by the Depositary. UNDER NO CIRCUMSTANCES WILL INTEREST ON THE PURCHASE PRICE OF THE SHARES BE PAID BY MERGER SUB, REGARDLESS OF ANY EXTENSION OF THE OFFER OR ANY DELAY IN MAKING SUCH PAYMENT. TENDER CONSTITUTES AN AGREEMENT. The valid tender of Shares and, if applicable, Rights pursuant to one of the procedures described above will constitute a binding agreement between the tendering shareholder and Merger Sub upon the terms and subject to the conditions of the Offer. APPOINTMENT. By executing a Letter of Transmittal as set forth above (including through delivery of an Agent's Message), the tendering shareholder irrevocably appoints designees of Merger Sub as such shareholder's attorneys-in-fact and proxies, each with full power of substitution, to the full extent of such shareholder's rights with respect to the Shares tendered by such shareholder and accepted for payment by Merger Sub and with respect to any and all other Shares or other securities issued or issuable in respect of such Shares on or after July 29, 1998. All such proxies will be considered coupled with an interest in the tendered Shares and Rights. Such appointment is effective when, and only to the extent that, Merger Sub deposits the payment for such Shares with the Depositary. Upon the effectiveness of such appointment, all prior powers of attorney, proxies and consents given by such shareholder will be revoked, and no subsequent powers of attorney, proxies and consents may be given (and, if given, will not be deemed effective). Merger Sub's designees will, with respect to the Shares for which the appointment is effective, be empowered to exercise all voting and other rights of such shareholder as they, in their sole discretion, may deem proper at any annual, special or adjourned meeting of the shareholders of the Company, by written consent in lieu of any such meeting or otherwise. Merger Sub reserves the right to require that, in 7 order for Shares to be deemed validly tendered, immediately upon Merger Sub's payment for such Shares, Merger Sub must be able to exercise full voting rights with respect to such Shares. DETERMINATION OF VALIDITY. All questions as to the validity, form, eligibility (including time of receipt) and acceptance of any tender of Shares or Rights will be determined by Merger Sub in its sole discretion, which determination will be final and binding. Merger Sub reserves the absolute right to reject any and all tenders determined by it not to be in proper form or the acceptance for payment of or payment for which may, in the opinion of Merger Sub's counsel, be unlawful. Merger Sub also reserves the absolute right to waive any defect or irregularity in the tender of any Shares or Rights of any particular shareholder whether or not similar defects or irregularities are waived in the case of other shareholders. No tender of Shares or Rights will be deemed to have been validly made until all defects and irregularities relating thereto have been cured or waived. None of Merger Sub, the Depositary, the Information Agent, the Dealer Manager or any other person will be under any duty to give notification of any defects or irregularities in tenders or incur any liability for failure to give any such notification. Merger Sub's interpretation of the terms and conditions of the Offer (including the Letter of Transmittal and instructions thereto) will be final and binding. BACKUP WITHHOLDING. In order to avoid "backup withholding" of federal income tax on payments of cash pursuant to the Offer, a shareholder surrendering Shares in the Offer must, unless an exemption applies, provide the Depositary with such shareholder's correct taxpayer identification number ("TIN") on a Substitute Form W-9 and certify under penalties of perjury that such TIN is correct and that such shareholder is not subject to backup withholding. If a shareholder does not provide such shareholder's correct TIN or fails to provide the certifications described above, the Internal Revenue Service (the "IRS") may impose a penalty on such shareholder and payment of cash to such shareholder pursuant to the Offer may be subject to backup withholding of 31%. All shareholders surrendering Shares pursuant to the Offer should complete and sign the main signature form and the Substitute Form W-9 included as part of the Letter of Transmittal to provide the information and certification necessary to avoid backup withholding (unless an applicable exemption exists and is proved in a manner satisfactory to Merger Sub and the Depositary). Certain shareholders (including, among others, all corporations and certain foreign individuals and entities) are not subject to backup withholding. Non-corporate foreign shareholders should complete and sign the main signature form and a Form W-8, Certificate of Foreign Status, a copy of which may be obtained from the Depositary, in order to avoid backup withholding. See Instruction 9 to the Letter of Transmittal. 4. RIGHTS OF WITHDRAWAL. Tenders of Shares made pursuant to the Offer are irrevocable except that Shares tendered pursuant to the Offer may be withdrawn at any time prior to the Expiration Date and, unless theretofore accepted for payment by Merger Sub pursuant to the Offer, may also be withdrawn at any time after October 2, 1998. For a withdrawal to be effective, a written or facsimile transmission notice of withdrawal must be timely received by the Depositary at one of its addresses set forth on the back cover of this Offer to Purchase. Any such notice of withdrawal must specify the name of the person having tendered the Shares to be withdrawn, the number of Shares to be withdrawn and the names in which the certificate(s) evidencing the Shares to be withdrawn are registered, if different from that of the person who tendered such Shares. The signature(s) on the notice of withdrawal must be guaranteed by an Eligible Institution, unless such Shares have been tendered for the account of any Eligible Institution. If Shares have been tendered pursuant to the procedures for book-entry transfer as set forth in Section 3, any notice of withdrawal must specify the name and number of the account at the Book-Entry Transfer Facility to be credited with the withdrawn Shares and otherwise comply with the Book-Entry Transfer Facility's procedures. If certificates for Shares to be withdrawn have been delivered or otherwise identified to the Depositary, the name of the registered holder and the serial numbers of the particular certificates evidencing the Shares to be withdrawn must also be furnished to the Depositary as aforesaid prior to the physical release of such certificates. All questions as to the form and validity (including time of receipt) of any notice of withdrawal will be determined by Merger Sub, in its sole discretion, which determination 8 shall be final and binding. None of Merger Sub, Parent, the Dealer Manager, the Depositary, the Information Agent or any other person will be under any duty to give notification of any defects or irregularities in any notice of withdrawal or incur any liability for failure to give such notification. Withdrawals of tender for Shares may not be rescinded, and any Shares properly withdrawn will be deemed not to have been validly tendered for purposes of the Offer. However, withdrawn Shares may be retendered by following one of the procedures described in Section 3 at any time prior to the Expiration Date. If Merger Sub extends the Offer, is delayed in its acceptance for payment of Shares, or is unable to accept for payment Shares pursuant to the Offer, for any reason, then, without prejudice to Merger Sub's rights under this Offer, the Depositary may, nevertheless, on behalf of Merger Sub, retain tendered Shares, and such Shares may not be withdrawn except to the extent that tendering shareholders are entitled to withdrawal rights as set forth in this Section 4. 5. CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF THE OFFER. Sales of Shares pursuant to the Offer and the exchange of Shares for cash pursuant to the Merger will be taxable transactions for federal income tax purposes and may also be taxable transactions under applicable state, local, foreign and other tax laws. The tax consequences of the receipt of cash in exchange for Shares pursuant to the Offer or the Merger may vary depending on, among other things, the particular circumstances of a shareholder. For federal income tax purposes, a shareholder whose Shares are purchased pursuant to the Offer or who receives cash as a result of the Merger generally will recognize gain or loss equal to the difference between the adjusted basis of the Shares sold or exchanged and the amount of cash received therefor. Such gain or loss will be capital gain or loss if the Shares are held as capital assets by the shareholder and will be long-term capital gain or loss if the shareholder's holding period in such Shares for federal income tax purposes is more than one year at the time of the sale or exchange. Long-term capital gain recognized by a non-corporate shareholder is generally subject to tax at a maximum rate of 20%. In addition, a shareholder's ability to use capital losses to offset ordinary income is limited. To the extent that the Company or any of its subsidiaries owns or leases real property in the State of Washington, certain transfer taxes may apply to the sale or exchange of Shares by a shareholder pursuant to the Offer and the Merger. Although Merger Sub will pay any such taxes on behalf of the shareholders, such payment may be treated as additional consideration paid for the Shares. In such case, the amount of such additional consideration would be offset by treatment of the tax as an additional selling expense incurred by the shareholder. Accordingly, the payment of such taxes by Merger Sub should have no effect on the amount of gain or loss recognized by a shareholder. A shareholder that tenders Shares pursuant to the Offer or Merger may be subject to backup withholding at a rate of 31% unless such shareholder provides a TIN and certifies under penalties of perjury that such TIN is correct or properly certifies that such shareholder is awaiting a TIN, or unless an exemption applies. See "Backup Withholding" under Section 3 hereof and Instruction 9 in the Letter of Transmittal. THE INCOME TAX DISCUSSION SET FORTH ABOVE IS INCLUDED FOR GENERAL INFORMATION ONLY AND MAY NOT BE APPLICABLE TO SHAREHOLDERS IN SPECIAL SITUATIONS SUCH AS SHAREHOLDERS WHO RECEIVED THEIR SHARES UPON THE EXERCISE OF EMPLOYEE STOCK OPTIONS OR OTHERWISE AS COMPENSATION AND SHAREHOLDERS WHO ARE NOT UNITED STATES PERSONS. SHAREHOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO THE SPECIFIC TAX CONSEQUENCES TO THEM, IN THEIR PARTICULAR CIRCUMSTANCES, OF THE OFFER AND THE MERGER, INCLUDING THE APPLICATION AND EFFECT OF FEDERAL, STATE, LOCAL, FOREIGN OR OTHER TAX LAWS. 9 6. PRICE RANGE OF SHARES; DIVIDENDS. The Shares are traded on the Nasdaq Stock Market's National Market (the "Nasdaq National Market") under the symbol "ATLI". The following table sets forth, for the calendar quarters indicated, the high and low sales prices for the Shares on the Nasdaq National Market, based upon public sources:
SALES PRICE -------------------- HIGH LOW --------- --------- Calendar Year 1996: First Quarter............................................................ $ 31.50 $ 20.50 Second Quarter........................................................... 41.25 26.50 Third Quarter............................................................ 38.50 25.25 Fourth Quarter........................................................... 33.25 25.00 1997: First Quarter............................................................ 37.00 28.75 Second Quarter........................................................... 45.25 27.00 Third Quarter............................................................ 47.88 33.75 Fourth Quarter........................................................... 48.13 39.44 1998: First Quarter............................................................ 51.50 35.13 Second Quarter........................................................... 51.13 42.25 Third Quarter (through August 3, 1998)................................... 51.00 41.63
The Rights trade together with the Common Stock. On July 28, 1998, the last full trading day prior to the public announcement of the terms of the Offer and the Merger, the reported closing price on the Nasdaq National Market was $42.06 per Share. On August 3, 1998, the last full trading day prior to commencement of the Offer, the reported closing price on the Nasdaq National Market was $50.13 per Share. SHAREHOLDERS ARE URGED TO OBTAIN A CURRENT MARKET QUOTATION FOR THE SHARES. Merger Sub has been advised by the Company that the Company did not pay dividends on its Shares during the years ended December 31, 1997 or 1996 and has not paid any dividends in 1998. The Merger Agreement prohibits the Company from declaring or paying any dividends until the effectiveness of the Merger. 7. EFFECT OF THE OFFER ON THE MARKET FOR THE SHARES; STOCK QUOTATION, MARGIN REGULATIONS AND EXCHANGE ACT REGISTRATION. MARKET FOR SHARES. The purchase of Shares by Merger Sub pursuant to the Offer will reduce the number of Shares that might otherwise trade publicly and may reduce the number of holders of Shares, which could adversely affect the liquidity and market value of the remaining Shares held by the public. STOCK QUOTATION. The Shares are traded on the Nasdaq National Market. According to published guidelines of the Nasdaq National Market, the Shares might no longer be eligible for quotation on the Nasdaq National Market if, among other things, either (i) the number of Shares publicly held was less than 750,000, there were fewer than 400 holders of round lots, the aggregate market value of publicly held Shares was less than $5,000,000, net tangible assets was less than $4,000,000 and there were fewer than two registered and active market makers for the Shares, or (ii) the number of Shares publicly held was less than 1,100,000, there were fewer than 400 holders of round lots, the aggregate market value of publicly held Shares was less than $15,000,000, and either (x) the Company's market capitalization was less than $50,000,000 or (y) the total assets and total revenue of the Company for the most recently completed fiscal year or two of the last three most recently completed fiscal years did not exceed $50,000,000 and there were fewer than four registered and active market makers. Shares held directly or indirectly by directors, officers or beneficial owners of more than 10% of the Shares are not considered as being publicly held for this purpose. According to the Company, as of July 31, 1998, there were 7,087 holders of record of Shares (not including beneficial holders of Shares in street name), and as of July 31, 1998, there were 14,789,665 10 Shares outstanding. If the Common Stock were to be delisted, the associated Rights would be delisted as well. If the Shares were to cease to be quoted on the Nasdaq National Market, the market for the Shares could be therefor adversely affected. It is possible that the Shares would be traded or quoted on other securities exchanges or in the over-the-counter market, and that price quotations would be reported by such exchanges, or through Nasdaq or other sources. The extent of the public market for the shares of Common Stock and associated Rights and the availability of such quotations would, however, depend upon the number of shareholders and/or the aggregate market value of the shares of Common Stock and associated Rights remaining at such time, the interest in maintaining a market in the shares of Common Stock and associated Rights on the part of securities firms, the possible termination of registration of the Shares under the Exchange Act and other factors. MARGIN REGULATIONS. The shares of Common Stock are presently "margin securities" under the regulations of the Board of Governors of the Federal Reserve Board (the "Federal Reserve Board"), which has the effect, among other things, of allowing brokers to extend credit on the collateral of such shares of Common Stock. Depending upon factors similar to those described above regarding listing and market quotations, the shares of Common Stock might no longer constitute "margin securities" for the purposes of the Federal Reserve Board's margin regulations in which event the shares of Common Stock would be ineligible as collateral for margin loans made by brokers. EXCHANGE ACT REGISTRATION. The Shares are currently registered under the Exchange Act. Such registration may be terminated by the Company upon application to the SEC if the outstanding Shares are not listed on a national securities exchange and if there are fewer than 300 holders of record of Shares. Termination of registration of the Shares under the Exchange Act would reduce the information required to be furnished by the Company to its shareholders and to the SEC and would make certain provisions of the Exchange Act, such as the short-swing profit recovery provisions of Section 16(b) and the requirement to furnish a proxy statement in connection with shareholders' meetings pursuant to Section 14(a) and the related requirement to furnish an annual report to shareholders, no longer applicable with respect to the Shares. Furthermore, the ability of "affiliates" of the Company and persons holding "restricted securities" of the Company to dispose of such securities pursuant to Rule 144 under the Securities Act of 1933, as amended, may be impaired or eliminated. If registration of the Shares under the Exchange Act were terminated, the Shares would no longer be eligible for Nasdaq reporting or for continued inclusion on the Federal Reserve Board's list of "margin securities." Merger Sub intends to seek to cause the Company to apply for termination of registration of the Shares as soon as possible after consummation of the Offer if the requirements for termination of registration are met. 8. CERTAIN INFORMATION CONCERNING THE COMPANY. The Company is a Washington corporation with its principal executive offices located at 22100 Bothell-Everett Highway, Bothell, Washington. The Company has described its business in publicly available information in the manner set forth below. The Company is engaged in the high-technology medical systems business. The Company develops, manufactures, markets and services diagnostic medical ultrasound systems and related accessories and supplies worldwide. The Company currently operates through 14 international affiliates and through approximately 60 local distributors worldwide. Set forth below is certain summary consolidated financial information for each of the Company's last three fiscal years for the period ended December 31, 1997 as contained in the Company's 1997 Annual Report on Form 10-K (the "Form 10-K") and for the six months ended June 27, 1997 and July 3, 1998 as contained in a press release issued by the Company on July 29, 1998. More comprehensive financial information is included in the Form 10-K (including management's discussion and analysis of financial condition and results of operation) and other documents filed by the Company with the SEC, and the following summary is qualified in its entirety by reference to such reports and other documents and all of the financial information and notes contained therein. Copies of such reports and other documents may be examined at or obtained from the SEC and Nasdaq in the manner set forth below. 11 ATL ULTRASOUND, INC. SELECTED CONSOLIDATED FINANCIAL INFORMATION (In thousands, except per share data)
FISCAL YEAR ENDED SIX MONTHS ENDED DECEMBER 31, ---------------------- ---------------------------------- JUNE 27, JULY 3, 1997 1998 1995 1996 1997 ---------- ---------- ---------- ---------- ---------- OPERATING DATA: Revenues........................................... $ 200,926 $ 217,128 $ 399,446 $ 419,157 $ 431,244 Gross profit....................................... 97,206 109,210 184,525 204,982 213,819 Income (loss) before income taxes.................. 5,751 9,471 14,488 (2,574) 25,893 Net income (loss).................................. 4,601 7,633 12,002 (828) 21,171 Net income (loss) per share (on a fully diluted basis)........................................... 0.31 0.50 0.88 (0.06) 1.41 Weighted average shares outstanding (on a fully diluted basis)................................... 14,864 15,230 13,574 13,900 14,970 FINANCIAL POSITION: Total assets....................................... $ 376,833 $ 365,884 $ 353,448 $ 380,201 $ 361,810 Working capital.................................... 171,189 173,921 161,581 166,294 182,804 Long-term debt..................................... 12,532 28,778 14,837 12,936 12,307 Stockholders' equity............................... 212,682 210,709 210,293 211,250 229,721
Except as otherwise set forth herein, the information concerning the Company contained in this Offer to Purchase has been taken from or based upon publicly available documents and records on file with the SEC and other public sources and is qualified in its entirety by reference thereto. Although Parent, Merger Sub, the Information Agent and the Dealer Manager have no knowledge that would indicate that any statements contained herein based on such documents and records are untrue, Parent, Merger Sub, the Information Agent and the Dealer Manager cannot take responsibility for the accuracy or completeness of the information contained in such documents and records, or for any failure by the Company to disclose events which may have occurred or may affect the significance or accuracy of any such information but which are unknown to Parent, Merger Sub, the Information Agent or the Dealer Manager. In the course of the discussions between Company management, Merger Sub and Parent, Merger Sub and Parent were provided with certain nonpublic financial information and projections prepared by Company management showing revenues increasing to $685.6 million, net income increasing to $72.8 million, earnings per share increasing to $4.26 and total assets increasing to $617.8 million, in each case, as of, or for the year ended, December 31, 2002. The Company has advised Merger Sub that (i) it does not, as a matter of course, make public forecasts as to future revenues or profits and (ii) the foregoing projections were based on estimates and assumptions that are inherently subject to significant economic and competitive uncertainties, all of which are difficult to predict and many of which are beyond the Company's control. Accordingly, there can be no assurance that the projected results can be realized or that actual results will not be materially higher or lower than those projected. The projections were not prepared with a view to public disclosure or compliance with the published guidelines of the SEC or the guidelines established by the American Institute of Certified Public Accountants regarding projections or forecasts. None of the Company, Parent, Merger Sub or their respective advisors assumes any responsibility for the accuracy of the projections. The inclusion of the foregoing projections should not be regarded as an indication that the Company, Parent, Merger Sub or any other person who received such information considers it an accurate prediction of future events. None of the Company, Parent or Merger Sub intends to update, revise or correct such projections if they become inaccurate (even in the short term). Parent and Merger Sub have identified the following important factors that could cause the Company's actual results to differ materially from the foregoing projections: (i) the sluggishness of the 12 ultrasound market in some European countries and the turbulent economic conditions in certain Asian markets; (ii) the increase of worldwide competition in the ultrasound market, and the introduction by most of the Company's competitors of new ultrasound products over the past two years; and (iii) 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, change in vendor business or otherwise, a stronger U.S. dollar, delays in receiving necessary regulatory approvals, and other unforeseen events, all of which could adversely impact the Company's financial results. AVAILABLE INFORMATION. The Company is subject to the information and reporting requirements of the Exchange Act and in accordance therewith is obligated to file reports and other information with the SEC relating to its business, financial condition and other matters. Information, as of particular dates, concerning the Company's directors and officers, their remuneration, stock options granted to them, the principal holders of the Company's securities, any material interests of such persons in transactions with the Company and other matters is required to be disclosed in proxy statements distributed to the Company's shareholders and filed with the SEC. Such reports, proxy statements and other information should be available for inspection at the public reference room at the SEC's offices at 450 Fifth Street, N.W., Washington, D.C., 20549 and also should be available for inspection and copying at the regional offices of the SEC located at Seven World Trade Center, 13th Floor, New York, New York 10048 and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60611. Copies may be obtained, by mail, upon payment of the SEC's customary charges, by writing to its principal office at 450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549 and can be obtained electronically on the SEC's Website at http://www.sec.gov. 9. CERTAIN INFORMATION CONCERNING MERGER SUB, PARENT AND ROYAL PHILIPS Merger Sub is a Washington corporation and to date has engaged in no activities other than those incident to its formation and the commencement of the Offer. Merger Sub is a wholly owned subsidiary of Parent. The principal offices of Merger Sub are located at 1251 Avenue of the Americas, New York, New York 10020. Parent is a Delaware corporation and an indirect wholly-owned subsidiary of Royal Philips. Parent's principal offices are located at 1251 Avenue of the Americas, New York, New York 10020. Parent's activities vary from integrated manufacturing and marketing entities to marketing organizations that sell products imported from Royal Philips and its affiliates or third parties. Based upon sales, Parent's largest businesses are consumer electronics, lighting, semiconductors and components. Philips Holding USA Inc. ("Holding") is a Delaware corporation and a wholly owned subsidiary of Royal Philips. Holding's principal offices are located at 1251 Avenue of the Americas, New York, New York 10020. Holding does not engage in any activities other than those incident to its role as a holding company of Royal Philips. Royal Philips is a company incorporated under the laws of The Netherlands and is the parent company of the Royal Philips group. Royal Philip's principal executive offices are located at Rembrandt Tower, Amstelplein 1, 1096 HA Amsterdam, The Netherlands. The activities of the Royal Philips group are organized in product divisions which are responsible for Royal Philips' worldwide business policy. Royal Philips has manufacturing and sales organizations in over 60 countries. Royal Philips delivers products, systems and services in the fields of lighting, consumer electronics and communications, music and film, domestic appliances and personal care, components, semiconductors, medical systems, business electronics and information technology. AVAILABLE INFORMATION. Additional information concerning Royal Philips is set forth in Royal Philips' Annual Report on Form 20-F (the "Philips Form 20-F") for the fiscal year ended December 31, 1997, a copy of which may be obtained from the SEC in the manner set forth with respect to information concerning the Company in Section 8. 13 Set forth below is certain summary consolidated financial information of Royal Philips. More comprehensive financial information is included in the Philips Form 20-F (including management's discussion and analysis of financial condition and results of operation) and other documents filed by Royal Philips with the SEC, and the following summary is qualified in its entirety by reference to the Philips Form 20-F and such other documents and all of the financial information and notes contained therein. Copies of such other documents may be examined at or obtained from the SEC in the manner set forth above. KONINKLIJKE PHILIPS ELECTRONICS N.V. SELECTED CONSOLIDATED FINANCIAL INFORMATION (IN MILLIONS, EXCEPT SHARE DATA)
FISCAL YEAR ENDED DECEMBER 31, ------------------------------------------------------ 1995 1996 1997 1997(A) NLG NLG NLG US$ ------------- ------------- ------------- --------- OPERATING DATA: (Dutch GAAP) Sales................................................... 64,462 69,195 76,453 37,702 Gross income............................................ 16,629 15,834 18,894 9,317 Income before income taxes.............................. 3,354 914 4,240 2,091 Net income (loss)....................................... 2,518 (590) 5,733 2,827 Diluted earnings (loss) per common share................ 7.13 (1.73) 16.09 7.93 Adjusted weighted average shares outstanding............ 354,363,701 351,350,370 356,341,909 (US GAAP) Net income (loss)....................................... 2,343 (866) 5,881 2,900 Diluted earnings (loss) per common share................ 6.63 (2.53) 16.78 8.27 FINANCIAL POSITION: (Dutch GAAP) Total assets............................................ 52,242 55,072 59,441 29,313 Total current liabilities............................... 23,256 25,036 23,986 11,829 Long-term debt.......................................... 12,808 14,368 13,598 6,706 Other group equity...................................... 2,123 1,712 2,400 1,184 Stockholders' equity.................................... 14,055 13,956 19,457 9,595 (US GAAP) Total assets............................................ 53,003 55,587 59,991 29,584 Stockholders' equity.................................... 15,437 15,003 20,735 10,225
- ------------------------ (a) Dutch Guilders (NLG) are translated into U.S. Dollars ($) at a rate of 2.0278 NLG = $1.0000, the Noon Buying Rate of the Federal Reserve Bank of New York on December 31, 1997. The presentation of the U.S. Dollar amounts should not be construed as a representation that the Dutch Guilder amounts could be so converted into U.S. Dollars at the rate indicated or at any other rate. Royal Philips' financial statements are prepared in accordance with generally accepted accounting principles in The Netherlands ("Dutch GAAP"), which differ in certain significant respects from generally accepted accounting principles in the U.S. ("US GAAP"). Royal Philips, however, believes that the differences between Dutch GAAP and US GAAP are not material to a decision by a holder of Shares whether to sell, tender or hold the Shares. To determine net income and stockholders' equity in accordance with US GAAP, Royal Philips has applied the following accounting principles: 14 Under Dutch GAAP, goodwill arising from acquisitions prior to 1992 was charged directly to stockholders' equity. According to US GAAP, goodwill arising from acquisitions, including those prior to 1992, is capitalized and amortized over its useful life up to a maximum of 40 years. Under Dutch GAAP, catalogues of recorded music, music publishing rights, film rights and theatrical rights are written down if and to the extent that the present value of the expected income generated by the acquired catalogues falls below their book value. Under US GAAP they are amortized over a maximum period of 30 years. Royal Philips reported a charge for the restructuring of Grundig of NLG 302 million in its 1995 financial statements, of which NLG 40 million related to write-off of assets. This restructuring had not been communicated to employees until 1996 and, accordingly, was recorded under US GAAP as a charge of NLG 262 million in 1996. Until 1997 Royal Philips had an obligation under certain put options given to other shareholders in Grundig. For the purposes of US GAAP this liability was recorded in 1995, whereas under Dutch GAAP it was accrued in 1996. In 1997 Royal Philips settled this obligation. In 1997 Royal Philips reported a charge to net income of NLG 139 million relating to a higher accumulated benefit obligation compared to the market value of the plan assets or existing level of the pension provision in two of Royal Philips' pension plans. For US GAAP purposes, this amount is capitalized as an intangible asset for this additional minimum liability. In July 1995, Royal Philips contributed its net assets of cable networks with a book value of approximately NLG 200 million to UPC, a newly established joint venture in which Royal Philips had acquired a 50% interest. Under Dutch GAAP, this transfer resulted in a gain of NLG 127 million relating to the partial disposal of its interest in these assets to the joint venture partner (UIH). For the purposes of US GAAP, this gain was not considered realized because the consideration received by Royal Philips principally consisted of equity and notes issued by UPC and equity in UIH, and not cash. In 1997, Royal Philips sold its 50% interest in this joint venture upon which the gain of NLG 127 million could be recognized under US GAAP in 1997. Under Dutch GAAP, majority-owned entities are consolidated. Under US GAAP, consolidation of majority-owned entities is not permitted if minority interest holders have the right to participate in operating decisions of the entity. Although Royal Philips owns 60% of Philips Consumer Communications, a joint venture with Lucent Technologies, Inc., under US GAAP this joint venture cannot be consolidated but should be accounted for under the equity method. Under Dutch GAAP's historical cost convention, Royal Philips generally considers the functional currency of entities in a highly inflationary economy to be the US dollar. Under US GAAP, the functional currency would be the reporting currency. The difference between the use of the US dollar as the functional currency instead of the reporting currency is not material. Under Dutch GAAP, securities available for sale are valued at the lower of cost or net realizable value. Under US GAAP, they are valued at market price. A higher market price compared with the book value is credited to stockholders' equity as an unrealized holding gain. Under US GAAP, it is not appropriate to record a liability for dividends/distribution to shareholders subject to approval of the Annual General Meeting of Shareholders. According to US GAAP, divestments which cannot be regarded as discontinued segments of business must be accounted for as income from continuing operations. Under Dutch GAAP, certain material transactions such as disposals of lines of activities, including closures of substantial production facilities or substantial results from disposals of interests in unconsolidated companies have been accounted for as extraordinary items, which under US GAAP would be recorded in income from operations. 15 Statements Royal Philips, Parent and Merger Sub may publish, including those in this Offer to Purchase, that are not strictly historical are "forward-looking"' statements. Although Royal Philips, Parent and Merger Sub believe the expectations reflected in such forward-looking statements are based on reasonable assumptions, they can give no assurance that their expectations will be realized. Forward-looking statements involve known and unknown risks which may cause the actual results and corporate developments of Royal Philips, Parent and Merger Sub to differ materially from those expected. There are a number of factors that could cause actual results and developments to differ materially from those expressed or implied by these forward-looking statements. These factors include, but are not limited to, levels of consumer and business spending in major economies, changes in consumer tastes and preferences, the levels of marketing and promotional expenditures by Royal Philips and its competitors, raw materials and employee costs, changes in future exchange and interest rates, changes in tax rates and future business combinations, acquisitions or dispositions, and the rate of technical changes. The name, citizenship, business address, present principal occupation, and material positions held during the past five years of each of the directors and executive officers of Royal Philips, Holding, Parent and Merger Sub are set forth in Schedule A to this Offer to Purchase. Except as set forth in Section 10 and Schedule A, none of Merger Sub, Parent, Holding or Royal Philips, or, to the best of their knowledge, any of the persons listed in Schedule A hereto nor any associate or majority-owned subsidiary of any of the foregoing, beneficially owns or has a right to acquire any equity securities of the Company. None of Merger Sub, Parent, Holding or Royal Philips, or, to the best of their knowledge, any of the persons or entities referred to above, nor any director, executive officer or subsidiary of any of the foregoing, has effected any transaction in such equity securities during the past 60 days. Except as set forth in Sections 10 and 11, none of Merger Sub, Parent, Holding or Royal Philips, or, to the best of their knowledge, any of the persons listed in Schedule A hereto, has any contract, arrangement, understanding or relationship with any other person with respect to any securities of the Company, including, but not limited to, any contract, arrangement, understanding or relationship concerning the transfer or the voting of any such securities, joint ventures, loan or option arrangements, puts or calls, guaranties of loans, guaranties against loss or the giving or withholding of proxies. Except as set forth in Sections 10 and 11, there have been no contacts, negotiations or transactions since January 1, 1995 between Royal Philips, Holding, Parent or Merger Sub, or, to the best of their knowledge, any of the persons listed in Schedule A hereto, on the one hand, and the Company or its affiliates, on the other hand, concerning a merger, consolidation or acquisition, a tender offer or other acquisition of securities, an election of directors, or a sale or other transfer of a material amount of assets. Except as described in Sections 10 and 11, none of Merger Sub, Parent, Holding or Royal Philips, or, to the best of their knowledge, any of the persons listed in Schedule A hereto, has since January 1, 1995 had any transaction with the Company or any of its executive officers, directors or affiliates that would require disclosure under the rules and regulations of the SEC applicable to the Offer. 10. BACKGROUND OF THE OFFER; CONTACTS WITH THE COMPANY; EMPLOYMENT AGREEMENTS BACKGROUND OF THE OFFER. In September 1997, Frank Low, an independent consultant who has been retained from time to time by the Company to advise the Company with respect to the diagnostic imaging industry, including the review of possible strategic alliances, called representatives of Royal Philips and Parent (for purposes of this Item 10, references to Parent or its representatives include Royal Philips or its representatives) and the Company to explore the possibility of interest in a strategic transaction between the two companies. On October 8, 1997, Parent and the Company entered into a confidentiality agreement to govern the exchange of nonpublic information between them. In October and November 1997, Castor F. Diaz, Senior Vice President, Worldwide Sales and Marketing, of the Company and Harvey N. Gillis, then Chief Financial Officer of the Company, held discussions to exchange information regarding potential strategic opportunities with representatives of 16 Parent. In early December 1997, Dennis C. Fill, Chairman and Chief Executive Officer of the Company, and Jacques Souquet, Senior Vice President, Product Generation of the Company, met with Henk Bodt, Executive Vice President of Royal Philips, to further discuss potential synergies of a strategic transaction. In mid-December 1997, Parent informed Mr. Fill that it had decided that it had no further interest in an acquisition of the Company. In June 1998, Mr. Low called Mr. Fill to tell him that Parent had a renewed interest in a possible acquisition of the Company. Mr. Low forwarded to Mr. Fill a request he had received from Parent for Mr. Fill to meet with representatives of Parent. Mr. Fill responded that he would be willing to meet with Parent's representatives. On June 22, 1998, Messrs. Fill, Diaz and Souquet met with Mr. Cor Boonstra, Chief Executive Officer of Royal Philips, and Mr. Jan Hommen, Chief Financial Officer of Royal Philips, in Parent's New York City offices. Messrs. Boonstra and Hommen indicated that Parent had reevaluated its diagnostic imaging business during the Spring and had decided to grow such business, including through possible acquisitions, and for that reason were interested in recommencing discussions with the Company about a possible business combination. During the meeting, representatives of the Company presented a profile of the Company which had been presented at a recent financial analysts' conference and presented an overview of the Company's business and technology. Representatives of Parent presented an overview of Parent's diagnostic imaging business and indicated that there could be benefits of a combination of the diagnostic imaging businesses of both companies. During the course of the meeting, Parent's representatives and Mr. Fill held preliminary discussions regarding valuation and other material issues concerning a potential acquisition of the Company. Representatives of Parent stated that any discussions of a possible merger would have to be facilitated by a due diligence investigation by Parent of the Company's business. The parties agreed at this meeting to enter into an exclusivity agreement whereby the Company would discuss the possibility of a business combination only with Parent during the period from June 22 to July 17, 1998. This agreement was signed the following day. From June 29 to July 2, 1998, the parties met in Bellevue, Washington to conduct a due diligence exchange of information. Representatives of Parent and Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch"), financial advisor to Parent, led by Mr. Jan van Leeuwen of Royal Philips' mergers and acquisitions department, met with representatives of the Company, led by Mr. Fill and including a representative of BT Alex. Brown Incorporated ("BT Alex. Brown"), financial advisor to the Company. At the conclusion of these meetings, Parent's representatives announced that they would review the results of the meetings before proceeding with any further discussions. On July 8, 1998, Messrs. Fill and Hommen spoke by telephone regarding the potential valuation of an acquisition of the Company. A few days after such discussion, Mr. Hommen stated that a further round of due diligence investigation by Parent was necessary. Mr. Fill said that the Company would participate with Parent in further due diligence review in meetings on July 15 to July 17 in Seattle, Washington, in which representatives of Parent, led by Mr. van Leeuwen, and representatives of Merrill Lynch met with the representatives of the Company who participated in the previous due diligence meetings. Messrs. Fill and Hommen met in New York City on July 17 and discussed a number of issues posed by a possible acquisition of the Company. Messrs. Fill and Hommen agreed to continue these discussions the following week after all parties gave further consideration to the issues. On July 20 through July 27, 1998, representatives of the parties and their financial and legal advisors further discussed valuation and other issues and, during the same period, the parties' legal advisors negotiated the terms of the draft Merger Agreement and the employment agreements with the Senior Officers (as defined below) and the parties engaged in further due diligence exchanges. At a meeting held on the morning of July 28, 1998, in Seattle, Washington, the Board of Directors of the Company met to consider the terms of the proposed acquisition. At such meeting, the Board of 17 Directors reviewed and discussed the latest terms of the proposed acquisition and received reports from and asked questions of its management and legal and financial advisors. During that afternoon, Messrs. Fill and Hommen further negotiated, and ultimately agreed upon, a price per Share of $50.50 for the Offer and the Merger and representatives of the parties and their legal advisors negotiated and agreed upon the other terms of the Merger Agreement and the employment agreements with the Senior Officers. The Board of Directors of the Company met again late in the afternoon of July 28, at which time the advisors described the final terms of the proposed acquisition, the Board of Directors received an oral opinion (which opinion was subsequently confirmed by delivery of a written opinion dated July 29, 1998, the date of execution of the Merger Agreement) from BT Alex. Brown as to the fairness, from a financial point of view, of the $50.50 per Share cash consideration to the holders of Shares (other than Parent and its affiliates) and unanimously voted to adopt the Merger Agreement, to approve the terms of the Offer and the Merger and to recommend to holders of Shares that they tender their Shares pursuant to the Offer. The Merger Agreement and the employment agreements with the Senior Officers were executed and delivered by the parties and the acquisition was publicly announced in press releases issued on the morning of July 29, 1998, prior to the opening of the New York stock markets. EMPLOYMENT AGREEMENTS. Prior to the execution of the Merger Agreement, the Company and five of its executive officers (the "Senior Officers") were parties to change in control/severance agreements which provided for, among other things, the payment of severance amounts and benefits upon certain terminations of employment in connection with a change in control of the Company. The Senior Officers have entered into new employment agreements with the Company that are generally effective as of the Effective Time and that replace the existing change in control agreements. Copies of the new employment agreements are filed as Exhibits (g)(1), (g)(2), (g)(3), (g)(4) and (g)(5) hereto and are incorporated herein by reference and the following summary is qualified in its entirety by reference to such agreements. EMPLOYMENT AND CONSULTING AGREEMENT OF MR. FILL. Concurrent with the signing of the Merger Agreement, Mr. Fill entered into an employment and consulting agreement ("Fill's Agreement") with the Company in substitution of his present agreement. The period of employment during which salary and benefits shall be provided (the "Fill Period of Employment") will begin at the Effective Time and will end on December 31, 1998. Pursuant to Fill's Agreement, he will serve as the President and Chief Executive Officer of the Company at an annual salary of $675,000 and will receive a bonus of $675,000 on or about January 1, 1999. Immediately following the expiration of the Fill Period of Employment, Mr. Fill will retire from the Company and serve as a consultant for five additional years (the "Fill Consulting Period") (the Fill Period of Employment and the Fill Consulting Period collectively referred to as the "Fill Term"). Immediately prior to the Effective Time, the Company shall pay Mr. Fill a consulting fee of $1,150,000 and an additional $60,000 on January 1, 1999, and on the first day of each calendar quarter thereafter to and including October 1, 2003. The Company shall pay any premiums required by Medicare for Mr. Fill's post-retirement Medicare coverage and on January 1, 1999, the Company shall cancel all life insurance agreements covering Mr. Fill and pay to Mr. Fill the cash amount required by Mr. Fill to purchase a paid up policy of $300,000 of life insurance on such date. If Mr. Fill's employment or consultancy is terminated by the Company without cause (Mr. Fill may not be terminated for cause during the Fill Consulting Period) or if Mr. Fill terminates upon a material breach (as those terms are defined in Fill's Agreement), the Company will pay Mr. Fill a lump sum equal to the remaining salary, bonus and consulting fee for the remaining Fill Term. The Fill Agreement prohibits Mr. Fill from competing with the business of the Company and Philips Medical Systems during, and for one year after, the Fill Employment Period and the Fill Consulting Period. EMPLOYMENT AGREEMENTS OF MESSRS. BLEM AND SOUQUET AND MS. DUNLAP. Concurrent with the signing of the Merger Agreement, Donald D. Blem, Senior Vice President, Operations, Mr. Souquet and Pamela L. 18 Dunlap, Senior Vice President, Finance and Administration, and Chief Financial Officer (the "Executives"), entered into employment agreements (the "Employment Agreements") with the Company in substitution of their present agreements. The period of employment during which salary and benefits shall be provided (the "Executives Period of Employment") will begin at the Effective Time and will end on December 31, 2001. Pursuant to their agreements, Messrs. Blem and Souquet and Ms. Dunlap will serve as Senior Vice President of Operations, Senior Vice President -- Chief Technology Officer, and Senior Vice President and Chief Financial Officer, respectively, with base salaries of $245,000, $255,000 and $200,000, respectively. Each Executive will be entitled to an annual bonus upon achievement of certain targets with a target bonus opportunity of 50% of base salary which may be higher or lower depending upon performance. Messrs. Blem and Souquet and Ms. Dunlap will be granted stock options ("Options") to acquire 5,000, 7,000, and 5,000 shares of common stock of Royal Philips, respectively. Such Options will become exercisable ratably over a three year period. Pursuant to each Employment Agreement, the Company shall establish the Long-Term Performance Unit Plan which shall provide each Executive with a bonus (the "Incentive Bonus") equal to that Executive's base salary, to be paid in the first quarter following the end of the Performance Period (the "Payment Date"), if the Executive is an employee on the last day of the Performance Period and 75% of the Strategic Plan (as such term is defined in the Employment Agreements) has been achieved during the 1999-2001 performance period (the "Performance Period"). If 100% of the Strategic Plan is achieved during the Performance Period, each Executive's Incentive Bonus shall be two times base salary and if 100% of the Strategic Plan, including synergies, is achieved, the Incentive Bonus shall be three times base salary. In the first quarter following December 31, 1999 and December 31, 2000, each Executive shall receive a payment equal to 20% of base salary (each, an "Advance Bonus") which shall reduce the Incentive Bonus, on a dollar for dollar basis, otherwise payable under this paragraph. If the Executives' employment is terminated by the Company without cause or if Executive terminates upon a material breach (as those terms are defined in the Employment Agreements), the Company will pay the Executives a lump sum equal to the remaining salary and bonus for the remaining Executives' Period of Employment and a pro-rata Incentive Bonus to be paid when such bonuses would have otherwise become payable. In addition, all Options will become immediately exercisable and will remain exercisable for at least one-year following termination of employment. The Employment Agreements prohibit the Executives from competing with the business of the Company and Philips Medical Systems during, and for one year after, the Executives Period of Employment. EMPLOYMENT AND CONSULTING AGREEMENT OF MR. DIAZ. Concurrent with the signing of the Merger Agreement, Mr. Diaz entered into an employment and consulting agreement ("Diaz's Agreement") with the Company in substitution of his present agreement. The period of employment during which salary and benefits shall be provided (the "Diaz Period of Employment") will begin at the Effective Time and will end on December 31, 1999. Pursuant to Diaz's Agreement, he will serve as the Senior Vice President -- Worldwide Sales and Marketing of the Company at an annual salary of $285,000. Mr. Diaz will be entitled to an annual bonus upon achievement of certain targets with a target bonus opportunity of 50% of base salary which may be higher or lower depending upon performance. On January 1, 1999, Mr. Diaz will be paid a bonus for 1998 equal to a pro rata portion (based on the number of days elapsed in 1998 through the Effective Time) of the bonus payable based on the Company's annualized performance through the end of the last fiscal quarter before the Effective Time. Mr. Diaz will be granted Options to acquire 5,000 shares of common stock of Royal Philips. Such Options will become exercisable at a rate of 50% on July 31, 1999 and 50% on December 31, 1999. Unless Mr. Diaz is terminated by the Company for cause (as such term is defined in Diaz's Agreement) or voluntarily resigns, his Options will remain exercisable for at least one year following the Diaz Term (as defined below). In addition, Mr. Diaz shall be eligible for an Incentive Bonus, on the same basis as 19 described above, pro-rated, based on the ratio that the number of days in the Diaz Period of Employment to the number of days in the Performance Period. Under the Long Term Performance Unit Plan, Mr. Diaz will receive a bonus of 20% of base salary upon completion of the first year of the plan, which shall reduce, on a dollar for dollar basis, the amount of Mr. Diaz's Incentive Bonus otherwise payable under the New LTIP. Immediately following the expiration of the Diaz Period of Employment, Mr. Diaz will serve as a consultant for two additional years (the "Diaz Consulting Period") (the Diaz Period of Employment and the Diaz Consulting Period collectively referred to as the "Diaz Term"). During the Diaz Consulting Period, the Company shall pay Mr. Diaz a consulting fee of $200,000 per year. In addition, until Mr. Diaz is entitled to Medicare, he shall be entitled to receive medical benefits (or the after tax cost of such benefits if they cannot be provided pursuant to the Company's medical plans) from the Company. If Mr. Diaz's employment or consultancy is terminated by the Company without cause (Mr. Diaz may not be terminated for cause during the Diaz Consulting Period) or if Mr. Diaz terminates upon a material breach (as such terms are defined in Diaz's Agreement), the Company will pay Mr. Diaz a lump sum equal to the remaining salary, bonus and consulting fee for the remaining Diaz Term and a pro-rata Incentive Bonus to be paid when such bonuses would have otherwise become payable. The Diaz Agreement prohibits Mr. Diaz from competing with the business of the Company and Philips Medical Systems during, and for one year after, the Diaz Term. EMPLOYMENT AGREEMENTS OF OTHER EXECUTIVES. The Company is obligated to use its best efforts to enter into fifteen employment agreements with certain other executives (the "Other Executives") of the Company following the signing of the Merger Agreement (the "Other Agreements"). These Other Agreements will provide the Other Executives with the same level of base salary and bonus opportunity that they are currently receiving from the Company for one year following the Effective Time. If such Other Executives are terminated by the Company without cause or terminate upon a material breach (as such terms are defined in the Executives' Employment Agreements), the Company will pay to such Other Executives a lump-sum equal to the remaining base salary otherwise payable for the remainder of the one-year period. These Other Executives will be entitled to participate in the Long-Term Performance Unit Plan on substantially the same terms as the Executives, other than for threshold amounts. EFFECT OF THE MERGER ON EMPLOYEE BENEFIT AND STOCK PLANS. In addition to the provisions relating to employment agreements described above, the Merger Agreement contemplates that certain additional actions will be taken in respect of employee benefit and stock plans in which executive officers of the Company are eligible to participate. Parent shall cause the Company (or if Merger Sub will be the surviving entity in the Merger, Merger Sub) (the "Surviving Corporation") to honor all benefit obligations accrued as of the Effective Time. For a period of two years after the Effective Time, the Surviving Corporation will provide benefits (other than stock-related benefits) to Company employees that are substantially similar to those provided by the Company before the Effective Time. In accordance with the Merger Agreement, the Company will use its reasonable best efforts to cause each option to purchase Shares (whether or not exercisable) to be surrendered and canceled as of the Effective Time for a cash payment equal to the product of (i) the number of Shares subject to the option and (ii) the difference between the Merger Consideration and the per Share exercise price of the option. In addition, the transactions contemplated by the Merger Agreement will constitute a "Change in Control" for purposes of certain compensation and benefit programs of the Company. As a result, all outstanding options will immediately become vested and exercisable, the restrictions on all restricted stock awards will vest and the current long term bonus cycles will be terminated and paid out. 11. PURPOSE OF THE OFFER; PLANS FOR THE COMPANY; THE MERGER. PURPOSE. The purpose of the Offer is to acquire for cash as many outstanding Shares as possible as a first step in acquiring the entire equity interest in the Company. 20 If Merger Sub acquires a majority of the outstanding Shares pursuant to the Offer, it will have the vote necessary under Washington law to approve the Merger of Merger Sub with and into the Company. Therefore, if at least approximately 8,522,975 Shares are acquired pursuant to the Offer or otherwise, Merger Sub will be able to and intends to effect the Merger without the vote of any person other than Merger Sub. In addition, under the WBCA, Parent may cause the Company to merge with and into Merger Sub without a vote of the Company's shareholders if Merger Sub owns at least 90% of the outstanding Shares. If over 90% of the outstanding Shares are tendered in the Offer, Parent intends to effect the merger of the Company into Merger Sub. If Merger Sub acquires Shares pursuant to the Offer, Merger Sub intends to conduct a detailed review of the Company and its assets, business, operations, properties, policies, corporate structure, capitalization and the responsibilities and qualification of the Company's management and personnel and consider what, if any, changes Merger Sub deems desirable in light of the circumstances which then exist, but Merger Sub does not presently contemplate any major changes in the operations of the Company. THE MERGER AGREEMENT. The Merger Agreement provides that the closing of the Merger will take place on the first business day on which the last to be satisfied or waived of the conditions set forth in the Merger Agreement shall be satisfied or waived, or at such other place and time and/or on such other date as the Company and Parent may agree. Upon consummation of the Merger, each Share issued and outstanding immediately prior to the Effective Time (other than Shares owned by the Parent Companies or Shares which are held by Dissenting Shareholders) shall, by virtue of the Merger and without any action on the part of the holder thereof, be converted into the right to receive, without interest, the Merger Consideration. VOTE REQUIRED TO APPROVE MERGER. The WBCA requires, among other things, that any plan of merger or share exchange of the Company must be adopted by the Board of Directors of the Company and Merger Sub and, if the "short form" merger procedure described below is not available, approved by the holders of a majority of the Company's outstanding Shares and the outstanding Shares of Merger Sub. The Board of Directors of the Company and Merger Sub have adopted the Merger Agreement and approved the Offer and the Merger; consequently, the only additional actions of the Company and Merger Sub that may be necessary to effect the Merger is approval by such shareholders if the "short form" merger procedure described below is not available. Under the WBCA and the Company's Restated Articles of Incorporation, the affirmative vote of holders of a majority of the outstanding Shares (including any Shares owned by Merger Sub) is required to approve the Merger. If Merger Sub acquires, through the Offer or otherwise, voting power with respect to at least a majority of the outstanding Shares (which would be the case if the Minimum Condition were satisfied and Merger Sub were to accept for payment Shares tendered pursuant to the Offer), it would have sufficient voting power to effect the Merger without the vote of any other shareholder of the Company. However, the WBCA also provides that if a parent company owns at least 90% of each class of stock of a subsidiary, the parent company may merge the subsidiary with and into itself without the approval of the other shareholders of the parent or subsidiary. Accordingly, if, as a result of the Offer or otherwise, Merger Sub acquires or controls the voting power of at least 90% of the outstanding Shares, Merger Sub could effect the Merger using such "short-form" merger procedures without prior notice to, or any action by, any other shareholder of Merger Sub or the Company. CHAPTER 23B.19 OF THE WBCA. In general, Chapter 23B.19 of the WBCA prevents a Washington corporation or certain foreign corporations transacting business in the State of Washington (in each case a "target corporation"), from engaging in a "significant business transaction" (defined as a variety of transactions, including mergers, as set forth below) with an "acquiring person" (defined, generally stated, as a person with 10% or more of a corporation's outstanding voting shares) for a period of five years following the date such person became an acquiring person unless the significant business transaction or the purchase of shares in which the person became an acquiring person is approved prior to the time that the person became an acquiring person by a majority of the board of directors of the target corporation. 21 Chapter 23B.19 defines a "significant business transaction" as including (a) a merger, share exchange or consolidation of a target corporation or a subsidiary of a target corporation with (i) an acquiring person, or (ii) any other domestic or foreign corporation which is, or after the merger, share exchange, or consolidation would be, an affiliate or associate of the acquiring person; (b) a sale, lease exchange, mortgage, pledge, transfer, or other disposition or encumbrance, whether in one transaction or a series of transactions, to or with an acquiring person or an affiliate or associate of an acquiring person of assets of a target corporation or a subsidiary of a target corporation having an aggregate market value equal to or above a threshold amount; (c) the termination, while the corporation has an acquiring person and as a result of the acquiring person's acquisition of ten percent or more of the shares of the corporation, of five percent or more of the employees of the target corporation or its subsidiaries employed in the State of Washington, whether at one time or over the five-year period following the share acquisition time; (d) the issuance, transfer or redemption by a target corporation or a subsidiary of a target corporation, whether in one transaction or a series of transactions, of shares or of options, warrants or rights to acquire shares of a target corporation or a subsidiary of a target corporation to an acquiring person or an affiliate or associate of an acquiring person except in certain transactions, including certain transactions made pro rata to all holders of the applicable securities; (e) the liquidation or dissolution of a target corporation proposed by, or pursuant to an agreement, arrangement, or understanding, whether or not in writing, with an acquiring person or an affiliate or associate of an acquiring person; (f) certain reclassifications of securities that have the effect of increasing the proportionate share of the outstanding shares of a class or series of voting shares or securities convertible into voting shares of a target corporation or a subsidiary of the target corporation that is directly or indirectly owned by an acquiring person or an affiliate or associate of an acquiring person; or (g) a receipt by an acquiring person or an affiliate of an acquiring person of the benefit, except proportionately as a shareholder of a target corporation, of loans, advances, guarantees, pledges, or other financial assistance or tax advantages provided by or through a target corporation. THE MERGER AGREEMENT PROVIDES THAT IF ANY TAKEOVER STATUTE IS OR SHALL BECOME APPLICABLE TO THE TRANSACTIONS CONTEMPLATED THEREBY, THE COMPANY AND THE BOARD OF DIRECTORS OF THE COMPANY SHALL GRANT SUCH APPROVALS AND TAKE SUCH ACTIONS AS ARE NECESSARY SO THAT THE TRANSACTIONS CONTEMPLATED BY THE MERGER AGREEMENT MAY BE CONSUMMATED AS PROMPTLY AS PRACTICABLE ON THE TERMS CONTEMPLATED THEREBY AND OTHERWISE ACT TO ELIMINATE THE EFFECTS OF SUCH STATUTE OR REGULATION ON THE TRANSACTIONS CONTEMPLATED THEREBY. CONDITIONS TO THE MERGER. The respective obligations of the Company, Parent and Merger Sub to consummate the Merger are subject to the fulfillment of certain conditions set forth in the Merger Agreement, including (i) if required by the WBCA, the approval of the Merger by the holders of a majority of the Shares in accordance with applicable law and the Articles and By-Laws of the Company, (ii) the purchase by Merger Sub (or one of the Parent Companies) of Shares pursuant to the Offer, and (iii) there being no statute, rule, regulation, judgment, decree, injunction or other order (whether temporary, preliminary or permanent) enacted, issued, promulgated, enforced or entered by any Governmental Entity (as defined in the Merger Agreement) of competent jurisdiction in effect which prohibits consummation of the Merger (collectively, an "Order"). TERMINATION OF THE MERGER AGREEMENT. According to its terms, the Merger Agreement may be terminated and the transactions contemplated thereby abandoned at any time prior to the Effective Time, before or after the approval by holders of Shares: (a) by the mutual consent of Parent (also acting on behalf of Merger Sub) and the Company, by action of their respective Boards of Directors; or (b) by action of the Board of Directors of either Parent or the Company if (i) Merger Sub shall not have accepted for payment any Shares pursuant to the Offer prior to December 31, 1998; PROVIDED, HOWEVER, that such right to terminate the Merger Agreement shall not be available to (A) Parent if any Shares have been accepted for payment pursuant to the Offer or (B) any party whose failure to perform any of its obligations under the 22 Merger Agreement results in the failure of any Offer Condition; or (ii) any Governmental Entity shall have issued an Order which shall have become final and nonappealable; or (c) unless the Offer shall have been consummated, by action of the Board of Directors of Parent, if (x) (i) the Company shall have breached or failed to perform in any material respect any of its covenants or agreements under the Merger Agreement (other than any immaterial covenants or agreements) or (ii) a representation or warranty of the Company set forth in the Merger Agreement shall have been inaccurate when made or shall thereafter become inaccurate, except for such inaccuracies which, when taken together (in each case without regard to any qualification as to materiality or any material adverse effect on the financial condition, properties, business or results of operations of the Company and its subsidiaries taken as a whole (excluding any change or development resulting from the announcement of the Merger Agreement or the transactions contemplated thereby) (a "Material Adverse Effect"), contained in the applicable representations and warranties) would not reasonably be likely to have a Material Adverse Effect, and, with respect to any such breach, failure to perform or inaccuracy that can be remedied, the breach, failure or inaccuracy is not remedied within 15 business days after the giving of written notice of such breach, failure or inaccuracy to the Company; or (y) the Board of Directors of the Company shall have withdrawn or modified in any manner adverse to Parent or Merger Sub its approval or recommendation of the Offer, the Merger Agreement or the Merger or shall have adopted or recommended any Acquisition Proposal (as defined below), or the Board of Directors of the Company, upon request by Parent, shall fail to reaffirm such approval or recommendation within 10 business days after such request if an Acquisition Proposal is pending, or shall have resolved to do any of the foregoing; or (d) by action of the Board of Directors of the Company, (x) if Parent or Merger Sub (or another Parent Company) (i) shall have breached in any material respect any of the representations, warranties, covenants or agreements contained in the Merger Agreement (other than any immaterial covenants or agreements) and, with respect to any such breach that can be remedied, the breach is not remedied within 15 business days after the Company has provided Parent with written notice of such breach or (ii) shall have failed to commence the Offer by August 4, 1998 or to pay for the Shares pursuant to the Offer in accordance with the terms thereof, (y) if (i) the Board of Directors of the Company receives a written offer not solicited on or after the date of the Merger Agreement, with respect to a merger, reorganization, share exchange, consolidation or sale of all or substantially all of the Company's assets or a tender or exchange offer not solicited on or after the date of the Merger Agreement for more than 50% of the outstanding Shares is commenced, and with respect to which the Board of Directors of the Company concludes in good faith, after consultation with its independent financial advisor and its outside counsel, that approval, acceptance or recommendation of such transaction is required by the fiduciary duties of the Company's Board of Directors under applicable law (any such transaction, a "Superior Proposal"), (ii) the Company has given Merger Sub three business days prior written notice of its intention to terminate the Merger Agreement to accept the Superior Proposal and Merger Sub shall have failed to offer to amend the Offer so that it is at least as favorable to the shareholders of the Company as the Superior Proposal and (iii) the Company prior to such termination pays to Merger Sub in immediately available funds the fees described in the next paragraph. FEES AND EXPENSES. The Merger Agreement provides that if (x) (i) the Offer shall have remained open for a minimum of at least 20 business days, (ii) after the date of the Merger Agreement, any corporation, partnership, person, other entity or group (as defined in Section 13(d)(3) of the Exchange Act) other than Parent or Merger Sub or any of their respective subsidiaries or affiliates (collectively, a "Person") shall have become the beneficial owner of 15% or more of the outstanding Shares or made any Acquisition Proposal, (iii) the Minimum Condition shall not have been satisfied and the Offer is terminated as described in clause (c)(x) of the preceding paragraph (but only if such termination relates to a breach of the Company's obligations described under "--Acquisition Proposals" below) or as described in clause (b)(i) of the preceding paragraph without the purchase of any Shares thereunder and (iv) within twelve months of such termination the Company enters into an agreement (other than a confidentiality agreement in customary form) with respect to an Acquisition Proposal (as such term is defined below, except that the reference in such definition to 15% shall be deemed a reference to 40% for purposes of this 23 clause (iv) only) or any person or other entity (other than Parent or any of its affiliates) becomes the beneficial owner of 40% or more of the outstanding Shares, (y) Parent shall have terminated this Agreement as described in clause (c)(y) of the preceding paragraph, or (z) the Company shall have terminated this Agreement as described in clause (d)(y) of the preceding paragraph, then the Company shall promptly, but in no event later than five business days after the date of a request by Parent for payment of such fee (other than a termination as described in clause (d)(y) of the preceding paragraph, in which case payment shall be concurrent with termination), pay Parent a fee of $23,700,000, which amount shall be payable in same day funds. If the Company fails to promptly pay the amount due pursuant to this paragraph, and, in order to obtain such payment, Parent or Merger Sub commences a suit which results in a judgment against the Company for the fee set forth in this paragraph, the Company shall pay to Parent or Merger Sub its costs and expenses (including attorneys' fees) in connection with such suit, together with interest on the amount of the fee at the prime rate of Citibank N.A. on the date such payment was required to be made. AMENDMENT OF THE MERGER AGREEMENT. Subject to the applicable provisions of the WBCA, at any time prior to the Effective Time, the parties to the Merger Agreement may modify or amend the Merger Agreement by written agreement executed and delivered by duly authorized officers of the respective parties. TREATMENT OF OPTIONS. The Merger Agreement provides that prior to the Effective Time, the Company shall use its reasonable best efforts to take such actions as may be necessary such that at the Effective Time, each stock option outstanding pursuant to the Stock Plans ("Option"), whether or not then exercisable, shall be canceled and only entitle the holder thereof, upon surrender thereof, to receive an amount in cash equal to the difference between the Merger Consideration over the exercise price per Share of such Option multiplied by the number of Shares previously subject to such Option, less all applicable withholding Taxes. Such payment shall be made by the Company as soon as administratively feasible after the Effective Time. INDEMNIFICATION OF OFFICERS AND DIRECTORS. The Merger Agreement provides that from and after the Effective Time, Parent agrees that it will indemnify and hold harmless each present and former director and officer of the Company and its subsidiaries, determined as of the Effective Time (the "Indemnified Parties"), against any costs or expenses (including reasonable attorneys' fees), judgments, fines, losses, claims, damages or liabilities (collectively, "Costs") incurred in connection with any claim, action, suit, proceeding or investigation, whether civil, criminal, administrative or investigative, arising out of matters existing or occurring at or prior to the Effective Time, whether asserted or claimed prior to, at or after the Effective Time, to the fullest extent that the Company would have been permitted under Washington law and its Articles or By-Laws in effect on the date of the Merger Agreement to indemnify such person (and Parent shall also advance expenses as incurred to the fullest extent permitted under applicable law, provided that the person to whom expenses are advanced provides an undertaking to repay such advances if it is ultimately determined that such person is not entitled to indemnification). The Merger Agreement also provides that Parent shall cause the Surviving Corporation to maintain the Company's existing officers' and directors' liability insurance (or equivalent thereof) ("D&O Insurance") for a period of six years after the Effective Time, so long as the annual premium therefor is not in excess of an amount (the "Maximum Premium") equal to 150% of the last annual premium paid prior to the date of the Merger Agreement; PROVIDED, HOWEVER, that if such insurance coverage cannot be obtained at all, or can only be obtained at an annual premium in excess of the Maximum Premium, Parent shall maintain the most advantageous policies of directors' and officers' insurance obtainable for an annual premium equal to the Maximum Premium. TREATMENT OF EMPLOYEE BENEFITS. The Merger Agreement provides that for a period of two years following the Effective Time, Parent will cause the Company to continue to provide the Employees with compensation and employee benefit plans (other than stock option or other plans involving the potential issuance of securities of the Company or of any of the Parent Companies) which in the aggregate are 24 substantially comparable to those currently provided by the Company to such employees immediately prior to the Effective Time, provided that employees covered by collective bargaining agreements need not be provided such benefits. Parent will, or will cause the Surviving Corporation to, honor without modification all employee (or former employee) benefit obligations accrued as of the Effective Time. CHIEF EXECUTIVE OFFICER AGREEMENT. A description of the Employment and Consulting Agreement of Mr. Fill is set forth above. COMPOSITION OF THE BOARD OF DIRECTORS. If requested by Parent, the Company will, subject to compliance with applicable law, immediately following the acceptance for payment of, and payment by Merger Sub for, more than 50 percent of the outstanding Shares pursuant to the Offer, take all actions necessary to cause persons designated by Parent to become directors of the Company so that the total number of such persons equals at least that number of directors, rounded up to the next whole number, which represents the product of (x) the total number of directors on the Board of Directors multiplied by (y) the percentage that the number of Shares so accepted for payment and paid for plus any Shares beneficially owned by Parent or its affiliates on the date of the Merger Agreement bears to the number of Shares outstanding at the time of such payment. In furtherance thereof, the Company will increase the size of the Board, or use its best efforts to secure the resignation of directors, or both, as is necessary to permit Parent's designees to be elected to the Company's Board of Directors; provided, however, that prior to the Effective Time, the Company's Board of Directors shall always have at least three members (the "Independent Directors") who are neither officers of Parent nor designees, shareholders or affiliates of Parent or Parent's affiliates ("Parent Insiders"); and provided further that, in such event, if the number of Independent Directors shall be reduced below three for any reason whatsoever, any remaining Independent Directors (or Independent Director, if there shall be only one remaining) shall be entitled to designate persons to fill such vacancies who shall be deemed to be Independent Directors for purposes of the Merger Agreement or, if no Independent Directors then remain, the other directors shall designate three persons to fill such vacancies who shall not be officers or affiliates of Parent or any of Parent's affiliates, and such persons shall be deemed to be Independent Directors for purposes of the Merger Agreement. At such time, the Company, if so requested, will use its best efforts to cause persons designated by Parent to constitute the same percentage of each committee of such board, each board of directors of each subsidiary of the Company and each committee of each such board (in each case to the extent of the Company's ability to elect such persons). The Company's obligations to appoint designees to the Board of Directors shall be subject to Section 14(f) of the Exchange Act and Rule 14f-1 thereunder. ACQUISITION PROPOSALS. The Merger Agreement provides that neither the Company, any of its subsidiaries, nor any of their respective officers and directors shall, and the Company shall direct and use its best efforts to cause its employees, agents and representatives (including, without limitation, any investment banker, attorney or accountant retained by the Company or any of its subsidiaries) not to, directly or indirectly, initiate, solicit, encourage or otherwise facilitate (including by providing any confidential information or data to or having any negotiations or discussions with any person (other than Parent or its affiliates) making or inquiring with respect to making an Acquisition Proposal), any inquiries or the making of any proposal or offer (including, without limitation, any proposal or offer to shareholders of the Company) with respect to a merger, reorganization, share exchange, consolidation or similar transaction involving the Company, or any purchase of more than 15% (on a fair market value basis) of the assets of the Company and its subsidiaries on a consolidated basis (including any such purchase of assets effected indirectly through the purchase of such subsidiaries), or any purchase of, or tender offer for, more than 15% of any equity securities of the Company (any such proposal or offer being referred to as an "Acquisition Proposal"), except that the Company shall have the right, if, and only to the extent that, the Company's Board of Directors concludes in good faith after consultation with outside legal counsel that such actions are required to comply with the fiduciary duties of the Company's Board of Directors under applicable law in response to a bona fide, written Acquisition Proposal not solicited on or after the date of the Merger Agreement, to engage in negotiations concerning, provide confidential information or data to, 25 or have discussions with, any person relating to an Acquisition Proposal. The Merger Agreement provides that the Company will immediately cease and cause to be terminated any existing activities, discussions or negotiations with any parties conducted with respect to any of the foregoing, and that the Company will take the necessary steps to promptly inform the individuals or entities referred to in the first sentence of this paragraph of their obligations under this provision of the Merger Agreement. The Merger Agreement provides that the Company will notify Parent promptly, and in any event within 24 hours, if any such inquiries or proposals are received by, any such information is requested from, or any such negotiations or discussions are sought to be initiated or continued with, the Company or any of its subsidiaries, indicating, in connection with such notice, the name of such person and the material terms of any such proposals or offers, and shall thereafter keep Parent informed on a current basis of the status and material terms of any such proposals or offers and the status of any such discussions or negotiations. The Merger Agreement provides that the Company also will promptly request each person which has prior to the date of the Merger Agreement executed a confidentiality agreement in connection with its consideration of acquiring the Company and/or any of its subsidiaries to return all confidential information heretofore furnished to such person by or on behalf of the Company; provided, that Company shall not be prohibited from taking and disclosing to its stockholders a position required by Rule 14e-2(a) promulgated under the Exchange Act or from making any disclosure to the Company's shareholders if, in the good faith judgment of the Board of Directors of the Company after consultation with outside counsel, failure to do so would be a violation of its obligations under applicable law. COVENANTS. The Merger Agreement also contains certain other restrictions as to the conduct of business by the Company pending the Merger, as well as representations and warranties of each of the parties customary in transactions of this kind. DISSENTERS' RIGHTS. Holders of Shares do not have appraisal rights as a result of the Offer. However, if the Merger is consummated, (i) in the case of a short-form merger consummated pursuant to WBCA 23B.11.040, each holder of Shares who has delivered to the Company before the date set in the Company's notice (which date may not be fewer than thirty nor more than sixty days after the date the Company delivers the notice) the shareholder's intent to demand payment, and (ii) in the case of a merger consummated pursuant to WBCA 23B.11.030, each holder of Shares who has (x) delivered to the Company before the vote on the Merger is taken written notice of the shareholder's intent to demand payment and (y) not voted such Shares in favor of the Merger, will be entitled to receive payment of the fair value of such shareholder's Shares. Within thirty days of the later of the effective date of the Merger or the date the payment demand is received, the Company must pay each dissenter who has complied with WBCA 23B.13.230 the amount the Company estimates to be the fair value of the shareholder's Shares, plus accrued interest. A dissenter may notify the Company in writing of the dissenter's own estimate of the fair value of the dissenter's Shares and amount of interest due and either demand payment of such estimate less any payment received, or reject the corporation's offer and demand payment of such estimate. A dissenter waives the right to demand payment in accordance with the previous sentence unless the dissenter notifies the Company of the dissenter's demand in writing within thirty days after the Company made or offered payment for the dissenter's Shares. If a demand payment remains unsettled, the Company must commence a proceeding within sixty days after receiving the payment demand and petition the court to determine the fair value of the Shares and accrued interest. If any holder of Shares fails to demand payment in accordance with Chapter 23B.13 of the WBCA, or effectively withdraws or waives his right to demand payment as provided in the WBCA, the Shares of such shareholder will be converted into the Merger Consideration in accordance with the Merger Agreement. The foregoing discussion is not a complete statement of law pertaining to dissenters' rights under the WBCA and is qualified in its entirety by the full text of Chapter 23B.13 of the WBCA. FAILURE TO FOLLOW THE STEPS REQUIRED BY CHAPTER 23B.13 OF THE WBCA FOR DEMANDING PAYMENT MAY RESULT IN THE LOSS OF SUCH RIGHTS. 26 RULE 14E-3. The Merger would have to comply with any applicable Federal law operative at the time of its consummation. Rule 13e-3 under the Exchange Act is applicable to certain "going private" transactions. Merger Sub does not believe that Rule 13e-3 will be applicable to the Merger unless the Merger is consummated more than one year after the termination of the Offer. If applicable, Rule 13e-3 would require, among other things, that certain financial information concerning the Company and certain information relating to the fairness of the Merger and the consideration offered to minority shareholders be filed with the SEC and disclosed to minority shareholders prior to consummation of the Merger. RIGHTS AGREEMENT. Set forth below is a summary description of the Rights as filed with the Company Registration Statement on Form S-4, dated April 18, 1994, as amended, relating to the Rights. Pursuant to the Amended and Restated Rights Agreement dated as of June 26, 1992, between the Company and First Chicago Trust Company of New York, as Rights Agent, as amended (the "Rights Agreement"), holders of shares of Common Stock currently hold rights to purchase shares of the Company's Series A Participating Cumulative Preferred Stock, par value $1.00 per share (the "ATL Series A Preferred Shares") exercisable only in certain circumstances (the "Rights"). The Rights, which are represented by certificates for Common Stock, currently trade together with the Common Stock. Each Right, when it becomes exercisable as described below, will entitle the registered holder to purchase one one-hundredth (1/100) of an ATL Series A Preferred Share at a price (the "Purchase Price") equal to four times the average of the high and low sale prices of the Common Stock as reported on the Nasdaq National Market for each of the 10 trading days commencing on the sixth trading day following June 26, 1992. The ATL Series A Preferred Shares issuable upon exercise of the Rights will not be redeemable. Each ATL Series A Preferred Share will be entitled to a minimum preferential quarterly dividend payment of $.01 per share, but will be entitled to an aggregate dividend of 100 times the dividend declared per share of Common Stock, if any. In the event of dissolution, liquidation or winding up of the Company, whether voluntary or involuntary, the holders of ATL Series A Preferred Shares will be entitled to a minimum preferential payment of $.01 per share, but will be entitled to an aggregate preferential payment of 100 times the payment made per share of Common Stock. Each ATL Series A Preferred Share will have 100 votes, voting together with the Common Stock. Finally, in the event of any merger, business combination, consolidation or other transaction in which the Common Stock is exchanged, each ATL Series A Preferred Share will be entitled to receive 100 times the amount received per share of Common Stock. Because of the nature of the ATL Series A Preferred Shares' dividend, liquidation and voting rights, the value of the one one-hundredth (1/100) interest in an ATL Series A Preferred Share issuable upon exercise of each Right should approximate the value of one share of Common Stock. Customary antidilution provisions are designed to protect that relationship in the event of certain changes in the Common Stock and the ATL Series A Preferred Shares. The ATL Series A Preferred Shares are authorized to be issued in fractions that are an integral multiple of one one-hundredth (1/100) of an ATL Series A Preferred Share. The Company may, but is not required to, issue fractions of shares upon the exercise of Rights, and, in lieu of fractional shares, the Company may utilize a depository arrangement as provided by the terms of the ATL Series A Preferred Shares and, in the case of fractions other than one one-hundredth (1/100) of an ATL Series A Preferred Share or integral multiples thereof, may make a cash payment based on the market price of such shares. Until the earlier of (i) such time as the Company learns that a person or group (including any affiliate or associate of such person or group) has acquired, or has obtained the right to acquire, beneficial ownership of 15% or more of the outstanding Common Stock (such person or group being an "Acquired Person") and (ii) such date, if any, as may be designated by the Company's Board of Directors (the "Company Board") following the commencement of, or first public disclosure of an intent to commence, a tender or exchange offer for outstanding Common Stock that could result in the offeror becoming the beneficial owner of 15% or more of the outstanding Common Stock (the earlier of such dates, subject to certain exceptions, being the "Separation Date"), the Rights will be evidenced by certificates for Common 27 Stock registered in the names of the holders thereof (which certificates for Common Stock will also be deemed to be Right Certificates, as defined herein), not by separate Right Certificates. Therefore, until the Separation Date, the Rights will be transferred with and only with the Common Stock. As soon as practicable following the Separation Date, separate certificates evidencing the Rights ("Right Certificates") will be mailed to holders of record of Common Stock as of the close of business on the Separation Date (and to each initial record holder of certain Common Stock originally issued after the Separation Date), and such separate Right Certificates alone will thereafter evidence the Rights. The Rights are not exercisable until the Separation Date and will expire on June 30, 2002 (the "Rights Expiration Date"), unless earlier redeemed or canceled by the Company, as described below. The number of ATL Series A Preferred Shares or other securities issuable upon exercise of a Right, the Purchase Price, the Redemption Price (as defined herein) and the number of Rights associated with each outstanding share of Common Stock are all subject to adjustment by the Company Board in the event of any change in the Common Stock or the ATL Series A Preferred Shares, whether by reason of stock dividends, stock splits, recapitalizations, mergers, consolidations, combinations or exchanges of securities, split-ups, split-offs, spin-offs, liquidations, other similar changes in capitalization, any distribution or issuance of cash, assets, evidences of indebtedness or subscription rights, options or warrants to holders of Common Stock or ATL Series A Preferred Shares, as the case may be (other than the Rights or regular quarterly cash dividends), or otherwise. In the event a person becomes an Acquiring Person, the Rights will entitle each holder of a Right (other than those held by an Acquiring Person (or any affiliate or associate of such Acquiring Person)) to purchase, for the Purchase Price, that number of one one-hundredth (1/100) of an ATL Series A Preferred Share equivalent to the number of shares of ATL Common Stock that at the time of the transaction would have a market value of twice the Purchase Price. Any Rights that are at any time beneficially owned by an Acquiring Person (or any affiliate or associate of an Acquiring Person) will be null and void and nontransferable and any holder of any such Right (including any purported transferee or subsequent holder) will be unable to exercise or transfer any such Right. After there is an Acquiring Person, the Company Board may elect to exchange each Right (other than Rights that have become null and void and nontransferable as described above) for consideration per Right consisting of one-half of the securities that would be issuable at such time upon the exercise of one Right pursuant to the terms of the Rights Agreement, and without payment of the Purchase Price. In the event the Company is acquired in a merger by, or other business combination with, or 50% or more of its assets or assets representing 50% or more of its earning power are sold, leased, exchanged or otherwise transferred (in one or more transactions) to, a publicly traded corporation, each Right will entitle its holder (subject to the next paragraph) to purchase, for the Purchase Price, that number of common shares of such corporation that at the time of the transaction would have a market value of twice the Purchase Price. In the event the Company is acquired in a merger by, or other business combination with, or 50% or more of its assets or assets representing 50% or more of the earning power of the Company are sold, leased, exchanged or otherwise transferred (in one or more transactions) to, an entity that is not a publicly traded corporation, each Right will entitle its holder (subject to the next paragraph) to purchase, for the Purchase Price, at such holder's option, (i) that number of shares of the surviving corporation in the transaction with such entity (which surviving corporation could be the Company that at the time of the transaction would have a book value of twice the Purchase Price, (ii) that number of shares of such entity that at the time of the transaction would have a book value of twice the Purchase Price, or (iii) if such entity has an affiliate that has publicly traded common shares, that number of common shares of such affiliate that at the time of the transaction would have a market value of twice the Purchase Price. At any time prior to the earlier of (i) such time as a person becomes an Acquiring Person and (ii) the Rights Expiration Date, the Company Board may redeem the Rights in whole, but not in part, at a price (in cash or Common Stock or other securities of the Company deemed by the Company Board to be at 28 least equivalent in value) of $.01 per Right, subject to adjustment as provided in the Rights Agreement (the "Redemption Price"); provided, however, that for the 120-day period after any date of a change (resulting from a proxy or consent solicitation) in a majority of the Company Board in office at the commencement of such solicitation, the Rights may only be redeemed if (A) there are directors then in office who were in office at the commencement of such solicitation and (B) the Company Board, with the concurrence of a majority of such directors then in office, determines that such redemption is, in its judgment, in the best interests of the Company and its shareholders. Immediately upon the action of the Company Board electing to redeem the Rights, the Company will make an announcement thereof, and, upon such election, the right to exercise the Rights will terminate and the only right of the holders of Rights will be to receive the Redemption Price. Until a right is exercised, the holder thereof, as such, will have no rights as a shareholder of the Company, including, without limitation, the right to vote or to receive dividends. At any time prior to the Separation Date, the Company may, without the approval of any holder of the Rights, supplement or amend any provision of the Rights Agreement (including the date on which the Separation Date would occur, the time during which the Rights may be redeemed or the terms of the ATL Series A Preferred Shares), except that no supplement or amendment shall be made that reduces the Redemption Price (other than pursuant to certain adjustments therein), provides for an earlier Rights Expiration Date or makes certain changes to the definition of Acquiring Person. However, for the 120-day period after any date of a change (resulting from a proxy or consent solicitation) in a majority of the Company Board in office at the commencement of such solicitation, the Rights Agreement may be supplemented or amended only if (A) there are directors then in office who were in office at the commence of such solicitation and (B) the Company Board, with the concurrence of a majority of such directors then in office, determines that such supplement or amendment is, in its judgment, in the best interests the Company and its shareholders. The Rights have certain antitakeover effects. The Rights will cause substantial dilution to a person or group that attempts to acquire the Company without conditioning the offer on substantially all the Rights being acquired. The Rights will not interfere with any merger or other business combination approved by the Company Board since the Company Board may, at its option, at any time prior to any person becoming an Acquiring Person, redeem all but not less than all the then outstanding Rights at the Redemption Price. Pursuant to the Merger Agreement, the Board of Directors of the Company, at its meeting on July 28, 1998, approved the Rights Amendment, and on July 29, 1998, the Rights Amendment was executed. The Rights Amendment amended the Rights Agreement to provide that the execution of the Merger Agreement or the commencement of the Offer or the consummation of the Merger or the other transactions contemplated thereby will not cause (i) either Parent or Merger Sub or any of their respective "affiliates" or "associates" (each as defined in the Rights Agreement) or any of their respective permitted assignees or transferees to be deemed an Acquiring Person (as defined in the Rights Agreement) (ii) a Distribution Date (as defined in the Rights Agreement) to occur or (iii) the Rights to separate from the Shares or otherwise become exercisable. The Merger Agreement further provides that the Company will take all necessary action with respect to all of the outstanding Rights, so that the Company, as of the time immediately prior to the purchase of any Shares by Parent or any of the Parent Companies (as defined in the Merger Agreement) pursuant to the Offer, will have no obligations under the Rights or the Rights Agreement and the holders will have no rights under the Rights or the Rights Agreement, in each case, other than the right to receive the redemption payment of $0.01 per Right in cash as provided in the Rights Agreement. 12. SOURCE AND AMOUNT OF FUNDS. Merger Sub estimates that the total amount of funds required to purchase all of the outstanding Shares (other than those already owned by Parent) pursuant to the Offer and the Merger and to pay related fees and expenses will be approximately $800 million. Merger Sub will obtain these funds from 29 Royal Philips, either directly or indirectly, via other subsidiaries of Royal Philips, through loans, advances or capital contributions. It is currently anticipated that such funds will be generated internally by Royal Philips and its subsidiaries. No final decisions have been made, however, concerning the method Royal Philips will employ to obtain such funds. Such decisions, when made, will be based on Royal Philips' review from time to time of the advisability of particular actions, as well as on prevailing interest rates and financial and other economic conditions. 13. CERTAIN CONDITIONS OF THE OFFER. Notwithstanding any other provision of the Offer, but subject to the terms and conditions of the Merger Agreement (and provided that Merger Sub shall not be obligated to accept for payment any Shares until expiration or termination of all applicable waiting periods under the HSR Act and any applicable waiting periods relating to the antitrust or competition laws of Austria and Germany, in each case with respect to the Offer and/or the Merger (the "Regulatory Condition")), Merger Sub (x) shall not be required to accept for payment or, subject to any applicable rules and regulations of the SEC, including Rule 14e-1(c) promulgated under the Exchange Act (relating to Merger Sub's obligation to pay for or return tendered Shares promptly after termination or withdrawal of the Offer), pay for, and (y) may delay the acceptance for payment of or (subject to such rules and regulations, including Rule 14e-1(c)) payment for, any tendered Shares, in each case if a majority of the total Shares outstanding on a fully diluted basis and as will permit Merger Sub to effect the Merger without the vote of any person other than Merger Sub shall not have been properly and validly tendered pursuant to the Offer and not withdrawn prior to the expiration of the Offer (the "Minimum Condition"), or, if on or after July 29, 1998, and at or before the expiration of the Offer, any of the following events shall occur: (a)(i) the Company shall have breached or failed to perform in any material respect any of its covenants or agreements (other than any immaterial covenants or agreements) under the Merger Agreement or (ii) any representation or warranty of the Company set forth in the Merger Agreement shall have been inaccurate when made or shall be inaccurate as of the expiration of the Offer, except in the case of clause (a)(ii) for such inaccuracies which, when taken together (in each case without regard to any qualifications as to materiality or a Material Adverse Effect contained in the applicable representations and warranties) would not reasonably be likely to have a Material Adverse Effect; (b) there shall be threatened, instituted or pending any action, litigation or proceeding (hereinafter, an "Action") by any Governmental Entity: (i) challenging the acquisition by Parent or Merger Sub of Shares or seeking to restrain or prohibit the consummation of the Offer or the Merger; (ii) seeking to prohibit or impose any material limitations on Parent's, Merger Sub's or any of their respective affiliates' ownership or operation of all or any material portion of the business or assets of the Company and its subsidiaries taken as a whole or the business or assets of any significant subsidiary of Royal Philips, or to compel Parent or Merger Sub to dispose of or hold separate all or any portion of Parent's or Merger Sub's or the Company's business or assets (including the business or assets of their respective affiliates and subsidiaries) as a result of the Offer or the Merger; (iii) seeking to impose material limitations on the ability of Parent or Merger Sub effectively to acquire or hold, or to exercise full rights of ownership of, the Shares including, without limitation, the right to vote the Shares purchased by them on an equal basis with all other Shares on all matters properly presented to the shareholders of the Company; or (iv) that, in any event, would, individually or in the aggregate, reasonably be likely to have a Material Adverse Effect; (c) any statute, rule, regulation, order or injunction shall be enacted, promulgated, entered, enforced or deemed to or become applicable to the Offer or the Merger, or any other action shall have been taken, proposed or threatened, by any court or other Governmental Entity, that is reasonably expected to result in any of the effects of, or have any of the consequences sought to be obtained or achieved in, any Action referred to in clauses (i) through (iv) of paragraph (b) above; (d) any change or development shall have occurred that, individually or in the aggregate, is reasonably likely to have a Material Adverse Effect; or 30 (e) the Merger Agreement shall have been terminated by the Company or Parent or Merger Sub in accordance with its terms; which, in the reasonable judgment of Parent and Merger Sub, in any such case, and regardless of the circumstances (including any action or inaction by Parent or Merger Sub) giving rise to any such conditions, makes it inadvisable to proceed with the Offer and/or with such acceptance for payment of or payment for Shares. The foregoing conditions may be asserted by Parent or Merger Sub regardless of the circumstances (including any action or inaction by Parent or Merger Sub) giving rise to such condition. The conditions described in paragraphs (a) through (e) above are for the sole benefit of Parent and Merger Sub and may be waived by Parent or Merger Sub, by express and specific action to that effect, in whole or in part at any time and from time to time in their sole discretion. The failure by Merger Sub at any time to exercise any of the foregoing rights will not be deemed a waiver of any such right, the waiver of any such right with respect to particular facts and other circumstances will not be deemed a waiver with respect to any other facts and circumstances, and each such right will be deemed an ongoing right that may be asserted at any time and from time to time. A public announcement will be made of a material change in, or waiver of, such conditions, and the Offer may, in certain circumstances, be extended in connection with any such change or waiver. 14. DIVIDENDS AND DISTRIBUTIONS. Pursuant to the terms of the Merger Agreement, the Company is prohibited from taking any of the actions described in the two succeeding paragraphs, and nothing herein shall constitute a waiver by Merger Sub or Parent of any of its rights under the Merger Agreement or a limitation of remedies available to Merger Sub or Parent for any breach of the Merger Agreement, including termination thereof. If, on or after the date of the Merger Agreement, the Company should (1) split, combine or otherwise change the Shares or its capitalization, (2) acquire currently outstanding Shares or otherwise cause a reduction in the number of outstanding Shares or (3) issue or sell additional Shares, shares of any other class of capital stock, other voting securities or any securities convertible into, or rights, warrants or options, to acquire any of the foregoing, other than Shares issued pursuant to the exercise of stock options outstanding as of the date of the Merger Agreement, then, subject to the provisions described in Section 13 above and the terms and conditions of the Merger Agreement, Merger Sub, in its sole discretion, may make such adjustments as it deems appropriate in the Merger Consideration and other terms of the Offer, including, without limitation, the number or type of securities offered to be purchased. If, on or after the date of the Merger Agreement, the Company should declare or pay any cash dividend on the Shares or other distribution on the Shares, or issue with respect to the Shares any additional Shares, shares of any other class of capital stock other voting securities or any securities convertible into, or rights, warrants or options, conditional or otherwise, to acquire, any of the foregoing, payable or distributable to shareholders of record on a date prior to the transfer of the Shares purchased pursuant to the Offer to Merger Sub or its nominee or transferee on the Company's stock transfer records, then, subject to the provisions described in Section 13 above, (1) the offer price may, in the sole discretion of Merger Sub, be reduced by the amount of any such cash dividend or cash distribution and (2) the whole of any such noncash dividend, distribution or issuance to be received by the tendering shareholders will (a) be received and held by the tendering shareholders for the account of Merger Sub and will be required to be promptly remitted and transferred by each tendering shareholder to the Depositary for the account of Merger Sub, accompanied by appropriate documentation of transfer, or (b) at the direction of Merger Sub, be exercised for the benefit of Merger Sub, in which case the proceeds of such exercise will promptly be remitted to Merger Sub. Pending such remittance and subject to applicable law, Merger Sub will be entitled to all rights and privileges as owner of any such noncash dividend, distribution, issuance or proceeds and may withhold the entire offer price or deduct from the offer price the amount or value thereof, as determined by Merger Sub in its sole discretion. 31 15. CERTAIN LEGAL MATTERS. GENERAL. Except as otherwise disclosed herein, based upon an examination of publicly available filings with respect to the Company, Parent and Merger Sub are not aware of any licenses or other regulatory permits which appear to be material to the business of the Company and which might be adversely affected by the acquisition of Shares by Merger Sub pursuant to the Offer or of any approval or other action by any governmental, administrative or regulatory agency or authority which would be required for the acquisition or ownership of Shares by Merger Sub pursuant to the Offer. Should any such approval or other action be required, it is currently contemplated that such approval or action would be sought or taken. There can be no assurance that any such approval or action, if needed, would be obtained or, if obtained, that it will be obtained without substantial conditions or that adverse consequences might not result to the Company's or Parent's business or that certain parts of the Company's or Parent's business might not have to be disposed of in the event that such approvals were not obtained or such other actions were not taken, any of which could cause Merger Sub to elect to terminate the Offer without the purchase of the Shares thereunder. Merger Sub's obligation under the Offer to accept for payment and pay for Shares is subject to certain conditions. See Section 13. ANTITRUST COMPLIANCE. Under the HSR Act and the rules that have been promulgated thereunder by the Federal Trade Commission ("FTC"), certain acquisition transactions may not be consummated unless certain information has been furnished to the Antitrust Division of the Department of Justice (the "Antitrust Division") and the FTC and certain waiting period requirements have been satisfied. The acquisition of Shares by Merger Sub is subject to these requirements. See Section 2 of this Offer to Purchase as to the effect of the HSR Act on the timing of Merger Sub's obligation to accept Shares for payment. Pursuant to the HSR Act, Parent filed a Notification and Report Form with respect to the acquisition of Shares pursuant to the Offer and the Merger with the Antitrust Division and the FTC on August 3, 1998. Under the provisions of the HSR Act applicable to the purchase of Shares pursuant to the Offer, such purchases may not be made until the expiration of a 15-calendar day waiting period following the filing by Parent. Accordingly, the waiting period under the HSR Act will expire at 11:59 p.m., New York City time, on August 18, 1998, unless early termination of the waiting period is granted or Parent receives a request for additional information or documentary material prior thereto. If either the FTC or the Antitrust Division were to request additional information or documentary material from Parent, the waiting period would expire at 11:59 p.m., New York City time, on the tenth calendar day after the date of substantial compliance by Parent with such request unless the waiting period is sooner terminated by the FTC or the Antitrust Division. Thereafter, the waiting period could be extended only by agreement or by court order. See Section 2. Only one extension of such waiting period pursuant to a request for additional information is authorized by the rules promulgated under the HSR Act, except by agreement or by court order. Any such extension of the waiting period will not give rise to any withdrawal rights not otherwise provided for by applicable law. See Section 4. Although the Company is required to file certain information and documentary material with the Antitrust Division and the FTC in connection with the Offer, neither the Company's failure to make such filings nor a request from the Antitrust Division or the FTC for additional information or documentary material made to the Company will extend the waiting period. The Antitrust Division and the FTC frequently scrutinize the legality under the antitrust laws of transactions such as the proposed acquisition of Shares by Merger Sub pursuant to the Offer. At any time before or after Merger Sub's purchase of Shares, the Antitrust Division or the FTC could take such action under the antitrust laws as it deems necessary or desirable in the public interest, including seeking to enjoin the acquisition of Shares pursuant to the Offer or seeking divestiture of Shares acquired by Merger Sub or the divestiture of substantial assets of Parent, the Company or any of their respective subsidiaries. Private parties may also bring legal action under the antitrust laws under certain circumstances. There can be no assurance that a challenge to the Offer on antitrust grounds will not be made or, if a challenge is 32 made, what the result will be. See Section 13 of this Offer to Purchase for certain conditions to the Offer that could become applicable in the event of such a challenge. In addition, the antitrust and competition laws of certain other foreign jurisdictions require notification of the transaction and the observance of pre-consummation waiting periods. Under applicable law and regulation in Austria, transactions like the Offer must be notified to the Austrian Cartel Court and may not be implemented prior to clearance. The Cartel Court will issue a written confirmation permitting the implementation of the merger within four to six weeks of formal notification unless it commences an investigation that can take as long as five months. Under Austrian law, a transaction may be prohibited only if it is likely to create or strengthen a dominant position. Under applicable law and regulation in Germany, transactions like the Offer must be notified to the Bundeskartellamt (the "BKA"), and may not be implemented prior to clearance by the BKA. The BKA is obliged to decide within the one-month period following notification whether to clear the transaction or to start a second-stage investigation. Second-stage decisions must be rendered within four months from the date of notification. The four-month period may be extended with the consent of the notifying party. Under German law, a transaction may be prohibited only if it is likely that it will create or strengthen a dominant position. The Company and Merger Sub will cooperate in making the required pre-merger notification filings in Austria and Germany. It is possible that the Company and Merger Sub will make additional pre-merger notification filings as well. It is not expected that actions by the Austrian, German or other competition authorities will have any material impact on the timing of the Offer or its implementation. OTHER FOREIGN APPROVALS. The Company owns property or conducts business in various foreign countries and jurisdictions. In connection with the acquisition of the Shares pursuant to the Offer, the laws of certain of those foreign countries and jurisdictions may require the filing of information with, or the obtaining of the approval of, governmental authorities in such countries and jurisdictions, including the Regulatory Approvals. The governments in such countries and jurisdictions might attempt to impose additional conditions on the Company's operations conducted in such countries and jurisdictions as a result of the acquisition of the Shares pursuant to the Offer. There can be no assurance that Parent will be able to cause the Company or its subsidiaries to satisfy or comply with such laws or that compliance or non-compliance will not have a material adverse effect on the financial condition, properties, business or results of operations of the Company and its subsidiaries taken as a whole or impair Parent, Merger Sub or the Company or any of their respective affiliates, following consummation of the Offer or Merger, to conduct any material business or operations in any such countries. See Section 13. STATE TAKEOVER LAWS. A number of states have adopted laws and regulations applicable to offers to acquire securities of corporations which are incorporated in such states and/or which have substantial assets, shareholders, principal executive offices or principal places of business therein. In Edgar v. MITE Corporation, the Supreme Court of the United States held that the Illinois Business Takeover Statute, which made the takeover of certain corporations more difficult, imposed a substantial burden on interstate commerce and was therefore unconstitutional. In CTS Corporation v. Dynamics Corporation of America, the Supreme Court held that as a matter of corporate law, and in particular, those laws concerning corporate governance, a state may constitutionally disqualify an acquiror of "Control Shares" (ones representing ownership in excess of certain voting power thresholds e.g. 20%, 33% or 50%) of a corporation incorporated in its state and meeting certain other jurisdictional requirements from exercising voting power with respect to those shares without the approval of a majority of the disinterested shareholders. Chapter 23B.19 of the WBCA limits the ability of a Washington corporation to engage in certain business transactions with an "acquiring person" (defined, generally stated, as a person with 10% or more of the outstanding voting shares of the corporation) unless, among other things, the business transaction or the purchase of the shares in which the person became an acquiring person is approved prior to the time that the person became an acquiring person by a majority of the board of directors of the Washington corporation. The Company's Board of Directors has approved the Merger Agreement and the Merger 33 Sub's acquisition of Shares pursuant to the Offer and, therefore, Chapter 23B.19 of the WBCA is inapplicable to the Offer and the Merger. See Section 11. Based on information supplied by the Company, Merger Sub does not believe that any state takeover laws purport to apply to the Offer or the Merger. Neither Merger Sub nor Parent has currently complied with any state takeover statute or regulation. Merger Sub reserves the right to challenge the applicability or validity of any state law purportedly applicable to the Offer or the Merger and nothing in this Offer to Purchase or any action taken in connection with the Offer or the Merger is intended as a waiver of such right. If it is asserted that any state takeover statute is applicable to the Offer or the Merger and if an appropriate court does not determine that it is inapplicable or invalid as applied to the Offer or the Merger, Merger Sub might be required to file certain information with, or to receive approvals from, the relevant state authorities, and Merger Sub might be unable to accept for payment or pay for Shares tendered pursuant to the Offer, or be delayed in consummating the Offer or the Merger. In such case, Merger Sub may not be obliged to accept for payment or pay for any Shares tendered pursuant to the Offer. If it is asserted that one or more state takeover laws applies to the Offer and it is not determined by an appropriate court that such act or acts do not apply or are invalid as applied to the Offer, Merger Sub might be required to file certain information with, or receive approvals from, the relevant state authorities. In addition, if enjoined, Merger Sub might be unable to accept for payment any Shares tendered pursuant to the Offer, or be delayed in consummating the Offer. In such case, Merger Sub may not be obligated to accept for payment any Shares tendered. See Section 13. EXON-FLORIO. Under Section 721 of Title VII of the United States Defense Production Act of 1950, as amended by Section 5021 of the Omnibus Trade and Competitiveness Act of 1988 ("Exon-Florio"), the President of the United States is authorized to prohibit or suspend acquisitions, mergers or takeovers by foreign persons of persons engaged in interstate commerce in the United States if the President determines, after investigation, that such foreign persons in exercising control of such acquired persons might take action that threatens to impair the national security of the United States and that other provisions of existing law do not provide adequate authority to protect national security. Pursuant to Exon-Florio, notice of an acquisition by a foreign person is to be made to the Committee on Foreign Investment in the United States ("CFIUS"), which is comprised of representatives of the Departments of the Treasury, State, Commerce, Defense and Justice, the Office of Management and Budget, the United States Trade Representative's Office and the Council of Economic Advisors and which has been selected by the President to administer Exon-Florio, either voluntarily by the parties to such proposed acquisition, merger or takeover or by any member of CFIUS. A determination that an investigation is called for must be made within 30 days after notification of a proposed acquisition, merger or takeover is first filed with CFIUS. Any such investigation must be completed within 45 days of such determination. Any decision by the President to take action must be announced within 15 days of the completion of the investigation. Although Exon-Florio does not require the filing of a notification, nor does it prohibit the consummation of an acquisition, merger or takeover if notification is not made, such an acquisition, merger or takeover thereafter remains indefinitely subject to divestment should the President subsequently determine that the national security of the United States has been threatened or impaired. Merger Sub does not believe that the Offer or the Merger threatens to impair the national security of the United States and does not intend to notify CFIUS of the proposed transaction. 16. FEES AND EXPENSES. Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch") is acting as Dealer Manager in connection with the Offer. Pursuant to an engagement letter, dated July 1, 1998 (the "Engagement Letter"), between Royal Philips and Merrill Lynch, Merrill Lynch has also been retained to act as financial advisor to Royal Philips in connection with the Offer and the Merger. Royal Philips has agreed to pay 34 Merrill Lynch in compensation for its services as Dealer Manager and as financial advisor in connection with the Offer and the Merger as follows: Royal Philips has agreed to pay Merrill Lynch a fee of $3,500,000 in the event that Royal Philips or one of its affiliates acquires at least 50.1% of the outstanding capital stock of the Company. The fees of $100,000 paid upon the date of the Engagement Letter and $650,000 paid upon the execution of the Merger Agreement will be credited towards the $3,500,000 fee. Royal Philips has also agreed to reimburse Merrill Lynch for its reasonable out-of-pocket expenses, including the reasonable fees and disbursements of its counsel, incurred in connection with its services as financial advisor and Dealer Manager, and has agreed to indemnify Merrill Lynch and certain affiliated parties against certain liabilities and expenses in connection with the Offer and the Merger, including liabilities under the federal securities laws. Merger Sub has also retained D.F. King & Co., Inc. to act as the Information Agent in connection with the Offer. The Information Agent may contact holders of Shares by mail, telephone, telex, telegraph and personal interviews and may request brokers, dealers and other nominee shareholders to forward materials relating to the Offer to beneficial owners of Shares. The Information Agent will receive reasonable and customary compensation for such services, plus reimbursement of out-of-pocket expenses and Merger Sub will indemnify the Information Agent against certain liabilities and expenses in connection with the Offer, including liabilities under the federal securities laws. Merger Sub will pay the Depositary reasonable and customary compensation for its services in connection with the Offer, plus reimbursement for out-of-pocket expenses, and will indemnify the Depositary against certain liabilities and expenses in connection therewith, including liabilities under the federal securities laws. Brokers, dealers, commercial banks and trust companies will be reimbursed by Merger Sub for customary mailing and handling expenses incurred by them in forwarding material to their customers. 17. MISCELLANEOUS. The Offer is not being made to (nor will tenders be accepted from or on behalf of) holders of Shares in any jurisdiction in which the making of the Offer or the acceptance thereof would not be in compliance with the laws of such jurisdiction. However, Merger Sub may, in its sole discretion, take such action as it may deem necessary to make the Offer in any such jurisdiction and extend the Offer to holders of Shares in such jurisdiction. Neither Merger Sub nor Parent is aware of any jurisdiction in which the making of the Offer or the acceptance of Shares in connection therewith would not be in compliance with the laws of such jurisdiction. Merger Sub and Parent have filed with the SEC a Statement on Schedule l4D-1 pursuant to Rule l4d-3 of the General Rules and Regulations under the Exchange Act, furnishing certain additional information with respect to the Offer, and may file amendments thereto. Such Statement and any amendments thereto, including exhibits, may be examined and copies may be obtained from the principal office of the SEC in Washington, D.C. in the manner set forth in Section 8. No person has been authorized to give any information or make any representation on behalf of Parent or Merger Sub not contained in this Offer to Purchase or in the Letter of Transmittal and, if given or made, such information or representation must not be relied upon as having been authorized. PHILIPS ACQUISITION, INC. August 4, 1998 35 SCHEDULE A DIRECTORS AND EXECUTIVE OFFICERS OF KONINKLIJKE PHILIPS ELECTRONICS N.V. (ROYAL PHILIPS ELECTRONICS)
PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT NAME AND BUSINESS AND FIVE-YEAR EMPLOYMENT ADDRESS OFFICE(S) HISTORY CITIZENSHIP - ---------------------------- ---------------------------- ------------------------------- -------------------- Cor Boonstra President; Chairman of the President, Chairman of the The Netherlands Groenewoudseweg 1 Board of Management and Board of Management and the 5621 BA Eindhoven, Group Management Committee Group Management Committee of The Netherlands Royal Philips Electronics. Prior to 1993, President and Chief Operating Officer of Sara Lee Corporation. Chairman of Philips Lighting Division from 1994 until 1995. Member of the Supervisory Board of PolyGram N.V., Sara Lee DE N.V., Hunter Douglas International N.V., Technical University Eindhoven. Dudley G. Eustace Executive Vice- President; Executive Vice-President, Vice United Kingdom and Groenewoudseweg 1 Vice- Chairman of the Board Chairman of the Board of Canada 5621 BA Eindhoven, of Management and the Group Management and the Group The Netherlands Management Committee Management Committee of Royal Philips Electronics. Prior to 1997, Chief Financial Officer of Royal Philips Electronics. Jan H.M. Hommen Executive Vice- President; Executive Vice-President, The Netherlands Groenewoudseweg 1 Member of the Board of Member of the Board of 5621 BA Eindhoven, Management and the Group Management and the Group The Netherlands Management Committee; Chief Management Committee and Chief Financial Officer Financial Officer of Royal Philips Electronics. Prior to 1997, Chief Financial Officer of Alcoa International Holdings Co. Member of the Supervisory Board of PolyGram N.V. since 1997.
A-1
PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT NAME AND BUSINESS AND FIVE-YEAR EMPLOYMENT ADDRESS OFFICE(S) HISTORY CITIZENSHIP - ---------------------------- ---------------------------- ------------------------------- -------------------- Adri Baan Executive Vice- President; Executive Vice-President, The Netherlands Groenewoudseweg 1 Member of the Board of Member of the Board of 5621 BA Eindhoven, Management and the Group Management and the Group The Netherlands Management Committee Management Committee of Royal Philips Electronics and, until 1998, Chairman of the Philips Business Electronics Division of Royal Philips Electronics. Doug J. Dunn Executive Vice- President; Executive Vice-President, United Kingdom Groenewoudseweg 1 Member of the Board of Member of the Board of 5621 BA Eindhoven, Management and the Group Management and of the Group The Netherlands Management Committee; Management Committee and Chairman of the Consumer Chairman of the Consumer Electronics Division Electronics Division of Royal Philips Electronics. Chairman of Philips Lighting Division from 1993 to 1996. Member of Supervisory Board of ASM Lithography Holding N.V. from 1995 until 1997. Y.C. Lo Executive Vice- President; Executive Vice-President, Republic of China Groenewoudseweg 1 Member of the Board of Member of the Board of 5621 BA Eindhoven, Management and the Group Management, Member of the Group The Netherlands Management Committee; Management Committee and Chairman of the Components Chairman of the Components Division Division of Royal Philips Electronics. Prior to 1996, Chairman of the Board of Directors of Philips Taiwan Ltd and Member of the Board of Directors of Taiwan Semiconductor Manufacturing Company Ltd.
A-2
PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT NAME AND BUSINESS AND FIVE-YEAR EMPLOYMENT ADDRESS OFFICE(S) HISTORY CITIZENSHIP - ---------------------------- ---------------------------- ------------------------------- -------------------- Arthur P.M. van Executive Vice- President; Executive Vice-President, The Netherlands der Poel Member of the Board of Member of the Board of Groenewoudseweg 1 Management and the Group Management, Member of the Group 5621 BA Eindhoven, Management Committee; Management Committee and The Netherlands Chairman of the Chairman of the Semiconductors Semiconductors Division Division of Royal Philips Electronics. Member of Philips Semiconductors Division. John W. Whybrow Executive Vice- President; Executive Vice-President, United Kingdom Groenewoudseweg 1 Member of the Board of Member of the Board of 5621 BA Eindhoven, Management and the Group Management, Member of the Group The Netherlands Management Committee; Management Committee and Chairman of the Lighting Chairman of the Lighting Division Division of Royal Philips Electronics. Since 1997, Director of Wolseley PLC and Chairman Lumiled Lighting B.V. R. Pieper Executive Vice- President; Executive Vice-President, The Netherlands Groenewoudseweg 1 Member of the Board of Member of the Board of 5621 BA Eindhoven, Management and the Group Management and Member of the The Netherlands Management Committee Group Management Committee. Chief Executive Office of Tandem Computers from 1996 to 1997 and Chief Executive Officer of Ungermaan-Bass from 1993 to 1995.
Michael P. Moakley* Member of the Group Member of the Group United States 1251 Avenue of the Management Committee; Management Committee of Americas New York, NY President and Chief Royal Philips 10020 Executive Officer of Electronics. President Philips Electronics and Chief Executive North America Officer of Philips Elec- Corporation tronics North America Corporation. From 1989 to 1997, President and CEO of Philips Medical Systems.
- ------------------------ * Purchased 2,000 Shares, or less than 0.1% of the outstanding Shares, on October 20, 1995. A-3
PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT NAME AND BUSINESS AND FIVE-YEAR EMPLOYMENT ADDRESS OFFICE(S) HISTORY CITIZENSHIP - ---------------------- ---------------------- ------------------------- ---------------- Ad H.A. Veenhof Member of the Group Member of the Group Management The Netherlands Groenewoudseweg 1 Management Committee; Committee, Chairman of the 5621 BA Eindhoven, Chairman of the Domestic Domestic Appliances and The Netherlands Appliances and Personal Care Personal Care Division of Royal Division Philips Electronics. Prior to 1996, Member of Management of Philips Consumer Electronics. Kees Bulthuis Member of the Group Member of the Group Management The Netherlands Groenewoudseweg 1 Management Committee; Senior Committee and Senior Managing 5621 BA Eindhoven, Managing Director of Director of Corporate Research The Netherlands Corporate Research of Royal Philips Electronics. J. M. Barella Member of the Group Member of the Group Management The Netherlands Groenewoudseweg 1 Management Committee; Committee of Royal Philips 5621 BA Eindhoven, Chairman of the Medical Electronics. Chairman and The Netherlands Systems Division Member of the Management Committee of the Medical Systems Division of Royal Philips Electronics. A.B. Bok Member of the Group Member of the Group Management The Netherlands Groenewoudseweg 1 Management Committee; Committee and Chairman of the 5621 BA Eindhoven, Chairman of the Business Business Electronics Committee The Netherlands Electronics Division of Royal Philips Electronics. Prior to April 1998, Chairman of the Philips Industrial Electronics Division. J.P. Oosterveld Member of the Group Member of the Group Management The Netherlands Groenewoudseweg 1 Management Committee; Senior Committe and Senior Director of 5621 BA Eindhoven, Director of Corporate Corporate Strategy of Royal The Netherlands Strategy Philips Electronics. Prior to 1997, Management of Philips Key Modules.
A-4
PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT NAME AND BUSINESS AND FIVE-YEAR EMPLOYMENT ADDRESS OFFICE(S) HISTORY CITIZENSHIP - ---------------------------- ---------------------------- ------------------------------- -------------------- A. Westerlaken Member of the Group Member of the Group Management The Netherlands Groenewoudseweg 1 Management Committee; Committee, General Secretary, 5621 BA Eindhoven, General Secretary; Chief Chief Legal Officer and The Netherlands Legal Officer; Secretary to Secretary to the Board of the Board of Management Management of Royal Philips Electronics. Since 1995, Mem- ber of the Supervisory Board of ASM Lithography Holding N.V. From 1990 to 1994, Chief Legal Officer of DAF N.V. N.J. Bruijel Member of the Group Member of the Group Management The Netherlands Groenewoudseweg 1 Management Committee Committee responsible for 5621 BA Eindhoven, responsible for Corporate Corporate Human Resources The Netherlands Human Resources Management Management of Royal Philips Electronics. Prior to July 1998, General Management of Philips Japan. Prior to 1996, Management of Philips Lighting Division. F.A. Maljers Member of the Supervisory Retired. Member of the The Netherlands Groenewoudseweg 1 Board Supervisory Board of Royal 5621 BA Eindhoven, Philips Electronics since 1993. The Netherlands Prior to 1994, Chairman and Chief Executive Officer of Unilever N.V. Currently, Vice-Chairman of the Supervisory Board of KLM Royal Dutch Airlines, Member of the Supervisory Board of SHV Holdings N.V., Non-Executive Director of Amoco Petroleum and Diageo PLC, Member of the Advisory Committee of KPMG Holding N.V. and Professor of Strategic Management at Erasmus University Rotterdam.
A-5
PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT NAME AND BUSINESS AND FIVE-YEAR EMPLOYMENT ADDRESS OFFICE(S) HISTORY CITIZENSHIP - ---------------------------- ---------------------------- ------------------------------- -------------------- A. Leysen Member of the Supervisory Retired. Member of the Belgium Groenewoudseweg 1 Board Supervisory Board of Royal 5621 BA Eindhoven, Philips Electronics since 1983. The Netherlands Chairman of the Supervisory Boards of Agfa-Gevaert Group, Gevaert N.V., Hapag-Lloyd AG (from 1990 to 1997) and SHV Holdings N.V. Prior to 1998, Vice-Chairman of the Supervisory Board of BMW AG. Currently, Member of the Supervisory Boards of Bayer AG, VEBA AG, Deutsche Telekom AG. W. Hilger Member of the Supervisory Retired. Member of the Germany Groenewoudseweg 1 Board Supervisory Board of Royal 5621 BA Eindhoven, Philips Electronics since 1990. The Netherlands Prior to 1994, Chairman of the Board of Management of Hoechst A.G. Currently, Member of the Supervisory Boards of Dresdner Bank A.G., Mannesmann AG, Alusuisse Lonza, Huls AG, IBM Deutschland GmbH; Chairman of the Supervisory Boards of Victoria Versicherung AG and Victoria Lebensversicherung AG. L.C. van Wachem Member of the Supervisory Retired. Member of the The Netherlands Groenewoudseweg 1 Board Supervisory Board of Royal 5621 BA Eindhoven, Philips Electronics since 1993. The Netherlands Member of the Supervisory Boards of N.V. Koninklijke Nederlandsche Petroleum Maatschappij, ABB Asea Brown Boveri Ltd., Akzo Nobel N.V., Bayer AG, BMW AG, and Zurich Versicherungs-Gruppe; Member of the Board of Directors of IBM Corporation, ATCO Ltd, and Credit Suisse Holding.
A-6
PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT NAME AND BUSINESS AND FIVE-YEAR EMPLOYMENT ADDRESS OFFICE(S) HISTORY CITIZENSHIP - ---------------------------- ---------------------------- ------------------------------- -------------------- C.J. Oort Member of the Supervisory Retired. Member of the The Netherlands Groenewoudseweg 1 Board Supervisory Board of Royal 5621 BA Eindhoven, Philips Electronics since 1995. The Netherlands Chairman of the Supervisory Boards of Royal Dutch Airlines KLM and the Robeco group; Member of the Supervisory Boards of KPN Koninklijke PTT Nederland (KPN and TPG since June 26, 1998), Northern Telecom International Finance, BCE Telecom International Holdings, BCE Tele-Direct Publications International, Hoogenbosch Retail Group; Member of the Board of Stichting HBG, Stichting Koninklijke Nedlloyd, Stichting Koninklijke van Ommeren; Advisory Board Member of Price Waterhouse (the Netherlands). Prior to 1995, Professor of Economics, University of Maastricht. L. Schweitzer Member of the Supervisory Member of the Supervisory Board France 34 Quai du Point Board of Royal Philips Electronics du Jour since 1997. Chairman and Chief BP 103 92109 Executive Officer of La Regie Boulogne Bilancourt Nationale des Usines Renault; Cedex, France Member of the Boards of Pechiney, Banque Nationale de Paris, Credit National, and I.F.R.I.
A-7 DIRECTORS AND EXECUTIVE OFFICERS OF PHILIPS HOLDING USA INC.
PRESENT PRINCIPAL OCCUPATION OR NAME AND BUSINESS EMPLOYMENT AND FIVE-YEAR ADDRESS OFFICE(S) EMPLOYMENT HISTORY CITIZENSHIP - ------------------------------ ------------------------------ ------------------------------- --------------- Sir Richard Greenbury Member of the Supervisory Member of the Supervisory Board United Kingdom Michael House Board of Royal Philips Electronics 47 Bakerstreet since 1998. Chairman and Chief London W1A 1DN, Executive of Marks & Spencer United Kingdom plc; Non-Executive Director of Lloyds TSB Bank from 1992 to 1997, ICI from 1992 to 1993, and Zeneca. W. de Kleuver Member of the Supervisory Retired. Prior to August 1, The Netherlands Groenewoudseweg 1 Board 1998, Executive Vice- President, 5621 BA Eindhoven, Member of the Board of The Netherlands Management and Group Management Committee of Royal Philips Electronics. Prior to 1996, Chairman of the Philips Components Division. Michael P. Moakley* Chairman of the Board; President and Chief Executive United States 1251 Avenue of the Americas President Officer of Philips Electronics New York, NY 10020 North America Corporation since March, 1996. Prior to that time, President and Chief Executive Officer of Philips Medical Systems. William E. Curran Senior Vice President -- Senior Vice President and Chief United States 1251 Avenue of the Americas Finance; Treasurer Financial Officer of Philips New York, NY 10020 Electronics North America Corporation since February, 1996. Prior to that time, Vice President, Chief Operating Officer and Chief Financial Officer of Philips Medical Systems. Samuel J. Rozel Senior Vice-President; Senior Vice President, General United States 1251 Avenue of the Americas Secretary Counsel, Secretary and Director New York, NY 10020 of Philips Electronics North America Corporation since 1989. Paul S. Friedlander Assistant Secretary Vice-President, Tax and Customs United States 1251 Avenue of the Americas Administration of Philips New York, NY 10020 Electronics North America Corporation.
- ------------------------ * See previous footnote. A-8 DIRECTORS AND EXECUTIVE OFFICERS OF PHILIPS ELECTRONICS NORTH AMERICA CORPORATION
PRESENT PRINCIPAL OCCUPATION OR NAME AND BUSINESS EMPLOYMENT AND FIVE-YEAR ADDRESS OFFICE(S) EMPLOYMENT HISTORY CITIZENSHIP - ------------------------------ ------------------------------ ------------------------------- --------------- Michael P. Moakley* President; Chief Executive President and Chief Executive United States 1251 Avenue of the Americas Officer; Director Officer of Philips Electronics New York, NY 10020 North America Corporation since March, 1996. Prior to that time. President and Chief Executive Officer of Philips Medical Systems. William E. Curran Senior Vice-President; Chief Senior Vice President and United States 1251 Avenue of the Americas Financial Officer; Director Financial Officer of Philips New York, NY 10020 Electronics North America Corporation since Feburary, 1996. Prior to that time, Vice President, Chief Operating Officer and Chief Financial Officer of Philips Medical Systems. Samuel J. Rozel Senior Vice-President; Senior Vice President, General United States 1251 Avenue of the Americas Secretary; General Counsel, Secretary and Director New York, NY 10020 of Philips Electronics North America Corporation since 1989. William A. Enser Senior Vice-President, Senior Vice-President, Business United States 1251 Avenue of the Americas Business Development and Development and Process New York, NY 10020 Process Improvement Improvement of Philips Electronics North America Corporation. Prior to January 1998, President of Philips Electronic Instruments Company, a division of Philips Electronic North America Corporation. Robert F. Matthews Senior Vice-President, Human Senior Vice-President, Human United States 1251 Avenue of the Americas Resources Resources of Philips New York, NY 10020 Electronics Corporation of North America. Prior to July 1994, Manager, Financial Leadership Development and Human Resources General Electric Company.
- ------------------------ * See previous footnote. A-9 DIRECTORS AND EXECUTIVE OFFICERS OF PHILIPS ACQUISITION, INC.
PRESENT PRINCIPAL OCCUPATION OR NAME AND BUSINESS EMPLOYMENT AND FIVE-YEAR ADDRESS OFFICE(S) EMPLOYMENT HISTORY CITIZENSHIP - ------------------------------ ------------------------------ ------------------------------- --------------- William E. Curran President; Chief Executive Senior Vice President and Chief United States 1251 Avenue of the Americas Officer; Director Financial Officer of Philips New York, NY 10020 Electronics North America Corporation since February, 1996. Prior to that time, Vice President, Chief Operating Officer and Chief Financial Officer of Philips Medical Systems. Michael P. Moakley* Vice President; Treasurer; President and Chief Executive United States 1251 Avenue of the Americas Assistant Secretary; Director Officer of Philips Electronics New York, NY 10020 North America Corporation since March, 1996. Prior to that time, President and Chief Executive Officer of Philips Medical Systems. Samuel J. Rozel Vice-President; Secretary; Senior Vice President, General United States 1251 Avenue of the Americas Assistant Treasurer; Director Counsel, Secretary and Director New York, NY 10020 of Philips Electronics North America Corporation since 1989.
- ------------------------ * See previous footnote. A-10 [Back Cover] Facsimile copies of the Letter of Transmittal, properly completed and duly signed, will be accepted. The Letter of Transmittal, certificates for Shares and any other required documents should be sent by each shareholder of the Company or such shareholder's broker-dealer, commercial bank, trust company or other nominee to the Depositary at one of the addresses set forth below: THE DEPOSITARY FOR THE OFFER IS: CITIBANK, N.A. BY HAND: BY MAIL: BY OVERNIGHT COURIER: CITIBANK, N.A. CITIBANK--WWSS CITIBANK-WWSS Corporate Trust Window c/o Citicorp Data c/o Citicorp Data 111 Wall Street, 5th Floor Distribution, Inc. Distribution, Inc. New York, New York 10043 P.O. Box 7073 400 Sette Drive Paramus, New Jersey 07653 Paramus, New Jersey 07652
BY FACSIMILE TRANSMISSION (FOR ELIGIBLE INSTITUTIONS ONLY): (201) 262-3240 CONFIRM RECEIPT OF FACSIMILE BY TELEPHONE ONLY: (800) 422-2077 Any questions or requests for assistance or additional copies of the Offer to Purchase and the Letter of Transmittal may be directed to the Information Agent or the Dealer Manager at their respective telephone numbers and locations listed below. You may also contact your broker, dealer, commercial bank or trust company or other nominee for assistance concerning the Offer. THE INFORMATION AGENT FOR THE OFFER IS: D. F. KING & CO., INC. 77 Water Street New York, New York 10005 Banks and Brokers Call Collect: (212) 269-5550 ALL OTHERS CALL TOLL FREE: (800) 769-7666 THE DEALER MANAGER FOR THE OFFER IS: MERRILL LYNCH & CO. World Financial Center North Tower New York, New York 10281-1305 (212) 449-8971 (Call Collect) EX-99.(A)(2) 3 LETTER OF TRANSMITTAL LETTER OF TRANSMITTAL TO TENDER SHARES OF COMMON STOCK (INCLUDING THE ASSOCIATED PREFERRED STOCK PURCHASE RIGHTS) OF ATL ULTRASOUND, INC. PURSUANT TO THE OFFER TO PURCHASE DATED AUGUST 4, 1998 BY PHILIPS ACQUISITION, INC. A WHOLLY OWNED SUBSIDIARY OF PHILIPS ELECTRONICS NORTH AMERICA CORPORATION AND AN INDIRECT WHOLLY OWNED SUBSIDIARY OF KONINKLIJKE PHILIPS ELECTRONICS N.V. (ROYAL PHILIPS ELECTRONICS) THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON MONDAY, AUGUST 31, 1998, UNLESS THE OFFER IS EXTENDED. This Letter of Transmittal, certificates for Shares (as defined below) and any other required documents should be sent or delivered by each shareholder of the Company or his broker, dealer, commercial bank or other nominee to the Depositary at one of its addresses set forth below. THE DEPOSITARY FOR THE OFFER IS: CITIBANK, N.A. BY MAIL: BY OVERNIGHT DELIVERY: BY HAND: CITIBANK-WWSS CITIBANK-WWSS CITIBANK, N.A. c/o Citicorp Data Distribution, Inc. c/o Citicorp Data Distribution, Inc. Corporate Trust Window P.O. Box 7073 400 Sette Drive 111 Wall Street, 5th Floor Paramus, New Jersey 07653 Paramus, New Jersey 07652 New York, New York 10043
FACSIMILE TRANSMISSION: CONFIRM FACSIMILE BY TELEPHONE: (For Eligible Institutions Only) (800) 422-2077 (201) 262-3240
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE, OR TRANSMISSION VIA A FACSIMILE NUMBER OTHER THAN AS SET FORTH ABOVE, WILL NOT CONSTITUTE A VALID DELIVERY. THE INSTRUCTIONS ACCOMPANYING THIS LETTER OF TRANSMITTAL SHOULD BE READ CAREFULLY BEFORE THIS LETTER OF TRANSMITTAL IS COMPLETED. This Letter of Transmittal is to be completed by shareholders either if certificates are to be forwarded herewith or, unless an Agent's Message (as defined in Section 3 of the Offer to Purchase (as defined below)) is utilized, if delivery is to be made by book-entry transfer to the Depositary's account at The Depository Trust Company (the "Book-Entry Transfer Facility") pursuant to the procedures set forth in Section 3 of the Offer to Purchase. Shareholders whose certificates evidencing Shares ("Share Certificates") are not immediately available or who cannot deliver their Share Certificates and all other documents required hereby to the Depositary prior to the Expiration Date (as defined in Section 1 of the Offer to Purchase), or who cannot comply with the book-entry transfer procedures on a timely basis must tender their Shares according to the guaranteed delivery procedure set forth in Section 3 of the Offer to Purchase. See Instruction 2. DELIVERY OF DOCUMENTS TO THE BOOK-ENTRY TRANSFER FACILITY DOES NOT CONSTITUTE DELIVERY TO THE DEPOSITARY.
- -------------------------------------------------------------------------------------------------- DESCRIPTION OF SHARES TENDERED - -------------------------------------------------------------------------------------------------- NAME(S) AND ADDRESS(ES) OF REGISTERED HOLDER(S) SHARE CERTIFICATE(S) AND SHARE(S) (PLEASE FILL IN, IF BLANK, EXACTLY AS NAME(S) APPEAR(S) TENDERED ON SHARE CERTIFICATE(S) AND SHARE(S) TENDERED) (ATTACH ADDITIONAL LIST IF NECESSARY) - --------------------------------------------------------------------------------------------------- TOTAL NUMBER OF SHARES SHARE REPRESENTED NUMBER OF CERTIFICATE BY SHARES NUMBER(S)* CERTIFICATES* TENDERED** - --------------------------------------------------------------------------------------------------- ---------------------------------------- ---------------------------------------- ---------------------------------------- ---------------------------------------- ---------------------------------------- TOTAL SHARES: - --------------------------------------------------------------------------------------------------- * NEED NOT BE COMPLETED BY SHAREHOLDERS TENDERING BY BOOK-ENTRY TRANSFER. ** UNLESS OTHERWISE INDICATED, IT WILL BE ASSUMED THAT ALL SHARES EVIDENCED BY EACH SHARE CERTIFICATE DELIVERED TO THE DEPOSITARY ARE BEING TENDERED HEREBY. SEE INSTRUCTION 4. ------------------------------------------------------------------------------------------------
BOXES BELOW FOR USE BY ELIGIBLE INSTITUTIONS ONLY / / CHECK HERE IF TENDERED SHARES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER MADE TO THE ACCOUNT MAINTAINED BY THE DEPOSITARY WITH THE BOOK-ENTRY TRANSFER FACILITY AND COMPLETE THE FOLLOWING: Name of Tendering Institution: Account Number: Transaction Code Number: / / CHECK HERE IF TENDERED SHARES ARE BEING DELIVERED PURSUANT TO A NOTICE OF GUARANTEED DELIVERY SENT TO THE DEPOSITARY PRIOR TO THE DATE HEREOF AND COMPLETE THE FOLLOWING: Name(s) of Registered Owner(s): Window Ticket Number (if any): Date of Execution of Notice of Guaranteed Delivery: Name of Institution that Guaranteed Delivery: Account Number (if delivered by Book-Entry Transfer): Transaction Code Number:
NOTE: SIGNATURES MUST BE PROVIDED BELOW PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY Ladies and Gentlemen: The undersigned hereby tenders to Philips Acquisition, Inc., a Washington corporation ("Merger Sub"), a wholly owned subsidiary of Philips Electronics North America Corporation, a Delaware corporation ("Parent"), and an indirect wholly owned subsidiary of Koninklijke Philips Electronics N.V., a company incorporated under the laws of The Netherlands ("Royal Philips"), the above-described shares of Common Stock, par value $0.01 per share (the "Common Stock"), of ATL Ultrasound, Inc., a Washington corporation (the "Company"), including the associated rights to purchase Series A Participating Cumulative Preferred Stock (the "Rights") issued pursuant to the Amended and Restated Rights Agreement, dated as of June 26, 1992 (the "Rights Agreement"), between the Company and First Chicago Trust Company (the Common Stock and the Rights together are referred to herein as the "Shares"), at $50.50 per Share, net to the seller in cash, without interest, upon the terms and subject to the conditions set forth in the Offer to Purchase dated August 4, 1998 (as amended or supplemented from time to time, the "Offer to Purchase"), receipt of which is hereby acknowledged, and in this Letter of Transmittal (which, as amended or supplemented from time to time, together constitute the "Offer"). The undersigned understands that Merger Sub reserves the right to transfer or assign, in whole or in part from time to time to Parent or one or more direct or indirect wholly owned subsidiaries of Parent, the right to purchase Shares tendered pursuant to the Offer. Subject to and effective upon acceptance for payment of, and payment for, the Shares tendered herewith in accordance with the terms and subject to the conditions of the Offer (including, if the Offer is extended or amended, the terms and conditions of such extension or amendment) the undersigned hereby sells, assigns and transfers to, or upon the order of, Merger Sub all right, title and interest in and to all of the Shares that are being tendered hereby and any and all cash dividends, distributions, rights, other Shares or other securities issued or issuable in respect of such Shares on or after July 29, 1998 (collectively, "Distributions") and irrevocably appoints the Depositary the true and lawful agent and attorney-in-fact of the undersigned with respect to such Shares and all Distributions with full power of substitution (such power of attorney being deemed to be an irrevocable power coupled with an interest), to the fullest extent of such shareholder's right with respect to such Shares (and any Distributions) (a) to deliver such Share Certificates evidencing such Shares and all Distributions, or transfer ownership of such Shares and all Distributions on the account books maintained by the Book-Entry Transfer Facility together, in either case, with all accompanying evidences of transfer and authenticity, to or upon the order of Merger Sub, upon receipt by the Depositary, as the undersigned's agent, of the purchase price (adjusted, if appropriate, as provided in the Offer to Purchase), (b) present such Shares and all Distributions for transfer on the books of the Company, and (c) receive all benefits and otherwise exercise all rights of beneficial ownership of such Shares and all Distributions, all in accordance with the terms of the Offer. The undersigned hereby irrevocably appoints Merger Sub, its officers and designees, and each of them, the attorneys-in-fact and proxies of the undersigned, each with full power of substitution, to the full extent of the undersigned's rights, including to exercise such voting and other rights as each such attorney and proxy or his (or her) substitute shall, in his (or her) sole discretion, deem proper, and otherwise act (including pursuant to written consent), with respect to all of the Shares tendered hereby which have been accepted for payment by Merger Sub (and any and all Distributions), which the undersigned is entitled to vote at any meeting of shareholders of the Company (whether annual or special and whether or not an adjourned meeting), or written consent in lieu of such meeting, or otherwise. This proxy and power of attorney is coupled with an interest in the Shares tendered hereby and is irrevocable and is granted in consideration of, and is effective upon, the acceptance for payment of such Shares by Merger Sub in accordance with the terms of the Offer. Such acceptance for payment shall, without further action, revoke all prior proxies and consents granted by the undersigned with respect to such Shares (and all Shares and other securities issued in Distributions in respect of such Shares), and no subsequent proxy or power of attorney or written consent shall be given (and if given or executed, shall be deemed not to be effective) with respect thereto by the undersigned. Merger Sub reserves the right to require that, in order for Shares to be deemed validly tendered, immediately upon Merger Sub's acceptance for payment of such Shares, Merger Sub is able to exercise full voting and other rights with respect to such Shares (and any associated Distributions), including voting at any meeting of stockholders. The undersigned hereby represents and warrants that the undersigned has full power and authority to tender, sell, assign and transfer the Shares tendered hereby and all Distributions, and that when such Shares are accepted for payment by Merger Sub, Merger Sub will acquire good, marketable and unencumbered title thereto, free and clear of all liens, restrictions, charges and encumbrances, and that none of such Shares and Distributions will be subject to any adverse claim. The undersigned, upon request, shall execute and delivery any signature guarantees or additional documents deemed by the Depositary or Merger Sub to be necessary or desirable to complete the sale, assignment and transfer of the Shares tendered hereby and all other Securities. In addition, the undersigned shall promptly remit and transfer to the Depositary for the account of Merger Sub all Distributions in respect of the Shares tendered hereby, accompanied by appropriate documentation of transfer, and pending such remittance or appropriate assurance thereof, Merger Sub shall be entitled to all rights and privileges as owner of such Distributions and may withhold the entire purchase price or deduct from the purchase price the amount or value thereof, as determined by Merger Sub in its sole discretion. All authority herein conferred or agreed to be conferred pursuant to this Letter of Transmittal shall not be affected by, and shall survive, the death or incapacity of the undersigned, and any obligation of the undersigned hereunder shall be binding upon the successors, assigns, heirs, executors, administrators and legal representatives of the undersigned. Except as stated in the Offer to Purchase, this tender is irrevocable. The undersigned understands that valid tenders of Shares pursuant to any one of the procedures described in Section 3 of the Offer to Purchase and in the instructions hereto will constitute a binding agreement between the undersigned and Merger Sub upon the terms and subject to the conditions of the Offer. The undersigned recognizes that under certain circumstances set forth in the Offer to Purchase, Merger Sub may not be required to accept for payment any of the Shares tendered hereby. Unless otherwise indicated herein under "Special Payment Instructions," please issue the check for the purchase price and/or return any Share Certificates evidencing Shares not tendered or not accepted for payment in the name(s) of the registered holder(s) appearing under "Description of Shares Tendered." Similarly, unless otherwise indicated under "Special Delivery Instructions," please mail the check for the purchase price and/or return any Share Certificates evidencing Shares not tendered or accepted for payment (and accompanying documents, as appropriate) to the address(es) of the registered holder(s) appearing under "Description of Shares Tendered." If both the Special Delivery Instructions and the Special Payment Instructions are completed, please issue the check for the purchase price and/or return any Share Certificates evidencing Shares not purchased (together with accompanying documents as appropriate) in the name(s) of, and deliver said check and/or return such Share Certificates to, the person or persons so indicated. Shareholders tendering Shares by book-entry transfer may request that any Shares not accepted for payment be returned by crediting such account maintained at the Book-Entry Transfer Facility as such stockholder may designate by making an appropriate entry under "Special Payment Instructions." The undersigned recognizes that Merger Sub has no obligation pursuant to the Special Payment Instructions to transfer any Shares from the name of the registered holder(s) thereof if Merger Sub does not accept for payment any of the Shares so tendered. - ------------------------------------------------ SPECIAL PAYMENT INSTRUCTIONS (SEE INSTRUCTIONS 1, 5, 6 AND 7) To be completed ONLY if the check for the purchase price of Shares purchased and/or Share Certificates evidencing Shares not tendered or not purchased are to be issued in the name of someone other than the undersigned. Issue / / Check and/or / / Certificate(s) To: ____________________________________________________________________________ ____________________________________________________________________________ NAME(S) (PLEASE PRINT) Address ____________________________________________________________________________ ____________________________________________________________________________ ____________________________________________________________________________ (INCLUDE ZIP CODE) __________________________________________________________________________ (TAXPAYER IDENTIFICATION OR SOCIAL SECURITY NO.) (SEE SUBSTITUTE FORM W-9 CONTAINED HEREIN) - ------------------------------------------------------------ - ------------------------------------------------------------ SPECIAL DELIVERY INSTRUCTIONS (SEE INSTRUCTIONS 5 AND 7) To be completed ONLY if the check for the purchase price of the Shares purchased and/or Share Certificates evidencing Shares not tendered or not purchased are to be mailed to someone other than the undersigned, or to the undersigned at an address other than that shown under "Description of Shares Tendered." Mail / / Check and/or / / Certificate(s) To: ____________________________________________________________________________ ____________________________________________________________________________ NAME (PLEASE PRINT) Address ____________________________________________________________________________ ____________________________________________________________________________ ____________________________________________________________________________ (INCLUDE ZIP CODE) ----------------------------------------------------------- -------------------------------------------------------------------------- SHAREHOLDERS SIGN HERE (PLEASE COMPLETE SUBSTITUTE FORM W-9 CONTAINED HEREIN) X __________________________________________________________________________ X __________________________________________________________________________ SIGNATURE(S) OF SHAREHOLDER(S) Dated: _____________, 1998 (Must be signed by registered holder(s) as name(s) appear(s) on Share Certificate(s) or on a security position listing or by person(s) authorized to become registered holder(s) by certificates and documents transmitted herewith. If signature is by trustees, executors, administrators, guardians, attorneys-in-fact, agents, officers of a corporation or others acting in a fiduciary or representative capacity, please provide the following information. See Instruction 5.) ____________________________________________________________________________ (NAME(S)) __________________________________________________________________________ (PLEASE PRINT OR TYPE) __________________________________________________________________________ CAPACITY (FULL TITLE) __________________________________________________________________________ ADDRESS __________________________________________________________________________ ZIP CODE AREA CODE AND TELEPHONE NUMBER (HOME) TAX IDENTIFICATION OR SOCIAL SECURITY NUMBER (COMPLETE SUBSTITUTE FORM W-9 BELOW) AREA CODE AND TELEPHONE NUMBER (BUSINESS)
GUARANTEE OF SIGNATURE(S) (IF REQUIRED--SEE INSTRUCTIONS 1 AND 5) X __________________________________________________________________________ AUTHORIZED SIGNATURE __________________________________________________________________________ NAME (PLEASE PRINT OR TYPE) FULL TITLE NAME OF FIRM
____________________________________________________________________________ ADDRESS __________________________________________________________________________ INCLUDE ZIP CODE Date: , 1998 AREA CODE AND TELEPHONE NUMBER
- -------------------------------------------------------------------------------- INSTRUCTIONS FORMING PART OF THE TERMS AND CONDITIONS OF THE OFFER 1. GUARANTEE OF SIGNATURES. Except as provided below, all signatures on this Letter of Transmittal must be guaranteed by a financial institution (including most commercial banks, savings and loan associations and brokerage houses) that is a participant in the Security Transfer Agents Medallion Program, the New York Stock Exchange Medallion Signature Guarantee Program or the Stock Exchange Medallion Program (each, an "Eligible Institution"). Signatures on a Letter of Transmittal need not be guaranteed (a) if this Letter of Transmittal is signed by the registered holders (which term, for purposes of this document, includes any participant in the Book-Entry Transfer Facility's systems whose name appears on a security position listing as the owner of the Shares) of Shares tendered herewith and such registered holder has not completed the box entitled "Special Payment Instructions" or the box entitled "Special Delivery Instructions" on this Letter of Transmittal, or (b) if such Shares are tendered for the account of an Eligible Institution. See Instruction 5. 2. DELIVERY OF LETTER OF TRANSMITTAL AND CERTIFICATES; GUARANTEED DELIVERY PROCEDURES. This Letter of Transmittal is to be completed by stockholders either if Share Certificates are to be forwarded herewith or if a tender of Shares is to be made pursuant to the procedures for delivery by book-entry transfer set forth in Section 3 of the Offer to Purchase. Share Certificates evidencing all physically tendered Shares, or confirmation ("Book-Entry Confirmation") of any book-entry transfer into the Depositary's account at the Book-Entry Transfer Facility of Shares delivered by book-entry transfer as well as a properly completed and duly executed letter of transmittal, must be received by the Depositary, at one of the addresses set forth herein on or prior to the Expiration Date (as defined in Section 1 of the Offer to Purchase). If Share Certificates are forwarded to the Depositary in multiple deliveries, a properly completed and duly executed Letter of Transmittal must accompany each such delivery. Stockholders whose Share Certificates are not immediately available, who cannot deliver their Share Certificates and all other required documents to the Depositary prior to the Expiration Date or who cannot comply with the book-entry transfer procedures on a timely basis may tender their Shares by properly completing and duly executing a Notice of Guaranteed Delivery pursuant to the guaranteed delivery procedure set forth in Section 3 of the Offer to Purchase. Pursuant to such procedure, (i) such tender must be made by or through an Eligible Institution, (ii) a properly completed and duly executed Notice of Guaranteed Delivery, substantially in the form provided by Merger Sub, must be received by the Depositary prior to the Expiration Date and (iii) the Share Certificates evidencing all physically tendered Shares (or Book-Entry Confirmation with respect to such Shares), as well as a properly completed and duly executed Letter of Transmittal (or facsimile thereof) with any required signature guarantees, or, in the case of a book-entry transfer, an Agent's Message (as defined in Section 3 of the Offer to Purchase) and any other documents required by this Letter of Transmittal, must be received by the Depositary within three New York Stock Exchange trading days after the date of execution of such Notice of Guaranteed Delivery, all as provided in Section 3 of the Offer to Purchase. If Share Certificates are forwarded separately to the Depositary, a properly completed and duly executed Letter of Transmittal must accompany each such delivery. THE METHOD OF DELIVERY OF SHARES, THIS LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS, INCLUDING DELIVERY THROUGH THE BOOK-ENTRY TRANSFER FACILITY, IS AT THE ELECTION AND RISK OF THE TENDERING SHAREHOLDER. SHARES WILL BE DEEMED DELIVERED ONLY WHEN ACTUALLY RECEIVED BY THE DEPOSITARY (INCLUDING, IN THE CASE OF A BOOK-ENTRY TRANSFER, BY BOOK-ENTRY CONFIRMATION). IF DELIVERY IS BY MAIL, IT IS RECOMMENDED THAT THE SHAREHOLDER USE PROPERLY INSURED REGISTERED MAIL WITH RETURN RECEIPT REQUESTED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ENSURE TIMELY DELIVERY. No alternative, conditional or contingent tenders will be accepted and no fractional Shares will be purchased. All tendering shareholders, by execution of this Letter of Transmittal (or facsimile thereof), waive any right to receive any notice of the acceptance of their Shares for payment. 3. INADEQUATE SPACE. If the space provided herein under "Description of Shares Tendered" is inadequate, the certificate numbers and/or the number of Shares tendered should be listed on a separate signed schedule and attached hereto. 4. PARTIAL TENDERS. (Not applicable to stockholders who tender by book-entry transfer.) If fewer than all the Shares evidenced by any Share Certificate submitted are to be tendered, fill in the number of Shares which are to be tendered in the box entitled "Number of Shares Tendered." In such cases, new Share Certificate(s) evidencing the remainder of the Shares that were evidenced by the old Share Certificate(s) will be sent to the registered holder, unless otherwise provided in the appropriate box on this Letter of Transmittal, as soon as practicable after the Expiration Date. All Shares represented by Share Certificates delivered to the Depositary will be deemed to have been tendered unless otherwise indicated. 5. SIGNATURES ON LETTER OF TRANSMITTAL, STOCK POWERS AND ENDORSEMENTS. If this Letter of Transmittal is signed by the registered holder(s) of the Shares tendered hereby, the signature(s) must correspond exactly with the name(s) as written on the face of the Share Certificate(s) without alteration, enlargement or any change whatsoever. If any of the Shares tendered hereby are held of record by two or more persons, all such persons must sign this Letter of Transmittal. If any tendered Shares are registered in different names on several Share Certificates, it will be necessary to complete, sign and submit as many separate Letters of Transmittal as there are different registrations of Share Certificates. If this Letter of Transmittal is signed by the registered holder(s) of the Shares evidenced by Share Certificates listed and transmitted hereby, no endorsements of Share Certificates or separate stock powers are required unless payment is to be made to, or Share Certificates evidencing Shares not tendered or purchased are to be issued in the name of, a person other than the registered holder(s), in which case the Share Certificate(s) evidencing the Shares tendered hereby must be endorsed or accompanied by appropriate stock powers, in either case signed exactly as the name(s) of the registered holder(s) appear(s) on such Share Certificate(s). Signatures on such certificates and stock powers must be guaranteed by an Eligible Institution. If this Letter of Transmittal is signed by a person other than the registered holder(s) of the Shares tendered hereby, the Share Certificate(s) evidencing the Shares tendered hereby must be endorsed or accompanied by appropriate stock powers, in either case signed exactly as the name or names of the registered holder or holders appear on the Share Certificate(s). Signatures on such Share Certificate(s) or stock powers must be guaranteed by an Eligible Institution. If this Letter of Transmittal or any Share Certificates or stock power is signed by a trustee, executor, administrator, guardian, attorney-in-fact, agent, officer of a corporation or any person acting in a fiduciary or representative capacity, such person should so indicate when signing, and proper evidence satisfactory to Merger Sub of such person's authority so to act must be submitted. 6. STOCK TRANSFER TAXES. Except as set forth in this Instruction 6, Merger Sub will pay or cause to be paid any stock transfer taxes with respect to the transfer and sale of Shares to it or its order pursuant to the Offer. If, however, payment of the purchase price is to be made to, or if Share Certificates evidencing Shares not tendered or purchased are to be registered in the name of, a person other than the registered holder(s), or if Share Certificates evidencing tendered Shares are registered in the name of any person other than the person(s) signing this Letter of Transmittal, the amount of any stock transfer taxes (whether imposed on the registered holder(s) or such other person) payable on account of the transfer to such person will be deducted from the purchase price unless satisfactory evidence of the payment of such taxes, or exemption therefrom, is submitted. EXCEPT AS PROVIDED IN THIS INSTRUCTION 6, IT WILL NOT BE NECESSARY FOR TRANSFER TAX STAMPS TO BE AFFIXED TO THE CERTIFICATE(S) LISTED IN THIS LETTER OF TRANSMITTAL. 7. SPECIAL PAYMENT AND DELIVERY INSTRUCTIONS. If a check for the purchase price of any Shares tendered hereby is to be issued, or Share Certificate(s) evidencing Shares not tendered or not purchased are to be issued, in the name of a person other than the person(s) signing this Letter of Transmittal or if such check or any such Share Certificate is to be sent and/or any Share Certificates are to be returned to someone other than the signer above, or to the signer above but at an address other than that shown in the box entitled "Description of Shares Tendered" above, the appropriate boxes on this Letter of Transmittal should be completed. Shareholders tendering Shares by book-entry transfer may request that Shares not purchased be credited to such account maintained at the Book-Entry Transfer Facility as such shareholder may designate under "Special Delivery Instructions." If no such instructions are given, any such Shares not purchased will be returned by crediting the account at the Book-Entry Transfer Facility. 8. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Questions or requests for assistance may be directed to, or additional copies of the Offer to Purchase, this Letter of Transmittal and the Notice of Guaranteed Delivery may be obtained from, the Information Agent or the Dealer Manager at the telephone numbers and addresses set forth below. Shareholders may also contact their broker, dealer, commercial bank or trust company. 9. BACKUP FEDERAL INCOME TAX WITHHOLDING AND SUBSTITUTE FORM W-9. Under the "backup withholding" provisions of federal tax law, the Depositary may be required to withhold 31% of the purchase price of Shares purchased pursuant to the Offer. To prevent backup withholding, each tendering shareholder should complete and sign the Substitute Form W-9 included in this Letter of Transmittal and either: (a) provide the shareholder's correct taxpayer identification number ("TIN") and certify, under penalties of perjury, that the TIN provided is correct (or that such shareholder is awaiting a TIN), and that (i) the shareholder has not been notified by the Internal Revenue Service ("IRS") that the shareholder is subject to backup withholding as a result of failure to report all interest or dividends, or (ii) the IRS has notified the shareholder that the shareholder is no longer subject to backup withholding; or (b) provide an adequate basis for exemption. If "Applied For" is written in Part I of the substitute Form W-9, the Depositary will retain 31% of any payment of the purchase price for tendered Shares during the 60-day period following the date of the Substitute Form W-9. If the stockholder furnishes the Depositary with his or her TIN within 60 days of the date of the Substitute W-9, the Depositary will remit such amount retained during the 60-day period to the shareholder and no further amounts will be retained or withheld from any payment made to the shareholder thereafter. If, however, the shareholder has not provided the Depositary with his or her TIN within such 60-day period, the Depositary will remit such previously retained amounts to the IRS as backup withholding and shall withhold 31% of any payment of the purchase price for the tendered Shares made to the shareholder thereafter unless the shareholder furnishes a TIN to the Depositary prior to such payment. In general, an individual's TIN is the individual's Social Security number. If a certificate for tendered Shares is registered in more than one name or is not in the name of the actual owner, consult the Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9 for additional guidance on which number to report. If the Depositary is not provided with the correct TIN or an adequate basis for exemption, the shareholder may be subject to a $50 penalty imposed by the IRS and backup withholding at a rate of 31%. Certain holders (including, among others, all corporations and certain foreign individuals) are not subject to these backup withholding and reporting requirements. In order to satisfy the Depositary that a foreign individual qualifies as an exempt recipient, such foreign individual must submit a statement (generally, IRS Form W-8), signed under penalties of perjury, attesting to that individual's exempt status. A form for such statements can be obtained from the Depositary. If payment for tendered Shares is to be made, pursuant to Special Payment Instructions, to a person other than the tendering shareholder, backup withholding will apply unless such other person, rather than the tendering shareholder, complies with the procedures described above to avoid backup withholding. For further information concerning backup withholding and instructions for completing the Substitute Form W-9 (including how an individual who does not have a TIN can obtain one and how to complete the Substitute Form W-9 if Shares are held in more than one name), consult the Guidelines of the IRS for Certification of Taxpayer Identification Number on Substitute Form W-9 attached to this Letter of Transmittal. Failure to complete the Substitute Form W-9 will not, by itself, cause Shares to be deemed invalidly tendered, but may require the Depositary to withhold 31% of the amount of any payments for such Shares. Backup withholding is not an additional federal income tax. Rather, the federal income tax liability of a person subject to backup withholding will be reduced by the amount of tax withheld. If withholding results in an overpayment of taxes, a refund may be obtained, provided the appropriate information is furnished to the IRS. IMPORTANT: THIS LETTER OF TRANSMITTAL (TOGETHER WITH SHARE CERTIFICATES OR CONFIRMATION OF BOOK-ENTRY TRANSFER AND ALL OTHER REQUIRED DOCUMENTS) OR THE NOTICE OF GUARANTEED DELIVERY MUST BE RECEIVED BY THE DEPOSITARY PRIOR TO THE EXPIRATION DATE.
PAYER: CITIBANK, N.A. SUBSTITUTE Name: FORM W-9 Address: DEPARTMENT OF THE TREASURY Check appropriate box: INTERNAL REVENUE SERVICE Individual / / Corporation / / Partnership / / Other (specify) / / REQUEST FOR TAXPAYER IDENTIFICATION NUMBER (TIN) AND CERTIFICATION SSN: __ __ __ - __ __ - __ __ __ __ or EIN: __ __ - __ __ __ __ __ __ __ PART I. Please provide your taxpayer identification number in the space at right. If awaiting TIN, write "Applied For." PART II. For Payees exempt from backup withholding. See the enclosed "Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9." PART III. CERTIFICATION Under penalties of perjury, I certify that: (1) The number shown on this form is my correct Taxpayer Identification Number (or I am waiting for a number to be issued to me), and (2) I am not subject to backup withholding either because: (a) I have not been notified by the IRS that I am subject to backup withholding as a result of a failure to report all interests or dividends, or (b) the IRS has notified me that I am no longer subject to backup withholding. CERTIFICATION INSTRUCTIONS--You must cross out item (2) above if you have been notified by the IRS that you are subject to backup withholding because of underreporting interest or dividends on your tax return. However, if after being notified by the IRS that you were subject to backup withholding you received another notification from the IRS that you are no longer subject to backup withholding, do not cross out item (2). Signature: Date:, 1998
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE MERGER. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS. THE INFORMATION AGENT FOR THE OFFER IS: D. F. KING & CO., INC. 77 Water Street New York, New York 10005 Banks and Brokers Call Collect: (212) 269-5550 ALL OTHERS CALL TOLL FREE: (800) 769-7666 THE DEALER MANAGER FOR THE OFFER IS: MERRILL LYNCH & CO. World Financial Center North Tower New York, New York 10281-1305 (212) 449-8971 (Call Collect) EX-99.(A)(3) 4 BROKER DEALER LETTER OFFER TO PURCHASE FOR CASH ALL OUTSTANDING SHARES OF COMMON STOCK (INCLUDING THE ASSOCIATED PREFERRED STOCK PURCHASE RIGHTS) OF ATL ULTRASOUND, INC. AT $50.50 NET PER SHARE BY PHILIPS ACQUISITION, INC. A WHOLLY OWNED SUBSIDIARY OF PHILIPS ELECTRONICS NORTH AMERICA CORPORATION AND AN INDIRECT WHOLLY OWNED SUBSIDIARY OF KONINKLIJKE PHILIPS ELECTRONICS N.V. (ROYAL PHILIPS ELECTRONICS) THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON MONDAY, AUGUST 31, 1998, UNLESS THE OFFER IS EXTENDED. August 4, 1998 To Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees: We have been engaged by Philips Acquisition, Inc., a Washington corporation ("Merger Sub") and a wholly owned subsidiary of Philips Electronics North America Corporation, a Delaware corporation ("Parent"), and an indirect wholly owned subsidiary of Koninklijke Philips Electronics N.V., a company incorporated under the laws of The Netherlands ("Royal Philips"), to act as Dealer Manager in connection with Merger Sub's offer to purchase all of the outstanding shares of Common Stock, par value $0.01 per share (the "Common Stock"), including the associated rights to purchase Series A Participating Cumulative Preferred Stock (the "Rights" and, collectively with the Common Stock, the "Shares"), of ATL Ultrasound, Inc., a Washington corporation (the "Company"), at $50.50 per Share, net to the seller in cash, without interest, upon the terms and subject to the conditions set forth in Merger Sub's Offer to Purchase, dated August 4, 1998 (as amended or supplemented from time to time, the "Offer to Purchase"), and in the related Letter of Transmittal (which, as amended or supplemented from time to time, together constitute the "Offer"). Please furnish copies of the enclosed materials to those of your clients for whom you hold Shares registered in your name or in the name of your nominee. Enclosed herewith are the following documents: 1. Offer to Purchase, dated August 4, 1998; 2. Letter of Transmittal to be used by shareholders of the Company in accepting the Offer; 3. Letter to Shareholders of the Company from the President and Chief Executive Officer of the Company, accompanied by the Company's Solicitation/Recommendation Statement on Schedule 14D-9; 4. A printed form of letter that may be sent to your clients for whose account you hold Shares in your name or in the name of your nominee, with space provided for obtaining such clients' instructions with regard to the Offer; 5. Notice of Guaranteed Delivery; 6. Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9; and 7. Return envelope addressed to Citibank, N.A., the Depositary. Payment for Shares accepted for payment pursuant to the Offer will be in all cases made only after timely receipt by Citibank, N.A. (the "Depositary"), of (a) certificates for (or a timely Book-Entry Confirmation (as defined in the Offer to Purchase) with respect to) such Shares, (b) a Letter of Transmittal, properly completed and duly executed, with any required signature guarantees, or, in the case of a book-entry transfer effected pursuant to the procedure set forth in Section 3 of the Offer to Purchase, an Agent's Message (as defined in the Offer to Purchase), and (c) any other documents required by the Letter of Transmittal. Accordingly, tendering shareholders may be paid at different times depending upon when certificates for Shares or Book-Entry Confirmations with respect to Shares are actually received by the Depositary. UNDER NO CIRCUMSTANCES WILL INTEREST BE PAID ON THE PURCHASE PRICE FOR SHARES, REGARDLESS OF ANY EXTENSION OF THE OFFER OR ANY DELAY IN MAKING PAYMENT PURSUANT TO THE OFFER. The Offer is being made pursuant to an Agreement and Plan of Merger (the "Merger Agreement"), dated as of July 29, 1998, by and among the Company, Parent and Merger Sub, pursuant to which, after completion of the Offer (subject to Section 2.1(b) of the Merger Agreement, pursuant to which at Merger Sub's election the Company will be merged with and into Merger Sub), Merger Sub will be merged with and into the Company (either such merger, the "Merger") and each issued and outstanding Share (other than Shares owned by Parent, Merger Sub or any other subsidiary of Parent or Shares which are held by shareholders validly exercising dissenters' rights under Washington law) shall, by virtue of the Merger and without any action on the part of the holder thereof, be converted into and represent the right to receive the per Share price paid in the Offer, without interest. THE BOARD OF DIRECTORS OF THE COMPANY HAS UNANIMOUSLY ADOPTED THE MERGER AGREEMENT (AS DEFINED BELOW), APPROVED THE OFFER AND THE MERGER, DETERMINED THAT THE OFFER AND THE MERGER ARE FAIR TO, AND IN THE BEST INTERESTS OF, THE HOLDERS OF SHARES AND RECOMMENDS THAT THE HOLDERS OF SHARES ACCEPT THE OFFER AND TENDER THEIR SHARES PURSUANT TO THE OFFER. Upon the terms and subject to the conditions of the Offer (including, if the Offer is extended or amended, the terms and conditions of any such extension or amendment), Merger Sub will be deemed to have accepted for payment, and will pay for, all Shares validly tendered and not properly withdrawn by the Expiration Date (as defined in the Offer to Purchase) if, as and when Merger Sub gives oral or written notice to the Depositary of Merger Sub's acceptance of the tenders of such Shares for payment pursuant to the Offer. Payment for Shares purchased pursuant to the Offer will be made only after timely receipt by the Depositary of (i) certificates evidencing such Shares or timely confirmation of a book-entry transfer of such Shares into the Depositary's account at the Book-Entry Transfer Facility (as defined in the Offer to Purchase), (ii) a properly completed and duly executed Letter of Transmittal (or facsimile thereof) or, in the case of a book-entry transfer, an Agent's Message (as defined in the Offer to Purchase), and (iii) any other documents required by the Letter of Transmittal. The Offer is not being made to, nor will tenders be accepted from, or on behalf of, holders of Shares in any jurisdiction in which the making or acceptance of the Offer would not be in compliance with the laws of such jurisdiction. In any jurisdiction where the securities, blue sky or other laws require the Offer to be made by a licensed broker or dealer, the Offer will be deemed made on behalf of Merger Sub by Merrill Lynch, Pierce, Fenner & Smith Incorporated, the Dealer Manager for the Offer, or one or more registered brokers or dealers that are licensed under the laws of such jurisdiction. An envelope in which to return your instructions to us is enclosed. If you authorize tender of your Shares, all such Shares will be tendered unless otherwise indicated in such instruction form. Please forward your instructions to us as soon as possible to allow us ample time to tender Shares on your behalf prior to the expiration of the Offer. In order to tender Shares pursuant to the Offer, a properly completed and duly executed Letter of Transmittal (or facsimile thereof), with any required signature guarantees, or an Agent's Message (in the case of any book-entry transfer), and any other documents required by the Letter of Transmittal, should be sent to the Depositary, and either certificates representing the tendered Shares should be delivered or such Shares must be delivered to the Depositary pursuant to the procedures for book-entry transfers, all in accordance with the instructions set forth in the Letter of Transmittal and the Offer to Purchase. 2 Neither Parent nor Merger Sub will pay any fees or commissions to any broker or dealer or other person (other than the Dealer Manager, the Information Agent and the Depositary as described in the Offer to Purchase) in connection with the solicitation of tenders of Shares pursuant to the Offer. You will be reimbursed upon request for customary mailing and handling expenses incurred by you in forwarding the enclosed offering materials to your clients. YOUR PROMPT ACTION IS REQUESTED. WE URGE YOU TO CONTACT YOUR CLIENTS AS PROMPTLY AS POSSIBLE. THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON MONDAY, AUGUST 31, 1998, UNLESS THE OFFER IS EXTENDED. Any inquiries you may have with respect to the Offer should be addressed to Merrill Lynch, Pierce, Fenner & Smith Incorporated, the Dealer Manager for the Offer, at World Financial Center, North Tower, New York, New York 10281-1305, telephone number (212) 449-8971 (call collect), or to D.F. King & Co., Inc., the Information Agent for the Offer, at 77 Water Street, New York, New York 10005, telephone number (212) 269-5550. Requests for additional copies of enclosed materials may be directed to the Information Agent or the Dealer Manager. Very truly yours, MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED NOTHING CONTAINED HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL RENDER YOU OR ANY PERSON THE AGENT OF ROYAL PHILIPS, MERGER SUB, PARENT, THE COMPANY, ANY AFFILIATE OF THE COMPANY, THE DEALER MANAGER, THE INFORMATION AGENT OR THE DEPOSITARY, OR AUTHORIZE YOU OR ANY OTHER PERSON TO USE ANY DOCUMENT OR MAKE ANY REPRESENTATION ON BEHALF OF ANY OF THEM WITH RESPECT TO THE OFFER NOT CONTAINED IN THE OFFER TO PURCHASE OR THE LETTER OF TRANSMITTAL. 3 EX-99.(A)(4) 5 CLIENT LETTER OFFER TO PURCHASE FOR CASH ALL OUTSTANDING SHARES OF COMMON STOCK (INCLUDING THE ASSOCIATED PREFERRED STOCK PURCHASE RIGHTS) OF ATL ULTRASOUND, INC. AT $50.50 NET PER SHARE BY PHILIPS ACQUISITION, INC. A WHOLLY OWNED SUBSIDIARY OF PHILIPS ELECTRONICS NORTH AMERICA CORPORATION AND AN INDIRECT WHOLLY OWNED SUBSIDIARY OF KONINKLIJKE PHILIPS ELECTRONICS N.V. (ROYAL PHILIPS ELECTRONICS) THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON MONDAY, AUGUST 31, 1998, UNLESS THE OFFER IS EXTENDED. To Our Clients: Enclosed for your consideration is an Offer to Purchase, dated August 4, 1998 (as amended or supplemented from time to time, the "Offer to Purchase"), and the related Letter of Transmittal (which, as amended or supplemented from time to time, together constitute the "Offer"), relating to the Offer by Philips Acquisition, Inc., a Washington corporation ("Merger Sub"), and a wholly owned subsidiary of Philips Electronics North America Corporation, a Delaware corporation ("Parent"), and an indirect wholly owned subsidiary of Koninklijke Philips Electronics N.V., a company incorporated under the laws of The Netherlands ("Royal Philips"), to purchase all of the outstanding shares of Common Stock, par value $.01 per share (the "Common Stock"), including the associated rights to purchase Series A Participating Cumulative Preferred Stock (the "Rights" and, collectively with the Common Stock, the "Shares"), of ATL Ultrasound, Inc., a Washington corporation (the "Company"), at $50.50 per Share, net to the seller in cash, without interest, upon the terms and subject to the conditions set forth in the Offer. Also enclosed is the letter to shareholders of the Company from the Chairman and Chief Executive Officer of the Company accompanied by the Company's Solicitation/Recommendation Statement on Schedule 14D-9. WE ARE THE HOLDER OF RECORD OF SHARES HELD BY US FOR YOUR ACCOUNT. A TENDER OF SUCH SHARES CAN BE MADE ONLY BY US AS THE HOLDER OF RECORD AND PURSUANT TO YOUR INSTRUCTIONS. THE LETTER OF TRANSMITTAL ACCOMPANYING THIS LETTER IS FURNISHED TO YOU FOR YOUR INFORMATION ONLY AND CANNOT BE USED BY YOU TO TENDER SHARES HELD BY US FOR YOUR ACCOUNT. We request instructions as to whether you wish to tender any or all of the Shares held by us for your account, pursuant to the terms and conditions set forth in the Offer. Your attention is directed to the following: 1. The offer price is $50.50 per Share, net to the seller in cash, without interest, upon the terms and subject to the conditions of the Offer. 2. The Offer is being made for all of the outstanding Shares. 3. THE BOARD OF DIRECTORS OF THE COMPANY HAS UNANIMOUSLY ADOPTED THE MERGER AGREEMENT (AS DEFINED BELOW), APPROVED THE OFFER AND THE MERGER (AS DEFINED BELOW), DETERMINED THAT THE OFFER AND THE MERGER ARE FAIR TO, AND IN THE BEST INTERESTS OF, THE HOLDERS OF SHARES AND RECOMMENDS THAT THE HOLDERS OF SHARES ACCEPT THE OFFER AND TENDER THEIR SHARES PURSUANT TO THE OFFER. 4. The Offer is conditioned upon, among other things, there being validly tendered and not withdrawn prior to the expiration of the Offer that number of Shares which represents a majority of the total voting power of all shares of capital stock of the Company outstanding on a fully diluted basis, and which will permit Merger Sub to effect the Merger without the vote of any person other than Merger Sub. Subject to the terms of the Merger Agreement, the Offer is also subject to other terms and conditions, including receipt of certain regulatory approvals, set forth in the Offer to Purchase. Any or all conditions to the Offer may be waived by Merger Sub as set forth in the Merger Agreement. 5. The Offer and withdrawal rights will expire at 12:00 Midnight, New York City time, on Monday, August 31, 1998, unless the Offer is extended. 6. The Offer is being made pursuant to an Agreement and Plan of Merger (the "Merger Agreement"), dated as of July 29, 1998, by and among the Company, Parent and Merger Sub, pursuant to which, after completion of the Offer (subject to Section 2.1(b) of the Merger Agreement, pursuant to which at Merger Sub's election the Company will be merged with and into Merger Sub), Merger Sub will be merged with and into the Company (either such merger, the "Merger") and each issued and outstanding Share (other than Shares owned by Parent, Merger Sub or any other subsidiary of Parent or Shares which are held by shareholders validly exercising dissenters' rights under Washington law) shall, by virtue of the Merger and without any action on the part of the holder thereof, be converted into and represent the right to receive the per Share price paid in the Offer, without interest. 7. Any stock transfer taxes applicable to the sale of Shares to Merger Sub pursuant to the Offer will be paid by Merger Sub, except as otherwise provided in Instruction 6 of the Letter of Transmittal. If you wish to have us tender any or all of the Shares held by us for your account, please so instruct us by completing, executing and returning to us the instruction form set forth below. Payment for Shares accepted for payment pursuant to the Offer will be in all cases made only after timely receipt by Citibank, N.A. (the "Depositary"), of (a) certificates for (or a timely Book-Entry Confirmation (as defined in the Offer to Purchase) with respect to) such Shares, (b) a Letter of Transmittal, properly completed and duly executed, with any required signature guarantees, or, in the case of a book-entry transfer effected pursuant to the procedure set forth in Section 3 of the Offer to Purchase, an Agent's Message (as defined in the Offer to Purchase), and (c) any other documents required by the Letter of Transmittal. Accordingly, tendering shareholders may be paid at different times depending upon when certificates for Shares or Book-Entry Confirmations with respect to Shares are actually received by the Depositary. UNDER NO CIRCUMSTANCES WILL INTEREST BE PAID ON THE PURCHASE PRICE FOR SHARES, REGARDLESS OF ANY EXTENSION OF THE OFFER OR ANY DELAY IN MAKING PAYMENT PURSUANT TO THE OFFER. The Offer is not being made to, nor will tenders be accepted from, or on behalf of, holders of Shares in any jurisdiction in which the making or acceptance of the Offer would not be in compliance with the laws of such jurisdiction. In any jurisdiction where the securities, blue sky or other laws require the Offer to be made by a licensed broker or dealer, the Offer will be deemed made on behalf of Merger Sub by Merrill Lynch, Pierce, Fenner & Smith Incorporated, the Dealer Manager for the Offer, or one or more registered brokers or dealers that are licensed under the laws of such jurisdiction. An envelope in which to return your instructions to us is enclosed. If you authorize tender of your Shares, all such Shares will be tendered unless otherwise indicated in such instruction form. Please forward your instructions to us as soon as possible to allow us ample time to tender Shares on your behalf prior to the expiration of the Offer. 2 INSTRUCTIONS WITH RESPECT TO THE OFFER TO PURCHASE FOR CASH ALL OUTSTANDING SHARES OF COMMON STOCK (INCLUDING THE ASSOCIATED RIGHTS TO PURCHASE PREFERRED STOCK) OF ATL ULTRASOUND, INC. The undersigned acknowledge(s) receipt of your letter and the enclosed Offer to Purchase, dated August 4, 1998, and the related Letter of Transmittal, in connection with the offer by Philips Acquisition, Inc., a Washington corporation ("Merger Sub"), a wholly owned subsidiary of Philips Electronics North America Corporation, a Delaware corporation ("Parent"), and an indirect wholly owned subsidiary of Koninklijke Philips Electronics N.V., a company incorporated under the laws of The Netherlands ("Royal Philips"), to purchase for cash all of the outstanding shares of Common Stock, par value $.01 per share (the "Common Stock"), including the associated rights to purchase Series A Participating Cumulative Preferred Stock (the "Rights" and, collectively with the Common Stock, the "Shares"), of ATL Ultrasound, Inc., a Washington corporation. This will instruct you to tender the number of Shares indicated below (or if no number is indicated below, all Shares) that are held by you for the account of the undersigned, upon the terms and subject to the conditions set forth in the Offer to Purchase and the related Letter of Transmittal. Dated: , 1998 NUMBER OF SHARES TO BE TENDERED: _____________ SHARES* SIGN HERE ________________________________________________________________________________ ________________________________________________________________________________ Signature(s) ________________________________________________________________________________ Please Print Name(s) ________________________________________________________________________________ Please Print Address(es) ________________________________________________________________________________ Area Code and Telephone Number(s) ________________________________________________________________________________ Tax Identification or Social Security Number(s) - ------------------------ * Unless otherwise indicated, it will be assumed that all your Shares are to be tendered. 3 EX-99.(A)(5) 6 PRESS RELEASE DATED JULY 29, 1998 Exhibit (a)(5) [LETTERHEAD OF PHILIPS MEDIA RELATIONS] Amsterdam, 29 July 1998 98.035 PHILIPS TO ACQUIRE ATL IN $800 MILLION TRANSACTION Royal Philips Electronics of the Netherlands (AEX:PHI, NYSE:PHG), and ATL Ultrasound of the United States (NASDAQ:ATLI), announced today that ATL and Philips have signed a definitive merger agreement for Philips to acquire all the outstanding shares of ATL for approximately $800 million, or $50.50 per share for each outstanding share of ATL common stock. The transaction will be a cash tender offer followed by a cash merger to acquire any shares not previously tendered. As a result of the transaction, ATL will become a wholly owned subsidiary of Philips Medical Systems. The ATL Board of Directors has unanimously approved the transaction. Philips expects to commence its cash tender offer on August 4th 1998. The cash tender offer is subject to Philips receiving at least a majority of the fully diluted shares of ATL in the tender offer, as well as receipt of customary regulatory approvals. ATL, with annual revenues of $430 million in 1997 and 2,600 employees, pioneered the development of broadband digital ultrasound and software technologies, and is a leader in the high performance ultrasound market. The ultrasound sector is the only part of the diagnostic imaging business in which Philips Medical Systems does not play a major role. "ATL is a technological leader in diagnostic ultrasound, and offers a key growth opportunity for Philips Medical," says Hans (J.M.) Barella, Chairman and CEO of Philips Medical Systems. "this acquisition underscores our commitment to global leadership in worldwide diagnostic imaging by building on the success of ATL." Philips Medical Systems is already a global leader in the x-ray business and diagnostic imaging systems and services. ATL has an especially strong presence in the United States and Europe. The complementary businesses of Philips Medical Systems and ATL allow for the building of significant synergies. ATL's strong management, solid financial performance, and business growth opportunities make this an excellent acquisition for Philips. The merger will provide ATL access to Philips Medical Systems' considerable research and technology base, expand its service support, and further increase sales. "Combining the strengths of Philips Medical Systems and ATL creates a diagnostic imaging business second to none", said Dennis C. Fill, ATL Chairman and CEO. "With essentially no overlap in our products and technologies, we believe this combination is the perfect match for both companies. This merger is particularly good for the long-term prospects of ATL and all our employees, as we will become the worldwide center of Philips for ultrasound, with our headquarters remaining in Bothell. ATL will be an even stronger force in ultrasound than it already is." Ultrasound is the fastest growing sector of the medical imaging business today, and worldwide revenues for ultrasound are approximately $2.5 billion per year. Ultrasound is a non-invasive technology that uses high frequency soundwaves to image the body's organs, soft tissue, and blood flow in real time. Three-dimensional imaging has let to a growing diagnostic role for ultrasound. Philips has recently stated that it would only look for acquisitions that would strengthen its existing portfolio, and this agreement reflects that strategy. The transaction affirms Philips' commitment to the Medical Systems division as one of the building blocks of the company, and one where value can be added and increasing profits realized. Philips Medical Systems is consistently delivering a very profitable performance with steady growth and a strong cash flow, and this merger will enable the division to contribute more significantly to the sales and results of the Philips Group. The transaction is expected to have a positive impact on earnings per share for Philips. For further information, please contact: Anne Bugge, ATL Corporate and Investor Relations, tel. +1 425 4877427 Jeremy Cohen, Philips Media Relations, tel. +31 20 5977213 Bulletin International has pictures for broadcast free for use. For more information or a Beta SP copy, contact Amelia Elphick at Bulletin on +44 171 278 6070 or email AMELIA.ELPHICK@BULLETIN-INTL.COM ATL, with headquarters near Seattle, Washington, USA, is a worldwide leader in the development, manufacture, distribution and service of diagnostic medical ultrasound systems. With approximately 50% of revenues coming from international markets the company serves customers in over 100 countries through 15 subsidiaries and an extensive distributor network. Press releases and other corporate information are available on ATL's web site at http://www.atl.com. Press releases are also available on PR Newswire's Company News-On-Call at HTTP://WWW.PRENEWSWIRE.COM Philips Medical Systems is a leading supplier of diagnostic imaging systems and related services worldwide, employing 9,000 people in more than 100 countries. Philips' products are backed by a worldwide network of research and development, and sales and service organizations. Philips Medical Systems is part of Royal Philips Electronics of the Netherlands. Royal Philips Electronics of the Netherlands is one of the world's biggest electronics companies, with sales of over US$ 39 billion in 1997. It is a global leader in color television sets, lighting, home telephony products, electric shavers and recorded music (PolyGram). Its 264,700 employees in more than 60 countries are active in the areas of semiconductors and components, consumer products, professional products and systems, lighting, and software and services. Philips is quoted on the NYSE, London, Frankfurt, Amsterdam and other stock exchanges. News from Philips is located at www.news.philips.com EX-99.(A)(6) 7 FORM OF NEWSPAPER ADVERTISEMENT This announcement is neither an offer to purchase nor a solicitation of an offer to sell Shares (as defined below). The Offer (as defined below) is made solely by the Offer to Purchase dated August 4, 1998 and the related Letter of Transmittal and any amendments or supplements thereto, and is being made to all holders of Shares. The Offer is not being made to (nor will tenders be accepted from or on behalf of) holders of Shares in any jurisdiction in which the making of the Offer or the acceptance thereof would not be in compliance with the laws of such jurisdiction. In any jurisdiction where the securities, blue sky or other laws require the Offer to be made by a licensed broker or dealer, the Offer will be deemed to be made on behalf of Purchaser (as defined below) by Merrill Lynch, Pierce, Fenner & Smith Incorporated or one or more registered brokers or dealers that are licensed under the laws of such jurisdiction. Notice of Offer to Purchase for Cash All Outstanding Shares of Common Stock (Including the Associated Preferred Stock Purchase Rights) of ATL Ultrasound, Inc. at $50.50 Net Per Share by Philips Acquisition, Inc. a wholly owned subsidiary of Philips Electronics North America Corporation and an indirect wholly owned subsidiary of Koninklijke Philips Electronics N.V. (Royal Philips Electronics) Philips Acquisition, Inc., a Washington corporation ("Purchaser") and a wholly owned subsidiary of Philips Electronics North America Corporation, a Delaware corporation ("Parent") and an indirect wholly owned subsidiary of Koninklijke Philips Electronics N.V. (Royal Philips Electronics), a company incorporated under the laws of The Netherlands ("Royal Philips"), is offering to purchase all outstanding shares of Common Stock, par value $0.01 per share (including the associated preferred stock purchase rights (collectively with the Common Stock, the "Shares")), of ATL Ultrasound, Inc., a Washington corporation (the "Company"), at $50.50 per Share, net to the seller in cash, without interest, upon the terms and subject to the conditions set forth in the Offer to Purchase dated August 4, 1998 (the "Offer to Purchase") and in the related Letter of Transmittal (which, together with any amendments or supplements thereto, collectively constitute the "Offer"). Tendering stockholders will not be obligated to pay brokerage fees or commissions or, except as set forth in Instruction 6 of the Letter of Transmittal, transfer taxes on the purchase of Shares by Purchaser pursuant to the Offer. The purpose of the Offer is to acquire for cash as many outstanding Shares as possible as a first step in acquiring the entire equity interest in the Company. Following the consummation of the Offer, Purchaser intends to effect the Merger (as defined below). THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON MONDAY, AUGUST 31, 1998, UNLESS THE OFFER IS EXTENDED. The Offer is conditioned upon, among other things, (1) there being validly tendered and not withdrawn prior to the expiration of the Offer a number of Shares representing a majority of the total voting power of all shares of capital stock of the Company outstanding on a fully diluted basis and as will permit Purchaser to effect the Merger without the vote of any person other than Purchaser and (2) any applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the regulations thereunder and under the antitrust or competition laws of Austria and Germany with respect to the Offer and/or the Merger having expired or been terminated. Certain other conditions to the Offer are described in Section 13 of the Offer to Purchase. The Offer is being made pursuant to an Agreement and Plan of Merger (the "Merger Agreement") dated as of July 29, 1998 by and among the Company, Parent and Purchaser, pursuant to which, after completion of the Offer (subject to Section 2.1(b) of the Merger Agreement, pursuant to which at Parent's election the Company will be merged with and into Purchaser), Purchaser will be merged with and into the Company (either such merger, the "Merger") and each issued and outstanding Share (other than Shares owned by Parent, Purchaser or any other subsidiary of Parent or Shares which are held by stockholders exercising dissenters' rights pursuant to Section 23B.13.020 of the Washington Business Corporation Act) shall, by virtue of the Merger and without any action on the part of the holder thereof, be converted into and represent the right to receive an amount in cash, without interest, equal to the price paid for each Share pursuant to the Offer. The Merger Agreement is more fully described in the Offer to Purchase. The Board of Directors of the Company has unanimously adopted the Merger Agreement, approved the Offer and the Merger, determined that the Offer and the Merger are fair to, and in the best interests of, the holders of Shares and recommends that holders of Shares accept the Offer and tender their Shares pursuant to the Offer. For purposes of the Offer, Purchaser will be deemed to have accepted for payment, and thereby purchased, Shares validly tendered and not withdrawn as, if and when Purchaser gives oral or written notice to Citibank, N.A. (the "Depositary") of Purchaser's acceptance for payment of such Shares pursuant to the Offer. Upon the terms and subject to the conditions of the Offer, payment for Shares accepted for payment pursuant to the Offer will be made by deposit of the purchase price therefor with the Depositary, which will act as agent for the tendering stockholders for the purpose of receiving payments from Purchaser and transmitting such payments to the tendering stockholders whose Shares have been accepted for payment. Under no circumstances will interest on the purchase price for Shares be paid, regardless of any extension of the Offer or any delay in making such payment. In all cases, payment for Shares tendered and accepted for payment pursuant to the Offer will be made only after timely receipt by the Depositary of (a) certificates for such Shares or timely confirmation of the book-entry transfer of such Shares into the Depositary's account at The Depository Trust Company (the "Book-Entry Transfer Facility") pursuant to the procedures set forth in Section 3 of the Offer to Purchase, (b) a Letter of Transmittal (or facsimile thereof), properly completed and duly executed, with any required signature guarantees (or, in the case of a book-entry transfer, an Agent's Message (as defined in Section 3 of the Offer to Purchase) in lieu of the Letter of Transmittal) and (c) any other documents required by the Letter of Transmittal. The term "Expiration Date" means 12:00 Midnight, New York City time, on Monday, August 31, 1998, unless and until Purchaser, in its sole discretion (but subject to the terms of the Merger Agreement), shall have extended the period of time during which the Offer is open, in which event the term "Expiration Date" shall mean the latest time and date on which the Offer, as so extended by Purchaser, shall expire. Subject to the terms of the Merger Agreement and the applicable rules and regulations of the Securities and Exchange Commission, Purchaser expressly reserves the right, in its sole discretion, at any time or from time to time, to extend the period of time during which the Offer is open by giving oral or written notice of such extension to the Depositary. Any such extension will be followed as promptly as practicable by public announcement thereof, such announcement to be issued no later than 9:00 A.M., New York City time, on the next business day after the previously scheduled expiration date of the Offer. During any such extension, all Shares previously tendered and not withdrawn will remain subject to the Offer, subject to the right of a tendering stockholder to withdraw such stockholder's Shares. Tenders of Shares made pursuant to the Offer are irrevocable except that Shares tendered pursuant to the Offer may be withdrawn at any time prior to the Expiration Date and, unless theretofore accepted for payment by Purchaser pursuant to the Offer, may also be withdrawn at any time after October 2, 1998. For a withdrawal to be effective a written or facsimile transmission notice of withdrawal must be timely received by the Depositary at one of its addresses set forth on the back cover of the Offer to Purchase. Any such notice of withdrawal must specify the name of the person having tendered the Shares to be withdrawn, the number of Shares to be withdrawn and the names in which the certificate(s) evidencing the Shares to be withdrawn are registered, if different from that of the person who tendered such Shares. The signature(s) on the notice of withdrawal must be guaranteed by an Eligible Institution (as defined in Section 3 of the Offer to Purchase), unless such Shares have been tendered for the account of any Eligible Institution. If Shares have been tendered pursuant to the procedures for book-entry transfer as set forth in Section 3 of the Offer to Purchase, any notice of withdrawal must specify the name and number of the account at the Book-Entry Transfer Facility to be credited with the withdrawn Shares and otherwise comply with the Book-Entry Transfer Facility's procedures. If certificates for Shares to be withdrawn have been delivered or otherwise identified to the Depositary, the name of the registered holder and the serial numbers shown on such certificates must also be furnished to the Depositary as aforesaid prior to the physical release of such certificates. All questions as to the form and validity (including time of receipt) of any notice of withdrawal will be determined by Purchaser, in its sole discretion, which determination shall be final and binding. None of Parent, Purchaser, the Dealer Manager (listed below), the Depositary, the Information Agent (listed below) or any other person will be under any duty to give notification of any defects or irregularities in any notice of withdrawal or incur any liability for failure to give such notification. Withdrawals of tenders of Shares may not be rescinded, and any Shares properly withdrawn will be deemed not to have been validly tendered for purposes of the Offer. However, withdrawn Shares may be retendered by following one of the procedures described in Section 3 of the Offer to Purchase at any time prior to the Expiration Date. The information required to be disclosed by paragraph (e)(1)(vii) of Rule 14d-6 of the General Rules and Regulations under the Securities Exchange Act of 1934, as amended, is contained in the Offer to Purchase and is incorporated herein by reference. The Company has provided Purchaser with the Company's stockholder list and security position listings for the purpose of disseminating the Offer to holders of Shares. The Offer to Purchase and the Letter of Transmittal and, if required, other relevant materials, will be mailed by Purchaser to record holders of Shares and will be furnished to brokers, dealers, commercial banks, trust companies and similar persons whose names, or the names of whose nominees, appear on the Company's stockholder list or, if applicable, who are listed as participants in a clearing agency's security position listing for subsequent transmittal to beneficial owners of Shares. The Offer to Purchase and the Letter of Transmittal contain important information which should be read carefully before any decision is made with respect to the Offer. Questions and requests for assistance may be directed to the Information Agent or to the Dealer Manager at their respective addresses and telephone numbers set forth below. Requests for additional copies of the Offer to Purchase and the related Letter of Transmittal may be directed to the Information Agent or to brokers, dealers, commercial banks or trust companies. Such additional copies will be furnished at Purchaser's expense. Purchaser will not pay any fees or commissions to any broker or dealer or any other person (other than the Dealer Manager) for soliciting tenders of Shares pursuant to the Offer. The Information Agent for the Offer is: D. F. King & Co., Inc. 77 Water Street New York, New York 10005 Banks and Brokers Call Collect: (212) 269-5550 All Others Call Toll Free: (800) 769-7666 The Dealer Manager for the Offer is: Merrill Lynch & Co. World Financial Center North Tower New York, New York 10281-1305 (212) 449-8971 (Call Collect) August 4, 1998 EX-99.(A)(7) 8 NOTICE OF GUARANTEED DELIVERY NOTICE OF GUARANTEED DELIVERY FOR TENDER OF SHARES OF COMMON STOCK (INCLUDING THE ASSOCIATED PREFERRED STOCK PURCHASE RIGHTS) OF ATL ULTRASOUND, INC. PURSUANT TO THE OFFER TO PURCHASE DATED AUGUST 4, 1998 BY PHILIPS ACQUISITION, INC. A WHOLLY OWNED SUBSIDIARY OF PHILIPS ELECTRONICS NORTH AMERICA CORPORATION AND AN INDIRECT WHOLLY OWNED SUBSIDIARY OF KONINKLIJKE PHILIPS ELECTRONICS N.V. (ROYAL PHILIPS ELECTRONICS) As set forth in Section 3 of the Offer to Purchase (as defined below), this form, or a form substantially equivalent to this form, must be used to accept the Offer (as defined below) if the certificates representing shares of Common Stock, par value $.01 per share (the "Common Stock"), including the associated rights to purchase Series A Participating Cumulative Preferred Stock (the "Rights" and, collectively with the Common Stock, the "Shares"), of ATL Ultrasound, Inc., a Washington corporation (the "Company"), are not immediately available or time will not permit all required documents to reach the Depositary prior to the Expiration Date (as defined in the Offer to Purchase) or the procedures for book-entry transfer cannot be completed on a timely basis. Such form may be delivered by hand or transmitted by facsimile transmission or mailed to the Depositary and must include a guarantee by an Eligible Institution (as defined in Section 3 of the Offer to Purchase). See Section 3 of the Offer to Purchase. THE DEPOSITARY FOR THE OFFER IS: CITIBANK, N.A. BY MAIL: BY OVERNIGHT COURIER: BY HAND: CITIBANK-WWSS CITIBANK-WWSS Citibank, N.A. c/o Citicorp Data Distribution, c/o Citicorp Data Distribution, Corporate Trust Window Inc. Inc. 111 Wall Street, 5th Floor P.O. Box 7073 400 Sette Drive New York, New York 10043 Paramus, New Jersey 07653 Paramus, New Jersey 07652
BY FACSIMILE TRANSMISSION: CONFIRM RECEIPT OF FACSIMILE BY TELEPHONE: (FOR ELIGIBLE INSTITUTIONS ONLY): 1-800-422-2077 (201) 262-3240
DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE, OR TRANSMISSION OF INSTRUCTIONS VIA A FACSIMILE NUMBER OTHER THAN AS LISTED ABOVE, WILL NOT CONSTITUTE A VALID DELIVERY. This Notice of Guaranteed Delivery is not to be used to guarantee signatures. If a signature on a Letter of Transmittal is required to be guaranteed by an Eligible Institution under the instructions thereto, such signature guarantee must appear in the applicable space provided in the signature box on the Letter of Transmittal. Ladies and Gentlemen: The undersigned hereby tenders to Philips Acquisition, Inc., a Washington corporation ("Merger Sub") and a wholly owned subsidiary of Philips Electronics North America Corporation, a Delaware corporation, and an indirect wholly owned subsidiary of Koninklijke Philips Electronics N.V., a company incorporated under the laws of The Netherlands, upon the terms and subject to the conditions set forth in the Offer to Purchase, dated August 4, 1998 (the "Offer to Purchase"), and the related Letter of Transmittal (which, as amended or supplemented from time to time, together constitute the "Offer"), receipt of which is hereby acknowledged, the number of Shares indicated below pursuant to the guaranteed delivery procedure set forth in Section 3 of the Offer to Purchase. Number of Shares: Name(s) of Record Holder(s): Share Certificate Numbers (if available): Address(es): PLEASE TYPE OR PRINT If Shares will be delivered by book-entry transfer, ZIP CODE Account Number: Telephone Number: Date: , 1998 AREA CODE Signature(s): SIGNATURES
GUARANTEE (NOT TO BE USED FOR SIGNATURE GUARANTEE) The undersigned, a participant in the Security Transfer Agents Medallion Program, The New York Stock Exchange Medallion Signature Guarantee Program or the Stock Exchange Medallion Program (each, an "Eligible Institution"), hereby guarantees that either the certificates representing the Shares tendered hereby in proper form for transfer, or timely confirmation of a book-entry transfer of such Shares into the Depositary's account at The Depository Trust Company (pursuant to procedures set forth in Section 3 of the Offer to Purchase), together with a properly completed and duly executed Letter of Transmittal (or facsimile thereof) with any required signature guarantees (or, in the case of a book-entry transfer, an Agent's Message (as defined in the Offer to Purchase)) and any other documents required by the Letter of Transmittal, will be received by the Depositary at one of its addresses set forth above within three (3) New York Stock Exchange trading days after the date of execution hereof. 2 The Eligible Institution that completes this form must communicate this guarantee to the Depositary and must deliver the Letter of Transmittal, certificates for Shares and any other required documents to the Depositary within the time period shown herein. Failure to do so could result in a financial loss to such Eligible Institution. Name of Firm: __________________________________________________________________ Address: _______________________________________________________________________ _______________________________________________________________________ ZIP CODE Area Code and Telephone Number: ______________________________________________________________ AUTHORIZED SIGNATURE Name: __________________________________________________________________________ PLEASE TYPE OR PRINT Title: _________________________________________________________________________ Dated: ___________________________________________________________________, 1998 NOTE: DO NOT SEND CERTIFICATES FOR SHARES WITH THIS NOTICE OF GUARANTEED DELIVERY. CERTIFICATES FOR SHARES ARE TO BE DELIVERED WITH THE LETTER OF TRANSMITTAL. 3 EX-99.(A)(8) 9 GUIDELINES FOR SUBSTITUTE FORM W-9 GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 GUIDELINES FOR DETERMINING THE PROPER IDENTIFICATION NUMBER TO GIVE THE PAYER.--Social Security numbers have nine digits separated by two hyphens: i.e. 000-00-0000. Employer identification numbers have nine digits separated by only one hyphen: i.e. 00-0000000. The table below will help determine the number to provide on Substitute Form W-9.
- ----------------------------------------------------- GIVE THE NAME AND SOCIAL SECURITY FOR THIS TYPE OF ACCOUNT: NUMBER OF- - ----------------------------------------------------- 1. An individual's The individual account 2. Two or more The actual owner of individuals (joint the account or, if account) combined funds, the first individual on the account(1) 3. Custodian account of The minor(2) a minor (Uniform Gift to Minors Act) 4. a. The usual The grantor- revocable savings trustee(1) trust (grantor is also a trustee) b. So-called trust The actual owner(1) account that is not a legal or valid trust under state law. 5. Sole proprietorship The owner(3) - ----------------------------------------------------- GIVE THE NAME AND EMPLOYER IDENTIFICATION FOR THIS TYPE OF ACCOUNT: NUMBER OF- - ----------------------------------------------------- 6. A valid trust, The legal entity (Do estate, or pension not furnish the trust identifying number of the personal representative or trustee unless the legal entity itself is not designated in the account title.)(4) 7. Corporate account The corporation 8. Association, club, The organization religious, charitable, educational, or other tax-exempt organization account 9. Partnership account The partnership 10. A broker or The broker or registered nominee nominee 11. Account with the The public entity Department of Agriculture in the name of a public entity (such as a state or local government, school district, or prison) that receives agricultural program payments
- --------------------------------------------- - --------------------------------------------- (1) List first and circle the name of the person whose number you furnish. If only one person on a joint account has a social security number, that person's number must be furnished. (2) Circle the minor's name and furnish the minor's social security number. (3) Show the name of the owner. (4) List first and circle the name of the legal trust, estate, or pension trust. NOTE:If no name is circled when there is more than one name, the number will be considered to be that of the first name listed. OBTAINING A TAXPAYER IDENTIFICATION NUMBER Persons without a taxpayer identification number should apply for one and write "Applied for" in Part 1 of Substitute Form W-9. Individuals should file Form SS-5, Application for a Social Security Card (or, in the case of resident aliens that do not have and are not eligible for Social Security numbers, form W-7, Application for Individual Taxpayer Identification Number), and corporations, partnerships or other entities should file Form SS-4, Application for Employer Identification Number. Form SS-5 may be obtained from Local Social Security Administration offices. Forms W-7 and SS-4 may be obtained from the IRS by calling 1-800-TAX-FORM (1-800-829-3676). NOTE: Writing "Applied for" in Part 1 means that you have already applied for a TIN or that you intend to apply for one soon. The following persons are exempt from backup withholding on payments from the sale of Shares pursuant to the Offer: - A corporation. - An organization exempt from tax under Section 501(a) of the Internal Revenue Code. - An individual retirement plan ("IRA"). - A custodial account under Section 403(b)(7) of the Internal Revenue Code. - The United States or any of its agencies or instrumentalities. - A State, the District of Columbia, a possession of the United States, or any of their political subdivisions or instrumentalities. - A foreign government or any of its political subdivisions, agencies or instrumentalities. - A foreign central bank of issue. - A dealer in securities or commodities required to register in the United States or a possession of the United States. - A futures commission merchant registered with the Commodities Futures Trading Commission. - A real estate investment trust. - An entity registered at all times during the tax year under the Investment Company Act of 1940. - A common trust fund operated by a bank under Section 584(a) of the Internal Revenue Code. - A financial institution. - A person registered under the Investment Advisers Act of 1940 who regularly acts as a broker. Such persons should nevertheless complete Substitute Form W-9 to avoid possible erroneous withholding. An exempt person should enter the correct TIN in part I, write "Exempt" in Part II, and sign and date the form. PRIVACY ACT NOTICE Section 6109 of the Internal Revenue Service requires you to give your correct taxpayer identification number to persons who must file information returns with the IRS to report interest, dividends and certain other income paid to you, mortgage interest you paid, the acquisition or abandonment of secured property, cancellation of debt, or contributions you made to an IRA. The IRS uses the numbers for identification purposes and to help verify the accuracy of your tax return. The IRS may also provide this information to the Department of Justice for civil or criminal litigation and to states, cities and the District of Columbia to help carry out their tax laws. You must provide your TIN whether or not you are required to file a tax return. Payers must generally withhold 31% of taxable interest, dividend and certain other payment to a payee who does not give a TIN to a payer. Certain penalties may also apply. EX-99.(C)(1) 10 AGREEMENT AND PLAN OF MERGER AGREEMENT AND PLAN OF MERGER ---------------------------- AGREEMENT AND PLAN OF MERGER (hereinafter called this "AGREEMENT"), dated as of July 29, 1998, among ATL Ultrasound, Inc., a Washington corporation (the "COMPANY"), Philips Electronics North America Corporation, a Delaware corporation ("PARENT"), and Philips Acquisition, Inc., a Washington corporation and a wholly-owned subsidiary of Parent ("MERGER SUB"), the Company and Merger Sub sometimes being hereinafter collectively referred to as the "CONSTITUENT CORPORATIONS." RECITALS WHEREAS, the Boards of Directors of Parent and the Company each have unanimously adopted this Agreement and approved the Offer (as defined herein) and the Merger (as defined herein) and determined that it is in the best interests of their respective companies and shareholders for Parent to acquire the Company upon the terms and subject to the conditions set forth herein; and WHEREAS, the Company, Parent and Merger Sub desire to make certain representations, warranties, covenants and agreements in connection with this Agreement. NOW, THEREFORE, in consideration of the premises, and of the representations, warranties, covenants and agreements contained herein, the parties hereto hereby agree as follows: ARTICLE I The Tender Offer 1.1. TENDER OFFER. (a) Provided that this Agreement shall not have been terminated in accordance with Article IX hereof and none of the events set forth in Annex A hereto (the "OFFER CONDITIONS") shall have occurred or be existing, within five business days of the date hereof, Merger Sub will commence a tender offer (the "OFFER") for all of the outstanding shares of common stock, par value $0.01 per share (the "SHARES"), of the Company, together with the associated rights to purchase (the "RIGHTS") Series A Participating Cumulative Preferred Stock, par value $1.00 per share, of the Company (the "SERIES A PREFERRED") at a price of $50.50 per Share in cash, net to the seller. The obligation of Merger Sub to accept for payment and pay for any Shares tendered pursuant to the Offer shall be subject only to the satisfaction or waiver of the Offer Conditions. Merger Sub will not, without the prior written consent of the Company (such consent to be authorized by the Board of Directors of the Company) (i) waive the Minimum Condition (as defined in Annex A), (ii) decrease the price per Share or change the form of consideration payable in the Offer, (iii) decrease the number of Shares sought in the Offer, (iv) impose additional conditions to the Offer, (v) change any Offer Condition or amend any other term of the Offer if any such change or amendment would be in any manner adverse to the holders of Shares or (vi) except as provided below, extend the Offer if all of the Offer Conditions have been satisfied; PROVIDED, HOWEVER, and notwithstanding anything herein to the contrary, it is understood and agreed that Merger Sub may extend the expiration date of the Offer after all of the Offer Conditions have been satisfied or waived if it reasonably determines such extension is appropriate in order to enable it to purchase at least 90% of the outstanding Shares in the Offer (in which case Merger Sub may extend the expiration date on one occasion for up to ten business days beyond the time it would otherwise be required to accept validly tendered Shares for payment). Parent and Merger Sub further agree that: (A) in the event of the failure of one or more of the Offer Conditions to be satisfied or waived on any date the Offer would otherwise expire, Merger Sub shall from time to time extend the Offer until such time as such condition is or conditions are satisfied or waived, provided that, except as set forth below, Merger Sub shall not be required to extend the Offer beyond October 30, 1998, and (B) in the event, after October 30, 1998, of the failure of the Regulatory Condition (as defined in Annex A) to be satisfied or waived on the date the Offer would otherwise expire (and the satisfaction or waiver on such date of the other Offer Conditions other than the Minimum Condition), Merger Sub shall give the Company notice thereof and, at the request of the Company, from time to time extend the Offer until the earlier of (1) five business days after such time as the Regulatory Condition is satisfied or waived and (2) the date chosen by the Company which shall not be later than the earlier of (x) December 31, 1998 or (y) five business days after the earliest date on which the Company -2- reasonably believes the Regulatory Condition will be satisfied, provided that if such condition is not satisfied by any date chosen by the Company pursuant to this clause (y), the Company may request further extensions of the Offer in accordance with the terms of this Section 1.1. On the terms of the Offer and subject to the Offer Conditions, Merger Sub shall pay for all Shares validly tendered and not withdrawn pursuant to the Offer that Merger Sub becomes obligated to purchase pursuant to the Offer as soon as practicable after the expiration of the Offer. The Company's Board of Directors shall recommend acceptance of the Offer to its stockholders in a Solicitation/Recommendation Statement on Schedule 14D-9 (as supplemented or amended from time to time, the "SCHEDULE 14D-9") to be filed with the Securities and Exchange Commission (the "SEC") upon commencement of the Offer; PROVIDED, HOWEVER, that the Company's Board of Directors may thereafter amend or withdraw its recommendation in accordance with the second paragraph of Section 7.2. (b) Parent and Merger Sub agree, as to the Offer to Purchase and related Letter of Transmittal (which documents, as supplemented or amended from time to time, together constitute the "OFFER DOCUMENTS"), and the Company agrees, as to the Schedule 14D-9, that such documents shall, in all material respects, comply with the requirements of the Exchange Act and the rules and regulations thereunder and other applicable laws. The Company and its counsel, as to the Offer Documents, and Merger Sub and its counsel, as to the Schedule 14D-9, shall be given an opportunity to review such documents prior to their being filed with the SEC. Parent, Merger Sub and the Company each agrees promptly to correct any information provided by it for use in the Offer Documents or the Schedule 14D-9 that shall have become false or misleading in any material respect. Parent and Merger Sub further agree to take all steps necessary to cause the Schedule 14D-1 as so corrected to be filed with the SEC and the other Offer Documents as so corrected to be disseminated to holders of Shares, in each case as and to the extent required by applicable federal securities laws. The Company further agrees to take all steps necessary to cause the Schedule 14D-9 as so corrected to be filed with the SEC and disseminated to holders of Shares, in each case as and to the extent required by applicable federal securities laws. -3- (c) In connection with the Offer, the Company will cause its transfer agent to furnish promptly to Merger Sub a list, as of the most recent date practicable, of the record holders of Shares and their addresses, as well as mailing labels containing the names and addresses of all record holders of Shares, any non-objecting beneficial owner lists and lists of security positions of Shares held in stock depositories in the Company's possession or control. The Company will furnish Merger Sub with such additional information (including, but not limited to, updated lists of holders of Shares and their addresses, mailing labels, non-objecting beneficial owner lists and lists of security positions) and such other assistance as Parent or Merger Sub or their agents may reasonably request in communicating the Offer to the record and beneficial holders of Shares. Subject to the requirements of applicable law, and except for such steps as are necessary to disseminate the Offer Documents and any other documents necessary to consummate the Offer, Parent and Merger Sub shall hold in confidence the information contained in any such labels, listings and files, shall use such information only in connection with the Offer and the Merger and, if this Agreement shall be terminated, shall, upon request, deliver to the Company all copies of such information then in their possession. ARTICLE II The Merger; Closing; Effective Time 2.1. THE MERGER. (a) Upon the terms and subject to the conditions of this Agreement, including, without limitation, Section 2.1(b), at the Effective Time (as defined in Section 2.3) Merger Sub shall be merged with and into the Company and the separate corporate existence of Merger Sub shall thereupon cease (the "MERGER"). Subject to Section 2.1(b), the Company shall be the surviving corporation in the Merger (sometimes hereinafter referred to as the "SURVIVING CORPORATION") and shall continue to be governed by the laws of the State of Washington, and the separate corporate existence of the Company with all its rights, privileges, immunities, powers and franchises shall continue unaffected by the Merger, except as set forth in Section 3.1. The Merger shall have the effects specified in Section 23B.11.060 of the Washington Business Corporation Act (the "WBCA"). -4- (b) In the event that over 90% of the outstanding Shares have been accepted for payment by Merger Sub in the Offer, Parent may, by written notice to the Company and in lieu of the provisions set forth in the first two sentences of Section 2.1(a), elect to cause the Company to merge with and into Merger Sub at the Effective Time, in which case, at the Effective Time, the Company shall be merged with and into Merger Sub and the separate corporate existence of the Company shall thereupon cease; PROVIDED, HOWEVER, that the Company shall not be deemed to have breached any of its representations, warranties or covenants set forth in this Agreement solely by reason of such election. In such circumstance, the merger of the Company into Merger Sub shall be deemed the "Merger" for all purposes hereunder and Merger Sub shall be deemed the "Surviving Corporation" for all purposes hereunder. 2.2. CLOSING. The closing of the Merger (the "CLOSING") shall take place (i) at the offices of Sullivan & Cromwell, 125 Broad Street, New York, New York at 10:00 A.M. on the first business day on which the last to be satisfied or waived of the conditions set forth in Article VIII hereof shall be satisfied or waived in accordance with this Agreement or (ii) at such other place and time and/or on such other date as the Company and Parent may agree. 2.3. EFFECTIVE TIME. As soon as practicable following the Closing, the Company and Parent will cause articles of merger (the "WASHINGTON ARTICLES OF MERGER") to be executed and filed with the Secretary of State of the State of Washington (the "SECRETARY OF STATE") as provided in Section 23B.11.050 of the WBCA. The Merger shall become effective at the time specified in the Washington Articles of Merger as filed with the Secretary of State, and such time is hereinafter referred to as the "EFFECTIVE TIME." Unless Parent and the Company agree otherwise, the Washington Articles of Merger shall specify that the Merger shall become effective at the time of filing such articles with the Secretary of State. -5- ARTICLE III Articles of Incorporation and By-Laws of the Surviving Corporation 3.1. ARTICLES OF INCORPORATION. The Restated Articles of Incorporation of the Company (the "ARTICLEs") in effect at the Effective Time shall be the Articles of Incorporation of the Surviving Corporation, until duly amended in accordance with the terms thereof and the WBCA, except that Article 3 of the Articles shall be amended to read in its entirety as follows: "The aggregate number of shares which the Corporation shall have the authority to issue is 1,000 shares of Common Stock, par value $0.01 per share." 3.2. THE BY-LAWS. The By-Laws of Merger Sub in effect at the Effective Time shall be the By-Laws of the Surviving Corporation, until duly amended in accordance with the terms thereof and the WBCA. ARTICLE IV Officers and Directors of the Surviving Corporation 4.1. OFFICERS AND DIRECTORS. The directors of Merger Sub and the officers of the Company at the Effective Time shall, from and after the Effective Time, be the directors and officers, respectively, of the Surviving Corporation until their successors have been duly elected or appointed and qualified or until their earlier death, resignation or removal in accordance with the Surviving Corporation's Articles of Incorporation and By-Laws. 4.2. ACTIONS BY DIRECTORS. For purposes of Article IX and Sections 2.2, 2.3, 10.3 and 10.4, no action taken by the Board of Directors of the Company after the consummation of the Offer and prior to the Merger shall be effective unless such action is approved by the affirmative vote of at least a majority of the Independent Directors (as defined in Section 4.3). -6- 4.3. BOARDS OF DIRECTORS; COMMITTEES. (a) If requested by Parent, the Company will, subject to compliance with applicable law, immediately following the acceptance for payment of, and payment by Merger Sub for, more than 50 percent of the outstanding Shares pursuant to the Offer, take all actions necessary to cause persons designated by Parent to become directors of the Company so that the total number of such persons equals at least that number of directors, rounded up to the next whole number, which represents the product of (x) the total number of directors on the Board of Directors multiplied by (y) the percentage that the number of Shares so accepted for payment and paid for plus any Shares beneficially owned by Parent or its affiliates on the date hereof bears to the number of Shares outstanding at the time of such payment. In furtherance thereof, the Company will increase the size of the Board, or use its best efforts to secure the resignation of directors, or both, as is necessary to permit Parent's designees to be elected to the Company's Board of Directors; provided, however, that prior to the Effective Time, the Company's Board of Directors shall always have at least three members (the "INDEPENDENT DIRECTORS") who are neither officers of Parent nor designees, shareholders or affiliates of Parent or Parent's affiliates ("PARENT INSIDERS"); and PROVIDED FURTHER that, in such event, if the number of Independent Directors shall be reduced below three for any reason whatsoever, any remaining Independent Directors (or Independent Director, if there shall be only one remaining) shall be entitled to designate persons to fill such vacancies who shall be deemed to be Independent Directors for purposes of this Agreement or, if no Independent Directors then remain, the other directors shall designate three persons to fill such vacancies who shall not be officers or affiliates of Parent or any of Parent's affiliates, and such persons shall be deemed to be Independent Directors for purposes of this Agreement. At such time, the Company, if so requested, will use its best efforts to cause persons designated by Parent to constitute the same percentage of each committee of such board, each board of directors of each subsidiary of the Company and each committee of each such board (in each case to the extent of the Company's ability to elect such persons). The Company's obligations to appoint designees to the Board of Directors shall be subject to Section 14(f) of the Securities Exchange Act of 1934 (the "EXCHANGE ACT") and Rule 14f-1 thereunder. The Company shall promptly take all actions required pursuant to such Section and Rule in order -7- to fulfill its obligations under this Section 4.3 and shall provide for inclusion in the Schedule 14D-9 being mailed to shareholders contemporaneously with the commencement of the Offer such information with respect to Parent and its designees as is required under such Section and Rule in order to fulfill its obligations under this Section 4.3 (provided that Parent shall have provided to the Company on a timely basis all information required to be included under such Section and Rule with respect to the designees of Parent). ARTICLE V Conversion or Cancellation of Shares in the Merger 5.1. CONVERSION OR CANCELLATION OF SHARES. The manner of converting or canceling shares of the Company and Merger Sub in the Merger shall be as follows: (a) At the Effective Time, each Share issued and outstanding immediately prior to the Effective Time (other than Shares owned by Parent, Merger Sub or any other subsidiary of Parent (collectively, the "PARENT COMPANIES")) or Shares which are held by stockholders ("DISSENTING STOCKHOLDERS") exercising dissenters' rights pursuant to Section 23B.13.020 of the WBCA) shall, by virtue of the Merger and without any action on the part of the holder thereof, be converted into the right to receive, without interest, an amount in cash equal to $50.50 or such greater amount which may be paid pursuant to the Offer (the "MERGER CONSIDERATION"). All such Shares, by virtue of the Merger and without any action on the part of the holders thereof, shall no longer be outstanding and shall be canceled and retired and shall cease to exist, and each holder of a certificate representing any such Shares shall thereafter cease to have any rights with respect to such Shares, except the right to receive the Merger Consideration for such Shares upon the surrender of such certificate in accordance with Section 5.2 or the right, if any, to receive payment from the Surviving Corporation of the "fair value" of such Shares as determined in accordance with Section 23B.13.020 of the WBCA. (b) At the Effective Time, each Share issued and outstanding at the Effective Time and owned by any of the Parent Companies, and each Share issued and held in the -8- Company's treasury at the Effective Time, shall, by virtue of the Merger and without any action on the part of the holder thereof, cease to be outstanding, shall be canceled and retired without payment of any consideration therefor and shall cease to exist. (c) At the Effective Time, each share of Common Stock, par value $0.01 per share, of Merger Sub issued and outstanding immediately prior to the Effective Time shall, by virtue of the Merger and without any action on the part of Merger Sub or the holders of such shares, be converted into one Share, unless Parent has made the election provided for in Section 2.1(b) hereof, in which case each such share of Merger Sub shall remain outstanding and each certificate therefor shall continue to evidence one share of Common Stock of the Surviving Corporation. 5.2. PAYMENT FOR SHARES. Parent shall make available or cause to be made available as and when needed to the bank or trust company appointed by Parent as paying agent prior to the consummation of the Offer, which paying agent shall be reasonably acceptable to the Company (the "PAYING AGENT"), amounts sufficient in the aggregate to provide all funds necessary for the Paying Agent to make payments pursuant to Section 5.1(a) hereof to holders of Shares issued and outstanding immediately prior to the Effective Time. Promptly after the Effective Time, the Surviving Corporation shall instruct the Paying Agent to mail to each person who was, at the Effective Time, a holder of record (other than any of the Parent Companies) of issued and outstanding Shares a form of letter of transmittal and instructions in customary form for use in effecting the surrender of the certificates which, immediately prior to the Effective Time, represented any of such Shares in exchange for payment therefor. Upon surrender to the Paying Agent of such a certificate, together with such letter of transmittal, duly executed and completed in accordance with the instructions thereto, the Surviving Corporation shall promptly cause to be paid to the persons entitled thereto a check in the amount to which such persons are entitled, after giving effect to any required tax withholdings. No interest will be paid or will accrue on the amount payable upon the surrender of any such certificate. If payment is to be made to a person other than the registered holder of the certificate surrendered, it shall be a condition of such payment that the certificate so surrendered shall be properly endorsed or otherwise in proper form for transfer -9- and that the person requesting such payment shall pay any transfer or other taxes required by reason of the payment to a person other than the registered holder of the certificate surrendered or establish to the satisfaction of the Surviving Corporation and the Paying Agent that such tax has been paid or is not applicable. 180 days following the Effective Time, the Surviving Corporation shall be entitled to cause the Paying Agent to deliver to it any funds (including any interest received with respect thereto) made available to the Paying Agent which have not been disbursed to holders of certificates formerly representing Shares outstanding immediately prior to the Effective Time, and thereafter such holders shall be entitled to look to the Surviving Corporation only as general creditors thereof with respect to the cash payable upon due surrender of their certificates. Notwithstanding the foregoing, neither the Paying Agent nor any party hereto shall be liable to any holder of certificates formerly representing Shares for any amount paid to a public official pursuant to any applicable abandoned property, escheat or similar law. The Surviving Corporation shall pay all charges and expenses of the Paying Agent in connection with the exchange of cash for Shares and Parent shall reimburse the Surviving Corporation for such charges and expenses. 5.3. DISSENTERS' RIGHTS. If any Dissenting Stockholder shall be entitled to be paid the "fair value" of such Dissenting Stockholder's Shares, as provided in Section 23B.13.020 of the WBCA, the Company shall give Parent notice thereof and Parent shall have the right to participate in all negotiations and proceedings with respect to any such demands. Neither the Company nor the Surviving Corporation shall, except with the prior written consent of Parent, voluntarily make any payment with respect to, or settle or offer to settle, any such demand for payment. If any Dissenting Stockholder shall fail to perfect or shall have effectively withdrawn or lost the right to dissent, the Shares held by such Dissenting Stockholder shall thereupon be treated as though such Shares had been converted into the right to receive the Merger Consideration pursuant to Section 5.1. 5.4. TRANSFER OF SHARES AFTER THE EFFECTIVE TIME. No transfers of Shares shall be made on the stock transfer books of the Surviving Corporation at or after the Effective Time. -10- ARTICLE VI Representations and Warranties 6.1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. Except as set forth in the corresponding section of the disclosure letter, dated the date hereof, delivered by the Company to Parent prior to the execution hereof (the "DISCLOSURE LETTER"), the Company hereby represents and warrants to Parent and Merger Sub that: (a) CORPORATE ORGANIZATION AND QUALIFICATION. Each of the Company and its subsidiaries is a corporation duly organized, validly existing and in good standing under the laws of its respective jurisdiction of incorporation and is in good standing as a foreign corporation in each jurisdiction where the properties owned, leased or operated, or the business conducted, by it require such qualification, except for any such failure to so qualify or be in such good standing which, when taken together with all other such failures, is not reasonably likely to have a Material Adverse Effect. Each of the Company and its subsidiaries has the requisite corporate power and authority to carry on its respective businesses in all material respects as they are now being conducted. The Company has made available to Parent a complete and correct copy of the Company's Articles and By-Laws and the comparable governing instruments of each of its subsidiaries, each as amended to date. The Company's Articles and By-Laws and the comparable governing instruments of each of its subsidiaries so delivered are in full force and effect. (b) AUTHORIZED CAPITAL. The authorized capital stock of the Company consists of 50,000,000 Shares, of which 14,759,713 Shares were outstanding as of July 3, 1998, and 6,000,000 shares of Preferred Stock, par value $1.00 per share (the "PREFERRED SHARES"), of which no shares are outstanding. All of the outstanding Shares and Preferred Shares have been duly authorized and all of the outstanding Shares are validly issued, fully paid and nonassessable. The Company has no Shares or Preferred Shares reserved for issuance, except that, as of July 3, 1998, there were 2,452,482 Shares reserved for issuance upon exercise of outstanding options under (or, in the case of the Employee Stock Purchase Plan, reserved for issuance under such plan) pursuant to the Westmark International Incorporated 1986 -11- Amended and Restated Option, Restricted Stock, Stock Appreciation Right and Performance Unit Plan, Westmark International Incorporated 1986 Amended and Restated Nonofficers Employee Option, Restricted Stock and Stock Grant Plan, 1986 Management Incentive Plan, Amended 1992 Option, Stock Appreciation Right, Restricted Stock, Stock Grant and Performance Unit Plan, 1992 Nonofficers Employee Stock Plan, Amended Nonemployee Directors Stock Option Plan, and Employee Stock Purchase Plan (collectively, the "STOCK PLANS"), and 500,000 shares of Series A Preferred reserved for issuance pursuant to the Amended and Restated Rights Agreement, dated as of June 26, 1992, between the Company and First Chicago Trust Company of New York (the "RIGHTS AGREEMENT"). Each of the outstanding shares of capital stock of each of the Company's subsidiaries is duly authorized, validly issued, fully paid and nonassessable and owned, either directly or indirectly, by the Company free and clear of all liens, pledges, security interests, claims or other encumbrances. Except as set forth above, there are no shares of capital stock of the Company authorized, issued or outstanding and except as set forth above, there are no preemptive rights or outstanding subscriptions, options, warrants, rights or convertible securities of the Company or any of its subsidiaries, or agreements or commitments of the Company or any of its subsidiaries of any character relating to the issued or unissued capital stock or other securities of the Company or any of its subsidiaries. Immediately prior to the consummation of the Offer, no Shares, Preferred Shares or other securities of the Company will be issuable pursuant to the Rights Agreement, and after the Effective Time the Surviving Corporation will have no obligation to issue, transfer or sell any Shares or common stock of the Surviving Corporation pursuant to any Compensation and Benefit Plan (as defined in Section 6.1(h)). (c) CORPORATE AUTHORITY. Subject only to approval of this Agreement by the holders of a majority of the outstanding Shares, the Company has the requisite corporate power and authority and has taken all corporate action necessary in order to execute and deliver this Agreement and to consummate the transactions contemplated hereby. This Agreement is a valid and binding agreement of the Company enforceable against the Company in accordance with its terms. The Board of Directors of the Company has (A) unanimously adopted this Agreement and approved the Offer and the Merger and (B) received the opinion of its financial advisor, BT Alex. Brown, to the effect that, as of -12- the date of this Agreement, the consideration to be received by the holders of Shares (other than Parent and its affiliates) in the Offer and the Merger is fair to such holders from a financial point of view, a copy of the written opinion of which will promptly be provided to Parent. (d) GOVERNMENTAL FILINGS; NO VIOLATIONS. (i) Other than those notices, reports, filings, consents, registrations, approvals, permits or authorizations provided for in Section 2.3, as required under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the "HSR ACT") and the antitrust or competition laws and regulations of Belgium (if required by law), Austria and Germany (the "FOREIGN FILINGS"), and the Exchange Act and the Investment Canada Act ("ICA") (collectively, the "REGULATORY FILINGS"), no notices, reports or other filings are required to be made by the Company with, nor are any consents, registrations, approvals, permits or authorizations required to be obtained by the Company from, any governmental or regulatory authority, agency, commission or other entity, domestic or foreign ("GOVERNMENTAL ENTITY"), in connection with the execution and delivery of this Agreement by the Company and the consummation by the Company of the transactions contemplated hereby, except for those the failure of which to be made or obtained would not, individually or in the aggregate, reasonably be likely to adversely affect the Company in a material way or to prevent the consummation of, or materially impair the Company's ability to consummate, the transactions contemplated hereby. (ii) The execution and delivery of this Agreement by the Company does not, and the consummation by the Company of the transactions contemplated by this Agreement will not, constitute or result in (A) a breach or violation of, or a default under, the Articles or By-Laws of the Company or the comparable governing instruments of any of its subsidiaries, (B) a breach or violation of, a default under or the triggering of any payment or other obligations pursuant to, any of the Company's existing Compensation and Benefit Plans or any grant or award made under any of the foregoing, (C) a breach or violation of, or a default under, the acceleration of or the creation of a lien, pledge, security interest or other encumbrance on assets (with or without the giving of notice or the lapse of time) pursuant to, any provision of any agreement, lease, license, contract, note, mortgage, -13- indenture, arrangement or other obligation ("CONTRACTS") of the Company or any of its subsidiaries or any law, rule, ordinance or regulation or judgment, decree, order, award or governmental or non-governmental permit or license to which the Company or any of its subsidiaries is subject or (D) any change in the rights or obligations of any party under any of the Contracts, except in the case of clauses (B), (C) or (D) above, any such breach, violation, default, triggering, acceleration or creation that, individually or in the aggregate, would not reasonably be likely to have a Material Adverse Effect or to prevent the consummation of, or materially impair the ability of the Company to consummate, the transactions contemplated hereby. Schedule 6.1(d)(ii) of the Disclosure Letter sets forth, to the knowledge of the Company, a list of (x) any material consents required under any Contracts to be obtained prior to consummation of the transactions contemplated by this Agreement (whether or not subject to the exception set forth with respect to clause (C) above) and (y) any Contracts containing any covenants of the Company or any of its subsidiaries not to compete in any line of business or with any person. The Company will use its reasonable best efforts to obtain the consents referred to in the Disclosure Letter. (e) COMPANY REPORTS; FINANCIAL STATEMENTS. The Company has made available to Parent each registration statement, schedule, report, proxy statement or information statement filed by it since December 31, 1997 (the "AUDIT DATE"), including, without limitation, (i) the Company's Annual Report on Form 10-K for the year ended December 31, 1997 and (ii) the Company's Quarterly Report on Form 10-Q for the periods ended March 31, 1998, each in the form (including exhibits and any amendments thereto) filed with the SEC (all such statements, schedules and reports, the "COMPANY REPORTS"). As of their respective dates, the Company Reports did not, and any Company Reports filed with the SEC subsequent to the date hereof will not, contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements made therein, in light of the circumstances in which they were made, not misleading. Each of the consolidated balance sheets included in or incorporated by reference into the Company Reports (including the related notes and schedules) fairly presents in all material respects the consolidated financial position of the Company and its subsidiaries as of its date and each of the consolidated statements of income and of changes in -14- financial position included in or incorporated by reference into the Company Reports (including any related notes and schedules) fairly presents in all material respects the results of operations, retained earnings and changes in financial position, as the case may be, of the Company and its subsidiaries for the periods set forth therein (subject, in the case of unaudited statements, to normal year-end audit adjustments which will not be material in amount or effect), in each case in accordance with generally accepted accounting principles consistently applied during the periods involved, except as may be noted therein. (f) ABSENCE OF CERTAIN CHANGES. Except as disclosed in the Company Reports filed with the SEC prior to the date hereof, since December 31, 1997, the Company and its subsidiaries have conducted their respective businesses only in, and have not engaged in any material transaction other than according to, the ordinary and usual course of such businesses and there has not been (i) any change or development that, individually or in the aggregate, has had, or, individually or in the aggregate, is reasonably likely to have, a Material Adverse Effect; (ii) any declaration, setting aside or payment of any dividend or other distribution with respect to the capital stock of the Company; or (iii) any change by the Company in accounting principles, practices or methods. Since December 31, 1997, except as provided for herein or as disclosed in the Company Reports filed with the SEC prior to the date hereof or as required under agreements disclosed on Schedule 6.1(h) of the Disclosure Letter and other than in the ordinary course, there has not been any increase in the compensation payable or which could become payable by the Company and its subsidiaries to their officers or key employees, or any amendment of any Compensation and Benefit Plans (as hereinafter defined). (g) LITIGATION AND LIABILITIES. Except as disclosed in the Company Reports filed with the SEC prior to the date hereof, there are no (i) civil, criminal or administrative actions, suits, claims, hearings, investigations or proceedings pending or, to the knowledge of the Company, threatened against the Company or any of its subsidiaries or (ii) obligations or liabilities, whether or not accrued, contingent or otherwise, including, without limitation, those relating to matters involving any Environmental Law (as hereinafter defined), in each of cases (i) and (ii), other than those that, individually or -15- in the aggregate, are not reasonably likely to have a Material Adverse Effect. (h) EMPLOYEE BENEFITS. (i) All bonus, deferred compensation, pension, retirement, profit-sharing, thrift, savings, employee stock ownership, stock bonus, stock purchase, restricted stock and stock option plans, all employment, termination, severance, welfare, fringe benefit, compensation, medical or health contract or other plan, contract, policy or arrangement which covers employees or former employees (the "EMPLOYEES") and current and former directors of the Company or its subsidiaries or their respective predecessors (the "COMPENSATION AND BENEFIT PLANS"), including, but not limited to, "employee benefit plans" within the meaning of Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended("ERISA"), are listed in Schedule 6.1(h)(i) of the Disclosure Letter. True and complete copies of all Compensation and Benefit Plans and such other benefit plans, contracts or arrangements, including, but not limited to, any material trust instruments and/or insurance contracts, if any, forming a part of any such plans and agreements, and all amendments thereto have been made available to Parent. (ii) All Compensation and Benefit Plans are in material compliance with applicable law and all Compensation and Benefit Plans which are employee benefit plans, other than "multiemployer plans" within the meaning of Sections 3(37) of ERISA, covering Employees (the "PLANS"), to the extent subject to ERISA, are in substantial compliance with ERISA. Each Plan which is an "employee pension benefit plan" within the meaning of Section 3(2) of ERISA ("PENSION PLAN") and which is intended to be qualified under Section 401(a) of the Internal Revenue Code of 1986, as amended (the "CODE"), has received a favorable determination letter from the Internal Revenue Service with respect to "TRA" (as defined in Section 1 of Internal Revenue Service Revenue Procedure 93-39), and the Company has no knowledge of any circumstances likely to result in revocation of any such favorable determination letter. There is no pending or, to the knowledge of the Company, threatened material litigation relating to the Compensation and Benefit Plans. Neither the Company nor any of its subsidiaries has engaged in a transaction with respect to any Plan that, assuming the taxable period of such -16- transaction expired as of the date hereof, could subject the Company or any of its subsidiaries to a tax or penalty imposed by either Section 4975 of the Code or Section 502(i) of ERISA in an amount which would be material. (iii) No material liability under Subtitle C or D of Title IV of ERISA has been or is expected to be incurred by the Company or any of its subsidiaries with respect to any ongoing, frozen or terminated "single-employer plan", within the meaning of Section 4001(a)(15) of ERISA, currently or formerly maintained by any of them, or the single-employer plan of any entity which is considered one employer with the Company under Section 4001 of ERISA or Section 414 of the Code (an "ERISA AFFILIATE"). None of the Company, its subsidiaries or any ERISA Affiliate has contributed to a "multiemployer plan", within the meaning of Section 3(37) of ERISA, at any time on or after September 26, 1980. No notice of a "reportable event", within the meaning of Section 4043 of ERISA for which the 30-day reporting requirement has not been waived, has been required to be filed for any Pension Plan or by any ERISA Affiliate within the 12-month period ending on the date hereof. (iv) All material contributions required to be made under the terms of any Plan have been timely made. Neither any Pension Plan nor any single-employer plan of an ERISA Affiliate has an "accumulated funding deficiency" (whether or not waived) within the meaning of Section 412 of the Code or Section 302 of ERISA. Neither the Company nor any of its subsidiaries has provided, or is required to provide, security to any Pension Plan or to any single-employer plan of an ERISA Affiliate pursuant to Section 401(a)(29) of the Code. (v) There has been no material adverse change in the financial condition of any single-employer plan since the last day of the most recent Plan year. (vi) Neither the Company nor any of its subsidiaries have any obligations for retiree health and life benefits under any Compensation and Benefit Plan. There are no restrictions on the rights of the Company or any of its subsidiaries to amend or terminate any such Plan without incurring any material liability thereunder. -17- (vii) All Compensation and Benefit Plans covering foreign employees comply with applicable local law. Except as disclosed in the Company Reports filed with the SEC prior to the date hereof, neither the Company nor any of its subsidiaries has any material unfunded liabilities with respect to any Pension Plan which covers foreign Employees. (viii) The consummation of the transactions contemplated by this Agreement will not (x) entitle any employees of the Company or any of its subsidiaries to severance pay, (y) accelerate the time of payment or vesting or trigger any payment of compensation or benefits under, increase the amount payable or trigger any other material obligation pursuant to, any of the Compensation and Benefit Plans or (z) result in any breach or violation of, or a default under any of the Compensation and Benefit Plans. (ix) No payment (or acceleration of benefits) required to be made to any Employee as a result of the transactions contemplated by this Agreement under any Compensation and Benefit Plan or otherwise will, if made, constitute an "excess parachute payment" within the meaning of Section 280G of the Code. Notwithstanding the foregoing, the Company is not a party to any Contract pursuant to which it could be liable to indemnify any "disqualified individual" as defined in Section 280G(c) of the Code for any excise tax under Section 4999 of the Code with respect to any "excess parachute payment". (i) BROKERS AND FINDERS. Neither the Company nor any of its officers, directors or employees has employed any broker or finder or incurred any liability for any brokerage fees, commissions or finders fees in connection with the transactions contemplated herein, except that the Company has employed BT Alex. Brown as its financial advisor, the arrangements with which have been disclosed in writing to Parent prior to the date hereof. (j) RIGHTS PLAN. (i) The Company has amended the Rights Agreement to provide that neither Parent nor any of its "affiliates" or "associates" (each as defined in the Rights Agreement) (including Merger Sub) shall be deemed an Acquiring Person (as defined in the Rights Agreement) and that the Distribution Date (as defined in the Rights Agreement) shall not be deemed to occur, and that the Rights will not separate from the Shares, as a result of the entering into this Agreement, the commencement of the Offer -18- or the consummation of the Merger or the other transactions contemplated hereby; (ii) the Company will take all necessary action with respect to all of the outstanding Rights, so that the Company, as of the time immediately prior to the purchase of any Shares by Parent or any of the Parent Companies pursuant to the Offer, will have no obligations under the Rights or the Rights Agreement and the holders will have no rights under the Rights or the Rights Agreement, in each case, other than the right to receive the redemption payment of $0.01 per Right in cash as provided in the Rights Agreement. (k) TAKEOVER STATUTES. No "fair price", "moratorium", "control share acquisition", "interested shareholder", "business combination" or other similar antitakeover statute or regulation (including, without limitation, the business combination provisions of Chapter 23B.19 of the WBCA) (each a "TAKEOVER STATUTE") is, or at the Effective Time will be, applicable to the Company, the Shares, the Offer or the Merger or the transactions contemplated hereby. (l) ENVIRONMENTAL MATTERS. Except (other than in the case of clause (iii) below) for such matters that, individually or in the aggregate, would not reasonably be likely to have a Material Adverse Effect, (i) the Company and its subsidiaries have at all times complied with all applicable Environmental Laws; (ii) the properties presently owned or operated by the Company or its subsidiaries (including, without limitation, soil, groundwater or surface water on or under the properties, and buildings thereon) (the "PROPERTIES") do not contain and have not contained any Hazardous Substance (as hereinafter defined) other than as permitted under applicable Environmental Law, do not contain, and have not contained, any underground storage tanks, do not have any asbestos present and have not been used as a sanitary landfill, dump or hazardous waste disposal site; (iii) neither the Company nor any of its subsidiaries has within the last five years received any notices, demand letters or requests for information from any Governmental Entity or any third party that the Company may be in violation of, or liable under, any Environmental Law and none of the Company, its subsidiaries or the Properties are subject to any court order, administrative order or decree arising under any Environmental Law; and (iv) no Hazardous Substance has been disposed of, transferred, released or transported from any of the Properties during -19- the time such Property was owned or operated by the Company or one of its subsidiaries, other than as permitted under and as would not reasonably be expected to result in any liability under applicable Environmental Law, which, in any such case, is not the subject of a fully adequate reserve. "ENVIRONMENTAL LAW" means (i) any applicable Federal, state, foreign or local law, statute, ordinance, rule, regulation, code, license, permit, authorization, approval, consent, common law, legal doctrine, order, judgment, decree, injunction, requirement or agreement with any governmental entity, (x) relating to the protection, preservation or restoration of the environment (including, without limitation, air, water vapor, surface water, groundwater, drinking water supply, surface land, subsurface land, plant and animal life or any other natural resource), or to human health or safety, or (y) the exposure to, or the use, presence, storage, recycling, treatment, generation, transportation, processing, handling, labeling, production, release or disposal of Hazardous Substances, in each case as amended and as now in effect. "HAZARDOUS SUBSTANCE" means any substance presently listed, defined, designated or classified as hazardous, toxic, radioactive or dangerous, or otherwise regulated, under any Environmental Law, whether by type or by quantity, including any substance containing any such substance as a component. (m) INTELLECTUAL PROPERTY. (i) The Company and/or each of its subsidiaries owns, or is licensed or otherwise possesses legally enforceable rights to use, all material patents, trademarks, trade names, service marks, copyrights, and any applications therefor, technology, know-how, computer software programs or applications, and tangible or intangible proprietary information or materials that are used in the business of the Company and its subsidiaries as currently conducted, and all material patents, trademarks, trade names, service marks and copyrights held by the Company and/or its subsidiaries are valid and subsisting. (ii) Except as disclosed in Company Reports filed prior to the date hereof: (A) neither the Company nor any of its subsidiaries is, nor will the Company or any of its subsidiaries be as a result of the execution and -20- delivery of this Agreement or the performance of the Company's obligations hereunder, in violation of any licenses, sublicenses or other agreements as to which the Company or any of its subsidiaries is a party or pursuant to which the Company or any of its subsidiaries is authorized to use any third-party patents, trademarks, tradenames, service marks, copyrights, trade secrets, technology, know-how or computer software (collectively, "THIRD-PARTY INTELLECTUAL PROPERTY RIGHTS"), in each case which violation would, individually or in the aggregate, reasonably be likely to adversely affect the Company in a material manner; (B) no material claims with respect to (I) the patents, registered and unregistered trademarks and service marks, registered copyrights, trade names, and any applications therefor, trade secrets, know-how, technology or computer software owned by the Company or any of its subsidiaries (collectively, the "COMPANY INTELLECTUAL PROPERTY RIGHTS"); or (II) Third-Party Intellectual Property Rights are currently pending or, to the knowledge of the Company, are threatened by any person; and (C) to the knowledge of the Company, there is no material unauthorized use, infringement or misappropriation of any of the Company Intellectual Property Rights by any third party, including any employee of the Company or any of its subsidiaries. (n) TAX MATTERS. (i) The Company has timely filed or caused to be filed all federal, state, local and foreign tax returns and tax reports required to be filed by, or with respect to, the Company and its subsidiaries on or prior to the date hereof, except to the extent that any failure to so file would not, individually or in the aggregate, reasonably be likely to adversely affect the Company in any material manner. Such returns and reports are complete and accurate in all material respects. The Company and its subsidiaries have timely paid (A) all taxes shown as due on such tax returns and (B) all taxes for which no return is required to be filed, except to the extent that any failure to so pay would not, individually or in the aggregate, reasonably be likely to adversely affect the Company in any material manner. All -21- U.S. federal income and employment tax returns and reports of the Company and its subsidiaries have been examined by the Internal Revenue Service for all years through 1993. No material issues have been raised in writing by the relevant taxing authority in connection with any examination of the tax returns and reports referred to in the first sentence of this clause (i). (ii) The Company will timely file or cause to be filed all federal, state, local and foreign tax returns and tax reports required to be filed by, or with respect to, the Company and its subsidiaries between the date hereof and the Effective Time, except to the extent that any failure to so file would not, individually or in the aggregate, reasonably be likely to adversely affect the Company in any material manner. Such returns and reports will be complete and accurate in all material respects. (iii) No waivers of statutes of limitations have been given or requested with respect to any material taxes of the Company or its subsidiaries. (iv) The Company is not, nor was it at any time during the five-year period ending on the date on which the Effective Time occurs, a "United States real property holding corporation" within the meaning of Section 897(C) of the Code. (o) INSURANCE. All material fire and casualty, general liability, business interruption, product liability, and sprinkler and water damage insurance policies maintained by the Company or any of its subsidiaries are with reputable insurance carriers, provide adequate coverage for risks incident to the business of the Company and its subsidiaries and their respective properties and assets in character and amount generally comparable with those carried by persons engaged in similar businesses and subject to generally comparable perils or hazards. All such policies are in full force and effect and no notice of cancellation, termination or default has been received with respect to any such policy. All premiums due and payable on such policies covering all periods up to and including the Closing Date have been paid in full or accrued. (p) PRODUCT WARRANTIES. (i) There are no material warranties, express or implied, written or oral, with respect to the products of the Company or any of its -22- subsidiaries ("COMPANY PRODUCTS"); (ii) as of the date hereof there are no pending or threatened material claims with respect to any such warranty; (iii) there are no statements, citations or decisions by any Governmental Entity declaring any Company Products defective or unsafe; (iv) no Company Product fails to meet in any material respect any standards promulgated by any applicable Governmental Entity; (v) there have been no recalls ordered within the past five years by any such Governmental Entity with respect to any Company Product; and (vi) there are no material pending, or, to the knowledge of the Company as of the date hereof, threatened, product liability claims against or involving the Company or any of its subsidiaries or any Company Product and no such claims have been settled or adjudicated since December 31, 1995. (q) YEAR 2000. The Company has a Year 2000 program in place which, to the knowledge of the Company, is adequate to cause all computer software and data processing devices (i) used in or for the manufacturing of Company Products by the Company and/or any of its subsidiaries, or (ii) utilized in or by any Company Products, including any Company Products sold and/or installed prior to the date hereof, to become "Year 2000 Compliant" during 1999 and the Company reasonably believes that all material costs associated with such program are included in the Company's 1998 Budget and in its 1999 Strategic Plan, in each case except as would not reasonably be likely, individually or in the aggregate, to have a Material Adverse Effect. "YEAR 2000 COMPLIANT" means that the product or software accurately processes and stores date/time data (including, but not limited to calculating, comparing, displaying, recording and sequencing operations involving date/time data) during, from and into and between the twentieth and twenty-first centuries, and the years 1999 and 2000, including correct processing of leap year data. (r) COMPLIANCE WITH APPLICABLE LAWS. Each of the Company and its subsidiaries has in effect all material federal, state, local and foreign governmental approvals, authorizations, certificates, filings, franchises, licenses, notices, permits and rights ("PERMITS") necessary for it to own, lease or operate its properties and assets and to carry on its business as now conducted in all material respects, and there has occurred no material default under any such Permit. The Company and its subsidiaries are in compliance in all material respects with all applicable statutes, laws, -23- ordinances, rules, orders and regulations of any Governmental Entity. 6.2. REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB. Parent and Merger Sub represent and warrant to the Company that: (a) CORPORATE ORGANIZATION AND QUALIFICATION. Each of Parent and Merger Sub is a corporation duly organized, validly existing and in good standing under the laws of its respective jurisdiction of incorporation and is in good standing as a foreign corporation in each jurisdiction where the properties owned, leased or operated, or the business conducted, by it require such qualification except for such failure to so qualify or to be in such good standing, which, when taken together with all other such failures, is not reasonably likely to have a material adverse effect on the financial condition, properties, business or results of operations of Parent and its subsidiaries, taken as a whole or on the ability of Parent or Merger Sub to perform their obligations under this Agreement. Merger Sub has made available to the Company true and complete copies of its articles of incorporation and bylaws. (b) CORPORATE AUTHORITY. Parent and Merger Sub each has the requisite corporate power and authority and has taken all corporate action necessary in order to execute and deliver this Agreement and to consummate the transactions contemplated hereby. This Agreement is a valid and binding agreement of Parent and Merger Sub enforceable against Parent and Merger Sub in accordance with its terms. (c) GOVERNMENTAL FILINGS; NO VIOLATIONS. (i) Other than the Regulatory Filings, no notices, reports or other filings are required to be made by Parent and Merger Sub with, nor are any consents, registrations, approvals, permits or authorizations required to be obtained by Parent and Merger Sub from, any Governmental Entity in connection with the execution and delivery of this Agreement by Parent and Merger Sub and the consummation of the transactions contemplated hereby by Parent and Merger Sub, except for those the failure of which to be made or obtained would not, individually or in the aggregate, reasonably be likely to prevent the consummation of, or materially impair the ability of Parent or Merger Sub to consummate, the transactions contemplated hereby. -24- (ii) The execution and delivery of this Agreement by Parent and Merger Sub do not, and the consummation of the transactions contemplated hereby by Parent and Merger Sub will not, constitute or result in (A) a breach or violation of, or a default under, the Certificate or Articles of Incorporation or By-Laws of Parent or Merger Sub or (B) a breach or violation of, a default under, the acceleration of or the creation of a lien, pledge, security interest or other encumbrance on assets (with or without the giving of notice or the lapse of time) pursuant to, any provision of any Contract of Parent or Merger Sub or any law, ordinance, rule or regulation or judgment, decree, order, award or governmental or non-governmental permit or license to which Parent or Merger Sub is subject, except in the case of clause (B) above, any such breach, violation, default, acceleration or creation that, individually or in the aggregate, is not reasonably likely to prevent the consummation of, or materially impair the ability of Parent or Merger Sub to consummate, the transactions contemplated hereby. (d) FUNDS. Parent has or will have the funds necessary to consummate the Offer and the Merger. ARTICLE VII Covenants 7.1. INTERIM OPERATIONS OF THE COMPANY. The Company covenants and agrees that, prior to the Effective Time (unless Parent shall otherwise agree in writing and except as otherwise contemplated by this Agreement or as set forth in the Disclosure Letter): (a) the business of the Company and its subsidiaries shall be conducted only in the ordinary and usual course and, to the extent consistent therewith, each of the Company and its subsidiaries shall use its reasonable best efforts to preserve its business organization intact and maintain its existing relations with customers, suppliers, employees and business associates; (b) the Company shall not (i) sell or pledge or agree to sell or pledge any stock owned by it in any of its subsidiaries; (ii) amend its Articles or By-Laws or -25- amend, modify or terminate the Rights Agreement; (iii) split, combine or reclassify the outstanding Shares or Preferred Shares; or (iv) declare, set aside or pay any dividend payable in cash, stock or property with respect to the Shares or Preferred Shares; (c) neither the Company nor any of its subsidiaries shall (i) issue, sell, pledge, dispose of or encumber any additional shares of, or securities convertible or exchangeable for, or options, warrants, calls, commitments or rights of any kind to acquire, any shares of its capital stock other than, in the case of the Company, Shares issuable pursuant to options outstanding on the date hereof under the Stock Plans; (ii) transfer, lease, license, guarantee, sell, mortgage, pledge, dispose of or encumber any assets or incur or modify any indebtedness or other liability other than in the ordinary and usual course of business; (iii) acquire directly or indirectly by redemption or otherwise any shares of the capital stock of the Company; or (iv) authorize capital expenditures in any manner not reflected in the capital budget of the Company attached to the Disclosure Letter or make any acquisition of, or investment in, any business or stock of any other person or entity; (d) other than (i) the employment agreements entered into in connection with this Agreement, (ii) as otherwise provided herein, (iii) as required by law or (iv) as required under an existing plan as of the date hereof, neither the Company nor any of its subsidiaries shall (A) grant any severance or termination pay to, or enter into any employment or severance agreement with, any director, officer or other employee of the Company or such subsidiaries; or (B) establish, adopt, enter into, make any new grants or awards (or accelerate the vesting, or increase the value of any benefit) under, or amend, any collective bargaining, bonus, profit sharing, thrift, compensation, stock option, restricted stock, pension, retirement, employee stock ownership, deferred compensation, employment, termination, severance or other plan, agreement, trust, fund, policy or arrangement for the benefit of any directors, officers or employees; (e) neither the Company nor any of its subsidiaries shall settle or compromise any material claims or -26- litigation or, except in the ordinary and usual course of business, modify, amend or terminate any of its material Contracts or waive, release or assign any material rights or claims; (f) neither the Company nor any of its subsidiaries shall make any material tax election or permit any material insurance policy naming it as a beneficiary or a loss payable payee to be canceled or terminated without the prior written approval of Parent, except in the ordinary and usual course of business; (g) neither the Company nor any of its subsidiaries shall (i) terminate the employment of any Employee who is covered by a change in control, employment, termination or similar agreement, except for Cause (as defined in such agreements) or (ii) permit circumstances to exist that would provide such Employee with Good Reason (as defined in such agreements) to terminate employment; and (h) neither the Company nor any of its subsidiaries shall authorize or enter into an agreement to do any of the foregoing. 7.2. ACQUISITION PROPOSALS. The Company agrees that neither the Company nor any of its subsidiaries nor any of the respective officers and directors of the Company or its subsidiaries shall, and the Company shall direct and use its best efforts to cause its employees, agents and representatives (including, without limitation, any investment banker, attorney or accountant retained by the Company or any of its subsidiaries) not to, directly or indirectly, initiate, solicit, encourage or otherwise facilitate (including by providing any confidential information or data to or having any negotiations or discussions with any person (other than Parent or its affiliates) making or inquiring with respect to making an Acquisition Proposal), any inquiries or the making of any proposal or offer (including, without limitation, any proposal or offer to stockholders of the Company) with respect to a merger, reorganization, share exchange, consolidation or similar transaction involving the Company, or any purchase of more than 15% (on a fair market value basis) of the assets of the Company and its subsidiaries on a consolidated basis (including any such purchase of assets -27- effected indirectly through the purchase of such subsidiaries), or any purchase of, or tender offer for, more than 15% of any equity securities of the Company (any such proposal or offer being hereinafter referred to as an "ACQUISITION PROPOSAL"), except that the Company shall have the right, if, and only to the extent that, the Company's Board of Directors concludes in good faith after consultation with outside legal counsel that such actions are required to comply with the fiduciary duties of the Company's Board of Directors under applicable law in response to a bona fide, written Acquisition Proposal not solicited on or after the date hereof, to engage in negotiations concerning, provide confidential information or data to, or have discussions with, any person relating to an Acquisition Proposal. The Company will immediately cease and cause to be terminated any existing activities, discussions or negotiations with any parties conducted heretofore with respect to any of the foregoing. The Company will take the necessary steps to promptly inform the individuals or entities referred to in the first sentence hereof of the obligations undertaken in this Section 7.2. The Company will notify Parent promptly, and in any event within 24 hours, if any such inquiries or proposals are received by, any such information is requested from, or any such negotiations or discussions are sought to be initiated or continued with, the Company or any of its subsidiaries, indicating, in connection with such notice, the name of such person and the material terms of any such proposals or offers, and shall thereafter keep Parent informed on a current basis of the status and material terms of any such proposals or offers and the status of any such discussions or negotiations. The Company also will promptly request each person which has heretofore executed a confidentiality agreement in connection with its consideration of acquiring the Company and/or any of its subsidiaries to return all confidential information heretofore furnished to such person by or on behalf of the Company. Nothing contained in this Agreement shall prohibit the Company from taking and disclosing to its stockholders a position required by Rule 14e-2(a) promulgated under the Exchange Act or from making any disclosure to the Company's stockholders if, in the good faith judgment of the Board of Directors of the Company after consultation with outside counsel, failure to do so would be a violation of its obligations under applicable law. -28- 7.3. MEETINGS OF THE COMPANY'S STOCKHOLDERS. If the approval of the Agreement by the Company's stockholders is required by law following consummation of the Offer, the Company will take, consistent with applicable law and its Articles and By-Laws, all action necessary to convene a meeting of holders of Shares as promptly as practicable to consider and vote upon the approval of this Agreement and the Merger. Subject to fiduciary requirements of applicable law, the Board of Directors of the Company shall recommend such approval and the Company shall take all lawful action to solicit such approval. At any such meeting of the Company all of the Shares then owned by the Parent Companies will be voted in favor of this Agreement and the Merger. The Company's proxy or information statement with respect to such meeting of shareholders (the "PROXY STATEMENT"), at the date thereof and at the date of such meeting, will not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; PROVIDED, HOWEVER, that the foregoing shall not apply to the extent that any such untrue statement of a material fact or omission to state a material fact was made by the Company in reliance upon and in conformity with written information concerning the Parent Companies furnished to the Company by Parent specifically for use in the Proxy Statement. The Proxy Statement shall not be filed, and no amendment or supplement to the Proxy Statement will be made by the Company, without prior consultation with Parent and its counsel. 7.4. FILINGS; OTHER ACTION. Subject to the terms and conditions herein provided, the Company and Parent shall: (a) promptly make their respective filings and thereafter make any other required submissions under the HSR Act and other Regulatory Filings with respect to the Offer and the Merger; and (b) use their respective reasonable best efforts to promptly take, or cause to be taken, all other action and do, or cause to be done, all other things necessary, proper or appropriate under applicable laws and regulations to consummate and make effective the transactions contemplated by this Agreement as soon as practicable after the date hereof; PROVIDED, however, that neither Parent nor Merger Sub will be required to divest or hold separate any of their, the Company's or any of their respective affiliates' businesses or assets. -29- 7.5. ACCESS. Upon reasonable notice, the Company shall (and shall cause each of its subsidiaries to) afford Parent's officers, employees, counsel, accountants and other authorized representatives ("REPRESENTATIVES") access, during normal business hours throughout the period prior to the Effective Time, to its properties, books, Contracts and records and, during such period, the Company shall (and shall cause each of its subsidiaries to) furnish promptly to Parent all information concerning its business, properties and personnel as Parent or its Representatives may reasonably request, provided that no investigation pursuant to this Section 7.5 shall affect or be deemed to modify any representation or warranty made by the Company and PROVIDED, further, that the foregoing shall not require the Company to permit any inspection, or to disclose any information, which in the reasonable judgment of the Company would result in the disclosure of any trade secrets of third parties or violate any obligation of the Company with respect to confidentiality if the Company shall have used reasonable efforts to obtain the consent of such third party to such inspection or disclosure. All information exchanged pursuant to this Section 7.5 shall be subject to the confidentiality agreement dated October 8, 1997, between the Company and Parent. All requests for information made pursuant to this Section shall be directed to an executive officer of the Company or such person as may be designated by any such officer. Upon any termination of this Agreement, Parent will collect and deliver to the Company all documents obtained by it or any of its Representatives then in their possession and any copies thereof. 7.6. NOTIFICATION OF CERTAIN MATTERS. The Company shall give prompt notice to Parent of: (a) any notice of, or other communication relating to, any material environmental matter or any material default or event that, with notice or lapse of time or both, would become a material default, received by the Company or any of its subsidiaries subsequent to the date of this Agreement and prior to the Effective Time, under any Contract to which the Company or any of its subsidiaries is a party or is subject; and (b) any change or development that, individually or in the aggregate, is reasonably likely to have a Material Adverse Effect. Each of the Company and Parent shall give prompt notice to the other party of any notice or other communication from any third party alleging that the consent of such third party is or may be required in connection with the transactions contemplated by this Agreement. -30- 7.7. PUBLICITY. The initial press release by the parties hereto with respect to this Agreement shall be a joint press release and thereafter the Company and Parent shall consult with each other prior to issuing any press releases or otherwise making public statements with respect to the transactions contemplated hereby and prior to making any filings with any Governmental Entity or with any national securities exchange with respect thereto. 7.8. BENEFITS. (a) STOCK OPTIONS. Prior to the Effective Time, the Company shall use its reasonable best efforts to take such actions as may be necessary such that at the Effective Time, each stock option outstanding pursuant to the Stock Plans ("OPTION"), whether or not then exercisable, shall be canceled and only entitle the holder thereof, upon surrender thereof, to receive an amount in cash equal to the difference between the Merger Consideration over the exercise price per Share of such Option multiplied by the number of Shares previously subject to such Option, less all applicable withholding Taxes. Such payment shall be made by the Company as soon as administratively feasible after the Effective Time. (b) EMPLOYEE BENEFITS. Parent agrees that, for a period of two years following the Effective Time, it will cause the Company to continue to provide the Employees with compensation and employee benefit plans (other than stock option or other plans involving the potential issuance of securities of the Company or of any of the Parent Companies) which in the aggregate are substantially comparable to those currently provided by the Company to such employees immediately prior to the Effective Time, provided that employees covered by collective bargaining agreements need not be provided such benefits. Parent will, or will cause the Surviving Corporation to, honor without modification all employee (or former employee) benefit obligations accrued as of the Effective Time. (c) MISCELLANEOUS. The Company shall use its best efforts to take the actions set forth on Schedule 7.8(c) of the Disclosure Letter. Section 7.9. INDEMNIFICATION; DIRECTORS' AND OFFICERS' INSURANCE. (a) From and after the Effective Time, Parent agrees that it will indemnify and hold harmless each present and former director and officer of the Company and its subsidiaries, determined as of the Effective Time (the -31- "INDEMNIFIED PARTIES"), against any costs or expenses (including reasonable attorneys' fees), judgments, fines, losses, claims, damages or liabilities (collectively, "COSTS") incurred in connection with any claim, action, suit, proceeding or investigation, whether civil, criminal, administrative or investigative, arising out of matters existing or occurring at or prior to the Effective Time, whether asserted or claimed prior to, at or after the Effective Time, to the fullest extent that the Company would have been permitted under Washington law and its Articles or By-Laws in effect on the date hereof to indemnify such person (and Parent shall also advance expenses as incurred to the fullest extent permitted under applicable law, provided that the person to whom expenses are advanced provides an undertaking to repay such advances if it is ultimately determined that such person is not entitled to indemnification). (b) Any Indemnified Party wishing to claim indemnification under paragraph (a) of Section 7.9, upon learning of any such claim, action, suit, proceeding or investigation, shall promptly notify Parent thereof. In the event of any such claim, action, suit, proceeding or investigation (whether arising before or after the Effective Time), (i) Parent or the Surviving Corporation shall have the right to assume the defense thereof and Parent shall not be liable to such Indemnified Parties for any legal expenses of other counsel or any other expenses subsequently incurred by such Indemnified Parties in connection with the defense thereof, except that if Parent or the Surviving Corporation elects not to assume such defense or counsel for the Indemnified Parties advises that there are issues which raise conflicts of interest between Parent or the Surviving Corporation and the Indemnified Parties, the Indemnified Parties may retain counsel satisfactory to them, and Parent or the Surviving Corporation shall pay all reasonable fees and expenses of such counsel for the Indemnified Parties promptly after statements therefor are received; PROVIDED, HOWEVER, that Parent shall be obligated pursuant to this paragraph (b) to pay for only one firm of counsel for all Indemnified Parties in any jurisdiction unless the use of one counsel for such Indemnified Parties would present such counsel with a conflict of interest, (ii) the Indemnified Parties will cooperate in the defense of any such matter and (iii) Parent shall not be liable for any settlement effected without its prior written consent; and provided further that Parent shall not have any obligation hereunder to any -32- Indemnified Party when and if a court of competent jurisdiction shall ultimately determine, and such determination shall have become final, that the indemnification of such Indemnified Party in the manner contemplated hereby is prohibited by applicable law. (c) For a period of six years after the Effective Time, Parent shall cause to be maintained in effect the current policies of directors' and officers' liability insurance maintained by the Company (provided that Parent may substitute therefor policies with reputable and financially sound carriers of at least the same coverage and amounts containing terms and conditions which are no less advantageous) with respect to claims arising from or related to facts or events which occurred at or before the Effective Time; PROVIDED, HOWEVER, that Parent shall not be obligated to make annual premiums for such insurance to the extent such premiums exceed 150% of the annual premiums paid as of the date hereof by the Company for such insurance (such 150% amount, the "MAXIMUM PREMIUM"). If such insurance coverage cannot be obtained at all, or can only be obtained at an annual premium in excess of the Maximum Premium, Parent shall maintain the most advantageous policies of directors' and officers' insurance obtainable for an annual premium equal to the Maximum Premium. The Company represents to Parent that the Maximum Premium is $284,523. 7.10. TAKEOVER STATUTES. If any Takeover Statute is or shall become applicable to the transactions contemplated hereby, the Company and the Board of Directors of the Company shall grant such approvals and take such actions as are necessary so that the transactions contemplated hereby may be consummated as promptly as practicable on the terms contemplated hereby and otherwise act to eliminate the effects of such statute or regulation on the transactions contemplated hereby. ARTICLE VIII Conditions 8.1. CONDITIONS TO EACH PARTY'S OBLIGATIONS TO EFFECT THE MERGER. The respective obligations of each party to consummate the Merger shall be subject to the satisfaction or waiver, where permissible, prior to the Effective Time, of the following conditions: -33- (a) STOCKHOLDER APPROVAL. If approval of the Merger by the holders of Shares is required by applicable law, the Merger shall have been duly approved by the holders of a majority of the Shares, in accordance with applicable law and the Articles and By-Laws of the Company; (b) PURCHASE OF SHARES. Merger Sub (or one of the Parent Companies) shall have purchased Shares pursuant to the Offer; and (c) LITIGATION. No court or other Governmental Entity of competent jurisdiction shall have enacted, issued, promulgated, enforced or entered any statute, rule, regulation, judgment, decree, injunction or other order (whether temporary, preliminary or permanent) which is in effect and prohibits consummation of the Merger (collectively, an "ORDER"). ARTICLE IX Termination 9.1. TERMINATION BY MUTUAL CONSENT. This Agreement may be terminated and the Merger may be abandoned at any time prior to the Effective Time, before or after the approval by holders of Shares, by the mutual consent of Parent (also acting on behalf of Merger Sub) and the Company, by action of their respective Boards of Directors. 9.2. TERMINATION BY EITHER PARENT OR THE COMPANY. This Agreement may be terminated and the Merger may be abandoned by action of the Board of Directors of either Parent or the Company if (i) Merger Sub shall not have accepted for payment any Shares pursuant to the Offer prior to December 31, 1998; PROVIDED, HOWEVER, that the right to terminate this Agreement pursuant to this Section 9.2(i) shall not be available to (A) Parent if any Shares have been accepted for payment pursuant to the Offer or (B) any party whose failure to perform any of its obligations under this Agreement results in the failure of any Offer Condition; or (ii) any Governmental Entity shall have issued an Order which shall have become final and nonappealable. 9.3. TERMINATION BY PARENT. Unless the Offer shall have been consummated, this Agreement may be -34- terminated and the Merger may be abandoned at any time prior to the Effective Time, before or after the approval by holders of Shares, by action of the Board of Directors of Parent, if (x) (i) the Company shall have breached or failed to perform in any material respect any of its covenants or agreements hereunder (other than any immaterial covenants or agreements) or (ii) a representation or warranty of the Company set forth in this Agreement shall have been inaccurate when made or shall thereafter become inaccurate, except for such inaccuracies which, when taken together (in each case without regard to any qualification as to materiality or a Material Adverse Effect contained in the applicable representations and warranties) would not reasonably be likely to have a Material Adverse Effect, and, with respect to any such breach, failure to perform or inaccuracy that can be remedied, the breach, failure or inaccuracy is not remedied within 15 business days after the giving of written notice of such breach, failure or inaccuracy to the Company; or (y) the Board of Directors of the Company shall have withdrawn or modified in any manner adverse to Parent or Merger Sub its approval or recommendation of the Offer, this Agreement or the Merger or shall have adopted or recommended any Acquisition Proposal, or the Board of Directors of the Company, upon request by Parent, shall fail to reaffirm such approval or recommendation within 10 business days after such request if an Acquisition Proposal is pending, or shall have resolved to do any of the foregoing. 9.4. TERMINATION BY THE COMPANY. This Agreement may be terminated and the Merger may be abandoned at any time prior to the Effective Time, before or after the approval by holders of Shares, by action of the Board of Directors of the Company, (x) if Parent or Merger Sub (or another Parent Company) (i) shall have breached in any material respect any of the representations, warranties, covenants or agreements contained in this Agreement (other than any immaterial covenants or agreements) and, with respect to any such breach that can be remedied, the breach is not remedied within 15 business days after the Company has provided Parent with written notice of such breach or (ii) shall have failed to commence the Offer within the time required in Section 1.1 or to pay for the Shares pursuant to the Offer in accordance with the terms thereof, (y) if (i) the Board of Directors of the Company receives a written offer not solicited on or after the date hereof, with respect to a merger, reorganization, share exchange, -35- consolidation or sale of all or substantially all of the Company's assets or a tender or exchange offer not solicited on or after the date hereof for more than 50% of the outstanding Shares is commenced, and with respect to which the Board of Directors of the Company concludes in good faith, after consultation with its independent financial advisor and its outside counsel, that approval, acceptance or recommendation of such transaction is required by the fiduciary duties of the Company's Board of Directors under applicable law (any such transaction, a "SUPERIOR PROPOSAL"), (ii) the Company has given Purchaser three business days prior written notice of its intention to terminate this Agreement to accept the Superior Proposal and Purchaser shall have failed to offer to amend the Offer so that it is at least as favorable to the stockholders of the Company as the Superior Proposal and (iii) the Company prior to such termination pays to Purchaser in immediately available funds the fee required to be paid pursuant to Section 9.5. 9.5. EFFECT OF TERMINATION AND ABANDONMENT. (a) In the event of termination of this Agreement and abandonment of the Merger pursuant to this Article IX, no party hereto (or any of its directors or officers) shall have any liability or further obligation to any other party to this Agreement, except as provided in Section 9.5(b) below and Section 10.2 and except that nothing herein will relieve any party from liability for any wilful and material breach of its covenants under this Agreement. (b) If (x) (i) the Offer shall have remained open for a minimum of at least 20 business days, (ii) after the date hereof any corporation, partnership, person, other entity or group (as defined in Section 13(d)(3) of the Exchange Act) other than Parent or Merger Sub or any of their respective subsidiaries or affiliates (collectively, a "PERSON") shall have become the beneficial owner of 15% or more of the outstanding Shares or made any Acquisition Proposal, (iii) the Minimum Condition shall not have been satisfied and the Offer is terminated pursuant to Section 9.3(x) (but only if such termination relates to a breach of the Company's obligations under Section 7.2) or pursuant to Section 9.2(i) without the purchase of any Shares thereunder and (iv) within twelve months of such termination the Company enters into an agreement (other than a confidentiality agreement in customary form) with respect to an Acquisition Proposal (as such term is defined in -36- Section 7.2, except that the reference in such definition to 15% shall be deemed a reference to 40% for purposes of this clause (iv) only) or any person or other entity (other than Parent or any of its affiliates) becomes the beneficial owner of 40% or more of the outstanding Shares, (y) Parent shall have terminated this Agreement pursuant to Section 9.3(y), or (z) the Company shall have terminated this Agreement pursuant to Section 9.4(y), then the Company shall promptly, but in no event later than five business days after the date of a request by Parent for payment of such fee (other than a termination pursuant to Section 9.4(y), in which case payment shall be concurrent with termination), pay Parent a fee of $23,700,000, which amount shall be payable in same day funds. The Company acknowledges that the agreements contained in this Section 9.5(b) are an integral part of the transactions contemplated in this Agreement, and that, without these agreements, Parent and Merger Sub would not enter into this Agreement; accordingly, if the Company fails to promptly pay the amount due pursuant to this Section 9.5(b), and, in order to obtain such payment, Parent or Merger Sub commences a suit which results in a judgment against the Company for the fee set forth in this paragraph (b), the Company shall pay to Parent or Merger Sub its costs and expenses (including attorneys' fees) in connection with such suit, together with interest on the amount of the fee at the prime rate of Citibank N.A. on the date such payment was required to be made. ARTICLE X Miscellaneous and General 10.1. PAYMENT OF EXPENSES. (a) Except as otherwise set forth in Section 9.5, whether or not the Merger shall be consummated, each party hereto shall pay its own expenses incident to preparing for, entering into and carrying out this Agreement and the consummation of the Merger. (b) Except as otherwise provided in the fifth sentence of Section 5.2 of this Agreement, all state, local, foreign or provincial sales, use, real property transfer, stock transfer or similar taxes (including any interest, penalties or additions thereto) attributable to the transactions contemplated by this Agreement shall be timely paid by Parent or Merger Sub. -37- 10.2. SURVIVAL. The agreements of the Company, Parent and Merger Sub contained in Sections 5.2 (but only to the extent that such Section expressly relates to actions to be taken after the Effective Time), 5.3, 5.4, 7.8, 7.9, 7.10 and 10.1 and this Section 10.2 shall survive the consummation of the Merger. The agreements of the Company, Parent and Merger Sub contained in Sections 7.5, 9.5 and 10.1 shall survive the termination of this Agreement. No representation or warranty shall survive the consummation of the Offer. 10.3. MODIFICATION OR AMENDMENT. Subject to the applicable provisions of the WBCA, at any time prior to the Effective Time, the parties hereto may modify or amend this Agreement, by written agreement executed and delivered by duly authorized officers of the respective parties. 10.4. WAIVER OF CONDITIONS. The conditions to each of the parties' obligations to consummate the Merger are for the sole benefit of such party and may be waived by such party in whole or in part to the extent permitted by applicable law. 10.5. COUNTERPARTS. For the convenience of the parties hereto, this Agreement may be executed in any number of counterparts, each such counterpart being deemed to be an original instrument, and all such counterparts shall together constitute the same agreement. 10.6. GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the State of New York, except as otherwise required by the WBCA. 10.7. NOTICES. Any notice, request, instruction or other document to be given hereunder by any party to the others shall be in writing and delivered personally or sent by registered or certified mail, postage prepaid, or by facsimile: IF TO PARENT OR MERGER SUB Philips Electronics North America Corporation 1251 Avenue of the Americas 20th Floor New York, NY 10020 Attention: General Counsel Fax: (212) 536-0505 -38- with a copy to Neil T. Anderson, Esq. Sullivan & Cromwell 125 Broad St. New York, NY 10004 Fax: (212) 558-3588 IF TO THE COMPANY ATL Ultrasound, Inc. 22100 Bothell Everett Highway Bothell, WA 98041 Attention: General Counsel Fax: (425) 487-8135 with a copy to Robert I. Townsend, III, Esq. Cravath, Swaine & Moore 825 Eighth Avenue New York, NY 10019 Fax: (212) 474-3700 or to such other persons or addresses as may be designated in writing by the party to receive such notice as provided above. 10.8. ENTIRE AGREEMENT, ETC. This Agreement (including the Disclosure Letter and Annex A hereto) and the Confidentiality Agreement, taken together, (a) constitutes the entire agreement, and supersedes all other prior agreements, understandings, representations and warranties both written and oral, among the parties, with respect to the subject matter hereof, and (b) shall not be assignable by operation of law or otherwise and is not intended to create any obligations to, or (except with respect to the provisions of Section 7.9) rights in respect of, any person other than the parties hereto; PROVIDED, HOWEVER, that Parent may designate, by written notice to the Company, another wholly-owned direct or indirect subsidiary to be a Constituent Corporation in lieu of Merger Sub, in which event all references herein to Merger Sub shall be deemed references to such other subsidiary except that all representations and warranties made herein with respect to Merger Sub as of the date of this Agreement shall be deemed -39- representations and warranties made with respect to such other subsidiary as of the date of such designation. 10.9. DEFINITIONS OF "SUBSIDIARY", "AFFILIATE", "PERSON", "KNOWLEDGE" AND MATERIAL ADVERSE EFFECT. When a reference is made in this Agreement to a subsidiary of a party, the word "subsidiary" means any corporation or other organization whether incorporated or unincorporated of which at least a majority of the securities or interests having by the terms thereof ordinary voting power to elect at least a majority of the board of directors or others performing similar functions with respect to such corporation or other organization is directly or indirectly owned or controlled by such party or by any one or more of its subsidiaries, or by such party and one or more of its subsidiaries. When a reference is made in this Agreement to an affiliate of a party, the word "affiliate" means any person directly or indirectly controlling, controlled by or under common control with such other person at the time at which the determination of affiliation is being made. The term "control" (including, with correlative meanings, the term "controlled by" or "under common control with"), as applied to any person, means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of such person, whether through the ownership of voting securities or other ownership interests, by contract or otherwise. When a reference is made in this Agreement to a person, the word "person" means any individual, corporation, partnership, association, trust or other entity or organization of whatever nature. When the word "knowledge" is used in this Agreement with reference to the Company or its management or officers, such word will be deemed to refer to the actual knowledge of the executive officers of the Company and such other officer that has primary responsibility for the subject matter with respect to which "knowledge" is being considered. For purposes of this Agreement, "Material Adverse Effect" means any material adverse effect on the financial condition, properties, business or results of operations of the Company and its subsidiaries taken as a whole (excluding any change or development resulting from the announcement of this Agreement or the transactions contemplated hereby). 10.10. OBLIGATION OF PARENT. Whenever this Agreement requires Merger Sub to take any action, such requirement shall be deemed to include an undertaking on the part of Parent to cause Merger Sub to take such action. -40- 10.11. CAPTIONS. The Article, Section and paragraph captions herein are for convenience of reference only, do not constitute part of this Agreement and shall not be deemed to limit or otherwise affect any of the provisions hereof. 10.12 SEVERABILITY. If any term or other provision of this Agreement is invalid, illegal or incapable of being enforced by any rule of law or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner adverse to any party. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in an acceptable manner to the end that the transactions contemplated hereby are fulfilled to the fullest extent possible. -41- IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by the duly authorized officers of the parties hereto on the date first hereinabove written. PHILIPS ELECTRONICS NORTH AMERICA CORPORATION By /s/ WILLIAM E. CURRAN ----------------------------------- Senior Vice President and Chief Financial Officer PHILIPS ACQUISITION, INC. By /s/ WILLIAM E. CURRAN ----------------------------------- President ATL ULTRASOUND, INC. By /s/ DENNIS C. FILL ----------------------------------- Chairman of the Board, President and Chief Executive Officer -42- Annex A CERTAIN CONDITIONS OF THE OFFER. Notwithstanding any other provision of the Offer, but subject to the terms and conditions of the Merger Agreement (and provided that Merger Sub shall not be obligated to accept for payment any Shares until expiration or termination of all applicable waiting periods under the H-S-R Act and any applicable waiting periods relating to the Foreign Filings, in each case with respect to the Offer and/or the Merger (the "REGULATORY CONDITION")), Merger Sub (x) shall not be required to accept for payment or, subject to any applicable rules and regulations of the Commission, including Rule 14e-1(c) promulgated under the Exchange Act (relating to Merger Sub's obligation to pay for or return tendered Shares promptly after termination or withdrawal of the Offer), pay for, and (y) may delay the acceptance for payment of or (subject to such rules and regulations, including Rule 14e-1(c)) payment for, any tendered Shares, in each case if a majority of the total Shares outstanding on a fully diluted basis and as will permit Merger Sub to effect the Merger without the vote of any person other than Merger Sub shall not have been properly and validly tendered pursuant to the Offer and not withdrawn prior to the expiration of the Offer (the "MINIMUM CONDITION"), or, if on or after July 29, 1998, and at or before the time of acceptance for payment of any of such Shares, any of the following events shall occur: (a) (i) the Company shall have breached or failed to perform in any material respect any of its covenants or agreements (other than any immaterial covenants or agreements) under the Merger Agreement or (ii) any representation or warranty of the Company set forth in the Merger Agreement shall have been inaccurate when made or shall be inaccurate as of the expiration of the Offer, except in the case of clause (a)(ii) for such inaccuracies which, when taken together (in each case without regard to any qualifications as to materiality or a Material Adverse Effect contained in the applicable representations and warranties) would not reasonably be likely to have a Material Adverse Effect; -1- (b) there shall be threatened, instituted or pending any action, litigation or proceeding (hereinafter, an "ACTION") by any Governmental Entity: (i) challenging the acquisition by Parent or Merger Sub of Shares or seeking to restrain or prohibit the consummation of the Offer or the Merger; (ii) seeking to prohibit or impose any material limitations on Parent's, Merger Sub's or any of their respective affiliates' ownership or operation of all or any material portion of the business or assets of the Company and its subsidiaries taken as a whole or the business or assets of any significant subsidiary of Koninklijke Philips Electronics N.V., or to compel Parent or Merger Sub to dispose of or hold separate all or any portion of Parent's or Merger Sub's or the Company's business or assets (including the business or assets of their respective affiliates and subsidiaries) as a result of the Offer or the Merger; (iii) seeking to impose material limitations on the ability of Parent or Merger Sub effectively to acquire or hold, or to exercise full rights of ownership of, the Shares including, without limitation, the right to vote the Shares purchased by them on an equal basis with all other Shares on all matters properly presented to the shareholders of the Company; or (iv) that, in any event, would, individually or in the aggregate, reasonably be likely to have a Material Adverse Effect; (c) any statute, rule, regulation, order or injunction shall be enacted, promulgated, entered, enforced or deemed to or become applicable to the Offer or the Merger, or any other action shall have been taken, proposed or threatened, by any court or other Governmental Entity, that is reasonably expected to result in any of the effects of, or have any of the consequences sought to be obtained or achieved in, any Action referred to in clauses (i) through (iv) of paragraph (b) above; -2- (d) any change or development shall have occurred that, individually or in the aggregate, is reasonably likely to have a Material Adverse Effect; or (e) the Merger Agreement shall have been terminated by the Company or Parent or Merger Sub in accordance with its terms; which, in the reasonable judgment of Parent and Merger Sub, in any such case, and regardless of the circumstances (including any action or inaction by Parent or Merger Sub) giving rise to any such conditions, makes it inadvisable to proceed with the Offer and/or with such acceptance for payment of or payment for Shares. The foregoing conditions may be asserted by Parent or Merger Sub regardless of the circumstances (including any action or inaction by Parent or Merger Sub) giving rise to such condition. The conditions set forth in paragraphs (a) through (e) above are for the sole benefit of Parent and Merger Sub and may be waived by Parent or Merger Sub, by express and specific action to that effect, in whole or in part at any time and from time to time in their sole discretion. -3- EX-99.(G)(1) 11 EMPLOYMENT AGREEMENT/DENNIS C. FILL EMPLOYMENT AND CONSULTING AGREEMENT AGREEMENT, dated as of July 29, 1998, by and between ATL Ultrasound, Inc. (the "Company") and Dennis C. Fill ("Executive"). WHEREAS, Executive's current employer, ATL Ultrasound, Inc., has entered into an Agreement and Plan of Merger, dated as of July 29, 1998 with Philips Acquisition, Inc. and Philips Electronics North America Corporation (the "Merger Agreement"); and WHEREAS, the Company desires to secure the continued employment of Executive following the successful consummation of the Offer (as such term is defined in the Merger Agreement); and WHEREAS, Executive and the Company desire to enter into an agreement setting forth the terms and conditions of the employment of Executive with the Company on and after the successful consummation of the Offer; NOW, THEREFORE, IN CONSIDERATION OF the mutual covenants herein contained, and other good and valuable consideration, the parties hereto agree as follows: 1. EMPLOYMENT. Subject to the successful consummation of the Offer, the Company hereby agrees to employ Executive, and Executive agrees to serve as an employee of the Company, on the terms and conditions set forth in this Agreement, effective as of the date of this Agreement. The continuation of such employment shall be expressly conditioned on and subject to the consummation of the transactions contemplated by the Merger Agreement. This Agreement shall become null and void, and shall have no force or effect, if the transactions contemplated under the Merger Agreement are not consummated; PROVIDED, THAT, Sections 21, 24 and 25 of this Agreement shall be deemed to be effective as of the successful consummation of the Offer. Following the Employment Period (as defined below) the Company shall engage Executive as a consultant of the Company in accordance with Section 6 hereof. 2. TERM. The period of employment of Executive by the Company hereunder (the "Employment Period") shall commence as of the Effective Time (as defined in the Merger Agreement) (the "Commencement Date") and shall continue until December 31, 1998, at which time Executive shall retire from the Company. In accordance with Section 6 hereof, Executive shall serve as a consultant to the Company until December 31, 2003 (the "Consulting Period") following the Employment Period -1- (the Employment Period and Consulting Period collectively referred to as the "Term"). The Term may be sooner terminated by either party in accordance with Section 6 of this Agreement. 3. DUTIES AND RESPONSIBILITIES. During the Employment Period, Executive shall serve as the Chief Executive Officer and President of the Company with such duties and responsibilities that are customary for such a position. During the Employment Period, Executive shall devote substantially all of his working time, attention and energies during normal business hours (other than absences due to illness or vacation) to the performance of his duties for the Company. Executive may serve as a member of the board of directors of other companies or engage in other outside activities, provided that such activities do not interfere with Executive's duties hereunder. 4. PLACE OF PERFORMANCE. The principal place of employment of Executive shall be at the Company's executive offices in Seattle, Washington. 5. COMPENSATION AND RELATED MATTERS. (a) BASE SALARY AND BONUS. During the Employment Period the Company shall pay Executive a base salary at the rate of not less than $675,000 per year ("Base Salary"). Executive's Base Salary shall be paid in approximately equal installments in accordance with the Company's customary payroll practices. On or about January 1, 1999, Executive shall be paid an annual bonus for 1998 in the amount of $675,000. (b) BENEFIT PLANS. During the Employment Period, Executive shall be entitled to participate in such employee benefit plans and insurance programs offered by the Company, or which it may adopt from time to time, for its executive management or supervisory personnel generally, in accordance with the eligibility requirements for participation therein. Notwithstanding the foregoing, Executive shall not be entitled to receive severance pursuant to the Company's severance plan if he is entitled to receive payments pursuant to Section 9(b) of this Agreement. Nothing herein shall be construed so as to prevent the Company from modifying or terminating any employee benefit plans or programs, or employee fringe benefits, it may adopt from time to time. (c) VACATION AND SICK LEAVE. During the Employment Period, Executive shall be entitled to the amount of paid vacation and sick leave that is provided to other executive offices, in accordance with the Company's customary practices. (d) EXPENSES. The Company shall promptly reimburse Executive for all reasonable business expenses incurred during the Term upon the -2- presentation of reasonably itemized statements of such expenses in accordance with the Company's policies and procedures now in force or as such policies and procedures may be modified with respect to all executive officers of the Company. 6. CONSULTING ARRANGEMENT. Immediately following the Employment Period, Executive shall serve as a consultant to the Company during the Consulting Period. During the Consulting Period, Executive shall make himself available, upon the mutual consent of Executive and the President of Philips Medical Systems, for consultation and advice on matters affecting the business affairs of the Company. Immediately prior to the Effective Time, Executive shall receive a lump-sum consulting fee of $1,150,000 and an additional $60,000 on January 1, 1999, and on the first day of each calendar quarter thereafter to and including October 1, 2003 (the "Consulting Fee"). In addition, beginning on the commencement of the Consulting Period and continuing for the life of Executive, the Company shall pay any premiums required by Medicare for the Executive's post-retirement Medicare coverage. On January 1, 1999, the Company shall cancel all life insurance agreements covering Executive and pay to Executive the cash amount required by Executive to purchase a paid up policy for $300,000 of life insurance on such date. 7. TERMINATION. This Agreement shall be terminated upon the earliest to occur of the following: (a) EXPIRATION. The expiration of the Term. (b) DEATH. The death of Executive. Notwithstanding the foregoing, if Executive should die during the Consulting Period, Executive's beneficiaries or his estate, as the case may be, shall continue to receive the Consulting Fee until the end of the year in which his death occurs. (c) CAUSE. The Company terminates Executive for Cause during the Employment Period. For purposes of this Agreement, the Company shall have "Cause" to terminate Executive upon Executive's (i) willful misconduct (but excluding any action that Executive reasonably believes is in the best interests of the Company), which is materially economically injurious to the Company or to any entity in control of, controlled by or under common control with the Company (an "Affiliate"), including, but not limited to, any breach of Sections 10 and 11 hereof or (ii) the conviction of, or plea of guilty or nolo contendere to, a felony involving moral turpitude. The Company may not terminate Executive for Cause during the Consulting Period. (d) WITHOUT CAUSE. The Company terminates Executive hereunder without Cause by providing Executive with a Notice of Termination. -3- (e) VOLUNTARY TERMINATION. Executive terminates this Agreement at any time upon ninety (90) days prior written notice to the Company. (f) MATERIAL BREACH. Executive terminates his employment for a material breach of this Agreement by the Company. For purposes of this Agreement, a "material breach" shall be deemed to occur upon a failure by the Company to comply with any material provision of this Agreement without Executive's written consent, including, but not limited to, (i) a material diminution in Executive's position, duties, status, authority or responsibility as set forth under the terms of this Agreement, (ii) a reduction in Base Salary or bonus, or (iii) a relocation of the Executive to a location more than 50 miles from his present location, which in the case of any alleged violation of this paragraph (f), has not been cured in all material respects within thirty (30) days after written notice of such noncompliance has been given by Executive to the Company. 8. TERMINATION PROCEDURE. (a) NOTICE OF TERMINATION. Any termination of Executive by the Company or by Executive (other than termination pursuant to Section 7(a) or (b) hereof) shall be communicated by written Notice of Termination to the other party hereto in accordance with Section 14. For purposes of this Agreement, a "Notice of Termination" shall mean a notice which shall indicate the specific termination provision in this Agreement relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of Executive under the provisions so indicated. (b) DATE OF TERMINATION. "Date of Termination" shall mean (i) if Executive is terminated by the expiration of this Agreement, the date of expiration, (ii) if Executive is terminated by his death, the date of his death, and (iii) if Executive is terminated pursuant to Sections 7(c), 7(d), 7(e), or 7(f) the date specified in the Notice of Termination. 9. AMOUNTS DUE UPON TERMINATION. In the event Executive's relationship with the Company terminates during the Term, the Company shall provide Executive with the payments set forth below. Executive acknowledges and agrees that the payments set forth in this Section 9 constitute liquidated damages for termination of this Agreement during the Term. (a) If Executive is terminated pursuant to Sections 7(a), 7(b), 7(c), or 7(e) the Company shall pay Executive his accrued, but unpaid Base Salary, bonus specified in Section 5(a) and Bonus or Consulting Fee, as the case may be, pro rata for the year in which terminated through the Date of Termination at the rate in effect at the time Notice of Termination is given, and (subject to 7(b)) the Company shall have no -4- further obligations to Executive under this Agreement; PROVIDED, THAT, Executive shall be entitled to any other benefit or payment provided pursuant to any plan or policy of the Company in accordance with such plan's or policy's terms. (b) If Executive's employment is terminated pursuant to Sections 7(d) or 7(f), the Company shall pay to Executive his (A) Base Salary or Consulting Fee, as the case may be, accrued through the Date of Termination and (B) a lump-sum payment equal to all remaining amounts that would have been paid under Sections 5(a) and 6 had this Agreement continued through to the end of the Term (the "Remaining Period"). All such payments shall be made as soon as administratively feasible following such termination. Executive shall also be entitled to any other benefits or payments provided pursuant to any plan or policy of the Company in accordance with such plan's or policy's terms, except as provided in Section 5(b). (c) CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY. (i) Notwithstanding anything in this Agreement to the contrary, in the event it shall be determined that any payment, award, benefit or distribution (or any acceleration of any payment, award, benefit or distribution) by the Company (or any of its affiliated entities) or any entity which effectuates (or has previously effectuated) a change in control (or any of its affiliated entities) to or for the benefit of Executive (whether pursuant to the terms of this Agreement or otherwise) (the "Payments") would be subject to the excise tax (the "Excise Tax") under Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code"), then the amounts payable to Executive under this Agreement shall be the greater of (A) the Payment, if the result of subtracting the Excise Tax from the Payment is more than the Safe Harbor Cap and (B) the Payment, reduced to the maximum amount as will result in no portion of the Payments being subject to the Excise Tax (the "Safe Harbor Cap"), reducing first the payments under Section 9(b)(B), unless an alternative method of reduction is elected by Executive. For purposes of reducing the Payments to the Safe Harbor Cap, only amounts payable to Executive under this Agreement (and no other Payments) shall be reduced, unless consented to by Executive. (ii) All determinations required to be made under this Section 9 shall be made by the nationally recognized public accounting firm that is selected by Executive (the "Accounting Firm"). If payments are reduced to the Safe Harbor Cap, the Accounting Firm shall provide a reasonable opinion to Executive that he is not required to report any Excise Tax on his federal income tax return. All fees, costs and expenses (including, but not limited to, the costs of retaining experts) of the Accounting Firm shall be borne by the Company. The determination by the Accounting Firm shall be binding upon the Company and Executive (except as provided in paragraph (iii) below). -5- (iii) If payments are reduced to the Safe Harbor Cap as provided in Section 9(c)(i)(B) and if it is established pursuant to a final determination of a court or an Internal Revenue Service (the "IRS") proceeding which has been finally and conclusively resolved, that Payments have been made to, or provided for the benefit of, Executive by the Company, which are in excess of the limitations provided in this Section 9(c)(i)(B) (hereinafter referred to as an "Excess Payment"), such Excess Payment shall be deemed for all purposes to be a loan to Executive made on the date Executive received the Excess Payment and Executive shall repay the Excess Payment to the Company on demand, together with interest on the Excess Payment at the applicable federal rate (as defined in Section 1274(d) of the Code) from the date of Executive's receipt of such Excess Payment until the date of such repayment. As a result of the uncertainty in the application of Section 4999 of the Code at the time of the determination, it is possible that Payments which will not have been made by the Company should have been made (an "Underpayment"), consistent with the calculations required to be made under this Section 8. In the event that it is determined (A) by the Accounting Firm, the Company (which shall include the position taken by the Company, or together with its consolidated group, on its federal income tax return) or the IRS or (B) pursuant to a determination by a court, that an Underpayment has occurred, the Company shall pay an amount equal to such Underpayment to Executive within ten (10) days of such determination together with interest on such amount at the applicable federal rate from the date such amount would have been paid to Executive until the date of payment. 10. CONFIDENTIAL INFORMATION; REMOVAL OF DOCUMENTS AND NON-DISPARAGEMENT. (a) Executive agrees to keep secret and retain in the strictest confidence all Confidential Information which relates to the Company and any of its Affiliates. "Confidential Information" (a) means information (i) that is learned by Executive from the Company or any Affiliate before or after the date of this Agreement (other than Confidential Information that was known by Executive on a nonconfidential basis prior to the disclosure thereof); (ii) that is commercially valuable to the Company and (iii) that is not published or of public record or otherwise generally known (other than through failure of Executive to fully perform his obligations hereunder), and (b) includes, without limitation, customer lists, client lists, trade secrets, pricing policies and other business affairs of the Company and any of its Affiliates. Executive agrees not to disclose any such Confidential Information to anyone outside the Company or any of its Affiliates, whether during or after his period of service with the Company, except (x) as such disclosure may be required or appropriate in connection with his service or (y) when required to do so by a court of law, by any governmental agency or by any administrative or legislative body (including a committee thereof) with apparent jurisdiction to order him to divulge, disclose or make accessible such information. Executive agrees to give the Company advance written notice of any disclosure pursuant to clause (y) of the -6- preceding sentence and to cooperate with any efforts by the Company to limit the extent of such disclosure. (b) All records, files, drawings, documents, models, equipment, and the like containing Confidential Information or needed in the Company's business, which Executive has control over shall not be removed from the Company's premises without its written consent, unless such removal is in the furtherance of the Company's business or is in connection with Executive's carrying out his duties under this Agreement and, if so removed, shall be returned to the Company promptly after termination of Executive's employment hereunder, or otherwise promptly after removal if such removal occurs following termination. Executive's rolodex, telephone directory and similar type items, and furniture, art work and property owned by Executive or otherwise not owned by the Company shall not be deemed Company property and shall not be covered by this Section 10(b). The Company shall be the owner of all trade secrets and other products relating to the Company's business developed by Executive alone or in conjunction with others as part of his services with the Company. (c) Executive agrees that during the Term and for a period of one year thereafter, he will not and that his attorneys, agents, or other representatives shall not (i) take any action or make or publish any statement, whether oral or written, which disparages in any way the Company or any or all of its present or former employees, principals, directors, partners, or Affiliates, including, without limitation, any disparaging statement which interferes in any way with the ability of the Company or any of its affiliates to market their services, products, to retain existing client relationships, or to obtain new client relationships; (ii) make any statements in any public forum or statements intended for publication in the public media, which are reasonably likely to negatively affect the standing of the Company or its Affiliates. 11. NON-COMPETITION. (a) In consideration of the benefits to be provided to Executive hereunder, Executive covenants that he will not, without the prior written consent of the Company, during the Term and the twelve (12) month period thereafter or, if terminated pursuant to Sections 7(d) or 7(e) hereof, the Remaining Period, if greater (the "Restriction Period"), engage in any way, directly or indirectly, in any business whose product or activities directly compete with the products or activities of Philips Medical Systems or the Company anywhere where Philips Medical Systems or the Company conducts such businesses, other than in his capacity as an employee or consultant of the Company. (b) Executive hereby covenants and agrees that, at all times during the Restriction Period, Executive shall not employ or seek to employ any person employed at that time by Philips Medical Systems or the Company or any of its -7- subsidiaries or its Affiliates, or otherwise encourage or entice such person or entity to leave such employment. (c) Executive hereby covenants and agrees that, at all times during the Restriction Period, Executive will not (i) pursue or attempt to develop any project known to Executive and which Philips Medical Systems or the Company or any Affiliates are pursuing, developing or attempting to develop as of the Date of Termination ("Project"), directly or indirectly, alone, in association with or as a shareholder, principal, agent, partner, officer, director, employee or consultant of any other organization or (ii) divert to any entity which is engaged in any business conducted by Philips Medical Systems or the Company or any Affiliates in the same geographic area as Philips Medical Systems or the Company or any Affiliates, any Project or any customer of Philips Medical Systems or the Company or any Affiliates. (d) Executive acknowledges that the restrictions, prohibitions and other provisions of this Section 11 are reasonable, fair and equitable in scope, terms and duration, are necessary to protect the legitimate business interests of the Company and are a material inducement to the Company to enter into this Agreement. It is the intention of the parties hereto that the restrictions contained in this paragraph be enforceable to the fullest extent permitted by applicable law. Therefore, to the extent any court of competent jurisdiction shall determine that any portion of the foregoing restrictions is excessive, such provision shall not be entirely void, but rather shall be limited or revised only to the extent necessary to make it enforceable. 12. REMEDY. Should Executive engage in or perform any of the acts prohibited by Sections 10 and 11, it is agreed that the Company shall be entitled to full injunctive relief, to be issued by any competent court of equity, enjoining and restraining Executive and each and every other person, firm, organization, association, or corporation concerned therein, from the continuance of such violative acts. The foregoing remedy available to Company shall not be deemed to limit or prevent the exercise by the Company of any or all further rights and remedies which may be available to the Company hereunder or at law or in equity. 13. SUCCESSORS; BINDING AGREEMENT. This Agreement shall be binding upon and shall inure to the benefit of Executive, his heirs, executors, administrators, beneficiaries and assigns and shall be binding upon and shall inure to the benefit of the Company and its successors. 14. NOTICE. For the purposes of this Agreement, notices, demands and all other communications provided for in this Agreement shall be in writing and shall be deemed to have been duly given when delivered either personally or by United States certified or registered mail, return receipt requested, postage prepaid, addressed, in case -8- of Executive, to the last address on file with the Company and if to the Company, to its executive offices or to such other address as any party may have furnished to the others in writing in accordance herewith, except that notices of change of address shall be effective only upon receipt. 15. RESOLUTION OF DIFFERENCES OVER BREACHES OF AGREEMENT. The parties shall use good faith efforts to resolve any controversy or claim arising out of, or relating to this Agreement or the breach thereof, first in accordance with the Company's internal review procedures, except that this requirement shall not apply to any claim or dispute under or relating to Sections 10 or 11 of this Agreement. If despite their good faith efforts, the parties are unable to resolve such controversy or claim through the Company's internal review procedures, then such controversy or claim shall be resolved by a court of law having jurisdiction thereof. If any contest or dispute shall arise between the Company and Executive regarding any provision of this Agreement, each of the parties shall be responsible for paying all of its own legal fees and expenses incurred in connection with such contest or dispute. 16. GOVERNING LAW. This Agreement is governed by, and is to be construed and enforced in accordance with, the laws of the State of Washington, without regard to principles of conflicts of laws. If, under such law, any portion of this Agreement is at any time deemed to be in conflict with any applicable statute, rule, regulation or ordinance, such portion shall be deemed to be modified or altered to conform thereto or, if that is not possible, to be omitted from this Agreement, and the invalidity of any such portion shall not affect the force, effect and validity of the remaining portion hereof. 17. AMENDMENT. No provisions of this Agreement may be amended, modified, or waived unless such amendment or modification is agreed to in writing signed by Executive and by a duly authorized officer of the Company, and such waiver is set forth in writing and signed by the party to be charged. No waiver by either party hereto at any time of any breach by the other party hereto of any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. 18. SURVIVAL. The respective obligations of, and benefits afforded to, Executive and Company as provided in Sections 10 and 11 of this Agreement shall survive the termination of this Agreement. 19. NO CONFLICT OF INTEREST. During the Employment Period, Executive shall not directly, or indirectly render service, or undertake any employment or consulting agreement with another entity without the express written consent of the Company. -9- 20. COUNTERPARTS. This Agreement may be executed in two or more counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. 21. ENTIRE AGREEMENT. This Agreement sets forth the entire agreement of the parties hereto (and in the case of the Company, its predecessors) in respect of the subject matter contained herein and supersede all prior agreements, promises, covenants, arrangements, communications, representations or warranties, whether oral or written, by any officer, employee or representative of any party hereto in respect of such subject matter, including, but not limited to, the Employment Agreement by and between ATL Ultrasound, Inc. and Executive, dated as of the second day of November, 1990 and any and all amendments made subsequent thereto (the "Prior Agreement") and, as of the successful consummation of the Offer, such Prior Agreement shall be void and of no further force or effect. Any prior agreement of the parties hereto in respect of the subject matter contained herein is hereby terminated and canceled, as of the successful consummation of the Offer; PROVIDED THAT, except as provided in Section 24 hereof, this Agreement shall not modify or terminate the provisions of any compensation or benefit plan providing benefits upon a change in control of the Company (excluding the Prior Agreement); PROVIDED, FURTHER, that Executive acknowledges and agrees that he will be paid an aggregate amount of no more than $388,125 with respect to the 1996-98, 1997-99 and 1998-00 performance cycles under the Company's Long Term Incentive Plan (the "Plan"), effective as of January 1, 1993 and waives all rights for any other payments under such Plan upon payment of such amounts. Executive acknowledges that in consideration of the benefits to be provided hereunder, he has, as of the successful consummation of the Offer, waived all of his rights under the Prior Agreement, including, but not limited to Section 6 thereof. 22. INDEPENDENT CONTRACTOR. During the Consulting Period, in performing services hereunder, Executive will at all times and for all purposes, constitute an independent contractor and not an employee or agent of the Company or any of its subsidiaries or affiliates. In no event will Executive be, or represent himself to be, an officer, employee or agent of the Company or any subsidiary or affiliate thereof nor will Executive bind, or attempt to bind, the Company or any subsidiary or affiliate thereof to any contract, agreement, liability or obligation of any nature. Except as expressly provided herein, the Company will not be required to provide any benefits to Executive which it provides to its employees including without limitation retirement plans, insurance programs and vacation based on services rendered during the Consulting Period. 23. SECTION HEADINGS. The section headings in this Agreement are for convenience of reference only, and they form no part of this Agreement and shall not affect its interpretation. -10- 24. RESTRICTED STOCK. Executive and the Company agree that Executive shall waive the accelerated vesting of any shares of common stock of the Company that are currently subject to a vesting requirement (the "Restricted Stock") until immediately prior to the Effective Time. Immediately before the Effective Time, all shares of Restricted Stock shall immediately vest. 25. COOPERATION. Executive agrees to use his best efforts to cooperate with and assist Philips Medical Systems in its efforts to execute employment agreements with the executives of the Company, selected by Philips Medical Systems, under terms and conditions satisfactory to Philips Medical Systems. -11- IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. ATL Ultrasound, Inc. By: /s/ Pamela L. Dunlap ------------------------------ /s/ Dennis C. Fill --------------------------------- DENNIS C. FILL -12- EX-99.(G)(2) 12 EMPLOYMENT AGREEMENT/PAMELA DUNLAP EMPLOYMENT AGREEMENT AGREEMENT, dated as of July 29, 1998, by and between ATL Ultrasound, Inc. (the "Company") and Pamela Dunlap ("Executive"). WHEREAS, Executive's current employer, ATL Ultrasound, Inc., has entered into an Agreement and Plan of Merger, dated as of July 29, 1998 with Philips Acquisition, Inc. and Philips Electronics North America Corporation (the "Merger Agreement"); and WHEREAS, the Company desires to secure the continued employment of Executive following the successful consummation of the Offer (as such term is defined in the Merger Agreement); and WHEREAS, Executive and the Company desire to enter into an agreement setting forth the terms and conditions of the employment of Executive with the Company on and after the successful consummation of the Offer; NOW, THEREFORE, IN CONSIDERATION OF the mutual covenants herein contained, and other good and valuable consideration, the parties hereto agree as follows: 1. EMPLOYMENT. Subject to the successful consummation of the Offer, the Company hereby agrees to employ Executive, and Executive agrees to serve as an employee of the Company, on the terms and conditions set forth in this Agreement, effective as of the date of this Agreement. The continuation of such employment shall be expressly conditioned on and subject to the consummation of the transactions contemplated by the Merger Agreement; PROVIDED, THAT, Section 20 of this Agreement shall be deemed to be effective as of the consummation of the Offer. This Agreement shall become null and void, and shall have no force or effect, if the transactions contemplated under the Merger Agreement are not consummated. 2. EMPLOYMENT PERIOD. The "Employment Period" shall be the period commencing on the Effective Time (as defined in the Merger Agreement) and ending on December 31, 2001. 3. DUTIES AND RESPONSIBILITIES. During the Employment Period, Executive shall serve as the Senior Vice President and CFO of the Company with such duties and responsibilities that are customary for such position and shall include those that are assigned to her by the Company during the Employment Period that are not inconsistent with such position. Executive shall devote substantially all of her working time, attention and energies during normal business hours (other than absences due to illness or vacation) to the performance of her duties for the Company. Upon the prior written approval of the Chief Executive Officer of the Philips Medical Systems, Executive may serve as a member of the board of directors of other companies or engage in other outside activities, provided that such activities do not interfere with Executive's duties hereunder; provided, further, that if Executive is already a member of any such board of directors, as set forth on Exhibit A hereof, she shall be entitled to remain on such board without violating the terms of this Agreement. 4. PLACE OF PERFORMANCE. The principal place of employment of Executive shall be at the Company's executive offices in Seattle, Washington. 5. COMPENSATION AND RELATED MATTERS. (a) BASE SALARY AND BONUS. During the Employment Period the Company shall pay Executive a base salary at the rate of not less than $ 200,000 per year ("Base Salary") which shall be annually reviewed by the Company. Executive's Base Salary shall be paid in approximately equal installments in accordance with the Company's customary payroll practices. If Executive's Base Salary is increased by the Company, such increased Base Salary shall then constitute the Base Salary for all purposes of the Agreement. On or about January 1, 1999, Executive shall be paid an annual bonus equal to the pro rata portion (based on the number of days elapsed in 1998 through and including the Effective Time) of the annual bonus that would have been payable under Executive's annual bonus arrangement in effect on the date hereof based on the Company's annualized performance through the last full fiscal quarter completed before the Effective Time; PROVIDED, THAT for purposes of this sentence, Executive's maximum annual bonus opportunity shall be deemed to be 50% of Base Salary. For the remaining period of 1998 following the Effective Time (for which a bonus may be paid, prorated in the proportion that the number of days after the Effective Time through December 31, 1998 bears to 365) and during each subsequent year of the Employment Period, Executive shall be entitled to an annual incentive bonus ("Bonus"), based upon the achievement of performance targets, such targets as determined in the sole discretion of the Company, to be payable at the same time as bonuses are paid to other executive officers. Executive's target Bonus shall be 50% of Base Salary, but may be more or less upon achievement of performance targets. (b) STOCK OPTION. (i) The Executive shall be granted stock options (the "Stock Option") to acquire 5,000 shares of the common stock of Royal Philips Electronics (the "Stock"), pursuant to the Philips Electronics North America Corporation 1998 Stock Incentive Plan (the "Option Plan"). The Stock Option shall be granted on the Effective Time, and shall be granted at an exercise price per share equal to the fair market value of the Stock on the date of grant and shall be subject to the general terms of the Option Plan and the stock -2- option agreement thereunder (the "Option Agreement"). Stock Options granted pursuant to this Section 5(b)(i) shall become exercisable at a rate of 33-1/3% on each of the first, second and third anniversaries of the date of grant, provided Executive remains an employee on such date, and shall expire ten (10) years following the date of grant, except as otherwise provided in the Option Plan or Option Agreement. Notwithstanding the foregoing, if Executive is terminated pursuant to Sections 6(e) or 6(g) hereof, such Stock Option shall become immediately exercisable and shall remain exercisable for one-year following such termination. (ii) Beginning in the year 2000, Executive shall be eligible for option grants on the same basis as other senior executives of the Company. (c) LONG-TERM PERFORMANCE UNIT PLAN. The Company shall establish the Long-Term Performance Unit Plan which shall provide Executive with a bonus (the "Incentive Bonus") equal to Executive's Base Salary, to be paid in the first quarter following the end of the Performance Period (the "Payment Date"), if Executive is an employee on the last day of the Performance Period and 75% of the base case strategic plan, as attached as Exhibit B (the "Strategic Plan") has been achieved during the 1999-2001 performance period (the "Performance Period"). If 100% of the Strategic Plan is achieved during the Performance Period, Executive's Incentive Bonus shall be two times Base Salary and if 100% of the Strategic Plan is achieved, including synergies, the Incentive Bonus shall be three times Base Salary. In the first quarter following December 31, 1999 and December 31, 2000, Executive shall receive a payment equal to 20% of Base Salary (each, an "Advance Bonus") which shall reduce the Incentive Bonus, on a dollar for dollar basis, otherwise payable under this paragraph. Notwithstanding the foregoing, if Executive is terminated pursuant to Sections 6(e) or 6(g) hereof, Executive shall be entitled to a pro-rata Incentive Bonus, based on the ratio the number of days worked in the Performance Period bears to the total number of days in the Performance Period, to be paid on the Payment Date. (d) BENEFIT PLANS. Executive shall be entitled to participate in such employee benefit plans and insurance programs offered by the Company, or which it may adopt from time to time, for its executive management or supervisory personnel generally, in accordance with the eligibility requirements for participation therein. Notwithstanding the foregoing, Executive shall not be entitled to receive severance pursuant to the Company's severance plan if she is entitled to receive payments pursuant to Section 8(c) of this Agreement. Nothing herein shall be construed so as to prevent the Company from modifying or terminating any employee benefit plans or programs, or employee fringe benefits, it may adopt from time to time. -3- (e) VACATION AND SICK LEAVE. Executive shall be entitled to the amount of paid vacation and sick leave that is provided to other executive officers, in accordance with the Company's customary practices. (f) EXPENSES. The Company shall promptly reimburse Executive for all reasonable business expenses upon the presentation of reasonably itemized statements of such expenses in accordance with the Company's policies and procedures now in force or as such policies and procedures may be modified with respect to all executive officers of the Company. 6. TERMINATION. This Agreement shall be terminated upon the earliest to occur of the following: (a) EXPIRATION. The expiration of the Employment Period. (b) DEATH. The death of Executive. (c) DISABILITY. If, as a result of Executive's Disability, Executive shall have been substantially unable to perform her duties hereunder for a period of six (6) consecutive months and within thirty (30) days after written Notice of Termination is given by the Company after such six (6) month period, Executive shall not have returned to the substantial performance of her duties on a full-time basis. For purposes of this Agreement, "Disability" shall have the same meaning as that term is defined in the Company's Long Term Disability Plan; PROVIDED, THAT, if no such plan exists, "Disability" shall have the same meaning as provided in Section 22(e)(3) of the Code. (d) CAUSE. The Company terminates Executive for Cause. For purposes of this Agreement, the Company shall have "Cause" to terminate Executive's employment upon Executive's (i) willful and continued failure to substantially perform her duties with the Company (other than any such failure resulting from her incapacity due to physical or mental illness) after a written demand for substantial performance is delivered to Executive which identifies the manner in which the Company believes that Executive has not substantially performed her duties, or (ii) willful misconduct (but excluding any action that Executive reasonably believes is in the best interests of the Company) which is materially economically injurious to the Company or to any entity in control of, controlled by or under common control with the Company (an "Affiliate"), including, but not limited to, any breach of Sections 9 and 10 hereof, or (iii) the conviction of, or plea of guilty or nolo contendere to, a felony involving moral turpitude, or (iv) habitual drug or alcohol abuse by Executive. -4- (e) WITHOUT CAUSE. The Company terminates Executive's employment hereunder without Cause by providing Executive with a Notice of Termination. (f) VOLUNTARY TERMINATION. Executive terminates this Agreement and Executive's employment hereunder at any time upon ninety (90) days prior written notice to the Company. (g) MATERIAL BREACH. Executive terminates her employment for a material breach of this Agreement by the Company. For purposes of this Agreement, a "material breach" shall be deemed to occur upon a failure by the Company to comply with any material provision of this Agreement without Executive's written consent, including, but not limited to, (i) a material diminution in Executive's position, duties, status, authority or responsibility as set forth under the terms of this Agreement, (ii) a reduction in Base Salary, Bonus or Incentive Bonus opportunity, or (iii) a relocation of the Executive to a location more than 50 miles from her present location, which in the case of any alleged violation of this paragraph (g), has not been cured in all material respects within thirty (30) days after written notice of such noncompliance has been given by Executive to the Company. 7. TERMINATION PROCEDURE. (a) NOTICE OF TERMINATION. Any termination of Executive by the Company or by Executive (other than termination pursuant to Section 6(a) or (b) hereof) shall be communicated by written Notice of Termination to the other party hereto in accordance with Section 13. For purposes of this Agreement, a "Notice of Termination" shall mean a notice which shall indicate the specific termination provision in this Agreement relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of Executive under the provisions so indicated. (b) DATE OF TERMINATION. "Date of Termination" shall mean (i) if Executive's employment is terminated by the expiration of this Agreement, the date of expiration, (ii) if Executive's employment is terminated by her death, the date of her death, (iii) if Executive's employment is terminated pursuant to Section 6(c) hereof, thirty (30) days after Notice of Termination is given (provided that Executive shall not have again become available for service on a regular basis during such thirty (30) day period), (iv) if Executive's employment is terminated pursuant to Sections 6(d), 6(e), or 6(g) the date specified in the Notice of Termination, and (v) if Executive's employment is terminated for any other reason, the date on which a Notice of Termination is given. -5- 8. AMOUNTS DUE UPON TERMINATION OR DURING DISABILITY. In the event Executive is disabled or her employment terminates during the Employment Period, the Company shall provide Executive with the payments set forth below. Executive acknowledges and agrees that the payments set forth in this Section 8 constitute liquidated damages for termination of her employment during the Employment Period. (a) During any period that Executive fails to perform her duties hereunder as a result of Disability ("disability period"), Executive shall continue to receive her Base Salary at the rate then in effect for such period until her employment is terminated pursuant to Section 6(c) hereof; PROVIDED, THAT, payments so made to Executive during the first six (6) months of the disability period shall be reduced by the sum of the amounts, if any, paid to the Executive at or prior to the time of any such payment under disability benefit plans of the Company or under the Social Security disability insurance program, and which amounts were not previously applied to reduce any such payment. Executive shall also be entitled to any other benefits or payments provided pursuant to any plan or policy of the Company in accordance with such plan's or policy's terms. (b) If Executive is terminated pursuant to Sections 6(a), 6(b), 6(d), or 6(f) the Company shall pay Executive her accrued, but unpaid Base Salary and Bonus through the Date of Termination at the rate in effect at the time Notice of Termination is given, and the Company shall have no further obligations to Executive under this Agreement; PROVIDED, THAT, Executive shall be entitled to any other benefit or payment provided pursuant to any plan or policy of the Company in accordance with such plan's or policy's terms. (c) If Executive's employment is terminated pursuant to Sections 6(e) or 6(g), the Company shall pay to Executive her (A) Base Salary accrued through the Date of Termination and (B) a lump-sum payment equal to the remaining Base Salary and Average Bonus (as defined below) that would have been paid to Executive had her employment continued through the Employment Period (the "Remaining Period"); PROVIDED THAT, Executive shall be entitled to a minimum payment of one (1) times Executive's then current Base Salary and Average Bonus. All such payments shall be made as soon as administratively feasible following such termination. Executive shall also be entitled to any other benefits or payments provided pursuant to any plan or policy of the Company in accordance with such plan's or policy's terms, except as provided in Section 5(d). For purposes of the foregoing, "Average Bonus" means the average annual Bonus paid to Executive by the Company (or its successors) during the three year period immediately preceding her Date of Termination. (d) CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY. -6- (i) Notwithstanding anything in this Agreement to the contrary, in the event it shall be determined that any payment, award, benefit or distribution (or any acceleration of any payment, award, benefit or distribution) by the Company (or any of its affiliated entities) or any entity which effectuates (or has previously effectuated) a change in control (or any of its affiliated entities) to or for the benefit of Executive (whether pursuant to the terms of this Agreement or otherwise) (the "Payments") would be subject to the excise tax (the "Excise Tax") under Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code"), then the amounts payable to Executive under this Agreement shall be the greater of (A) the Payment, if the result of subtracting the Excise Tax from the Payment is more than the Safe Harbor Cap and (B) the Payment, reduced to the maximum amount as will result in no portion of the Payments being subject to the Excise Tax (the "Safe Harbor Cap"), reducing first the payments under Section 8(c)(B), unless an alternative method of reduction is elected by Executive. For purposes of reducing the Payments to the Safe Harbor Cap, only amounts payable to Executive under this Agreement (and no other Payments) shall be reduced, unless consented to by Executive. (ii) All determinations required to be made under this Section 8 shall be made by the nationally recognized public accounting firm that is selected by Executive (the "Accounting Firm"). If payments are reduced to the Safe Harbor Cap, the Accounting Firm shall provide a reasonable opinion to Executive that she is not required to report any Excise Tax on her federal income tax return. All fees, costs and expenses (including, but not limited to, the costs of retaining experts) of the Accounting Firm shall be borne by the Company. The determination by the Accounting Firm shall be binding upon the Company and Executive (except as provided in paragraph (iii) below). (iii) If payments are reduced to the Safe Harbor Cap as provided in Section 8(d)(i)(B) and if it is established pursuant to a final determination of a court or an Internal Revenue Service (the "IRS") proceeding which has been finally and conclusively resolved, that Payments have been made to, or provided for the benefit of, Executive by the Company, which are in excess of the limitations provided in this Section 8(d)(i)(B) (hereinafter referred to as an "Excess Payment"), such Excess Payment shall be deemed for all purposes to be a loan to Executive made on the date Executive received the Excess Payment and Executive shall repay the Excess Payment to the Company on demand, together with interest on the Excess Payment at the applicable federal rate (as defined in Section 1274(d) of the Code) from the date of Executive's receipt of such Excess Payment until the date of such repayment. As a result of the uncertainty in the application of Section 4999 of the Code at the time of the determination, it is possible that Payments which will not have been made by the Company should have been made (an "Underpayment"), consistent with the calculations required to be made under this Section 8. In the event that it is determined (A) by the Accounting Firm, the Company (which shall include the position taken by the Company, or together with its consolidated -7- group, on its federal income tax return) or the IRS or (B) pursuant to a determination by a court, that an Underpayment has occurred, the Company shall pay an amount equal to such Underpayment to Executive within ten (10) days of such determination together with interest on such amount at the applicable federal rate from the date such amount would have been paid to Executive until the date of payment. 9. CONFIDENTIAL INFORMATION AND REMOVAL OF DOCUMENTS. (a) Executive shall hold in a fiduciary capacity for the benefit of the Company all secret or confidential information, knowledge or data relating to the Company or any Affiliate, and their respective businesses ("Confidential Information"), which shall have been obtained by Executive during Executive's employment by the Company or any Affiliate and which shall not be or become public knowledge (other than by acts by Executive or representatives of Executive in violation of this Agreement). After termination of Executive's employment with the Company, Executive shall not, without the prior written consent of the Company or as may otherwise be required by law or legal process, communicate or divulge any such information, knowledge or data to anyone other than the Company and those designated by it. (b) All records, files, drawings, documents, models, equipment, and the like containing Confidential Information or needed in the Company's business which Executive has control over shall not be removed from the Company's premises without its written consent, unless such removal is in the furtherance of the Company's business or is in connection with Executive's carrying out her duties under this Agreement and, if so removed, shall be returned to the Company promptly after termination of Executive's employment hereunder, or otherwise promptly after removal if such removal occurs following termination of employment. Executive's rolodex, telephone directory and similar type items, and furniture, art work and property owned by Executive or otherwise not owned by the Company shall not be deemed Company property and shall not be covered by this Section 9(b). The Company shall be the owner of all trade secrets and other products relating to the Company's business developed by Executive alone or in conjunction with others as part of her employment with the Company. 10. NON-COMPETITION. (a) In consideration of the benefits to be provided to Executive hereunder, Executive covenants that she will not, without the prior written consent of the Company, during the Employment Period and the twelve (12) month period following her termination of employment for any reason or, if terminated pursuant to Section 6(e) hereof, the Remaining Period, if greater (the "Restriction Period"), engage in any way, directly or indirectly, in any business whose product or activities directly compete with -8- the products or activities of Philips Medical Systems or the Company anywhere where Philips Medical Systems or the Company conducts its businesses, other than in her capacity as an employee of the Company. (b) Executive hereby covenants and agrees that, at all times during the Employment Period and for a period of one (1) years immediately following her termination for any reason, Executive shall not employ or seek to employ any person employed at that time by Philips Medical Systems or the Company, or otherwise encourage or entice such person or entity to leave such employment. (c) Executive hereby covenants and agrees that, at all times during the Restriction Period, Executive will not (i) pursue or attempt to develop any project known to Executive and which Philips Medical Systems or the Company are pursuing, developing or attempting to develop as of the Date of Termination ("Project"), directly or indirectly, alone, in association with or as a shareholder, principal, agent, partner, officer, director, employee or consultant of any other organization or (ii) divert to any entity which is engaged in any business conducted by Philips Medical Systems or the Company in the same geographic area as Philips Medical Systems or the Company, any Project or any customer of Philips Medical Systems or the Company. (d) Executive acknowledges that the restrictions, prohibitions and other provisions of this Section 10 are reasonable, fair and equitable in scope, terms and duration, are necessary to protect the legitimate business interests of the Company and are a material inducement to the Company to enter into this Agreement. It is the intention of the parties hereto that the restrictions contained in this paragraph be enforceable to the fullest extent permitted by applicable law. Therefore, to the extent any court of competent jurisdiction shall determine that any portion of the foregoing restrictions is excessive, such provision shall not be entirely void, but rather shall be limited or revised only to the extent necessary to make it enforceable. 11. REMEDY. Should Executive engage in or perform any of the acts prohibited by Sections 9 and 10, it is agreed that the Company shall be entitled to full injunctive relief, to be issued by any competent court of equity, enjoining and restraining Executive and each and every other person, firm, organization, association, or corporation concerned therein, from the continuance of such violative acts. The foregoing remedy available to Company shall not be deemed to limit or prevent the exercise by the Company of any or all further rights and remedies which may be available to the Company hereunder or at law or in equity. -9- 12. SUCCESSORS; BINDING AGREEMENT. This Agreement shall be binding upon and shall inure to the benefit of Executive, her heirs, executors, administrators, beneficiaries and assigns and shall be binding upon and shall inure to the benefit of the Company and its successors. 13. NOTICE. For the purposes of this Agreement, notices, demands and all other communications provided for in this Agreement shall be in writing and shall be deemed to have been duly given when delivered either personally or by United States certified or registered mail, return receipt requested, postage prepaid, addressed, in case of Executive, to the last address on file with the Company and if to the Company, to its executive offices or to such other address as any party may have furnished to the others in writing in accordance herewith, except that notices of change of address shall be effective only upon receipt. 14. RESOLUTION OF DIFFERENCES OVER BREACHES OF AGREEMENT. The parties shall use good faith efforts to resolve any controversy or claim arising out of, or relating to this Agreement or the breach thereof, first in accordance with the Company's internal review procedures, except that this requirement shall not apply to any claim or dispute under or relating to Sections 9 or 10 of this Agreement. If despite their good faith efforts, the parties are unable to resolve such controversy or claim through the Company's internal review procedures, then such controversy or claim shall be resolved by a court of law having jurisdiction thereof. If any contest or dispute shall arise between the Company and Executive regarding any provision of this Agreement, the parties shall be responsible for paying all of its own legal fees and expenses incurred in connection with such contest or dispute. 15. GOVERNING LAW. This Agreement is governed by, and is to be construed and enforced in accordance with, the laws of the State of Washington, without regard to principles of conflicts of laws. If, under such law, any portion of this Agreement is at any time deemed to be in conflict with any applicable statute, rule, regulation or ordinance, such portion shall be deemed to be modified or altered to conform thereto or, if that is not possible, to be omitted from this Agreement, and the invalidity of any such portion shall not affect the force, effect and validity of the remaining portion hereof. 16. AMENDMENT. No provisions of this Agreement may be amended, modified, or waived unless such amendment or modification is agreed to in writing signed by Executive and by a duly authorized officer of the Company, and such waiver is set forth in writing and signed by the party to be charged. No waiver by either party hereto at any time of any breach by the other party hereto of any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of -10- similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. 17. SURVIVAL. The respective obligations of, and benefits afforded to, Executive and Company as provided in Sections 9 and 10 of this Agreement shall survive the termination of this Agreement. 18. NO CONFLICT OF INTEREST. During the Employment Period, Executive shall not directly, or indirectly render service, or undertake any employment or consulting agreement with another entity without the express written consent of the Company. 19. COUNTERPARTS. This Agreement may be executed in two or more counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. 20. ENTIRE AGREEMENT. This Agreement sets forth the entire agreement of the parties hereto (and in the case of the Company, its predecessors) in respect of the subject matter contained herein and supersede all prior agreements, promises, covenants, arrangements, communications, representations or warranties, whether oral or written, by any officer, employee or representative of any party hereto in respect of such subject matter, including, but not limited to, the Employment Agreement by and between ATL Ultrasound, Inc. and Executive, dated as of the first day of January, 1997 and any and all amendments made subsequent thereto (the "Prior Agreement"), and as of the successful consummation of the Offer, such Prior Agreement shall be void and of no further force or effect. Any prior agreement of the parties hereto in respect of the subject matter contained herein is hereby terminated and canceled, as of the successful consummation of the Offer; PROVIDED THAT, this Agreement shall not modify or terminate the provisions of any compensation or benefit plan providing benefits upon a change in control of the Company (excluding the Prior Agreement); PROVIDED, FURTHER, that Executive acknowledges and agrees that she will be paid no more than 23%, 0.0% and 23.4% of Base Salary under the 1996-98, 1997-99 and 1998-00 performance cycles, respectively, under the Company's Long Term Incentive Plan (the "Plan"), effective as of January 1, 1993 and waives all rights for any other payments under such Plan upon payment of such amounts. Executive acknowledges that in consideration of the benefits to be provided hereunder, she has waived, as of the successful consummation of the Offer, all of her rights under the Prior Agreement, including, but not limited to Section 6 thereof. 21. SECTION HEADINGS. The section headings in this Agreement are for convenience of reference only, and they form no part of this Agreement and shall not affect its interpretation. -11- IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. ATL Ultrasound, Inc. By: /s/ Dennis C. Fill ------------------------------- /s/ Pamela Dunlap ---------------------------------- Pamela Dunlap -12- EXHIBIT A -13- EXHIBIT B 1999-2001 Strategic Plan (*) Income Statement 1999 2000 2001 - ------------------------------------------------------------------ Total Product Revenue 427.9 466.5 511.0 Product Gross Profit 233.9 266.2 292.6 - ------------------------------------------------------------------ Service Revenue 103.4 109.4 115.7 Service Gross Profit 43.9 47.2 50.6 - ------------------------------------------------------------------ Total Revenue $ 531.3 $ 575.9 $ 626.7 Total Gross Profit $ 277.8 $ 313.4 $ 343.2 Gross Margin 52.3% 54.4% 54.8% - ------------------------------------------------------------------ Operating Expenses Selling and Marketing 110.1 118.0 126.8 % Revenue 20.7% 20.5% 20.2% General & Admin 41.6 43.6 46.1 % Revenue 7.8% 7.6% 7.4% R&D Expense 63.2 67.0 72.0 % Revenue 11.9% 11.6% 11.5% Other 3.6 6.2 7.8 - ------------------------------------------------------------------ Total Operating Expense $ 218.5 $ 234.8 $ 252.6 41% 41% 40% - ------------------------------------------------------------------ Operating Income $ 59.3 $ 78.6 $ 90.6 - ------------------------------------------------------------------ - -------------------------- (*) The synergies expected to be realized as a result of the Merger will be between $50 and $70 million, as mutually agreed upon by the parties. EX-99.(G)(3) 13 EMPLOYMENT AGREEMENT/DONALD BLEM EMPLOYMENT AGREEMENT AGREEMENT, dated as of July 29, 1998, by and between ATL Ultrasound, Inc. (the "Company") and Donald Blem ("Executive"). WHEREAS, Executive's current employer, ATL Ultrasound, Inc., has entered into an Agreement and Plan of Merger, dated as of July 29, 1998 with Philips Acquisition, Inc. and Philips Electronics North America Corporation (the "Merger Agreement"); and WHEREAS, the Company desires to secure the continued employment of Executive following the successful consummation of the Offer (as such term is defined in the Merger Agreement); and WHEREAS, Executive and the Company desire to enter into an agreement setting forth the terms and conditions of the employment of Executive with the Company on and after the successful consummation of the Offer; NOW, THEREFORE, IN CONSIDERATION OF the mutual covenants herein contained, and other good and valuable consideration, the parties hereto agree as follows: 1. EMPLOYMENT. Subject to the successful consummation of the Offer, the Company hereby agrees to employ Executive, and Executive agrees to serve as an employee of the Company, on the terms and conditions set forth in this Agreement, effective as of the date of this Agreement. The continuation of such employment shall be expressly conditioned on and subject to the consummation of the transactions contemplated by the Merger Agreement; PROVIDED, THAT, Section 20 of this Agreement shall be deemed to be effective as of successful consummation of the Offer. This Agreement shall become null and void, and shall have no force or effect, if the transactions contemplated under the Merger Agreement are not consummated. 2. EMPLOYMENT PERIOD. The "Employment Period" shall be the period commencing on the Effective Time (as defined in the Merger Agreement) and ending on December 31, 2001. 3. DUTIES AND RESPONSIBILITIES. During the Employment Period, Executive shall serve as the Senior Vice President of Operations of the Company with such duties and responsibilities that are customary for such position and shall include those that are assigned to him by the Company during the Employment Period that are not inconsistent with such position. Executive shall devote substantially all of his working time, attention and energies during normal business hours (other than absences -1- due to illness or vacation) to the performance of his duties for the Company. Upon the prior written approval of the Chief Executive Officer of the Philips Medical Systems, Executive may serve as a member of the board of directors of other companies or engage in other outside activities, provided that such activities do not interfere with Executive's duties hereunder; provided, further, that if Executive is already a member of any such board of directors, as set forth on Exhibit A hereof, he shall be entitled to remain on such board without violating the terms of this Agreement. 4. PLACE OF PERFORMANCE. The principal place of employment of Executive shall be at the Company's executive offices in Seattle, Washington. 5. COMPENSATION AND RELATED MATTERS. (a) BASE SALARY AND BONUS. During the Employment Period the Company shall pay Executive a base salary at the rate of not less than $ 245,000 per year ("Base Salary") which shall be annually reviewed by the Company. Executive's Base Salary shall be paid in approximately equal installments in accordance with the Company's customary payroll practices. If Executive's Base Salary is increased by the Company, such increased Base Salary shall then constitute the Base Salary for all purposes of the Agreement. On or about January 1, 1999, Executive shall be paid an annual bonus equal to the pro rata portion (based on the number of days elapsed in 1998 through and including the Effective Time) of the annual bonus that would have been payable under Executive's annual bonus arrangement in effect on the date hereof based on the Company's annualized performance through the last full fiscal quarter completed before the Effective Time; PROVIDED, THAT for purposes of this sentence, Executive's maximum annual bonus opportunity shall be deemed to be 50% of Base Salary. For the remaining period of 1998 following the Effective Time (for which a bonus may be paid, prorated in the proportion that the number of days after the Effective Time through December 31, 1998 bears to 365) and during each subsequent year of the Employment Period, Executive shall be entitled to an annual incentive bonus ("Bonus"), based upon the achievement of performance targets, such targets as determined in the sole discretion of the Company, to be payable at the same time as bonuses are paid to other executive officers. Executive's target Bonus shall be 50% of Base Salary, but may be more or less upon achievement of performance targets. (b) STOCK OPTION. (i) The Executive shall be granted stock options (the "Stock Option") to acquire 5,000 shares of the common stock of Royal Philips Electronics (the "Stock"), pursuant to the Philips Electronics North America Corporation 1998 Stock Incentive Plan (the "Option Plan"). The Stock Option shall be granted on the Effective Time, and shall be granted at an exercise price per share equal to the fair market value of the Stock on the date of grant and shall be subject to the general terms of the Option Plan and the stock -2- option agreement thereunder (the "Option Agreement"). Stock Options granted pursuant to this Section 5(b)(i) shall become exercisable at a rate of 33-1/3% on each of the first, second and third anniversaries of the date of grant, provided Executive remains an employee on such date, and shall expire ten (10) years following the date of grant, except as otherwise provided in the Option Plan or Option Agreement. Notwithstanding the foregoing, if Executive is terminated pursuant to Sections 6(e) or 6(g) hereof, such Stock Option shall become immediately exercisable and shall remain exercisable for one-year following such termination. (ii) Beginning in the year 2000, Executive shall be eligible for option grants on the same basis as other senior executives of the Company. (c) LONG-TERM PERFORMANCE UNIT PLAN. The Company shall establish the Long-Term Performance Unit Plan which shall provide Executive with a bonus (the "Incentive Bonus") equal to Executive's Base Salary, to be paid in the first quarter following the end of the Performance Period (the "Payment Date"), if Executive is an employee on the last day of the Performance Period and 75% of the base case strategic plan, as attached as Exhibit B (the "Strategic Plan") has been achieved during the 1999-2001 performance period (the "Performance Period"). If 100% of the Strategic Plan is achieved during the Performance Period, Executive's Incentive Bonus shall be two times Base Salary and if 100% of the Strategic Plan is achieved, including synergies, the Incentive Bonus shall be three times Base Salary. In the first quarter following December 31, 1999 and December 31, 2000, Executive shall receive a payment equal to 20% of Base Salary (each, an "Advance Bonus") which shall reduce the Incentive Bonus, on a dollar for dollar basis, otherwise payable under this paragraph. Notwithstanding the foregoing, if Executive is terminated pursuant to Sections 6(e) or 6(g) hereof, Executive shall be entitled to a pro-rata Incentive Bonus, based on the ratio the number of days worked in the Performance Period bears to the total number of days in the Performance Period, to be paid on the Payment Date. (d) BENEFIT PLANS. Executive shall be entitled to participate in such employee benefit plans and insurance programs offered by the Company, or which it may adopt from time to time, for its executive management or supervisory personnel generally, in accordance with the eligibility requirements for participation therein. Notwithstanding the foregoing, Executive shall not be entitled to receive severance pursuant to the Company's severance plan if he is entitled to receive payments pursuant to Section 8(c) of this Agreement. Nothing herein shall be construed so as to prevent the Company from modifying or terminating any employee benefit plans or programs, or employee fringe benefits, it may adopt from time to time. -3- (e) VACATION AND SICK LEAVE. Executive shall be entitled to the amount of paid vacation and sick leave that is provided to other executive officers, in accordance with the Company's customary practices. (f) EXPENSES. The Company shall promptly reimburse Executive for all reasonable business expenses upon the presentation of reasonably itemized statements of such expenses in accordance with the Company's policies and procedures now in force or as such policies and procedures may be modified with respect to all executive officers of the Company. 6. TERMINATION. This Agreement shall be terminated upon the earliest to occur of the following: (a) EXPIRATION. The expiration of the Employment Period. (b) DEATH. The death of Executive. (c) DISABILITY. If, as a result of Executive's Disability, Executive shall have been substantially unable to perform his duties hereunder for a period of six (6) consecutive months and within thirty (30) days after written Notice of Termination is given by the Company after such six (6) month period, Executive shall not have returned to the substantial performance of his duties on a full-time basis. For purposes of this Agreement, "Disability" shall have the same meaning as that term is defined in the Company's Long Term Disability Plan; PROVIDED, THAT, if no such plan exists, "Disability" shall have the same meaning as provided in Section 22(e)(3) of the Code. (d) CAUSE. The Company terminates Executive for Cause. For purposes of this Agreement, the Company shall have "Cause" to terminate Executive's employment upon Executive's (i) willful and continued failure to substantially perform his duties with the Company (other than any such failure resulting from his incapacity due to physical or mental illness) after a written demand for substantial performance is delivered to Executive which identifies the manner in which the Company believes that Executive has not substantially performed his duties, or (ii) willful misconduct (but excluding any action that Executive reasonably believes is in the best interests of the Company) which is materially economically injurious to the Company or to any entity in control of, controlled by or under common control with the Company (an "Affiliate"), including, but not limited to, any breach of Sections 9 and 10 hereof, or (iii) the conviction of, or plea of guilty or nolo contendere to, a felony involving moral turpitude, or (iv) habitual drug or alcohol abuse by Executive. -4- (e) WITHOUT CAUSE. The Company terminates Executive's employment hereunder without Cause by providing Executive with a Notice of Termination. (f) VOLUNTARY TERMINATION. Executive terminates this Agreement and Executive's employment hereunder at any time upon ninety (90) days prior written notice to the Company. (g) MATERIAL BREACH. Executive terminates his employment for a material breach of this Agreement by the Company. For purposes of this Agreement, a "material breach" shall be deemed to occur upon a failure by the Company to comply with any material provision of this Agreement without Executive's written consent, including, but not limited to, (i) a material diminution in Executive's position, duties, status, authority or responsibility as set forth under the terms of this Agreement, (ii) a reduction in Base Salary, Bonus or Incentive Bonus opportunity, or (iii) a relocation of the Executive to a location more than 50 miles from his present location, which in the case of any alleged violation of this paragraph (g), has not been cured in all material respects within thirty (30) days after written notice of such noncompliance has been given by Executive to the Company. 7. TERMINATION PROCEDURE. (a) NOTICE OF TERMINATION. Any termination of Executive by the Company or by Executive (other than termination pursuant to Section 6(a) or (b) hereof) shall be communicated by written Notice of Termination to the other party hereto in accordance with Section 13. For purposes of this Agreement, a "Notice of Termination" shall mean a notice which shall indicate the specific termination provision in this Agreement relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of Executive under the provisions so indicated. (b) DATE OF TERMINATION. "Date of Termination" shall mean (i) if Executive's employment is terminated by the expiration of this Agreement, the date of expiration, (ii) if Executive's employment is terminated by his death, the date of his death, (iii) if Executive's employment is terminated pursuant to Section 6(c) hereof, thirty (30) days after Notice of Termination is given (provided that Executive shall not have again become available for service on a regular basis during such thirty (30) day period), (iv) if Executive's employment is terminated pursuant to Sections 6(d), 6(e), or 6(g) the date specified in the Notice of Termination, and (v) if Executive's employment is terminated for any other reason, the date on which a Notice of Termination is given. -5- 8. AMOUNTS DUE UPON TERMINATION OR DURING DISABILITY. In the event Executive is disabled or his employment terminates during the Employment Period, the Company shall provide Executive with the payments set forth below. Executive acknowledges and agrees that the payments set forth in this Section 8 constitute liquidated damages for termination of his employment during the Employment Period. (a) During any period that Executive fails to perform his duties hereunder as a result of Disability ("disability period"), Executive shall continue to receive his Base Salary at the rate then in effect for such period until his employment is terminated pursuant to Section 6(c) hereof; PROVIDED, THAT, payments so made to Executive during the first six (6) months of the disability period shall be reduced by the sum of the amounts, if any, paid to the Executive at or prior to the time of any such payment under disability benefit plans of the Company or under the Social Security disability insurance program, and which amounts were not previously applied to reduce any such payment. Executive shall also be entitled to any other benefits or payments provided pursuant to any plan or policy of the Company in accordance with such plan's or policy's terms. (b) If Executive is terminated pursuant to Sections 6(a), 6(b), 6(d), or 6(f) the Company shall pay Executive his accrued, but unpaid Base Salary and Bonus through the Date of Termination at the rate in effect at the time Notice of Termination is given, and the Company shall have no further obligations to Executive under this Agreement; PROVIDED, THAT, Executive shall be entitled to any other benefit or payment provided pursuant to any plan or policy of the Company in accordance with such plan's or policy's terms. (c) If Executive's employment is terminated pursuant to Sections 6(e) or 6(g), the Company shall pay to Executive his (A) Base Salary accrued through the Date of Termination and (B) a lump-sum payment equal to the remaining Base Salary and Average Bonus (as defined below) that would have been paid to Executive had his employment continued through the Employment Period (the "Remaining Period"); PROVIDED THAT, Executive shall be entitled to a minimum payment of one (1) times Executive's then current Base Salary and Average Bonus. All such payments shall be made as soon as administratively feasible following such termination. Executive shall also be entitled to any other benefits or payments provided pursuant to any plan or policy of the Company in accordance with such plan's or policy's terms, except as provided in Section 5(d). For purposes of the foregoing, "Average Bonus" means the average annual Bonus paid to Executive by the Company (or its successors) during the three year period immediately preceding his Date of Termination. -6- (d) CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY. (i) Notwithstanding anything in this Agreement to the contrary, in the event it shall be determined that any payment, award, benefit or distribution (or any acceleration of any payment, award, benefit or distribution) by the Company (or any of its affiliated entities) or any entity which effectuates (or has previously effectuated) a change in control (or any of its affiliated entities) to or for the benefit of Executive (whether pursuant to the terms of this Agreement or otherwise) (the "Payments") would be subject to the excise tax (the "Excise Tax") under Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code"), then the amounts payable to Executive under this Agreement shall be the greater of (A) the Payment, if the result of subtracting the Excise Tax from the Payment is more than the Safe Harbor Cap and (B) the Payment, reduced to the maximum amount as will result in no portion of the Payments being subject to the Excise Tax (the "Safe Harbor Cap"), reducing first the payments under Section 8(c)(B), unless an alternative method of reduction is elected by Executive. For purposes of reducing the Payments to the Safe Harbor Cap, only amounts payable to Executive under this Agreement (and no other Payments) shall be reduced, unless consented to by Executive. (ii) All determinations required to be made under this Section 8 shall be made by the nationally recognized public accounting firm that is selected by Executive (the "Accounting Firm"). If payments are reduced to the Safe Harbor Cap, the Accounting Firm shall provide a reasonable opinion to Executive that he is not required to report any Excise Tax on his federal income tax return. All fees, costs and expenses (including, but not limited to, the costs of retaining experts) of the Accounting Firm shall be borne by the Company. The determination by the Accounting Firm shall be binding upon the Company and Executive (except as provided in paragraph (iii) below). (iii) If payments are reduced to the Safe Harbor Cap as provided in Section 8(d)(i)(B) and if it is established pursuant to a final determination of a court or an Internal Revenue Service (the "IRS") proceeding which has been finally and conclusively resolved, that Payments have been made to, or provided for the benefit of, Executive by the Company, which are in excess of the limitations provided in this Section 8(d)(i)(B) (hereinafter referred to as an "Excess Payment"), such Excess Payment shall be deemed for all purposes to be a loan to Executive made on the date Executive received the Excess Payment and Executive shall repay the Excess Payment to the Company on demand, together with interest on the Excess Payment at the applicable federal rate (as defined in Section 1274(d) of the Code) from the date of Executive's receipt of such Excess Payment until the date of such repayment. As a result of the uncertainty in the application of Section 4999 of the Code at the time of the determination, it is possible that Payments which will not have been made by the Company should have been made (an "Underpayment"), consistent with the calculations required to be made under this -7- Section 8. In the event that it is determined (A) by the Accounting Firm, the Company (which shall include the position taken by the Company, or together with its consolidated group, on its federal income tax return) or the IRS or (B) pursuant to a determination by a court, that an Underpayment has occurred, the Company shall pay an amount equal to such Underpayment to Executive within ten (10) days of such determination together with interest on such amount at the applicable federal rate from the date such amount would have been paid to Executive until the date of payment. 9. CONFIDENTIAL INFORMATION AND REMOVAL OF DOCUMENTS. (a) Executive shall hold in a fiduciary capacity for the benefit of the Company all secret or confidential information, knowledge or data relating to the Company or any Affiliate, and their respective businesses ("Confidential Information"), which shall have been obtained by Executive during Executive's employment by the Company or any Affiliate and which shall not be or become public knowledge (other than by acts by Executive or representatives of Executive in violation of this Agreement). After termination of Executive's employment with the Company, Executive shall not, without the prior written consent of the Company or as may otherwise be required by law or legal process, communicate or divulge any such information, knowledge or data to anyone other than the Company and those designated by it. (b) All records, files, drawings, documents, models, equipment, and the like containing Confidential Information or needed in the Company's business which Executive has control over shall not be removed from the Company's premises without its written consent, unless such removal is in the furtherance of the Company's business or is in connection with Executive's carrying out his duties under this Agreement and, if so removed, shall be returned to the Company promptly after termination of Executive's employment hereunder, or otherwise promptly after removal if such removal occurs following termination of employment. Executive's rolodex, telephone directory and similar type items, and furniture, art work and property owned by Executive or otherwise not owned by the Company shall not be deemed Company property and shall not be covered by this Section 9(b). The Company shall be the owner of all trade secrets and other products relating to the Company's business developed by Executive alone or in conjunction with others as part of his employment with the Company. 10. NON-COMPETITION. (a) In consideration of the benefits to be provided to Executive hereunder, Executive covenants that he will not, without the prior written consent of the Company, during the Employment Period and the twelve (12) month period following his termination of employment for any reason or, if terminated pursuant to Section 6(e) -8- hereof, the Remaining Period, if greater (the "Restriction Period"), engage in any way, directly or indirectly, in any business whose product or activities directly compete with the products or activities of Philips Medical Systems or the Company anywhere where Philips Medical Systems or the Company conducts its businesses, other than in his capacity as an employee of the Company. (b) Executive hereby covenants and agrees that, at all times during the Employment Period and for a period of one (1) years immediately following his termination for any reason, Executive shall not employ or seek to employ any person employed at that time by Philips Medical Systems or the Company, or otherwise encourage or entice such person or entity to leave such employment. (c) Executive hereby covenants and agrees that, at all times during the Restriction Period, Executive will not (i) pursue or attempt to develop any project known to Executive and which Philips Medical Systems or the Company are pursuing, developing or attempting to develop as of the Date of Termination ("Project"), directly or indirectly, alone, in association with or as a shareholder, principal, agent, partner, officer, director, employee or consultant of any other organization or (ii) divert to any entity which is engaged in any business conducted by Philips Medical Systems or the Company in the same geographic area as Philips Medical Systems or the Company, any Project or any customer of Philips Medical Systems or the Company. (d) Executive acknowledges that the restrictions, prohibitions and other provisions of this Section 10 are reasonable, fair and equitable in scope, terms and duration, are necessary to protect the legitimate business interests of the Company and are a material inducement to the Company to enter into this Agreement. It is the intention of the parties hereto that the restrictions contained in this paragraph be enforceable to the fullest extent permitted by applicable law. Therefore, to the extent any court of competent jurisdiction shall determine that any portion of the foregoing restrictions is excessive, such provision shall not be entirely void, but rather shall be limited or revised only to the extent necessary to make it enforceable. 11. REMEDY. Should Executive engage in or perform any of the acts prohibited by Sections 9 and 10, it is agreed that the Company shall be entitled to full injunctive relief, to be issued by any competent court of equity, enjoining and restraining Executive and each and every other person, firm, organization, association, or corporation concerned therein, from the continuance of such violative acts. The foregoing remedy available to Company shall not be deemed to limit or prevent the exercise by the Company of any or all further rights and remedies which may be available to the Company hereunder or at law or in equity. -9- 12. SUCCESSORS; BINDING AGREEMENT. This Agreement shall be binding upon and shall inure to the benefit of Executive, his heirs, executors, administrators, beneficiaries and assigns and shall be binding upon and shall inure to the benefit of the Company and its successors. 13. NOTICE. For the purposes of this Agreement, notices, demands and all other communications provided for in this Agreement shall be in writing and shall be deemed to have been duly given when delivered either personally or by United States certified or registered mail, return receipt requested, postage prepaid, addressed, in case of Executive, to the last address on file with the Company and if to the Company, to its executive offices or to such other address as any party may have furnished to the others in writing in accordance herewith, except that notices of change of address shall be effective only upon receipt. 14. RESOLUTION OF DIFFERENCES OVER BREACHES OF AGREEMENT. The parties shall use good faith efforts to resolve any controversy or claim arising out of, or relating to this Agreement or the breach thereof, first in accordance with the Company's internal review procedures, except that this requirement shall not apply to any claim or dispute under or relating to Sections 9 or 10 of this Agreement. If despite their good faith efforts, the parties are unable to resolve such controversy or claim through the Company's internal review procedures, then such controversy or claim shall be resolved by a court of law having jurisdiction thereof. If any contest or dispute shall arise between the Company and Executive regarding any provision of this Agreement, the parties shall be responsible for paying all of its own legal fees and expenses incurred in connection with such contest or dispute. 15. GOVERNING LAW. This Agreement is governed by, and is to be construed and enforced in accordance with, the laws of the State of Washington, without regard to principles of conflicts of laws. If, under such law, any portion of this Agreement is at any time deemed to be in conflict with any applicable statute, rule, regulation or ordinance, such portion shall be deemed to be modified or altered to conform thereto or, if that is not possible, to be omitted from this Agreement, and the invalidity of any such portion shall not affect the force, effect and validity of the remaining portion hereof. 16. AMENDMENT. No provisions of this Agreement may be amended, modified, or waived unless such amendment or modification is agreed to in writing signed by Executive and by a duly authorized officer of the Company, and such waiver is set forth in writing and signed by the party to be charged. No waiver by either party hereto at any time of any breach by the other party hereto of any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of -10- similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. 17. SURVIVAL. The respective obligations of, and benefits afforded to, Executive and Company as provided in Sections 9 and 10 of this Agreement shall survive the termination of this Agreement. 18. NO CONFLICT OF INTEREST. During the Employment Period, Executive shall not directly, or indirectly render service, or undertake any employment or consulting agreement with another entity without the express written consent of the Company. 19. COUNTERPARTS. This Agreement may be executed in two or more counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. 20. ENTIRE AGREEMENT. This Agreement sets forth the entire agreement of the parties hereto (and in the case of the Company, its predecessors) in respect of the subject matter contained herein and supersede all prior agreements, promises, covenants, arrangements, communications, representations or warranties, whether oral or written, by any officer, employee or representative of any party hereto in respect of such subject matter, including, but not limited to, the Employment Agreement by and between ATL Ultrasound, Inc. and Executive, dated as of the first day of January, 1997 and any and all amendments made subsequent thereto (the "Prior Agreement"), and as of the successful consummation of the Offer, such Prior Agreement shall be void and of no further force or effect. Any prior agreement of the parties hereto in respect of the subject matter contained herein is hereby terminated and canceled, as of the successful consummation of the Offer; PROVIDED THAT, this Agreement shall not modify or terminate the provisions of any compensation or benefit plan providing benefits upon a change in control of the Company (excluding the Prior Agreement); PROVIDED, FURTHER, that Executive acknowledges and agrees that he will be paid no more than 23%, 0.0% and 23.4% of Base Salary under the 1996-98, 1997-99 and 1998-00 performance cycles, respectively, under the Company's Long Term Incentive Plan (the "Plan"), effective as of January 1, 1993 and waives all rights for any other payments under such Plan upon payment of such amounts Executive acknowledges that in consideration of the benefits to be provided hereunder, he has waived, as of the successful consummation of the Offer, all of his rights under the Prior Agreement, including, but not limited to Section 6 thereof. 21. SECTION HEADINGS. The section headings in this Agreement are for convenience of reference only, and they form no part of this Agreement and shall not affect its interpretation. -11- IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. ATL Ultrasound, Inc. By: /s/ Dennis C. Fill ------------------------------- /s/ Donald Blem ---------------------------------- Donald Blem -12- EXHIBIT A Sisters of Providence Health Systems -13- EXHIBIT B 1999-2001 Strategic Plan (*) Income Statement 1999 2000 2001 - ------------------------------------------------------------------ Total Product Revenue 427.9 466.5 511.0 Product Gross Profit 233.9 266.2 292.6 - ------------------------------------------------------------------ Service Revenue 103.4 109.4 115.7 Service Gross Profit 43.9 47.2 50.6 - ------------------------------------------------------------------ Total Revenue $ 531.3 $ 575.9 $ 626.7 Total Gross Profit $ 277.8 $ 313.4 $ 343.2 Gross Margin 52.3% 54.4% 54.8% - ------------------------------------------------------------------ Operating Expenses Selling and Marketing 110.1 118.0 126.8 % Revenue 20.7% 20.5% 20.2% General & Admin 41.6 43.6 46.1 % Revenue 7.8% 7.6% 7.4% R&D Expense 63.2 67.0 72.0 % Revenue 11.9% 11.6% 11.5% Other 3.6 6.2 7.8 - ------------------------------------------------------------------ Total Operating Expense $ 218.5 $ 234.8 $ 252.6 41% 41% 40% - ------------------------------------------------------------------ Operating Income $ 59.3 $ 78.6 $ 90.6 - ------------------------------------------------------------------ - -------------------------- (*) The synergies expected to be realized as a result of the Merger will be between $50 and $70 million, as mutually agreed upon by the parties. -14- EX-99.(G)(4) 14 EMPLOYMENT AGREEMENT/JACQUES SOUQUET EMPLOYMENT AGREEMENT AGREEMENT, dated as of July 29, 1998, by and between ATL Ultrasound, Inc. (the "Company") and Jacques Souquet ("Executive"). WHEREAS, Executive's current employer, ATL Ultrasound, Inc., has entered into an Agreement and Plan of Merger, dated as of July 29, 1998 with Philips Acquisition, Inc. and Philips Electronics North America Corporation (the "Merger Agreement"); and WHEREAS, the Company desires to secure the continued employment of Executive following the successful consummation of the Offer (as such term is defined in the Merger Agreement); and WHEREAS, Executive and the Company desire to enter into an agreement setting forth the terms and conditions of the employment of Executive with the Company on and after the successful consummation of the Offer; NOW, THEREFORE, IN CONSIDERATION OF the mutual covenants herein contained, and other good and valuable consideration, the parties hereto agree as follows: 1. EMPLOYMENT. Subject to the successful consummation of the Offer, the Company hereby agrees to employ Executive, and Executive agrees to serve as an employee of the Company, on the terms and conditions set forth in this Agreement, effective as of the date of this Agreement. The continuation of such employment shall be expressly conditioned on and subject to the consummation of the transactions contemplated by the Merger Agreement; PROVIDED, THAT, Section 20 of this Agreement shall be deemed to be effective as of the successful consummation of the Offer. This Agreement shall become null and void, and shall have no force or effect, if the transactions contemplated under the Merger Agreement are not consummated. 2. EMPLOYMENT PERIOD. The "Employment Period" shall be the period commencing on the Effective Time (as defined in the Merger Agreement) and ending on December 31, 2001. 3. DUTIES AND RESPONSIBILITIES. During the Employment Period, Executive shall serve as the Senior Vice President -- Chief Technology Officer of the Company with such duties and responsibilities that are customary for such position and shall include those that are assigned to him by the Company during the Employment Period that are not inconsistent with such position. Executive shall devote substantially all of his working time, attention and energies during normal business hours (other than -1- absences due to illness or vacation) to the performance of his duties for the Company. Upon the prior written approval of the Chief Executive Officer of the Philips Medical Systems, Executive may serve as a member of the board of directors of other companies or engage in other outside activities, provided that such activities do not interfere with Executive's duties hereunder; provided, further, that if Executive is already a member of any such board of directors, as set forth on Exhibit A hereof, he shall be entitled to remain on such board without violating the terms of this Agreement. 4. PLACE OF PERFORMANCE. The principal place of employment of Executive shall be at the Company's executive offices in Seattle, Washington. 5. COMPENSATION AND RELATED MATTERS. (a) BASE SALARY AND BONUS. During the Employment Period the Company shall pay Executive a base salary at the rate of not less than $ 255,000 per year ("Base Salary") which shall be annually reviewed by the Company. Executive's Base Salary shall be paid in approximately equal installments in accordance with the Company's customary payroll practices. If Executive's Base Salary is increased by the Company, such increased Base Salary shall then constitute the Base Salary for all purposes of the Agreement. On or about January 1, 1999, Executive shall be paid an annual bonus equal to the pro rata portion (based on the number of days elapsed in 1998 through and including the Effective Time) of the annual bonus that would have been payable under Executive's annual bonus arrangement in effect on the date hereof based on the Company's annualized performance through the last full fiscal quarter completed before the Effective Time; PROVIDED, THAT for purposes of this sentence, Executive's maximum annual bonus opportunity shall be deemed to be 50% of Base Salary. For the remaining period of 1998 following the Effective Time (for which a bonus may be paid, prorated in the proportion that the number of days after the Effective Time through December 31, 1998 bears to 365) and during each subsequent year of the Employment Period, Executive shall be entitled to an annual incentive bonus ("Bonus"), based upon the achievement of performance targets, such targets as determined in the sole discretion of the Company, to be payable at the same time as bonuses are paid to other executive officers. Executive's target Bonus shall be 50% of Base Salary, but may be more or less upon achievement of performance targets. (b) STOCK OPTION. (i) The Executive shall be granted stock options (the "Stock Option") to acquire 7,000 shares of the common stock of Royal Philips Electronics (the "Stock"), pursuant to the Philips Electronics North America Corporation 1998 Stock Incentive Plan (the "Option Plan"). The Stock Option shall be granted on the Commencement Date, and shall be granted at an exercise price per share equal to the fair market value of the Stock on the date of grant and shall be subject to the general terms of the Option Plan and the stock -2- option agreement thereunder (the "Option Agreement"). Stock Options granted pursuant to this Section 5(b)(i) shall become exercisable at a rate of 33-1/3% on each of the first, second and third anniversaries of the date of grant, provided Executive remains an employee on such date, and shall expire ten (10) years following the date of grant, except as otherwise provided in the Option Plan or Option Agreement. Notwithstanding the foregoing, if Executive is terminated pursuant to Section 6(e) or 6(g) hereof, such Stock Option shall become immediately exercisable and shall remain exercisable for one year following such termination. (ii) Beginning in the year 2000, Executive shall be eligible for option grants on the same basis as other senior executives of the Company. (c) LONG-TERM PERFORMANCE UNIT PLAN. The Company shall establish the Long-Term Performance Unit Plan which shall provide Executive with a bonus (the "Incentive Bonus") equal to Executive's Base Salary, to be paid in the first quarter following the end of the Performance Period (the "Payment Date"), if Executive is an employee on the last day of the Performance Period and 75% of the base case strategic plan, as attached as Exhibit B (the "Strategic Plan") has been achieved during the 1999-2001 performance period (the "Performance Period"). If 100% of the Strategic Plan is achieved during the Performance Period, Executive's Incentive Bonus shall be two times Base Salary and if 100% of the Strategic Plan is achieved, including synergies, the Incentive Bonus shall be three times Base Salary. In the first quarter following December 31, 1999 and December 31, 2000, Executive shall receive a payment equal to 20% of Base Salary (each, an "Advance Bonus") which shall reduce the Incentive Bonus, on a dollar for dollar basis, otherwise payable under this paragraph. Notwithstanding the foregoing, if Executive is terminated pursuant to Sections 6(e) or 6(g) hereof, Executive shall be entitled to a pro-rata Incentive Bonus, based on the ratio the number of days worked in the Performance Period bears to the total number of days in the Performance Period, to be paid on the Payment Date. (d) BENEFIT PLANS. Executive shall be entitled to participate in such employee benefit plans and insurance programs offered by the Company, or which it may adopt from time to time, for its executive management or supervisory personnel generally, in accordance with the eligibility requirements for participation therein. Notwithstanding the foregoing, Executive shall not be entitled to receive severance pursuant to the Company's severance plan if he is entitled to receive payments pursuant to Section 8(c) of this Agreement. Nothing herein shall be construed so as to prevent the Company from modifying or terminating any employee benefit plans or programs, or employee fringe benefits, it may adopt from time to time. -3- (e) VACATION AND SICK LEAVE. Executive shall be entitled to the amount of paid vacation and sick leave that is provided to other executive officers, in accordance with the Company's customary practices. (f) EXPENSES. The Company shall promptly reimburse Executive for all reasonable business expenses upon the presentation of reasonably itemized statements of such expenses in accordance with the Company's policies and procedures now in force or as such policies and procedures may be modified with respect to all executive officers of the Company. 6. TERMINATION. This Agreement shall be terminated upon the earliest to occur of the following: (a) EXPIRATION. The expiration of the Employment Period. (b) DEATH. The death of Executive. (c) DISABILITY. If, as a result of Executive's Disability, Executive shall have been substantially unable to perform his duties hereunder for a period of six (6) consecutive months and within thirty (30) days after written Notice of Termination is given by the Company after such six (6) month period, Executive shall not have returned to the substantial performance of his duties on a full-time basis. For purposes of this Agreement, "Disability" shall have the same meaning as that term is defined in the Company's Long Term Disability Plan; PROVIDED, THAT, if no such plan exists, "Disability" shall have the same meaning as provided in Section 22(e)(3) of the Code. (d) CAUSE. The Company terminates Executive for Cause. For purposes of this Agreement, the Company shall have "Cause" to terminate Executive's employment upon Executive's (i) willful and continued failure to substantially perform his duties with the Company (other than any such failure resulting from his incapacity due to physical or mental illness) after a written demand for substantial performance is delivered to Executive which identifies the manner in which the Company believes that Executive has not substantially performed his duties, or (ii) willful misconduct (but excluding any action that Executive reasonably believes is in the best interests of the Company) which is materially economically injurious to the Company or to any entity in control of, controlled by or under common control with the Company (an "Affiliate"), including, but not limited to, any breach of Sections 9 and 10 hereof, or (iii) the conviction of, or plea of guilty or nolo contendere to, a felony involving moral turpitude, or (iv) habitual drug or alcohol abuse by Executive. -4- (e) WITHOUT CAUSE. The Company terminates Executive's employment hereunder without Cause by providing Executive with a Notice of Termination. (f) VOLUNTARY TERMINATION. Executive terminates this Agreement and Executive's employment hereunder at any time upon ninety (90) days prior written notice to the Company. (g) MATERIAL BREACH. Executive terminates his employment for a material breach of this Agreement by the Company. For purposes of this Agreement, a "material breach" shall be deemed to occur upon a failure by the Company to comply with any material provision of this Agreement without Executive's written consent, including, but not limited to, (i) a material diminution in Executive's position, duties, status, authority or responsibility as set forth under the terms of this Agreement, (ii) a reduction in Base Salary, Bonus or Incentive Bonus opportunity, or (iii) a relocation of the Executive to a location more than 50 miles from his present location, which in the case of any alleged violation of this paragraph (g), has not been cured in all material respects within thirty (30) days after written notice of such noncompliance has been given by Executive to the Company. 7. TERMINATION PROCEDURE. (a) NOTICE OF TERMINATION. Any termination of Executive by the Company or by Executive (other than termination pursuant to Section 6(a) or (b) hereof) shall be communicated by written Notice of Termination to the other party hereto in accordance with Section 13. For purposes of this Agreement, a "Notice of Termination" shall mean a notice which shall indicate the specific termination provision in this Agreement relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of Executive under the provisions so indicated. (b) DATE OF TERMINATION. "Date of Termination" shall mean (i) if Executive's employment is terminated by the expiration of this Agreement, the date of expiration, (ii) if Executive's employment is terminated by his death, the date of his death, (iii) if Executive's employment is terminated pursuant to Section 6(c) hereof, thirty (30) days after Notice of Termination is given (provided that Executive shall not have again become available for service on a regular basis during such thirty (30) day period), (iv) if Executive's employment is terminated pursuant to Sections 6(d), 6(e), or 6(g) the date specified in the Notice of Termination, and (v) if Executive's employment is terminated for any other reason, the date on which a Notice of Termination is given. -5- 8. AMOUNTS DUE UPON TERMINATION OR DURING DISABILITY. In the event Executive is disabled or his employment terminates during the Employment Period, the Company shall provide Executive with the payments set forth below. Executive acknowledges and agrees that the payments set forth in this Section 8 constitute liquidated damages for termination of his employment during the Employment Period. (a) During any period that Executive fails to perform his duties hereunder as a result of Disability ("disability period"), Executive shall continue to receive his Base Salary at the rate then in effect for such period until his employment is terminated pursuant to Section 6(c) hereof; PROVIDED, THAT, payments so made to Executive during the first six (6) months of the disability period shall be reduced by the sum of the amounts, if any, paid to the Executive at or prior to the time of any such payment under disability benefit plans of the Company or under the Social Security disability insurance program, and which amounts were not previously applied to reduce any such payment. Executive shall also be entitled to any other benefits or payments provided pursuant to any plan or policy of the Company in accordance with such plan's or policy's terms. (b) If Executive is terminated pursuant to Sections 6(a), 6(b), 6(d), or 6(f) the Company shall pay Executive his accrued, but unpaid Base Salary and Bonus through the Date of Termination at the rate in effect at the time Notice of Termination is given, and the Company shall have no further obligations to Executive under this Agreement; PROVIDED, THAT, Executive shall be entitled to any other benefit or payment provided pursuant to any plan or policy of the Company in accordance with such plan's or policy's terms. (c) If Executive's employment is terminated pursuant to Sections 6(e) or 6(g), the Company shall pay to Executive his (A) Base Salary accrued through the Date of Termination and (B) a lump-sum payment equal to the remaining Base Salary and Average Bonus (as defined below) that would have been paid to Executive had his employment continued through the Employment Period (the "Remaining Period"); PROVIDED THAT, Executive shall be entitled to a minimum payment of one (1) times Executive's then current Base Salary and Average Bonus. All such payments shall be made as soon as administratively feasible following such termination. Executive shall also be entitled to any other benefits or payments provided pursuant to any plan or policy of the Company in accordance with such plan's or policy's terms, except as provided in Section 5(d). For purposes of the foregoing, "Average Bonus" means the average annual Bonus paid to Executive by the Company (or its successors) during the three year period immediately preceding his Date of Termination. (d) CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY. -6- (i) Notwithstanding anything in this Agreement to the contrary, in the event it shall be determined that any payment, award, benefit or distribution (or any acceleration of any payment, award, benefit or distribution) by the Company (or any of its affiliated entities) or any entity which effectuates (or has previously effectuated) a change in control (or any of its affiliated entities) to or for the benefit of Executive (whether pursuant to the terms of this Agreement or otherwise) (the "Payments") would be subject to the excise tax (the "Excise Tax") under Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code"), then the amounts payable to Executive under this Agreement shall be the greater of (A) the Payment, if the result of subtracting the Excise Tax from the Payment is more than the Safe Harbor Cap and (B) the Payment, reduced to the maximum amount as will result in no portion of the Payments being subject to the Excise Tax (the "Safe Harbor Cap"), reducing first the payments under Section 8(c)(B), unless an alternative method of reduction is elected by Executive. For purposes of reducing the Payments to the Safe Harbor Cap, only amounts payable to Executive under this Agreement (and no other Payments) shall be reduced, unless consented to by Executive. (ii) All determinations required to be made under this Section 8 shall be made by the nationally recognized public accounting firm that is selected by Executive (the "Accounting Firm"). If payments are reduced to the Safe Harbor Cap, the Accounting Firm shall provide a reasonable opinion to Executive that he is not required to report any Excise Tax on his federal income tax return. All fees, costs and expenses (including, but not limited to, the costs of retaining experts) of the Accounting Firm shall be borne by the Company. The determination by the Accounting Firm shall be binding upon the Company and Executive (except as provided in paragraph (iii) below). (iii) If payments are reduced to the Safe Harbor Cap as provided in Section 8(d)(i)(B) and if it is established pursuant to a final determination of a court or an Internal Revenue Service (the "IRS") proceeding which has been finally and conclusively resolved, that Payments have been made to, or provided for the benefit of, Executive by the Company, which are in excess of the limitations provided in this Section 8(d)(i)(B) (hereinafter referred to as an "Excess Payment"), such Excess Payment shall be deemed for all purposes to be a loan to Executive made on the date Executive received the Excess Payment and Executive shall repay the Excess Payment to the Company on demand, together with interest on the Excess Payment at the applicable federal rate (as defined in Section 1274(d) of the Code) from the date of Executive's receipt of such Excess Payment until the date of such repayment. As a result of the uncertainty in the application of Section 4999 of the Code at the time of the determination, it is possible that Payments which will not have been made by the Company should have been made (an "Underpayment"), consistent with the calculations required to be made under this Section 8. In the event that it is determined (A) by the Accounting Firm, the Company (which shall include the position taken by the Company, or together with its consolidated -7- group, on its federal income tax return) or the IRS or (B) pursuant to a determination by a court, that an Underpayment has occurred, the Company shall pay an amount equal to such Underpayment to Executive within ten (10) days of such determination together with interest on such amount at the applicable federal rate from the date such amount would have been paid to Executive until the date of payment. 9. CONFIDENTIAL INFORMATION AND REMOVAL OF DOCUMENTS. (a) Executive shall hold in a fiduciary capacity for the benefit of the Company all secret or confidential information, knowledge or data relating to the Company or any Affiliate, and their respective businesses ("Confidential Information"), which shall have been obtained by Executive during Executive's employment by the Company or any Affiliate and which shall not be or become public knowledge (other than by acts by Executive or representatives of Executive in violation of this Agreement). After termination of Executive's employment with the Company, Executive shall not, without the prior written consent of the Company or as may otherwise be required by law or legal process, communicate or divulge any such information, knowledge or data to anyone other than the Company and those designated by it. (b) All records, files, drawings, documents, models, equipment, and the like containing Confidential Information or needed in the Company's business which Executive has control over shall not be removed from the Company's premises without its written consent, unless such removal is in the furtherance of the Company's business or is in connection with Executive's carrying out his duties under this Agreement and, if so removed, shall be returned to the Company promptly after termination of Executive's employment hereunder, or otherwise promptly after removal if such removal occurs following termination of employment. Executive's rolodex, telephone directory and similar type items, and furniture, art work and property owned by Executive or otherwise not owned by the Company shall not be deemed Company property and shall not be covered by this Section 9(b). The Company shall be the owner of all trade secrets and other products relating to the Company's business developed by Executive alone or in conjunction with others as part of his employment with the Company. 10. NON-COMPETITION. (a) In consideration of the benefits to be provided to Executive hereunder, Executive covenants that he will not, without the prior written consent of the Company, during the Employment Period and the twelve (12) month period following his termination of employment for any reason or, if terminated pursuant to Section 6(e) hereof, the Remaining Period, if greater (the "Restriction Period"), engage in any way, directly or indirectly, in any business whose product or activities directly compete with -8- the products or activities of Philips Medical Systems or the Company anywhere where Philips Medical Systems or the Company conducts its businesses, other than in his capacity as an employee of the Company. (b) Executive hereby covenants and agrees that, at all times during the Employment Period and for a period of one (1) years immediately following his termination for any reason, Executive shall not employ or seek to employ any person employed at that time by Philips Medical Systems or the Company, or otherwise encourage or entice such person or entity to leave such employment. (c) Executive hereby covenants and agrees that, at all times during the Restriction Period, Executive will not (i) pursue or attempt to develop any project known to Executive and which Philips Medical Systems or the Company are pursuing, developing or attempting to develop as of the Date of Termination ("Project"), directly or indirectly, alone, in association with or as a shareholder, principal, agent, partner, officer, director, employee or consultant of any other organization or (ii) divert to any entity which is engaged in any business conducted by Philips Medical Systems or the Company in the same geographic area as Philips Medical Systems or the Company, any Project or any customer of Philips Medical Systems or the Company. (d) Executive acknowledges that the restrictions, prohibitions and other provisions of this Section 10 are reasonable, fair and equitable in scope, terms and duration, are necessary to protect the legitimate business interests of the Company and are a material inducement to the Company to enter into this Agreement. It is the intention of the parties hereto that the restrictions contained in this paragraph be enforceable to the fullest extent permitted by applicable law. Therefore, to the extent any court of competent jurisdiction shall determine that any portion of the foregoing restrictions is excessive, such provision shall not be entirely void, but rather shall be limited or revised only to the extent necessary to make it enforceable. 11. REMEDY. Should Executive engage in or perform any of the acts prohibited by Sections 9 and 10, it is agreed that the Company shall be entitled to full injunctive relief, to be issued by any competent court of equity, enjoining and restraining Executive and each and every other person, firm, organization, association, or corporation concerned therein, from the continuance of such violative acts. The foregoing remedy available to Company shall not be deemed to limit or prevent the exercise by the Company of any or all further rights and remedies which may be available to the Company hereunder or at law or in equity. -9- 12. SUCCESSORS; BINDING AGREEMENT. This Agreement shall be binding upon and shall inure to the benefit of Executive, his heirs, executors, administrators, beneficiaries and assigns and shall be binding upon and shall inure to the benefit of the Company and its successors. 13. NOTICE. For the purposes of this Agreement, notices, demands and all other communications provided for in this Agreement shall be in writing and shall be deemed to have been duly given when delivered either personally or by United States certified or registered mail, return receipt requested, postage prepaid, addressed, in case of Executive, to the last address on file with the Company and if to the Company, to its executive offices or to such other address as any party may have furnished to the others in writing in accordance herewith, except that notices of change of address shall be effective only upon receipt. 14. RESOLUTION OF DIFFERENCES OVER BREACHES OF AGREEMENT. The parties shall use good faith efforts to resolve any controversy or claim arising out of, or relating to this Agreement or the breach thereof, first in accordance with the Company's internal review procedures, except that this requirement shall not apply to any claim or dispute under or relating to Sections 9 or 10 of this Agreement. If despite their good faith efforts, the parties are unable to resolve such controversy or claim through the Company's internal review procedures, then such controversy or claim shall be resolved by a court of law having jurisdiction thereof. If any contest or dispute shall arise between the Company and Executive regarding any provision of this Agreement, the parties shall be responsible for paying all of its own legal fees and expenses incurred in connection with such contest or dispute. 15. GOVERNING LAW. This Agreement is governed by, and is to be construed and enforced in accordance with, the laws of the State of Washington, without regard to principles of conflicts of laws. If, under such law, any portion of this Agreement is at any time deemed to be in conflict with any applicable statute, rule, regulation or ordinance, such portion shall be deemed to be modified or altered to conform thereto or, if that is not possible, to be omitted from this Agreement, and the invalidity of any such portion shall not affect the force, effect and validity of the remaining portion hereof. 16. AMENDMENT. No provisions of this Agreement may be amended, modified, or waived unless such amendment or modification is agreed to in writing signed by Executive and by a duly authorized officer of the Company, and such waiver is set forth in writing and signed by the party to be charged. No waiver by either party hereto at any time of any breach by the other party hereto of any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of -10- similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. 17. SURVIVAL. The respective obligations of, and benefits afforded to, Executive and Company as provided in Sections 9 and 10 of this Agreement shall survive the termination of this Agreement. 18. NO CONFLICT OF INTEREST. During the Employment Period, Executive shall not directly, or indirectly render service, or undertake any employment or consulting agreement with another entity without the express written consent of the Company. 19. COUNTERPARTS. This Agreement may be executed in two or more counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. 20. ENTIRE AGREEMENT. This Agreement sets forth the entire agreement of the parties hereto (and in the case of the Company, its predecessors) in respect of the subject matter contained herein and supersede all prior agreements, promises, covenants, arrangements, communications, representations or warranties, whether oral or written, by any officer, employee or representative of any party hereto in respect of such subject matter, including, but not limited to, the Employment Agreement by and between ATL Ultrasound, Inc. and Executive, dated as of the first day of January, 1997 and any and all amendments made subsequent thereto (the "Prior Agreement"), and as of the successful consummation of the Offer, such Prior Agreement shall be void and of no further force or effect. Any prior agreement of the parties hereto in respect of the subject matter contained herein is hereby terminated and canceled, as of the successful consummation of the Offer; PROVIDED THAT, this Agreement shall not modify or terminate the provisions of any compensation or benefit plan providing benefits upon a change in control of the Company (excluding the Prior Agreement); PROVIDED, FURTHER, that Executive acknowledges and agrees that he will be paid no more than 23%, 0.0% and 23.4% of Base Salary under the 1996-98, 1997-99 and 1998-00 performance cycles, respectively, under the Company's Long Term Incentive Plan (the "Plan"), effective as of January 1, 1993 and waives all rights for any other payments under such Plan upon payment of such amounts. Executive acknowledges that in consideration of the benefits to be provided hereunder, he has waived, as of the successful consummation of the Offer, all of his rights under the Prior Agreement, including, but not limited to Section 6 thereof. 21. SECTION HEADINGS. The section headings in this Agreement are for convenience of reference only, and they form no part of this Agreement and shall not affect its interpretation. -11- IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. ATL Ultrasound, Inc. By: /s/ Dennis C. Fill ---------------------------- /s/ Jacques Souquet ------------------------------- Jacques Souquet -12- EXHIBIT A French Chamber of Commerce in Seattle Sonosight, Inc. -13- EXHIBIT B 1999-2001 Strategic Plan (*) Income Statement 1999 2000 2001 - ------------------------------------------------------------------ Total Product Revenue 427.9 466.5 511.0 Product Gross Profit 233.9 266.2 292.6 - ------------------------------------------------------------------ Service Revenue 103.4 109.4 115.7 Service Gross Profit 43.9 47.2 50.6 - ------------------------------------------------------------------ Total Revenue $ 531.3 $ 575.9 $ 626.7 Total Gross Profit $ 277.8 $ 313.4 $ 343.2 Gross Margin 52.3% 54.4% 54.8% - ------------------------------------------------------------------ Operating Expenses Selling and Marketing 110.1 118.0 126.8 % Revenue 20.7% 20.5% 20.2% General & Admin 41.6 43.6 46.1 % Revenue 7.8% 7.6% 7.4% R&D Expense 63.2 67.0 72.0 % Revenue 11.9% 11.6% 11.5% Other 3.6 6.2 7.8 - ------------------------------------------------------------------ Total Operating Expense $ 218.5 $ 234.8 $ 252.6 41% 41% 40% - ------------------------------------------------------------------ Operating Income $ 59.3 $ 78.6 $ 90.6 - ------------------------------------------------------------------ - -------------------------- (*) The synergies expected to be realized as a result of the Merger will be between $50 and $70 million, as mutually agreed upon by the parties. _-14- EX-99.(G)(5) 15 EMPLOYMENT AGREEMENT/CASTOR F. DIAZ EMPLOYMENT AND CONSULTING AGREEMENT AGREEMENT, dated as of July 29, 1998, by and between ATL Ultrasound, Inc. (the "Company") and Castor F. Diaz ("Executive"). WHEREAS, Executive's current employer, ATL Ultrasound, Inc., has entered into an Agreement and Plan of Merger, dated as of July 29, 1998 with Philips Acquisition, Inc. and Philips Electronics North America Corporation (the "Merger Agreement"); and WHEREAS, the Company desires to secure the continued employment of Executive following the successful consummation of the Offer (as such term is defined in the Merger Agreement); and WHEREAS, Executive and the Company desire to enter into an agreement setting forth the terms and conditions of the employment of Executive with the Company on and after the successful consummation of the Offer; NOW, THEREFORE, IN CONSIDERATION OF the mutual covenants herein contained, and other good and valuable consideration, the parties hereto agree as follows: 1. EMPLOYMENT. Subject to the successful consummation of the Offer, the Company hereby agrees to employ Executive, and Executive agrees to serve as an employee of the Company, on the terms and conditions set forth in this Agreement, effective as of the date of this Agreement. The continuation of such employment shall be expressly conditioned on and subject to the consummation of the transactions contemplated by the Merger Agreement. This Agreement shall become null and void, and shall have no force or effect, if the transactions contemplated under the Merger Agreement are not consummated; PROVIDED, THAT, Section 21 of this Agreement shall be deemed to be effective as of the successful consummation of the Offer. Following the Employment Period (as defined below) the Company shall engage Executive as a consultant of the Company in accordance with Section 6 hereof. 2. TERM. The period of employment of Executive by the Company hereunder (the "Employment Period") shall commence as of the Effective Time (as defined in the Merger Agreement) (the "Commencement Date") and shall continue until December 31, 1999, at which time Executive's employment with the Company shall cease. In accordance with Section 6 hereof, Executive shall serve as a consultant to the Company for two additional years (the "Consulting Period") following the Employment Period (the Employment Period and Consulting Period collectively referred to as the "Term"); PROVIDED, THAT, prior to the commencement of the Consulting Period, the parties -1- may agree by mutual consent to extend the Consulting Period. The Term may be sooner terminated by either party in accordance with Section 6 of this Agreement. 3. DUTIES AND RESPONSIBILITIES. During the Employment Period, the Executive shall serve as the Senior Vice President -- Worldwide Sales and Marketing of the Company with such duties and responsibilities that are customary for such a position and shall include those that are assigned to him by the Company during the Employment Period that are not inconsistent with such position. During the Employment Period, Executive shall devote substantially all of his working time, attention and energies during normal business hours (other than absences due to illness or vacation) to the performance of his duties for the Company. Upon the prior written approval of the Chief Executive Officer of the Philips Medical Systems, Executive may serve as a member of the board of directors of other companies or engage in other outside activities, provided that such activities do not interfere with Executive's duties hereunder; provided, further, that if Executive is already a member of any such board of directors, as set forth on Exhibit A hereof, he shall be entitled to remain on such board without violating the terms of this Agreement. 4. PLACE OF PERFORMANCE. The principal place of employment of Executive shall be at the Company's executive offices in Seattle, Washington. 5. COMPENSATION AND RELATED MATTERS. (a) BASE SALARY AND BONUS. During the Employment Period the Company shall pay Executive a base salary at the rate of not less than $285,000 per year ("Base Salary") which shall be reviewed annually by the Company. Executive's Base Salary shall be paid in approximately equal installments in accordance with the Company's customary payroll practices. If Executive's Base Salary is increased by the Company, such increased Base Salary shall then constitute the Base Salary for all purposes of the Agreement. On or about January 1, 1999, Executive shall be paid an annual bonus equal to the pro rata portion (based on the number of days elapsed in 1998 through and including the Effective Time) of the annual bonus that would have been payable under Executive's annual bonus arrangement in effect on the date hereof based on the Company's annualized performance through the last full fiscal quarter completed before the Effective Time; PROVIDED, THAT, for purposes of this sentence, Executive's maximum annual bonus opportunity shall be deemed to be 50% of Base Salary. For the remaining period of 1998 following the Effective Time (for which a bonus may be paid, prorated in the proportion that the number of days after the Effective Time through December 31, 1998 bears to 365) and during each subsequent year of the Employment Period, Executive shall be entitled to an annual incentive bonus ("Bonus"), based upon the achievement of performance targets, such targets as determined in the sole discretion of the Company, to be payable at the same time as bonuses are paid to other executive -2- officers. Executive's target Bonus shall be 50% of Base Salary, but may be more or less upon achievement of performance targets. (b) STOCK OPTION. The Executive shall be granted stock options (the "Stock Option") to acquire 5,000 shares of the common stock of Royal Philips Electronics (the "Stock"), pursuant to the Philips Electronics North America Corporation 1998 Stock Incentive Plan (the "Option Plan"). The Stock Option shall be granted on the Commencement Date, and shall be granted at an exercise price per share equal to the fair market value of the Stock on the date of grant and shall be subject to the general terms of the Option Plan and the stock option agreement thereunder (the "Option Agreement"). Stock Options granted pursuant to this Section 5(b) shall become exercisable at a rate of 50% on July 31, 1999 and 50% on December 31, 1999, provided Executive was an employee on such date, and shall expire ten (10) years following the date of grant, except as otherwise provided in the Option Plan or Option Agreement. Notwithstanding the foregoing, the Stock Option shall remain exercisable until at least the first anniversary of the end of the Term (not to exceed ten (10) years) unless Executive's employment is terminated pursuant to Sections 7(d) or 7(f) hereof. (c) LONG-TERM PERFORMANCE UNIT PLAN. The Company shall establish the Long-Term Performance Unit Plan which shall provide Executive with an incentive bonus (the "Incentive Bonus") equal to Executive's Base Salary to be paid in the first quarter following the end of the Performance Period (the "Payment Date"), if Executive was either an employee or consultant at the end of the Term and 75% of the base case strategic plan, as attached as Exhibit B (the "Strategic Plan") has been achieved during the 1999-2001 performance period (the "Performance Period") pro-rated, based on the ratio of the number of days in the Employment Period bears to the number of days in the Performance Period. If 100% of the Strategic Plan is achieved during the Performance Period, Executive's Incentive Bonus shall be two times Base Salary pro-rated, based on the ratio of the number of days in the Employment Period bears to the number of days in the Performance Period. If 100% of the Strategic Plan is achieved, including synergies, the Incentive Bonus shall be three times Base Salary, pro-rated, based on the ratio of the number of days in the Employment Period bears to the number of days in the Performance Period. In the first quarter following December 31, 1999, Executive shall receive a payment equal to 20% of Base Salary (an "Advance Payment") which shall reduce the Incentive Bonus, on a dollar for dollar basis, otherwise payable under this paragraph. Notwithstanding, the foregoing, if Executive is terminated pursuant to Section 7(e) or 7(g) hereof, Executive shall be entitled to a pro-rata Incentive Bonus, based on the ratio the number of days worked in the Employment Period bears to the total number of days in the Performance Period, to be paid on the Payment Date. -3- (d) BENEFIT PLANS. During the Employment Period, Executive shall be entitled to participate in such employee benefit plans and insurance programs offered by the Company, or which it may adopt from time to time, for its executive management or supervisory personnel generally, in accordance with the eligibility requirements for participation therein. Notwithstanding the foregoing, Executive shall not be entitled to receive severance pursuant to the Company's severance plan if he is entitled to receive payments pursuant to Section 9(c) of this Agreement. Nothing herein shall be construed so as to prevent the Company from modifying or terminating any employee benefit plans or programs, or employee fringe benefits, it may adopt from time to time. (e) VACATION AND SICK LEAVE. During the Employment Period, Executive shall be entitled to the amount of paid vacation and sick leave that is provided to other executive offices, in accordance with the Company's customary practices. (f) EXPENSES. The Company shall promptly reimburse Executive for all reasonable business expenses incurred during the Term upon the presentation of reasonably itemized statements of such expenses in accordance with the Company's policies and procedures now in force or as such policies and procedures may be modified with respect to all executive officers of the Company. 6. CONSULTING ARRANGEMENT. Immediately following the Employment Period, Executive shall serve as a consultant to the Company during the Consulting Period. During the Consulting Period, Executive shall make himself available, at the reasonable request of the Company, for consultation and advice on matters affecting the business affairs of the Company, by telephonic conference if reasonably practicable. During the Consulting Period, the Company shall pay Executive an annual consulting fee equal to $200,000 (the "Consulting Fee") per year, to be paid in approximately equal installments in accordance with the Company's customary practices. In addition, until Executive is eligible for Medicare, he shall be entitled to receive medical benefits (or the after tax cost of such benefits if they cannot be provided pursuant to the Company's medical plans) from the Company. 7. TERMINATION. This Agreement shall be terminated upon the earliest to occur of the following: (a) EXPIRATION. The expiration of the Term. (b) DEATH. The death of Executive. Notwithstanding the foregoing, if Executive should die during the Consulting Period, Executive's beneficiaries or his estate, as the case may be, shall continue to receive the Consulting Fee until the end of the year in which his death occurs. -4- (c) DISABILITY. If, as a result of Executive's Disability during the Employment Period, Executive shall have been substantially unable to perform his duties hereunder for a period of six (6) consecutive months and within thirty (30) days after written Notice of Termination is given by the Company after such six (6) month period, Executive shall not have returned to the substantial performance of his duties. For purposes of this Agreement, "Disability" shall have the same meaning as that term is defined in the Company's Long Term Disability Plan; PROVIDED, THAT, if no such plan exists, "Disability" shall have the same meaning as provided in Section 22(e)(3) of the Code. (d) CAUSE. The Company terminates Executive for Cause during the Employment Period. For purposes of this Agreement, the Company shall have "Cause" to terminate Executive upon Executive's (i) willful and continued failure to substantially perform his duties with the Company (other than any such failure resulting from his incapacity due to physical or mental illness) after a written demand for substantial performance is delivered to Executive which identifies the manner in which the Company believes that Executive has not substantially performed his duties, or (ii) willful misconduct (but excluding any action that Executive reasonably believes is in the best interests of the Company) which is materially economically injurious to the Company or to any entity in control of, controlled by or under common control with the Company (an "Affiliate"), including, but not limited to, any breach of Sections 10 and 11 hereof, or (iii) the conviction of, or plea of guilty or nolo contendere to, a felony involving moral turpitude, or (iv) habitual drug or alcohol abuse by Executive. The Company may not terminate Executive for Cause during the Consulting Period. (e) WITHOUT CAUSE. The Company terminates Executive hereunder without Cause by providing Executive with a Notice of Termination. (f) VOLUNTARY TERMINATION. Executive terminates this Agreement at any time upon ninety (90) days prior written notice to the Company. (g) MATERIAL BREACH. Executive terminates his employment for a material breach of this Agreement by the Company. For purposes of this Agreement, a "material breach" shall be deemed to occur upon a failure by the Company to comply with any material provision of this Agreement without Executive's written consent, including, but not limited to, (i) a material diminution in Executive's position, duties, status, authority or responsibility as set forth under the terms of this Agreement, (ii) a reduction in Base Salary, Bonus or Incentive Bonus opportunity, or (iii) a relocation of the Executive to a location more than 50 miles from his present location, which in the case of any alleged violation of this paragraph (g), has not been cured in all material respects within thirty (30) days after written notice of such noncompliance has been given by Executive to the Company. -5- 8. TERMINATION PROCEDURE. (a) NOTICE OF TERMINATION. Any termination of Executive by the Company or by Executive (other than termination pursuant to Section 7(a) or (b) hereof) shall be communicated by written Notice of Termination to the other party hereto in accordance with Section 14. For purposes of this Agreement, a "Notice of Termination" shall mean a notice which shall indicate the specific termination provision in this Agreement relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of Executive under the provisions so indicated. (b) DATE OF TERMINATION. "Date of Termination" shall mean (i) if Executive is terminated by the expiration of this Agreement, the date of expiration, (ii) if Executive is terminated by his death, the date of his death, (iii) if Executive is terminated pursuant to Section 7(c) hereof, thirty (30) days after Notice of Termination is given (provided that Executive shall not have again become available for service on a regular basis during such thirty (30) day period), (iv) if Executive is terminated pursuant to Sections 7(d), 7(e), 7(f), or 7(g) the date specified in the Notice of Termination, and (v) if Executive is terminated for any other reason, the date on which a Notice of Termination is given. 9. AMOUNTS DUE UPON TERMINATION OR DURING DISABILITY. In the event Executive is disabled or his relationship with the Company terminates during the Term, the Company shall provide Executive with the payments set forth below. Executive acknowledges and agrees that the payments set forth in this Section 9 constitute liquidated damages for termination of this Agreement during the Term. (a) During any period that Executive fails to perform his duties hereunder during the Employment Period as a result of Disability ("disability period"), Executive shall continue to receive his Base Salary, as the case may be, at the rate then in effect for such period until this Agreement is terminated pursuant to Section 7(c) hereof; PROVIDED, THAT, payments so made to Executive during the first six (6) months of the disability period shall be reduced by the sum of the amounts, if any, paid to the Executive at or prior to the time of any such payment under disability benefit plans of the Company or under the Social Security disability insurance program, and which amounts were not previously applied to reduce any such payment. Executive shall also be entitled to any other benefits or payments provided pursuant to any plan or policy of the Company in accordance with such plan's or policy's terms. (b) If Executive is terminated pursuant to Sections 7(a), 7(b), 7(d), or 7(f) the Company shall pay Executive his accrued, but unpaid Base Salary and Bonus or Consulting Fee, as the case may be, through the Date of Termination at the rate -6- in effect at the time Notice of Termination is given, and (subject to 7(b)) the Company shall have no further obligations to Executive under this Agreement; PROVIDED, THAT, Executive shall be entitled to any other benefit or payment provided pursuant to any plan or policy of the Company in accordance with such plan's or policy's terms. (c) If Executive's employment is terminated pursuant to Sections 7(e) or 7(g), the Company shall pay to Executive his (A) Base Salary or Consulting Fee, as the case may be, accrued through the Date of Termination, (B) if during the Employment Term, a lump-sum payment equal to the remaining Base Salary, Average Bonus (as defined below) and Consulting Fee that would have been paid to Executive had this Agreement continued through the Term (the "Remaining Term"), and (C) if during the Consulting Term, all remaining amounts that would have been paid under Section 6 had this Agreement continued through the end of the Term. All such payments shall be made as soon as administratively feasible following such termination. Executive shall also be entitled to any other benefits or payments provided pursuant to any plan or policy of the Company in accordance with such plan's or policy's terms, except as provided in Section 5(d). For purposes of the foregoing, "Average Bonus" means the average annual bonus paid to Executive by the Company (or its successors) during the three year period immediately preceding his Date of Termination. (d) CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY. (i) Notwithstanding anything in this Agreement to the contrary, in the event it shall be determined that any payment, award, benefit or distribution (or any acceleration of any payment, award, benefit or distribution) by the Company (or any of its affiliated entities) or any entity which effectuates (or has previously effectuated) a change in control (or any of its affiliated entities) to or for the benefit of Executive (whether pursuant to the terms of this Agreement or otherwise) (the "Payments") would be subject to the excise tax (the "Excise Tax") under Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code"), then the amounts payable to Executive under this Agreement shall be the greater of (A) the Payment, if the result of subtracting the Excise Tax from the Payment is more than the Safe Harbor Cap and (B) the Payment, reduced to the maximum amount as will result in no portion of the Payments being subject to the Excise Tax (the "Safe Harbor Cap"), reducing first the payments under Section 9(c)(B), unless an alternative method of reduction is elected by Executive. For purposes of reducing the Payments to the Safe Harbor Cap, only amounts payable to Executive under this Agreement (and no other Payments) shall be reduced, unless consented to by Executive. (ii) All determinations required to be made under this Section 9 shall be made by the nationally recognized public accounting firm that is selected by Executive (the "Accounting Firm"). If payments are reduced to the Safe -7- Harbor Cap, the Accounting Firm shall provide a reasonable opinion to Executive that he is not required to report any Excise Tax on his federal income tax return. All fees, costs and expenses (including, but not limited to, the costs of retaining experts) of the Accounting Firm shall be borne by the Company. The determination by the Accounting Firm shall be binding upon the Company and Executive (except as provided in paragraph (iii) below). (iii) If payments are reduced to the Safe Harbor Cap as provided in Section 9(d)(i)(B) and if it is established pursuant to a final determination of a court or an Internal Revenue Service (the "IRS") proceeding which has been finally and conclusively resolved, that Payments have been made to, or provided for the benefit of, Executive by the Company, which are in excess of the limitations provided in this Section 9(d)(i)(B) (hereinafter referred to as an "Excess Payment"), such Excess Payment shall be deemed for all purposes to be a loan to Executive made on the date Executive received the Excess Payment and Executive shall repay the Excess Payment to the Company on demand, together with interest on the Excess Payment at the applicable federal rate (as defined in Section 1274(d) of the Code) from the date of Executive's receipt of such Excess Payment until the date of such repayment. As a result of the uncertainty in the application of Section 4999 of the Code at the time of the determination, it is possible that Payments which will not have been made by the Company should have been made (an "Underpayment"), consistent with the calculations required to be made under this Section 8. In the event that it is determined (A) by the Accounting Firm, the Company (which shall include the position taken by the Company, or together with its consolidated group, on its federal income tax return) or the IRS or (B) pursuant to a determination by a court, that an Underpayment has occurred, the Company shall pay an amount equal to such Underpayment to Executive within ten (10) days of such determination together with interest on such amount at the applicable federal rate from the date such amount would have been paid to Executive until the date of payment. 10. CONFIDENTIAL INFORMATION; REMOVAL OF DOCUMENTS AND NON-DISPARAGEMENT. (a) Executive shall hold in a fiduciary capacity for the benefit of the Company all secret or confidential information, knowledge or data relating to the Company or any Affiliate, and their respective businesses ("Confidential Information") which shall have been obtained by Executive during Executive's employment by the Company or any Affiliate and which shall not be or become public knowledge (other than by acts by Executive or representatives of Executive in violation of this Agreement). After termination of Executive's employment with the Company, Executive shall not, without the prior written consent of the Company or as may otherwise be required by law or legal process, communicate or divulge any such information, knowledge or data to anyone other than the Company and those designated by it. -8- (b) All records, files, drawings, documents, models, equipment, and the like containing Confidential Information or needed in the Company's business which Executive has control over shall not be removed from the Company's premises without its written consent, unless such removal is in the furtherance of the Company's business or is in connection with Executive's carrying out his duties under this Agreement and, if so removed, shall be returned to the Company promptly after termination of Executive's employment hereunder, or otherwise promptly after removal if such removal occurs following termination. Executive's rolodex, telephone directory and similar type items, and furniture, art work and property owned by Executive or otherwise not owned by the Company shall not be deemed Company property and shall not be covered by this Section 10(b). The Company shall be the owner of all trade secrets and other products relating to the Company's business developed by Executive alone or in conjunction with others as part of his services with the Company. (c) Executive agrees that during the Term and for a period of one year thereafter, he will not and that his attorneys, agents, or other representatives shall not (i) take any action or make or publish any statement, whether oral or written, which disparages in any way the Company or any or all of its present or former employees, principals, directors, partners, or affiliates, including, without limitation, any disparaging statement which interferes in any way with the ability of the Company or any of its affiliates to market their services, products, to retain existing client relationships, or to obtain new client relationships; (ii) make any statements in any public forum or statements intended for publication in the public media, which are reasonably likely to negatively affect the standing of the Company or its affiliates. 11. NON-COMPETITION. (a) In consideration of the benefits to be provided to Executive hereunder, Executive covenants that he will not, without the prior written consent of the Company, during the Term and the twelve (12) month period thereafter or, if terminated pursuant to Sections 7(e) or 7(g) hereof, the Remaining Period, if greater (the "Restriction Period"), engage in any way, directly or indirectly, in any business whose product or activities directly compete with the products or activities of Philips Medical Systems or the Company anywhere where Philips Medical Systems or the Company conducts such businesses, other than in his capacity as an employee or consultant of the Company. (b) Executive hereby covenants and agrees that, at all times during the Restriction Period, Executive shall not employ or seek to employ any person employed at that time by Philips Medical Systems or the Company, or otherwise encourage or entice such person or entity to leave such employment. -9- (c) Executive hereby covenants and agrees that, at all times during the Restriction Period, Executive will not (i) pursue or attempt to develop any project known to Executive and which Philips Medical Systems or the Company are pursuing, developing or attempting to develop as of the Date of Termination ("Project"), directly or indirectly, alone, in association with or as a shareholder, principal, agent, partner, officer, director, employee or consultant of any other organization or (ii) divert to any entity which is engaged in any business conducted by Philips Medical Systems or the Company in the same geographic area as Philips Medical Systems or the Company, any Project or any customer of Philips Medical Systems or the Company. (d) Executive acknowledges that the restrictions, prohibitions and other provisions of this Section 11 are reasonable, fair and equitable in scope, terms and duration, are necessary to protect the legitimate business interests of the Company and are a material inducement to the Company to enter into this Agreement. It is the intention of the parties hereto that the restrictions contained in this paragraph be enforceable to the fullest extent permitted by applicable law. Therefore, to the extent any court of competent jurisdiction shall determine that any portion of the foregoing restrictions is excessive, such provision shall not be entirely void, but rather shall be limited or revised only to the extent necessary to make it enforceable. 12. REMEDY. Should Executive engage in or perform any of the acts prohibited by Sections 10 and 11, it is agreed that the Company shall be entitled to full injunctive relief, to be issued by any competent court of equity, enjoining and restraining Executive and each and every other person, firm, organization, association, or corporation concerned therein, from the continuance of such violative acts. The foregoing remedy available to Company shall not be deemed to limit or prevent the exercise by the Company of any or all further rights and remedies which may be available to the Company hereunder or at law or in equity. 13. SUCCESSORS; BINDING AGREEMENT. This Agreement shall be binding upon and shall inure to the benefit of Executive, his heirs, executors, administrators, beneficiaries and assigns and shall be binding upon and shall inure to the benefit of the Company and its successors. 14. NOTICE. For the purposes of this Agreement, notices, demands and all other communications provided for in this Agreement shall be in writing and shall be deemed to have been duly given when delivered either personally or by United States certified or registered mail, return receipt requested, postage prepaid, addressed, in case -10- of Executive, to the last address on file with the Company and if to the Company, to its executive offices or to such other address as any party may have furnished to the others in writing in accordance herewith, except that notices of change of address shall be effective only upon receipt. 15. RESOLUTION OF DIFFERENCES OVER BREACHES OF AGREEMENT. The parties shall use good faith efforts to resolve any controversy or claim arising out of, or relating to this Agreement or the breach thereof, first in accordance with the Company's internal review procedures, except that this requirement shall not apply to any claim or dispute under or relating to Sections 10 or 11 of this Agreement. If despite their good faith efforts, the parties are unable to resolve such controversy or claim through the Company's internal review procedures, then such controversy or claim shall be resolved by a court of law. If any contest or dispute shall arise between the Company and Executive regarding any provision of this Agreement, the each party shall be responsible for paying all of its own legal fees and expenses incurred in connection with such contest or dispute. 16. GOVERNING LAW. This Agreement is governed by, and is to be construed and enforced in accordance with, the laws of the State of Washington, without regard to principles of conflicts of laws. If, under such law, any portion of this Agreement is at any time deemed to be in conflict with any applicable statute, rule, regulation or ordinance, such portion shall be deemed to be modified or altered to conform thereto or, if that is not possible, to be omitted from this Agreement, and the invalidity of any such portion shall not affect the force, effect and validity of the remaining portion hereof. 17. AMENDMENT. No provisions of this Agreement may be amended, modified, or waived unless such amendment or modification is agreed to in writing signed by Executive and by a duly authorized officer of the Company, and such waiver is set forth in writing and signed by the party to be charged. No waiver by either party hereto at any time of any breach by the other party hereto of any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. 18. SURVIVAL. The respective obligations of, and benefits afforded to, Executive and Company as provided in Sections 10 and 11 of this Agreement shall survive the termination of this Agreement. 19. NO CONFLICT OF INTEREST. During the Employment Period, Executive shall not directly, or indirectly render service, or undertake any employment or consulting agreement with another entity without the express written consent of the Company. -11- 20. COUNTERPARTS. This Agreement may be executed in two or more counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. 21. ENTIRE AGREEMENT. This Agreement sets forth the entire agreement of the parties hereto (and in the case of the Company, its predecessors) in respect of the subject matter contained herein and supersede all prior agreements, promises, covenants, arrangements, communications, representations or warranties, whether oral or written, by any officer, employee or representative of any party hereto in respect of such subject matter, including, but not limited to, the Employment Agreement by and between ATL Ultrasound, Inc. and Executive, dated as of the first day of January, 1997 and any and all amendments made subsequent thereto (the "Prior Agreement"), as of the successful consummation of the Offer, and such Prior Agreement shall be void and of no further force or effect. Any prior agreement of the parties hereto in respect of the subject matter contained herein is hereby terminated and canceled, as of the successful consummation of the Offer; PROVIDED THAT, this Agreement shall not modify or terminate the provisions of any compensation or benefit plan providing benefits upon a change in control of the Company (excluding the Prior Agreement); PROVIDED, FURTHER, that Executive acknowledges and agrees that he will be paid no more than 23%, 0.0% and 23.4% of Base Salary under the 1996-98, 1997-99 and 1998-00 performance cycles, respectively, under the Company's Long Term Incentive Plan (the "Plan"), effective as of January 1, 1993 and waives all rights for any other payments under such Plan upon payment of such amounts. Executive acknowledges that in consideration of the benefits to be provided hereunder, he has waived, as of the successful consummation of the Offer, all of his rights under the Prior Agreement, including, but not limited to Section 6 thereof. 22. INDEPENDENT CONTRACTOR. During the Consulting Period, in performing services hereunder, Executive will at all times and for all purposes, constitute an independent contractor and not an employee or agent of the Company or any of its subsidiaries or affiliates. In no event will Executive be, or represent himself to be, an officer, employee or agent of the Company or any subsidiary or affiliate thereof nor will Executive bind, or attempt to bind, the Company or any subsidiary or affiliate thereof to any contract, agreement, liability or obligation of any nature. Except as expressly provided herein, the Company will not be required to provide any benefits to Executive which it provides to its employees including without limitation retirement plans, insurance programs and vacation based on services rendered during the Consulting Period. 23. SECTION HEADINGS. The section headings in this Agreement are for convenience of reference only, and they form no part of this Agreement and shall not affect its interpretation. -12- IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. ATL Ultrasound, Inc. By: /s/ Dennis C. Fill ------------------------------- /s/ Castor F. Diaz ---------------------------------- CASTOR F. DIAZ -13- EXHIBIT A -14- EXHIBIT B 1999-2001 Strategic Plan (*) Income Statement 1999 2000 2001 - ------------------------------------------------------------------ Total Product Revenue 427.9 466.5 511.0 Product Gross Profit 233.9 266.2 292.6 - ------------------------------------------------------------------ Service Revenue 103.4 109.4 115.7 Service Gross Profit 43.9 47.2 50.6 - ------------------------------------------------------------------ Total Revenue $ 531.3 $ 575.9 $ 626.7 Total Gross Profit $ 277.8 $ 313.4 $ 343.2 Gross Margin 52.3% 54.4% 54.8% - ------------------------------------------------------------------ Operating Expenses Selling and Marketing 110.1 118.0 126.8 % Revenue 20.7% 20.5% 20.2% General & Admin 41.6 43.6 46.1 % Revenue 7.8% 7.6% 7.4% R&D Expense 63.2 67.0 72.0 % Revenue 11.9% 11.6% 11.5% Other 3.6 6.2 7.8 - ------------------------------------------------------------------ Total Operating Expense $ 218.5 $ 234.8 $ 252.6 41% 41% 40% - ------------------------------------------------------------------ Operating Income $ 59.3 $ 78.6 $ 90.6 - ------------------------------------------------------------------ - -------------------------- (*) The synergies expected to be realized as a result of the Merger will be between $50 and $70 million, as mutually agreed upon by the parties. -15- -----END PRIVACY-ENHANCED MESSAGE-----