Agreement And Plan Of Merger & Reorganization

EXHIBIT 10.3 ================================================================================


AGREEMENT AND PLAN OF MERGER AND REORGANIZATION


among:


Acuson Corporation,
a Delaware corporation;


Echo Acquisition Corp.,
a Delaware corporation;


and


Ecton, Inc.,
a Pennsylvania corporation


______________________________


Dated as of September 15, 1999


______________________________


================================================================================


Table Of Contents


Page Section 1 Description of Transaction.......................................... 1
1.1 Merger of the Company into Merger Sub............................. 1
1.2 Effect of the Merger.............................................. 1
1.3 Closing; Effective Time........................................... 2
1.4 Certificate of Incorporation and Bylaws; Directors and Officers... 2
1.5 Conversion of Shares.............................................. 2
1.6 Post-Closing Payments............................................. 3
1.7 Closing of the Company's Transfer Books........................... 8
1.8 Exchange of Certificates; Escrow Shares........................... 9
1.9 Dissenting Shares................................................. 10
1.10 Tax Consequences.................................................. 10
1.11 Accounting Treatment.............................................. 10
1.12 Further Action.................................................... 11 Section 2 Representations and Warranties of the Company....................... 11
2.1 Due Organization; No Subsidiaries; Etc............................ 11
2.2 Articles of Incorporation and Bylaws; Records..................... 11
2.3 Capitalization, Etc............................................... 12
2.4 Financial Statements.............................................. 13
2.5 Bank Accounts, etc................................................ 13
2.6 Absence of Changes................................................ 13
2.7 Title to Assets................................................... 15
2.8 Equipment......................................................... 15
2.9 Title to Real Property............................................ 15
2.10 Intellectual Property............................................. 16
2.11 Contracts......................................................... 17
2.12 Liabilities....................................................... 18
2.13 Compliance with Legal Requirements................................ 18
2.14 Governmental Authorizations....................................... 18
2.15 Tax Matters....................................................... 19
2.16 Employee and Labor Matters; Benefit Plans......................... 19
2.17 Environmental Matters............................................. 20


ii


Table Of Contents
Continued


Page
2.18 Insurance......................................................... 21
2.19 Related Party Transactions........................................ 21
2.20 Legal Proceedings; Orders......................................... 22
2.21 Authority; Binding Nature of Agreement............................ 22
2.22 Non-Contravention; Consents....................................... 22
2.23 Full Disclosure................................................... 23
2.24 Vote Required..................................................... 23
2.25 No Brokers........................................................ 23 Section 3 Representations and Warranties of Parent and Merger Sub............. 23
3.1 Corporate Existence and Power..................................... 23
3.2 Authority; Binding Nature of Agreement............................ 24
3.3 No Conflict; Consents............................................. 24
3.4 SEC Filings; Financial Statements................................. 24
3.5 Valid Issuance.................................................... 25
3.6 Merger Sub........................................................ 25
3.7 Pennsylvania Law.................................................. 25 Section 4 Certain Covenants of the Company.................................... 25
4.1 Access and Investigation.......................................... 25
4.2 Operation of the Business of the Company.......................... 25
4.3 Notification; Updates to Disclosure Schedule...................... 27
4.4 No Negotiation.................................................... 27
4.5 Post-Closing Audited Financial Statements......................... 28
4.6 Insurance......................................................... 28
4.7 Repayment of Loan................................................. 28 Section 5 Additional Covenants of the Parties................................. 28
5.1 Filings and Consents.............................................. 28
5.2 Company Shareholders' Meeting/Written Consent..................... 28
5.3 Exercise of Options and Warrants.................................. 29
5.4 Public Announcements.............................................. 29
5.5 Reasonable Efforts................................................ 29
5.6 Termination of Agreements......................................... 30
iii


Table Of Contents
Continued


Page
5.7 Employee and Related Matters...................................... 30
5.8 FIRPTA Matters.................................................... 30
5.9 Tax Matters....................................................... 30 Section 6 Conditions Precedent to Obligations of Parent and Merger Sub........ 30
6.1 Accuracy of Representations....................................... 30
6.2 Performance of Covenants.......................................... 31
6.3 Shareholder Approval.............................................. 31
6.4 Consents.......................................................... 31
6.5 Employee Matters.................................................. 31
6.6 Agreements and Documents.......................................... 31
6.7 Stock Certificates................................................ 32
6.8 FIRPTA Compliance................................................. 33
6.9 Listing........................................................... 33
6.10 No Restraints..................................................... 33
6.11 No Legal Proceedings.............................................. 33
6.12 Evidence of Exercise of Options and Warrants...................... 33 Section 7 Conditions Precedent to Obligations of the Company.................. 33
7.1 Accuracy of Representations....................................... 33
7.2 Performance of Covenants.......................................... 34
7.3 Agreements and Documents.......................................... 34
7.4 Listing........................................................... 34
7.5 No Restraints..................................................... 34 Section 8 Termination......................................................... 34
8.1 Termination Events................................................ 34
8.2 Termination Procedures............................................ 35
8.3 Effect of Termination............................................. 35 Section 9 Indemnification, Etc................................................ 35
9.1 Survival of Representations, Etc.................................. 35
9.2 Indemnification................................................... 36
9.3 Setoff............................................................ 38
9.4 No Contribution................................................... 39
9.5 Defense of Third Party Claims..................................... 39


iv


Table Of Contents
Continued


Page Section 10 Miscellaneous Provisions............................................ 40
10.1 Shareholders' Agent............................................... 40
10.2 Further Assurances................................................ 40
10.3 Fees and Expenses................................................. 40
10.4 Attorneys' Fees................................................... 40
10.5 Notices........................................................... 40
10.6 Time of the Essence............................................... 41
10.7 Headings.......................................................... 41
10.8 Counterparts...................................................... 41
10.9 Governing Law..................................................... 41
10.10 Successors and Assigns............................................ 42
10.11 Remedies Cumulative; Specific Performance......................... 42
10.12 Waiver............................................................ 42
10.13 Amendments........................................................ 42
10.14 Severability...................................................... 42
10.15 Parties in Interest............................................... 42
10.16 Entire Agreement.................................................. 43
10.17 Waiver of Jury Trial.............................................. 43
10.18 Construction...................................................... 43


v


AGREEMENT AND PLAN
OF MERGER AND REORGANIZATION


This Agreement and Plan of Merger and Reorganization ("Agreement") is made and entered into as of September 15, 1999, by and among Acuson Corporation, a Delaware corporation ("Parent"); Echo Acquisition Corp., a Delaware corporation and a wholly owned subsidiary of Parent ("Merger Sub"); and Ecton, Inc., a corporation organized under the laws of the Commonwealth of Pennsylvania (the "Company"). Certain capitalized terms used in this Agreement are defined in Exhibit A.


Recitals


A. Parent, Merger Sub and the Company intend to effect a merger of the Company into Merger Sub in accordance with this Agreement, the Delaware General Corporation Law and the Pennsylvania Business Corporation Law (the "Merger"). Upon consummation of the Merger, the Company will cease to exist.


B. It is intended that the Merger qualify as a tax-free reorganization within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended (the "Code"). For accounting purposes, it is intended that the Merger be treated as a "purchase."


C. This Agreement has been approved by the respective boards of directors of Parent, Merger Sub and the Company.


D. Contemporaneously with the execution and delivery of this Agreement, certain holders of voting capital stock of the Company are executing and delivering to Parent a voting agreement (a "Voting Agreement") of even date herewith substantially in the form of Exhibit B.


E. Contemporaneously with the execution and delivery of this Agreement, the parties hereto are executing and delivering a registration rights agreement (a "Registration Rights Agreement") of even date herewith substantially in the form of Exhibit J.


Agreement


The parties to this Agreement agree as follows:


Section 1. Description of Transaction


1.1 Merger of the Company into Merger Sub. Upon the terms and subject to the conditions set forth in this Agreement, at the Effective Time (as defined in Section 1.3), the Company shall be merged with and into Merger Sub, and the separate existence of the Company shall cease. Merger Sub will continue as the surviving corporation in the Merger (the "Surviving Corporation").


1.2 Effect of the Merger. The Merger shall have the effects set forth in this Agreement and in the applicable provisions of the Delaware General Corporation Law and the Pennsylvania Business Corporation Law.


1


1.3 Closing; Effective Time. The consummation of the transactions contemplated by this Agreement (the "Closing") shall take place at the offices of Cooley Godward LLP, Five Palo Alto Square, Palo Alto, California 94306 at 10:00 a.m. on a date to be designated by Parent and the Company as soon as practicable after the satisfaction (or, to the extent permitted, waiver) of the conditions set forth in Section 6 and Section 7. (The date on which the Closing actually takes place is referred to in this Agreement as the "Closing Date.") Contemporaneously with or as promptly as practicable after the Closing, a properly executed certificate of merger conforming to the requirements of the Delaware General Corporation Law shall be filed with the Secretary of State of the State of Delaware and properly executed articles of merger conforming to the requirements of the Pennsylvania Business Corporation Law shall be filed in the Department of State of the Commonwealth of Pennsylvania. The Merger shall become effective at the latest to occur of the time such certificate of merger is filed with the Secretary of State of the State of Delaware and such articles of merger is filed in the Department of State of the Commonwealth of Pennsylvania (the "Effective Time").


1.4 Certificate of Incorporation and Bylaws; Directors and Officers. Unless otherwise determined by Parent prior to the Effective Time:


(a) the certificate of incorporation of the Surviving Corporation shall be amended and restated to reflect the transactions contemplated by this Agreement as of the Effective Time in a form acceptable to Parent and the Shareholders' Agent (as defined in Section 10.1), acting on behalf of and for the Merger Shareholders;


(b) the bylaws of the Surviving Corporation shall be the bylaws of Merger Sub as in effect immediately prior to the Effective Time; and


(c) the directors and officers of the Surviving Corporation immediately after the Effective Time shall be the respective individuals who are directors and officers of Merger Sub immediately prior to the Closing and Michael Cannon, who shall be both a director and officer of the Surviving Corporation.


1.5 Conversion of Shares.


(a) Subject to Sections 1.8(c) and 1.9, at the Effective Time, by virtue of the Merger and without any further action on the part of Parent, Merger Sub, the Company or any shareholder of the Company, each share of the common stock (par value $0.01 per share) of the Company (the "Company Common Stock") outstanding immediately prior to the Effective Time shall be converted into the right to receive the Applicable Fraction (as defined below) of a share of the common stock (par value $0.0001 per share) of Parent ("Parent Common Stock"). The "Applicable Fraction" shall be the fraction (A) having a numerator equal to $23,000,000 minus the Excess Accounting and Legal Expenses, if any, and (B) having a denominator equal to the amount determined by multiplying (1) the Parent Average Stock Price by (2) the Fully Diluted Number of Company Shares.


(b) If any shares of Company Common Stock outstanding immediately prior to the Effective Time are unvested or are subject to a repurchase option, risk of forfeiture or other


2


condition under any applicable restricted stock purchase agreement or other agreement with the Company, then the shares of Parent Common Stock issued in exchange for such shares of Company Common Stock will also be unvested and subject to the same repurchase option, risk of forfeiture or other condition, and the certificates representing such shares of Parent Common Stock may accordingly be marked with appropriate legends.


(c) A portion of the shares of Parent Common Stock issued in the Merger shall be delivered into escrow and held as specified in Section 1.8 hereof.


(d) In the event Parent at any time or from time to time between the date of this Agreement and the Effective Time declares or pays any dividend on Parent Common Stock payable in Parent Common Stock or in any right to acquire Parent Common Stock or cash or makes any other distribution to holders of Parent Common Stock, or effects a subdivision of the outstanding shares of Parent Common Stock into a greater number of shares of Parent Common Stock (by stock dividends, combinations, splits, recapitalizations and the like), or in the event the outstanding shares of Parent Common Stock shall be combined or consolidated, by reclassification or otherwise, into a lesser number of shares of Parent Common Stock, then the Applicable Fraction shall be appropriately adjusted.


1.6 Post-Closing Payments.


(a) For purposes of this Section 1.6, the following terms have the meanings set forth below:


(i) "Cause" has the meaning attributed to that term as set forth in the Employment Agreement in the form of Exhibit F attached hereto;


(ii) "Corporate Event" means (x) a merger,
consolidation, reorganization, sale of securities or similar transaction in
which the stockholders of Parent before such transaction own less than 50%
of the voting stock of the surviving entity (and less than 50% of the
voting stock of the acquiring entity) immediately after such transaction or
(y) the sale or disposition of all or substantially all of Parent's assets;


(iii) "Distribution Date" means the date determined by
Parent in its sole discretion within 90 days after the end of each Post-
Closing Payment Year on which a Post-Closing Payment is scheduled to be
made;


(iv) "Good Reason" has the meaning attributed to that
term as set forth in the Employment Agreement in the form of Exhibit F
attached hereto;


(v) "Gross Profit" means, with respect to each Post-
Closing Payment Year, the revenues of Parent (on a consolidated basis) that
are attributable to the sale or license of the Products during such Post-
Closing Payment Year (net of discounts and returns reserves), less the cost
of goods sold and associated period costs applicable to the sale or license
of such products during such Post-Closing Payment Year, including reserves
for warranty, and all other costs associated with manufacturing,
warehousing, installing and shipping the Products (and similar or related
activities), but not including


3


general and administrative expenses and sales, marketing or product
development expenses (it being understood that all components of "Gross
Profit" shall be determined in accordance with U.S. generally accepted
accounting principles as reasonably applied by Parent);


(vi) the "Percentage Interest" of a particular Merger
Shareholder means the number of shares of Company Common Stock owned by the
particular Merger Shareholder immediately prior to the Effective Time,
divided by the Fully Diluted Number of Company Shares;


(vii) "Post-Closing Parent Average Stock Price" means the
average of the closing sale prices of a share of Parent Common Stock as
reported on the New York Stock Exchange for each of the 10 consecutive
trading days ending on the trading day immediately preceding the fifth day
prior to the applicable Distribution Date;


(viii) "Post-Closing Payment" means any payment a Merger
Shareholder may be entitled to receive from Parent pursuant to the terms
and conditions set forth in this Section 1.6;


(ix) "Post-Closing Payment Year" means each of the four
fiscal years ending December 31, 2000, December 31, 2001, December 31, 2002
and December 31, 2003; and


(x) "Products" means all products, product upgrades and
associated peripherals developed by the Company before the Closing Date and
by the Surviving Corporation after the Closing Date, and all service(s)
delivered by the Company or the Surviving Corporation for such products and
product upgrades.


(b) Subject to any right of setoff that Parent may be entitled to exercise (pursuant to Section 9.3 or otherwise), and subject to the other provisions of this Section 1.6:


(i) for the purposes of this Section 1.6, the "Threshold Gross Profit," the "Pay-Out Rate," the "Maximum Pay-Out Amount" and the "Gross Profit at Maximum Pay-Out" used to determine the Post-Closing Payment for each Post-Closing Payment Year shall be based on the figures set forth in Schedule 1.6 (b)(i);


(ii) for each Post-Closing Payment Year, Parent shall pay to each Merger Shareholder such Merger Shareholder's Percentage Interest of the amount, if greater than zero, determined by multiplying (A) the amount, if any, by which the Gross Profit for such Post-Closing Payment Year exceeds the Threshold Gross Profit for such Post-Closing Year as set forth in Section 1.6(b)(i) by (B) the Pay-Out Rate for such Post-Closing Payment Year as set forth in Section 1.6(b)(i) (it being understood that (A) no Post-Closing Payment shall be earned in any Post-Closing Payment Year unless the Gross Profit for such Post-Closing Payment Year exceeds such Post-Closing Year's Threshold Gross Profit as set forth in Section 1.6(b)(i), and (B) the Post-Closing Payment for any particular Post-Closing Payment Year shall never exceed


4


the Maximum Pay-Out Amount (as adjusted in the manner set forth below) for such Post-Closing Payment Year);


(iii) in the event that the Gross Profit earned in any Post- Closing Payment Year ended December 31, 2000, December 31, 2001 or December 31, 2002 is in excess of the Gross Profit at Maximum Pay-Out Amount set forth in Section 1.6(b)(i) for such Post-Closing payment Year, such excess Gross Profit shall be carried forward to the following Post-Closing Payment Year and applied to increase the Gross Profit for that following Post-Closing Payment Year;


(iv) if in the Post-Closing Payment Year ended December 31, 2000 the Threshold Gross Profit is attained but the Maximum Pay-Out Amount for such Post-Closing Payment Year is not achieved, then 20% of the difference between the Maximum Pay-Out Amount for that Post-Closing Payment Year and the actual Post-Closing Payment for such Post-Closing Payment Year shall be carried forward to the following Post-Closing Payment Year ended December 31, 2001 (such difference being referred to as the "Year 2000 Carry Forward Amount"). The Maximum Pay-Out Amount for the following Post-Closing Payment Year ended December 31, 2001 (the "Year 2001 New Maximum Pay Out") shall be equal to the Maximum Pay-Out Amount as set forth in Section 1.6(b)(i) for the Post-Closing Payment Year ended December 31, 2001 plus any Year 2000 Carry Forward Amount, and the Pay-Out Rate for the Post-Closing Year ended December 31, 2001 shall be determined by the following formula:


A / (B-C)


Where "A" is equal to the Year 2001 New Maximum Pay-Out; "B" is the
Gross Profit at Maximum Pay-Out for the Post-Closing Payment Year
ended December 31, 2001 as set forth in Section 1.6(b)(i) and "C" is
the Threshold Gross Profit for the Post-Closing Payment Year ended
December 31, 2001 as set forth in Section 1.6(b)(i);


(v) if in either of the Post-Closing Payment Years ended December 31, 2001 or December 31, 2002 (but not December 31, 2000 or December 31, 2003), the Threshold Gross Profit is attained but the Maximum Pay-Out Amount for such Post-Closing Payment Year is not achieved, then 50% of the difference between the Maximum Pay-Out Amount (including, with respect to the Post-Closing Payment Year ended December 31, 2001 only, any amount carried forward pursuant to the terms of Section 1.6(b)(iv)) for that Post-Closing Payment Year and the actual Post-Closing Payment for such Post-Closing Payment Year shall be carried forward to the following Post-Closing Payment Year (such difference being referred to as the "Carry Forward Amount"). The Maximum Pay-Out Amount for such following Post-Closing Payment Year (the "New Maximum Pay-Out") shall be equal to the sum of the existing Maximum Pay-Out Amount as set forth in Section 1.6(b)(i) for such following Post-Closing Payment Year plus any Carry Forward Amount, and the Pay-Out Rate for such following Post-Closing Payment Year shall be determined by the following formula:


A / (B-C)


5


Where "A" is equal to the New Maximum Pay-Out for that Post-Closing
Payment Year; "B" is the Gross Profit at Maximum Pay-Out for that
Post-Closing Payment Year as set forth in Section 1.6(b)(i) and "C" is
the Threshold Gross Profit for that Post-Closing Payment Year as set
forth in Section 1.6(b)(i).


(vi) Any Post-Closing Payment required to be made pursuant to
this Section 1.6 shall be made on the Distribution Date; provided, however,
that if the Shareholders' Agent delivers an Objection Notice in accordance
with Section 1.6(f), then the Post-Closing Payment with respect to which an
Objection Notice is so delivered shall not be made until the dispute
identified in such Objection Notice is resolved.


(c) Within 75 days after the last day of each Post-Closing Payment Year, Parent or the Surviving Corporation shall: (i) prepare or cause to be prepared a statement setting forth in detail the Gross Profit of each Product and its method of calculation (including the dollar amount of costs of goods sold applicable to each Product), the total Gross Profit with respect to the Post-Closing Payment Year covered by such statement and any Post-Closing Payment for the particular Post-Closing Payment Year covered by such ...