Document:

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                                  EXHIBIT 10.31

                           CHANGE IN CONTROL AGREEMENT

May 11, 2000

Name
Address
Address

Dear             :

You are presently the Chief Technology Officer of Vital Images, Inc., a
Minnesota corporation (the "Company"). The Company considers the establishment
and maintenance of a sound and vital management to be essential to protecting
and enhancing the best interests of the Company and its shareholders. In this
connection, the Company recognizes that, as is the case with many publicly held
corporations, the possibility of a Change in Control may arise and that such
possibility and the uncertainty and questions which it may raise among
management may result in the departure or distraction of management personnel to
the detriment of the Company and its shareholders.

Accordingly, the Board has determined that appropriate steps should be taken to
minimize the risk that Company management will depart prior to a Change in
Control, thereby leaving the Company without adequate management personnel
during such a critical period, and that appropriate steps also be taken to
reinforce and encourage the continued attention and dedication of members of the
Company's management to their assigned duties without distraction in
circumstances arising from the possibility of a Change in Control. In
particular, the Board believes it important, should the Company or its
shareholders receive a proposal for transfer of control, that you be able to
continue your management responsibilities without being influenced by the
uncertainties of your own personal situation.

The Board recognizes that continuance of your position with the Company involves
a substantial commitment to the Company in terms of your personal life and
professional career and the possibility of foregoing present and future career
opportunities, for which the Company receives substantial benefits. Therefore,
to induce you to remain in the employ of the Company, this Agreement, which has
been approved by the Board, sets forth the benefits which the Company agrees
will be provided to you in the event your employment with the Company is
terminated in connection with a Change in Control under the circumstances
described below.

The following terms will have the meaning set forth below unless the context
clearly requires otherwise. Terms defined elsewhere in this Agreement will have
the same meaning throughout this Agreement.

                                   ARTICLE I.
                                   DEFINITIONS

1.       "AFFILIATE" means (i) any corporation at least a majority of whose
         outstanding securities ordinarily having the right to vote at elections
         of directors is owned directly or indirectly by the Company or (ii) any
         other form of business entity in which the Company, by virtue of a
         direct or indirect ownership interest, has the right to elect a
         majority of the members of such entity's governing body.

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Mr. Argiro
Monday, October 9, 2000
Page

2.       "AGREEMENT" means this letter agreement as amended, extended or renewed
         from time to time in accordance with its terms.

3.       "BOARD" means the board of directors of the Company duly qualified and
         acting at the time in question. On and after the date of a Change in
         Control, any duty of the Board in connection with this Agreement is
         nondelegable and any attempt by the Board to delegate any such duty is
         ineffective.

4.       "CAUSE" means:

         a.       your gross misconduct;

         b.       your willful and continued failure to perform substantially
                  your duties with the Company (other than any such failure (1)
                  resulting from your Disability or incapacity due to bodily
                  injury or physical or mental illness or (2) relating to
                  changes in your duties after a Change in Control which
                  constitute Good Reason) after a demand for substantial
                  performance is delivered to you by the chair of the Board
                  which specifically identifies the manner in which you have not
                  substantially performed your duties and provides for a
                  reasonable period of time within which you may take corrective
                  actions; or

         c.       your conviction (including a plea of nolo contendere) of
                  willfully engaging in illegal conduct constituting a felony or
                  gross misdemeanor under federal or state law which is
                  materially and demonstrably injurious to the Company or which
                  impairs your ability to perform substantially your duties for
                  the Company.

         An act or failure to act will be considered "gross" or "willful" for
         this purpose only if done, or omitted to be done, by you in bad faith
         and without reasonable belief that it was in, or not opposed to, the
         best interests of the Company. Any act, or failure to act, based upon
         authority given pursuant to a resolution duly adopted by the Company's
         board of directors (or a committee thereof) or based upon the advice of
         counsel for the Company will be conclusively presumed to be done, or
         omitted to be done, by you in good faith and in the best interests of
         the Company. It is also expressly understood that your attention to
         matters not directly related to the business of the Company will not
         provide a basis for termination for Cause so long as the Board did not
         expressly disapprove in writing of your engagement in such activities
         either before or within a reasonable period of time after the Board
         knew or could reasonably have known that you engaged in those
         activities. Notwithstanding the foregoing, you may not be terminated
         for Cause unless and until there has been delivered to you a copy of a
         resolution duly adopted by the affirmative vote of not less than a
         majority of the entire membership of the Board at a meeting of the
         Board called and held for the purpose (after reasonable notice to you
         and an opportunity for you, together with your counsel, to be heard
         before the Board), finding that in the good faith opinion of the Board
         you were guilty of the conduct set forth above in clauses a., b. or c.
         of this definition and specifying the particulars thereof in detail.

5.       "CHANGE IN CONTROL" means any of the following:

         a.       the sale, lease, exchange or other transfer, directly or
                  indirectly, of all or substantially all of the assets of the
                  Company in one transaction or in a series of related
                  transactions, to any Person;
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         b.       except in the case of the liquidation or dissolution of the
                  Company in connection with the bankruptcy or insolvency of the
                  Company or similar arrangement for the benefit of the
                  Company's creditors, the approval by the shareholders of the
                  Company of any plan or proposal for the liquidation or
                  dissolution of the Company, as the case may be;

         c.       any Person is or becomes the "beneficial owner" (as defined in
                  Rule 13d-3 under the Exchange Act), directly or indirectly, of
                  (1) 20 percent or more, but not more than 50 percent, of the
                  combined voting power of the outstanding securities of the
                  Company ordinarily having the right to vote at elections of
                  directors, unless the transaction resulting in such ownership
                  has been approved in advance by the "continuing directors" or
                  (2) more than 50 percent of the combined voting power of the
                  outstanding securities of the Company ordinarily having the
                  right to vote at elections of directors (regardless of any
                  approval by the continuing directors);

         d.       a merger or consolidation to which the Company is a party if
                  the shareholders of the Company immediately prior to the
                  effective date of such merger or consolidation have, solely on
                  account of ownership of securities of the Company at such
                  time, "beneficial ownership" (as defined in Rule 13d-3 under
                  the Exchange Act) immediately following the effective date of
                  such merger or consolidation of securities of the surviving
                  company representing (1) 50 percent or more, but not more than
                  80 percent, of the combined voting power of the surviving
                  corporation's then outstanding securities ordinarily having
                  the right to vote at elections of directors, unless such
                  merger or consolidation has been approved in advance by the
                  continuing directors, or (2) less than 50 percent of the
                  combined voting power of the surviving corporation's then
                  outstanding securities ordinarily having the right to vote at
                  elections of directors (regardless of any approval by the
                  continuing directors);

         e.       the continuing directors cease for any reason to constitute at
                  least a majority of the Board; or

         f.       a change in control of a nature that is determined by outside
                  legal counsel to the Company, in a written opinion
                  specifically referencing this provision of the Agreement, to
                  be required to be reported (assuming such event has not been
                  "previously reported") pursuant to section 13 or 15(d) of the
                  Exchange Act, whether or not the Company is then subject to
                  such reporting requirement, as of the effective date of such
                  change in control.

         For purposes of this Section 1(e), a "continuing director" means any
         individual who is a member of the Board on May 11, 2000, while he or
         she is a member of the Board, and any individual who subsequently
         becomes a member of the Board whose election or nomination for election
         by the Company's shareholders was approved by a vote of at least a
         majority of the directors who are continuing directors (either by a
         specific vote or by approval of the proxy statement of the Company in
         which such individual is named as a nominee for director without
         objection to such nomination).

6.       "CODE" means the Internal Revenue Code of 1986, as amended. Any
         reference to a specific provision of the Code includes a reference to
         such provision as it may be amended from time to time and to any
         successor provision.

7.       "COMPANY" means Vital Images, Inc. and/or any Affiliate.
<PAGE>

8.       "CONFIDENTIAL INFORMATION" means information which is proprietary to
         the Company or proprietary to others and entrusted to the Company,
         whether or not trade secrets. It includes information relating to
         business plans and to business as conducted or anticipated to be
         conducted, and to past or current or anticipated products or services.
         It also includes, without limitation, information concerning research,
         development, purchasing, accounting, marketing and selling. All
         information which you have a reasonable basis to consider confidential
         is Confidential Information, whether or not originated by you and
         without regard to the manner in which you obtain access to that and any
         other proprietary information.

9.       "DATE OF TERMINATION" following a Change in Control (or prior to a
         Change in Control if your termination was either a condition of the
         Change in Control or was at the request or insistence of any Person
         related to the Change in Control) means:

         a.       if your employment is to be terminated for Disability, 30 days
                  after Notice of Termination is given (provided that you have
                  not returned to the performance of your duties on a full-time
                  basis during such 30-day period);

         b.       if your employment is to be terminated by the Company for
                  Cause or by you for Good Reason, the date specified in the
                  Notice of Termination, which date may not be less than 30 days
                  or more than 60 days after the date on which the Notice of
                  Termination is given unless you and the Company otherwise
                  expressly agree;

         c.       if your employment is to be terminated by the Company for any
                  reason other than Cause, Disability, death or Retirement, the
                  date specified in the Notice of Termination, which in no event
                  may be a date earlier than 90 days after the date on which a
                  Notice of Termination is given, unless an earlier date has
                  been expressly agreed to by you in writing either in advance
                  of, or after; receiving such Notice of Termination; or

         d.       if your employment is terminated by reason of death or
                  Retirement, the date of death or Retirement, respectively.

         In the case of termination by the Company of your employment for Cause,
         if you have not previously expressly agreed in writing to the
         termination, then within 30 days after receipt by you of the Notice of
         Termination with respect thereto, you may notify the Company that a
         dispute exists concerning the termination, in which event the Date of
         Termination will be the date set either by mutual written agreement of
         the parties or by the judge or arbitrators in a proceeding as provided
         in Article VII Section 6 of this Agreement. During the pendency of any
         such dispute, you will continue to make yourself available to provide
         services to the Company and the Company will continue to pay you your
         full compensation and benefits in effect immediately prior to the date
         on which the Notice of Termination is given (without regard to any
         changes to such compensation or benefits which constitute Good Reason)
         and until the dispute is resolved in accordance with Article VII
         Section 6 of this Agreement. You will be entitled to retain the full
         amount of any such compensation and benefits without regard to the
         resolution of the dispute unless the judge or arbitrators decide(s)
         that your claim of a dispute was frivolous or advanced by you in bad
         faith.

10.      "DISABILITY" means a disability as defined in the Company's long-term
         disability plan as in effect immediately prior to the Change in Control
         or; in the absence of such a plan, means permanent and total disability
         as defined in section 22(e)(3) of the Code.
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11.      "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
         Any reference to a specific provision of the Exchange Act or to any
         rule or regulation thereunder includes a reference to such provision as
         it may be amended from time to time and to any successor provision.

12.      "GOOD REASON" means:

         a.       change in your status, position(s), duties or responsibilities
                  as an executive of the Company as in effect immediately prior
                  to the Change in Control which, in your reasonable judgment,
                  is an adverse change (other than, if applicable, any such
                  change directly attributable to the fact that the Company is
                  no longer publicly owned) except in connection with the
                  termination of your employment for Cause, Disability or
                  Retirement or as a result of your death or by you other than
                  for Good Reason;

         b.       a reduction by the Company in your base salary (or an adverse
                  change in the form or timing of the payment thereof) as in
                  effect immediately prior to the Change in Control or as
                  thereafter increased;

         c.       the failure by the Company to continue in effect any Plan in
                  which you (and/or your family) are eligible to participate at
                  any time during the 90-day period immediately preceding the
                  Change in Control (or Plans providing you (and/or your family)
                  with at least substantially similar benefits) other than as a
                  result of the normal expiration of any such Plan in accordance
                  with its terms as in effect immediately prior to the 90-day
                  period immediately preceding the time of the Change in
                  Control, or the taking of any action, or the failure to act,
                  by the Company which would adversely affect your (and/or your
                  family's) continued eligibility to participate in any of such
                  Plans on at least as favorable a basis to you (and/or your
                  family) as is the case on the date of the Change in Control or
                  which would materially reduce your (and/or your family's)
                  benefits in the future under any of such Plans or deprive you
                  (and/or your family) of any material benefit enjoyed by you
                  (and/or your family) at the time of the Change in Control;

         d.       the Company's requiring you to be based more than 30 miles
                  from where your office is located immediately prior to the
                  Change in Control, except for required travel on the Company's
                  business, and then only to the extent substantially consistent
                  with the business travel obligations which you undertook on
                  behalf of the Company during the 90-day period immediately
                  preceding the Change in Control (without regard to travel
                  related to or in anticipation of the Change in Control);

         e.       the failure by the Company to obtain from any Successor the
                  assent to this Agreement contemplated by Article VI of this
                  Agreement;

         f.       any purported termination by the Company of your employment
                  which is not properly effected pursuant to a Notice of
                  Termination and pursuant to any other requirements of this
                  Agreement, and for purposes of this Agreement, no such
                  purported termination will be effective;

         g.       any refusal by the Company to continue to allow you to attend
                  to matters or engage in activities not directly related to the
                  business of the Company which, at any time prior to the Change
                  in Control, you were not expressly prohibited in writing by
                  the Board from attending to or engaging in; or
<PAGE>

         h.       the termination of your employment by the Company for any
                  reason other than death, Disability or Retirement during the
                  twelve (12) months following the month in which a Change in
                  Control occurs.

13.      "NOTICE OF TERMINATION" means a written notice given on or after the
         date of a Change in Control (unless your termination before the date of
         the Change in Control was either a condition of the Change in Control
         or was at the request or insistence of any Person related to the Change
         in Control) which indicates the specific termination provision in this
         Agreement pursuant to which the notice is given. Any purported
         termination by the Company or by you for Good Reason on or after the
         date of a Change in Control (or before the date of a Change in Control
         if your termination was either a condition of the Change in Control or
         was at the request or insistence of any Person related to the Change in
         Control) must be communicated by written Notice of Termination to be
         effective; provided, that your failure to provide Notice of Termination
         will not limit any of your rights under this Agreement except to the
         extent the Company demonstrates that it suffered material actual
         damages by reason of such failure.

14.      "PERSON" means any individual, corporation, partnership, group,
         association or other "person," as such term is used in section 14(d) of
         the Exchange Act, other than the Company, any Affiliate or any employee
         benefit plan(s) sponsored by the Company or an Affiliate.

15.      "PLAN" means any compensation plan, program, policy or agreement (such
         as a stock option, restricted stock plan or other equity-based plan),
         any bonus or incentive compensation plan, program, policy or agreement,
         any employee benefit plan, program, policy or agreement (such as a
         thrift, pension, profit sharing, medical, dental, disability, accident,
         life insurance, relocation, salary continuation, expense
         reimbursements, vacation or fringe benefits plan or policy) or any
         other plan, program, policy or agreement of the Company intended to
         benefit employees (and/or their families) generally, management
         employees (and/or their families) as a group or you (and/or your
         family) in particular.

16.      "RETIREMENT" means termination of employment on or after the day on
         which you attain the age of 65.

17.      "SUCCESSOR" means any Person that succeeds to, or has the practical
         ability to control (either immediately or solely with the passage of
         time), the Company's business directly, by merger, consolidation or
         other form of business combination, or indirectly, by purchase of the
         Company's outstanding securities ordinarily having the right to vote at
         the election of directors or, all or substantially all of its assets or
         otherwise.
<PAGE>

                                  ARTICLE II.
                                TERM OF AGREEMENT

         This Agreement is effective immediately and will continue in effect
until May 11, 2001; provided, however; that commencing on May 11, 2001 and each
May 11 thereafter, the term of this Agreement will automatically be extended for
12 additional months beyond the expiration date otherwise then in effect, unless
at least 90 calendar days prior to any such May 11, the Company or you has given
notice that this Agreement will not be extended; and, provided, further; that if
a Change in Control has occurred during the term of this Agreement, this
Agreement will continue in effect beyond the termination date then in effect for
a period of 12 months following the month during which the Change in Control
occurs or, if later, until the date on which the Company's obligations to you
arising under or in connection with this Agreement have been satisfied in full.

                                  ARTICLE III.
                           CHANGE IN CONTROL BENEFITS

1.       BENEFITS UPON A CHANGE IN CONTROL TERMINATION. You will become entitled
         to the payments and benefits described in clauses (a) and (b) of this
         Section 1 of Article III, subject to the limitations described in
         clause (c) of this Section 1 of Article III, and to the benefit of the
         provisions described in clause (c), if and only if (i) your employment
         with the Company is terminated by the Company for any reason other than
         death, Cause, Disability or Retirement, or if you terminate your
         employment with the Company for Good Reason; and (ii) the termination
         occurs either within the period beginning on the date of a Change in
         Control and ending on the last day of the twelfth month that begins
         after the month during which the Change in Control occurs or prior to a
         Change in Control if your termination was either a condition of the
         Change in Control or was at the request or insistence of a Person
         related to the Change in Control.

         a.       CASH PAYMENT. Within ten (10) business days following the Date
                  of Termination or, if later, within ten (10) business days
                  following the date of the Change in Control, the Company will
                  make a lump-sum cash payment to you in an amount equal to the
                  product of (i) your annual base salary in effect on the date
                  of the Change in Control multiplied by (ii) 2.

         b.       WELFARE PLANS. The Company will maintain in full force and
                  effect, for the continued benefit of you and your dependents
                  for a period terminating 24 months after the Date of
                  Termination, all insured and self-insured employee welfare
                  benefit Plans (including, without limitation, medical, life,
                  dental, vision and disability plans) in which you were
                  eligible to participate at any time during the 90-day period
                  immediately preceding the Change in Control, provided that
                  your continued participation is possible under the general
                  terms and provisions of such Plans and any applicable funding
                  media and without regard to any discretionary amendments to
                  such Plans by the Company following the Change in Control (or
                  prior to the Change in Control if amended as a condition or at
                  the request or insistence of a Person (other than the Company)
                  related to the Change in Control) and provided that you
                  continue to pay an amount equal to your regular contribution
                  under such Plans for such participation (based upon your level
                  of benefits and employment status most favorable to you at any
                  time during the 90-day period immediately preceding the Change
                  in Control). The continuation period under federal and state
                  continuation laws, to the extent applicable, will begin to run
                  from the date on which coverage pursuant to this clause (b)
<PAGE>

                  ends. If, at the end of the 24-month period, you have not
                  previously received or are not then receiving equivalent
                  benefits from a new employer (including coverage for any
                  pre-existing conditions), the Company, pursuant to federal and
                  state law, will provide, for a period of eighteen (18) months
                  (the "COBRA Period"), a continuation of your and your
                  dependents' coverage under such Plans (the "COBRA Coverage"),
                  provided that you will be required to pay for such benefits
                  during the COBRA Period, should you elect to receive COBRA
                  Coverage. .

         c.       LIMITATION ON PAYMENTS AND BENEFITS. Notwithstanding anything
                  in this Agreement to the contrary, if any of the payments or
                  benefits to be made or provided in connection with this
                  Agreement, together with any other payments, benefits or
                  awards which you have the right to receive from the Company,
                  or any corporation which is a member of an "affiliated group"
                  (as defined in section 1504(a) of the Code without regard to
                  section 1504(b) of the Code) of which the Company is a member
                  ("Affiliate"), constitute an "excess parachute payment" (as
                  defined in section 280G(b) of the Code), two calculations will
                  be performed. In the first calculation, the payments, benefits
                  or awards will be reduced by the amount the Company deems
                  necessary so that none of the payments or benefits under the
                  Agreement (including from the existing Stock Option and
                  Incentive Plan) are excess parachute payments. In the second
                  calculation, the payments will not be reduced so as to
                  eliminate an excess parachute payment, but will be reduced by
                  the amount of the applicable excise tax as imposed by section
                  4999 of the Code. The two calculations will be compared and
                  the calculation providing the largest net payment to the
                  employee will be utilized. The calculations must be made in
                  good faith by legal counsel or a certified public accountant
                  selected by the Company, and such determination will be
                  conclusive and binding upon you and the Company. If a
                  reduction in payments or benefits is required by the
                  comparison above, the payments or benefits under the Agreement
                  shall be reduced in the order that minimizes the amount of
                  total reduction in payments and benefits under the Agreement
                  as a result of this provision.

2.       DISPOSITION. If, on or after the date of a Change in Control, an
         Affiliate is sold, merged, transferred or in any other manner or for
         any other reason ceases to be an Affiliate or all or any portion of the
         business or assets of an Affiliate are sold, transferred or otherwise
         disposed of and the acquiror is not the Company or an Affiliate (a
         "Disposition"), and you remain or become employed by the acquiror or an
         affiliate of the acquiror (as defined in this Agreement but
         substituting "acquiror" for "Company") in connection with the
         Disposition, you will be deemed to have terminated employment on the
         effective date of the Disposition for purposes of this section unless
         (a) the acquiror and its affiliates jointly and severally expressly
         assume and agree, in a manner that is enforceable by you, to perform
         the obligations of this Agreement to the same extent that the Company
         would be required to perform if the Disposition had not occurred and
         (b) the Successor guarantees, in a manner that is enforceable by you,
         payment and performance by the acquiror.

                                   ARTICLE IV.
                                 INDEMNIFICATION

Following a Change in Control, the Company will indemnify and reimburse you to
the full extent permitted by law and the Company's articles of incorporation and
bylaws for damages, costs and expenses (including,

<PAGE>

without limitation, judgments, fines, penalties, settlements and reasonable fees
and expenses of your counsel) incurred in connection with all matters, events
and transactions relating to your service to or status with the Company or any
other corporation, employee benefit plan or other entity with whom you served at
the request of the Company.

                                   ARTICLE V.
                                 CONFIDENTIALITY

You will not use, other than in connection with your employment with the
Company, or disclose any Confidential Information to any person not employed by
the Company or not authorized by the Company to receive such Confidential
Information, without the prior written consent of the Company; and you will use
reasonable and prudent care to safeguard and protect and prevent the
unauthorized disclosure of Confidential Information. Nothing in this Agreement
will prevent you from using, disclosing or authorizing the disclosure of any
Confidential Information: (a) which is or hereafter becomes part of the public
domain or otherwise becomes generally available to the public through no fault
of yours; (b) to the extent and upon the terms and conditions that the Company
may have previously made the Confidential Information available to certain
persons; or (c) to the extent that you are required to disclose such
Confidential Information by law or judicial or administrative process.

                                  ARTICLE VI.
                                   SUCCESSORS

The Company will seek to have any Successor, by agreement in form and substance
satisfactory to you, assent to the fulfillment by the Company of the Company's
obligations under this Agreement. Failure of the Company to obtain such assent
at least three business days prior to the time a Person becomes a Successor (or
where the Company does not have at least three business days' advance notice
that a Person may become a Successor, within one business day after having
notice that such Person may become or has become a Successor) will constitute
Good Reason for termination by you of your employment. The date on which any
such succession becomes effective will be deemed the Date of Termination and
Notice of Termination will be deemed to have been given on that date. A
Successor has no rights, authority or power with respect to this Agreement prior
to a Change in Control.

                                  ARTICLE VII.
                                OTHER PROVISIONS

1.       BINDING AGREEMENT. This Agreement inures to the benefit of, and is
         enforceable by, you, your personal and legal representatives,
         executors, administrators, successors, heirs, distributees, devisees
         and legatees. If you die while any amount would still be payable to you
         under this Agreement if you had continued to live, all such amounts,
         unless otherwise provided in this Agreement, will be paid in accordance
         with the terms of this Agreement to your devisee, legatee or other
         designee or; if there be no such designee, to your estate.

2.       NO MITIGATION. You will not be required to mitigate the amount of any
         payments or benefits the Company becomes obligated to make or provide
         to you in connection with this Agreement by seeking other employment or
         otherwise. The payments or benefits to be made or provided to you in
         connection with this Agreement may not be reduced, offset or subject to
         recovery by the Company by any payments or benefits you may receive
         from other employment or otherwise.
<PAGE>

3.       NO SETOFF. The Company has no right to delay or setoff payments or
         benefits owed to you under this Agreement against amounts owed or
         claimed to be owed by you to the Company under this Agreement or
         otherwise.

4.       TAXES. All payments and benefits to be made or provided to you in
         connection with this Agreement will be subject to required withholding
         of federal, state and local income, excise and employment-related
         taxes.

5.       NOTICES. For the purposes of this Agreement, notices and all other
         communications provided for in, or required under, this Agreement must
         be in writing and will be deemed to have been duly given when
         personally delivered or when mailed by United States registered or
         certified mail, return receipt requested, postage prepaid and addressed
         to each party's respective address set forth on the first page of this
         Agreement (provided that all notices to the Company must be directed to
         the attention of the chair of the Board), or to such other address as
         either party may have furnished to the other in writing in accordance
         with these provisions, except that notice of change of address will be
         effective only upon receipt.

6.       DISPUTES. If you so elect, any dispute, controversy or claim arising
         under or in connection with this Agreement will be settled exclusively
         by binding arbitration administered by the American Arbitration
         Association in Minneapolis, Minnesota in accordance with the Commercial
         Arbitration Rules of the American Arbitration Association then in
         effect. Judgment may be entered on the arbitrator's award in any court
         having jurisdiction; provided, that you may seek specific performance
         of your right to receive payment or benefits until the Date of
         Termination during the pendency of any dispute or controversy arising
         under or in connection with this Agreement. The Company will be
         entitled to seek an injunction or restraining order in a court of
         competent jurisdiction (within or without the State of Minnesota) to
         enforce the provisions of Article V of this Agreement.

7.       JURISDICTION. Except as specifically provided otherwise in this
         Agreement, the parties agree that any action or proceeding arising
         under or in connection with this Agreement must be brought in a court
         of competent jurisdiction in the State of Minnesota, and hereby consent
         to the exclusive jurisdiction of said courts for this purpose and agree
         not to assert that such courts are an inconvenient forum

8.       RELATED AGREEMENTS. To the extent that any provision of any other Plan
         or agreement between the Company and you limits, qualifies or is
         inconsistent with any provision of this Agreement, then for purposes of
         this Agreement, while such other Plan or agreement remains in force,
         the provision of this Agreement will control and such provision of such
         other Plan or agreement will be deemed to have been superseded, and to
         be of no force or effect, as if such other agreement had been formally
         amended to the extent necessary to accomplish such purpose. Nothing in
         this Agreement prevents or limits your continuing or future
         participation in any Plan provided by the Company and for which you may
         qualify, and nothing in this Agreement limits or otherwise affects the
         rights you may have under any Plans or other agreements with the
         Company. Amounts which are vested benefits or which you are otherwise
         entitled to receive under any Plan or other agreement with the Company
         at or subsequent to the Date of Termination will be payable in
         accordance with such Plan or other agreement.

9.       NO EMPLOYMENT OR SERVICE CONTRACT. Nothing in this Agreement is
         intended to provide you with any right to continue in the employ of the
         Company for any period of specific duration or interfere with or
         otherwise restrict in any way your rights or the rights of the Company,
         which rights are

<PAGE>

         hereby expressly reserved by each, to terminate your employment at any
         time for any reason or no reason whatsoever, with or without cause.

10.      FUNDING AND PAYMENT. Benefits payable under this Agreement will be paid
         only from the general assets of the Company. No person has any right to
         or interest in any specific assets of the Company by reason of this
         Agreement. To the extent benefits under this Agreement are not paid
         when due to any individual, he or she is a general unsecured creditor
         of the Company with respect to any amounts due. The Company with whom
         you were employed immediately before your Date of Termination has
         primary responsibility for benefits to which you or any other person
         are entitled pursuant to this Agreement but to the extent such Company
         is unable or unwilling to provide such benefits, the Company and each
         other Affiliate are jointly and severally responsible therefor to the
         extent permitted by applicable law. If you were simultaneously employed
         by more than one Company immediately before your Date of Termination,
         each such Company has primary responsibility for a portion of the
         benefits to which you or any other person are entitled pursuant to this
         Agreement that bears the same ratio to the total benefits to which you
         or such other person are entitled pursuant to this Agreement as your
         base pay from the Company immediately before your Date of Termination
         bears to your aggregate base pay from all such Companies.

11.      SURVIVAL. The respective obligations of, and benefits afforded to, the
         Company and you which by their express terms or clear intent survive
         termination of your employment with the Company or termination of this
         Agreement, as the case may be, including without limitation the
         provisions of Articles III, IV, V and VI and Sections 3, 4, 5 and 6 of
         Article VII of this Agreement, will survive termination of your
         employment with the Company or termination of this Agreement, as the
         case may be, and will remain in full force and effect according to
         their terms.

                                 ARTICLE VIII.
                                  MISCELLANEOUS

1.       MODIFICATION AND WAIVER. No provision of this Agreement may be
         modified, waived or discharged unless such modification, waiver or
         discharge is agreed to in a writing signed by you and the chair of the
         Board. No waiver by any party to this Agreement at any time of any
         breach by another party to this Agreement of, or of compliance with,
         any condition or provision of this Agreement to be performed by such
         party will be deemed a waiver of similar or dissimilar provisions or
         conditions at the same or at any prior or subsequent time.

2.       ENTIRE AGREEMENT. No agreements or representations, oral or otherwise,
         express or implied, with respect to the subject matter to this
         Agreement have been made by any party which are not expressly set forth
         in this Agreement.

3.       GOVERNING LAW. This Agreement and the legal relations among the parties
         as to all matters, including, without limitation, matters of validity,
         interpretation, construction, performance and remedies, will be
         governed by and construed exclusively in accordance with the internal
         laws of the State of Minnesota (without regard to the conflict of laws
         principles of any jurisdiction).

4.       HEADINGS. Headings are for purposes of convenience only and do not
         constitute a part of this Agreement.
<PAGE>

5.       FURTHER ACTS. The parties to this Agreement agree to perform, or cause
         to be performed, such further acts and deeds and to execute and deliver
         or cause to be executed and delivered, such additional or supplemental
         documents or instruments as may be reasonably required by the other
         party to carry into effect the intent and purpose of this Agreement.

6.       SEVERABILITY. The invalidity or unenforceability of all or any part of
         any provision of this Agreement will not affect the validity or
         enforceability of the remainder of such provision or of any other
         provision of this Agreement, which will remain in full force and
         effect.

7.       COUNTERPARTS. This Agreement may be executed in several counterparts,
         each of which will be deemed to be an original, but all of which
         together will constitute one and the same instrument.

If this letter correctly sets forth our agreement on the subject matter
discussed above, kindly sign and return to the Company the enclosed copy of this
letter which will then constitute our agreement on this subject.

Sincerely,
                                       VITAL IMAGES, INC.

                                       By:
                                          --------------------------------

                                       Name:
                                            ------------------------------

                                       Title:
                                             -----------------------------

                                       Agreed to this 11th day of May 2000.

                                       -----------------------------------
                                       EmployeePrepared by MerrillDirect

 

Exhibit 10.18

March 31, 2000

 

FOURTH
AMENDMENT TO CREDIT AGREEMENT

This
fourth amendment to credit agreement (this “Amendment”) is made and entered
into as of March 31, 2000, by and among U.S. BANK NATIONAL
ASSOCIATION, a national banking association (“U.S. Bank”), and MACKIE
DESIGNS INC., a Washington corporation (“Borrower”).

R E C I T A L S:

A.      On or about June 18, 1998,
U.S. Bank and Borrower entered into that certain credit agreement
(together with all amendments, supplements, exhibits, and modifications
thereto, the “Credit Agreement”) whereby U.S. Bank agreed to extend
certain credit facilities to Borrower. 
U.S. Bank and Borrower have entered into three amendments to the
Credit Agreement.

B.       Borrower has requested U.S. Bank to
(1) extend the expiry and maturity date of the Revolving Loan,
(2) increase the amount of the Acquisition Loan to $29,714,000, and
(3) modify certain financial covenants set forth in the Credit
Agreement.  The purpose of this Amendment
is to set forth the terms and conditions upon which U.S. Bank will grant
Borrower’s requests.

NOW,
THEREFORE, in consideration of the mutual covenants and conditions set forth
herein, the parties agree as follows:

ARTICLE I. AMENDMENT

The
Credit Agreement, as well as all of the other Loan Documents, are hereby
amended as set forth herein.  Except as
specifically provided for herein, all of the terms and conditions of the Credit
Agreement and each of the other Loan Documents shall remain in full force and
effect throughout the terms of the Loans, as well as any extensions or renewals
thereof.

ARTICLE II. DEFINITIONS

As
used herein, capitalized terms shall have the meanings given to them in the
Credit Agreement, except as otherwise defined herein, or as the context
otherwise requires.  Section 1.1 of
the Credit Agreement is hereby amended to modify or add (as the case may be)
the following definitions:

“Applicable
Margin” means the rate per annum that is determined by reference to the
following matrix and based upon the quarterly financial statements of Borrower
provided to U. S. Bank in accordance with the terms of this Agreement
for the preceding fiscal quarter of Borrower. 
Adjustments shall be made 60 days after the end of each fiscal quarter
of Borrower (when quarterly financial statements are required to be delivered
to U. S. Bank); provided, however, that if Borrower has not delivered
its financial statements for the previous fiscal quarter within 60 days of the
end of such fiscal quarter, then the Applicable Margin in effect for the previous
fiscal quarter shall continue to apply unless U. S. Bank exercises
its right to impose the default rate provided for in this Agreement.

 

 

Through and Including 12/31/00

	
  

  Funded Debt Ratio
  	
  Prime
  Rate

  Applicable Margin
  	
  LIBOR
  Rate

  Applicable Margin
  
	
  > 3.0:1.0
  	
  0.50%
  	
  2.25%
  
	
  £ 3.0:1.0
  and > 2.0:1.0
  	
  0.25%
  	
  2.00%
  
	
  £ 2.0:1.0
  and > 1.0:1.0
  	
  0%
  	
  1.50%
  
	
  £ 1.0:1.0
  	
  0%
  	
  1.25%
  

After
12/31/00

	
  

  Funded Debt Ratio
  	
  Prime
  Rate

  Applicable Margin
  	
  LIBOR
  Rate

  Applicable Margin
  
	
  > 2.0:1.0
  	
  0.25%
  	
  2.00%
  
	
  £ 2.0:1.0
  and > 1.0:1.0
  	
  0%
  	
  1.50%
  
	
  £ 1.0:1.0
  	
  0%
  	
  1.25%
  

          Where:

                    £ = less than
or equal to

                    > =  greater than

The Applicable Margins set forth above
shall apply unless there exists an Event of Default, in which case
U. S. Bank may elect to apply the default rate pursuant to the terms
of this Agreement.  The Funded Debt
Ratio as used in this definition shall be calculated as of the last day of the
relevant fiscal quarter of Borrower for the four trailing fiscal quarters then
ended.

“Debt Service Coverage Ratio” means the ratio of (a) EBITDA, less
(i) cash paid by Borrower during the relevant period for Capital
Expenditures, which cash does not constitute proceeds of purchase money Capital
Expenditure loans made to Borrower, (ii) taxes paid by Borrower in cash or
cash equivalents, and (iii) dividends, distributions paid to Borrower’s
shareholders, to (b) Debt Service.

 

“EAW” means Eastern Acoustic Works, Inc.,
a Massachusetts corporation.  “EAW
Entities” means EAW, SIA Software Company, Inc., a New York corporation, and
Blackstone Technologies, Inc., a Massachusetts corporation.  “EAW Entity Guaranties” has the meaning set
forth in Article VIII (d) of this Amendment and includes all amendments
and replacements thereof.  “EAW Entity
Security Agreements” has the meaning set forth in Article VIII (b) of this
Amendment and includes all amendments and replacements thereof.  “Guarantor” means, collectively, Mackie
Designs Manufacturing Inc., a Washington corporation, and Eastern Acoustic
Works, a Massachusetts corporation.

“Guaranty” means, collectively, the EAW Entity Guaranties and the MDM Guaranty.

“Interest Period” means as to any LIBOR Rate Borrowing , a period of one, two,
three, six, nine or 12 months commencing on the date the LIBOR Borrowing Rate
becomes applicable thereto; provided however, that:  (a) no Interest Period shall be selected that would extend
beyond the maturity date of the applicable Loan; (b) any  Interest Period that would otherwise expire
on a day that is not a Business Day shall be extended to the next succeeding
Business Day, unless the result of such extension would be to extend such
Interest Period into another calendar month, in which event the Interest Period
shall end on the immediately preceding Business Day; and (c) any Interest
Period that begins on the last Business Day of a calendar month (or on a day
for which there is no numerically corresponding day in the calendar month at
the end of such Interest Period) shall end on the last Business Day of a
calendar month during which the applicable Interest Period expires.

“LIBOR Borrowing Rate” means the LIBOR Rate (Reserved Adjusted) plus the
Applicable Margin in effect as of the first day of the applicable LIBOR Rate
Borrowing.

“LIBOR Rate” means the average offered rate (computed on the basis of a 360–day
year and the actual number of days elapsed) for deposits in United States
Dollars for delivery of such deposits on the day that is two Business Days
preceding the first day of the applicable Interest Period of a LIBOR Rate
Borrowing for the number of days comprised therein for the number of days
comprised therein, which appears on Telerate Page 3750 as of 11:00 a.m.,
London time (or such other time as of which such rate appears) or the rate for
such deposits determined by U.S. Bank at such time based on such other
published service of general application as shall be selected by U.S. Bank
for such purpose; provided, that in lieu of determining the rate in the
foregoing manner, U.S. Bank may determine the rate based on rates offered
to U.S. Bank for deposits in United States Dollars in the interbank
Eurodollar market at such time for delivery on the first day of the Interest
Period for the number of days comprised therein.  “Telerate Page 3750” means the display designated as such on the
Bridge Telerate, Inc. service or any successor service (or such other page as
may replace page 3750 on that service for the purpose of displaying London
interbank offered rates of major banks for United States Dollar deposits).

 

“LIBOR Rate (Reserved Adjusted)” means a
rate per annum calculated for the applicable Interest Period of a LIBOR Rate
Borrowing in accordance with the following formula:

	 
  	
  LRRA=
  	
  LIBOR
  Rate
  
	 
  	 
  	
  1.00
  - LRR
  

In such formula, “LRR” means “LIBOR
Reserve Rate” and “LRRA” means “LIBOR Rate (Reserve Adjusted)”, in each
instance determined by U.S. Bank for the applicable Interest Period.  U.S. Bank’s determination of all such
rates for any Interest Period shall be conclusive in the absence of manifest
error.

“LIBOR
Reserve Rate” means a percentage equal to the daily average during the
applicable Interest Period of the aggregate maximum reserve requirements
(including all basic, supplemental, marginal, and other reserves), as specified
under Regulation D of the Federal Reserve Board, or any other applicable
regulation that prescribes reserve requirements applicable to Eurocurrency
liabilities (as presently defined in Regulation D) or applicable to
extensions of credit by U.S. Bank the rate of interest on which is
determined with regard to rates applicable to Eurocurrency liabilities.  Without limiting the generality of the
foregoing, the Eurocurrency reserve requirement shall reflect any reserves
required to be maintained by U.S. Bank against (a) any category of
liabilities that includes deposits by reference to which the LIBOR Rate is to
be determined, or (b) any category of extensions of credit or other assets
that includes LIBOR Rate Borrowings.

“Loan
Documents” means this Agreement, the Notes, the Security Agreements, the EAW
Entity Security Agreements, the Guaranty and the Pledge Agreement, together
with all other agreements, instruments and documents arising out of or relating
to this Agreement or the Loans, and includes all renewals, replacements and
amendments thereof.

“MDM
Guaranty” means the guaranty from Mackie Designs Manufacturing Inc., duly
executed and delivered to U.S. Bank, and includes all replacements,
amendments and modifications of the MDM Guaranty.

“Pledge
Agreement” has the meaning set forth in Article VIII (e) of this Amendment
and includes all amendments and replacements thereof.

ARTICLE III.
MODIFICATIONS TO REVOLVING LOAN

3.1     Extension of Expiry and Maturity Date

Section 2.1
of the Credit Agreement is hereby deleted in its entirety and replaced with the
following:

          Subject to and upon the terms and conditions set forth
herein and in reliance upon the representations, warranties, and covenants of
Borrower contained herein or made pursuant hereto, U.S. Bank will make
Fundings to Borrower from time to time during the period ending on
April 30, 2002 the (“Commitment Period”), but such Fundings (together with
any outstanding Letters of Credit) shall not exceed, in the aggregate principal
amount at any one time outstanding, $5,000,000 (the “Revolving Loan”).  Borrower may borrow, repay, and reborrow
hereunder either the full amount of the Revolving Loan or any lesser sum.

 

3.2     Use of Proceeds

Section 2.2 of the Agreement is
hereby amended to reflect that the proceeds of the Revolving Loan may be used
by Borrower to finance the operations of the EAW Entities.

3.3     Renewal Revolving Note

Concurrently with the execution of this
Amendment, Borrower shall execute and deliver to U.S. Bank a renewal
promissory note in the form attached hereto as Exhibit A (“Renewal
Revolving Note”) which shall continue to evidence the Revolving Loan.  The Revolving Note and all previous renewals
thereof shall be marked “Renewed” and retained by U.S. Bank until the
Revolving Loan is paid in full and U.S. Bank’s commitment to advance
Fundings thereunder is terminated.

3.4     Revolving Loan Fee

Concurrently with the execution of this
Amendment, Borrower shall pay U.S. Bank a nonrefundable loan fee for the
Revolving Loan in the amount of $6,250.

3.5     Letters of Credit

Section 2.7(a) of the Credit
Agreement is hereby deleted in its entirety and replaced with the following:

	 
  	
            (a)
  Subject to and upon the terms and conditions set forth herein and in reliance
  upon the representations, warranties, and covenants of Borrower contained
  herein or made pursuant hereto, U. S. Bank will issue standby and
  commercial letters of credit (the "Letters of Credit") for the
  benefit of Borrower in forms acceptable to U. S. Bank from time to
  time during the Commitment Period. 
  The expiration date of any Letter of Credit shall not extend beyond
  October 31, 2002.  The maximum
  aggregate amount of outstanding Letters of Credit plus the aggregate
  outstanding amount of principal and interest on the Revolving Loan shall not
  exceed, at any one time, $5,000,000.
  

ARTICLE IV.  MODIFICATIONS TO ACQUISITION LOAN

4.1     Loan
Commitment

Section 3.1(b)
of the Credit Agreement is hereby deleted in its entirety and replaced with the
following:

          (b)
“Acquisition Loan Commitment” means the sum of (i) $29,714,000, less
(ii) on an aggregate basis, on March 31 of each year (commencing
March 31, 2001) $2,714,286, less (iii) on an aggregate basis, on
September 30 of each year (commencing September 30, 2000)
$1,828,571,and less (iv) the aggregate amount of all Disposition Payments.

4.2     Use of Proceeds

Section 3.2 of the Agreement is
hereby amended to reflect that up to $19,000,000 of the proceeds of the
Acquisition Loan shall be used for the acquisition by Borrower of all of the
issued and outstanding stock of EAW and the payment in full of all indebtedness
of EAW to Fleet National Bank.  After
completion of the EAW acquisition and the payment in full of Fleet National
Bank, the proceeds of the Acquisition Loan may be used by Borrower for general
corporate purposes, including the financing of the operations of the EAW
Entities.

4.3     Renewal Acquisition Note

Concurrently with the execution of this
Amendment, Borrower shall execute and deliver to U.S. Bank a renewal
promissory note in the form attached hereto as Exhibit B (“Renewal
Acquisition Note”) which shall continue to evidence the Acquisition Loan.  The Acquisition Note and all previous
renewals thereof shall be marked “Renewed” and retained by U.S. Bank until
the Acquisition Loan is paid in full and U.S. Bank’s commitment to advance
Fundings thereunder is terminated.

4.4     Disbursement Under Acquisition Loan

Borrower shall not be entitled to the
advance of any Acquisition Loan proceeds to finance the EAW acquisition or to
pay the indebtedness of EAW to Fleet National Bank unless and until Borrower
has received written notice from U.S. Bank that the following conditions
have been fulfilled to the satisfaction of U.S. Bank:

(a)      U.S. Bank
shall have received, reviewed, and approved all agreements, instruments, and
other documents (together with the substance thereof) arising out of or related
to the acquisition of all of the issued and outstanding stock of EAW; and

(b)      U.S. Bank
shall have received, reviewed, and approved the structure of and accounting
with respect to the acquisition of EAW.

4.5     Acquisition Loan Fee

Concurrently
with the execution of this Agreement, Borrower shall pay U.S. Bank a
nonrefundable fee in the amount of $95,000.

ARTICLE V. GENERAL
PROVISIONS APPLICABLE TO THE LOANS

5.1     LIBOR
Rate Borrowing Provisions

Sections 4.9,
4.10 and 4.11 of Credit Agreement are hereby deleted in their entirety and
replaced with the following:

 

	 
  	
            4.9     LIBOR
  Rate Borrowing Provisions

  
	 
  	
            (a)      The
  minimum amount of each LIBOR Rate Borrowing shall be $1,000,000 with
  increments of $500,000 in excess thereof.

  
	 
  	
            (b)      Payments
  and prepayments of all or any portion of any LIBOR Rate Borrowing prior to
  the expiration of the applicable Interest Period shall be subject to the
  payment by Borrower to U.S. Bank of amounts due pursuant to
  Section 4.9(c).

  
	 
  	
            (c)      Borrower
  will indemnify U.S. Bank upon demand against any loss or expense that
  U.S. Bank may sustain or incur (including, without limitation, any loss
  or expense sustained or incurred in obtaining, liquidating or employing
  deposits or other funds acquired to effect, fund, or maintain any LIBOR Rate
  Borrowing) as a consequence of (i) any failure of Borrower to make any
  payment when due of any amount due hereunder or under the Notes,
  (ii) any failure of Borrower to borrow, continue or convert any LIBOR
  Rate Borrowing on a date specified therefor in a notice thereof, or
  (iii) any payment, prepayment or conversion of any LIBOR Rate Borrowing
  on a date other than the last day of the Interest Period for such LIBOR Rate
  Borrowing.  Determinations by
  U.S. Bank for purposes of this Section 4.6(c) of the amount
  required to indemnify U.S. Bank shall be conclusive in the absence of
  manifest error.

  
	 
  	
            (d)      Upon
  any termination of any LIBOR Rate Borrowing as a result of
  (i) acceleration under Section 9.2 hereof, or (ii) repayment
  in response to a mandatory repayment under Section 4.11, Borrower shall
  pay to U.S. Bank on demand such amount as U.S. Bank reasonably
  determines (determined as though 100 percent of the applicable LIBOR
  Rate Borrowing had been funded in the applicable Eurodollar market) is
  equivalent to all direct or indirect losses, expenses, liabilities, or
  reductions in yield to U.S. Bank resulting therefrom, whether incurred
  in connection with liquidation or reemployment of funds or otherwise.  Determinations by U.S. Bank for purposes
  of this Section 4.6(d) of the amount required to indemnify
  U.S. Bank shall be conclusive in the absence of manifest error.

  
	 
  	
            (e)      Notwithstanding
  any other term of this Agreement, Borrower may not select the LIBOR Borrowing
  Rate if an Event of Default hereunder has occurred and is continuing.

  
	 
  	
            (f)       Nothing
  contained in this Agreement, including, without limitation, the determination
  of any Interest Period or U.S. Bank’s quotation of any LIBOR Borrowing
  Rate, shall be construed to prejudice U.S. Bank’s right to decline to
  make any requested Funding provided that U.S. Bank acts in accordance
  with the provisions of this Agreement.

  
	 
  	
            4.10   Deposits Unavailable or Interest
  Rate Unascertainable or

                      Inadequate;
  Impracticability

  
	 
  	
            If
  U.S. Bank determines (which determination shall be conclusive and binding
  on the parties hereto) that:

  
	 
  	
            (a)      Deposits
  of the necessary amount for the relevant Interest Period for any LIBOR Rate
  Borrowing are not available to U.S. Bank in the relevant markets or
  that, by reason of circumstances affecting such market, adequate and
  reasonable means do not exist for ascertaining the LIBOR Rate for such
  Interest Period;
  

 

 

	 
  	
            (b)      The
  LIBOR Rate (Reserved Adjusted) will not adequately and fairly reflect the
  cost to U.S. Bank of making or funding the LIBOR Rate Borrowing for a relevant
  Interest Period; or

  
	 
  	
            (c)      The
  making or funding of LIBOR Rate Borrowing has become impracticable as a
  result of any event occurring after the date of this Agreement which, in the
  opinion of U.S. Bank, materially and adversely affects such LIBOR Rate
  Borrowing or U.S. Bank’s commitment to make such LIBOR Rate Borrowing or
  the relevant market;

  
	 
  	
            U.S. Bank
  shall promptly give notice of such determination to Borrower, and
  (i) any notice of a new LIBOR Rate Borrowing previously given by
  Borrower and not yet borrowed or converted shall be deemed to be a notice to
  make a Prime Rate Borrowing, and (ii) Borrower shall be obligated to
  either repay in full any outstanding LIBOR Rate Borrowings, on the last day
  of the current Interest Period with respect thereto or convert any such LIBOR
  Rate Borrowing to a Prime Rate Borrowing on such last day.

  
	 
  	
            4.11   Changes in Law Rendering LIBOR
  Rate Borrowing Unlawful

  
	 
  	
            If at any
  time due to the adoption of any law, rule, regulation, treaty, or directive,
  or any change therein or in the interpretation or administration thereof by
  any court, central bank, governmental authority, agency, or instrumentality,
  or comparable agency charged with the interpretation or administration
  thereof, or for any other reason arising subsequent to the date of this
  Agreement, it shall become unlawful or impossible for U.S. Bank to make
  or fund any LIBOR Rate Borrowing, the obligation of U.S. Bank to provide
  such LIBOR Rate Borrowing shall, upon the happening of such event, forthwith
  be suspended for the duration of such illegality or impossibility.  If any such event shall make it unlawful
  or impossible for U.S. Bank to continue any LIBOR Rate Borrowing
  previously made by it hereunder, U.S. Bank shall, upon the happening of
  such event, notify Borrower thereof in writing, and Borrower shall, at the
  time notified by U.S. Bank, either convert each such unlawful LIBOR Rate
  Borrowing to a Prime Rate Borrowing or repay such LIBOR Rate Borrowing in
  full, together with accrued interest thereon, subject to the provisions of
  Section 4.6(d).

  
	 
  	
            4.12   Increased Costs

  
	 
  	
  If,
  as a result of any law, rule, regulation, treaty, or directive, or any change
  therein or in the interpretation or administration thereof, or compliance by
  U.S. Bank with any request or directive (whether or not having the force
  of law) from any court, central bank, governmental authority, agency, or
  instrumentality, or comparable agency:

  

 

 

	 
  	
            (a)      Any
  tax, duty, or other charge to the Loans, the Notes or the commitments is
  imposed thereunder, modified or deemed applicable, or the basis of taxation
  of payments to U.S. Bank of interest or principal of the Loans or of the
  commitment fees (other than taxes imposed on the overall net income of
  U.S. Bank by the jurisdiction in which has its principal office) is
  changed;

  
	 
  	
            (b)      Any
  reserve, special deposit, special assessment, or similar requirement against
  assets of, deposits with, or for the account of, or credit extended by,
  U.S. Bank is imposed, modified, or deemed applicable;

  
	 
  	
            (c)      Any
  increase in the amount of capital required or expected to be maintained by
  U.S. Bank or any Person controlling U.S. Bank is imposed, modified,
  or deemed applicable; or

  
	 
  	
            (d)      Any
  other condition affecting this Agreement or the commitments hereunder is imposed
  on U.S. Bank or the relevant funding markets;

  
	 
  	
            and
  U.S. Bank determines that, by reason thereof, the cost to U.S. Bank
  of making or maintaining the Loans or the commitment is increased, or the
  amount of any sum receivable by U.S. Bank hereunder or under the Notes
  is reduced;

  
	 
  	
            then, Borrower
  shall pay to U.S. Bank upon demand such additional amount or amounts as
  will compensate U.S. Bank (or the controlling Person in the instance of
  (c) above) for such additional costs or reduction (provided that
  U.S. Bank has not been compensated for such additional cost or reduction
  in the calculation of the LIBOR Reserve Rate).  Determinations by U.S. Bank for purposes of this
  Section 4.12 of the additional amounts required to compensate
  U.S. Bank shall be conclusive in the absence of manifest error.  In determining such amounts,
  U.S. Bank may use any reasonable averaging, attribution, and allocation
  methods.

  
	 
  	
            4.13   Discretion of U.S. Bank as
  to Manner of Funding

  
	 
  	
            Notwithstanding
  any provision of this Agreement to the contrary, U.S. Bank shall be
  entitled to fund and maintain its funding of all or any part of the Loans in
  any manner it elects; it being understood, however, that for purposes of this
  Agreement, all determinations hereunder shall be made as if U.S. Bank
  had actually funded and maintained each LIBOR Rate Borrowing during the
  Interest Period for such LIBOR Rate Borrowing through the purchase of
  deposits having a term corresponding to such Interest Period and bearing an
  interest rate equal to the LIBOR Rate for such Interest Period (whether or
  not U.S. Bank shall have granted any participations in such LIBOR Rate
  Borrowing).
  

 

ARTICLE VI. NEGATIVE
COVENANTS

6.1     Tangible
Net Worth

Section 7.15 of the
Credit Agreement is hereby deleted and replaced with the following:

 

	 
  	
            At any
  time during the terms of the Loans, permit Tangible Net Worth to be less than
  the sum of (a) $30,000,000, plus, on an aggregate basis, (ii) as of the
  end of each of Borrower's first fiscal quarters (commencing with Borrower's first
  fiscal quarter in the year 2000), an amount equal to 50 percent of Borrower's
  consolidated net income, without reduction for any consolidated net losses
  experienced by Borrower in any fiscal year.

  
	

6.2

  	
  Working Capital

  
	
  Section 7.16 of the Credit Agreement is
  hereby deleted and replaced with the following:

  
	 
  	
            At any time during the terms of the
  Loans, permit Working Capital to be less than the sum of (a) $35,000,000,
  plus, on an aggregate basis, (ii) as of the end of each of Borrower's
  first fiscal quarters (commencing with Borrower's first fiscal quarter in the
  year 2000), an amount equal to 50 percent of Borrower's consolidated net
  income, without reduction for any consolidated net losses experienced by
  Borrower in any fiscal year.

  
	
  6.3
  	
  Debt Service Coverage

  
	
  Section 7.17 of
  the Credit Agreement is hereby deleted and replaced with the following:

  
	 
  	
            Permit the
  Debt Service Coverage Ratio to be less than 1.25:1.00 as of the end of any
  fiscal quarter of Borrower for the trailing four-quarters then ended.

  
	
  6.4
  	
  Funded Debt Ratio

  
	
  Section 7.18 of
  the Credit Agreement is hereby deleted and replaced with the following:

  
	 
  	
            As of the
  end of any fiscal quarter of Borrower for the trailing four-quarters then
  ended, permit the Funded Debt Ratio to be greater than the following:
  

 

	

  Time Period

  

  	

Maximum Funded Debt

  Ratio

  

  
	

3/31/00 - 12/31/00

  	

3.5:1.0

  
	

Thereafter

  	

2.5:1.0

  

 

ARTICLE VII.
MODIFICATION TO SECURITY AGREEMENTS

The
parties agree that the schedules attached to the Security Agreements shall be
replaced with Schedules I attached to this Amendment.  Borrower hereby authorizes U.S. Bank to
replace the schedules attached to the Security Agreements with Schedules I
attached hereto and to refile the Security Agreements with the appropriate
Governmental Bodies.

 

ARTICLE VIII. CONDITIONS
PRECEDENT

The
modifications set forth in this Amendment shall not be effective unless and
until the following conditions have been fulfilled to U.S. Bank’s
satisfaction:

(a)      U.S. Bank
shall have received this Amendment, the Renewal Revolving Note, and the Renewal
Acquisition Note duly executed and delivered by the parties hereto.

(b)      U.S. Bank
shall have received, duly executed and delivered by each of the EAW Entities, a
security agreement in the form attached hereto as Exhibit C (the “EAW
Entity Security Agreements”), granting to U.S. Bank a first priority and
exclusive security interest in all of the personal property of the EAW
Entities, whether tangible or intangible, now owned or hereafter acquired,
together with landlord waivers executed and delivered by EAW’s landlords in a
form reasonably designated by U.S. Bank.

(c)      U.S. Bank
shall have received, duly executed and delivered by each of the EAW Entities,
such financing statements and other documents deemed necessary by U.S. Bank
to perfect the security interest granted to U.S. Bank.

(d)      U.S. Bank
has received a guaranty from each of the EAW Entities, duly executed and
delivered, in the form attached hereto as Exhibit D (the “EAW Entity
Guaranties”).

(e)      U.S. Bank
shall have received, duly executed and delivered by Borrower, a pledge
agreement in the form attached hereto as Exhibit E (“Pledge Agreement”),
pledging to U.S. Bank a first priority Lien against all of the outstanding
capital stock of EAW, together with an assignment separate from certificate for
each share certificate pledged and the originals of all share certificates
representing the stock pledged thereunder.

(f)       Borrower
shall have paid the loan fees provided for in this Amendment.

(g)      U.S. Bank
shall have received, reviewed and approved all agreements and documents arising
out of or related to the EAW acquisition and the payoff of EAW’s indebtedness
to Fleet National Bank.

(h)      There
shall not exist any Default or Event of Default under the Credit Agreement or
any other Loan Document.

(i)       All
representations and warranties of Borrower contained in the Credit Agreement or
otherwise made in writing in connection therewith or herewith shall be true and
correct and in all material respects have the same effect as though such
representations and warranties had been made on and as of the date of this
Amendment.

(j)       U.S. Bank
shall have received, reviewed and approved all organizational documents and a
current certificate of good standing for each of the EAW Entities, together
with such board resolutions for the board of directors of the EAW Entities,
Borrower and Mackie Designs Manufacturing Inc. as deemed necessary by
U.S. Bank.

 

 

 

 

ARTICLE IX. GENERAL
PROVISIONS

9.1     Representations
and Warranties

Borrower
hereby represents and warrants to U.S. Bank that as of the date of this
Amendment, there exists no Default or Event of Default.  All representations and warranties of
Borrower contained in the Credit Agreement and the Loan Documents, or otherwise
made in writing in connection therewith, are true and correct as of the date of
this Amendment.  U.S. Bank acknowledges the disclosure by Borrower of the existence
of the case entitled The Travelers Insurance Company v. Eastern Acoustic Works,
Inc., et al vs. Eastern Acoustic Works, Inc., Superior Court Department,
Worcester Massachusetts, Civil Action No. 97-0922-B, and agrees that neither
the existence of such case nor the results of any trial or any pending motions
in such case will be deemed a violation of any warranty or representation given
by Borrower or Eastern Acoustic Works, Inc. either in this Agreement or any
other agreement or documentation given in connection herewith.  Borrower acknowledges and agrees that
all of Borrower’s Indebtedness to U.S. Bank is payable without offset,
defense, or counterclaim.

9.2     Security

All
Loan Documents evidencing U.S. Bank’s security interest in the Collateral
shall remain in full force and effect, and shall continue to secure, without
change in priority, the payment and performance of the Loans, as amended
herein, and any other Indebtedness owing from Borrower to U.S. Bank.

9.3     Guaranty

The
parties hereto agree that the Guaranty shall remain in full force and effect
and continue to guarantee the repayment of the Loans to U.S. Bank as set
forth in such Guaranty.

9.4     Payment
of Expenses

Borrower
shall pay on demand all costs and expenses of U.S. Bank incurred in
connection with the preparation, negotiation, execution, and delivery of this
Amendment, including, without limitation, reasonable attorneys’ fees incurred
by U.S. Bank.

9.5     Survival
of Credit Agreement

The
terms and conditions of the Credit Agreement and each of the other Loan
Documents shall survive until all of Borrower’s obligations under the Credit
Agreement are satisfied in full.

9.6     Year
2000

Borrower has reviewed and assessed its business
operations and computer systems and applications to address the “year 2000
problem” (that is, that computer applications and equipment used by Borrower,
directly or indirectly through third parties, may have been or may be unable to
properly perform date-sensitive functions before, during and after
January 1, 2000).  Borrower
represents and warrants that the year 2000 problem has not resulted in and to
the best knowledge of Borrower will not result in a material adverse change in
Borrower’s business condition (financial or otherwise), operations, properties
or prospects or ability to repay U.S. Bank.  Borrower agrees that this representation and warranty will be
true and correct on and shall be deemed made by Borrower on each date Borrower
requests any Funding under this Agreement or Revolving Note or delivers any
information to U.S. Bank.  Borrower
will promptly deliver to U.S. Bank such information relating to this
representation and warranty as U.S. Bank requests from time to time.

 

9.7     Counterparts

This Amendment may be executed in one or
more counterparts, each of which shall constitute an original agreement, but
all of which together shall constitute one and the same agreement.

9.8     Statutory Notice

ORAL AGREEMENTS OR ORAL COMMITMENTS TO
LOAN MONEY, EXTEND CREDIT, OR TO FORBEAR FROM ENFORCING REPAYMENT OF A DEBT ARE
NOT ENFORCEABLE UNDER WASHINGTON LAW.

IN WITNESS WHEREOF, U.S. Bank and Borrower have caused this Amendment to
be duly executed by their respective duly authorized signatories as of the date
first above written.

	 
  	
  MACKIE
  DESIGNS INC.
  
	 
  	 
  
	 
  	 
  
	 
  	
  By
  	
  

  

  
	 
  	 
  	
  Name:
  	
  

  

  
	 
  	 
  	
  Title:
  	
  

  

  
	 
  	 
  	 
  
	 
  	 
  	 
  
	 
  	
  U.S. BANK
  NATIONAL ASSOCIATION
  
	 
  	 
  
	 
  	 
  
	 
  	
  By
  	
  

  

  
	 
  	 
  	
  Ann
  B. Caldwell, Vice President
  

 

REAFFIRMATION
OF GUARANTY AND COLLATERAL

DOCUMENTS

The undersigned hereby:  (a) acknowledges that it has read the
foregoing Fourth Amendment to Credit Agreement, (b) reaffirms its
obligations under the Guaranty and the Security Agreement and other collateral
documents evidencing security interests granted by the undersigned to
U.S. Bank to secure the obligations of Borrower to U.S. Bank,
(c) agrees that its Guaranty guarantees and its Security Agreement secures
the repayment of the Loans, as amended by the foregoing Fourth Amendment to
Credit Agreement, and (d) acknowledges that its obligations pursuant to
its Guaranty and the Security Agreement are enforceable without defense,
offset, or counterclaim.

	 
  	
  MACKIE
  DESIGNS MANUFACTURING INC.
  
	 
  	 
  	 
  
	 
  	 
  	 
  
	 
  	
  By
  	
  

  

  
	 
  	 
  	
  Name:
  	
  

  

  
	 
  	 
  	
  Title:

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