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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Fiscal Year Ended October 1, 1995
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________________ to ________________
Commission file number 0-9428
ADAC LABORATORIES
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(Exact name of registrant as specified in its charter)
California 94-1725806
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
540 Alder Drive
Milpitas, California 95035
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(Address of principal executive offices) (Zip Code)
(408) 321-9100
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(Registrant's telephone number including area code)
Securities registered pursuant to Section 12(b)of the Act:
Name of each exchange
Title of Each Class on which registered
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None None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock
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(Title of class)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the 12 months (or for such shorter period that the Registrant was required to
file such reports), and (2) has been subject to such filing requirements for the
past 90 days.
Yes X No
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The aggregate market value of the voting stock (which is the outstanding Common
Stock) of the Registrant held by non-affiliates thereof, based upon the closing
price of the Common Stock on December 1, 1995, on the NASDAQ National Market
System ($12.375 per share) was approximately $204,139,262. For the purpose of
the foregoing computation, only the directors and executive officers of the
Registrant were deemed to be affiliates. This determination of affiliate status
is not necessarily a conclusive determination for other purposes.
As of December 1, 1995, Registrant had outstanding 17,139,545 shares of Common
Stock, no par value, which is the only class of shares publicly traded.
DOCUMENTS INCORPORATED BY REFERENCE
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Parts of the Proxy Statement for Registrant's 1996 Annual Meeting of
Shareholders, to be filed with the Commission on or before 120 days after the
end of the 1995 fiscal year, are incorporated by reference into Part III hereof.
Indicate by check mark if disclosures of delinquent filers pursuant to item 405
of Regulation S-K is not contained herein, and will not be contained to the best
of the Registrant's knowledge, in definitive proxy or information definitive
proxy or information statements incorporated by reference in Part III of the
Form 10-K or any amendments to this Form 10-K. ( X )
205RS-290 Cover
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PART I
ITEM 1. BUSINESS
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General
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ADAC Laboratories ("ADAC" or "the Company") designs, develops, manufactures,
sells and services medical imaging and information systems used in hospitals and
clinics worldwide. The Company's products include applications for nuclear
medicine, laboratory, radiology, cardiology and oncology. In July 1995, ADAC
completed the acquisition of Community Health Computing (CHC), a provider of
radiology and laboratory healthcare information systems. This acquisition is
expected to expand the Company's addressable information systems business in
markets not previously serviced by the Company.
The Company markets the following diagnostic imaging systems and information
systems:
Medical Systems
- Nuclear Medicine Systems
- Radiation Therapy Planning Systems
- Digital Angiography Systems
HealthCare Information Systems
- Radiology Information Systems
- Laboratory Information Systems
ADAC was incorporated in California on October 14, 1970. Its principal offices
are located at 540 Alder Drive, Milpitas, California, 95035. Its telephone
number at that location is (408) 321-9100.
PRODUCTS
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Nuclear Medicine Systems
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Nuclear medicine is a diagnostic imaging procedure where the patient is
administered a radiotracer compound. This compound is either injected or
swallowed and flows to the organ(s) under examination. The patient is then
scanned with a gamma camera which detects the radiotracer emissions from these
organ(s). The data from the emissions are then processed to provide the
physician with images and information regarding the functional and metabolic
performance of the organ(s). The physician uses this information for the
diagnosis of diseases and the evaluation of disease progression (staging),
including cardiology, oncology and neurology.
ADAC's gamma cameras are primarily designed to perform superior Single Photon
Emission Computed Tomography (SPECT) imaging. In addition to SPECT, ADAC has
recently developed the technology for its dual head gamma cameras to perform
coincidence imaging using Molecular Coincidence Detection (MCD(TM)).
Although market acceptance of dual head gamma cameras accelerated the
replacement cycle of imaging systems, the ongoing restructuring of the
healthcare delivery system in the United States caused many hospitals to reduce
their capital budgets. ADAC estimates that the net effect of these two
conditions resulted in unchanged North American, European and Japanese market
volumes compared to 1994. However, the Asian and Latin American marketplaces
are expanding primarily due to new capacity additions.
The nuclear medicine market is characterized by two distinct segments: single
head cameras and multihead cameras. ADAC is a market leader in both segments
with the ARGUS EPIC(TM), CIRRUS EPIC(TM), and GENESYS(TM) single head products
which have one detector head and DUAL GENESYS(TM), VERTEX EPIC(TM), SOLUS
EPIC(TM) and CARDIO EPIC(TM) dual head products which have two detector heads.
These systems are interfaced with ADAC's PEGASYS(TM), the leading UNIX-based
nuclear medicine workstation. The TRANSCAM(TM), THYRUS, and POLARIS are niche
gamma cameras produced by the Company's Danish subsidiary, ADAC A/S. These
cameras which began shipping in early fiscal 1993 offer specialized
functionality for specific clinical procedures.
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ADAC generated approximately 80% of its nuclear medicine revenue in fiscal 1995
in the dual head market. Dual head cameras are complex systems that provide
enhanced diagnostic accuracy and increased patient throughput efficiency
primarily for oncology and cardiology procedures. These comprise approximately
70% of all nuclear medicine procedures performed. Single head cameras are less
complex and expensive. Therefore, the most likely purchasers are capital-
constrained institutions and those adding extra capacity.
The VERTEX camera introduced in late 1992 is the cornerstone of ADAC's product
line. It has the unique capability of variably positioning its two detectors in
either a 180 degree orientation for whole body imaging or a 90 degree
orientation for cardiac imaging. This capability enables nuclear medicine
departments to increase their patient throughput by decreasing the time required
to perform the procedures. In 1995, the VERTEX contributed over 60% of the
Company's nuclear medicine product revenues and has allowed ADAC to accelerate
its penetration into markets throughout the world.
In 1994, ADAC introduced the EPIC(TM) digital detector. This innovative new
technology obsoleted analog technology and created a new generation of high
performance cameras: VERTEX EPIC, GENESYS EPIC, CIRRUS EPIC and ARGUS EPIC.
The EPIC digital detector significantly improves the reliability and stability
of nuclear image quality versus the analog detector. Also, the EPIC's auto-
tuning and remote diagnostics capabilities have improved both ADAC's field
service efficiency as well as customer satisfaction. EPIC began shipping in
November 1994.
In June 1995, the dual head gamma camera segment was further extended with the
introduction of two new imaging systems: the SOLUS EPIC, a fixed 180 degree
camera for oncology, and the CARDIO EPIC, a fixed 90 degree camera for
cardiology. These systems satisfy the needs of special niche markets by
providing less expensive products with VERTEX EPIC imaging quality and
throughput advantages.
In June 1995, ADAC introduced a new technology called Molecular Coincidence
Detection (MCD(TM)). This technology enables ADAC's VERTEX EPIC and SOLUS EPIC
cameras to perform coincidence imaging previously only available on expensive
dedicated Positron Emission Tomography (PET) imaging systems costing between $1
million and $2 million. Coincidence imaging is a valuable diagnostic tool
because of its high resolution and high accuracy in oncology, cardiology and
neurology. It is particularly useful for identifying cancerous lesions
throughout the body. Due to the high capital cost of PET systems, coincidence
imaging has been too expensive for all but a few hospitals and clinics. MCD is
expected to provide the capability to perform coincidence imaging using ADAC's
cameras at a fraction of the cost of a dedicated PET system. The Company
received Food and Drug Administration (FDA) 510k clearance for MCD in November
1995. The Company will begin MCD multicenter clinical trials in early 1996.
These trials are expected to document the clinical efficacy of MCD while
verifying the significant reduction in the costs of managing cancer patients
relative to conventional diagnostic techniques.
VANTAGE(TM), introduced in December 1994, is an optional upgrade to the VERTEX
EPIC and the CARDIO EPIC. This option performs non-uniform attenuation
correction which improves the diagnostic accuracy of nuclear medicine imaging by
correcting for attenuation artifacts (random dark areas which compromise
diagnostic accuracy). The ability to determine true defects is particularly
important in nuclear cardiology and is believed to be an important advantage
versus cardiac ultrasound, the primary competitive procedure. VANTAGE is
currently in the final phase of a multicenter clinical trial that is expected to
demonstrate improved cost-effectiveness and quality compared to current cardiac
imaging techniques. The Company received FDA 510k clearance for VANTAGE in April
1995.
MACROVISION(TM), introduced at the 1994 Radiological Society of North America
trade show, is a new object-oriented programming tool that the Company has
exclusively licensed from Advanced Visual Systems Inc. for use in nuclear
medicine. MACROVISION is designed to improve the Company's software development
productivity and also to
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improve the customers' programming flexibility in developing unique clinical
protocols.
In November 1995, ADAC acquired JD Technical Services, Inc. Through this
acquisition, ADAC believes it has gained the expertise to enter the multivendor
refurbished nuclear medicine instrumentation market.
Sales of Nuclear Medicine imaging systems, optics and accessories accounted for
nearly 67%, 67% and 66% of total Company revenues in fiscal years 1995, 1994 and
1993, respectively.
Radiation Therapy Planning Systems
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Radiation Therapy Planning systems are "turnkey" computer systems that assist
hospital radiation therapy departments and cancer treatment centers in planning
patient treatments.
The Company has developed software for a new treatment planning computer
product, called Pinnacle/3/(TM) which combines two dimensional and three
dimensional planning, including stereotactic radiosurgery planning capabilities.
Stereotactic radiosurgery is the precise application of radiation beams to a
specific targeted area. The Company believes Pinnacle/3/ will significantly
improve image processing and dose calculation methods compared to currently
available products. The FDA cleared the stereotactic radiosurgery component of
the product in November 1994. The external beam and body therapy capabilities
produce a three dimensional volumetric patient model and directs the application
of radiation therapy beams to the treatment volume. These capabilities are still
pending FDA 510k clearance. Pinnacle/3/'s external beam and body therapy
capabilities have recently been introduced into the international markets with
very positive results. The Company believes that the treatment planning systems
may see significant revenue and income improvement due to this international
penetration. Historically, Radiation Therapy Planning Systems have not been a
significant contributor to Company revenues or income.
Digital Angiography Systems
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ADAC services existing ADAC X-Ray imaging and digital angiography computer
systems for both radiology and cardiology applications. Sales of digital
angiography products have not been a significant contributor to the company
revenues or income over the past three years.
HealthCare Information Systems
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Information systems for the healthcare industry consist of computer equipment
and software applications designed to offer healthcare providers the mechanism
to process and archive patient and clinical information. The healthcare
environment is changing to one where managed care and health maintenance
organizations demand information technology to capture and manage costs as well
as measure the quality and results of patient care.
A key objective of ADAC is to expand the Company's healthcare information
systems business. In November 1993, ADAC acquired SD&G Healthcare Systems Inc.
(SD&G) which strengthened the Company's market share and revenues in the
radiology information systems business. In July 1995, ADAC acquired Community
Health Computing, Inc. (CHC) for approximately $18.4 million which included $1.9
million of expenses associated with the acquisition. The acquisition of CHC
strengthened ADAC's market share and revenue in the radiology information
systems business and established its presence in the laboratory information
systems business. ADAC's information systems products and services have been
combined to form a subsidiary business unit named ADAC HealthCare Information
Systems.
The Company's existing products (MARS II(TM), IMAGES/3000(TM), RadCare(TM),
MRM(TM), RadStat(R), and LabCare(TM)) are installed in over 300 hospitals
throughout the United States and Canada. These hospitals represent a cross-
section of major teaching hospitals,
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large and small community hospitals, children's hospitals, and city and state
institutions.
During 1995, ADAC HealthCare Information Systems began installation of its two
major product developments. QuadRIS(TM), a radiology information systems
product, and LabStat(TM), a laboratory information systems product, represent
significant investments in advanced client server architectures. ADAC developed
both products with the latest open systems technology, including SQL relational
database servers and Microsoft Windows based applications. QuadRIS is available
on Hewlett Packard and IBM UNIX servers. LabStat is currently available on
Hewlett Packard UNIX servers.
Both QuadRIS and LabStat are designed to work in a distributed computing
environment to meet the needs of rapidly changing integrated healthcare delivery
systems. In this environment, the products must meet the demands of multiple
healthcare facilities that act as a single integrated delivery network.
In 1995, CHC diluted ADAC's earnings by approximately three cents per share
primarily because the laboratory product line was unprofitable during
development and product introduction. ADAC HealthCare Information Systems
revenue in 1995 was approximately 7% of total Company revenues.
Field Service
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The Company maintains its own service force in North America and Europe,
supporting over 5,900 installed systems at over 2,100 sites. This network of
service engineers and applications specialists provides installation, warranty,
repair, and training services.
The Company's products are sold with warranty periods of generally one year. At
the end of the warranty period, the Company provides customers with the option
of purchasing a service contract or obtaining continuing service on a "per call"
basis. The Company's warranty program is similar to those offered by most
manufacturers of medical electronic equipment.
In November 1995, ADAC acquired JD Technical Services, Inc. which expanded the
Company's capabilities to service and support gamma cameras of the major
vendors.
Service revenues represented 26%, 23% and 23% of total Company revenues in
fiscal years 1995, 1994 and 1993, respectively.
Marketing
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ADAC has a direct sales force in North America which generates approximately 77%
of all product, service and system sales. The Company maintains sales and
service subsidiaries in the Netherlands, Germany, France, Italy, Denmark, the
United Kingdom, Singapore, and Canada to market and service its products. Sales
and service in other countries are generally handled by distributors.
North America is the largest market for the Company's products, systems and
services followed by Europe, Japan, Asia Pacific and Latin America. ADAC is
represented in all these geographic areas. Until 1995, ADAC had not been
represented in Japan, the third largest market in the world. In December 1994,
ADAC signed a distribution agreement with Sumitomo Metal Industries. In June
1995, ADAC received approval from the Japanese Ministry of Health and Welfare to
market the VERTEX EPIC throughout Japan.
Research and Development
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Developing products, systems and services based on advanced technological
concepts is essential to ADAC's ability to compete effectively. The Company
currently maintains a full-time product development and engineering staff
responsible for product design and engineering.
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As part of ADAC's research and development programs, the Company has established
the Advanced Clinical Research Program (ACRP) which provides annual grants to
clinical trial sites at major institutions to assist the Company in product
development concepts and to measure and establish product efficacy.
Research and development expenses, net of software capitalization, totaled
$10,081,000, $11,644,000, and $11,031,000 in fiscal years 1995, 1994, 1993,
respectively.
Competition
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In the Nuclear Medicine market, the Company competes with eight other suppliers
in providing integrated camera/computer imaging systems, optics and accessories.
According to the 1995 data provided by NEMA (National Electronics Manufacturers
Association), the industry trade group, ADAC's share of the U.S. market in 1995
is believed to be 45%, giving ADAC a substantial lead over its nearest
competitors. In 1995, ADAC's worldwide market share is believed to be over 30%.
The Company believes that the key to success in its markets is to deliver cost-
effective and technologically superior products which meet or exceed customer
quality and service expectations. ADAC's ability to compete successfully
depends on its capacity to commercialize new hardware technology and software
ahead of its competitors. In addition to the rapid development of innovative
and cost-effective new products, the Company believes that other competitive
factors include patient throughput, system functionality and reliability, image
quality, computer processing speed, customer service and support and worldwide
distribution network. The Company's products must focus on solutions for the
managed care environment in order to provide improved clinical outcomes at lower
clinical process costs.
With the acquisition of Community Health Computing (CHC), ADAC believes that it
is now the leader in the radiology information systems market with an estimated
11% market share. The Company also entered the laboratory information systems
market through CHC but has not yet registered significant new product sales from
that business. The company believes that key competitive factors include system
architecture, functionality of the application software, post-sales support
services, integration expertise with hospital information systems and price.
Manufacturing
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The Company manufactures most of the sub-systems used in its products and
systems. Manufacturing includes printed circuit board assembly and test,
mechanical assembly, final system integration and testing. In addition, the
Company purchases certain sub-systems, Sun Workstations and disk drives.
Although most materials and purchased components for Medical Systems products
are available from more than one source of supply, certain essential components
such as the Sun Workstations and sodium iodide crystals are presently available
from only one outside source. There are also several significant vendors for
hardware and software components of the HealthCare Information Systems products:
LabStat vendors are Hewlett Packard and Oracle; QuadRIS vendors are Sybase and
Oracle; and LabCare's vendor is Stratus. The loss of any single-source
supplier to ADAC would require obtaining one or more replacement suppliers as
well as potentially requiring a significant level of hardware and software
development to incorporate the new parts into the Company's products. The
Company has obtained insurance to protect against loss due to business
interruption from these and other sources.
Government Regulation
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ADAC's Nuclear Medicine and Radiation Therapy Planning businesses are regulated
by the Food and Drug Administration ("FDA") under the Food, Drug, and Cosmetic
Act of 1976 and the Safe Medical Device Act of 1990. Regulations include
meeting certain requirements related to marketing, manufacturing, labeling,
packaging and distribution of most of the Company's products. The FDA has the
authority to issue new performance standards on any medical device. Unscheduled
FDA inspections of the
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Company's facilities may occur from time to time to determine compliance with
these and other FDA regulations.
Since certain requirements must be met prior to the initial marketing of medical
devices, the Company is required to make certain submissions to the FDA and
comply with Good Manufacturing Practices (GMP) which includes the creation and
maintenance of certain records. The FDA requires all manufacturers of medical
devices to prove that their products are equivalent to predicate devices and are
safe and effective. This process is known as 510k (pre-market notification).
The 510k clearance is required for all new medical devices before orders can be
obtained and the product distributed. Currently, this clearance for new product
distribution is extending beyond the prescribed 90 day limit due to resource
issues within the FDA. The Company is working with NEMA (National Electronics
Manufacturers Association) to reduce the time needed for FDA pre-market review.
In fiscal 1995, the Company submitted to the FDA three pre-market notifications
(pending 510k). The Company also listed two new products via 510k, Pinnacle/3/
and VANTAGE. To date in fiscal 1996, the Company has listed MCD and
INSPECT/PROSPECT via 510k. Occasionally, the Company receives Certificates for
Export from the FDA which are required in order to ship equipment to certain
foreign countries.
To ensure product safety and to maintain certification, ADAC's policy is to list
all its equipment with a national recognized testing laboratory such as ETL. In
1995, ADAC had several revisions to its existing product listings.
In 1995, ADAC implemented a program to enter the Japanese market and has
received Japanese Ministry of Health and Welfare (JMHW) approval to market the
VERTEX EPIC. The Company is planning to list additional products in the
Japanese market in 1996. The process to receive approval to market these
additional products is expected to take four to six months each. In addition,
ADAC is undertaking to meet the requirements of the European Medical Device
Directive which will become effective in most European countries by June 1998.
Certain additional requirements of other Federal laws and of state, local and
foreign governments exist which may apply to the manufacture and marketing of
the Company's products and to products such as radiopharmaceuticals which are
used in conjunction with the Company's products. To date, the Company has not
experienced any significant difficulty in complying with the requirements
imposed on it by the FDA or other government agencies.
With the company's overall emphasis on total quality management, quality system
compliance is expected to continue to improve in 1996. The Company is
anticipating that some costs will be incurred for compliance with the European
Medical Device Directive and the Japanese Medical Device listing. These costs
are expected to be absorbed by revenues derived from the Company's expansion
into these markets.
Patent, Copyrights, and Royalties
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The Company has a policy of undertaking an ongoing review of its products with
patent counsel to determine to what extent its products may be protectable under
the patent or copyright laws. ADAC also has a program in place to develop
patent portfolios to protect its intellectual property. The Company holds
Patent Des. 323,386, a system design patent for the GENESYS gamma camera. In
1994, in addition to receiving approval of three patents, the Company purchased
thirteen patents related to the field of nuclear medicine from Philips
Electronics N.V. In 1995, the Company received approval of nineteen United
States patents and forty-two foreign patents. The Company has a total of
thirty-one patents pending at various stages of completion. Several patent
applications have been submitted for MCD. While the Company believes that it
benefits from such patents, competitors may develop competing products by
"designing around" patents held by the Company.
The Company develops user software for its products and also uses software from
outside sources as part of a deliverable software package. ADAC owns all
licenses for software developed by the Company's internal software engineering
department. Outside sources include software companies and clinical development
sites that
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provide turnkey products or software code. The Company believes the risk of
losing access to software applications provided by outside vendors is
negligible. The Company has negotiated contracts with these vendors which often
include clauses that stipulate: 1) specific deliverables within specific time
periods, 2) distribution and renewal agreements, and 3) procedures where related
software code would be placed in escrow in the event adverse business conditions
impact the vendor's ability to deliver the software contracted. In some cases,
royalties are paid to the software originator.
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Employees
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The Company had 559 full-time employees worldwide prior to the July 1995
acquisition of Community Health Computing which added 122 employees.
ITEM 2. PROPERTIES
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The Company's principal administrative, manufacturing and research operations
occupy approximately 150,000 square feet of leased space in modern buildings
located in Milpitas, California, under leases expiring through 1999. The
Company's principal healthcare information systems operations occupy
approximately 54,000 square feet of leased space in modern buildings located in
Houston, Texas, under lease expiring in 2002. Other smaller facilities are
leased in various states and foreign countries.
Management believes that the Company's facilities are adequate at least through
fiscal 1996 to meet presently anticipated manufacturing and other requirements.
ITEM 3. LEGAL PROCEEDINGS
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The information required by this item is included under Note 5 of Notes to
Consolidated Financial Statements included under Item 8, Financial Statements
and Supplemental Data.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
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Not applicable.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
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MATTERS.
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The Company's Common Stock is traded in the NASDAQ National Market System under
the NASDAQ symbol "ADAC". There were approximately 2,914 holders of record of
the Company's Common Stock on November 24, 1995. The table below provides the
quarterly dividends declared and the quarterly high and low closing prices in
the NASDAQ National Market System, as reported by NASDAQ, during the last two
fiscal years of the Company; the following quarters correspond to the Company's
fiscal quarters.
The payment of dividends in the future will depend on the assessment by the
Board of Directors of various factors, including earnings, cash flow, capital
requirements and other factors affecting the Company's financial position and
operations. See Note 4 of Notes to Consolidated Financial Statements included
under Item 8 Financial Statements and Supplemental Data regarding limitations
upon the payments of dividends.
<TABLE>
<CAPTION>
Fiscal 1995 Fiscal 1994
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Per Share Per Share
High Low Dividend High Low Dividend
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
First Quarter $ 9 1/8 $ 7 1/4 $.12 $14 3/8 $11 3/4 $.12
Second Quarter 8 1/2 7 1/4 .12 14 1/8 8 .12
Third Quarter 13 7 7/8 .12 10 7 3/4 .12
Fourth Quarter 13 3/4 10 1/2 .12 9 1/8 6 1/8 .12
</TABLE>
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ITEM 6. ADAC LABORATORIES AND SUBSIDIARIES
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SELECTED CONSOLIDATED FINANCIAL DATA
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<TABLE>
<CAPTION>
FISCAL YEAR
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA) 1995 1994 1993 1992 1991
- -------------------------------------------- -------- -------- --------- --------- --------
<S> <C> <C> <C> <C> <C>
Revenues $184,809 $176,280 $156,946 $121,213 $101,237
Cost of revenues 117,320 106,665 89,516 68,511 64,438
Operating expenses 49,264 51,978 47,668 39,330 34,364
Other income (expense) (1,222) (6,452) (242) 818 (1,436)
- -------------------------------------------- -------- -------- --------- --------- --------
Income before income taxes 17,003 11,185 19,520 14,190 999
Provision (credit) for income taxes 5,930 (6,336) 1,461 1,331 111
- -------------------------------------------- -------- -------- --------- --------- --------
Net income $ 11,073 $ 17,521 $ 18,059 $ 12,859 $ 888
- -------------------------------------------- -------- -------- --------- --------- --------
Net income per share $ .65 $ 1.06 $ 1.10 $ .81 $.06
Number of shares used in income
per share calculations 17,079 16,508 16,458 15,932 14,992
Dividends declared per share $ .48 $ .48 $ .48 $ .36 $ -
- -------------------------------------------- -------- -------- --------- --------- --------
Total assets $158,348 $121,603 $ 95,081 $ 77,216 $ 60,054
- -------------------------------------------- -------- -------- --------- --------- --------
</TABLE>
Net income and dividends per share have been restated for periods prior to
fiscal year 1993 to reflect the one-for-three reverse stock split which was
effective March 1993. See Note 1 of Notes to Consolidated Financial Statements.
Net income in 1994 includes the net favorable effect of non-recurring items of
approximately $4.6 million. Non-recurring items include: 1) litigation defense
costs, 2) restructuring charges, and 3) income tax benefit in excess of federal
statutory income tax expense rate of 35%.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
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RESULTS OF OPERATIONS
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LIQUIDITY AND CAPITAL RESOURCES
Net cash generated by operating activities during fiscal 1995 and 1994 was $5.2
million and $11.9 million, respectively. Uses of cash in operations were
increases in inventory in anticipation of additional product revenues based on
higher product orders, an increase in accounts receivables as revenues grew
during the second half of fiscal 1995 in relation to that experienced during the
second half of fiscal 1994, and a decrease in accounts payable as the rate of
inventory receipts declined during the later part of the fourth quarter of 1995.
Offsetting these items was cash generated from operating activities primarily
due to increased deferred revenues substantially related to the Company's
service business.
Cash used in investing activities rose substantially to $20.2 million, most of
which was due to the Company's acquisition of Community Health Computing during
fiscal 1995. Cash generated by financing activities increased $14.4 million
primarily as a result of borrowings used to fund the acquisition. Additionally,
financing cash inflows increased as a result of $4.0 million in stock option
exercises, employee stock purchases, and dividend reinvestments.
As a result of the above operating, investing and financing activities, the
Company's cash and cash equivalents remained relatively consistent between
fiscal 1995 to 1994 at $7.6 and $7.2 million, respectively.
During fiscal 1995, the Company increased its available lines of credit from
$30.0 million to $40.0 million, of which $18.3 million was outstanding as of the
end of fiscal 1995.
The Company believes that its cash, cash equivalents, cash flows from operating
activities and, if necessary, remaining available lines of credit will be able
to fund the Company's cash flow requirements for the next fiscal year. On a
longer-term basis, the Company may need to increase its sources of capital in
response to business conditions or to pursue new business opportunities.
Additional borrowings or sale of securities are possible sources. However,
there can be no assurance that such additional resources of financing will be
available and/or on terms favorable to the Company.
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RESULTS OF OPERATIONS
FISCAL 1995 COMPARED TO FISCAL 1994
REVENUES AND GROSS MARGIN:
The Company's two business units are Medical Systems and Healthcare
Information Systems (HCIS).
The Medical Systems business unit includes Nuclear Medicine, Digital Systems
Angiograpghy (DSA), and Radiation Therapy Planning (RTP) equipment products, as
well as customer service related to those products. Medical Systems product
orders increased from $122.8 million to $142.4 million, while its product
revenues increased from $125.0 million to $129.4 million. This product revenue
increase was primarily due to a 4.9% or $5.8 million increase in Nuclear
Medicine product sales, which was offset by a $1.5 million decrease in DSA
product sales as that product matured. Medical Systems service revenues
increased from $36.8 million to $42.0 million, primarily as a result of the
continued increase in the installed product base.
Medical Systems product revenue also represented 94.7% and 92.3% of the
Company's total product revenue during fiscal 1995 and 1994, respectively.
1995's geographical mix of Medical Systems product revenues were 73.3% in North
America, 16.3% in Europe, and 10.4% in the rest of the world, primarily Latin
America and Asia, compared with 1994's 76.7% in North America, 18.3% in Europe,
and 5.0% in the rest of the world. The mix of product revenues as a percent of
total Medical Systems product revenues for 1995 and 1994 were 95.1% and 93.8%
respectively for Nuclear Medicine, 2.9% and 4.2% respectively for DSA, and 2.0%
and 2.0% respectively for RTP.
Product backlog for Medical Systems at the end of 1995 was up to $41.5 million,
compared to $28.4 million at the end of 1994. Unfilled orders may be canceled
or rescheduled by customers in most cases without penalty. For this reason,
backlog may not be indicative of sales for any succeeding period.
Medical Systems product margins decreased from 42.9% to 37.3%, primarily due to
the continued industry-wide pricing pressures first experienced during the last
half of 1994 as the overall market for Nuclear Medicine products in the United
States declined. Service margins for Medical Systems increased from 26.2% to
32.5%, as the installed customer base increased, product reliability increased
and overall costs were reduced.
HCIS includes products comprising the hardware, software and related
implementation of systems designed to manage information within the radiology
and laboratory departments of healthcare organizations, as well as service
related to those products. During all of 1994 and most of 1995, the Company's
HCIS product mix included radiology products offered by the Company and
<PAGE>
ADAC/SD&G Healthcare Systems (SD&G), which the Company acquired in November
1993. In July 1995, the Company also acquired Community Health Computing (CHC),
which provided the Company with an additional radiology product, as well as a
laboratory product. The HCIS business unit now represents the combined
businesses of SD&G, CHC, and the Company's existing radiology business.
Although HCIS product orders remained constant at $12.0 million for both 1994
and 1995, product revenues declined from $10.5 million to $7.3 million.
Product revenue of $0.8 million was contributed by the acquired CHC business
during 1995. The decline in HCIS product revenues resulted from reduced sales
of maturing radiology products that were not yet fully offset by sales of newer
radiology products, which are still under development. HCIS service revenues
increased from $4.0 million to $6.1 million. The acquired CHC business
contributed $2.8 million of service revenue during 1995.
All HCIS sales are in North America. For 1995 and 1994, radiology product
revenues represented 91.9% and 100%, respectively, of HCIS product revenues, and
laboratory product revenues represented 8.1% and 0.0%, respectively.
HCIS product backlog increased from $10.4 million to $11.7 million at the end of
1994 and 1995, respectively. Backlog increased due to backlog acquired upon the
purchase of CHC. Unfilled orders may be canceled or rescheduled by customers,
in most cases without substantial penalty. For this reason, backlog may not be
indicative of sales for any succeeding period.
Product margins for HCIS declined from 58.2% to 33.8% due to lower margins
experienced as proprietary third-party hardware platforms were replaced with
non-proprietary open-systems hardware platforms providing lower margins. In
addition, laboratory product margins presently are lower during the initial
stages of new product introduction. HCIS service margins increased from 29.0%
to 49.8% primarily due to obtaining a relatively large installed base of
laboratory product customers when the Company acquired CHC.
OPERATING AND OTHER EXPENSES:
Overall operating expenses as a percentage of revenues decreased from 28.1% to
26.7% excluding 1994's nonrecurring restructuring charges (see "Fiscal 1994
Compared to Fiscal 1993"). This overall expense reduction was a result of the
Company's continued cost reduction efforts started during the second half of
1994 concurrent with the restructuring. As a percentage of revenue for 1994 and
1995, marketing and sales expenses decreased from 17.3% to 16.2% and research
and development expenses decreased from 6.4% to 5.5%. Research and development
expenses represent continued investment in new product development and are net
of software capitalization of $2.0 million in 1995 and
<PAGE>
$1.4 million in 1994. General and administrative expenses increased from 4.4% to
4.9%, which was entirely attributable to the acquired CHC business.
Other expense, net, excluding 1994's litigation defense costs and related
settlement (see "Fiscal 1994 Compared with Fiscal 1993 - Operating and Other
Expenses"), increased from $0.2 million to $1.2 million as a result of the
Company carrying short-term bank borrowings during 1995 to fund loans made to
CHC prior to the Company's acquisition of such company and, subsequently, to
fund the acquisition of CHC.
INCOME TAXES:
Fiscal 1995's effective tax rate was 35%, which is approximately equal to the
Company's statutory Federal tax rate after utilization of business tax credits.
In fiscal 1994, the Company recorded a tax benefit resulting from the release of
a valuation allowance against deferred tax assets related to Federal net
operating loss carryfowards (see "Fiscal 1994 Compared to Fiscal 1993 - Income
Taxes").
OTHER:
Segment and foreign operations information is contained in Note 12 of Notes to
Consolidated Financial Statements.
The Company does not believe that inflation has had a material effect on its
revenues or results of operations.
In order to maintain successful operating results in the highly competitive
industry in which the Company does business, the Company must continue to
produce innovative products equal to or better than those of its competitors.
Within the industry, there is also uncertainty associated with the potential
response of customers to new private and legislative health care cost
containment initiatives, which may affect the size of marketplace and pricing.
Although the Company has been able to develop and market advanced, innovative
and cost effective new products in recent years, and has been able to increase
its market share in the nuclear medicine industry, there is no assurance that
this will continue.
FISCAL 1994 COMPARED TO FISCAL 1993
REVENUES AND GROSS MARGIN:
The Company's orders and revenues continued to increase in 1994 in all its core
businesses, as well as through the acquisition of SD&G. Product orders modestly
increased from $135.3 million to $137.8 million. Product backlog at the end of
1993 and 1994 was $38.9 million and $38.8 million, respectively.
Total product revenues increased 11.8% as a result of an $11.4 million (10%)
increase in Medical Systems product sales and a $3.0 million (40%) increase in
revenues from HCIS products. The increased sales of HCIS products was
<PAGE>
primarily due to the acquisition of SD&G Healthcare Systems at the beginning of
1994, and represented $10.5 million (7.7%) of total product revenues compared to
$7.5 million (6.2%) of total product revenues in the prior fiscal year. In
Medical Systems, Nuclear Medicine products comprised 85% of the total Company's
product revenues in both fiscal years, of which the Company's GENESYS VERTEX
camera represented the largest percentage component. The increase in MS sales
was particularly strong in Latin America and Europe, with non-domestic revenue
increasing 27.7%. In addition to the Nuclear Medicine products, sales of the DSA
and RTP products also showed modest growth. Service revenues increased 13.9%,
primarily from the expansion of the Company's installed customer base.
Margins on product sales decreased from 48.3% to 42.4% primarily due to
significant pricing pressures as the overall market for Nuclear Medicine
products in the United States declined. Service margins increased from 24.9% to
29.9%. The increase is attributable to service support costs remaining flat,
despite increased revenue, as the Company focused on cost reduction and
enhancing product reliability.
OPERATING AND OTHER EXPENSES:
Overall operating expenses decreased from 30.4% to 28.1% excluding restructuring
charges. Marketing and sales expenses as a percent of revenue declined from
18.6% to 17.3%. The Company was able to reduce its marketing and sales expenses
as a percentage of revenue while continuing to invest in developing its sales
and marketing efforts in Europe, Asia, and Latin America. While research and
development expenses as a percent of revenue decreased from 7.0% to 6.4%,
research and development expenses increased 1.6% or $0.2 million. The expenses
represent continued investment in new product development and are net of
software capitalization of $1.4 million in 1994 and $0.7 million in 1993.
General and administrative expenses as a percent of revenue decreased from 4.7%
to 4.4%.
Other expense of $6.5 million in 1994 includes $4.2 million in litigation
defense costs and $2.0 million in settlement costs related to the Elscint
litigation as discussed in Note 5 of Notes to Consolidated Financial Statements.
Excluding the litigation defense costs, other expense remained relatively
constant at $0.2 million.
During the third quarter of 1994, the Company implemented a restructuring plan
to eliminate functions and positions dedicated to rework and non-critical
activities, consolidate certain job functions, redesign and streamline
manufacturing systems and processes, and undertake a major program of proactive
and preventive maintenance of the Company's installed base of equipment to
further enhance the equipment's reliability. As a result, the Company recorded
a restructuring charge of approximately $2.5 million for these
<PAGE>
costs, of which $2.1 million was paid prior to the 1994 fiscal year end. Of the
total restructuring charge, severance and related costs for 67 employees
accounted for 47%, manufacturing redesign 6%, preventive maintenance costs 28%,
asset write-downs 8%, and other costs accounted for the remainder.
INCOME TAXES:
Effective October 4, 1993, the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 109, "Accounting for Income Taxes," as discussed in Note 1
of Notes to Consolidated Financial Statements. On adoption of SFAS No. 109,
management established a valuation allowance for the entire balance of its net
deferred tax asset due to uncertainty with regard to the outcome of the Elscint
litigation summarized in Note 5 of Notes to Consolidated Financial Statements,
and concerns over healthcare reform legislation. Following the settlement of
this litigation in September 1994, combined with new legislative developments in
healthcare reform, the valuation allowance against the deferred tax asset was no
longer deemed appropriate in the fourth quarter and therefore was released in
the period. This resulted in an income tax benefit of $7.4 million, for a net
income tax benefit for the year of $6.3 million (see Note 11 of Notes to
Consolidated Financial Statements). This income tax benefit compares to an
effective tax rate in 1993 of 7.5% for the provision for income taxes.
OTHER:
Segment and foreign operations information is contained in Note 12 of Notes to
Consolidated Financial Statements.
<PAGE>
ITEM 8. ADAC LABORATORIES AND SUBSIDIARIES
- -------------------------------------------
CONSOLIDATED STATEMENTS OF INCOME
- ---------------------------------
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
OCTOBER 1, OCTOBER 2, OCTOBER 3,
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA) 1995 1994 1993
- ------------------------------------------------ --------- ---------- ---------
<S> <C> <C> <C>
REVENUES, NET:
Product $136,715 $135,485 $121,136
Service 48,094 40,795 35,810
- ------------------------------------------------ -------- -------- --------
184,809 176,280 156,946
-------- -------- --------
COST OF REVENUES:
Product 85,914 78,069 62,626
Service 31,406 28,596 26,890
- ------------------------------------------------ -------- -------- --------
117,320 106,665 89,516
-------- -------- --------
Gross profit 67,489 69,615 67,430
- ------------------------------------------------ -------- -------- --------
OPERATING EXPENSES:
Marketing and sales 29,928 30,565 29,254
Research and development 10,081 11,202 11,031
General and administrative 9,081 7,758 7,383
Goodwill amortization 174
Restructuring charges 2,453
- ------------------------------------------------ -------- -------- --------
49,264 51,978 47,668
-------- -------- --------
Operating income 18,225 17,637 19,762
- ------------------------------------------------ -------- -------- --------
OTHER INCOME (EXPENSE):
Litigation defense costs (6,240)
Interest and other, net (1,222) (212) (242)
- ------------------------------------------------ -------- -------- --------
(1,222) (6,452) (242)
-------- -------- --------
Income before provision for income taxes 17,003 11,185 19,520
Provision (credit) for income taxes 5,930 (6,336) 1,461
- ------------------------------------------------ -------- -------- --------
Net income $ 11,073 $ 17,521 $ 18,059
- ------------------------------------------------ -------- -------- --------
Net income per share $.65 $1.06 $1.10
Number of shares used in per share calculations 17,079 16,508 16,458
- ------------------------------------------------ -------- -------- --------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
ADAC LABORATORIES AND SUBSIDIARIES
- ----------------------------------
CONSOLIDATED BALANCE SHEETS
- ---------------------------
<TABLE>
<CAPTION>
AS OF
OCTOBER 1, OCTOBER 2,
(AMOUNTS IN THOUSANDS) 1995 1994
- ----------------------------------------------------------------- ---------- ----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 7,551 $ 7,203
Accounts receivable, net of allowance for returns and doubtful
accounts of $2,044 in 1995 and $1,644 in 1994 55,047 45,173
Inventories 28,217 22,600
Deferred income taxes 10,732 14,877
Prepaid expenses and other current assets 5,515 2,243
- ----------------------------------------------------------------- -------- --------
Total current assets 107,062 92,096
- ----------------------------------------------------------------- -------- --------
Service parts, net 13,571 13,300
Fixed assets, net 8,368 5,515
Capitalized software, net 10,280 3,646
Goodwill, net 11,692
Other assets, net 7,375 7,046
- ----------------------------------------------------------------- -------- --------
Total Assets $158,348 $121,603
- ----------------------------------------------------------------- ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable to banks $ 18,298
Accounts payable 13,147 $ 15,933
Dividends payable 2,027 1,904
Deferred revenues 13,506 6,447
Customer deposits and advance billings 4,201 2,327
Accrued compensation 6,335 5,827
Other accrued liabilities 13,812 11,120
- ----------------------------------------------------------------- -------- --------
Total current liabilities 71,326 43,558
- ----------------------------------------------------------------- -------- --------
Non-current liabilities and deferred credits 4,254 3,379
- ----------------------------------------------------------------- -------- --------
Total Liabilities 75,580 46,937
- ----------------------------------------------------------------- -------- --------
Commitments and contingencies (Note 5)
- -----------------------------------------------------------------
SHAREHOLDERS' EQUITY
Preferred stock, no par value:
Authorized: 5,000 shares;
issued and outstanding: none in 1995 and 1994
Common stock, no par value:
Authorized: 25,000 shares;
issued and outstanding: 16,919 shares as of October 1, 1995
and 16,047 shares as of October 2, 1994, respectively 101,072 97,086
Accumulated deficit (18,986) (22,174)
Translation adjustment 682 (246)
- ----------------------------------------------------------------- -------- --------
Shareholders' Equity 82,768 74,666
- ----------------------------------------------------------------- -------- --------
Total Liabilities and Shareholders' Equity $158,348 $121,603
- ----------------------------------------------------------------- ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
ADAC LABORATORIES AND SUBSIDIARIES
- ----------------------------------
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
- -----------------------------------------------
<TABLE>
<CAPTION>
Common Stock Accumulated Translation Note
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA) Shares Amount Deficit Adjustment Receivable Total
- --------------------------------------------- ------- -------- -------- ----------- ---------- -------
<S> <C> <C> <C> <C> <C> <C>
Balances, September 27, 1992 14,694 $ 84,275 $(40,917) $ (89) $43,269
Shares retired as a result of one for three
reverse stock split (1) (14) (14)
Employee stock purchases and
exercises of employee stock options 566 1,952 1,952
Note for exercise of employee stock options $(453) (453)
Income tax benefit resulting from
exercises of stock options 415 415
Shares withheld in payment of stock
options exercised (40) (90) (369) (459)
Translation adjustment (770) (770)
Dividends declared ($0.48 per share) (7,259) (7,259)
Net income 18,059 18,059
- --------------------------------------------- ------ -------- -------- ----- ----- -------
Balances, October 3, 1993 15,219 86,538 (30,486) (859) (453) 54,740
Employee stock purchases and
exercises of employee stock options 759 2,273 2,273
Shares repurchased (86) (487) (240) (727)
Shares sold under dividend reinvestment plan 6 49 49
Repayment of employee note 453 453
Shares withheld in payment of stock
options exercised (124) (411) (1,084) (1,495)
Pooling of interest with SD&G 273 (210) (210)
Income tax benefit resulting from
exercises of stock options 9,124 9,124
Translation adjustment 613 613
Dividends declared ($0.48 per share) (7,675) (7,675)
Net income 17,521 17,521
- --------------------------------------------- ------ -------- -------- ----- ----- -------
Balances, October 2, 1994 16,047 97,086 (22,174) (246) 74,666
Employee stock purchases and
exercises of employee stock options 937 4,733 4,733
Shares sold under dividend reinvestment plan 17 181 181
Shares withheld in payment of stock
options exercised (82) (1,087) (1,087)
Income tax benefit resulting from
exercises of stock options 159 159
Translation adjustment 928 928
Dividends declared ($0.48 per share) (7,885) (7,885)
Net income 11,073 11,073
- --------------------------------------------- ------ -------- -------- ----- ----- -------
Balances, October 1, 1995 16,919 $101,072 $(18,986) $ 682 $82,768
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
ADAC LABORATORIES AND SUBSIDIARIES
- ----------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
- -------------------------------------
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
OCTOBER 1, OCTOBER 2, OCTOBER 3,
(AMOUNTS IN THOUSANDS) 1995 1994 1993
- --------------------------------------------------------------------- ----------- ---------- ----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 11,073 $ 17,521 $ 18,059
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 6,377 5,775 5,044
Provision for product returns and doubtful accounts 1,502 1,023 670
Loss on disposal of fixed assets 99
Deferred income taxes 4,145 (7,421)
Changes in operating assets and liabilities:
Accounts receivable (8,966) (6,058) (12,863)
Inventories (5,276) (1,105) (7,705)
Prepaid expenses and other current assets (2,763) (322) (633)
Service parts (1,971) (3,175) (2,901)
Accounts payable (3,109) 2,710 3,927
Deferred revenues 7,059 (1,805) 2,089
Customer deposits and advance billings (3,135) (242) 1,267
Accrued compensation 508 1,790 (535)
Other accrued liabilities (1,114) 3,392 306
Non-current liabilities and deferred credits 875 (169) (1,008)
- --------------------------------------------------------------------- -------- -------- --------
Net cash provided by operating activities 5,205 11,914 5,816
- --------------------------------------------------------------------- -------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (2,588) (4,372) (2,992)
Proceeds from sale and leaseback of fixed assets 1,553 6,000 504
Increase in other assets (2,997) (2,793) (2,335)
Acquisition of business, net of cash acquired (16,152)
- --------------------------------------------------------------------- -------- -------- --------
Net cash used in investing activities (20,184) (1,165) (4,823)
- --------------------------------------------------------------------- -------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings (repayments) under short-term debt arrangements, net 18,298 (3,700) 700
Proceeds from issuance and repurchase of common stock, net 3,986 100 1,479
Employee stock purchase (loan) repayment 453 (453)
Dividends paid (7,885) (7,675) (7,196)
- --------------------------------------------------------------------- -------- -------- --------
Net cash provided by (used in) financing activities 14,399 (10,822) (5,470)
- --------------------------------------------------------------------- -------- -------- --------
Effect of exchange rates on cash 928 613 (770)
- --------------------------------------------------------------------- -------- -------- --------
Net change in cash and cash equivalents 348 540 (5,247)
Cash and cash equivalents, at beginning of the year 7,203 6,663 11,910
- --------------------------------------------------------------------- -------- -------- --------
Cash and cash equivalents, at end of the year $ 7,551 $ 7,203 $ 6,663
- --------------------------------------------------------------------- -------- -------- --------
SUPPLEMENTAL CASH FLOW DISCLOSURE:
Interest paid $ 1,609 $ 439 $ 231
Income taxes paid 289 457 1,647
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
ADAC LABORATORIES AND SUBSIDIARIES
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Fiscal Year
The Company's fiscal year ends on the Sunday closest to September 30. Fiscal
1995 and 1994 included 52 weeks compared to 53 weeks in fiscal 1993.
Principles of Consolidation
The consolidated financial statements include the accounts of ADAC Laboratories
and its wholly-owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated.
Foreign Currency Translation and Transactions
The Company's European subsidiaries' functional currencies are considered to be
their respective local currencies. Adjustments that arise in translating their
financial statements into the U.S. dollar are included as a separate component
of shareholders' equity in the consolidated balance sheets.
Gains and losses from foreign currency transactions are included as a component
of interest and other income (expense), net, in the consolidated statements of
income, and amounted to losses of $150, $68, and $73 in fiscal 1995, 1994, and
1993, respectively.
Revenue Recognition
The Company has two major business units for which specific revenue recognition
policies are followed. Revenues related to the Company's Medical Systems
business unit product sales are recognized upon shipment to the customer or its
requested location, at which time title and risk of ownership passes. Estimated
provisions for product sale returns, installation and warranty are accrued upon
revenue recognition. Revenues related to Medical Systems service are recognized
ratably over the relevant contractual period or as the service is performed.
Medical Systems revenue billed but unearned is included on the consolidated
balance sheets as deferred revenue.
Revenues related to the Company's Healthcare Information Systems business unit
are derived from software licenses, computer hardware sales, related
implementation, training and support services and maintenance contracts.
Revenues for software licenses are recognized either at the shipment date or
upon the renewal date if, in either case, payment is due within twelve months
after such date. Revenues for license fees that have payments due beyond twelve
months are generally recognized at the time fees are paid or are billable.
Revenues for computer hardware sales are recognized at the time of shipment. The
Company's obligations subsequent to shipment primarily relate to implementation
and training. Revenues for these services are recognized as the services are
provided. Revenues from maintenance contracts are recognized ratably over the
relevant contractual period.
Research and Development
Research and development expenditures are charged to operations as incurred, net
of certain capitalized software costs.
Income Taxes
Effective October 4, 1993, the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 109, "Accounting For Income Taxes." Prior to fiscal 1994,
the Company accounted for income taxes under SFAS 96.
Under the asset and liability method prescribed by SFAS No. 109, deferred tax
assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases. Deferred tax
assets and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected to
be recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
Deferred tax assets are also recognized for deductible temporary differences and
operating loss and tax credit carryforwards and, if appropriate, with a
valuation allowance established against the resulting assets if it is more
likely than not that the related tax benefits will not be realized.
Income Per Share
Net income per common and common equivalent share has been computed using the
weighted average number of common shares outstanding after considering the
dilutive effect of common stock options and warrants. All per share data has
been adjusted to reflect a one-for-three reverse stock split which was effected
in March 1993.
Cash Equivalents
All highly liquid investments purchased with an original maturity of three
months or less are considered cash equivalents.
Concentration of Credit Risk
The Company sells its products to hospitals and clinics worldwide. The Company
performs ongoing credit evaluations of its customers and generally does not
require collateral, except for sales within Latin America. The Company
maintains allowances for potential credit losses and such losses have been
within management's expectations. The Company invests any excess cash on
deposits with a major bank. The Company has not experienced any losses on these
deposits.
22
<PAGE>
ADAC LABORATORIES AND SUBSIDIARIES
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
Inventories
Inventories are stated at the lower of standard cost (which approximates cost on
a first-in, first-out basis) or market.
Service Parts
Service parts used for servicing installed equipment are stated at cost and are
depreciated over a 10-year period using the declining-balance method of
depreciation.
Fixed Assets
Major additions and improvements are capitalized at cost, while maintenance and
repairs which do not improve or extend the life of the respective assets are
expensed as incurred. When assets are retired or otherwise disposed of, the
costs and related accumulated depreciation are removed from the financial
statements, and any gain or loss on disposal is included in the consolidated
statements of income. Fixed assets, other than leasehold improvements, are
depreciated on a straight-line basis over their estimated useful lives (3-7
years). Leasehold improvements are amortized on a straight-line basis over the
lesser of their estimated useful lives or the remaining term of the related
leases.
Capitalized Software
Costs related to the conceptual formulation and design of software products are
expensed as product development, and costs incurred subsequent to establishing
the technological feasibility of software products are capitalized.
Amortization of capitalized software costs, which begins when products are
available for general release to customers, is computed using the greater of 1)
the ratio that current gross revenues bear to the total of current and
anticipated future gross revenues; or 2) a straight-line basis over the expected
product lives, generally estimated to be three to seven years.
Software costs capitalized during fiscal years 1995, 1994, and 1993 amounted to
approximately $1,996, $1,402, and $699, respectively. Additionally, $5,802 of
capitalized software was acquired through the acquisition of Community Health
Computing Corporation during fiscal 1995 and $364 of capitalized software was
acquired through the acquisition of SD&G Healthcare Systems, Inc during fiscal
1994 (see Note 3). Amortization of capitalized software costs amounting to
approximately $1,164, $697 and $584, respectively, have been charged to cost of
product revenues.
Intangible Assets
Goodwill and other purchased intangibles, including technology and sales
partnerships, are capitalized and amortized on a straight-line basis over the
estimated useful life of the related asset (3-15 years).
Reclassifications
Certain reclassifications have been made to prior year financial statements to
conform with the 1995 presentation.
NOTE 2 BALANCE SHEET DETAIL:
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Inventories consist of:
Purchased parts and sub-assemblies $ 14,138 $ 13,872
Work in process 1,421 3,171
Finished goods 12,658 5,557
-------- --------
$ 28,217 $ 22,600
======== ========
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Service parts consist of:
Field service parts, at cost $ 19,358 $ 18,237
Less accumulated depreciation (5,787) (4,937)
-------- --------
$ 13,571 $ 13,300
======== ========
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Fixed assets, at cost, consist of:
Production and test equipment $ 9,686 $ 6,000
Field service equipment 1,138 865
Office and demonstration equipment 8,840 8,324
Leasehold improvements 1,042 612
-------- --------
20,706 15,801
Less accumulated depreciation and
amortization (12,338) (10,286)
-------- --------
$ 8,368 $ 5,515
======== ========
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Other accrued liabilities consist of:
Accrued customer service costs $ 2,031 $ 2,578
Accrued settlement and litigation costs - 3,098
Other accrued expenses 11,781 5,444
-------- --------
$ 13,812 $ 11,120
======== ========
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Non-current liabilities and
deferred credits consist of:
Deferred contract revenue $ 1,425 $ 823
Deferred gain on sale of fixed assets 2,251 2,556
Other non-current liabilities 578 -
-------- --------
$ 4,254 $ 3,379
======== ========
</TABLE>
NOTE 3 ACQUISITIONS
On July 12, 1995, the Company completed its acquisition of Community Health
Computing (CHC) of Houston, Texas for approximately $18.4 million, which
included $1.9 million of expenses associated with the acquisition. Through the
acquisition, the Company acquired all the rights to CHC's product portfolios
for the laboratory information systems and radiology information systems
markets, and obtained CHC's installed customer base.
23
<PAGE>
ADAC LABORATORIES AND SUBSIDIARIES
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
The acquisition was accounted for as a purchase, and the results of operations
of CHC have been included in the Company's consolidated financial statements
subsequent to July 12, 1995. The fair value of assets acquired, including
goodwill, was $27.6 million and liabilities assumed totaled $23.6 million.
Goodwill of $11.9 million is being amortized over 15 years on a straight-line
basis.
The pro forma results listed below are unaudited and reflect purchase price
accounting adjustments assuming the acquisition occurred at the beginning of
each year presented.
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Revenues $193,156 $196,233
Operating income (loss) 15,994 (3,324)
Income (loss) before provision for
income taxes 13,719 (11,725)
Net income (loss) 7,789 (5,389)
Net income per share 0.46 (0.33)
Number of shares used in per
share calculation 17,079 16,508
-------- --------
</TABLE>
On November 16, 1993, the Company acquired SD&G Healthcare Systems, Inc. (SD&G),
a company engaged in the sale and development of hospital information systems.
The Company issued 273 shares of common stock in exchange for all the
outstanding stock of SD&G. The transaction was accounted for as a pooling of
interests. The Company also assumed options to purchase SD&G stock which will
remain outstanding as options to purchase approximately 26 shares of the
Company's common stock. Prior period financial statements have not been
restated because the operations of SD&G were not material to the financial
position or the results of operations of the Company at the time of acquisition.
NOTE 4 CREDIT AND BORROWING ARRANGEMENTS
The Company has revolving credit facilities with two separate banks totaling
$40,000. Both credit facilities offer borrowings in either U.S. dollars or in
foreign currencies. One credit facility for $20,000 expires April 5, 1996 and
the other credit facility for $20,000 expires March 31, 1996. U.S. dollar and
foreign currency borrowings under both credit facilities bear interest at
either Libor plus 1.25% or the bank's base rate. Borrowings are generally
repaid within 90 days. No borrowings in foreign currency have been received by
the Company. At October 1, 1995, the Company had $21,702 available for
borrowing under these facilities.
Borrowings under both facilities are collateralized by the Company's assets, and
the Company is required to comply with certain financial and other covenants,
including restrictions on its ability to acquire or merge with another company,
incur additional debt, or purchase or lease capital assets in excess of $3,000
per year. In addition, the Company cannot, without prior approval, pay cash
dividends or repurchase common stock in excess of 50% of earnings for the prior
period.
Additional information with respect to such revolving lines of credit is as
follows:
<TABLE>
<CAPTION>
1995 1994
------- -------
<S> <C> <C>
Maximum borrowings
during the year $27,760 $13,925
Average borrowings during
the year $14,521 $ 9,175
Weighted average interest
rates during the year 7.45% 5.19%
------- -------
</TABLE>
NOTE 5 COMMITMENTS AND CONTINGENCIES
Operating Leases
The Company leases its office and manufacturing facilities under operating
leases which expire at various dates through 2002. The Company is responsible
for maintenance, taxes and insurance on all facilities.
During fiscal 1995, the Company sold and leased back fixed assets with a net
book value of $591 for total proceeds of $832. The gain on the transaction will
be recognized over the five year term of the operating lease. Similarly, in
September 1994, the Company entered into a sale and leaseback transaction under
which it sold fixed assets with a net book value of $2,809 for total proceeds of
$6,000. As part of this agreement, the Company entered into two operating
leases over terms of three and five years, respectively. The gain on the
transaction will be recognized over the terms of the leases. In addition, the
Company guaranteed to the lessors the final residual value of approximately
$1,012.
As of October 1, 1995, future annual minimum lease payments for all non-
cancelable operating leases are as follows:
<TABLE>
<CAPTION>
Fiscal Year Building Equipment
- ----------- -------- ---------
<S> <C> <C>
1996 $ 2,810 $1,857
1997 2,949 1,881
1998 2,742 1,326
1999 1,614 2,487
2000 785 136
Thereafter 1,638 0
-------- ---------
Total minimum lease payments $12,538 $7,687
-------- ---------
</TABLE>
Rent expense totaled $4,284, $2,572, and $1,723 for fiscal years 1995, 1994
and 1993, respectively.
Capital Leases
During fiscal 1995, the Company entered into two capital leases having terms of
five years. Under these two agreements, certain leased fixed assets are
pledged as collateral.
24
<PAGE>
ADAC LABORATORIES AND SUBSIDIARIES
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
As of October 1, 1995, future annual minimum lease payments under these capital
leases are as follows:
<TABLE>
<CAPTION>
Fiscal Year Capital Leases
- ----------- --------------
<S> <C>
1996 $ 185
1997 185
1998 185
1999 185
2000 60
Thereafter 0
--------------
Total minimum lease payments 800
Amount representing interest (149)
--------------
Present value of net minimum lease payments 651
Less current portion (185)
--------------
$466
--------------
</TABLE>
Payments under these capital lease obligations totaled $126 in fiscal 1995.
As of October 1, 1995, the Company had $729 of equipment under capital leases
with accumulated amortization of $139.
Litigation
In September 1994, the Company settled a lawsuit with Elscint Limited which had
alleged infringement of certain patents relating to Nuclear Medicine imaging and
Digital Fluroscopy technology. Without admitting any liability or wrongdoing,
the Company agreed to pay $2,000 to settle the lawsuit. As part of the
settlement, each party agreed not to sue each other with respect to nuclear
medicine intellectual property matters for the next ten years. This amount was
included in other liabilities in the October 2, 1994 Consolidated Balance Sheet
and was paid on October 4, 1994. In addition to the $2,000 settlement charge in
fiscal 1994, approximately $4,240 in litigation defense costs were incurred and
are included in other expense in the Consolidated Statement of Income for fiscal
1994.
The Company is also a defendant in other legal proceedings incidental to its
business. While it is not possible to determine the ultimate outcome of these
other actions at this time, management is of the opinion that any unaccrued
liability resulting from the claims would not have a material adverse effect on
the Company's consolidated financial position or results of operations.
Other
Under third party lease program agreements, the Company is contingently liable
for losses in the event of default by lessees, limited to a percentage (ranging
from 2% to 16%) of the equipment lease, depending on the agreement, and up to
100% for the related service contracts. At October 1, 1995 the contingent
liability was $1,923.
In conjunction with its third party financing and lease programs, the Company
sells certain receivables with recourse. The amount of recourse ranges from 10%
to 100% of the receivable. As of October 1, 1995 the contingent liability was
$4,043.
NOTE 6 CAPITAL STOCK
Preferred Stock
The Board of Directors is authorized to determine the rights and preferences of
the preferred stock, issuable in series. The Board of Directors may increase or
decrease the number of shares of any series of preferred stock, but not below
the number of shares of such series then outstanding.
Common Stock
In 1994 the Board of Directors approved the issuance of warrants to purchase up
to 60 shares of common stock at the Company's then market price of $6.50 per
share to a consulting firm as partial compensation for services rendered and to
be rendered. The warrants were issued proportionately as services were performed
through March 1995, and expire on July 1, 1999. At October 1, 1995, all of the
warrants related to this issuance had been issued and were outstanding.
As of October 1, 1995, the Company has reserved a total of 2,985 shares of
common stock for issuance under employee stock option plans and 38 under the
employee stock purchase plan as discussed in Note 7.
NOTE 7 STOCK PLANS
Stock Option Plans
The Company currently has three stock option plans for employees and
consultants, including the 1981 stock option plan (under which no further
options may be granted), the 1985 option plan and the 1992 stock option plan,
which was approved by the Board of Directors in July 1992.
The 1985 Option Plan (as amended) and 1992 Option Plan allow for non-qualified
as well as incentive options to be granted to employees, officers, consultants
and others. Incentive stock options must be granted at exercise prices of not
less than fair market value and expire within 10 years from the date of grant.
Non-qualified stock options can have exercise prices of not less than 85% of
fair market value and also expire within 10 years of grant date.
In addition, the Company has a directors' stock option plan under which options
are granted to non-employee directors. Options under this plan are granted for a
period of 5 years from the date of grant at an option exercise price equal to
100% of fair market value.
25
<PAGE>
ADAC LABORATORIES AND SUBSIDIARIES
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
Options available for grant under all plans as of October 1, 1995 were 469. In
addition, 685 of the options outstanding at October 1, 1995 were exercisable. A
summary of the activity under these plans is as follows:
<TABLE>
<CAPTION>
1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------
Price Price Price
(Shares in thousands) Shares Per Share Shares Per Share Shares Per Share
- ------------------------- ------ ------------ ------ ------------ ------ -------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of year 2,557 $2.25 -$15.75 2,267 $2.25 -$15.75 2,645 $ 2.25 -$ 9.75
Granted 1,073 7.75 - 11.875 1,169 6.38 - 14.25 202 10.12 - 15.75
Exercised (879) 7.375- 13.5 (702) 6.25 - 14.25 (525) 2.25 - 9.75
Canceled (235) 2.25 - 14.25 (177) 2.25 - 14.25 (55) 2.25 - 8.81
------ ------------- ------ ------------- ------ --------------
Outstanding at end of year 2,516 $2.25 -$15.75 2,557 $2.25 -$15.75 2,267 $ 2.25 -$15.75
------ ------------- ------ ------------- ------ --------------
</TABLE>
26
<PAGE>
ADAC LABORATORIES AND SUBSIDIARIES
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
Employee Stock Purchase Plan
This plan, as amended, permits eligible employees to purchase common stock
through payroll deductions (which cannot exceed 10% of the employee's
compensation and cannot exceed 100 shares per employee per interim offering
period) at the lower of 85% of fair market value at the beginning of a 27 month
offering period or at the end of each interim period. Each full-time employee
of the Company who has been employed for six months or more at the commencement
of an interim offering period is entitled to participate in the plan. During
fiscal years 1995, 1994, and 1993, 58, 57, and 52 shares were issued at an
average price of $7.21, $7.42, and $9.17 per share, respectively.
NOTE 8 RETIREMENT SAVINGS PLAN
The Company maintains a qualified retirement plan, under the provisions of
Section 401(k) of the Internal Revenue Code, in which eligible employees may
participate. Substantially all participants in this plan are able to defer
compensation up to the annual maximum amount allowable under Internal Revenue
Service regulations. Additionally, the Company may match employee contributions
with discretionary amounts as may be determined by the Board of Directors. As
of October 1, 1995, no matching contributions had been made.
NOTE 9 RESTRUCTURING CHARGES
During the third quarter of 1994, the Company implemented a restructuring plan
to eliminate functions and positions dedicated to rework and non-critical
activities, consolidate certain job functions, redesign and streamline
manufacturing systems and processes, and undertake a major program of proactive
and preventive maintenance of the Company's installed customer base of equipment
to enhance further the equipment's reliability. As a result, the Company
recorded a restructuring charge of approximately $2.5 million for these costs.
Of the total restructuring charge, severance and related costs for 67 employees
accounted for 47%, manufacturing redesign 6%, preventive maintenance costs 28%,
asset writedowns 8%, and other costs accounted for the remainder. At October
1, 1995, the Company had $307 remaining in the restructuring reserve for these
charges.
Note 10 SUBSEQUENT EVENT
On November 9, 1995, the Company acquired JD Technical Services, Inc., of
Washington, Missouri, a leader in nuclear medicine imaging systems
remanufacturing, as well as a nationwide provider of multivendor service and
support. The Company issued 138 shares of common stock at the average closing
price of the Company's common stock during a specified period, for a total price
of $1.7 million, in exchange for all the outstanding stock of JD Technical. The
transaction will be accounted for as a pooling of interests. Prior period
financial statements will not be restated, as the operations of JD Technical
were not material to the financial position or the results of operations of the
Company at the time of acquisition.
Note 11 INCOME TAXES
As discussed in Note 1, the Company adopted SFAS No. 109 as of October 4, 1993.
There was no cumulative effect of this change in accounting for income taxes
determined as of October 4, 1993. In 1993, the Company accounted for income
taxes under SFAS No. 96.
Income tax expense (benefit) consists of:
<TABLE>
<CAPTION>
1995 1994 1993
------- ------- ------
<S> <C> <C> <C>
Current:
Federal $ 267 $ 319 $ 330
State 571 766 1,131
------- ------- ------
838 1,085 1,461
------- ------- ------
Deferred:
Federal 4,904 (7,170)
State 188 (251)
------- ------- ------
5,092 (7,421)
------- ------- ------
Total $ 5,930 $(6,336) $1,461
------- ------- ------
</TABLE>
The reconciliation of the provision for income taxes, computed at the statutory
United States income tax rate, to the reported amounts is as follows:
<TABLE>
<CAPTION>
1995 1994 1993
------- ------- ------
<S> <C> <C> <C>
Income taxes at statutory rate (35%, 35%, and
34.75% in 1995, 1994, and 1993, respectively) $ 5,951 $ 3,915 $6,783
State income taxes, net of federal benefit 493 335 1,011
Federal alternative minimum tax 330
Benefit from net operating loss carryforwards (3,956) (6,663)
Losses on foreign subsidiaries not providing
benefits in the current year 526
Change in valuation allowance, net of benefits
attributable to the exercise of nonqualified
stock options 980 (6,905)
Business credits (2,156) (317)
Other 662 66
------- ------- ------
Provision for income taxes $ 5,930 $(6,336) $1,461
------- ------- ------
</TABLE>
27
<PAGE>
ADAC LABORATORIES AND SUBSIDIARIES
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
As of October 1, 1995, the Company had net operating loss carryforwards of
approximately $15,265 available to offset future federal taxable income and
approximately $6,787 available to offset future taxable income in various
foreign jurisdictions. Federal tax carryforwards expire in years 1999 to 2000,
and foreign tax carryforwards expire beginning in 1996 and extending
indefinitely. Net operating loss carryforwards include $15,265 which arose from
the exercise of non-qualified stock options, the tax benefit of which has been
reflected as an increase in paid-in capital of $9.1 million during fiscal 1994.
The Company also has credit carryforwards of $4,585. These credit carryforwards
will expire in the years 1996 to 2009, if not utilized.
Significant components of the Company's deferred tax assets and liabilities at
October 1, 1995 and October 2, 1994 are as follows:
<TABLE>
<CAPTION>
1995 1994
------- -------
<S> <C> <C>
Deferred income tax assets:
Net operating loss carryforwards $ 8,388 $13,812
Business credit carryforwards 4,585 4,089
Inventory related reserves 962 2,061
Alternative minimum tax credit carryforwards 878 674
Accrued vacation 376 575
Accrued customer service costs 388 606
Accounts receivable related reserves 458 529
Deferred income 672 287
Other 447 1,041
------- -------
17,154 23,674
Less valuation allowance (3,054) (4,034)
------- -------
Deferred income tax assets 14,100 19,640
------- -------
Deferred income tax liabilities:
Depreciation $ 1,963 $ 1,591
Capitalized software 1,405 1,504
------- -------
Deferred income tax liabilities 3,368 3,095
------- -------
Net deferred income tax assets $10,732 $16,545
------- -------
</TABLE>
On adoption of SFAS No. 109 in October 1993, the Company established a valuation
allowance for the entire balance of its net deferred tax asset due to
uncertainty with regards to the outcome of the litigation with Elscint Limited
discussed in Note 5 of the Notes to Consolidated Financial Statements, and
uncertainty of the impact of potential healthcare reform legislation on the
Company's business. Following the settlement of the Elscint litigation in
September 1994 and further developments on healthcare reform, the Company
reassessed the requirement for a valuation allowance under the rules of SFAS No.
109 and concluded that it was more likely than not the deferred tax asset would
be realized and therefore a valuation allowance against its future domestic
income tax loss carryforwards was no longer appropriate. The remaining valuation
allowance at October 1, 1995 and October 2, 1994 relate to net operating loss
carryforwards available for the benefit of foreign operations.
Note 12 SEGMENT INFORMATION AND FOREIGN OPERATIONS
The Company designs, manufactures, and markets medical imaging and health care
information systems to hospitals and clinics worldwide. During the fourth
quarter of fiscal 1995, the Company completed its acquisition of CHC, as
discussed in Note 3. As a result, the relative significance of the Company's
Healthcare Information Systems' segment increased in relation to the Company's
overall business. Accordingly, the Company's operations are now derived from two
major business units, Medical Systems business (MS) and Healthcare Information
Systems business (HCIS). Prior to 1995, the results of operations from the
Healthcare Information Systems' segment were not significant. The following
table summarizes the results of operations for the Company's two major business
segments.
<TABLE>
<CAPTION>
Fiscal 1995
MS HCIS
-------- -------
<S> <C> <C>
Revenues $171,444 $13,365
Operating income (loss) 19,288 (1,063)
Depreciation and amortization 5,403 974
Capital expenditures 2,438 150
Total assets 127 31
-------- -------
</TABLE>
Additionally, the Company has foreign operations which are those of its
subsidiaries in the Netherlands, France, Germany, Denmark, United Kingdom and
Italy, and substantially all of their sales are made to unaffiliated European
customers. The following table summarizes the foreign subsidiaries' operations:
<TABLE>
<CAPTION>
1995 1994 1993
-------- ------- -------
<S> <C> <C> <C>
Revenues $ 27,282 $28,436 $23,430
Net income (loss) (320) 73 43
Total assets 23,315 20,224 21,620
-------- ------ ------
</TABLE>
28
<PAGE>
ADAC LABORATORIES AND SUBSIDIARIES
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 13 QUARTERLY RESULTS OF OPERATIONS (UNAUDITED):
<TABLE>
<CAPTION>
Fiscal 1995
First Second Third Fourth
Quarter Quarter Quarter Quarter
- ---------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $44,232 $44,727 $45,625 $50,225
Gross profit 15,858 16,141 16,563 18,927
Net income 2,430 2,754 3,054 2,835
Net income per share .15 .17 .18 .16
- ---------------------------------------------------------------
<CAPTION>
Fiscal 1994
First Second Third Fourth
Quarter Quarter Quarter Quarter
- ---------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $46,546 $47,298 $40,081 $42,355
Gross profit 19,454 19,384 14,893 15,884
Net income 5,312 5,510 269 6,430
Net income per share .32 .33 .02 .39
- ---------------------------------------------------------------
<CAPTION>
Fiscal 1993
First Second Third Fourth
Quarter Quarter Quarter Quarter
- ---------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $36,258 $37,631 $39,721 $43,336
Gross profit 15,801 16,308 16,893 18,428
Net income 4,134 4,409 4,543 4,973
Net income per share .25 .27 .28 .30
- ---------------------------------------------------------------
</TABLE>
The sum of a year's quarterly earnings per share may not equal the annual
earnings per share as a result of changes in the outstanding number of shares
during the year and the application of the treasury stock method, which
considers changes in the market price of common stock during each period (see
Note 1, "Income Per Share").
As discussed in Note 12, during the fourth quarter of fiscal 1995, the Company
completed its acquisition of CHC. As a result, the relative significance of the
Company's Healthcare Information Systems' segment increased in relation to the
Company's overall business. Accordingly, beginning in the fourth quarter of
fiscal 1995, changes were made in the classification of certain income statement
items related to the Company's Healthcare Information Systems' segment. Total
revenue, operating income, net income, and earnings per share were not affected
by these changes. Operating expenses of $416, $495, $577 and $610 were
reclassified to cost of sales in the first, second, third and fourth quarter of
1994, respectively, to conform with the revised presentation, as were $107, $702
and $1,337 in the first, second, and third quarter of 1995, respectively. Prior
to 1994, the results of operations from the Healthcare Information Systems'
segment were not significant.
Note 14 RECENT PRONOUNCEMENTS
During March 1995, the Financial Accounting Standards Board issued Statement No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of", and in October 1995, the Financial Accounting
Standards Board issued Statement No. 123, "Accounting for Stock-Based
Compensation". These pronouncements are effective for the Company's fiscal
1997. Their adoption is not expected to have a material effect on the financial
statements of the company.
29
<PAGE>
REPORT OF INDEPENDENT ACCOUNTS
To the Board of Directors and Shareholders of ADAC Laboratories and Subsidiaries
We have audited the accompanying consolidated balance sheets of ADAC
Laboratories and Subsidiaries as of October 1, 1995 and October 2, 1994, and the
related consolidated statements of income, shareholders' equity and cash flows
for each of the three fiscal years in the period ended October 1, 1995. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of ADAC Laboratories
and Subsidiaries as of October 1, 1995 and October 2, 1994, and the consolidated
results of their operations and their cash flows for each of the three fiscal
years in the period ended October 1, 1995 in conformity with generally accepted
accounting principles.
COOPERS & LYBRAND L.L.P.
San Jose, California
November 1, 1995
30
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
SIGNATURE CAPACITIES DATE
--------- ---------- ----
/s/ Stanley D. Czerwinski Chairman of the Board December 22, 1995
- -------------------------
Stanley D. Czerwinski
/s/ David L. Lowe Chief Executive Officer December 22, 1995
- ------------------------- & Director
David L. Lowe (Principal Executive Officer)
/s/ P. Andre Simone Vice President, Finance December 22, 1995
- ------------------------- (Principal Financial Officer)
P. Andre Simone
/s/ Graham O. King Director December 22, 1995
- -------------------------
Graham O. King
/s/ T. Alex McPherson Director December 22, 1995
- -------------------------
T. Alex McPherson
/s/ Robert L. Miller Director December 22, 1995
- -------------------------
Robert L. Miller
/s/ F. David Rollo Director December 22, 1995
- -------------------------
F. David Rollo
/s/ Edmund H. Shea, Jr. Director December 22, 1995
- -------------------------
Edmund H. Shea, Jr.
31
<PAGE>
ADAC Laboratories and Subsidiaries
----------------------------------
Index to Consolidated Financial Statement Schedules
Report of Independent Accountants
Financial Statement Schedules
Schedule VIII - Consolidated Valuation and Qualifying Accounts
Schedule X - Consolidated Supplementary Income Statement Information
Other schedules are omitted because of the absence of conditions under which
they are required or because the required information is given in the
consolidated financial statements or the notes thereto.
32
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
- ------- ---------------------------------------------------------------
FINANCIAL DISCLOSURE.
--------------------
None.
PART III
The information required by Items 10, 11, 12 and 13 is included in the Proxy
Statement for the Company's 1996 Annual Meeting of Shareholders to be filed with
the Securities and Exchange Commission not later than 120 days after the end of
the 1995 fiscal year and is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
- -------- -----------------------------------------------------------------
(a) (1) Financial Statements. Consolidated Financial Statements,
---------------------
Notes to Consolidated Financial Statements, and the Report of Independent
Accountants are included under Item 8. Financial Statements and Supplemental
Data.
(2) Financial Statement Schedules. See "Index to Financial
------------------------------
Statement Schedules" attached hereto and made a part hereof.
(b) Reports on Form 8-K. The following reports on Form 8-K were filed
--------------------
during the Company's fourth fiscal quarter ended October 1, 1995:
(i) Report on Form 8-K , dated July 12, 1995 (date of earliest
event reported), concerning a series of transactions with Community Health
Computing Corporation (CHCC), including the acquisition of 4,000,000 shares of
Series A Preferred Stock of CHCC.
(ii) Report on Form 8-K/A, dated September 27, 1995 (date of
earliest event reported), which attached various financial statements and pro
forma financial information concerning Community Health Computing Corporation.
(3) Exhibits. The exhibits listed on the accompanying Index to
---------
Exhibits below are filed as a part hereof and are incorporated by reference.
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this Report to be signed on its
behalf by the undersigned thereunto duly authorized.
Date: December 22, 1995
ADAC Laboratories
(Registrant)
BY: /s/ David L. Lowe
-----------------
David L. Lowe,
Chief Executive Officer
(Principal Executive Officer)
33
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
Our report on the consolidated financial statements of ADAC Laboratories is
included on page 30 of this Form 10-K. In connection with our audit of such
financial statements, we have also audited the related financial statement
schedules listed in the index on page 32 on this Form 10-K.
In our opinion, the financial statement schedules referred to above, when
considered in relation to the basic financial statements taken as a whole,
present fairly, in all material respect, the information required to be included
therein.
COOPERS & LYBRAND L.L.P.
San Jose, California
November 1, 1995
34
<PAGE>
SCHEDULE VIII
ADAC LABORATORIES AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
(In Thousands)
For the three years in the period ended October 1, 1995
<TABLE>
<CAPTION>
Additions
-----------------------------------------------
Charged to Acquisition
Balance at Costs and of Balance at End
Description Beginning of Period Expenses Business Deductions of Period
- ----------- ------------------- ----------- ----------- ---------- --------------
<S> <C> <C> <C> <C> <C>
Year Ended October 3, 1993:
Deducted from asset accounts:
Allowance for product returns
and doubtful accounts $ 711 $ 670 $ - $ 449 $ 932
====== ====== ==== ====== ======
Year Ended October 2, 1994:
Deducted from asset accounts:
Allowance for product returns
and doubtful accounts $ 932 $1,023 $ - $ 311 $1,644
====== ====== ==== ====== ======
Year Ended October 1, 1995:
Deducted from asset accounts:
Allowance for product returns
and doubtful accounts $1,644 $1,502 $373 $1,475 $2,044
====== ====== ==== ====== ======
</TABLE>
35
<PAGE>
SCHEDULE X
ADAC LABORATORIES AND SUBSIDIARIES
SUPPLEMENTARY INCOME STATEMENT INFORMATION
(In Thousands)
For the three years in the period ended October 1, 1995
<TABLE>
<CAPTION>
CHARGED TO COSTS & EXPENSES
---------------------------
ITEM 1995 1994 1993
---- ------- ------ -------
<S> <C> <C> <C>
Depreciation and amortization
of intangible assets:
Software and technology $1,845 $1,220 $1,021
Goodwill and Sales Partnership $ 780 $ 576 $ 656
</TABLE>
Amounts charged to costs and expenses do not exceed one percent of net revenues
for all other items for all periods presented.
36
<PAGE>
ADAC LABORATORIES AND SUBSIDIARIES
INDEX OF EXHIBITS
Exhibit
Number Title of Exhibit
- ------ ----------------
(See Footnotes)
3.1(6) Restated Articles of Incorporation, as amended.
3.3(1) Bylaws, as amended.
3.4(4) Amendment to bylaws, effective January 14, 1988.
10.3(2) 1981 Non-qualified Stock Option Plan (as amended and restated
effective December 19, 1982 and November 12, 1984).
10.4(2) Incentive Stock Option Plan (as amended and restated effective
December 10, 1982 and November 12, 1984).
10.17(3) Leases for two buildings located at 540 Alder Drive, Milpitas,
California, between the Company and John Arrillaga and Richard T.
Peery, dated June 25, 1986.
10.45(4) 1985 Option Plan, as amended and restated through July 28, 1987.
10.52(4) Directors' Stock Option Plan (1987).
10.56(5) Amendment to leases for two buildings located at 540 Alder Drive,
Milpitas, California, between the Company and John Arrillaga and
Richard T. Peery, dated February 2, 1992.
10.60(6) 1992 Stock Option Plan.
10.61(6) Agreement between ADAC Laboratories Europe B.V. and Philips Medical
Systems International B.V. on Nuclear Medicine Activities, dated
February 21, 1992.
10.62(7) Line of Credit Agreement between the Registrant and Sanwa Bank
California, dated August 12, 1993.
10.64(7) Intercreditor agreement between the Registrant and ABN Amro
Bank N.V., and Sanwa Bank California.
10.66(8) Amendment to Line of Credit Agreement between the Registrant and
Sanwa Bank California, dated September 21, 1994.
10.67(8) Amendment to Line of Credit Agreement between the Registrant and ABN
Amro Bank N.V., dated December 15, 1994.
<PAGE>
10.68(8) Master Lease Agreement between the Registrant and Metlife Capital
Corporation, dated September 30, 1994.
10.69(8) Equipment Lease Agreement between the Registrant and Wasatch Funding
Group, Inc., dated September 30, 1994.
10.70(8) Call Agreement between the Registrant and Community Health Computing
Corporation and Exhibits, dated November 30, 1994 and December 7,
1994, respectively.
10.71(8) Amendment to lease for building located at 540 Alder Drive,
Milpitas, California, between the Company and John Arrillaga and
Richard T. Peery, dated August 31, 1993.
10.72(8) Lease agreement for building located at 630 Alder Drive, Milpitas,
California, between the Company and John Arrillaga and Richard T.
Peery, dated December 6, 1993.
10.73(8) Employment/Severance agreement between ADAC Laboratories and Stanley
D. Czerwinski, dated November 2, 1994.
10.75(9) Employee Stock Purchase Plan (1994).
10.76(10) First Amended Series A Preferred Stock Purchase Agreement, dated
February 24, 1995, among the Registrant, Community Health Computing
Corp. and Community Health Computing, Inc., and related Promissory
Notes, Security Agreement and Modification of Loan Agreements, dated
July 12, 1995.
10.77 Amended and Restated Credit Agreement between the Registrant and ABN
Amro Bank N.V., dated August 15, 1995.
10.78 Vendor Program Agreement between the Registrant and DVI Financial
Services Inc., dated June 30, 1995.
10.79 Agreement and Plan of Reorganization Among the Registrant, ADAC
Acquisition, Inc., J.D. Technical Services, Inc. and the Shareholders
of J.D. Technical Services, Inc., dated November 9, 1995.
10.80 Amendments to Line of Credit Agreement between the Registrant and
Sanwa Bank of California, dated June 1994, September 1994, January
1995 and September 29, 1995.
11 Computation of net income per share.
21 Subsidiaries.
23 Consent of Independent Accountants.
99 Undertakings.
<PAGE>
(1) Incorporated by reference to Exhibits filed with the Company's Annual
Report on Form 10-K (file No. 0-9428) for the fiscal year ended September
30, 1983.
(2) Incorporated by reference to Exhibits filed with the Company's Annual
Report on Form 10-K (file No. 0-9428) for the fiscal year ended September
30, 1984.
(3) Incorporated by reference to Exhibits filed with the Company's Annual
Report on Form 10-K (file No. 0-9428) for the fiscal year ended September
28, 1986.
(4) Incorporated by reference to Exhibits filed with the Company's 1988 proxy
statement.
(5) Incorporated by reference to Exhibits filed with the Company's Annual
Report on Form 10-K (file No. 0-9428) for the fiscal year ended October
1, 1989.
(6) Incorporated by reference to Exhibits filed with the Company's Annual
Report on Form 10-K (file No. 0-9428) for the fiscal year ended
September 27, 1992.
(7) Incorporated by reference to Exhibits filed with the Company's Annual
Report on Form 10-K (file No. 0-9428) for the fiscal year ended October
3, 1993.
(8) Incorporated by reference to Exhibits filed with the Company's Annual
Report on Form 10-K (file No. 0-9428) for the fiscal year ended October
2, 1994.
(9) Incorporated by reference to Exhibit filed with the Company's Proxy
Statement for the Annual Meeting of Shareholders held March 2, 1994.
(10) Incorporated by reference to Exhibits filed with the Company's Current
Report of Form 8-K (file No. 0-9428), dated July 12, 1995 (being the date
of the earliest event reported).
<PAGE>
EXHIBIT 10.77
<PAGE>
EXECUTION COPY
AMENDED AND RESTATED CREDIT AGREEMENT
between
ADAC LABORATORIES
and
ABN AMRO BANK N.V.
August 15, 1995
<PAGE>
TABLE OF CONTENTS
-----------------
Page
----
ARTICLE 1
DEFINITIONS
1.1 Definitions...................................................... 1
1.2 Accounting Terms................................................. 6
1.3 Interpretation................................................... 6
1.4 Other Terms...................................................... 6
1.5 Currency Equivalents Generally................................... 6
ARTICLE 2
CREDIT FACILITY
2.1 Loans............................................................ 7
2.2 Interest......................................................... 7
2.3 Notice of Borrowing.............................................. 7
2.4 Promissory Notes................................................. 8
2.5 Method of Payment of a Loan...................................... 8
2.6 Termination Date................................................. 8
2.7 Commitment Fee................................................... 8
2.8 Currency Equivalents............................................. 8
2.9 Default Interest Rate............................................ 9
ARTICLE 3
PREPAYMENTS
3.1 Voluntary Prepayments............................................ 9
3.2 Mandatory Prepayments............................................ 9
ARTICLE 4
LETTERS OF CREDIT
4.1 Issuance......................................................... 10
4.2 Procedure........................................................ 10
4.3 Conditions of Issuance........................................... 10
4.4 Reimbursement Obligation......................................... 10
4.5 Letters of Credit Outstanding on Termination Date................ 11
4.6 Indemnification; Nature of the Bank's Duties..................... 11
4.7 Letter of Credit Fees............................................ 12
4.8 Increased Costs.................................................. 12
i
<PAGE>
Page
----
ARTICLE 5
COLLATERAL
5.1 The Collateral................................................... 12
5.2 Rights of the Bank With or Without Default....................... 13
5.3 Survival......................................................... 14
ARTICLE 6
REPRESENTATIONS AND WARRANTIES
6.1 Corporate Status................................................. 14
6.2 Corporate Power and Authority.................................... 14
6.3 Binding Effect................................................... 15
6.4 Financial Information............................................ 15
6.5 Litigation....................................................... 15
6.6 Not an Investment Company........................................ 15
6.7 Compliance with ERISA............................................ 15
6.8 Taxes............................................................ 15
6.9 Full Disclosure.................................................. 16
6.10 Fictitious Trade Styles.......................................... 16
6.11 Title to Assets; Permitted Liens; Location of
Collateral..................................................... 16
ARTICLE 7
COVENANTS
7.1 Preservation of Existence; Compliance with
Applicable Laws................................................ 17
7.2 Maintenance of Insurance......................................... 17
7.3 Maintenance and Location of Collateral and Other
Properties..................................................... 17
7.4 Payment of Obligations and Taxes................................. 18
7.5 Inspection Rights................................................ 18
7.6 Reporting Requirements........................................... 18
7.7 Payment of Dividends............................................. 19
7.8 Redemption or Repurchase of Stock................................ 20
7.9 Additional Indebtedness.......................................... 20
7.10 Loans............................................................ 20
7.11 Liens and Encumbrances........................................... 20
7.12 Transfer of Assets............................................... 21
7.13 Change in the Nature of Business................................. 21
7.14 Financial Condition.............................................. 21
7.15 Capital Expenditures............................................. 22
7.16 Notices.......................................................... 22
7.17 Environmental Compliance......................................... 22
7.18 Chief Executive Office........................................... 23
7.19 Use of Proceeds.................................................. 23
ii
<PAGE>
Page
----
ARTICLE 8
CONDITIONS PRECEDENT
8.1 All Loans and Letters of Credit.................................. 23
ARTICLE 9
DEFAULT
9.1 Events of Default................................................ 24
9.2 Remedies......................................................... 26
9.3 Letters of Credit................................................ 26
9.4 Notification of Account Debtors.................................. 26
9.5 Protection of Security Interest.................................. 27
9.6 Foreclosure...................................................... 27
9.7 Application of Proceeds.......................................... 28
ARTICLE 10
CHANGE IN CIRCUMSTANCES
10.1 Compensation for Funding Loss or Expense......................... 28
10.2 Illegality....................................................... 29
10.3 Taxes............................................................ 29
10.4 Reserve Requirements............................................. 30
10.5 Notice Certificates.............................................. 31
ARTICLE 11
MISCELLANEOUS
11.1 Waiver and Amendment............................................. 31
11.2 Notices.......................................................... 31
11.3 Execution in Counterparts........................................ 32
11.4 Binding Effect................................................... 32
11.5 Assignments and Participations................................... 32
11.6 Payment Instructions............................................. 33
11.7 Survival of Representations and Warranties....................... 33
11.8 Severability of Provisions....................................... 33
11.9 Headings......................................................... 33
11.10 Governing Law and Jurisdiction................................... 33
11.11 Judgment Currency................................................ 33
11.12 Costs and Expenses............................................... 34
11.13 Indemnity........................................................ 34
11.14 Entire Agreement................................................. 34
iii
<PAGE>
Page
----
ARTICLE 12
EFFECTIVE DATE OF THIS RESTATED CREDIT AGREEMENT
12.1 Effective Date................................................... 35
12.2 Effect........................................................... 35
EXHIBITS
- --------
A Amended and Restated Note
iv
<PAGE>
AMENDED AND RESTATED CREDIT AGREEMENT
-------------------------------------
THIS AMENDED AND RESTATED CREDIT AGREEMENT (this "Restated Credit
Agreement"), dated as of August 15, 1995 is entered into by and between:
(1) ADAC LABORATORIES, a California corporation (the "Company"); and
(2) ABN AMRO BANK N.V., a Netherlands public company acting through
its San Francisco International Branch and/or Cayman Islands Branch (the
"Bank").
RECITALS
--------
A. Borrower and Bank are parties to a Credit Agreement dated as of August
6, 1993, as amended by a First Amendment to Credit Agreement dated as of August
5, 1994, a Second Amendment to Credit Agreement dated as of September 23, 1994
and a Third Amendment to Credit Agreement dated as of March 24, 1995 (as so
amended, the "Existing Credit Agreement"), pursuant to which the Bank has
provided to the Company certain credit facilities.
B. The Company now has requested the Bank to amend the Existing Credit
Agreement in certain additional respects. The Bank is willing to amend the
Existing Credit Agreement upon the terms and subject to the conditions set forth
herein. For convenience of reference, the Company and the Bank wish to restate
the Existing Credit Agreement as so amended in its entirety.
AGREEMENT
---------
NOW, THEREFORE, in consideration of the above Recitals and the mutual
covenants contained herein, the Company and the Bank hereby agree that the
Existing Credit Agreement shall be amended and restated to read in its entirety
as follows:
ARTICLE 1
DEFINITIONS
-----------
1.1 Definitions. As used in this Agreement, the following terms shall
-----------
have the meanings set forth below (such meanings to be equally applicable to
both the singular and plural of the terms defined):
"Account Debtor" shall mean the person obligated to the Company on an
--------------
account.
<PAGE>
"Agreement" shall mean this Restated Credit Agreement as amended,
---------
modified and supplemented from time to time and in effect at any given time
and, if the context so permits, also shall include the Existing Credit
Agreement as amended, modified and supplemented from time to time and in
effect at any given time prior to the Effective Date.
"Alternate Currency" shall mean Netherlands guilders, Deutsch marks,
------------------
British pounds sterling, French francs, Swiss francs and any other currency
other than Dollars which the Bank shall, at any relevant time, have agreed
upon the Company's request to treat as an Alternate Currency under this
Agreement.
"Alternate Currency Loan" shall mean a Loan made to the Company
-----------------------
hereunder denominated in an Alternate Currency.
"Bank" shall have the meaning given to that term in clause (2) of the
----
introductory paragraph hereof.
"Bankruptcy Code" shall mean the Bankruptcy Reform Act, Title 11 of
---------------
the United States Code, as amended from time to time.
"Base Rate" shall mean the rate announced by the Bank from its office
---------
in Chicago as its base rate.
"Base Rate Loan" shall mean a Loan advanced to the Company under
--------------
Article 2 at the Base Rate.
"Business Day" shall mean a day of the year on which commercial banks
------------
are not required or authorized by law to close in the State of California
and if the applicable Business Day relates to a LIBOR Loan, a day on which
dealings are conducted in the interbank eurodollar market.
"CHC" shall mean Community Health Computing Corporation, a Delaware
---
corporation.
"Code" shall mean the United States Internal Revenue Code of 1986, as
----
amended from time to time.
"Collateral" shall have the meaning given such term in Section 5.1
----------
hereof.
"Commitment" shall mean the commitment of the Bank to make Loans to
----------
the Company hereunder up to the Maximum Amount.
"Commitment Fee" shall have the meaning set forth in Section 2.7
--------------
hereof.
"Company" shall have the meaning given to that term in clause (1) of
-------
the introductory paragraph hereof.
2
<PAGE>
"Credit Documents" shall mean this Agreement, the Note, the
----------------
Intercreditor Agreement, the Guaranties and all instruments
and documents executed in connection with any thereof, including, without
limitation, any instruments or documents executed in connection with any
Letter of Credit.
"Currency" shall mean Dollars or any Alternate Currency in which the
--------
Bank has agreed upon the Company's request to make a Loan under this
Agreement.
"Debt" shall mean all liabilities of the Company as set forth on its
----
balance sheet less Subordinated Debt.
"Default" shall mean any of the events specified in Section 9.1
-------
hereof, whether or not any requirement for the giving of notice, the lapse
of time, or both, or any other condition has been satisfied.
"Dollar Loan" shall mean a Loan made to the Company hereunder
-----------
denominated in Dollars.
"Dollars" and the sign "$" shall mean the lawful currency of the
-------
United States of America.
"Effective Date" shall have the meaning set forth in Section 12.1
--------------
hereof.
"Effective Tangible Net Worth" shall mean the Company's stated net
----------------------------
worth plus Subordinated Debt but less all intangible assets of the Company
(i.e., goodwill, trademarks, patents, copyrights, organization expense,
loans and advances to employees, affiliates or subsidiaries, investments in
subsidiaries and similar intangible items, provided however, that on a
consolidated basis, Effective Tangible Net Worth shall exclude from
intangible assets advances to affiliates and subsidiaries and investments
in subsidiaries).
"ERISA" shall mean the Employee Retirement Income Security Act of
-----
1974, as amended from time to time, including, (unless the context
otherwise requires) any rules or regulations promulgated thereunder.
"Eurocurrency Liabilities" shall have the meaning set forth in
------------------------
Regulation D of the Board of Governors of the Federal Reserve System, as in
effect from time to time.
"Existing Credit Agreement" shall have the meaning set forth in
-------------------------
Recital A hereof.
"Existing Note" shall have the meaning set forth in Section 12.2
-------------
hereof.
"GAAP" shall mean generally accepted accounting principles applied on
----
a consistent basis, set forth in the
3
<PAGE>
Opinions of the Accounting Principles Board of the American Institute of
Certified Public Accountants and/or in statements of the Financial
Accounting Standards Board and/or in such other statements by such other
entity as the Bank or the Company may reasonably approve, which are
applicable in the circumstances and as of the date in question, and the
requisite that such principles be applied on a consistent basis shall mean
that the accounting principles observed in a current period are comparable
in all material respects to those applied in a preceding period except for
the adoption within any permissible period of new accounting standards
required or permitted by the Financial Accounting Standards Board from time
to time.
"Guaranties" shall mean, collectively, all guaranties executed by the
----------
Company in connection with sales by the Company to the Bank of promissory
notes and other evidences of indebtedness held by the Company and all other
documents, instruments and agreements executed by the Company in connection
with such sales.
"Intercreditor Agreement" shall mean the Intercreditor Agreement among
-----------------------
the Bank, Sanwa and the Company delivered to the Bank pursuant to Section
12.1 hereof and any successor agreement thereto satisfactory to the Bank,
as the same may be amended, modified or supplemented in accordance with its
terms.
"Interest Period" shall mean in the case of any LIBOR Loan (a)
---------------
initially the period commencing on the date such LIBOR Loan is made and
ending one, two or three months thereafter as selected by the Company in
its irrevocable written notice given to the Bank pursuant to Section 2.3
hereof, and (b) thereafter a period commencing on the last day of the
immediately preceding Interest Period for such LIBOR Loan and ending one,
two or three months thereafter as selected by the Company; provided that
all of the foregoing provisions are subject to the following:
(i) if any Interest Period would otherwise end on a day which is
not a Business Day, such Interest Period shall be extended to the next
succeeding Business Day; and
(ii) the Company may not select any Interest Period for a Loan
that extends beyond the Termination Date.
"Letter of Credit" means any standby letter of credit which is now or
----------------
at any time hereafter issued by the Bank pursuant to this Agreement at the
request and for the account of the Company and which has not expired or
been revoked or terminated.
4
<PAGE>
"LIBOR" shall mean the rate generally offered to the Bank in the
-----
London interbank market for deposits of amount, Currency and fixed term
comparable to the amount, Currency and Interest Period of the Loan
requested by the Company.
"LIBOR Loan" shall mean a Loan advanced to the Company under Article 2
----------
at a rate computed by reference to LIBOR.
"Liquid Assets" shall mean all unrestricted cash and cash equivalents
-------------
of the Company.
"Loan" shall mean a LIBOR Loan or a Base Rate Loan made by the Bank to
----
the Company under this Agreement.
"Margin Stock" shall mean margin stock as defined in Regulation U of
------------
the Board of Governors of the Federal Reserve System, as in effect from
time to time.
"Maximum Amount" shall mean $20,000,000 (or an equivalent thereof in
--------------
an Alternate Currency) which is the maximum aggregate amount which the Bank
will extend to the Company under this Agreement.
"Multiemployer Plan" shall have the meaning set forth in Section
------------------
4001(a)(3) of ERISA.
"Note" shall mean the Restated Note as amended, modified and
----
supplemented from time to time and in effect at any given time and, if the
context so permits, also shall include the Existing Note as amended,
modified and supplemented from time to time and in effect at any given time
prior to the Effective Date.
"PBGC" shall mean the Pension Benefit Guaranty Corporation or any
----
successor entity or entities performing similar functions.
"Permitted Liens" shall have the meaning set forth in Section 6.11
---------------
hereof.
"Person" shall mean at any time an individual, a corporation, an
------
association, a trust, a government, a political subdivision, a governmental
agency or instrumentality or any other entity or other organization.
"Plan" shall mean a defined benefit pension plan under ERISA for the
----
unfunded liabilities of which, upon termination, the Company could be held
liable by the PBGC.
"Restated Credit Agreement" shall have the meaning set forth in the
-------------------------
introductory paragraph hereof.
"Restated Note" shall have the meaning set forth in Section 12.1(b).
-------------
5
<PAGE>
"Sanwa" shall mean Sanwa Bank California, a California banking
-----
corporation.
"Secured Obligations" shall have the meaning set forth in Section 5.1
-------------------
hereof.
"Subordinated Debt" shall mean such liabilities of the Company which
-----------------
have been subordinated to those owed to the Bank in a manner acceptable to
the Bank.
"Termination Date" shall mean April 5, 1996.
----------------
1.2 Accounting Terms. Unless otherwise specified in this Agreement, all
----------------
accounting terms used in this Agreement shall be interpreted, all accounting
determinations under this Agreement shall be made, and all financial statements
required to be delivered under this Agreement shall be prepared in accordance
with GAAP.
1.3 Interpretation. The following rules shall apply to the construction
--------------
of the Agreement unless the context requires otherwise: (a) the singular
includes the plural and the plural, the singular; (b) words importing any gender
include the other gender; (c) the references to statutes are to be construed as
including all statutory provisions consolidating, amending or replacing the
statute to which reference is made; (d) references to "writing" include
printing, photocopying, typing, lithography and other means of reproducing words
in a tangible visible form; (e) the words "including" "includes" and "include"
shall be deemed to be followed by the words "without limitation"; (f) references
to articles, sections (or subdivisions of sections), exhibits, annexes or
schedules are to those of this Agreement unless otherwise indicated; (g)
references to agreements and other contractual instruments shall be deemed to
include all subsequent amendments or modifications that are not prohibited by
the terms of this Agreement; (h) references to Persons include their respective
permitted successors and assigns, and (i) headings herein are solely for
convenience of reference and shall not constitute a part of this Agreement nor
shall they affect its meaning.
1.4 Other Terms. All terms used herein and not otherwise defined shall
-----------
have the meanings, if any, given to such terms in the California Uniform
Commercial Code.
1.5 Currency Equivalents Generally. For all purposes of this Agreement
------------------------------
other than Article 2, the equivalent in any Alternate Currency of an amount in
Dollars shall be determined at the rate of exchange quoted by the Bank in San
Francisco, on the date of determination, for the spot purchase in the relevant
foreign exchange market of such amount of Dollars with such Alternate Currency.
6
<PAGE>
ARTICLE 2
CREDIT FACILITY
---------------
2.1 Loans. The Bank agrees, on the terms and conditions set forth in this
-----
Agreement to lend the Company pursuant to this Section 2.1 from time to time
amounts such that the aggregate principal amount of the Loans that are at any
one time outstanding shall not exceed, together with the aggregate undrawn
amount of all issued and outstanding Letters of Credit, the Maximum Amount.
Within the foregoing limits, the Company may borrow under this Section 2.1,
repay or, to the extent permitted by Article 3 prepay the Loans and reborrow
under this Section 2.1 at any time prior to the Termination Date. Unless
otherwise instructed in writing by the Company, the Bank shall wire the amount
of loans advanced hereunder to Sanwa Bank California, San Jose, for the account
of ADAC Laboratories, Acct. No. 1129-92463, Ref: Loan Proceeds.
2.2 Interest. Each Loan shall bear interest on its outstanding principal
--------
amount at a rate equal to the Company's choice at the time such Loan is made of
either:
(a) LIBOR plus one and one quarter percent (1.25%) per annum; or
(b) Base Rate.
Interest on Loans shall be computed on the number of days elapsed and a year of
360 days. Interest on Base Rate Loans shall be due and payable at the end of
each calendar month. Interest on LIBOR Loans shall be due and payable at the
end of each Interest Period. Each determination of an interest rate by the Bank
pursuant to any provision of this Agreement shall be conclusive and binding on
the Company in the absence of manifest error. The Bank will, at the request of
the Company, deliver to the Company, a statement showing the quotations used by
the Bank in determining any interest rate.
2.3 Notice of Borrowing. Whenever the Company desires to obtain a Loan
-------------------
hereunder, the Company shall give the Bank (at the Bank's office as set forth in
Section 11.2 hereof) prior notice by 11:00 a.m. (California time) on the
Business Day on which a Base Rate Loan that is a Dollar Loan is to be made
hereunder and by 11:00 a.m. (California time) at least three (3) Business Days'
prior to the Business Day on which a LIBOR Loan or Alternate Currency Loan is to
be made hereunder. Each such notice shall specify (i) the principal amount of
the Loan, (ii) the date such Loan is to be made (which shall be a Business Day),
(iii) whether the Loan is to be a Base Rate Loan or a LIBOR Loan, (iv) the
Currency in which such Loan is to be made, and (v) if a LIBOR Loan the initial
Interest Period to be applicable thereto. The Bank shall notify the Company no
later than one Business Day before the date on which an Alternate Currency Loan
is to be made if such Alternate Currency is not available.
7
<PAGE>
2.4 Promissory Notes. The Company's obligation to pay the principal of
----------------
and interest on the Loans made by the Bank shall be evidenced by a Note in the
form of Exhibit A. The Note shall (i) be in the stated principal amount equal
to the Maximum Amount, (ii) be payable in the principal amount of the Loans
evidenced on the schedule to such Note, (iii) mature on the Termination Date,
and (iv) bear interest as set forth in this Agreement. The Bank may endorse on
the grid annexed to the Note the date, amount and maturity of each Loan made to
the Company and the amount of each payment of principal made by the Company with
respect thereto. The Bank is irrevocably authorized by the Company to endorse
its Note and the Bank's record shall be conclusive absent manifest error;
provided, however, that the failure of the Bank to make, or an error in making,
- -------- -------
a notation thereon with respect to any Loan shall not limit or otherwise affect
the obligations of the Company hereunder or under the Note to the Bank.
2.5 Method of Payment of a Loan. All payments made by the Company (in
---------------------------
connection with a Loan) under this Agreement or a Note will be made as set forth
in Section 11.6 hereof, or at such other place in the United States of America
or elsewhere as the Bank may specify, in immediately available funds in the
Currency in which the Loan was made. The obligations of the Company under this
Article and under the Note are dischargeable only by payment in the requested
Currency, regardless of any law, rule, regulation or statute, whether now or
hereafter in existence or in effect in any jurisdiction, which affects or
purports to affect such obligations.
2.6 Termination Date. The credit facility established hereunder shall
----------------
terminate on the Termination Date. The Company agrees to repay the principal
amount of all outstanding Loans, together with accrued and unpaid interest
thereon, on the Termination Date.
2.7 Commitment Fee. The Company agrees to pay to the Bank a commitment
--------------
fee (the "Commitment Fee") for the period from August 6, 1993 to the Termination
Date computed (on the basis of days elapsed and a year of 360 days) at a rate
equal to 0.50% per annum on the unused amount of the Maximum Amount. The
Company shall pay the Bank the Commitment Fee quarterly in arrears; such payment
to be made in accordance with the Bank's instructions.
2.8 Currency Equivalents. For purposes of the provisions of this Article
--------------------
2, (i) the equivalent in Dollars of any Alternate Currency shall be determined
by using the quoted spot rate at which Bank's office in San Francisco offers to
exchange Dollars for such Alternate Currency three Business Days prior to the
date on which such equivalent is to be determined, and (ii) the equivalent in
any Alternate Currency of Dollars shall be determined by using the quoted spot
rate at which Bank's office in San Francisco offers to exchange such Alternate
Currency for Dollars three Business Days prior to the date on which such
equivalent is to be determined. The equivalent in Dollars of
8
<PAGE>
each Loan made in an Alternate Currency shall be recalculated hereunder on each
date that it shall be necessary to determine the unused portion of the
Commitment or the amount of any or all Loans outstanding on such date in
Dollars.
2.9 Default Interest Rate. If any amount of principal of or interest on
---------------------
any Loan or any other amount payable hereunder or under any other Credit
Document is not paid in full when due, (whether at stated maturity, by
acceleration, demand or otherwise), the Company agrees to pay interest on such
unpaid principal, interest or other amount from the date such amount becomes due
until the date such amount is paid in full, payable on demand, at a rate per
annum equal to 3% in excess of the Base Rate.
ARTICLE 3
PREPAYMENTS
-----------
3.1 Voluntary Prepayments. The Company may prepay, without premium or
---------------------
penalty (except for losses and expenses under Section 11.1 hereof), all or any
portion of the Loans upon three Business Days' irrevocable notice to the Bank.
Prepayments under this Agreement shall be made in the Currency in which the
amounts prepaid are denominated at the time of prepayment together with accrued
interest thereon in the same Currency and any payment due under Section 10.1
hereof. The notice of prepayment shall specify the date of prepayment and the
aggregate amount of prepayment, which amount shall be (i) no less than $500,000
with respect to a Dollar Loan, (ii) no less than the equivalent of $500,000 in
the applicable Alternate Currency with respect to an Alternate Currency Loan, or
(iii) integral multiples of the numbers set forth in clauses (i) and (ii). If
any such notice is given, the amount of the prepayment specified in the notice
shall be due and payable on the date specified therein together with accrued
interest to such date on such amount and any payment due under Section 10.1
hereof.
3.2 Mandatory Prepayments. In the event that due to exchange rate
---------------------
fluctuations, the amount of outstanding Loans plus the aggregate undrawn amount
of all issued and outstanding Letters of Credit exceeds the Maximum Amount, the
Company shall repay to the Bank the sum by which such amount exceeds the Maximum
Amount.
ARTICLE 4
LETTERS OF CREDIT
-----------------
4.1 Issuance. Subject to the provisions of Section 4.3 and Article 8
--------
hereof, at any time prior to the Termination Date the Company may request that
the Bank issue one or more Letters of
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Credit as provided herein with an expiration date not later than the date that
is 360 days after the date of issuance.
4.2 Procedure. The Company shall deliver to the Bank, at least three
---------
(3) Business Days prior to the date on which the Letter of Credit is requested
to be issued, the Bank's standard letter of credit application and reimbursement
agreement, modified as necessary to reflect the terms of this Agreement, and
such other documents and materials as may be required pursuant to the terms
thereof, and each of such documents shall be in form and substance satisfactory
to the Bank; provided, however, that in the event of any conflict between the
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provisions of any such agreement or document and the provisions of this
Agreement, the provisions of this Agreement shall control.
4.3 Conditions of Issuance. In addition to the issuance of any
----------------------
Letter of Credit being subject to the satisfaction of the conditions precedent
set forth in Article 8 hereof, no Letter of Credit shall be issued hereunder if:
(a) As of the date of issuance of the proposed Letter of Credit, any
order, judgment or decree of any court, arbitrator or governmental
authority shall purport by its terms to enjoin or restrain the Bank from
issuing the Letter of Credit or any law, rule or regulation applicable to
the Bank or any request or directive (whether or not having the force of
law) from any governmental authority with jurisdiction over the Bank shall
prohibit or request that the Bank refrain from the issuance of letters of
credit generally; or
(b) As of the date of issuance of the proposed Letter of Credit, the
maximum amount available for drawing under the proposed Letter of Credit
when added to the aggregate maximum amount available for drawing under all
previously issued and outstanding Letters of Credit plus the amount of all
outstanding Loans exceeds the Maximum Amount on the proposed date of
issuance (giving effect to any other Letters of Credit and any Loans
requested to be issued or made on such date).
The foregoing conditions and the provisions of Section 4.1 shall also apply to
any extension or renewal of or increase in the amount available for drawing
under a Letter of Credit.
4.4 Reimbursement Obligation. In the event that the Bank shall make
------------------------
any payment on or pursuant to any Letter of Credit or shall incur any
expense with respect to any Letter of Credit the amount of such payment or
expense shall be due and owing from the Company to the Bank on the date
that such payment is made or expense incurred, provided that if no Event of
Default has then occurred and is continuing, the amount of any such payment
that represents payment of a draw by the beneficiary under such Letter
of Credit shall be deemed to constitute a Base Rate Loan made as of
such date .
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4.5 Letters of Credit Outstanding on Termination Date. In the event that
-------------------------------------------------
any Letter of Credit, whether or not then due and payable, shall for any reason
be outstanding on the Termination Date, the obligations of the Company with
respect to each such Letter of Credit shall be governed by the letter of credit
application and reimbursement agreement and other documentation executed
pursuant to Section 4.2 in connection with such Letter of Credit.
4.6 Indemnification; Nature of the Bank's Duties. The Company hereby
--------------------------------------------
agrees to protect, indemnify and save the Bank harmless from and against any and
all claims, demands, liabilities, damages, losses, costs, charges and expenses
(including reasonable attorneys' fees) which the Bank may incur or be subject to
as a consequence, direct and indirect, of the issuance of any Letter of Credit,
including without limitation that resulting from the failure of the Bank to
honor a drawing under such Letter of Credit as a result of any act or omission,
whether rightful or wrongful, of any present or future de jure or de facto
government or governmental authority, but excluding that resulting from the
gross negligence or willful misconduct of the Bank. As between the Company and
the Bank, the Company assumes all risks of the acts and omissions of, or misuse
of any Letter of Credit by the beneficiary of such Letter of Credit. In
furtherance and not in limitation of the foregoing, subject to the provisions of
any Letter of Credit application, the Bank shall not be responsible:
(a) For the form, validity, sufficiency, accuracy, genuineness or
legal effect of any document submitted by any party in connection with the
application for and issuance of any Letter of Credit, even if it should in
fact prove to be in any respect invalid, insufficient, inaccurate,
fraudulent or forged;
(b) For the validity or sufficiency of any instrument transferring or
assigning or purporting to transfer or assign a Letter of Credit or the
rights or benefits thereunder or proceeds thereof, in whole or in part,
which may prove to be invalid or ineffective for any reason;
(c) For failure of the beneficiary of a Letter of Credit to comply
fully with conditions required in order to draw upon such Letter of Credit;
(d) For errors, omissions, interruptions or delays in transmission or
delivery of any notices, demands, protests or other messages, by mail,
cable, telegraph, telex or otherwise;
(e) For errors in interpretation of technical terms;
(f) For any loss or delay in the transmission or otherwise of any
document required in order to make a
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drawing under any Letter of Credit or of the proceeds thereof;
(g) For the misapplication by the beneficiary of the Letter of Credit
of the proceeds of any drawing under such Letter of Credit; or
(h) For any consequences arising from causes beyond the control of the
Bank.
None of the above shall affect, impair or prevent the vesting of any of the
Bank's rights or powers hereunder or under any of the documentation described in
Section 4.2. No action taken or omitted by the Bank under or in connection with
the Letters of Credit or the related applications, agreements or certificates,
if taken or omitted in good faith, shall put the Bank under any resulting
liability to the Company.
4.7 Letter of Credit Fees. The Company shall pay to the Bank a fee with
---------------------
respect to each Letter of Credit in advance on the date of issuance of the
Letter of Credit equal to the greater of (a) 0.85% per annum of the face amount
of the Letter of Credit, or (b) $500. The Company shall pay to the Bank a fee
of $100 for each amendment to a Letter of Credit.
4.8 Increased Costs. The Company shall, upon the Bank's request, promptly
---------------
pay to and reimburse the Bank for all costs incurred and payments made by the
Bank by reason of any future assessment, reserve, deposit or similar requirement
or any surcharge, tax or fee imposed upon the Bank or as a result of the Bank's
compliance with any directive or requirement of any regulatory authority
pertaining or relating to any Letter of Credit. The Bank shall use reasonable
efforts to provide the Company, in advance, with an estimate of any such costs
which may potentially be incurred hereunder.
ARTICLE 5
COLLATERAL
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5.1 The Collateral. To secure payment and performance of all the
--------------
Company's obligations under this Agreement, including, without limitation, the
payment of the Loans, and all other liabilities, loans, guarantees, covenants
and duties owed by the Company to the Bank (including without limitation under
the Guaranties), whether or not evidenced by this or by any other agreement,
absolute or contingent, due or to become due, now existing or hereafter and
howsoever created (collectively, the "Secured Obligations"), the Company hereby
grants the Bank a security interest in and to all of the following property:
(a) All goods now owned or hereafter acquired by the Company or in
which the Company now has or may hereafter acquire any interest, including,
but not limited to, all
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machinery, equipment, furniture, furnishings, fixtures, tools, supplies and
motor vehicles of every kind and description, and all additions,
accessions, improvements, replacements and substitutions thereto and
thereof;
(b) All inventory now owned or hereafter acquired by the Company,
including, but not limited to, all raw materials, work in process, finished
goods, merchandise, parts and supplies of every kind and description,
including inventory temporarily out of the Company's custody or possession,
together with all returns on accounts;
(c) All accounts, contract rights and general intangibles now owned or
hereafter created or acquired by the Company, including but not limited to,
all receivables, goodwill, trademarks, trade styles, trade names, patents,
patent applications, software, customer lists and business records;
(d) All documents, instruments and chattel paper now owned or
hereafter acquired by the Company; and
(e) All moneys, deposit accounts, certificates of deposit and
securities now owned or hereafter acquired by the Company.
The Bank's security interest in the Collateral shall be a continuing lien and
shall include the proceeds and products of the Collateral including, but not
limited to, the proceeds of any insurance thereon.
5.2 Rights of the Bank With or Without Default. The Company agrees that
------------------------------------------
the Bank may at any time and at its option, whether or not a Default or Event of
Default shall have occurred:
(a) Require the Company to deliver to the Bank, at such times
designated by the Bank, such records and schedules or copies thereof as the
Bank may reasonably require to protect its security interests hereunder.
Such records and schedules may show the status and condition of the
Collateral, where it is located and such contracts or other matters which
affect the Collateral;
(b) Send verification requests to any Account Debtor;
(c) Make inquiries of the Company's trade vendors; and
(d) Require the Company to promptly and duly execute and deliver any
and all such further instruments and documents and take such further action
as the Bank may reasonably deem desirable to obtain the full benefits of
this Agreement and of the rights and powers herein granted, including,
without limitation, (i) executing and delivering financing or continuation
statements with respect to the liens and security interests granted hereby
and
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(ii) transferring Collateral to the Bank's possession (if a security
interest in such Collateral can be perfected only by possession).
5.3 Survival. The provisions of this Article 5 and Sections 6.10, 7.1,
--------
7.2, 7.3, 7.11 and 7.18 shall survive the termination of this Agreement and
shall continue in full force and effect until such time as all the Secured
Obligations are indefeasibly paid in full.
ARTICLE 6
REPRESENTATIONS AND WARRANTIES
------------------------------
In order to induce the Bank to enter into this Agreement and to make the
Loans, the Company does hereby make the following representations, warranties
and agreements as of the Effective Date and thereafter on and as of the date
that any Loan is made or any Letter of Credit is issued:
6.1 Corporate Status. The Company is a duly organized and validly
----------------
existing corporation in good standing under the laws of the State of California.
The Company (i) has the power and authority to own its property and assets and
to transact the business in which it is engaged, (ii) is duly licensed,
qualified as a foreign corporation and in good standing in each jurisdiction
where it owns or leases real property and in which failure to be licensed, duly
qualified and in good standing would have a material adverse effect on the
financial condition or operations of the Company.
6.2 Corporate Power and Authority. The execution, delivery and
-----------------------------
performance by the Company of this Agreement and the other Credit Documents are
within the Company's corporate powers, have been duly authorized by all
necessary corporate action, require no action by or in respect of, or filing
with, any governmental body, agency or official or any consent or approval of
the Company's stockholders and do not contravene, or constitute a default under
any provision of applicable law or regulation or of any writ, order, judgment or
injunction presently in effect affecting the Company or of the articles of
incorporation or by-laws of the Company or of any agreement, indenture or
instrument evidencing debt of the Company or other material instrument to which
the Company is a party or by which it or its properties may be bound or affected
or result in the creation or imposition of any lien on the property or assets of
the Company (except for the liens created pursuant to Article 5 hereof).
6.3 Binding Effect. This Agreement constitutes a valid and binding
--------------
agreement of the Company and the other Credit Documents, when executed and
delivered in accordance with this Agreement, will constitute valid and binding
obligations of the Company, in each case enforceable in accordance with their
respective terms, except as enforcement may be limited by bankruptcy,
insolvency,
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or other laws affecting the enforcement of creditors' rights generally and
except as the remedy of specific performance or of injunctive relief is subject
to the discretion of the court hearing such proceedings.
6.4 Financial Information.
---------------------
(a) The consolidated balance sheet of the Company as of October 2,
1994 and the related consolidated statements of earnings, shareholder's
equity and changes in the financial position of the Company for the fiscal
year then ended, reported on by Coopers & Lybrand, copies of which have
been furnished to the Bank, fairly present, in conformity with generally
accepted accounting principles, the consolidated financial position of the
Company as of such date and its consolidated results of operations.
(b) Since October 2, 1994 there has been no material adverse change in
the business, financial position, results of operations or prospects of the
Company taken as a whole.
6.5 Litigation. There is no action, suit or proceeding pending against,
----------
or to the knowledge of the Company threatened against or affecting, the Company
before any court or arbitrator or any governmental body, agency or official
which, if determined adversely to the Company, would have a material adverse
effect on the Company's financial condition or operations or which in any manner
draws into question the validity of this Agreement or the other Credit
Documents.
6.6 Not an Investment Company. The Company is not an "investment company"
-------------------------
within the meaning of the Investment Company Act of 1940, as amended.
6.7 Compliance with ERISA. The Company has fulfilled its obligations
---------------------
under the minimum funding standards of ERISA and the Code with respect to each
Plan, is in compliance in all material respects with the presently applicable
provisions of ERISA and the Code and has not incurred any liability to the PBGC
in connection with any Plan.
6.8 Taxes. The Company has filed all Federal, state and local tax returns
-----
and reports required to be filed by it and has paid all taxes shown due on the
returns so filed as well as all other material taxes, assessments and
governmental charges which have become due other than taxes, assessments or
governmental charges which are being duly contested in good faith by appropriate
proceedings. The charges, accruals and reserves on the books of the Company in
respect of taxes or other governmental charges are adequate.
6.9 Full Disclosure. All information heretofore furnished by the Company
---------------
to the Bank for the purposes of or in connection with this Agreement, the other
Credit Documents or any transaction contemplated hereby or thereby is, and all
such
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information hereafter furnished by the Company to the Bank will be, true,
accurate and complete in every material respect on the date as of which such
information is stated or certified and will not omit any material fact necessary
to make such information not misleading. The Company has disclosed to the Bank
in writing any and all facts which materially and adversely affect or may affect
(to the extent that the Company can now reasonably foresee) the business,
operations, prospects or condition (financial or otherwise) of the Company or
the ability of the Company to perform its obligations under this Agreement and
the other Credit Documents.
6.10 Fictitious Trade Styles. There are no fictitious trade styles used by
-----------------------
the Company in connection with its business operations. The Company does not
do, and has not done, business under any name other than ADAC Laboratories. The
Company shall notify the Bank not less than 30 days prior to effecting any
change in the matters described herein or prior to using any other name or
fictitious trade style at any future date, indicating the name or trade style
and state(s) of its use.
6.11 Title to Assets; Permitted Liens; Location of Collateral. The Company
--------------------------------------------------------
has good and marketable title to all of its assets (including, but not limited
to, the Collateral) and the same are not subject to any security interest,
encumbrance, lien or claim of any third person other than: (i) liens and
security interests securing indebtedness owed by the Company to the Bank; (ii)
liens for taxes, assessments or similar charges either not yet due or being duly
contested in good faith; (iii) liens of mechanics, materialmen, warehousemen or
other like liens arising in the ordinary course of business and securing
obligations which are not yet delinquent; (iv) liens and security interests
which, as of August 6, 1993, have been disclosed to and approved by the Bank in
writing; (v) purchase money liens or purchase money security interests upon or
in any property acquired or held by the Company in the ordinary course of
business to secure indebtedness outstanding on August 6, 1993 or permitted to be
incurred hereunder; (vi) liens on the Collateral securing the indebtedness of
the Company to Sanwa permitted pursuant to Section 7.10 hereof; and (vii) those
liens and security interests which in the aggregate constitute an immaterial and
insignificant monetary amount with respect to the net value of the Company's
assets (collectively "Permitted Liens"). As of the Effective Date, not less than
80% in value of the Collateral described in Sections 5.1(a) and (b) will be
located in the State of California.
ARTICLE 7
COVENANTS
---------
The Company covenants and agrees that so long as this Agreement or any
other Credit Document is in effect or any liabilities (whether direct or
indirect) of the Company to the
16
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Bank under this Agreement remain outstanding or any amount payable under any
other Credit Document remains unpaid that the Company shall, unless the Bank
otherwise consents in writing:
7.1 Preservation of Existence; Compliance with Applicable Laws. Maintain
----------------------------------------------------------
and preserve its existence and all rights and privileges now enjoyed; not
liquidate, dissolve, merge or consolidate with or into or acquire any other
business organization (except for the purchase of CHC to the extent permitted by
Section 7.15); and conduct its business in accordance with all applicable laws,
rules and regulations except where such failure to so conduct its business would
not have a material adverse affect upon the Company's business as a whole or its
financial condition.
7.2 Maintenance of Insurance. Maintain insurance in such amounts and
------------------------
covering such risks as is usually carried by companies engaged in similar
businesses and owning similar properties in the same general areas in which the
Borrower operates and maintain such other insurance and coverages as reasonably
may be required by the Bank. All such insurance shall be in form and amount and
with companies satisfactory to the Bank. With respect to insurance covering
properties in which the Bank maintains a security interest or lien, such
insurance shall name the Bank as loss payee pursuant to a loss payable
endorsement satisfactory to the Bank and shall not be altered or cancelled
except upon 10 days' prior written notice to the Bank. Upon the Bank's request,
the Company shall furnish the Bank with the original policy or binder of all
such insurance.
7.3 Maintenance and Location of Collateral and Other Properties. Except
-----------------------------------------------------------
for Permitted Liens, keep and maintain the Collateral free and clear of all
levies, liens, encumbrances and security interests (including, but not limited
to, any lien of attachment, judgment or execution) and defend the Collateral
against any such levy, lien, encumbrance or security interest; comply in all
material respects with all laws, statutes and regulations pertaining to the
Collateral and its use and operation; execute, file and record such statements,
notices and agreements, take such actions and obtain such certificates and other
documents as necessary to perfect, evidence and continue the Bank's security
interest in the Collateral and the first priority thereof (subject only to
Permitted Liens); maintain accurate and complete records of the Collateral which
show all sales, claims and allowances; and properly care for, house, store and
maintain the Collateral in good condition, free of misuse, abuse and
deterioration, other than normal wear and tear. The Company shall also maintain
and preserve all its properties in good working order and condition in
accordance with the general practice of other businesses of similar character
and size, ordinary wear and tear excepted.
7.4 Payment of Obligations and Taxes. Make timely payment of all
--------------------------------
assessments and taxes and all of its liabilities and obligations unless the same
are being contested in good faith and
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by appropriate proceedings, and maintain, in accordance with GAAP, appropriate
reserves for the accrual of any of the same.
7.5 Inspection Rights. Keep proper books of record and account in which
-----------------
full, true and correct entries in conformity with GAAP shall be made of all
dealings and transactions in relation to its business and activities; and at any
reasonable time and from time to time permit the Bank or any representative
thereof to examine and make copies of the records and visit the properties of
the Borrower to discuss the business and operations of the Borrower with any
employee or representative thereof or its independent public accountants. If
the Company now or at any time hereafter maintains any records (including, but
not limited to, computer generated records and computer programs for the
generation of such records) in the possession of a third party, the Company
hereby agrees to notify such third party to permit the Bank free access to such
records at all reasonable times and to provide the Bank with copies of any
records it may request, all at the Company's expense, the amount of which shall
be payable immediately upon demand. The Bank will use reasonable efforts,
consistent with its normal business practices, to maintain the confidentiality
of any information so received.
7.6 Reporting Requirements. Deliver or cause to be delivered to the Bank
----------------------
in form and detail satisfactory to the Bank:
(a) As soon as available and in any event within 120 days after the
end of each of the Company's fiscal years, an audited consolidated and an
unaudited consolidating balance sheet of the Company as of the end of such
fiscal year and the related statements of earnings, shareholders equity and
cash flows for such fiscal year, setting forth in each case in comparative
form the figures for the preceding fiscal year, all reported on in a manner
acceptable to the Securities and Exchange Commission and, with respect to
such consolidated statements, certified by independent public accountants
of nationally recognized standing acceptable to the Bank;
(b) As soon as available and in any event within 45 days after the end
of the first three fiscal quarters of each fiscal year of the Company, a
consolidated and consolidating balance sheet for the Company as of the end
of such quarter and the related consolidated statements of cash flows of
the Company for such quarter and for the portion of the Company's fiscal
year ended at the end of such quarter, setting forth in each case in
comparative form the figures for the corresponding quarter and the
corresponding portion of the Company's previous fiscal year;
(c) Simultaneously with the delivery of each set of financial
statements referred to in clauses (a) and (b) above, a certificate of the
Company's chief financial officer or treasurer (i) stating whether there
exists on the
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date of such certificate an Event of Default or an event
which, with notice or lapse of time or both would constitute an Event of
Default, and if any such event has occurred and is continuing, a statement
as to the nature thereof and the action which the Company proposes to take
with respect thereto, (ii) setting forth in reasonable detail the
calculations required to establish whether the Company was in compliance
with the requirements of Sections 7.7 through 7.10, 7.12, 7.14 and 7.15,
and (iii) stating whether on the date of such certificate at least 80% in
value of the Collateral described in Sections 5.1(a) and (b) hereof is
located in the State of California, and if not, stating in which states of
the United States or other countries such Collateral is located and the
percentage in value of such Collateral that is located in each such state
or country;
(d) Not later than 60 days after the end of each of the Company's
fiscal years, a copy of the Company's financial projections for the
succeeding fiscal year;
(e) Promptly upon the filing thereof, copies of all registration
statements and annual, quarterly or other reports which the Company shall
have filed with the Securities and Exchange Commission; and
(f) From time to time such additional information regarding the
business, financial condition and operations of the Company as the Bank may
reasonably request.
7.7 Payment of Dividends. Not declare or pay any dividends on any class
--------------------
of stock now or hereafter outstanding except dividends payable solely in the
Company's capital stock and except dividends up to the sum of 50% of the
preceding four fiscal quarters' net profit less any dividends previously paid
during the preceding four fiscal quarters plus any amounts realized from the
exercise of stock options or warrants in the preceding four fiscal quarters.
7.8 Redemption or Repurchase of Stock. Not redeem or repurchase any class
---------------------------------
of the Company's stock now or hereafter outstanding, except, when combined with
dividends paid pursuant to Section 7.7, up to the sum of 50% of the preceding
four fiscal quarters' net profit less any dividends previously paid during the
preceding four fiscal quarters or any previous repurchases plus any amounts
realized from the exercise of stock options or warrants in the preceding four
fiscal quarters.
7.9 Additional Indebtedness. Not, after August 6, 1993, create, incur or
-----------------------
assume, directly or indirectly, any liability or indebtedness other than (a)
indebtedness owed or to be owed to the Bank, (b) indebtedness to trade creditors
incurred in the ordinary course of the Company's business, (c) indebtedness for
loans made to the Company by Sanwa, provided that the aggregate principal amount
of such loans outstanding at all times equals the sum of the aggregate principal
amount of the Loans and the
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aggregate face amount of the Letters of Credit then outstanding under this
Agreement, (d) recourse obligations of the Company in connection with any
Company arranged financings for its sales or sales by the Company of its
accounts receivable, provided that the aggregate amount of all such obligations
do not exceed $20,000,000 at any time, and (e) indebtedness of the Company under
capital leases arising from the sale and leaseback by the Company of its assets,
provided that the aggregate book value of the assets sold by the Company in
connection with all such transactions does not exceed $5,000,000 during the term
of this Agreement (all such permitted sale-leaseback transactions to be referred
to herein as "Permitted Sale-Leaseback Transactions").
-------------------------------------
7.10 Loans. Not make any loans or advances or extend credit to any third
-----
person, including, but not limited to, directors, officers, shareholders,
partners, employees, affiliated entities or subsidiaries of the Company, except
for (a) credit extended in the ordinary course of the Company's business as
presently conducted, provided that the aggregate amount of all such credit which
is unsecured does not exceed $500,000 in any one fiscal year and the aggregate
amount of such credit which is secured by the Company's stock does not exceed
$1,500,000 in any one fiscal year, and (b) a loan or loans to CHC, provided that
(i) the aggregate principal amount of all such loans does not exceed $12,100,000
and (ii) all such loans are fully secured by a security interest of first
priority in property of CHC; provided that the provisions of clause (b) shall
not apply from and after the date CHC has been merged into or otherwise has
become a division of the Company.
7.11 Liens and Encumbrances. Not create, assume or permit to exist any
----------------------
security interest, encumbrance, mortgage, deed of trust or other lien including,
but not limited to, a lien of attachment, judgment or execution, affecting any
of the Company's properties, or execute or allow to be filed any financing
statement or continuation thereof affecting any such properties,
except for Permitted Liens and as otherwise provided in this Agreement.
7.12 Transfer of Assets. Not sell, contract for sale, convey, assign,
------------------
lease, sublet or otherwise transfer any of its assets except for (a) the sale of
inventory in the ordinary course of business as presently conducted by the
Company and (b) other transfers of assets (including, without limitation, (i)
any sale of an asset which is to be the subject of a Permitted Sale-Leaseback
Transaction and (ii) any recourse or non-recourse sale of its accounts
receivable) in the ordinary course of business as presently conducted by the
Company, provided that (i) each such transfer is for full, fair and reasonable
consideration and (ii) the aggregate amount of all assets so transferred does
not exceed $3,200,000 for any fiscal year.
7.13 Change in the Nature of Business. Not make any material change in its
--------------------------------
financial structure or in the nature of its business as existing or conducted as
of August 6, 1993.
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7.14 Financial Condition. Maintain at all times on a consolidated basis:
-------------------
(a) Debt to Net Worth Ratio. A Debt to Effective Tangible Net Worth
-----------------------
ratio of not more than 1.25 to 1.
(b) Current Ratio. A ratio of current assets to current liabilities
-------------
of not less than 1.40 to 1.
(c) Quick Ratio. A ratio of the sum of Liquid Assets plus accounts
-----------
receivable to current liabilities of not less than .90 to 1.
(d) Net Profit. A minimum net profit after tax for each fiscal
----------
quarter of at least $1.00.
(e) Consolidated Working Capital. A minimum working capital of not
----------------------------
less than $15,000,000.
(f) Net Worth. A minimum Effective Tangible Net Worth of not less
---------
than $48,000,000, plus 50% of the net profits for each fiscal quarter after
the second fiscal quarter of the Company that ends in calendar year 1994
and 100% of the net proceeds of any equity offerings after the end of such
fiscal quarter, minus up to $6,000,000 used to repurchase or redeem the
Company's stock prior to December 31, 1994.
(g) Unconsolidated Working Capital. Maintain at all times, on an
------------------------------
unconsolidated basis, a minimum working capital of not less than
$15,000,000.
(h) Unconsolidated Tangible Net Worth. Maintain at all times on an
---------------------------------
unconsolidated basis an Effective Tangible Net Worth of not less than
$44,000,000, plus 50% of the net profits for each fiscal quarter after the
second fiscal quarter of the Company that ends in calendar year 1994 and
100% of the net proceeds of any equity offerings after the end of such
fiscal quarter, minus up to $6,000,000 used to repurchase or redeem the
Company's stock prior to December 31, 1994.
7.15 Capital Expenditures. Not make any fixed capital expenditure or any
--------------------
commitment therefor, including, but not limited to, incurring liability for uses
which would be, in accordance with generally accepted accounting principles,
reported as capital leases, or purchase any real or personal property, in an
aggregate amount exceeding $3,000,000 in any one fiscal year; except that the
Company may purchase all of the outstanding stock of CHC provided that (a) the
aggregate cost to the Company of such purchase does not exceed $20,600,000 and
(b) at the time of such purchase and after giving effect thereto, no Default or
Event of Default shall have occurred and be continuing.
21
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7.16 Notices. Give prompt written notice to the Bank of any and all (a)
-------
Defaults or Events of Default, together with a statement of the Company's chief
financial officer or treasurer setting forth the details of such Default or
Event of Default and the action which the Company proposes to take with respect
thereto, (b) litigation, arbitration or administrative proceedings to which the
Company is a party and in which the claim or liability exceeds $300,000, (c)
notices given or required to be given by the Company or any subsidiary or any
plan administrator to the PBGC of any "reportable event" (as defined in Section
4043 of ERISA) with respect to any Plan that is not a Multiemployer Plan which
might constitute grounds for termination of such Plan under Title IV of ERISA,
or with respect to any Multiemployer Plan, notices received as prescribed in
ERISA of any material withdrawal liability assessed against the Company or any
subsidiary, and (d) events which would result in a change in the location of
more than 20% in value of the Collateral described in Sections 5.1(a) and (b)
(other than intrastate changes in location), which notice shall be given not
less than 30 days prior to the occurrence of any such event.
7.17 Environmental Compliance. The Company shall:
------------------------
(a) Implement and comply in all material respects with all applicable
federal, state and local laws, ordinances, statutes and regulations with
respect to hazardous or toxic wastes, substances or related materials,
industrial hygiene or environmental conditions;
(b) Not own, use, generate, manufacture, store, handle, treat, release
or dispose of any hazardous or toxic wastes, substances or related
materials;
(c) Give prompt written notice of any discovery of or suit,
proceeding, claim, dispute, threat, inquiry or filing respecting hazardous
or toxic wastes, substances or related materials; and
(d) At all times indemnify and hold harmless Bank from and against any
and all liability arising out of the use, generation, manufacture, storage,
handling, treatment, disposal or presence of hazardous or toxic wastes,
substances or related materials.
7.18 Chief Executive Office. At all times maintain its chief executive
----------------------
office at a location within the State of California.
7.19 Use of Proceeds. Not use any of the proceeds of the Loans in
---------------
violation of any applicable law, regulation, order, decree or injunction of any
governmental authority, and no use of such proceeds for general corporate
purposes will include any use thereof, directly or indirectly, for the purpose,
whether immediate, incidental or ultimate of purchasing or carrying any Margin
Stock.
22
<PAGE>
ARTICLE 8
CONDITIONS PRECEDENT
--------------------
8.1 All Loans and Letters of Credit. The obligation of the Bank to make a
-------------------------------
Loan to the Company or to issue a Letter of Credit is subject to the
satisfaction of the following conditions: (a) receipt by the Bank of the notice
required in Section 2.3 for such Loan or the documents required by Section 4.2
for such Letter of Credit; (b) the fact that as of the making of such Loan or
issuance of such Letter of Credit and immediately thereafter: (i) no Event of
Default shall have occurred and be continuing nor shall any event have occurred
and be continuing which with the lapse of time or notice or both shall
constitute an Event of Default nor shall any such event or Event of Default
result from the making of such Loan or issuance of such Letter of Credit, (ii)
the representations and warranties of the Company in this Agreement continue to
be true and correct in all material respects, and (iii) there has been no
material adverse change in the business, financial position, results of
operations or, to the extent reasonably foreseeable, prospects of the Company;
and (c) the security interest in the Collateral has been duly authorized,
created and perfected with first priority and is in full force and effect,
subject to Permitted Liens.
ARTICLE 9
DEFAULT
-------
9.1 Events of Default. If one or more of the following events
-----------------
("Events of Default") shall have occurred and be continuing, they shall
constitute an Event of Default:
(a) The Company shall fail to pay when due any principal of any Loan
or any amounts owed with respect to a Letter of Credit or a Guaranty, or
shall fail to pay within five days of the due date thereof any interest,
fees or other amounts due hereunder or under any of the other Credit
Documents;
(b) The Company shall fail to observe or perform any covenant
contained in Sections 7.1, 7.3, 7.7 through 7.15 or 7.19;
(c) The Company shall fail to observe or perform any covenant
contained in this Agreement or any of the other Credit Documents (other
than those covered by clause (a) or (b) above) for twenty (20) days after
written notice thereof has been given to the Company by the Bank;
(d) Any representation, warranty, certification or statement made by
the Company in this Agreement or any of the other Credit Documents or in
any certificate, financial
23
<PAGE>
statement or other document delivered pursuant to this Agreement or any of
the other Credit Documents shall prove to have been incorrect in any
material respect when made;
(e) The Company shall fail to make any payment in respect of any debt
for borrowed money (other than as evidenced by the Note) when due (or after
giving effect to any applicable grace period) whether such debt shall
become due by scheduled maturity, by required prepayment, by acceleration,
by demand or otherwise; or the Company shall fail to perform beyond any
period of grace with respect thereto any term, covenant or agreement on its
part to be performed under any agreement or instrument (other than this
Agreement) evidencing or securing or relating to such debt by the Company
when required to be performed, if the effect of such failure is to
accelerate, or to permit the holder of such debt to accelerate the maturity
thereof;
(f) The Company shall commence a voluntary case or other proceeding
seeking liquidation, reorganization or other relief with respect to itself
or its debts under any bankruptcy, insolvency or other similar law now or
hereafter in effect or seeking the appointment of a trustee, receiver,
liquidator, custodian or other similar official of it or any substantial
part of its property, or shall consent to any such relief or to the
appointment of or taking possession by any such official in any involuntary
case or other proceeding commenced against it, or shall make a general
assignment for the benefit of creditors, or shall fail generally to pay its
debts as they become due, or shall take any corporate action to authorize
any of the foregoing;
(g) An involuntary case or other proceeding shall be commenced against
the Company seeking liquidation, reorganization or other relief with
respect to it or its debts under any bankruptcy, insolvency or other
similar laws now or hereafter in effect or seeking the appointment of a
trustee, receiver, liquidator, custodian or other similar official of its
or any substantial part of its property, and such involuntary case or other
proceeding shall remain undismissed and unstayed for a period of sixty (60)
days; or an order for relief shall be entered against the Company under the
Bankruptcy Code;
(h) A judgment or order for the payment of money in excess of $300,000
shall be rendered against the Company and such judgment or order shall
continue unsatisfied and unstayed for a period of 20 days;
(i) The Company shall fail to pay when due any material amount which
is either uncontested or if contested the subject of a final non-appealable
decision and which it shall have become liable to pay to the PBGC or to a
Plan under Title IV or ERISA, or the PBGC shall institute proceeding under
Title VI of ERISA to terminate or to cause
24
<PAGE>
a trustee to be appointed to administer any Plan or Plans which could give
rise to a material liability to the Company under Title IV of ERISA; or the
Company shall incur any material withdrawal liability with respect to any
Multiemployer Plan which is uncontested or, if contested, is the subject of
a final non-appealable decision and the Company fails to discharge, satisfy
or otherwise eliminate such liability with respect to any Multiemployer
Plan within the time required by the judgment;
(j) The Company shall voluntarily suspend the transaction of business
or allow to be suspended, terminated, revoked or expired any permit,
license or approval of any governmental body necessary to conduct the
Company's business as now conducted;
(k) There shall occur a sale or transfer to, (whether voluntary or
involuntary), or an agreement shall be entered into to do so with, any
Person or group of Persons (as such terms are defined pursuant to Federal
securities laws) who would own more than 40% of the issued and outstanding
capital stock of the Company and, as a result thereof, such Person or group
of Persons has the ability to direct or cause the direction of the
management and policies of the Company; or
(l) The Bank's security interest in the Collateral granted pursuant to
Article 5 hereof shall at any time fail to be a valid security interest
that has attached to all the Collateral in which the Company has rights.
9.2 Remedies. If an Event of Default shall occur: (a) any indebtedness
--------
of the Company under the Note, this Agreement or any other Credit Document, any
term thereof to the contrary notwithstanding, shall, at the Bank's option and
without notice, become immediately due and payable without presentment, demand,
protest or notice of dishonor, all of which are hereby expressly waived by the
Company; (b) the obligation, if any, of the Bank to permit further Loans or
issue further Letters of Credit hereunder shall immediately cease and terminate;
and (c) the Bank shall have all rights, powers and remedies available under the
Agreement and any document related thereto, including without limitation the
right to resort to any or all security and to exercise any or all of the rights
and remedies of a beneficiary or secured party pursuant to the California
Uniform Commercial Code or other applicable law. All rights, powers and
remedies of the Bank may be exercised at any time by the Bank and from time to
time after the occurrence of an Event of Default. All rights, powers and
remedies of the Bank contained herein or in any other Credit Document are
cumulative and not exclusive and shall be in addition to any other rights,
powers or remedies provided by law or equity.
9.3 Letters of Credit. If an Event of Default shall occur, the Bank may,
-----------------
at its sole and absolute discretion and in addition
25
<PAGE>
to any other remedies available to it hereunder, require the Company to pay
immediately to the Bank, for prompt application against drawings under any
outstanding Letters of Credit, the outstanding principal amount of any such
Letters of Credit which have not expired. Any portion of the amount so paid to
the Bank which is not applied to satisfy draws under any such Letters of Credit
or any other obligations of the Company to the Bank shall be repaid to the
Company or such other Persons who may be entitled thereto without interest upon
expiration of all Letters of Credit and full satisfaction of all other
obligations owed by the Company to the Bank. The provisions of this Section 9.3
shall be in addition to any other obligations of the Company contained in any
other Credit Document to deposit cash with the Bank with respect to outstanding
Letters of Credit. All amounts paid to the Bank under this Section shall be
Collateral.
9.4 Notification of Account Debtors. If an Event of Default shall occur,
-------------------------------
the Bank may at its sole and absolute discretion and in addition to any other
remedies available to it hereunder:
(a) Notify any Account Debtor, any buyers or transferee of the
Collateral or any other Persons of the Bank's interest in the Collateral
and the proceeds thereof;
(b) Sign the Company's name (which authority the Company hereby
irrevocably and unconditionally grants the Bank) on any invoice or bill of
lading relating to accounts or other drafts against the Accounts Debtors,
notify post office authorities to change the address for delivery of mail
addressed to the Company to such address as the Bank may designate and take
possession of and open mail addressed to the Company and remove therefrom,
proceeds of an payment on the Collateral, and demand, receive and endorse
payment and give receipts, releases and satisfactions for and sue for all
money payable to the Company;
(c) Require the Company to indicate on the face of all invoices (or
such other documentation as may be specified by the Bank relating to the
sale, delivery or shipment of goods giving rise to the account) that the
account has been assigned to the Bank and that all payments are to be made
directly to the Bank at such address as the Bank may designate; and
(d) Require the Company to direct all Account Debtors to forward all
remittances, payments and proceeds of the Collateral directly to the Bank
at such address as the Bank may designate. In connection therewith, the
Company hereby irrevocably constitutes and appoints the Bank as its
attorney-in-fact to endorse the Company's name on any notes, acceptances,
checks drafts, money orders or other evidence of payment that may come into
the Bank's possession.
26
<PAGE>
9.5 Protection of Security Interest. If an Event of Default occurs, the
-------------------------------
Bank may, at its sole and absolute discretion and in addition to any other
remedies available to it hereunder, make such payments and do such acts as the
Bank, in its sole judgment, considers necessary and reasonable to protect its
security interest or lien in the Collateral. The Company hereby irrevocably
authorizes the Bank to pay, purchase, contest or compromise any encumbrance,
lien or claim which the Bank, in its sole judgment, deems to be prior or
superior to its security interest. Further, the Company hereby agrees to pay to
the Bank, upon demand therefor, all expenses and expenditures (including
attorneys' fees) incurred in connection with the foregoing.
9.6 Foreclosure. If an Event of Default occurs, the Bank may, at its sole
-----------
and absolute discretion and in addition to any other remedies available to it
hereunder, enforce any security interest or lien given or provided for under
this Agreement or under any security agreement, mortgage, deed of trust or other
document, in such manner and such order, as to all or any part of the properties
subject to such security interest or lien, as the Bank, in its sole judgment,
deems to be necessary or appropriate and the Company hereby waives any and all
rights, obligations or defenses now or hereafter established by law relating to
the foregoing. In the enforcement of its security interest or lien, the Bank is
authorized to enter upon the premises where any Collateral is located and take
possession of the Collateral or any part thereof, together with the Company's
records pertaining thereto, or the Bank may require the Company to assemble the
Collateral and records pertaining thereto and make such Collateral and records
available to the Bank at a place designated by the Bank. The Bank may sell the
Collateral or any portions thereof, together with all additions, accessions and
accessories thereto, giving only such notices and following only such procedures
as are required by law, at either a public or private sale, or both, with or
without having the Collateral present at the time of the sale, which sale shall
be on such terms and conditions and conducted in such manner as the Bank
determines in its sole judgment to be commercially reasonable. Any deficiency
which exists after the disposition or liquidation of the Collateral shall be a
continuing liability of the Company to the Bank and shall be immediately paid by
the Company to the Bank.
9.7 Application of Proceeds. All amounts received by the Bank as proceeds
-----------------------
from the disposition or liquidation of the Collateral shall be applied to the
Company's indebtedness to the Bank as follows: first, to the costs and expenses
of collection, enforcement, protection and preservation of the Bank's lien in
the Collateral including court costs and reasonable attorneys' fees, whether or
not suit is commenced by the Bank; next to those costs and expenses incurred by
the Bank in protecting, preserving, enforcing, collecting, liquidating, selling
or disposing of the Collateral; next, to the payment of accrued and unpaid
interest on all of the Loans; next, to the payment of the outstanding principal
balance of the Loans; and last, to the
27
<PAGE>
payment of any other obligations owed by the Company to the Bank. Any excess
Collateral or excess proceeds existing after the disposition or liquidation of
the Collateral will be returned or paid by the Bank to the Company or such other
Persons who may be entitled thereto.
ARTICLE 10
CHANGE IN CIRCUMSTANCES
-----------------------
10.1 Compensation for Funding Loss or Expense. The Company shall pay to
----------------------------------------
the Bank, upon the request of the Bank, such amount or amounts as shall
compensate the Bank for any loss, cost or expense incurred by the Bank and
promptly reported to the Company as a result of any payment or prepayment of a
LIBOR Loan on a date other than the last day of an Interest Period. A
certificate of the Bank shall be conclusive, except in the case of manifest
error, as to the amount of such loss, cost or expenses due to the Bank in
accordance with this Section. If for any reason any such certificate is
delivered after the prepayment or payment by acceleration to which such
certificate relates, the Company promptly upon receipt of the certificate shall
pay to the Bank the amount set forth therein.
10.2 Illegality. If after August 6, 1993, the adoption of any applicable
----------
law, rule or regulation, or any change therein, or any change in the
interpretation or administration thereof by any governmental authority, central
bank or comparable agency charged with the interpretation or administration
thereof, or compliance by the Bank with any request or directive (whether or not
having the force of law) of any such authority, central bank or comparable
agency shall make it unlawful or impossible for any Bank to make, maintain or
fund LIBOR Loans, the Bank shall forthwith give notice thereof to the Company
whereupon until the Bank notifies the Company that the circumstances giving rise
to such suspension no longer exist, the obligation of the Bank to make LIBOR
Loans shall be suspended and outstanding LIBOR Loans shall be converted to Base
Rate Loans.
10.3 Taxes.
-----
(a) All payments made under this Agreement, the Note and the other
Credit Documents shall be made free and clear of, and without set-off or
counterclaim for or on account of, any present or future taxes levies,
imposts, duties, deductions, withholdings, fees, liabilities and similar
charges (collectively, the "Taxes") imposed by any government or any
political subdivision or taxing authority thereof (other than taxes based
solely on the overall net income of the Bank); provided, however, that such
payments may be reduced by the amount of United States Federal income taxes
required to be withheld by the Company with respect to any payment of
interest to the extent that such withholding does not exceed such taxes
which would be required to be
28
<PAGE>
withheld if such interest were paid on August 6, 1993. If the Company is
prevented by operation of law or otherwise from paying, causing to be paid,
or remitting that portion of interest represented by Taxes withheld or
deducted, then interest payable under this Agreement, the Note and the
other Credit Documents will be increased to such amount as is necessary to
yield and remit interest to the Bank at the applicable rate specified in
Article 2 after provision for payment of such Taxes (other than as provided
in the immediately preceding sentence). The Company will execute and
deliver to the Bank at its request such further instruments as may be
necessary or desirable to give full force and effect to such increase in
the rate of interest, including but not limited to, a new Note of the
Company to be issued in exchange for any Note theretofore issued. The
Company will also hold the Bank harmless and indemnify it for any stamp or
other taxes with respect to the preparation, execution, delivery,
performance or enforcement of this Agreement, the Note or the other Credit
Documents. If any of the Taxes required to be paid by the Company are not
paid by the Company and are paid by the Bank, the Company will, upon demand
of the Bank, reimburse the Bank for such payments, together with any
interest penalties and expenses in connection therewith, plus interest
thereon at a rate equal to 1% per annum over the cost to the Bank (as
determined by the Bank) of funds acquired by it to pay the same, from the
date such payment is made to the date of reimbursement by the Company. With
respect to any deduction or withholding pursuant to this Section, the
Company shall promptly (but in no event later than thirty (30) days
thereafter) furnish to the Bank upon its request such certificates,
receipts and other documents as may be required to establish any tax credit
to which the Bank may be entitled.
(b) In the event that any change in applicable law or regulation or in
the interpretation or administration thereof by any governmental authority
charged with the administration thereof subjects the Bank to any tax, levy,
impost, duty, charge, fee, deduction or withholding of any kind whatsoever
with respect to this Agreement, the Note or the other Credit Documents, or
changes the basis of taxation of payments to the Bank of principal or
interest payable on the Note or the other Credit Documents (other than any
tax on the overall net income of the Bank) or imposes, modifies or deems
applicable any reserve requirement against assets held by or deposits in or
for the account of, or loans by, the Bank or imposes on the Bank, directly
or indirectly, any other conditions affecting this Agreement, the Note or
the other Credit Documents, and the result of any of the foregoing is to
increase the cost to the Bank of maintaining the Loans by an amount which
the Bank deems to be material in relation to the Loans, the Letters of
Credit or the Guaranties or interest thereon, then the Company shall pay
such additional costs to the Bank immediately upon its
29
<PAGE>
demand; provided, however that the Company shall not be liable for
additional costs hereunder in the event that it immediately prepays all the
Loans and all other obligations in full, in accordance with Article 3 of
this Agreement.
10.4 Reserve Requirements. It is understood that the cost to the Bank in
--------------------
making or maintaining a LIBOR Loan may fluctuate as a result of the
applicability of or changes in reserve requirements imposed by the Board of
Governors of the Federal Reserve System of the United States, including but not
limited to reserve requirements under Regulation D of such Board of Governors in
connection with Eurocurrency Liabilities at the ratios provided for in
Regulation D from time to time. The Company agrees to compensate the Bank for
such costs of making or maintaining the LIBOR Loans made by it resulting from
such reserve requirements since it is understood by the parties hereto that the
rates of interest applicable to LIBOR Loans under this Agreement have been
determined on the hypothetical assumption that no such reserve requirements
exist or will exist and that such rates do not reflect costs imposed on the Bank
in connection with such reserve requirements. Both parties to this Agreement
acknowledge that as of the Effective Date, the reserve requirement is zero.
10.5 Notice Certificates. The Bank shall deliver to the Company from time
-------------------
to time one or more certificates setting forth the amounts due to the Bank under
this Article 10 and the method the Bank used to compute such amounts. Each such
certificate shall be conclusive in the absence of manifest error. The Company
shall pay to the Bank the amounts shown as due on each such certificate within
ten Business Days of its receipt of same (except as otherwise indicated for the
certificate sent under Section 10.1). No failure on the part of the Bank to
demand compensation under this Article 10 on any one occasion shall constitute a
waiver of its right to demand such compensation on any other occasion.
ARTICLE 11
MISCELLANEOUS
-------------
11.1 Waiver and Amendment. No delay, failure or discontinuance of the
--------------------
Bank in exercising any right, power or remedy under this Agreement or any other
Credit Document shall affect or operate as a waiver of such right, power or
remedy, nor shall any single or partial exercise of any such right, power or
remedy preclude, waive or otherwise affect any further or other exercise thereof
or the exercise of any other right, power or remedy. Any waiver, permit,
consent or approval of any kind by the Bank of any provisions or conditions of,
or any breach of or default under this Agreement or any other Credit Document
must be in writing and shall be effective only to the extent set forth in such
writing. No amendment or modification of this Agreement
30
<PAGE>
shall be valid and binding unless agreed to in writing by both parties hereto.
11.2 Notices. All notices, requests and demands given to or made upon
-------
any party hereto shall be deemed to have been given or made when personally
delivered or two (2) days after any of the same are deposited in the U.S. mail,
first class and postage prepaid, or on the day when sent if transmitted via
facsimile with confirmation of receipt, and addressed as follows:
The Company: ADAC Laboratories
540 Alder Drive
Milpitas, California 95035
Attn: Andre' Simone
Phone: 408-321-9100
FAX: 408-321-9686
The Bank: ABN AMRO Bank N.V.
San Francisco International Branch
101 California Street
Suite 4550
San Francisco, California 94111
Attn: Daniel Taylor
Phone: 415-984-3700
FAX: 415-362-3524
Telex: 278137
Answerback: ABNSF UR
or to such other address as any party hereto may designate by written notice to
all other parties.
11.3 Execution in Counterparts. This Agreement may be executed in any
-------------------------
number of counterparts and by each of the parties hereto in separate
counterparts, each of which when so executed and delivered shall be deemed to be
an original and all of which taken together shall constitute but one and the
same instrument.
11.4 Binding Effect. This Agreement shall become effective when it shall
--------------
have been executed by the Company and the Bank, and thereafter it shall be
binding upon and inure to the benefit of the Company and the Bank and their
respective successors and assigns.
11.5 Assignments and Participations.
------------------------------
(a) The Bank may assign to one or more banks or other entities a part
of its Commitment, Loans owing to the Bank and the Note and other Credit
Documents held by the Bank and to the extent of such assignment (unless
otherwise stated therein), the assignee or purchaser of such assignment
shall, to the fullest extent permitted by law, be deemed to be a party to
this Agreement and shall have the same rights, benefits and obligations
hereunder and under the Commitment, the Loans, and the Note and other
Credit Documents as it
31
<PAGE>
would have if it were a party to this Agreement and the other Credit
Documents.
(b) The Bank may without the consent of the Company sell participation
to one or more banks or other entities of all or a portion of its rights
and obligations under this Agreement (including without limitation, all or
a portion of its Commitment, the Loans owing to it and the Note and other
Credit Documents) provided that (i) the Bank's obligations under this
Agreement shall remain unchanged, (ii) the Bank shall remain solely
responsible to the Company for the performance of such obligations and
(iii) the participating banks or other entities shall be entitled to the
benefits under Article 10 of the Agreement except that a participant shall
not be entitled to receive pursuant to Article 10 an amount larger than its
share of the amount to which the Bank would be entitled.
11.6 Payment Instructions. Unless the Bank otherwise instructs, all
--------------------
payments made to the Bank under this Agreement or any other Credit Document
shall be directed as follows:
Federal Reserve Bank of New York
For account of ABN AMRO Bank NV New York
Federal Routing No. 026009580
For further credit to: ABN San Francisco
A/C No. 6510-010-545-41
Ref: ADAC Laboratories Interest/principal payment
11.7 Survival of Representations and Warranties. All representations and
------------------------------------------
warranties made in this Agreement and any other Credit Document, and in any
certificates and other documents delivered pursuant to any thereof, shall
survive the execution and delivery of this Agreement and any such other Credit
Document, certificate or other document and shall continue in full force and
effect until payment in full of all liabilities on the part of the Company
arising under this Agreement and the other Credit Documents.
11.8 Severability of Provisions. Any provision of this Agreement that is
--------------------------
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions in any other jurisdiction.
11.9 Headings. Section headings in this Agreement are included herein
--------
for convenience of reference only and shall not constitute a part of the
Agreement for any other purpose.
11.10 Governing Law and Jurisdiction. This Agreement shall be construed
------------------------------
in accordance with the laws of the State of California. The Company hereby
irrevocably submits to the jurisdiction of the courts of the State
of California in any action or proceeding arising out of or in connection
with this Agreement, the Loans and the other Credit Documents.
32
<PAGE>
11.11 Judgment Currency. If, for the purpose of obtaining judgment in any
-----------------
court in any country, it becomes necessary to convert into any other currency
("the judgment currency") an amount due in Dollars, then the conversion shall be
made at the rate of exchange prevailing at the close of business on the Business
Day before the day on which the judgment is given. If there is a change in the
rate of exchange prevailing between the Business Day before the day on which the
judgment is given and the date of payment of the amount due, the Company will
pay such additional amounts (if any) as may be necessary to ensure that the
amount paid in the judgment currency when converted at the rate of exchange
prevailing on the date of payment will produce the amount then due under this
Agreement in Dollars and the Bank will apply any additional amounts (if any)
over the amount then due under this Agreement in Dollars that the Bank receives
as a result of such conversion to any other obligations owed by the
Company to the Bank and, if all obligations of the Company to the Bank are fully
satisfied, shall pay any excess to the Company or such other Persons who may be
entitled thereto. The term judgment "rate of exchange" means the spot rate at
which the Bank in accordance with its normal practice is able on the relevant
date to purchase Dollars with the judgment currency and includes any premium and
costs of exchange payable.
11.12 Costs and Expenses. The Company shall, whether or not the
------------------
transactions contemplated hereby shall be consummated, pay or reimburse the Bank
on demand for all costs and expenses incurred in connection with the preparation
and execution of, and any amendment, supplement, waiver or modification to, this
Agreement, any Credit Document and any other documents prepared in connection
herewith or therewith, the consummation of the transactions contemplated hereby
and thereby, or the enforcement or preservation of any rights under this
Agreement, any Credit Document, and any such other documents, including the
reasonable costs and expenses of counsel to the Bank with respect thereto.
11.13 Indemnity. The Company shall pay, indemnify, and hold the Bank and
---------
each of its officers, directors, employees, counsel, agents and attorneys-in-
fact (each, an "Indemnified Person") harmless from and against any and all
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, charges, expenses or disbursements (including fees and expenses of
counsel) of any kind or nature whatsoever with respect to the execution,
delivery, enforcement, performance and administration of this Agreement and any
other Credit Documents or the transactions contemplated herein, and with respect
to any investigation, litigation or proceeding related to this Agreement or the
Loans or the use of the proceeds thereof (whether or not any Indemnified Person
is a party thereto) (all the foregoing, collectively, the "Indemnified
Liabilities"); provided, that the Company shall have no obligation hereunder to
--------
any Indemnified Person with respect to Indemnified Liabilities arising from the
gross negligence or willful misconduct of such Indemnified Person. The
agreements in this Section shall survive the termination of this Agreement.
33
<PAGE>
11.14 Entire Agreement. This Agreement, together with the other Credit
----------------
Documents, embodies the entire agreement and understanding between the Company
and the Bank and supersedes all prior or contemporaneous agreements and
understandings of such persons, verbal or written, relating to the subject
matter hereof and thereof except for any prior arrangements made with respect to
the payment by the Company of (or any indemnification for) any fees, costs or
expenses payable to or incurred (or to be incurred) by or on behalf of the Bank.
ARTICLE 12
EFFECTIVE DATE OF THIS RESTATED CREDIT AGREEMENT
------------------------------------------------
12.1 Effective Date. This Restated Credit Agreement and the
--------------
amendments effected hereby shall become effective on the date the the conditions
set forth in this Section 12.1 are satisfied (the "Effective Date").
Effectiveness of this Restated Credit Agreement and the amendments effected
hereby are subject to receipt by the Bank of each of the following, each in form
and substance satisfactory to the Bank:
(a) This Restated Credit Agreement, duly executed by the Company;
(b) A Note in the form of Exhibit A hereto (the "Restated Note"), duly
executed by the Company;
(c) An Intercreditor Agreement in form and substance satisfactory to
the Bank, duly executed by Sanwa and the Company;
(d) A copy or copies of all credit agreements between the Company and
Sanwa currently in effect, together with all written amendments and
modifications thereto through the Effective Date;
(e) The Resolutions of the Board of Directors of the Company duly
certified by the Secretary or Assistant Secretary of the Company evidencing
approval of this Restated Credit Agreement, the other Credit Documents and
other matters contemplated herein in the case of the Company;
(f) An Incumbency Certificate executed by the Secretary or Assistant
Secretary of the Company certifying the names and true signatures of the
officers authorized to sign this Restated Credit Agreement, the other
Credit Documents, and the other certificates and documents herein
described; and
(g) Such other documents as the Bank may reasonably request.
34
<PAGE>
12.2 Effect. On and after the Effective Date, this Restated Credit
------
Agreement and the Restated Note shall amend, restate in their entirety and
replace, without novation, the Existing Credit Agreement and the Amended and
Restated Note dated August 6, 1993 executed by the Company in favor of the Bank
(the "Existing Note"), respectively; provided, however, that:
-------- -------
(a) Such amendment, restatement and replacement shall be deemed to
have become effective on April 5, 1995; and
(b) The execution and delivery of this Restated Credit Agreement, the
Restated Note and the other Credit Documents shall not (i) operate as a
waiver of any right, power or remedy of the Bank under the Existing Credit
Agreement or the Existing Note except to the extent expressly waived in
this Restated Credit Agreement, the Restated Note or the other Credit
Documents, or (ii) extinguish or impair any obligations of the Company
under the Existing Credit Agreement or the Existing Note except to the
extent any such obligation is actually satisfied by the Company.
[The next page is the signature page]
35
<PAGE>
IN WITNESS WHEREOF, the Company and the Bank have caused this Agreement to
be executed as of the day and year first above written.
ADAC LABORATORIES
By:___________________________
Name:______________________
Title:_____________________
ABN AMRO BANK N.V.
By:___________________________
Name:______________________
Title:_____________________
By:___________________________
Name:______________________
Title:_____________________
36
<PAGE>
EXHIBIT A
---------
AMENDED AND RESTATED NOTE
-------------------------
August 15, 1995
$20,000,000
ADAC LABORATORIES, a California corporation (the "Company"), for value
received, hereby promises to pay to the order of ABN AMRO BANK N.V. SAN
FRANCISCO INTERNATIONAL BRANCH AND/OR CAYMAN ISLANDS BRANCH (the "Bank"), on the
Termination Date, the principal sum of twenty million dollars ($20,000,000) or,
if less (or more as a result of Currency fluctuations), the aggregate unpaid
principal amount of all Loans made by the Bank to the Company pursuant to the
Credit Agreement (as hereinafter defined) in the Currencies in which such Loans
were made.
This Note is the Note referred to in the Amended and Restated Credit
Agreement, dated as of August 15, 1995 (as amended from time to time, the
"Credit Agreement"), between the Company and the Bank. All capitalized terms
used and not otherwise defined herein shall have the meanings assigned thereto
in the Credit Agreement. Reference is made to the Credit Agreement for a more
complete statement of the terms and conditions under which the Loans evidenced
hereby are to be repaid.
The Company promises to pay interest on the unpaid principal amount of the
Loans at such interest rates, and at such times, as are specified in the Credit
Agreement. Both principal and interest are payable in the Currency in which the
Loans were made to the Bank, in immediately available funds, in accordance with
the provisions of the Credit Agreement.
This Note is subject to mandatory prepayment in certain circumstances and
to prepayment at the option of the Company, in each case as more fully described
in the Credit Agreement. Upon the occurrence of an Event of Default, the unpaid
principal balance of this Note may become, or may be declared to be, due and
payable in the manner, upon the conditions and with the effect provided in the
Credit Agreement.
THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE
WITH, THE LAWS OF THE STATE OF CALIFORNIA.
The Company promises to pay pursuant to Section 11.12 of the Credit
Agreement all fees, costs and expenses incurred in the collection and
enforcement of this Note. The Company and endorsers of this Note hereby consent
to renewals and extensions of time at or after the maturity hereof, without
notice, and hereby waive diligence, presentment, protest, demand and notice of
every kind (except such notices as may be required under the
A-1
<PAGE>
Credit Agreement) and, to the fullest extent permitted by law, the right to
plead any statute of limitations as a defense to any demand hereunder.
This Note amends, restates and replaces the Amended and Restated Note dated
August 6, 1993 in the principal amount of $20,000,000 which was originally
issued by the Company to the Bank pursuant to the terms of the Existing Credit
Agreement.
IN WITNESS WHEREOF, the Company has caused this Note to be executed and
delivered by its duly authorized officer, as of the day and year first above
written.
ADAC LABORATORIES
By _______________________
Its ___________________
A-2
<PAGE>
LOANS AND PAYMENTS OF PRINCIPAL AND INTEREST
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Interest Interest
Amount Method Period Amount Name of
of Loan (LIBOR (if of Amount of Unpaid Person
& or Base LIBOR Interest Principal Principal Making
Date Currency Rate) Loan) Paid Paid Balance Notation
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</TABLE>
A-3
<PAGE>
EXHIBIT
10.78
<PAGE>
VENDOR PROGRAM AGREEMENT
THIS VENDOR PROGRAM AGREEMENT ("Agreement") is made and entered into as of June
30, 1995, by and between DVI Financial Services Inc. ("DVI") and ADAC
Laboratories ("ADAC").
RECITALS
ADAC, in the regular course of its business, has entered into or
acquired or may hereafter enter into or acquire "Contracts" and may desire from
time to time to sell to DVI and DVI may desire to purchase from ADAC the
"Obligations" on the terms and conditions set forth below.
AGREEMENT
1. DEFINITIONS
For the purpose of this Agreement the following terms shall have the
following meanings:
1.1. "Bill of Lading". Any document(s) which evidence(s) that the
--------------
Equipment has been shipped to a Customer.
1.2. "Contracts". Any lease, conditional sales contract, installment
---------
sale contract, chattel mortgage, security agreement, promissory note, any other
title retention or lien instrument, or any other agreement providing for
deferred installment payments to ADAC, arising out of the sale or lease of
Equipment or the extension of credit.
1.3. "Contract Term". The noncancellable term of any Contract as set
-------------
forth in the Contract or any other documents evidencing such term.
1.4. "Customers". Customers of ADAC who enter into a Contract with
---------
ADAC for the purpose of financing the acquisition of ADAC's Equipment.
1.5. "End User". Purchasers and/or users of ADAC equipment world-wide.
--------
1.6. "Equipment". The personal property, software or fixtures which
---------
are the subject of a Financed Contract.
1.7. "Event of Default". Event of Default shall have the meaning given
----------------
to such term in Section 17 hereof.
1.8. "Financed Contract". Any Contract the Obligations of which have
-----------------
been purchased by DVI.
1
<PAGE>
1.9. "First Loss Recourse Pool". First Loss Recourse Pool shall have
------------------------
the meaning given to such term in Section 12 hereof.
1.10. "Installment Payments". The Customer's periodic installment
--------------------
payments on Obligations due under a Financed Contract net of taxes, tariffs and
imposts. Installment Payments may be due monthly, quarterly, or semi-annually.
1.11. "Installment Payment Start Date". The date on which the Customer's
------------------------------
payment obligation starts.
1.12. "Net Investment Value". DVI's net book value of an Obligation as
--------------------
determined by calculating the present value of all Installment Payments
remaining on a Financed Contract using the discount rate used in calculating the
original Purchase Price.
1.13. "Obligations". The deferred payment and other obligations due or
-----------
to become due under Financed Contracts.
1.14. "Portfolio". The entire group of Contracts purchased by DVI.
---------
1.15. "Purchase Price". The present value of all Installment Payments
--------------
remaining on an Obligation as of the date of its purchase by DVI hereunder
calculated using a discount rate equal to the yield of thirty-one (31) month
United States Treasury Notes as quoted in the Wall Street Journal on the date
-------------------
of purchase of the Obligation plus Four Hundred Fifteen (415) basis points.
The Purchase Price will be calculated based upon the assumption that each
Installment Payment will be due on the last calendar day of each respective
month in which an Installment Payment is due.
1.16. "Remarketing Loss". Remarketing Loss shall have the meaning given
----------------
to such term in Section 13.4 hereof.
1.17. "Remarketing Proceeds". Remarketing Proceeds shall have the
--------------------
meaning given to such term in Section 13.3 hereof.
2. FINANCING TRANSACTIONS.
2.1. DVI's Determination to Finance Contracts and Purchase Obligations.
-----------------------------------------------------------------
Subject to the terms and conditions hereof, ADAC shall submit to DVI certain
Contracts with Customers, and DVI, in its sole discretion, shall determine
whether to finance any Contract and purchase the Obligations under said
Contract.
2.2. No Liability For Non-Funding; Release of Rejected Contracts. DVI is
-----------------------------------------------------------
not obligated under this Agreement to finance any Contract with any of ADAC's
Customers, the decision to finance any such Contract being at the sole
discretion of DVI. In the event DVI elects not to finance any proposed Contract
submitted by ADAC, DVI will return the package containing all financial and
2
<PAGE>
related information on the proposed Contract to ADAC and ADAC can place the
rejected Contract with any other funding source.
2.3. Submittal of Proposed Contracts. With respect to each Contract,
-------------------------------
prior to presenting such Contract to DVI, in accordance with DVI's formats,
systems, methods, procedures and standards, ADAC will prepare for, and submit
to, DVI a credit package for each Customer. ADAC shall also furnish such other
credit information as DVI, from time to time, may reasonably require.
3. PURCHASE OF CONTRACTS
3.1. Terms of Purchase. If DVI decides, pursuant to Section 2 above,
-----------------
to finance a Contract and purchase the Obligations, DVI shall purchase, from
ADAC, the Obligations for the Purchase Price.
3.2. Purchase of Obligations. Upon payment of the Purchase Price ADAC
-----------------------
shall sell, assign and transfer the Obligations under Financed Contracts to
DVI and grant DVI a security interest in the Financed Contract and in any
interest that ADAC has in the Equipment. Should ADAC fail to do so, DVI is
authorized to execute on behalf of ADAC any necessary assignment or endorsement
of Obligations which have been omitted in any financing statements necessary to
perfect its security interest in the Financed Contract or Equipment.
3.3. ADAC's Warranties. ADAC agrees that all of ADAC's usual warranties,
-----------------
express and implied as to the Equipment, and any service or maintenance agreed
to between ADAC and its Customer, are hereby made to, and the agreements are
with, the Customer as well as to and with DVI.
3.4. Representations and Warranties with Respect to Financed Contracts.
-----------------------------------------------------------------
ADAC represents and warrants with respect to each Financed Contract, any related
Equipment or related Acknowledgment and Consent to Assignment that:
3.4.1. The Contracts have been created or acquired by ADAC in the
regular course of its business and represent existing and valid legally
enforceable obligations in accordance with the terms thereof based on an actual
and bona fide sale and delivery or lease of equipment or extension of credit to
the named Customer which has been finally accepted by the Customer and for which
the Customer is unconditionally liable to make payment in the amount stated in
the Contract without right of rejection, return, offset, defense, counterclaim,
discount or deduction;
3.4.2. All statements made in the contracts, including names,
addresses, locations, descriptions of Equipment, down payments and unpaid
balances, are true and accurate and are in all respects what they purport to be;
3
<PAGE>
3.4.3. All signatures and endorsements that appear on the Contracts
or any agreement or instruments relating thereto are genuine and all signatories
and endorsers, if any, have full capacity to contract;
3.4.4. Absolute title to the Contract, free and clear of any liens,
encumbrances or claims of others is vested absolutely in ADAC and no other
assignment of, or security interest in, or other interest or benefit in the
Contracts and in favor anyone other than DVI is in effect;
3.4.5. The transactions underlying or giving rise to the Contracts
and the sale, delivery or assignment thereof by ADAC to DVI are in conformity
with and do not violate any applicable U.S. state or federal laws or regulations
and all documents constituting, securing or relating to the Contracts are
legally sufficient and enforceable under such laws and regulations of the
countries of the Customers under the Financed Contracts.
3.4.6. ADAC will use its best efforts to make all necessary filings,
recordings, or give notice and obtain all necessary waivers and consents so as
to enable DVI to obtain judgment against the Customer for the unpaid balance of
the Contract and for ADAC to exercise the rights of a seller retaining title or
a secured party as to the Equipment;
3.4.7. ADAC will not, without the prior written consent of DVI,
accept any collections, repossess or consent to the return of any Equipment or
modify the terms of any Contract;
3.4.8. Any down payment set forth in the Contracts was made in cash
and no part of it was advanced to the Customer by ADAC or any assignor; and
3.4.9. Any related amendment, addendum, schedule, rider, supplement,
agreement or instrument entered into with the Customer and any other documents
relating to the Contract or Equipment has been delivered to DVI including,
without limitation, Bills of Lading.
3.4.10. The Contracts require that the Equipment is and will continue
to be insured by the Customer against risk of loss by fire and other insurable
hazards and ADAC shall be named as loss payee under such policy as ADAC's
interests may appear and ADAC hereby assigns its right, title and interest in
and to said insurance policies and any proceeds therefrom to DVI.
4. TERM OF AGREEMENT AND AMOUNT OF COMMITMENT; RENEWAL
4.1. Term. The Term of this Agreement is for a period of one (1) year
----
from the effective date hereof, and thereafter will be automatically renewed for
successive one (1) year terms unless
4
<PAGE>
either party elects to terminate this Agreement by giving notice in writing to
the other party of its intention to terminate thirty (30) days prior to the end
of the then current Term; PROVIDED HOWEVER, that DVI shall have the right to
immediately terminate this Agreement by giving notice to ADAC upon the
occurrence of an Event of Default as defined in Section 17 below.
4.2. Commitment Amount. Subject to the terms and conditions of this
-----------------
Agreement, and during the Initial Term of this Agreement, DVI agrees to purchase
Obligations from ADAC up to the aggregate principal sum of Five Million Dollars
($5,000,000). At such time as DVI has completed the purchase of the initial
Five Million Dollars ($5,000,000) of Obligations, DVI in its sole discretion may
increase the Commitment Amount.
5. ADMINISTRATION OF CONTRACTS
Until the happening of an Event of Default hereunder DVI authorizes ADAC or
its agent, and ADAC agrees, as agent for DVI, to bill for and collect all monies
due and to become due under the Financed Contracts and to make all appropriate
efforts, by suit or otherwise, at ADAC's own cost and expense, subject at all
times to DVI's right to direct and control the same. In connection therewith,
ADAC agrees that ADAC may (a) obtain and enter judgments against Customers and
undertake all proceedings supplementary thereto for the purpose of enforcing
such judgments and (b) subject to Section 13 of this Agreement, repossess,
resell, re-lease or otherwise dispose of the Equipment. ADAC agrees to exercise
due care and diligence in so acting as DVI's agent and to indemnify and hold DVI
harmless from and against all loss, liability (including negligence, tort and
strict liability), damage, costs and expenses (including reasonable attorney's
fees) caused by any of ADAC's actions and will not, without DVI's prior written
consent, grant any extension of time of payment, compromise or settle for less
than the full amount owing, or release in any manner Customers or any other
persons liable for payment under any Financed Contract. ADAC agrees to direct
any Customer under any Financed Contract to remit all Installment Payments
directly to a demand deposit account designated by DVI entitled "ADAC Latin
American Finance" which account shall be owned and controlled solely by DVI.
ADAC agrees that it will not direct any Customer under any Financed
Contract to make payment to any other place or address without DVI's prior
written consent. Any payments received by ADAC under any Financed Contract will
be held by ADAC in trust for DVI even though the same may have been commingled
with ADAC's assets as a convenience to ADAC and ADAC agrees to remit all such
funds received by it to DVI immediately upon receipt by ADAC.
5
<PAGE>
6. SERVICE BY ADAC
ADAC agrees promptly to fulfill all of its obligations to the Customers
with respect to the Equipment. The purchase of the Contract and Obligations by
DVI shall not be deemed an assumption by DVI of, or impose on DVI, any
obligation with respect to the Customer or the Equipment. ADAC shall provide
customer service and Equipment maintenance equivalent to that provided to ADAC's
other customers whether purchasers or Customers. Such service shall be provided
at ADAC's billing rates then in effect and include, but not be limited to,
hardware and software maintenance, required engineering changes to the
Equipment, customer training and program support.
7. RELATIONSHIP OF THE PARTIES
7.1. No Warranties by DVI; No Agency Created. It is understood and
---------------------------------------
agreed to by the parties hereto that this Agreement does not create a fiduciary
relationship between them, that DVI and ADAC are and shall continue to be
independent contractors and that nothing in this Agreement is intended to make
either party a general or special agent, legal representative, subsidiary, joint
venturer, partner, employer or servant of the other for any purpose.
It is further understood and agreed by the parties hereto that DVI is
not the manufacturer, supplier, vendor, distributor, dealer, integrator or
merchant in the Equipment which shall be the subject matter of any proposed
Contract financed pursuant to this Agreement. The Customer, in every instance
without exception, will have selected the Equipment. DVI DOES NOT AND WILL NOT
MAKE ANY WARRANTY OR REPRESENTATION WHATSOEVER, EITHER EXPRESS OR IMPLIED, AS TO
THE FITNESS, CONDITION, MERCHANTABILITY, DESIGN OR OPERATION OF THE EQUIPMENT,
ITS FITNESS FOR ANY PARTICULAR PURPOSE, THE QUALITY OR CAPACITY OF MATERIALS IN
THE EQUIPMENT OR WORKMANSHIP IN THE EQUIPMENT, OR ANY OTHER REPRESENTATION OR
WARRANTY WHATSOEVER.
7.2. Insurance Maintained by ADAC. At all times while this Agreement
----------------------------
is in effect, and in any event, for as long as the term of any Financed
Contract, ADAC shall maintain a general liability policy in form and amount
satisfactory to DVI, insuring DVI and ADAC against any loss or damage resulting
from the design, manufacture, purchase, financing, leasing, ownership, delivery,
possession, transportation, storage, maintenance, repair, return, use, and
operation of any item of Equipment. The aforementioned policy of insurance
shall not be cancelled without the insurer first giving thirty (30) days written
notice of said proposed cancellation to DVI. ADAC shall furnish to DVI a
certificate of insurance evidencing the coverage herein required, or copy of
said policy.
6
<PAGE>
8. ENHANCEMENTS AND UPGRADES
Any software developments or enhancements and hardware changes required by
such developments or enhancements shall be made immediately available to
Customers on the same basis as to other End Users of ADAC's Equipment.
9. REPAIRING AND REFURBISHING
At DVI's request, ADAC agrees, at its own expense, to repair and refurbish
any Equipment that is repossessed pursuant to Section 13 of this Agreement. ADAC
will provide such services with respect to each Financed Contract until the
earlier of one (1) year following the expiration date of such Financed Contract
or when DVI has received all of its Net Investment Value with respect to such
Financed Contract.
10. WARRANTIES
ADAC hereby represents and warrants to DVI and its assignees as follows:
10.1. Patent/Trademark. All Equipment delivered to Customers under
----------------
any Contract financed under this Agreement shall be subject to (i) warranties
and patent/trademark indemnities given by the Equipment's manufacturer and (ii)
any further warranties or assurances of performance actually made to a Customer
in writing by ADAC.
10.2. Design Changes. Engineering design changes and configuration
--------------
changes, including software, which improve performance or extend product life
will be made available to Customers on the same basis as other End Users and at
a price not to exceed the standard End User price in effect at the time.
10.3. Spare Parts. ADAC will maintain or require its suppliers to
-----------
maintain an inventory of spare parts for the Equipment for a period up to the
latest expiration date of any outstanding Financed contract, including any
extensions or renewals thereof.
11. GENERAL INDEMNITY
ADAC agrees to indemnify and hold DVI, its subsidiaries, affiliates,
stockholders, directors, officers, employees, agents, successors and assigns
harmless from and to defend against all claims, losses, liabilities (including
negligence, tort and strict liability), damages, judgments, suits, and all legal
proceedings, and any and all costs and expenses in connection therewith and
attorneys' fees, arising out of or in any manner connected with the design,
manufacture, purchase, financing, ownership, delivery, rejection, non-delivery,
possession, use, transportation, storage, operation, maintenance, repair, return
or other disposition of the
7
<PAGE>
Equipment, or with this Agreement, or with any Financed Contract, including,
without limitation, claims for injury to or death or persons and for damage to
property, and to give DVI prompt notice of any such claim or liability excluding
any of the same arising from the negligence or willful misconduct of DVI, and
provided that ADAC shall be given prompt notice of such claims and ADAC shall
have the right to defend any such claims, at ADAC's expense.
12. ADAC FIRST LOSS RECOURSE POOL
12.1. Calculation of First Loss Recourse Pool, Limited Recourse. The
---------------------------------------------------------
First Loss Recourse Pool ("Pool") will be established at the time DVI first
purchases a contract from ADAC. No actual fund shall be established with
respect to the Pool. ADAC shall, upon written request of DVI, pay to DVI the
amount of Remarketing Loss arising as a consequence of any events set forth in
Section 12.2, provided that ADAC shall not at any time be required to pay an
amount exceeding the then amount of the Pool. All claims due DVI shall be
payable to DVI by ADAC in U.S. dollars via check or wire transfer within five
(5) days of the request for payment. The amount of the Pool will increase or
decrease as follows:
Ten percent (10%) of the Purchase Price of each new Financed Contract
shall be added to the Pool. However, the Pool shall at no time become greater
than fifteen percent (15%) (the "Ceiling Percentage") of the Net Investment
Value of the then outstanding Financed Contracts. (If reductions in Net
Investment Value of the outstanding Financed Contracts cause the Pool to exceed
the Ceiling Percentage, the Pool will be reduced accordingly.) Any Remarketing
Loss shall reduce the Pool by the amount of the Remarketing Loss. The foregoing
calculation is subject to the further adjustment that at such time as the Pool
becomes $150,000 or less, the Pool shall not be further reduced by amortization
of the outstanding Financed Contracts.
DVI and ADAC shall jointly prepare each month during the term of this
Agreement a calculation of First Loss Recourse Pool in the form attached as
Exhibit A to this Agreement.
Except for breaches by ADAC of warranties, representations and covenants
given and agreed to by ADAC in this Agreement, and for indemnities provided by
ADAC hereunder to which this limited recourse provision does not apply, DVI will
not at any time have recourse to ADAC, personally or to its assets, for an
amount exceeding the then amount of the Pool, but rather DVI shall have recourse
only to the Financed Contracts and its security interest in the Equipment for
repayment of the Obligations.
12.1.1. Adjustments to Recourse Pool. ADAC and DVI agree to annually
----------------------------
analyze the performance of the Portfolio beginning eighteen (18) months from the
date the first Contract is
8
<PAGE>
purchased by DVI. If at such time the Default Rate is less than one percent
(1%) the Ceiling Percentage will be decreased to ten percent (10%); if the
Default Rate is between one percent (1%) and three percent (3%) inclusive the
Ceiling Percentage will remain at fifteen percent (15%); and if the Default Rate
is greater than three percent (3%) the Ceiling Percentage will increase to
twenty percent (20%). The Default Rate at any time will be determined by
dividing (x) the then Net Investment Value of those outstanding Financed
Contracts having delinquencies of more than thirty (30) days by (y) the
aggregate Net Investment Value of the Portfolio.
12.2. Amounts Payable from and Credits to Recourse Pool. The Recourse
-------------------------------------------------
Pool shall be charged by DVI for the amount of any Remarketing Loss and said
amount shall be payable by ADAC immediately upon the occurrence of any of the
following events: (i) a Remarketing Loss under a Financed Contracts exists
following the resale of repossessed Equipment related to such Financed Contract;
(ii) an item of Equipment that has been repossessed from a Customer is
determined to be non-saleable by agreement between DVI and ADAC, (iii) DVI and
ADAC are unable to resell repossessed Equipment within one hundred and twenty
(120) days after date of repossession, or (iv) ADAC is unable to take possession
of the Equipment within one hundred and twenty (120) days from the date of DVI's
written request for repossession. In the event that either event (iii) or event
(iv) above occurs and ADAC or DVI is able to remarket the repossessed Equipment
after the initial one hundred and twenty (120) day period, any proceeds from the
remarketing payable to ADAC, up to an amount equal to the amount charged to the
Recourse Pool, shall be credited to the Recourse Pool. Any amount in excess of
the Recourse Pool amount shall be allocated as set forth in Section 13.3.
13. REPOSSESSION AND REMARKETING
ADAC shall have the following obligations:
13.1. ADAC's Obligation to Repossess and Remarket. ADAC at its cost
-------------------------------------------
agrees to use reasonable efforts to repossess the Equipment under any defaulted
Financed Contract and said obligations shall continue for the entire term of
said Contract respecting such Equipment, notwithstanding the termination or
expiration of this Agreement and without regard to any extension or non-
extension of this Agreement; provided however, that ADAC shall not be required
to take legal action to effect collection or repossession of any Equipment. If
DVI reasonably believes that any Financed Contract is unenforceable, upon the
request of DVI, ADAC shall proceed, at its sole expense, to take legal action to
enforce the terms of the Financed Contract. If a court of competent
jurisdiction determines that the Financed Contract is not enforceable against
the Customer in accordance with its terms, upon the request of DVI, ADAC shall
repurchase the Financed Contract from DVI for the Purchase Price set forth in
Section 18.2 of this
9
<PAGE>
Agreement. In situations where circumstances make immediate recovery of the
Equipment necessary and DVI has requested same, ADAC shall use all reasonable
efforts necessary to obtain the Equipment on an expedited basis. If the
Equipment cannot be repossessed, DVI may charge the Recourse Pool in accordance
with Section 12 above.
13.2. Obligation to Remarket. In the event that a Customer should
----------------------
default in the payment or performance of any of the terms or conditions of any
Financed Contract, ADAC shall, subject to DVI's instructions to the contrary, at
ADAC's expense, attempt to peaceably take possession of, transport, store,
repair or refurbish, if necessary and maintain the Equipment on behalf of DVI.
ADAC agrees to use its best efforts to locate a purchaser or substitute Customer
for the Equipment on terms satisfactory to DVI.
13.2.1. Upon resale, the equipment shall carry ADAC's regular
warranty for a period equal to the greater of: (i) the warranty remaining for
the benefit of the defaulting Customer as of the date of recovery by ADAC, or
(ii) six (6) months.
13.3. Remarketing Proceeds. Remarketing Proceeds shall mean the
--------------------
gross proceeds of resale or re-lease of any Equipment. The gross proceeds of
any re-lease of Equipment shall be calculated on a present value basis using the
formula set forth in the definition of Purchase Price. Any Remarketing Proceeds
in excess of the Net Investment Value realized upon any sale or releasing of any
Equipment shall be divided between DVI and ADAC as follows: ten percent (10%)
to DVI, ninety percent (90%) to ADAC.
13.4. Remarketing Loss. Losses as a result of repurchase, repossession
----------------
and remarketing shall be determined as the excess of (i) the then Net Investment
Value of the Financed Contract over (ii) Remarketing Proceeds with respect to
such Financed Contract.
13.5. Remarketing Expenses All costs, fees and expenses of remarketing
--------------------
or refurbishing the Equipment shall be borne solely by ADAC.
14. GENERAL ADMINISTRATIVE PROVISIONS
14.1. Site of Equipment and Inspection. Unless otherwise approved by
--------------------------------
DVI in writing, all Equipment shall be installed at the Customer's location
designated in the Financed Contract. ADAC shall promptly notify DVI when ADAC
becomes aware of any change in the location of the Equipment after its
installation.
14.2. Financial Statements. During the term of this Agreement, ADAC
--------------------
will furnish to DVI, promptly upon their becoming available, or in any event
within one hundred and twenty (120) days after the end of each fiscal year,
copies of certified financial statements for the years covered therein.
10
<PAGE>
14.3. Notices. All notices hereunder shall be in writing, shall be
-------
dispatched by prepaid certified first class mail or responsible courier
addressed to ADAC or DVI at the addresses set forth in Section 18.10 or to such
other addresses as ADAC and DVI shall have furnished to the other in writing.
14.4. Non-Solicitation of Funding Sources. During the term of this
-----------------------------------
Agreement and for one (1) year thereafter, ADAC agrees that it will not solicit,
divert, take away or interfere with any of DVI's funding sources of which ADAC
has actual knowledge.
15. ADAC REPRESENTATIONS, WARRANTIES, AND COVENANTS
ADAC represents, warrants and covenants as follows:
15.1. Organization and Standing. ADAC is a corporation duly organized,
-------------------------
validly existing and in good standing under the laws of the State of California
and has all requisite power and authority to own and operate its properties, to
carry on its business as now conducted and proposed to be conducted under this
Agreement, to enter into this Agreement and the Contracts referred to herein to
which ADAC is to be a party and to carry out the transactions contemplated
hereby and thereby.
15.2. Compliance with Other Instruments. ADAC is not in violation of
---------------------------------
any term of its articles of incorporation or bylaws, any material judgment,
decree or other imposed by any state or federal court or government or agency
thereof, or any agreement, instrument, statute, rule or government regulation,
which violation would have a material adverse effect on ADAC. The execution,
delivery and performance of this Agreement and any other instrument referred to
herein to which ADAC is a party will not result in such violation, or be in
conflict, or constitute a default under any such term, or result in the creation
of any mortgage, lien, charge or encumbrance upon any of the properties or
assets of ADAC pursuant to any such term except pursuant to this Agreement.
15.3. This Agreement. This Agreement has been duly authorized,
--------------
executed and delivered by ADAC and constitutes its legal, valid and binding
obligation, enforceable in accordance with its terms.
15.4. Agreements. ADAC hereby agrees (i) without prior written
----------
consent of DVI or any subsequent assignee, not to extend, amend, supplement or
terminate any Financed Contract, or agree to, or permit, any modifications,
waiver or other alteration of the terms thereof, and (ii) to deliver to DVI all
notices or other communications received by ADAC in connection with any Financed
Contract or any aspect thereof. ADAC constitutes and appoints DVI, its
successors and assigns, or any designee of DVI, as ADAC's agent and attorney-in-
fact, which appointment is irrevocable and coupled with an interest, and with
full power (in the name of ADAC or
11
<PAGE>
otherwise) to endorse without recourse ADAC's name upon any and all notes,
checks or drafts or other instruments for payment of any obligation, ask,
require, demand, receive, compound and give acquittance for any and all monies
and claims for money due and to become due under, or arising out of any Financed
Contract, and upon the occurrence and continuation of an Event of Default to
give all or any of the notices, consents, instructions or other communications
reserved to ADAC in any Financed Contract, and to file any claims or take any
action or institute any proceedings which DVI with respect to the Financed
Contracts or any subsequent assignee deem to be necessary or advisable, hereby
ratifying and confirming whatsoever said attorney shall and may do by virtue
thereof. Any repossessed Equipment will be held by ADAC in trust for ADAC and
DVI and kept apart and distinguishable from ADAC's property.
15.5. Taxes. ADAC warrants and represents that all sales, use, property,
-----
or other taxes, licenses, tolls, inspection and/or other fees, bonds, permits or
certificates, including any penalties and interest with respect thereto, which
were or may be required to be paid or obtained in connection with any Financed
Contract of the Equipment by ADAC, subsequent sale of Equipment and assignment
of any Financed Contract to DVI (excluding any tax on the net income of DVI and
any tax arising from any financing by DVI of any Financed Contract or Equipment)
have been, or when due will promptly be, paid in full by ADAC or the provision
for the payment thereof by the Customers are provided for in any Financed
Contract.
16. DVI REPRESENTS AND WARRANTS AS FOLLOWS:
16.1. Organization and Standing. DVI is a corporation duly organized,
-------------------------
validly existing and in good standing under the laws of the State of Delaware
and has all requisite power and authority to own and operate its properties, to
carry on its business as now conducted and proposed to be conducted under this
agreement, to enter into this agreement and other instruments referred to herein
to which DVI is to be a party and to carry out the transactions contemplated
hereby and thereby.
16.2. Compliance with Other Instruments. DVI is not in violation of
---------------------------------
any term of its articles of incorporation or bylaws, any material judgment,
decree or order imposed by any state or federal court or government or
governmental regulation, which violation would have a material adverse effect
upon ADAC. The execution, delivery and performance of this Agreement and any
other instrument referred to herein to which DVI is a party will not result in
such violation, or be in conflict with or constitute a default under such term,
or result in the creation of any mortgage, lien, charge or encumbrance upon any
of the properties or assets of DVI pursuant to any such term, except that a lien
in favor of DVI's lenders may exist with respect to Financed Contracts, the
financing of which by DVI obtained through such lenders.
12
<PAGE>
17. EVENTS OF DEFAULT
17.1. Events of Default. Any one of the following occurrences or acts
-----------------
shall constitute an "Event of Default" (or "Events of Default") under this
Agreement:
17.1.1. Default by ADAC in the payment of any amounts due and payable
from ADAC to DVI including, but not limited to, Recourse Pool payments,
indemnities, or any Repurchase Price, and such Default shall not have been
remedied within five (5) days after the written notice thereof to ADAC from DVI.
17.1.2. Default by ADAC in the performance or compliance of any
material term or covenant not relating to payments due DVI from ADAC, contained
in this Agreement that materially adversely affects ADAC's ability to perform
under this Agreement as a whole and such Default shall not have been remedied
within thirty (30) days after the written notice thereof to ADAC from DVI.
17.1.3. If any proceedings shall be commenced by or against ADAC, for
dissolution or under any bankruptcy, insolvency, reorganization, arrangement,
composition or similar laws at that time in effect and if involuntary, are not
dismissed within sixty (60) days.
17.1.4. If ADAC fails to provide or cause to be provided, service,
maintenance, replacement or repair of Equipment in accordance with the
provisions of this Agreement.
17.1.5. Any representation or warranty set forth in Section 3.4 above
(including Subsections 3.4.1 through 3.4.10) relating to any Financed Contract
or any representation or warranty of ADAC made in any Financed Contract, or in
any certificate or other writing delivered pursuant to any Financed Contract
shall prove to be incorrect in any material respect.
17.1.6. Any representation or warranty of ADAC made in Sections 15.1,
15.2 and 15.3 of this Agreement, or in any certificate or other writing with
respect to such Sections delivered pursuant hereto shall prove to be incorrect
in any material respect.
17.1.7. There shall be levied any attachment, execution or like process
in an amount which gives rise to an adverse change in ADAC's financial condition
unless such attachment, execution or process is released within sixty (60) days
thereafter.
17.1.8. ADAC shall voluntarily suspend its business.
13
<PAGE>
18. REPURCHASE OBLIGATION OF ADAC
18.1. Repurchase Obligation. Upon the occurrence and continuance of
---------------------
any Event of Default set forth in Sections 17.1.1, 17.1.4 and/or 17.1.5 above,
ADAC, promptly upon receipt of DVI's demand, agrees to repurchase any Obligation
directly affected by such default and accept assignment of any such Obligations
("Repurchase Obligation"). Upon the occurrence and continuance of any Event of
Default set forth in Sections 17.1.2, 17.1.3, 17.1.6, 17.1.7 and/or 17.1.8 above
or in the event ADAC fails to repurchase any Obligation or accept reassignment
of any Obligations DVI shall have the right to require ADAC to immediately
repurchase any or all Obligations purchased by DVI pursuant to this Agreement,
and accept reassignment of any or all Financed Contracts.
18.2. Repurchase Price. ADAC shall repurchase the Obligations from
----------------
DVI pursuant to Section 18.1 above, by paying to DVI the Net Investment Value of
the Contract. ADAC agrees to repurchase any or all Obligations hereunder
without first requiring DVI to resort to any Customer or to any other guaranty,
security or collateral which DVI may have or hold. ADAC's repurchase Obligation
is unconditional.
18.3. Waivers. Upon the occurrence and continuance of an Event of
-------
Default, ADAC further agrees that DVI may at any time and from time to time
without notice to, or the consent of, ADAC, and without affecting or impairing
this Repurchase obligation, do any of the following: (i) renew or extend any
Obligations of any Customer or any of its guarantors or of any other party at
any time directly or contingently liable for the payment of any Obligations;
(ii) accept partial payments of any Obligation; (iii) settle, refinance (by
operation of law or otherwise) compound, compromise, collect or liquidate any
Obligations and the security therefor in any manner; (iv) consent to the
transfer or sale of any Obligation or any security therefor; or (v) bid and
purchase at any sale of any other Equipment or security.
18.4. Waiver of Impairment of Collateral. ADAC shall not be released
----------------------------------
or discharged, either in whole or in part, by DVI's failure or delay to perfect
or continue the perfection or enforcement of any security interest in any
Equipment or other security which secures the Obligation.
19. MISCELLANEOUS
19.1. Enforcement. THIS AGREEMENT SHALL BE GOVERNED, CONSTRUED AND
-----------
ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA. This Agreement
may be executed in one or more counterparts each of which shall have the full
force and effect of an original.
14
<PAGE>
19.2. Assignment or Agreement. Except as set forth below, each
-----------------------
party shall not sell, transfer, assign, pledge or encumber this agreement or any
right or duty granted hereunder without the prior written consent of the other
party hereto, which consent shall not be unreasonably withheld. Notwithstanding
the foregoing, DVI shall have the right, without obtaining written consent of
ADAC, to transfer or assign its interest hereunder as follows:
19.2.1. Secured Party. ADAC agrees that DVI shall have the right to
-------------
assign or grant a security interest to a bank or financial institution ("Secured
Party") with respect to any or all of DVI's interests under this Agreement and
in the Obligations purchased hereunder and in the Financed Contracts, and that
the Secured Party shall, in entering into such transaction with DVI, be acting
in reliance upon and be entitled to the benefits of this Section 19.2.1. ADAC
agrees that it will not assert against any Secured Party any defense,
counterclaim or offset that ADAC may have against DVI. Accordingly, ADAC agrees
with DVI and the Secured Party (for whom this covenant is expressly made) that
DVI may assign, pledge, transfer or otherwise dispose of or grant a security
interest to Secured Party in any or all of DVI's interest under this Agreement,
the Financed Contracts, or any portion thereof, or Equipment without notice to
ADAC or consent of ADAC thereto.
19.2.2. Entities. DVI may assign all or any part of its interest
--------
under this Agreement and in the Financed Contracts and Equipment to any entity
with which DVI or the officers of DVI are affiliated, which entities shall
thereupon be deemed to be bound by all the terms and conditions of this
Agreement provided that such entities agree to permit DVI to act as their agent.
In the event of any such assignment, such entities shall acquire the right to
enforce rights and interests assigned to them hereunder individually and
severally with respect to the Obligations purchased hereunder and Obligations
(or part thereof) owned by or assigned to such entities, provided that ADAC
shall nonetheless be required to honor notices from, report and be accountable
to, only DVI (and not such entities) with respect to such Equipment and
Obligations or part thereof, the services to be provided by ADAC hereunder and
all other rights, duties and obligations of ADAC under this Agreement.
19.3. Inurement. This Agreement is for the benefit for the parties
---------
hereto and shall be binding upon their successors, assignees, and surviving
entities of any merger, sale, consolidation or reorganization.
19.4. Severability. In the event that any of the terms of this
------------
Agreement are or become or are declared to be illegal by any court or tribunal
of competent jurisdiction, such term or terms shall be null and void and shall
be deemed deleted from this
15
<PAGE>
Agreement, and all remaining terms of this Agreement shall remain in full force
and effect.
19.5. Waiver of Breach. No waiver of any breach of any provision of
----------------
this Agreement shall constitute a waiver of any prior, concurrent or subsequent
breach of the same or any other provisions hereof and no waiver shall be
effective unless made in writing.
19.6. Headings. The descriptive headings of the several sections of
--------
this Agreement are inserted for convenience only and do not constitute a part of
this Agreement.
19.7. Confidential Treatment and Disclosure by DVI and ADAC. Each
-----------------------------------------------------
party will treat this Agreement and all documents contemplated to be delivered
hereunder and all terms and conditions hereof and thereof as confidential and
will not disclose or use the same without the prior written consent of the other
unless such disclosure or use is required by law.
19.8. Attorney's Fees. In the event of litigation hereunder the
---------------
prevailing party shall be entitled to reimbursement of all expenses incurred
therewith including reasonable attorneys' fees and costs.
19.9. Entire Agreement. This Agreement constitutes the entire
----------------
understanding of the parties hereto, and no representations, except as contained
in this Agreement have been made by either party to the other and none has been
relied upon by the other party. Any term of this Agreement may be amended and
the observance of any term hereof may be waived (either generally or in
particular instance and either retroactively or prospectively) only upon written
agreement of DVI and ADAC.
19.10. Notices. Notices will be deemed effective: (i) 3 days after
-------
deposit in the U.S. Mail, (ii) the same day if personally delivered, or (iii)
the following business day if sent by reliable overnight courier. All notices
shall be in writing addressed as follows:
If to ADAC: 540 Alder Drive, Milpitas, CA 95035
- ---------- Attention: Chief Financial Officer
cc: Robert Miller, Esq.
One Bush Street, 11th Floor
San Francisco, California 94104
If to DVI: One Park Plaza, Suite 800, Irvine, CA 92714
- --------- Attention: Anthony Turek, Senior Vice President
16
<PAGE>
cc: Jeffrey J. Wong
Cooper, White & Cooper
201 California Street
17th Floor
San Francisco, California 94111
20. SURVIVAL AND EFFECT OF REPRESENTATIONS, WARRANTIES AND INDEMNITIES
All obligations, representations, warranties, covenants and indemnities
made by ADAC herein, and in other documents or instruments delivered in
connection with this Agreement shall survive the expiration or termination of
any Financed Contract, and shall continue in effect so long as any Financed
Contract is outstanding and shall survive the date of the expiration or any
termination of this Agreement, if necessary. All such covenants, agreements,
representations, warranties and indemnities shall bind the party making the same
and its successors and assigns and shall inure to the benefit of and be
enforceable by each party for whom made and its successors and assigns.
21. COUNTERPARTS
This Agreement may be executed in counterparts which taken together shall
constitute one Agreement.
IN WITNESS WHEREOF, DVI and ADAC have caused this agreement to be executed
by their respective officers thereunder duly authorized as of day and year first
above written.
DVI Financial Services Inc.
By: /s/ RICHARD E. MILLER
-----------------------------
Richard E. Miller
Vice President
ADAC Laboratories
By: /s/ DENNIS R. MAHONEY
------------------------------
Dennis R. Mahoney
Vice President Finance and
Chief Financial Officer
17
<PAGE>
EXHIBIT A TO VENDOR PROGRAM AGREEMENT
BETWEEN DVI FINANCIAL SERVICES INC. AND ADAC LABORATORIES
FIRST LOSS RECOURSE POOL CALCULATION FORM
Total Net Balance of First Loss Recourse
Pool from next previous Calculation Form $____________
Additions due to Purchases:
Purchase Price Additions to Pool
ABC Corp. $____________ X 10% $____________
DEF Corp. $____________ X 10% $____________
GHI Corp. $____________ X 10% $____________
Total Additions: $____________
Deductions due to Remarketing Losses:
JKL Corp. $____________
MNO Corp. $____________
Total Deductions: $____________
Gross Balance of First Loss Recourse Pool $____________
Net Investment Value of the Portfolio $____________
Adjustments to First Loss Recourse Pool:
In the event the Gross Balance of the First Loss Recourse Pool exceeds 15%
of the Net Investment Value of the Portfolio, reduce the amount of the
First Loss Recourse Pool to 15% of the Net Investment Value of the
Portfolio.
Total Net Balance of First Loss Recourse Pool $____________
18
<PAGE>
EXHIBIT
10.79
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
AMONG
ADAC LABORATORIES,
ADAC ACQUISITION, INC.,
J.D. TECHNICAL SERVICES, INC.
AND
THE SHAREHOLDERS OF
J.D. TECHNICAL SERVICES, INC.
NOVEMBER 9, 1995
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
TABLE OF CONTENTS
-----------------
(NOT PART OF THE AGREEMENT)
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
AGREEMENT AND PLAN OF REORGANIZATION............... 1
- ------------------------------------
ARTICLE I.......................................... 1
THE MERGER......................................... 1
1.1 Surviving Corporation....................... 1
---------------------
1.2 Articles of Incorporation and Bylaws........ 1
------------------------------------
1.3 Effective Time.............................. 2
--------------
1.4 Effects of the Merger....................... 2
---------------------
1.5 Conversion of J.D. Technical Shares......... 2
-----------------------------------
1.6 Reorganization.............................. 3
--------------
1.7 Delivery of ADAC Common Stock............... 3
-----------------------------
1.8 Further Assurances.......................... 3
------------------
1.9 Consummation of Merger...................... 4
----------------------
1.10 Spin-off of Redi-Vu Product Line............ 4
--------------------------------
ARTICLE II......................................... 5
REPRESENTATIONS AND WARRANTIES OF
ADAC AND SUBSIDIARY................................ 5
2.1 Corporate Status............................ 5
----------------
2.2 Authorization............................... 5
-------------
2.3 Consents and Approvals; No Violation........ 5
------------------------------------
2.4 Capitalization of ADAC and Subsidiary....... 6
-------------------------------------
2.5 ADAC Common Stock Issued in Merger.......... 6
----------------------------------
2.6 Accuracy of Disclosure Documents............ 6
--------------------------------
2.7 Certain Fees................................ 7
------------
2.8 S-3 Eligibility............................. 7
---------------
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE III........................................ 7
REPRESENTATIONS AND WARRANTIES OF J.D. TECHNICAL
AND ITS SHAREHOLDERS............................... 7
3.1 Corporate Organization...................... 7
----------------------
3.2 Articles of Incorporation and Bylaws........ 7
------------------------------------
3.3 Capitalization.............................. 8
--------------
3.4 Controlled Entities......................... 8
-------------------
3.5 Authorization............................... 8
-------------
3.6 Consents and Approvals; No Violation........ 8
------------------------------------
3.7 Financial Statements........................ 9
--------------------
3.8 Material Contracts.......................... 9
------------------
3.9 Title to Properties and Assets; Liens, etc.. 9
-------------------------------------------
3.10 Absence of Certain Changes.................. 10
--------------------------
3.11 Intellectual Property Rights;
-----------------------------
Licenses and Permits............................. 10
--------------------
3.12 Compliance with Applicable Law.............. 10
------------------------------
3.13 No Default Under Material Contracts......... 10
-----------------------------------
3.14 Subchapter S Status; Taxes.................. 10
--------------------------
3.15 Litigation.................................. 11
----------
3.16 Employment Matters.......................... 11
------------------
3.17 Insurance................................... 12
---------
3.18 Environmental Matters....................... 12
---------------------
3.19 Zoning...................................... 13
------
3.20 Leased Premises............................. 13
---------------
3.21 Full Disclosure............................. 13
---------------
ARTICLE IV......................................... 14
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
COVENANTS........................................... 14
4.1 Conduct of Business of J.D. Technical......... 14
-------------------------------------
4.2 Subchapter S Taxes............................ 14
------------------
4.3 Expenses...................................... 15
--------
4.4 Best Efforts.................................. 15
------------
4.5 Consents...................................... 16
--------
4.6 Registration Statements....................... 16
-----------------------
(a) Registration on Form S-3.................. 16
------------------------
4.7 Actions Contrary to Stated Intent............. 17
---------------------------------
4.9 PAYMENT OF CERTAIN OUTSTANDING LOANS.......... 17
------------------------------------
ARTICLE V........................................... 17
CONDITIONS PRECEDENT TO J.D. TECHNICAL'S
OBLIGATION TO EFFECT THE MERGER..................... 17
5.1 Representations, Covenants and Certificate.... 17
------------------------------------------
5.2 Action or Proceedings......................... 18
---------------------
5.3 Permits and Approvals......................... 18
---------------------
5.4 Third Party Consents.......................... 18
--------------------
5.5 EMPLOYMENT/COVENANT NOT TO COMPETE AGREEMENTS. 18
---------------------------------------------
5.6 Approval of Merger............................ 18
------------------
5.7 Opinion of Counsel for ADAC................... 18
---------------------------
5.8 Escrow Agreement.............................. 19
----------------
5.9 LEASE OF 23 TOWN & COUNTRY DRIVE, WASHINGTON,
---------------------------------------------
MISSOURI.......................................... 19
--------
ARTICLE VI.......................................... 19
CONDITIONS PRECEDENT TO OBLIGATIONS
OF ADAC AND SUBSIDIARY.............................. 19
6.1 Representations, Covenants and Certificate.... 20
------------------------------------------
</TABLE>
iii
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
6.2 Exceptions to Representations and
---------------------------------
Warranties; Delivery of J.D. Technical
--------------------------------------
Schedule of Exceptions............................. 20
----------------------
6.3 Approval of Merger............................. 20
------------------
6.4 Permits and Approvals.......................... 20
---------------------
6.5 Third Party Consents........................... 20
--------------------
6.6 Actions or Proceedings......................... 20
----------------------
6.7 Opinion of Counsel for J.D. Technical.......... 20
-------------------------------------
6.8 Escrow Agreement............................... 21
----------------
6.9 LEASE OF 23 TOWN & COUNTRY DRIVE,
---------------------------------
WASHINGTON, MISSOURI............................... 21
--------------------
6.10 Employment/Covenant Not to Compete Agreements. 21
---------------------------------------------
6.11 Receipt of Pooling Letter from ADAC Auditors.. 22
--------------------------------------------
6.12 RELEASE OF GUARANTY FROM SBA.................. 22
----------------------------
ARTICLE VII.......................................... 22
CLOSING DATE......................................... 22
ARTICLE VIII......................................... 22
INDEMNIFICATION AND HOLD BACK........................ 22
8.1 Warranty Claims................................ 22
---------------
8.2 Hold Back of ADAC Common Stock as
---------------------------------
Security For Indemnification....................... 23
----------------------------
ARTICLE IX........................................... 23
MISCELLANEOUS........................................ 23
9.1 Termination.................................... 23
-----------
9.2 Survival of Representations and Warranties..... 24
------------------------------------------
9.3 Notices........................................ 24
-------
9.4 Modification or Waiver......................... 26
----------------------
9.5 Binding Effect and Assignment.................. 26
-----------------------------
</TABLE>
iv
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
9.6 Government Law................................. 26
--------------
9.7 Entire Agreement............................... 26
----------------
9.8 Arbitration.................................... 26
-----------
9.9 Counterparts................................... 27
------------
9.10 Severability................................... 27
------------
</TABLE>
v
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
EXHIBITS
--------
A. Form of Investment Letter
B. Schedule of Exceptions
C. J.D. Technical's Material Contracts
D. J.D. Technical's Intellectual Property Rights
E. J.D. Technical's Insurance Policies
F. D. Sutton Employment Agreement
G. J. Pepmueller Employment Agreement
H. Escrow Agreement
I. Triple-Net Lease
i
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
------------------------------------
THIS AGREEMENT AND PLAN OF REORGANIZATION, dated as of November 9, 1995
(the "Agreement"), is made by and among ADAC LABORATORIES, a California
corporation ("ADAC"), ADAC ACQUISITION, INC., a Delaware corporation and a
wholly-owned subsidiary of ADAC ("SUBSIDIARY"), J.D. TECHNICAL SERVICES, INC., a
Missouri corporation ("J.D. TECHNICAL") and David Sutton and Jerome W.
Pepmueller, the sole shareholders of J.D. Technical (each, "J.D. TECHNICAL
SHAREHOLDER" and collectively, the "J.D. TECHNICAL SHAREHOLDERS").
WHEREAS, the Boards of Directors of ADAC and Subsidiary and the
shareholders of J.D. Technical have approved the merger of J.D. Technical and
Subsidiary (the "MERGER"), upon the terms and subject to the conditions set
forth herein; and
WHEREAS, by executing this Agreement, the parties hereto intend to adopt a
plan of reorganization within the meaning of Section 368(a)(1)(A) of the
Internal Revenue Code of 1986, as amended (the "CODE");
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements, provisions and covenants herein contained and in order to set forth
the terms and conditions of the Merger and the mode of carrying the same into
effect, the parties hereto hereby agree as follows:
ARTICLE I
THE MERGER
1.1 SURVIVING CORPORATION. Subject to and in accordance with the terms
---------------------
and conditions of this Agreement and the General and Business Corporation Law of
Missouri (the "MISSOURI CORPORATION LAW") and the Delaware General Corporation
Law ("DELAWARE CORPORATION LAW"), at the Effective Time (as defined in Section
-------
1.4 hereof), J.D. Technical shall be merged with and into the Subsidiary, in
- ---
accordance with the applicable provisions of the laws of the States of Missouri
and Delaware and the separate existence of J.D. Technical shall thereupon cease,
and the Subsidiary shall be the surviving corporation (hereinafter sometimes
called the "SURVIVING CORPORATION") and shall continue its corporate existence
under the laws of the State of Delaware. For purposes of this Agreement,
Subsidiary and J.D. Technical are sometimes referred to as the "CONSTITUENT
CORPORATIONS."
1.2 ARTICLES OF INCORPORATION AND BYLAWS. From and after the Effective
------------------------------------
Time, the Articles of Incorporation and Bylaws of the Surviving Corporation, as
in effect immediately prior to the Effective Time, shall continue in full force
and effect as the Articles and Bylaws of the Surviving Corporation until amended
from time to time as provided therein or by law.
1.3 EFFECTIVE TIME. The Merger shall become effective at the
--------------
<PAGE>
time of filing with the Delaware Secretary of State of a Certificate of Merger
(the "CERTIFICATE OF MERGER") in form satisfactory to the parties which filing
shall be made on the Closing Date (as defined in Article VII hereof) or as soon
as practicable thereafter. The date and time when the Merger shall become
effective is herein referred to as the "EFFECTIVE TIME." The parties shall
cause a conformed copy of the Certificate of Merger or Articles of Merger to be
filed with the Missouri Secretary of State and any additional documents to
effect the Merger.
1.4 EFFECTS OF THE MERGER. The Merger shall have the effects prescribed
---------------------
by the Delaware Corporation Law and Missouri Corporation Law, including without
further transfer, act or deed, the separate existence of J.D. Technical shall
cease and the Surviving Corporation shall possess all of the rights, privileges,
powers and franchises, and shall be subject to all of the restrictions,
disabilities and duties of J.D. Technical, and all property, real, personal and
mixed, and all debts due to J.D. Technical on whatever account shall be vested
in and become the property of the Surviving Corporation, and the title to any
real estate vested by deed or otherwise, if any, in J.D. Technical shall not
revert or be in any way impaired by reason of the Merger; and all rights of
creditors of J.D. Technical and all liens upon any property of J.D. Technical
shall be preserved unimpaired and all debts, liabilities and duties of J.D.
Technical shall thenceforth attach to the Surviving Corporation and may be
enforced against it to the same extent as if such debts, liabilities and duties
had been directly incurred or contracted by it.
1.5 CONVERSION OF J.D. TECHNICAL SHARES. At the Effective Time:
-----------------------------------
(a) The conversion of shares of Common Stock of J.D. Technical (the
"J.D. TECHNICAL COMMON STOCK") into shares of ADAC Common Stock (the "ADAC
COMMON STOCK") shall occur automatically at the Effective Time without any
further action by the holders thereof. Subject to a holdback of ADAC Common
Stock pursuant to Section 8.2 hereof, J.D. Technical Common Stock shareholders
-----------
shall receive that aggregate amount of shares of ADAC Common Stock determined by
dividing $1,700,000 by $12.292, being the average closing price (rounded to the
third decimal place) of ADAC Common Stock during the three (3) consecutive
trading days (November 2 [$12-1/8], November 3 [$12-1/2] and November 6 [$12-
1/4]) as reported in The Wall Street Journal ending two (2) trading days prior
-----------------------
to the date of execution of this Agreement by all of the parties hereto (the
"PER SHARE PRICE"). Subject to such holdback of ADAC Common Stock pursuant to
Section 8.2 hereof, each J.D.
- -----------
2
<PAGE>
Technical Shareholder shall receive from the aggregate number of shares of ADAC
Common Stock to be distributed a proportionate pro-rata number of shares based
on the number of shares of J.D. Technical Common Stock held by such shareholder
as compared to all of the issued and outstanding J.D. Technical Common Stock.
(b) To the extent any J.D. Technical Shareholder would otherwise be
entitled to receive a fraction of a share of ADAC Common Stock, such holder
shall instead receive a full share of ADAC Common Stock.
(c) As a condition to receiving the ADAC Common Stock, each J.D.
Technical Shareholder shall execute and deliver to ADAC and the Surviving
Corporation an investment letter substantially in the form attached hereto as
Exhibit A. Pursuant to Section 4.6 ADAC will use its best efforts to cause the
- --------- -----------
shares of ADAC Common Stock to be issued in connection with the Merger to be
registered under the Securities Act of 1933, as amended (the "SECURITIES ACT"),
on Form S-3.
1.6 REORGANIZATION. The parties intend to adopt the Agreement as a plan
--------------
of reorganization and to consummate the Merger in accordance with Section
368(a)(1)(A) of the Code. Each J.D. Technical Shareholder is urged to consult
with his or her own tax advisor or accountant as to the personal tax
consequences, if any, resulting from the Merger. J.D. Technical Shareholders
will be solely responsible for any tax consequences resulting to them from this
Merger, the cancellation of their shares of J.D. Technical Common Stock and
their receipt of shares of ADAC Common Stock.
1.7 DELIVERY OF ADAC COMMON STOCK. At or immediately after the Effective
-----------------------------
Time each J.D. Technical Shareholder will surrender his or her respective stock
certificates representing the J.D. Technical Common Stock extinguished in the
Merger, and, subject to Section 8.2 hereof, ADAC will deliver to the J.D.
-----------
Technical Shareholders entitled thereto stock certificates representing ADAC
Common Stock, duly registered in the name of each such J.D. Technical
Shareholder, with restrictive legends as may be required under the Securities
Act. Such delivery shall occur within ten (10) business days after the
Effective Time or otherwise in accordance with the practices of ADAC's transfer
agent.
1.8 FURTHER ASSURANCES. If at any time after the Effective Time, the
------------------
Surviving Corporation shall be advised that any deeds, bills of sale,
assignments or assurances or any other acts or things are necessary, desirable
or proper to vest, perfect or confirm its right, title or interest in, to or
under any of the
3
<PAGE>
rights, properties or assets of J.D. Technical acquired or to be acquired as a
result of the Merger and otherwise to carry out the purposes of this Agreement,
the Surviving Corporation and its officers are hereby authorized to execute and
deliver, in the name of J.D. Technical all such deeds, bills of sales and other
documents and to take such other action as necessary to vest, perfect and
confirm its right, title and interest in the properties and assets acquired
pursuant to the Merger.
1.9 CONSUMMATION OF MERGER. The parties desire to consummate the closing
----------------------
of the Merger on or before November 15 or as soon thereafter as practicable upon
satisfaction of the conditions set forth in Articles V and VI hereof. Upon
satisfaction of such conditions, ADAC shall deliver to the Delaware Secretary of
State a duly executed and verified Certificate of Merger and to the Missouri
Secretary of State a duly executed and verified Articles of Merger and the
parties shall take all such other and further actions as may be required by law
to make the Merger effective.
1.10 SPIN-OFF OF REDI-VU PRODUCT LINE. At or prior to the Closing Date of
--------------------------------
this Agreement, J.D. Technical shall transfer all of its products and assets and
liabilities relating to its Redi-Vu Systems business or products line, as set
forth on Schedule 1 attached hereto (collectively, the "REDI-VU BUSINESS"), to
----------
the J.D Technical Shareholders or their affiliates. Such transfer shall be
without representation or warranty, expressed or implied, by J.D. Technical and
shall be received on an "AS IS" basis. At the time of such transfer of the
Redi-Vu Business, the J.D. Technical Shareholders represent and warrant that (i)
the assets constituting the Redi-Vu Business shall constitute less than 10% of
the total assets of J.D. Technical prior to such transfer, both in terms of
historical costs and fair market value, (ii) the sales generated or associated
with the Redi-Vu Business during the prior twelve (12) months shall constitute
less than 10% of the gross sales of all of the products and services sold by
J.D. Technical during such period, and (iii) the sales generated or associated
with the Redi-Vu Business during the prior twelve (12) months shall have
generated less than 10% of the gross operating profits of J.D. Technical derived
from the sale of all of its products and services during such period. The J.D.
Technical Shareholders represent and warrant that the transfer of the assets
constituting the Redi-Vu Business are non-operating assets which are not an
integral part of the business of J.D. Technical to be acquired by the Surviving
Corporation pursuant to the Merger and such transfer by J.D. Technical shall not
affect or negatively impact the ability of the Surviving Corporation and ADAC to
account for the acquisition of J.D. Technical as a "pooling of interests." For
up to three (3)
4
<PAGE>
months after the Closing Date, the Redi-Vu Business may be located (to the
extent not otherwise being used by the Surviving Corporation), without charge,
in a small segregated area of J.D. Technical's facilities and the J.D. Technical
Shareholders may devote an insignificant amount of their time and energies (not
to exceed five (5) hours for each J.D. Technical Shareholder per week) to
managing the Redi-Vu Business. J.D. Technical Shareholders shall have no right
to use the Surviving Corporation's employees, resources or assets in connection
with the Redi-Vu Business.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF
ADAC AND SUBSIDIARY
ADAC and Subsidiary hereby represent and warrant to J.D. Technical and each
J.D. Technical Shareholder as follows:
2.1 CORPORATE STATUS. ADAC is a corporation duly organized and validly
----------------
existing under the laws of the State of California and is in good standing
thereunder. Subsidiary is a newly-formed corporation duly organized and validly
existing under the laws of the State of Delaware and in good standing
thereunder. Each of ADAC and Subsidiary has all requisite corporate power and
authority to own, lease, and operate its properties and assets, to carry on its
present business, to enter into this Agreement, and to perform its obligations
hereunder.
2.2 AUTHORIZATION. Each of ADAC and Subsidiary has full corporate
-------------
authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby, including the Merger. This Agreement and each
document, instrument and certificate executed and delivered in connection with
the transactions described herein has been duly and validly executed and
delivered by ADAC and Subsidiary and constitutes the valid and binding
obligations of each of ADAC and Subsidiary, enforceable against ADAC and
Subsidiary in accordance with its terms, except as such enforcement may be
affected or limited by bankruptcy, insolvency, reorganization and other laws of
general applicability relating to or affecting creditors rights and to general
equitable principles.
2.3 CONSENTS AND APPROVALS; NO VIOLATION. Except for any applicable
------------------------------------
requirements of the securities or "Blue Sky" laws of any state, if applicable,
in which qualification or clearance may be required, and the filing of the
Merger Agreement as required by the Missouri Corporation Laws and Delaware
Corporation Laws, no filing with, and no permit, authorization, consent or
approval of, any
5
<PAGE>
public body or authority is necessary for the consummation by ADAC and
Subsidiary of the transactions contemplated hereby.
2.4 CAPITALIZATION OF ADAC AND SUBSIDIARY. The entire authorized capital
-------------------------------------
stock of ADAC consists of (i) 5,000,000 shares of Preferred Stock, no par value,
of which none are issued or outstanding, and (ii) 25,000,000 shares of Common
Stock, no par value, of which 16,919,100 shares were issued and outstanding on
October 1, 1995. All shares of capital stock of ADAC which are outstanding as
of the date of this Agreement are duly authorized, validly issued, fully paid
and nonassessable, and are not subject to, nor were they issued in violation of,
any preemptive rights.
2.5 ADAC COMMON STOCK ISSUED IN MERGER. The shares of ADAC Common to be
----------------------------------
issued pursuant to this Agreement will, when so issued and delivered, be duly
authorized and reserved for issuance and validly issued, fully paid, and
nonassessable.
2.6 ACCURACY OF DISCLOSURE DOCUMENTS. ADAC has previously furnished to
--------------------------------
the shareholders of J.D. Technical true and complete copies of the following
materials (collectively, the "Disclosure Documents") as filed by ADAC with the
Securities and Exchange Commission ("SEC") pursuant to the Securities Exchange
Act of 1934: (i) ADAC's Annual Report on Form 10-K (without exhibits) for the
fiscal year ended October 2, 1994; and (ii) ADAC's Quarterly Reports on Form
10-Q for each fiscal quarter of the 1995 fiscal year. The audited consolidated
financial statements (including any notes and related schedules required as a
part thereof) and unaudited interim financial statements (including any notes
and related schedules required as a part thereof) of ADAC included in such
Disclosure Documents were prepared in accordance with generally accepted
accounting principles applied on a consistent basis (except as may be indicated
therein or in the notes thereto) and fairly present the financial position of
ADAC and its consolidated subsidiaries as at the dates thereof and the results
of operations for the periods then ended, subject, in the case of the unaudited
interim financial statements, to normal year-end adjustments and any other
adjustments described therein. To the knowledge of ADAC, no statement by ADAC
or Subsidiary contained in this Agreement, the Disclosure Documents or the
exhibits attached hereto or furnished to J.D. Technical Shareholders pursuant
hereto or in connection with the transactions contemplated hereby contains any
untrue statement of a material fact or omits to state a material fact necessary
in order to make the statements contained herein or therein not misleading in
light of the circumstances under which they were made.
6
<PAGE>
2.7 CERTAIN FEES. Neither ADAC nor Subsidiary nor any of their officers
------------
or directors has employed any broker or finder or incurred any liability for any
brokerage fees, commissions or finders' fees in connection with the transactions
contemplated herein.
2.8 S-3 ELIGIBILITY. ADAC satisfies the registrant eligibility
---------------
requirements set forth in Item 1.A. of the General Instructions to Form S-3 and,
to the knowledge of ADAC, there is no event or other circumstance that would
cause ADAC to cease to meet such eligibility requirements.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF J.D. TECHNICAL
AND ITS SHAREHOLDERS
Except as otherwise disclosed or excepted in Exhibit B hereto (the "J.D.
---------
Technical Schedule of Exceptions") delivered to ADAC and Subsidiary by J.D.
Technical upon execution of this Agreement, J.D. Technical and each J.D.
Technical Shareholder, jointly and severally, represent and warrant to ADAC and
Subsidiary as follows:
3.1 CORPORATE ORGANIZATION. J.D. Technical (i) is a statutory close
----------------------
corporation duly organized, validly existing and in good standing under the laws
of the State of Missouri and (ii) has all requisite corporate power and
authority to own, lease and operate its properties and assets and to carry on
its present business, to enter into this Agreement and to perform its
obligations hereunder. J.D. Technical's principal executive offices and
facilities are located in Washington, Missouri, and J.D. Technical is qualified
to do business and is in good standing as a foreign corporation in Washington,
California, Illinois, Ohio and Florida. J.D. Technical does not do business in
any other jurisdiction in which the failure to so qualify would have a material
adverse effect on the conduct of its business.
3.2 ARTICLES OF INCORPORATION AND BYLAWS. J.D. Technical has previously
------------------------------------
delivered to ADAC and Subsidiary complete and correct copies of the Articles of
Incorporation and all amendments thereto to the date hereof and Bylaws, as
presently in effect, of J.D. Technical. J.D. Technical is not in default in the
performance, observation or fulfillment of any material term of its Articles of
Incorporation or Bylaws.
3.3 CAPITALIZATION. The authorized capital stock of J.D.
--------------
7
<PAGE>
Technical consists of (a) no shares of Preferred Stock and (b) 3,000 shares of
Common Stock, $10.00 par value, of which 1,400 shares of Common Stock are issued
and outstanding. All such shares which are outstanding as of the date of this
Agreement are duly authorized, validly issued, fully paid and nonassessable, and
are not subject to, nor were they issued in violation of, any preemptive rights.
At the Effective Time there will not be any, subscriptions, options, conversion
or exchange rights, warrants or other agreements, claims or commitments of any
nature whatsoever obligating J.D. Technical to issue, transfer, deliver or sell
additional shares of its capital stock or to register or qualify any such shares
under any Federal or state securities laws. There are no rights of first refusal
which are applicable to the transactions contemplated by this Agreement.
3.4 CONTROLLED ENTITIES. J.D. Technical does not own, directly or
-------------------
indirectly, any of the outstanding capital stock of any corporation, or any
partnership, joint venture, or other business enterprise.
3.5 AUTHORIZATION. J.D. Technical has full corporate authority to execute
-------------
and deliver this Agreement and, subject to receiving shareholder approval in
accordance with the Missouri Corporation Laws, to consummate the transactions
contemplated hereby, including the Merger. The execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby have been
duly and validly authorized by the shareholders of J.D. Technical and no other
corporate proceedings on the part of J.D. Technical are necessary to consummate
the transactions so contemplated. This Agreement has been duly and validly
executed and delivered by J.D. Technical, and constitutes the valid and binding
agreement of J.D. Technical, enforceable against it in accordance with its
terms, except as such enforcement may be affected or limited by bankruptcy,
insolvency, reorganization and other laws of general applicability relating to
or affecting creditors rights and to general equitable principles.
3.6 CONSENTS AND APPROVALS; NO VIOLATION. Except for any applicable
------------------------------------
requirements of the securities or "Blue Sky" laws of any state, if applicable,
in which qualification or clearance may be required, and the filing of the
Merger Agreement as required by the Missouri Corporation Laws and Delaware
Corporation Laws, no filing with, and no permit, authorization, consent or
approval of, any public body or authority is necessary for the consummation by
J.D. Technical of the transactions contemplated hereby. Neither the execution
and delivery of this Agreement nor the consummation of the transactions
contemplated hereby nor compliance with any of the
8
<PAGE>
provisions hereof will (a) violate any provision of the Articles of
Incorporation or Bylaws of J.D. Technical; (b) result in a violation or breach
of, or constitute (with or without due notice or lapse of time or both) a
default (or give rise to any right of termination, cancellation or acceleration)
under any of the material terms, covenants, conditions or provisions of any
note, bond, mortgage, indenture, deed of trust, license, franchise, permit,
lease, contract, agreement or other instrument, commitment or obligation to
which J.D. Technical is a party or by which any of its properties or assets may
be bound; or (c) violate any order, writ, injunction, decree, judgment or ruling
or, to J.D. Technical's best knowledge, any statute or rule, of any court or
governmental authority, United States or foreign, applicable to J.D. Technical
or any of its properties or assets.
3.7 FINANCIAL STATEMENTS. J.D. Technical has previously delivered to ADAC
--------------------
and Subsidiary the unaudited balance sheets of J.D. Technical as of October 31,
1995, and December 31, 1991, 1992, 1993 and 1994, and the related statements of
income, shareholders' equity and cash flow of J.D. Technical for such periods
(collectively referred to as the "J.D. TECHNICAL FINANCIAL STATEMENTS"). The
J.D. Technical Financial Statements fairly present the financial condition of
J.D. Technical as of the respective dates indicated, and the results of its
operations for the respective periods indicated, all in accordance with
generally accepted accounting principles consistently applied on a consistent
basis for the respective fiscal years or as of the respective dates set forth
therein.
3.8 MATERIAL CONTRACTS. Attached hereto as Exhibit C is a complete list
------------------ ---------
of each written or oral agreement, loan, lease or other contract to which J.D.
Technical is a party (including amendments thereto) which requires or provides
for the payment of, or receipt by, J.D. Technical of at least $5,000 annually or
$20,000 in the aggregate over the life of the agreement, loan, lease or contract
or which is otherwise material to the business, properties, condition (financial
or otherwise) or results of operations.
3.9 TITLE TO PROPERTIES AND ASSETS; LIENS, ETC. J.D. Technical has good
------------------------------------------
and marketable title to its properties and assets, and valid leasehold interests
in all its leasehold estates, in each case subject to no mortgage, pledge, lien,
lease, encumbrance, or charge, other than (a) liens resulting from taxes which
are not yet due and payable, or (b) minor liens, encumbrances, or defects of
title which do not, individually or in the aggregate, materially detract from
the value of the property subject thereto
9
<PAGE>
or materially impair the operations of J.D. Technical.
3.10 ABSENCE OF CERTAIN CHANGES. Since the date of the most recent J.D.
--------------------------
Technical Financial Statement, there has not been any material adverse change in
the business, properties, condition (financial or otherwise) or results of
operations of J.D. Technical.
3.11 INTELLECTUAL PROPERTY RIGHTS; LICENSES AND PERMITS. Attached hereto as
--------------------------------------------------
Exhibit D is a list of any J.D. Technical patents, applications for patents,
- ---------
trademarks, trade names, service marks and copyrighted software programs and
documentation, (collectively, "INTELLECTUAL PROPERTY"). J.D. Technical is the
sole and exclusive owner of the Intellectual Property, free and clear of all
liens and encumbrances. No royalties, license fees, honorarium or other fees
are payable by J.D. Technical under any agreements or any license agreements.
J.D. Technical has not licensed or otherwise granted rights to use, manufacture,
assemble, sell or service its products to any other person nor is J.D. Technical
bound by any agreement that affects its exclusive right to manufacture, assemble
or sell its products.
3.12 COMPLIANCE WITH APPLICABLE LAW. J.D. Technical has no knowledge, and
------------------------------
has not received any written notice from any governmental authority, that the
business of J.D. Technical is being conducted in violation of any applicable
law, ordinance, regulation, decree or order of any governmental entity, except
for violations which either singly or in the aggregate do not and are not
expected to have a material adverse effect on the financial condition, business,
operations or future prospects of J.D. Technical.
3.13 NO DEFAULT UNDER MATERIAL CONTRACTS. J.D. Technical is not in
-----------------------------------
material default, and no event has occurred which would constitute a material
default by J.D. Technical, under any of the material agreements, contracts or
leases described in Section 3.8 of this Agreement. To the best knowledge of
-----------
J.D. Technical, no other party to any such material agreement, contract or lease
is in default, and no event has occurred which would constitute a default, under
any such material agreement, contract or lease.
3.14 SUBCHAPTER S STATUS; TAXES. J.D. Technical duly elected on December
--------------------------
27, 1991 to be treated for Federal income tax purposes as an "S corporation"
under Subchapter S of the Internal Revenue Code of 1986, as amended (the
"CODE"). J.D. Technical has duly and timely delivered to its shareholders all
Schedule K-1 (Form 1120S) required under the Code. J.D. Technical has duly filed
all Tax
10
<PAGE>
Returns (as hereinafter defined) required to be filed by it prior to the date of
this Agreement. J.D. Technical or the J.D. Technical Shareholders have duly paid
all Taxes (as hereinafter defined) required to be paid in respect of the periods
covered by such Tax Returns. J.D. Technical is not delinquent in the payment of
any amount of Taxes and no deficiencies for any Taxes have been proposed,
asserted or assessed against J.D. Technical. With respect to United States
Federal and state taxes, (i) no waivers of the time to assess any Taxes have
been given or requested and (ii) the income tax returns of J.D. Technical for
any year for which the statute of limitations has not expired, to the knowledge
of J.D. Technical, are not currently being audited or examined. For purposes of
this Section 3.14, the term "TAXES" shall include all taxes, assessments and
------------
governmental charges imposed by the United States or any state, local or foreign
government or subdivision or agency thereof, including any interest, penalties
or additions thereto, and the term "TAX RETURN" shall include any return, report
or other information required to be supplied to a taxing authority with respect
to Taxes.
3.15 LITIGATION. There is no action, suit or proceeding by or before any
----------
court, governmental agency, or by any other person, instituted, pending or, to
the best knowledge of J.D. Technical, threatened, which, if adversely decided,
would, directly or indirectly, have a material adverse effect on the business,
properties, condition (financial or otherwise) or results of operations of J.D.
Technical, nor is there any judgment, decree, injunction, rule or order of any
court, governmental department, commission, agency, instrumentality or
arbitrator outstanding against J.D. Technical having, or which J.D. Technical
reasonably can foresee, in the future would be likely to have, any such effect.
J.D. Technical is not in violation of any term of any judgment, decree,
injunction or order outstanding against it the effect of which is reasonably
likely to have a material adverse effect on its business, properties, condition
(financial or otherwise) or results of operations.
3.16 EMPLOYMENT MATTERS.
------------------
(a) J.D. Technical is not subject to any collective bargaining
agreement and, to the knowledge of J.D. Technical, there have not been any union
organizational activities or attempts to effect a representation election with
respect to J.D. Technical within the last 36 months.
(b) J.D. Technical does not maintain and is not required to contribute
to any "employee pension benefit plan" within the
11
<PAGE>
meaning of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"); nor does J.D. Technical have any contingent or other undischarged
payment obligations with respect to any such plan which was previously
maintained by J.D. Technical. J.D. Technical is not required to contribute to
any multi-employer plan within the meaning of ERISA.
(c) J.D. Technical has no employment, management or consulting
contracts, bonus, profit-sharing or other similar benefit plans, deferred
compensation, stock option, stock ownership, or stock purchase plans, or any
other plan, agreement, or arrangement for the provision of any benefits to its
employees, consultants or directors other than normal and customary group health
insurance, group life insurance and vacation and sick leave benefits; all of
which may be terminated at the option of J.D. Technical.
3.17 INSURANCE. Attached hereto as Exhibit E is a list of all insurance
--------- ---------
policies carried by J.D. Technical and the amounts of coverage thereunder, all
of which policies are in full force and effect on the date hereof.
3.18 ENVIRONMENTAL MATTERS. J.D. Technical's business and its operations
---------------------
are in compliance with all Environmental Laws, and J.D. Technical is not now in
violation of any federal, state or local Environmental Laws (as defined below)
or other laws or regulations relating to industrial hygiene, environmental
conditions, Hazardous Substances (as defined below), toxic materials or waste or
soil or ground water conditions and J.D. Technical has never been the subject of
any complaint, investigation or proceeding relating to any such matter, nor has
the operation of its business resulted in any such violation. Neither J.D.
Technical nor, to the best knowledge of J.D. Technical or the J.D. Technical
Shareholders, any third party, has manufactured, stored or disposed of, on,
under or about the premises presently occupied by J.D. Technical (or transported
to or from such real property) any combustible, explosive, reactive, toxic or
radioactive materials or wastes, or other Hazardous Substances.
For purposes of this Section, "ENVIRONMENTAL LAWS" means all federal,
state and local laws, statutes, codes, ordinances, regulations, rules or other
requirements with the force of law, including but not limited to consent decrees
and judicial or administrative orders, relating to the environment or the use,
storage, treatment, disposal or release of any Hazardous Substances, all as
amended or modified from time to time, including, without limitation: the
Comprehensive Environmental Response,
12
<PAGE>
Compensation and Liability Act ("CERCLA") as amended by the Superfund Amendments
and Reauthorization Act of 1986 ("SARA"); the Resource Conservation and Recovery
Act of 1976, as amended ("RCRA"); the Clean Water Act, as amended; the Clean Air
Act, as amended; the Federal Insecticide, Fungicide and Rodenticide Act, as
amended; the Hazardous Materials Transportation Act, as amended, and any and all
environmental statutes of the State of Missouri, and all regulations promulgated
under or pursuant to such federal and Missouri Statutes, and "HAZARDOUS
SUBSTANCES" means any hazardous waste or hazardous substance, or any pollutant
or contaminant or toxic substance or other chemicals or substances including,
without limitation, asbestos, petroleum, petroleum-derived products and
substances, polychlorinated biphenyls, and any other substance regulated by any
Environmental Laws.
3.19 ZONING. All of J.D. Technical's property, buildings or structures
------
used in its business, and their operation and maintenance as now operated and
maintained, comply in all material respects with all applicable zoning
restrictions and other administrative regulations and do not violate any
restrictive covenants or any provisions of law, the contravention or violation
of which in any material respect would interfere with or prevent the continued
use of such properties for the purposes for which they are now being used, or
would materially affect their value.
3.20 LEASED PREMISES. J.D. Technical currently leases the facilities
---------------
located at 23 Town & Country Drive, Washington, Missouri, from J.D. Investments,
a Missouri partnership, under the terms of an Amendment to and Restatement of
Triple-Net Lease Agreement, dated April 7, 1994 (the "REAL PROPERTY LEASE").
With respect to the Real Property Lease, no default or event of default on the
part of J.D. Technical as lessee under the provisions of the Lease, and no event
which with the giving of notice or passage of time, or both, would constitute
such default or event of default on the part of J.D. Technical has occurred and
is continuing unremedied or unwaived. J.D. Technical is in compliance with all
its duties and obligations under the Lease, including any maintenance and repair
obligations. There exists no pending or, to the knowledge of J.D. Technical or
the J.D. Technical Shareholders, threatened, condemnation, eminent domain or
similar proceedings with respect to, or which or could affect, the leased
property or Lease.
3.21 FULL DISCLOSURE. To the knowledge of J.D. Technical, no statement by
---------------
J.D. Technical contained in this Agreement or the exhibits attached hereto or
any written statement or certificate furnished or to be furnished to ADAC
pursuant hereto or in
13
<PAGE>
connection with the transactions contemplated hereby contains any untrue
statement of a material fact or omits to state a material fact necessary in
order to make the statements contained herein or therein not misleading in light
of the circumstances under which they were made.
ARTICLE IV
COVENANTS
4.1 CONDUCT OF BUSINESS OF J.D. TECHNICAL. Except as otherwise expressly
-------------------------------------
permitted by this Agreement, during the period from the date of this Agreement
to the Effective Time, J.D. Technical will conduct its operations according to
its ordinary and usual course of business, and J.D. Technical will use all
reasonable efforts to proceed diligently to preserve intact its business
organization, to retain and have available the services of its officers and
employees and to maintain satisfactory relationships with licensors, licensees,
suppliers, contractors, distributors, customers and others having business
relationships with it. Without limiting the generality of the foregoing, prior
to the Effective Time, J.D. Technical will not take, and will use its best
efforts to prevent its shareholders from taking, any action to, (a) amend its
Articles of Incorporation or Bylaws; (b) authorize for issuance, or issue, sell,
pledge or deliver any stock of, or rights to purchase stock of, J.D. Technical;
(c) enter into any transaction not in the ordinary course of business; (d) do
anything that would cause any of the representations and warranties set forth in
Article III to become false or misleading; (e) materially increase the
compensation payable to any officer or shareholder of J.D. Technical in his
capacity as an employee or otherwise or, except as permitted under Section 4.2
-----------
or Section 1.10, pay any dividend or distribution to shareholders of J.D.
------------
Technical; or (f) agree to do any of the foregoing.
4.2 SUBCHAPTER S TAXES. The J.D. Technical Shareholders jointly and
------------------
severally agree to be personally responsible for all federal and state income
taxes owed by J.D. Technical (or severally responsible for all taxes owed by
them as shareholders in such "subchapter S" corporation) for the period of
January 1, 1995 through the Closing Date; provided, however, prior to the
Effective Time, J.D. Technical shall declare, and as soon as practicable after
such tax amount is determined to the reasonable satisfaction of the Surviving
Corporation and the J.D. Technical Shareholders, J.D. Technical or the Surviving
Corporation shall pay to the J.D. Technical Shareholders a special dividend
equal to the lesser of (i) the taxable income of J.D. Technical, determined on
the basis
14
<PAGE>
of accounting methods consistent with the preceding years, which is attributable
to the J.D. Technical Shareholders because of J.D. Technical's status as an S
Corporation, times the maximum individual tax rate for Federal income tax and
Missouri income tax purposes, less the amount of any such dividends that have
been paid on account of this year's taxable income of J.D. Technical; or (ii)
$100,000. The Surviving Corporation shall have the right to confer with the J.D.
Technical Shareholders concerning the determination of the amount of taxable
income of J.D. Technical and the Federal and states taxes attributable to the
J.D. Technical Shareholders. Promptly following the Closing, but in no event
later than the due date prescribed by the Code, the J.D. Technical Shareholders
shall prepare (or cause to have prepared) and file final Subchapter S corporate
Federal and state tax returns for J.D. Technical for the period commencing
January 1, 1995, and ending as of the Effective Time. Fifteen (15) days prior to
the filing of such tax returns, the J.D. Technical Shareholders shall provide
copies of said returns to the Surviving Corporation and ADAC, along with any
supporting documentation reasonably requested by the Surviving Corporation or
ADAC.
4.3 EXPENSES. Whether or not the Merger is consummated, all costs and
--------
expenses in connection with this Agreement and the related transactions (a)
incurred by ADAC or the Subsidiary shall be the sole responsibility of ADAC or
(b) incurred by J.D. Technical or the J.D. Technical Shareholders shall be the
sole responsibility of the J.D. Technical Shareholders; provided, however, if
the merger is consummated ADAC shall pay immediately following the Closing, up
to $20,000 of J.D. Technical's and the J.D. Technical Shareholders' reasonable
costs and expenses, including, without limitation, attorney's fees and
accountant's fees (e.g. Coopers & Lybrand) upon submission of invoices.
4.4 BEST EFFORTS. Subject to the terms and conditions herein provided,
------------
each of the parties hereto agrees to use its best efforts to take, or cause to
be taken, all action, and to do, or cause to be done, all things necessary,
proper or advisable under applicable laws and regulations to consummate and make
effective the transactions contemplated hereby. In case at any time after the
Effective Time any further action is necessary or desirable to carry out the
purposes of this Agreement, the parties hereto, by action of their proper
officers and directors or otherwise, shall take all such necessary action.
4.5 CONSENTS. Each of the parties hereto will use its best efforts to
--------
obtain consents of all third parties and governmental authorities necessary to
the consummation of the transactions
15
<PAGE>
contemplated hereby.
4.6 REGISTRATION STATEMENTS.
-----------------------
(A) REGISTRATION ON FORM S-3. ADAC covenants to use its best efforts
------------------------
to prepare and file with the Securities and Exchange Commission ("SEC"),
promptly after the Effective Time and after ADAC publicly discloses in a press
release the financial results of the parties hereto covering at least thirty
(30) days of post-merger operating results, a Registration Statement on Form S-3
(the "REGISTRATION STATEMENT") with respect to the shares of ADAC Common Stock
(collectively, the "REGISTRABLE SECURITIES") to be received by J.D. Technical
shareholders and to use its best efforts to cause such Registration Statement to
become and remain effective until the second anniversary of the Effective Date.
The number of shares of ADAC Common Stock being held for security of any
indemnification obligations of the J.D. Technical Shareholders pursuant to
Section 8.2 hereof shall be included under the Registration Statement, but shall
not be released from the holdback until the time limitations set forth in
Section 8.2 have lapsed. Because this registration is intended to permit sales
- -----------
of the Registrable Securities from time to time (i.e., a so-called "shelf
----
registration"), ADAC shall in no event be obligated to cause any such
registration to remain effective for more than two (2) years after the Effective
Time of the Merger. ADAC shall also use its best efforts to prepare and file
with the SEC such amendments and supplements to such Registration Statements and
the prospectus used in connection therewith as may be necessary to permit the
disposition of the Registrable Securities covered by such Registration
Statements. ADAC shall also use its reasonable efforts to furnish to the J.D.
Technical Shareholders such number of copies of a prospectus, including a
preliminary prospectus, in conformity with the requirements of the Securities
Act, and such other documents as they may reasonably request in order to
facilitate the disposition of the Registrable Securities owned by them. All
expenses incurred in connection with such registrations shall be borne by ADAC,
except the J.D. Technical Shareholders shall bear all commissions and similar
expenses. It shall be a condition precedent to the obligations of ADAC to take
any action pursuant to this Subsection that the J.D. Technical Shareholders
shall furnish to ADAC such information regarding them, the Registrable
Securities held by them and the intended method of disposition thereof as ADAC
shall reasonably request and as shall be required in connection with the action
to be taken by ADAC.
4.7 ACTIONS CONTRARY TO STATED INTENT. Each party will use its reasonable
---------------------------------
efforts to cause the Merger to qualify as a tax-free
16
<PAGE>
reorganization under Section 368 of the Code and accordingly, will not, either
before or after consummation of the Merger, take any action or fail to take any
action that would prevent the Merger from so qualifying as a tax-free
reorganization under such Section or be inconsistent with such qualification.
4.8 HOLD HARMLESS FROM ANY BROKERAGE CLAIMS. Notwithstanding any broker or
---------------------------------------
finder's agreement naming J.D. Technical as the responsible party, the J.D.
Technical Shareholders shall indemnify, defend and hold J.D. Technical, the
Surviving Corporation and ADAC harmless from any and all demands, fees, expenses
or costs claimed pursuant to such an agreement by any finder or broker arising
from these transactions.
4.9 PAYMENT OF CERTAIN OUTSTANDING LOANS. After the Closing and within
------------------------------------
three (3) business days of presentation of a payoff demand from the following
lenders of J.D. Technical, the Surviving Corporation shall pay the payoff amount
needed to satisfy such outstanding loans and obtain releases of guarantees,
mortgages and other collateral securing such loans. The loans to be satisfied
are each of the note payables reflected on Exhibit C hereto as Items 4, 9 and
---------
10.
ARTICLE V
CONDITIONS PRECEDENT TO J.D. TECHNICAL'S
OBLIGATION TO EFFECT THE MERGER
The obligation of J.D. Technical to effect the Merger shall be subject to
the following conditions:
5.1 REPRESENTATIONS, COVENANTS AND CERTIFICATE. The representations and
------------------------------------------
warranties of ADAC and Subsidiary contained herein shall in all material
respects be true as of the date of this Agreement and the Effective Time with
the same effect as though made at the Effective Time; ADAC and Subsidiary each
shall in all material respects have performed all obligations and complied with
all covenants required to be performed or complied with by it prior to the
Effective Time; and ADAC and Subsidiary shall each have delivered to J.D.
Technical a certificate, dated the Closing Date and signed by its Chairman, a
President, Vice President or the Chief Financial Officer, to such effect.
5.2 ACTION OR PROCEEDINGS. There shall not be any actual or threatened
---------------------
action or proceeding by or before any court or other
17
<PAGE>
governmental body which shall seek to restrain, prohibit or invalidate the
transactions contemplated by this Agreement, nor shall there be any actual
action or proceeding seeking a material amount of damages by reason of the
consummation of the Merger.
5.3 PERMITS AND APPROVALS. All permits, authorizations and regulatory
---------------------
approvals of governmental authorities required to be obtained pursuant to
Sections 2.3, 3.6 and 4.5 herein shall have been received.
5.4 THIRD PARTY CONSENTS. All consents required of lenders and other
--------------------
persons deemed necessary or advisable by J.D. Technical shall have been duly
obtained.
5.5 EMPLOYMENT/COVENANT NOT TO COMPETE AGREEMENTS. On or before the
---------------------------------------------
Closing Date, the following transactions shall have been completed:
(a) Mr. David Sutton and the Surviving Corporation shall have entered
into an Employment Agreement in the form of Exhibit F attached hereto, providing
---------
for a minimum employment term of six (6) months, a base salary of $175,000
(based upon an annual rate) and providing for bonuses of up to $12,500 for each
three (3) month period of employment following the Effective Time based upon
achievement of certain agreed-upon objectives.
(b) Mr. Jerry Pepmueller and the Surviving Corporation shall have
entered into an Employment Agreement in the form of Exhibit G attached hereto,
---------
providing for a minimum employment term of eighteen (18) months, a base salary
of $175,000 (based upon an annual rate) and providing for bonuses of up to
$12,500 for each three (3) month period of employment following the Effective
Time based upon achievement of certain agreed-upon objectives.
5.6 APPROVAL OF MERGER. The Board of Directors of ADAC and Subsidiary and
------------------
the stockholder of Subsidiary shall have approved this Agreement, the Merger and
the transactions contemplated herein.
5.7 OPINION OF COUNSEL FOR ADAC. J.D. Technical and J.D. Technical
---------------------------
Shareholders shall have received from counsel for ADAC an opinion, dated the
Effective Time, in form and substance satisfactory to J.D. Technical and J.D.
Technical Shareholders, to the effect (1) that ADAC is a corporation duly
organized, validly existing and in good standing under the laws of the State of
California, has the corporate power to own its properties and assets and to
carry on its business as it is now being conducted
18
<PAGE>
and has the corporate power and authority to enter into this Agreement and to
carry out the transactions contemplated hereby; (2) that the Subsidiary is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware, has the corporate power to own its properties and
assets and to carry on its business as it is now being conducted and has the
corporate power and authority to enter into this Agreement and to carry out the
transactions contemplated hereby; (3) that the ADAC stock to be issued to the
J.D. Technical Shareholders shall have been duly authorized and validly issued,
fully paid and nonassessable and, to the knowledge of counsel, are free of any
preemptive or similar rights, and issued in accordance with Federal securities
laws concerning the registration or exemption therefrom; (4) that this Agreement
and the Escrow Agreement have been duly authorized, executed and delivered by
ADAC and the Subsidiary and constitute the valid, binding and enforceable
obligation of ADAC and the Subsidiary, as applicable, (except as such
enforcement may be affected by bankruptcy or insolvency laws or equitable
principles or considerations), and all corporate action required by ADAC and the
Subsidiary in order to effect the transactions contemplated hereby has been
taken.
5.8 ESCROW AGREEMENT. ADAC and the Subsidiary shall have executed the
----------------
Escrow Agreement attached hereto as Exhibit H.
---------
5.9 LEASE OF 23 TOWN & COUNTRY DRIVE, WASHINGTON, MISSOURI. The Surviving
------------------------------------------------------
Corporation and J.D. Investments, a Missouri partnership, as landlord, shall
have executed a triple-net lease, in the form of Exhibit I attached hereto,
---------
covering the facility and the adjacent land owned by the landlord at 23 Town &
Country Drive, Washington, for an initial four (4) year period, with three (3)
options to the Surviving Corporation to renew for subsequent four (4) year
terms. The Lease will also provide the Surviving Corporation with certain
rights to purchase if J.D. Investments decides to sell the facility and property
located at 23 Town & Country Drive, Washington, Missouri 63090.
ARTICLE VI
CONDITIONS PRECEDENT TO OBLIGATIONS
OF ADAC AND SUBSIDIARY
The obligations of the Subsidiary to effect the Merger, and of ADAC to
deliver the ADAC Common Stock to the J.D. Technical Shareholders, shall be
subject to the following conditions:
6.1 REPRESENTATIONS, COVENANTS AND CERTIFICATE. The repre-
------------------------------------------
19
<PAGE>
sentations and warranties of J.D. Technical and J.D. Technical Shareholders
herein contained shall in all material respects be true as of the date of this
Agreement and as of the Effective Time with the same effect as though made at
the Effective Time; J.D. Technical shall in all material respects have performed
all obligations and complied with all covenants required by this Agreement to be
performed or complied with by it prior to the Effective Time; and J.D. Technical
shall have delivered to ADAC and Subsidiary a certificate, dated the Closing
Date and signed by its President, a Vice President or Chief Financial Officer,
to both such effects.
6.2 EXCEPTIONS TO REPRESENTATIONS AND WARRANTIES; DELIVERY OF J.D.
--------------------------------------------------------------
TECHNICAL SCHEDULE OF EXCEPTIONS. J.D. Technical shall deliver to ADAC and
- --------------------------------
Subsidiary the J.D. Technical Schedule of Exceptions in the form of Exhibit B,
---------
dated the Closing Date, and as updated to reflect those changes occurring from
the date of the earlier delivered Schedule of Exceptions and it shall contain no
exceptions to representations and warranties of J.D. Technical except as to such
exceptions which have been approved in writing by ADAC.
6.3 APPROVAL OF MERGER. All of the Shareholders of J.D. Technical shall
------------------
have approved this Agreement, the Merger and the transactions contemplated
herein.
6.4 PERMITS AND APPROVALS. All permits, authorizations and regulatory
---------------------
approvals of governmental authorities required to be obtained pursuant to
Sections 2.3, 3.6 and 4.5 herein shall have been received.
6.5 THIRD PARTY CONSENTS. All consents required of lenders and other
--------------------
persons deemed necessary or advisable by ADAC shall have been duly obtained.
6.6 ACTIONS OR PROCEEDINGS. There shall not be any actual or threatened
----------------------
action or proceeding by or before any court or other governmental body which
shall seek to restrain, prohibit or invalidate the transactions contemplated by
this Agreement, nor shall there be any actual action or proceeding seeking a
material amount of damages by reason of the consummation of the Merger.
6.7 OPINION OF COUNSEL FOR J.D. TECHNICAL. ADAC shall have received from
-------------------------------------
counsel for J.D. Technical an opinion, dated the Effective Time, in form and
substance satisfactory to ADAC, to the effect (1) that J.D. Technical is a
corporation duly organized, validly existing and in good standing under the laws
of the State
20
<PAGE>
of Missouri, has the corporate power to own its properties and assets and to
carry on its business as it is now being conducted and has the corporate power
and authority to enter into this Agreement and to carry out the transactions
contemplated hereby; (2) that the number of issued and outstanding shares of
capital stock is 1,400, all of which shall have been duly authorized and validly
issued, fully paid and nonassessable; (3) that this Agreement and the Escrow
Agreement have been duly authorized, executed and delivered by J.D. Technical
and its shareholders and constitute the valid, binding and enforceable
obligation of J.D. Technical and J.D. Technical Shareholders, as applicable,
(except as such enforcement may be affected by bankruptcy or insolvency laws or
equitable principles or considerations), and all corporate action required by
J.D. Technical in order to effect the transactions contemplated hereby has been
taken.
6.8 ESCROW AGREEMENT. J.D. Technical Shareholders shall have executed the
----------------
Escrow Agreement attached hereto as Exhibit H.
---------
6.9 LEASE OF 23 TOWN & COUNTRY DRIVE, WASHINGTON, MISSOURI. The Surviving
------------------------------------------------------
Corporation and J.D. Investments, a Missouri partnership, as landlord, shall
have executed a triple-net lease, in the form of Exhibit I attached hereto,
---------
covering the facility and the adjacent land owned by the landlord at 23 Town &
Country Drive, Washington, for an initial four (4) year period, with three (3)
options to the Surviving Corporation to renew for subsequent four (4) year
terms, all on terms and conditions satisfactory to ADAC. The lease will also
provide the Surviving Corporation with certain rights to purchase if J.D.
Investments decides to sell the facility and property located at 23 Town &
Country Drive, Washington, Missouri 63090.
6.10 EMPLOYMENT/COVENANT NOT TO COMPETE AGREEMENTS. On or before the
---------------------------------------------
Closing Date, the following transactions shall have been completed:
(a) Mr. David Sutton and the Surviving Corporation shall have entered
into an Employment Agreement in the form of Exhibit F attached hereto, providing
---------
for a minimum employment term of six (6) months, a base salary of $175,000
(based upon an annual rate) and providing for bonuses of up to $12,500 for each
three (3) month period of employment following the Effective Time based upon
achievement of certain agreed-upon objectives.
(b) Mr. Jerry Pepmueller and the Surviving Corporation shall have
entered into an Employment Agreement in the form of Exhibit G attached hereto,
---------
providing for a minimum employment term
21
<PAGE>
of eighteen (18) months, a base salary of $175,000 (based upon an annual rate)
and providing for bonuses of up to $12,500 for each three (3) month period of
employment following the Effective Time based upon achievement of certain
agreed-upon objectives.
6.11 RECEIPT OF POOLING LETTER FROM ADAC AUDITORS. On or before the
--------------------------------------------
Closing Date, ADAC shall have received a letter from its auditors, in form and
substance reasonably satisfactory to ADAC, advising it that the Merger in
accordance with the terms of this Agreement will be treated for accounting
purposes as a "pooling of interests" and conforms with the requirements of APB
Opinion No. 16.
6.12 RELEASE OF GUARANTY FROM SBA. On or before the Closing Date, ADAC
----------------------------
shall have received a release from the Small Business Administration of that
certain Guaranty given by J.D. Technical to secure the SBA Loan No. 631-552-3004
in the original principal amount of $180,000. Such release by the SBA shall
include a release of the security interest taken by the SBA in the assets of
J.D. Technical.
ARTICLE VII
CLOSING DATE
The closing of the Merger and the other transactions contemplated by this
Agreement (the "CLOSING") shall take place on or before November 9, 1995 (or at
such other hour or on such other date as shall be reasonably agreed upon by ADAC
and J.D. Technical), at a location and at a time to be mutually agreed upon by
the parties hereto (the "CLOSING DATE" or "CLOSING TIME"), if all conditions to
the Merger have been satisfied or waived on or before such date.
ARTICLE VIII
INDEMNIFICATION AND HOLD BACK
8.1 WARRANTY CLAIMS. Except as hereinafter set forth, the J.D. Technical
---------------
Shareholders shall jointly and severally indemnify and hold ADAC and the
Surviving Corporation, and each of their successors and assigns, and their
respective officers, directors, employees, agents and affiliates (collectively,
the "BENEFICIARIES") harmless from and against, and in respect of, any and all
damages, claims losses, liabilities and expenses, including, without limitation,
legal, accounting and other expenses, which may arise out of or relate to: (a)
any breach or violation of any
22
<PAGE>
covenant, term, obligation or duty of J.D. Technical or the J.D. Technical
Shareholders under this Agreement; or (b) any breach or misrepresentation of any
of the representations or warranties made in this Agreement by J.D. Technical or
the J.D. Technical Shareholders; or (c) any inaccuracy or misrepresentation in
the schedules or exhibits attached hereto or in any certificate or document
delivered in accordance with the terms of this Agreement by J.D. Technical or
the J.D. Technical Shareholders (collectively, "WARRANTY CLAIMS"); provided
however, that the Beneficiaries shall be entitled to indemnification hereunder
only to the extent that the aggregate of all such Warranty Claims exceed $5,000
and shall be able to recover up to $170,000 of the Warranty Claims (without
reduction for such initial threshold of $5,000). As security for J.D. Technical
Shareholders' obligations set forth herein, ADAC shall withhold the delivery of
shares of ADAC Common Stock valued at $170,000 pursuant to the formula set forth
in Section 1.5(a). Such shares shall be held pursuant to the terms of the
--------------
Escrow Agreement attached hereto as Exhibit H. The J.D. Technical Shareholders
---------
shall not be personally liable for any indemnity under this Agreement. The
Beneficiaries sole recourse for indemnity under this Agreement shall be the
Deferred Shares (as defined in Section 8.2).
-----------
8.2 HOLD BACK OF ADAC COMMON STOCK AS SECURITY FOR INDEMNIFICATION. As
--------------------------------------------------------------
security for J.D. Technical Shareholders' obligations set forth in Section 8.1,
-----------
ADAC shall withhold for a period ending November 9, 1996 the delivery of up to
$170,000 of shares of the ADAC Common Stock which would otherwise be delivered
to the J.D. Technical Shareholders pursuant to Section 1.5(a) hereof (the
--------------
"DEFERRED SHARES"). The Deferred Shares withheld by ADAC shall be delivered to
the J.D. Technical Shareholders in accordance with the terms and conditions set
forth in the Escrow Agreement attached hereto as Exhibit H.
---------
ARTICLE IX
MISCELLANEOUS
9.1 TERMINATION. Anything herein or elsewhere to the contrary
-----------
notwithstanding, this Agreement may be terminated and abandoned at any time
before the Effective Time whether before or after adoption and approval of this
Agreement by the shareholders of J.D. Technical:
(a) By the mutual consent of the Boards of Directors of J.D.
Technical and the Board of Directors of ADAC;
23
<PAGE>
(b) By the Board of Directors of J.D. Technical at any time after
November 16, 1995, if, by that date, the conditions set forth in Article V
hereof shall not have been met, unless such delay results from a breach or
violation by J.D. Technical of the terms of this Agreement;
(c) By the Board of Directors of ADAC or Subsidiary at any time after
November 16, 1995, if, by that date, the conditions set forth in Article VI
hereof shall not have been met, unless such delay results from a breach or
violation by ADAC or Subsidiary of the terms of this Agreement; or
In the event of termination and abandonment under this Section 9.1,
-----------
this Agreement shall forthwith become void and there shall be no liability on
the part of any of J.D. Technical, ADAC or Subsidiary (or their respective
officers and directors). Nothing contained in this Section shall affect the
obligations of the parties to comply with any confidentiality obligations under
any agreements between the parties hereto.
9.2 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The representations and
------------------------------------------
warranties contained in this Agreement shall be true and correct as of the
Closing Date, and shall survive the Closing without regard to any investigation
made by the parties; provided, however, that all such representations and
warranties shall expire on November 9, 1996, except with respect to claims made
in writing by one party against the other during such time period pursuant to
the Escrow Agreement.
9.3 NOTICES. Any notice or other communication required or which may be
-------
given hereunder shall be in writing and either be delivered personally (by hand,
messenger or other overnight courier service), by facsimile transmission (with
hard copy to follow immediately thereafter) or deposited in the United States
mail, first class, certified, return receipt requested, postage prepaid, and
shall be deemed given (i) when delivered, if delivered personally, (ii) if sent
by facsimile transmission, when so received or (iii) if mailed, three business
days after the date of deposit with the United States mail; and shall be
addressed as follows:
24
<PAGE>
IF TO ADAC OR SUBSIDIARY:
ADAC Laboratories
540 Alder Drive
Milpitas, California 95035
Attention: David L. Lowe, Chief Executive Officer
Facsimile: (408) 945-8086
WITH COPIES TO:
Graven Perry Block Brody & Qualls
523 West Sixth Street, Suite 1130
Los Angeles, California 90014
Attention: Kriston D. Qualls, Esq.
Facsimile: (213) 489-1332
IF TO J.D. TECHNICAL:
J.D. Technical Services, Inc.
23 Town & Country Drive
Washington, Missouri 63090
Attention: Jeremy Pepmueller
Facsimile: (314) 239-2544
WITH COPIES TO:
Greensfelder, Hemker & Gale, P.C.
10 South Broadway
St. Louis, Missouri 63102
ATTN: Joseph D. Lehrer, Esq.
Facsimile: (314) 241-3237
IF TO ANY SHAREHOLDER:
Jerome W. Pepmueller
3 Wheatley Court
Washington, Missouri 63090
David Sutton
7 Judy Lane
Washington, Missouri 63090
Any party may change its address to which notices or other com-
25
<PAGE>
munications are to be sent by giving written notice of any such change in the
manner provided herein for giving notice.
9.4 MODIFICATION OR WAIVER. This Agreement may be amended, modified or
----------------------
superseded, and any of the terms, covenants, representations, warranties or
conditions hereof may be waived, but only by a written instrument executed by
J.D. Technical, ADAC and Subsidiary. No shareholder approval shall be required
for any amendment, modification or waiver which does not materially affect the
nature of the Merger provided for herein.
9.5 BINDING EFFECT AND ASSIGNMENT. This Agreement shall be binding upon
-----------------------------
and inure to the benefit of the parties hereto and their respective successors
and assigns; provided, however, that prior to the Merger, no assignment of any
rights provided for herein may be made by any party without the express written
consent of the other parties.
9.6 GOVERNING LAW. This Agreement shall be governed by, and construed in
-------------
accordance with, the laws of the State of Delaware.
9.7 ENTIRE AGREEMENT. This Agreement, together with all exhibits and
----------------
schedules hereto, embodies the entire agreement and understanding between the
parties hereto relating to the subject matter hereof and supersedes any prior
agreements and understandings relating to the subject matter hereof.
9.8 ARBITRATION. Any controversy or claim arising out of, or relating to
-----------
this Agreement, or the breach thereof, shall be settled by a three-person panel
of arbitrators in an arbitration conducted in Denver, Colorado, in accordance
with the Commercial Arbitration Rules of the American Arbitration Association
("AAA") as such rules shall be in effect on the date of delivery of demand for
arbitration.
Judgment upon the award rendered by the arbitrators may be entered in
any court having jurisdiction thereof. The arbitrators' decision shall be in
writing and shall be final and nonappealable. The arbitrators' authority shall
include ordering discovery proceedings and the ability to render equitable types
of relief and, in such event, any aforesaid court may enter an order enjoining
or compelling such actions as found by the arbitrators. The arbitrators shall
also make a determination regarding whether one party's legal position in any
such controversy or claim is the more substantially correct (the "Prevailing
Party") and the arbitrators shall require the other party or parties to pay the
reasonable legal and other professional fees and costs incurred by
26
<PAGE>
the Prevailing Party in connection with such arbitration proceeding and any
necessary court action. The parties recognize and agree that the remedy of
specific performance may be appropriate in order to enforce certain provisions
of this Agreement. The parties agree that a party would be entitled to pursue
such remedies for emergency or preliminary injunctive or other equitable relief
in any court of competent jurisdiction, provided that there would be a stay of
such judicial proceedings on the merits of the dispute arising out of or
relating to this Agreement pending arbitration of all underlying claims between
the parties immediately following the issuance of any such emergency or
preliminary injunctive or other equitable relief.
The arbitrators shall be chosen from a list provided by the AAA as
follows: one arbitrator shall be chosen directly by ADAC, one arbitrator shall
be chosen directly by the J.D. Technical Shareholders, and the third arbitrator
shall be selected by the two arbitrators so chosen.
9.9 COUNTERPARTS. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
9.10 SEVERABILITY. If any provision of this Agreement, or the application
------------
thereof to any person or circumstance, should, for any reason and to any extent,
be invalid or unenforceable, the remainder of this Agreement and the application
of such provision to other persons or circumstances shall not be affected
thereby, but rather shall be enforced to the greatest extent permitted by law.
////
////
////
////
////
////
////
27
<PAGE>
IN WITNESS THEREOF, the undersigned parties have executed this Agreement,
as of the date first hereinabove written.
THIS CONTRACT CONTAINS A BINDING ARBITRATION PROVISION WHICH MAY BE
ENFORCED BY THE PARTIES.
J.D. TECHNICAL SERVICES, INC. ADAC LABORATORIES
By___________________________ By___________________________
Jerome W. Pepmueller, Robert L. Miller,
President Corporate Counsel
By___________________________
David Sutton, Secretary ADAC ACQUISITION, INC.
By____________________________
Robert L. Miller,
Corporate Counsel and
Vice President
J.D. TECHNICAL SHAREHOLDERS:
_____________________________
David Sutton
_____________________________
Jerome W. Pepmueller
28
<PAGE>
EXHIBIT A
---------
INVESTMENT LETTER
-----------------
TO: ADAC Laboratories
540 Alder Drive
Milpitas, California 95035
J.D. TECHNICAL
SHAREHOLDER: Jerome Pepmueller
SECURITIES: Common Stock
================================================================================
In connection with the merger of J.D. Technical Service, Inc. ("J.D.
Technical") and ADAC Acquisition, Inc. ("Acquisition") pursuant to that certain
Agreement and Plan of Reorganization (the "Agreement"), I understand that I will
receive shares of Common Stock (the "Securities") of ADAC Laboratories, a
California corporation ("ADAC"), and, as a condition to receiving such
Securities, the undersigned hereby represents to Acquisition and ADAC the
following:
(a) I have received copies of ADAC's Annual Report on Form 10-K for the
fiscal year ended October 2, 1994, and Quarterly Reports on Form 10-Q for each
fiscal quarter of the 1995 fiscal year.
(b) I understand and acknowledge that the initial issuance of the
Securities pursuant to the Agreement will not be registered under the Securities
Act of 1933, as amended (the "Securities Act"), on the grounds that the
issuances of these Securities are exempt from registration pursuant to Section
3(b) or Section 4(2) of the Securities Act or Regulation D promulgated
thereunder, and that ADAC's reliance upon such exemption is predicated upon my
representations contained herein.
(c) I am aware of ADAC's business affairs and financial condition and I
have acquired sufficient information about ADAC to reach an informed and
knowledgeable decision. I have been given an opportunity to ask questions of
management of ADAC concerning the the terms and conditions of the merger, the
Agreement, the Securities and the business and financial condition of ADAC.
<PAGE>
(d) I am acquiring these Securities for my own account (or a trust account
if the undersigned is a trustee) for investment purposes only and not with a
view to, or for the resale in connection with, any "distribution" thereof in
violation of the Securities Act of 1933, as amended (the "Securities Act"). I
am able to fend for myself in connection with the purchase of the above
Securities and I have such knowledge and experience in financial and business
matters as to be capable of evaluating the merits and risks of this investment
and to protect my own interests in connection therewith. I have the financial
ability and resources to bear the economic risks of this investment.
(e) I understand that the Securities have not been registered under the
Securities Act in reliance upon a specific exemption therefrom, which exemption
depends, upon other things, the bona fide nature of my investment intent as
expressed herein and my intent to hold indefinitely the Securities unless
subsequently registered under the Securities Act or unless an exemption from
such registration is otherwise available.
(f) I understand that ADAC is obligated to use its best efforts to cause
these Securities to be registered pursuant to the terms of the Agreement. I
acknowledge that because the registration process involves review and approval
by the Securities and Exchange Commission, no assurances can be given that such
efforts will succeed in registering these Securities in a timely manner or ever.
In addition, I understand that the certificate evidencing the Securities will be
imprinted with a legend which prohibits the transfer of the Securities unless
they are registered or such registration is not required in the opinion of
counsel for ADAC.
(g) I am aware of the provisions of Rule 144, promulgated under the
Securities Act, which in substance, permits limited public resale of "restricted
securities" acquired, directly or indirectly, from the issuer thereof (or from
an affiliate of such issuer), in a non-public offering subject to the
satisfaction of certain conditions, including, among other things: the
availability of certain public information about ADAC; the resale occurring not
less than two years after the party has purchased and paid for the securities to
be sold (absent registration); the sale being made through a broker in an
unsolicited "broker's transaction" or in transactions directly with a market
maker (as said term is defined under the Securities Exchange Act of 1934) and
the amount of securities being sold during any three-month period not exceeding
the specified limitations stated therein.
(h) I further understand that in the event all of the requirements of Rule
144 are not satisfied, registration under the Securities Act, compliance with
Regulation A or some other registration exemption will be required before I may
resell the Securities; and that, notwithstanding the fact that Rule 144 is not
exclusive, the staff of the SEC has expressed its opinion that
2
<PAGE>
persons proposing to sell private placement securities other than in a
registered offering and otherwise than pursuant to Rule 144 will have a
substantial burden of proof in establishing that an exemption from Registration
is available for such offers or sales and that such persons and their respective
brokers who participate in such transaction do so at their own risk.
J.D. TECHNICAL SHAREHOLDER:
___________________________________
3
<PAGE>
EXHIBIT A
---------
INVESTMENT LETTER
-----------------
TO: ADAC Laboratories
540 Alder Drive
Milpitas, California 95035
J.D. TECHNICAL
SHAREHOLDER: David Sutton
SECURITIES: Common Stock
================================================================================
In connection with the merger of J.D. Technical Service, Inc. ("J.D.
Technical") and ADAC Acquisition, Inc. ("Acquisition") pursuant to that certain
Agreement and Plan of Reorganization (the "Agreement"), I understand that I will
receive shares of Common Stock (the "Securities") of ADAC Laboratories, a
California corporation ("ADAC"), and, as a condition to receiving such
Securities, the undersigned hereby represents to Acquisition and ADAC the
following:
(a) I have received copies of ADAC's Annual Report on Form 10-K for the
fiscal year ended October 2, 1994, and Quarterly Reports on Form 10-Q for each
fiscal quarter of the 1995 fiscal year.
(b) I understand and acknowledge that the initial issuance of the
Securities pursuant to the Agreement will not be registered under the Securities
Act of 1933, as amended (the "Securities Act"), on the grounds that the
issuances of these Securities are exempt from registration pursuant to Section
3(b) or Section 4(2) of the Securities Act or Regulation D promulgated
thereunder, and that ADAC's reliance upon such exemption is predicated upon my
representations contained herein.
(c) I am aware of ADAC's business affairs and financial condition and I
have acquired sufficient information about ADAC to reach an informed and
knowledgeable decision. I have been given an opportunity to ask questions of
management of ADAC concerning the the terms and conditions of the merger, the
Agreement, the Securities and the business and financial condition of ADAC.
<PAGE>
(d) I am acquiring these Securities for my own account (or a trust account
if the undersigned is a trustee) for investment purposes only and not with a
view to, or for the resale in connection with, any "distribution" thereof in
violation of the Securities Act of 1933, as amended (the "Securities Act"). I
am able to fend for myself in connection with the purchase of the above
Securities and I have such knowledge and experience in financial and business
matters as to be capable of evaluating the merits and risks of this investment
and to protect my own interests in connection therewith. I have the financial
ability and resources to bear the economic risks of this investment.
(e) I understand that the Securities have not been registered under the
Securities Act in reliance upon a specific exemption therefrom, which exemption
depends, upon other things, the bona fide nature of my investment intent as
expressed herein and my intent to hold indefinitely the Securities unless
subsequently registered under the Securities Act or unless an exemption from
such registration is otherwise available.
(f) I understand that ADAC is obligated to use its best efforts to cause
these Securities to be registered pursuant to the terms of the Agreement. I
acknowledge that because the registration process involves review and approval
by the Securities and Exchange Commission, no assurances can be given that such
efforts will succeed in registering these Securities in a timely manner or ever.
In addition, I understand that the certificate evidencing the Securities will be
imprinted with a legend which prohibits the transfer of the Securities unless
they are registered or such registration is not required in the opinion of
counsel for ADAC.
(g) I am aware of the provisions of Rule 144, promulgated under the
Securities Act, which in substance, permits limited public resale of "restricted
securities" acquired, directly or indirectly, from the issuer thereof (or from
an affiliate of such issuer), in a non-public offering subject to the
satisfaction of certain conditions, including, among other things: the
availability of certain public information about ADAC; the resale occurring not
less than two years after the party has purchased and paid for the securities to
be sold (absent registration); the sale being made through a broker in an
unsolicited "broker's transaction" or in transactions directly with a market
maker (as said term is defined under the Securities Exchange Act of 1934) and
the amount of securities being sold during any three-month period not exceeding
the specified limitations stated therein.
(h) I further understand that in the event all of the requirements of Rule
144 are not satisfied, registration under the Securities Act, compliance with
Regulation A or some other registration exemption will be required before I may
resell the Securities; and that, notwithstanding the fact that Rule 144 is not
exclusive, the staff of the SEC has expressed its opinion that
2
<PAGE>
persons proposing to sell private placement securities other than in a
registered offering and otherwise than pursuant to Rule 144 will have a
substantial burden of proof in establishing that an exemption from Registration
is available for such offers or sales and that such persons and their respective
brokers who participate in such transaction do so at their own risk.
J.D. TECHNICAL SHAREHOLDER:
___________________________________
3
<PAGE>
EXHIBIT
10.80
<PAGE>
EXHIBIT 10.80
AMENDMENT TO LINE OF CREDIT AGREEMENT
This First Amendment to Line of Credit Agreement (the "Amendment") is made
and entered into this _________________ day of June, 1994, by and between SANWA
BANK CALIFORNIA (the "Bank") and ADAC LABORATORIES (the "Borrower") with respect
to the following:
This Amendment shall be deemed to be a part of and subject to that certain
Line of Credit Agreement dated as of July ____, 1993, as it may be amended from
time to time, and any and all addenda and riders thereto (collectively the
"Agreement"). Unless otherwise defined herein, all terms used in this Amendment
shall have the same meanings as in the Agreement. To the extent that any of the
terms or provisions of this Amendment conflict with those contained in the
Agreement, the terms and provisions contained herein shall control.
WHEREAS, the Borrower and the Bank mutually desire to extend and/or modify
the Agreement.
NOW THEREFORE, for value received and hereby acknowledged, the Borrower and
the Bank agree as follows:
1. EXTENSION OF EXPIRATION DATE. The Expiration Date provided for in
Section 1.01(j) of the Agreement shall be extended to March 31, 1996.
2. MODIFICATION OF COMPENSATING BALANCES. Section 2.14 of the
Agreement is deleted in its entirety and the following is substituted in lieu
thereof:
"2.14 COMPENSATING BALANCES: The Borrower shall, unless the Bank
otherwise consents in writing, maintain demand deposits or market
value savings deposits, provided that only 50% of all market
value savings deposits maintained with Bank shall be counted
against the net free compensating balances required hereunder,
with the Bank with net free compensating balances in an amount
equivalent to not less than $1,125,000 on an average daily basis
during each calendar quarter (the "Compensating Balance
Requirement"). In the event that the Compensating Balance
Requirement is not met, the Borrower shall pay to the Bank, on
the 30th day following the last day of each calendar quarter, a
fee equivalent 3/8% per annum on the difference (if any) by which
the Compensating Balance Requirement exceeded the amount of
average daily balances actually maintained by the Borrower during
such preceding calendar quarter, computed on a year of 360 days
for actual days elapsed.
For purposes of this paragraph, the term "net free compensating
balances" mean balances excluding deposits for which funds have
not yet been collected by the Bank".
3. CHANGE IN EFFECTIVE TANGIBLE NET WORTH. Section 8.14 E of the
Agreement is deleted in its entirety and the following is substituted in lieu
thereof:
"E. NET WORTH. A minimum effective tangible net worth of not
less than $48,000,000 plus 50% of each prior fiscal quarter's net
profit and plus 90% of the net proceeds of any new equity
offerings, minus up to $6,000,000 used to repurchase or redeem
the Borrower's stock prior to December 31, 1994".
4. CONFIRMATION OF OTHER TERMS AND CONDITIONS OF THE AGREEMENT.
Except as specifically provided in this Amendment, all other terms, conditions
and covenants of the Agreement unaffected by this Amendment shall remain
unchanged and shall continue in full force and effect and the Borrower hereby
covenants and agrees to perform and observe all terms, covenants and agreements
provided for in the Agreement, as hereby amended.
-1-
<PAGE>
IN WITNESS WHEREOF, this Amendment has been executed by the parties hereto
as of the date first hereinabove written.
BANK: BORROWER:
SANWA BANK CALIFORNIA ADAC LABORATORIES
By:__________________________ By:__________________________
_____________________________ _____________________________
(Name/Title) (Name/Title)
By:___________________________
______________________________
(Name/Title)
-2-
<PAGE>
AMENDMENT TO LINE OF CREDIT AGREEMENT
This Second Amendment to Line of Credit Agreement (the "Amendment") is made
and entered into this _________________ day of September, 1994, by and between
SANWA BANK CALIFORNIA (the "Bank") and ADAC LABORATORIES (the "Borrower") with
respect to the following:
This Amendment shall be deemed to be a part of and subject to that certain
Line of Credit Agreement dated as of July ____, 1993, as it may be amended from
time to time, and any and all addenda and riders thereto (collectively the
"Agreement"). Unless otherwise defined herein, all terms used in this Amendment
shall have the same meanings as in the Agreement. To the extent that any of the
terms or provisions of this Amendment conflict with those contained in the
Agreement, the terms and provisions contained herein shall control.
WHEREAS, the Borrower and the Bank mutually desire to extend and/or modify
the Agreement.
NOW THEREFORE, for value received and hereby acknowledged, the Borrower and
the Bank agree as follows:
1. MODIFICATION OF EFFECTIVE TANGIBLE NET WORTH. The definition of
Effective Tangible Net Worth provided for in Section 1.01(g) of the Agreement
shall be deleted in its entirety and the following substituted in lieu thereof:
"(g) "EFFECTIVE TANGIBLE NET WORTH": shall mean the Borrower's
stated net worth plus Subordinated Debt but less all intangible
assets of the Borrower (i.e., goodwill, trademarks, patents,
copyrights, organization expense, loans and advances to
employees, affiliates or subsidiaries, investments in
subsidiaries and similar intangible items, provided however, that
on a consolidated basis, Effective Tangible Net Worth shall
exclude from intangible assets advances to affiliates and
subidiaries and investments in subsidiaries and provided further,
that the Dollar amount of any judgement obtained by Elcint
against the Borrower, if not already accounted for by the
Borrower, shall be deemed to be an intangible)".
2. CHANGE IN LINE OF CREDIT. All references in Section 2.01 of the
Agreement to the figure "$10,000,000" shall be changed to "$20,000,000".
3. MODIFICATION OF COMPENSATING BALANCES. Section 2.14 of the
Agreement is deleted in its entirety and the following is substituted in lieu
thereof:
"2.14 COMPENSATING BALANCES: The Borrower shall, unless the Bank
otherwise consents in writing, maintain demand deposits or market
value savings deposits, provided that only 50% of all market
value savings deposits maintained with Bank shall be counted
against the net free compensating balances required hereunder,
with the Bank with net free compensating balances in an amount
equivalent to not less than $1,500,000 on an average daily basis
during each calendar quarter (the "Compensating Balance
Requirement"). In the event that the Compensating Balance
Requirement is not met, the Borrower shall pay to the Bank, on
the 30th day following the last day of each calendar quarter, a
fee equivalent 3/8% per annum on the difference (if any) by which
the Compensating Balance Requirement exceeded the amount of
average daily balances actually maintained by the Borrower during
such preceding calendar quarter, computed on a year of 360 days
for actual days elapsed.
For purposes of this paragraph, the term "net free compensating
balances" mean balances excluding deposits for which funds have
not yet been collected by the Bank".
-1-
<PAGE>
4. CHANGE IN FINANCIAL CONDITION. Section 8.14 A through E of the
Agreement is deleted in its entirety and the following is substituted in lieu
thereof:
"8.14 FINANCIAL CONDITION. Maintain at all times on a
consolidated basis:
A. DEBT TO NET WORTH RATIO. A debt to effective tangible
net worth ratio of not more than 1 to 1 at September 30,
1995 and thereafter.
B. CURRENT RATIO. A ratio of current assets to current
liabilities of not less than 1.50 to 1 at September 30, 1995
and thereafter.
C. QUICK RATIO. A ratio of the sum of Liquid Assets plus
accounts receivable to current liabilities of not less than
1 to 1 at September 30, 1995 and thereafter.
D. NET PROFIT. A minimum net profit after tax for each
fiscal quarter of at least $1.00.
E. NET WORTH. A minimum Effective Tangible Net Worth of
not less than $48,000,000 plus 50% of each prior fiscal
quarter's net profit and plus 90% of the net proceeds of any
new equity offerings.
F. WORKING CAPITAL. A minimum working capital of not less
than $20,000,000 at September 30, 1995 and thereafter.
Maintain at all times on a unconsolidated basis:
A. NET WORTH. A minimum effective tangible net worth of
not less than $34,000,000 plus 50% of each prior fiscal
quarter's net profit and plus 100% of the net proceeds of
any new equity offerings.
B. WORKING CAPITAL. A minimum working capital of not less
than $15,000,000".
5. CONFIRMATION OF OTHER TERMS AND CONDITIONS OF THE AGREEMENT.
Except as specifically provided in this Amendment, all other terms, conditions
and covenants of the Agreement unaffected by this Amendment shall remain
unchanged and shall continue in full force and effect and the Borrower hereby
covenants and agrees to perform and observe all terms, covenants and agreements
provided for in the Agreement, as hereby amended.
IN WITNESS WHEREOF, this Amendment has been executed by the parties hereto
as of the date first hereinabove written.
BANK: BORROWER:
SANWA BANK CALIFORNIA ADAC LABORATORIES
By:_________________________ By:_________________________
____________________________ _____________________________
(Name/Title) (Name/Title)
By:__________________________
______________________________
(Name/Title)
-2-
<PAGE>
AMENDMENT TO LINE OF CREDIT AGREEMENT
This Third Amendment to Line of Credit Agreement (the "Amendment") is made
and entered into this _________________ day of January, 1995, by and between
SANWA BANK CALIFORNIA (the "Bank") and ADAC LABORATORIES (the "Borrower") with
respect to the following:
This Amendment shall be deemed to be a part of and subject to that certain
Line of Credit Agreement dated as of August 12, 1993, as it may be amended from
time to time, and any and all addenda and riders thereto (collectively the
"Agreement"). Unless otherwise defined herein, all terms used in this Amendment
shall have the same meanings as in the Agreement. To the extent that any of the
terms or provisions of this Amendment conflict with those contained in the
Agreement, the terms and provisions contained herein shall control.
WHEREAS, the Borrower and the Bank mutually desire to extend and/or modify
the Agreement.
NOW THEREFORE, for value received and hereby acknowledged, the Borrower and
the Bank agree as follows:
1. MODIFICATION OF EFFECTIVE TANGIBLE NET WORTH. The definition of
Effective Tangible Net Worth provided for in Section 1.01(g) of the Agreement
shall be deleted in its entirety and the following substituted in lieu thereof:
"(g) "EFFECTIVE TANGIBLE NET WORTH": shall mean the Borrower's
stated net worth plus Subordinated Debt but less all intangible
assets of the Borrower (i.e., goodwill, trademarks, patents,
copyrights, organization expense, loans and advances to
employees, affiliates, subsidiaries or Community Health Computing
Corporation, investments in subsidiaries or Community Health
Computing Corporation, any tax-defered assets and similar
intangible items, provided however, that on a consolidated basis,
Effective Tangible Net Worth shall exclude from intangible assets
advances to affiliates and subidiaries and investments in
subsidiaries)".
2. MODIFICATION OF INTEREST RATE. All references to the timing of
payment of interest on Variable Rate Advances and Cost of Funds Advances in
Section 2.04 of the Agreement shall be deleted in their entirety and the
following shall be substituted in lieu thereof:
"Interest on Variable Rate Advances and Cost of Funds Advances
shall be paid in Dollars in monthly installments commencing on
the first day of the month following the date of the first such
Advance and continuing on the first day of each month
thereafter".
3. CHANGE IN REPORTING REQUIREMENTS. A new Section 8.06 D. is added
to the Agreement as follows:
"D. COMPLIANCE. Concurrently with the delivery of any financial
statement hereunder, the Borrower shall provide the Bank with a
compliance certificate, certifying compliance with all of the
terms of this Agreement, executed by the chief financial officer
or other financial officer of the Borrower".
4. MODIFICATION OF MERGERS AND ACQUISITIONS. Section 8.01 of the
Agreement is deleted in its entirety and the following is substituted in lieu
thereof:
"8.01 PRESERVATION OF EXISTENCE; COMPLIANCE WITH APPLICABLE
LAWS. Maintain and preserve its existence and all rights and
privileges now enjoyed; not liquidate or dissolve, merge or
consolidate with or into, or acquire any other business
organization other than up to $20,600,000 for the assets or the
going concern of Community Health Computing Corporation; and
conduct its business in accordance with all applicable laws,
rules and regulations except where such failure to so conduct its
business would not have a material adverse affect upon the
Borrower's business as a whole or its financial condition".
-1-
<PAGE>
5. CHANGE IN INDEBTEDNESS. Section 8.09 of the Agreement is deleted
in its entirety and the following is substituted in lieu thereof:
"8.09 ADDITIONAL INDEBTEDNESS. Not, after the date hereof,
create, incur or assume, directly or indirectly, any liability or
indebtedness other than (i) indebtedness owed or to be owed to
the Bank and indebtedness owed or to be owed to ABN-Amro Bank
N.V. or (ii) indebtedness to trade creditors incurred in the
ordinary course of the Borrower's business or (iii) guarantees of
indebtedness of up to $1,500,000 in any one fiscal year in
connection with equipment leases to Borrower's customers in South
America".
6. MODIFICATION OF LOANS. Section 8.10 of the Agreement is deleted
in its entirety and the following is substituted in lieu thereof:
"8.10 LOANS. Not make any loans or advances or extend credit to
any third person, including, but not limited to, directors,
officers, shareholders, partners, employees, affiliated entities
or subsidiaries of the Borrower, except for credit extended in
the ordinary course of the Borrower's business as presently
conducted, except (i) up to an aggregate amount of unsecured
credit not exceeding $500,000 in any one fiscal year and (ii) up
to an aggregate amount of credit secured by Borrower's stock not
exceeding $1,500,000 in any one fiscal year and (iii) up to
$20,600,000 in the aggregate in loans and advances to Community
Health Computing Corporation".
7. CHANGE IN FINANCIAL CONDITION. Section 8.14 of the Agreement is
deleted in its entirety and the following is substituted in lieu thereof:
"8.14 FINANCIAL CONDITION. Maintain at all times on a
consolidated basis:
A. DEBT TO NET WORTH RATIO. A Debt to Effective Tangible
Net Worth ratio of not more than 1.75 to 1.
B. CURRENT RATIO. A ratio of current assets to current
liabilities of not less than 1.25 to 1.
C. QUICK RATIO. A ratio of the sum of Liquid Assets plus
accounts receivable to current liabilities of not less than
.90 to 1 from the date hereof through September 29, 1995 and
1 to 1 at September 30, 1995 and thereafter.
D. NET PROFIT. A minimum net profit after tax for each
fiscal quarter of at least $1.00.
E. NET WORTH. A minimum Effective Tangible Net Worth of
not less than $37,500,000.
F. WORKING CAPITAL. A minimum working capital of not less
than $15,000,000 from the date hereof through September 29,
1995 and $20,000,000 at September 30, 1995 and thereafter.
Maintain at all times on a unconsolidated basis (U.S. operations
only):
A. NET WORTH. A minimum Effective Tangible Net Worth of
not less than $34,000,000.
B. WORKING CAPITAL. A minimum working capital of not less
than $15,000,000".
8. CHANGE IN CONTROL. Section 9.08 of the Agreement is deleted in
its entirety and the following is substituted in lieu thereof:
"9.08 CHANGE IN OWNERSHIP. There shall occur a sale or transfer
to (whether voluntary or involuntary), or an agreement shall be
entered into to do so with, any Person or group of Persons (as
such terms are defined pursuant to Federal securities laws) who
would own more than 40% of the issued and outstanding capital
stock of the Borrower and, as a result thereof, such Person or
group of Persons has the ability to direct or cause the direction
of the management and policies of the
-2-
<PAGE>
Borrower or more than 50% of the members of the board of
directors of the Borrower shall be changed, other than as a
result of death or retirement".
9. CONFIRMATION OF OTHER TERMS AND CONDITIONS OF THE AGREEMENT.
Except as specifically provided in this Amendment, all other terms, conditions
and covenants of the Agreement unaffected by this Amendment shall remain
unchanged and shall continue in full force and effect and the Borrower hereby
covenants and agrees to perform and observe all terms, covenants and agreements
provided for in the Agreement, as hereby amended.
IN WITNESS WHEREOF, this Amendment has been executed by the parties hereto
as of the date first hereinabove written.
BANK: BORROWER:
SANWA BANK CALIFORNIA ADAC LABORATORIES
By:_______________________________ By:_________________________________
JEFFREY D. BRYAN, VICE PRESIDENT DENNIS MAHONEY, VICE PRESIDENT-FINANCE
AND CHIEF FINANCIAL OFFICER
(Name/Title) (Name/Title)
-3-
<PAGE>
AMENDMENT TO LINE OF CREDIT AGREEMENT
This Fourth Amendment to Line of Credit Agreement (the "Amendment") is made
and entered into as of this 29th day of September, 1995, by and between SANWA
BANK CALIFORNIA (the "Bank") and ADAC LABORATORIES (the "Borrower") with respect
to the following:
This Amendment shall be deemed to be a part of and subject to that certain
Line of Credit Agreement dated as of August 12, 1993, as it may be amended from
time to time, and any and all addenda and riders thereto (collectively the
"Agreement"). Unless otherwise defined herein, all terms used in this Amendment
shall have the same meanings as in the Agreement. To the extent that any of the
terms or provisions of this Amendment conflict with those contained in the
Agreement, the terms and provisions contained herein shall control.
WHEREAS, the Borrower and the Bank mutually desire to extend and/or modify
the Agreement.
NOW THEREFORE, for value received and hereby acknowledged, the Borrower and
the Bank agree as follows:
1. CHANGE IN INDEBTEDNESS. Section 8.09 of the Agreement is deleted in
its entirety and the following is substituted in lieu thereof:
"8.09 ADDITIONAL INDEBTEDNESS. Not, after the date hereof,
create, incur or assume, directly or indirectly, any liability or
indebtedness other than (i) indebtedness owed or to be owed to
the Bank and indebtedness owed or to be owed to ABN-Amro Bank
N.V. or (ii) indebtedness to trade creditors incurred in the
ordinary course of the Borrower's business or (iii) guarantees of
indebtedness of up to $20,000,000 in any one fiscal year in
connection with equipment financing to Borrower's customers in
South America".
2. MODIFICATION OF LIENS. Section 8.11 of the Agreement is deleted
in its entirety and the following is substituted in lieu thereof:
"8.11 LIENS AND ENCUMBRANCES. Not create, assume or permit to
exist any security interest, encumbrance, mortgage, deed of trust
or other lien including, but not limited to, a lien of
attachment, judgment or execution) affecting any of the
Borrower's properties, or execute or allow to be filed any
financing statement or continuation thereof affecting any such
properties, except for Permitted Liens and as otherwise provided
in this Agreement and except for a security interest in accounts
receivable of the Borrower of up to $3,000,000 in favor of
Imperial Bank", which lien shall be junior to Bank's lien.
3. CHANGE IN FINANCIAL CONDITION. Section 8.14 of the Agreement is
deleted in its entirety and the following is substituted in lieu thereof:
"8.14 FINANCIAL CONDITION. Maintain at all times on a
consolidated basis:
A. DEBT TO NET WORTH RATIO. A Debt to Effective Tangible
Net Worth ratio of not more than 1.75 to 1.
B. CURRENT RATIO. A ratio of current assets to current
liabilities of not less than 1.40 to 1.
C. QUICK RATIO. A ratio of the sum of Liquid Assets plus
accounts receivable to current liabilities of not less than
.80 to 1.
D. NET PROFIT. A minimum net profit after tax for each
fiscal quarter of at least $1.00.
-1-
<PAGE>
E. NET WORTH. A minimum Effective Tangible Net Worth of
not less than $37,500,000.
F. WORKING CAPITAL. A minimum working capital of not less
than $15,000,000.
Maintain at all times on a unconsolidated basis (U.S. operations only):
G. NET WORTH. A minimum Effective Tangible Net Worth of
not less than $34,000,000.
H. WORKING CAPITAL. A minimum working capital of not less
than $15,000,000".
4. SALES WITH RECOURSE. A new Section 8.18 is added to the Agreement
as follows:
"8.18 SALES WITH RECOURSE. Not allow sales terms with recourse
by the Borrower's customers to Borrower of more than $20,000,000
in any one fiscal year".
5. CONFIRMATION OF OTHER TERMS AND CONDITIONS OF THE AGREEMENT.
Except as specifically provided in this Amendment, all other terms, conditions
and covenants of the Agreement unaffected by this Amendment shall remain
unchanged and shall continue in full force and effect and the Borrower hereby
covenants and agrees to perform and observe all terms, covenants and agreements
provided for in the Agreement, as hereby amended.
IN WITNESS WHEREOF, this Amendment has been executed by the parties hereto
as of the date first hereinabove written.
BANK: BORROWER:
SANWA BANK CALIFORNIA ADAC LABORATORIES
By:________________________________ By:__________________________________
JEFFREY D. BRYAN, VICE PRESIDENT ANDRE SIMONE, VICE PRESIDENT-FINANCE
(Name/Title) (Name/Title)
-2-
<PAGE>
EXHIBIT 11
ADAC LABORATORIES AND SUBSIDIARIES
COMPUTATION OF CONSOLIDATED NET INCOME PER SHARE
(in thousands except per share data)
For the three years in the period ended October 1, 1995
<TABLE>
<CAPTION>
FISCAL YEARS
------------
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
Average shares outstanding 16,426 15,858 15,048
Net effect of dilutive stock options
and warrants 653 650 1,410
------- ------- -------
Average common and common equivalent
shares outstanding 17,079 16,508 16,458
======= ======= =======
Net income $11,073 $17,521 $18,059
======= ======= =======
Net income per share $ .65 $ 1.06 $ 1.10
======= ======= =======
</TABLE>
Primary and fully diluted income per share differs by less than one cent in all
periods.
1
<PAGE>
EXHIBIT 21
ADAC LABORATORIES AND SUBSIDIARIES
SUBSIDIARIES OF REGISTRANT
<TABLE>
<CAPTION>
COUNTRY
OF
NAME CORPORATION
- ---- -----------
<S> <C>
ADAC Laboratories, B.V. The Netherlands
ADAC Laboratories, SARL (1) France
ADAC Laboratories, GmbH (1) Germany
ADAC Laboratories, A/S (1) Denmark
ADAC Laboratories, Canada Limited Canada
ADAC Laboratories, S.R.L. (1) Italy
ADAC Laboratories, Ltd. (1) The United Kingdom
ADAC/SD&G Healthcare Systems, Inc. California, U.S.
ADAC Laboratories Pacific, Inc. Singapore
ADAC Foreign Sales Corporation, Inc. Virgin Islands, U.S.
ADAC Research and Manufacturing, Inc. California, U.S.
JD Technical Services, Inc. Delaware, U.S.
Community Health Computing Corporation Delaware, U.S.
ADAC HealthCare Information Systems, Inc. (2) Texas, U.S.
</TABLE>
The Company owns 100% of each of the above subsidiaries except as set forth in
the note below.
(1) ADAC Laboratories, B.V., owns 100% of this subsidiary.
(2) Community Health Computing Corporation owns 100% of this subsidiary.
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statements of
ADAC Laboratories on Forms S-8 (File Nos. 33-82352, 33-72804, 33-66560, 2-98070
and 33-59633) of our report dated November 1, 1995, on our audits of the
consolidated financial statements and financial statement schedules of ADAC
Laboratories as of October 1, 1995 and October 2, 1994, and for each of the
three fiscal years ended October 1, 1995, which is included under Item 8.
Financial Statements and Supplemental Data of this Form 10-K.
San Jose, California
November 1, 1995
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-01-1995
<PERIOD-START> OCT-03-1995
<PERIOD-END> OCT-01-1995
<CASH> 7,551
<SECURITIES> 0
<RECEIVABLES> 57,091
<ALLOWANCES> 2,044
<INVENTORY> 28,217
<CURRENT-ASSETS> 107,062
<PP&E> 20,706
<DEPRECIATION> 12,338
<TOTAL-ASSETS> 158,348
<CURRENT-LIABILITIES> 71,326
<BONDS> 0
<COMMON> 101,072
0
0
<OTHER-SE> (18,304)
<TOTAL-LIABILITY-AND-EQUITY> 82,768
<SALES> 136,715
<TOTAL-REVENUES> 184,809
<CGS> 85,914
<TOTAL-COSTS> 117,320
<OTHER-EXPENSES> 49,264
<LOSS-PROVISION> 1,502
<INTEREST-EXPENSE> 1,222
<INCOME-PRETAX> 17,003
<INCOME-TAX> 5,930
<INCOME-CONTINUING> 11,073
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,073
<EPS-PRIMARY> 0.65
<EPS-DILUTED> 0.65
</TABLE>
<PAGE>
EXHIBIT 99
To Be Incorporated By Reference Into Form S-8 Registration Statement No.
UNDERTAKINGS
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent post-
effective amendment thereof) which, individually or in the aggregate,
represents a fundamental change in the information set forth in the
registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement;
Provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if
the registration statement is on Form S-3 or Form S-8 and the information
required to be included in a post-effective amendment by those paragraphs is
contained in periodic reports filed by the registrant pursuant to section 13 or
section 15(d) of the Securities Exchange Act of 1934 that are incorporated by
reference in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to
be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(f) Employee plans of Form S-8.
(1) The undersigned registrant hereby undertakes to deliver or cause to be
delivered with the prospectus to each employee to whom the prospectus is sent or
given a copy of the registrant's annual report to stockholders for its last
fiscal year, unless such employee otherwise has received a copy of such report,
in which case the registrant shall state in the prospectus that it will promptly
furnish, without charge, a copy of such report on written request of the
employee. If the last fiscal year of the registrant has ended within 120 days
prior to the use of the prospectus, the annual report of the registrant for the
preceding fiscal year may be so delivered, but within such 120 day period the
annual report for the last fiscal year will be furnished to each such employee.
(2) The undersigned registrant hereby undertakes to transmit or cause to
be transmitted to all employees participating in the plan who do not otherwise
receive such material as stockholders of the registrant, at the time and in the
manner such material is sent to its stockholders, copies of all reports, proxy
statements and other communications distributed to its stockholders generally.
(3) Where interests in a plan are registered herewith, the undersigned
registrant and plan hereby undertake to transmit or cause to be transmitted
promptly, without charge, to any participant in the plan who makes a written
request, a copy of the then latest annual report of the plan filed pursuant to
section 15(d) of the Securities Exchange Act of 1934 (Form 11-K). If such
report is filed separately on Form 11-K, such form shall be delivered upon
written request. If such report is filed separately on Form 11-K, such form
shall be delivered upon written request. If such report is filed as a part of
the registrant's annual report on Form 10-K, that entire report (excluding
exhibits) shall be delivered upon written request. If such report is filed as a
part of the registrant's annual report to stockholders delivered pursuant to
paragraph (1) or (2) of this undertaking, additional delivery shall not be
required.
(i) Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the securities
being registered, the registrant will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
