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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 September 29, 1996
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.)
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
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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 2, 1996, on the NASDAQ National Market
System of $22.50 per share was approximately $389,058,700. 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 2, 1996, Registrant had outstanding 17,853,734 shares of Common
Stock, no par value, which is the only class of shares publicly traded.
DOCUMENTS INCORPORATED BY REFERENCE
- -----------------------------------
Parts of the Proxy Statement for Registrant's 1997 Annual Meeting of
Shareholders, to be filed with the Commission on or before 120 days after the
end of the 1996 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.
( )
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THIS ANNUAL REPORT ON FORM 10-K CONTAINS FORWARD LOOKING STATEMENTS WITHIN THE
MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933, AS AMENDED, AND SECTION
21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. ACTUAL RESULTS MAY
DIFFER MATERIALLY FROM THOSE DESCRIBED IN ANY SUCH FORWARD LOOKING STATEMENTS.
RISKS INHERENT IN ADAC LABORATORIES' BUSINESS AND FACTORS THAT COULD CAUSE OR
CONTRIBUTE TO SUCH DIFFERENCES INCLUDE WITHOUT LIMITATION THE CONSIDERATIONS SET
FORTH UNDER "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS -- BUSINESS CONSIDERATIONS". THE COMPANY EXPRESSLY
DISCLAIMS ANY OBLIGATION TO UPDATE ANY FORWARD LOOKING STATEMENTS.
PART I
ITEM 1. BUSINESS
GENERAL
ADAC Laboratories ("ADAC" or "the Company") designs, develops,
manufactures, sells and services medical imaging and health care information
systems used in hospitals and clinics worldwide. The Company's products include
systems for nuclear medicine, laboratory, radiology, cardiology and oncology.
In October 1996, ADAC was awarded the Malcolm Baldrige National Quality
Award in the large manufacturing category by the United States Department of
Commerce in recognition of its peformance mangement system and its
achievements in quality and business performance. ADAC is the first healthcare
manufacturer ever to receive this award.
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.
MEDICAL SYSTEMS
Nuclear Medicine. Nuclear medicine is a diagnostic imaging procedure
pursuant to which a 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) for cardiology, oncology and neurology.
ADAC's gamma cameras are designed to perform Single Photon Emission
Computed Tomography ("SPECT") imaging. In addition to SPECT, ADAC has recently
developed the technology for certain of its dual head gamma cameras to perform
positron emission tomography imaging using Molecular Coincidence Detection
("MCD/TM/").
The nuclear medicine market is characterized by two distinct segments:
single head cameras and multi-head 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 the DUAL GENESYS/TM/, VERTEX EPIC/TM/,
VERTEX PLUS 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.
ADAC generated approximately 75% of its nuclear medicine product revenue in
fiscal 1996 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. The Company believes these
procedures comprise approximately 70% of
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all nuclear medicine procedures performed. Single head cameras are less complex
and expensive. Generally, the most likely purchasers of these cameras are
capital-constrained institutions and those adding extra capacity.
The VERTEX camera 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 1994, ADAC introduced the EPIC/TM/ digital detector. This innovative
new technology rendered analog technology obsolete and created a new
generation of high performance cameras. The EPIC digital detector
significantly improves the reliability and stability of image quality compared
to 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.
In June 1995, the Company further extended its dual head gamma camera
product family with the introduction of two new digital 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 are focused on satisfying the
needs of special niche markets by providing less expensive products with VERTEX
PLUS EPIC imaging quality and throughput advantages.
In fiscal 1996, the Company's dual head product family (VERTEX EPIC, VERTEX
PLUS EPIC, CARDIO EPIC AND SOLUS EPIC) contributed approximately 72% of the
Company's nuclear medicine product revenues.
In June 1995, ADAC introduced a new technology called Molecular Coincidence
Detection ("MCD"/TM/). This technology enables ADAC's VERTEX PLUS EPIC and SOLUS
EPIC cameras to perform coincidence imaging previously only available on
expensive dedicated Positron Emission Tomography ("PET") imaging systems, which
are generally priced 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
soft tissue cancerous lesions throughout the body. Due to the high capital cost
of PET systems, positron imaging has been too expensive for all but a few
hospitals and clinics. MCD is expected to provide the capability to perform
positron imaging using ADAC's cameras at a fraction of the cost of a dedicated
PET system. The Company received United States Food and Drug Administration
("FDA") 510(k) clearance for MCD in November 1995. The Company is currently
conducting MCD multicenter clinical trials in an effort to document the clinical
efficacy and cost effectiveness of MCD compared to conventional diagnostic
techniques. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Business Considerations".
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 image distortions created by non-uniform variations in tissue density
in the body. This capability is particularly important in nuclear cardiology and
is believed to be an important advantage over cardiac ultrasound, the alternate
competitive procedure. The Company is continuing to conduct multicenter trials
to demonstrate VANTAGE's improved cost-effectiveness and quality compared to
current cardiac imaging techniques. In October 1996, results from a multicenter
clinical trial were presented, which suggested that VANTAGE improved the
clinical accuracy of cardiac diagnosis compared to such techniques. The Company
received FDA 510(k) clearance for VANTAGE in April 1995.
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The Company also manufactures and sells the TRANSCAM/TM/, THYRUS, and
POLARIS gamma cameras, which are niche cameras produced by the Company's Danish
subsidiary, ADAC A/S. These cameras offer specialized functionality for specific
clinical procedures.
In September 1996, the Medical Systems Business unit in Milpitas,
California was certified to the requirements of the international quality system
requirements of ISO 9001.
Radiation Therapy Planning. The Company designs, develops, markets and
supports turnkey Radiation Therapy Planning Systems that assist hospital
radiation therapy departments and cancer treatment centers in planning patient
treatments. The systems combine third party workstations and printers with the
Company's proprietary application software, Pinnacle/3TM/.
Pinnacle/3TM/ is a treatment planning system that includes two dimensional
and three dimensional planning, as well as stereotactic radiosurgery planning
capabilities. Pinnacle/3/'s three-dimensional volumetric image processing and
dose computation capabilities enable physicians to plan the precise application
of high energy radiation to a specific targeted area for the treatment of cancer
and other diseases. The Company believes Pinnacle/3/ provides improved image
processing and dose calculation methods compared to currently available
products. The Company received clearance from the FDA to market Pinnacle/3/
in the United States in 1996, and has also introduced Pinnacle/3/ into
international markets with positive results.
In November 1996, the Company acquired Geometrics Corporation, a developer
of specialized medical software based in Madison, Wisconsin, in exchange for
approximately 191,000 shares of Common Stock valued at approximately $3.9
million. Geometrics Corporation had designed, developed and licensed to the
Company the core technology included in the Company's Pinnacle/3/ product.
Geometrics Corporation will operate as the product development unit of the
Company's Radiation Therapy Planning division. In the future, the Company
intends to leverage Geometrics' software development expertise to benefit
its Radiation Therapy Planning as well as its other divisions.
The Company believes its Radiation Therapy Planning division may
experience significant revenue and operating income growth in fiscal 1997 due
to the receipt of FDA clearance and product introductions in the United States
and internationally. Historically, the Radiation Therapy Planning division has
not contributed significantly to the Company's consolidated revenues or
operating income.
Digital Angiography. 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's revenues or operating income over the past three
years.
ADAC Medical Systems' revenue and operating income in fiscal 1996 were
approximately 87% and 98% of the Company's total revenues and operating
income, respectively.
HEALTHCARE INFORMATION SYSTEMS
Information systems for the healthcare industry consist of computer
equipment and software applications designed to offer healthcare providers the
necessary tools 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 to measure the quality and results of patient care.
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The Company's principal HealthCare Information Systems products are
QuadRIS/TM/, a radiology information systems product, and LabStat/TM/, a
laboratory information systems product. These products are based on advanced
client/server architectures, operating on Oracle/TM/ database servers and the
Microsoft Windows 95/TM/ operating system and 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. Both QuadRIS and LabStat are currently available
on Hewlett Packard, IBM and Stratus UNIX servers. The Company has plans to
make these products available on additional platforms, including SUN and DEC,
in fiscal 1997.
The Company also supports a line of other more mature products, including
MARS II/TM/, IMAGES/3000/TM/, RadCare/(R)/, MRM, RadStat/(R)/, and LabCare/TM/,
which are installed in over 350 hospitals throughout the United States and
Canada. These hospitals represent a cross-section of major teaching hospitals,
large and small community hospitals, children's hospitals, and city and state
institutions.
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.,
which increased the Company's market share and revenues in the radiology
information systems business. In July 1995, ADAC acquired Community Health
Computing ("CHC"). This acquisition strengthened ADAC's market share and
revenue in the radiology information systems business and established its
presence in the laboratory information systems business. See Note 3 of Notes to
Consolidated Financial Statements. ADAC's information systems products and
services were subsequently combined to form a subsidiary business unit, ADAC
HealthCare Information Systems. The Company currently expects that it will
continue to grow this business through product line extensions, other internal
developments and acquisitions.
ADAC HealthCare Information Systems revenue and operating income in
fiscal 1996 were approximately 13% and 2% of the Company's total revenues and
operating income, respectively.
OTHER
From time to time, the Company explores other opportunities for expanding
its business. For example, ADAC recently formed a new business unit, ADAC
Radiology Services ("ARS"). The goal of ARS is to work closely with
radiologists, referring physicians, hospitals and payors to provide technology
and management solutions that enhance the delivery of radiology care. On
September 30, 1996, ARS acquired an interest in Medical Transition
Strategies, Inc. ("MTS"). MTS is in the business of forming and managing
radiology networks. See Note 10 of Notes to Consolidated Financial Statements.
FIELD SERVICE
The Company maintains its own service force in North America and Europe.
The Company's network of service engineers and applications specialists provides
installation, warranty, repair, and training services. Together with its
distributors, the Company services over 6,800 installed systems at over 2,400
sites worldwide.
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The Company's products are generally sold with warranty periods of 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 time and materials basis. The Company's warranty program is similar to those
offered by other 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 other major vendors and to enter the nuclear medicine instrumentation
remanufacturing business. See Note 3 of Notes to Consolidated Financial
Statements.
Service revenues represented 26%, 26% and 23% of the Company's total
revenues in fiscal 1996, 1995 and 1994, respectively.
MARKETING AND SALES
ADAC has a direct sales force in the United States. The Company also
conducts certain sales and/or service activities through its subsidiaries in
Brazil, the Netherlands, Germany, France, Italy, Denmark, the United Kingdom and
Canada. Sales and service in other countries are generally handled by
distributors. See Note 12 of Notes to Consolidated Financial Statements.
North America is the largest market for the Company's products 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 nuclear medicine market in the world.
In December 1994, ADAC signed a distribution agreement with Sumitomo Metal
Industries. ADAC recently received approval from the Japanese Ministry of
Health and Welfare to market VERTEX PLUS EPIC, SOLUS EPIC, CARDIO EPIC and MCD
in Japan.
RESEARCH AND DEVELOPMENT
Developing products, systems and services based on advanced technological
concepts is essential to ADAC's ability to compete effectively. The Company
currently maintains a product development and engineering staff responsible for
product design and engineering. As part of ADAC's research and development
programs, the Company has established the Advanced Clinical Research Program,
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. There can be no assurance that the Company's product
development efforts will result in development or commercialization of
successful products or product enhancements. Research and development
expenditures, net of software capitalization, totaled $12,516,000, $10,081,000
and $11,202,000 in fiscal 1996, 1995 and 1994, respectively.
COMPETITION
The medical systems and health care information system markets are
characterized by rapidly evolving technology, intense competition, and pricing
pressure. There are a number of companies that currently offer or are in the
process of developing, products that compete with products offered by the
Company. Some of these competitors have substantially greater capital,
engineering, manufacturing and other resources than the Company. These
competitors could develop technologies and products that are more effective
than those currently used or produced by the Company or that could render the
Company's products obsolete or noncompetitive. In addition, as the Company
enters new markets, there can be no assurance that the Company will be able to
penetrate such markets successfully.
In the nuclear medicine market, the Company competes with approximately
eight other suppliers. According to 1996 data provided by the National
Electronics Manufacturers Association,
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the industry trade group, ADAC's share of the U.S. market in 1996 based on
sales volume is believed to be approximately 50% giving ADAC a substantial
lead over its nearest competitors.
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 ability to commercialize new products 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.
According to Sheldon I. Dorenfest & Associates' HCIS Review 1996, ADAC is
the leader in the stand-alone radiology information systems market with an
estimated 11% U.S. market share in 1995. Although the Company also entered
the laboratory information systems market in 1995, to date the Company has not
yet generated significant new product sales in that business. There can be no
assurance that the Company will be able to successfully penetrate the laboratory
information systems market. The Company believes that key competitive factors
in the HealthCare Information Systems business include system architecture,
functionality of the application software, post-sales support services, time to
market, integration expertise with hospital information systems and
price/performance.
MANUFACTURING AND SUPPLIERS
The Company manufactures most of the sub-systems used in its products.
Manufacturing includes mechanical assembly, final system integration and
testing. In addition, the Company purchases certain sub-systems, including
Sun/TM/ workstations and disk drives, from third party suppliers.
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 supplier. The Company also relies on several
significant vendors for hardware and software components for its HealthCare
Information Systems products such as Hewlett-Packard Company, Oracle Corporation
and others. The loss of any of these suppliers, including any single-source
supplier, 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. Although the Company
has obtained insurance to protect against loss due to business interruption from
these and other sources, there can be no assurance that such coverage would be
adequate.
GOVERNMENT REGULATION
ADAC's Medical Systems business, as well as certain portions of its
HealthCare Information Systems business, are regulated by the United States Food
and Drug Administration. The FDA regulates the development, testing,
manufacturing, packaging, distribution and marketing of medical devices under
the Medical Device Amendments of 1976 to the Federal, Food, Drug and Cosmetic
Act (the "1976 Law"), the Safe Medical Devices Act of 1990, the Medical Device
Amendments of 1992 and additional regulations promulgated by the FDA. The State
of California (through its Department of Health Service), where the Company
maintains its factory, as well as other states, also regulate the manufacture of
medical devices.
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In general, these laws require that manufacturers adhere to certain
standards designed to ensure the safety and effectiveness of medical devices.
Under the 1976 Law, each medical device manufacturer must comply with
requirements applicable to manufacturing practices, clinical investigations
involving humans, sale and marketing of medical devices, post-market
surveillance, repairs, replacements and refunds, recalls and other matters. The
FDA is authorized to obtain and inspect devices and their labeling and
advertising, and to inspect the facilities in which they are manufactured.
The 1976 Law also requires compliance with specific manufacturing and
quality assurance standards, including regulations promulgated by the FDA with
respect to good manufacturing practices. FDA regulations require that each
manufacturer establish a quality assurance program by which the manufacturer
monitors the manufacturing process and maintains records that show compliance
with FDA regulations and the manufacturer's written specifications and
procedures relating to the devices. Compliance is necessary to receive FDA
clearance to market new products and is necessary for a manufacturer to be able
to continue to market cleared product offerings. Recently, the FDA promulgated
new design process regulations that revise the good manufacturing practices
applicable to medical device manufacturers. Among other things, these new
regulations require that manufacturers establish peformance requirements before
production, insure that device components are compatible, select adequate
packaging materials, and, if appropriate do risk analyses. The regulations take
effect on June 1, 1997, but include a twelve month transition period during
which enforcement action with respect to design controls will not be taken.
The FDA makes unannounced inspections of medical device manufacturers and
may issue reports of observations where the manufacturer has failed to comply
with the applicable regulations and/or procedures. Failure to comply with
applicable regulatory requirements can, among other things, result in warning
letters, civil penalties, injunctions, suspensions or losses of regulatory
clearances, product recalls, seizure or administrative detention of products,
operating restrictions through consent decrees or otherwise, and criminal
prosecution.
There has been a trend in recent years, both in the United States and
abroad, toward more stringent regulation and enforcement of requirements
applicable to medical device manufacturers. The continuing trend of more
stringent regulatory oversight in product clearance and enforcement activities
has caused medical device manufacturers to experience longer approval cycles,
more uncertainty, greater risk, and higher expenses.
The FDA requires that a new medical device or a new indication for use of
or other significant change in an existing medical device obtain either 510(k)
premarket notification clearance or an approved Pre-Market Approval Application
("PMAA") before orders can be obtained and the product distributed in the United
States. The 510(k) clearance process is applicable when the new product being
submitted is substantially equivalent to an existing commercially available
product. If a product does not meet the eligibility requirements for the 510(k)
process, then it must instead be submitted under the PMAA process. The process
of obtaining 510(k) clearance may take at least three months from the date of
filing of the application and generally requires the submission of supporting
data, which can be extensive and extend the process for a considerable period of
time. Under the PMAA process, the applicant must submit even more extensive
supporting data and clinical information, which can extend the process for as
much as two years. Generally, the Company has not been required to resort to
the PMAA process for approval of its products.
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The sale of medical devices outside the United States is subject to foreign
regulatory requirements that vary widely from country to country. The time
required to obtain clearance in foreign countries may be longer or shorter than
in the United States. 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 PLUS EPIC, SOLUS EPIC, CARDIO EPIC and MCD . 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.
See "Management's Discussion & Analysis of Financial Condition and Results of
Operations--Business Considerations".
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.
With the Company's overall emphasis on total quality management, quality
system compliance is expected to continue to improve in 1997. 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.
The Company is subject to various environmental laws and regulations both
in the United States and abroad. The operations of the Company, like those of
other medical device companies, involve the use of substances regulated under
environmental laws.
The Company believes that compliance with the foregoing laws, regulations
and other requirements will not have a material adverse effect on the Company's
business in fiscal 1997.
PATENT, COPYRIGHTS AND ROYALTIES
The Company relies on a combination of trade secret, copyright, patent and
trademark laws and contractual provisions to protect its proprietary rights.
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. At December 2, 1996,
the Company held 22 United States patents, including Patent Des. 323,386, a
system design patent for the GENESYS gamma camera, and 53 foreign patents. The
Company has a total of thirty-five patent applications 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 or may
claim that the Company's products infringe their proprietary rights. See Note 5
of Notes to Consolidated Financial Statements.
The Company develops application software for its products and also
licenses software components from third parties. Third party software
developers include software companies and clinical development sites that
provide turnkey products or software code. Under its agreements with third
parties, the Company generally obtains a license to use the third party
software and to include such software in its own products for a specified
period of time in exchange for the payment of a royalty to the developer.
These agreements may be either exclusive or non-exclusive.
EMPLOYEES
As of December 2, 1996, the Company had approximately 720 full-time
employees worldwide, including 600 employed in its Medical Systems business
unit and 120 in its HealthCare Information
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Systems business unit. None of the Company's employees is represented by a labor
union. The Company business unit believes its relations with its employees are
good. Many of the Company's employees are highly skilled and competition in
recruiting and retaining such employees is intense. The Company believes its
continued success is dependent in part upon its ability to continue to attract
and retain highly qualified personnel.
ITEM 2. PROPERTIES
The Company's principal administrative, manufacturing and research
operations occupy approximately 150,000 square feet of leased space in 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 buildings located in
Houston, Texas, under leases 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 1997 to meet presently
anticipated manufacturing and other requirements.
ITEM 3. LEGAL PROCEEDINGS
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.
Not applicable.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS.
The Company's Common Stock is traded in the NASDAQ National Market System
under the NASDAQ symbol "ADAC". There were approximately 2,915 holders of
record of the Company's Common Stock on December 2, 1996. 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.
In October 1996, the Company's Board of Directors decided to discontinue
payment of its quarterly cash dividend in order to reinvest the funds in the
Company to further its growth strategy and enhance shareholder value.
Accordingly, the Company presently intends to retain its earnings for use in its
business and does not anticipate paying any cash dividends in the foreseeable
future.
<TABLE>
<CAPTION>
FISCAL 1996 FISCAL 1995
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PER SHARE PER SHARE
----------- -----------
HIGH LOW DIVIDEND HIGH LOW DIVIDEND
------- ----------- -------- ----------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
First Quarter $12 5/8 $ 11 $.12 9 1/8 7 1/4 $.12
Second Quarter 17 5/8 11 5/8 .12 8 1/2 7 1/4 .12
Third Quarter 22 3/4 15 3/8 .12 13 7 7/8 .12
Fourth Quarter 25 16 .12 13 3/4 10 1/2 .12
</TABLE>
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ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
ADAC LABORATORIES AND SUBSIDIARIES
FISCAL YEAR
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA) 1996 1995 1994 1993 1992
- ------------------------------------------------ --------- --------- --------- ------------ --------
<S> <C> <C> <C> <C> <C>
Revenues $240,785 $184,809 $176,280 $156,946 $121,213
Cost of revenues 147,633 117,320 106,665 89,516 68,511
Operating expenses 63,833 49,264 51,978 47,668 39,330
Other income (expense) (3,407) (1,222) (6,452) (242) 818
- ------------------------------------------------ -------- -------- -------- -------- --------
Income before income taxes 25,912 17,003 11,185 19,520 14,190
Provision (credit) for income taxes 9,275 5,930 (6,336) 1,461 1,331
- ------------------------------------------------ -------- -------- -------- -------- --------
Net income (1), (2) $ 16,637 $ 11,073 $ 17,521 $ 18,059 $ 12,859
- ------------------------------------------------ ======== ======== ======== ======== ========
Net income per share (1) $ .90 $ .65 $ 1.06 $ 1.10 $ .81
Number of shares used in income
per share calculations 18,507 17,079 16,508 16,458 15,932
Dividends declared per share $ .48 $ .48 $ .48 $ .48 $ .36
- ------------------------------------------------ -------- -------- -------- -------- --------
Total assets $186,628 $159,097 $121,603 $ 95,081 $ 77,216
================================================ ======== ======== ======== ======== ========
</TABLE>
(1) Net income and dividends per share have been restated for fiscal 1992 to
reflect the one-for-three reverse stock split which was effective March 1993.
(2) Net income in 1994 includes the net favorable effect of non-recurring items
of approximately $4.6 million. Non-recurring items include: a) litigation
defense costs, b) restructuring charges, and c) income tax benefit in excess of
federal statutory income tax expense rate of 35%.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the Company's Consolidated Financial Statements and related Notes thereto
contained elsewhere within this document.
RESULTS OF OPERATIONS
FISCAL 1996 COMPARED TO FISCAL 1995
REVENUES AND GROSS MARGIN:
The Company's two business units are Medical Systems and Healthcare
Information Systems (HCIS).
Medical Systems. The Medical Systems business unit includes Nuclear
Medicine, Radiation Therapy Planning (RTP) and, to a lesser extent, Digital
Systems Angiography (DSA) products, as well as customer service related to those
products.
12
<PAGE>
Summary information related to Medical Systems' product and service
revenues and gross margins is as follows:
<TABLE>
<CAPTION>
FISCAL YEAR INCREASE
1996 1995 (DECREASE)
--------- --------- ------------------------
<S> <C> <C> <C> <C>
Product:
Revenues:
Volume $163,032 $129,445 $33,587 25.9%
Product mix:
Nuclear Medicine 95.1% 95.1%
RTP 4.4% 2.0%
DSA 0.5% 2.9%
Geographical mix:
North America 75.5% 73.3%
Europe 14.4% 16.3%
Other 10.0% 10.4%
Gross margin 39.0% 37.3%
Service:
Revenues $ 46,445 $41,999 $ 4,446 10.6%
Gross margin 32.7% 32.5%
</TABLE>
Medical Systems' product revenues increased in nuclear medicine due to
continued customer acceptance of the Company's nuclear medicine product family,
including new product introductions, and enhancement options. RTP's product
revenues also increased due to the FDA's clearance of Pinnacle/3/TM/. DSA's
product revenues continued to decline as that product continued to mature.
Medical Systems' revenues increased in dollar volume in all of the Company's
geographical markets, while the growth rate was the highest in the North
American market. Product gross margins for Medical Systems primarily increased
due to reductions in product cost.
Medical Systems' service revenues increased as a result of an increase in
the Company's installed customer base, and service gross margins increased
primarily from an increase in the Company's installed customer base and
increased product reliability.
Healthcare Information Systems ("HCIS"). HCIS includes products comprising
the hardware, software and related implementations of systems designed to manage
information within the laboratory and radiology departments of healthcare
organizations, as well as service related to those products.
13
<PAGE>
Summary information related to HCIS' product and service revenues and gross
margins is as follows:
<TABLE>
<CAPTION>
FISCAL YEAR INCREASE
1996 1995 (DECREASE)
------------------------------------------
<S> <C> <C> <C> <C>
Product:
Revenues:
Volume $14,582 $7,270 $ 7,312 100.6%
Product mix:
Laboratory 42.6% 8.1%
Radiology 57.4% 91.9%
Geographical mix:
North America 100.0% 100.0%
Gross margin 40.5% 33.8%
Service:
Revenues $16,726 $6,095 $10,631 174.4%
Gross margin 50.5% 49.8%
</TABLE>
Increases in HCIS' product revenues are attributable the Company's
QuadRIS radiology and LabStat laboratory information systems acquired in or
developed subsequent to the Company's acquisition of CHC. The Company acquired
CHC in July 1995. HCIS' product revenues grew in both laboratory and radiology
product families, and product mix shifted more towards laboratory compared to
the prior year as that product family increased the volume of installations
after introduction of the LabStat product in early fiscal 1996. The increase
in HCIS' product gross margins is primarily attributable to efficiency gains
by increased shipments and installation of both the laboratory and radiology
product families compared with the infrastructure required to deliver such
products.
HCIS' service revenues increased due to the increased installed base of
both the laboratory and radiology product families at customer sites. The
increase in HCIS' service gross margins is also attributable to efficiency gains
in the infrastructure required to support the installed customer base.
OPERATING AND OTHER EXPENSES:
As a percentage of total revenue the Company's operating and other expenses
are as follows:
<TABLE>
<CAPTION>
FISCAL YEAR
1996 1995
----- ------------
<S> <C> <C>
Operating costs and expenses:
Marketing and sales 15.1% 16.2%
Research and development,
net of software capitalization 5.2% 5.5%
General and administrative 5.9% 4.9%
Goodwill amortization 0.3% 0.1%
---- ----
26.5% 26.7%
==== ====
Other expense, net 1.4% 0.7%
==== ====
</TABLE>
Marketing and sales expenses as a percentage of revenue declined
primarily due to support costs of a semi-variable nature being spread over a
greater revenue dollar volume. Research and development expenditures represent
continued investment in new product development and product enhancement. Total
research and development expenditures as a percent of revenue increased, as a
result of increased
14
<PAGE>
expenditures for internally developed software components meeting technological
feasibility related to new product introductions and product enhancements
throughout the business, while research and development exependitures, net,
decreased slightly. Capitalized software costs for fiscal 1996 and 1995 were
$3,477 and $1,996, respectively. General and administrative expenditures as a
percentage of revenue increased primarily due to overall increased
infrastructure resulting from general and administrative functions related to
the fiscal 1996 and late fiscal 1995 acquisitions of J.D. Technical, a
refurbisher of nuclear medicine imaging equipment, and CHC, respectively, both
of which have costs of a semi-variable nature being spread over a lower
revenue base relative to those areas of business. Goodwill amortization
relates to the acquisition of CHC in late fiscal 1995.
Other expense, net, primarily consists of interest expense, which increased
due to the Company's increased level of bank borrowings during fiscal 1996 over
fiscal 1995. Foreign currency transaction gains and losses are also included in
other expense, net.
INCOME TAXES:
Fiscal 1996's effective tax rate as a percentage of pretax income was 35.8%
versus 34.9% in fiscal 1995. This increase was primarily a result of a
prospective reinstatement of the research and development tax credit and full
utilization of net operating losses in certain of the Company's European tax
jurisdictions.
SEGMENT INFORMATION:
Segment and foreign operations information is contained in Note 12 of Notes
to the Consolidated Financial Statements.
INFLATION:
The Company does not believe that inflation has had a material effect on
its revenues or results of operations.
FISCAL 1995 COMPARED TO FISCAL 1994
REVENUES AND GROSS MARGIN:
Medical Systems. Summary information related to Medical Systems' product
and service revenues and gross margins is as follows:
<TABLE>
<CAPTION>
FISCAL YEAR INCREASE
1995 1994 (DECREASE)
------------------------------------------
<S> <C> <C> <C> <C>
Product:
Revenues:
Volume $129,445 $125,003 $4,442 3.6%
Product mix:
Nuclear Medicine 95.1% 93.8%
RTP 2.0% 2.0%
DSA 2.9% 4.2%
Geographical mix:
North America 73.3% 76.7%
Europe 16.3% 18.3%
Other 10.4% 5.0%
Gross margin 37.3% 42.9%
</TABLE>
15
<PAGE>
FISCAL YEAR INCREASE
1995 1994 (DECREASE)
----------------------------------------------
Service:
Revenues $41,999 $36,779 $5,220 14.2%
Gross margin 32.5% 26.2%
Medical Systems' product revenues increase was primarily due to a 4.9% or
$5,770 increase in nuclear medicine product sales, which was offset by a
$1,477 decrease in DSA product sales as that product matured. Medical Systems'
product gross margins decreased primarily due to the continued industry-wide
pricing pressures first experienced during the last half of fiscal 1994 as the
overall market for nuclear medicine products in the United States declined.
Medical Systems' service revenues increased primarily as a result of the
continued increase in the installed product base. Service gross margins for
Medical Systems increased as the installed customer base increased, product
reliability increased and overall costs were reduced.
Healthcare Information Systems. Summary information related to HCIS'
product and service revenues and gross margins is as follows:
<TABLE>
<CAPTION>
FISCAL YEAR INCREASE
1995 1994 (DECREASE)
----------------------------------------
<S> <C> <C> <C> <C>
Product:
Revenues:
Volume $7,270 $10,482 $(3,212) (30.6)%
Product mix:
Laboratory 8.1% 0.0
Radiology 91.9% 100.0%
Geographical mix:
North America 100.0% 100.0%
Gross margin 33.8% 58.2%
Service:
Revenues $6,095 3,995 $ 2,100 52.6%
Gross margin 49.8% 29.0%
</TABLE>
Although HCIS product orders remained constant for both 1994 and 1995,
product revenues declined. 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 under development. The acquired CHC business
contributed $845 in product revenue during 1995. Product margins for HCIS
declined as proprietary third-party hardware platforms were replaced with non-
proprietary open-systems hardware platforms with lower margins. In addition,
laboratory product margins were lower during the initial stages of new product
introduction.
The acquired CHC business contributed $2,792 of service revenue during
1995. HCIS service margins increased primarily due to obtaining a relatively
large installed base of laboratory product customers when the Company acquired
CHC.
16
<PAGE>
OPERATING AND OTHER EXPENSES:
As a percentage of total revenue, operating costs and expenses and other
expenses, net, are as follows:
<TABLE>
<CAPTION>
FISCAL YEAR
1995 1994
--------------------
<S> <C> <C>
Operating costs and expenses:
Marketing and sales 16.2% 17.3%
Research and development,
net of software capitalization 5.5% 6.4%
General and administrative 4.9% 4.4%
Goodwill amortization 0.1% 0.0%
---- ----
Subtotal, before restructuring charges 26.7% 28.1%
Restructuring charges 0.0% 1.4%
---- ----
Total operating costs and expenses 26.7% 29.5%
==== ====
Other expense, net 0.7% 0.1%
==== ====
</TABLE>
Operating costs and expenses before restructuring charges decreased as a
percentage of revenue. This 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, marketing and sales expenses
decreased and research and development expenses decreased. Research and
development expenses represent continued investment in new product development
and are net of software capitalization. Software capitalized during fiscal 1995
and 1994 was $1,996 and $1,402, respectively. The general and administrative
expense increase was mostly attributable to the acquired CHC business.
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 $2,453 for these costs.
Other expense, net, excluding 1994's litigation defense costs and related
settlement, increased 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.
Fiscal 1994's other expense includes $4,240 in litigation defense costs and
$2,000 in settlement costs related to the Elscint litigation as discussed in
Note 5 of Notes to Consolidated Financial Statements. Excluding the litigation
defense costs, fiscal 1994's other expense, net, was $212.
INCOME TAXES:
Fiscal 1995's effective tax rate was 34.9%, 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 carryforwards.
Effective October 4, 1993, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes." 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
(the end of fiscal 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.
17
<PAGE>
This resulted in a gross income tax benefit of $7,222, for a net income tax
benefit for the year of $6,336 (see Note 11 of Notes to Consolidated Financial
Statements).
SEGMENT INFORMATION:
Segment and foreign operations information is contained in Note 12 of Notes
to Consolidated Financial Statements.
LIQUIDITY AND CAPITAL RESOURCES
Summary information regarding the Company's cash flows, liquidity, and
capital resources is as follows:
<TABLE>
<CAPTION>
Fiscal
1996
---------
<S> <C>
Net cash and equivalents generated (used in):
Operating activities $(7,631)
Investing activities (5,256)
Financing activities 10,117
-------
Subtotal (2,770)
-------
Effect of exchange rates on cash (1,700)
-------
Net cash and equivalents generated (used) $(4,470)
=======
Cash and equivalents at year end $ 3,081
=======
Bank lines of credit at year end $60,000
=======
</TABLE>
Fiscal 1996's net uses of cash in operations were primarily due to
increases in accounts receivable resulting primarily from increased sales
volume, increases in prepaid expenses related to a higher level of prepayments
to inventory vendors along with new prepaid royalty arrangements related to new
product and product enhancements, increased inventory levels to meet anticipated
higher future sales levels, and an increased level of service parts to service
the increased customer installed base. These increases were partially offset by
a continued decrease in deferred income tax assets as the Company utilized its
tax basis net operating losses.
Net cash used in investing activities during fiscal 1996 primarily related
to capital expenditures and increases in capitalized software expenditures.
Fiscal 1995's net cash from investing activities included the acquisition of
CHC.
Fiscal 1996's cash generated by financing activities mostly resulted from
increased short term bank borrowings and proceeds from the issuance of common
stock, primarily from the exercise of stock options and dividend reinvestments.
Offsetting these items were the payment of dividends. In October 1996, the
Company's Board of Directors decided to discontinue the payment of its quarterly
cash dividend in order to reinvest the funds in the Company to further its
growth and enhance shareholder value.
Net cash and equivalents also decreased during fiscal 1996 as a result of a
strengthening dollar in relation to other currencies; the Company's European
operations functional currencies are their local currencies.
Primarily as a result of the above noted operating, financing and investing
activities, and the effect of exchange rates on cash, cash and cash equivalents
decreased on an overall basis during fiscal 1996.
Borrowings outstanding under the lines of credit at the end of fiscal 1996
were $27,226. See Note 4 of Notes to Consolidated Financial Statements.
18
<PAGE>
The Company believes that its cash, cash equivalents, cash flows from
operating activities and, if necessary, remaining lines of credit will be
sufficient to fund the Company's operating cash flow requirements for the next
fiscal year. However, the Company may need to increase its sources of capital
through additional borrowings or the sale of securities in response to business
conditions or to pursue new business opportunities. There can be no assurance
that such additional sources of capital will be available and/or on terms
favorable to the Company.
RECENT ACCOUNTING PRONOUNCEMENTS
Information regarding the issuance of recent accounting pronouncements and
their expected effect on the Company's financial position and results of
operations is contained in Note 14 of Notes to Consolidated Financial
Statements.
BUSINESS CONSIDERATIONS
From time to time, the Company may disclose, through press releases,
filings with the SEC or otherwise, certain matters that constitute forward
looking statements within the meaning of the Federal securities laws. Such
statements are subject to a number of risks and uncertainties, which could cause
actual results to differ materially from those projected, including without
limitation those set forth below. The Company expressly disclaims any
obligation to update any forward looking statements.
COMPETITION
The medical systems and health care information system markets are
characterized by rapidly evolving technology, intense competition and pricing
pressure. There are a number of companies that currently offer, or are in the
process of developing, products that compete with products offered by the
Company. Some of these competitors have substantially greater capital,
engineering, manufacturing and other resources than the Company. These
competitors could develop technologies and products that are more effective
than those currently used or produced by the Company or that could render the
Company's products obsolete or noncompetitive. In addition, as the Company
enters new markets, such as the laboratory information systems market, there
can be no assurance that the Company will be able to penetrate such markets
successfully.
DEPENDENCE ON DEVELOPMENT AND COMMERCIALIZATION OF NEW PRODUCTS
ADAC's success is dependent upon the successful development, introduction
and commercialization of new products and the development of enhancements to
existing products. Because the nuclear medicine market is relatively mature,
and from time to time in recent years has experienced a decline, the Company
must continue to develop innovative new products and product enhancements such
as MCD in order to pursue its growth strategy. The development of new products
and product enhancements entails considerable time and expense, including
research and development costs, and the time, expense and uncertainty involved
in clinical trials and in obtaining any necessary regulatory clearances. The
success of some Medical Systems products depends on receipt of appropriate
regulatory approvals for and the commercial availability of specific
radiopharmaceuticals. For example, MCD requires the use of positron emitting
isotopes. At this time, the infrastructure for the commercial supply of such
isotopes is not well-developed, certain applicable regulatory approvals for
such isotopes have not yet been obtained, and reimbursement for the use of
such isotopes in connection with MCD is uncertain. There can be no assurance
that the Company will be able to commercialize its existing products or any
new products or enhancements successfully.
19
<PAGE>
FUTURE OPERATING RESULTS
The Company's future operating results may vary substantially from period
to period. The timing and amount of revenues are subject to a number of factors
that make estimation of revenues and operating results prior to the end of the
quarter very uncertain. The timing of revenues can be affected by delays in
product introductions, shipments and installations, as well as general economic
and industry conditions. Furthermore, of the orders received by the Company in
any fiscal quarter, a disproportionately large percentage has typically been
received and shipped toward the end of that quarter. Accordingly, results for a
given quarter can be adversely affected if there is a substantial order
shortfall late in that quarter. In addition, although both the Company's
bookings and revenue have increased steadily in recent periods, bookings
cannot necessarily be relied upon as an accurate predictor of future revenues.
HEALTH CARE REFORM; REIMBURSEMENT AND PRICING PRESSURE
There is significant concern today about the availability and rising cost
of healthcare in the United States. Cost containment initiatives, market
pressures and proposed changes in applicable laws and regulations may have a
dramatic effect on pricing or potential demand for medical devices, the relative
costs associated with doing business and the amount of reimbursement by both
government and third party payors, which could have a material adverse effect on
the Company's results of operations.
GOVERNMENT REGULATION
There has been a trend in recent years, both in the United States and
abroad, toward more stringent regulation and enforcement of requirements
applicable to medical device manufacturers. The continuing trend of more
stringent regulatory oversight in product clearance and enforcement activities
has caused medical device manufacturers to experience longer approval cycles,
more uncertainty, greater risk, and higher expenses. There can be no assurance
that any necessary clearance or approval will be granted the Company or that FDA
review will not involve delays adversely affecting the Company. The Company is
also subject to numerous federal, state and local laws relating to such matters
as safe working conditions, manufacturing practices, environmental protection
and disposal of hazardous substances. Changes in existing requirements,
adoption of new requirements or failure to comply with applicable requirements
could have a material adverse effect on the Company.
INTELLECTUAL PROPERTY RIGHTS
The Company's success depends in part on its continued ability to obtain
patents, to preserve its trade secrets and to operate without infringing the
proprietary rights of third parties. There can be no assurance that pending
patent applications will mature into issued patents, that third parties will not
make claims of infringement against the Company's products or technologies or
will not be issued patents that may require payment of license fees by the
Company or prevent the sale of certain products by the Company. See Note 5 of
Notes to Consolidated Financial Statements regarding the Company's settlement of
certain patent infringement claims in September 1994.
RELIANCE ON SUPPLIERS
Certain components used by the Company to manufacture its products, such as
the Sun workstations and the sodium iodide crystals used in the Company's
nuclear medicine systems, are presently available from only one supplier. The
Company also relies on several significant vendors for hardware and software
components for its HealthCare Information Systems products. The loss of any of
these suppliers, including any single-source supplier, 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. Although the Company has obtained insurance to
20
<PAGE>
protect against loss due to business interruption from these and other sources,
there can be no assurance that such coverage would be adequate.
PRODUCT LIABILITY
Although the Company maintains product liability insurance coverage in an
amount that it deems sufficient for its business, there can be no assurance that
such coverage will ultimately prove to be adequate or that such coverage will
continue to remain available on acceptable terms, if at all.
VOLATILITY OF STOCK PRICE
The market price of the Company's Common Stock is and is expected to
continue to be subject to significant fluctuations in response to variations in
anticipated or actual operating results, market speculation, announcements of
new products or technology by the Company or its competitors, changes in
earnings estimates by the Company's analysts, trends in the health care industry
in general and other factors, many of which are beyond the control of the
Company. In addition, broad market fluctuations as well as general economic or
political conditions or initiatives, such as health care reform, may adversely
impact the market price of the Common Stock regardless of the Company's
operating results.
21
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
ADAC LABORATORIES AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
SEPTEMBER 29, OCTOBER 1, OCTOBER 2,
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA) 1996 1995 1994
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUES, NET:
Product $177,613 $136,715 $135,485
Service 63,172 48,094 40,795
- ----------------------------------------------------------------------------------------------
240,785 184,809 176,280
-------- -------- --------
COST OF REVENUES:
Product 108,091 85,914 78,069
Service 39,542 31,406 28,596
- ----------------------------------------------------------------------------------------------
147,633 117,320 106,665
-------- -------- --------
Gross profit 93,152 67,489 69,615
- ----------------------------------------------------------------------------------------------
OPERATING EXPENSES:
Marketing and sales 36,275 29,928 30,565
Research and development 12,516 10,081 11,202
General and administrative 14,250 9,081 7,758
Goodwill amortization 792 174
Restructuring charges 2,453
- ----------------------------------------------------------------------------------------------
63,833 49,264 51,978
-------- -------- --------
Operating income 29,319 18,225 17,637
- ----------------------------------------------------------------------------------------------
OTHER INCOME (EXPENSE):
Litigation defense costs (6,240)
Interest and other, net (3,407) (1,222) (212)
- ----------------------------------------------------------------------------------------------
(3,407) (1,222) (6,452)
-------- -------- --------
Income before provision for income taxes 25,912 17,003 11,185
Provision (credit) for income taxes 9,275 5,930 (6,336)
- ----------------------------------------------------------------------------------------------
Net income $ 16,637 $ 11,073 $ 17,521
- ----------------------------------------------------------------------------------------------
Net income per share $.90 $.65 $1.06
Number of shares used in per share calculations 18,507 17,079 16,508
- ----------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
22
<PAGE>
<TABLE>
<CAPTION>
ADAC LABORATORIES AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF
SEPTEMBER 29, OCTOBER 1,
(AMOUNTS IN THOUSANDS) 1996 1995
- ------------------------------------------------------------------ -------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 3,081 $ 7,551
Accounts receivable, net of allowance for returns and doubtful
accounts of $2,146 in 1996 and $2,044 in 1995 80,654 55,047
Inventories 31,975 28,217
Deferred income taxes 8,095 11,481
Prepaid expenses and other current assets 11,027 5,515
- ------------------------------------------------------------------ -------- --------
Total current assets 134,832 107,811
- ------------------------------------------------------------------ -------- --------
Service parts, net 15,482 13,571
Fixed assets, net 8,393 8,368
Capitalized software, net 11,656 10,280
Goodwill, net 10,901 11,692
Other assets, net 5,364 7,375
- ------------------------------------------------------------------ -------- --------
Total Assets $186,628 $159,097
- ------------------------------------------------------------------ ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable to banks $ 27,226 $ 18,298
Accounts payable 13,923 13,147
Dividends payable 2,137 2,027
Deferred revenues 13,302 13,506
Customer deposits and advance billings 2,302 4,201
Accrued compensation 7,825 6,335
Other accrued liabilities 13,797 13,812
- ------------------------------------------------------------------ -------- --------
Total current liabilities 80,512 71,326
- ------------------------------------------------------------------ -------- --------
Non-current deferred income taxes 2,275 749
Non-current liabilities and deferred credits 4,370 4,254
- ------------------------------------------------------------------ -------- --------
Total Liabilities 87,157 76,329
- ------------------------------------------------------------------ -------- --------
Commitments and contingencies (Note 5)
- ------------------------------------------------------------------
SHAREHOLDERS' EQUITY
- ------------------------------------------------------------------
Preferred stock, no par value:
Authorized: 5,000 shares;
Issued and outstanding: none in 1996 and 1995
Common stock, no par value:
Authorized: 50,000 shares;
Issued and outstanding: 17,781 shares as of September 29, 1996
and 16,919 shares as of October 1, 1995, respectively 110,661 101,072
Accumulated deficit (10,172) (18,986)
Translation adjustment (1,018) 682
- ------------------------------------------------------------------ -------- --------
Shareholders' Equity 99,471 82,768
- ------------------------------------------------------------------ -------- --------
Total Liabilities and Shareholders' Equity $186,628 $159,097
- ------------------------------------------------------------------ ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
23
<PAGE>
ADAC LABORATORIES AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
SEPTEMBER 29, OCTOBER 1, OCTOBER 2,
(AMOUNTS IN THOUSANDS) 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 16,637 $ 11,073 $ 17,521
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 9,035 6,377 5,775
Provision for product returns and doubtful accounts 1,482 1,502 1,023
Changes in operating assets and liabilities:
Accounts receivable (27,089) (8,966) (6,058)
Inventories (3,758) (5,276) (1,105)
Deferred income taxes 4,912 4,145 (7,421)
Prepaid expenses and other current assets (5,512) (2,763) (322)
Service parts (3,712) (1,971) (3,175)
Accounts and dividends payable 886 (3,109) 2,710
Deferred revenues (204) 7,059 (1,805)
Customer deposits and advance billings (1,899) (3,135) (242)
Accrued compensation 1,490 508 1,790
Other accrued liabilities (15) (1,114) 3,392
Non-current liabilities and deferred credits 116 875 (169)
- ------------------------------------------------------------------------------------------------------------------
Net cash (used in) provided by operating activities (7,631) 5,205 11,914
- ------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (2,789) (2,588) (4,372)
Proceeds from sale and leaseback of fixed assets 1,553 6,000
Increase in other assets (2,467) (2,997) (2,793)
Acquisition of business, net of cash acquired (16,152)
- ------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (5,256) (20,184) (1,165)
- ------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings (repayments) under short-term debt arrangements, net 8,928 18,298 (3,700)
Proceeds from issuance and repurchase of common stock, net 9,589 3,986 100
Employee stock purchase (loan) repayment 453
Dividends paid (8,400) (7,885) (7,675)
- ------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities 10,117 14,399 (10,822)
- ------------------------------------------------------------------------------------------------------------------
Effect of exchange rates on cash (1,700) 928 613
- ------------------------------------------------------------------------------------------------------------------
Net change in cash and cash equivalents (4,470) 348 540
- ------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, at beginning of the year 7,551 7,203 6,663
- ------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, at end of the year $ 3,081 $ 7,551 $ 7,203
- ------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL CASH FLOW DISCLOSURE:
Interest paid $ 3,325 $ 1,609 $ 439
Income taxes paid 442 289 457
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
24
<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, 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
Employee stock purchases and
exercises of employee stock options 657 5,263 5,263
Shares sold under dividend reinvestment plan 69 971 971
Shares withheld in payment of stock
options exercised (2) (45) (45)
Income tax benefit resulting from
exercises of stock options 3,400 3,400
Pooling of interest with JD Technical 138 577 577
Translation adjustment (1,700) (1,700)
Dividends declared ($0.48 per share) (8,400) (8,400)
Net income 16,637 16,637
- -----------------------------------------------------------------------------------------------------------------------------
Balances, September 29, 1996 17,781 $110,661 $(10,172) $(1,018) $99,471
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
25
<PAGE>
ADAC LABORATORIES ANS 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
1996, 1995 and 1994 all included 52 weeks.
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 U.S. dollars 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 $122, $150, and $68 in fiscal 1996, 1995, and
1994, 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 pass. 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
Under the liability method of accounting for income taxes, deferred tax assets
and liabilities are recognized for the future tax consequences attributable to
temporary 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 rate is recognized as 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 using the treasury stock
method.
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 investment bank. The Company has not experienced any
losses on these deposits.
Reliance on Certain Suppliers
Certain components and services used by the Company to manufacture and develop
its products are presently available from only one, or a limited number of,
suppliers or vendors. The loss of any of these suppliers or vendors would
potentially require a significant level of hardware and/or software development
to incorporate the products or services from new suppliers or
26
<PAGE>
ADAC LABORATORIES AND SUBSIDIARIES
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
vendors into the Company's products. Although the Company has obtained business
interruption insurance to protect against such losses, there is no assurance
that such coverage would be adequate.
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 1996, 1995, and 1994 amounted to
approximately $3,477, $1,996, and $1,402, 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 $2,101, $1,164 and $697, 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).
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Reclassifications
Certain amounts in the financial statements have been reclassified to conform
with the current year's presentation. These classifications did not change
previously reported total assets, liabilities, shareholders' equity or net
income (loss).
<TABLE>
<CAPTION>
NOTE 2 BALANCE SHEET DETAIL:
<S> <C> <C>
1996 1995
-------- --------
Inventories consist of:
Purchased parts and sub-assemblies $ 16,000 $ 14,138
Work in process 5,057 1,421
Finished goods 10,918 12,658
-------- --------
$ 31,975 $ 28,217
======== ========
1996 1995
-------- --------
Service parts consist of:
Field service parts, at cost $ 22,183 $ 19,358
Less accumulated depreciation (6,701) (5,787)
-------- --------
$ 15,482 $ 13,571
======== ========
1996 1995
-------- --------
Fixed assets, at cost, consist of:
Production and test equipment $ 7,227 $ 9,686
Field service equipment 2,374 1,138
Office and demonstration equipment 12,782 8,840
Leasehold improvements 1,112 1,042
-------- --------
23,495 20,706
-------- --------
Less accumulated depreciation and
amortization (15,102) (12,338)
-------- --------
$ 8,393 $ 8,368
======== ========
1996 1995
-------- --------
Other accrued liabilities consist of:
Accrued customer service costs $ 3,663 $ 2,031
Other accrued expenses 10,134 11,781
-------- --------
$ 13,797 $ 13,812
======== ========
1996 1995
-------- --------
Non-current liabilities and
deferred credits consist of:
Deferred contract revenue $ 2,185 $ 1,425
Deferred gain on sale of fixed assets 1,329 2,251
</TABLE>
27
<PAGE>
ADAC LABORATORIES AND SUBSIDIARIES
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
<S> <C> <C>
Other non-current liabilities 856 578
-------- --------
$ 4,370 $ 4,254
======== ========
</TABLE>
NOTE 3 ACQUISITIONS
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
purchase price of $1.7 million, in exchange for all the outstanding stock of JD
Technical. The transaction was accounted for as a pooling of interests. Prior
period financial statements were not 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.
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.
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.
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 a $60,000 revolving credit facility with a bank syndicate. The
credit facility offers borrowings in either U.S. dollars or in foreign
currencies and expires July 31, 1999. The Company pays interest and commitment
fees on its borrowing based on the debt level in relation to profitability.
Commitment fees range from 0.25% to 0.425% of borrowings and interest rates are
based on the bank's prime rate or Libor plus rates ranging from 0.875% to
1.375%. Borrowings are generally repaid within 90 days. At September 29,
1996, the Company had $32,774 available for borrowing under this facility.
Borrowings 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 and incur
additional debt.
Additional information with respect to such revolving lines of credit is as
follows:
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Maximum borrowings
during the year $49,700 $27,760
Average borrowings during
the year $33,177 $14,521
Weighted average interest
rates during the year 6.79% 7.45%
- ---------------------------- ------- -------
</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 with 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 September 29, 1996, future annual minimum lease payments for all non-
cancelable operating leases are as follows:
<TABLE>
<CAPTION>
FISCAL YEAR BUILDING EQUIPMENT
- ------------------------------- -------- ---------
<S> <C> <C>
1997 $ 3,139 $2,098
1998 2,883 1,527
1999 1,745 2,594
2000 905 136
2001 871 1
Thereafter 861 -
------- ------
Total minimum lease payments $10,404 $6,356
======= ======
</TABLE>
Rent expense totaled $4,911, $4,284, and $2,572 for fiscal years
28
<PAGE>
ADAC LABORATORIES AND SUBSIDIARIES
(AMOUNTS IN THOUSANDS, EXEPT PER SHARE DATA)
1996, 1995 and 1994, 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.
As of September 29, 1996, future annual minimum lease payments under these
capital leases are as follows:
<TABLE>
<CAPTION>
FISCAL YEAR CAPITAL LEASES
- ---------------------------------------------- --------------
<S> <C>
1997 $ 229
1998 222
1999 222
2000 74
Thereafter -
-----
Total minimum lease payments 747
Amount representing interest (114)
-----
Present value of net minimum lease payments 633
Less current portion (232)
-----
</TABLE>
$401
====
Payments under these capital lease obligations totaled $195 and $126 in fiscal
1996 and 1995, respectively.
As of September 29, 1996, the Company had $729 of equipment under capital leases
with accumulated amortization of $285.
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 100%) of the equipment lease, depending on the agreement, and up to
100% for the related service contracts. At September 29, 1996 the contingent
liability was $2,718.
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 September 29, 1996 the contingent liability
was $14,233.
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 September 29,
1996, all of the warrants related to this issuance had been issued and were
outstanding.
As of September 29, 1996, the Company has reserved a total of 3,479 shares of
common stock for issuance under employee stock option plans and 39 under the
employee stock purchase plan 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 and 1985 stock option plans (under which no
further options may be granted), and the 1992 stock option plan.
The 1992 Option Plan (as amended) 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. Under the
plans, 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
29
<PAGE>
ADAC LABORATORIES AND SUBSIDIARIES
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
of grant at an option exercise price equal to 100% of fair market value.
Options available for grant under all plans as of September 29, 1996 were 653.
In addition, 631 of the options outstanding at September 29, 1996 were
exercisable. A summary of the activity under these plans is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
------ ------ ------
Exercise Price Exercise Price Exercise Price
(Shares in thousands) Shares Per Share Shares Per Share Shares Per Share
- ---------------------------------- -------- ------- ----- ---------------- ------ --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 2,516 $ 2.25 - $ 15.75 2,557 $2.25 - $15.75 2,267 $2.25 - $ 15.75
Granted 1,160 11.625 - 17.0 1,073 7.75 - 11.875 1,169 6.38 - 14.25
Exercised (549) 3.75 - 15.75 (879) 7.375 - 13.5 (702) 6.25 - 14.25
Canceled (301) 2.625 - 15.875 (235) 2.25 - 14.25 (177) 2.25 - 14.25
- ---------------------------------- ----- --------- ------- ----- ---------------- ------ ----- -------
Outstanding at end of year 2,826 $ 2.25 - $ 17.0 2,516 $2.25 - $15.75 2,557 $2.25 - $15.75
- ---------------------------------- ----- --------- ------- ----- ---------------- ------ ----- -------
</TABLE>
30
<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 1996, 1995, and 1994, 64, 58, and 57 shares were issued at an
average price of $10.94, $7.21, and $7.42 per share, respectively.
Preferred Share Purchase Rights Plan
In April 1996, the Company's Board of Directors adopted a Preferred Share
Purchase Rights Plan (the "Rights Plan"). Under the Rights Plan, a dividend of
one preferred share purchase right (a "Right") for each outstanding share of
common stock, without par value (the "Common Shares"), of the Company was
declared. Each Right entitles the registered holder to purchase from the
Company one one-hundredth of a share of Series A Junior Participating Preferred
Stock, without par value (the "Preferred Stock"), at a price of seventy dollars
($70.00) per one one-hundredth of a Preferred Share. Each one one-hundredth of
a share of Preferred Stock has designations and the powers, preferences and
rights, and the qualifications, limitations and restrictions which make its
value approximately equal to the value of a Common Share. In general, the
Rights are exercisable upon the commencement of, or announcement of an intention
to make, a tender offer or exchange offer, the consummation of which would
result in the beneficial ownership by a person or group of 15% or more of such
outstanding Common Shares. The Rights expire in April 2006 unless the
expiration date is extended or unless the Rights are earlier redeemed by the
Company.
The Rights Plan is designed to provide an adequate opportunity for the Company's
Board of Directors to consider and evaluate all strategic alternatives of the
Company in the event an unsolicited attempt is made to acquire the Company. The
Rights are intended to enable all of the Company's shareholders to realize the
full value of their investment and to provide for fair and equal treatment for
all shareholders. The adoption of the Rights Plan will not, nor is it intended
to, prevent all takeover actions. The Rights were not distributed in response
to any proposal to acquire the Company.
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.
During fiscal 1996, the Company matched employee contributions up to a maximum
of $0.5 per employee, totaling $206. Prior to fiscal 1996, 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.
NOTE 10 SUBSEQUENT EVENTS
On November 4, 1996, the Company acquired Geometrics Corporation, of Madison,
Wisconsin, a developer of specialized medical software used in the planning of
radiation therapy treatments for cancer patients. Geometrics will operate as a
product development unit of the Company's Radiation Therapy Planning division.
In connection with the acquisition, the Company issued 191 shares having an
approximate fair market value of $3.9 million. The acquisition will be
accounted for as a pooling of interests. Prior period financial statements will
not be restated because Geometrics is not material to the financial position or
results of operations of the Company.
On September 30, 1996, one of the Company's subsidiaries, ADAC Radiology
Services (ARS), acquired a one-year option to purchase Medical Transition
Strategies, Inc. (MTS) for $500 in cash plus an additional $1.0 million
payable over five years. MTS is in the business of forming and managing
radiology networks. The exercise price of the option is equal to $50 per
validated (as defined) network under management plus a percentage of each such
network's net revenue in calendar year 1998. The option price and the option
exercise price are, at the option of the Company, payable in cash or Common
Stock. If the option is not exercised by September 30, 1997, the unpaid
portion of the $1.0 million becomes immediately due and payable and any loans
made by ARS to MTS will be canceled and forgiven. In addition, unless MTS
fails to perform certain obligations or there is a material adverse change in
MTS's business resulting from MTS's acts or omissions, ARS must, if certain of
MTS' network revenue goals are achieved, pay MTS a break-up fee of $500.
31
<PAGE>
ADAC LABORATORIES AND SUBSIDIARIES
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
In October 1996, the Company's Board of Directors decided to discontinue the
payment of its quarterly cash dividend in order to reinvest the funds in the
Company to further its growth strategy and enhance shareholder value.
NOTE 11 INCOME TAXES
Income tax expense (benefit) consists of:
<TABLE>
<CAPTION>
1996 1995 1994
------ ------ --------
<S> <C> <C> <C>
Current:
Federal $ 409 $ 267 $ 319
Foreign 384 - -
State 458 571 766
- ------------ ------ ------ -------
1,251 838 1,085
----- --- -------
Deferred:
Federal 7,538 4,904 (7,170)
State 486 188 (251)
- ------------ ------ ------ -------
8,024 5,092 (7,421)
------ ------ -------
Total $9,275 $5,930 $(6,336)
- ------------ ====== ====== =======
</TABLE>
The reconciliation of the provision for income taxes, computed at the marginal
federal statutory income tax rate, to the reported amounts is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- --------
<S> <C> <C> <C>
Income taxes at marginal statutory rate of 35% $9,069 $5,951 $ 3,915
State income taxes, net of federal benefit 649 493 335
Benefit from net operating loss carryforwards - - (3,956)
Losses on foreign subsidiaries not providing
tax benefit in the current year - - 526
Change in valuation allowance (844) (980) (6,905)
Business credits (160) (196) (317)
Other 561 662 66
- ------------------------------------------------- ------ ------ -------
Provision (benefit) for income taxes $9,275 $5,930 $(6,336)
- ------------------------------------------------- ====== ====== =======
</TABLE>
As of September 29, 1996, the Company had net operating loss carryforwards of
approximately $39.7 million available to offset future federal taxable income
and approximately $7.2 million available to offset future taxable income in
various foreign jurisdictions. Federal operating loss carryforwards of $9.0
million expire in fiscal year 2001, federal operating loss carryforwards of
$30.7 million expire 2006 to 2009, and foreign operating loss carryforwards
expire beginning in fiscal year 1997. The federal operating loss carryforwards
expiring 2006 to 2009 are subject to certain restrictions on their utilization.
The Company also has federal credit carryforwards of $5.9 million. These credit
carryforwards will expire beginning in fiscal year 1997.
Significant components of the Company's deferred tax assets and liabilities at
September 29, 1996 and October 1, 1995 are as follows:
<TABLE>
<CAPTION>
1996 1995
--------- --------
<S> <C> <C>
Deferred income tax assets:
Net operating loss carryforwards $ 17,082 $ 8,388
Federal credit carryforwards 5,907 5,463
Inventory valuation 1,683 962
Employee benefits 751 376
Accrued customer service costs 842 388
Receivable valuation 789 458
Deferred income 914 672
Other 787 447
- ------------------------------------- -------- -------
28,755 17,154
Less valuation allowance (13,598) (3,054)
- ------------------------------------- -------- -------
Deferred income tax assets 15,157 14,100
- ------------------------------------- -------- -------
Deferred income tax liabilities:
Fixed assets 3,426 $ 1,963
Software development costs 4,873 1,405
Leases 1,038 -
- ------------------------------------- -------- -------
Deferred income tax liabilities 9,337 3,368
- ------------------------------------- -------- -------
Net deferred income tax assets $ 5,820 $10,732
- ------------------------------------- ======== =======
</TABLE>
The valuation allowance identified above relates to net operating loss
carryforwards of certain foreign and domestic subsidiaries. Approximately $10.0
million of the valuation allowance when reduced will be credited to goodwill in
accordance with SFAS 109.
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 1996
MS HCIS
-------- -------
<S> <C> <C>
Revenues $209,477 $31,308
Operating income (loss) 28,765 554
Depreciation and amortization 5,650 3,385
Capital expenditures 2,022 767
Total assets 151,447 35,181
- -------------------------------- -------- -------
</TABLE>
32
<PAGE>
ADAC LABORATORIES AND SUBSIDIARIES
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE)
<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 137,677 21,420
- -------------------------------- -------- -------
</TABLE>
Additionally, the Company has European 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 European subsidiaries' operations:
<TABLE>
<CAPTION>
1996 1995 1994
- ------------------------------------------------------- ------- -------- -------
<S> <C> <C> <C>
Revenues $30,475 $27,282 $28,436
Net income (loss) 419 (320) 73
Total assets 29,335 23,315 20,224
- ------------------------------------------------------- ------- ------- -------
</TABLE>
The Company also has operations in Latin America and Asia, neither of which
are material to the financial position or results of operations of the
Company.
NOTE 13 QUARTERLY RESULTS OF OPERATIONS (UNAUDITED):
<TABLE>
<CAPTION>
FISCAL 1996
First Second Third Fourth
Quarter Quarter Quarter Quarter
- ------------------------------------------------------- ------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenues $54,988 $58,438 $62,434 $64,925
Gross profit 21,098 22,314 24,134 25,606
Net income 3,541 3,938 4,353 4,805
Net income per share .20 .22 .24 .26
- ------------------------------------------------------- ------- ------- ------- -------
FISCAL 1995
First Second Third Fourth
Quarter Quarter Quarter Quarter
- ------------------------------------------------------- ------- ------- ------- -------
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
- ------------------------------------------------------- ------- ------- ------- -------
FISCAL 1994
First Second Third Fourth
Quarter Quarter Quarter Quarter
- ------------------------------------------------------- ------- ------- ------- -------
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
- ------------------------------------------------------- ------- ------- ------- -------
</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 Notes 3 and 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 (SFAS 121), "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of," which requires the Company to review for
impairment of long-lived assets, certain identifiable intangibles, and goodwill
related to those assets whenever events or changes in circumstances indicate
that the carrying amount of an asset might not be recoverable. In certain
situations, an impairment loss would be recognized. SFAS 121 will become
effective for the Company's year ending September 30, 1997.
During October 1995, the Financial Accounting Standard Board issued Statement
No. 123 (SFAS 123), "Accounting for Stock-Based Compensation," which established
a fair value based method of accounting for stock-based compensation plans and
requires additional disclosures for those companies who elect to adopt the new
method of accounting. The Company intends to continue to account for stock
options under APB Opinion No. 25, "Accounting for Stock Issued to Employees."
SFAS No. 123 will be effective for fiscal years beginning after December 15,
1995, and will require the Company to provide additional disclosures in the
financial statements for the year ending September 30, 1997.
During July 1996, The Financial Accounting Standard Board issued Statement No.
125 (SFAS 125), "Accounting for Transfers and Servicing of Financial Assets and
Extinguishment of Liabilities." This statement is effective for transfers and
servicing of financial assets and extinguishments of liabilities occurring after
December 31, 1996 and is to be applied prospectively.
At present, the Company's adoption of these pronouncements are not expected to
have a material effect on the Company's financial position or results of
operations.
33
<PAGE>
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 September 29, 1996 and October 1, 1995, and
the related consolidated statements of income, shareholders' equity and cash
flows for each of the three fiscal years in the period ended September 29, 1996.
These 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 September 29, 1996 and October 1, 1995, and the
consolidated results of their operations and their cash flows for each of the
three fiscal years in the period ended September 29, 1996 in conformity with
generally accepted accounting principles.
San Jose, California
November 4, 1996
34
<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 1997 Annual Meeting of Shareholders to be
filed with the Securities and Exchange Commission not later than 120 days after
the end of the 1996 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.
(3) EXHIBITS. The following exhibits are included or, as indicated
---------
by the footnote, incorporated by reference into this filing:
3.1 Restated Articles of Incorporation, as amended.
3.2 Bylaws, as amended.
10.17(1) 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(2) 1985 Option Plan, as amended and restated through July 28, 1987.
10.52(3) Directors' Stock Option Plan (1987),as amended.
10.56(4) 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(5) 1992 Stock Option Plan, as amended.
10.68(6) Master Lease Agreement between the Registrant and Metlife Capital
Corporation, dated September 30, 1994.
10.69(6) Equipment Lease Agreement between the Registrant and Wasatch
Funding Group, Inc., dated September 30, 1994.
10.70(6) Call Agreement between the Registrant and Community Health
Computing Corporation and Exhibits, dated November 30, 1994 and
December 7, 1994, respectively.
35
<PAGE>
10.71(6) 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(6) 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(6) Employment/Severance agreement between ADAC Laboratories and
Stanley D. Czerwinski, dated November 2, 1994.
10.75(7) Employee Stock Purchase Plan (1994), as amended.
10.76(8) 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.
10.78(9) Vendor Program Agreement between the Registrant and DVI Financial
Services Inc., dated June 30, 1995.
10.79(9) 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.
10.81(10) Credit Agreement dated July 31, 1996 among the Registrant, the
Lenders named therein, and ABN AMRO Bank N.V., as agent for the
Lenders
10.82(11) Rights Agreement dated as of April 22, 1996 between the
Registrant and Chemical Mellon Shareholder Services, LLC.
10.83(5) Stock Option Agreement between the Registrant and Robert L.
Miller.
10.84 Option Agreement dated as of September 30, 1996 by and among the
Registrant, ADAC Radiology Services, Inc., Medical Transition
Strategies, Inc., and Ernest Berger.
10.85 Agreement and Plan of Reorganization dated November 4, 1996 among
the Registrant, Geometrics Corporation, and the shareholders of
Geometrics Corporation.
10.86 Form of ADAC Executive Severance Agreement.
10.87 Form of ADAC HCIS Executive Severance Agreement.
10.88 Community Health Computing Corp. Stock Option Plan (1995) and
related Stock Option Agreement.
11 Computation of net income per share.
21 Subsidiaries.
23 Consent of Independent Accountants.
27 Financial Data Schedule.
- -----------------
(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 28, 1986.
(2) Incorporated by reference to Exhibits included with the Company's
Registration Statement on Form S-8 (file no. 33-72804) filed with
the Commission on December 13, 1993.
(3) Incorporated by reference to Exhibits included with the Company's
Registration Statement on Form S-8 (file no. 33-02747) filed with
the Commission on April 23, 1996.
(4) 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.
(5) Incorporated by reference to Exhibits included with the Company's
Registration Statement on Form S-8 (file no. 33-02749) filed with
the Commission on April 23, 1996.
(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 October 2, 1994.
(7) Incorporated by reference to Exhibits included with the Company's
Registration Statement on Form S-8 (file no. 33-02793) filed with
the Commission on April 23, 1996.
(8) 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).
(9) 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, 1995.
(10) Incorporated by reference to Exhibits filed with the Company's
Quarterly Report on Form 10-Q (file no. 0-9428) for the quarter
ended June 30, 1995.
(11) Incorporated by reference to Exhibits filed with the Company's
Current Report on Form 8-K (file no. 0-9428) dated April 22, 1996.
36
<PAGE>
(b) REPORTS ON FORM 8-K. The following report on Form 8-K was filed during
--------------------
the Company's third fiscal quarter ended June 30, 1996:
(i) Report on Form 8-K, dated April 22, 1996 (date of earliest event
reported), concerning the Company's adoption of a shareholder rights plan.
37
<PAGE>
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 17, 1996 ADAC LABORATORIES
Registrant)
BY:/s/ David L. Lowe
-----------------
David L. Lowe,
Chief Executive Officer
(Principal Executive Officer)
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.
<TABLE>
<CAPTION>
SIGNATURE CAPACITIES DATE
- --------- ---------- ----
<S> <C> <C>
/s/ David L. Lowe Chairman of the Board, Chief December 17, 1996
- ----------------------------
David L. Lowe Executive Officer & Director
(Principal Executive Officer)
/s/ P. Andre Simone Chief Financial Officer December 17, 1996
- ----------------------------
P. Andre Simone (Principal Financial and
Accounting Officer)
/s/ Stanley D. Czerwinski Director December 17, 1996
- ----------------------------
Stanley D. Czerwinski
/s/ R. Andrew Eckert Director December 17, 1996
- ----------------------------
R. Andrew Eckert
/s/ Graham O. King Director December 17, 1996
- ----------------------------
Graham O. King
/s/ Robert L. Miller Director December 17, 1996
- ----------------------------
Robert L. Miller
/s/ F. David Rollo Director December 17, 1996
- ----------------------------
F. David Rollo
/s/ Edmund H. Shea, Jr. Director December 17, 1996
- ----------------------------
Edmund H. Shea, Jr.
</TABLE>
38
<PAGE>
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.
39
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
Our report on the consolidated financial statements of ADAC Laboratories is
included on page 34 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 39 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 4, 1996
40
<PAGE>
SCHEDULE VIII
ADAC LABORATORIES AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
(In Thousands)
For the three years in the period ended September 29, 1996
<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 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
=================== =========== ======== ============== =========
Year Ended September 29, 1996:
Deducted from asset accounts:
Allowance for product returns
and doubtful accounts $2,044 $1,482 $ - $1,380 $2,146
================== =========== ======== ============== =========
</TABLE>
41
<PAGE>
SCHEDULE X
ADAC LABORATORIES AND SUBSIDIARIES
SUPPLEMENTARY INCOME STATEMENT INFORMATION
(In Thousands)
For the three years in the period ended September 29, 1996
<TABLE>
<CAPTION>
ITEM CHARGED TO COSTS & EXPENSES
---- -------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Depreciation and amortization
of intangible assets:
Software and technology $3,268 $1,845 $1,220
Goodwill and Sales Partnership $1,203 $ 780 $ 576
</TABLE>
Amounts charged to costs and expenses do not exceed one percent of net revenues
for all other items for all periods presented.
42
<PAGE>
ADAC LABORATORIES AND SUBSIDIARIES
INDEX OF EXHIBITS
EXHIBIT
NUMBER TITLE OF EXHIBIT
- ------ ----------------
(SEE FOOTNOTES)
3.1 Restated Articles of Incorporation, as amended.
3.2 Bylaws, as amended.
10.17(1) 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(2) 1985 Option Plan, as amended and restated through July 28, 1987.
10.52(3) Directors' Stock Option Plan (1987),as amended.
10.56(4) 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(5) 1992 Stock Option Plan, as amended.
10.68(6) Master Lease Agreement between the Registrant and Metlife Capital
Corporation, dated September 30, 1994.
10.69(6) Equipment Lease Agreement between the Registrant and Wasatch
Funding Group, Inc., dated September 30, 1994.
10.70(6) Call Agreement between the Registrant and Community Health
Computing Corporation and Exhibits, dated November 30, 1994 and
December 7, 1994, respectively.
10.71(6) 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(6) 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(6) Employment/Severance agreement between ADAC Laboratories and
Stanley D. Czerwinski, dated November 2, 1994.
10.75(7) Employee Stock Purchase Plan (1994), as amended.
10.76(8) First Amended Series A Preferred Stock Purchase Agreement, dated
<PAGE>
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.
10.78(9) Vendor Program Agreement between the Registrant and DVI Financial
Services Inc., dated June 30, 1995.
10.79(9) 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.
10.81(10) Credit Agreement dated July 31, 1996 among the Registrant, the
Lenders named therein, and ABN AMRO Bank N.V., as agent for the
Lenders
10.82(11) Rights Agreement dated as of April 22, 1996 between the Registrant
and Chemical Mellon Shareholder Services, LLC.
10.83(5) Stock Option Agreement between the Registrant and Robert L.
Miller.
10.84 Option Agreement dated as of September 30, 1996 by and among the
Registrant, ADAC Radiology Services, Inc., Medical Transition
Strategies, Inc., and Ernest Berger.
10.85 Agreement and Plan of Reorganization dated November 4, 1996 among
the Registrant, Geometrics Corporation, and the shareholders of
Geometrics Corporation.
10.86 Form of ADAC Executive Severance Agreement.
10.87 Form of ADAC HCIS Executive Severance Agreement.
10.88 Community Health Computing Corp. Stock Option Plan (1995) and
related Stock Option Agreement.
11 Computation of net income per share.
21 Subsidiaries
23 Consent of Independent Accountants.
27 Financial Data Schedule.
_______________________________________
(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 28, 1986.
(2) Incorporated by reference to Exhibits included with the Company's
Registration Statement on Form S-8 (file no. 33-72804) filed with
the Commission on December 13, 1993.
<PAGE>
(3) Incorporated by reference to Exhibits included with the Company's
Registration Statement on Form S-8 (file no. 33-02747) filed with
the Commission on April 23, 1996.
(4) 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.
(5) Incorporated by reference to Exhibits included with the Company's
Registration Statement on Form S-8 (file no. 33-02749) filed with
the Commission on April 23, 1996.
(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 October 2, 1994.
(7) Incorporated by reference to Exhibits included with the Company's
Registration Statement on Form S-8 (file no. 33-02793) filed with
the Commission on April 23, 1996.
(8) 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).
(9) 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, 1995.
(10) Incorporated by reference to Exhibits filed with the Company's
Quarterly Report on Form 10-Q (file no. 0-9428) for the quarter
ended June 30, 1995.
(11) Incorporated by reference to Exhibits filed with the Company's
Current Report on Form 8-K (file no. 0-9428) dated April 22, 1996.
<PAGE>
EXHIBIT 3.1
[Composite as of December 13, 1996]
RESTATED ARTICLES OF INCORPORATION
OF
ADAC LABORATORIES
A California Corporation
ARTICLE I
The name of this corporation is:
ADAC LABORATORIES
-----------------
ARTICLE II
The purpose of the Corporation is to engage in any lawful act or activity for
which a corporation may be organized under the General Corporation Law of
California other than the banking business, the trust company business or the
practice of a profession permitted to be incorporated by the California
Corporations Code.
ARTICLE III
The number of directors of this Corporation shall be not less than three (3) or
more than five (5), the exact number of which shall be fixed from time to time
by a By-law duly adopted by the shareholders or the Board of Directors.
ARTICLE IV
This Corporation is authorized to issue two classes of stock, without par value,
to be designated "Preferred Stock" and "Common Stock," respectively. The total
number of shares of which this Corporation is authorized to issue is 55,000,000
shares, of which 50,000,000 shares shall be Common Stock and 5,000,000 shares
shall be Preferred Stock.
ARTICLE V
The Corporation hereby elects to be governed by all the provisions of the
General Corporation Law of the State of California in effect as of January 1,
1977, which are not otherwise applicable to it pursuant to Chapter 23 of said
law.
<PAGE>
ARTICLE VI
The liability of the directors of the Corporation for monetary damages shall be
eliminated to the fullest extent permissible under California law.
ARTICLE VII
The Corporation is authorized to provide indemnification of Agents (as defined
in Section 317 of the Corporations Code) for breach of duty to the Corporation
and its shareholders through By-law provisions, agreements with the Agents, vote
of shareholders or disinterested directors or otherwise in excess of the
indemnification otherwise permitted by Section 317 of the Corporations Code),
subject to the limits on such excess indemnification set forth in Section 204 of
the Corporations Code or as to circumstances in which indemnity is expressly
prohibited by Section 317.
<PAGE>
EXHIBIT 3.2
BYLAWS OF
ADAC LABORATORIES
________________________
ARTICLE I
OFFICES
-------
I.1 Principal Office. The corporation shall maintain its principal
----------------
executive office at the following address:
255 San Geronimo Way
Sunnyvale, California 94086
I.2 Other Offices. The board of directors may change the location of
-------------
the principal office of the corporation, or establish and maintain additional
offices at such other places as it may from time to time designate.
ARTICLE II
MEETINGS OF SHAREHOLDERS
------------------------
II.1 Place of Meetings. Meetings of shareholders shall be held at any
-----------------
place within or outside the State of California designated by the board of
directors. In the absence of any such designation, shareholders meetings shall
be held at the principal executive office of the corporation.
II.2 Annual Meeting. The annual meeting of the shareholders, after the
--------------
year of incorporation, shall be held at four o'clock on the third Wednesday of
the first month of the calendar year. If this day falls on a legal holiday, the
annual meeting shall be held at the same time on the following business day
thereafter.
II.3 Special Meeting. A special meeting of the shareholders may be
---------------
called at any time by the board of directors, or by the chairman of the board,
or by the president or by one or more shareholders holding shares in the
aggregate entitled to cast not less than 10% of the votes at that meeting.
If a special meeting is called by any person or persons other than
the board of directors, the request shall be in writing specifying the time of
such meeting and the general nature
<PAGE>
of the business proposed to be transacted, and shall be delivered personally or
sent by registered mail or by telegraphic or other facsimile transmission to the
chairman of the board, the president, any vice president or the secretary of the
corporation. The officer receiving the request shall cause notice to be promptly
given to the shareholders entitled to vote, in accordance with the provisions of
Section 601 of the Corporations Code of the State of California, that a meeting
will be held at the time requested by the person or persons calling the meeting,
not less than thirty five (35) nor more than sixty (60) days after the receipt
of the request. If the notice is not given within twenty (20) days after receipt
of the request, the person or persons requesting the meeting may give the
notice. Nothing contained in this paragraph of this Section 2.03 shall be
construed as limiting, fixing or affecting the time when a meeting of
shareholders called by action of the board of directors may be held.
II.4 Notice of Shareholders Meetings. All notices of meetings of
-------------------------------
shareholders shall be sent or otherwise given in accordance with Section 2.05 of
this Article 2 not less than ten (10) nor more than sixty (60) days before the
date of the meeting. The notice shall specify the place, date and hour of the
meeting and (i) in the case of a special meeting, the general nature of the
business to be transacted, or (ii) in the case of the annual meeting, those
matters which the board of directors, at the time of giving the notice, intends
to present for action by the shareholders. The notice of any meeting at which
directors are to be elected shall include the name of any nominee or nominees
whom, at the time of the notice, management intends to present for election.
If action is proposed to be taken at any meeting for approval of
(i) a contract or transaction in which a director has a direct or indirect
financial interest, pursuant to Section 310 of the Corporations Code of
California, (ii) an amendment of the articles of incorporation, pursuant to
Section 902 of that Code, (iii) a reorganization of the corporation, pursuant to
Section 1201 of that code, (iv) a voluntary dissolution of the corporation,
pursuant to Section 1900 of that Code, or (v) a distribution in dissolution
other than in accordance with the rights of outstanding preferred shares,
pursuant to Section 2007 of that Code, the notice shall also state the general
nature of that proposal.
II.5 Manner of Giving Notice; Affidavit of Notice. Notice of any meeting
--------------------------------------------
of shareholders shall be given either personally or by first class mail or
telegraphic or other written communication, charges prepaid, addressed to the
shareholder at the address of that shareholder appearing on the books of the
corporation or given by the shareholder to the corporation for the purpose of
notice. If no such address appears on the corporation's books or is given,
notice shall be deemed to have been given if sent to that shareholder by first
class mail or telegraphic or other written communication to the corporation's
principal executive office, or if published at least once in a newspaper of
general circulation in the county where that office is located. Notice shall be
deemed to have been given at the time when delivered personally or deposited in
the mail or sent by telegram or other means of written communication.
If any notice addressed to a shareholder at the address of that
shareholder appearing on the books of the corporation is returned to the
corporation by the United States Postal Service marked to indicate that the
United States Postal Service is unable to deliver the notice to the
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shareholder at that address, all future notices or reports shall be deemed to
have been duly given without further mailing if these shall be available to the
shareholder on written demand of the shareholder at the principal executive
office of the corporation for a period of one year from the date of the giving
of the notice.
An affidavit of the mailing or other means of giving any notice of
any shareholders meeting shall be executed by the secretary, assistant secretary
or any transfer agent of the corporation giving the notice, and shall be filed
and maintained in the minute book of the corporation.
II.6 Quorum. The presence in person or by proxy of the holders of a
------
majority of the shares entitled to vote at any meeting of shareholders shall
constitute a quorum for the transaction of business. The shareholders present
at a duly called or held meeting at which a quorum is present may continue to do
business until adjournment, notwithstanding the withdrawal of enough
shareholders to leave less than a quorum, if any action taken (other than
adjournment) is approved by at least a majority of the shares required to
constitute a quorum.
II.7 Adjourned Meeting; Notice. Any shareholders' meeting, annual or
-------------------------
special, whether or not a quorum is present, may be adjourned from time to time
by the vote of the majority of the shares represented at that meeting, either in
person or by proxy, but in the absence of a quorum, no other business may be
transacted at that meeting, except as provided in Section 2.06 of this Article
2.
When any meeting of shareholders, either annual or special, is
adjourned to another time or place, notice need not be given of the adjourned
meeting if the time and place are announced at a meeting at which the
adjournment is taken, unless a new record date for the adjourned meeting is
fixed, or unless the adjournment is for more than forty-five (45) days from the
date set for the original meeting, in which case the board of directors shall
set a new record date. Notice of any such adjourned meeting shall be given to
each shareholder of record entitled to vote at the adjourned meeting in
accordance with the provisions of Sections 2.04 and 2.05 of this Article 2. At
any adjourned meeting the corporation may transact any business which might have
been transacted at the original meeting.
II.8 Voting. The shareholders entitled to vote at any meeting of
------
shareholders shall be determined in accordance with the provisions of Section
701 of the Corporations Code of the State of California, subject to the
provisions of Section 702, Section 703 and Section 704 of the Corporations Code
of the State of California (relating to voting shares held by a fiduciary, in
the name of a corporation, or in joint ownership). The shareholders vote may be
by voice vote or by ballot; provided, however, that any election for directors
must be by ballot if demanded by any shareholder before the voting has begun.
On any matter other than election of directors, any shareholder may vote part of
the shares in favor of the proposal and refrain from voting the remaining
shares, or vote them against the proposal, but, if the shareholder fails to
specify the number of shares which the shareholder is voting affirmatively, it
will be conclusively presumed that the shareholders approving vote is with
respect to all shares that the shareholder is entitled to vote. If a quorum is
present, the affirmative vote of the majority of the shares represented at the
meeting and entitled to vote on any
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matter (other than the election of directors) shall be the act of the
shareholders, unless the vote of a greater number or voting by classes is
required by California General Corporation Law or by the articles of
incorporation.
At a shareholders meeting at which directors are to be elected, no
shareholder shall be entitled to cumulate votes (i.e., cast for any one or more
candidates a number of votes greater than the number of the shareholders shares)
unless the candidates names have been placed in nomination prior to commencement
of the voting and a shareholder has given notice prior to commencement of the
voting of the shareholders intention to cumulate votes. If any shareholder has
given such a notice, then every shareholder entitled to vote may cumulate votes
for candidates in nomination and give one candidate a number of votes equal to
the number of directors to be elected, multiplied by the number of votes to
which that shareholder's shares are entitled, or distribute the shareholder's
votes on the same principle among any or all of the candidates as the
shareholder thinks fit. The candidates receiving the highest number of votes,
up to the number of directors to be elected, shall be elected.
II.9 Waiver of Notice or Consent by Absent Shareholders. The
--------------------------------------------------
transactions of any meeting of shareholders, either annual or special, however
called and noticed and wherever held, shall be as valid as though had at a
meeting duly held after regular call and notice, if a quorum be present either
in person or by proxy, and if, either before or after the meeting, each person
entitled to vote who was not present in person or by proxy signs a written
waiver of notice or a consent to a holding of the meeting, or an approval of the
minutes. The waiver of notice or consent need not specify either the business to
be transacted or the purpose of any annual or special meeting of shareholders,
except that if action is taken or proposed to be taken for approval for any of
those matters specified in Section 601 of the Corporations Code of the State of
California; the waiver of notice or consent shall state the general nature of
the proposal. All such waivers, consents or approvals shall be filed with the
corporate records or made a part of the minutes of the meeting.
Attendance by a person at a meeting shall also constitute a waiver
of notice of that meeting, except when the person objects at the beginning of
the meeting to the transaction of any business because the meeting is not
lawfully called or convened, and except that attendance at a meeting is not a
waiver of any right to object to the consideration of matters not included in
the notice of the meeting if that objection is expressly made at the meeting.
II.10 Shareholders Action by Written Consent Without a Meeting. Any
--------------------------------------------------------
action which may be taken at any annual or special meeting of shareholders may
be taken without a meeting and without prior notice if a consent in writing
setting forth the action so taken is signed by the holders of outstanding shares
having not less than the minimum number of votes that would be necessary to
authorize or take that action at a meeting at which all shares entitled to vote
on that action were present and voted. In the case of election of directors,
such a consent shall be effective only if signed by the holders of all
outstanding shares entitled to vote for the election of directors; provided,
however, that a director may be elected at any time to fill a vacancy on the
board of directors that has not been filled by the directors by the written
consent of the holders of a majority of the outstanding shares entitled to vote
for the election of directors. All such consents shall be filed with the
secretary
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of the corporation and shall be maintained in the corporate records. Any
shareholder giving a written consent, or the shareholder's proxy holders, or a
transferee of the shares or a personal representative of the shareholder of
their respective proxy holders, may revoke the consent by a writing received by
the secretary of the corporation before written consents of the number of shares
required to authorize the proposed action have been filed with the secretary.
If the consents of all shareholders entitled to vote have not been
solicited in writing, and if the unanimous written consent of all such
shareholders shall not have been received, the secretary shall give prompt
notice of the corporate action approved by the shareholders without a meeting.
This notice shall be given in the manner specified in Section 2.05 of this
Article 2. In the case of approval of (i) contracts or transactions in which a
director has a direct or indirect financial interest, pursuant to Section 310 of
the Corporations Code of California, (ii) indemnification of agents of the
corporation, pursuant to Section 317 of that Code, (iii) a reorganization of the
corporation, pursuant to Section 1201 of that Code, and (iv) a distribution in
dissolution other than in accordance with the rights of outstanding preferred
shares, pursuant to Section 2007 of that Code, the notice shall be given at
least ten (10) days before the consummation of any action authorized by that
approval.
II.11 Record Date for Shareholder Notice, Voting and Giving Consents.
--------------------------------------------------------------
For purposes of determining the shareholders entitled to notice of any meeting
or to vote or entitled to give consent to corporate action without a meeting,
the board of directors may fix, in advance, a record data, which shall not be
more than sixty (60) days before any such action without a meeting, and in this
event only shareholders of record on the date so fixed are entitled to notice
and to vote or to give consents, as the case may be, notwithstanding any
transfer of any shares on the books of the corporation after the record date
except as otherwise provided in the California General Corporation Law.
If the board of directors does not so fix a record date:
(a) The record date for determining shareholders entitled to
notice of or to vote at a meeting of shareholders shall be at the close of
business on the business day next preceding the day on which notice is given or,
if notice is waived, at the close of business on the business day next preceding
the day on which the meeting is held.
(b) The record date for determining shareholders entitled to give
consent to corporate action in writing without a meeting, (i) when no prior
action by the board has been taken, shall be the day on which the first written
consent is given, or (ii) when prior action of the board has been taken, shall
be at the close of business on the day on which the board adopts the resolution
relating to that action, or the sixtieth (60th) day before the date of such
other action, whichever is later.
II.12 Proxies. Every person entitled to vote for directors or on any
-------
other matter shall have the right to do so either in person or by one or more
agents authorized by a written proxy signed by the person and filed with the
secretary of the corporation. A proxy shall be deemed signed if the
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shareholder's name is placed on the proxy (whether by manual signature,
typewriting, telegraphic transmission or otherwise) by the shareholder or the
shareholder's attorney in fact. A validly executed proxy which does not state
that it is irrevocable shall continue in full force and effect unless (i)
revoked by the person executing it, before the vote pursuant to that proxy, by a
writing delivered to the corporation stating that the proxy is revoked, or by a
subsequent proxy executed by, or attendance at the meeting and voting in person
by, the person executing the proxy; or (ii) written notice of the death or
incapacity of the maker of that proxy is received by the corporation before the
vote pursuant to that proxy is counted; provided, however, that no proxy shall
be valid after the expiration of eleven (11) months from the date of the proxy,
unless otherwise provided in the proxy.
II.13 Inspectors of Election. Before any meeting of shareholders, the
----------------------
board of directors may appoint any persons other than nominees for office to act
as inspectors of election at the meeting or its adjournment. If no inspectors
of election are so appointed, the chairman of the meeting may, and on the
request of any shareholder or a shareholder's proxy shall, appoint inspectors of
election at the meeting. The number of inspectors shall be either one (1) or
three (3). If inspectors are appointed at a meeting on the request of one or
more shareholders or proxies present at the meeting shall determine whether one
(1) or three (3) inspectors are to be appointed. If any person appointed as
inspector fails to appear or fails or refuses to act, the chairman of the
meeting may, and upon the request of any shareholder or a shareholder's proxy
shall, appoint a person to fill the vacancy.
These inspectors shall:
(a) Determine the number of shares outstanding and the voting
power of each, the shares represented at the meeting, the existence of a quorum,
and the authenticity, validity, and effect of proxies;
(b) Receive votes, ballots, or consents;
(c) Hear and determine all challenges and questions in any way
arising in connection with the right to vote;
(d) Count and tabulate all votes or consents;
(e) Determine when the polls shall close;
(f) Determine the results; and
(g) Do any other acts that may be proper to conduct the election
or vote with fairness to all shareholders.
ARTICLE III
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DIRECTORS
---------
III.1 Powers. Subject to the provisions of the California General
------
Corporation Law and any limitations in the articles of incorporation and these
bylaws relating to action required to be approved by the shareholders or by the
outstanding shares, the business and affairs of the corporation shall be managed
and all corporate powers shall be exercised by or under the direction of the
board of directors. Notwithstanding the foregoing, until November 30, 1980, the
issuance of shares or the granting of options to purchase shares of this
corporation's common stock to officers and directors of this corporation, shall
require the unanimous approval by all members of the board of directors.
III.2 Number and Qualification of Directors. The number of directors
-------------------------------------
shall be not less than five (5) or more than eight (8), the exact number of
directors shall be fixed from time to time by a resolution duly adopted by the
vote or written consent of holders of a majority of the outstanding shares
entitled to vote; provided, however, that an amendment reducing the number of
directors to a number less than five (5) cannot be adopted if the votes cast
against its adoption at a meeting, or the shares not consenting in the case of
action by written consent, are equal to more than 16 2/3% of the outstanding
shares entitled to vote.
III.3 Election and Term of Office of Directors. Directors shall be
----------------------------------------
elected at each annual meeting of the shareholders to hold office until the next
annual meeting. Each director, including a director elected to fill a vacancy,
shall hold office until the expiration of the term for which elected and until a
successor has been elected and qualified.
III.4 Vacancies. Vacancies in the board of directors may be filled by a
---------
majority of the remaining directors, though less than a quorum, or by a sole
remaining director, except that a vacancy created by the removal of a director
by the vote or written consent of the shareholders, or by court order, may be
filled only by the vote of a majority of the shares entitled to vote represented
at a duly held meeting at which a quorum is present, or by the shares entitled
to vote. Each director so elected shall hold office until the next annual
meeting of the shareholders and until a successor has been elected and
qualified.
A vacancy or vacancies in the board of directors shall be deemed to
exist in the event of the death, resignation or removal of any director, or if
the board of directors who has been declared of unsound mind by an order of
court or convicted of a felony, or if the authorized number of directors is
increased, or if the shareholders fail, at any meeting of shareholders at which
any director or directors are elected, to elect the number of directors to be
voted for at that meeting.
The shareholders may elect a director or directors at any time to
fill any vacancy or vacancies not filled by the directors, but any such election
by written consent shall require the consent of a majority of the outstanding
shares entitled to vote.
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Any director may resign effective on giving written notice to the
chairman of the board, the president, the secretary or the board of directors,
unless the notice specifies a later time for that resignation to become
effective. If the resignation of a director is effective at a future time, the
board of directors may elect a successor to take office when the resignation
becomes effective.
No reduction of the authorized number of directors shall have the
effect of removing any director before that director's term of office expires.
III.5 Place of Meetings and Meetings by Telephone. Regular meetings of
-------------------------------------------
the board of directors may be held at any place within or outside the State of
California that has been designated from time to time by resolution of the
board. In the absence of such a designation, regular meetings shall be held at
the principal executive office of the corporation. Special meetings of the
board shall be held at any place within or outside the State of California that
has been designated in the notice of the meeting, or if not stated in the notice
or if there is no notice, at the principal executive office of the corporation.
Any meeting, regular or special, may be held by conference telephone or similar
communication equipment, so long as all directors participating in the meeting
can hear one another, and all such directors shall be deemed to be present in
person at the meeting.
III.6 Annual Meeting. Immediately following, or jointly therewith, each
--------------
annual meeting of shareholders, the board of directors shall hold a regular
meeting for the purpose of organization, any desired election of officers and
the transaction of other business. Notice of this meeting shall not be
required.
III.7 Other Regular Meetings. Regular meetings of the board of directors
----------------------
shall be held without call at such time as shall from time to time be fixed by
the board of directors. Such regular meetings may be held without notice.
III.8 Special Meetings. Special meetings of the board of directors for
----------------
any purpose or purposes may be called at any time by the chairman of the board
or the president, or any vice president, or the secretary or any two directors.
Notice shall be given in the manner prescribed by Section 307 of the
Corporations Code of the State of California.
III.9 Quorum. A majority of the authorized number of directors shall
------
constitute a quorum for the transaction of business, except to adjourn as
provided in Section 3.11 of this Article 3. Every act or decision done or made
by a majority of the directors present at a meeting duly held at which a quorum
is present shall be regarded as the act of the board of directors subject to the
provisions of Section 310 of the Corporations Code of California (as to approval
of contracts or transactions in which a director has a direct or indirect
material financial interest), Section 311 of that Code (as to appointment of
committees) and Section 317(e) of that Code (as to indemnification of
directors). A meeting at which a quorum is initially present may continue to
transact business notwithstanding the withdrawal of directors if any action
taken is approved by at least a majority of the required quorum for that
meeting.
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III.10 Waiver of Notice. The transactions of any meeting of the board of
----------------
directors, however called and noticed or wherever held, shall be as valid as
though had at a meeting duly held after regular call and notice if a quorum is
present, and if either before or after the meeting, each of the directors not
present signs a written waiver of notice, a consent to holding the meeting or an
approval of the minutes. The waiver of notice or consent need not specify the
purpose of the meeting. All such waivers, consents and approvals shall be filed
with the corporate records or made a part of the minutes of the meeting. Notice
of a meeting shall also be deemed given to any director who attends the meeting
without protesting before or at its commencement the lack of notice to that
director.
III.11 Adjournment. A majority of the directors present, whether or not
-----------
constituting a quorum, may adjourn any meeting to another time and place.
III.12 Notice of Adjournment. Notice of the time and place of holding an
---------------------
adjourned meeting need not be given, unless the meeting is adjourned for more
than twenty-four hours, in which case notice of the time and place shall be
given before the time of the adjourned meeting, in the manner specified in
Section 307 of the California General Corporation Law, to the directors who were
not present at the time of the adjournment.
III.13 Action Without Meeting. Any action required or permitted to be
----------------------
taken by the board of directors may be taken without a meeting if all members of
the board shall individually or collectively consent in writing to that action.
Such action by written consent shall have the same force and effect as a
unanimous vote of the board of directors. Such written consent or consents
shall be filed with the minutes of the proceedings of the board.
III.14 Fees and Compensation of Directors. Directors and members of
----------------------------------
committees may receive such compensation, if any, for their services and such
reimbursement of expenses as may be fixed or determined by resolution of the
board of directors. This Section 3.11 shall not be construed to preclude any
director from serving the corporation in any other capacity as an officer,
agent, employee or otherwise and receiving compensation for those services.
ARTICLE IV
COMMITTEES
----------
IV.1 Committees of Directors. The board of directors may, by resolution
-----------------------
adopted by a majority of the authorized number of directors, designate one or
more committees, each consisting of two or more directors, to serve at the
pleasure of the board. The board may designate one or more directors as
alternate members of any committee, who may replace any absent member at any
meeting of any committee. Any committee, to the extent provided in the
resolution of the board, shall have all the authority of the board, except with
respect to:
(a) the approval of any action which, under the General
Corporation Law of California, also requires shareholder approval or approval of
the outstanding shares;
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(b) the filling of vacancies on the board of directors or in any
committee;
(c) the fixing of compensation of the directors for serving on
the board or on any committee;
(d) the amendment or repeal of bylaws or the adoption of new
bylaws;
(e) the amendment or repeal of any resolution of the board of
directors which by its express terms is not so amendable or repealable;
(f) a distribution to the shareholders of the corporation, except
at a rate or in a periodic amount or within a price range determined by the
board of directors; or
(g) the appointment of any other committees of the board of
directors or the members of these committees.
ARTICLE V
OFFICERS
--------
V.1 Officers. The officers of the corporation shall be a president, a
--------
secretary and a chief financial officer. The corporation may also have, at the
discretion of the board of directors, a chairman of the board, one or more vice
presidents, one or more assistant secretaries, one or more assistant treasurers
and such other officers as may be appointed in accordance with the provisions of
Section 5.03 of this Article 5. Any number of officers may be held by the same
person.
V.2 Election of Officers. The officers of the corporation, except such
--------------------
officers as may be appointed in accordance with the provisions of Section 5.03
of this Article 5, shall be chosen by the board of directors, and each shall
serve at the pleasure of the board, subject to the rights, if any, of an officer
under any contract of employment.
V.3 Subordinate Officers. The board of directors may appoint, and may
--------------------
empower the president to appoint, such other officers as the business of the
Corporation may require, each of whom shall hold office for such period, have
such authority and perform such duties as are provided in the bylaws or as the
board of directors may from time to time determine.
V.4 Removal and Resignation of Officers. Subject to the rights, if
-----------------------------------
any, of an officer under any contract of employment, any officer may be removed,
either with or without cause, by the board of directors, at any regular or
special meeting of the board, or, except in case of an officer chosen by the
board of directors, by any officer upon whom such power of removal may be
conferred by the board of directors.
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Any officer may resign at any time by giving written notice to the
corporation. Any resignation shall take effect at the date of the receipt of
that notice or at any later time specified in that notice; and, unless otherwise
specified in that notice, the acceptance of the resignation shall not be
necessary to make it effective. Any resignation is without prejudice to the
rights, if any, of the corporation under any contract to which the officer is a
party.
V.5 Vacancies in Offices. A vacancy in any office because of the
--------------------
death, resignation, removal, disqualification or any other cause shall be filled
in the manner prescribed in these bylaws for regular appointments to that
office.
V.6 Chairman of the Board. The chairman of the board, if such an
---------------------
officer be elected, shall if present, preside at meetings of the board of
directors and exercise and perform such other powers and duties as may be from
time to time assigned to him by the board of directors or prescribed by the
bylaws. If there is no president, the chairman of the board shall, in addition,
be the chief executive officer of the corporation, and shall have the powers and
duties prescribed in Section 5.07 of this Article 5.
V.7 President. Subject to such supervisory powers, if any, as may be
---------
given by the board of directors to the chairman of the board, if there be such
an officer, the president shall be the chief executive officer of the
corporation and shall, subject to the control of the board of directors, have
general supervision, direction, and control of the business and officers of the
corporation. He shall preside at all meetings of the shareholders, and in the
absence of the chairman of the board, or if there be none, at all meetings of
the board of directors. He shall have the general powers and duties of
management usually vested in the office of the president of a corporation, and
shall have such other powers and duties as may be prescribed by the board of
directors or the bylaws.
V.8 Vice Presidents. In the absence or disability of the president,
---------------
the vice presidents, if any, in order of their rank as fixed by the board of
directors, or if not ranked, a vice president designated by the board of
directors, shall perform all the duties of the president, and when so acting
shall have all the powers of, and be subject to all the restrictions upon, the
president. The vice presidents shall have such other powers and perform such
other duties as from time to time may be prescribed for them respectively by the
board of directors or the bylaws, and the president or the chairman of the
board.
V.9 Secretary. The secretary shall keep or cause to be kept at the
---------
principal executive office, or such other place as the board of directors may
direct, a book of minutes of all meetings and actions of directors, committees
of directors and shareholders, with the time and place of holding, whether
regular or special, and if special, how authorized, the notice given, the names
of those present at directors meetings or committee meetings, the number of
shares present or represented at shareholders meetings and the proceedings.
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The secretary shall keep or cause to be kept at the principal
executive office, or at the office of the corporation's transfer agent or
registrar as determined by resolution of the board of directors, a share
register or a duplicate share register showing the names of all shareholders and
their addresses, the number and classes of shares held by each, the number and
date of certificates issued for the same and the number and date of cancellation
of every certificate surrendered for cancellation.
The secretary shall give or cause to be given notice of all
meetings of the shareholders and of the board of directors required by the
bylaws, or by law to be given, and he shall keep the seal of the corporation, if
one be adopted, in safe custody, and shall have such other powers and perform
such other duties as may be prescribed by the board of directors or by the
bylaws.
V.10 Chief Financial Officer. The chief financial officer shall receive
-----------------------
and have custody of all funds and securities of the corporation, shall keep
adequate and correct accounts of the corporation's properties and business
transactions and shall perform such other duties as may be required of him by
the board of directors or by the president.
ARTICLE VI
INDEMNIFICATION OF DIRECTORS,
-----------------------------
OFFICERS, EMPLOYEES AND OTHER AGENTS
------------------------------------
VI.1 Agents, Proceedings and Expenses. For the purposes of this
--------------------------------
Article, "agent" means any person who is or was a director, officer, employee or
other agent of this corporation, or is or was serving at the request of this
corporation as a director, officer, employee or agent of another foreign or
domestic corporation, partnership, joint venture, trust or other enterprise, or
was a director, officer, employee or agent of a foreign or domestic corporation
which was a predecessor corporation of this corporation or of another enterprise
at the request of such predecessor corporation; "proceeding" means any
threatened, pending or completed action or proceeding, whether civil, criminal,
administrative or investigative; and "expenses" includes, without limitation,
attorneys' fees and any expenses of establishing a right to indemnification
under Section 6.04 or Section 6.05(c) of this Article.
VI.2 Actions Other Than by the Corporation. This corporation shall
-------------------------------------
indemnify any person who was or is a party, or is threatened to be made a party,
to any proceeding (other than an action by or in the right of this corporation
to procure a judgement in its favor) by reason of the fact that such person is
or was an agent of this corporation, against expenses, judgments, fines,
settlements and other amounts actually and reasonably incurred in connection
with such proceedings if that person acted in good faith and in a manner that
person reasonably believed to be in the best interests of this corporation and,
in the case of a criminal proceeding, had no reasonable cause to believe the
conduct of that person was unlawful, conviction or upon a plea of nolo
contendere or its equivalent shall not, of itself, create a presumption that the
person did not act in good faith and in a manner which the
-12-
<PAGE>
person reasonably believed to be in the best interests of this corporation or
that the person has reasonable cause to believe that the person's conduct was
unlawful.
VI.3 Actions by the Corporation. This corporation shall indemnify any
--------------------------
person who was or is a party, or is threatened to be made a party, to any
threatened, pending or completed action by or in the right of this corporation
to procure a judgment in its favor by reason of the fact that person is or was
an agent of this corporation, against expenses actual and reasonably incurred by
that person in connection with the defense or settlement of that action if that
person acted in good faith, in a manner that person believed to be in the best
interest of this corporation and with such care, including reasonable inquiry,
as an ordinarily prudent person in a like position would use under similar
circumstances. No indemnification shall be made under this Section 6.03.
(a) In respect of any claim, issue or matter as to which that
person shall have been adjudged to be liable to this corporation in the
performance of that person's duty to this corporation, unless and only to the
extent that the court in which that proceeding is or was pending shall determine
upon application that, in view of the circumstances of the case, that person is
fairly and reasonably entitled to indemnify for the expenses which the court
shall determine;
(b) Of amounts paid in settling or otherwise disposing of a
threatened or pending action, with or without court approval; or
(c) Of expenses incurred in depending a threatened or pending
action which is settled or otherwise disposed of without court approval.
VI.4 Successful Defense by Agent. To the extent that an agent of this
---------------------------
corporation has been successful on the merits in defense of any proceeding
referred to in Sections 6.02 or 6.03 of this Article, or in defense of any
claim, issue or matter therein, the agent shall be indemnified against expenses
actually and reasonably incurred by the agent in connection therewith.
VI.5 Required Approval. Except as provided in Section 6.04 of this
-----------------
Article, any indemnification under this Article shall be made by this
corporation only if authorized in the specific case on a determination that
indemnification of the agent is proper in the circumstances because the agent
has met the applicable standard of conduct set forth in Sections 6.02 or 6.03 of
this Article, by:
(a) A majority vote of a quorum consisting of directors who are
not parties to the proceeding;
(b) Approval by the affirmative vote of a majority of the shares
of this corporation entitled to vote represented at a duly held meeting at which
a quorum is present or by the written consent of holders of a majority of the
outstanding shares entitled to vote. For this purpose, the shares owned by the
person to be indemnified shall not be considered outstanding or entitled to vote
thereon; or
-13-
<PAGE>
(c) The court in which the proceeding is or was pending, on
application made by this corporation or the agent or the attorney or other
person rendering services in connection with the defense, whether or not such
application by the agent, attorney or other person is opposed by this
corporation.
VI.6 Advance of Expenses. Expenses incurred in defending any proceeding
-------------------
may be advanced by this corporation before the final disposition of the
proceeding on receipt of an undertaking by or on behalf of the agent to repay
the amount of the advance unless it shall be determined ultimately that the
agent is entitled to be indemnified as authorized in this Article.
VI.7 Other Contractual Rights. Nothing contained in this Article shall
------------------------
affect any right to indemnification to which persons other than directors and
officers of this corporation or any subsidiary hereof may be entitled by
contract or otherwise.
VI.8 Limitations. No indemnification or advance shall be made under
-----------
this Article, except as provided in Section 6.04 or Section 6.05(c), in any
circumstance where it appears:
(a) That it would be inconsistent with a provision of the
articles, a resolution of the shareholders or an agreement in effect at the time
of the accrual of the alleged cause of action asserted in the proceeding in
which the expenses were incurred or other amounts were paid, which prohibits or
otherwise limits indemnification; or
(b) That it would be inconsistent with any condition expressly
imposed by a court in approving a settlement.
VI.9 Insurance. Upon and in the event of a determination by the board
---------
of directors of this corporation to purchase such insurance on behalf of any
agent of the corporation against any liability asserted against or incurred by
the agent in such capacity or arising out of the agent's status as such whether
or not this corporation would have the power to indemnify the agent against that
liability under the provisions of this section.
VI.10 Fiduciaries of Corporate Employee Benefit Plan. This Article does
----------------------------------------------
not apply to any proceeding against any trustee, investment manager or other
fiduciary of an employee benefit plan in that person's capacity as such, even
though that person may also be an agent of the corporation as defined in
Section 6.01 of this article. Nothing contained in this Article shall limit any
right to indemnification to which such a trustee, investment manager or other
fiduciary may be entitled by contract or otherwise, which shall be enforceable
to the extent permitted by 2.07 of the California Corporations Code.
ARTICLE VII
RECORDS AND REPORT
------------------
-14-
<PAGE>
VII.1 Maintenance and Inspection of Share Register. The corporation
--------------------------------------------
shall keep at its principal executive office, or at the office of its transfer
agent or registrar, if either be appointed and as determined by resolution of
the board of directors, a record of its shareholders, giving the names and
addresses of all shareholders and the number and class of shares held by each
shareholder.
A shareholder or shareholders of the corporation holding at least
five percent (5%) in the aggregate of the outstanding voting shares of the
corporation may (i) inspect and copy the records of shareholders' names and
addresses and share holdings during usual business hours on five (5) days prior
written demand on the corporation, and (ii) obtain from the transfer agent of
the corporation, on written demand and on the tender of such transfer agent's
usual charges for such list, a list of the shareholders' names and addresses,
who are entitled to vote for the election of directors, and their share
holdings, as of the most recent record date for which that list has been
compiled or as of a date specified by the shareholder after the date of demand.
This list shall be made available to any such shareholder by the transfer agent
on or before the later of five (5) days after the demand is received or the date
specified in the demand as the date as of which the list is to be compiled. The
record of shareholders shall also be open to inspection on the written demand of
any shareholder or holder of a voting trust certificate, at any time during
usual business hours, for a purpose reasonably related to the holder's interests
as a shareholder or as the holder of a voting trust certificate. Any inspection
and copying under this Section 7.01 may be made in person or by an agent or
attorney of the shareholder or holder of a voting trust certificate making the
demand.
VII.2 Maintenance and Inspection of Bylaws. The corporation shall keep
------------------------------------
at its principal executive office, or if its principal executive office is not
in the State of California, at its principal business office in this state, the
original or a copy of the bylaws as amended to date, which shall be open to
inspection by the shareholders at all reasonable times during office hours. If
the principal executive office of the corporation is outside the State of
California and the corporation has no principal business office in this state,
the secretary shall, upon the written request of any shareholder, furnish to
that shareholder a copy of the bylaws as amended to date.
VII.3 Maintenance and Inspection of Other Corporate Records. The
-----------------------------------------------------
accounting books and records and minutes of proceedings of the shareholders and
the board of directors and any committee or committees of the board of directors
shall be kept at such place or places designated by the board of directors, or,
in the absence of such designation, at the principal executive office of the
corporation. The minutes shall be kept in written form and the accounting books
and records shall be kept either in written form or in any other form capable of
being converted into written form. The minutes and accounting books and records
shall be open to inspection upon the written demand of any shareholder or holder
of a voting trust certificate, at any reasonable time during usual business
hours, for a purpose reasonably related to the holder's interests as a
shareholder or as the holder of a voting trust certificate. The inspection may
be made in person or by an agent or attorney, and shall include the right to
copy and make extracts. These rights of inspection shall extend to the records
of each subsidiary corporation of the corporation.
-15-
<PAGE>
VII.4 Inspection by Directors. Every director shall have the absolute
-----------------------
right at any reasonable time to inspect all books, records and documents of
every kind and the physical properties of the corporation and each of its
subsidiary corporations. This inspection by a director may be made in person or
by an agent or attorney and the right of inspection includes the right to copy
and make extracts of documents.
VII.5 Annual Report to Shareholders. The Board of Directors shall issue
-----------------------------
an annual report to the shareholders of the corporation and such other periodic
reports as they consider appropriate.
VII.6 Financial Statements. A copy of any annual financial statement and
--------------------
any income statement of the corporation for each quarterly period of each fiscal
year, and any accompanying balance sheet of the corporation as of the end of
each such period, that has been prepared by the corporation shall be kept on
file in the principal executive office of the corporation for twelve (12) months
and each such statement shall be exhibited at all reasonable times to any
shareholder demanding an examination of any such statement or a copy shall be
mailed to any such shareholder.
If a shareholder or shareholders holding at least five percent (5%) of the
outstanding shares of any class of stock of the corporation makes a written
request to the corporation for an income statement of the corporation for the
three month, six month or nine month period of the then current fiscal year
ended more than thirty (30) days before the date of the request, and a balance
sheet of the corporation as of the end of that period, the chief financial
officer shall cause that statement to be prepared, if not already prepared, and
shall deliver personally or mail that statement or statements to the person
making the request within thirty (30) days after the receipt of the request. If
the corporation has not sent to the shareholders its annual report for the last
fiscal year, this report shall likewise be delivered or mailed to the
shareholder or shareholders within thirty (30) days after the request.
The corporation shall also, on the written request of any shareholder, mail
to the shareholder a copy of the last annual, semi-annual or quarterly income
statement which it has prepared and a balance sheet as of the end of that
period.
The quarterly income statements and balance sheets referred to in this
section shall be accompanied by the report, if any, of any independent
accountants engaged by the corporation or the certificate of an authorized
officer of the corporation that the financial statements were prepared without
audit from the books and records of the corporation.
ARTICLE VIII
GENERAL CORPORATE MATTERS
-------------------------
VIII.1 Record Date for Purposes Other than Notice and Voting. For
-----------------------------------------------------
purposes of determining the shareholders entitled to receive payment of any
dividend or other distribution or allotment of any rights or entitled to
exercise any rights in respect of any other lawful action (other than action by
-16-
<PAGE>
shareholders by written consent without a meeting), the board of directors may
fix, in advance, a record date, which shall not be more than sixty (60) days
before any such action, and in that case only shareholders of record on the date
so fixed are entitled to receive the dividend rights, as the case may be,
notwithstanding any transfer of any shares on the books of the corporation after
the record date so fixed, except as otherwise provided in the California General
Corporation Law.
If the board of directors does not so fix a record date, the record date
for determining shareholders for any such purpose shall be at the close of
business on the day on which the board adopts the applicable resolution or the
sixtieth (60th) day before the date of that action, whichever is later.
VIII.2 Checks, Drafts, Evidences of Indebtedness. All checks, drafts or
-----------------------------------------
other orders for payment of money, notes or other evidences of indebtedness,
issued in the name of or payable to the corporation, shall be signed or endorsed
by such person or persons and in such manner as, from time to time, shall be
determined by resolution of the board of directors.
VIII.3 Corporate Contracts and Instruments; How Executed. The board of
-------------------------------------------------
directors, except as otherwise provided in these bylaws, may authorize any
officer or officers, agent or agents, to enter into any contract or execute any
instrument in the name of and on behalf of the corporation, and this authority
may be general or confined to specific instances; and, unless so authorized or
ratified by the board of directors or within the agency power of an officer, no
officer, agent or employee shall have any power or authority to bind the
corporation by any contract or engagement or to pledge its credit or to render
it liable for any purpose or for any amount.
VIII.4 Certificates for Shares. A certificate or certificates for shares
-----------------------
of the capital stock of the corporation shall be issued to each shareholder when
any of these shares are fully paid, and the board of directors may authorize the
issuance of certificates or shares as partly paid provided that these
certificates shall state the amount of the consideration to be paid for them and
the amount paid. All certificates shall be signed in the name of the
corporation by the chairman of the board or vice chairman of the board or the
president or vice president and by the chief financial officer or an assistant
treasurer or the secretary or any assistant secretary, certifying the number of
shares and the class or series of shares owned by the shareholder. Any or all
of the signatures on the certificate may be facsimile. In case any officer,
transfer agent or registrar who has signed or whose facsimile signature has been
placed on a certificate shall have ceased to be that officer, transfer agent or
registrar before that certificate is issued, it may be issued by the corporation
with the same effect as if that person were an officer, transfer agent or
registrar at the date of issue.
VIII.5 Lost Certificates. Except as provided in this Section 8.05, no new
-----------------
certificates for shares shall be issued to replace an old certificate unless the
latter is surrendered to the corporation and canceled at the same time. The
board of directors may, in case any share certificate or certificate for any
other security is lost, stolen or destroyed, authorize the issuance of a
replacement certificate on such terms and conditions as the board may require,
including provision for indemnification of the corporation secured by a bond or
other adequate security sufficient to protect the corporation
-17-
<PAGE>
against any claim that may be made against it, including any expense or
liability, on account of the alleged loss, theft or destruction of the
certificate or the issuance of the replacement certificate.
VIII.6 Representation of Shares of Other Corporations. The chairman of
----------------------------------------------
the board, the president or any vice president or any other person authorized by
resolution of the board of directors or by any of the foregoing designated
officers, is authorized to vote on behalf of the corporation any and all shares
of any other corporation or corporations, foreign or domestic, standing in the
name of the corporation. The authority granted to these officers to vote or
represent on behalf of the corporation any and all shares held by the
corporation in any other corporation or corporations may be exercised by any of
these officers in person or by any person authorized to do so by a proxy duly
executed by these officers.
VIII.7 Construction and Definitions. Unless the context requires
----------------------------
otherwise, the general provisions, rules of construction and definitions in the
California General Corporation Law shall govern the construction of these
bylaws. Without limiting the generality of this provision, the singular number
includes the plural, the plural number includes the singular and the term
"person" includes both a corporation and a natural person.
ARTICLE IX
AMENDMENT OF BYLAWS
-------------------
IX.1 Amendment of Bylaws by Shareholders. The bylaws and every part
-----------------------------------
thereof may from time to time, and at any time, by amended, altered, repealed;
and, new or additional bylaws may be adopted by the vote of the shareholders
entitled to exercise a majority of the voting power of the corporation or by the
written assent of such shareholders, except where a greater number is required
by law or the Articles of Incorporation or by these bylaws.
IX.2 Amendment of Bylaws by Directors. Subject to the right of the
--------------------------------
shareholders to adopt, amend or repeal bylaws, bylaws may be adopted, amended or
repealed by a majority vote of the directors present at any meeting of the board
at which a quorum is present; provided, however, that the board of directors may
not adopt a bylaw or amendment thereof changing the authorized number of
directors.
-18-
<PAGE>
CERTIFICATE OF AMENDMENT
OF BYLAWS OF
ADAC LABORATORIES
Article 3, Section 3.02 of the Bylaws of this corporation was amended
effective November 12, 1984, by the Board of Directors to provide as follows:
"Section 3.02. Number and Qualification of Directors. The number of
------------- -------------------------------------
directors of the corporation shall be not less than five (5) nor more than
eight (8). The exact number of directors shall be six (6) until changed,
within the limits specified above, by a bylaw amending this Section 3.02
duly adopted by the board of directors or approved by the shareholders. The
indefinite number of directors may be changed, or a definite number fixed
within provision for an indefinite number, by a duly adopted amendment to
the Articles of Incorporation or by an amendment to this bylaw duly adopted
by the vote or written consent of holders of a majority of the outstanding
shares entitled to vote; provided, however, that an amendment reducing the
fixed number or the minimum number of directors to a number less than five
(5) cannot be adopted if the vote cast against its adoption at a meeting of
the shareholders, or the shares not consenting in the case of action by
written consent, are equal to more than sixteen and two-thirds percent (16-
2/3%) of the outstanding shares entitled to vote thereon. No amendment may
change the stated maximum number of authorized directors to a number
greater than two (2) times the stated minimum number of directors minus one
(1)."
<PAGE>
CERTIFICATE OF AMENDMENT
OF BYLAWS OF
ADAC LABORATORIES
Article 3, Section 3.02 of the Bylaws of this corporation was amended
effective May 31, 1985, by the Board of Directors to provide as follows:
"Section 3.02. Number and Qualification of Directors. The number of
-------------- -------------------------------------
directors of the corporation shall be not less than five (5) nor more than
eight (8). The exact number of directors shall be five (5) until changed,
within the limits specified above, by a bylaw amending this Section 3.02
duly adopted by the board of directors or approved by the shareholders. The
indefinite number of directors may be changed, or a definite number fixed
within provision for an indefinite number, by a duly adopted amendment to
the Articles of Incorporation or by an amendment to this bylaw duly adopted
by the vote or written consent of holders of a majority of the outstanding
shares entitled to vote; provided, however, that an amendment reducing the
fixed number or the minimum number of directors to a number less than five
(5) cannot be adopted if the votes cast against its adoption at a meeting
of the shareholders, or the shares not consenting in the case of action by
written consent, are equal to more than sixteen and two-thirds percent (16
2/3%) of the outstanding shares entitled to vote thereon. No amendment may
change the stated maximum number of authorized directors to a number
greater than two (2) times the stated minimum number of directors minus one
(1)."
<PAGE>
AMENDMENT OF BYLAWS
-------------------
OF
--
ADAC LABORATORIES
-----------------
ARTICLE 3, Section 3.02(b), of the Bylaws of this Corporation was amended
on November 5, 1987, by this Board of Directors, to provide as follows:
"Section 3.02. Number of Directors.
------------- -------------------
(b) The number of directors of the Corporation shall be five (5)."
<PAGE>
AMENDMENT OF BYLAWS
-------------------
OF
--
ADAC LABORATORIES
-----------------
ARTICLE 6, of the Bylaws of this Corporation was amended by the Board of
Directors of the Corporation on November 5, 1987 and was approved and adopted by
the shareholders of the Corporation on January 14, 1988, to delete Sections 6.01
- - 6.10, inclusive, and to substitute in their place Section 6.1, as hereinafter
set forth as follows:
"ARTICLE 6
---------
Section 6.1. Indemnification Agreement. The corporation shall
----------- -------------------------
indemnify, defend and hold harmless in the manner and to the full extent
permitted by law, each agent (as defined below) who is or was a party to
any proceeding (as defined below), whether or not by or in the right of the
Corporation, by reason of the fact that such person is or was an Agent of
the Corporation. The Corporation may, to the full extent permitted by law,
purchase and maintain insurance on behalf of any Agent against any
liability which may be asserted against him. To the full extent permitted
by law, the indemnification provided herein shall include, but is not
limited to, expenses (including attorneys' fees), levies, costs, judgments,
fines and amounts paid in settlement, and, in the manner provided by law,
any such expenses shall be paid by the Corporation in advance of the final
disposition of such proceeding.
The indemnification provided herein shall not be deemed to limit the
right of the Corporation to indemnify any other person for any such
expenses to the full extent
-1-
<PAGE>
permitted by law, nor shall it be deemed exclusive of any other rights to
which any Agent seeking indemnification from the Corporation may be
entitled under any agreement, vote of shareholders or disinterested
directors or otherwise, both as to action in an official capacity and as to
action in any capacity while holding such office. For purpose of this
Section, "Agent" means any person who is or was a director, officer,
employee, consultant or other agent of the Corporation, or is or was
serving at the request of the Corporation as a director, officer, employee,
consultant or other agent of another corporation, partnership, joint
venture, trust or other enterprise, or was a director, officer, employee,
consultant or other agent of the Corporation or entity which was a
predecessor corporation or entity to this Corporation, or of another
enterprise at the request of such predecessor entity; "proceeding" shall
mean any threatened, pending or completed action or proceeding, whether
civil, criminal, administrative or investigative."
-2-
<PAGE>
AMENDMENT TO BYLAWS
-------------------
The Board of Directors hereby amends Article 3, Section 3.02(b) of the
Bylaws to read as follows:
"Section 3.02 Number and Qualification of Directors.
(b) Subject to the foregoing provisions for changing the number of
directors, the number of directors of this Corporation has been fixed
at seven (7)."
Approved by Board of Directors
on June 12, 1995
<PAGE>
AMENDMENT TO BYLAWS
-------------------
The Board of Directors hereby amends Article 3, Section 3.02(b) of the
Bylaws to read as follows:
"Section 3.02 Number and Qualification of Directors.
(b) Subject to the foregoing provisions for changing the number of
directors, the number of directors of this Corporation has been fixed
at six (6)."
Approved by Board of Directors
on December 12, 1995 to be
Effective as of March 6, 1996
<PAGE>
AMENDMENT TO BYLAWS
The Board of Directors hereby amends Article 3, Section 3.02(b) of the
Bylaws to read as follows:
"Section 3.02 Number and Qualification of Directors.
(b) Subject to the foregoing provisions for changing the number of
directors, the number of directors of this Corporation has been fixed
at seven (7)."
Approved by the Board of Directors and
effective as of March 6, 1996
<PAGE>
EXHIBIT 10.84
OPTION AGREEMENT
DATED AS OF SEPTEMBER 30, 1996
BY AND AMONG
ADAC LABORATORIES, ADAC RADIOLOGY SERVICES, INC.,
MEDICAL TRANSITION STRATEGIES, INC.,
AND
ERNEST BERGER
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
1. OPTION TO PURCHASE THE BUSINESS........................................ 1
1.1 Grant of Option.................................................. 1
1.2 Option Grant Consideration....................................... 1
1.3 The Option Grant Closing......................................... 2
1.4 Notice of Exercise of Option..................................... 2
1.5 Option Exercise Consideration.................................... 3
1.6 Transfer of Assets............................................... 4
1.7 Assumption of Liabilities........................................ 5
1.8 Excluded Liabilities............................................. 6
1.9 The Option Exercise Closing...................................... 7
1.10 Termination of Option............................................ 7
1.11 Payment in ADAC Common Stock..................................... 8
1.12 Allocation of Purchase Price..................................... 8
1.13 Sales Taxes...................................................... 8
1.14 Joint and Several Liability...................................... 8
2. COLLABORATIVE MARKETING AND OPERATIONS EFFORT.......................... 9
2.1 Collaborative Marketing and Operations Effort.................... 9
2.2 Non-Interference................................................. 10
3. REPRESENTATIONS AND WARRANTIES OF MTS AND BERGER....................... 10
3.1 Organization and Standing........................................ 10
3.2 Authority, Approval and Enforceability........................... 10
3.3 Financial Statements............................................. 11
3.4 No Undisclosed Liabilities....................................... 11
3.5 Absence of Certain Changes....................................... 12
3.6 Tax Matters...................................................... 13
3.7 Title to Properties and Assets: Condition of Assets.............. 14
3.8 Properties....................................................... 14
3.9 Accounts Receivable.............................................. 15
3.10 Equipment and Inventory.......................................... 15
3.11 Licenses; Permits; Authorizations................................ 15
3.12 Contracts........................................................ 15
3.13 Employees........................................................ 16
3.14 Customers........................................................ 16
3.15 Suppliers........................................................ 16
</TABLE>
i.
<PAGE>
TABLE OF CONTENTS
-----------------
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
3.16 Litigation and Claims; Compliance with Law....................... 16
3.17 Environmental Provisions......................................... 17
3.18 Insurance........................................................ 18
3.19 Labor Relations.................................................. 19
3.20 Intellectual Property............................................ 19
3.21 Disclosure....................................................... 20
3.22 No Brokers....................................................... 21
4. REPRESENTATIONS AND WARRANTIES OF ADAC AND ADAC RADIOLOGY.............. 21
4.1 Organization and Standing........................................ 21
4.2 Authority, Approval and Enforceability........................... 21
4.3 Financial Statements............................................. 22
4.4 ADAC Shares...................................................... 22
4.5 No Brokers....................................................... 22
5. CONDITIONS PRECEDENT TO OBLIGATIONS OF ADAC AND ADAC RADIOLOGY-OPTION
GRANT CLOSING.......................................................... 22
5.1 Consents......................................................... 22
5.2 Accuracy of Representations and Warranties....................... 22
5.3 Employment Agreement............................................. 23
5.4 Legal Opinion.................................................... 23
5.5 Performance of Agreements........................................ 23
5.6 No Adverse Change................................................ 23
5.7 Lender Consents.................................................. 23
5.8 Due Diligence.................................................... 23
5.9 Additional Documents............................................. 23
6. CONDITIONS PRECEDENT TO OBLIGATIONS OF MTS AND BERGER-OPTION GRANT
CLOSING................................................................ 23
6.1 Accuracy of Representations and Warranties....................... 23
6.2 Employment Agreement............................................. 24
6.3 Subsidiary Option Grant.......................................... 24
6.4 ADAC Stock Option Grant.......................................... 24
6.5 Legal Opinion.................................................... 24
6.6 Performance of Agreements........................................ 24
6.7 Additional Documents............................................. 24
</TABLE>
ii.
<PAGE>
TABLE OF CONTENTS
-----------------
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF ADAC RADIOLOGY-OPTION
EXERCISE CLOSING....................................................... 24
7.1 Conveyance and Assignment........................................ 24
7.2 Lease............................................................ 24
7.3 Consents......................................................... 25
7.4 Accuracy of Representations and Warranties....................... 25
7.5 Bulk Sale Notice................................................. 25
7.6 Legal Opinion.................................................... 25
7.7 Performance of Agreements........................................ 25
7.8 No Adverse Change................................................ 25
7.9 Lender Consents.................................................. 25
7.10 Additional Documents............................................. 25
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF MTS AND BERGER-OPTION
EXERCISE CLOSING....................................................... 26
8.1 Accuracy of Representations and Warranties....................... 26
8.2 Assumption Agreements............................................ 26
8.3 Legal Opinion.................................................... 26
8.4 Performance of Agreements........................................ 26
8.5 Additional Documents............................................. 26
9. INDEMNIFICATION........................................................ 26
9.1 Indemnification of ADAC and ADAC Radiology....................... 26
9.2 Indemnification of MTS........................................... 27
9.3 Right of Off-set................................................. 27
10. ADDITIONAL AGREEMENTS.................................................. 28
10.1 Conduct of Business Pending Closing.............................. 28
10.2 Access to Records................................................ 28
10.3 Application of Consideration..................................... 29
10.4 Incorporation of Schedules and Exhibits.......................... 29
10.5 Due Diligence.................................................... 29
10.6 Expenses and Taxes............................................... 29
</TABLE>
iii.
<PAGE>
TABLE OF CONTENTS
-----------------
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
10.7 Assignment of Checks Payable..................................... 29
10.8 Entire Agreement; Modifications; Waiver.......................... 29
10.9 Survival of Representations and Warranties....................... 30
10.10 Further Assurances............................................... 30
10.11 Counterparts..................................................... 30
10.12 Notices.......................................................... 30
10.13 Miscellaneous Construction Provisions............................ 31
10.14 Termination...................................................... 31
</TABLE>
iv.
<PAGE>
EXHIBITS AND SCHEDULES
EXHIBITS
Exhibit A Excluded Assets
Exhibit B Assumption Agreement
Exhibit C Disclosure Schedules
Exhibit D Form of Berger Employment Agreement
Exhibit E Form of MTS/Berger Legal Opinion
Exhibit F Form of Subsidiary Option Grant
Exhibit G Form of ADAC/ADAC Radiology Legal Opinion
<PAGE>
OPTION AGREEMENT
THIS OPTION AGREEMENT ("Agreement") is made and entered into as of this
30th day of September, 1996 by and among ADAC LABORATORIES, a California
corporation ("ADAC"), ADAC RADIOLOGY SERVICES, INC., a Delaware corporation
("ADAC Radiology"), MEDICAL TRANSITION STRATEGIES, INC., a Georgia corporation
("MTS") and ERNEST BERGER ("Berger").
RECITALS
WHEREAS, MTS is engaged in the business of forming and managing radiology
networks (the "Business");
WHEREAS, the parties intend that MTS shall grant to ADAC Radiology an
option to acquire the Business and substantially all of the assets of MTS on the
terms and subject to the conditions more fully set forth in this Agreement;
WHEREAS, the parties intend that MTS and ADAC Radiology shall cooperate in
a collaborative marketing effort relating to the Business during the term of the
Option; and
WHEREAS, Berger is the sole shareholder of MTS;
NOW, THEREFORE, in consideration of the promises and the mutual agreements
contained herein, the parties hereto, intending to be legally bound, do hereby
agree as follows:
AGREEMENT
1 OPTION TO PURCHASE THE BUSINESS.
1 GRANT OF OPTION. Effective upon the Option Grant Closing (as
hereinafter defined), MTS shall grant to ADAC Radiology an irrevocable option
(the "Option") exercisable on or before September 30, 1997, to purchase
substantially all of the assets and properties of MTS, as more fully described
in Section 1.6.
2 OPTION GRANT CONSIDERATION. The Option shall be granted by MTS in
exchange for the following consideration (the "Option Grant Consideration"):
1.
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(A) Five Hundred Thousand Dollars ($500,000), less any amounts
previously loaned (including interest thereon through the Option Grant Closing
Date) to MTS by ADAC Radiology or ADAC, payable in cash at the Option Grant
Closing; and
(B) One Million Dollars ($1,000,000), without interest, in cash or in
stock as provided in Section 1.11, payable Two Hundred Thousand Dollars
($200,000) on the first anniversary of the Option Grant Closing and Two Hundred
Thousand Dollars ($200,000) on each anniversary thereafter until the total has
been paid, subject to acceleration in the event of the termination of the Option
as provided in Section 1.10.
3 THE OPTION GRANT CLOSING. The closing of the grant of the Option (the
"Option Grant Closing") as contemplated by Sections 1.1 and 1.2 shall be held at
the offices of Cooley Godward Castro Huddleson & Tatum, One Maritime Plaza, 20th
Floor, San Francisco, California 94111 on such date (the "Option Grant Closing
Date") that the conditions contained in Sections 5 and 6 below are satisfied or
waived in full. Upon the Option Grant Closing, MTS shall deliver to ADAC
Radiology those documents, agreements and instruments required to be delivered
to ADAC Radiology pursuant to Section 5 of this Agreement. Upon the Option Grant
Closing, ADAC Radiology shall deliver cash to MTS in the amount specified in
Section 1.2(a) together with those documents, agreements and instruments
required to be delivered to MTS pursuant to Section 6 of this Agreement.
4 NOTICE OF EXERCISE OF OPTION.
(A) ADAC Radiology may by written notice request from MTS an update
of the Disclosure Schedules (as hereinafter defined) for delivery to ADAC
Radiology within ten (10) business days. Notwithstanding anything to the
contrary contained herein, MTS shall not be responsible for, and shall have no
liability with respect to, any change to such Disclosure Schedules resulting
from any act or failure to act taken (or not taken, as the case may be) by MTS
or Berger, at the direction of ADAC or ADAC Radiology or otherwise in compliance
with Section 2.1 hereof.
(B) ADAC Radiology shall have the right to deliver to MTS a written
objection to (i) any act or omission taken (or not taken, as the case may be) by
MTS in violation of Section 2.1 hereof, or (ii) any material adverse change in
the representations and warranties reflected on the updated Disclosure Schedules
to the extent such change results from any act or omission of MTS occurring
prior to the date hereof. Upon receipt of such written objection, MTS shall have
ten (10) business days to cure such violation or material change, as the case
may be.
In the event MTS fails to cure such matter within such ten (10) business day
time period and the Option terminates pursuant to Section 1.10, no Break-up Fee
(as hereinafter defined) shall be due and payable to MTS upon the termination of
the Option. At any time on or before September 30,
2.
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1997, in reliance on such updated Disclosure Schedules, ADAC Radiology may
exercise the Option by giving written notice of such election to MTS.
5 OPTION EXERCISE CONSIDERATION. Upon exercise of the Option pursuant
to Section 1.4 and effective upon the Option Exercise Closing (as hereinafter
defined), the assets of the Business shall be transferred to ADAC Radiology in
exchange for the following consideration (the "Option Exercise Consideration"):
(A) A payment equal to Fifty Thousand Dollars ($50,000) for each Validated
Network (as hereinafter defined) in place on September 30, 1997 (the "Network
Payment"), payable on the Option Exercise Closing;
(B) A payment equal to twenty percent (20%) of the first Fifteen Million
Dollars ($15,000,000) of Net Revenue and forty-five percent (45%) of the Net
Revenue in excess of Fifteen Million Dollars ($15,000,000) generated by any
network meeting the criteria of a Validated Network (as specified in Section
1.5(c)(i)(A) through (D), but including the Georgia Radiology Network) during
the calendar year ended December 31, 1998 (the "Revenue Payment"), payable
within thirty (30) days of the receipt by ADAC Radiology of a Final Statement
(as hereinafter defined) of the Net Revenue for the 12-month period ending
December 31, 1998.
(C) For purposes of this Option:
(I) A "Validated Network" shall mean a radiology network
established by MTS or ADAC Radiology which on September 30, 1997 (A) is
organized in a properly formed legal structure, duly qualified and licensed to
do business in the area in which it conducts business, (B) has twenty (20) or
more licensed physicians under contract to it, (C) has at least four (4)
separate physician practices participating in such network, (D) has enforceable
payor group health contracts covering a minimum of ten thousand (10,000) lives
with pricing acceptable to both MTS and ADAC Radiology, and (E) has been
approved by ADAC Radiology as being consistent with its long-term business plan.
ADAC Radiology shall not unreasonably withhold or delay network approvals
requested by MTS. A Validated Network may include the New York, Delaware and any
other networks currently being developed by MTS prior to grant of the Option so
long as they meet the foregoing criterion on September 30, 1997, but shall not
include the Georgia Radiology Network.
(II) "Net Revenue" shall mean cash actually earned and received by
MTS or ADAC Radiology as a result of radiology networks sponsored by MTS and/or
ADAC Radiology net of all technical and professional fees and all other network
charges, fees or obligations payable in respect of such revenue.
3.
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(D) Promptly following December 31, 1998, ADAC's independent accountants
(the "ADAC Accountants") shall be directed by ADAC Radiology to conduct a review
of the books of MTS and ADAC Radiology in order to determine the Revenue Payment
amount. Such review shall be completed as promptly as reasonably practicable but
not later than one hundred twenty (120) days after the close of the books for
the period ended December 31, 1998. Upon completion of such review, the ADAC
Accountants shall deliver written notice (the "ADAC Accounting Report") to each
of ADAC, ADAC Radiology and MTS setting forth the amount of the Revenue Payment
determined in accordance with the provisions of this Agreement. Following
receipt of the ADAC Accounting Report, each of ADAC, ADAC Radiology and MTS
shall review the same and within thirty (30) days after the date of such notice,
may deliver to the other parties a certificate setting forth its objections to
the Revenue Payment amount as set forth in the ADAC Accounting Report together
with a summary of the reasons therefor and the calculations which, in its view,
are necessary to eliminate such objections. In the event that none of ADAC, ADAC
Radiology or MTS so objects within such thirty (30) day period, the ADAC
Accounting Report shall be a final and binding determination of the Revenue
Payment amount. In the event, ADAC, ADAC Radiology or MTS so objects within such
thirty (30) day period, the parties shall use their reasonable efforts to
resolve by written agreement any differences, and, in the event the parties so
resolve all such differences, the Revenue Payment amount as adjusted by such
writing (the "Agreed Adjustments Statement") shall be final and binding. In the
event the objections raised by the parties are not resolved by an Agreed
Adjustments Statement within the ten (10) business day period following such
notice of objection, then each of ADAC and ADAC Radiology on the one hand (the
"ADAC Proposal") and MTS and Berger on the other (the "MTS Proposal"), by
written notice to the other parties, shall specify the Revenue Payment amount
which they believe to be correct. The parties then shall jointly select a
national accounting firm acceptable to all parties (or if they cannot agree on
such selection, a national (big-six) accounting firm will be selected by lot
after eliminating the ADAC Accountants) and the firm so selected (the
"Additional Accounting Firm") shall be directed to conduct a review of the books
of MTS and ADAC Radiology in order to determine the Revenue Payment amount
calculated in accordance with the provisions of this Agreement. As promptly as
reasonably practicable upon completion of such review, the Additional Accounting
Firm shall deliver written notice (the "Additional Accounting Firm Report") to
each of ADAC, ADAC Radiology and MTS selecting either the ADAC Proposal or the
MTS Proposal, whichever is closest to the correct number, as the final Revenue
Payment amount, which selection shall be final and binding on all parties and
shall not be subject to any further objections. ADAC, ADAC Radiology and MTS
agree to cooperate with such Additional Accounting Firm in its development of
the Additional Accounting Firm Report. The ADAC Accountants Report, the Agreed
Adjustments Statement or the Additional Accounting Firm Report, as applicable,
shall be the final statement of the Revenue Payment (the "Final Statement").
Fees and expenses of the ADAC Accountants shall be borne by ADAC. Fees and
expenses of the Additional Accounting Firm shall be borne by the party whose
Proposal is not selected by the Additional Accounting Firm as the final Revenue
Payment amount.
4.
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6 TRANSFER OF ASSETS. At the Option Exercise Closing, MTS will sell,
convey, transfer, assign, grant and deliver to ADAC Radiology all the assets and
properties of MTS of every kind, character and description, whether tangible or
intangible, and wherever located including, without limitation, the assets,
properties and business more specifically described as follows, except only the
excluded assets listed on Exhibit A (the "Excluded Assets"), (such assets of MTS
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less the Excluded Assets are collectively referred to in this Agreement as the
"Assets"):
(A) all cash of MTS at the Option Exercise Closing, excluding only
cash sufficient to cover all checks outstanding as of the Option Exercise
Closing (which shall remain in MTS's existing account to cover payment of such
outstanding checks);
(B) all accounts receivable, notes receivable, security deposits and
other current assets (except cash and inventory) of MTS;
(C) all inventory;
(D) all machinery, equipment, vehicles, tools, supplies, furniture
and other tangible personal property of MTS (excluding inventory);
(E) all trade secrets, trademarks, service marks, rights to trade
dress, copyrights, intellectual property, licenses and other proprietary
intellectual property of MTS, except for the name "Medical Transition
Strategies, Inc.";
(F) all goodwill related to the Business;
(G) all of MTS's transferable rights under network contracts,
commitments, customer orders (including unbilled receivables), equipment and
personal property leases, bids, contracts and other agreements and all of MTS's
rights to market, license and sell all products and services marketed, licensed
or sold by MTS;
(H) all of MTS's claims against any parties relating to the Assets or
the Business;
(I) all approvals, authorizations, consents, licenses, orders and
other permits of all governmental agencies held by, or granted to, MTS;
(J) all of MTS's transferable books and records relating to the
Business, including without limitation, all customer and supplier lists,
advertising materials and marketing plans, work standards, manufacturing and
process information and documentation, bills of material, theories of operation,
repair manuals, service manuals, business planning and financial data and
manuals and other materials of MTS used in employee and management training; and
5.
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(K) all other properties, rights and assets owned by MTS, whether
tangible or intangible, absolute, contingent or otherwise, in addition to those
listed in (a) through (j) above, excepting only the Excluded Assets.
7 ASSUMPTION OF LIABILITIES. Subject to the terms and conditions set
forth in this Agreement, at the Option Exercise Closing, ADAC Radiology shall
only assume, become liable for and satisfy in a timely manner the obligations of
MTS pursuant to those network contracts and other obligations approved by ADAC
Radiology pursuant to the collaborative marketing effort provided for in Section
2 (including without limitation loans to MTS made pursuant to Section 2.1(b)
hereof) as specifically set forth in an Assumption Agreement in the form
attached as Exhibit B delivered by ADAC Radiology at the Option Exercise Closing
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(the "Assumed Liabilities"). Other than its liability for the Assumed
Liabilities, ADAC Radiology shall have no liability or responsibility for any
liability of MTS.
8 EXCLUDED LIABILITIES. Without limiting the foregoing, none of the
following liabilities shall be assumed by ADAC Radiology:
(A) any liability of MTS or any entity affiliated with MTS for any
taxes, assessments, charges or fees imposed by any federal, state, municipal or
other governmental authority of whatever nature or character, including, without
limitation, any sales and use taxes for transactions occurring prior to the
Option Exercise Closing Date (as defined in Section 1.9 below), any payroll and
withholding taxes related to periods prior to the Option Exercise Closing Date,
any personal property taxes to the extent attributable to the ownership of such
assets by MTS prior to the Option Exercise Closing Date, and any income taxes
incurred by MTS in connection with the transactions contemplated by this
Agreement;
(B) any obligations or liability of any kind of MTS arising prior to
the Option Exercise Closing, except as set forth in the Assumption Agreement;
(C) liabilities with respect to any work-related injury of any actual
or alleged employee or former employee of MTS, to the extent such injury
occurred prior to the Option Exercise Closing;
(D) any liability of any kind (including, without limitation, any
accrued payroll liabilities, liabilities in respect of severance and other
benefits, any accrued withholding liabilities and life, medical, accident and
other insurance coverage) relating to any employee or former employee of MTS and
arising prior to the Option Exercise Closing;
6.
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(E) any liability of MTS under any litigation, proceeding or claim of
any nature by any person or entity arising out of or relating to any event which
occurred prior to the Option Exercise Closing, whether or not such litigation,
proceeding or claim is pending, threatened or asserted before, on or after the
Option Exercise Closing (including, without limitation, those referred to in the
Disclosure Schedules of MTS delivered pursuant to this Agreement;
(F) liabilities or obligations under or related to any agreement,
instrument or indenture to which MTS is a party or by which MTS is bound, except
as expressly set forth in the Assumption Agreement;
(G) any liability for professional fees and other costs incurred by
MTS in connection with the transactions referred to in this Agreement, and
(H) any other liability (including, without limitation, any long-term
liabilities) not specifically assumed by ADAC Radiology pursuant to the
Assumption Agreement;
All liabilities or obligation of MTS not expressly assumed by ADAC Radiology
shall be promptly paid and satisfied by MTS.
9 THE OPTION EXERCISE CLOSING. The closing of the exercise of the Option
(the "Option Exercise Closing") as contemplated by Sections 1.4 through 1.8
shall be held at the offices of Cooley Godward Castro Huddleson & Tatum, One
Maritime Plaza, 20th Floor, San Francisco, California 94111 within ten (10)
business days of the effective date of the Option exercise notice (the "Option
Exercise Closing Date") provided that the conditions contained in Sections 7 and
8 below are satisfied or waived in full. Upon the Option Exercise Closing, MTS
shall deliver to ADAC Radiology such bills of assignments, endorsements and
other recordable instruments of assignment, transfer and conveyance, in form and
substance reasonably satisfactory to ADAC Radiology, as shall be effective to
vest in ADAC Radiology all of the right, title and interest of MTS in and to the
Business free and clear of all Liens together with those documents, agreements
and instruments required to be delivered to MTS pursuant to Section 7 of this
Agreement. Upon the Option Exercise Closing, ADAC Radiology shall deliver cash
or stock to MTS in the amount specified in Section 1.5(a) together with those
documents, agreements and instruments required to be delivered to MTS pursuant
to Section 8 of this Agreement.
10 TERMINATION OF OPTION. In the event that ADAC Radiology fails to
deliver its written election to exercise the Option to MTS by 5:00 p.m. (Eastern
Standard Time) on September 30, 1997, the Option shall terminate with the effect
that:
(A) ADAC Radiology shall have no obligation to pay the Option
Exercise Consideration;
7.
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(B) ADAC Radiology's obligation to pay the remaining payments of the
Option Grant Consideration to MTS for the original grant of the Option specified
in Section 1.2(b) shall accelerate and become immediately due and payable;
(C) the obligations of all parties under the collaborative marketing
effort provided for in Section 2 shall terminate with the exception of any
indemnification obligation of ADAC Radiology pursuant to Section 2.1(i);
(D) ADAC Radiology shall transfer to MTS, without cost to MTS, all
radiology network contracts developed by ADAC Radiology and MTS pursuant to the
collaborative marketing effort provided for in Section 2;
(E) MTS's obligation to repay all loans made by ADAC Radiology
pursuant to Section 2.1(b) shall be cancelled and forgiven;
(F) ADAC Radiology shall cooperate with MTS to transition to MTS all
former employees of MTS who then are employed by ADAC Radiology who are
requested by MTS to return and who choose to return to MTS; and
(G) Except as provided in Section 1.4, ADAC Radiology shall pay to
MTS a break-up fee (the "Break-up Fee") of $500,000, provided that, (i) total
Net Revenue to the MTS/ADAC Radiology venture from the Georgia Radiology Network
contract for the period from the Option Grant Closing to September 30, 1997
shall exceed $1,100,000; (ii) total Net Revenue to the MTS/ADAC Radiology
venture from all physician networks developed by MTS/ADAC Radiology (including
the Georgia Radiology Network) for the period from the Option Grant Closing to
September 30, 1997 shall exceed $1,700,000; and (iii) Net Revenue from at least
one physician network other than the Georgia Radiology Network shall be received
by the MTS/ADAC venture during the period from the Option Grant Closing to
September 30, 1997. Notwithstanding Section 9.3, payment of the Break-up Fee
shall not be off-set by any amounts owed by MTS on loans made by ADAC or ADAC
Radiology pursuant to Section 2.1(b).
11 PAYMENT IN ADAC COMMON STOCK. At ADAC Radiology's election, any or
all of the Option Grant Consideration provided for in Section 1.2(b) and the
Option Exercise Consideration may be paid in cash or in shares of unregistered
ADAC Common Stock ("ADAC Shares"), valued at the average of the closing sale
prices for the fifteen (15) trading days ended on the third day preceding the
payment date, together with an undertaking by ADAC to file within thirty (30)
days of such payment date a Form S-3 Registration Statement for the resale of
the ADAC Shares under the Securities Act of 1933, as amended, and to use its
best efforts to cause such Registration Statement to become effective as soon as
practicable. Such Registration Statement shall be kept effective until the
earlier of one (1) year from such effective date or until
8.
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all the covered ADAC Shares have been sold. MTS agrees to execute all
documentation reasonably requested by counsel to ADAC to effect the transfer of
the ADAC Shares to MTS and the subsequent registration of the ADAC Shares
pursuant to this Section 1.1.
12 ALLOCATION OF PURCHASE PRICE. The consideration paid by ADAC
Radiology to MTS for the transfer of the Assets shall be allocated by ADAC
Radiology and MTS to the Assets in accordance with the provisions of Section
1060 of the Internal Revenue Code and the regulations thereunder. Promptly after
the Option Exercise Closing and again promptly after the payment of the Revenue
Payment, ADAC Radiology and MTS shall mutually agree to an allocation of the
purchase price and shall prepare a statement setting forth the fair market value
of the Assets with a completed Internal Revenue Service Form 8594 entitled
"Asset Acquisition Statement under Section 1060" attached, for filing by ADAC
Radiology and MTS.
13 SALES TAXES. MTS shall pay all sales taxes arising out of the
transfer of the Assets.
14 JOINT AND SEVERAL LIABILITY. ADAC shall be jointly and severally
liable to MTS and Berger for the obligations of ADAC Radiology under this
Agreement.
COLLABORATIVE MARKETING AND OPERATIONS EFFORT.
1 COLLABORATIVE MARKETING AND OPERATIONS EFFORT. From the date of this
Agreement to the date of termination or exercise of the Option (the "Joint
Marketing Period"), ADAC Radiology and MTS shall cooperate in a collaborative
marketing effort relating to the Business. Pursuant to such collaboration,
(A) ADAC Radiology will manage the joint marketing effort.
(B) ADAC Radiology will fund the operations of the joint marketing
effort and other aspects of the Business during the Joint Marketing Period. At
ADAC Radiology's election, such funding will be accomplished either through
payment of expenses directly for its own account or monies loaned to MTS. If
monies are loaned to MTS, then ADAC Radiology may require a security interest in
the assets of MTS (other than excluded assets) to secure such loans. Subject to
the terms of this Agreement, loans shall be payable on demand after October 31,
1997 and will bear interest at prime plus one percent (1%).
(C) All expenses incurred by MTS during the Joint Marketing Period
must be approved in advance by ADAC Radiology. At the time of such approval,
ADAC Radiology will direct MTS to pay such expenses either from (i) MTS's cash
revenues, or (ii) from loan proceeds provided by ADAC Radiology pursuant to
subsection (b) above. MTS will not incur any liabilities other than those
approved by ADAC Radiology. At the end of the Joint Marketing
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Period, if the Option terminates without being exercised, ADAC Radiology will
cancel MTS's obligations under such loans as provided in Section 1.10(e).
(D) In consideration of the management services and the funding
obligations provided for in subsections (a) through (c) above, MTS shall pay to
ADAC Radiology a management fee equal to all cash received by MTS after the date
hereof less all (i) expenses paid by MTS out of cash revenues in accordance with
subsection (c)(i) above, and (ii) cash attributable to Excluded Assets.
(E) Promptly upon commencement of the Joint Marketing Period, MTS
will use its best efforts to assign into the name of ADAC Radiology the existing
Georgia Radiology Network contract. Additional radiology network contracts that
are entered into by the parties during the Joint Marketing Period shall be
entered in the name of ADAC Radiology. At the end of the Joint Marketing Period,
if the Option terminates without being exercised, ADAC Radiology shall assign to
MTS the Georgia Radiology Network contract together with all additional
radiology network contracts developed by MTS or ADAC Radiology during the Joint
Marketing Period as provided in Section 1.10(d).
(F) All contracts and other agreements entered into by MTS during the
Joint Marketing Period must be approved in advance by ADAC Radiology, which
approval shall not be unreasonably delayed or withheld.
(G) Berger shall be an employee of both ADAC Radiology and MTS during
the Joint Marketing Period.
(H) During the Joint Marketing Period, MTS will provide office space
for ADAC and ADAC Radiology employees as needed to carry out the operations of
this joint marketing effort.
(I) ADAC Radiology will indemnify MTS and hold it harmless against
any loss, cost or expense suffered or incurred by MTS as a direct result of any
actions taken or not taken by MTS pursuant to express management directives of
ADAC Radiology pursuant to this Section 2.
(J) ADAC Radiology and MTS will jointly agree on how to present the
joint marketing effort to the public.
2 NON-INTERFERENCE. Upon the termination of the Joint Marketing Period
for any reason other than the exercise of the Option or the termination of this
Agreement pursuant to Section 10.14(b), ADAC and ADAC Radiology shall not
solicit the business of or otherwise interfere with any physician network
contract to which MTS is a party or which are transferred to
10.
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MTS pursuant to Section 1.10(d) for a period of one (1) year following the
termination of the Joint Marketing Period.
3. REPRESENTATIONS AND WARRANTIES OF MTS AND BERGER.
Except as otherwise set forth on the Disclosure Schedules attached hereto
as Exhibit C (the "Disclosure Schedules"), each of MTS and Berger represent and
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warrant to ADAC and ADAC Radiology that:
1 ORGANIZATION AND STANDING. MTS is a corporation duly organized,
validly existing and in good standing under the laws of Georgia. MTS is duly
qualified and licensed to do business in the states in which the ownership of
its property or the conduct of its business requires such qualification or such
licensure. MTS possesses the corporate power and authority to own, operate and
lease its properties and to carry on its business as it is currently being
conducted. Copies of the certificate of incorporation and bylaws of MTS and all
amendments thereto have been delivered to ADAC Radiology and such documents are
complete and correct as of the date hereof and shall be true and correct as of
the Option Grant Closing Date and the Option Exercise Closing Date.
2 AUTHORITY, APPROVAL AND ENFORCEABILITY.
(A) MTS has full corporate power and authority to execute, deliver
and perform its obligations under this Agreement and all documents to be
executed by MTS in connection with the transactions contemplated hereby and all
corporate action of MTS necessary for such execution, delivery and performance
has been duly taken. Berger has full power and authority to execute, deliver and
perform his obligations under this Agreement and all documents to be executed by
him, as applicable, in connection with the transactions contemplated hereby.
(B) The execution and delivery by each of MTS and Berger of this
Agreement and all documents to be executed by MTS or Berger in connection with
the transactions contemplated hereby do not, and the performance and
consummation by MTS and Berger of the transactions contemplated by this
Agreement will not, result in any conflict with, breach or violation of or
default, termination, forfeiture or lien under (or upon the failure to give
notice or the lapse of time, or both, result in any conflict with, breach or
violation of or default, termination, forfeiture or lien under) MTS's
certificate of incorporation or bylaws or any terms or provisions of any
agreement, lease or other instrument to which MTS or Berger is a party or to
which MTS or MTS's assets are subject, or any statute, rule, regulation,
judicial or governmental decree, order or judgment by which MTS or Berger is
bound.
(C) No consent, approval, authorization, order, registration,
qualification or filing of or with any court or any regulatory authority or any
other governmental body is required for the consummation by MTS or Berger of the
transactions contemplated by this Agreement.
11.
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(D) Each of this Agreement and all documents to be executed by MTS or
Berger in connection with the transactions contemplated hereby is, and upon due
execution and delivery by the parties thereto will be, a legal, valid and
binding obligation of MTS or Berger as applicable, and enforceable against MTS
or Berger in accordance with its respective terms.
3 FINANCIAL STATEMENTS. MTS has delivered to ADAC Radiology its
unaudited balance sheet for the Business for its most recently completed fiscal
year (the "Business Balance Sheet"), its unaudited balance sheet for the most
recently completed calendar month (the "Interim Business Balance Sheet") and
statements of income of the Business for the most recently completed fiscal year
and for the period from that date to the mostly completed calendar month
(collectively, the "Business' Financial Statements"). The Business' Financial
Statements have been prepared in accordance with generally accepted accounting
principles consistently applied throughout the periods indicated. Each of such
balance sheets presents fairly the financial position of the Business as of the
date thereof. Except as and to the extent reflected or reserved against in the
balance sheets, neither the Business nor the MTS, with respect to its operation
of the Business, has, as of the date of such balance sheets, any liabilities or
obligations (absolute or contingent) of a nature required or customarily
reflected in consolidated balance sheets (or any notes thereto) prepared in
accordance with generally accepted accounting principles. Each of such
statements of income presents fairly the results of operations of the Business
for the periods indicated.
4 NO UNDISCLOSED LIABILITIES. With respect to the Business, MTS has no
liabilities (whether absolute or contingent, matured or unmatured, known or
unknown) other than such liabilities as are (a) stated or described in the
Interim Business Balance Sheet or (b) incurred by MTS in the ordinary course of
the Business since the date of the Interim Business Balance Sheet.
5 ABSENCE OF CERTAIN CHANGES. Since the date of the Business Balance
Sheet MTS has not:
(A) suffered any material adverse change in its financial condition,
assets, liabilities, business or prospects or suffered any material loss
(whether or not insured);
(B) disposed of or disclosed to any person, other than ADAC's or ADAC
Radiology's representatives, any trade secret, formula, process or know-how used
in the Business;
(C) changed any accounting practice relating to the Business;
(D) increased any form of compensation payable to any employee of the
Business;
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(E) entered into any transaction relating to the Business, except for
the transactions contemplated hereby and transactions in the ordinary course;
(F) made any disposition, encumbrance or mortgage of any assets,
properties or interests in properties of the Business, other than obsolete or
worn out property disposed of in the ordinary course;
(G) learned of the adoption of any statute, rule, regulation or order
which has had or can be reasonably expected to have a material adverse effect on
the book value, assets, properties, results from operations, financial condition
or prospects of the Business;
(H) suffered any termination or waiver of any rights of value to the
Business;
(I) suffered any loss with respect to, or any interruption in the use
of, any of its material assets of the Business (whether or not covered by
insurance);
(J) materially changed the conduct or nature of the Business;
(K) released or waived any material right or claim arising out of the
conduct of, or with respect to, the Business;
(L) purchased, leased, licensed or otherwise acquired any material
asset from any other person or entity, other than in the ordinary course of
business;
(M) written off as uncollectible, or established any extraordinary
reserve with respect to, any account receivable or other indebtedness relating
to the Business;
(N) suffered any creation, occurrence or assumption of any
indebtedness for money borrowed other than in the form of accounts payable for
goods and services in the ordinary course of business;
(O) assumed, guaranteed, or incurred any liability for the
obligations of any other person;
(P) suffered any materially adverse termination or threatened
termination, or substantial modification of a relationship with a customer or
supplier of the Business;
(Q) terminated or amended in a material manner any material contract
relating to the Business; or
(R) agreed, whether in writing or otherwise, to take any action
described in this Section 3.5.
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6 TAX MATTERS.
(A) MTS has filed, within the time and in the manner prescribed by
law, all returns, declarations, reports, estimates, information returns and
statements, including information returns and reports ("Returns"), required to
be filed under federal, state, local or any foreign laws by MTS and all Returns
so filed complied in all materials respects with the laws, rules and regulations
applicable to such Returns.
(B) MTS has, within the time and in the manner prescribed by law,
paid all Taxes (as defined below) that are due and payable.
(C) MTS has established (and until the Option Exercise Closing will
establish) on its books and records reserves that are adequate for the payment
of all Taxes not yet due and payable, and there is (and until the Option
Exercise Closing shall be) no material difference between the amounts of the
book basis and the tax basis of assets (net of liabilities) that are not
accounted for by an accrual on the books for federal income tax purposes.
(D) There are no liens for Taxes upon the assets of MTS, except liens
for Taxes not yet due.
(E) No deficiency or adjustment for any Taxes has been proposed or
asserted or assessed against MTS and, to the knowledge of MTS or Berger, no
foreign, federal, state or local audits, examination or other administrative
proceedings or court proceedings are presently pending with regard to any Taxes,
and no waiver or consent extending any statute of limitations for the assessment
or collection of any Taxes, which waiver or consent remains in effect, has been
executed by (or on behalf of) MTS nor are any requests for such waiver or
consent pending.
(F) MTS is not a party to any tax-sharing or allocation agreement,
and does not owe any amount under any tax-sharing or allocation agreement.
(G) For purposes of this Agreement, "Taxes" shall mean all taxes,
charges, fees, levies, or other assessments of whatever kind or nature,
including, without limitation, all net income, gross income, gross receipts,
sales, use, value-added, ad valorem, transfer, franchise, profits, license,
withholding, payroll, employment, excise, estimated, severance, stamp, net
worth, environmental, occupancy or property taxes, customs duties, fees,
assessments or charges of any kind whatsoever (together with any interest and
any penalties, additions to tax or additional amounts) imposed by any taxing
authority (domestic or foreign) upon or payable by MTS.
7 TITLE TO PROPERTIES AND ASSETS: CONDITION OF ASSETS. MTS has good,
valid and marketable title to the Assets. The Assets and other assets reflected
in the Interim Business
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Balance Sheet have a fair market or realizable value determined on a going
business basis at least equal to the value thereof as reflected therein, and
none of such properties or assets (or any other properties or assets used in the
Business) are subject to any liens, charges, easements, mortgages, pledges,
claims of ownership, security interests, levies, attachments, restrictions or
other encumbrances ("Liens") or conditional or installment sale agreement of any
kind. All the Assets are and shall be in satisfactory operating condition and
free from any material defects, except for normal wear and tear, and shall be
fit for the purpose for which such Assets are intended to be used. Upon delivery
by MTS to ADAC Radiology at the Option Exercise Closing, ADAC Radiology will
acquire good and marketable title to the Assets, free and clear of any and all
Liens, except Assumed Liabilities.
8 PROPERTIES.
(A) MTS does not own any real property.
(B) MTS has previously delivered to ADAC Radiology complete and
accurate copies of all real property leases included in the Assets ("Leases").
Each of the Leases is valid, binding and enforceable in accordance with its
terms, except as enforcement thereof may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws, both state and federal,
affecting the enforcement of creditors rights or remedies in general and general
equity principles, and is in full force and effect. MTS is not in default under
any Lease, nor to the knowledge of MTS or Berger, is any other party thereto in
default thereunder, and no event has occurred which (whether with or without
notice, lapse of time or both) would constitute a default by MTS. The properties
subject to the Leases and the conditions of the Leases are suitable for the
business currently being conducted by MTS thereon.
(C) MTS has previously delivered to ADAC Radiology a complete and
accurate list of all equipment, furniture, fixtures, improvements and other
tangible assets owned or leased by MTS and used, in whole or in part, in the
Business which accurately sets forth the date of acquisition, original cost and
book value of each of said assets.
(D) As of the Option Grant Closing and the Option Exercise Closing,
the Assets shall constitute all of the properties, rights and assets (other than
insurance policies) necessary for the conduct of the Business as presently
conducted.
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9 ACCOUNTS RECEIVABLE. All accounts receivable included among the
Assets (the "Accounts"), are bona fide and arose from valid sales services in
the ordinary course of business in the aggregate amount stated on the books of
the Business. The Disclosure Schedules contain a complete and accurate report
showing all Accounts outstanding as of the close of business on the most
recently completed calendar month, to be updated to the date of the Option Grant
Closing or the Option Exercise Closing, as applicable, together with an accurate
aging of such Accounts. None of the Accounts is subject to any prior assignment,
Lien or security interest or claim of offset or counterclaim. There are no
Accounts that are contingent upon the future performance of services or the
future delivery of products.
10 EQUIPMENT AND INVENTORY. The Disclosure Schedules contain a correct
and complete list as of the most recently completed calendar month, to be
updated to the date of the Option Grant Closing or the Option Exercise Closing,
as applicable, identifying by category, location and net book value, all
equipment, supplies and other tangible personal property included in the Assets.
All items of tangible personal property, including equipment, supplies and other
tangible personal property, included in the Assets and currently used by MTS in
the Business are in good operating condition, normal wear and tear excepted, and
are adequate and suitable for the purposes for which they are presently being
used.
11 LICENSES; PERMITS; AUTHORIZATIONS. MTS has all approvals,
authorizations, consents, licenses, orders and other permits of all governmental
agencies, whether federal, state, local or foreign, required to permit the
operation of the Business as presently conducted. None of such licenses, permits
and related approvals require the consent of any third party to the transactions
provided for herein, and, except as identified on the Disclosure Schedules, all
of such licenses, permits and approvals will be transferred to ADAC Radiology at
the Option Exercise Closing and will be in full force and effect immediately
after such Closing.
12 CONTRACTS. Except as set forth on the Disclosure Schedules, MTS is
not a party or subject to any oral or written agreement relating to the Assets
or the Business. A complete and accurate copy of each written agreement and
other document identified on the Disclosure Schedules, as amended to date, has
been delivered to ADAC Radiology. Each agreement identified on the Disclosure
Schedules is, except to the extent fully performed at the date hereof, in full
force and effect and valid and binding in accordance with its terms in all
material respects. To the knowledge of MTS or Berger, there is no material
default under any such agreement by any other party thereto. To the knowledge of
MTS or Berger, no party to any such agreement intends to cancel, withdraw,
modify or amend such agreement or arrangement. MTS has performed all material
obligations required to be performed by it on or prior to the date hereof under
each agreement, with respect to the Business and the Assets. MTS has not
received any notice that it is in default thereunder, nor is MTS or Berger aware
of any facts that could reasonably be expected to give rise to such a default.
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13 EMPLOYEES. The Disclosure Schedules set forth a complete and accurate
list of each bonus, deferred compensation, incentive compensation, stock
purchase, stock option, severance or termination pay, hospitalization or other
medical, life or other insurance, supplemental unemployment benefits, profit-
sharing, flexible benefit, dependent care, educational assistance, pre-tax
premium, pension, or retirement plan, program, agreement or arrangement,
sponsored, maintained or contributed to or required to be contributed to by MTS
for the benefit of any employee of MTS who is expected to become an employee of
ADAC Radiology after the Option Grant Closing or the Option Exercise Closing or
any independent contractor of MTS who provides services relating to the
Business.
14 CUSTOMERS. The Disclosure Schedules contain a complete and accurate
listing of the Business's customer accounts and the dollar amount of business
done with each customer for the most recently completed calendar year and for
the current year-to-date. None of MTS or Berger is aware or has any reason to
believe that any of the customers on such list has reduced materially or
terminated, or intends to reduce materially or to terminate, the amount of its
business with the Business.
15 SUPPLIERS. The Disclosure Schedules contain a complete and accurate
listing of suppliers to the Business as of the most recently completed calendar
month. No supplier to the Business has notified any of MTS or Berger of an
intention to terminate or substantially alter its existing business relationship
with the Business, and none of MTS or Berger has any reason to believe that such
termination or alteration of the relationship with the Business conveyed
hereunder is likely to occur.
16 LITIGATION AND CLAIMS; COMPLIANCE WITH LAW.
(A) Except for any proceedings relating to the environment, which are
exclusively provided for in Section 3.17, there is no pending or, to the
knowledge of MTS or Berger, threatened proceeding by or before any court or
other tribunal or any federal, state, local or foreign governmental or
regulatory agency, department, commission, licensing or other authority (a
"Governmental Authority") in which MTS is a party or otherwise involved or to
which any of the Business or the Assets is subject. To the knowledge of MTS and
Berger, there are no preliminary proceedings or investigations before any
Governmental Authority pending or threatened against MTS, nor is there any
factual basis therefor.
(B) MTS is not a party to any decree, order or arbitration award (or
agreement entered into in any proceeding) with respect to the Assets, MTS's
personnel, contractors or the Business.
(C) Except for laws, rules and regulations relating to the
environment, which are exclusively provided for in Section 3.17, MTS is not in
violation of, or delinquent in respect to, any decree, order or arbitration
award or law, statute or regulation of, or agreement with, or
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any license or permit from, any governmental authority to which any of them or
their respective properties, assets, personnel or business activities are
subject, including without limitation laws, rules and regulations relating to
professional and specialty licensing, the corporate practice of medicine,
prohibitions on kickbacks and referrals under Medicare and Medicaid programs,
health care, drug enforcement, zoning ordinances, building codes, occupational
health and safety, employee benefits, immigration, wages, workplace safety,
equal employment opportunity and race, religious, sex and age discrimination.
17 ENVIRONMENTAL PROVISIONS.
(A) For the purposes of this Section 3.17:
(I) "Environmental Claim" means any claim, action, cause of
action, investigation or notice (written or oral) by any person or entity
alleging potential liability (including, without limitation, potential liability
for investigatory costs, cleanup costs, governmental response costs, natural
resources damages, property damages, personal injuries, or penalties) arising
out of, based on or resulting from (A) the presence, or release into the
environment, of any Material of Environmental Concern at any location of the
Business, whether or not owned or operated by MTS, or (B) circumstances forming
a reasonable basis for any violation, or alleged violation, of any Environmental
Law.
(II) "Environmental Law" means all federal, state, local and
foreign laws and regulations relating to pollution or protection of human health
or the environment (including, without limitation, ambient air, surface water,
ground water, land surface or subsurface strata), including, without limitation,
laws and regulations relating to emissions, discharges, releases or threatened
releases of Materials of Environmental Concern, or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of Materials of Environmental Concern.
(III) "Materials of Environmental Concern" means chemicals,
pollutants, contaminants, wastes, toxic substances, petroleum and petroleum
products or any other substance regulated by Environmental Laws or that is
otherwise a danger to human health, reproduction, or the environment.
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(B) MTS is in compliance in all material respects with all applicable
Environmental Laws, which compliance includes, but is not limited to, the
possession by MTS of all permits and other governmental authorizations required
under applicable Environmental Laws, and compliance with the terms and
conditions thereof. MTS has not received any communication (written or oral),
whether from any governmental authority, citizens group, employee or otherwise,
that alleges that it is not in material compliance, and, to MTS's knowledge,
there are no circumstances that may prevent or interfere with such compliance in
the future. To the knowledge of MTS or Berger, no current or prior owner of any
property owned or leased by MTS has received any communication (written or
oral), whether from a Governmental Authority, citizens group, employee or
otherwise, that alleges that it, or MTS, is not in compliance. All permits and
other governmental authorizations currently held by MTS pursuant to the
Environmental Laws are identified in the Disclosure Schedules.
(C) There is no Environmental Claim pending or, to the knowledge of
MTS or Berger, threatened against MTS or against any person or entity whose
liability for any Environmental Claim MTS has or may have retained or assumed
either contractually or by operation of law.
(D) To the knowledge of MTS or Berger, there are no past or present
actions, activities, circumstances, conditions, events or incidents, including,
without limitation, the release, emission, discharge, presence or disposal of
any Material of Environmental Concern, that could form a reasonable basis for
any Environmental Claim against MTS or the Business, to the knowledge of MTS or
Berger, against any person or entity whose liability for any Environmental Claim
MTS has or may have retained or assumed either contractually or by operation of
law.
(E) Without in any way limiting the generality of the foregoing, (i)
all on-site and off-site locations where MTS has stored, disposed of or arranged
for the disposal of, Materials of Environmental Concern are identified in the
Disclosure Schedules, (ii) all underground storage tanks (whether or not in use
by MTS), and the capacity and contents of such tanks, known by MTS to be located
on property owned or leased by MTS, are identified in the Disclosure Schedules,
(iii) to MTS's knowledge, there is no asbestos contained in or forming part of
any building, building component, structure or office space owned or leased by
MTS, and (iv) to MTS's knowledge, no polychlorinated biphenyls (PCBs) are used
or stored at any property owned or leased by MTS.
18 INSURANCE.
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(A) MTS has (i) property, fire and casualty insurance policies,
with extended coverage (subject to reasonable deductibles), sufficient to allow
them to replace any of their properties that might be damaged or destroyed, and
(ii) except for professional liability insurance which is specifically covered
in Section 3.18(b) below, has liability, workers compensation insurance and bond
and surety arrangements reasonably adequate, in light of the business in which
it is engaged, to protect it and its financial condition against the risks
involved in the business conducted by MTS. The Disclosure Schedules sets forth a
list all such policies as of the date of such Disclosure Schedules.
(B) The Disclosure Schedules contain a list of each policy of
professional liability insurance and errors and omissions insurance, and all
amendments and endorsements thereto currently in effect, which provide insurance
for MTS and its contractors and employees, including the name of each insurer,
the amount of coverage provided under the policy, all persons, groups and
entities that are afforded coverage under the policies, the term of the policy
and type of coverage (whether "claims made" or otherwise and whether such
policies include "tail" coverage) and whether the policy is in effect as of the
date hereof. MTS has delivered to ADAC Radiology true and complete copies of all
such insurance policies.
(C) The Disclosure Schedules set forth any pending claims under
each of the policies listed therein, and there are no other pending claims under
any of such policies, and, to the knowledge of MTS or Berger, no event has
occurred and no condition exists that could reasonably be expected to give rise
to or serve as a basis for any such claim.
(D) MTS is not in default under any insurance policy or bond
described in this Section 3.18, and no event which would (with the passage of
time, notice or both) constitute a breach or default thereunder by MTS or, to
the knowledge of MTS or Berger, the insurer thereunder, has occurred or, to the
knowledge of MTS or Berger, will occur as a result of the transactions
contemplated herein. Consummation of the transactions contemplated herein will
not (and will not give any person or entity a right to) terminate or modify any
material rights of, or accelerate or augment any material obligation of, MTS
under any insurance policy or bond insofar as such policy or bond relates to or
covers incidents that give rise to claims for incidents taking place prior to
the Option Exercise Closing Date. To the knowledge of MTS or Berger, MTS has not
done anything by way of action or inaction which might invalidate or diminish
coverage under any of such policies in whole or in part. There are no
outstanding requirements or recommendations of any insurance company that has
issued a policy to MTS which require or recommend any changes to the conduct of
the business of MTS, or any repair or other work with respect to any of its
properties.
19 LABOR RELATIONS. There are no collective bargaining agreements
covering any employee of MTS. There are no controversies pending or threatened
between MTS and any of its employees. There are no pending claims or lawsuits
that have been asserted or instituted asserting worker's compensation,
employment discrimination, disability, wage and hours,
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wrongful discharge, unemployment compensation, employee safety or other claims
of whatever nature under or in respect of which MTS may have any liability,
contingent or otherwise. MTS is not liable for any arrears of wages or any taxes
or penalties for failure to pay any of the same. MTS will pay in full, prior to
the Option Exercise Closing Date, all wages, salaries, bonuses, vacation pay and
other direct and indirect compensation earned by all employees of MTS through
the Option Exercise Closing Date (whether or not payable by such date). MTS is
in compliance with all federal, state and local laws and regulations respecting
employment and employment practices, terms and conditions of employment and
wages and hours.
20 INTELLECTUAL PROPERTY.
(A) There are no domestic or foreign patents or patent
applications owned or licensed by MTS nor any agreements relating thereto, other
than "shrink wrap" licenses for software used in the ordinary course of their
business.
(B) The Disclosure Schedules list all domestic and foreign
registered copyrights, trademarks and trademark applications owned or licensed
by MTS from or to third parties, other than "shrink wrap" licenses for software
used in the ordinary course of their business (the "Trademarks" and
"Copyrights"), indicating in each case whether the Trademark or Copyright is
owned or licensed, and a listing and summary description of all agreements
relating to the Trademarks and Copyrights. MTS owns, free and clear of all
liens, claims or encumbrances, the Trademarks and Copyrights which are so
designated as owned by it, and all agreements with respect to Trademarks are
valid and binding, except as enforcement thereof may be limited by bankruptcy,
insolvency, reorganization, moratorium or other similar laws, both state and
federal, affecting the enforcement of creditors' rights or remedies in general
and general equity principles, are in full force and effect, and neither MTS
nor, to the knowledge of MTS or Berger, any other party thereto is in default,
or with the giving of notice or lapse of time or both, would be in default under
the terms of such agreement. There are no interference, opposition or
cancellation proceedings or infringement suits pending or, to the knowledge of
MTS and Berger, threatened, with respect to any of the Trademarks or Copyrights.
MTS has not been advised nor has any reason to believe that it is infringing a
trademark or copyright held by another person.
(C) MTS owns or has in its possession certain information and
know-how proprietary to the Business (the "Trade Secrets"). MTS has taken all
reasonable precautions to maintain Trade Secrets in confidence and to prevent
their disclosure to unauthorized persons. MTS has an absolute (though not
necessarily exclusive) right to use all Trade Secrets, and the use of the Trade
Secrets does not infringe the rights of any third party. To the extent that the
Trade Secrets are not available in documentary or fixed form, disclosure shall
be made to ADAC Radiology to permit it to make full use of the Trade Secrets to
operate the Business.
(D) To the knowledge of MTS or Berger, no person is infringing
upon any Trademark or any Copyright owned by MTS or has misappropriated any
Trade Secret. None of
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the activities conducted pursuant to the Business, nor any know-how used or
proposed to be used by MTS in the Business, infringes any patent, trademark or
copyright of any third party. There is no trademark, trade name, trade secret,
copyright or other intellectual property necessary for the operation of the
Business which MTS does not currently own or license on commercially reasonable
terms.
21 DISCLOSURE. All facts material to the Assets, and the operations,
financial condition and prospects of the Business are reflected in the Interim
Business Balance Sheet, or have been disclosed herein, including the exhibits
and schedules hereto. None of MTS or Berger knows of any facts or circumstances
that would adversely affect the carrying on by ADAC Radiology of the Business as
it is presently conducted. No representation or warranty by MTS or Berger
contained in this Agreement and no statement contained in any certificate,
schedule, list or other writing furnished or to be furnished to ADAC Radiology
contains or shall contain any untrue statement of a material fact or omits or
shall omit to state a material fact necessary in order to make the statement
therein not misleading.
22 NO BROKERS. None of MTS or Berger has entered into any agreement that
could give rise to any liability for brokerage, finder's or agent's fees or
commissions in connection with this Agreement or any transaction contemplated
hereby.
4. REPRESENTATIONS AND WARRANTIES OF ADAC AND ADAC RADIOLOGY.
ADAC and ADAC Radiology represent and warrant to each of MTS and Berger
that:
1 ORGANIZATION AND STANDING. ADAC and ADAC Radiology are corporations
duly organized, validly existing and in good standing under the laws of the
respective states of their incorporation and have all requisite corporate power
and authority to own, operate and lease their property and to carry on their
business as it is currently being conducted.
2 AUTHORITY, APPROVAL AND ENFORCEABILITY.
(A) ADAC and ADAC Radiology have full corporate power and
authority to execute, deliver and perform their obligations under this Agreement
and all documents to be executed by ADAC or ADAC Radiology in connection with
the transactions contemplated hereby and all corporate action of ADAC or ADAC
Radiology necessary for such execution, delivery and performance have been duly
taken.
(B) The execution and delivery by ADAC and ADAC Radiology of
this Agreement and all documents to be executed by it in connection with the
transactions contemplated hereby do not, and the performance and consummation by
ADAC and ADAC Radiology of the transactions contemplated by this Agreement will
not, result in any conflict with, breach or violation of or default,
termination, forfeiture or lien under (or upon the failure to
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give notice or the lapse of time, or both, result in any conflict with, breach
or violation of or default, termination, forfeiture or lien under) any terms or
provisions of ADAC's or ADAC Radiology's certificate of incorporation or bylaws,
or any statute, rule, regulation, judicial or governmental decree, order or
judgment, agreement, lease or other instrument to which ADAC or ADAC Radiology
is a party or to which they or their assets are subject that has or is likely to
have a material adverse effect.
(C) No consent, approval, authorization, order, registration,
qualification or filing of or with any court or any regulatory authority or any
other governmental body is required for the consummation by ADAC or ADAC
Radiology of the transactions contemplated by this Agreement.
(D) Each of this Agreement and all documents to be executed by
ADAC or ADAC Radiology in connection with the transactions contemplated hereby
is, and upon due execution and delivery by the parties thereto will be, a legal,
valid and binding obligation of ADAC and ADAC Radiology enforceable against ADAC
and ADAC Radiology in accordance with its respective terms.
3 FINANCIAL STATEMENTS. ADAC has delivered to MTS its audited balance
sheet and statement of income for the period ended September 30, 1995. ADAC's
financial statements have been prepared in accordance with generally accepted
accounting principles consistently applied throughout the periods indicated,
except as otherwise set forth in such financial statements and the notes
thereto. The balance sheet presents fairly the financial position of ADAC as of
the date thereof. Except as and to the extent reflected or reserved against in
the balance sheet (including the notes thereto), ADAC did not have, as of the
date of the balance sheet, any liabilities or obligations (absolute or
contingent) of a nature required or customarily reflected in consolidated
balance sheets (or the notes thereto) prepared in accordance with generally
accepted accounting principles. The statement of income presents fairly the
results of operations of ADAC for the period indicated.
4 ADAC SHARES. If issued pursuant to Section 1.11, all ADAC Shares
issued to MTS will be duly authorized, fully paid and non-assessable and issued
without violation of any pre-emptive or any similar right.
5 NO BROKERS. Neither ADAC nor ADAC Radiology has incurred any liability
for brokerage, finder's or agent's fees or commissions in connection with this
Agreement or any transaction contemplated hereunder.
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5.CONDITIONS PRECEDENT TO OBLIGATIONS OF ADAC AND ADAC RADIOLOGY-OPTION
GRANT CLOSING.
The obligations of ADAC and ADAC Radiology to consummate the transactions
contemplated by this Agreement shall be subject, at ADAC's and ADAC Radiology's
option, to the fulfillment at or prior to the Option Grant Closing Date of each
of the following conditions:
1 CONSENTS. ADAC Radiology shall have received evidence, in form and
substance reasonably satisfactory to ADAC Radiology, that such licenses,
permits, consents, approvals, waivers, authorizations, qualifications and orders
of governmental authorities and parties to contracts with MTS as would be
necessary and appropriate in connection with the transfer of the Assets to ADAC
Radiology and the future conduct of the Business by ADAC Radiology have been
obtained.
2 ACCURACY OF REPRESENTATIONS AND WARRANTIES. The representations and
warranties of each of MTS and Berger contained in this Agreement shall be
accurate and complete in all material respects on and as of the Option Grant
Closing Date with the same effect as though such representations and warranties
had been made on and as of such date without giving effect to any update or
supplement (delivered after the date of this Agreement) to the Disclosure
Schedules, and each of MTS and Berger shall have delivered to ADAC Radiology a
certificate to that effect dated as of the Option Grant Closing Date and, as to
MTS, signed by MTS's president.
3 EMPLOYMENT AGREEMENT. Berger shall have executed and delivered to ADAC
Radiology an employment agreement which contains non-competition covenants in
substantially the form attached hereto as Exhibit D (the "Employment
---------
Agreement").
4 LEGAL OPINION. The firm of Cohen Pollock Merlin Axelrod & Tanenbaum,
counsel to MTS, shall have delivered to ADAC Radiology, a legal opinion
substantially in the form attached hereto as Exhibit E.
---------
5 PERFORMANCE OF AGREEMENTS. Each and all of the conditions precedent
and agreements of MTS and Berger subject to satisfaction on or before the Option
Grant Closing pursuant to the terms of this Agreement shall have been performed
or satisfied and each of MTS and Berger shall have delivered to ADAC Radiology a
certificate to such effect dated as of the Option Grant Closing Date and, as to
MTS, signed by MTS's president.
6 NO ADVERSE CHANGE. There shall have been no event which has occurred
and which has not been disclosed to ADAC Radiology which has had or could be
reasonably expected to have a material adverse effect on the business, book
value, assets, properties, results of operations, financial condition or
prospects of the Business or the Assets.
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7 LENDER CONSENTS. Each of ADAC and ADAC Radiology shall have received
all necessary consents from its lenders to enter into the transactions
contemplated hereby.
8 DUE DILIGENCE. ADAC Radiology shall have completed its due diligence
investigation of MTS to ADAC Radiology's satisfaction, in its reasonable
discretion.
9 ADDITIONAL DOCUMENTS. Each of MTS and Berger shall have delivered to
ADAC Radiology such documents and instruments as ADAC Radiology may reasonably
request in connection with this Agreement and the consummation of the
transactions contemplated hereby.
6.CONDITIONS PRECEDENT TO OBLIGATIONS OF MTS AND BERGER-OPTION GRANT
CLOSING.
The obligations of MTS and Berger to consummate the transactions
contemplated by this Agreement shall be subject, at MTS's option, to the
fulfillment at or prior to the Option Grant Closing of each of the following
conditions:
1 ACCURACY OF REPRESENTATIONS AND WARRANTIES. The representations and
warranties of ADAC and ADAC Radiology contained in this Agreement shall be
accurate and complete in all material respects on and as of the Option Grant
Closing Date with the same effect as though such representations and warranties
had been made on or as of such date, and ADAC and ADAC Radiology shall each have
delivered to MTS a certificate to that effect signed by an officer of ADAC and
ADAC Radiology, and dated as of the Option Grant Closing Date.
2 EMPLOYMENT AGREEMENT. ADAC Radiology shall have executed and delivered
to Berger the Employment Agreement.
3 SUBSIDIARY OPTION GRANT. ADAC Radiology shall have executed and
delivered to Berger an Option Grant substantially in the form attached hereto as
Exhibit F.
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4 ADAC STOCK OPTION GRANT. ADAC shall have executed and delivered to
Berger a Stock Option under the ADAC employee stock option plan covering 25,000
shares at an exercise price equal to one hundred percent (100%) of fair market
value as of the Option Grant Closing Date.
5 LEGAL OPINION. The firm of Cooley Godward LLP, counsel to ADAC and
ADAC Radiology, shall have delivered to MTS and Berger, a legal opinion
substantially in the form attached hereto Exhibit G.
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6 PERFORMANCE OF AGREEMENTS. Each and all of the conditions precedent
and agreements of ADAC and ADAC Radiology subject to satisfaction on or before
the Option Grant Closing pursuant to the terms of this Agreement shall have been
performed or satisfied, and
25.
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ADAC and ADAC Radiology shall each have delivered to MTS a certificate to that
effect signed by an officer of ADAC or ADAC Radiology and dated as of the Option
Grant Closing Date.
7 ADDITIONAL DOCUMENTS. ADAC and ADAC Radiology shall have delivered to
MTS such documents and instruments as MTS may reasonably request in connection
with this Agreement and the consummation of the transactions contemplated
hereby.
CONDITIONS PRECEDENT TO OBLIGATIONS OF ADAC AND ADAC RADIOLOGY-OPTION EXERCISE
CLOSING.
The obligations of ADAC and ADAC Radiology to consummate the transactions
contemplated by this Agreement shall be subject, at ADAC's and ADAC Radiology's
option, to the fulfillment at or prior to the Option Exercise Closing Date of
each of the following conditions:
1 CONVEYANCE AND ASSIGNMENT. MTS shall have duly executed and delivered
to ADAC Radiology such bills of assignments, endorsements and other recordable
instruments of assignment, transfer and conveyance, in form and substance
reasonably satisfactory to ADAC Radiology, as shall be effective to vest in ADAC
Radiology all of the right, title and interest of MTS in and to the Assets free
and clear of all Liens other than the Assumed Liabilities.
2 LEASE. MTS shall have executed and delivered to ADAC Radiology an
assignment of the lease for the premises at One Concourse Parkway, Suite 750.
3 CONSENTS. ADAC Radiology shall have received evidence, in form and
substance reasonably satisfactory to ADAC Radiology, that such licenses,
permits, consents, approvals, waivers, authorizations, qualifications and orders
of governmental authorities and parties to contracts with MTS as are necessary
and appropriate in connection with the consummation of the transactions
contemplated hereby and the future conduct of the Business by ADAC Radiology
have been obtained.
4 ACCURACY OF REPRESENTATIONS AND WARRANTIES. Each of MTS and Berger
shall have delivered to ADAC Radiology a certificate dated as of the Option
Exercise Closing Date and, as to MTS, signed by MTS's president, that to the
best knowledge of the signor, the representations and warranties of each of MTS
and Berger contained in this Agreement are accurate and complete in all material
respects on and as of the Option Exercise Closing Date with the same effect as
though such representations and warranties had been made on and as of such date
giving effect only to the Disclosure Schedule update delivered pursuant to
Section 1.4.
5 BULK SALE NOTICE. MTS shall have paid all of its trade creditors and
shall indemnify ADAC and ADAC Radiology for any failure to comply with the bulk
sale notice provisions in any jurisdiction in which the Assets are located.
26.
<PAGE>
6 LEGAL OPINION. The firm of Cohen Pollock Merlin Axelrod & Tanenbaum,
counsel to MTS, shall have delivered to ADAC Radiology, a legal opinion
substantially in the form attached hereto as Exhibit E.
---------
7 PERFORMANCE OF AGREEMENTS. Each and all of the conditions precedent
and agreements of MTS and Berger subject to satisfaction on or before the Option
Exercise Closing pursuant to the terms of this Agreement shall have been
performed or satisfied and each of MTS and Berger shall have delivered to ADAC
Radiology a certificate to such effect dated as of the Option Exercise Closing
Date and, as to MTS, signed by MTS's president.
8 NO ADVERSE CHANGE. There shall have been no event which has occurred
and which has not been disclosed to ADAC Radiology since the date of the notice
of exercise of option which has had or could be reasonably expected to have a
material adverse effect on the business, book value, assets, properties, results
of operations, financial condition or prospects of the Business or the Assets
and which is not a result of an act or failure to act by MTS or Berger as a
result of direction from ADAC Radiology pursuant to Section 2.1.
9 LENDER CONSENTS. Each of ADAC and ADAC Radiology shall have received
all necessary consents from its lenders to enter into the transactions
contemplated hereby.
10 ADDITIONAL DOCUMENTS. Each of MTS and Berger shall have delivered to
ADAC Radiology such documents and instruments as ADAC Radiology may reasonably
request in connection with this Agreement and the consummation of the
transactions contemplated hereby.
8.CONDITIONS PRECEDENT TO OBLIGATIONS OF MTS AND BERGER-OPTION EXERCISE
CLOSING.
The obligations of MTS and Berger to consummate the transactions
contemplated by this Agreement shall be subject, at MTS's option, to the
fulfillment at or prior to the Option Exercise Closing of each of the following
conditions:
1 ACCURACY OF REPRESENTATIONS AND WARRANTIES. The representations and
warranties of ADAC and ADAC Radiology contained in this Agreement shall be
accurate and complete on and as of the Option Exercise Closing Date with the
same effect as though such representations and warranties had been made on or as
of such date, and ADAC and ADAC Radiology shall each have delivered to MTS a
certificate to that effect signed by an officer of ADAC and ADAC Radiology, and
dated as of the Option Exercise Closing Date.
2 ASSUMPTION AGREEMENTS. ADAC Radiology shall have executed and
delivered to MTS the Assumption Agreement substantially in the form of Exhibit
-------
B.
- -
27.
<PAGE>
3 LEGAL OPINION. The firm of Cooley Godward LLP, counsel to ADAC and
ADAC Radiology, or such other firm as is reasonably acceptable to MTS, shall
have delivered to MTS and Berger, a legal opinion substantially in the form
attached hereto Exhibit G .
---------
4 PERFORMANCE OF AGREEMENTS. Each and all of the conditions precedent
and agreements of ADAC and ADAC Radiology subject to satisfaction on or before
the Option Exercise Closing pursuant to the terms of this Agreement shall have
been performed or satisfied, and ADAC and ADAC Radiology shall each have
delivered to MTS a certificate to that effect signed by an officer of ADAC or
ADAC Radiology and dated as of the Option Exercise Closing Date.
5 ADDITIONAL DOCUMENTS. ADAC and ADAC Radiology shall have delivered to
MTS such documents and instruments as MTS may reasonably request in connection
with this Agreement and the consummation of the transactions contemplated
hereby.
9 INDEMNIFICATION.
28.
<PAGE>
1 INDEMNIFICATION OF ADAC AND ADAC RADIOLOGY. Each of MTS and Berger
agrees, jointly and severally, to indemnify and hold each of ADAC and ADAC
Radiology harmless from and against all losses, damages, liabilities, costs and
expenses (including, without limitation, interest, penalties and reasonable
attorneys' fees) and to pay to ADAC or ADAC Radiology, as applicable, on demand
the full amount of any and all sums that ADAC or ADAC Radiology may become
obligated to pay on account of and arising out of or resulting from (i) the
inaccuracy or breach of any representation, warranty or covenant made by MTS in
this Agreement or any schedule, exhibit, certificate, financial statement,
document or instrument delivered hereunder (except to the extent arising as a
result of acts or omissions of MTS or Berger taken (or not taken, as the case
may be) at the direction of ADAC or ADAC Radiology or otherwise in compliance
with Section 2.1 hereof), (ii) any claim, action or proceeding asserted or
instituted arising out of any matter covered by such representations, warranties
or covenants, including, without limitation, liabilities of MTS, if any,
existing in breach of such representations (except to the extent arising as a
result of acts or omissions of MTS or Berger taken (or not taken, as the case
may be) at the direction of ADAC or ADAC Radiology or otherwise in compliance
with Section 2.1 hereof), (iii) enforcement of this Agreement, or (iv) in
respect of Taxes of MTS or Berger (excluding only Taxes of MTS arising out of
the joint marketing and operations provided for in Section 2). Notwithstanding
the foregoing, MTS and Berger shall have no obligation to indemnify for any
damages unless and until the aggregate amount of damages exceeds Twenty-Five
Thousand Dollars ($25,000), in which case MTS and Berger shall indemnify ADAC
and ADAC Radiology for all damages. The maximum recovery available to ADAC and
ADAC Radiology for actions brought pursuant to this Section. 9.1 shall be the
total of the Option Grant Consideration and the Option Exercise Consideration
actually paid by ADAC and ADAC Radiology. The right of ADAC and ADAC Radiology
to bring an action for damages pursuant to clauses (i) and (ii) of this Section
9.1 shall expire five (5) years from the Option Grant Closing or the Option
Exercise Closing, as applicable.
29.
<PAGE>
2 INDEMNIFICATION OF MTS. ADAC and ADAC Radiology agrees jointly and
severally, to indemnify and hold each of MTS and Berger harmless from and
against all losses, damages, liabilities, costs and expenses (including, without
limitation, interest, penalties and reasonable attorneys' fees) and to pay to
MTS or Berger, as applicable, on demand the full amount of any and all sums that
MTS or Berger may become obligated to pay on account of and arising out of or
resulting from (i) the inaccuracy or breach of any representation, warranty or
covenant made by ADAC or ADAC Radiology in this Agreement or any schedule,
exhibit, certificate, financial statement, document or instrument delivered
hereunder, (ii) any claim, action or proceeding asserted or instituted arising
out of any matter covered by such representations, warranties or covenants,
(iii) enforcement of this Agreement, or (iv) in respect of taxes of ADAC or ADAC
Radiology. Notwithstanding the foregoing, ADAC and ADAC Radiology shall have no
obligation to indemnify for any damages unless and until the aggregate amount of
damages exceeds Twenty-Five Thousand Dollars ($25,000), in which case ADAC and
ADAC Radiology shall indemnify MTS and Berger for all damages. The maximum
recovery available to MTS and Berger for actions brought pursuant to this
Section 9.2 (other than actions brought pursuant to Section 9.2(iii)) shall be
Five Hundred Thousand Dollars ($500,000). The right of MTS and Berger to bring
an action for damages pursuant to clauses (i) and (ii) of this Section 9.2 shall
expire five (5) years from the Option Grant Closing or the Option Exercise
Closing, as applicable.
3 RIGHT OF OFF-SET. ADAC Radiology shall be entitled to offset against
either the Option Grant Consideration and/or the Option Exercise Consideration
the amount of any obligation owed by MTS or Berger to ADAC and ADAC Radiology
pursuant to Section 9.1.
ADDITIONAL AGREEMENTS.
1 CONDUCT OF BUSINESS PENDING CLOSING. From this date through the
Option Exercise Closing:
(A) MTS shall conduct the Business, in the ordinary course,
consistent with past practices, or in a manner appropriate for closing the
transactions contemplated hereby, and MTS shall use reasonable efforts to
maintain and preserve the organization, assets and advantageous relationships of
the Business.
(B) MTS shall consult with ADAC Radiology on a regular basis with
respect to any material decisions that might adversely affect the Business or
any of the Assets.
(C) MTS shall conduct the Business in compliance with all
applicable laws and governmental regulations and requirements, except where non-
compliance would not have a material adverse effect on the Assets or the
Business or otherwise subject ADAC or ADAC Radiology to liability.
30.
<PAGE>
(D) MTS shall afford to the authorized representatives of ADAC
Radiology free and full access to the properties, books, records, contracts,
commitments and affairs of MTS related to the Business and shall furnish ADAC
Radiology with such additional financial and operating data and copies of all
documents and other information concerning the Business, and Assets of MTS as
ADAC Radiology may from time to time reasonably request.
(E) Each of MTS and Berger will give prompt notice to ADAC
Radiology of (i) any notice of default received by it or him subsequent to the
date of this Agreement and prior to the Option Exercise Closing under any
material instrument or material agreement to which MTS, or any of MTS's
subsidiaries, is a party or by which any of them is bound, which default would,
if not remedied, result in any material adverse change or which would render
incorrect any representation made herein, and (ii) any suit, action or
proceeding instituted or, to the knowledge of MTS or Berger, threatened against
or affecting MTS or any of MTS's subsidiaries subsequent to the date of this
Agreement and prior to the Option Exercise Closing which, if adversely
determined, would result in any material adverse change or which would render
incorrect any representation made herein.
2 ACCESS TO RECORDS. MTS shall furnish to ADAC Radiology prior to and
after the Option Exercise Closing any information reasonably requested by ADAC
Radiology which is in the possession of or reasonably available to MTS to permit
(i) ADAC Radiology or any affiliated group of which it is a member to file on a
timely basis its federal income tax returns and its estimated federal income tax
returns and any other tax returns which may be required by any federal, state,
local or foreign tax authority, and (ii) ADAC Radiology or its affiliates to
comply with orders issued by any federal, state, local or foreign governmental
agency.
3 APPLICATION OF CONSIDERATION. If and to the extent that all or any
portion of the Option Grant Consideration and/or the Option Exercise
Consideration is distributed to the MTS shareholders, it will be paid to such
shareholders in proportion to their respective stockholdings as of the Option
Exercise Closing Date.
4 INCORPORATION OF SCHEDULES AND EXHIBITS. All schedules, exhibits and
other documents and written information delivered in connection with this
Agreement are hereby incorporated into this Agreement by this reference and are
warranted by the party or parties which deliver the same to be accurate and
complete in all material respects. In the event that any material changes shall
occur with respect to any information disclosed in any schedule furnished by MTS
or Berger hereunder following the date of the delivery thereof and prior to the
Option Exercise Closing, MTS or Berger, as applicable, shall promptly notify
ADAC Radiology thereof in writing.
5 DUE DILIGENCE. MTS shall fully cooperate with ADAC Radiology to
afford to the authorized representatives of ADAC Radiology access during normal
business hours, and at any other reasonable time with the consent of MTS to all
of the Assets, in order to afford ADAC
31.
<PAGE>
Radiology full opportunity of review, examination and investigation as ADAC
Radiology shall desire to make of the affairs of MTS, and ADAC Radiology shall
be permitted to make extracts from, or take copies of such books, records or
other documentation or to obtain temporary possession of any thereof as may be
necessary. MTS shall furnish or cause to be furnished to ADAC Radiology such
financial and operating data and other information as to the Assets as ADAC
Radiology may reasonably request.
6 EXPENSES AND TAXES. Except as otherwise provided in this Agreement,
each party shall bear and pay his or its own expenses and taxes incurred in
connection with the transactions referred to in this Agreement. The party
responsible under applicable law shall bear and pay in their entirety all other
taxes and registration and transfer fees, if any, payable by reason of the
conveyance of the Assets. Each party will cooperate to the extent practicable in
minimizing all taxes and fees levied by reason of the conveyance of the Assets.
7 ASSIGNMENT OF CHECKS PAYABLE. MTS shall take such action as may be
required to provide for the assignment or transfer to ADAC Radiology of all
checks, wire transfers or other forms of payment, including cash, relating to
the Business that are received after the Option Exercise Closing and are made
payable to "Medical Transition Strategies, Inc." or any other name under which
MTS operates or has operated and receives payment after the Option Exercise
Closing for operations related to the Business.
8 ENTIRE AGREEMENT; MODIFICATIONS; WAIVER. This Agreement, together
with the Schedules referenced herein and the agreements attached as Exhibits
hereto, constitutes the final, exclusive and complete understanding of the
parties with respect to the subject matter hereof and supersedes any and all
prior agreements, understandings and discussions with respect thereto. No
variation or modification of this Agreement and no waiver of any provision or
condition hereof, or granting of any consent contemplated hereby, shall be valid
unless in writing and signed by the party against whom enforcement of any such
variation, modification, waiver or consent is sought.
9 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations and
warranties made by any party to this Agreement or pursuant hereto shall survive
the closing of the transactions hereunder. The representations and warranties
hereunder shall not be affected or diminished by any investigation at any time
by or on behalf of the party for whose benefit such representations and
warranties were made. All statements contained herein or in any schedule,
exhibit, certificate, list or other document delivered pursuant hereto or in
connection with the transactions contemplated hereby shall be deemed to be
representations and warranties.
32.
<PAGE>
10 FURTHER ASSURANCES. The parties hereto shall use their best efforts,
and shall cooperate with one another, to secure all necessary consents,
approvals, authorizations, exemptions and waivers from third parties as shall be
required in order to consummate the transactions contemplated hereby, and shall
otherwise use their best efforts to cause such transactions to be consummated in
accordance with the terms and conditions hereof. At any time or from time to
time after the Option Exercise Closing, each party hereto shall execute and
deliver any further instruments or documents and take all such further action as
such requesting party may reasonably request in order to consummate and document
the transactions contemplated hereby.
11 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which when so executed shall constitute an original copy
hereof, but all of which together shall constitute one agreement.
12 NOTICES. All notices, requests, demands and other communications
hereunder ("Notices") shall be in writing and shall be deemed to have been duly
given if delivered by hand or by registered or certified mail, postage prepaid,
return receipt requested, but only upon receipt of such return receipt, as
follows:
IF TO ADAC OR
ADAC RADIOLOGY, TO: ADAC Laboratories
540 Alder Drive
Milpitas, CA 95035
Attention: Russ Hagey
WITH A COPY TO: Cooley Godward LLP
One Maritime Plaza, 20th Floor
San Francisco, CA 94111-3580
Attention: Susan Cooper Philpot
WITH A COPY TO: Law Offices of Robert L. Miller
One Bush Street, Suite 1100
San Francisco, CA 94104
Attention: Robert L. Miller
IF TO MTS, TO: Medical Transition Strategies,Inc.
One Concourse Parkway, Suite 750
Atlanta, GA 30328
Attention: Ernest Berger
33.
<PAGE>
WITH A COPY TO: Cohen Pollock Merlin Axelrod & Tanenbaum, P.C.
2100 RiverEdge Parkway, Suite 300
Atlanta, GA 30328
Attention: H. Stephen Merlin
IF TO BERGER, TO: Ernest Berger
5637 Cadwell Court
Norcross, GA 30092
or to such other address as any party may have furnished to the other in writing
in accordance herewith, except that notices of change of address shall only be
effective upon receipt. All Notices shall be deemed received on the date of
delivery or, if mailed, on the date appearing on the return receipt therefor.
13 MISCELLANEOUS CONSTRUCTION PROVISIONS.
(A) When required by context, the singular shall include the
plural, and the neuter gender shall include a person, corporation, firm or
association.
(B) The headings contained in this Agreement are for convenience
and reference purposes only and shall not affect in any way the meaning and
interpretation of this Agreement.
(C) This Agreement shall be governed by, and construed and enforced
in accordance with the laws of the State of California without regard to its
choice of laws or conflicts of law rules.
14 TERMINATION. This Agreement may be terminated:
(A) At any time by the mutual written consent of all parties;
(B) Upon written notice by ADAC Radiology and ADAC, if MTS or
Berger has violated this Agreement in any material respect, or if any
representation or warranty made by MTS or Berger in this Agreement is false or
inaccurate in any material respect, or there is any material misrepresentation
or material omission by MTS or Berger, after written notice of such violation,
false or inaccurate representation or warranty or misrepresentation or omission,
and failure by MTS or Berger to cure or provide payment of indemnity therefor
within ten (10) business days after such notice;
(C) Upon written notice by MTS and Berger, if ADAC Radiology or
ADAC has violated this Agreement in any material respect, or if any
representation or warranty made by ADAC Radiology or ADAC in this Agreement is
false or inaccurate in any material respect, or
34.
<PAGE>
there is any material misrepresentation or material omission by ADAC Radiology
or ADAC, after written notice of such violation, false or inaccurate
representation or warranty or misrepresentation or omission, and failure by ADAC
Radiology or ADAC to cure or provide payment of indemnity therefor within ten
(10) business days after such notice; or
(D) By written notice by any party if the Option Grant Closing has
not occurred by September 30, 1996.
Notwithstanding, the foregoing, any termination of this Agreement by MTS and
Berger pursuant to Section 10.14(c) shall in no way relieve ADAC and ADAC
Radiology of the obligation to pay any unpaid amounts under Section 1.2.
[the rest of this page has been
left blank intentionally]
35.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed, all as of the day and year first above written.
MTS: MEDICAL TRANSITION STRATEGIES, INC.,
a Georgia corporation
By:_____________________________________________
Its:____________________________________________
BERGER: ________________________________________
ERNEST BERGER
ADAC: ADAC LABORATORIES,
a California corporation
By:_____________________________________________
Its:____________________________________________
ADAC RADIOLOGY: ADAC RADIOLOGY SERVICES, INC.,
a Delaware corporation
By:_____________________________________________
Its:____________________________________________
36.
<PAGE>
EXHIBIT A
EXCLUDED ASSETS
<PAGE>
EXHIBIT B
ASSUMPTION AGREEMENT
<PAGE>
EXHIBIT C
DISCLOSURE SCHEDULES
<PAGE>
EXHIBIT D
FORM OF BERGER EMPLOYMENT AGREEMENT
<PAGE>
EXHIBIT E
FORM OF MTS/BERGER LEGAL OPINION
<PAGE>
EXHIBIT F
FORM OF SUBSIDIARY OPTION GRANT
<PAGE>
EXHIBIT G
FORM OF ADAC/ADAC RADIOLOGY LEGAL OPINION
<PAGE>
EXHIBIT 10.85
AGREEMENT
AND PLAN OF REORGANIZATION
AMONG
ADAC LABORATORIES,
GEOMETRICS CORPORATION
AND
THE SHAREHOLDERS OF GEOMETRICS CORPORATION
----------------
NOVEMBER 4, 1996
----------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE 1 DESCRIPTION OF TRANSACTION....................................... 1
1.1 Merger of the Company into ADAC.................................. 1
1.2 Effect of the Merger............................................. 1
1.3 Closing; Effective Time.......................................... 2
1.4 Articles of Incorporation and Bylaws; Directors and Officers..... 2
1.5 Conversion of Shares............................................. 2
1.6 Closing of the Company's Transfer Books.......................... 3
1.7 Exchange of Certificates......................................... 3
1.8 Tax Consequences................................................. 4
1.9 Accounting Consequences.......................................... 4
1.10 Further Action................................................... 4
ARTICLE 2 REPRESENTATIONS AND WARRANTIES OF THE COMPANY.................... 4
2.1 Organization; Subsidiaries; Capitalization....................... 4
2.2 Financial Statements; Absence of Liabilities..................... 5
2.3 Absence of Certain Changes or Events............................. 6
2.4 Tax Matters...................................................... 6
2.5 Contracts........................................................ 7
2.6 Intellectual Property............................................ 8
2.7 Employees........................................................ 9
2.8 Proprietary Information and Inventions Agreements................ 10
2.9 Litigation and Claims; Compliance with Law....................... 10
2.10 Properties....................................................... 11
2.11 Full Disclosure.................................................. 11
2.12 Transactions with Affiliates..................................... 11
2.13 Financial Advisor................................................ 12
2.14 Enforceability................................................... 12
2.15 Governmental Consents; No Conflicts.............................. 12
2.16 Negotiation With Others.......................................... 12
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF ADAC........................... 13
3.1 SEC Filings; Financial Statements................................ 13
3.2 Authority; Binding Nature of Agreement........................... 14
3.3 Valid Issuance................................................... 14
3.4 Financial Advisor................................................ 14
3.5 Securities Laws.................................................. 14
</TABLE>
i
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TABLE OF CONTENTS
-----------------
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE 4 CONDUCT AND TRANSACTIONS PRIOR TO EFFECTIVE TIME; ADDITIONAL
AGREEMENTS...................................................... 14
4.1 Information and Access.......................................... 14
4.2 Conduct of Business of the Company.............................. 15
4.3 Negotiation With Others......................................... 17
4.4 Registration Statement.......................................... 17
4.5 Regulatory Approvals............................................ 17
4.6 Additional Agreements........................................... 18
4.7 Disclosure...................................................... 18
4.8 Employment Agreements........................................... 18
4.9 Affiliate and Investment Representation Agreements.............. 18
4.10 Continuity of Interest Certificates............................. 18
4.11 Tax Opinion Back-Up Certificates................................ 18
ARTICLE 5 CONDITIONS PRECEDENT TO OBLIGATIONS OF ADAC..................... 19
5.1 Representations and Warranties Accurate................. ....... 19
5.2 Compliance With Covenants....................................... 19
5.3 No Material Adverse Effect...................................... 19
5.4 Certificate..................................................... 19
5.5 Pre-Acquisition Review.......................................... 19
5.6 Governmental Consents and Approvals............................. 19
5.7 Consent of Lenders.............................................. 20
5.8 Board of Directors Approval..................................... 20
5.9 Exempt Transaction.............................................. 20
5.10 Employment Agreements........................................... 20
5.11 Affiliate and Investment Representation Agreements.............. 20
5.12 Absence of Restraint............................................ 20
5.13 No Litigation................................................... 20
5.15 Legal Opinion................................................... 20
5.16 Tax Opinion..................................................... 20
5.17 Closing Price................................................... 20
</TABLE>
ii
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TABLE OF CONTENTS
-----------------
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE 6 CONDITIONS PRECEDENT TO THE COMPANY'S AND THE SHAREHOLDERS'
OBLIGATIONS...................................................... 21
6.1 Representations and Warranties Accurate.......................... 21
6.2 Compliance With Covenants........................................ 21
6.3 Certificate...................................................... 21
6.4 Legal Opinion.................................................... 21
6.5 Tax Opinion...................................................... 21
6.6 Absence of Restraint............................................. 21
6.7 Employment Agreements............................................ 21
6.8 Closing Price.................................................... 21
ARTICLE 7 TERMINATION OF AGREEMENT......................................... 22
7.1 Termination...................................................... 22
7.2 Effect of Termination............................................ 23
7.3 Fees and Expenses................................................ 23
ARTICLE 8 HOLDBACK......................................................... 23
8.1 Holdback Amount.................................................. 23
8.2 Voting of Shares................................................. 23
8.3 Transferability; Fractional Shares............................... 23
8.4 Claim Notice..................................................... 24
8.5 Response Notice.................................................. 24
8.6 Release of Shares to ADAC........................................ 24
8.7 Release of Shares to Agent....................................... 25
8.8 Sole Recourse.................................................... 26
ARTICLE 9 POST-CLOSING COVENANTS OF ADAC................................... 26
9.1 University of Wisconsin.......................................... 26
9.2 Lease............................................................ 26
9.3 Credit for Years of Service for Vacation Accruals................ 26
ARTICLE 10 MISCELLANEOUS.................................................... 26
</TABLE>
iii
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TABLE OF CONTENTS
-----------------
(CONTINUED)
<TABLE>
PAGE
----
<S> <C> <C>
10.1 Non-Compete..................................................... 26
10.2 Amendment....................................................... 26
10.3 Waiver.......................................................... 27
10.4 No Survival of Representations and Warranties................... 27
10.5 Severability.................................................... 27
10.6 Entire Agreement; Counterparts; Applicable Law.................. 27
10.7 Assignability................................................... 27
10.8 Notices......................................................... 28
10.9 Cooperation..................................................... 28
10.10 Confidentiality................................................. 28
10.11 Certain Terms................................................... 29
10.12 Titles.......................................................... 29
10.13 Articles, Sections and Exhibits................................. 29
</TABLE>
iv
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TABLE OF CONTENTS
-----------------
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
----
EXHIBITS
<S> <C> <C>
Exhibit A-1 Form of Employment Agreement for Mark Gehring
Exhibit A-2 Form of Employment Agreement for Cameron Sanders
Exhibit B Form of Affiliate and Investment Representation Agreement
Exhibit C Form of Continuity of Interest Certificate
Exhibit D Form of the Company's Tax Opinion Back-Up Certificate
Exhibit E Form of ADAC's Tax Opinion Back-Up Certificate
Exhibit F Form of Opinion of LaFollette & Sinykin
Exhibit G Form of Opinion of Cooley Godward LLP
</TABLE>
v
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement") is made and
entered into as of November 4, 1996, by and among: ADAC LABORATORIES, a
California corporation ("ADAC"); GEOMETRICS CORPORATION, a Wisconsin corporation
(the "Company"); and MARK A. GEHRING, T. ROCKWELL MACKIE, CAMERON L. SANDERS AND
PAUL J. RECKWERDT (together, the "Shareholders").
RECITALS
A. ADAC and the Company intend to effect a merger of the Company into
ADAC in accordance with this Agreement and the laws of the State of California
(the "Merger"). Upon consummation of the Merger, the Company will cease to
exist.
B. It is intended that the Merger qualify as a tax-free reorganization
within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as
amended (the "Code").
C. For accounting purposes, it is intended that the Merger be treated as
a "pooling of interests."
AGREEMENT
ADAC, the Company and the Shareholders agree as follows:
1
DESCRIPTION OF TRANSACTION
.1 MERGER OF THE COMPANY INTO ADAC. Upon the terms and subject to the
conditions set forth in this Agreement, at the Effective Time (as defined in
Section 1.3), the Company shall be merged into ADAC and the separate existence
of the Company shall cease. ADAC will be the surviving corporation in the
Merger (the "Surviving Corporation").
.2 EFFECT OF THE MERGER. The Merger shall have the effects set forth
in this Agreement, in the applicable provisions of the California General
Corporation Law (the "CGCL") and in the applicable provisions of the Wisconsin
Business Corporation Law (the "WBCL").
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.3 CLOSING; EFFECTIVE TIME. The consummation of the transactions
contemplated by this Agreement (the "Closing") shall take place at the offices
of Cooley Godward llp, One Maritime Plaza, 20th Floor, San Francisco, California
94111 on the date as of which each of the conditions set forth in Articles 5 and
6 has been fulfilled or waived or on such other date as may be jointly
designated by ADAC and the Company (the "Closing Date"). As soon as practicable
after the Closing, a properly executed certificate of merger conforming to the
requirements of the CGCL shall be filed with the California Secretary of State
and articles of merger conforming to the requirements of the WBCL shall be filed
with the Wisconsin department of financial institutions. The Merger shall become
effective at the time said certificate of merger is filed with the California
Secretary of State and the Wisconsin Department of Financial Institutions (the
"Effective Time"). The Company and ADAC shall use their best efforts to properly
file such certificate of merger and such articles of merger no later than the
end of the business day following the Closing Date.
.4 ARTICLES OF INCORPORATION AND BYLAWS; DIRECTORS AND OFFICERS. The
Articles of Incorporation of ADAC shall be the Articles of Incorporation of the
Surviving Corporation as of the Effective Time. The Bylaws of ADAC, as in
effect immediately prior to the Effective Time, shall become the Bylaws of the
Surviving Corporation at the Effective Time. The directors and officers of the
Surviving Corporation immediately after the Effective Time shall be the
directors and officers of ADAC immediately prior to the Effective Time.
.5 CONVERSION OF SHARES.
(A) At the Effective Time, by virtue of the Merger (and without any
action on the part of any shareholder of the Company):
(I) any shares of the common stock, One Dollar ($1.00) par
value, of the Company ("Company Common Stock") then held by the Company or any
subsidiary of the Company (or held in the Company's treasury) shall be canceled;
and
(II) except as provided in clause (i) above and subject to
Section 1.5(b), all shares of Company Common Stock then outstanding shall be
converted into the right to receive in aggregate that number of shares of the
common stock of ADAC ("ADAC Common Stock") equal to (x) the sum of $3,800,000
and the Grossed-Up Additional Amount, divided by (y) the average closing sales
price of the ADAC Common Stock during the five trading days immediately
preceding the second business day prior to the Closing Date (the "Closing
Price"). For purposes of this Section 1.5(b)(ii), the "Grossed-Up Additional
Amount" shall mean the Additional Amount grossed up by 30.00%. The "Additional
Amount" shall mean the amount equal to the Company's cash on hand as of the
Closing, after giving effect to the dividend payment set forth in Section
4.2(b)(i) below, minus (1) $5,000 and (2) the aggregate of all liabilities
incurred by the Company but unpaid as of the Closing Date for (A) legal and
accounting fees, (B) royalties to the University of Wisconsin for units with
respect to which the
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Company has received payment from ADAC, (C) employee base and bonus
compensation, (D) 401(k) matching obligations and (E) any office lease payment
due on or before the Closing Date.
(B) The shares of ADAC Common Stock into which each outstanding share
of Company Common Stock is to be converted pursuant to Section 1.5(a)(ii) (as
such fraction may be adjusted in accordance with this Section 1.5(b)) is
referred to as the "Exchange Ratio." If, between the date of this Agreement and
the Effective Time, the outstanding shares of Company Common Stock or ADAC
Common Stock are changed into a different number or class of shares by reason of
any stock dividend, subdivision, reclassification, recapitalization, split-up,
combination or similar transaction, the Exchange Ratio shall be appropriately
adjusted.
.6 CLOSING OF THE COMPANY'S TRANSFER BOOKS. At the Effective Time,
holders of certificates representing shares of Company Common Stock shall cease
to have any rights as shareholders of the Company, and the stock transfer books
of the Company shall be closed with respect to all shares of Company Common
Stock outstanding immediately prior to the Effective Time. No further transfer
of any such shares of Company Common Stock shall thereafter be made on such
stock transfer books. If, after the Effective Time, a valid certificate
previously representing any of such shares of Company Common Stock (a "Company
Common Stock Certificate") is presented to ADAC, such Company Common Stock
Certificate shall be canceled and exchanged as provided in Section 1.7.
.7 EXCHANGE OF CERTIFICATES.
(A) As soon as practicable after the Effective Time, ADAC will mail
to the holders of Company Common Stock Certificates (i) a letter of transmittal
in customary form and containing such provisions as ADAC may reasonably specify
and (ii) instructions for use in effecting the surrender of Company Common Stock
Certificates in exchange for certificates representing ADAC Common Stock. Upon
surrender of a Company Common Stock Certificate to ADAC for exchange, together
with a duly executed letter of transmittal and such other documents as may be
reasonably required by ADAC, the holder of such Company Common Stock Certificate
shall be entitled to receive in exchange therefor a certificate representing the
number of whole shares of ADAC Common Stock that such holder has the right to
receive pursuant to the provisions of this Article 1 (after withholding the
Holdback Common Stock (as defined in Section 8.1)), and the Company Common Stock
Certificate so surrendered shall be canceled. Until surrendered as contemplated
by this Section 1.7, each Company Common Stock Certificate shall be deemed, from
and after the Effective Time, to represent only the right to receive upon such
surrender a certificate representing shares of ADAC Common Stock (and cash in
lieu of any fractional share of ADAC Common Stock) as contemplated by this
Article 1.
(B) No dividends or other distributions declared or made with respect
to ADAC Common Stock with a record date after the Effective Time shall be paid
to the holder of any unsurrendered Company Common Stock Certificate with respect
to the shares of ADAC
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Common Stock represented thereby, and no cash payment in lieu of any fractional
share shall be paid to any such holder, until such holder surrenders such
Company Common Stock Certificate in accordance with this Section 1.7 (at which
time such holder shall be entitled to receive all such dividends and
distributions and such cash payment, all without interest thereon).
(C) No certificates or scrip for fractional shares of ADAC Common
Stock shall be issued, but in lieu thereof each holder of shares of Company
Common Stock who would otherwise be entitled to receive a certificate or scrip
for a fraction of a share of ADAC Common Stock shall receive from ADAC a cash
amount equal to the market value of one share of ADAC Common Stock (based on the
Closing Price) multiplied by the fraction of a share of ADAC Common Stock to
which such holder would otherwise be entitled.
(D) ADAC shall not be liable to any holder or former holder of shares
of Company Common Stock with respect to any shares (or dividends or
distributions with respect thereto) or cash amounts issuable pursuant to this
Article 1 which is delivered to a public official pursuant to any applicable
abandoned property, escheat or similar law.
.8 TAX CONSEQUENCES. For federal income tax purposes, the Merger is
intended to constitute a tax-free reorganization within the meaning of Section
368(a) of the Code. Neither the Company nor ADAC shall take a position
inconsistent with this Section 1.8 on any tax return.
.9 ACCOUNTING CONSEQUENCES. For accounting purposes, the Merger is
intended to be treated as a "pooling of interests." Neither the Company nor ADAC
shall take any action prior to the Effective Time that could reasonably be
expected to prevent the Merger from being accounted for as a "pooling of
interests." Notwithstanding the foregoing, if so advised by its independent
public accountants, ADAC may elect to treat the Merger as a "purchase." If ADAC
elects to treat the Merger as a "purchase," ADAC will continue to treat the
Merger as a tax-free reorganization for tax purposes.
.10 FURTHER ACTION. If at any time after the Effective Time any further
action is determined by ADAC to be necessary or desirable to carry out the
purposes of this Agreement or to vest ADAC as the Surviving Corporation with the
full right, title and possession of and to all assets, property, rights,
privileges, immunities, powers and franchises of the Company, the officers and
directors of ADAC shall be fully authorized (in the name of the Company and
otherwise) to take such action.
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4
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REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as set forth in the disclosure schedule delivered to ADAC on the
date of this Agreement and signed by the President of the Company (the "Company
Disclosure Schedule"), the Company represents and warrants to ADAC as follows:
.1 ORGANIZATION; SUBSIDIARIES; CAPITALIZATION.
(A) The Company is a corporation duly organized, existing and in good
standing under the laws of the State of Wisconsin. The Company has all necessary
power and authority under applicable corporate law and its organizational
documents to own or lease its properties and to carry on its business as
presently conducted. As of the date of this Agreement, the Company Disclosure
Schedule sets forth a list of all of the Company's "affiliates" or their
"associates" (as such terms are defined in the rules and regulations of the
Securities and Exchange Commission (the "SEC")). As of the date of this
Agreement, the Company does not own or hold, directly or indirectly, any debt or
equity securities of, or has any other interest in, any corporation,
partnership, joint venture or other entity, and the Company has not entered into
any agreement to acquire any such interest.
(B) Each of the Company and its affiliates is qualified to do
business as a foreign corporation, partnership or limited liability company, as
the case may be, and is in good standing, under the laws of all jurisdictions
where the nature of its business requires such qualification and where the
failure to so qualify would have a material adverse effect. For purposes of this
Agreement, material adverse effect, as it applies to the Company, means a
material adverse effect on the business, operations, financial condition or
assets of the Company other than as a result of (i) general economic or industry
conditions, or (ii) the performance by the Company of its obligations, or the
exercise by ADAC of its rights under this Agreement.
(C) As of the date of this Agreement, the authorized capital stock of
the Company consists of: 9,000 shares of Company Common Stock of which, as of
the date hereof, 400 shares were issued and outstanding. All the issued and
outstanding shares of Company Common Stock are validly issued, fully paid and
nonassessable and free of preemptive rights and were issued in compliance with
state and federal securities laws. Except as set forth above, as of the date of
this Agreement, (i) there are no shares of capital stock of the Company
authorized, issued or outstanding, (ii) there are no out standing subscriptions,
options, warrants, stock appreciation right plans, calls, rights, convertible
securities, stockholder rights plans (or similar plans commonly referred to as
"poison pills") or other agreements or commitments of any character relating to
issued or unissued capital stock or other securities of the Company or any of
its subsidiaries, or obligating the Company or any other party to issue,
transfer or sell any shares of the capital stock or other securities of the
Company or any of its
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subsidiaries, and (iii) there are no other outstanding securities convertible
into, exchangeable for or evidencing the right to subscribe for any shares of
the capital stock or other securities of the Company or any of its subsidiaries
or any successor corporation or controlling person of such successor
corporation. All outstanding securities of the Company are held by the
Shareholders as set forth in the Company Disclosure Schedule.
(D) Neither the Company nor any of its affiliates owns any ADAC
Common Stock.
(E) A complete and accurate copy of the Certificate of Incorporation,
as amended to date, of the Company has been delivered to ADAC.
.2 FINANCIAL STATEMENTS; ABSENCE OF LIABILITIES.
(A) The Company's unaudited interim financial statements as of
October 31, 1996 and for the ten-month period then ended (the "Unaudited Interim
Financial Statements") were prepared in accordance with the books and records of
the Company using accounting principles applied on a consistent basis throughout
the period involved and fairly present the financial position of the Company as
of the date thereof and the results of its operations and cash flows for the
period indicated.
(B) The Company has no Liabilities, except for (i) Liabilities which
are disclosed in the Unaudited Interim Financial Statements, or (ii) Liabilities
which were incurred after October 31, 1996 in the ordinary course of business
and which do not exceed $5,000 in the aggregate. As used herein, "Liabilities"
shall mean any liability or obligation of any kind or nature, secured or
unsecured (whether absolute, accrued, contingent or otherwise, and whether due
or to become due).
.3 ABSENCE OF CERTAIN CHANGES OR EVENTS. Since October 31, 1996, there
has not been (a) any change, or any development or combination of changes or
developments that has had or would reasonably be expected to have a material
adverse effect on the Company, (b) any damage, destruction or loss, whether or
not covered by insurance, that has had or would reasonably be expected to have a
material adverse effect on the Company or (c) any transaction, commitment,
dispute or other event or condition (financial or otherwise) of any character
(whether or not in the ordinary course of business) which would be prohibited by
Section 4.2(b) if it were to occur or be effected between the date of this
Agreement and the Effective Time.
.4 TAX MATTERS.
(A) The Company is now, and at all times since its incorporation has
been, a valid S Corporation under the Code. The Company has filed, within the
time (including any extensions of applicable due dates) and in the manner
prescribed by law, all material returns, declaration, reports, estimates,
information returns, statements and reports ("Returns"), required to be filed
under federal, state, local or any foreign laws by the Company.
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(B) The Company has, within the time (including any extensions of
applicable due dates) and in the manner prescribed by law, paid all Taxes (as
defined below) that are due and payable by the Company.
(C) The Company has accrued on its books an amount sufficient to
cover all Taxes that will become due and payable by the Company for the period
ending on the Closing Date.
(D) The Company has not filed (and will not file prior to the Closing
Date) any consent agreement under Section 341(f) of the Code or agreed to have
Section 341(f)(2) of the Code apply to any disposition of any subsection (f)
asset (as such term is defined in Section 341(f)(4) of the Code) owned by
Company.
(E) To the Company's knowledge, the Transactions (as defined in
Section 2.15) will not result in the payment of any "excess parachute payment"
within the meaning of Section 280G of the Code, and there is no agreement, plan
or arrangement covering any employee or independent contractor of the Company
that would give rise to any payment that would not be deductible pursuant to
Section 280G of the Code.
(F) No outstanding debt obligation of Company is "corporate
acquisition indebtedness" within the meaning of Section 279(b) of the Code.
(G) For purposes of this Agreement, "Taxes" shall mean all taxes,
charges, fees, levies, or other assessments of whatever kind or nature,
including, without limitation, all net income, gross income, gross receipts,
sales, use, value-added, ad valorem, transfer, franchise, profits, license,
withholding, payroll, employment, excise, estimated, severance, stamp, net
worth, environmental, occupancy or property taxes, customs duties, fees,
assessments or charges of any kind whatsoever (together with any interest and
any penalties, additions to tax or additional amounts) imposed by any taxing
authority (domestic or foreign) upon or payable by the Company or any of its
subsidiaries.
.5 CONTRACTS.
(A) As of the date of this Agreement, the Company is not a party to,
or bound by, any undischarged written or oral:
(I) contract for the employment for any period of time
whatsoever, or restricting the employment, of any employee;
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(II) consulting agreement, except for those that both (A) do
not call for payment in an annual amount in excess of $5,000 in the aggregate
and (B) were entered into in the ordinary course of business;
(III) contract or agreement restricting in any manner the
Company's right to compete with any other person or restricting the Company's or
any of its affiliates' listed on Schedule 2.1(a) right to sell to or purchase
from any other person; or
(IV) contract or other instrument that (A) provides for the
receipt or expenditure of cash or other consideration in excess of $5,000,
except sales and purchase orders accepted in the ordinary course of business,
(B) was entered into outside the ordinary course of business, (C) is material
and has an original term of more than one year and cannot be terminated by the
Company without penalty with 30 days notice or less, (D) relates to the license
of any patent, copyright, trade secret or other proprietary right to or from the
Company, (E) includes provisions restricting or, in any material respect,
affecting the development, manufacture or distribution of the Company's
intellectual property, products or services, (F) provides for indemnification by
the Company with respect to infringements of proprietary rights, or (G) is
otherwise material.
All material contracts, leases, subleases and other instruments, whether or not
of the types referred to in this Section 2.5(a), to which the Company or any of
its affiliates is a party or by which the Company or any of its affiliates is
bound (collectively "Company Contracts") are in full force and effect and are
binding upon the Company and, to the Company's knowledge, are binding on the
other parties thereto, except as enforcement thereof may be limited by
bankruptcy, insolvency, reorganization, moratorium or other similar laws, both
state and federal, affecting the enforcement of creditors' rights or remedies in
general from time to time in effect and the exercise by courts of equity powers.
No material default by the Company has occurred under any of the Company
Contracts and, to the Company's knowledge, (A) no material default by any of the
other contracting parties has occurred under any of the Company Contracts and
(B) no event has occurred which with the giving of notice or the lapse of time,
or both, would constitute a material default by the Company or any of its
subsidiaries or any of the other contracting parties.
(B) The Company possesses all material licenses, permits, and
governmental approvals and authorizations which are required in order to operate
its business as presently conducted and the Company is in compliance in all
material respects with all such licenses, permits, approvals and authorizations.
(C) The Company Disclosure Schedule sets forth a list of all claims
made or, to the Company's knowledge, threatened against the Company under each
Company Contract presently or heretofore in effect (including claims for back
charges, rebates, price reductions,
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breaches of product or service warranties or for product or service liability
for products manufactured or sold).
.6 INTELLECTUAL PROPERTY. The Company owns or possesses sufficient legal
rights to all patents, trademarks, service marks, trade names, copyrights, trade
secrets, information and other proprietary rights and processes necessary for
its business as now conducted and as proposed to be conducted, without any
infringement of the rights of others. The Company Disclosure Schedule sets forth
all domestic and foreign patents and patent applications, registered trademarks,
material common law trademarks, service marks, trade names, symbols and logos
used, controlled or owned by the Company, and the rights of the Company with
respect to each. There are no outstanding options, licenses or agreements of any
kind relating to the foregoing, nor is the Company bound by or a party to any
options, licenses or agreements of any kind with respect to the patents,
trademarks, service marks, trade names, copyrights, trade secrets, licenses,
information and other proprietary rights and processes of any other person or
entity other than such licenses or agreements arising from the purchase of "off
the shelf" or standard products. The Company is not violating or infringing, and
has not at any time during the last five years, violated or infringed or
received any communications alleging that the Company has violated or infringed
or, by conducting its business as proposed, would violate or infringe any of the
patents, trademarks, service marks, trade names, copyrights or trade secrets or
other proprietary rights of any other person or entity. The Company is not aware
that any of its employees is obligated under any contract (including licenses,
covenants or commitments of any nature) or other agreement, or subject to any
judgment, decree or order of any court or administrative agency, that would
interfere with their duties to the Company or that would conflict with the
Company's business as proposed to be conducted in any material respect. Neither
the execution nor delivery of this Agreement, nor the carrying on of the
Company's business by the employees of the Company, nor the conduct of the
Company's business as proposed to be conducted, will, to the Company's
knowledge, conflict with or result in a breach of the terms, conditions or
provisions of, or constitute a default under, any contract, covenant or
instrument under which any employee is now obligated. The Company does not
believe it is or will be necessary to utilize any inventions, trade secrets or
proprietary information of any of its employees made prior to their employment
by the Company, except for inventions, trade secrets or proprietary information
that have been validly assigned to the Company.
.7 EMPLOYEES.
(A) The Company Disclosure Schedule sets forth a complete and
accurate list of each bonus, deferred compensation, incentive compensation,
stock purchase, stock option, severance or termination pay, hospitalization or
other medical, life or other insurance, supplemental unemployment benefits,
profit-sharing, flexible benefit, dependent care, educational assistance, pre-
Tax premium, pension, or retirement plan, program, agreement or arrangement
(collectively, the "Company Employee Plans"), sponsored, maintained or
contributed to or
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required to be contributed to by the Company or any of its affiliates for the
benefit of any employee of the Company or any of its affiliates ("Employee").
(B) The Company has no plan or commitment, whether legally binding or
not, to create any additional Company Employee Plan, or any plan or commitment
to modify or change any existing Company Employee Plan, other than changes to
comply with applicable law, that would affect any Employee.
(C) No Company Employee Plan provides death, medical or health
benefits (whether or not insured) with respect to current or former Employees
after any such Employee's retirement or other termination of service (other than
(i) benefit coverage mandated by applicable law, including, without limitation,
coverage provided pursuant to Section 4980B of the Code and (ii) deferred
compensation benefits accrued as liabilities on the books of Company).
(D) With respect to each of the Company Employee Plans constituting a
group health plan within the meaning of Section 5000(b)(1) of the Code, the
provisions of Section 4980B of the Code have been complied with in all material
respects.
(E) There are no Company Employee Plans intended to be qualified
under Section 401(a) of the Code.
(F) There is no pending or, to the knowledge of the Company,
threatened Proceeding (as defined in Section 2.9) against the Company or any of
its affiliates or any current or former director, major stockholder, officer or
supervisory employee of the Company or any of its affiliates, alleging wrongful
termination, racial, religious, sexual or age discrimination, improper post-
termination conduct, or breach of contract or covenant of employment.
(G) All individuals who are performing or have performed services for
the Company and are or were classified as "independent contractors" for tax
purposes qualify for such classification.
(H) Neither the Company nor any Shareholder has received any
communication indicating that any employee or independent contractor of the
Company intends to terminate his employment or independent contracting
relationship with the Company or, following the Effective Time, the Surviving
Corporation. To the Company's knowledge, no employee of the Company, nor any
consultant with whom the Company has contracted, is in violation of any term of
any employment contract, proprietary information agreement or any other
agreement relating to the right of any such individual to be employed by, or to
contract with, the Company because of the nature of the business conducted by
the Company; and to the Company's knowledge the continued employment by the
Company of its present employees, and the performance of the Company's contracts
with its independent contractors, will not result in any such violation. The
Company has not received any notice alleging that any such violation
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has occurred. No employee of the Company has been granted the right to continued
employment by the Company or to any compensation following termination of
employment with the Company.
.8 PROPRIETARY INFORMATION AND INVENTIONS AGREEMENTS. Each former and
current employee, officer and independent contractor of the Company has executed
a Proprietary Information and Inventions Agreement substantially in the form
included in the Company Disclosure Schedules.
.9 LITIGATION AND CLAIMS; COMPLIANCE WITH LAW.
(A) There is no examination, review, investigation, arbitration,
suit, litigation or other proceeding (a "Proceeding") pending or threatened by
or before any court or Governmental Authority (as defined in Section 2.15) in
which the Company is a party or otherwise involved or to which any of the
business or assets of the Company is subject, nor has any third party made any
claim against the Company which could result in any such Proceeding nor, to the
Company's knowledge, is there any basis for any such claim or Proceeding.
(B) The Company is not a party to any decree, order or arbitration
award (or agreement entered into in any Proceeding) with respect to its
properties, assets, personnel or business activities.
(C) The Company is not and has not at any time since December 31,
1993 been in violation of, or delinquent in respect to, any decree, order or
arbitration award or law, statute or regulation of, or agreement with, or any
material license or material permit from, any Governmental Authority to which
any of its properties, assets, personnel or business activities are subject or
to which any of them is subject, including laws, rules and regulations relating
to the environment, occupational health and safety, employee benefits, wages,
workplace safety, equal employment opportunity and race, religious, sex and age
discrimination.
(D) There are no actions pending or, to the knowledge of the Company,
threatened (or any basis therefor known to the Company) involving the prior
employment of any of the Company's employees, their use in connection with the
Company's business of any information or techniques allegedly proprietary to any
of their former employers, or their obligations under any agreements with prior
employers.
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.10 PROPERTIES.
(A) Schedule 2.10 sets forth a complete list of all property,
tangible or intangible, leased by the Company (the "Leases"). The Company has
previously delivered to ADAC complete and accurate copies of all such Leases.
Each of the Leases is valid, binding and enforceable in accordance with its
terms, and is in full force and effect. The Company is not in default under any
Lease, nor to the Company's knowledge is any other party thereto in default
thereunder, and no event has occurred which (whether with or without notice,
lapse of time or both) would constitute a default by the Company.
(B) Schedule 2.10 sets forth a complete list of all property,
tangible and intangible, owned by the Company (the "Company Properties"). The
Company Properties are owned by the Company outright, in each case free and
clear of any lien, pledge, hypothecation, mortgage, security interest, claim,
lease, charge, option, right of first refusal, easement, servitude, trust,
transfer restriction or any other restriction or limitation whatsoever (the
"Liens"), except for Liens disclosed in the Financial Statements and notes
thereto. Each of the Company Properties are in good operating condition, subject
to continued repair and replacement in accordance with past practice. The
Company Properties include all of the assets used in or required for the
operation of the Company's business.
(C) The Company has fire and casualty insurance policies, with
extended coverage (subject to reasonable deductibles), sufficient to allow them
to replace any of their properties that might be damaged or destroyed, and have
liability insurance reasonably adequate to protect them and their financial
condition against the risks involved in the business conducted by them. The
Company Disclosure Schedule sets forth all such policies. The Company has not
taken any action, or failed to take any action, which might invalidate any of
such policies in whole or in part.
(D) The Company owns no real property.
.11 FULL DISCLOSURE. This Agreement, the Company Disclosure Schedule and
all other documents delivered by the Company to ADAC or its attorneys or agents
in connection herewith or in connection with the transactions contemplated
hereby, do not contain any untrue statement of a material fact nor, to the
Company's knowledge, omit to state a material fact necessary in order to make
the statements contained herein or therein not misleading.
.12 TRANSACTIONS WITH AFFILIATES. Except for compensation of employees,
every transaction between Company and any of its "affiliates" or their
"associates" (as such terms are defined in the rules and regulations of the SEC)
which is currently in effect or was consummated since December 31, 1991, and
which involves more than $60,000 is set forth in the Company Disclosure
Schedule.
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.13 FINANCIAL ADVISOR. The Company represents and warrants that, no
broker, finder or investment banker is entitled to any brokerage, finder's or
other fee or commission in connection with the Merger or any of the other
Transactions based upon arrangements made by or on behalf of the Company or any
of the Shareholders.
.14 ENFORCEABILITY. The Company has the corporate power and authority to
execute, deliver and perform each of the Transactional Agreements (as defined
below) to which it is or will become a party. The execution and delivery of said
Transactional Agreements have been duly and validly authorized by the unanimous
vote of the Board of Directors of the Company and approved by the unanimous vote
or written consent of the shareholders of the Company, and no other corporate
proceedings on the part of the Company are necessary for the Company to
authorize any of the Transactional Agreements, and no such proceedings are
necessary to enable the Company to perform or consummate any of the
Transactions. Said Transactional Agreements (a) have been (or will be) duly
executed and delivered by duly authorized officers of the Company and (b)
constitute (or, when executed by the Company, will constitute) legal, valid and
binding obligations of the Company enforceable against it in accordance with
their terms. For purposes of this Agreement, (i) "Transactional Agreements"
means this Agreement and each of the other agreements and documents referred to
in Sections 5.10, 5.11, 5.14, 5.15 and 5.16; and (ii) "Transactions" means (A)
the execution, delivery and performance of the respective Transactional
Agreements and (B) each of the transactions contemplated by or otherwise
referred to in any of the Transactional Agreements (including the Merger).
.15 GOVERNMENTAL CONSENTS; NO CONFLICTS. Except as set forth in the
Company Disclosure Schedule, there is no requirement applicable to the Company
to make any filing with, or to obtain any permit, authorization, consent or
approval of, any federal, state, local or foreign governmental or regulatory
agency, department, commission or other authority (a "Governmental Authority")
as a condition to the lawful consummation of any of the Transactions. The
Company does not know of any reason why any required permit, authorization,
consent or approval will not be obtained. Neither the execution and delivery of
this Agreement by the Company nor the consummation by the Company of any of the
Transactions will (a) conflict with, violate or result in any breach of any
provision of the Certificate of Incorporation or Bylaws (or comparable charter
documents) of the Company, (b) result in a default (or with notice or lapse of
time or both would result in a default) under, or impair the rights of the
Company or alter the rights or obligations of any third party under, or require
the Company to make any material payment or become subject to any liability to
any third party under, or give rise to any right of termination, amendment,
cancellation, acceleration, repurchase, put or call under, any of the terms,
conditions or provisions of any note, bond, mortgage, indenture, license
agreement, lease or other contract, instrument or obligation to which the
Company is a party or by which the Company or any of its affiliates or any of
their assets may be bound, (c) result in the creation of any liens, charges or
encumbrances on any of the assets of the Company or (d) conflict with or violate
any law, statute, rule, regulation, judgment, order, writ, injunction, decree or
arbitration award applicable to the Company or any of its assets.
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.16 NEGOTIATION WITH OTHERS. Upon execution of the letter agreement dated
October 28, 1996 between ADAC, the Company and the Shareholders, the Company
immediately ceased and caused to be terminated any discussions or negotiations
with any parties existing as of October 28, 1996 and that related to any
Acquisition Proposal, and the Company immediately demanded the return of all
financial and other information furnished to such parties. Except as set forth
in the Company Disclosure Schedule, to the Company's knowledge, such parties
have returned such information to the Company. "Acquisition Proposal" shall mean
any proposal (other than any proposal by ADAC) regarding (i) any merger,
consolidation, share exchange, business combination or other similar transaction
or series of related transactions involving the Company; (ii) any sale, lease,
exchange, transfer or other disposition of the assets of the Company or any
subsidiary of the Company constituting more than 10% of the consolidated assets
of the Company or accounting for more than 10% of the consolidated revenues of
the Company in any one transaction or in a series of related transactions; and
(iii) any offer to purchase, tender offer, exchange offer or any similar
transaction or series of related transactions made by any person involving more
than 10% of the outstanding shares of the capital stock of the Company.
5
REPRESENTATIONS AND WARRANTIES OF ADAC
ADAC represents and warrants to the Company and the Shareholders as
follows:
.1 SEC FILINGS; FINANCIAL STATEMENTS.
(A) ADAC has delivered to the Company accurate and complete copies
(excluding copies of exhibits) of each report, registration statement (on a form
other than Form S-8) and definitive proxy statement filed by ADAC with the SEC
between January 1, 1996 and the date of this Agreement (the "ADAC SEC
Documents"). As of the time it was filed with the SEC (or, if amended or
superseded by a filing prior to the date of this Agreement, then on the date of
such filing): (i) each of the ADAC SEC Documents complied in all material
respects with the applicable requirements of the Securities Act or the Exchange
Act (as the case may be); and (ii) none of the ADAC SEC Documents contained any
untrue statement of a material fact or omitted to state a material fact required
to be stated therein or necessary in order to make the statements therein, in
the light of the circumstances under which they were made, not misleading.
(B) The consolidated financial statements contained in the ADAC SEC
Documents: (i) complied as to form in all material respects with the published
rules and regulations of the SEC applicable thereto; (ii) were prepared in
accordance with generally accepted accounting principles applied on a consistent
basis throughout the periods covered,
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except as may be indicated in the notes to such financial statements and (in the
case of unaudited statements) as permitted by Form 10-Q of the SEC, and except
that unaudited financial statements may not contain footnotes and are subject to
year-end audit adjustments; and (iii) fairly present the consolidated financial
position of ADAC and its subsidiaries as of the respective dates thereof and the
consolidated results of operations of ADAC and its subsidiaries for the periods
covered thereby.
.2 AUTHORITY; BINDING NATURE OF AGREEMENT. Subject to the requisite
approval by the ADAC Board of Directors, ADAC has the corporate power and
authority to perform its obligations under this Agreement. No vote of ADAC's
stockholders is needed to approve the Merger. This Agreement constitutes the
legal, valid and binding obligation of ADAC, enforceable against it in
accordance with its terms.
.3 VALID ISSUANCE. The ADAC Common Stock to be issued in the Merger
will, when issued in accordance with the provisions of this Agreement, be
validly issued, fully paid and nonassessable.
.4 FINANCIAL ADVISOR. ADAC represents and warrants that, no broker,
finder or investment banker is entitled to any brokerage, finder's or other fee
or commission in connection with the Merger or any of the other Transactions
based upon arrangements made by or on behalf of ADAC.
.5 SECURITIES LAWS. Assuming the accuracy of the representations and
warranties made by each of the Shareholders in the Affiliate and Investment
Representation Letter in the form attached hereto as Exhibit B and the filing of
a Notice of Sale of Securities Pursuant to Regulation D (which filing will be
made in a timely manner following the Effective Time), the ADAC Common Stock to
be issued in the Merger when issued in accordance with the terms of this
Agreement will be issued in compliance with all applicable federal and state
securities laws.
6
CONDUCT AND TRANSACTIONS PRIOR TO
EFFECTIVE TIME; ADDITIONAL AGREEMENTS
.1 INFORMATION AND ACCESS.
(A) During the period from the date of this Agreement through the
Closing Date:
(I) the Company shall afford, and shall cause the
independent auditors, counsel and other advisors and representatives
(collectively, "Representatives") of the Company
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to afford, to ADAC and to ADAC's Representatives, reasonable access to the
properties, books, records (including filed Tax Returns, Tax Returns in
preparation and the audit work papers and other records of the independent
auditors of the Company) and personnel of the Company in order that ADAC and
ADAC's Representatives may have a full opportunity to make such investigation as
ADAC reasonably desires to make of the Company;
(II) the Company shall permit ADAC and ADAC's Representatives
to make such reasonable inspections of the Company and its operations as ADAC
may reasonably require from time to time; and
(III) the Company shall furnish ADAC and ADAC's
Representatives with, and shall cause the Company's Representatives to furnish
ADAC with, such financial and operating data and other information with respect
to the business and properties of the Company as ADAC or its counsel may
reasonably request from time to time.
(B) Without limiting the generality of Section 4.1(a), during the
period from the date of this Agreement through the Closing Date, the Company
shall promptly provide ADAC with copies of:
(I) all material operating and financial reports prepared by
the Company for its senior management, including copies of the unaudited monthly
balance sheets of the Company and the related unaudited monthly statements of
operations, changes in financial position and changes in shareholders' equity
(with copies of such monthly financial statements to be delivered to ADAC no
later than the 20th day after the last day of the month to which they relate);
(II) any written materials or written communications sent by
the Company to its shareholders generally in connection with their status as
such; and
(III) any notice, report or other document filed with or sent
to any Governmental Authority in connection with any of the Transactions.
(C) No investigation by ADAC or any of its Representatives pursuant
to this Section 4.1 shall limit or otherwise affect any representations or
warranties of the Company or any condition to any obligation of ADAC.
.2 CONDUCT OF BUSINESS OF THE COMPANY.
(A) Except as provided in Section 4.2(b), during the period from the
date of this Agreement through the Effective Time, (i) the Company shall conduct
its business in the ordinary and usual course consistent with past practice and
(ii) the Company shall use its best efforts to maintain and preserve intact its
business organization, to keep available the services of
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its officers and employees and to maintain satisfactory relations with lessors,
suppliers, contractors, distributors, customers and others having business
relationships with the Company.
(B) During the period from the date of this Agreement through the
Effective Time, the Company shall not do, and shall not permit any of its
subsidiaries to do, any of the following, without ADAC's prior written consent:
(I) declare, set aside or pay any dividend or make any other
distribution in respect of any capital stock, provided however, the Company may
on or before the Closing Date, upon giving prior written notice to ADAC, pay a
dividend to its shareholders of an amount equal to such shareholders' aggregate
S corporation tax liability attributable to such shareholders' stock holdings in
the Company for the period from January 1, 1996 through the Closing Date, as
calculated by the Company's independent public accountant and reported to ADAC;
(II) repurchase, redeem or otherwise acquire any capital
stock of the Company;
(III) issue, deliver, pledge, encumber, sell or transfer, or
authorize or propose the issuance, delivery, pledge, encumbrance, sale or
transfer of, any shares of capital stock of the Company or any securities
convertible into, or rights, warrants or options to acquire, any such shares of
capital stock or other convertible securities, or make any change in its equity
capitalization or to the terms of any option, warrant or other equity security
of the Company that is currently outstanding;
(IV) amend the Certificate of Incorporation, Bylaws or other
organizational or charter documents of the Company or adopt any stock purchase
rights plan (or "poison pill");
(V) acquire any asset, except in the ordinary course of
business consistent with past practice;
(VI) sell, lease, pledge or otherwise dispose of or encumber
any of its assets, except in the ordinary course of business consistent with
past practice;
(VII) incur any indebtedness for borrowed money, or issue or
sell any debt securities or guarantee, endorse or otherwise become responsible
for any obligation of any other person;
(VIII) adopt or amend any Company Employee Plan, employment
agreement, severance agreement, special pay arrangement with respect to
termination of
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employment or other similar arrangement or agreement with any director, officer
or employee of the Company, or enter into or amend any severance or termination
arrangement;
(IX) change any compensation payable or to become payable to
any of its officers or employees; or
(X) authorize or propose any of the foregoing, or enter into
any contract, agreement, commitment or arrangement contemplating any of the
foregoing.
.3 NEGOTIATION WITH OTHERS.
(A) Until the earlier of the Closing Date or December 31, 1996, the
Company shall not, and it shall not authorize or permit any of its officers,
directors or employees, directly or indirectly, to (i) solicit, initiate or
knowingly encourage or induce the making of any Acquisition Proposal (as defined
in Section 2.18), (ii) furnish information regarding the Company or any of its
subsidiaries in connection with an Acquisition Proposal or potential Acquisition
Proposal, (iii) negotiate or engage in discussions with any third party with
respect to any Acquisition Proposal, (iv) approve, endorse or recommend any
Acquisition Proposal or (v) enter into any letter of intent, contract or other
instrument related directly or indirectly to any Acquisition Proposal or
contracts with advisors or consultants.
(B) Until the earlier of the Closing Date or December 31, 1996, each
Shareholder shall not, directly or indirectly, (i) solicit, initiate or
knowingly encourage or induce the making of any Acquisition Proposal (as defined
in Section 2.18), (ii) furnish information regarding the Company or any of its
subsidiaries in connection with an Acquisition Proposal or potential Acquisition
Proposal, (iii) negotiate or engage in discussions with any third party with
respect to any Acquisition Proposal, (iv) approve, endorse or recommend any
Acquisition Proposal or (v) enter into any letter of intent, contract or other
instrument related directly or indirectly to any Acquisition Proposal or
contracts with advisors or consultants.
(C) The Company or, as applicable a Shareholder, shall promptly
advise ADAC orally and in writing of the receipt of any Acquisition Proposal or
any inquiry relating to an Acquisition Proposal prior to the Effective Time.
(D) The Company shall immediately cease and cause to be terminated
any discussions or negotiations with any parties existing as of the date of this
Agreement and that relate to any Acquisition Proposal, and the Company shall
immediately demand the return of all financial and other information furnished
to such parties.
.4 REGISTRATION STATEMENT. No later than February 28, 1997, ADAC shall
prepare and cause to be filed with the SEC a Registration Statement on Form S-3
to register the ADAC Common Stock to be issued to the Shareholders in connection
with the Merger. ADAC shall use
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its best efforts to cause such registration statement to become effective as
soon as practicable after the filing thereof.
.5 REGULATORY APPROVALS.
(A) The Company and ADAC shall use all reasonable efforts to file as
soon as practicable after the date of this Agreement all notices, reports and
other documents required by law to be filed with any Governmental Authority with
respect to the Merger and the other Transactions and to submit promptly any
additional information requested by any such Governmental Authority.
(B) The Company and ADAC shall (i) give each other prompt notice of
the commencement of any Proceeding by or before any court or Governmental
Authority with respect to the Merger or any of the other Transactions, (ii) keep
each other informed as to the status of any such Proceeding and (iii) except as
may be prohibited by any Governmental Authority or by any law or court order or
decree, permit the other party to be present at each meeting or conference
relating to any such Proceeding and to have access to and be consulted in
connection with any document filed or provided to any Governmental Authority in
connection with any such Proceeding.
.6 ADDITIONAL AGREEMENTS. The Company and the Shareholders agree to use
their best efforts to take, or cause to be taken, all actions necessary to
consummate the Merger and make effective the other Transactions. Without
limiting the generality of the foregoing, the Company shall use all commercially
reasonable efforts to (i) obtain the consent and approval of each Governmental
Authority, lessor or other person whose consent or approval is required (by
virtue of any contractual provision or legal requirement or otherwise) in order
to permit the consummation of the Merger or any of the other Transactions or in
order to enable ADAC as the Surviving Corporation to conduct its business in the
manner in which such business is currently being conducted or is proposed to be
conducted, (ii) effect all registrations and filings necessary to consummate the
Merger and (iii) lift any restraint, injunction or other legal bar to the
Merger.
.7 DISCLOSURE. Except as otherwise required by law, no announcement
shall be made regarding this Agreement or the Merger (a) by either the Company
or any Shareholder without the prior written consent of ADAC or (b) by ADAC
without the prior written consent of the Company, which consents shall not be
unreasonably withheld. Notwithstanding the foregoing, the Company shall be
entitled to make such an announcement to its employees. Disclosure prior to the
date hereof (i) by the Company to a departmental chairman at the University of
Wisconsin and (ii) by ADAC to certain of its employees shall not been deemed to
be breaches of this Section 4.7.
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.8 EMPLOYMENT AGREEMENTS. Each of Mark Gehring and Cameron Sanders shall
execute and deliver to ADAC, on or prior to the Closing Date, Employment
Agreements in the form attached hereto as Exhibits A-1 and A-2, respectively.
.9 AFFILIATE AND INVESTMENT REPRESENTATION AGREEMENTS. Each Shareholder
shall execute and deliver to ADAC, on or prior to the Closing Date, an Affiliate
and Investment Representation Agreement in the form attached hereto as Exhibit
B.
.10 CONTINUITY OF INTEREST CERTIFICATES. Each Shareholder shall execute
and deliver to ADAC a Continuity of Interest Certificate in the form attached
hereto as Exhibit C.
.11 TAX OPINION BACK-UP CERTIFICATES. The Company shall deliver to ADAC's
counsel a tax opinion back-up certificate substantially in the form attached
hereto as Exhibit D (the "Company Tax Certificate"). ADAC shall deliver to the
Company's counsel a tax opinion back-up certificate substantially in the form
attached hereto as Exhibit E (the "ADAC Tax Certificate").
7
CONDITIONS PRECEDENT TO OBLIGATIONS OF ADAC
The obligations of ADAC to effect the Merger and otherwise consummate the
transactions contemplated by this Agreement are subject to the fulfillment, at
or prior to the Closing, of each of the following conditions:
.1 REPRESENTATIONS AND WARRANTIES ACCURATE.
(A) The representations and warranties of the Company contained in
this Agreement shall have been accurate in all respects as of the date of this
Agreement.
(B) The representations and warranties of the Company contained in
this Agreement shall be accurate in all respects as of the Closing Date as if
made on and as of the Closing Date.
.2 COMPLIANCE WITH COVENANTS. The Company and the Shareholders shall
have complied with and performed in all material respects each covenant
contained in this Agreement that is required to be performed by the Company and
the Shareholders, respectively, on or prior to the Closing Date.
.3 NO MATERIAL ADVERSE EFFECT. Since the date of this Agreement, there
shall not have been any material adverse effect on the Company and there shall
not have occurred any
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change or development, or any combination of changes or developments, that would
reasonably be expected to have a material adverse effect on the Company.
.4 CERTIFICATE. The Company shall have delivered to ADAC a certificate
of the Chief Executive Officer of the Company evidencing compliance with the
conditions set forth in Sections 5.1, 5.2 and 5.3.
.5 PRE-ACQUISITION REVIEW. ADAC shall have completed its pre-acquisition
review of the Company and its business and shall be satisfied, in its sole
discretion, with the results of such review.
.6 GOVERNMENTAL CONSENTS AND APPROVALS. ADAC and the Company shall have
received all approvals, licenses, consents, assignments and authorizations of
Governmental Authorities as may be required to permit the performance by ADAC
and the Company of their respective obligations under this Agreement and the
consummation of the Merger and the other Transactions.
.7 CONSENT OF LENDERS. ADAC and the Company shall have received any
applicable consents of lenders.
.8 BOARD OF DIRECTORS APPROVAL. The Board of Directors of ADAC shall
have approved this Agreement, the Merger and the Related Transactions.
.9 EXEMPT TRANSACTION. The issuance of the ADAC Common Stock in
connection with the Merger shall be exempt from the registration requirements of
the Securities Act of 1933, as amended.
.10 EMPLOYMENT AGREEMENTS. Each of Mark Gehring and Cameron Sanders shall
have executed and delivered to ADAC an Employment Agreement in the form of
Exhibit A-1 and A-2, respectively.
.11 AFFILIATE AND INVESTMENT REPRESENTATION AGREEMENTS. Each Shareholder
shall have executed and delivered to ADAC an Affiliate and Investment
Representation Agreement in the form of Exhibit B.
.12 ABSENCE OF RESTRAINT. No order to restrain, enjoin or otherwise
prevent the consummation of the Merger or any of the other Transactions shall
have been entered by any court or Governmental Authority.
.13 NO LITIGATION. There shall not be pending or threatened any
Proceeding which, in the reasonable opinion of ADAC, could have a material
adverse effect on the Company, ADAC or the Surviving Corporation.
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<PAGE>
.14 CONTINUITY OF INTEREST CERTIFICATES. Each Shareholder shall have
executed and delivered to ADAC a Continuity of Interest Certificate in the form
of Exhibit C.
.15 LEGAL OPINION. ADAC shall have received an opinion of LaFollette &
Sinykin counsel to the Company, dated the Closing Date, in substantially the
form set forth on Exhibit F.
.16 TAX OPINION. Subject to receipt by ADAC's counsel of the ADAC Tax
Certificate and the Company Tax Certificate, ADAC shall have received a written
opinion from its counsel, dated the Closing Date (reasonably satisfactory in
form and substance to ADAC), to the effect that the Merger will constitute a
reorganization within the meaning of Section 368(a) of the Code. For purposes of
rendering such opinion, ADAC's counsel shall be entitled to rely upon the ADAC
Tax Certificate and the Company Tax Certificate.
.17 CLOSING PRICE. The Closing Price shall not be less than $18.00;
provided however, in the event the Closing Price is less than $18.00 and ADAC
does not waive this Section 5.18, ADAC shall negotiate with the Company in good
faith for an adjustment in the consideration specified in Section 1.5(a)(ii);
and provided further, however, that in the event ADAC and the Company cannot
agree upon such an adjustment after negotiation in good faith, the condition
precedent set forth in this Section 5.17 shall be deemed unfulfilled.
8
CONDITIONS PRECEDENT TO THE COMPANY'S AND THE SHAREHOLDERS' OBLIGATIONS
The obligations of the Company and the Shareholders to effect the Merger
and otherwise consummate the transactions contemplated by this Agreement are
subject to the fulfillment, at or prior to the Closing, of the following
conditions:
.1 REPRESENTATIONS AND WARRANTIES ACCURATE.
(A) The representations and warranties of ADAC contained in this
Agreement shall have been accurate in all material respects as of the date of
this Agreement.
(B) The representations and warranties of ADAC contained in this
Agreement shall be accurate in all respects as of the Closing Date as if made on
and as of the Closing Date.
.2 COMPLIANCE WITH COVENANTS. ADAC shall have complied with and
performed in all material respects each covenant contained in this Agreement
that is required to be performed by ADAC on or prior to the Closing Date.
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<PAGE>
.3 CERTIFICATE. ADAC shall have delivered to the Company a certificate
of an executive officer of ADAC evidencing compliance with the conditions set
forth in Sections 6.1 and 6.2.
.4 LEGAL OPINION. The Company shall have received an opinion of Cooley
Godward LLP, counsel to ADAC, dated the Closing Date, substantially to the
effect of Exhibit G.
.5 TAX OPINION. Subject to receipt by the Company's independent
accountants of the Company Tax Certificate and the ADAC Tax Certificate, the
Company shall have received a written opinion from its independent accountants
dated the Closing Date to the effect that the Merger will constitute a
reorganization within the meaning of Section 368(a) of the Code. For purposes of
rendering such opinion, the Company's independent accountants shall be entitled
to rely upon the Company Tax Certificate and the ADAC Tax Certificate.
.6 ABSENCE OF RESTRAINT. No order to restrain, enjoin or otherwise
prevent the consummation of the Merger or any of the other Transactions shall
have been entered by any court or Governmental Authority.
.7 EMPLOYMENT AGREEMENTS. ADAC shall have executed and delivered to each
of Mark Gehring and Cameron Sanders an Employment Agreement in the form of
Exhibit A-1 and A-2, respectively.
.8 CLOSING PRICE. The Closing Price shall not be greater than $22.00;
provided however, in the event the Closing Price is greater than $22.00 and the
Company does not waive this Section 6.8, the Company shall negotiate with ADAC
in good faith for an adjustment in the consideration specified in Section
1.5(a)(ii); and provided further, however, that in the event ADAC and the
Company cannot agree upon such an adjustment after negotiation in good faith,
the condition precedent set forth in this Section 6.8 shall be deemed
unfulfilled.
9
TERMINATION OF AGREEMENT
.1 TERMINATION.
(A) This Agreement may be terminated prior to the Effective Time:
(I) by mutual written consent of the respective Boards of
Directors of ADAC and the Company;
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(II) by either ADAC or the Company if the Merger shall not
have been consummated by December 31, 1996 (unless the failure to consummate the
Merger is attributable to a failure on the part of the party seeking to
terminate this Agreement to perform any material obligation required to be
performed by such party at or prior to the Effective Time);
(III) by either ADAC or the Company if a court of competent
jurisdiction or Governmental Authority shall have issued a final and
nonappealable order, decree or ruling, or shall have taken any other action,
having the effect of permanently restraining, enjoining or otherwise prohibiting
the Merger;
(B) This Agreement may be terminated prior to the Closing Date:
(I) by ADAC if any of the Company's representations and
warranties contained in this Agreement shall be or shall have become materially
inaccurate as of the date of this Agreement, or if any of the Company's
covenants contained in this Agreement shall have been breached in any material
respect; provided, however, that if an inaccuracy in the Company's
representations and warranties or a breach of a covenant by the Company is
curable by the Company, the Company shall have ten days to cure such breach; or
(II) by the Company if any of ADAC's representations and
warranties contained in this Agreement shall be or shall have become materially
inaccurate as of the date of this Agreement, or if any of ADAC's covenants
contained in this Agreement shall have been breached in any material respect;
provided, however, that if an inaccuracy in ADAC's representations and
warranties or a breach of a covenant by ADAC is curable by ADAC, ADAC shall have
ten days to cure such breach.
.2 EFFECT OF TERMINATION. In the event of the termination of this
Agreement as provided in Section 7.1, this Agreement shall be of no further
force or effect; provided, however, that (i) Section 4.3, this Section 7.2,
Section 7.3 and Section 10.10 shall survive the termination of this Agreement
and shall remain in full force and effect and (ii) the termination of this
Agreement shall not relieve any party from any liability for any breach of this
Agreement.
.3 FEES AND EXPENSES. Each of ADAC and the Company shall bear its own
expenses in connection with the preparation, negotiation, execution and
performance of this Agreement, the Merger and the Transactions, provided,
however, the Company may also pay the reasonable legal and accounting fees and
expenses incurred by the Shareholders in connection the preparation, negotiation
and execution of this Agreement and the Merger.
10
HOLDBACK
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.1 HOLDBACK AMOUNT. On the Closing Date, ADAC shall withhold ten percent
(10%) of the ADAC Common Stock being delivered pursuant to Section 1.5(a)(ii)
(the "Holdback Common Stock") and the shareholders of the Company shall deliver
to ADAC endorsed stock powers (the "Stock Powers") in blank for the Holdback
Common Stock. ADAC shall hold the Holdback Common Stock until the date specified
in Section 8.7 (the "Holdback Period").
.2 VOTING OF SHARES. During the Holdback Period, the record owners of
the shares of Holdback Common Stock shall be entitled to exercise all voting
rights with respect to such shares of Holdback Common Stock. Any cash,
securities or other property distributable (whether by way of dividend, stock
split or otherwise) in respect of or in exchange for any shares of Holdback
Common Stock held by ADAC shall not be distributed to the record owner of such
shares, but rather shall be held by ADAC. At the time any shares of Holdback
Common Stock are released by ADAC, any cash, securities or other property
previously distributed in respect of or in exchange for such shares shall be
released by ADAC to such person.
.3 TRANSFERABILITY; FRACTIONAL SHARES. The interests of the record
owners in the Holdback Common Stock shall not be assignable or transferable,
other than by operation of law. No transfer of any of such interests by
operation of law shall be recognized or given effect until ADAC shall have
received written notice of such transfer. No fractional shares of Holdback
Common Stock shall be retained in or released pursuant to this Article 8. In
connection with any release of shares of the Holdback Common Stock, ADAC shall
be permitted to "round down" or to follow such other rounding procedures as ADAC
reasonably determines to be appropriate in order to avoid retaining any
fractional share and in order to avoid releasing any fractional share.
.4 CLAIM NOTICE. If ADAC determines in good faith that (i) there has
been a possible breach by the Company of any representation, warranty, covenant
or other provision set forth in this Agreement or the certificate issued
pursuant to Section 5.3, or (ii) that there is a reasonable likelihood that any
of the matters disclosed in Section 2.8 of the Company Disclosure Schedule may
result in any liability, loss, cost or expense to ADAC and if ADAC wishes to
make a claim against the Holdback Common Stock with respect to such possible
breach, then ADAC may deliver to Mark A. Gehring, as agent (the "Agent") for the
stockholders entitled to the Holdback Common Stock a certificate signed by one
or more of its officers (a "Claim Notice") setting forth the claim and the
amount of the claim (the "Claim Amount"). Notwithstanding the foregoing, ADAC
shall not be entitled to make a claim against the Holdback Common Stock until
the aggregate amount of all such potential claims exceeds $15,000, at which
point all claims up to and exceeding such amount may be satisfied out of the
Holdback Common Stock. No Claim Notice may be made following the date one year
from the Closing Date.
.5 RESPONSE NOTICE. Within thirty (30) days after the delivery of a
Claim Notice to the Agent, the Agent shall deliver to ADAC a written notice (the
"Response Notice") containing:
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(A) instructions to the effect that shares of Holdback Common Stock
having a Stipulated Value (as defined below) equal to the entire Claim Amount
set forth in such Claim Notice are to be released to ADAC; or
(B) instructions to the effect that shares of Holdback Common Stock
having a Stipulated Value equal to a specified portion (but not the entire
amount) of the Claim Amount set forth in such Claim Notice are to be released to
ADAC, together with a statement that the remaining portion of such Claim Amount
is being disputed; or
(C) a statement that the entire Claim Amount set forth in such Claim
Notice is being disputed.
If no Response Notice is received by ADAC from the Agent within thirty (30) days
after the delivery of a Claim Notice to the Agent, then the recipient of such
Claim Notice shall be deemed to have given instructions that shares of Holdback
Common Stock having a Stipulated Value equal to the entire Claim Amount set
forth in such Claim Notice are to be released to ADAC.
.6 RELEASE OF SHARES TO ADAC.
(A) If the Agent gives (or is deemed to have given) instructions that
shares of Holdback Common Stock having a Stipulated Value equal to the entire
Claim Amount set forth in a Claim Notice are to be released to ADAC, then ADAC
shall be authorized to use the Stock Powers to transfer to ADAC shares of
Holdback Common Stock having a Stipulated Value equal to such Claim Amount.
(B) If a Response Notice delivered by the Agent in response to a
Claim Notice contains instructions to the effect that shares of Holdback Common
Stock having a Stipulated Value equal to a specified portion (but not the entire
amount) of the Claim Amount set forth in such Claim Notice are to be released to
ADAC, then (i) ADAC shall be authorized to use the Stock Powers to transfer to
ADAC shares of Holdback Common Stock having a Stipulated Value equal to such
specified portion of such Claim Amount, and (ii) the procedures set forth in
Section 8.6(c) shall be followed with respect to the remaining portion of such
Claim Amount.
27
<PAGE>
(C) If a Response Notice delivered by the Agent in response to a
Claim Notice contains a statement that all or a portion of the Claim Amount set
forth in such Claim Notice is being disputed (such Claim Amount or the disputed
portion thereof being referred to as the "Disputed Amount"), then,
notwithstanding anything contained in Section 8.7, ADAC shall continue to hold
(in addition to any other shares of Holdback Common Stock permitted to be
retained, whether in connection with any other dispute, or otherwise) shares of
Holdback Common Stock having a Stipulated Value equal to One Hundred Twenty-Five
percent (125%) of the Disputed Amount. Such shares of Holdback Common Stock
shall continue to be held until such time as (i) ADAC or the Agent execute a
settlement agreement containing instructions regarding the release of such
shares, or (ii) ADAC receives a copy of a court order containing instructions to
ADAC regarding the release of such shares. ADAC shall thereupon release such
shares of Holdback Common Stock in accordance with the instructions set forth in
such settlement agreement or court order. (The parties acknowledge that it is
appropriate to retain more than One Hundred percent (100%) of the Claim Amount
in recognition of the fact that ADAC may have underestimated the aggregate
amount of the actual and potential Damages arising from a particular breach.)
For purposes of this Article 8, the "Stipulated Value" of each of the
shares of Holdback Common Stock held shall be deemed to be equal to the Closing
Price.
(D) With respect to all claims under this Agreement other than claims
for breach or violation of Sections 10.1 and 10.10, Shares of Holdback Common
Stock shall be transferred to ADAC as permitted under this Article 8 on a pro-
rata basis from each Shareholder, based on the number of shares of Holdback
Common Stock in the name of each Shareholder. With respect to claims for breach
or violation of Sections 10.1 and 10.10, shares of Holdback Common Stock shall
be transferred to ADAC as permitted under this Article 8 on a pro-rata basis
from only those Shareholders whose conduct resulted in such breach or violation.
Any release of Holdback Common Stock to ADAC shall be an adjustment in and
reduction of the consideration due the Shareholders as set forth in Section
1.5(a)(ii).
.7 RELEASE OF SHARES TO AGENT. On the date which is Three Hundred
Sixty-Five (365) days after the Closing Date, ADAC shall release to the Agent
all shares of Holdback Common Stock then held by ADAC, except for any shares of
Holdback Common Stock that are to be retained by ADAC pursuant to Section
8.6(c). Any release of shares to the Agent pursuant to the preceding sentence
may be effected by mailing stock certificates to the Agent.
.8 SOLE RECOURSE. Release of shares of Holdback Common Stock pursuant to
the terms hereof shall be the sole recourse for ADAC in the event of a breach by
the Company or the Shareholders of this Agreement except for the obligations of
the Shareholders under Sections 10.1 and 10.10. The Shareholders shall have no
personal liability for any such breach.
28
<PAGE>
11
POST-CLOSING COVENANTS OF ADAC
.1 UNIVERSITY OF WISCONSIN. ADAC hereby agrees to comply with the
provisions of all Geometrics' agreements with the University of Wisconsin, as
set forth in the Company Disclosure Schedule.
.2 LEASE. The Shareholders have provided the Company's landlord with
personal guarantees to secure the obligations of the Company under its office
lease. ADAC hereby agrees to indemnify and hold the Shareholders harmless in
the event the landlord seeks recourse against such guarantees.
.3 CREDIT FOR YEARS OF SERVICE FOR VACATION ACCRUALS. The employees of
the Company on the Closing Date who continue their employment with the Company
or with ADAC after Closing shall receive credit for their pre-Closing years of
service with the Company in determining their vacation accrual status under the
ADAC vacation policy.
.4 CARRYOVER OF VACATION ACCRUALS. Employees of the Company on the
Closing Date who continue their employment with the Company or with ADAC after
Closing shall carryover their accrued but unused vacation days.
12
MISCELLANEOUS
.1 NON-COMPETE. Each of Mark A. Gehring and Cameron L. Sanders hereby
agrees that during the period commencing upon the Closing Date and ending two
years after the Closing Date, without the prior written consent of ADAC, such
Shareholder shall not either as an individual or as an employee, agent,
consultant, advisor, independent contractor, general partner, officer, director,
shareholder or investor of any person: (i) participate or engage in the design,
development, manufacture, production, marketing, sale or servicing of any
product, or the provision of any service, that directly or indirectly competes
with any product or service designed, developed, manufactured, produced,
marketed, sold or provided by the Company prior to the Effective Time or by ADAC
prior to or after the Effective Time; (ii) solicit or attempt to solicit any
person who at the time of such inducement is an employee of ADAC to perform work
or services for any other person; or (iii) permit the name of such Shareholder
to be used in connection with any competitive business.
.2 AMENDMENT. This Agreement may be amended with the approval of the
respective Boards of Directors of the Company and ADAC at any time; provided,
however, that no amendment shall be made which would have a material adverse
effect on the Shareholders of
<PAGE>
the Company without the further approval of such Shareholders. This Agreement
may not be amended except by an instrument in writing signed on behalf of each
of the parties hereto.
.3 WAIVER.
(A) No failure on the part of any party to exercise any power, right,
privilege or remedy under this Agreement, and no delay on the part of any party
in exercising any power, right, privilege or remedy under this Agreement, shall
operate as a waiver of such power, right, privilege or remedy; and no single or
partial exercise of any such power, right, privilege or remedy shall preclude
any other or further exercise thereof or of any other power, right, privilege or
remedy.
(B) No party shall be deemed to have waived any claim arising out of
this Agreement, or any power, right, privilege or remedy under this Agreement,
unless the waiver of such claim, power, right, privilege or remedy is expressly
set forth in a written instrument duly executed and delivered on behalf of such
party; and any such waiver shall not be applicable or have any effect except in
the specific instance in which it is given.
.4 NO SURVIVAL OF REPRESENTATIONS AND WARRANTIES. None of the
representations and warranties contained in this Agreement or in any instrument
delivered pursuant to this Agreement shall survive the Merger.
.5 SEVERABILITY. In the event that any provision of this Agreement or
the application thereof, becomes or is declared by a court of competent
jurisdiction to be illegal, void, or unenforceable, the remainder of this
Agreement will continue in full force and effect and the application of such
provision to other persons or circumstances will be interpreted so as reasonably
to effect the intent of the parties hereto. The parties further agree to
replace such void or unenforceable provision of this Agreement with a valid and
enforceable provision that will achieve, to the extent possible, the economic,
business an other purposes of such void or unenforceable provision.
.6 ENTIRE AGREEMENT; COUNTERPARTS; APPLICABLE LAW. This Agreement and
the other agreements referred to herein constitute the entire agreement and
supersede all prior agreements and understandings, both written and oral, among
or between any of the parties with respect to the subject matter hereof. This
Agreement may be executed in several counterparts, each of which shall be deemed
an original and all of which shall constitute one and the same instrument, and
shall be governed in all respects by the laws of the State of California as
applied to contracts entered into and to be performed entirely within
California.
.7 ASSIGNABILITY. This Agreement shall be binding upon, and shall be
enforceable by and inure solely to the benefit of, the parties hereto and their
respective successors; provided, however, that this Agreement may not be
assigned by any party without the prior written consent of the other parties,
and any attempted assignment without such consent shall be void and of no
<PAGE>
effect. Nothing in this Agreement, express or implied, is intended to or shall
confer upon any third person any right, benefit or remedy of any nature
whatsoever under or by reason of this Agreement.
.8 NOTICES. All notices and other communications pursuant to this
Agreement shall be in writing and shall be deemed given if delivered personally,
telecopied, sent by nationally-recognized, overnight courier or mailed by
registered or certified mail (return receipt requested), postage prepaid, to the
parties at the following addresses (or at such other address for a party as
shall be specified by like notice):
IF TO ADAC,
TO: ADAC Laboratories
540 Alder Drive
Milpitas, California 95035
Attention: Karen Masterson
WITH A COPY TO: Cooley Godward LLP
One Maritime Plaza, 20th Floor
San Francisco, California 94111-3580
Attention: Susan Cooper Philpot
IF TO THE COMPANY,TO: Geometrics Corporation
6510 Grand Teton Plaza
Suite 310
Madison, Wisconsin 53719
Attention: Mark A. Gehring
WITH A COPY TO: LaFollette & Sinykin
One East Main Street
Madison, Wisconsin 53703
Attention: Robert Chritton
All such notices and other communications shall be deemed to have been received
(a) in the case of personal delivery, on the date of such delivery, (b) in the
case of a telecopy, when the party receiving such telecopy shall have confirmed
receipt of the communication, (c) in the case of delivery by nationally-
recognized, overnight courier, on the Business Day following dispatch and (d) in
the case of mailing, on the fifth Business Day following such mailing.
.9 COOPERATION. Each of the Company and ADAC agrees to cooperate fully
with the other and to execute and deliver such further documents, certificates,
agreements and instruments and to take such other actions as may be reasonably
requested by the other to evidence or reflect the Transactions and to carry out
the intent and purposes of this Agreement.
31
<PAGE>
.10 CONFIDENTIALITY. The parties hereby agree that all information about
the other's business obtained by them pursuant to this Agreement or the letter
agreement dated October 28, 1996, shall be deemed confidential and shall not be
disclosed to any other party except as contemplated hereby and such information
will not be used for any purpose except evaluating the desirability of the
Merger. The foregoing shall not apply however to information (i) known to a
party prior to such disclosure to such party, (ii) information that become
generally available to the public or to a party without confidentiality
restrictions after the date hereof, and (iii) required to be disclosed by law or
court order.
.11 CERTAIN TERMS. As used in this Agreement:
(A) the word "person" refers to any (i) individual, (ii) corporation,
partnership, company or other entity, or (iii) Governmental Authority; and
(B) the words "include" and "including," and variations thereof,
shall not be deemed to be terms of limitation, but rather shall be deemed to be
followed by the words "without limitation."
.12 TITLES. The titles and captions of the Articles and Sections of this
Agreement are included for convenience of reference only and shall have no
effect on the construction or meaning of this Agreement.
.13 ARTICLES, SECTIONS AND EXHIBITS. Except as otherwise indicated, all
references in this Agreement to "Articles," "Sections" and "Exhibits" are
intended to refer to Articles and Sections of this Agreement and Exhibits to
this Agreement.
32
<PAGE>
IN WITNESS WHEREOF, the parties hereby have executed this Agreement
and Plan of Reorganization as of the date first above written.
"ADAC"
ADAC LABORATORIES,
a California corporation
By: __________________________
__________________________
[Print name and Title]
the "Company"
GEOMETRICS CORPORATION,
a Wisconsin corporation
By: __________________________
__________________________
[Print name and Title]
the "Shareholders"
____________________________________
Mark A. Gehring
____________________________________
T. Rockwell Mackie
____________________________________
Cameron L. Sanders
33
<PAGE>
____________________________________
Paul J. Reckwerdt
34
<PAGE>
EXHIBIT 10.86
ADAC LABORATORIES
-----------------
EXECUTIVE SEVERANCE AGREEMENT
-----------------------------
THIS EXECUTIVE SEVERANCE AGREEMENT is made and entered into as of this th
day of, 1996, by and between ADAC LABORATORIES (the "Company") and
("Executive").
WHEREAS, the Board of Directors (the "Board") of the Company has
recommended and authorized the Company entering into a severance agreement in
the form hereof with Executive; and
WHEREAS, the Board has determined that, in the event of a possible,
threatened or pending sale or other change in control of the Company (or its
subsidiaries), it is imperative that the Company and the Board be able to rely
upon Executive to continue in Executive's position, and that the Company be able
to receive and rely upon Executive's advice, if requested, as to the best
interests of the Company and its shareholders without concern that Executive
might be distracted by the personal uncertainties and risks created by any such
possible transactions; and
WHEREAS, in connection with the foregoing, Executive may, in addition to
Executive's regular duties, be called upon to assist in the assessment of any
such possible transactions, advise management and the Board as to whether such
proposals would be in the best interests of the Company and its shareholders,
and to take such other actions as the Board might determine to be appropriate.
NOW, THEREFORE, to assure the Company that it will have the continued
dedication of Executive and the availability of Executive's advice and counsel
notwithstanding the possibility, threat or occurrence of a sale of the Company
or other Change of Control, and to induce Executive to remain in the employ of
the Company, and for other good and valuable consideration, the Company and
Executive agree as follows:
1 EVENTS CAUSING PAYMENT OF SEVERANCE BENEFIT.
-------------------------------------------
(a) If Executive is employed full-time by the Company (or one of its
subsidiaries) at the time of a "Change in Control" (as defined in Section 4
hereof), Executive shall be entitled to a Severance Payment as set forth in
Section 2 hereof, payable upon the occurrence of the Change in Control;
provided,
- --------
<PAGE>
ADAC LABORATORIES
EXECUTIVE SEVERANCE AGREEMENT
however, that if, within ten (10) days prior to the Change in Control, Executive
- -------
is offered employment by the Company (or one of its subsidiaries) or its
successor corporation on "Similar Terms" (as hereinafter defined) to those then
applicable to him as an executive employee of the Company (or one of its
subsidiaries), the Severance Payment shall be paid to him twelve (12) months
following the Change in Control, but only if the following events occur: (i)
Executive accepts such employment and (ii) Executive is not, during such twelve
(12) month period, terminated as an employee of the Company (or one of its
subsidiaries) or its successor corporation for "Cause" (as hereinafter defined).
(b) "Similar Terms" shall mean (i) duties and responsibilities
similar to those then applicable to Executive as an employee of the Company (or
one of its subsidiaries), (ii) base salary, cash incentive bonuses and other
non-cash perquisites no less than that received by Executive from the Company
(or one of its subsidiaries) during the twelve (12) months prior to the Change
in Control and (iii) a place of employment within ten miles of Executive's then-
existing place of employment.
(c) "Cause" shall mean any of the following: (i) gross and willful
refusal, which continues after thirty (30) days' written warning, to discharge
the normal and material employment duties required of the Executive, (ii) theft
or other misappropriation of Company (or one of its subsidiaries) property,
trade secrets or other intellectual property rights and use thereof to the
detriment of the Company or its successor corporation or (iii) commission of a
crime such that the Company's reputation with its customers is materially
damaged and cannot be repaired. Becoming fully or partially disabled (whether
mental or physical) shall not be deemed "Cause" herein.
(d) Notwithstanding the foregoing, should Executive be offered
employment upon Similar Terms which is accepted by him, he shall be entitled to
receive the Severance Payment immediately, without having to wait for the
expiration of the twelve-month period hereinabove provided, if at any time his
employer proposes to revise the terms and conditions of his employment in such a
manner that his employment would no longer be on Similar Terms.
2
<PAGE>
ADAC LABORATORIES
EXECUTIVE SEVERANCE AGREEMENT
(e) The death of Executive following a Change in Control shall
require the immediate payment of the Severance Payment, if not theretofore paid,
to Executive's successors as defined in Section 15 hereof.
(f) Notwithstanding any of the foregoing provisions, the Severance
Benefit described in Section 2 hereof shall be immediately payable to Executive
and all of Executive's Unvested Options shall immediately and fully vest and
become exercisable should (i) one or more persons or entities propose any of the
transactions or events described in Section 4 hereof and (ii) such person(s) or
---
entity(ies) demand, as a condition thereof, that this Severance Agreement be
terminated prior to any Change in Control (as defined in Section 4 hereof).
2. AMOUNT OF SEVERANCE PAYMENT.
---------------------------
The amount of the Severance Payment payable to Executive pursuant to this
Agreement shall be determined in accordance with the following formula: 2.99
times the total cash compensation (including base salary, bonuses and other
incentive compensation other than stock options) paid to Executive by the
Company (and its subsidiaries) during the twelve-month period ending immediately
preceding the event giving rise to the requirement to pay such Severance Payment
to Executive, less such amount as is necessary, in the opinion of tax counsel or
other appropriate tax advisor selected in good faith by the Company, to reduce
the Severance Payment to the maximum amount permitted to be paid without
incurring excise taxes for an "excess parachute payment" under Internal Revenue
Code Section 280(g).
3. STOCK OPTIONS.
-------------
(a) Ten (10) days prior to a Change in Control (as defined in Section
4 hereof), those stock options held by Executive to purchase shares of common
stock of ADAC Laboratories which are then not exercisable ("Unvested Options")
shall immediately vest and become exercisable, notwithstanding the vesting
schedule set forth in Executive's stock option agreement(s). In the event that
(i) Executive exercises the Unvested Options, (ii) Executive sells or otherwise
disposes of the shares so purchased and (iii) Executive is offered employment by
the Company or its successor corporation on Similar Terms (as
3
<PAGE>
ADAC LABORATORIES
EXECUTIVE SEVERANCE AGREEMENT
defined in Section 1(b) above), he shall deposit into an escrow account with a
bank or trust company satisfactory to the Company or its successor an amount
equal to 50% of the difference between (x) the sale proceeds received from the
shares sold or otherwise disposed of which were obtained through the exercise of
previously Unvested Options (without regard to any Federal or state income taxes
which may result from such transaction) and (y) the purchase price for such
shares (such amount is hereinafter referred to as the "Escrowed Amount"). For
purposes of this subparagraph, if such shares are disposed of without
consideration or for a consideration less than the prevailing market price for
such shares at the time of such disposition, the market price of ADAC
Laboratories common stock on the date of such sale (or disposition at less than
fair market value) shall be used to determine the Escrowed Amount.
(b) The Escrowed Amount, including any interest earned thereon, shall
be returned to Executive twelve (12) months following the Change in Control if,
and only if, (i) Executive has accepted the employment which was offered on
Similar Terms and (ii) Executive has not, during such twelve-month period, been
terminated as an employee of the Company (or its subsidiary) or its successor
corporation for Cause (as defined in Section 1(c) above); if such events do not
occur, the Escrowed Amount shall be delivered to the Company or its successor
corporation and Executive shall have no further right thereto. Provided,
however, that notwithstanding any of the foregoing, if at any time prior to such
twelve-month period, Executive's employer proposes to revise the terms and
conditions of his employment such that his employment would no longer be on
Similar Terms, the Escrowed Amount shall be returned to Executive upon the date
of such employer's proposal.
4. CHANGE IN CONTROL.
-----------------
(a) A Change in Control of the Company shall be deemed to have
occurred if (i) any "person" or "group" (as defined in or pursuant to Sections
13(d) or 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act")), becomes the "beneficial owner" (as defined in Rule 13d-3 promulgated
under the Exchange Act), directly or indirectly, of securities of the Company
representing 40% or more of the voting power of the common stock outstanding
which votes generally for the election of
4
<PAGE>
ADAC LABORATORIES
EXECUTIVE SEVERANCE AGREEMENT
directors; or (ii) as a result of market or corporate transactions or
stockholder action, the individuals who constitute the Board of Directors of the
Company at the beginning of any period of 12 consecutive months (but commencing
not earlier than July 1, 1995), plus any new directors whose election or
nomination was approved by a vote of at least two-thirds of the directors still
in office who were directors at the beginning of such period of 12 consecutive
months, cease for any reason during such period of 12 consecutive months to
constitute at least two-thirds of the members of such Board; or (iii) the
Company sells, through merger, assignment or otherwise, in one or more
transactions, other than in the ordinary course of business, assets which
provided at least 2/3 of the revenues or pre-tax net income of the Company and
its subsidiaries on a consolidated basis during the most recently-completed
fiscal year; (iv) the Company sells, through merger, assignment or otherwise,
one of its subsidiaries, which is the principal employer of the Executive;
provided, however, for purposes of this subsection 4(a)(iv), no "Change in
Control" shall be deemed to have occurred if Executive is offered comparable
employment (similar duties and compensation) by the Company (or its
subsidiaries) at any of its facilities.
(b) Notwithstanding paragraph (a) above, the following events shall
not constitute a Change in Control: any acquisition of beneficial ownership
pursuant to (i) a reclassification, however effected, of the Company's
authorized common stock, or (ii) a corporate reorganization involving the
Company or any of its subsidiaries which does not result in a material change in
the ultimate ownership by the shareholders of the Company (through their
ownership of the Company or its successor resulting from the reorganization) of
the assets of the Company and its subsidiaries, but only if such
reclassification or reorganization has been approved by the Company's Board of
Directors.
5. FRINGE BENEFITS.
---------------
(a) The Company shall provide to Executive (and his spouse and other
qualified dependents), for at least 12 months following a Change in Control (and
whether or not Executive is offered or accepts continuing employment with the
Company or its successor) all Fringe Benefits (as defined below) that were
available to Executive (and his spouse or qualified dependents)
5
<PAGE>
ADAC LABORATORIES
EXECUTIVE SEVERANCE AGREEMENT
immediately prior to the Change in Control. For purposes of this Agreement, the
term "Fringe Benefits" shall include, without limitation, all life, dental,
vacation, health, accident and disability benefit plans, other similar welfare
plans, country club dues, the provision of a company-owned automobile, company-
paid tax advice, professional financial planning assistance or any equivalent
successor policy, plan, program or arrangement that may now exist or be adopted
hereafter by the Company or its subsidiaries.
(b) If prior to the Change in Control the Executive was required to
contribute towards the payment of a Fringe Benefit as a condition of receiving
such Fringe Benefit, the Executive may be required to continue contributing
towards the payment of such Fringe Benefit under the same terms and conditions
as applied to the Executive immediately prior to the Change in Control in order
to receive such Fringe Benefit.
6. OTHER EMPLOYEE BENEFITS. The benefits provided to Executive hereunder
-----------------------
shall not be affected by or reduced because of any other benefits (including,
but not limited to, salary, bonus, pension, or stock option) to which Executive
may be entitled by reason of his employment with the Company or any subsidiary
thereof or the termination of his employment with the Company, and no other such
benefit by reason of such employment shall be so affected or reduced because of
the benefits bestowed by this Agreement.
7. WITHHOLDING; NO RIGHT OF SET-OFF. All amounts payable by the Company
--------------------------------
hereunder shall be subject to withholding of such amounts related to taxes as
the Company may be legally obligated to so withhold. The right of Executive to
receive benefits under this Agreement, however, shall be absolute and shall not
be subject to any set-off, counterclaim, recoupment, defense, duty to mitigate
or other right the Company or its subsidiaries may have against him or anyone
else, except as specifically provided for herein.
8. SUBSEQUENT EMPLOYMENT. Executive's right to receive benefits under
---------------------
this Agreement shall not be reduced by reason of Executive's employment with any
other employer after terminating employment with the Company or any of its
subsidiaries. Any compensation for services rendered or
6
<PAGE>
ADAC LABORATORIES
EXECUTIVE SEVERANCE AGREEMENT
consulting fees earned after the date of termination shall not diminish
Executive's right to receive all amounts due hereunder.
9. SUBSIDIARY AND COMPANY DEFINED. For purposes of this Agreement, the
------------------------------
term "Subsidiary" shall mean (i) any corporation, foreign or domestic, in which
the Company directly or indirectly owns 50% or more of the issued and
outstanding voting stock on an "as converted basis" and (ii) any partnership,
foreign or domestic, in which the Company owns a direct or indirect interest
equal to 50% or more of the outstanding equity interests. The term "Company,"
for purposes of this Agreement, means ADAC Laboratories unless the context of
this Agreement implies the inclusion of one or more Subsidiaries of ADAC
Laboratories.
10. EXECUTIVE'S INDEMNITY. Executive shall be entitled to any
---------------------
indemnification rights granted by the Company generally to its officers as
reflected in the bylaws or Articles of Incorporation of the Company in effect
immediately prior to any Change in Control of the Company. Any subsequent
changes to the bylaws or Articles of Incorporation reducing any such indemnity
previously granted to officers shall not affect the rights of Executive which
arose prior thereto.
11. COSTS OF ENFORCEMENT; INTEREST. In the event Executive must collect
------------------------------
any part or all of the Severance Payment or Fringe Benefits or otherwise
enforces the terms of this Agreement by or through a lawyer or lawyers, the
Company will pay all costs of such collection or enforcement, including
reasonable legal fees incurred by Executive. In addition, the Company shall pay
to Executive interest on all or any part of the Severance Payment or the Fringe
Benefits that is not paid when due at a rate equal to the prime rate as
announced by Sanwa Bank or its successors from time to time.
12. AMENDMENT. This Agreement may not be amended without the prior
---------
written consent of both Executive and the Company.
13. NO RIGHT TO CONTINUED EMPLOYMENT. Nothing in this Agreement shall be
--------------------------------
deemed to give Executive the right to be retained in the service of the Company
or to deny the Company any right it may have to discharge or demote him at any
time;
7
<PAGE>
ADAC LABORATORIES
EXECUTIVE SEVERANCE AGREEMENT
provided, however, that any termination of employment of Executive, or any
removal of Executive as an executive officer of the Company primarily in
contemplation of a Change in Control shall not be effective to deny Executive
the benefits of this Agreement, including without limitation Sections 1 and 2
hereof. No provision of this Agreement shall in any way limit, restrict or
prohibit Executive's right to terminate employment with the Company or leave his
position as senior executive.
14. SEVERABILITY. The invalidity and unenforceability of any particular
------------
provision of this Agreement shall not affect any other provision hereof, and
this Agreement shall be construed in all respects as if such invalid or
unenforceable provision were omitted.
15. SUCCESSORS.
----------
(a) The Company will require any successor, whether direct or
indirect, by purchase, merger, consolidation or otherwise, to all or
substantially all of the business and/or assets of the Company to expressly
assume and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place.
(b) This Agreement shall inure to the benefit of, and be enforceable
by, Executive's personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees. If the Executive dies
prior to the receipt of all benefits payable hereunder with respect to events
occurring prior to death, all such benefits shall be paid pursuant to the last
beneficiary designation executed by the Executive and filed with the Company. If
no beneficiary form has been filed with respect to this Agreement, all such
benefits shall be paid to the Executive's estate.
16. GOVERNING LAW. This Agreement shall be governed by and construed in
-------------
accordance with the laws of the Company's state of incorporation.
17. TERM. This Agreement shall terminate and become null and void if,
----
prior to (but not in contemplation of) a Change
8
<PAGE>
ADAC LABORATORIES
EXECUTIVE SEVERANCE AGREEMENT
in Control, Executive ceases to be employed as an executive officer with either
the Company or a Subsidiary.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement,
effective as of the 6th day of March, 1996.
ADAC LABORATORIES EXECUTIVE
By____________________________________ ______________________________________
__ __
David L. Lowe,
Chairman of the Board and
Chief Executive Officer ______________________________________
__
(Address)
______________________________________
__
9
<PAGE>
EXHIBIT 10.87
ADAC LABORATORIES
-----------------
EXECUTIVE SEVERANCE AGREEMENT
-----------------------------
THIS EXECUTIVE SEVERANCE AGREEMENT is made and entered into as of this
day of , 1996, by and between ADAC LABORATORIES (the "Company") and
("Executive").
WHEREAS, the Board of Directors (the "Board") of the Company has
recommended and authorized the Company entering into a severance agreement in
the form hereof with Executive; and
WHEREAS, the Board has determined that, in the event of a possible,
threatened or pending sale or other change in control of the Company (or its
subsidiaries), it is imperative that the Company and the Board be able to rely
upon Executive to continue in Executive's position, and that the Company be able
to receive and rely upon Executive's advice, if requested, as to the best
interests of the Company and its shareholders without concern that Executive
might be distracted by the personal uncertainties and risks created by any such
possible transactions; and
WHEREAS, in connection with the foregoing, Executive may, in addition
to Executive's regular duties, be called upon to assist in the assessment of any
such possible transactions, advise management and the Board as to whether such
proposals would be in the best interests of the Company and its shareholders,
and to take such other actions as the Board might determine to be appropriate.
NOW, THEREFORE, to assure the Company that it will have the continued
dedication of Executive and the availability of Executive's advice and counsel
notwithstanding the possibility, threat or occurrence of a sale of the Company
or other Change of Control, and to induce Executive to remain in the employ of
the Company, and for other good and valuable consideration, the Company and
Executive agree as follows:
1. EVENTS CAUSING PAYMENT OF SEVERANCE BENEFIT.
-------------------------------------------
(a) If Executive is employed full-time by the Company (or one of
its subsidiaries) at the time of a "Change in Control" (as defined in Section 4
hereof), Executive shall be entitled to a Severance Payment as set forth in
Section 2 hereof, payable upon the occurrence of the Change in Control;
provided, however, that if, within ten (10) days prior to the Change in
- -------- -------
<PAGE>
ADAC LABORATORIES
EXECUTIVE SEVERANCE AGREEMENT
Control, Executive is offered employment by the Company (or one of its
subsidiaries) or its successor corporation on "Similar Terms" (as hereinafter
defined) to those then applicable to him as an executive employee of the Company
(or one of its subsidiaries), the Severance Payment shall be paid to him twelve
(12) months following the Change in Control, but only if the following events
occur: (i) Executive accepts such employment and (ii) Executive is not, during
such twelve (12) month period, terminated as an employee of the Company (or one
of its subsidiaries) or its successor corporation for "Cause" (as hereinafter
defined).
(b) "Similar Terms" shall mean (i) duties and responsibilities
similar to those then applicable to Executive as an employee of the Company (or
one of its subsidiaries), (ii) base salary, cash incentive bonuses and other
non-cash perquisites no less than that received by Executive from the Company
(or one of its subsidiaries) during the twelve (12) months prior to the Change
in Control and (iii) a place of employment within ten miles of Executive's
then-existing place of employment.
(c) "Cause" shall mean any of the following: (i) gross and
willful refusal, which continues after thirty (30) days' written warning, to
discharge the normal and material employment duties required of the Executive,
(ii) theft or other misappropriation of Company (or one of its subsidiaries)
property, trade secrets or other intellectual property rights and use thereof to
the detriment of the Company or its successor corporation or (iii) commission of
a crime such that the Company's reputation with its customers is materially
damaged and cannot be repaired. Becoming fully or partially disabled (whether
mental or physical) shall not be deemed "Cause" herein.
(d) Notwithstanding the foregoing, should Executive be offered
employment upon Similar Terms which is accepted by him, he shall be entitled to
receive the Severance Payment immediately, without having to wait for the
expiration of the twelve-month period hereinabove provided, if at any time his
employer proposes to revise the terms and conditions of his employment in such a
manner that his employment would no longer be on Similar Terms.
(e) The death of Executive following a Change in Control shall
require the immediate payment of the Severance
2
<PAGE>
ADAC LABORATORIES
EXECUTIVE SEVERANCE AGREEMENT
Payment, if not theretofore paid, to Executive's successors as defined in
Section 15 hereof.
(f) Notwithstanding any of the foregoing provisions, the
Severance Benefit described in Section 2 hereof shall be immediately payable to
Executive and all of Executive's Unvested Options shall immediately and fully
vest and become exercisable should (i) one or more persons or entities propose
any of the transactions or events described in Section 4 hereof and (ii) such
---
person(s) or entity(ies) demand, as a condition thereof, that this Severance
Agreement be terminated prior to any Change in Control (as defined in Section 4
hereof).
(g) If a Change in Control of Community Health Computing Corp.,
a Delaware corporation ("CHCC") shall occur, as such term is defined in
Executive's CHCC Stock Option Agreement, or if CHCC is "spun-off" by the Company
to its shareholders and, as a result of either event occurring, Executive is no
longer employed by the Company or any of its other subsidiaries, then for twelve
months thereafter, the Executive shall be retained by the Company as a part-time
employee or consultant at a salary of $1,000 per month (but with no fringe
benefits) and all Company stock options then held by him shall continue in force
and remain subject to his normal vesting provisions during such twelve-month
period.
2. AMOUNT OF SEVERANCE PAYMENT.
---------------------------
The amount of the Severance Payment payable to Executive pursuant to
this Agreement shall be determined in accordance with the following formula:
2.99 times the total cash compensation (including base salary, bonuses and other
incentive compensation other than stock options) paid to Executive by the
Company (and its subsidiaries) during the twelve-month period ending immediately
preceding the event giving rise to the requirement to pay such Severance Payment
to Executive, less such amount as is necessary, in the opinion of tax counsel or
other appropriate tax advisor selected in good faith by the Company, to reduce
the Severance Payment to the maximum amount permitted to be paid without
incurring excise taxes for an "excess parachute payment" under Internal Revenue
Code Section 280(g).
3. STOCK OPTIONS.
-------------
3
<PAGE>
ADAC LABORATORIES
EXECUTIVE SEVERANCE AGREEMENT
(a) Ten (10) days prior to a Change in Control (as defined in Section
4 hereof), those stock options held by Executive to purchase shares of common
stock of ADAC Laboratories which are then not exercisable ("Unvested Options")
shall immediately vest and become exercisable, notwithstanding the vesting
schedule set forth in Executive's stock option agreement(s). In the event that
(i) Executive exercises the Unvested Options, (ii) Executive sells or otherwise
disposes of the shares so purchased and (iii) Executive is offered employment by
the Company or its successor corporation on Similar Terms (as defined in Section
1(b) above), he shall deposit into an escrow account with a bank or trust
company satisfactory to the Company or its successor an amount equal to 50% of
the difference between (x) the sale proceeds received from the shares sold or
otherwise disposed of which were obtained through the exercise of previously
Unvested Options (without regard to any Federal or state income taxes which may
result from such transaction) and (y) the purchase price for such shares (such
amount is hereinafter referred to as the "Escrowed Amount"). For purposes of
this subparagraph, if such shares are disposed of without consideration or for a
consideration less than the prevailing market price for such shares at the time
of such disposition, the market price of ADAC Laboratories common stock on the
date of such sale (or disposition at less than fair market value) shall be used
to determine the Escrowed Amount.
(b) The Escrowed Amount, including any interest earned thereon, shall
be returned to Executive twelve (12) months following the Change in Control if,
and only if, (i) Executive has accepted the employment which was offered on
Similar Terms and (ii) Executive has not, during such twelve-month period, been
terminated as an employee of the Company (or its subsidiary) or its successor
corporation for Cause (as defined in Section 1(c) above); if such events do not
occur, the Escrowed Amount shall be delivered to the Company or its successor
corporation and Executive shall have no further right thereto. Provided,
however, that notwithstanding any of the foregoing, if at any time prior to such
twelve-month period, Executive's employer proposes to revise the terms and
conditions of his employment such that his employment would no longer be on
Similar Terms, the Escrowed Amount shall be returned to Executive upon the date
of such employer's proposal.
4. CHANGE IN CONTROL.
-----------------
4
<PAGE>
ADAC LABORATORIES
EXECUTIVE SEVERANCE AGREEMENT
(a) A Change in Control of the Company shall be deemed to have
occurred if (i) any "person" or "group" (as defined in or pursuant to Sections
13(d) or 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act")), becomes the "beneficial owner" (as defined in Rule 13d-3 promulgated
under the Exchange Act), directly or indirectly, of securities of the Company
representing 40% or more of the voting power of the common stock outstanding
which votes generally for the election of directors; or (ii) as a result of
market or corporate transactions or stockholder action, the individuals who
constitute the Board of Directors of the Company at the beginning of any period
of 12 consecutive months (but commencing not earlier than July 1, 1995), plus
any new directors whose election or nomination was approved by a vote of at
least two-thirds of the directors still in office who were directors at the
beginning of such period of 12 consecutive months, cease for any reason during
such period of 12 consecutive months to constitute at least two-thirds of the
members of such Board; or (iii) the Company sells, through merger, assignment or
otherwise, in one or more transactions, other than in the ordinary course of
business, assets which provided at least 2/3 of the revenues or pre-tax net
income of the Company and its subsidiaries on a consolidated basis during the
most recently-completed fiscal year; (iv) the Company sells, through merger,
assignment or otherwise, one of its subsidiaries which is the principal employer
of the Executive; provided, however, for purposes of this subsection 4(a)(iv),
no "Change in Control" shall be deemed to have occurred if Executive is offered
comparable employment (similar duties and compensation) by the Company (or by
one of the Company's other remaining subsidiaries) at any of its facilities.
(b) Notwithstanding paragraph (a) above, the following events shall
not constitute a Change in Control: any acquisition of beneficial ownership
pursuant to (i) a reclassification, however effected, of the Company's
authorized common stock, or (ii) a corporate reorganization involving the
Company or any of its subsidiaries which does not result in a material change in
the ultimate ownership by the shareholders of the Company (through their
ownership of the Company or its successor resulting from the reorganization) of
the assets of the Company and its subsidiaries, but only if such
reclassification or reorganization has been approved by the Company's Board of
Directors, or (iii) a "spin-off" by the Company of all or any
5
<PAGE>
ADAC LABORATORIES
EXECUTIVE SEVERANCE AGREEMENT
portion of its ownership of any of its subsidiaries to the Company's then
existing shareholders, whereby the Company's shareholders become shareholders in
the subsidiary, regardless of whether such transfer of ownership is by a
distribution of the Company's ownership of the subsidiary's stock, by a direct
issuance by the subsidiary of its shares to such shareholders or by any other
method.
5. FRINGE BENEFITS.
---------------
(a) The Company shall provide to Executive (and his spouse and
other qualified dependents), for at least 12 months following a Change in
Control (and whether or not Executive is offered or accepts continuing
employment with the Company or its successor) all Fringe Benefits (as defined
below) that were available to Executive (and his spouse or qualified dependents)
immediately prior to the Change in Control. For purposes of this Agreement, the
term "Fringe Benefits" shall include, without limitation, all life, dental,
vacation, health, accident and disability benefit plans, other similar welfare
plans, country club dues, the provision of a company-owned automobile, company-
paid tax advice, professional financial planning assistance or any equivalent
successor policy, plan, program or arrangement that may now exist or be adopted
hereafter by the Company or its subsidiaries.
(b) If prior to the Change in Control the Executive was required
to contribute towards the payment of a Fringe Benefit as a condition of
receiving such Fringe Benefit, the Executive may be required to continue
contributing towards the payment of such Fringe Benefit under the same terms and
conditions as applied to the Executive immediately prior to the Change in
Control in order to receive such Fringe Benefit.
6. OTHER EMPLOYEE BENEFITS. The benefits provided to Executive
-----------------------
hereunder shall not be affected by or reduced because of any other benefits
(including, but not limited to, salary, bonus, pension, or stock option) to
which Executive may be entitled by reason of his employment with the Company or
any subsidiary thereof or the termination of his employment with the Company,
and no other such benefit by reason of such employment shall be so affected or
reduced because of the benefits bestowed by this Agreement.
6
<PAGE>
ADAC LABORATORIES
EXECUTIVE SEVERANCE AGREEMENT
7. WITHHOLDING; NO RIGHT OF SET-OFF. All amounts payable by the
--------------------------------
Company hereunder shall be subject to withholding of such amounts related to
taxes as the Company may be legally obligated to so withhold. The right of
Executive to receive benefits under this Agreement, however, shall be absolute
and shall not be subject to any set-off, counterclaim, recoupment, defense, duty
to mitigate or other right the Company or its subsidiaries may have against him
or anyone else, except as specifically provided for herein.
8. SUBSEQUENT EMPLOYMENT. Executive's right to receive benefits
---------------------
under this Agreement shall not be reduced by reason of Executive's employment
with any other employer after terminating employment with the Company or any of
its subsidiaries. Any compensation for services rendered or consulting fees
earned after the date of termination shall not diminish Executive's right to
receive all amounts due hereunder.
9. SUBSIDIARY AND COMPANY DEFINED. For purposes of this Agreement,
------------------------------
the term "Subsidiary" shall mean (i) any corporation, foreign or domestic, in
which the Company directly or indirectly owns 50% or more of the issued and
outstanding voting stock on an "as converted basis" and (ii) any partnership,
foreign or domestic, in which the Company owns a direct or indirect interest
equal to 50% or more of the outstanding equity interests. The term "Company,"
for purposes of this Agreement, means ADAC Laboratories unless the context of
this Agreement implies the inclusion of one or more Subsidiaries of ADAC
Laboratories.
10. EXECUTIVE'S INDEMNITY. Executive shall be entitled to any
---------------------
indemnification rights granted by the Company generally to its officers as
reflected in the bylaws or Articles of Incorporation of the Company in effect
immediately prior to any Change in Control of the Company. Any subsequent
changes to the bylaws or Articles of Incorporation reducing any such indemnity
previously granted to officers shall not affect the rights of Executive which
arose prior thereto.
11. COSTS OF ENFORCEMENT; INTEREST. In the event Executive must
------------------------------
collect any part or all of the Severance Payment or Fringe Benefits or otherwise
enforces the terms of this Agreement by or through a lawyer or lawyers, the
Company will pay all costs of such collection or enforcement, including
reasonable legal fees
7
<PAGE>
ADAC LABORATORIES
EXECUTIVE SEVERANCE AGREEMENT
incurred by Executive. In addition, the Company shall pay to Executive interest
on all or any part of the Severance Payment or the Fringe Benefits that is not
paid when due at a rate equal to the prime rate as announced by Sanwa Bank or
its successors from time to time.
12. AMENDMENT. This Agreement may not be amended without the prior
---------
written consent of both Executive and the Company.
13. NO RIGHT TO CONTINUED EMPLOYMENT. Nothing in this Agreement
--------------------------------
shall be deemed to give Executive the right to be retained in the service of the
Company or to deny the Company any right it may have to discharge or demote him
at any time; provided, however, that any termination of employment of Executive,
or any removal of Executive as an executive officer of the Company primarily in
contemplation of a Change in Control shall not be effective to deny Executive
the benefits of this Agreement, including without limitation Sections 1 and 2
hereof. No provision of this Agreement shall in any way limit, restrict or
prohibit Executive's right to terminate employment with the Company or leave his
position as senior executive.
14. SEVERABILITY. The invalidity and unenforceability of any
------------
particular provision of this Agreement shall not affect any other provision
hereof, and this Agreement shall be construed in all respects as if such invalid
or unenforceable provision were omitted.
15. SUCCESSORS.
----------
(a) The Company will require any successor, whether direct or
indirect, by purchase, merger, consolidation or otherwise, to all or
substantially all of the business and/or assets of the Company to expressly
assume and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place.
(b) This Agreement shall inure to the benefit of, and be
enforceable by, Executive's personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees. If the
Executive dies prior
8
<PAGE>
ADAC LABORATORIES
EXECUTIVE SEVERANCE AGREEMENT
to the receipt of all benefits payable hereunder with respect to events
occurring prior to death, all such benefits shall be paid pursuant to the last
beneficiary designation executed by the Executive and filed with the Company. If
no beneficiary form has been filed with respect to this Agreement, all such
benefits shall be paid to the Executive's estate.
16. GOVERNING LAW. This Agreement shall be governed by and construed
-------------
in accordance with the laws of the Company's state of incorporation.
17. TERM. This Agreement shall terminate and become null and void
----
if, prior to (but not in contemplation of) a Change in Control, Executive ceases
to be employed as an executive officer with either the Company or a Subsidiary.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement, effective as of the 6th day of March, 1996.
ADAC LABORATORIES EXECUTIVE
By_____________________________ ________________________________
- - _
David L. Lowe,
Chairman of the Board and ________________________________
Chief Executive Officer _
(Address)
________________________________
_
9
<PAGE>
EXHIBIT 10.88
COMMUNITY HEALTH COMPUTING CORP.
--------------------------------
STOCK OPTION PLAN (1995)
------------------------
1. PURPOSE OF THE PLAN.
-------------------
This Stock Option Plan (1995) (the "Plan") is intended to promote the
growth of the Company by attracting and motivating officers, employees and other
persons whose efforts are deemed worthy of encouragement through the incentive
effects of stock options.
2. DEFINITIONS.
-----------
As used herein, the following definitions shall apply:
(a) "ADAC" shall mean ADAC Laboratories, a California corporation.
----
(b) "BOARD" shall mean the Committee if one has been appointed or, if no
-----
Committee has been appointed, the Board of Directors of the Company.
(c) "CAUSE" shall mean any of the following: (a) gross and willful
-----
failure, after 30 days' written warning, to discharge the normal employment
duties required of the employee, (b) theft or other misappropriation of Company
property, trade secrets or other intellectual property rights and use thereof
for non-employee purposes or (c) commission of a crime such that the Company's
reputation with its customers is materially damaged. Becoming fully or
partially disabled shall not be deemed "Cause" herein.
(d) "CHC" shall mean Community Health Computing Corp., a Delaware
---
corporation.
(e) "CHANGE OF CONTROL" shall occur upon the earliest to occur of any
-----------------
of the following events: (i) a majority of CHC's Board of Directors does not
consist of persons who were members of the Board of Directors of ADAC
Laboratories ("ADAC") on July 1, 1995, but only if such event occurs within a
period of less than six months; (ii) any "person" or "group" (as defined in or
pursuant to Sections 13(d) and 14(d) of the Securities Act of 1934, as amended,
(the "Exchange Act"), becomes the "beneficial owner" (as defined in Rule 13(d)
promulgated under the Exchange Act) directly or indirectly of securities of the
corporation representing 40% or more of the voting power of the common stock
outstanding which votes generally for the election of directors; or (iii) the
corporation or any of its subsidiaries sells, through merger, assignment or
otherwise, in one or more transactions, other than in the ordinary course of
business, assets constituting two-thirds (2/3) in value of the total assets of
the Corporation. The value
<PAGE>
Stock Option Plan (1995)
Community Health Computing Corp.
of such assets, for purposes of this section, shall be determined by the Board
of Directors and shall be consistent with the values applicable to the asset
sale transaction.
(f) "CODE" shall mean the Internal Revenue Code, the rules and regulations
----
promulgated thereunder and the interpretations thereof, all as from time to time
in effect.
(g) "COMMITTEE" shall mean the Committee appointed by the Board of
---------
Directors in accordance with Section 3(a) below, if one is appointed.
(h) "COMMON STOCK" shall mean the Common Stock of the Company.
------------
(i) "COMPANY" shall mean Community Health Computing Corp., a Delaware
-------
corporation.
(j) "COMPENSATION PACKAGE" shall mean base salary, cash incentive bonuses
--------------------
and the value of all other readily-measurable non-cash perquisites
received during the prior calendar year.
(k) "CONSULTANT" shall mean any person who is engaged by the Company or
----------
any Parent or Subsidiary of the Company to render consulting or advisory
services, whether or not compensation is paid to such individual.
(l) "CONTINUOUS STATUS" shall mean the absence of any interruption or
-----------------
termination of service as an Employee, Consultant or other person providing
services on a regular basis to the Company or its Parent or any Subsidiary.
Continuous Status shall not be considered interrupted in the case of sick leave,
military leave, or any other leave of absence approved by the Board, provided
that either such leave is for a period of not more than ninety (90) days or
reemployment upon the expiration of such leave is provided or guaranteed by
contract or statute.
(m) "DIRECTOR" shall mean any person serving on the Board of Directors.
--------
(n) "EMPLOYEE" shall mean any person, including Officers and Directors,
--------
employed by the Company or its Parent or any Subsidiary of the Company.
(o) "FAIR MARKET VALUE" shall mean the average of the closing bid and
-----------------
asked prices of a share of Common Stock, as reported by The Wall Street Journal
(or, if not reported, as otherwise quoted by
2
<PAGE>
Stock Option Plan (1995)
Community Health Computing Corp.
the National Association of Securities Dealers through NASDAQ), on the date of
the grant of the Option, or, if the Common Stock is listed on the NASDAQ
National Market System or is listed on a national stock exchange, the closing
price on such System or such exchange on the date of the grant of an Option, as
reported in The Wall Street Journal. In the event the Common Stock is not traded
publicly, the Fair Market Value on the date of the grant of an Option shall be
determined, in good faith, by the Board or the Committee and such determination
shall be conclusive for all purposes. The Board or Committee shall take into
account such factors affecting value as it, in its sole and absolute discretion,
may deem relevant.
(p) "FAIR MARKET VALUE OF CHC" shall mean and be determined by the
------------------------
following formula: (a) the net income before interest expense and federal
income taxes based on net income ("EBIT") of CHC for the four fiscal quarters
ending immediately prior to a Change of Control divided by the EBIT of ADAC and
all of its subsidiaries (including CHC) for the four fiscal quarters ending
immediately prior to a Change of Control, the result of which shall be
multiplied by (b) the market capitalization of ADAC on the date of the Change of
Control. For purposes of this section, "market capitalization" shall mean the
per share closing price of ADAC Common Stock multiplied by the weighted average
number of Common and Common-equivalent shares outstanding as of the fiscal
quarter ending immediately preceding the determination date.
(q) "FAIR MARKET VALUE PER CHC SHARE" shall be determined by first
-------------------------------
subtracting from the Fair Market Value of CHC the aggregate liquidation
preferences of all issued and outstanding shares of CHC convertible preferred
stock and then dividing the result by the number of all issued and outstanding
shares of CHC Common Stock; provided, however, that at the election of CHC, the
aggregate liquidation preferences of such convertible preferred stock shall not
be subtracted from the Fair Market Value of CHC, and the Fair Market Value of
CHC shall be divided by the sum of (a) the number of the issued and outstanding
shares of CHC Common Stock and (b) the number of shares of CHC Common Stock into
which all issued and outstanding shares of convertible preferred stock of CHC
may be converted.
(r) "INCENTIVE OPTION" shall mean an option described in Section 422 of
----------------
the Code. To qualify for favorable tax treatment provided by an incentive
option, the shares purchased upon exercise must be held for a period of two (2)
years from the date of the option grant and for a period of one (1) year after
the shares are transferred to Optionee.
3
<PAGE>
Stock Option Plan (1995)
Community Health Computing Corp.
(s) "NET INTRINSIC VALUE" of an Option shall mean the difference between (a)
-------------------
the Fair Market Value per CHC Share and (b) the Option exercise price,
multiplied by the number of shares represented by the Unvested Portion of an
Option.
(t) "NON-QUALIFIED OPTION" shall mean an option other than an Incentive
--------------------
Option, the exercise of which generally results in an immediate taxable event.
(u) "OFFICER" shall mean any person, which may include a Director, employed
-------
by the Company or its Parent or any Subsidiary of the Company who
has been elected an officer by the respective Board of Directors.
(v) "OPTIONS" shall mean stock options issued pursuant to the Plan. Options
-------
may be either "Incentive Options," which are defined as Options intended to meet
the requirements of Section 422 of the Code, or "Nonqualified Options," which
are defined as Options not intended to meet such requirements of the Code.
(w) "OPTION AGREEMENT" shall mean the written agreement setting forth the
----------------
terms and conditions of an Option.
(x) "OPTIONED STOCK" shall mean the Common Stock subject to an Option.
--------------
(y) "OPTIONEE" shall mean a person who receives an Option.
--------
(z) "PARENT" shall mean a "parent corporation," whether now or hereafter
-------
existing, as defined in Section 424(e) of the Code.
(aa) "PARTICIPANT" shall mean a person to whom an Option has been granted.
-----------
(ab) "PLAN" shall mean this Stock Option Plan (1995).
----
(ac) "SHARE" shall mean a share of Common Stock of the Company, as may be
-----
adjusted in accordance with Section 6 below.
(ad) "SUBSIDIARY" shall mean a "subsidiary corporation" of the Company,
----------
whether now or hereafter existing, as defined in Section 424(f) of the Code.
(ae) "UNVESTED PORTION" of an Option shall mean that portion of an Option
----------------
to purchase CHC Common Stock which the Optionee is not then entitled to
exercise.
4
<PAGE>
Stock Option Plan (1995)
Community Health Computing Corp.
3. ADMINISTRATION OF THE PLAN.
--------------------------
(a) BY THE BOARD OF DIRECTORS OR BY THE COMMITTEE. The Plan shall be
---------------------------------------------
administered by the Board of Directors or, if appointed by the Board, by a
Committee of two or more directors; provided, however, if the Company shall have
registered a class of equity securities pursuant to Section 12 of the Securities
Exchange Act of 1934, and a grant is to be made to an officer or director, then
such grant shall be determined shall be determined by the Board of Directors, if
each member is a "disinterested" person as defined under Rule 16b-3 of the
Securities Exchange Act of 1934, or by a Committee of two or more directors,
each of whom shall be "disinterested" as defined in Rule 16b-3 under the
Securities Exchange Act of 1934. The Board and the Committee shall have full
authority to administer the Plan, including authority to interpret and construe
any provision of the Plan and to adopt such rules and regulations for
administering the Plan as it may deem necessary in order to comply with the
requirements of the Plan, or in order that any Option that is intended to be an
Incentive Option will be classified as an incentive stock option under the Code,
or in order to conform to any regulation or to any change in any law or
regulation applicable thereto. The Board of Directors may reserve to itself any
of the authority granted to the Committee as set forth herein, and it may
perform and discharge all of the functions and responsibilities of the Committee
at any time that a duly constituted Committee is not appointed and serving.
(b) ACTIONS OF THE BOARD AND THE COMMITTEE. All actions taken and all
--------------------------------------
interpretations and determinations made by the Board or by the Committee in good
faith (including determinations of Fair Market Value, Fair Market Value of CHC
and Fair Market Value per CHC Share) shall be final and binding upon all
Participants, the Company and all other interested persons. No member of the
Board or the Committee shall be personally liable for any action, determination
or interpretation made in good faith with respect to the Plan, and all members
of the Board or the Committee shall, in addition to their rights as directors,
be fully protected by the Company with respect to any such action, determination
or interpretation.
(c) POWERS OF THE BOARD AND THE COMMITTEE. Subject to the provisions
-------------------------------------
of the Plan, the Board and, if appointed, the Committee shall have the
authority, in their discretion:
(i) to determine, upon review of the relevant information, Fair
Market Value for purposes of grants of Options, Fair Market Value of CHC
and Fair Market Value per CHC Share;
5
<PAGE>
Stock Option Plan (1995)
Community Health Computing Corp.
(ii) to determine the persons to whom Options shall be granted, the time or
times at which Options shall be granted, the number of shares to be
represented by each Option, the vesting thereof and the exercise price per
share; (iii) to interpret the Plan; (iv) to adopt, amend, and rescind rules
and regulations relating to the Plan; (v) to determine whether an Option
granted shall be an Incentive Option or a Nonqualified Option and to
determine the terms and provisions of each Option granted (which need not
be identical) and, with the consent of the holder thereof, to modify or
amend each Option, including reductions in the exercise price thereof; (vi)
to accelerate or defer (with the consent of the Optionee) the exercise date
of any Option; (vii) to authorize any person to execute on behalf of the
Company any instrument required to effectuate the grant of an Option
previously granted by the Board; and (viii) to make all other determina
tions deemed necessary or advisable for the administration of the Plan.
4. ELIGIBILITY AND PARTICIPATION.
-----------------------------
(a) ELIGIBILITY. Grants of Options may be made to any Employee or
-----------
Consultant (which may include Officers and/or Directors) of the Company or of
its Parent or Subsidiary, or any independent contractor, vendor, supplier or any
other person providing services to the Company or a Parent or Subsidiary whose
efforts are deemed worthy of encouragement by the Board; provided, however, an
Incentive Option may only be granted to an Employee.
(b) PARTICIPATION BY DIRECTOR. Members of the Board who are either
-------------------------
eligible for Options or have been granted Options may vote on any matters
affecting the administration of the Plan or the grant of any Options pursuant to
the Plan, except that no such member shall act upon the granting of an Option to
himself, but any such member may be counted in determining the existence of a
quorum at any meeting of the Board and may be counted as part of an action by
unanimous written consent during or with respect to which action is taken to
grant Options to him.
5. EXERCISE PRICE; CONSIDERATION; AND FORM OF OPTION AGREEMENT.
-----------------------------------------------------------
(a) EXERCISE PRICE. The exercise price of any Incentive Option shall be
--------------
not less than one hundred percent (100%) of Fair Market Value on the date of the
grant of the Option. The exercise price of a Nonqualified Option shall not be
less than eighty-five percent (85%) of Fair Market Value on the date of the
grant of the Option. If an Incentive Option is granted to an Optionee who then
owns stock possessing more than 10% of the total combined voting
6
<PAGE>
Stock Option Plan (1995)
Community Health Computing Corp.
power of all classes of stock of the Company or its Parent or any Subsidiary,
the exercise price of such Incentive Option shall be at least one hundred ten
percent (110%) of Fair Market Value on the date of the grant of such Option.
(b) CONSIDERATION. The exercise price shall be paid in full, at the time
-------------
of exercise of the Option, by personal or bank cashier's check or in such other
form of lawful consideration as the Board of Directors or the Committee may
approve from time to time, including, without limitation, the transfer of
outstanding shares of Common Stock as provided in Section 7(c) or the Op
tionee's promissory note in form satisfactory to the Company and bearing
interest at a rate of not less than 6% per annum.
(C) FORM OF OPTION AGREEMENT. Each Option shall be evidenced by an Option
------------------------
Agreement specifying the number of shares which may be purchased upon exercise
of the Option and containing such terms and provisions as the Board or the
Committee may determine, subject to the provisions of the Plan.
6. SHARES OF COMMON STOCK SUBJECT TO THE PLAN.
------------------------------------------
(a) NUMBER. The aggregate number of shares of Common Stock subject to
------
Options which may be granted under the Plan shall be 1,000,000, subject to
adjustment as hereinbelow provided. To the extent any Option granted under the
Plan shall expire or terminate unexercised or for any reason become
unexercisable, the shares subject to such Option shall thereafter be available
for future grants under the Plan.
(B) CAPITAL CHANGES. Except as hereinafter provided, no adjustment shall
---------------
be made in the number of shares of Common Stock issued to a Participant, or in
any other rights of the Participant upon exercise of an Option, by reason of any
dividend, distribution or other right granted to shareholders for which the
record date is prior to the date of exercise of the Participant's Option. In
the event any change is made to the shares of Common Stock (whether by reason of
a merger, consolidation, reorganization, recap italization, stock dividend,
stock split, combination of shares, exchange of shares, change in corporate
structure or otherwise), appropriate adjustments shall be made in: (i) the
number of shares of Common Stock theretofore made subject to Options, and in the
exercise price of such shares; and (ii) the aggregate number of shares which may
be made subject to Options. If any of the foregoing adjustments shall result in
a fractional share, the fraction shall be disregarded, and the Company shall
have no obligation to make any cash or other payment with respect to such a
fractional share.
7
<PAGE>
Stock Option Plan (1995)
Community Health Computing Corp.
7. EXERCISE OF STOCK OPTIONS.
-------------------------
(a) TIME OF EXERCISE. Subject to the provisions of the Plan, including
----------------
without limitation Section 7(d) and Section 8, the Board or the Committee, in
its discretion, shall determine the time when an Option, or a portion of an
Option, shall become exercisable, and the time when an Option, or a portion of
an Option, shall expire; provided, however, that (i) each Option shall expire,
to the extent not exercised, no later than the tenth anniversary of the date on
which it was granted; and (ii) any Incentive Option granted to any person who
owns shares possessing more than 10% of the total combined voting power or value
of all classes of stock of the Company or of its Parent or a Subsidiary shall
have a term of not to exceed five (5) years. Such time or times shall be set
forth in the Option Agreement evidencing such Option.
(b) NOTICE OF EXERCISE. An Optionee electing to exercise an Option shall
------------------
give written notice to the Company, as specified by the Option Agreement, of
his/her election to purchase a specified number of shares, such notice shall be
accompanied by the instrument evidencing such Option and any other documents
required by the Company, and shall tender the exercise price of the shares
optionee has elected to purchase. If the notice of election to exercise is
given by the executor or administrator of a deceased Participant, or by the
person(s) to whom the Option has been transferred by the participant's will or
the applicable laws of descent and distribution, the Company will be under no
obligation to deliver shares pursuant to such exercise unless and until the
Company is satisfied that the person(s) giving such notice is or are entitled to
exercise the Option.
(c) EXCHANGE OF OUTSTANDING STOCK. The Board, in its sole discretion, may
-----------------------------
permit an Optionee to surrender to the Company shares of Common Stock of the
Company or any Parent previously acquired by the Optionee at least six (6)
months prior to such surrender as part or full payment for the exercise of an
Option. Such surrendered shares shall be valued at their Fair Market Value on
the date of exercise of the Option.
(d) TERMINATION OF CONTINUOUS STATUS BEFORE EXERCISE. If a Participant's
------------------------------------------------
Continuous Status with the Company or its Parent or any Subsidiary shall cease
for any reason (other than the Participant's death, retirement or disability as
provided below), any Option then held by the Participant or his/her estate, to
the extent then exercisable, shall remain exercisable after such cessation of
the Continuous Status for a period of three (3) months commencing upon the date
of such cessation (or such longer period
8
<PAGE>
Stock Option Plan (1995)
Community Health Computing Corp.
as the Board may allow, either in the form of Option Agreement or by Board
action). If the Option is not exercised during this period it shall be deemed to
have been forfeited and be of no further force or effect. Notwithstanding the
exercise period hereinabove described, if the holder of an Option is terminated
for "Cause" (as hereinabove defined), the Board shall have the authority, by
notice to the holder of an Option, to immediately terminate such Option,
effective on the date of termination, and such Option shall no longer be
exercisable to any extent whatsoever.
(e) DEATH. If a Participant dies at a time when he is entitled to exercise
-----
an Option, then at any time or times within twelve (12) months after his/her
death (or such further period as the Board may allow) such Option may be
exercised, as to all or any of the shares which the Participant was entitled to
purchase immediately prior to his/her death (i) by his/her executor or
administrator or the person(s) to whom the Option is transferred by will or the
applicable laws of descent and distribution or (ii) his designated beneficiary,
and except as so exercised such Option will expire at the end of such period.
In no event, however, may any Option be exercised after the expiration of its
term.
(f) RETIREMENT AND DISABILITY. If a Participant retires from service at
-------------------------
age 65 or older or retires at less than age 65 with the consent of the Board of
Directors or becomes disabled (within the meaning of Section 105(d)(4) of the
Code) at a time when he is entitled to exercise an Option, then, at any time or
times within three (3) months of the date of such retirement or within twelve
(12) months of the date of such disability, he may exercise such Option as to
all or any of the shares which he was entitled to purchase under such Option
immediately prior to such retirement or disability. Except as so exercised,
such Option shall expire at the end of such period. In no event, however, may
any Option be exercised after the expiration of its term.
(g) DISPOSITION OF TERMINATED STOCK OPTIONS. Any shares of Common Stock
---------------------------------------
subject to Options which have been terminated as provided above shall not
thereafter be eligible for purchase by the Participant but shall again be
available for grant by the Board to other Participants.
9
<PAGE>
Stock Option Plan (1995)
Community Health Computing Corp.
8. SPECIAL PROVISIONS RELATING TO INCENTIVE OPTIONS.
-------------------------------------------------
The Company shall not grant Incentive Options under the Plan to any Optionee
to the extent that the aggregate Fair Market Value (determined as of the date of
grant) of the Common Stock covered by such Incentive Options which are
exercisable for the first time during any calendar year, when combined with the
aggregate Fair Market Value of all stock covered by Incentive Options granted to
such Optionee after December 31, 1986 by the Company, its Parent or a Subsidiary
thereof which are exercisable for the first time during the same calendar year,
exceeds $100,000. Incentive Options shall be granted only to persons who, on the
date of grant, are Employees of the Company or its Parent or a Subsidiary of the
Company.
9. NO CONTRACT OF EMPLOYMENT.
--------------------------
Unless otherwise expressed in a writing signed by an authorized officer of
the Company, all Employees of the Company are hired for an unspecified period of
time and are considered to be "at-will employees." Nothing in this Plan shall
confer upon any Participant the right to continue in the employ of the Company,
its Parent or any Subsidiary, nor shall it limit or restrict in any way the
right of the Company, its Parent or any such Subsidiary to discharge the
Participant at any time for any reason whatsoever, with or without Cause.
10. NO RIGHTS AS A SHAREHOLDER.
--------------------------
A Participant shall have no rights as a shareholder with respect to any
shares of Common Stock subject to an Option.
11. NONTRANSFERABILITY OF OPTIONS; DEATH OF PARTICIPANT.
---------------------------------------------------
No Option acquired by a Participant under the Plan shall be assignable or
transferable by a Participant, other than by will or the laws of descent and
distribution, and such Options are exercisable, during his lifetime, only by
Optionee; provided, however, that any option agreement issued under the Plan may
provide for the designation of a beneficiary of the Optionee (which may be an
individual or trustee) who may exercise the Option after the Optionee's death
and enjoy the economic benefits thereof, subject to the consent of Optionee's
spouse where required by law. Subject to Section 7(e), in the event of
Optionee's death, the Option may be exercised by the personal representative of
the Participant's estate or, if no personal representative has been appointed,
by the successor(s) in interest determined under the Participant's will or under
the applicable laws of descent and distribution.
10
<PAGE>
Stock Option Plan (1995)
Community Health Computing Corp.
Participants's will or under the applicationable lawas of descent and
distribution.
12. LIQUIDATION OF THE COMPANY. In the event of a proposed dissolution or
--------------------------
liquidation of the Company, the Option shall terminate immediately prior to the
consummation of such proposed action, unless otherwise provided by the Board.
The Board may, in the exercise of its sole discretion in such instances, declare
that any Option shall terminate as of a date fixed by the Board and give each
Optionee the right to exercise his Option as to all or any part of the Shares
covered by an Option, including Shares as to which the Option would not
otherwise be exercisable.
13. CHANGES OF CONTROL; OTHER EVENTS. In the event of a proposed sale of all
--------------------------------
or substantially all of the assets of the Company (other than a sale or transfer
to a subsidiary or parent corporation of the Company), the merger or
consolidation of the Company with or into another corporation in a transaction
in which the Company does not survive (other than a reincorporation to another
state), or a Change in Control as defined in Section 2(e) hereof, Options
granted under the Plan may provide for certain rights of the Option holder or,
if exercised, the shareholder. Furthermore, upon the occurrence of any such
event (and except as stated to the contrary in any Option Agreement granted
under the Plan), all Options shall vest immediately and may be fully exercised
without regard to the normal vesting schedules. Should an Option so become
immediately exercisable, the Board shall notify the Optionee that the Option
shall be fully exercisable for a period of not less than ten (10) nor more than
sixty (60) days from the date of such notice and, if such Option shall not be
exercised, the Option shall terminate upon the expiration of such period and be
of no further force or effect.
14. AMENDMENTS; DISCONTINUATION OF PLAN.
-----------------------------------
The Board may from time to time alter, amend, suspend or discontinue the
Plan, including, where applicable, any modifications or amendments as it shall
deem advisable for any reason, including satisfying the requirements of any law
or regulation or any change thereof; provided, however, that no such action
shall adversely affect the rights and obligations of any holder of an Option
then outstanding under the Plan; and provided further, that no such action
shall, without the approval of the shareholders of the Company, (a) materially
increase the maximum number of shares of Common Stock that may be made subject
to Options (unless necessary to effect the adjustments required by Section
6(b)), (b) materially increase the benefits accruing to Participants under the
11
<PAGE>
Stock Option Plan (1995)
Community Health Computing Corp.
Plan, or (c) materially lessen the requirements as to eligibility for
participation in the Plan. No such amendment shall materially adversely affect
the rights of any Participant under any Option previously granted without such
Participant's prior consent.
15. REGISTRATION OF OPTIONED SHARES.
-------------------------------
The Options shall not be exercisable unless the purchase of such Optioned
Shares is pursuant to an applicable effective registration statement under the
Securities Act of 1933, as amended, or unless, in the opinion of counsel to the
Company, the proposed purchase of such Optioned Shares would be exempt from the
registration requirements of the Securities Act of 1933, as amended.
16. WITHHOLDING TAXES; SATISFIED BY WITHHOLDING OPTIONED SHARES.
-----------------------------------------------------------
(a) GENERAL. The Company, its Parent or any Subsidiary may take such
-------
steps as it may deem necessary or appropriate for the withholding of any taxes
which the Company, its Parent or any Subsidiary is required by law or regulation
of any governmental authority, whether Federal, state or local, do mestic or
foreign, to withhold in connection with any Option including, but not limited
to, requiring the Optionee to pay such tax at the time of exercise or the
withholding of issuance of shares of Common Stock to be issued upon the exercise
of any Option until the Participant reimburses the Company for the amount the
Company is required to withhold with respect to such taxes, or, at the Company's
sole discretion, cancelling any portion of such issuance of Common Stock in any
amount sufficient to reimburse itself for the amount it is required to so
withhold.
(b) SATISFYING TAXES BY WITHHOLDING OPTIONED SHARES. Option Agreements
-----------------------------------------------
under the Plan may, at the discretion of the Board, contain a provision to the
effect that all Federal and state taxes required to be withheld or collected
from an Optionee upon exercise of an Option may be satisfied by the withholding
of a sufficient number of exercised Option Shares which, valued at Fair Market
Value on the date or exercise, would be equal to the total withholding
obligation of the Optionee for the exercise of such Option; provided, however,
that if the Company is a corporation any of whose outstanding securities are
then registered under the Securities Exchange Act of 1934, no person who is an
"officer" of the Company as such term is defined in Rule 3b-2 under the
Securities Exchange Act of 1934 may elect to satisfy the withholding of Federal
and state taxes upon the exercise of an Option by the withholding of Optioned
Shares unless such election is made
12
<PAGE>
Stock Option Plan (1995)
Community Health Computing Corp.
either (i) at least six months prior to the date that the exercise of the Option
becomes a taxable event or (ii) during any of the periods beginning on the third
business day following the date on which the Company issues a news release
containing the operating results of a fiscal quarter or fiscal year and ending
on the twelfth business day following such date. Such election shall be deemed
made upon receipt of notice thereof by an officer of the Company, by mail,
personal delivery or by facsimile message, and shall (unless notice to the
contrary is provided to the Company) be operative for all Option exercises which
occur during the twelve-month period following election.
17. EFFECTIVE DATE AND TERM OF PLAN.
-------------------------------
The Plan is effective as of the date of adoption by the Board and Options
may be granted at any time on or after such date; provided, however, that (i)
the Plan shall terminate if the shareholders of the Company do not approve and
adopt it within twelve (12) months of such date and (ii) no Option shall be
effective unless an appropriate qualification or other approval of the Plan is
received, if necessary, from any state securities law adminis trator who may
have jurisdiction with respect thereto. No Options shall be granted subsequent
to ten (10) years after the effective date of the Plan; however, Options
outstanding subsequent to ten years after the effective date of the Plan shall
continue to be governed by the provisions of the Plan until exercised or
terminated in accordance with the Plan or the respective Option Agreements.
ADOPTED BY THE BOARD OF DIRECTORS
AND SOLE SHAREHOLDER ON
July 12, 1995
13
<PAGE>
COMMUNITY HEALTH COMPUTING CORP.
--------------------------------
STOCK OPTION AGREEMENT
----------------------
UNDER
-----
STOCK OPTION PLAN (1995)
------------------------
THIS STOCK OPTION AGREEMENT is issued to the Optionee herein-below set
forth pursuant to the Stock Option Plan (1995) (the "Plan") of Community Health
Computing Corp., a Delaware corporation (the "Company").
1. OPTIONEE; BASIC TERMS. The Optionee is hereby granted an option to
---------------------
purchase the number of fully paid and non-assessable shares of the Common Stock
of the Company at the option price set forth in Section 1.B. below, subject to
the following additional terms and conditions:
A. DEFINITIONS.
-----------
(i) "ADAC" shall mean ADAC Laboratories, a California
corporation.
(ii) "Cause" shall mean any of the following: (a) gross and
willful failure, after 30 days' written warning, to discharge the normal
employment duties required of the employee, (b) theft or other misappropriation
of Company property, trade secrets or other intellectual property rights and use
thereof for non-employee purposes or (c) commission of a crime such that the
Company's reputation with its customers is materially damaged. Becoming fully or
partially disabled shall not be deemed "Cause" herein.
(iii) "CHC" shall mean Community Health Computing Corp., a
Delaware corporation.
(iv) "Change of Control" shall occur upon the earliest to occur
of any of the following events: (i) a majority of CHC's Board of Directors does
not consist of persons who were members of the Board of Directors of ADAC on
July 1, 1995, but only if such event occurs within a period of less than six
months; (ii) any "person" or "group" (as defined in or pursuant to Sections
13(d) and 14(d) of the Securities Act of 1934, as amended, (the "Exchange Act"),
becomes the "beneficial owner" (as defined in Rule 13(d) promulgated under the
Exchange Act) directly or indirectly of securities of the Company representing
40% or more of the voting power of the common stock outstanding which votes
generally for the election of directors; or (iii) the Company or any of its
subsidiaries sells, through merger, assignment or otherwise, in one or more
transactions, other than in the ordinary course of business, assets constituting
two-thirds (2/3) in value of the total assets of the Company. The value of such
assets, for purposes of this section, shall be determined by the Board of
Directors and shall be consistent with the values applicable to the asset sale
transaction.
<PAGE>
Stock Option Agreement
Community Health Computing Corp.
(v) "Code" shall mean the Internal Revenue Code of 1986, and as
amended from time to time.
(vi) "Compensation Package" shall mean base salary, cash
incentive bonuses and the value of all other readily measurable non-cash
perquisites received during the prior calendar year.
(vii) "Fair Market Value of CHC" shall mean and be determined by
the following formula: (a) the net income before interest expense and federal
income taxes based on net income ("EBIT") of CHC for the four fiscal quarters
ending immediately prior to a Change of Control divided by the EBIT of ADAC and
all of its subsidiaries (including the Company) for the four fiscal quarters
ending immediately prior to a Change of Control, the result of which shall be
multiplied by (b) the "Market Capitalization" of ADAC on the date of the Change
of Control. For purposes of this section, Market Capitalization shall mean the
per share closing price of ADAC Common Stock multiplied by the weighted average
number of Common and Common-equivalent shares outstanding as of the fiscal
quarter ending immediately preceding the determination date.
(viii)"Fair Market Value per CHC Share" shall be determined by
first subtracting from the Fair Market Value of CHC the aggregate liquidation
preferences of all issued and outstanding shares of the Company's convertible
preferred stock and then dividing the result by the number of all issued and
outstanding shares of the Company's Common Stock; provided, however, that at the
election of the Company, the aggregate liquidation preferences of such
convertible preferred stock shall not be subtracted from the Fair Market Value
of CHC, and the Fair Market Value of CHC shall be divided by the sum of (a) the
number of the issued and outstanding shares of the Company's Common Stock and
(b) the number of shares of the Company's Common Stock into which all issued and
outstanding shares of convertible preferred stock of the Company may be
converted.
(ix) "Incentive Option" shall mean an option described in
Section 422 of the Code. To qualify for favorable tax treatment provided by an
incentive option, the shares purchased upon exercise must be held for a period
of two (2) years from the date of the option grant and for a period of one (1)
year after the shares are transferred to Optionee.
(x) "Net Intrinsic Value" of an Option shall mean the
difference between (a) the Fair Market Value per CHC Share and (b) the Option
exercise price, multiplied by the number of shares represented by the Unvested
Portion of an Option.
2
<PAGE>
Stock Option Agreement
Community Health Computing Corp.
(xi) "Non-Qualified Option" shall mean an option other than an
Incentive Option, the exercise of which generally results in an immediate
taxable event.
(xii) "Unvested Portion" of an Option shall mean that portion of
an Option which the Optionee is not then entitled to exercise.
(xiii) Unless otherwise indicated, all capitalized terms set
forth in this Agreement shall have the meaning provided to them under the Plan,
a copy of which Optionee acknowledges having received.
B. GRANT OF OPTION.
---------------
(i) This stock option is granted to _______________
("Optionee").
(ii) The Company hereby grants to the Optionee an option (the
"Option") to purchase ____________ shares of the Common Stock of the Company,
upon the terms and conditions set forth below. The date of grant of the Option
is __________ __, 19__ (the "Grant Date").
(iii) The exercise and purchase price ("Purchase Price") per
share is $____________.
(iv) This Option is intended to be a(n):
/__/ Incentive Option (to be received only by employees of
---------
the Company).
/__/ Non-Qualified Option.
(v) The Optionee is a(n) (if applicable, check more than one):
/__/ Employee /__/ Officer /__/ Other Person
providing
services
/__/ Director /__/ Consultant
C. DURATION OF OPTION.
------------------
Except as provided below, this Option shall expire on December
31, 1997. In the event, however, that the Company determines that Optionee's
employment is to be terminated for Cause (as such term is defined herein), any
right of Optionee to exercise the Options shall expire automatically on the date
that the Company notifies Optionee of such determination (the "Early Expiration
Date").
3
<PAGE>
Stock Option Agreement
Community Health Computing Corp.
D. PURCHASE PRICE.
--------------
The Purchase Price for the shares subject to the Option is $.66
per share.
2. EXERCISABILITY. Subject to Section 6 regarding termination of
-------------- ---------
Optionee's employment, consulting or other relationship with the Company and
Section 13.B regarding Incentive Options, this Option shall become exercisable
- ------------
in one or more installments (to the nearest whole number), in the percentages
and on and after the dates set forth below:
<TABLE>
<CAPTION>
CUMULATIVE
% OF OPTION PERCENTAGE
DATE SHARES EXERCISABLE AVAILABLE
---- -------------------- -----------
<S> <C> <C>
January 21, 1996 50% 50%
July 21, 1996 50% 100%
</TABLE>
3. METHOD OF EXERCISE AND PAYMENT.
------------------------------
A. EXERCISE. This Option may be exercised from time to time, in
--------
whole or in part, to the extent exercisable, only by delivery to an officer of
the Company of the original of this Option with an appropriate Notice of
Exercise duly signed by the holder, together with the full purchase price of the
shares purchased pursuant to the exercise of the Option; provided, however, that
this Option may not be exercised if such exercise would violate any law or
governmental order or regulation. If the offer and sale of the shares subject
to the Option has not been registered under the Securities Act of 1933, as
amended (the "Act"), Optionee shall deliver to the Company, at the time of
exercise, appropriate investment representation substantially as set forth below
in this Agreement unless, in the opinion of counsel for the Company, the shares
issued would not be deemed "restricted securities" within the meaning of such
Act or the rules and regulations promulgated thereunder. Payment for the shares
purchased pursuant to any exercise shall be made in full at the time of such
exercise in cash or by check payable to the order of the Company or, if approved
by the Board of Directors, payable in Common Stock of the Company or its Parent
corporation (as such term is defined in the Plan) already owned by the Optionee
for a period of six (6) months prior to such exercise, valued as of the date of
exercise of the Option by the Board of Directors or, if approved by the Board of
Directors, by a promissory note payable to the order of the Company. If a
promissory note is tendered, such note shall bear interest at an interest rate
determined by, and shall be subject to such terms and conditions as are
prescribed by, the Board as set forth in the form of promissory note then
utilized under the Plan.
4
<PAGE>
Stock Option Agreement
Community Health Computing Corp.
B. WITHHOLDING. Optionee agrees to have withheld from any
-----------
remuneration payable to him by the Company and/or to pay to the Company, at the
time of exercise of the Option, an amount which is required to be withheld or
paid pursuant to any Federal, State or local tax or revenue laws or regulations,
as may be determined by the Company. If approved in advance by the Board of
Directors, the Optionee may satisfy such tax withholding by instructing the
Company to withhold such number of option shares exercised which, when valued at
fair market value as determined by the Board of Directors on the date of
Exercise, equal the total tax obligations required to be withheld.
4. NON-TRANSFERABILITY. This Option shall not be transferred, sold,
-------------------
pledged, assigned, hypothecated, or disposed of in any manner by Optionee other
than by will or the laws of descent and distribution to the extent hereinafter
set forth. This Option may be exercised during the holder's lifetime only by
the holder hereof or, upon the holder's legal incapacity to act on his/her own
behalf, by the holder's conservator or other lawful representative. The Option
shall be null and void and without effect upon any attempted assignment or
transfer, except as hereinabove provided, including without limitation, any
purported assignment, whether voluntary or by operation of law, pledge,
hypothecation or other disposition contrary to the provisions hereof, or levy of
execution, attachment, trustee process or similar process, whether legal or
equitable, upon the Option.
5. TERMINATION. To the extent that this Option shall not have been
-----------
exercised in full prior to its termination or expiration date, whichever shall
be sooner, it shall terminate and become void and of no effect.
6. CESSATION OF CONTINUOUS STATUS -- TERMINATION, RETIRE MENT, DEATH OR
--------------------------------------------------------------------
DISABILITY; TERMINATION "FOR CAUSE." If the Optionee shall voluntarily or
- ------------------------------------
involuntarily cease his/her Continuous Status (as such term is defined in the
Plan) (hereinafter referred to as a "Termination"), the Option shall terminate
forthwith, except that the Optionee shall have three (3) months (or such longer
period as the Board may approve) following the Termination to exercise this
Option or any portion thereof which the Optionee could have exercised on the
date of Termination; provided, however, that if the Termination is due to (i)
retirement by the Optionee on or after attaining the age of sixty-five (65)
years, (ii) the disability of the Optionee or (iii) the death of the Optionee,
the Optionee or the representative of the estate of the Optionee shall have the
privilege of exercising the entire unexercised vested portion of this Option,
provided that such exercise be accomplished (a) prior to the expiration of this
Option and (b) either within three (3) months of the Optionee's retirement,
within twelve (12) months of the Optionee's disability, or within twelve (12)
months after the date of death of the Optionee,
5
<PAGE>
Stock Option Agreement
Community Health Computing Corp.
as the case may be. Notwithstanding any of the foregoing, if the Termination is
for Cause (as such term is defined herein) or Optionee breaches (before or after
termination) any of his duties under this Agreement, the existence of which
shall be determined by the Board of Directors or any Committee established to
administer the Plan (such decision to be made by the Board or Committee in its
sole discretion and which determination shall be conclusive), this Option shall
terminate immediately upon the Termination and the Optionee in such event shall
have no right after such Termination to exercise any unexercised Option which
he/she might have exercised on or prior to the Termination.
7. STOCK SPLITS AND CAPITAL ADJUSTMENTS. If, prior to the complete
------------------------------------
exercise of this Option, there shall be declared and paid a stock dividend upon
the Common Stock of the Company or if such stock shall be split up, converted,
exchanged or reclassified, this Option, to the extent that it has not been
exercised, shall entitle the Optionee, upon the future exercise of this Option,
to such number and kind of securities or other property, subject to the terms of
the Option, to which the Optionee would be entitled had he/she actually owned
the stock subject to the unexercised portion of the Option at the time of the
occurrence of such stock dividend, split up, conversion, exchange,
reclassification or substitution; and the aggregate purchase price upon the
future exercise of the Option shall be the same as if shares of Common Stock of
the Company originally optioned were being purchased as provided herein.
8. CHANGE IN CONTROL PROVISIONS.
----------------------------
A. UPON A CHANGE OF CONTROL OF THE COMPANY, THE FOLLOWING EVENT
------------------------------------------------------------
SHALL OCCUR:
- -----------
The Company shall become obligated to pay to Optionee a sum equal to
the Net Intrinsic Value of the Unvested Portion of his or her Option, but
subject to the following terms and conditions: Such sum shall be paid to
Optionee, with interest thereon at a rate of 6% per annum, immediately upon the
earliest to occur of the following events: (a) Optionee has completed 12
additional consecutive months of employment (commencing from the date of the
Change of Control); (b) Optionee's employment is terminated by the Company or
its parent corporation for any reason other than Cause; (c) Optionee's
Compensation Package is reduced; (d) Optionee's duties or responsibilities are
materially reduced in scope or importance or (e) Optionee's place of employment
is changed to a location in excess of ten miles beyond Optionee's then-existing
place of employment. Pending a determination of Optionee's entitlement to such
sum, it shall be retained by the Company in a separate segregated trust or
escrow account at a bank or other Federally-insured savings institution and
shall be unavailable for use or borrowing by the Company or its affiliates.
6
<PAGE>
Stock Option Agreement
Community Health Computing Corp.
B. UPON A CHANGE OF CONTROL OF EITHER CHC OR ADAC, THE FOLLOWING
-------------------------------------------------------------
EVENT SHALL OCCUR:
- -----------------
Each person who owns shares of Company Common Stock as a result of the
exercise of an Option (an "Exchanging Shareholder") may elect to exchange such
shares for that number of shares of ADAC Common Stock having a market value
equal to the Fair Market Value per CHC Share multiplied by the number of shares
of the Company's Common Stock being tendered for exchange. The market value of
a share of ADAC Common Stock shall be based upon such share's closing price on
the date of the Change of Control; provided, however, that if ADAC Common Stock
is not publicly traded on such date, or if on such date ADAC has been merged
with another entity or 80% or more of its assets or shares have been sold to
another entity which is, in each such case, owned or controlled by persons other
than ADAC's previous shareholders, the Exchanging Shareholder may elect to
deliver his or her shares of Company Common Stock to ADAC or to the Company in
consideration for cash equal to the Fair Market Value per CHC Share multiplied
by the number of Company shares being tendered for exchange. In order to
facilitate such exchange of shares, ADAC hereby agrees to prepare and file with
the Securities and Exchange Commission, and to use its best efforts to cause to
become effective, a Registration Statement on Form S-3 (or similar form having
the same economic effects) covering all ADAC shares exchanged for Company Common
Stock, and to maintain its effectiveness for a period of two years; all fees
and expenses incurred in connection therewith shall be borne by ADAC; and the
selling shareholders and ADAC shall enter into an appropriate indemnification
agreement whereby ADAC shall indemnify the selling shareholders against any
losses and expenses which may be incurred as a result of ADAC including any
statement or representation in the Registration Statement which is materially
false or misleading or omitting to include therein any statement the omission of
which results in the Registration Statement being false or misleading in any
material respect.
9. RESTRICTIONS ON TRANSFER OF STOCK -- RIGHT OF FIRST REFUSAL.
-----------------------------------------------------------
A. RESTRICTIONS. Optionee agrees that he/she will not, directly or
------------
indirectly, sell, pledge, give, bequeath, transfer, assign or dispose
(collectively, a "transfer") of any Common Stock (or any interest therein),
acquired pursuant to the exercise of the Option, except as permitted by this
Agreement, or as may be specifically authorized by the Board of Directors of the
Company in its sole discretion, or in accordance with the following: If
Optionee shall have received a bona fide arms' length written offer (a "Bona
Fide Offer") which Optionee desires to accept from an independent party
unrelated to Optionee (the "Third Party") for the purchase of such Common Stock,
such Option Holder shall give a notice in writing (the "Sale Notice") to the
Company setting forth
7
<PAGE>
Stock Option Agreement
Community Health Computing Corp.
the material facts concerning the proposed transfer, including the name and
address of the Third Party and the price and terms of the Bona Fide Offer and be
accompanied by a copy of the Bona Fide Offer. Upon the giving of the Sale
Notice, the Company or its assignee shall have the right to purchase all of the
Common Stock specified in the Sale Notice, said right to be exercised no later
than 30 business days after the giving of such Sale Notice or, if later, 15 days
after the determination of the fair market value (as defined below) of any non-
cash consideration offered by the Third Party by giving written notice of the
Company's (or its assignee's) election to purchase all of such Common Stock.
Upon receipt of such notice from the Company, the Company shall be obligated to
purchase, and such Optionee shall be obligated to sell to the Company such
Common Stock at the price and terms indicated in the Bona Fide Offer and the
closing of the purchase by the Company shall be held as soon as reasonably
practicable and, if the consideration offered by the Third Party in the Bona
Fide Offer consists of property other than cash, then the Company shall pay for
the Common Stock in cash in an amount equal to the fair market value of such
consideration.
If the Company does not elect to purchase all of such Common Stock,
Optionee thereafter, at any time within a period of thirty (30) days from the
giving of said Sale Notice, may transfer all (but not less than all) of such
Common Stock to the Third Party at the price and terms contained in the Bona
Fide Offer, and the Third Party and such Common Stock shall thereafter be
subject to and be bound by all of the provisions of this Agreement and, as a
condition precedent to the completion of such transfer of Common Stock to such
Third Party, shall execute and deliver to the Company a written acknowledgement
to such effect in form and substance reasonably satisfactory to the Company,
except that the Company shall not be entitled to the "call" rights set forth in
this Section with respect to the shares of Common Stock acquired by the Third
Party; provided, however, that in the event Optionee has not so transferred said
Common Stock to the Third Party within said 30-day period, then said Common
Stock thereafter shall continue to be subject to all of the restrictions
contained in this Agreement.
For purposes of this Section, "fair market value" of non-cash
consideration means the cash-equivalent value of the non-cash consideration as
determined in good faith by the Board of Directors of the Company. Upon
delivery of notice of such fair market value to Optionee (which shall indicate,
in a general fashion, the factors considered by the Board in determining such
amount), such Optionee shall have ten business days in which to notify the
Company in writing of any disagreement. If written notice is given of a
disagreement, the Company and Optionee shall mutually agree upon an independent
appraiser experienced in making valuations of such sort which shall make a
determination of the fair market value of the non-cash consideration. Such
determination shall be final,
8
<PAGE>
Stock Option Agreement
Community Health Computing Corp.
binding and non-appealable upon the Company and Optionee. The cost and expenses
incurred in connection with the determination made by the independent appraiser
shall be borne (i) by the Company if the independent appraiser makes a higher
determination of fair market value than the Board of Directors of the Company,
or (ii) by Optionee if the independent appraiser makes the same or a lower
determination of such fair market value.
B. PERMISSIBLE TRANSFERS TO RELATED TRANSFEREES. Notwithstanding
--------------------------------------------
anything to the contrary contained above in this Section, Optionee may transfer
such Optionee's Common Stock without restriction to such Optionee's Related
Transferees (as defined herein), provided that each such Related Transferee
shall first execute a written consent in form and substance reasonably
satisfactory to the Company to be bound by all of the provisions of this
Agreement. The "Related Transferees" of an Optionee shall consist of Optionee's
spouse, Optionee's adult children, trusts established solely for the benefit of
Optionee's spouse or Optionee's minor children and, in the event of death,
Optionee's personal representatives (in their capacities as such), estate and
named beneficiaries. In the event of any transfer by an Optionee to a Related
Transferee of all or any part of such Optionee's Common Stock (or in the event
of any subsequent transfer by any such Related Transferee to another Related
Transferee of the original Optionee), such Related Transferee(s) shall receive
and hold said Common Stock subject to the terms of this Agreement and the rights
and obligations hereunder, and such Related Transferee shall be deemed to be an
Optionee for the purposes of this Agreement. There shall be no further transfer
of such Common Stock by a Related Transferee except between and among such
Related Transferees, the Optionee to whom such Related Transferee is related and
the other Related Transferees of such Optionee, or except as permitted by this
Agreement.
10. COMPANY'S "CALL" OPTIONS.
------------------------
A. COMPANY'S "CALL" OPTION. Upon the (i) voluntary or involuntary
-----------------------
termination of Optionee's employment with the Company for any reason or (ii)
death of Optionee, (collectively a "Callable Event"), subject to the provisions
of Section 11 and this Section, the Company may, at its option, exercisable by
----------
written notice (a "Call Notice") delivered to such Optionee within 90 days after
the applicable Callable Event (or, in the event the applicable Callable Event is
the death of an Optionee, within 30 days after the appointment and qualification
of the deceased Optionee's personal representative, if later), elect to
purchase, and, upon the giving of such Call Notice, the Company shall be
obligated to purchase and such Optionee (or, as applicable, the Related
Transferee or Optionee's personal representative) (the "Seller") shall be
obligated to sell, all or any portion of the shares of Company Common Stock
theretofore acquired by such Optionee (and his Related
9
<PAGE>
Stock Option Agreement
Community Health Computing Corp.
Transferees, if any) pursuant to the exercise of Options hereunder and owned at
the time of the Call Purchase Event at a per share purchase price equal to the
Fair Market Value per CHC Share. The Company need not treat all option holders
of the Company in a similar manner, and may exercise its call rights hereunder,
partially or fully, with respect to some optionees and not others, and for any
reason it deems appropriate.
B. DEFINITIONS OF FAIR MARKET VALUE PER CHC SHARE. For purposes of
----------------------------------------------
this Section, the term "Fair Market Value per CHC Share" shall be based upon the
definition thereof set forth in Section 1.A(viii) hereof; provided, however,
that for purposes of this Section 10 only, the Board of Directors of the Company
shall not be bound by such definition if it determines, in good faith, that to
do so would result in a per share valuation that would not reflect the true fair
market value of the Company's Common Stock.
C. CLOSING TERMS. The closing for all purchases and sales of Common
-------------
Stock provided for in this Section 10 shall be at the principal executive
offices of the Company as soon as reasonably practicable after the giving of
the Call Notice. The purchase price for the purchase and sale of Common Stock
pursuant to the provisions hereof shall be paid in cash, by certified or
official bank check. The Seller of shares of Common Stock sold pursuant to this
Section shall cause such shares to be delivered to the Company at the closing
free and clear of all liens, charges or encumbrances of any kind. Such Seller
shall take such action as the Company shall request as necessary to transfer the
shares to the Company, free and clear of all liens, charges and encumbrances
incurred, voluntarily or involuntarily, by or through Seller.
11. TERMINATION AND LAPSE OF CERTAIN RIGHTS AND RESTRICTIONS.
--------------------------------------------------------
A. The Company's right of first refusal upon any proposed transfer
set forth in Section 9 and the Company's call rights set forth in Section 10
--------- ----------
shall lapse and be of no further effect with respect to shares of the Common
Stock acquired by an Optionee pursuant to the exercise of Options hereunder upon
the earlier to occur of: (i) the completion of the first underwritten,
registered public offering of Common Stock of the Company; or (ii) the
consummation of a sale of substantially all of the assets of the Company and its
subsidiaries taken as a whole or a sale of substantially all of the outstanding
shares of capital stock of the Company.
12. COMPLIANCE WITH SECURITIES LAWS.
-------------------------------
A. POSTPONE ISSUANCE. Notwithstanding any provision of this Option
-----------------
to the contrary, the Company may postpone the issuance and delivery of shares of
Company Common Stock upon any exercise of this Option until one of the following
conditions shall be met:
10
<PAGE>
Stock Option Agreement
Community Health Computing Corp.
(i) The shares with respect to which such Option has been
exercised are at the time of the issue of such shares effectively registered
under applicable Federal and state securities laws now in force or hereafter
enacted or amended; or
(ii) Counsel for the Company shall have given an opinion that
registration of such shares under applicable Federal and state securities laws,
as now in force or hereafter enacted or amended, is not required.
B. INVESTMENT REPRESENTATION. In the event that for any reason the
-------------------------
shares to be issued upon exercise of the Option shall not be effectively
registered under the Securities Act of 1933 (the "1933 Act"), upon any date on
which the Option is exercised in whole or in part, the Company shall be under no
further obligation to issue shares covered by the Option unless the Optionee
shall give a written representation to the Company, in form satisfactory to the
Company, that such person is acquiring the shares issued pursuant to such
exercise of the Option for investment and not with a view to, or for sale in
connection with, the distribution of any such shares, and that he/she will make
no transfer of the same except in compliance with the 1933 Act and the rules and
regulations promulgated thereunder and then in force, and in such event the
Company may place an "investment legend" upon any certificate for the shares
issued by reason of such exercise.
C. DISPOSITION OF STOCK ACQUIRED UPON EXERCISE. In addition to the
-------------------------------------------
other restrictions provided in this Agreement, Optionee agrees that prior to
making any disposition or transfer of any Common Stock acquired pursuant to the
exercise of this option Optionee shall give twenty (20) days' prior written
notice to the Company describing the manner of such proposed transfer. Optionee
further agrees that he/she will not effect such proposed transfer until either
(i) Optionee has provided to the Company, if so requested by the Company, an
opinion of counsel reasonably satisfactory in form and substance to the Company
that such proposed transfer is exempt from registration under the 1933 Act and
any applicable state securities laws, or (ii) a registration statement under the
1933 Act covering such proposed disposition has been filed by the Company
(although the Company is under no obligation to file any registration statement)
under the 1933 Act and has become effective and compliance with applicable state
securities laws has been effected. The Company agrees that it will respond as
promptly as reasonably practicable to any notice of sale given hereunder.
D. NO TRADING MARKET; NO REGISTRATION OBLIGATION. Each Optionee
---------------------------------------------
acknowledges that no trading market for the Company's Common Stock exists and,
as a result, Optionee may be unable to sell any of the Common Stock acquired
upon the exercise of the
11
<PAGE>
Stock Option Agreement
Community Health Computing Corp.
Options for the foreseeable future. Further, the Company has no obligation to
register any of such Common Stock.
E. LEGEND ON CERTIFICATES. Each stock certificate of the Company
----------------------
issued to represent any of the shares of Common Stock acquired pursuant to the
exercise of Options shall bear the following (or substantially equivalent)
legends on the face or reverse side thereof:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"),
OR THE SECURITIES LAWS OF ANY JURISDICTION. SUCH SECURITIES MAY NOT
BE OFFERED, SOLD, OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED
EXCEPT PURSUANT TO (I) A REGISTRATION STATEMENT WITH RESPECT TO SUCH
SECURITIES THAT IS EFFECTIVE UNDER SUCH ACT OR APPLICABLE STATE
SECURITIES LAW, OR (II) ANY EXEMPTION FROM REGISTRATION UNDER SUCH
ACT, OR APPLICABLE STATE SECURITIES LAW, RELATING TO THE DISPOSITION
OF SECURITIES, INCLUDING RULE 144, PROVIDED AN OPINION OF COUNSEL IS
FURNISHED, REASONABLY SATISFACTORY IN FORM AND SUBSTANCE TO THE
COMPANY, THAT AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE
ACT AND/OR APPLICABLE STATE SECURITIES LAW IS AVAILABLE.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY NOT BE TRANSFERRED,
SOLD, ASSIGNED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF UNLESS
SUCH TRANSFER COMPLIES WITH THE PROVISIONS OF A STOCK OPTION
AGREEMENT TO WHICH THE HOLDER HEREOF IS A PARTY, A COPY OF WHICH IS ON
FILE AT THE OFFICE OF THE COMPANY.
Any stock certificate issued at any time in exchange or substitution for any
certificate bearing such legends (except a new certificate issued upon the
completion of a public distribution of Common Stock represented thereby) shall
also bear such (or substantially equivalent) legends, unless the Common Stock
represented by such certificate is no longer subject to the provisions of this
Agreement and in the opinion of counsel for the Company the Common Stock
represented thereby need no longer be subject to restrictions pursuant to the
1933 Act or applicable state securities law. The Company shall not be required
to transfer on its books any certificate for Common Stock in violation of the
provisions of this Agreement. The failure of the Company to affix such a legend
to the certificate shall not release or waive Optionee's obligations under this
Agreement.
12
<PAGE>
Stock Option Agreement
Community Health Computing Corp.
13. SPECIAL RULES REGARDING INCENTIVE OPTIONS.
-----------------------------------------
A. NOTICE OF TRANSFER. If this Option is an Incentive Option, the
------------------
Optionee hereby agrees to notify the Company in writing within three (3) days
after any sale, transfer or other disposition of shares acquired upon the
exercise of this Option which occurs within either twelve (12) months following
the date of exercise or twenty-four (24) months following the date of grant.
B. $100,000 PER YEAR EXERCISE LIMIT. If this Option is an Incentive
--------------------------------
Option, it shall be exercisable in accordance with the above schedule set forth
in Section 2 hereof, but in no event shall it be exercised to the extent that
---------
the aggregate fair market value of Common Stock covered by such Option which is
exercisable for the first time during any calendar year, when combined with the
aggregate fair market value of all stock covered by incentive stock options (as
defined in the Code) granted to Optionee after December 31, 1986 by the Company,
its parent or a subsidiary of the Company which are exercisable for the first
time during the same calendar year, exceeds $100,000.
14. NO AGREEMENT OF EMPLOYMENT. Neither the grant of this Option nor this
--------------------------
Agreement shall be deemed to create any agreement with, or obligation by, the
Company to employ the Optionee for any period of time, it being understood that
employment is strictly "at will" in the absence of any written agreement to the
contrary and, in the absence of such written agreement, such person may be
terminated by the Company at any time, with or without cause.
15. ASSIGNMENT OF INVENTIONS, ETC.; NON-DISCLOSURE OF CONFIDENTIAL
---------------------------------------------------------------
INFORMATION. As further consideration for the issuance of the Option, the
- -----------
Optionee, if he is an employee of the Company, agrees as follows:
A. ASSIGNMENT OF INVENTIONS. Any and all trade secrets, inventions
------------------------
and proprietary information which either (i) relates at the time of conception
or reduction to practice to the Company or its business, or actual or
demonstrably anticipated research or development of the Company or (ii) results
from any work performed by the Optionee for the Company is hereby assigned to,
and shall become the absolute property of, the Company and shall at all times
and for all purposes be regarded as acquired and held by the Optionee in a
fiduciary capacity for the sole benefit of the Company, and the Optionee agrees
that, upon request, he will promptly make all disclosures, execute all
assignments, instruments and papers, and perform all acts whatsoever necessary
or desired by the Company to vest and confirm in it, its successors, assigns and
nominees, all rights created or contemplated by this subparagraph A and which
may be necessary or desirable to enable the Company, its successors, assigns,
and nominees to secure and enjoy the full benefits and advantages thereof.
13
<PAGE>
Stock Option Agreement
Community Health Computing Corp.
B. NONDISCLOSURE OF CONFIDENTIAL INFORMATION. The Optionee shall
-----------------------------------------
not, during his employment by the Company or at any time thereafter, directly or
indirectly use, divulge, furnish or make accessible to anyone other than the
Company, its directors and officers other than in the regular course of the
business of the Company or any of its subsidiaries, any knowledge or information
with respect to (i) confidential, secret or proprietary plans, data (including
cost data), specifications, procedures and techniques, methods, inventions,
software, firmware, source codes, technology, "knowhow," or other similar
material or data relating to the business, products, services (whether existing
or under development) or activities of the Company or its subsidiaries, (ii)
any confidential business plans or surveys of the Company or its subsidiaries,
(iii) any other confidential or secret aspect of the business, products,
services or activities of the Company or its subsidiaries, or (iv) any customer
usages and requirements or any customer lists of the Company or its
subsidiaries. The Optionee shall not, upon leaving the employ of the Company,
without the prior written consent of an executive officer of the Company, take
with him any data, customer lists, reports, studies, compilations, business
plans, presentations/proposals, letters, memoranda, notes or other writings or
documents whatever, or copies thereof, which reflect or deal with any of the
confidential information described in this Section.
C. REMEDIES. The Optionee acknowledges that a breach of the
--------
provisions of this Agreement will cause the Company irreparable injury for
which the Company cannot be reasonably or adequately compensated in damages. The
Company shall, therefore, be entitled, in addition to all other remedies
available to it, to injunctive and/or other equitable relief to prevent a breach
of this Agreement, or any part of it, and to secure its enforcement.
16. SUBJECT TO PLAN. This Option is issued subject and pursuant to the
---------------
provisions of the Plan, receipt of a copy of which the holder acknowledges. A
determination of the Board of Directors or the Committee established pursuant to
the Plan as to any questions which may arise with respect to the interpretation
of the provisions of this Option and of the Plan shall be final. The Board of
Directors or the Committee may authorize and establish such rules and
regulations, and revisions thereof, not inconsistent with the provisions of the
Plan, as it may deem advisable. Any provision hereof which is contrary to the
terms and conditions of the Plan shall be superseded and governed by the Plan.
17. SEVERABILITY. If any condition, term or provision of this Agreement
------------
is determined by a court to be illegal or in conflict with any law, state or
Federal, the validity of the remaining portions or provisions shall not be
affected, and the rights and obligations of the parties shall be construed and
14
<PAGE>
Stock Option Agreement
Community Health Computing Corp.
enforced as if this Agreement did not contain the particular condition, term or
provision determined to be unenforceable.
18. ENTIRE AGREEMENT; GOVERNING LAW. This Agreement contains the entire
-------------------------------
understanding and agreement between the parties hereto respecting the within
subject matter, and there are no representations, agreements, arrangements or
understandings, oral or written, between the parties hereto relating to the
subject matter of this Agreement that are not fully expressed herein. The
Company is a Delaware corporation, and this Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware.
WITNESS the signature of its duly authorized officer of the Company as of
the date of grant hereof.
COMMUNITY HEALTH COMPUTING OPTIONEE:
CORP.
______________________________
By ____________________________ Signature
Title: ________________________ ______________________________
Print Name
______________________________
Street Address
______________________________
City, State, Zip Code
______________________________
Social Security No.
*IF you have any "Inventions" to except from Section 15, you must IDENTIFY ALL
SUCH INVENTIONS below, or, if the statement is not applicable, you must write
NONE below.
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
15
<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 September 29, 1996
<TABLE>
<CAPTION>
FISCAL YEARS
------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Average shares outstanding 17,360 16,426 15,858
Net effect of dilutive stock options
and warrants 1,147 653 650
------- ------- -------
Average common and common
equivalent shares outstanding 18,507 17,079 16,508
======= ======= =======
Net income $16,637 $11,073 $17,521
======= ======= =======
Net income per share $ .90 $ .65 $ 1.06
======= ======= =======
</TABLE>
Primary and fully diluted income per share differs by less than one cent in all
periods.
<PAGE>
EXHIBIT 21
ADAC LABORATORIES AND SUBSIDIARIES
SUBSIDIARIES OF REGISTRANT
COUNTRY
OF
NAME INCORPORATION
- ---- -------------
ADAC do Brasil Brazil
ADAC Laboratories Europe, 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 Laboratories Pacific, Inc. California, U.S.
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.
ADAC Radiology Services, Inc. Delaware, U.S.
ADAC Healthcare Partners, Inc. Delaware, U.S.
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-3, S-8 (File Nos.33-02793; 33-72804; 33-02747; 33-
02749; 33-01075; and 33-75074) of our report dated November 4, 1996, on our
audits of the consolidated financial statements and financial statement
schedules of ADAC Laboratories as of September 29, 1996 and October 1, 1995,
and for each of the three fiscal years ended September 29, 1996, which is
included under Item 8. Financial Statements and Supplemental Data of this Form
10-K.
San Jose, California
November 4, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-29-1996
<PERIOD-START> OCT-02-1995
<PERIOD-END> SEP-29-1996
<CASH> 3,081
<SECURITIES> 0
<RECEIVABLES> 82,800
<ALLOWANCES> 2,146
<INVENTORY> 31,975
<CURRENT-ASSETS> 134,832
<PP&E> 23,495
<DEPRECIATION> 15,102
<TOTAL-ASSETS> 186,628
<CURRENT-LIABILITIES> 80,512
<BONDS> 0
0
0
<COMMON> 110,661
<OTHER-SE> (11,190)
<TOTAL-LIABILITY-AND-EQUITY> 186,628
<SALES> 177,613
<TOTAL-REVENUES> 240,785
<CGS> 108,091
<TOTAL-COSTS> 147,633
<OTHER-EXPENSES> 63,833
<LOSS-PROVISION> 206
<INTEREST-EXPENSE> 3,201
<INCOME-PRETAX> 25,912
<INCOME-TAX> 9,275
<INCOME-CONTINUING> 16,637
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 16,637
<EPS-PRIMARY> 0.91
<EPS-DILUTED> 0.90
</TABLE>
