<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/X/ Preliminary Proxy Statement / / Soliciting Material Pursuant to
/ / Definitive Proxy Statement sec.240.14a-11(c) or
/ / Definitive Additional Materials sec.240.14a-12
/ / Confidential, for Use of the
Commission Only
(as permitted by Rule 14a-6(e)(2))
ADAC Laboratories
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ $125 per Exchange Act Rules 0-11(c)(1)(ii), or 14a-6(i)(1), or 14a-6(i)(2)
or Item 22(a)(2) of Schedule 14A.
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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<PAGE> 2
ADAC LABORATORIES
------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
MARCH 6, 1996
------------------------
TO THE SHAREHOLDERS OF ADAC LABORATORIES:
The Annual Meeting of Shareholders of ADAC Laboratories, a California
corporation, will be held at the offices of the Company, located at 540 Alder
Drive, Milpitas, California 95035, on Wednesday, March 6, 1996, at 1:00 p.m.,
local time, for the following purposes:
(1) To elect members of the Board of Directors;
(2) To approve amendments to the Company's 1992 Stock Option Plan,
including an increase in the number of shares authorized thereunder by
1,355,000 shares;
(3) To approve an amendment to the Company's Employee Stock Purchase Plan
(1994) to increase the number of shares authorized thereunder by 65,000
shares;
(4) To approve amendments to the Company's Directors' Stock Option Plan
(1987), including an increase in the number of shares authorized
thereunder by 65,000 shares;
(5) To approve an amendment to the Company's Articles of Incorporation to
increase the number of authorized shares of Common Stock from
25,000,000 to 50,000,000; and
(6) To transact such other business as may properly come before the meeting
or any adjournment thereof.
The Board of Directors has fixed the close of business on January 8, 1996
as the record date for the determination of shareholders entitled to vote at the
Annual Meeting. A copy of the Company's Annual Report to Shareholders, including
financial statements for the fiscal year ended October 1, 1995, is being sent to
all shareholders as of the record date concurrently with the mailing of this
Proxy Statement.
Whether or not you expect to attend the Annual Meeting in person, please
date, sign and mail the enclosed Proxy in the envelope provided as promptly as
possible. The Proxy is revocable and will not affect your right to vote in
person in the event you attend the Meeting.
By Order of the Board of Directors
Stanley D. Czerwinski,
Chairman of the Board
Milpitas, California
February , 1996
<PAGE> 3
ADAC LABORATORIES
540 ALDER DRIVE
MILPITAS, CALIFORNIA 95035
-------------------------------
PROXY STATEMENT
-------------------------------
INFORMATION CONCERNING SOLICITATION AND VOTING
GENERAL
The enclosed Proxy is solicited on behalf of ADAC Laboratories, a
California corporation (the "Company"), for use at the Annual Meeting of
Shareholders to be held on March 6, 1996, at 1:00 p.m., local time, or at any
adjournment or postponement thereof, for the purposes set forth herein and in
the accompanying Notice of Annual Meeting of Shareholders. The Annual Meeting
will be held at the offices of the Company, located at 540 Alder Drive,
Milpitas, California 95035. This Proxy Statement and the accompanying proxy card
are being mailed to all shareholders on or about February , 1996.
Whether or not you plan to attend the Annual Meeting in person, please
date, sign and return the enclosed Proxy as promptly as possible, in the postage
prepaid envelope provided, to insure that your shares will be voted at the
Annual Meeting. Any shareholder who returns a proxy in such form has the power
to revoke it at any time prior to its effective use by filing an instrument
revoking it or a duly executed proxy bearing a later date with the Secretary of
the Company or by attending the Annual Meeting and voting in person. Any such
proxy, if not revoked, will be voted at the Annual Meeting in accordance with
the instructions specified therein.
RECORD DATE AND SHARE OWNERSHIP
Shareholders of record at the close of business on January 8, 1996 are
entitled to notice of and to vote at the meeting. At the record date, there were
issued and outstanding shares of Common Stock, each entitled to one
vote.
The following table sets forth, as of December 4, 1995, the number and
percentage of shares of Common Stock beneficially owned (as defined in Rule
13d-3 adopted under the Securities Exchange Act of 1934) by (a) each nominee for
director, each existing director, all current or former executive officers
listed in the compensation disclosure table and all directors and current
executive officers of the Company as a group, and (b) all persons known to the
Company to own beneficially more than five percent (5%) of any class of voting
securities of the Company. All such persons have sole voting and investment
power with respect to all shares shown as beneficially owned by them, except as
otherwise stated in the following footnotes.
<TABLE>
<CAPTION>
BENEFICIAL
(A) DIRECTORS, NOMINEES AND CERTAIN OWNERSHIP PERCENT OF
EXECUTIVE OFFICERS OF COMMON STOCK(1) VOTING SHARES(1)
- ---------------------------------------- ------------------ ----------------
<S> <C> <C>
Stanley D. Czerwinski 142,725(2) *
Graham O. King 0 0
David L. Lowe 26,733(3) *
Thomas A. McPherson 3,333 *
Robert L. Miller 33,333(4) *
F. David Rollo 23,334(5) *
Edmund H. Shea, Jr. 484,525(6) 2.8%
</TABLE>
1
<PAGE> 4
(Continued)
<TABLE>
<CAPTION>
BENEFICIAL
(A) DIRECTORS, NOMINEES AND CERTAIN OWNERSHIP PERCENT OF
EXECUTIVE OFFICERS OF COMMON STOCK(1) VOTING SHARES(1)
- ---------------------------------------- ------------------ ----------------
<S> <C> <C>
R. Andrew Eckert 36,003(7) *
Mark L. Lamp 41,250(8) *
Dennis R. Mahoney 31,750(9) *
All Directors and All Current 810,609(10) 4.7%
Executive Officers as a group
(10 persons)
</TABLE>
<TABLE>
<CAPTION>
BENEFICIAL
OWNERSHIP PERCENT OF
(B) OTHER PRINCIPAL SHAREHOLDERS OF COMMON STOCK VOTING SHARES
- ---------------------------------------- ------------------ ----------------
<S> <C> <C>
CREF 1,395,533 8.1%
730 Third Avenue
New York, New York 10017
</TABLE>
- ------------
* Less than one percent (1%).
(1) Based on information furnished by the persons named and 17,139,545 shares
of Common Stock outstanding as of December 4, 1995. All references to
options include options which are presently exercisable or exercisable
within sixty (60) days.
(2) Includes 5,000 shares issuable upon exercise of options held by Mr.
Czerwinski.
(3) Includes 26,733 shares issuable upon exercise of options held by Mr. Lowe.
(4) Includes 13,333 shares issuable upon exercise of options held by Mr.
Miller.
(5) Includes 16,667 shares issuable upon exercise of options held by Dr. Rollo.
(6) Includes 23,334 shares issuable upon exercise of options held by Mr. Shea.
Also includes 85,580 shares held by J. F. Shea, Co., Inc. and 11,506 shares
held by Mrs. Shea, as to which Mr. Shea disclaims beneficial interest.
(7) Includes 35,416 shares issuable upon exercise of options held by Mr.
Eckert.
(8) Includes 41,250 shares issuable upon exercise of options held by Mr. Lamp.
(9) Includes 31,750 shares issuable upon exercise of options held by Mr.
Mahoney.
(10) Includes options to purchase 167,166 shares of Common Stock held by all
directors and current executive officers as a group.
VOTING AND SOLICITATION
The required quorum for the meeting is a simple majority of the outstanding
shares of Common Stock eligible to be voted on matters to be considered at the
meeting. Unless cumulative voting is timely elected, a plurality of the vote
properly cast for the election of directors by the shareholders attending the
meeting in person or by proxy will elect directors to office. An affirmative
majority of the votes properly cast at the meeting in person or by proxy is
required for approval of the amendments to the 1992 Stock Option Plan (Proposal
2), the amendment to the Employee Stock Purchase Plan (1994) (Proposal 3), and
the amendments to the Directors' Stock Option Plan (1987) (Proposal 4). An
affirmative majority of the outstanding shares of Common Stock eligible to be
voted at the meeting is required for approval of the amendment to the Company's
Articles of Incorporation (Proposal 5).
When your proxy is returned properly signed, the shares represented will be
voted in accordance with your directions. Where specific choices are not
indicated, proxies will be voted for Proposals 1 through 5. If a properly signed
proxy or ballot indicates that a stockholder, broker or other nominee abstains
from voting or that the shares are not to be voted on a particular proposal, the
shares will not be counted as having been voted on that proposal, although such
shares will be counted as being in attendance at the meeting for purposes of
determining the presence of a quorum. Abstentions will not be reflected in a
final tally of the votes cast for the election of directors (Proposal 1).
Abstentions will have the effect of a negative vote in determining whether
2
<PAGE> 5
the proposed amendments to the 1992 Stock Option Plan (Proposal 2), the
amendment to the Employee Stock Purchase Plan (1994) (Proposal 3), and the
amendments to the Directors' Stock Option Plan (1987) (Proposal 4) have been
approved by the shareholders for purposes of Rule 16b-3 of the Securities and
Exchange Commission, because that rule requires approval by the affirmative vote
of a majority of the shares present or represented by proxy at the meeting in
order for transactions under such plans to be exempt from this Rule's
application. For purposes of Rule 16b-3, broker non-votes, although counted for
quorum purposes, will have no other effect. However, abstentions and broker
non-votes will have the effect of a negative vote in determining whether the
proposed amendment to the Articles of Incorporation (Proposal 5) is approved
under California law and the Bylaws of the Company, because that proposal
requires the approval of an absolute majority of the outstanding shares entitled
to be cast at the meeting.
Alternatively, every shareholder voting for the election of directors may
cumulate such shareholder's votes and give one candidate a number of votes equal
to the number of directors to be elected multiplied by the number of shares of
Common Stock which such shareholder is entitled to vote, or may distribute the
shareholder's votes on the same principle among as many candidates as the
shareholder chooses, provided that these votes cannot be cast for more than the
authorized number of directors. However, no shareholder shall be entitled to
cumulate votes unless the candidate's name has been placed in nomination prior
to the voting and the shareholder, or any other shareholder, has given notice at
the meeting prior to the voting of the intention to cumulate the shareholder's
votes. On all other matters, as explained above, each share of Common Stock has
one vote.
The cost of soliciting proxies will be borne by the Company. The Company
may reimburse brokerage firms and other persons representing beneficial owners
of shares for their expenses in forwarding solicitation material to such
beneficial owners, estimated at $20,000. The Company has retained Skinner & Co.,
a professional proxy solicitor, to assist in the solicitation of proxies and to
arrange for dissemination of proxy materials. The agreement with Skinner & Co.
provides that the fee payable for such services will amount to $3,500; such fee
does not include expenses. Proxies may be solicited by the Company's directors,
officers or other employees, without additional compensation, personally or by
telephone, telegram or facsimile.
(1) ELECTION OF DIRECTORS
GENERAL
Presently the Company's Bylaws authorize seven members to serve on the
Board of Directors. Dr. Thomas McPherson has informed the Board of Directors
that he will not stand for re-election and, as a result, the remaining six
persons presently serving as directors (Messrs. Czerwinski, King, Lowe, Miller,
Shea and Rollo) are proposed for election as directors. The proxy holders will
be voting for all six nominees. The Board of Directors has approved an amendment
to the Bylaws to reduce the number of authorized directors to six members
effective March 6, 1996.
In the event that any nominee is unable or declines to serve as a director
at the time of the Annual Meeting, the proxies may be voted for a nominee
designated by the present Board of Directors to fill the vacancy. In the event
that additional persons are nominated for election as directors, the proxy
holders intend to vote all proxies received by them in such a manner in
accordance with cumulative voting as will assure the election of as many of the
nominees listed below as possible, and, in such event, the specific nominees to
be voted for will be determined by the proxy holders. The Company is not aware
of any nominee who will be unable or will decline to serve as a director.
Directors are elected annually by the shareholders, and the term of office of
each person elected as a director will continue until the next Annual Meeting of
Shareholders or until his successor has been elected and qualified.
3
<PAGE> 6
NOMINEES
The names of the nominees, and certain information about them, are set
forth below:
<TABLE>
<CAPTION>
DIRECTOR
NOMINEE AND AGE PRINCIPAL OCCUPATION SINCE
--------------- -------------------- --------
<S> <C> <C>
Stanley D. Czerwinski (60) Chairman of the Board of the Company 1991
Graham O. King (45) Chairman and Chief Executive Officer of US 1995
Servis, Inc.
David L. Lowe (35) Chief Executive Officer of the Company 1992
Robert L. Miller (43) Attorney at Law; general counsel to the 1990
Company
F. David Rollo (56) Senior Vice-President of Medical Affairs 1991
of HCIA
Edmund H. Shea, Jr. (66) Executive Vice-President and a director of 1987
J.F. Shea Co., Inc.
</TABLE>
Except as set forth below, each of the nominees has been engaged in his
principal occupation set forth above during the past five years. There is no
family relationship between any director or executive officer of the Company.
Mr. Czerwinski was elected a director in November, 1991 and Chairman of the
Board in February, 1992. Mr. Czerwinski previously served as the Company's Chief
Executive Officer, President and Chief Operating Officer at various times since
January, 1991. He originally joined the Company in May 1986. Prior to joining
the Company, Mr. Czerwinski served for seventeen years in various management
capacities at TRW, including Director of Sales and Marketing for the Electronics
Components Group, and General Manager of the Semiconductor Division. He also
presently serves as a director of Zymed, Inc., a privately-held medical
instrumentation company.
Mr. King was appointed a director in June, 1995. Mr. King is currently the
Chairman and Chief Executive Officer of US Servis, Inc., a healthcare management
services company. From 1986 to 1993, Mr. King was with Shared Medical Services,
a company specializing in hospital information systems, most recently serving as
its President from 1988. Previously, Mr. King was President of Daseke and
Company from 1983 to 1986 and was President of Auto-Trol Technology, a
computer-aided design software company, from 1979 to 1982. Mr. King also held
various management level positions with IBM from 1965 to 1979.
Mr. Lowe was elected a director of the Company in August, 1992 and has
served as Chief Executive Officer of the Company since November 1994. From March
1994 until November 1994, Mr. Lowe served as Co-Chief Executive Officer and from
February, 1992 until November 1994 as President. He originally joined the
Company in 1988 and has previously served in a variety of senior management
positions, including Chief Operating Officer. Prior to joining the Company, Mr.
Lowe held management and consulting positions with several firms or companies
providing services to or engaged in high-technology industries, including Bain &
Company and Cygnet Systems, Inc. Mr. Lowe currently serves as a director of
Vivra Incorporated, a specialty healthcare company.
Mr. Miller is general counsel to the Company and serves as general counsel
to other corporations; he is also Chairman of the Board and Chief Executive
Officer of Ironstone Group, Inc.
Dr. Rollo is currently the Senior Vice-President Medical Affairs of HCIA.
Previously, from October 1992 to April 1995, he served as the President and
Chief Executive Officer of MetriCor, Inc., a corporation engaged in medical
technology, quality assurance and health information management consulting
services. From 1984 until October, 1992, Dr. Rollo served as Senior Vice
President-Medical Affairs for Humana Inc. Prior to that, he served as Vice
President for Humana from 1980 until 1984. He has held various academic and
administrative positions with Vanderbilt University Medical Center since 1977,
currently serving as Adjunct Professor of Radiology. He currently serves as a
director of Positron Corp.
4
<PAGE> 7
Mr. Shea is a co-founder and has been, since 1968, Executive Vice-President
and a director of J.F. Shea Co., Inc., a diversified construction, land
development and venture investments company. He was elected a director of
Hambrecht & Quist Group in November, 1986 and serves as a director of Zymed,
Inc., Vanguard Airlines and Ironstone Group, Inc.
BOARD MEETINGS, COMMITTEES AND DIRECTORS' COMPENSATION
The Board of Directors of the Company held a total of three regular
meetings and five special meetings during the fiscal year ended October 1, 1995.
All of the directors attended at least 75% of the aggregate number of meetings
of the Board of Directors and meetings of the committees of the Board on which
he serves. The Board of Directors presently has an Audit Committee, a
Compensation Committee, a Stock Option Committee and an Executive Committee. The
Audit Committee, the Compensation Committee and the Stock Option Committee each
held one meeting during the 1995 fiscal year. The Executive Committee did not
meet during the last year.
The Stock Option Committee presently consists of Messrs. McPherson, Miller
and Shea. The Compensation Committee presently consists of Messrs. Czerwinski,
Miller, Rollo and Shea. The Executive Committee presently consists of Messrs.
Czerwinski, Lowe, Miller and Shea. The Audit Committee presently consists of
Messrs. McPherson, Miller, Rollo and Shea. Mr. McPherson's tenure on these
Committees will end at this Annual Meeting.
During fiscal 1995 non-employee directors received stock options to
purchase 6,666 shares of the Company's Common Stock under the Company's
Directors' Stock Option Plan, subject to specified vesting installments. In
addition, during fiscal 1995, each non-employee directors received an annual
retainer of $10,000, payable in quarterly installments, and $2,500 for each
Board meeting attended. Dr. Rollo also received a $1,000 honorarium for
assisting the Company's Advanced Clinical Research Program. Prior to his
election as a director during fiscal 1995, Mr. King commenced rendering
consulting services to the Company and received a stock option grant for 30,000
shares, subject to normal vesting of 25%, 25% and 50% on the first, second and
third anniversaries of the date of this option.
REPORT OF THE COMPENSATION COMMITTEE ON
ANNUAL COMPENSATION OF EXECUTIVE OFFICERS
Executive Compensation Components. The Compensation Committee of the Board
of Directors is responsible for evaluating and establishing the level of
executive compensation. It is the present philosophy of the Compensation
Committee and the Company that to achieve continual growth and financial
success, the Company must be able to attract and retain qualified executives and
must structure incentive-based compensation which is closely tied to the
Company's financial performance and operations.
In fiscal 1995 and in prior years, most executive officers and other
executive-level employees participated in a management incentive program, which
makes overall executive compensation dependent upon both the accomplishment of
individual tasks and objectives, as well as Company-wide performance. Under the
management incentive program, the objectives assigned to individual executives
are intended to further the Company's financial and operating performance,
implement its strategic business plan, develop new products and maintain and
increase market share. The objectives may also include subjective criteria such
as leadership ability, innovation, insuring compliance with Company policies,
enhancing customer satisfaction and furthering the Company's mission.
Company-wide objectives, which include the accomplishment of targeted levels of
revenues and net earnings, can also be a component of the management incentive
program. In order for an executive to achieve his or her maximum bonus under
such Program, he or she must accomplish most or all of the individual objectives
and the Company must achieve its targeted level of revenue and earnings for a
particular fiscal year.
The Compensation Committee monitors the effectiveness and appropriateness
of all of the Company's executive Compensation programs, approves the base
salaries of the executive officers and, at its discretion,
5
<PAGE> 8
awards bonuses under the Company's management incentive program and makes
recommendations concerning the grant of stock options under the Company's stock
option plans.
Base Salary. In determining the compensation of an executive officer, a
base salary is determined based upon the executive's level of responsibility,
the qualifications and experience required and the need to provide, together
with incentive bonuses and stock options, competitive compensation. Salary
increases are based upon periodic reevaluations of these factors and the
performance of the executive in meeting individually-assigned objectives.
Bonus Compensation. Under the management incentive program in effect in
fiscal 1995, the Compensation Committee sets objectives for each participant and
establishes the bonuses that may be earned, based upon the achievement of those
individual objectives and the Company's overall financial performance. In order
for any portion of the bonus to be earned, the executive must achieve at least
some of these objectives. Objectives may also be related to the participant's
operating unit. The Compensation Committee may grant bonuses of between 0% and
100% of base salary, based upon the performance of each participant's
individually-assigned objectives for the year, the Company's financial
performance and the executive's level of responsibility.
Stock Options. Stock option grants are intended to supplement an
executive's base salary by providing long-term incentives for the achievement of
the Company's strategic business plan and financial and operational goals and to
align management's interests with those of the Company's shareholders. The size
of any stock option grant is related to the individual's level of responsibility
within the Company. Stock Options are also granted to retain and attract key
employees in the very competitive job market of the Silicon Valley in which the
Company is located.
CEO Compensation. Mr. David L. Lowe served as the Company's Chief Executive
Officer during fiscal 1995. Mr. Lowe's general compensation program was
established during fiscal 1993 as a result of a compensation study of peer
organizations conducted in that year by an independent compensation consulting
firm. Mr. Lowe's annual base salary for fiscal 1995 was $400,000 and he was
eligible to receive a bonus of up to 50% of his base salary based upon quarterly
and annual operating results and the accomplishment of certain goals.
Of the maximum bonus for fiscal 1995 of $200,000, $100,000 could be awarded
to Mr. Lowe on the basis of the Company's progress toward its long-term goal of
becoming a leading provider of HealthCare Information Systems ("HCIS"). On the
basis of certain major accomplishments made by the Company in 1995 toward this
goal (the level of HCIS 1995 bookings, completion of the acquisition of
Community Health Computing, a provider of laboratory and radiology information
systems, and the achievement of certain shorter term operating targets), Mr.
Lowe was awarded a bonus of $75,000.
The remaining $100,000 of the total potential bonus could be earned on the
basis of the accomplishment of both objective and subjective criteria. Objective
criteria relate to certain financial and operating results for the Company's
Medical Systems business, including revenue, bookings and earnings per share.
Subjective criteria relate to the development of Company systems and culture
with a view towards providing the Company with a sustainable competitive
advantage, and include leadership, long-term planning, product quality,
innovation and reputation with customers. On the basis of certain achievements
relating to both operational and quality results, Mr. Lowe was awarded a bonus
of $88,400.
This Report on Executive Compensation has been furnished by the following
members of the Compensation Committee of the Company's Board of Directors:
Edmund H. Shea, Jr.
Robert L. Miller
F. David Rollo
Stanley D. Czerwinski
Mr. Czerwinski did not participate in any decisions with respect to his own
compensation as Chairman of the Board and an employee of the Company.
6
<PAGE> 9
Compensation Committee Interlocks and Insider Participation. As noted
above, the members of the Company's Compensation Committee are Messrs. Shea,
Miller, Rollo and Czerwinski. Mr. Czerwinski presently is the Chairman of the
Board of Directors.
Executive Compensation. The following table sets forth all compensation
earned by or paid or awarded to the Chief Executive Officer and to the next four
most highly compensated executive officers of the Company for all services
rendered in all capacities for the periods shown.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION ---------------------
--------------------------------------------- STOCK LONG-TERM
NAME, AGE AND FISCAL OPTION INCENTIVE ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS OTHER(1) AWARDS PAYOUTS COMPENSATION
------------------ ------ -------- -------- -------- ------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Stanley D. Czerwinski (60), 1995 $188,996(2) $ -0- -- -0- -- $250,000(3)
Chairman 1994 500,000 -0- -- 50,000 -- --
1993 500,000 250,000 -- -0- -- --
David L. Lowe (35) 1995 $398,542 $163,400 -- 196,000(4) -- --
Chief Executive Officer 1994 294,231 148,180 -- 150,000 -- --
1993 250,000 250,000 -- -0- -- --
R. Andrew Eckert (34), 1995 $199,031 $173,957 -- 162,000(4) -- --
President and General 1994 148,086 102,380 -- 165,000 -- --
Manager, Medical Systems 1993 125,000 125,000 -- -0- -- --
Mark L. Lamp (34), 1995 $199,800 $144,000 -- 156,000(4) -- --
President and General 1994 177,316 86,700 -- 165,000 -- --
Manager, Healthcare 1993 120,000 60,00 -- -0- -- --
Information Systems
Dennis R. Mahoney (42) 1995 $135,280 $ 68,230 -- 35,000 -- --
Vice President, Finance, 1994 120,000 57,240 -- 33,000 -- --
Chief Financial Officer 1993 11,980 -0- -- 50,000 -- --
and Secretary(5)
</TABLE>
- ---------------
(1) Not included in the compensation table are certain expenses incurred or
reimbursements paid by the Company such as the use of Company-owned or
-leased automobiles, entertainment expenses and other benefits (such as
meals and parking) and other miscellaneous items. The aggregate amount of
such compensation did not exceed the lesser of either $50,000 or 10% of the
total annual salary and bonus reported for each named officer. A small
portion of such expenses may relate to personal expenses or use but are
believed to constitute ordinary and incidental business costs and expenses
which are paid or reimbursed by the Company in order to attract or retain
qualified personnel, facilitate job performance and minimize the
work-related expenses incurred by such persons.
(2) Mr. Czerwinski was paid a monthly salary of $30,000 through December, 1994
for devoting 100% of his time to the Company as Chairman of the Board and,
beginning January, 1995, Mr. Czerwinski is now being paid for services
rendered a fee of $3,000 per 8 hour day for such services. See "Employment
Contracts, Termination of Employment and Change-in-Control Agreements" on
page 9.
(3) Mr. Czerwinski also received $20,833 per month in consideration of, among
other things, agreeing for a period of eleven years not to engage in or
accept any competing employment, not to sell any of his shares of Common
Stock to the extent that doing so would disqualify the Company for obtaining
"pooling of interests" treatment for financial reporting purposes with
regard to certain acquisitions by the Company and for severance as the
Company's Chief Executive Officer.
(4) These stock option awards include options granted by the Company's recently
acquired subsidiary, Community Health Computing Corp. ("CHC"), a provider of
laboratory and radiology department information systems. Of the options
reported in the table, CHC granted 96,000 options to Mr. Lowe, 72,000
options to Mr. Eckert and 96,000 options to Mr. Lamp.
(5) Mr. Mahoney ceased his employment with the Company on October 1, 1995.
7
<PAGE> 10
Executive Officers of the Company. A description of Mr. Czerwinski's and
Mr. Lowe's positions with the Company and related information is set forth above
under "(1) ELECTION OF DIRECTORS -- Nominees". Descriptions of the Company's
other current executive officers are set forth below.
Mr. Eckert was named President and General Manager of ADAC Medical Systems
in November, 1994. He previously served as Executive Vice-President and General
Manager since February, 1992. Mr. Eckert joined the Company in 1990 and has held
several other senior management positions. Prior to joining the Company Mr.
Eckert worked in the venture capital and banking industries with Summit Partners
and Goldman Sachs, respectively.
Mr. Lamp was named President and General Manager of ADAC Healthcare
Information Systems during August, 1994. He previously served as Executive
Vice-President of Business Development and earlier held a variety of other
management and engineering-related positions with the Company.
Mr. Andre Simone, age 38, was elected Vice-President, Finance on October 2,
1995. Mr. Simone joined the Company during May, 1994 and was immediately elected
as the Company's Treasurer. From February 1993 to March 1994, Mr. Simone served
as the Assistant Treasurer for The Ask Group, Inc., a database and manufacturing
accounting software firm. Prior to that time, he held positions with Emcor
Treasury Consultants, Hewlett Packard and Bain & Company.
The term of office of each of the above-named executive officers is at the
pleasure of the Board of Directors. To the knowledge of the Company, there are
no arrangements or understandings between these officers and any other person
pursuant to which any of these officers was elected as an officer.
STOCK OPTIONS GRANTED IN FISCAL 1995
The following table sets forth certain information concerning stock option
grants made by the Company or its subsidiaries to certain executive officers
pursuant to the Company's or its subsidiaries' stock option plans during fiscal
year 1995.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
- --------------------------------------------------------------------------------- POTENTIAL REALIZABLE
NUMBER VALUE AT ASSUMED
OF % OF TOTAL ANNUAL RATES OF STOCK
SECURITIES OPTIONS PRICE APPRECIATION
UNDERLYING GRANTED PER SHARE FOR OPTION TERM(1)
OPTIONS TO EMPLOYEES EXERCISE EXPIRATION ---------------------
NAME GRANTED IN 1995 PRICE($) DATE 5% 10%
------ ---------- ------------ --------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Stanley D. Czerwinski 0 0% $ * * $ * $ *
David L. Lowe.......... 100,000 7.1 8.00 4-28-00 221,025 488,408
96,000(2) 6.8 .66 12-31-97 71,018 79,221
R. Andrew Eckert....... 90,000 6.4 8.00 4-28-00 198,923 439,567
72,000(2) 5.1 .66 12-31-97 53,263 59,400
Mark L. Lamp........... 60,000 4.3 8.00 4-28-00 132,615 293,645
96,000(2) 6.8 .66 12-31-97 71,018 79,221
Dennis R. Mahoney(3)... 35,000 3.3 8.00 4-28-00 77,359 170,943
</TABLE>
- ---------------
(1) The 5% and 10% assumed rates of appreciation are mandated by the rules of
the Securities and Exchange Commission and are not an estimate or projection
of future prices or appreciation of the Company's Common Stock or the actual
future value of these options.
(2) These stock option awards were made on July 21, 1995 by the Company's
subsidiary, Community Health Computing Corp. ("CHC") and cover the purchase
of common stock of CHC. The exercise price of $.66 per share, reflects the
fair market value of each share of CHC's common stock based upon an
independent appraisal, dated July 15, 1995. Unlike options granted under the
Company's stock option plans, the CHC stock options provide CHC and the
Company with the right of first refusal to purchase any CHC shares acquired
by the executive officer pursuant to the exercise of the CHC option. In
addition, the CHC stock option agreements provide CHC with the right, upon a
voluntary or involuntary termination of the optionee's employment or the
death of the executive, to "call" any shares of CHC previously acquired by
the optionee and to purchase such shares at a price equal to the then fair
market value of a share of CHC's common stock.
(3) Mr. Mahoney ceased his employment with the Company on October 1, 1995.
8
<PAGE> 11
Stock options generally vest and become partially exercisable one year from
the date of grant, and vest fully over three years from the date of grant. At
the time of grant, options may be designated as incentive stock options
("ISO's"), a type of option authorized under the 1981 amendments to the Internal
Revenue Code. Options not designated as an ISO are granted as "non-qualified
options." Options generally remain outstanding for five years or ten years from
the date of grant, provided the recipient remains employed throughout that
period. The post-termination exercise period is generally three months.
AGGREGATED STOCK OPTION EXERCISES DURING FISCAL 1995 AND
YEAR-END STOCK OPTION VALUES
The following table sets forth certain information concerning the exercise
of stock options by the Company's executive officers during fiscal year 1995,
the "value realized", and the number and value of unexpired stock options at
October 1, 1995 which such executive officers can exercise or in the future
could exercise.
<TABLE>
<CAPTION>
TOTAL VALUE
OF UNEXERCISED
NUMBER OF UNEXERCISED IN-THE-MONEY STOCK
STOCK OPTIONS HELD OPTIONS HELD AT
AT OCTOBER 1, 1995 OCTOBER 1, 1995(2)
SHARES ACQUIRED VALUE --------------------------- ---------------------------
NAME ON EXERCISE REALIZED(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- -------------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Stanley D. Czerwinski.... 90,833 $ 811,976 5,000 37,500 $ 28,125 $ 210,937
David L. Lowe............ 115,713 729,629 26,333 212,500 83,936 1,032,812
R. Andrew Eckert......... 69,168 491,156 35,416 213,750 56,872 750,938
Mark L. Lamp............. 61,916 393,964 41,250 183,750 130,312 630,938
Dennis R. Mahoney........ 2,000 11,625 31,750 86,250 41,093 290,782
</TABLE>
- ---------------
(1) The "value realized" is calculated by determining the difference between the
fair market value of ADAC Common Stock on the date of exercise of the
options and the exercise price of such options.
(2) The value of unexercised stock options is calculated by determining the
difference between the closing price of ADAC Common Stock on Friday,
September 29, 1995 of $12.00, being the last trading date of fiscal 1995, as
reported in the Wall Street Journal and the exercise price of such options.
Employment Contracts, Termination of Employment and Change-in-Control
Agreements. In November, 1994 Mr. Stanley Czerwinski and the Company entered
into a 10-year agreement which provides that so long as Mr. Czerwinski continues
to devote substantially all of his time to the Company as Chairman of the Board,
he shall be paid a salary of $30,000 per month. Mr. Czerwinski ceased to devote
100% of his time to the Company as Chairman of the Board in January, 1995 and,
accordingly, pursuant to the terms of the agreement, his regular salary of
$30,000 per month terminated and he is now being paid for services rendered a
consulting fee of $3,000 per 8 hour day for such services. For the first 36
months of such agreement, the Company has agreed to pay Mr. Czerwinski an
additional $20,833 per month in consideration of, among other things, not
competing with the Company during the term of the agreement and not selling any
of his shares of common stock to the extent that doing so would disqualify the
Company from obtaining "pooling of interests" treatment for financial reporting
purposes with regard to any transaction for which negotiations commenced on or
before March 31, 1995, and which is completed on or before June 30, 1995,
pursuant to which the Company acquires another business entity.
In August, 1995, the Company entered into Executive Severance Agreements
with Messrs. Lowe, Eckert and Lamp which provide for a severance payment and
acceleration of the exercisability of their stock options upon a "change in
control" of the Company (see Exhibit A for such definition, which is also the
same definition as will be applicable under the proposed amendments to the 1992
Stock Option Plan). If a change in control of the Company occurs, each executive
will be entitled to a severance payment equal to 2.99 times the total cash
compensation received by each such executive, including base salary, bonuses and
other incentive compensation (excluding the value of any options), during the
period of the 12 months prior to such change in
9
<PAGE> 12
control. Such severance payment will not be immediately paid if not later than
ten days prior to the change in control, the executive is offered employment by
the Company or its successor corporation on similar terms to those then
applicable to the executive as an officer of the Company and, in such event,
the severance payment would be paid to the executive twelve months following
the change of control, but only if (i) the executive accepts such comparable
employment with the Company and (ii) the executive is not, during such twelve-
month period, terminated for cause. Such a change in control of the Company
will also cause all stock options held by the executive to become
immediately exercisable. In the event that the executive (i) purchases the
shares subject to the accelerated stock options, (ii) sells the shares so
purchased and (iii) is offered comparable employment by the Company or its
successor, the executive must deposit in escrow with the Company an amount
equal to 50% of the difference between his sales proceeds received from the
sold shares and his option exercise price. These escrowed funds will be
released to the executive from the escrow account if the executive has accepted
the comparable employment offer and is not terminated for cause for twelve
months after the change in control. If the executive does not accept such
comparable employment from the Company or its successor or is terminated during
such twelve-month period, then the escrowed funds are released to the Company.
PERFORMANCE GRAPH
The following graph sets forth the Company's total cumulative stockholder
return as compared to the Standard and Poor's Medical Index and the Medical
Technology Index (OTC) for the period October 2, 1990 through October 1, 1995.
Total stockholder return assumes $100 invested at the beginning of the period in
the Company's Common Stock, the stocks represented in the Standard and Poor's
Medical Index and the stocks represented in the Medical Technology Index (OTC),
in each case on a "total return" basis assuming reinvestment of dividends.
(GRAPH TO COME)
CERTAIN TRANSACTIONS
Mr. Robert L. Miller, a director and general counsel of the Company,
received approximately $380,566 during fiscal 1995 as payment for a variety of
legal services rendered to the Company in his capacity as general counsel and
$20,000 for attending Board of Directors' meetings as a director of the Company.
10
<PAGE> 13
(2) APPROVAL OF AMENDMENTS TO 1992 STOCK OPTION PLAN
GENERAL
The Company currently has one stock option plan for employees and
consultants pursuant to which new options may be granted for the purchase of
Common Stock -- the 1992 Stock Option Plan (the "1992 Plan"). The Company's 1985
Option Plan expired on October 15, 1995, and no further options may be granted
under this Plan. Inasmuch as there remained approximately only 226,207 shares
available for grant under the 1992 Plan on November 2, 1995, the Board of
Directors approved amendments to the 1992 Plan to (i) increase the number of
authorized option shares available for future grants by up to 1,355,000, (ii)
modify the definition of a "change in control" of the Company, which upon such
event occurring the vesting schedules of outstanding options are accerated to
allow for their immediate exercise (see Exhibit A for the proposed new
definition of a "change in control") and (iii) grant the authority to the Board
of Directors (or the Stock Option Committee) to increase the maximum number of
shares that may be optioned under the 1992 Plan (without further shareholder
approval) if the Board determines, in connection with an acquisition of another
business, that it is necessary to grant such options to employees of such
acquired business. The Board of Directors has approved and adopted these
amendments because it believes it is very important to the long-term success of
the Company for it to be able to continue to retain and attract key management
and executives and that the continued ability to grant options is essential to
retain these executives, especially in light of the current very competitive job
market in the Silicon Valley.
The following description of the 1992 Plan is necessarily brief and
general. A copy of the 1992 Plan, as amended, is available upon request from the
Company.
DESCRIPTION OF THE 1992 PLAN, AS AMENDED
The purposes of the 1992 Plan are to attract and retain the best available
personnel for positions of substantial responsibility and to provide additional
incentives to key employees, officers, consultants or other persons whose
efforts are deemed worthy of encouragement to promote the growth and success of
the Company's business. Non-employee directors may not participate under the
1992 Plan, and instead participate under the Directors' Option Plan (1987).
The 1992 Plan sets a limit of 300,000 shares which may be granted to any
one optionee during any calendar year. Options granted under the 1992 Plan may
be incentive stock options, which are intended to meet the requirements of
Section 422 of the Internal Revenue Code ("incentive options"), or nonqualified
options, which are not intended to meet such requirements ("nonqualified
options"). Incentive options must have terms of ten years or less from the date
of grant; however, the term of any such option granted to a 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 any subsidiary shall not exceed five
years. A nonqualified option may have a specific term or an infinite term. The
Stock Option Committee has generally set terms of five years or ten years for
all options granted under the 1992 Plan. The Stock Option Committee also
determines when options granted under the 1992 Plan may be exercisable; options
granted have historically been exercisable to the extent of 25%, 25% and 50% of
the number of option shares subject to an option grant after 12, 24 and 36
months, respectively, after the date of grant.
The option exercise prices are determined by the Board of Directors or the
Committee and may not be less than 100% of the fair market value of the
Company's Common Stock on the date of grant. The option price may be paid by
cash, check, promissory note or surrender of other shares of Common Stock of the
Company that have been held for at least six months, or a combination thereof,
at the discretion of the Committee or as set forth in the applicable stock
option agreement. The 1992 Plan also provides that whenever an optionee
exercises an option by surrendering already-owned shares to pay all or a portion
of the exercise price, if the option agreement so provides or if then approved
by the Committee, the optionee may receive a new option for the purchase of a
number of shares equal to the amount tendered for payment, with an exercise
price equal to the then fair market value of a share of Common Stock.
11
<PAGE> 14
The 1992 Plan permits an optionee, if set forth in his or her option
agreement, to have any required Federal and state withholding taxes satisfied by
either (i) delivering outstanding shares of Common Stock of the Company
previously owned for six (6) months by the Optionee or (ii) withholding of a
sufficient number of exercised option shares to satisfy such withholding
obligations, based upon fair market value of such shares on the date of
exercise.
The 1992 Plan provides that any optionee who is terminated as an employee
or who ceases to serve as a consultant, may, within 90 days (or such other
period as may be determined by the Committee) after such termination or
cessation, exercise the option but only to the extent the optionee was entitled
to do so at the date of his or her termination or cessation of services. Special
exercise rules are applicable to optionees who become totally and permanently
disabled or who die during, or within 90 days after termination of, their period
of employment with the Company. No option may be exercised after the expiration
of its term. Options are not transferable by the optionee, other than by will,
the laws of descent and distribution or pursuant to a divorce decree.
The 1992 Plan provides that in the event any change, such as a stock split,
reverse stock split or stock dividend, is made in the Company's capitalization
which results in an increase or decrease in the number of outstanding shares of
Common Stock without receipt of consideration by the Company, appropriate
adjustment shall be made in the option price and the number of shares subject to
the option. In the event of a proposed dissolution or liquidation of the
Company, or the merger of the Company with or into another corporation, each
outstanding option shall be assumed or an equivalent option shall be substituted
by the successor corporation, unless the Board of Directors determines, in its
discretion, to accelerate the exercisability of outstanding options. In
addition, upon a "change in control", except as limited by any specific
employment or severance agreement, all options will accelerate and be
immediately exercisable. The definition of a "change in control", as amended, is
set forth on Exhibit A to this Proxy Statement.
As amended, the maximum number of shares that may be optioned and sold
under the 1992 Plan may be automatically adjusted by the Board if it determines
in connection with an acquisition of another business that it is necessary to
grant new or replacement options to employees of such acquired business.
The Board of Directors may amend the 1992 Plan at any time or may terminate
it without approval of the shareholders; provided, however, that shareholder
approval is required for any amendment which increases the number of shares for
which options may be granted or is deemed a "material" amendment pursuant to
Rule 16b-3 promulgated under the Securities Exchange Act of 1934. However, no
action by the Board of Directors or shareholders may alter or impair any option
previously granted without the consent of the optionee.
ADMINISTRATION
The 1992 Plan is administered by a committee of the Board consisting of not
less than two (2) persons who are "outside directors" as defined in Section
162(m) of the Internal Revenue Code.
OUTSTANDING OPTIONS
At October 1, 1995, there were outstanding options to purchase 2,479,452
shares of Common Stock. Of these options, 8,317 were previously granted under
the Company's 1981 Stock Option Plan (no further options may be granted under
such Plan), 371,662 were granted under the 1985 Option Plan (no further options
may be granted under such Plan), 96,663 were granted under the Directors' Stock
Option Plan (1987), and 2,002,810 were granted under the 1992 Stock Option Plan.
On October 1, 1995, these outstanding options had an aggregate exercise price of
$20,599,002 or an average of $8.31 per share, and based upon a closing price of
$12.00 on September 29, 1995 (being the last trading day of the Company's 1995
fiscal year), the shares underlying these outstanding options had an aggregate
market value of approximately $29,753,424.
SUMMARY OF FEDERAL TAX CONSEQUENCES
Nonqualified Stock Options. There will be no Federal income tax
consequences to an optionee at the time an option under the 1992 Plan is
granted. Upon exercise of a nonqualified option, the optionee will
12
<PAGE> 15
recognize taxable ordinary income in an amount equal to the fair market value of
the stock on the date of exercise less the exercise price paid, and the Company
will be allowed a corresponding tax deduction for compensation expense in an
amount equal to the taxable income recognized by the optionee. If the optionee
is an employee of the Company, the Company is required to withhold Federal
income taxes with respect to such ordinary income amount. Upon the subsequent
sale of shares acquired upon the exercise of a nonqualified option, the optionee
generally will recognize additional gain or loss in an amount equal to the
difference between the proceeds received upon sale and the fair market value of
such shares on the prior date of exercise.
Incentive Stock Options. There will be no Federal income tax consequences
to an optionee at the time of the initial grant of the option or at the time of
an exercise of an incentive option, although the exercise may be an item of tax
preference and may subject the optionee to the alternative minimum tax. The
Company will not be entitled to a tax deduction for compensation expense at the
time of the exercise of an incentive option. If an optionee holds stock acquired
through exercise of an incentive option for (a) more than two years from the
date on which the option is granted and (b) more than one year from the date on
which the shares are transferred to the optionee upon exercise of the option,
then income recognized at the time of the subsequent sale of the stock will be
treated as a capital gain or loss. Generally, if the optionee disposes of the
stock before the expiration of either of these holding periods (a "Disqualifying
Disposition"), at that time the optionee will realize taxable income equal to
the lesser of (i) the excess of the stock's fair market value on the date of
exercise over the exercise price or (ii) the optionee's actual gain, if any,
resulting from the purchase and sale. To the extent the optionee recognizes
income by reason of a Disqualifying Disposition, the Company will be entitled to
a corresponding business expense deduction in the tax year in which the
disposition occurs.
Under Section 162(m) of the Code, enacted in August 1993, the Company may
be precluded from claiming a federal income tax deduction for total remuneration
in excess of $1,000,000 paid to the CEO or the other four executive officers
named in the "Summary Compensation Table" in any one year beginning in 1995.
Total remuneration would include amounts received upon the exercise of stock
options granted after February 17, 1993. An exception does exist, however, for
"performance-based compensation," including amounts received upon the exercise
of stock options pursuant to a plan approved by shareholders that meets certain
requirements. The Company believes options granted under the 1992 Plan meet the
requirements of "performance-based compensation."
The foregoing discussion is merely a summary of the more significant
effects of current Federal income taxation upon optionees and the Company with
respect to shares issued under the 1992 Plan and it does not purport to be a
complete analysis of the tax laws dealing with this subject. Reference should be
made to the applicable provisions of the Internal Revenue Code and the
Regulations promulgated thereunder. In addition, this summary does not discuss
the provisions of the income tax laws of any state or foreign country in which
an employee may reside. Each employee should consult his or her own tax advisor
concerning the Federal (and state and local) income tax consequences of
participation in the 1992 Plan.
VOTE REQUIRED
Approval of the amendments to the 1992 Plan requires the affirmative vote
of the holders of a majority of the voting shares present or represented at the
Annual Meeting. THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THIS PROPOSAL.
(3) APPROVAL OF AMENDMENT TO EMPLOYEE STOCK PURCHASE PLAN (1994)
BACKGROUND INFORMATION
The Company has maintained an Employee Stock Purchase Plan since 1980 for
the benefit of its employees. The most recent Employee Stock Purchase Plan (the
"Purchase Plan") was approved by the shareholders during March 1994 and provided
for the purchase of up to 120,000 shares of Common Stock. During fiscal 1995,
the Company's employees purchased 53,147 shares of Common pursuant to the
Purchase Plan. Because only 38,084 shares were available under the Purchase
Plan, on November 2, 1995, the Board of Directors approved an amendment to
increase the number of authorized shares by up to 65,000 shares of
13
<PAGE> 16
Common Stock of the Company, which may be purchased by employees through payroll
deductions accumulated during various option periods. The shareholders are being
requested to approve this increase of an additional 65,000 shares under the
Purchase Plan. None of the directors or executive officers of the Company
currently participate in the Purchase Plan.
SHARES SUBJECT TO THE PURCHASE PLAN
If approved by the shareholders an additional 65,000 shares of Common Stock
of the Company will be available for issuance under the Purchase Plan. In the
event of a stock split, stock dividend or other subdivision, combination or
classification of the Company's Common Stock, appropriate adjustments will be
made with respect to the maximum number of shares subject to, and the purchase
price of shares under, the Purchase Plan.
OPERATION OF THE PURCHASE PLAN
The Purchase Plan provides eligible employees with the opportunity to
purchase shares of Common Stock pursuant to a payroll deduction program. The
Purchase Plan provides for offering periods of up to 27 months (the "Offering
Periods") during which contributions may be made to purchase shares of Common
Stock. Each Offering Period shall consist of interim three-month purchase
periods. At the end of each three-month interim purchase period, shares would be
purchased automatically at 85% of the market price at the beginning of the
27-month Offering Period or 85% of the market price on the last day of each
interim three-month purchase period, whichever price is lower.
An employee may have up to 10% of his total compensation (including
commissions, but excluding bonuses, overtime, etc.) withheld and applied to the
purchase of shares under the Purchase Plan. However, during any one year no
employee is entitled to purchase Common Stock under the Purchase Plan having a
value of more than $25,000 or more than 100 shares of Common Stock during any
interim three-month purchase period.
ELIGIBILITY AND ENROLLMENT
All employees of the Company may participate in the Plan. However,
employees who are customarily employed for less than 20 hours per week or for
less than 5 months in any calendar year are not eligible to participate.
Further, any employee who owns, or holds options to acquire, or who, as a result
of participation in the Purchase Plan, would own or hold options to purchase
five percent (5%) or more of the Company's securities is not eligible to
participate in the Purchase Plan.
Under the Purchase Plan an employee may enroll in the Purchase Plan at the
beginning of any of the three-month interim purchase periods within an Offering
Period. An employee who joins the Purchase Plan after the beginning of the
Offering Period will have a purchase price equal to 85% of the market price on
the effective date of his joining the Purchase Plan or on the last day of each
interim three-month purchase period, whichever price is lower.
WITHDRAWAL; TERMINATION; RE-ENROLLMENT
A participant may withdraw from the Purchase Plan at any time. Termination
of a participant's employment for any reason, including retirement or death, or
the employee's failure to remain an eligible employee, also terminates
participation in the Purchase Plan. In the event of termination, all payroll
deductions previously credited to the participant's account are returned,
without interest. The Purchase Plan allows for re-enrollment after waiting for
one complete interim three-month purchase period, except that officers and
directors would be required to wait at least six (6) months before re-enrolling.
ADMINISTRATION
The Purchase Plan is administered by the Board of Directors of the Company;
the Board may also adopt and appoint a Committee thereof to administer the
Purchase Plan. The Board or any Committee so appointed
14
<PAGE> 17
has the power to make, amend and repeal rules and regulations for the
interpretation and administration of the Purchase Plan, all of which are final
and binding upon each participant having an interest therein.
DURATION AND MODIFICATION
The Purchase Plan will remain in full force until December 31, 2003 unless
terminated earlier by action of the Company's Board of Directors or until all of
the shares reserved for issuance thereunder have been issued. The Purchase Plan
may be terminated or amended from time to time by the Board of Directors,
provided that a participant's existing rights cannot be adversely affected
thereby, nor may any amendment be made without the approval of shareholders of
the Company if such amendment would authorize a sale of more shares than are
authorized for issuance, materially modify the requirements for eligibility to
participants in the Plan, increase the maximum number of shares which a
participant may purchase during any Offering Period, extend the term of the
Plan, alter the purchase price formula so as to reduce the price per share to be
purchased under the Plan, materially increase the benefits accruing to
participants under the Plan or cause the Plan to fail to meet the requirements
of an "employee stock purchase plan" under Section 423 of the Internal Revenue
Code.
FEDERAL INCOME TAX CONSEQUENCES
The Purchase Plan and the right of employees to make purchases thereunder
are intended to qualify under the provisions of Sections 421 and 423 of the
Internal Revenue Code. Under these provisions, no income will be taxable to an
employee at the time shares are purchased under the Purchase Plan. As summarized
below, an employee may be taxed upon disposition or sale of the shares acquired
under the Purchase Plan:
1. If the shares are sold at least two years after the date of
granting of the option or more than one year after the transfer of the
shares to the employee: In this event, the lesser of (a) the excess of the
fair market value of the shares at the time granted over the purchase price
of the shares or (b) the excess of the fair market value of the shares at
the time such shares are disposed of over the purchase price of the shares
will be treated as ordinary income. Any further gain upon such sale will be
treated as long-term capital gain. If the shares are sold and the sale
price is less than the purchase price, there is no ordinary income and the
employee has a long-term capital loss equal to the difference.
2. If the shares are sold prior to the expiration of two years after
the granting of the option or less than one year after the transfer of the
shares to the employee: In this event, the excess of the fair market value
of the shares at the date the shares are exercised over the purchase price
will be treated as ordinary income to the employee. This excess will
constitute ordinary income in the year of sale or other disposition even if
no gain is subsequently realized on the sale of the shares. The balance of
any gain will be treated as a capital gain and will qualify for long-term
capital gain treatment if the shares have been held more than one year
following the purchase. If the shares are later sold for less than their
fair market value on the date of purchase the same amount of ordinary
income is attributed to the employee and a capital loss will be recognized
equal to the difference between the sale price and the fair market value of
the shares on such purchase date. The Company is entitled to a deduction
for amounts taxed as ordinary income to an employee to the extent that
ordinary income must be reported by the employee upon disposition of the
shares by the employee before the expiration of the two-year and/or one
year periods described above, provided the Company has satisfied its
withholding obligations under the Code.
The ordinary income reported under the rules described above, added to the
actual purchase price of the shares, establishes the tax basis of the shares for
the purpose of determining capital gain or loss on a subsequent sale or exchange
of the shares.
In the event an employee dies while owning stock acquired under the
Purchase Plan, compensation must be reported in his/her final income return. The
amount of compensation to be reported will be the lesser of (a) the excess of
the fair market value of the shares at the time these shares were granted over
the purchase price of the shares or (b) the excess of the fair market value of
the shares at the time of the employee's death over the purchase price of the
shares.
15
<PAGE> 18
The foregoing discussion is merely a summary of the more significant
effects of the Federal income tax on an employee and the Company with respect to
the shares purchased under the Purchase Plan and does not purport to be a
complete analysis of the tax laws dealing with this subject. Reference should be
made to the applicable provisions of the Internal Revenue Code and the Income
Tax Regulations promulgated thereunder. In addition, this summary does not
discuss the provisions of the income tax laws of any state or foreign country in
which an employee may reside. Each employee should consult his or her own tax
advisor concerning the Federal (and any state and local) income tax consequences
of participation in the Purchase Plan.
VOTE REQUIRED
The affirmative vote of shares possessing a majority of the voting power of
the shares present or represented at the meeting will be required for the
approval of the amendment to the Purchase Plan.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THIS PROPOSAL. Proxies
solicited by the Board of Directors will be so voted unless shareholders specify
otherwise in their proxy.
(4) APPROVAL OF AMENDMENTS TO DIRECTORS' STOCK OPTION PLAN (1987)
BACKGROUND INFORMATION
The Company has previously determined that it is advisable and in the best
interests of the Company and its shareholders to obtain independent directors
with outstanding ability and experience and to provide incentives to such
independent directors for the encouragement of the highest level of performance
by providing such persons with a proprietary interest in the Company.
Accordingly, the Board and the shareholders previously adopted the Directors'
Stock Option Plan (1987) (the "Directors' Plan"). Under the Directors' Plan,
stock options are granted annually to each non-employee director of the Company.
An aggregate of 100,000 shares of Common Stock were originally reserved under
the Directors' Plan and subsequently increased to 166,667 shares at the
Company's 1993 Annual Meeting of Shareholders, of which 6,666 shares have been
annually optioned to each non-employee director. As of November 2, 1995, there
existed only 16,668 shares available for future grants under the Directors'
Plan. The Board of Directors desires to continue to be able to attract
outstanding independent directors and to provide incentives to such directors,
and has approved an amendment to the Directors' Plan to increase the number of
available shares by up to 65,000. In addition, the Board has approved, and is
asking the shareholders to approve, the following amendments to the Directors'
Plan: (1) reduce the present annual grant on each March 15 of 6,666 shares to an
annual grant of 3,333 shares, (2) provide for an option grant of 20,000 shares
upon a person first becoming a director and thereafter during each fifth year on
March 15 a grant of an additional 20,000 shares (in lieu of the 3,333 share
annual grant in such year), (3) modify the current vesting schedule of options
to provide for each 20,000 share grant to vest and become exercisable 25% per
year and each annual 3,333 share grant to vest on the first anniversary of such
grant and (4) modify the definition of "change of control" of the Company for
purposes of accelerating the normal vesting schedule of the options.
DESCRIPTION OF THE DIRECTORS' PLAN
The purpose of the Directors' Plan is to encourage and provide incentives
for the highest level of performance by the Company's non-employee directors.
Only directors who are not also employees of the Company or any of its
subsidiaries are eligible to participate in the Directors' Plan.
As amended, an aggregate of 231,667 shares of Common Stock are authorized
under the Directors' Plan, of which 149,998 option shares have been previously
granted. The proposed amendment to the Directors' Plan would provide for 20,000
option shares to be granted to each new non-employee director upon being elected
to the Board and provide for 3,333 option shares to be annually granted on March
15 of each year thereafter, except that on each fifth anniversary of the year
the director first commenced serving as a director, he or she would receive on
March 15 an additional grant of 20,000 shares. The proposed amendments would
provide for the current directors to receive the 20,000 share grant on this
March 15, which would be exercisable 25% per year thereafter. Additional 3,333
option share grants would be awarded in each of the four years thereafter,
16
<PAGE> 19
each of which would fully vest after 12 months. This schedule would repeat
itself every five years (in all cases subject, of course, to the director
remaining in office). The Board of Directors or a committee consisting of such
Board members or other persons as may be appointed by the Board administers the
Directors' Plan.
Each option granted has a term of five years from the date of grant. The
option exercise price must be equal to 100% of the "fair market value"
(generally, the closing price of the Company's Common Stock as traded in the
NASDAQ National Market System or other principal market) on the date of grant of
the option. The option price may be paid in cash or by surrendering to the
Company outstanding Common Stock of the Company having been owned by the
optionee for at least six (6) months, valued at fair market value. Each 20,000
share option grant would be exercisable 25% per year from the date of grant.
Each 3,333 share option grant would be fully exercisable after 12 months from
the date of grant. However, options under the Directors' Plan may be exercised
in full immediately in the event of the death of the optionee. Upon a
liquidation or dissolution of the Company, a reorganization or merger pursuant
to which the Company does not survive, or a sale of substantially all of the
Company's assets, each option will become immediately exercisable without regard
to the original vesting schedule. A proposed amendment provides that, the
options would become immediately exercisable upon a "change in control" of the
Company as defined in Exhibit A hereto.
If the holder of an option resigns or is removed as a director for reasons
other than as set forth above, he may exercise the option within three (3)
months after such resignation or removal but only to the extent it was
exercisable on such date and only if the termination did not result from a
violation of the director's normal duties. In the event of death while, or
within three (3) months after, serving as a director, the option may be
completely exercised by the person to whom the director's rights under the
option pass by will or by the laws of descent and distribution. Options are not
transferable by the optionee, other than by will or the laws of descent and
distribution or, as amended, pursuant to a qualified domestic relations order.
The Directors' Plan provides that the total number of option shares covered
by such Plan, the number of shares covered by each option and the exercise price
per share shall be proportionately adjusted in the event of a stock split, stock
dividend or similar capital adjustment effected without receipt of consideration
by the Company.
The Board of Directors may amend the Directors' Plan no more than once
every six (6) months. The Board may amend or terminate the Directors' Plan
without approval of the shareholders; provided, however, that shareholder
approval is required for any amendment which increases the number of shares for
which options may be granted, changes the designation of the class of persons
eligible to participate in the Directors' Plan or changes in any material
respect the limitations or provisions of the options subject to the Directors'
Plan. However, no action by the Board of Directors or shareholders may alter or
impair any option previously granted without the consent of the optionee.
Options granted to directors under the Directors' Plan will be treated as
nonqualified stock options under the Internal Revenue Code. A brief description
of certain Federal income tax effects resulting from the grant and exercise of
nonqualified stock options, and the sale of the option shares, both to the
optionee and the Company, is set forth under "Approval of 1992 Stock Option
Plan -- Summary of Federal Tax Consequences" above. Such summary does not
purport to be complete, and reference is made to the applicable provisions of
the Internal Revenue Code.
VOTE REQUIRED
Approval of the amendments to the Directors' Plan, as set forth above under
"Background Information," requires the affirmative vote of the holders of a
majority of the voting shares present or represented at the Annual Meeting. THE
BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THIS PROPOSAL.
17
<PAGE> 20
(5) AMENDMENT TO ARTICLES OF INCORPORATION
TO INCREASE AUTHORIZED SHARES OF COMMON STOCK
The Board of Directors believes that it would be in the best interests of
both the Company and its shareholders to amend the Company's Articles of
Incorporation to increase the number of authorized shares of Common Stock from
25,000,000 to 50,000,000 (the "Amendment to the Articles"). The text of the
proposed Amendment to the Articles is set forth substantially in the form of
Exhibit B to this Proxy Statement, and has been previously adopted by the Board
of Directors, subject to approval by shareholders holding a majority of the
outstanding shares of the Company's Common Stock. The Board of Directors
reserves the right, notwithstanding shareholder approval and without further
action by the shareholders, to elect not to proceed with the Amendment to the
Articles if, at any time prior to filing the Amendment with the Secretary of
State of the State of California, the Board of Directors, in its sole
discretion, determines that the amendment is no longer in the best interests of
the Company and its shareholders.
The Company is presently authorized to issue 25,000,000 shares of Common
Stock, of which 17,139,545 shares were issued and outstanding as of December 4,
1995, and an additional 4,494,729 shares were reserved for issuance under all of
the Company's stock option plans and Employee Stock Purchase Plan, including the
proposed increases to the number of available shares under such plans as
described in this Proxy Statement. As a result, the Company would have only
approximately 3,365,726 shares available for future issuance.
The Amendment to the Articles, as proposed and if effected, would increase
the number of authorized shares of Common Stock to 50,000,000. The Amendment to
the Articles would not change the presently authorized 5,000,000 shares of
Preferred Stock, none of which are presently outstanding.
The Board of Directors believes that the authorization of additional shares
of common stock will enable the Company to meet possible future developments
without the expense and delay of holding a meeting of stockholders to secure
their authorization when a specific need for the shares may arise. In addition,
the Board of Directors believes that it is desirable that the Company have the
flexibility to issue a substantial number of shares of common stock without
further stockholder action, except as otherwise provided by law. The
availability of additional shares will enhance the Company's flexibility in
connection with possible future actions, such as stock dividends, stock splits,
financings, employee benefit programs, corporate mergers, acquisitions of
property, the possible funding of new product programs or businesses or for
other corporate purposes. The Board of Directors will determine whether, when
and on what terms the issuance of shares of common stock may be warranted in
connection with any of the foregoing purposes.
The availability for issuance of additional shares of common stock or
rights to purchase such shares could enable the Board of Directors to render
more difficult or discourage an attempt to obtain control of the Company. For
example, the issuance of shares of common stock in a public or private sale,
merger or similar transaction would increase the number of outstanding shares,
thereby possibly diluting the interest of a party attempting to obtain control
of the Company. The Company is not aware of any pending or threatened efforts to
obtain control of the Company and the Board of Directors has no present intent
to authorize the issuance of additional shares of common stock to discourage
such efforts.
If the proposed amendment is approved, all or any of the authorized shares
of common stock or preferred stock may be issued without further action by the
stockholders and without first offering such shares to the stockholders for
subscription. The issuance of common stock otherwise than on a pro rata basis to
all current stockholders could have the effect of diluting the earnings per
share, book value per share and voting power of current stockholders.
VOTE REQUIRED
Approval of the amendment of the Company's Articles of Incorporation
requires the affirmative vote of the holders of a majority of the outstanding
shares of Common Stock. THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THIS
PROPOSAL.
18
<PAGE> 21
RELATIONSHIP WITH INDEPENDENT PUBLIC ACCOUNTANTS
The firm of Coopers & Lybrand, L.L.P. has examined the financial statements
of the Company for the fiscal year ended October 1, 1995, and has been selected
to perform such service for the current fiscal year. A representative of Coopers
& Lybrand, L.L.P. is expected to be present at the Annual Meeting with the
opportunity to make a statement if he or she desires to do so and is expected to
be available to respond to appropriate questions. The Company has been advised
that neither that firm, nor any of its partners or associates, has any direct or
indirect financial interest in or any connection with the Company other than as
accountants and auditors.
OTHER MATTERS
CERTAIN SECURITIES LAW DISCLOSURES
The Securities and Exchange Commission's rules under Section 16 of the
Securities Exchange Act of 1934 require the Company's officers and directors,
and persons who own more than ten percent (10%) of a registered class of the
Company's equity securities, to file reports showing their initial stock
ownership and subsequent changes in such ownership with the SEC by specific
dates.
Based solely on its review of the copies of such forms received by it or
written representations from the Company's appropriate officers and directors,
the Company believes that, during the 1995 fiscal year, all filing requirements
applicable to its officers and directors were complied with.
SHAREHOLDER PROPOSALS
Individual shareholders of the Company may be entitled to submit proposals
which they believe should be voted upon by the shareholders. The Securities and
Exchange Commission has adopted regulations which govern the inclusion of such
proposals in annual proxy materials. All such proposals must be submitted to the
Secretary of the Company no later than October 10, 1996 in order to be
considered for inclusion in the Company's 1997 proxy materials.
OTHER BUSINESS
Management does not know of any business to be presented other than the
matters set forth above, but if other matters properly come before the meeting,
it is the intention of the persons named in the Proxy to vote in accordance with
their best judgment on such matters.
AVAILABILITY OF FORM 10-K
THE COMPANY WILL FURNISH WITHOUT CHARGE A COPY OF ITS ANNUAL REPORT ON FORM
10-K FOR THE FISCAL YEAR ENDED OCTOBER 1, 1995, AS FILED WITH THE SECURITIES AND
EXCHANGE COMMISSION, TO ANY SHAREHOLDER DESIRING A COPY. Shareholders may write
to ADAC Laboratories, 540 Alder Drive, Milpitas, California 95035, attention of
Robert Starr.
By Order of the Board of Directors,
Stanley D. Czerwinski,
Chairman of the Board
Dated: February , 1996
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<PAGE> 22
EXHIBIT A
The following paragraphs concerning the definition of a "change in control"
replace the present definitions contained in Section 11(d) of the 1992 Stock
Option Plan and in Section 12(b) of the Directors' Stock Option Plan (1987):
CHANGE IN CONTROL
(i) Except and to the extent provided otherwise in, or limited by,
employment, severance or similar written agreements between the Company and an
Optionee, ten (10) days prior to a "Change in Control" (as defined below), all
stock options which are then not exercisable shall immediately vest and become
exercisable, regardless of the original vesting schedule. A "Change in Control"
of the Company shall be deemed to have occurred if (a) 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; (b) as a result of market or corporate transactions or shareholder
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 (c) 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.
(ii) Notwithstanding paragraph (i) above, the following events shall not
constitute a Change in Control: any acquisition of beneficial ownership pursuant
to (a) a reclassification, however effected, of the Company's authorized common
stock, or (b) 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.
A-1
<PAGE> 23
EXHIBIT B
The first paragraph of Article IV of the Company's Articles of
Incorporation is amended to read in full as follows:
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.
B-1
<PAGE> 24
PROXY ADAC LABORATORIES
PROXY FOR ANNUAL MEETING OF SHAREHOLDERS
The undersigned shareholder of ADAC Laboratories, a California corporation,
acting under the California General Corporation Law, hereby constitutes and
appoints Stanley D. Czerwinski, David L. Lowe and Robert L. Miller, and each of
them, the attorneys and proxies of the undersigned, each with the power of
substitution, to attend and act for the undersigned at the Annual Meeting of
Shareholders of said corporation to be held on March 6, 1996, at 1:00 p.m.,
local time, at the offices of the Company, located at 540 Alder Drive, Milpitas,
California 95035, and at any adjournments thereof, and in connection therewith
to vote and represent all of the shares of Stock of said corporation which the
undersigned would be entitled to vote, as follows:
<TABLE>
<S> <C> <C>
(1) ELECTION OF DIRECTORS: FOR ALL NOMINEES LISTED / / WITHHOLD AUTHORITY / /
(except as listed below) to vote for all nominees listed
</TABLE>
(mark one: the Board of Directors recommends a "FOR" vote for the election
of the following nominees to the Board of Directors:
Stanley D. Czerwinski, Graham O. King, David L. Lowe, Robert L.
Miller, F. David Rollo and Edmund H. Shea, Jr.).
(INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, WRITE
THE NAME(S) OF SUCH NOMINEE(S) BELOW.)
(2) Approval of Amendments to 1992 Stock Option Plan, including an increase
in the number of authorized shares by up to 1,355,000: (mark one; the
Board recommends a "FOR" vote).
FOR / / AGAINST / / ABSTAIN / /
(3) Approval of an Amendment to the Employee Stock Purchase Plan (1994) to
increase the number of shares authorized thereunder by up to 65,000
shares: (mark one; the Board recommends a "FOR" vote).
FOR / / AGAINST / / ABSTAIN / /
(4) Approval to Amendments of Directors' Stock Option Plan (1987), including
an increase in the number of authorized shares by up to 65,000: (mark
one; the Board recommends a "FOR" vote).
FOR / / AGAINST / / ABSTAIN / /
(5) Approval of Amendment of Articles of Incorporation to increase the number
of authorized shares of Common Stock from 25,000,000 to 50,000,000: (mark
one; the Board recommends a "FOR" vote).
FOR / / AGAINST / / ABSTAIN / /
- --------------------------------------------------------------------------------
Said attorneys and proxies, and each of them, shall have all the powers which
the undersigned would have if acting in person. The undersigned hereby revokes
any other proxy to vote at such meeting and hereby ratifies and confirms all
that said attorneys and proxies, and each of them, may lawfully do by virtue
hereof. Said proxies, without hereby limiting their general authority, are
specifically authorized to vote in accordance with their best judgment with
respect to all matters incident to the conduct of the meeting; all matters
presented at the meeting but which are not known to the Board of Directors at
the time of the solicitation of this proxy; and, with respect to the election of
any person as a Director, if a bona fide nominee for the office is named in the
Proxy Statement and such nominee is unable to serve or will not serve, to vote
for any other person.
<PAGE> 25
THIS PROXY IS SOLICITED ON BEHALF OF THE
BOARD OF DIRECTORS OF ADAC LABORATORIES
Each of the above-named proxies present at said meeting, either in person or
by substitute, shall have and exercise all the powers of said proxies hereunder.
This proxy will be voted in accordance with the choices specified by the
undersigned on the other side of this proxy. IF NO INSTRUCTIONS TO THE CONTRARY
ARE INDICATED HEREON, THIS PROXY WILL BE TREATED AS A GRANT OF AUTHORITY TO VOTE
FOR THE ELECTION OF THE NOMINEES FOR THE BOARD OF DIRECTORS NAMED ON THE OTHER
SIDE HEREOF AND AS A GRANT OF AUTHORITY TO VOTE FOR THE OTHER PROPOSALS STATED
ON THE OTHER SIDE HEREOF AND ON ANY OTHER MATTERS TO BE VOTED UPON.
The undersigned acknowledges receipt of a copy of the Notice of Annual
Meeting and Proxy Statement relating to the meeting.
---------------------------- -----------------------------
Signature Signature
Date: , 1996
IMPORTANT: In signing this
proxy, please sign your name
or names on the signature
lines in the same manner as
it appears on your stock
certificate. When signing as
an attorney, executor,
administrator, trustee or
guardian, please give your
full title as such. EACH
JOINT TENANT SHOULD SIGN.
PLEASE SIGN, DATE AND RETURN PROXY PROMPTLY IN THE POSTAGE PREPAID ENVELOPE
PROVIDED.
