<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 29, 1997
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
(Exact name of registrant as specified in its charter)
California 94-1725806
---------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
540 Alder Drive
Milpitas, California 95035
-------------------- -----
(Address of principal executive offices) (Zip Code)
(408) 321-9100
--------------
(Registrant's telephone number including area code)
Not Applicable
--------------
(Former name, former address and former fiscal year, if changed since last
report)
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 preceding 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
----
Number of shares of common stock, no par value, outstanding at August 7, 1997,
18,806,418.
(This document contains a total of 19 pages)
<PAGE>
ADAC LABORATORIES
QUARTERLY REPORT ON FORM-Q
INDEX
<TABLE>
<CAPTION>
Page
----
Part I. Financial Information
Item 1. Financial Statements
<S> <C>
Condensed Consolidated Statements of Income for the Three-Month
and Nine-Month Periods Ended June 29, 1997 and June 30, 1996 3
Condensed Consolidated Balance Sheets at June 29, 1997 and
September 29, 1996 4
Condensed Consolidated Statements of Cash Flows for the Nine-Month
Periods Ended June 29, 1997 and June 30, 1996 5
Notes to Condensed Consolidated Financial Statements 6-9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9-15
Part II. Other Information
Item 5. Other Information 16
Item 6. Exhibits and Reports on Form 8-K 17
Signatures 18
Exhibit Index 19
2.1 Agreement and Plan of Reorganization dated as of March 31, 1997 by and
among the Company, ADAC Acquisition Corp., Cortet, Inc. and the
Designated Shareholders of Cortet
2.1 Amended and Restated Articles of Incorporation of the Company
2.2 Bylaws, as amended
10.1 Second Amendment to Credit Agreement dated as of May 1, 1997 and First
Amendment to Credit Agreement dated as of December 27, 1996, each by
and among the Company, the Lenders named therein and ABN AMRO BANK
N.V., as agent for the Lenders
10.2 Directors' Stock Option Plan (1987), as amended
10.3 1992 Stock Option Plan, as amended
10.4 Employee Stock Purchase Plan (1994), as amended
11.1 Computation of Net Income Per Share
</TABLE>
2
<PAGE>
PART I - FINANCIAL INFORMATION
ADAC LABORATORIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Nine
Months Ended Months Ended
------------ ------------
June 29, June 30, June 29, June 30,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
REVENUES, NET:
Product $53,657 $46,437 $158,183 $129,094
Service 17,853 15,997 51,668 46,766
------- ------- -------- --------
71,510 62,434 209,851 175,860
------- ------- -------- --------
COST OF REVENUES:
Product 30,799 28,459 91,061 79,412
Service 11,042 9,841 32,606 28,902
------- ------- -------- --------
41,841 38,300 123,667 108,314
------- ------- -------- --------
Gross Profit 29,669 24,134 86,184 67,546
------- ------- -------- --------
OPERATING EXPENSES:
Marketing and sales 10,313 9,529 31,834 26,350
Research and development 4,018 3,211 10,815 9,149
General and administrative 4,514 3,551 13,184 10,585
Goodwill 198 198 594 594
In-process research and
development and
acquisition expenses 5,862 5,862
------- ------- -------- --------
24,905 16,489 62,289 46,678
------- ------- -------- --------
Operating Income 4,764 7,645 23,895 20,868
------- ------- -------- --------
Interest and other expense, net: (1,336) (843) (3,756) (2,464)
------- ------- -------- --------
Income before provision
for income taxes 3,428 6,802 20,139 18,404
Provision for income taxes (3,322) (2,449) (9,388) (6,572)
------- ------- -------- --------
Net income $ 106 $ 4,353 $ 10,751 $ 11,832
======= ======= ======== ========
Net income per share $ 0.01 $ 0.24 $ 0.55 $ 0.65
======= ======= ======== ========
Number of shares used
in per share calculation 19,775 18,403 19,536 18,128
======= ======= ======== ========
Dividends per share - $ 0.12 - $ 0.36
======== ========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
<PAGE>
ADAC LABORATORIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
June 29, September 29,
1997 1996
(Unaudited)
----------- -------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 6,143 $ 3,081
Accounts receivable 95,565 80,654
Inventories 26,029 31,975
Deferred income taxes 7,931 8,095
Prepaid expenses and other current assets 10,747 11,027
-------- --------
TOTAL CURRENT ASSETS 146,415 134,832
Service parts 16,695 15,482
Fixed assets 10,112 8,393
Capitalized software 13,465 11,656
Goodwill 10,308 10,901
Other assets 4,165 5,364
-------- --------
TOTAL ASSETS $201,160 $186,628
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable to banks $ 23,898 $ 27,226
Accounts payable 9,171 13,923
Dividends payable - 2,137
Deferred revenues 12,075 13,302
Customer deposits and advance billings 2,108 2,302
Accrued compensation 8,218 7,825
Other accrued liabilities 19,650 13,797
-------- --------
TOTAL CURRENT LIABILITIES 75,120 80,512
Deferred income taxes 2,275 2,275
Liabilities and deferred credits 2,878 4,370
-------- --------
TOTAL LIABILITIES 80,273 87,157
-------- --------
SHAREHOLDERS' EQUITY:
Preferred stock, no par value:
Authorized: 5,000 shares;
Issued and outstanding: none - -
Common stock, no par value:
Authorized: 50,000 shares;
Issued and outstanding: 18,796 shares at
June 29, 1997 and 17,781 shares at
September 29, 1996 122,772 110,661
Retained earnings (accumulated deficit) 579 (10,172)
Translation adjustment (2,464) (1,018)
-------- --------
TOTAL SHAREHOLDERS' EQUITY 120,887 99,471
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $201,160 $186,628
======== ========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
<PAGE>
ADAC LABORATORIES
CONDENSED CONSOLIDATED STATEMENTS OF
CASH FLOWS
(AMOUNTS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
-----------------
June 29, June 30,
1997 1996
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $10,751 $ 11,832
Adjustments to reconcile net income to net
cash provided by operations
Depreciation and amortization 7,685 6,799
Changes in assets and liabilities (12,662) (17,991)
-------- --------
Cash provided by
operating activities 5,774 640
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (4,087) (1,756)
Other (3,825) (3,069)
-------- --------
Cash used in investing
activities (7,912) (4,825)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings (repayments) under
short term debt arrangements, net (3,328) 4,885
Dividends paid (2,137) (6,254)
Proceeds from issuance of
common stock, net 12,111 3,923
-------- --------
Cash provided by financing
activities 6,646 2,554
-------- --------
Effect of exchange rates on cash (1,446) (759)
-------- --------
Net increase/(decrease) in cash and cash
equivalents 3,062 (2,390)
Cash and cash equivalents, at beginning of
the period 3,081 7,551
-------- --------
Cash and cash equivalents, at end of the
period $ 6,143 $ 5,161
======== ========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
<PAGE>
ADAC LABORATORIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. Basis of Presentation
---------------------
The accompanying unaudited condensed interim consolidated financial
statements have been prepared in accordance with generally accepted
accounting principles for interim financial information and with the
instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly,
they do not include all of the information and footnotes required by
generally accepted accounting principles for annual financial statements.
In the opinion of management, the condensed interim consolidated financial
statements include all normal recurring adjustments necessary for a fair
presentation of the information required to be included. Operating results
for the three- and nine-month periods ended June 29, 1997 are not
necessarily indicative of the results that may be expected for any future
periods. Reference should also be made to the Annual Consolidated Financial
Statements, Notes thereto, and Management's Discussion and Analysis of
Financial Condition and Results of Operations contained in the Company's
Annual Report on Form 10-K for the fiscal year ended September 29, 1996.
The previous year-end's balance sheet data was derived from audited
financial statements but does not include all disclosures required by
generally accepted accounting principles.
2. Net Income Per Share
--------------------
Net income per share has been computed using the weighted average number of
common shares and common share equivalents outstanding during each period.
Common share equivalents represent the dilutive effect of common stock
options and warrants using the treasury stock method.
3. Depreciation and Amortization
-----------------------------
Depreciation and amortization was approximately $2.8 million and $2.2
million for each of the three-month periods ended June 29, 1997 and June
30, 1996.
4. Inventories
-----------
Inventories consist of:
<TABLE>
<CAPTION>
June 29, September 29,
1997 1996
---- ----
(in thousands)
<S> <C> <C>
Purchased parts and
sub-assemblies $11,356 $16,000
Work in process 4,146 5,057
Finished goods 10,527 10,918
------- -------
$26,029 $31,975
======= =======
</TABLE>
5. Other Accrued Liabilities
-------------------------
<TABLE>
<CAPTION>
June 29, September 29,
1997 1996
---- ----
(in thousands)
<S> <C> <C>
Accrued customer
service costs $ 4,638 $ 3,663
Other accrued expenses 15,012 10,134
------- -------
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
$19,650 $13,797
======= =======
</TABLE>
ADAC LABORATORIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
(UNAUDITED)
6. Income Taxes
------------
The Company uses the deferral method to account for income taxes. Valuation
allowances are established when necessary to reduce deferred tax assets to
the amounts expected to be realized.
The provisions for income taxes for each of the three- and nine-month
periods ended June 29, 1997 and June 30, 1996 are based on the estimated
effective income tax rates for the fiscal years ending September 28, 1997
and September 29, 1996 of 36.6% and 36.0%, respectively, excluding with
respect to fiscal 1997 the effects of the one-time charge for in-process
research and development and other acquisition costs and expenses.
7. Credit and Borrowing Arrangements
---------------------------------
The Company has a $100.0 million secured revolving credit facility with a
bank syndicate that expires on July 30, 1999. The credit facility offers
borrowings in either U.S. dollars or in foreign currencies. The Company may
elect to pay interest based on a floating base rate or LIBOR. The base rate
is equal to the greater of (i) the agent's prime rate and (ii) the Federal
Funds Rate plus 0.50%. The Company pays interest on LIBOR loans and
commitment fees on its total borrowings based on the debt level in relation
to the Company's cash flow. Commitment fees range from 0.25% to 0.475% of
borrowings and the LIBOR rates are based on LIBOR plus rates ranging from
0.875% to 1.500%. As of June 29, 1997, the Company had $76.1 million
available for borrowing under this facility.
8. Litigation
----------
The Company is a defendant in various legal proceedings incidental to its
business. While it is not possible to determine the ultimate outcome of
these actions at this time, management is of the opinion that any unaccrued
liability resulting from these claims would not have a material adverse
effect on the Company's consolidated financial position or results of
operations.
9. Acquisition
-----------
On May 22, 1997, the Company acquired Cortet, Inc. (Cortet), of Winter
Park, Florida, in exchange for 159,087 shares of the Company's common stock
valued at approximately $3.9 million and the assumption of certain closing
costs and related expenses. Cortet is a developer of client-server
information systems for use in cardiac catheterization laboratories. The
acquisition was accounted for using the purchase method of accounting. In
connection with the acquisition, the Company recognized a one-time, pre-tax
charge to operations of $5.9 million for charges related to the purchase of
in-process research and development and certain uncompleted acquisition
costs and related expenses.
10. Other
-----
On September 30, 1996, one of the Company's subsidiaries, ADAC Radiology
Services, Inc. (ARS), acquired a one-year option to purchase Medical
Transition Strategies, Inc. (MTS) for $0.5 million in cash plus an
additional $1.0 million payable over five years. MTS is in the business of
forming and managing radiology networks.
<PAGE>
The exercise price of the option is equal to $50,000 per validated network under
management plus a percentage of each such network's net revenue in calendar year
ADAC LABORATORIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
(UNAUDITED)
1998. The option price and the option exercise price are, at the election
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's
network revenue goals are achieved, pay MTS a break-up fee of $0.5 million.
11. Recent Pronouncements
---------------------
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 require the Company to
provide additional disclosures in the financial statements for the fiscal
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.
During February 1997, the Financial Accounting Standards Board issued
Statement No. 128 (SFAS 128), "Earnings per Share," which specifies the
computation, presentation and disclosure requirements for earnings per
share. SFAS 128 will become effective for the Company's quarter ending
December 31, 1997.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130 (SFAS 130), "Reporting Comprehensive
Income." This statement establishes requirements for disclosure of
comprehensive income and becomes effective for the Company for fiscal years
beginning after December 15, 1997, with reclassification of earlier
financial statements for comparative purposes. Comprehensive income
generally represents all changes in stockholders' equity except those
resulting from investments or contributions by stockholders. The Company is
evaluating alternative formats for presenting this information, but does
not expect this pronouncement to materially impact the Company's results of
operations.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131 (SFAS 131), "Disclosures about
Segments of an Enterprise and Related Information." This statement
establishes standards for disclosure about operating segments in annual
financial statements and selected information in interim financial reports.
It also establishes standards for
<PAGE>
related disclosures about products and services, geographic areas and major
customers. This statement supersedes Statement of Financial Accounting
Standards No. 14, "Financial Reporting for Segments of a Business
Enterprise." The new standard becomes effective for fiscal years beginning
after December 15, 1997, and requires that comparative information from
earlier years be restated to conform to the requirements of this standard.
The Company is evaluating the requirements of SFAS 131 and the effects, if
any, on the Company's current reporting and disclosures.
At present, the Company's adoption of these pronouncements is not expected
to have a material effect on the Company's financial position or results of
operations.
ITEM 2 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 Condensed Consolidated Financial Statements and related Notes thereto
contained elsewhere within this document. Operating results for the three- and
nine-month periods ended June 29, 1997 are not necessarily indicative of the
results that may be expected for any future periods. Reference should also be
made to the Annual Consolidated Financial Statements, Notes thereto, and
Management's Discussion and Analysis of Financial Condition and Results of
Operations contained in the Company's Annual Report on Form 10-K for the fiscal
year ended September 29, 1996.
RESULTS OF OPERATIONS
THE THREE- AND NINE-MONTH PERIODS ENDED JUNE 29, 1997 COMPARED TO THE THREE- AND
NINE-MONTH PERIODS ENDED JUNE 30, 1996
The Company generated record revenues of $71.5 million for the three-month
period ended June 29, 1997, an increase of 15% over the $62.4 million reported
for the same period in fiscal 1996. This increase resulted from a 16% increase
in product revenue and a 12% increase in service revenue.
Gross profit margin increased to 41.5% in the third quarter of fiscal 1997 from
38.7% in the third quarter of fiscal 1996, with product gross margins improving
3.9 percentage points to 42.6% over that time period.
Excluding the effects of the $5.9 million one-time charge taken by the Company
in the third quarter of fiscal 1997 for in-process research and development
related to the purchase of Cortet and certain uncompleted acquisition costs
and related expenses, the Company achieved net income of $5.8 million in the
third quarter of fiscal 1997, a $1.5 million increase over the $4.4 million
reported for the same quarter in fiscal 1996, and net income per share of $0.30
for the third quarter of fiscal 1997, representing a 25% increase from the $0.24
reported for the same quarter in fiscal 1996.
<PAGE>
Including the one-time charge, net income and net income per share for the third
quarter of fiscal 1997 were $0.1 million and $0.01, respectively.
REVENUES AND GROSS MARGIN:
The Company's two primary business units are Medical Systems and Healthcare
Information Systems (HCIS).
MEDICAL SYSTEMS. In the Company's Medical Systems business, the Company designs,
develops, manufactures and sells nuclear medicine and related products and
radiation therapy planning (RTP) products, and provides customer service for
those products.
Summary information related to Medical Systems' product and service revenues and
gross margins is as follows:
<TABLE>
<CAPTION>
Percentage
Change from Fiscal
Three Months Ended Nine Months Ended 1996 to 1997
------------------ ----------------- ------------------
June 29, June 30, June 29, June 30, Three Nine
1997 1996 1997 1996 Months Months
------- -------- -------- ------- ------ ------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Product:
Revenues, net $50,242 $41,547 $144,013 $117,441 20.93% 22.63%
Product mix:
Nuclear Medicine 89.2% 95.1% 91.5% 96.0%
RTP 10.8% 4.9% 8.5% 4.0%
Geographical mix:
North America 71.3% 75.8% 74.3% 74.7%
Europe 15.6% 11.9% 13.5% 14.2%
Other 13.1% 12.3% 12.2% 11.1%
Gross margin 43.6% 39.2% 43.0% 38.1%
Service:
Revenues, net $14,028 $11,784 $39,871 $34,100 19.0% 16.9%
Gross margin 36.0% 32.8% 33.6% 33.0%
</TABLE>
Medical Systems product revenues for the quarter and nine-month periods ended
June 29, 1997 increased more than 20% over the corresponding periods in fiscal
1996 primarily due to increased sales of the Company's nuclear medicine products
and product enhancements, as well as the Company's RTP product, Pinnacle3(tm),
which received 510(k) clearance from the United States Food and Drug
Administration (FDA) in April 1997. Geographically, the increase in Medical
Systems product revenues was driven year-to-date by the North and South American
markets and for the quarter by Europe. Product gross margins for Medical
Systems increased over the corresponding periods in fiscal 1996 due to
reductions in product cost and sales of Molecular Coincidence Detection (MCD(tm)
and Pinnacle3.
Medical Systems' service revenues increased over the corresponding periods in
fiscal 1996 as a result of an increase in the Company's installed customer base
as well as increased revenues associated with the Company's multi-vendor service
business. Gross margins increased as the revenues increased and costs remained
relatively fixed.
<PAGE>
HEALTHCARE INFORMATION SYSTEMS. In HCIS, the Company designs, develops, markets
and distributes client/server information systems for the healthcare industry,
including radiology, laboratory and cardiology information systems. The Company
also provides support services for these systems.
<PAGE>
Summary information related to HCIS' product and service revenues and gross
margins is as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended Change from Fiscal
1996 to 1997
------------------
June 29, June 30, June 29, June 30, Three Nine
1997 1996 1997 1996 Months Months
-------- ------- -------- -------- ------ ------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Product:
Revenues, net $3,390 $4,890 $13,898 $11,653 (30.7)% 19.3%
Product mix:
Radiology 77.4% 49.3% 54.8% 54.1%
Laboratory 18.5% 50.7% 42.7% 45.9%
Cardiology 4.1% 0.0% 2.5% 0.0%
Geographical mix:
North America 100.0% 100.0% 100.0% 100.0%
Gross margin 27.9% 34.5% 35.2% 42.5%
Service:
Revenues, net $3,825 $4,213 $11,797 $12,666 (9.2%) (6.9%)
Gross margin 45.9% 54.3% 47.9% 52.3%
</TABLE>
HCIS product revenues for the nine-month period ended June 29, 1997 increased
19.3% over the corresponding period in fiscal 1996 as a result of increased
sales of the Company's laboratory information system primarily in the early part
of fiscal 1997, and of the Company's radiology information system. However,
HCIS product revenues for the third quarter of fiscal 1997 decreased 30.7%
compared to the same period in fiscal 1996 due to a $1.85 million decline in
sales of the Company's laboratory information system. These revenues declined
as customers delayed their purchases of the Company's laboratory product in
anticipation of the next release which has been delayed for more than six
months. Gross margins decreased from the third quarter of fiscal 1996 to the
third quarter of fiscal 1997 due to lower revenues being spread over fixed
expenses, including laboratory implementation expenses, and higher costs
associated with implementations of the Company's radiology information system,
and decreased for the nine-month period ended June 29, 1997 compared to the same
period in fiscal 1996 primarily as a result of these higher implementation
costs.
HCIS service revenues and margins decreased for both the quarter and year-to-
date periods from the corresponding periods in fiscal 1996 primarily as a result
of lower dollar volume in service renewals from HCIS' legacy client base and
increased training, personnel and other support costs.
<PAGE>
Operating and Other Expenses:
Summary information showing the Company's operating and other expenses as a
percentage of revenue is as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------ -----------------
June 29, June 30, June 29, June 30,
1997 1996 1997 1996
-------- ------- ------- --------
<S> <C> <C> <C> <C>
Operating costs and expenses:
Marketing and sales 14.4% 15.3% 15.2% 15.0%
Research and development,
net of software 5.6% 5.1% 5.2% 5.2%
capitalization
General and administrative 6.3% 5.7% 6.3% 6.0%
Goodwill amortization .3% .3% .3% .3%
In-process research and
development and acquisition expenses 8.2% .0% 2.8% .0%
-------- ------- ------- --------
34.8% 26.4% 29.8% 26.5%
======== ======= ======= ========
Interest and other expense, net 1.9% 1.4% 1.8% 1.4%
</TABLE>
Marketing and sales expenses for the nine-month period ended June 29, 1997
increased slightly as a percentage of revenue over the same period in fiscal
1996, but declined as a percentage of revenue for the third quarter of fiscal
1997 compared to the same quarter in fiscal 1996 primarily as a result of lower
compensation costs in the current quarter. As a result of continued investment
in the development of new products and product enhancements, net research and
development expenditures increased $0.8 million and $1.7 million for the third
quarter and nine-month period ended June 29, 1997 over the same periods in
fiscal 1996. Capitalized software for the third quarter of fiscal 1997 was $1.2
million versus $0.7 million in the third quarter of fiscal 1996, bringing the
year-to-date amount to $3.4 million for fiscal 1997 compared with $2.7 million
for the same period in fiscal 1996. General and administrative expenditures as a
percentage of revenue increased for the third quarter and the nine-month period
ended June 29, 1997 over the corresponding periods in fiscal 1996 due to higher
compensation costs, expansion of the Company's networking and MIS capabilities
and personnel costs associated with the start-up of the Company's radiology
services business.
Total operating and other expenses for the quarter and nine-month period ended
June 29, 1997 also included a $5.9 million charge related to the purchase of in-
process research and development and certain uncompleted acquisition and related
costs and expenses. See Note 9 of Notes to Condensed Consolidated Financial
Statements.
Interest and other expense, net, increased due to foreign currency transaction
losses which were partially offset by decreased interest expense due to lower
borrowings.
INCOME TAXES:
The effective tax rate as a percentage of pretax income was 36.6% for the first
nine months of fiscal 1997, excluding the effects of the one-time charge for in-
process research and development and other acquisition costs and expenses,
compared with 36.0% for the first nine months of fiscal 1996.
INFLATION:
The Company does not believe that inflation has had a material effect on its
revenues or results of operations.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Net cash and cash equivalents for the first nine months of fiscal 1997 increased
by $3.1 million compared to a decrease of $2.4 million for the corresponding
period in fiscal 1996. This increase was primarily the result of lower inventory
and increased stock option activity. The primary uses of cash during the nine-
month period ended June 29, 1997 were for (i) an increase in accounts
receivable; (ii) a decrease in accounts payable; (iii) capital expenditures;
(iv) a reduction in long-term debt; and (v) the effects of exchange rates.
The increase in accounts receivable reflects higher sales in South America and
delays in product installations and implementations due to customer site
preparation and other factors. Accounts payable decreased due to a reduction of
raw material purchases as a result of factory efficiency programs and a change
in the timing of payments, which were partially offset by the increase in
expenses related to the volume of business. The increase in capital
expenditures consists primarily of capitalized software research and development
costs in both the Medical Systems and HCIS business units.
The improved cash flow allowed the Company to pay down bank loans during fiscal
1997, which reduced the outstanding borrowings under the Company's lines of
credit to $23.9 million from $27.2 million at June 29, 1997 and June 30, 1996,
respectively. The change in the foreign exchange translation adjustment was
principally due to increases in the value of the dollar versus the major
European currencies.
The Company believes that its cash and cash equivalents, cash flow from
operations, 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 on terms favorable to
the Company, if at all.
BUSINESS CONSIDERATIONS
The foregoing Management's Discussion and Analysis of Financial Condition and
Results of Operations, including the discussion of product mix and liquidity and
capital resources, contains forward looking statements within the meaning of the
federal securities laws. These statements are subject to a number of risks and
uncertainties that 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.
DEPENDENCE ON DEVELOPMENT AND COMMERCIALIZATION OF NEW PRODUCTS AND PRODUCT
ENHANCEMENTS
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 and successfully commercialize innovative new products and
product enhancements such as Molecular Coincidence Detection MCD(tm), and the
current updates to the Company's laboratory and radiology information system
products in order to pursue its growth strategy. Sales of MCD and the Company's
laboratory information systems product declined in the third fiscal quarter of
1997 compared to the second fiscal quarter of 1997, putting additional revenue
and margin pressure on the Company's base Medical Systems business. Failure of
the Company to market and sell these products effectively in future quarters
could have a material adverse effect on the Company's results of operations.
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 obtaining any necessary regulatory
clearances. The success of MCD depends on receipt of appropriate regulatory
approvals for, and the commercial availability of,
<PAGE>
fleuro-deoxy-glucose (FDG). At this time, the infrastructure for the commercial
supply of FDG is not well developed and certain regulatory approvals or
clearances for FDG have not yet been obtained. In addition, although
reimbursement has been approved locally by certain private payors and local
Medicare offices, widespread reimbursement by Medicare and private payors for
the use of FDG in connection with MCD remains uncertain. Continued uncertainty
over reimbursement for the use of MCD could have an adverse effect on sales of
MCD, which could have a material adverse effect on the Company's results of
operations.
HEALTHCARE INFORMATION SYSTEMS
Although HCIS markets and distributes products in three broad product families,
radiology, laboratory and cardiology, this business unit has generated a
cumulative operating loss over the past three years, including a substantial
operating loss in the quarter ended June 29, 1997, and is expected, even
assuming revenue increases, to generate modest operating losses in the next
several quarters. The Company is continuing to invest in HCIS to complete the
development of the current updates to its laboratory and radiology products,
which the Company believes are required to maintain its competitiveness, satisfy
customer needs and generate positive customer reference sites to support future
sales. There can be no assurance that HCIS will not require even further
investment to complete this development or that the development can be completed
in a timely manner, which could have a material adverse effect on the results of
operations of the Company.
COMPETITION
The markets served by the Company 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 marketed 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.
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 and shipments 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, the Company's bookings and backlog
cannot necessarily be relied upon as an accurate predictor of future revenues as
the timing of such revenues is dependent upon completion of customer site
preparation and construction, installation scheduling and other factors. To the
extent installations become delayed, there can be no assurance that the orders
will mature into revenue.
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
<PAGE>
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.
<PAGE>
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 the United States Food
and Drug Administration 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 or 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 contained in the Company's Annual
Report on Form 10-K for the year ended September 29, 1996 incorporated by
reference herein 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
workstations and 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 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.
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
-----------------
Not applicable.
Item 2. Changes in Securities
---------------------
(c) On May 6, 1997, the Company granted Bain & Company, Inc. (Bain) a
warrant to purchase up to 24,000 shares of common stock at an exercise
price of $22.625 per share in connection with the rendering by Bain of
certain consulting services to the Company. The warrant was issued
pursuant to the exemption from the registration requirements of the
Securities Act provided by Section 4(2) of the Securities Act.
On May 22, 1997, the Company issued 159,087 shares of common stock to
the shareholders of Cortet in connection with the merger of
Cortet with and into a wholly owned subsidiary of the Company with Cortet
as the surviving corporation. See Note 9 of Notes to Condensed
Consolidated Financial Statements. The shares were issued to the
shareholders of Cortet pursuant to the exemption from the registration
requirements of the Securities Act provided by Rule 505 of Regulation D
promulgated under the Securities Act.
Item 3. Defaults Upon Senior Securities
-------------------------------
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
(a) The Company held its 1997 Annual Meeting of Shareholders on May 15,
1997 (the "Annual Meeting").
(b) At the Annual Meeting, the following directors were duly elected:
Stanley D. Czerwinski, R. Andrew Eckert, Graham O. King, David L.
Lowe, Edmund H. Shea, Jr. and F. David Rollo.
(c) At the Annual Meeting, the following votes were cast for each of the
items voted upon at the meeting:
<TABLE>
<CAPTION>
1) Election of Directors:
In Favor Withheld
-------- --------
<S> <C> <C>
Stanley D. Czerwinski 15,252,747 851,730
R. Andrew Eckert 15,261,084 843,393
Graham O. King 15,267,265 837,212
David L. Lowe 15,264,589 839,888
F. David Rollo 15,273,066 831,411
Edmund H. Shea, Jr. 15,265,586 838,891
</TABLE>
2) Proposal to approve an amendment to the Company's 1992 Stock Option
Plan to increase the number of shares authorized thereunder by 712,000
shares: FOR - 11,929,860; AGAINST - 3,974,959; ABSTAIN - 43,924; and
BROKER NON-VOTES - 155,734.
3) Proposal to approve an amendment to the Company's Employee Stock
Purchase Plan to increase the shares authorized thereunder by 85,000
shares: FOR - 13,221,319; AGAINST - 2,684,446; ABSTAIN - 42,978; and
BROKER NON-VOTES -155,734.
4) Proposal to approve an amendment to the Company's Directors' Stock
Option Plan to increase the number of shares authorized by 56,665
shares: FOR - 11,070,995; AGAINST - 4,726,678; ABSTAIN - 151,070; and
BROKER NON-VOTES -155,734.
5) Proposal to approve the amendment and restatement of the Company's
Articles of Incorporation to delete therefrom provisions
<PAGE>
relating to the maximum and minimum number of directors that may serve
on the Company's board of directors: FOR - 11,297,829; AGAINT -
160,118; ABSTAIN - 108,606; and BROKER NON-VOTES - 4,537,924.
6) Proposal to approve amendments to the Company's Bylaws, including
an increase in the maximum and minimum number of directors that may
serve on the Company's board of directors: FOR - 11,127,345; AGAINST -
386,916; ABSTAIN -52,291; and BROKER NON-VOTES - 4,537,925.
Item 5. Other Information
-----------------
Not applicable.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits:
2.1 Agreement and Plan of Reorganization dated as of March 31, 1997 by
and among the Company, ADAC Acquisition Corp., Cortet, Inc. and the
Designated Shareholders of Cortet
3.1 Amended and Restated Articles of Incorporation of the Company
3.2 Bylaws, as amended
10.1 Second Amendment to Credit Agreement dated as of May 1, 1997, and
First Amendment to Credit Agreement dated as of December 27, 1996,
each by and among the Company, the Lenders named therein and ABN AMRO
BANK N.V., as agent for the Lenders
10.2 Directors' Stock Option Plan (1987), as amended
10.3 1992 Stock Option Plan, as amended
10.4 Employee Stock Purchase Plan (1994), as amended
11.1 Computation of Net Income Per Share
27 Financial Data Schedule
(b) Form 8-K Reports:
None filed during the fiscal quarter described in this Report on Form
10-Q.
<PAGE>
SIGNATURES
----------
Pursuant to the requirements 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: August 13, 1997
ADAC Laboratories
-----------------
(Registrant)
BY: /s/ P. Andre' Simone
--------------------
P. Andre' Simone
Vice President and Chief Financial Officer
<PAGE>
EXHIBIT INDEX
-------------
Page
2.1 Agreement and Plan of Reorganization dated as of March 31, 1997
by and among the Company, ADAC Acquisition Corp., Cortet, Inc.
and the Designated Shareholders of Cortet
3.1 Amended and Restated Articles of Incorporation of the Company
3.2 Bylaws, as amended
10.1 Second Amendment to Credit Agreement dated as of May 1, 1997,
and First Amendment to Credit Agreement dated as of December 27,
1996, each by and among the Company, the Lenders named therein
and ABN AMRO BANK N.V., as agent for the Lenders
10.2 Directors' Stock Option Plan (1987), as amended
10.3 1992 Stock Option Plan, as amended
10.4 Employee Stock Purchase Plan (1994), as amended
11.1 Computation of Net Income Per Share
27 Financial Data Schedule
<PAGE>
EXHIBIT 2.1
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement") is made and
entered into as of March 31, 1997, by and among ADAC Laboratories, a California
corporation ("ADAC"); ADAC Acquisition Corp., a Delaware corporation and a
wholly owned subsidiary of ADAC ("Sub"); CORTET, INC., a Florida corporation
(the "Company"); and J.P. Patten, Michael Hill, Alexander Nikoloff, Lewis Lobel,
Robert Joicy, Chris Westervelt and Douglas Bowdoin (the "Designated
Shareholders").
RECITALS
A. ADAC, Sub and the Company intend to effect a merger of Sub into the
Company in accordance with this Agreement and the laws of the States of Delaware
and Florida (the "Merger"). Upon consummation of the Merger, Sub will cease to
exist and the Company will become a wholly owned subsidiary of ADAC.
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. This Agreement has been adopted and approved by the Board of Directors
of the Company.
D. The Designated Shareholders own a total of 902,000 shares of the
voting common stock, $.001 par value per share, of the Company. (The voting
common stock, $.001 par value per share, of the Company is referred to in this
Agreement as "Company Common Stock".)
AGREEMENT
ADAC, Sub, the Company and the Designated Shareholders agree as follows:
1
DESCRIPTION OF TRANSACTION
1.1 MERGER OF SUB INTO THE COMPANY. Upon the terms and subject to the
conditions set forth in this Agreement and the Plan of Merger attached hereto as
Exhibit A (the "Plan of Merger"), at the Effective Time (as defined in Section
- ---------
1.3), Sub shall be merged into the Company and the separate existence of Sub
shall cease. The Company will be the surviving corporation in the Merger (the
"Surviving Corporation").
1.2 EFFECT OF THE MERGER. The Merger shall have the effects set forth in
this Agreement, the Plan of Merger, the applicable provisions of the Delaware
General Corporation
1
<PAGE>
Law (the "DGCL") and in the applicable provisions of the Florida Business
Corporation Act (the "FBCA").
1.3 CLOSING; EFFECTIVE TIME. The consummation of the transactions
contemplated by this Agreement (the "Closing") shall take place at the offices
of ADAC 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 DGCL shall be filed with the Delaware Secretary of State and
the Plan of Merger and articles of merger conforming to the requirements of the
FBCA shall be filed with the Florida Secretary of State. The Merger shall
become effective at the time said certificate of merger is filed with the
Delaware Secretary of State and said Plan of Merger and articles of merger are
filed with the Florida Secretary of State (the "Effective Time").
1.4 ARTICLES OF INCORPORATION AND BYLAWS; DIRECTORS AND OFFICERS. The
Articles of Incorporation of the Company, as in effect immediately prior to the
Effective Time, shall be the Articles of Incorporation of the Surviving
Corporation until thereafter amended. The Bylaws of the Surviving Corporation,
as in effect immediately prior to the Effective Time, shall be the Bylaws of the
Surviving Corporation until thereafter amended, except that Article VII shall be
amended to provide that the fiscal year of the Surviving Corporation shall end
on the Sunday closest to September 30. The directors of the Surviving
Corporation shall be R. Andrew Eckert, P. Andre Simone and Karen L. Masterson,
who shall hold office in accordance with the Articles and Bylaws of the
Surviving Corporation, and the officers of the Surviving Corporation shall be R.
Andrew Eckert, President, P. Andre Simone, Vice President, Chief Financial
Officer, Treasurer and Assistant Secretary, and Karen L. Masterson, Vice
President and Secretary, who shall serve until their respective successors are
elected and qualified.
1.5 CONVERSION OF SHARES.
(a) At the Effective Time, by virtue of the Merger (and without any
action on the part of ADAC, Sub, the Company or any shareholder of the Company):
(i) each share of Company Common Stock, $.001 par value, of the
Company 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(c), 1.7 and 1.8, each share of Company Common Stock then outstanding shall
be converted into the right to receive the "Exchange Ratio" (as defined in
Section 1.5(b)(i) below) of a share of the common stock, no par value, of ADAC
("ADAC Common Stock")
(iii) each share of the common stock, no par value, of Sub
outstanding immediately prior to the Effective Time shall be converted into one
share of common stock of the Surviving Corporation.
2
<PAGE>
(b) For purposes of this Agreement, the "Exchange Ratio" shall be the
fraction (A) having as its numerator $3,500,000 and (B) having as its
denominator the amount determined by multiplying (1) the sum of the aggregate
number of shares of Company Common Stock outstanding immediately prior to the
Effective Time plus the number of shares of Company Common Stock issuable upon
the exercise and/or conversion of all outstanding options, warrants, rights,
convertible securities, by (2) $22.00 (the "Designated ADAC Stock Price");
(c) If, between the date of this Agreement and the Effective Time, the
outstanding shares of Company 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.
1.6 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 Stock (a "Company Stock
Certificate") is presented to ADAC, such Company Stock Certificate shall be
canceled and exchanged as provided in Section 1.7.
1.7 EXCHANGE OF CERTIFICATES.
(a) At or as soon as practicable after the Effective Time, ADAC will
provide or mail to the holders of Company Stock Certificates (i) a letter of
transmittal in customary form and containing such provisions as ADAC may
reasonably require and (ii) instructions for use in effecting the surrender of
Company Stock Certificates in exchange for certificates representing ADAC Common
Stock. Upon surrender of a Company 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 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 Stock
Certificate so surrendered shall be canceled. Until surrendered as contemplated
by this Section 1.7, each Company 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 Stock Certificate with respect to the
shares of ADAC 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 Stock Certificate in accordance with this
3
<PAGE>
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 (without interest) equal to the Designated ADAC Stock Price multiplied by
the fraction of a share of ADAC Common Stock to which such holder would
otherwise be entitled.
(d) The shares of ADAC Common Stock to be issued in the Merger shall
be characterized as "restricted securities" for purposes of Rule 144 under the
Securities Act, and each certificate representing any of such shares shall bear
a legend identical or similar in effect to the following legend (together with
any other legend or legends required by applicable state securities laws or
otherwise):
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 (THE "ACT") AND MAY NOT BE OFFERED,
SOLD OR OTHERWISE TRANSFERRED, ASSIGNED, PLEDGED OR HYPOTHECATED
UNLESS REGISTERED UNDER THE ACT OR UNLESS AN EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE ACT IS AVAILABLE."
(e) 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.
1.8 DISSENTING SHARES. Notwithstanding anything to the contrary contained
in this Agreement, any shares of Company Common Stock that are outstanding
immediately prior to the Effective Time that were not voted in favor of the
Merger and are held by shareholders who have complied with the applicable
provisions of the FBCA ("Dissenting Shares") shall not be converted into or
represent the right to receive ADAC Common Stock in accordance with Section
1.5(a)(i) (or cash in lieu of fractional shares in accordance with Section 1.7),
and each holder of Dissenting Shares shall be entitled only to such rights as
may be granted to such holder in the FBCA. From and after the Effective Time, a
holder of Dissenting Shares shall not have and shall not be entitled to exercise
any of the voting rights or other rights of a shareholder of the Surviving
Corporation. If any holder of Dissenting Shares shall fail to perfect or shall
waive, rescind, withdraw or otherwise lose such holder's right of appraisal
under the FBCA, then such shares shall automatically be converted into and shall
represent only the right to receive (upon the surrender of the certificate or
certificates representing such shares) ADAC Common Stock in accordance with
Section 1.5(a)(i) (and cash in lieu of fractional shares in accordance with
Section 1.7). The Company (i) shall give ADAC prompt written notice of any
notice received by the Company of a shareholder's intent to demand payment for
such shareholder's shares of Company Common Stock pursuant to the FBCA
4
<PAGE>
and of any other notice, demand or instrument delivered to the Company pursuant
to the FBCA, and (ii) shall give ADAC's representatives the opportunity to
participate in all negotiations and proceedings with respect to any such notice,
demand or instrument. The Company shall not make any payment or settlement offer
with respect to any such notice or demand unless ADAC shall have consented in
writing to such payment or settlement offer.
1.9 TAX CONSEQUENCES. For federal income tax purposes, the Merger is
intended to constitute a tax-free reorganization within the meaning of Section
368 of the Code. The parties to this Agreement hereby adopt this Agreement as a
"plan of reorganization" within the meaning of the applicable United States
Treasury Regulations. Neither the Company, any Designated Shareholder nor ADAC
shall take a position inconsistent with this Section 1.9 on any tax return.
1.10 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.
2
REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE DESIGNATED SHAREHOLDERS
Except as set forth in the disclosure schedule delivered to ADAC with this
Agreement and signed by the President or any Vice President of the Company (the
"Disclosure Schedule"), the Company and the Designated Shareholders jointly and
severally represent and warrant to ADAC as follows:
2.1 ORGANIZATION; SUBSIDIARIES ETC.
(a) The Company is a corporation duly organized, validly existing and
in good standing under the laws of the State of Florida. The Company has all
necessary power and authority under applicable corporate law and its
organizational documents to own or lease its properties, to carry on its
business as presently conducted and to perform its obligations under all
contracts by which it is bound. Except as set forth in the Disclosure
Schedule, the Company has not conducted any business under or otherwise used for
any purpose or in any jurisdiction any fictitious name, trade mane or other
name. As of the date of this Agreement, the Company does not own or hold,
directly or indirectly, any debt or equity securities of, or have 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.
The Company has no subsidiaries.
(b) The Company is qualified to do business as a foreign corporation
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, a list of
5
<PAGE>
which jurisdictions is set forth in the Disclosure Schedule. For purposes of
this Agreement, material adverse effect, as it applies to the Company, means a
material adverse effect on the business, operations, results, 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 (a
"Material Adverse Effect").
(c) The Disclosure Schedule sets forth (i) the names of the members of
the Company's board of directors, and (ii) the names and titles of the Company's
officers. The Company's board of directors has never established any
committees.
2.2 ARTICLES OF INCORPORATION AND BYLAWS; RECORDS. The Company has
delivered to ADAC accurate and complete copies of: (1) the Company's articles
of incorporation and bylaws, including all amendments thereto; (2) the stock
records of the Company; and (3) the minutes and other records of the meetings
and other proceedings (including any actions taken by written consent or
otherwise without a meeting) of the shareholders of the Company and the board of
directors of the Company. There have been no meetings or other proceedings or
actions of the shareholders of the Company or the board of directors of the
Company that are not fully reflected in such minutes or other records. There
has not been any violation of any of the provisions of the Company's articles of
incorporation or bylaws or of any resolution adopted by the Company's
shareholders or the Company's board of directors that would have a Material
Adverse Effect. The general ledger, stock records, minute books and other
material records of the Company are accurate, up-to-date and complete in all
material respects.
2.3 CAPITALIZATION.
(a) As of the date of this Agreement, the authorized capital stock of
the Company consists of 1,400,100 shares, of which 1,400,000 shares constitute
Company Common Stock, and 100 shares constitute preferred stock, $1.00 par value
per share, of the Company ("Company Preferred Stock"). As of the date hereof,
902,000 shares of Company Common Stock and 100 shares of Company Preferred Stock
were issued and outstanding. All the issued and outstanding shares of Company
Common and Preferred Stock are validly issued, fully paid, nonassessable and
free of preemptive rights, and were issued in compliance with state and federal
securities laws, and none of such shares is subject to any repurchase option or
restriction on transfer (other than restrictions on transfer imposed by virtue
of applicable federal and state securities laws). As of the date of this
Agreement, except as set forth above, (i) there are no shares of capital stock
of the Company authorized, issued or outstanding, (ii) there are no outstanding
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 obligating the Company or any other party to issue, transfer or
sell any shares of the capital stock or other securities of the Company, 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 successor corporation or controlling
person of such successor
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corporation. The Disclosure Schedule sets forth the names of the Company's
shareholders and the number of shares of Company Common and/or Preferred Stock
owned of record by each.
(b) Neither the Company nor any of its affiliates owns any ADAC Common
Stock.
(c) Any shares of capital stock or other securities repurchased,
redeemed or otherwise reacquired by the Company were validly reacquired in
compliance with (i) the applicable provisions of the FBCA and all other
applicable Legal Requirements, and (ii) any requirements set forth in applicable
contracts by which the Company is bound.
2.4 FINANCIAL STATEMENTS; ABSENCE OF LIABILITIES.
(a) Except as set forth in Part 2.4(a) of the Disclosure Schedule, the
Company's unaudited interim balance sheet as of March 31, 1997 and the related
statement of operations for the six-month period then ended (the "Unaudited
Financial Statements") were prepared in accordance with the books and records of
the Company and fairly present the financial position of the Company as of the
date thereof and the results of its operations for the period indicated.
(b) The Company has no Liabilities, except for (i) Liabilities that
are disclosed as such in the Unaudited Financial Statements, (ii) accrued
salaries, accounts payable, sales taxes, accrued interest and royalty
obligations, and warranty obligations (such warranty obligations not to exceed
4% of the contract price on contracts executed after March 31, 1997), each of
which has been incurred by the Company since March 31, 1997 in the ordinary
course of business and consistent with past practice, and (iii) Liabilities
identified in Part 2.4 of the Disclosure Schedule. 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). Except as set forth in the Unaudited Financial
Statements and Part 2.4(b) of the Disclosure Schedule, the Company has no
Liabilities to any officer, director, shareholder, affiliate or associate of the
Company.
(c) Part 2.4 of the Disclosure Schedule sets forth an accurate and
complete breakdown of (i) all accounts payable of the Company as of March 31,
1997, and (ii) all notes payable of the Company and all indebtedness of the
Company for borrowed money.
(d) Part 2.4 of the Disclosure Schedule sets forth an accurate and
complete breakdown of the Company's "deferred support revenue" and all related
obligations and other liabilities of the Company.
2.5 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as set forth in Part 2.5
of the Disclosure Schedule, since March 31, 1997,
(a) the Company has conducted its business and operations in the
ordinary course and there has not been any material adverse change in the
Company's business, condition,
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assets, liabilities, operations, financial performance or prospects, and no
event has occurred that will, or could reasonably be expected to, have a
Material Adverse Effect on the Company;
(b) there has not been any loss, damage or destruction to, or any
interruption in the use of, any of the Company's assets (whether or not covered
by insurance);
(c) the Company has not declared, accrued, set aside or paid any
dividend or made any other distribution in respect of any shares of capital
stock, and has not repurchased, redeemed or otherwise reacquired any shares of
capital stock or other securities;
(d) the Company has not sold, issued or authorized the issuance of (i)
any capital stock or other security, (ii) any option, call, warrant or right to
acquire, or otherwise relating to, any capital stock or any other security, or
(iii) any instrument convertible into or exchangeable for any capital stock or
other security;
(e) there has been no amendment to the Company's articles of
incorporation or bylaws, and the Company has not effected or been a party to any
acquisition transaction, recapitalization, reclassification of shares, stock
split, reverse stock split or similar transaction;
(f) the Company has not formed any subsidiary or acquired any equity
interest or other interest in any other entity;
(g) the Company has not made any capital expenditure which, when added
to all other capital expenditures made by the Company since March 31, 1997,
exceeds $10,000 in the aggregate;
(h) the Company has not (i) entered into or permitted any of the
assets owned or used by it to become bound by any Material Contract (as defined
in Section 2.10(a)), except that the Company has renewed various Material
Contracts in the ordinary course of business, without materially amending the
terms thereof, or (ii) amended or prematurely terminated, or waived any material
right or remedy under, any Material Contract to which it is or was a party or
under which it has or had any rights or obligations;
(i) the Company has not (i) acquired, leased or licensed any right or
other asset from any other person or entity (other than immaterial rights or
other immaterial assets acquired, leased or licensed by the Company from other
persons or entities in the ordinary course of business and consistent with the
Company's past practices), (ii) sold or otherwise disposed of, or leased or
licensed, any right or other asset to any other person or entity (other than
immaterial rights or other immaterial assets disposed of or leased or licensed
by the Company to other persons or entities in the ordinary course of business
and consistent with the Company's past practices), or (iii) waived or
relinquished any right (other than immaterial rights waived or relinquished by
the Company in the ordinary course of business and consistent with the Company's
past practices);
(j) the Company has not written off as uncollectible, or established
any extraordinary reserve with respect to, any account receivable or other
indebtedness;
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(k) the Company has not made any pledge of any of its assets or
otherwise permitted any of its assets to become subject to any lien, pledge,
charge or other encumbrance, except for pledges of immaterial assets made in the
ordinary course of business and consistent with the Company's past practices;
(l) the Company has not (i) lent money to any person or entity, or
(ii) incurred or guaranteed any indebtedness for borrowed money;
(m) the Company has not (i) established, adopted or amended any
Employee Benefit Plan, or (ii) made any profit-sharing or similar payment to any
of its directors, officers or employees;
(n) the Company has not changed any of its methods of accounting or
accounting practices in any respect;
(o) the Company has not made any tax election;
(p) the Company has not commenced or settled any Legal Proceeding;
(q) the Company has not entered into any material transaction or taken
any other material action outside the ordinary course of business or
inconsistent with its past practices; and
(r) the Company has not agreed or committed to take any of the actions
referred to in clauses "(c)" through "(q)" above.
2.6 TITLE TO ASSETS.
(a) Except as set forth in Part 2.6(a) of the Disclosure Schedule, the
Company owns, and has valid and marketable title to, all assets purported to be
owned by it, including: (i) all assets reflected on the Unaudited Interim
Balance Sheet; (ii) all assets referred to in Parts 2.7(b), 2.8 and 2.9 of the
Disclosure Schedule and all of the Company's rights under the Contracts
identified in Part 2.10(a) of the Disclosure Schedule; and (iii) all other
assets reflected in the Company's books and records as being owned by the
Company. Except as set forth in Part 2.6(a) of the Disclosure Schedule, all of
said assets are owned by the Company free and clear of any liens or other
encumbrances, except for any lien for current taxes not yet due and payable.
(b) Part 2.6(b) of the Disclosure Schedule identifies all assets that
are being leased or licensed to the Company, except for (i) any equipment being
leased to the Company under a standard operating lease requiring annual payments
by the Company of less than $ 10,000, and (ii) any software being licensed to
the Company under any third party software license generally available to the
public at a total cost of less than $1,000.
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2.7 BANK ACCOUNTS; RECEIVABLES; CUSTOMERS.
(a) Part 2.7(a) of the Disclosure Schedule provides an accurate and
complete list of each account maintained by or for the benefit of the Company at
any bank or other financial institution.
(b) Part 2.7(b) of the Disclosure Schedule provides an accurate and
complete breakdown and aging of all accounts receivable, notes receivable and
other receivables of the Company as of March 31, 1997. Except as set forth in
Part 2.7(b) of the Disclosure Schedule, all existing accounts receivable of the
Company (including those accounts receivable reflected on the Unaudited Interim
Balance Sheet that have not yet been collected and those accounts receivable
that have arisen since March 31, 1997 and have not yet been collected) (i)
represent valid obligations of customers of the Company arising from bona fide
transactions entered into in the ordinary course of business, and (ii) are
current and will be collected in full, without any counterclaim or set off, when
due, net of an allowance for doubtful accounts not to exceed $25,000 in the
aggregate.
(c) Part 2.7(c) of the Disclosure Schedule identifies each customer
that is obligated to make payments to the Company in an aggregate amount
exceeding $25,000 per year. Since March 31, 1997, the Company has not received
any notice or other communication indicating that any customer or other person
or entity identified in Part 2.7(c) of the Disclosure Schedule intends or
expects to cease dealing with the Company or to effect a material reduction in
the volume of business transacted by such Person with the Company below
historical levels.
(d) Part 2.7(d) of the Disclosure Schedule provides an accurate and
complete breakdown of all pending and unfilled orders received by the Company
for products, systems and services.
2.8 EQUIPMENT; LEASEHOLD.
(a) Part 2.8 of the Disclosure Schedule provides accurate and complete
list of all items of equipment, fixtures, leasehold improvements and other
tangible assets owned by or leased to the Company. The assets identified in
Part 2.8 of the Disclosure Schedule are adequate for the uses to which they are
being put, are in good condition and repair (ordinary wear and tear excepted)
and are adequate for the conduct of the Company's business in the manner in
which such business is currently being conducted.
(b) The Company does not own any real property or any interest in real
property, except for the leasehold created under the real property lease
identified in Part 2.10(a) of the Disclosure Schedule.
2.9 PROPRIETARY ASSETS.
(a) Part 2.9(a)(1) of the Disclosure Schedule sets forth, with respect
to each Company Proprietary Asset that has been registered, recorded or filed
with any Governmental
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Body or with respect to which an application has been filed with any
Governmental Body, (i) a brief description of such Company Proprietary Asset,
and (ii) the names of the jurisdictions covered by the applicable registration,
recordation, filing or application. Part 2.9(a)(2) of the Disclosure Schedule
identifies and provides a brief description of all other Company Proprietary
Assets owned by the Company. Part 2.9(a)(3) of the Disclosure Schedule
identifies and provides a brief description of each Company Proprietary Asset
that is owned by any other person or entity and that is licensed to or used by
the Company (except for any Company Proprietary Asset that is licensed to the
Company under any third party software license that (1) is generally available
to the public at a cost of less than $1,000, and (2) imposes no future monetary
obligation on the Company) and identifies the license agreement or other
agreement under which such Company Proprietary Asset is being licensed to or
used by the Company. Except as set forth in Part 2.9(a)(4) of the Disclosure
Schedule, the Company has valid and marketable title to all of the Proprietary
Assets identified in Parts 2.9(a)(1) and 2.9(a)(2) of the Disclosure Schedule,
free and clear of all liens and other encumbrances, and has a valid right to use
all Proprietary Assets identified in Part 2.9(a)(3) of the Disclosure Schedule.
Except as set forth in Part 2.9(a)(5) of the Disclosure Schedule, the Company is
not obligated to make any payment to any Person for the use of any Company
Proprietary Asset. Except as set forth in Part 2.9(a)(6) of the Disclosure
Schedule, the Company is free to use, modify, copy, distribute, sell, license or
otherwise exploit each of the Company Proprietary Assets on an exclusive basis
(other than Company Proprietary Assets consisting of software licensed to the
Company under third party licenses generally available to the public, with
respect to which the Company's rights are not exclusive).
(b) The Company has taken all reasonable measures and precautions
necessary to protect and maintain the confidentiality and secrecy of all Company
Proprietary Assets (except Company Proprietary Assets whose value would be
unimpaired by public disclosure) and otherwise to maintain and protect the value
of all Company Proprietary Assets. Except as set forth in Part 2.9(b) of the
Disclosure Schedule, the Company has not disclosed or delivered or permitted to
be disclosed or delivered to any person or entity, and no person or entity
(other than the Company) has access to or has any rights with respect to, the
source code, or any portion or aspect of the source code, to any Company
Proprietary Asset.
(c) None of the Company Proprietary Assets infringes or conflicts with
any Proprietary Asset owned or used by any other person or entity. Except as
set forth in Part 2.9(c) of the Disclosure Schedule, the Company is not
infringing, misappropriating or making any unlawful use of, and the Company has
not at any time infringed, misappropriated or made any unlawful use of, or
received any notice or other communication of any actual, alleged, possible or
potential infringement, misappropriation or unlawful use of, any Proprietary
Asset owned or used by any other Person. To the best of the knowledge of the
Company and the Designated Shareholders, except as set forth in Part 2.9(c) of
the Disclosure Schedule, no other person or entity is infringing,
misappropriating or making any unlawful use of, and no Proprietary Asset owned
or used by any other person or entity infringes or conflicts with, any Company
Proprietary Asset.
(d) Except as set forth in Part 2.9(d) of the Disclosure Schedule:
(i) each Company Proprietary Asset conforms with any specification,
documentation, performance standard, representation or statement made or
provided with respect thereto by or on behalf of the
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Company; and (ii) there has not been any claim by any customer or other Person
alleging that any Company Proprietary Asset does not conform with any
specification, documentation, performance standard, representation or statement
made or provided by or on behalf of the Company, and, to the best of the
knowledge of the Company and the Designated Shareholders, there is no basis for
any such claim. The Company is not required under generally accepted accounting
principles to establish reserves on its financial statements to cover any costs
associated with any obligations that the Company may have with respect to the
correction or repair of programming errors or other defects in the Company
Proprietary Assets.
(e) The Company Proprietary Assets constitute all the Proprietary
Assets necessary to enable the Company to conduct its business in the manner in
which such business has been conducted. Except as set forth in Part 2.9(e) of
the Disclosure Schedule, (i) the Company has not licensed any of the Company
Proprietary Assets to any Person on an exclusive basis, and (ii) the Company has
not entered into any covenant not to compete or Contract limiting its ability to
exploit fully any of its Proprietary Assets or to transact business in any
market or geographical area or with any Person.
(f) Except as set forth in Part 2.9(f) of the Disclosure Schedule, all
current and former employees of the Company, and all current and former
consultants and independent contractors to the Company, have executed and
delivered to the Company written agreements (containing no exceptions to or
exclusions from the scope of their coverage) that are substantially identical to
the form of Nondisclosure and Assignment of Inventions Agreement attached to the
Disclosure Schedule as Appendix 2.9(f).
(g) Except as set forth in Part 2.9(g) of the Disclosure Schedule, the
Company has not entered into and is not bound by any Contract under which any
Person has the right to distribute or license, on a commercial basis, any
Company Proprietary Asset including source code, object code, or any versions,
modifications or derivative works of source code or object code in any Company
Proprietary Asset.
2.10 CONTRACTS.
(a) Part 2.10(a) of the Disclosure Schedule identifies each Company
Contract that constitutes a "Material Contract." (For purposes of this
Agreement, each of the following shall be deemed to constitute a "Material
Contract":
(i) any Contract relating to the employment or engagement of, or
the performance of services by, any employee, consultant or independent
contractor;
(ii) any Contract relating to the acquisition, transfer, use,
development, sharing or license of any technology or any Proprietary Asset;
(iii) any Contract imposing any restriction on the Company's right
or ability (A) to compete with any other person or entity, (B) to acquire any
product or other asset or any services from any other person or entity, to sell
any product or other asset to or perform any
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services for any other person or entity or to transact business or deal in any
other manner with any other person or entity, or (C) to develop or distribute
any technology;
(iv) any Contract creating or involving any agency relationship,
distribution arrangement or franchise relationship;
(v) any Contract relating to the acquisition, issuance or
transfer of any securities;
(vi) any Contract creating or relating to the creation of any
lien, charge, pledge or other encumbrance with respect to any asset owned or
used by the Company;
(vii) any Contract involving or incorporating any guaranty, any
pledge, any performance or completion bond, any indemnity, any right of
contribution or any surety arrangement;
(viii) any Contract creating or relating to any partnership or
joint venture or any sharing of revenues, profits, losses, costs or liabilities;
(ix) any Contract relating to the purchase or sale of any product
or other asset by or to, or the performance of any services by or for, any
Related Party (as defined in Section 2.20);
(x) any Contract to which any Governmental Body is a party or
under which any Governmental Body has any rights or obligations (including any
subcontract or other Contract between the Company and any contractor or
subcontractor to any Governmental Body);
(xi) any Contract entered into outside the ordinary course of
business or inconsistent with the Company's past practices;
(xii) any Contract that has a term of more than 60 days and that
may not be terminated by the Company (without penalty) within 60 days after the
delivery of a termination notice by the Company; and
(xiii) any Contract (not otherwise identified in clauses "(i)"
through "(xii)" of this sentence) that contemplates or involves (A) the payment
or delivery of cash or other consideration in an amount or having a value in
excess of $10,000 in the aggregate, or (B) the performance of services having a
value in excess of $10,000 in the aggregate.)
(b) The Company has delivered to ADAC accurate and complete copies of
all Contracts identified in Part 2.10(a) of the Disclosure Schedule, including
all amendments thereto. Each Contract identified in Part 2.10(a) of the
Disclosure Schedule is valid and in full force and effect, and is enforceable by
the Company in accordance with its terms, subject to (i) laws of general
application relating to bankruptcy, insolvency and the relief of debtors, and
(ii) rules of law governing specific performance, injunctive relief and other
equitable remedies.
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(c) Except as set forth in Part 2.10(c) of the Disclosure Schedule:
(i) the Company has not violated or breached, or committed any
default under, any Company Contract, and, to the best of the knowledge of the
Company and the Designated Shareholders, no other Person has violated or
breached, or committed any default under, any Company Contract;
(ii) to the best of the knowledge of the Company and the
Designated Shareholders, no event has occurred, and no circumstance or condition
exists, that (with or without notice or lapse of time) will, or could reasonably
be expected to, (A) result in a violation or breach of any of the provisions of
any Company Contract, (B) give any person or entity the right to declare a
default or exercise a remedy under any Company Contract, (C) give any person or
entity the right to accelerate the maturity or performance of any Company
Contract, or (D) give any person or entity the right to cancel, terminate or
materially modify any Company Contract;
(iii) since December 31, 1994, the Company has not received any
notice or other communication regarding (i) any actual or possible violation or
breach of, or default under, any Company Contract, or (ii) any actual or
possible termination of any Company Contract; and
(iv) the Company has not waived any of its rights under any
Contract.
(d) Except as set forth in Part 2.10(d) of the Disclosure Schedule, no
person or entity is renegotiating, or has the right to renegotiate, any amount
paid or payable to the Company under any Company Contract or any other term or
provision of any Company Contract.
(e) The Contracts identified in Part 2.10(a) of the Disclosure
Schedule collectively constitute all of the Material Contracts necessary to
enable the Company to conduct its business in the manner in which its business
is currently being conducted.
(f) The Company has not made any unexpired offer or proposal (to any
customer, prospective customer or other Person), except for any offer or
proposal that, if accepted, would result in the Company being bound by a
Contract that: (i) is substantially identical to one of the standard forms
attached to the Disclosure Schedule as Appendices 2.10(i), through 2.10(x) and
(ii) does not contain any material term or provision (relating to the payment of
license fees or other fees or relating to any other matter) that is less
favorable to the Company than the terms and provisions set forth in Part 2.10(f)
of the Disclosure Schedule.
2.11 COMPLIANCE WITH LEGAL REQUIREMENTS. The Company is, and has at all
times since December 31, 1994 been, in compliance with all applicable Legal
Requirements. Except as set forth in Part 2.11 of the Disclosure Schedule,
since December 31, 1994, the Company has not received any notice or other
communication from any Governmental Body regarding any actual or possible
violation of, or failure to comply with, any Legal Requirement.
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2.12 GOVERNMENTAL AUTHORIZATIONS. Part 2.12 of the Disclosure Schedule
identifies each material Governmental Authorization held by the Company, and the
Company has delivered to ADAC accurate and complete copies of all Governmental
Authorizations identified in Part 2.12 of the Disclosure Schedule. The
Governmental Authorizations identified in Part 2.12 of the Disclosure Schedule
are valid and in full force and effect, and collectively constitute all
Governmental Authorizations necessary to enable the Company to conduct its
business in the manner in which its business is currently being conducted. The
Company is, and at all times since December 31, 1994 has been, in compliance
with the terms and requirements of the respective Governmental Authorizations
identified in Part 2.12 of the Disclosure Schedule. Since December 31, 1994,
the Company has not received any notice or other communication from any
Governmental Body regarding (a) any actual or possible violation of or failure
to comply with any term or requirement of any Governmental Authorization, or (b)
any actual or possible revocation, withdrawal, suspension, cancellation,
termination or modification of any Governmental Authorization.
2.13 TAX MATTERS.
(a) Except as set forth in Part 2.13 of the Disclosure Schedule, all
Tax Returns required to be filed by or on behalf of the Company with any
Governmental Body on or before the Closing Date (the "Company Returns") (i) have
been or will be filed when due, and (ii) have been, or will be when filed,
prepared accurately and completely in compliance with all applicable Legal
Requirements. All amounts shown on the Company Returns to be due on or before
the Closing Date have been or will be paid on or before the Closing Date. The
Company has delivered to ADAC accurate and complete copies of all Company
Returns filed since its date of incorporation.
(b) The Unaudited Financial Statements fully accrue all actual and
contingent liabilities for Taxes with respect to all periods through the dates
thereof in accordance with generally accepted accounting principles. The
Company will establish, in the ordinary course of business and consistent with
its past practices, reserves adequate for the payment of all Taxes for the
period from March 31, 1997 through the Closing Date, and the Company will
disclose the dollar amount of such reserves to ADAC on or prior to the Closing
Date.
(c) No Company Return relating to income Taxes has ever been examined
or audited by any Governmental Body. Except as set forth in Part 2.13(c) of the
Disclosure Schedule, there has been no examination or audit of any Company
Return, and no such examination or audit has been proposed or scheduled by any
Governmental Body. The Company has delivered to ADAC accurate and complete
copies of all audit reports and similar documents (to which the Company has
access) relating to the Company Returns. Except as set forth in Part 2.13(c) of
the Disclosure Schedule, no extension or waiver of the limitation period
applicable to any of the Company Returns has been granted (by the Company or any
other Person), and no such extension or waiver has been requested from the
Company.
(d) Except as set forth in Part 2.13(d) of the Disclosure Schedule, no
claim or Legal Proceeding is pending or has been threatened against or with
respect to the Company in respect of any Tax. There are no unsatisfied
liabilities for Taxes (including liabilities for interest,
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additions to tax and penalties thereon and related expenses) with respect to any
notice of deficiency or similar document received by the Company. There are no
liens for Taxes upon any of the assets of the Company, except liens for current
Taxes not yet due and payable. The Company has not entered into or become bound
by any agreement or consent pursuant to Section 341(f) of the Code. The Company
has not been, and the Company will not be, required to include any adjustment in
taxable income for any tax period (or portion thereof) pursuant to Section 481
or 263A of the Code or any comparable provision under state or foreign Tax laws
as a result of transactions or events occurring, or accounting methods employed,
prior to the Closing.
(e) There is no agreement, plan, arrangement or other Contract
covering any employee or independent contractor or former employee or
independent contractor of the Company that, considered individually or
considered collectively with any other such Contracts, will, or could reasonably
be expected to, give rise directly or indirectly to the payment of any amount
that would not be deductible pursuant to Section 280G or Section 162 of the
Code. The Company is not, and has never been, a party to or bound by any tax
indemnity agreement, tax sharing agreement, tax allocation agreement or similar
Contract.
(f) Except as set forth in Part 2.14(f) of the Disclosure Schedule,
since December 31, 1991, (i) no Governmental Body has asserted any claim or
otherwise made any allegation that the Company has failed or may have failed to
pay any sales tax, use tax or similar Tax, and (ii) the Company has not engaged
in any discussions or negotiations with any Governmental Body, and has not sent
any written communication to or received any written communication from any
Governmental Body, in connection with any possible failure on the part of the
Company to pay any sales tax, use tax or similar Tax.
2.14 EMPLOYEE AND LABOR MATTERS; BENEFIT PLANS.
(a) Part 2.14(a) of the Disclosure Schedule contains a list of all
salaried employees of the Company as of the date of this Agreement, and
correctly reflects their salaries, any other compensation payable to them
(including compensation payable pursuant to bonus, deferred compensation or
commission arrangements), their dates of employment and their positions. The
Company is not a party to any collective bargaining contract or other Contract
with a labor union involving any of its employees.
(b) There is no employee of the Company who is not fully available to
perform work because of disability or other leave.
(c) Part 2.14(c) of the Disclosure Schedule identifies each salary,
bonus, deferred compensation, incentive compensation, stock purchase, stock
option, severance pay, termination pay, hospitalization, medical, insurance,
supplemental unemployment benefits, profit-sharing, pension or retirement plan,
program or agreement (individually referred to as a "Plan" and collectively
referred to as the "Plans") sponsored, maintained, contributed to or required to
be contributed to by the Company for the benefit of any current or former
employee of the Company.
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(d) Except as set forth in Part 2.13(d) of the Disclosure Schedule,
the Company does not maintain, sponsor or contribute to, and the Company has not
at any time in the past maintained, sponsored or contributed to, any employee
pension benefit plan (as defined in Section 3(2) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), whether or not excluded from
coverage under specific Titles or Merger Subtitles of ERISA) for the benefit of
employees or former employees of the Company (a "Pension Plan").
(e) The Company does not maintain, sponsor or contribute to any
employee welfare benefit plan (as defined in Section 3(1) of ERISA, whether or
not excluded from coverage under specific Titles or Merger Subtitles of ERISA)
for the benefit of employees or former employees of the Company (a "Welfare
Plan") except for those Welfare Plans described in Part 2.15(e) of the
Disclosure Schedule, none of which is a multiemployer plan (within the meaning
of Section 3(37) of ERISA).
(f) With respect to each Plan, the Company has delivered to ADAC:
(i) an accurate and complete copy of such Plan (including all
amendments thereto);
(ii) an accurate and complete copy of the annual report (if
required under ERISA) with respect to such Plan for each of 1994 and 1995;
(iii) an accurate and complete copy of (A) the most recent summary
plan description, together with each Summary of Material Modifications (if
required under ERISA) with respect to such Plan, and (B) each material employee
communication relating to such Plan;
(iv) if such Plan is funded through a trust or any third party
funding vehicle, an accurate and complete copy of the trust or other funding
agreement (including all amendments thereto) and accurate and complete copies of
the most recent financial statements thereof;
(v) accurate and complete copies of all Contracts relating to such
Plan, including service provider agreements, insurance contracts, minimum
premium contracts, stop-loss agreements, investment management agreements,
subscription and participation agreements and recordkeeping agreements; and
(vi) an accurate and complete copy of the most recent
determination letter received from the Internal Revenue Service with respect to
such Plan (if such Plan is intended to be qualified under Section 401(a) of the
Code).
(g) The Company is not required to be, and the Company has never been
required to be, treated as a single employer with any other Person under Section
4001(b)(1) of ERISA or Section 414(b), (c), (m) or (o) of the Code. The Company
has never been a member of an "affiliated service group" within the meaning of
Section 414(m) of the Code. The Company has never made a complete or partial
withdrawal from a "multiemployer plan" (as defined in Section 3(37) of ERISA)
resulting in "withdrawal liability" (as defined in
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Section 4201 of ERISA), without regard to subsequent reduction or waiver of such
liability under either Section 4207 or 4208 of ERISA.
(h) The Company does not have any plan or commitment to create any
additional Welfare Plan or any Pension Plan, or to modify or change any existing
Welfare Plan or Pension Plan (other than to comply with applicable law).
(i) No Welfare Plan provides death, medical or health benefits
(whether or not insured) with respect to any current or former employee of the
Company after any such employee's termination of service (other than (i) benefit
coverage mandated by applicable law, including coverage provided pursuant to
Section 4980B of the Code, (ii) deferred compensation benefits accrued as
liabilities on the Unaudited Interim Balance Sheet, and (iii) benefits the full
cost of which are borne by current or former employees of the Company (or their
beneficiaries)).
(j) With respect to each of the Welfare Plans constituting a group
health plan within the meaning of Section 4980B(g)(2) of the Code, the
provisions of Section 4980B of the Code ("COBRA") have been complied with in all
material respects.
(k) Each of the Plans has been operated and administered in all
material respects in accordance with applicable Legal Requirements, including
ERISA and the Code.
(l) Each of the Plans intended to be qualified under Section 401(a) of
the Code has received a favorable determination from the Internal Revenue
Service, and neither the Company nor any of the Designated Shareholders is aware
of any reason why any such determination letter should be revoked.
(m) Except as set forth in Part 2.14(m) of the Disclosure Schedule,
neither the execution, delivery or performance of this Agreement, nor the
consummation of the Merger or any of the other transactions contemplated by this
Agreement, will result in any bonus payment, golden parachute payment, severance
payment or other payment to any current or former employee or director of the
Company (whether or not under any Plan), or materially increase the benefits
payable under any Plan, or result in any acceleration of the time of payment or
vesting of any such benefits.
(n) The Company is in compliance with all applicable Legal
Requirements and Contracts relating to employment, employment practices,
employee compensation, wages, bonuses and terms and conditions of employment.
The Company has paid all sums due and owing all employees and independent
contractors of the Company for all periods ending on or prior to the Closing
Date or has made an appropriate reserve therefor in the Unaudited Financial
Statements.
(o) The Company has good labor relations, and, except as set forth in
Part 2.14(o) of the Disclosure Schedule, neither the Company nor any of the
Designated Shareholders has any knowledge of any facts indicating that (i) the
consummation of the Merger or any of the other transactions contemplated by this
Agreement will have a material adverse effect on
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the Company's labor relations, or (ii) any of the Company's employees intends to
terminate his or her employment with the Company.
2.15 LITIGATION AND CLAIMS.
(a) There is no examination, review, investigation, arbitration, suit,
litigation or other proceeding (a "Legal Proceeding") pending or threatened by
or before any court or Governmental Body 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 Legal Proceeding nor, to the Company's knowledge, is there
any basis for any such claim or Legal Proceeding.
(b) The Company is not a party to any decree, order or arbitration
award (or agreement entered into in any Legal Proceeding) with respect to its
properties, assets, personnel or business activities.
(c) There are no Legal Proceedings 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.
2.16 ENVIRONMENTAL MATTERS. The Company is and has at all times been in
compliance with all applicable Environmental Laws. The Company possesses all
permits and other Governmental Authorizations required under applicable
Environmental Laws, and the Company is and has at all times been in compliance
with the terms and requirements of all such Governmental Authorizations. The
Company has not received any notice or other communication (whether from a
Governmental Body, citizens group, employee or otherwise) that alleges that the
Company is not in compliance with any Environmental Law, and, to the best of the
knowledge of the Company and the Designated Shareholders, there are no
circumstances that could reasonably be expected to prevent or interfere with the
Company's compliance with any Environmental Law in the future. To the best of
the knowledge of the Company and the Designated Shareholders, no current or
prior owner of any property leased or controlled by the Company has received any
notice or other communication (whether from a Governmental Body, citizens group,
employee or otherwise) that alleges that such current or prior owner or the
Company is not or was not in compliance with any Environmental Law. All
Governmental Authorizations currently held by the Company pursuant to
Environmental Laws are identified in Part 2.15 of the Disclosure Schedule. (For
purposes of this Section 2.15: (i) "Environmental Law" means any federal, state,
local or foreign Legal Requirement relating to pollution or protection of human
health or the environment (including ambient air, surface water, ground water,
land surface or subsurface strata), including any law or regulation 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; and (ii) "Materials of Environmental
Concern" include chemicals, pollutants, contaminants, wastes, toxic substances,
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petroleum and petroleum products and any other substance that is now or in the
future regulated by any Environmental Law or that is otherwise a danger to
health, reproduction or the environment.)
2.17 SALE OF PRODUCTS; PERFORMANCE OF SERVICES.
(a) To the Company's and the Designated Shareholders' knowledge, the
Company will not incur or otherwise become subject to any liability arising from
(i) any product, system, program, Proprietary Asset or other asset designed,
developed, manufactured, assembled, sold, supplied, installed, repaired,
licensed or made available by the Company on or prior to the Closing Date, or
(ii) any consulting services, installation services, programming services,
repair services, maintenance services, training services, support services or
other services performed by the Company on or prior to the Closing Date.
(b) Except as set forth in Part 2.17(b) of the Disclosure Schedule, no
customer or other Person has, at any time since December 31, 1994, asserted or
threatened to assert any claim against the Company (other than claims that have
been resolved satisfactorily at no material cost to the Company) under or based
upon (i) any warranty provided by or on behalf of the Company, or (ii) any
services performed by the Company.
2.18 INSURANCE. Part 2.18 of the Disclosure Schedule provides accurate and
complete list of each insurance policy maintained by, at the expense of or for
the benefit of the Company and with respect to any claims made thereunder. The
Company has delivered to ADAC accurate and complete copies of the insurance
policies identified in Part 2.18 of the Disclosure Schedule. Each of the
insurance policies identified in Part 2.18 of the Disclosure Schedule is in full
force and effect. Since December 31, 1994, the Company has not received any
notice or other communication regarding any actual or possible (a) cancellation
or invalidation of any insurance policy, (b) refusal of any coverage or
rejection of any claim under any insurance policy, or (c) material adjustment in
the amount of the premiums payable with respect to any insurance policy.
2.19 FULL DISCLOSURE. This Agreement, the 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 or omit to state a
material fact necessary in order to make the statements contained herein or
therein not misleading. The information supplied by the Company to its
shareholders pursuant to Section 4.7 hereof shall not contain any statement that
is inaccurate or misleading with respect to any material fact or omit to state
any material fact necessary in order to make such information not misleading.
2.20 RELATED PARTY TRANSACTIONS. Except as set forth in Part 2.20 of the
Disclosure Schedule: (a) no Related Party has, and no Related Party has at any
time since December 31, 1994 had, any direct or indirect interest in any asset
used in or otherwise relating to the business of the Company; (b) no Related
Party is, or has at any time since December 31, 1994 been, indebted to the
Company; (c) since December 31, 1994, no Related Party has entered into, or has
had any direct or indirect financial interest in, any Material Contract,
transaction or business dealing involving the Company; (d) no Related Party is
competing, or has at any time since December 31, 1994
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competed, directly or indirectly, with the Company; and (e) no Related Party has
any claim or right against the Company (other than rights to receive
compensation for services performed as an employee of the Company). (For
purposes of this Section 2.20, each of the following shall be deemed to be a
"Related Party": (i) each of the Designated Shareholders; (ii) each individual
who is, or who has at any time since December 31, 1994 been, an officer or
director of the Company; (iii) each individual who is, or who has at any time
since December 31, 1994 been, a member of the immediate family of any of the
individuals referred to in clauses "(i)" and "(ii)" above; and (iv) any trust or
other Entity (other than the Company) in which any one of the individuals
referred to in clauses "(i)", "(ii)" and "(iii)" above holds (or in which more
than one of such individuals collectively hold), beneficially or otherwise, a
voting, proprietary or equity interest.)
2.21 FINANCIAL ADVISOR. The Company and the Designated Shareholders
represent and warrant 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 contemplated hereby based upon
arrangements made by or on behalf of the Company or any of its shareholders.
2.22 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. No other corporate
proceedings on the part of the Company is necessary to authorize the Company's
execution, delivery and performance its obligations under the Transactional
Agreements. 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, 5.12, 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).
2.23 GOVERNMENTAL CONSENTS; NO CONFLICTS. Except as set forth in the
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 Governmental Body 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 Articles 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 Contract, (c) result in
the creation of any liens, charges or encumbrances on any of the assets of the
Company or (d) conflict with or
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violate any law, statute, rule, regulation, judgment, order, writ, injunction,
decree or arbitration award applicable to the Company or any of its assets.
3
REPRESENTATIONS AND WARRANTIES OF ADAC AND SUB
ADAC and Sub represent and warrant to the Company and the Designated
Shareholders as follows:
3.1 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, 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.
3.2 AUTHORITY; BINDING NATURE OF AGREEMENT. Each of ADAC and Sub has the
corporate power and authority to perform its obligations under this Agreement.
This Agreement has been duly and validly authorized by the Boards of Directors
of ADAC and Sub. No vote of ADAC's stockholders is needed to approve the
Merger. This Agreement constitutes the legal, valid and binding obligation of
each of ADAC and Sub, enforceable against it in accordance with its terms.
3.3 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.
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3.4 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.
3.5 ABSENCE OF CERTAIN CHANGES. Since March 30, 1997, no event has
occurred that has had, will have, or could reasonably be expected to have, a
material adverse effect on ADAC and its subsidiaries taken as a whole other than
as a result of general economic or industry conditions or the performance by
ADAC of its obligations or the exercise by the Company of its rights under this
Agreement.
4
CONDUCT AND TRANSACTIONS PRIOR TO EFFECTIVE TIME;
ADDITIONAL AGREEMENTS
4.1 INFORMATION AND ACCESS.
(a) During the period from the date of this Agreement through the
Effective Time (the "Pre-Closing Period"):
(i) the Company shall afford, and shall cause its outside
accountant, counsel and other advisors and representatives (collectively,
"Representatives") of the Company 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:
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(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 statements of
operations;
(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.
4.2 CONDUCT OF BUSINESS OF THE COMPANY.
(a) Except as provided in Section 4.2(b), during the Pre-Closing
Period, (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 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 Pre-Closing Period,
(i) the Company shall keep in full force all insurance policies
identified in Part 2.17 of the Disclosure Schedule;
(ii) the Company shall (to the extent requested by ADAC) cause its
officers to report regularly (but in no event less frequently than weekly) to
ADAC concerning the status of the Company's business;
(iii) the Company shall not declare, accrue, set aside or pay any
dividend or make any other distribution in respect of any shares of capital
stock, and shall not repurchase, redeem or otherwise reacquire any shares of
capital stock or other securities;
(iv) the Company shall not sell, issue or authorize the issuance
of (A) any capital stock or other security, (B) any option, call, warrant or
right to acquire, or relating to, any capital stock or other security, or (C)
any instrument convertible into or exchangeable for any capital stock or other
security, except pursuant to the conversion of the Preferred Stock into shares
of Company Common Stock;
(v) neither the Company nor any of the Designated Shareholders
shall amend or permit the adoption of any amendment to the Company's articles of
incorporation or
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bylaws, or effect or permit the Company to become a party to any Acquisition
Transaction, recapitalization, reclassification of shares, stock split, reverse
stock split or similar transaction;
(vi) the Company shall not form any subsidiary or acquire any
equity interest or other interest in any other entity;
(vii) except pursuant to Section 5.9, the Company shall not make
any capital expenditure, except for capital expenditures that, when added to all
other capital expenditures made on behalf of the Company during the Pre-Closing
Period, do not exceed $10,000 in the aggregate;
(viii) the Company shall not (i) enter into or become bound by, or
permit any of the assets owned or used by it to become bound by, any Material
Contract or (ii) amend or prematurely terminate, or waive any material right or
remedy under, any Material Contract;
(ix) the Company shall not (A) acquire, enter into or commence any
lease or license for any right or other asset from any other Person, (B) sell or
otherwise dispose of, or enter into or commence any lease or license, for any
right or other asset to any other Person, or (C) waive or relinquish any right,
except for immaterial assets acquired, leased, licensed or disposed of by the
Company pursuant to Contracts that are not Material Contracts;
(x) the Company shall not (A) lend money to any person or entity,
or (B) incur or guarantee any indebtedness, except that the Company may borrow
up to $466,000 under its line of credit, $110,000 of which has been borrowed to
date and the remaining $356,000 of which may be borrowed as necessary to pay the
legal and accounting fees described in Section 7.3, pay the bonus to Fred
Costello under Section 4.13, and to consummate the transaction described in
Section 5.9 below;
(xi) the Company shall not (A) establish, adopt or amend any
Employee Benefit Plan, (B) except as set forth in Section 4.13, pay any bonus or
make any profit-sharing or similar payment to, or, except as set forth in Part
2.14 of the Disclosure Schedule, increase the amount of the wages, salary,
commissions, fringe benefits or other compensation or remuneration payable to,
any of its directors, officers or employees, or (C) hire any new employees.
(xii) the Company shall not change any of its methods of
accounting or accounting practices in any respect (except as necessary to
reflect the matter disclosed in Part 2.4 of the Disclosure Schedule);
(xiii) the Company shall not make any Tax election;
(xiv) the Company shall not commence or settle any Legal
Proceeding;
(xv) the Company shall not enter into any material transaction or
take any other material action outside the ordinary course of business or
inconsistent with its past practices; and
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(xvi) the Company shall not agree or commit to take any of the
actions described in clauses "(v)" through "(xv)" of this Section 4.2.
4.3 NOTIFICATION; UPDATES TO DISCLOSURE SCHEDULE.
(a) During the Pre-Closing Period, the Company shall promptly notify
ADAC in writing of:
(i) the discovery by the Company of any event, condition, fact or
circumstance that occurred or existed on or prior to the date of this Agreement
and that caused or constitutes an inaccuracy in or breach of any representation
or warranty made by the Company or any of the Designated Shareholders in this
Agreement;
(ii) any event, condition, fact or circumstance that occurs,
arises or exists after the date of this Agreement and that would cause or
constitute an inaccuracy in or breach of any representation or warranty made by
the Company or any of the Designated Shareholders in this Agreement if (A) such
representation or warranty had been made as of the time of the occurrence,
existence or discovery of such event, condition, fact or circumstance, or (B)
such event, condition, fact or circumstance had occurred, arisen or existed on
or prior to the date of this Agreement;
(iii) any breach of any covenant or obligation of the Company or
any of the Designated Shareholders; and
(iv) any event, condition, fact or circumstance that would make
the timely satisfaction of any of the conditions set forth in Section 6 or
Section 7 impossible or unlikely.
(b) If any event, condition, fact or circumstance that is required to
be disclosed pursuant to Section 4.3(a) requires any change in the Disclosure
Schedule, or if any such event, condition, fact or circumstance would require
such a change assuming the Disclosure Schedule were dated as of the date of the
occurrence, existence or discovery of such event, condition, fact or
circumstance, then the Company shall promptly deliver to ADAC an update to the
Disclosure Schedule specifying such change. No such update shall be deemed to
supplement or amend the Disclosure Schedule for the purpose of (i) determining
the accuracy of any of the representations and warranties made by the Company or
any of the Designated Shareholders in this Agreement, or (ii) determining
whether any of the conditions set forth in Section 6 has been satisfied.
4.4 NEGOTIATION WITH OTHERS.
(a) During the Pre-Closing Period, 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 Transaction, (ii) furnish information regarding the Company
or any of its subsidiaries in connection with an Acquisition Proposal or
potential Acquisition Transaction, (iii) negotiate or engage in discussions with
any third
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party with respect to any Acquisition Transaction, (iv) approve, endorse or
recommend any Acquisition Transaction or (v) enter into any letter of intent,
contract or other instrument related directly or indirectly to any Acquisition
Transaction or contracts with advisors or consultants. "Acquisition Transaction"
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.
(b) During the Pre-Closing Period, each Shareholder shall not,
directly or indirectly, (i) solicit, initiate or knowingly encourage or induce
the making of any Acquisition Transaction, (ii) furnish information regarding
the Company or any of its subsidiaries in connection with an Acquisition
Transaction or potential Acquisition Transaction, (iii) negotiate or engage in
discussions with any third party with respect to any Acquisition Transaction,
(iv) approve, endorse or recommend any Acquisition Transaction or (v) enter
into any letter of intent, contract or other instrument related directly or
indirectly to any Acquisition Transaction or contracts with advisors or
consultants.
(c) 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 Transaction.
4.5 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 Body with
respect to the Merger and the other Transactions and to submit promptly any
additional information requested by any such Governmental Body.
(b) The Company and ADAC shall (i) give each other prompt notice of
the commencement of any Legal Proceeding by or before any court or Governmental
Body with respect to the Merger or any of the other Transactions, (ii) keep each
other informed as to the status of any such Legal Proceeding and (iii) except as
may be prohibited by any Governmental Body 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 Legal Proceeding and to have access to and be consulted in
connection with any document filed or provided to any Governmental Body in
connection with any such Legal Proceeding.
4.6 ADDITIONAL AGREEMENTS. The Company and ADAC 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
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shall use all commercially reasonable efforts to (i) obtain the consent and
approval of each Governmental Body, 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 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.
4.7 COMPANY SHAREHOLDER APPROVAL. The Company shall, in accordance with
its articles of incorporation and bylaws and the applicable requirements of the
FBCA, seek the approval of its shareholders as promptly as practicable to the
Merger, the Plan of Merger and related articles of merger, and this Agreement.
The Company shall, a reasonable period of time prior to such vote, cause a copy
of this Agreement and the ADAC SEC Documents to be delivered to each shareholder
of the Company who is entitled to vote on such matters. As promptly as
practicable after the delivery thereof to all shareholders entitled to vote, the
Company shall use its best efforts to cause each of such shareholders to execute
and deliver to ADAC a Shareholder Investment Certification in the form of
Exhibit B. Each Designated Shareholder shall cause all shares of the capital
- ---------
stock of the Company that are owned, beneficially or of record, by such
Designated Shareholder on the record date for the Company Shareholders' Meeting
to be voted in favor of the Merger and this Agreement.
4.8 PUBLIC ANNOUNCEMENTS.
(a) During the Pre-Closing Period, neither the Company nor any of the
Designated Shareholders shall (and the Company shall not permit any of its
representatives to) issue any press release or make any public statement
regarding this Agreement or the Merger, or regarding any of the other
transactions contemplated by this Agreement, without ADAC's prior written
consent.
(b) During the Pre-Closing Period, ADAC will consult with the Company
prior to issuing any press release or making any public statement regarding the
Merger (unless ADAC reasonably determines that ADAC is required, by virtue of
any applicable Legal Requirement, to issue any such press release or make any
such public statement under circumstances that make it infeasible or impractical
to consult with the Company).
4.9 EMPLOYMENT AGREEMENTS. Each of Messrs. Patten, Hill, Lobel, Nikoloff
and Joicy shall execute and deliver to ADAC, on or prior to the Closing Date,
Employment Agreements in the form attached hereto as Exhibit C.
---------
4.10 CONTINUITY OF INTEREST CERTIFICATES. Each Designated Shareholder
shall execute and deliver to ADAC, and the Company shall use its best efforts to
cause each other shareholder that holds 1% or more of Company Common Stock to
execute and deliver to ADAC, as promptly as possible after the execution of this
Agreement, a Continuity of Interest Certificate in the form attached hereto as
Exhibit D.
- ---------
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4.11 TAX CERTIFICATES. The Company shall deliver to ADAC's counsel a tax
certificate substantially in the form attached hereto as Exhibit E (the "Company
---------
Tax Certificate"). ADAC shall deliver to the Company's counsel a tax
certificate substantially in the form attached hereto as Exhibit F (the "ADAC
----------
Tax Certificate").
4.12 RELEASE. At the Closing, each of the Designated Shareholders shall
execute and deliver to the Company and ADAC a Release in the form of Exhibit G.
----------
4.13 TERMINATION OF EMPLOYEE PLANS ETC. At the Closing, the Company shall
terminate all bonus plans and other benefit plans under which any of its
employees or former employees may have any rights, and shall ensure that no
employee or former employee of the Company has any rights thereunder and that
any liabilities of the Company thereunder (including any such liabilities
relating to services performed prior to the Closing) are fully extinguished at
no cost to the Company, except for the bonus to Mr Fred Costello, the amount of
which is set forth in the Disclosure Schedule. The employment of Mr. Fred
Costello shall terminate upon consummation of the closing, and the Company shall
have no further liability to Costello except for the payment of such amount.
4.14 REGISTRATION STATEMENT. As soon as practicable following the Closing
Date, ADAC shall prepare and cause to be filed with the SEC a Registration
Statement on Form S-3 to register for public sale the ADAC Common Stock to be
issued to the shareholders of the Company in connection with the Merger. ADAC
shall use its best efforts to cause such registration statement to become
effective as soon as practicable after the filing thereof.
4.15 TAX RETURNS. The Company shall timely file all federal and state
income tax returns for taxable periods ending on or prior to the Effective Time
and has paid or will pay all Taxes attributable to such periods. Such returns
will be prepared and filed in accordance with applicable law and in a manner
consistent with past practices and shall be subject to review and approval by
ADAC. After the Effective Time, ADAC and Shareholder will make available to the
other, as reasonably requested, all information, records or documents relating
to liability for Taxes for all periods prior to or including the Effective Time
and will preserve such information, records or documents until the expiration of
any applicable statutes of limitations.
5
CONDITIONS PRECEDENT TO OBLIGATIONS OF ADAC AND SUB
The obligations of ADAC and Sub to effect the Merger and to otherwise
consummate the transactions contemplated hereby are subject to the fulfillment
at or prior to the Closing of each of the following conditions:
5.1 REPRESENTATIONS AND WARRANTIES ACCURATE. The representations and
warranties of the Company and the Designated Shareholders contained in this
Agreement and in each of the other instruments and documents delivered to ADAC
in connection with the transactions contemplated
29
<PAGE>
hereby shall have been accurate in all material respects as of the date of this
Agreement. The representations and warranties of the Company and the Designated
Shareholders contained in this Agreement and in each of the other instruments
and documents delivered to ADAC in connection with the transactions contemplated
hereby shall be accurate in all material respects as of the Closing Date as if
made on and as of the Closing Date.
5.2 COMPLIANCE WITH COVENANTS. The Company and the Designated
Shareholders shall have complied with and performed in all material respects
each covenant contained in this Agreement that is required to be performed by
them on or prior to the Closing Date.
5.3 SHAREHOLDER APPROVAL. The terms of the Merger, the Plan of Merger and
related articles of merger and this Agreement shall have been duly approved by
the affirmative vote of at least 90% of the shares of Company Common Stock
entitled to vote with respect thereto.
5.4 CONSENTS. All consents required to be obtained in connection with the
Merger and the other transactions contemplated by this Agreement (including the
consents identified in Part 2.22 of the Disclosure Schedule) shall have been
obtained and shall be in full force and effect.
5.5 AGREEMENTS AND DOCUMENTS. ADAC and Sub shall have received the
following agreements and documents, each of which shall be in full force and
effect:
(a) Shareholder Investment Certifications in the form of Exhibit B,
---------
each dated as of the date of the Company Shareholders' Meeting or as of an
earlier date, executed by each of the Company's shareholders;
(b) Employment Agreements in the form of Exhibit C, executed by the
----------
persons identified herein;
(c) Continuity of Interest Certificates in the form of Exhibit D,
---------
executed by the holders of 1% or more of the Company Common Stock;
(d) a Release in the form of Exhibit G, executed by the Designated
---------
Shareholders;
(e) a legal opinion of Smith, Mackinnon, Greeley, Bowdoin & Edwards,
P.A., dated as of the Closing Date, in the form of Exhibit H;
---------
(f) a certificate executed by each of the Company and the Designated
Shareholders and containing the representation and warranty of each that each of
the representations and warranties set forth in Section 2 is accurate in all
material respects as of the Closing Date as if made on the Closing Date and that
the conditions set forth in Sections 5.1, 5.2, 5.3, 5.4 and 5.7 have been duly
satisfied (the " Closing Certificate");
(g) the written resignations of all directors and officers of the
Company, effective as of the Effective Time;
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(h) endorsed stock powers in blank from each of the Designated
Shareholders of the Company as required by Section 8.2; and
(i) UCC-3 termination statements and other appropriate documents
reflecting the release of all liens against the Proprietary Assets (as defined
in Section 5.9 below), including the registration of lien filed in the U.S.
Copyright Office, and any against any other assets of the Company, including the
liens created thereon by those certain Security Agreements dated June 6, 1994
and September 12, 1994 and the Collateral Assignment of License Agreement.
5.6 EMPLOYEES. None of the Designated Shareholders that is an employee
shall have ceased to be employed by, or expressed an intention to terminate his
or her employment with, the Company.
5.7 NO MATERIAL ADVERSE CHANGE. There shall have been no material adverse
change in the Company's business, condition, assets, liabilities, operations,
financial performance or prospects since the date of this Agreement.
5.8 TERMINATION OF EMPLOYEE PLANS ETC. The Company shall have provided
ADAC with evidence, satisfactory to ADAC, as to the termination of the plans and
taking of the other actions referred to in Section 4.13.
5.9 ACQUISITION OF INTELLECTUAL PROPERTY RIGHTS ETC. The Company shall
have acquired all intellectual property rights owned by Archival Technologies,
Inc. ("ATI"), including those rights subject to that certain license agreement
between ATI and the Company dated September 12, 1994 but excluding the names
"Archival Technologies, Inc." and "ATI" (collectively, the "ATI Assets"), the
foregoing license agreement and related collateral assignment shall have been
terminated, all commitments made by the Company to ATI in the September 8, 1994
Offer Letter and any related documents shall have terminated, and ATI, and the
employees and shareholders of ATI, shall have released the Company and the
assets of the Company from and against any and all claims, liens and security
interests they might have against any of them or any of their respective assets.
5.10 EXEMPT TRANSACTION. The issuance of the ADAC stock to the
shareholders of the Company in the Merger shall be exempt from the registration
requirements of the Securities Act of 1933, as amended.
5.11 NO RESTRAINTS. No temporary restraining order, preliminary or
permanent injunction or other order preventing the consummation of the Merger
shall have been issued by any court of competent jurisdiction and remain in
effect, and there shall not be any Legal Requirement enacted or deemed
applicable to the Merger that makes consummation of the Merger illegal.
5.12 NO LEGAL PROCEEDINGS. No person shall have commenced or threatened to
commence any Legal Proceeding challenging or seeking the recovery of a material
amount of damages in connection with the Merger or that may have the effect of
preventing, delaying, making
31
<PAGE>
illegal or otherwise interfering with the Merger or any of the other
transactions contemplated by this Agreement.
5.13 CONFIDENTIALITY AND NONDISCLOSURE AGREEMENTS. Except for the
Designated Shareholders executing Employment Agreements, each employee of the
Company, and each consultant to the Company, shall have executed and delivered
to the Company a Nondisclosure and Inventions Agreement in the form previously
supplied to the Company.
5.14 CONVERSION OF PREFERRED STOCK. All outstanding Preferred Stock shall
have been converted into shares of Company Common Stock.
5.15 DISSENTERS. No holder of Company Common Stock shall have exercised
dissenters' rights with respect to the transactions contemplated hereby.
6
CONDITIONS PRECEDENT TO THE COMPANY'S AND THE DESIGNATED SHAREHOLDERS'
OBLIGATIONS
The obligations of the Company and the Designated 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:
6.1 REPRESENTATIONS AND WARRANTIES ACCURATE. The representations and
warranties of ADAC and Sub contained in this Agreement and in each of the other
instruments and documents delivered to the Company in connection with the
transactions contemplated hereby shall have been accurate in all material
respects as of the date of this Agreement. The representations and warranties
of ADAC and Sub contained in this Agreement and in each of the other instruments
and documents delivered to the Company in connection with the transactions
contemplated hereby shall be accurate in all material respects as of the Closing
Date as if made on and as of the Closing Date.
6.2 COMPLIANCE WITH COVENANTS. ADAC and Sub 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.
6.3 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.
6.4 LEGAL OPINION. The Company shall have received an opinion of counsel
to ADAC, dated the Closing Date, substantially to the effect of Exhibit I.
---------
32
<PAGE>
6.5 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 Body.
6.6 ACQUISITION OF ATI ASSETS. The Company shall have acquired the ATI
Assets at a cost to the Company of not more than $250,000.
6.7 NO MATERIAL ADVERSE CHANGE. Since the date hereof, there shall have
been no material adverse change in the business, condition, assets, liabilities,
operations, financial performance or prospects of ADAC and its subsidiaries
taken as a whole.
6.8 TAX CONSEQUENCES. Neither ADAC nor Sub shall have taken any action
prior to the Closing no provided for herein that could reasonably be expected to
prevent the Merger from constituting a tax-free reorganization within the
meaning of Section 368 of the Code.
7
TERMINATION OF AGREEMENT
7.1 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;
(ii) by either ADAC or the Company if the Merger shall not have
been consummated by May 31, 1997(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
33
<PAGE>
(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.
7.2 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) 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.
7.3 FEES AND EXPENSES. Each of ADAC, the Company and the Designated
Shareholders shall bear its own expenses in connection with the preparation,
negotiation, execution and performance of this Agreement, the Merger and the
Transactions, except that the Company may pay the legal and accounting expenses
of the Designated Shareholders provided the total such expenses paid by the
Company shall not exceed $81,000.
8
INDEMNITY AND HOLDBACK
8.1 AGREEMENT TO INDEMNIFY. The Designated Shareholders hereby severally
agree to indemnify and hold ADAC and its affiliates (including the Surviving
Corporation), and each of their respective officers, directors, employees and
agents, harmless from and against all claims, losses, liabilities, damages,
deficiencies, costs and expenses, including reasonable attorneys' fees and
expenses of investigation ("Losses") incurred by any of them as a result of (i)
any inaccuracy or breach of a representation or warranty of the Company or the
Designated Shareholders, (ii) any failure of the Company or the Designated
Shareholders to perform or comply with any covenant contained herein to be
complied with by them, (iii) any Taxes payable by the Company with respect to
any period ending on or prior to the Closing not disclosed or provided for in
the Unaudited Financial Statements or the Disclosure Schedule, and not incurred
in the ordinary course of business consistent with past practice since March 31,
1997, (iv) the conduct of the business of ATI or the ownership or operation of
its assets; or (5) any breach by the Company of the VA Contract (as defined
below), or any cancellation or rescission of the VA Contract by the customer or
the Department (as defined below), in each case in the circumstances described
in Section 8.10(c) below, but in no event shall the Losses therefrom for which
the Designated Shareholders shall be obligated to provide indemnity hereunder
exceed $170,000 in the aggregate. Notwithstanding anything to the contrary
contained herein, the liability of each Designated Shareholder shall not exceed
such shareholder's pro rata share of any Holdback Common Stock actually retained
by ADAC pursuant hereto plus an amount equal to the product of (x) the number of
shares of ADAC Common Stock actually received by such shareholder and (y) the
Designated ADAC Stock Price.
34
<PAGE>
8.2 HOLDBACK AMOUNT. On the Closing Date, ADAC shall withhold from the
ADAC Stock to be issued to the Designated Shareholders in the Merger an
aggregate of 21.3% of the ADAC Common Stock (the "Holdback Common Stock") to be
issued in the Merger pursuant to Section 1.5(a)(ii) hereof, and the Designated
Shareholders 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").
8.3 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.
8.4 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.
8.5 CLAIM NOTICE. If ADAC determines in good faith that (i) there has
been a possible breach by the Company or any Designated Shareholder of any
representation, warranty, covenant or other provision set forth in this
Agreement or the certificate issued pursuant to Section 5.5 (without giving
effect to any "Material Adverse Effect" or other materiality qualification or
any similar qualification contained or incorporated directly or indirectly in
such representation or warranty, but giving effect to any update to the
Disclosure Schedule delivered by the Company to ADAC prior to the Closing); (ii)
there has been any breach of any covenant or obligation of the Company or any of
the Designated Shareholders; (iii) there is a reasonable likelihood of ADAC or
the Company incurring any other Losses covered by Section 8.1; or (v) there has
arisen any Legal Proceeding relating to any inaccuracy, breach, failure,
liability or alleged liability, or Loss of the type referred to in clause "(i),"
"(ii)" or "(iii)" above, and if ADAC wishes to make a claim against the Holdback
Common Stock with respect to any matter set forth in clause "(i)," "(ii),"
"(iii)" or "(iv)" above, then ADAC may, pursuant to Section 9.7, deliver to Mr.
Mike Hill, as agent (the "Agent") for the Designated Shareholders, 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'). No Claim Notice may be made
following the Expiration Date.
8.6 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:
35
<PAGE>
(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 Shareholder 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.
8.7 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 8.7(c) shall be followed with respect to the remaining portion of such
Claim Amount.
(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 8.8, 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
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<PAGE>
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 Losses 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) Notwithstanding anything herein to the contrary, in addition to
any shares of Holdback Stock that may be retained by ADAC pursuant hereto, ADAC
may retain a number of shares of Holdback Common Stock equal to the quotient of
(x) the amount by which the total purchase price paid by the Company for the ATI
Assets under Section 5.9 hereof exceeds $150,000, divided by (y) the Designated
ADAC Stock Price.
(e) Shares of Holdback Common Stock shall be transferred to ADAC as
permitted under this Section 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. 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).
8.8 RELEASE OF SHARES TO AGENT. On September 13, 1998 (the "Expiration
Date"), ADAC shall release the remaining shares of Holdback Common Stock then
held by ADAC, except to the extent any such shares are to be retained by ADAC
pursuant to Section 8.7.
8.9 SURVIVAL OF REPRESENTATIONS AND WARRANTIES AND INDEMNITY. The
representations and warranties made by and the indemnity given in this Agreement
and, as appropriate, the other agreements and instruments delivered pursuant
hereto shall survive the Closing and shall expire on the Expiration Date,
provided that any of the foregoing relating to Taxes shall survive for the
applicable statute of limitations period, provided however that if at any time
prior to the Expiration Date, ADAC delivers to Shareholder a Claim Notice then
the claim asserted in such notice shall survive the Expiration Date until such
time as such claim is fully and finally resolved.
8.10 VA CONTRACT.
(a) The Company is a party to a contract with the Veterans Administration
(the customer is "VAMC-Columbia, Missouri") under contract no. 95-MC-6274 (the
"VA Contract"), pursuant to which the Company is to provide to the customer
certain product more particularly described in the VA Contract. The Company is
presently negotiating with the Department of Veterans Affairs (the "Department")
to amend the VA Contract. In general terms, if accepted by the Department, the
amended contract would provide for the development of certain additional
software to enable certain acquisition units to read DICOM CD-ROMs, to enable
certain cardiac review stations to play back the DICOM video, and to enable the
applicable media to save the digital signal in the DICOM format, all as
described in more detail in Exhibit 2.4-12 to the Disclosure Schedule (the
"Sneakernet Solution"). The amended contract would further provide that the
Department would pay the Company in full upon receipt and acceptance of the
Sneakernet
37
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Solution. In addition, the amended contract may provide that if in the future
Philips develops and provides the Company with documentation on a high speed
digital feed, then the Company would develop the software therefor in accordance
with the provisions of the original contract, free of charge.
(b) ADAC, the Company and the Designated Shareholders agree to make a good
faith effort to persuade the Department to amend or modify the VA Contract as
provided in paragraph (a) above. If the Department amends or modifies the VA
Contract in such manner or such other manner reasonably acceptable to ADAC, then
the Designated Shareholders shall have no liability under the VA Contract for
failure to develop and deliver the digital video archiving solution described in
Exhibit 2.4-12 (the "CorCAAT Integrated Information System").
(c) If the Department declines to modify or amend the VA Contract in
accordance with paragraph (a) or (b) above, and the Department or the customer
claims that the Company has breached the VA Contract or cancels or rescinds the
VA Contract for the Company's failure to develop and deliver the CorCAAT
Integrated Information System, and ADAC incurs Losses resulting directly
therefrom, then the Designated Shareholders shall severally indemnify ADAC for
up to $170,000 of such Losses in accordance with Section 8.1. The aggregate
liability of the Designated Shareholders under this provision shall not exceed
$170,000.
9
MISCELLANEOUS
9.1 NON-COMPETE. Each Designated Shareholder 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 Designated
Shareholder shall not, within any state in the United States, 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 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 business
that competes with ADAC.
9.2 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 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.
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9.3 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.
9.4 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.
9.5 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,
including the letter agreement between the parties dated February 10, 1997, as
amended. 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.
9.6 ASSIGNABILITY. This Agreement shall be binding upon: the Company and
its successors and assigns (if any); the Designated Shareholders and their
respective personal representatives, executors, administrators, estates, heirs,
successors and assigns (if any); Sub and its successors and assigns (if any);
and ADAC and its successors and assigns (if any). This Agreement shall inure to
the benefit of: the Company; the Designated Shareholders; ADAC; and the
respective successors and assigns (if any) of the foregoing. This Agreement may
not be assigned by any party without the prior written consent of all the other
parties hereto.
9.7 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):
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If to ADAC,
to: ADAC Laboratories
540 Alder Drive
Milpitas, California 95035
Attention: Mark Lamp, with a copy to Karen L. Masterson
If to the Company,
to: CORTET
809 C South Orlando Avenue
Winter Park, FL 32789
with a copy to: Smith, Mackinnon, Greeley, Bowdoin & Edwards, P.A.
255 South Orange Avenue, Suite 800
Orlando, Florida 32801
Attn: Douglas Bowdoin
If to Agent, to: Mr. Mike Hill
1534 Leeway Avenue
Orlando, FL 32810
with a copy to: Smith, Mackinnon, Greeley, Bowdoin & Edwards, P.A.
255 South Orange Avenue, Suite 800
Orlando, Florida 32801
Attn: Douglas Bowdoin
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.
9.8 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.
9.9 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 February 10, 1997, 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
40
<PAGE>
disclosed by law or court order. Without limiting the generality of the
foregoing, on and at all times after the Closing Date, each Designated
Shareholder shall keep confidential, and shall not use or disclose to any other
Person, any non-public document or other non-public information in such
Designated Shareholder's possession that relates to the business of the Company
or ADAC.
9.10 CERTAIN TERMS. As used in this Agreement:
(a) "Company Contract" shall mean any Contract: (a) to which the
Company is a party; (b) by which the Company or any of its assets is or may
become bound or under which the Company has, or may become subject to, any
obligation; or (c) under which the Company has or may acquire any right or
interest.
(b) "Company Proprietary Asset" shall mean any Proprietary Asset owned
by or licensed to the Company or otherwise used by the Company.
(c) "Contract" shall mean any written, oral or other agreement,
contract, subcontract, lease, understanding, instrument, note, warranty,
insurance policy, benefit plan, or legally binding commitment or undertaking of
any nature.
(d) "Employee Benefit Plan" shall have the meaning specified in
Section 3(3) of ERISA.
(e) 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."
(f) "Governmental Authorization" shall mean any: (a) permit, license,
certificate, franchise, permission, clearance, registration, qualification or
authorization issued, granted, given or otherwise made available by or under the
authority of any Governmental Body or pursuant to any Legal Requirement; or (b)
right under any Contract with any Governmental Body.
(g) "Governmental Body" means any (i) nation, state, commonwealth,
province, territory, county, municipality, district or other jurisdiction of any
nature; (ii) federal, state, local, municipal, foreign or other government; or
(iii) governmental or quasi-governmental authority of any nature (including any
governmental division, department, agency, commission, instrumentality,
official, organization, unit, body or entity and any court or other tribunal.
(h) "Legal Requirements" means any federal, state, local, municipal,
foreign or other law, statute, constitution, principle of common law,
resolution, ordinance, code, edict, decree, rule, regulation, ruling or
requirement issued, enacted, adopted, promulgated, implemented or otherwise put
into effect by or under the authority of any Governmental Body.
(i) "person" refers to any (i) individual, (ii) corporation,
partnership, company or other entity, or (iii) Governmental Body;
41
<PAGE>
(j) "Proprietary Asset" shall mean any: (a) patent, patent
application, trademark (whether registered or unregistered), trademark
application, trade name, fictitious business name, service mark (whether
registered or unregistered), service mark application, copyright (whether
registered or unregistered), copyright application, maskwork, maskwork
application, trade secret, know-how, customer list, franchise, system, computer
software, source code, computer program, invention, design, blueprint,
engineering drawing, proprietary product, technology, proprietary right or other
intellectual property right or intangible asset; or (b) right to use or exploit
any of the foregoing.
(k) "Tax" shall mean any tax (including any income tax, franchise tax,
capital gains tax, gross receipts tax, value-added tax, surtax, excise tax, ad
valorem tax, transfer tax, stamp tax, sales tax, use tax, property tax, business
tax, withholding tax or payroll tax), levy, assessment, tariff, duty (including
any customs duty), deficiency or fee, and any related charge or amount
(including any fine, penalty or interest), imposed, assessed or collected by or
under the authority of any Governmental Body.
(l) "Tax Return" shall mean any return (including any information
return), report, statement, declaration, estimate, schedule, notice,
notification, form, election, certificate or other document or information filed
with or submitted to, or required to be filed with or submitted to, any
Governmental Body in connection with the determination, assessment, collection
or payment of any Tax or in connection with the administration, implementation
or enforcement of or compliance with any Legal Requirement relating to any Tax.
9.11 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.
42
<PAGE>
9.12 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.
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 "SUB"
ADAC Acquisition Corp., a Delaware corporation
By: __________________________________
__________________________________
[Print name and title]
THE "COMPANY"
CORTET, Inc., a Florida corporation
By: ___________________________________
___________________________________
[Print name and title]
[Signatures Continue]
43
<PAGE>
[Signatures Continued]
THE "DESIGNATED SHAREHOLDERS"
________________________________________
J.P. Patten
________________________________________
Michael Hill
________________________________________
Alexander Nikoloff
________________________________________
Lewis Lobel
________________________________________
Robert Joicy
________________________________________
Douglas Bowdoin
________________________________________
Chris Westervelt
44
<PAGE>
EXHIBIT 3.1
AMENDED AND 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
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. The Preferred Stock may be issued
from time to time in one or more series. The Board of Directors of this
Corporation is authorized to determine or alter the rights, preferences,
privileges and restrictions granted to or imposed upon any wholly unissued
series of Preferred Stock, and within the limitations or restrictions stated in
any resolution or resolutions of the Board of Directors originally fixing the
number of shares constituting any series, to increase or decrease (but not below
the number of shares of any such series subsequent to the issue of shares of
that series, to determine the designation of any series and to fix the number of
shares of any series.
ARTICLE IV
This Corporation hereby states the designation and number of shares, and
fixes the relative rights, preferences, privileges and restrictions of the
Series A Junior Participating Preferred Stock (which are in addition to the
provisions set forth in Article III above which are applicable to the Preferred
Stock of all classes and series), as follows:
SECTION 1. DESIGNATION AND AMOUNT. Two Hundred Fifty Thousand
(250,000) shares of Preferred Stock, without par value, are designated "Series A
Junior Participating Preferred Stock" with the rights, preferences, privileges
and restriction
<PAGE>
specified herein (the "Junior Preferred Stock"). Such number of shares may be
increased or decreased by resolution of the Board of Directors, provided, that
no decrease shall reduce the number of shares of Junior Preferred Stock to a
number less than the number of shares then outstanding plus the number of shares
reserved for issuance upon the exercise of outstanding options, rights or
warrants or upon the conversion of any outstanding options, rights or warrants
or upon the conversion of any outstanding securities issued by the Corporation
convertible into Junior Preferred Stock.
SECTION 2. DIVIDENDS AND DISTRIBUTIONS.
(A) Subject to the rights of the holders of any shares of any series
of Preferred Stock (or any similar stock) ranking prior and superior
to the Junior Preferred Stock with respect to dividends, the holders
of shares of Junior Preferred Stock, in preference to the holders of
Common Stock, without par value (the "Common Stock"), of the
Corporation, and of any other junior stock, shall be entitled to
receive, when, as and if declared by the Board of Directors out of
funds legally available for the purpose, quarterly dividends payable
in cash on the first day of March, June, September and December in
each year (each such date being referred to herein as a "Quarterly
Dividend Payment Date"), commencing on the first Quarterly Dividend
Payment Date after the first issuance of a share or fraction of a
share of Junior Preferred Stock, in an amount per share (rounded to
the nearest cent) equal to the greater of (a) $1.00 or (b) subject to
the provision for adjustment hereinafter set forth, 100 times the
aggregate per share amount of all cash dividends, and 100 times the
aggregate per share amount (payable in kind) of all non-cash dividends
or other distributions, other than a dividend payable in shares of
Common Stock or a subdivision of the outstanding shares of Common
Stock (by reclassification or otherwise) declared on the Common Stock
since the immediately preceding Quarterly Dividend Payment Date or,
with respect to the first Quarterly Dividend Payment Date, since the
first issuance of any share or fraction of a share of Junior Preferred
Stock. In the event the Corporation shall at any time declare or pay
any dividend on the Common Stock payable in shares of Common Stock, or
effect a subdivision or combination or consolidation of the
outstanding shares of Common Stock (by reclassification or otherwise
than by payment of a dividend in shares of Common Stock) into a
greater or lesser number of shares of Common Stock, then in each such
case the amount to which holders of shares of Junior Preferred Stock
were entitled immediately prior to such event under clause (b) of the
preceding sentence shall be adjusted by multiplying such amount by a
fraction, the numerator of which is the number of shares of Common
Stock outstanding immediately after such event and the denominator of
which is the number of shares of Common Stock that were outstanding
immediately prior to such event.
<PAGE>
(B) The Corporation shall declare a dividend or distribution on the
Junior Preferred Stock as provided in paragraph (A) of this Section
immediately after it declares a dividend or distribution on the Common
Stock (other than a dividend payable in shares of common Stock);
provided that, in the event no dividend or distribution shall have
been declared on the Common Stock during the period between any
Quarterly Dividend Payment Date and the next subsequent Quarterly
Dividend Payment Date, a dividend of $1.00 per share on the Junior
Preferred Stock shall nevertheless be payable on such subsequent
Quarterly Dividend Payment Date.
(C) DIVIDENDS shall begin to accrue and be cumulative on outstanding
shares of Junior Preferred Stock from the Quarterly Dividend Payment
Date next preceding the date of issue of such shares, unless the date
of issue of such shares is prior to the record date for the first
Quarterly Dividend Payment Date, in which case dividends on such
shares shall begin to accrue from the date of issue of such shares, or
unless the date of issue is a Quarterly Dividend Payment Date or is a
date after the record date for the determination of holders of shares
of Junior preferred Stock entitled to receive a quarterly dividend and
before such Quarterly Dividend Payment Date, in either of which events
such dividends shall begin to accrue and be cumulative from such
Quarterly Dividend Payment Date. Accrued but unpaid dividends shall
not bear interest. Dividends paid on the shares of Junior Preferred
Stock in an amount less than the total amount of such dividends at the
time accrued and payable on such shares shall be allocated pro rata on
a share-by-share basis among all such shares at the time outstanding.
The Board of Directors may fix a record date for the determination of
holders of shares of Junior Preferred Stock entitled to receive
payment of a dividend or distribution declared thereon, which record
date shall be not more than 60 days prior to the date fixed for the
payment thereof.
SECTION 3. VOTING RIGHTS. The holders of shares of Junior
Preferred Stock shall have the following voting rights:
(A) Subject to the provision for adjustment hereinafter set forth,
each share of Junior Preferred Stock shall entitle the holder thereof
to 100 votes on all matters submitted to a vote of the shareholders of
the Corporation. In the event the Corporation shall at any time
declare or pay any dividend on the Common Stock payable in shares of
Common Stock, or effect a subdivision or combination or consolidation
of the outstanding shares of Common Stock (by re-classification or
otherwise than by payment of a dividend in shares of Common Stock)
into a greater or lesser number of shares of Common Stock, then in
each such case the number of votes per share to which holders of
shares of Junior Preferred Stock were entitled
<PAGE>
immediately prior to such event shall be adjusted by multiplying such
number by a fraction, the numerator of which is the number of shares
of Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
(B) Except as otherwise provided herein, in any Certificate of
Determination of Preferences creating a series of Preferred Stock or
any similar stock, or by law, the holders of shares of Junior
Preferred Stock and the holders of shares of Common Stock and any
other capital stock of the Corporation having general voting rights
shall vote together as one class on all matters submitted to a vote of
shareholders of the Corporation.
(C) Except as set forth herein, or as otherwise provided by law,
holders of Junior Preferred Stock shall have no special voting rights
and their consent shall not be required (except to the extent they are
entitled to vote with holders of Common Stock as set forth herein) for
taking any corporate action.
SECTION 4. CERTAIN RESTRICTIONS.
(A) Whenever quarterly dividends or other dividends or distributions
payable on the Junior Preferred Stock as provided in Section 2 are in
arrears, thereafter and until all accrued and unpaid dividends and
distributions, whether or not declared, on shares of Junior Preferred
Stock outstanding shall have been paid in full, the Corporation shall
not:
(i) declare or pay dividends, or make any other
distributions, on any shares of stock ranking junior (either
as to dividends or upon liquidation, dissolution or winding
up) to the Junior Preferred Stock;
(ii) declare or pay dividends, or make any other
distributions, on any shares of stock ranking on a parity
(either as to dividends or upon liquidation, dissolution or
winding up) with the Junior Preferred Stock, except
dividends paid ratably o the Junior Preferred Stock and all
such parity stock on which dividends are payable or in
arrears in proportion to the total amounts to which the
holders of all such shares are then entitled.
(iii) redeem or purchase or otherwise acquire for
consideration shares of any stock ranking junior (either as
to dividends or upon liquidation, dissolution or winding up)
to the Junior Preferred Stock, provided that the Corporation
<PAGE>
may at any time redeem, purchase or otherwise acquire shares
of any such junior stock in exchange for shares of any stock
of the Corporation ranking junior (either as to dividends or
upon dissolution, liquidation or winding up) to the Junior
Preferred Stock; or
(iv) redeem or purchase or otherwise acquire for
consideration any shares of Junior Preferred Stock, or any
shares of stock ranking on a parity with the Junior
Preferred Stock, except in accordance with a purchase offer
made in writing or by publication (as determined by the
Board of Directors) to all holders of such shares upon such
terms as the Board of Directors, after consideration of the
respective annual dividend rates and other relative rights
and preferences of the respective series and classes, shall
determine in good faith will result in fair and equitable
treatment among the respective series or classes.
(B) The Corporation shall not permit any subsidiary of the Corporation
to purchase or otherwise acquire for consideration any shares of stock
of the Corporation unless the Corporation could, under paragraph (A)
of this Section 4, purchase or otherwise acquire such shares at such
time and in such manner.
SECTION 5. REACQUIRED SHARES. Any shares of Junior Preferred Stock
purchased or otherwise acquired by the Corporation in any manner whatsoever
shall be retired and cancelled promptly after the acquisition thereof. All such
shares shall upon their cancellation become authorized but unissued shares of
Preferred Stock and may be reissued as part of a new series of Preferred Stock
subject to the conditions and restrictions on issuance set forth herein, or in
any Certificate of Determination of Preferences creating a series of Preferred
Stock or any similar stock or as otherwise required by law.
SECTION 6. LIQUIDATION, DISSOLUTION OR WINDING UP. Upon any
liquidation, dissolution or winding up of the Corporation, no distribution shall
be made (1) to the holders of shares of stock ranking junior (either as to
dividends or upon liquidation, dissolution or winding up) to the Junior
Preferred Stock unless, prior thereto, the holders of shares of Junior Preferred
Stock shall have received the greater of: (A) $100 per share, plus an amount
equal to accrued and unpaid dividends and distributions thereon, whether or not
declared, to the date of such payment; or (B) an aggregate amount per share,
subject to the provision for adjustment hereinafter set forth, equal to 100
times the aggregate amount to be distributed per share to holders of shares of
Common Stock, or (2) to the holders of shares of stock ranking on a parity
(either as to dividends or upon liquidation, dissolution or winding up) with the
Junior Preferred Stock, except distributions made ratably on the Junior
Preferred Stock and all such parity stock in
<PAGE>
proportion to the total amounts to which the holders of all such shares are
entitled upon such liquidation, dissolution or winding up. In the event the
Corporation shall at any time declare or pay any dividend on the Common Stock
payable in shares of Common Stock, or effect a subdivision or combination or
consolidation of the outstanding shares of Common Stock (by reclassification or
otherwise than by payment of a dividend in shares of Common Stock) into a
greater or lesser number of shares of Common Stock, then in each such case the
aggregate amount to which holders of shares of Junior Preferred Stock were
entitled immediately prior to such event under the proviso in clause (1) of the
preceding sentence shall be adjusted by multiplying such amount by a fraction
the numerator of which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the number of
shares of Common Stock that were outstanding immediately prior to such event.
SECTION 7. CONSOLIDATION, MERGER, ETC. In case the Corporation
shall enter into any consolidation, merger, combination or other transaction in
which the shares of Common Stock are exchanged for or changed into other stock
or securities, cash and/or any other property, then in any such case each share
of Junior Preferred Stock shall at the same time be similarly exchanged or
changed into an amount per share, subject to the provision for adjustment
hereinafter set forth, equal to 100 times the aggregate amount of stock,
securities, cash and/or any other property (payable in kind), as the case may
be, into which or for which each share of Common Stock is changed or exchanged.
In the event the Corporation shall at any time declare or pay any dividend on
the Common Stock payable in shares of common Stock, or effect a subdivision or
combination or consolidation of the outstanding shares of Common Stock (by
reclassification or otherwise than by payment of a dividend in shares of Common
Stock) into a greater or lesser number of shares of Common Stock, then in each
such case the amount set forth in the preceding sentence with respect to the
exchange or change of shares of Junior Preferred Stock shall be adjusted by
multiplying such amount by a fraction, the numerator of which is the number of
shares of Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
SECTION 8. NO REDEMPTION. The shares of Junior Preferred Stock
shall not be redeemable.
SECTION 9. RANK. The Junior Preferred Stock shall rank, with
respect to the payment of dividends and the distribution of assets, junior to
all other series of the Corporation's Preferred Stock.
SECTION 10. AMENDMENT. The Articles of Incorporation of the
Corporation shall not be amended in any manner which would materially alter or
change the powers, preferences or special rights of the Junior Preferred Stock
so as to affect them adversely without the affirmative vote of the holders of at
least two-thirds of the outstanding shares of Junior Preferred Stock, voting
together as a single class.
<PAGE>
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.
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 VI
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
-2-
<PAGE>
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
-3-
<PAGE>
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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<PAGE>
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,
--------------------------------
Aagent@ 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; Aproceeding@ means any
threatened, pending or completed action or proceeding, whether civil, criminal,
administrative or investigative; and Aexpenses@ 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
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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
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(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
------------------
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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>
AMENDMENT TO BYLAWS
The Board of Directors and Shareholders adopted the following amendments to
Sections 3.02 and 9.02 of the Bylaws:
"Section 3.02. Number and Qualification of Directors. The number of
-------------- -------------------------------------
directors of the corporation shall be not less than six (6) nor more than
eleven (11). 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;
provided, however, that any 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)."
"Section 9.02. 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 specifying or changing a fixed number of directors or the maximum
or minimum number of directors or changing from a fixed to a variable
board or vice versa."
Approved by the Board on October
31, 1996 and by the Shareholders
on May 15, 1997
<PAGE>
EXHIBIT 10.1
FIRST AMENDMENT TO CREDIT AGREEMENT
-----------------------------------
THIS FIRST AMENDMENT TO CREDIT AGREEMENT (this "Amendment"), dated as
---------
of December 27, 1996, is entered into by and among:
(1) ADAC LABORATORIES, a California corporation ("Borrower");
--------
(2) The financial institutions which are listed in ScheduleEI to the
-----------------
Credit Agreement referred to in Recital A below (such financial
---------------- ---------
institutions to be referred to herein collectively as the "Lenders"); and
-------
(3) ABN AMRO BANK N.V., a Netherlands public company acting through
its San Francisco International Branch, as agent for the Lenders (in such
capacity, "Agent").
-----
RECITALS
--------
A. Borrower, the Lenders and Agent are parties to a Credit Agreement
dated as of July 31, 1996 (the "Credit Agreement").
----------------
B. Borrower has requested the Lenders and Agent to amend the Credit
Agreement in certain respects.
C. The Lenders and Agent are willing so to amend the Credit Agreement
upon the terms and subject to the conditions set forth below.
AGREEMENT
---------
NOW, THEREFORE, in consideration of the above recitals and for other
good and valuable consideration, the receipt and adequacy of which are hereby
acknowledged, Borrower, the Lenders and Agent hereby agree as follows:
1. DEFINITIONS, INTERPRETATION. All capitalized terms defined above and
---------------------------
elsewhere in this Amendment shall be used herein as so defined. Unless otherwise
defined herein, all other capitalized terms used herein shall have the
respective meanings given to those terms in the Credit Agreement, as amended by
this Amendment. The rules of construction set forth in Section I of the Credit
-----------------------
Agreement shall, to the extent not inconsistent with the terms of this
- ---------
Amendment, apply to this Amendment and are hereby incorporated by reference.
2. AMENDMENT TO CREDIT AGREEMENT. Subject to the satisfaction of the
-----------------------------
conditions set forth in paragraphE4 below, the Credit Agreement is hereby
-----------
amended as follows:
<PAGE>
(a) Paragraph 1.01 is amended by changing the amount "$7,000,000"
--------------
appearing in clause (b) of the definition of "Primary Secured Obligations"
---------- ---------------------------
to "$10,000,000".
(b) Paragraph 2.12 is amended by adding thereto, immediately
--------------
following Subparagraph 2.12(c), a new Subparagraph 2.12(d) to read in its
-------------------- --------------------
entirety as follows:
(d) Release of Collateral. Each Lender hereby authorizes Agent
---------------------
to execute and deliver such documents, instruments and agreements as
Borrower may reasonably request to release the Lien granted to Agent
by the Security Documents in any Collateral that is sold by Borrower
in accordance with Subparagraph 5.02(c). In determining whether a
--------------------
sale is in accordance with Subparagraph 5.02(c), Agent may rely upon
--------------------
certificates of Borrower or such other evidence as Agent may deem
appropriate.
(c) Subparagraph 5.02(a) is amended by changing clause (x) thereof to
-------------------- ----------
read in its entirety as follows:
(x) Guaranty Obligations incurred by Borrower in connection with
sales by Borrower of promissory notes, accounts receivable and other
indebtedness owed to Borrower (including, without limitation,
obligations under Borrower Note Guaranties), provided that the
aggregate amount of all such notes, receivables and other indebtedness
outstanding and so guaranteed by Borrower does not exceed $25,000,000
at any time;
(d) Subparagraph 5.02(c) is amended by changing clause (vi) to read
-------------------- -----------
in its entirety as follows:
(vi) Sales by Borrower of promissory notes, accounts receivable and
other indebtedness owed to Borrower, provided that each such sale is
(A) for cash consideration which is not less than the fair market
value of the promissory notes, accounts receivable or other
indebtedness sold and (B) without any recourse to Borrower or any of
its Subsidiaries except to the extent permitted by clause (x) of
-------------
Subparagraph 5.02(a);
--------------------
(e) Subparagraph 8.04(a) is amended by adding thereto, immediately
--------------------
after the word "Collateral" at the end of clause (vii) thereof, the
------------
parenthetical "(except for any release permitted by Subparagraph 2.12(d))".
--------------------
3. REPRESENTATIONS AND WARRANTIES. Borrower hereby represents and
------------------------------
warrants to Agent and the Lenders that the following are true and correct on the
date of this Amendment and that, after giving effect to the amendments set forth
in paragraph 2 above, the following will be true and correct on the Effective
-----------
Date (as defined below):
(a) The representations and warranties of Borrower and its
Subsidiaries set forth in Paragraph 4.01 of the Credit Agreement and in the
--------------------------------------
other Credit Documents are true and correct in all material respects;
2
<PAGE>
(b) No Default or Event of Default has occurred and is continuing;
and
(c) All of the Credit Documents are in full force and effect.
(Without limiting the scope of the term "Credit Documents," Borrower expressly
acknowledges in making the representations and warranties set forth in this
paragraph 3 that, on and after the date hereof, such term includes this
- -----------
Amendment.)
4. EFFECTIVE DATE. The amendments effected by paragraph 2 above shall
-------------- -----------
become effective on December 27, 1996 (the "Effective Date"), subject to receipt
--------------
by Agent and the Lenders on or prior to the Effective Date of the following,
each in form and substance satisfactory to Agent, the Lenders and their
respective counsel:
(a) This Amendment duly executed by Borrower, each Lender and Agent;
(b) A letter in the form of Exhibit A hereto, dated the Effective
---------
Date and duly executed by each Guarantor; and
(c) Such other evidence as Agent or any Lender may reasonably request
to establish the accuracy and completeness of the representations and
warranties and the compliance with the terms and conditions contained in
this Amendment and the other Credit Documents.
5. EFFECT OF THIS AMENDMENT. On and after the Effective Date, each
------------------------
reference in the Credit Agreement and the other Credit Documents to the Credit
Agreement shall mean the Credit Agreement as amended hereby. Except as
specifically amended above, (a) the Credit Agreement and the other Credit
Documents shall remain in full force and effect and are hereby ratified and
confirmed and (b) the execution, delivery and effectiveness of this Amendment
shall not, except as expressly provided herein, operate as a waiver of any
right, power, or remedy of the Lenders or Agent, nor constitute a waiver of any
provision of the Credit Agreement or any other Credit Document.
6. MISCELLANEOUS.
-------------
(a) Counterparts. This Amendment may be executed in any number of
------------
identical counterparts, any set of which signed by all the parties hereto
shall be deemed to constitute a complete, executed original for all
purposes.
(b) Headings. Headings in this Amendment are for convenience of
--------
reference only and are not part of the substance hereof.
(c) Governing Law. This Amendment shall be governed by and construed
-------------
in accordance with the laws of the State of California without reference to
conflicts of law rules.
[The signature pages follow.]
3
<PAGE>
IN WITNESS WHEREOF, Borrower, Agent and the Lenders have caused this
Amendment to be executed as of the day and year first above written.
BORROWER: ADAC LABORATORIES
By:___________________________
Name:________________________
Title:_______________________
AGENT: ABN AMRO BANK N.V.
By ABN AMRO North America, Inc.,
its agent
By:___________________________
Name:________________________
Title:_______________________
By:___________________________
Name:________________________
Title:_______________________
LENDERS: ABN AMRO BANK N.V.
By ABN AMRO North America, Inc.,
its agent
By:___________________________
Name:________________________
Title:_______________________
By:___________________________
Name:________________________
Title:_______________________
SANWA BANK CALIFORNIA
By:___________________________
Name:________________________
Title:_______________________
4
<PAGE>
BANQUE NATIONALE DE PARIS
By:___________________________
Name:________________________
Title:_______________________
5
<PAGE>
UNION BANK OF CALIFORNIA, N.A.
By:___________________________
Name:________________________
Title:_______________________
6
<PAGE>
EXHIBIT A
---------
GUARANTOR CONSENT LETTER
------------------------
December 27, 1996
TO: ABN AMRO BANK N.V.,
As Agent for the Lenders under the Credit Agreement referred to below
1. Reference is made to the following:
(a) The Credit Agreement dated as of July 31, 1996 (the "Credit
Agreement") among ADAC Laboratories ("Borrower"), the financial
institutions which are from time to time parties thereto (the "Lenders"),
and ABN AMRO Bank N.V., as agent for the Lenders ("Agent");
(b) The Guaranty dated as of July 31, 1996, ("Guaranty") executed by
the undersigned (each a "Guarantor") in favor of the Lenders and Agent; and
(c) The First Amendment to Credit Agreement dated as of December 27,
1996 (the "First Amendment") among Borrower, the Lenders and Agent.
2. Each Guarantor hereby consents to the First Amendment and the release
of Collateral contemplated thereby. Each Guarantor expressly agrees that
neither such amendment nor any such release shall in way affect or alter the
rights, duties, or obligations of any Guarantor, the Lenders or Agent under the
Guaranty.
3. From and after the date hereof, the term "Credit Agreement" as used in
the Guaranty shall mean the Credit Agreement, as amended by the First Amendment.
4. Guarantors' consent to the First Amendment and the release of
Collateral contemplated thereby shall not be construed (i) to have been required
by the terms of the Guaranty or any other document, instrument or agreement
relating thereto or (ii) to require the consent of any Guarantor in connection
with any future amendment of the Credit Agreement or any other Credit Document
or any release of Collateral.
A-1
<PAGE>
IN WITNESS WHEREOF, each Guarantor has executed this Guarantor Consent
Letter as of the day and year first written above.
ADAC RESEARCH AND MANUFACTURING
By:___________________________
Name:________________________
Title:_______________________
COMMUNITY HEALTHCARE COMPUTING CORPORATION
By:____________________________
Name:_________________________
Title:________________________
ADAC JD TECHNICAL SERVICES
By:___________________________
Name:________________________
Title:_______________________
ADAC LABORATORIES PACIFIC, INC.
By:___________________________
Name:________________________
Title:_______________________
A-2
<PAGE>
SECOND AMENDMENT TO CREDIT AGREEMENT
------------------------------------
THIS SECOND AMENDMENT TO CREDIT AGREEMENT (this "Amendment"), dated as of
---------
May 1, 1997, is entered into by and among:
(1) ADAC LABORATORIES, a California corporation ("Borrower");
--------
(2) The financial institutions which are listed in Schedule I to the
-----------------
Credit Agreement referred to in Recital A below (such financial
---------------- ---------
institutions to be referred to herein collectively as the "Lenders"); and
-------
(3) ABN AMRO BANK N.V., a Netherlands public company acting through
its San Francisco International Branch, as agent for the Lenders (in such
capacity, "Agent").
-----
RECITALS
--------
A. Borrower, the Lenders and Agent are parties to a Credit Agreement
dated as of July 31, 1996, as amended by a First Amendment to Credit Agreement
dated as of December 27, 1996 (as so amended, the "Credit Agreement").
----------------
B. Borrower has requested the Lenders and Agent to amend the Credit
Agreement in certain respects.
C. The Lenders and Agent are willing so to amend the Credit Agreement
upon the terms and subject to the conditions set forth below.
AGREEMENT
---------
NOW, THEREFORE, in consideration of the above recitals and for other good
and valuable consideration, the receipt and adequacy of which are hereby
acknowledged, Borrower, the Lenders and Agent hereby agree as follows:
1. DEFINITIONS, INTERPRETATION. All capitalized terms defined above and
---------------------------
elsewhere in this Amendment shall be used herein as so defined. Unless otherwise
defined herein, all other capitalized terms used herein shall have the
respective meanings given to those terms in the Credit Agreement, as amended by
this Amendment. The rules of construction set forth in Section I of the Credit
-----------------------
Agreement shall, to the extent not inconsistent with the terms of this
- ---------
Amendment, apply to this Amendment and are hereby incorporated by reference.
2. AMENDMENTS TO CREDIT AGREEMENT. Subject to the satisfaction of the
------------------------------
conditions set forth in Paragraph 9 below, the Credit Agreement is hereby
-----------
amended as follows:
(a) Paragraph 1.01 of the Credit Agreement is amended by changing the
--------------------------------------
definition of "Total Commitment" set forth therein to read in its entirety
as follows:
<PAGE>
"Total Commitment" shall mean, at any time, One Hundred Million
----------------
Dollars ($100,000,000) or, if such amount is reduced pursuant to
Subparagraph 2.02(a), the amount to which so reduced and in effect at
--------------------
such time.
(b) Paragraph 1.01 of the Credit Agreement is amended further by
--------------------------------------
adding thereto, in the appropriate alphabetical order, the following new
definition:
"ARS" shall mean ADAC Radiology Services, Inc., a Delaware
---
corporation that is a Subsidiary of Borrower.
(c) Paragraph 2.01(g) of the Credit Agreement is amended by changing
-----------------------------------------
clause (ii) thereof to read in its entirety as follows:
-----------
(ii) thereafter, for Borrower's general corporate needs (including the
payment of the purchase price for the acquisition of Radiology Service
Partners, L.L.C.)
(d) Paragraph 4.01(q) of the Credit Agreement is amended to read in
-----------------------------------------
its entirety as follows:
(q) Subsidiaries, etc. Set forth in Schedule 4.01(q) (as
------------------ ----------------
supplemented by Borrower from time to time in a written notice to
Agent) is a complete list of all of Borrower's Subsidiaries; the
jurisdiction of incorporation of each such Subsidiary; for each
Domestic Subsidiary and each direct Foreign Subsidiary, the number of
shares of each class of Equity Security of such Subsidiary
outstanding; and the percentage of each such Subsidiary's outstanding
Equity Securities owned directly by Borrower or another Subsidiary of
Borrower. Except for such Subsidiaries, Borrower has no Subsidiaries,
is not a partner in any partnership or a joint venturer in any joint
venture.
(e) Subparagraph 5.02(c) of the Credit Agreement is amended by (i)
--------------------------------------------
deleting the word "and" at the end of clause (vii) thereof; (ii) changing
------------
the designation of clause (viii) thereof to "(ix)"; and (iii) adding
-------------
immediately after clause (vii) thereof a new clause (viii) to read in its
------------ -------------
entirety as follows:
(viii) Sales by ARS or a Subsidiary of ARS back to Radiology
Service Partners, L.L.C. or the owner(s) thereof of all or a portion
of the assets or equity interest purchased by ARS or such Subsidiary
from Radiology Service Partners, L.L.C. or such owner(s), provided
that each such sale is for a purchase price which is not less than the
original purchase price for the resold assets or equity interest; and
(f) Subparagraph 5.02(d) of the Credit Agreement is amended by
--------------------------------------------
changing clause (ii) thereof to read in its entirety as follows:
-----------
(ii) Borrower and its Subsidiaries may acquire any Person or all or
substantially all of the assets of any Person, provided that the
aggregate cost of such acquisitions does not exceed:
(A) In the fiscal year ending September 30, 1997, the sum
of (1) the aggregate cost to Borrower of acquiring Photon
Diagnostic
2
<PAGE>
Technologies, Inc. and Geometrics Corporation, (2) the lesser of
the cost to Borrower of acquiring the assets of or equity
interest in Radiology Service Partners, L.L.C. and $20,000,000
and (3) ten percent (10%) of the Tangible Net Worth of Borrower
and its Subsidiaries on September 30, 1996; and
(B) In any other fiscal year, ten percent (10%) of the
Tangible Net Worth of Borrower and its Subsidiaries. In
determining the aggregate amount of acquisitions permitted under
this clause (ii)(B) at any time during a fiscal year subject to
--------------
this clause, the Tangible Net Worth of Borrower and its
Subsidiaries as of the last day of the most recently ended fiscal
quarter shall be used.
(g) Subparagraph 5.02(f) of the Credit Agreement is amended to read
--------------------------------------------
in its entirety as follows:
(f) Change in Business. Neither Borrower nor any of its
------------------
Subsidiaries shall engage, either directly or indirectly through
Affiliates, in any business substantially different from its present
business and the business conducted by Photon Diagnostic Technologies,
Inc., Geometrics Corporation and Radiology Service Partners, L.L.C.
prior to their acquisition by Borrower.
(h) Subparagraph 5.02(h) of the Credit Agreement is amended to read
--------------------------------------------
in its entirety as follows:
(h) Security Issuances. None of Borrower's Subsidiaries shall
------------------
issue, offer or sell any Equity Securities not currently outstanding
except as follows:
(i) Any of Borrower's Subsidiaries may issue Equity
Securities to Borrower or a wholly-owned Subsidiary of Borrower,
provided that such Equity Securities are pledged to Agent
pursuant to the Pledge Agreement to the extent required by the
Pledge Agreement; and
(ii) Any of Adac Healthcare Information Systems, ARS or any
Subsidiary of ARS may issue and sell to officers, directors and
employees of Borrower and such Person its stock and options to
purchase its stock, provided that the percentage of the
outstanding voting stock in such Person held by such optionees
does not at any time exceed twenty percent (20%).
(i) Subparagraph 5.03(c) of the Credit Agreement is amended to read
--------------------------------------------
in its entirety as follows:
(c) Tangible Net Worth. Borrower shall not permit the Tangible
------------------
Net Worth of Borrower and its Subsidiaries on the last day of any
fiscal quarter (any such date to be referred to herein as a
"determination date") which occurs on or after March 31, 1997 (such
date to be referred to herein as the "base date") to be less than the
sum on such determination date of the following:
3
<PAGE>
(i) The Tangible Net Worth of Borrower and its Subsidiaries
on the base date minus $15,000,000;
plus
----
(ii) Fifty percent (50%) of the sum of the consolidated
quarterly net income (ignoring any quarterly losses) of Borrower
and its Subsidiaries for each quarter after the base date
through and including the quarter ending immediately prior to
the determination date;
plus
----
(iii) One hundred percent (100%) of the Net Proceeds realized
by Borrower and its Subsidiaries from the issuance and/or sale
of Equity Securities during the period commencing on the base
date and ending on the determination date;
minus
-----
(iv) If the determination date is after the date Borrower
acquires the assets or equity of Radiology Service Partners,
L.L.C., the lesser of (A) the portion of the purchase price paid
by Borrower for such assets that is attributable to good will
and (B) $15,000,000.
(j) Subparagraph 5.03(e) of the Credit Agreement is amended to read
--------------------------------------------
in its entirety as follows:
(e) Debt/EBITDA Ratio. Borrower shall not permit the
-----------------
Debt/EBITDA Ratio of Borrower and its Subsidiaries to be greater than
(i) 2.25 to 1.00 on the last day of June 30, 1997, September 30, 1997
or December 31, 1997 or (ii) 2.00 to 1.00 on the last day of any
other fiscal quarter.
(k) Schedule I is amended by changing the Proportionate Shares of
----------
the Lenders to the following:
<TABLE>
<CAPTION>
Proportionate
Lender Share
------------ -----------
<S> <C>
ABN AMRO Bank N.V. 33.33333334
Sanwa Bank California 30.00000000
Banque Nationale de Paris 18.33333333
Union Bank of California 18.33333333
</TABLE>
(l) Schedule 1.01(a) to the Credit Agreement is amended to read in
----------------------------------------
its entirety as set forth in Attachment 1 hereto.
------------
4
<PAGE>
(m) Schedule 4.01(q) to the Credit Agreement is amended to read in
----------------------------------------
its entirety as set forth in Attachment 2 hereto.
------------
(n) Exhibit F is amended by changing Schedule B to Attachment 1
--------- --------------------------
thereto as follows:
(i) On the first page of Schedule B listing Patents, the following
----------
United States Patent numbers are added at the end of the first group
of Patent numbers in the first column:
5,552,606
5,585,637
5,596,197
5,598,003
5,608,221
(ii) On the first page of Schedule B listing Patents, the following
----------
Japanese Patent number is added at the end of the last group of Patent
numbers in the last column:
2,574,160 (Japan)
(iii) Two new pages reading in their entirety as set forth in
Attachment 3 are added to Schedule B at the end thereof.
------------ ----------
(o) Exhibit G is amended by changing Attachment 1 thereto to read in
--------- ------------
its entirety as set forth in Attachment 4 hereto.
------------
3. AMENDMENTS TO SECURITY AGREEMENT (INTELLECTUAL PROPERTY). Subject to
--------------------------------------------------------
the satisfaction of the conditions set forth in Paragraph 9 below, the Security
-----------
Agreement (Intellectual Property) is hereby amended by changing Schedule B to
-------------
Attachment 1 thereto as provided in Subparagraph 2(n) above.
- ------------ -----------------
4. AMENDMENTS TO PLEDGE AGREEMENT. Subject to the satisfaction of the
------------------------------
conditions set forth in Paragraph 9 below, the Pledge Agreement is hereby
-----------
amended by changing Attachment 1 thereto as provided in Subparagraph 2(o) above.
------------ -----------------
5. OTHER AMENDMENTS TO CREDIT DOCUMENTS. The Credit Documents are
------------------------------------
further amended by (a) changing all references therein to the Agent's New York
address from "335 Madison Avenue, New York, NY 10017" to "1325 Avenue of the
Americas, 9th Floor, New York, NY 10019", (b) changing all references therein
to the Agent's New York telephone number from "(212) 370-8509" to "(212) 314-
1724" and (c) changing all references therein to the Agent's New York fax number
from "(212) 682-0364" to "(212) 314-1709".
5
<PAGE>
6. ADAC DO BRASIL. Notwithstanding Paragraph 2 of the Pledge Agreement,
-------------- -----------------------------------
Borrower shall not be required to grant to Agent a security interest in the
Subsidiary Shares of ADAC do Brasil unless Required Lenders shall otherwise
elect.
7. AMENDMENT FEE. Borrower shall pay to Agent, for the benefit of each
-------------
Lender, an amendment fee equal to 0.125% of the increase in such Lender's
Commitment resulting from this Amendment (individually, an "Amendment Fee").
-------------
8. REPRESENTATIONS AND WARRANTIES. Borrower hereby represents and
------------------------------
warrants to Agent and the Lenders that the following are true and correct on the
date of this Amendment and that, after giving effect to the amendments set forth
in paragraph 2 above, the following will be true and correct on the Effective
-----------
Date (as defined below):
(a) The representations and warranties of Borrower and its
Subsidiaries set forth in Paragraph 4.01 of the Credit Agreement and in the
--------------------------------------
other Credit Documents are true and correct in all material respects;
(b) No Default or Event of Default has occurred and is continuing;
and
(c) All of the Credit Documents are in full force and effect.
(Without limiting the scope of the term "Credit Documents," Borrower expressly
acknowledges in making the representations and warranties set forth in this
Paragraph 4 that, on and after the date hereof, such term includes this
- -----------
Amendment.)
9. EFFECTIVE DATE. The amendments effected by Paragraphs 2, 3, 4 and 5
-------------- ------------------------
above shall become effective on May 15, 1997 (the "Effective Date"), subject to
--------------
receipt by Agent and the Lenders on or prior to the Effective Date of the
following, each in form and substance satisfactory to Agent, the Lenders and
their respective counsel:
(a) This Amendment, duly executed by Borrower, each Lender and Agent;
(b) A new Note for each Lender in the amount of such Lender's new
Commitment on and after the Effective Date, duly executed by Borrower;
(c) Subsidiary Joinders in the form of Attachment 1 to the Guaranty,
----------------------------
dated the Effective Date and duly executed by ADAC Healthcare Partners,
Inc., ADAC Healthcare Information Systems, Inc. and ADAC Radiology
Services, Inc.;
(d) The stock certificates representing all of the outstanding
capital stock of ADAC Healthcare Partners, Inc. and each other Subsidiary
of Borrower pledged to Agent pursuant to the Borrower Pledge Agreement and
not previously delivered to Agent on the Closing Date, together with
undated stock powers duly executed by Borrower in blank and attached
thereto;
(e) Appropriate documents for filing with the United States Patent
and Trademark Office and all other filings necessary to perfect the
security interests granted to Agent by the IP Security Agreement and not
previously delivered to Agent on the
6
<PAGE>
Closing Date, all appropriately completed and duly executed by Borrower
and, where appropriate, notarized;
(f) A letter in the form of Exhibit A hereto, dated the Effective
---------
Date and duly executed by each Guarantor (including each Subsidiary of
Borrower referred to in Subparagraph 9(c) above);
-----------------
(g) A favorable written opinion of Karen L. Masterson, Vice President
and General Counsel of Borrower, dated the Effective Date, addressed to
Agent and covering such matters as Agent may reasonably request;
(h) The Amendment Fee for each Lender; and
(i) Such other evidence as Agent or any Lender may reasonably request
to establish the accuracy and completeness of the representations and
warranties and the compliance with the terms and conditions contained in
this Amendment and the other Credit Documents.
On the Effective Date, Agent shall calculate the Proportionate Share of each
Lender in each Borrowing which is then outstanding. Based upon such
calculation, the Lenders shall purchase from and sell to each other on the
Effective Date such participations in the outstanding Loans as Agent determines
are necessary to cause each Lender to hold a Loan in each Borrowing in a
principal amount equal to such Lender's Proportionate Share of such Borrowing.
10. EFFECT OF THIS AMENDMENT. On and after the Effective Date, each
------------------------
reference in the Credit Agreement and the other Credit Documents to the Credit
Agreement or the Pledge Agreement shall mean the Credit Agreement or the Pledge
Agreement, as the case may be, as amended hereby. Except as specifically
amended above, (a) the Credit Agreement, the Pledge Agreement and the other
Credit Documents shall remain in full force and effect and are hereby ratified
and confirmed and (b) the execution, delivery and effectiveness of this
Amendment shall not, except as expressly provided herein, operate as a waiver of
any right, power, or remedy of the Lenders or Agent, nor constitute a waiver of
any provision of the Credit Agreement, the Pledge Agreement or any other Credit
Document.
11. MISCELLANEOUS.
-------------
(a) Counterparts. This Amendment may be executed in any number of
------------
identical counterparts, any set of which signed by all the parties hereto
shall be deemed to constitute a complete, executed original for all
purposes.
(b) Headings. Headings in this Amendment are for convenience of
--------
reference only and are not part of the substance hereof.
(c) Governing Law. This Amendment shall be governed by and construed
-------------
in accordance with the laws of the State of California without reference to
conflicts of law rules.
[The signature pages follow.]
7
<PAGE>
IN WITNESS WHEREOF, Borrower, Agent and the Lenders have caused this
Amendment to be executed as of the day and year first above written.
BORROWER: ADAC LABORATORIES
By:___________________________
Name:________________________
Title:_______________________
AGENT: ABN AMRO BANK N.V.
By:___________________________
Name:________________________
By:___________________________
Name:________________________
Title:_______________________
LENDERS: ABN AMRO BANK N.V.
By:___________________________
Name:________________________
Title:_______________________
By:___________________________
Name:________________________
Title:_______________________
SANWA BANK CALIFORNIA
By:___________________________
Name:________________________
Title:_______________________
BANQUE NATIONALE DE PARIS
By:___________________________
Name:________________________
Title:_______________________
By:___________________________
Name:________________________
Title:_______________________
8
<PAGE>
UNION BANK OF CALIFORNIA, N.A.
By:___________________________
Name:________________________
Title:_______________________
9
<PAGE>
ATTACHMENT 1
------------
SCHEDULE 1.01(A)
----------------
PRICING GRID
------------
<TABLE>
<CAPTION>
APPLICABLE MARGINS
DEBT/ BASE COMMITMENT
EBITDA QUARTER RATE LIBOR FEE
RATIO /1/ LEVEL /2/ LOANS LOANS PERCENTAGE
- -------------- --------- ------ ------ -----------
<S> <C> <C> <C> <C>
(less than) 0.90 1 0% 0.875% 0.250%
(greater than) 0.90,
(less than) 1.20 2 0% 1.000% 0.275%
(greater than) 1.20,
(less than) 1.40 3 0% 1.125% 0.325%
(greater than) 1.40,
(less than) 1.60 4 0% 1.250% 0.375%
(greater than) 1.60,
(less than) 2.00 5 0% 1.375% 0.425%
(greater than) 2.00 6 0% 1.500% 0.475%
</TABLE>
_________________________
/1/ For a consecutive four-quarter period.
-
/2/ For the second quarter after the last quarter in the consecutive four-
-
quarter period.
EXPLANATION
-----------
1 The Applicable Margin for each Loan and the Commitment Fee Percentage will
be set for each quarter and will vary depending upon whether such quarter
is a Level 1 Quarter, a Level 2 Quarter, a Level 3 Quarter, a Level 4
Quarter, a Level 5 Quarter or a Level 6 Quarter.
2. The quarter ending September 30, 1996 will be a Level 2 Quarter.
3. Each quarter thereafter will be a Level 1 Quarter, a Level 2 Quarter, a
Level 3 Quarter, a Level 4 Quarter, a Level 5 Quarter or a Level 6 Quarter
depending upon Borrower's Debt/EBITDA Ratio for the consecutive four-
quarter period which ended with the second quarter prior to such quarter.
4. Examples:
(a) For the consecutive four-quarter period ending March 31, 1996, the
Borrower's Debt/EBITDA Ratio was 1.30. The quarter ending September
30, 1996 will again be a Level 3 Quarter.
1.01(a)-2
<PAGE>
(b) For the consecutive four-quarter period ending June 30, 1996, the
Borrower's Debt/EBITDA Ratio was 1.10. The quarter ending December
31, will again be a Level 2 Quarter.
1.01(a)-2
<PAGE>
ATTACHMENT 2
------------
SCHEDULE 4.01(Q)
----------------
SUBSIDIARIES
------------
<TABLE>
<CAPTION>
1. SHARES OWNED DIRECTLY BY BORROWER:
----------------------------------
Shares Shares Owned
Subsidiary Jurisdiction Outstanding/1/ by Borrower/2/
- --------------------- ------------ -------------- --------------
<S> <C> <C> <C>
ADAC Research &
Manufacturing, Inc. California 1,000 100%
Community Health
Computing Corp Delaware 4,000,000 100%
Preferred
ADAC Medical
Technologies, Inc.
(formerly known
as J.D. Technical
Services, Inc.) Delaware 1,000 100%
ADAC Laboratories
Pacific, Inc. California 1,000 100%
ADAC Healthcare Delaware 1 common 100%
Partners, Inc. 1,000,000
Preferred 100%
ADAC Laboratories
Canada Ltd. Canada 100 100%
ADAC Laboratories
Europe, BV. Netherlands 20,646 100%
ADAC Foreign
Sales Corporation Virgin Islands 1,000 100%
ADAC do Brasil Brazil 85,000 100%
</TABLE>
____________________
/1/ All shares common unless otherwise indicated.
-
/2/ An immaterial number of directors' qualifying shares or the equivalent may
-
be outstanding for some Foreign Subsidiaries.
4.01(q)-3
<PAGE>
2. SHARES OWNED DIRECTLY BY COMMUNITY HEALTH COMPUTING CORP. ("CHCC"):
--------
<TABLE>
<CAPTION>
Shares Shares Owned
Subsidiary Jurisdiction Outstanding/1/ by CHCC
- ----------------- ------------ -------------- -------------
<S> <C> <C> <C>
ADAC Healthcare
Information
Systems, Inc. Texas 1,000 100%
</TABLE>
3. SHARES OWNED DIRECTLY BY ADAC HEALTHCARE PARTNERS, INC. ("ADAC HCPI"):
-------------
<TABLE>
<CAPTION>
Shares Shares Owned
Subsidiary Jurisdiction Outstanding/1/ by ADAC HCPI
- ---------------- ------------ -------------- -------------
<S> <C> <C> <C>
ADAC Radiology
Services, Inc. Delaware 1 common 100%
1,000,000
preferred 100%
</TABLE>
____________________
/1/ All shares common unless otherwise indicated.
-
4.01(q)-3
<PAGE>
4. SHARES OWNED DIRECTLY BY ADAC LABORATORIES EUROPE B.V. ("ADAC BV"):
-----------
<TABLE>
<CAPTION>
Shares Owned
Subsidiary Jurisdiction by ADAC BV /2/
- -------------------- ------------ ------------------
<S> <C> <C>
ADAC Laboratories,
SARL France 100%
ADAC Laboratories,
SRL Italy 100%
ADAC Laboratories,
Ltd. UK 100%
ADAC Laboratories,
A/S Denmark 100%
ADAC Laboratories,
GmbH Germany 100%
</TABLE>
____________________
/2/ An immaterial number of directors' qualifying shares or the equivalent may
-
be outstanding for some Foreign Subsidiaries.
4.01(q)-3
<PAGE>
EXHIBIT A
---------
GUARANTOR CONSENT LETTER
------------------------
May 15, 1997
TO: ABN AMRO BANK N.V.,
As Agent for the Lenders under the Credit Agreement referred to below
1. Reference is made to the following:
(a) The Credit Agreement dated as of July 31, 1996 (as previously
amended, the "Credit Agreement") among ADAC Laboratories ("Borrower"), the
financial institutions which are from time to time parties thereto (the
"Lenders"), and ABN AMRO Bank N.V., as agent for the Lenders ("Agent");
(b) The Guaranty dated as of July 31, 1996 ("Guaranty") executed by
the undersigned (each a "Guarantor") in favor of the Lenders and Agent; and
(c) The Second Amendment to Credit Agreement dated as of May 1, 1997
(the "Second Amendment") among Borrower, the Lenders and Agent.
2. Each Guarantor hereby consents to the Second Amendment. Each
Guarantor expressly agrees that such amendment shall in no way affect or alter
the rights, duties, or obligations of any Guarantor, the Lenders or Agent under
the Guaranty.
3. From and after the date hereof, the term "Credit Agreement" as used in
the Guaranty shall mean the Credit Agreement, as amended by the Second
Amendment.
4. Guarantors' consent to the Second Amendment shall not be construed (i)
to have been required by the terms of the Guaranty or any other document,
instrument or agreement relating thereto or (ii) to require the consent of any
Guarantor in connection with any future amendment of the Credit Agreement or any
other Credit Document or any release of Collateral.
A-2
<PAGE>
IN WITNESS WHEREOF, each Guarantor has executed this Guarantor Consent
Letter as of the day and year first written above.
ADAC RESEARCH & MANUFACTURING, INC.
By:_________________________
Name:______________________
Title:_____________________
COMMUNITY HEALTH COMPUTING CORPORATION
By:_________________________
Name:______________________
Title:_____________________
ADAC MEDICAL TECHNOLOGIES, INC.
(formerly known as JD Technical Services, Inc.)
By:_________________________
Name:______________________
Title:_____________________
ADAC LABORATORIES PACIFIC, INC.
By:_________________________
Name:______________________
Title:_____________________
ADAC HEALTHCARE PARTNERS, INC.
By:_________________________
Name:______________________
Title:_____________________
A-2
<PAGE>
ADAC HEALTHCARE INFORMATION SYSTEMS, INC.
By:_________________________
Name:______________________
Title:_____________________
ADAC RADIOLOGY SERVICES, INC.
By:_________________________
Name:______________________
Title:_____________________
A-2
<PAGE>
EXHIBIT 10.2
DIRECTORS' STOCK OPTION PLAN (1987)
-----------------------------------
OF
--
ADAC LABORATORIES
-----------------
1. PURPOSE.
-------
The purpose of this Directors' Stock Option Plan (1987) (the "Plan")
is to assist the Company in attracting, motivating and retaining qualified non-
employee directors by providing a means whereby such persons will be given an
opportunity to acquire a proprietary interest in the Company's future growth by
purchasing shares of Company Common Stock.
2. DEFINITIONS.
-----------
When used in this Plan, unless the context otherwise requires:
(a) "Board of Directors" shall mean the Board of Directors of the
Company as constituted at any time.
(b) "Committee" shall mean the Committee as hereinafter described
in Section 3 hereof.
(c) "Company" shall mean ADAC Laboratories, a California
corporation.
(d) "Directors' Options" shall mean options to purchase 20,000
shares (subject to adjustment pursuant to Section 12 hereof) of Company Common
Stock which may be granted each fiscal year by the Company to each person
serving as a director of the Company who is not also an employee of the Company
or any of its Subsidiary corporations.
(e) "Fair Market Value" shall mean the closing price of the
Company's Common Stock, as traded on the NASDAQ National Market System (or, if
such shares are then listed on any national securities exchange, the closing
price on such exchange) on the date as of which such value is being determined.
If the Common Stock is not traded on the NASDAQ National Market System or any
national securities exchange, Fair Market Value shall be determined by the Board
on the basis of the best available market value information.
(f) "Options" shall mean the Directors' Options issued pursuant
to the Plan.
(g) "Plan" shall mean the Directors' Stock Option Plan (1987) of
the Company authorized and adopted by the Board of
<PAGE>
Directors at its meeting held on July 28, 1987 and as amended from time to time.
(h) "Share" shall mean a share of Common Stock of the Company.
(i) "Subsidiary" shall mean any corporation in which the Company
owns, directly or indirectly, stock possessing fifty percent (50%) or more of
the total combined voting power of all classes of stock.
3. ADMINISTRATION.
--------------
The Plan shall be administered by the Board of Directors or by a
Committee which shall consist of such members of the Board of Directors of the
Company or such other persons as may be appointed by the Board of Directors.
The Board and, if any, the Committee, shall have full power and authority to
construe, interpret and administer the Plan and to make determinations which
shall be final, conclusive and binding upon all persons, including but not
limited to the Company, the shareholders and any person having an interest in
any Options. If a member of the Committee, for any reason, shall cease to
serve, the vacancy may be filled by the Board of Directors. Any member of the
Committee may be removed at any time, with or without cause, by the Board of
Directors.
4. ELIGIBILITY.
-----------
Options may be granted only to non-employee directors of the Company;
employees of the Company or any of its Subsidiary corporations are not eligible
to receive Options under the Plan.
5. SHARES SUBJECT TO THE PLAN.
--------------------------
Subject to the provisions of Section 12 (relating to adjustments upon
changes in shares), the Shares which may be sold pursuant to Directors' Options
granted under the Plan shall not exceed in the aggregate 300,000 shares of the
Company's authorized Common Stock, without par value. If any Option under the
Plan shall for any reason terminate or expire without having been exercised in
full, the Shares not purchased under such Option shall again be available under
the Plan.
6. ANNUAL OPTION GRANTS.
--------------------
2
<PAGE>
The number of Shares to be optioned to each non-employee director
shall be fixed at 20,000 Option Shares during each fiscal year of the Company.
The initial annual grant shall be made on the date of approval of the Plan by
the shareholders of the Company. Except for the limitations upon the duration,
vesting, exercise price and method of exercise of Directors' Options as
hereinafter set forth, the form of Option, including the terms and provisions
thereof, shall be as determined from time to time by the Board of Directors or
the Committee and each Option issued may contain terms and provisions different
from other Options granted to the same or other Option recipients. An Option
Agreement, signed by an officer of the Company, shall be issued to each person
to whom an Option is granted.
7. PRICE.
-----
The purchase price per Share for the Shares to be purchased pursuant
to the exercise of any Option shall be fixed by the Board of Directors or the
Committee at the time of grant of the Option, but shall always equal 100% of the
Fair Market Value of the Shares on the date such Option is granted.
8. DURATION OF OPTIONS.
-------------------
All Directors' Options issued under the Plan shall have a duration of
five (5) years from the date of grant, regardless of any termination of the Plan
prior to the exercise of such Options.
9. NON-TRANSFERABILITY OF OPTIONS.
------------------------------
Options shall not be transferable by the holder thereof otherwise than
by will or the laws of descent and distribution to the extent provided herein,
and Options may be exercised or surrendered during the holder's lifetime only by
the holder thereof.
10. EXERCISE OF OPTIONS.
-------------------
(a) Except in the event of death, in which case they may be
exercised in full immediately, and except as provided in Section 12 below,
Directors' Options may be exercised only in installments as follows: 50% of the
Shares subject to the Option may be exercised after 12 months from the date of
grant; and all of the Shares subject to the Option may be exercised after 24
months from the date of grant; provided, however, that Options may be exercised
only during the periods beginning on the third
3
<PAGE>
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.
(b) An Option shall be exercised by the delivery of a duly signed
notice in writing to such effect, together with the full purchase price.
Payment of the purchase price shall be made in cash or outstanding Common Stock
of the Company already owned by the optionee (valued at Fair Market Value).
Option Agreements under the Plan may 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
of exercise, would be equal to the total withholding obligation of Optionee.
(c) The Company will, as soon as practicable after the exercise
of an Option, deliver to the person entitled thereto a certificate or
certificates for the Shares purchased pursuant to the exercise of the Option.
11. TERMINATION.
-----------
If a holder of a Directors' Option shall resign or be removed as a
director, the Option of such holder shall terminate, except that, subject to the
limitation stated in the last sentence of this Section 11, (i) if his director's
status with the Company is terminated for any reason other than his death, he
may at any time within three months after such termination exercise his Option
but only to the extent that it was exercisable by him on the date of termination
and only if his status was not terminated because of a violation of his normal
duties; and (ii) if he dies while serving as a director of the Company, or
within three months after termination of such status, his Option may be
exercised by the person or persons to whom his rights under the Option shall
pass by will or by the laws of descent and distribution, without regard to the
vesting provisions included in the Option. In no event may an Option be
exercised to any extent by anyone after the expiration of its term.
12. CHANGES IN CAPITALIZATION: SPLITS, LIQUIDATIONS, MERGERS AND
-------------------------------------------------------------
REORGANIZATIONS.
- ---------------
(a) The aggregate number of shares of Common
4
<PAGE>
Stock for which Options may be granted to eligible persons under the Plan, the
number of shares of Common Stock covered by each outstanding Option and the
price per share thereof in each such Option may be proportionately adjusted by
the Board of Directors or the Committee for any increase or decrease in the
number of issued shares of Common Stock of the Company resulting from a stock
split, a reverse stock split, a subdivision or consolidation of shares or other
similar capital adjustment, the payment of a stock dividend or any other
increase or decrease in such shares effected without receipt of consideration by
the Company. Any such determination by the Board of Directors of the Company
shall be conclusive.
(b) Upon the dissolution or liquidation of the Company or upon
any reorganization, merger, consolidation pursuant to which the Company does not
survive (except for a reincorporation of the Company in another state), or sale
of all or substantially all of the assets of the Company or upon a change in the
composition of the Board of Directors (not approved by a majority of the
directors in office at the time of such change) which results in a change in
"control" of the Company (for purposes of this subsection "control" is defined
in Rule 405 promulgated by the Securities Exchange Commission under the
Securities Act of 1933, as amended) the Plan and each outstanding Option shall
terminate; provided that in such event each outstanding unexercised Option shall
become fully vested under the Plan and shall be immediately exercisable thirty
(30) days prior to the effective date of such dissolution, liquidation,
reorganization, merger, consolidation, sale of assets or change in control, and
each Optionee may exercise, in whole or in part, any unexpired Option or Options
previously issued to him, without regard to the installment or vesting
provisions of his Option or Options. The grant of an Option under the Plan shall
not affect in any way the ability of the Company to change or adjust its capital
structure or to merge, consolidate, dissolve, liquidate or to sell or transfer
all or any part of its business or assets.
13. ISSUANCE OF SHARES AND COMPLIANCE WITH SECURITIES ACT.
-----------------------------------------------------
The Company may postpone the issuance and delivery of Shares upon any
exercise of an Option until (a) the admission of such Shares to listing on any
stock exchange on which Shares of the Company of the same class are then listed
and (b) the completion of such registration or other qualification of such
Shares under any state or Federal law, rule or regulation as the
5
<PAGE>
Company shall determine to be necessary or advisable. Any person exercising an
Option shall make such representations and furnish such information as may, in
the opinion of counsel for the Company, be appropriate to permit the Company to
issue the Shares in compliance with the provisions of the Securities Act of
1933, as amended.
14. AMENDMENT AND TERMINATION OF THE PLAN.
-------------------------------------
(a) Except as hereinafter provided, the Board of Directors or the
Committee may at any time withdraw or from time to time amend the Plan and the
terms and conditions of any Options not theretofore issued, and the Board of
Directors or the Committee, with the consent of the affected holder of an
Option, may at any time amend the terms and conditions of such Options as have
been theretofore granted. Notwithstanding the foregoing, any amendment to the
Plan by the Board of Directors or Committee which would (i) increase the number
of Shares issuable under Options, (ii) change the class of persons to whom
Options may be granted or (iii) change in any material respect the limitations
or provisions pertaining to Options, shall be subject to the approval of the
holders of a majority of the shares of the Company present at any meeting of
shareholders and entitled to vote thereat either prior to or within one year
after such amendment.
(b) The determination of the Board of Directors or the Committee
as to any questions which may arise with respect to the interpretation of the
provisions of the Plan and Options granted hereunder shall be final and
conclusive.
(c) The Board of Directors or the Committee may authorize and
establish such rules, regulations and revisions thereof, not inconsistent with
the provisions of the Plan, as it may deem advisable to make the Plan and
Options effective or provide for their administration, and may take such other
action with regard to the Plan and Options as it shall deem desirable to
effectuate their purpose.
(d) The Plan shall remain in effect until such time as it is
terminated by the Board of Directors of the Company. No such termination shall
affect Options granted prior thereto.
15. EFFECTIVE DATE OF THE PLAN.
--------------------------
The Plan was adopted on July 28, 1987, and is subject to approval of
the holders of a majority of the shares of the
6
<PAGE>
Company present at any meeting of shareholders and entitled to vote thereat.
Options may not be granted under the Plan prior to such shareholder approval.
Adopted by the Board of
Directors on July 28, 1987
7
<PAGE>
ADAC LABORATORIES
-----------------
AMENDMENTS TO DIRECTORS' STOCK OPTION PLAN (1987)
-------------------------------------------------
The Directors' Stock Option Plan (1987) (the "Plan") of ADAC Laboratories,
a California Corporation (the "Company"), is hereby amended in the following
respects:
1. ANNUAL OPTION GRANTS.
--------------------
Section 6 is deleted in its entirety and the following is substituted
in its place:
"6. ANNUAL OPTION GRANTS.
--------------------
The number of Shares to be optioned to each non-employee
director shall be fixed at 20,000 Option Shares during each fiscal
year of the Company. Options to purchase 20,000 Option Shares shall be
granted to each eligible non-employee director on the date of his
becoming a director of the Company and annually thereafter on March 15
of each year (or the next business day if a weekend or holiday). The
initial annual grant shall be made on the date of approval of the Plan
by the shareholders of the Company. Each option shall be for a term of
five (5) years from the date of grant and shall vest and become
exercisable fifty percent (50%) upon the first anniversary of the date
of grant and become fully exercisable upon the second anniversary of
the date of grant. An option agreement, signed by an officer of the
Company, shall be issued to each person to whom an option is granted."
2. NON-TRANSFERABILITY OF OPTIONS.
------------------------------
Section 9 is deleted in its entirety and the following is substituted
in its place:
"9. NON-TRANSFERABILITY OF OPTIONS.
------------------------------
(a) Options shall not be transferrable by the holder
thereof otherwise than (i) by will, (ii) pursuant to the laws of
descent and distribution or (iii) if then permitted by Rule 16b-3,
promulgated under the Securities Exchange Act of 1934, as amended,
pursuant to a qualified domestic relations order as defined by the
Internal Revenue Code of 1986, as amended, or by Title I of the
Employee Retirement Income Security Act (ERISA), or the rules
thereunder; provided, however, that an Option holder may designate
<PAGE>
a beneficiary who, upon Option holder's death, may exercise the Option
to the extent permitted in Section 10 of the Plan.
(b) Subject to early acceleration as provided herein, at
least six months must elapse from the date of the grant of the
Directors' Options to the date of disposition of the Directors' Option
(other than upon exercise or conversion) or the shares subject to such
Directors' Option."
3. AMENDMENT AND TERMINATION OF THE PLAN.
-------------------------------------
A new subsection 14(e) is added as follows:
"(e) Notwithstanding anything in the Plan to the contrary,
the terms and conditions of this Plan shall not be amended more than
once every six months other than to comport with changes in the
Internal Revenue Code, the Employee Retirement Income Securities Act,
or the rules thereunder."
4. EFFECTIVE DATE.*
--------------
In all other respects, and except as expressly provided herein, the
Plan is hereby confirmed. These amendments to the Plan, as set forth herein,
have been approved by the Board of Directors on February 20, 1992, and are
effective on and as of such date. Shareholder approval of these amendments is
not required in reliance on Securities Exchange Act Release No. 34-28869
(footnote 244), as such amendments are designed to conform the Plan with the new
requirements of Rule 16b-3.
BY ORDER OF THE BOARD OF DIRECTORS
By /s/ Stanley D. Czerwinski
---------------------------------
Stanley D. Czerwinski
*Adopted prior to 1-for-3 reverse stock split.
2
<PAGE>
ADAC LABORATORIES
-----------------
AMENDMENT TO DIRECTOR'S STOCK OPTION PLAN (1987),
------------------------------------ ------------
AS AMENDED
----------
The Director's Stock Option Plan 1987, as amended (the "Plan"), of ADAC
Laboratories, a California corporation (the "Company"), as previously amended,
is hereby further amended in the following respects:
1. SHARES SUBJECT TO THE PLAN. Section 5 of the Plan, entitled "Shares
--------------------------
Subject to the Plan", is hereby amended to delete the first sentence and to
substitute in its place the following first sentence:
"Subject to the provisions of Section 12 (relating to
adjustments upon changes in shares), the Shares which may be
sold pursuant to Directors' Options granted under the Plan
shall not exceed in the aggregate 500,000* shares of the
Company's Common Stock".
2. EFFECTIVE DATE. In all other respects, and except as expressly
--------------
provided herein, the Plan is hereby confirmed. This Amendment to the Plan, as
set forth herein, has been approved by the Board of Directors of the Company on
May 6, 1992 and is made subject to the consent of the shareholders at the
Company's next Annual Meeting of Shareholders.
BY ORDER OF THE BOARD OF DIRECTORS
By /s/ Stanley D. Czerwinski
---------------------------------
Title President
------------------------------
*Prior to 1-for-3 reverse stock split.
<PAGE>
AMENDMENT NO. 3
---------------
TO
--
ADAC LABORATORIES'
------------------
DIRECTORS' STOCK OPTION PLAN (1987)
-----------------------------------
The Directors' Stock Option Plan (1987) (the "Plan") of ADAC Laboratories,
a California Corporation (the "Company"), is hereby amended in the following
respects:
1. DEFINITIONS.
-----------
Section 2(d), concerning the definition of "Directors' Options," is
hereby amended to delete the sentence and to substitute in its place the
following sentence:
"(d) 'Directors' Options' shall mean options to purchase
shares of Company Common Stock which may be granted each fiscal year
by the Company to each person serving as a director of the Company who
is not also an employee of the Company or any of its Subsidiary
corporations."
2. SHARES SUBJECT TO THE PLAN.
--------------------------
Section 5 of the Plan, entitled "Shares Subject to the Plan," is
hereby amended to delete the first sentence and to substitute in its place the
following first sentence:
"Subject to the provisions of Section 12 (relating to
adjustments in the number of shares upon certain changes), the Shares
which may be sold pursuant to Directors' Options granted under the
Plan shall not exceed in the aggregate 231,666 shares of the Company's
authorized Common Stock."
3. OPTION GRANTS.
-------------
Section 6, entitled "Annual Option Grants," is deleted in its entirety
and the following is substituted in its place:
"6. Annual Option Grants.
--------------------
The number of shares to be optioned to each non-
employee director shall be fixed at 3,333 Option Shares during each
fiscal year of the Company and such grant shall automatically occur on
March 15th of each year except during each fifth year the director
shall receive a grant of 20,000 shares (in lieu of the 3,333 share
annual grant), provided, however, that on the date a person first
becomes a
<PAGE>
director such person shall receive an option grant of 20,000 shares. Each
option shall be for a term of five (5) years from the date of grant and
each annual 3,333 share grant shall vest and become fully exercisable upon
the first anniversary of the date of grant and each 20,000 share grant
shall vest and become exercisable 25% per year. An option agreement, signed
by an officer of the Company, shall be issued to each person to whom an
option is granted."
4. "EXERCISE OF OPTIONS."
--------------------
Section 10(a), entitled "Exercise of Options," is hereby deleted in
its entirety and the following subsection is substituted in its place:
"(a) Except in the event of death, in which case the
Directors' Options may be exercised in full immediately, and except as
provided in Section 12 below, Directors' Options may be exercised only
as follows: (i) each annual 3,333 share grant shall vest and become
fully exercisable upon the first anniversary of the date of grant and
(ii) each 20,000 share grant shall vest and become fully exercisable
25% per year."
5. "CHANGE IN CONTROL."
------------------
Section 12(b), entitled "Changes in Capitalization: Splits,
Liquidations, Mergers and Reorganizations," is deleted in its entirety and the
following subsection is substituted in its place:
"(b)(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
2
<PAGE>
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."
6. EFFECTIVE DATE.
--------------
In all other respects, and except as expressly provided herein, the
Plan is hereby confirmed. These amendments to the Plan, as set forth herein,
have been approved by the Board of Directors on November 2, 1995, and the
amendments set forth in paragraphs 2, 3 and 5 above have been approved by the
shareholders on March 6, 1996 and all amendments are effective on and as of such
later date.
BY ORDER OF THE BOARD OF DIRECTORS
By /s/ David L. Lowe
----------------------------------
David L. Lowe,
Chairman of the Board
3
<PAGE>
AMENDMENT NO. 4
---------------
TO
--
ADAC LABORATORIES'
------------------
DIRECTORS' STOCK OPTION PLAN (1987)
-----------------------------------
The Directors' Stock Option Plan (1987) (the "Plan") of ADAC Laboratories,
a California Corporation (the "Company"), is hereby amended in the following
respects:
1. SHARES SUBJECT TO THE PLAN.
--------------------------
Section 5 of the Plan, entitled "Shares Subject to the Plan," is
hereby amended to delete the first sentence and to substitute in its place the
following first sentence:
"Subject to the provisions of Section 12 (relating to
adjustments in the number of shares upon certain changes), the Shares
which may be sold pursuant to Directors' Options granted under the
Plan shall not exceed in the aggregate 288,331 shares of the Company's
authorized Common Stock."
2. EFFECTIVE DATE.
--------------
Except as amended above, in all other respects the Plan is hereby
confirmed. The amendment to the Plan, as set forth herein, has been approved by
the Board of Directors on October 31, 1996, and have been approved by the
shareholders on May 15, 1997, and are effective as of such later date.
BY ORDER OF THE BOARD OF DIRECTORS
By /s/ David L. Lowe
----------------------------------
David L. Lowe,
Chairman of the Board
<PAGE>
EXHIBIT 10.3
ADAC LABORATORIES
-----------------
1992 STOCK OPTION PLAN
----------------------
1. PURPOSES OF PLAN. The purposes of this 1992 Stock Option Plan of ADAC
----------------
Laboratories (the "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 and other persons whose
efforts are deemed worthy of encouragement in order to promote the growth and
success of the Company's business.
2. DEFINITIONS. As used herein, the following definitions shall apply:
-----------
(a) "BOARD" shall mean the Board of Directors of the Company.
(b) "CODE" shall mean the Internal Revenue Code of 1986, as amended.
(c) "COMMON STOCK" shall mean the Common Stock of the Company.
(d) "COMPANY" shall mean ADAC Laboratories, a California corporation.
(e) "COMMITTEE" shall mean the Committee appointed by the Board of
Directors in accordance with Section 4(a) below, if one has been appointed.
(f) "CONSULTANT" shall mean any person who is engaged by the Company
or any Parent or Subsidiary of the Company to render consulting services.
(g) "CONTINUOUS STATUS AS AN EMPLOYEE OR CONSULTANT" shall mean the
absence of any interruption or termination of services as an Employee or
Consultant. Continuous Status as an Employee or Consultant 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 guaranteed by contract or statute.
(h) "EMPLOYEE" shall mean any person, including an officer or
director, employed by the Company or any Parent or Subsidiary of the Company.
The payment of a director's fee by the Company shall not be sufficient to
constitute "employment" by the Company.
(i) "OFFICER" shall mean any person, including a director, employed
by the Company or any Parent or Subsidiary of the Company who has been elected
an officer of the Company by the Board of Directors and who is required to file
periodic reports
<PAGE>
under Section 16(a) of the Securities Exchange Act of 1934.
(j) "OPTION" or "OPTIONS" shall mean one or more 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 422A of the Code
and any regulations promulgated thereunder, or "Nonqualified Options," which are
defined as Options not intended to meet such requirements.
(k) "OPTIONED STOCK" shall mean the Common Stock subject to an
Option.
(l) "OPTIONEE" shall mean a person who receives an Option.
(m) "PARENT" shall mean a "parent corporation", whether now or
hereafter existing, as defined in Section 425(e) of the Code.
(n) "PLAN" shall mean this 1992 Stock Option Plan.
(o) "SHARE" shall mean a share of Common Stock, as may be adjusted in
accordance with Section 11 below.
(p) "SUBSIDIARY" shall mean a "subsidiary corporation", whether now
or hereafter existing, as defined in Section 425(f) of the Code.
3. STOCK SUBJECT TO THE PLAN. Subject to the provisions of Section 11
-------------------------
below, the maximum aggregate number of shares that may be optioned and sold
under the Plan is three million (3,000,000) shares of Common Stock. If an
Option should expire or become unexercisable for any reason without having been
exercised in full, then the unpur chased shares that were subject to the Option
shall, unless the Plan has been terminated, become available for future grant
under the Plan.
4. ADMINISTRATION OF THE PLAN.
--------------------------
(A) APPOINTMENT OF COMMITTEE.
------------------------
(i) Before any Option under the Plan is granted to an Officer or
Director of the Company, the Board shall appoint a Committee,
comprised of not less than two (2) members of the Board, each of whom
shall be a "disinterested person", as that term is defined from time
to time in Rule 16b-3(c)(2)(i) promulgated under the Securities
Exchange Act of 1934, as amended. The Committee may be an existing
committee of the Board or
2
<PAGE>
a new committee organized for the purpose of administering the Plan.
Options granted to any person who is both an employee and a Director
may be granted only by the Committee.
(ii) An Option to an Officer may be granted by the Board if each
member thereof is then a "disinterested person" (as hereinabove
defined). Otherwise, an Option to an Officer may be granted only by
the Committee.
(iii) A Option to a person who is neither an Officer nor a
Director may be granted by either the Board or the Committee.
(iv) Subject to the foregoing, the Board may, from time to time,
increase the size of the Committee and appoint additional members
thereof, remove members (with or without cause) and appoint new
members in substitution therefor, fill vacancies however caused or
remove all members of the Committee. All actions of the Board or the
Committee, if taken in accordance with the Company's Bylaws, shall be
valid notwithstanding the fact that one or more of the members thereof
do not constitute "disinterested persons", as hereinabove defined.
(B) POWERS OF THE BOARD. Subject to the provisions of the Plan, the
-------------------
Board and the Committee shall have the authority, in its discretion:
(i) to determine, upon review of relevant information, the fair
market value of the Common Stock;
(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 and the exercise price per
Share;
(iii) to interpret the Plan;
(iv) to prescribe, 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
3
<PAGE>
Option;
(vi) to determine the exercise date(s) and the number of shares
exercisable at each such date, and 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 approved by the Board or the Committee;
(viii) to reduce the exercise price of outstanding Options if the
fair market value of the shares subject to any such Option is more
than twenty percent (20%) below the existing exercise price of such
Option and, in connection therewith, to maintain or modify the
existing, or commence a new, vesting schedule and, if required in
connection therewith, to reclassify Incentive Options to Nonqualified
Options;
(ix) to make such adjustments to Options granted under the Plan
to enable them to comply with the laws of foreign jurisdictions and/or
to make them consistent with options customarily utilized by companies
in foreign jurisdictions; and
(x) to make all other determinations deemed necessary or
advisable for the administration of the Plan.
(C) EFFECT OF DECISIONS. All decisions, determinations, and
-------------------
interpretations of the Board or the Committee shall be final and binding on all
Optionees and any other holders of any Options granted under the Plan.
5. ELIGIBILITY. Options may be granted only to Employees, Officers,
-----------
Consultants or other persons whose efforts are deemed by the Board or the
Committee to be worthy of encouragement in order to promote the growth and
success of the Company. A person who has been granted an Option may, if he/she
is otherwise eligible, be granted an additional Option or Options. Options
under the Plan may not be granted to any non-employee director.
Neither the Plan nor any Option granted hereunder shall confer upon
any Optionee any right with respect to continuation of employment with the
Company, nor shall it interfere in any way with his/her right or the Company's
right to terminate his/her employment at any time, with or without cause.
4
<PAGE>
6. TERM OF PLAN. The Plan shall continue in effect for a term of ten
------------
(10) years unless sooner terminated under Section 13 below. Options may be
granted hereunder immediately.
7. TERM OF OPTION. The term of any Incentive Option granted under the
--------------
Plan shall be for a period of not to exceed ten (10) years from the date on
which it is granted, as determined by the Board of Directors or the Committee;
provided, however, that any Incentive Option granted to any person who owns
shares possessing more than ten percent (10%) of the total combined voting power
or value of all classes of stock of the Company or of a Subsidiary of the
Company shall have a term of not to exceed five (5) years. The term of a
Nonqualified Option may be infinite or for a specific term.
8. EXERCISE PRICE AND CONSIDERATION.
--------------------------------
(A) EXERCISE PRICE. The per share exercise price for the Shares to
--------------
be issued pursuant to the exercise of an Incentive Option shall not be less than
one hundred percent (100%) of the fair market value of the Company's Common
Stock on the date of grant as determined by the Board or the Committee;
provided, however, that any Incentive Option granted to any person who owns
shares possessing more than ten percent (10%) of the total combined voting power
or value of all classes of stock of the Company or of a Subsidiary thereof shall
have a per share exercise price of one hundred ten percent (110%) of the fair
market value of the Company's Common Stock on the date of grant as determined by
the Board or the Committee. The per share exercise price for Shares to be
issued pursuant to the exercise of a Nonqualified Option shall not be less than
eighty-five percent (85%) of the fair market value of the Company's Common Stock
on the date of grant as determined by the Board or the Committee.
(B) FAIR MARKET VALUE. The fair market value shall be determined by
-----------------
the Board or the Committee in its discretion; provided, however, that if there
is a public market for the Common Stock, the fair market value per Share shall
be, in the event the Common Stock is listed on the NASDAQ National Market System
or on a stock exchange, the closing price on such National Market System or
exchange on the date of grant of the Option, as reported in the "Wall Street
Journal", and, if not so listed, fair market value shall be the mean of the bid
and asked prices of the Common Stock on the date of the grant, as reported in
the "Wall Street Journal" (or, if not so reported, as otherwise reported by the
National Association of Securities Dealers Automated Quotation (NASDAQ) System).
5
<PAGE>
(C) CONSIDERATION. The consideration to be paid for the Shares to be
-------------
issued upon exercise of an Option, including the method of payment, shall be
determined by the Board or the Committee and may consist entirely of cash,
check, promissory note or shares of Company Common Stock (which must have been
held for at least six (6) months) having a fair market value on the date of
surrender equal to the aggregate exercise price of the Shares as to which the
Option shall be exercised, or any combination of such methods of payment, or
other consideration and method of payment for the issuance of Shares to the
extent permitted under Section 408 and 409 of the California General Corporation
Law. In making its determination as to the type of consideration to accept, the
Board or the Committee shall consider whether such consideration may be
reasonably expected to benefit the Company.
(D) RE-LOAD OPTION. 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 permitted by the Board or the
Committee, at its discretion, at the time of such exercise, the Optionee shall
receive a new Option for the purchase of a number of Shares equal to the number
of Shares so surrendered, and such new Option shall have an exercise price of
not less than the fair market value of a Share of Common Stock on the date of
such surrender and shall vest and become exercisable as may be determined by the
Board or the Committee.
(E) WITHHOLDING TO PAY TAXES. Option Agreements under the Plan may
------------------------
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 either (i) delivering outstanding shares of Common Stock of the
Company previously owned for six (6) months by the Optionee or (ii) the
withholding of a sufficient number of exercised Option shares which, valued at
fair market value on the date of exercise, would be equal to the total
withholding obligation of the Optionee; provided, however, that 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
Stock unless such election is made 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 releases publicly the operating results of a fiscal quarter or
fiscal year and ending on the twelfth (12th) 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 be
operative
6
<PAGE>
for all Option exercises which occur following the election, until terminated by
a notice revoking such withholding election (such termination shall become
effective six (6) months after the date of such new notice).
9. EXERCISE OF OPTION.
------------------
(A) PROCEDURE FOR EXERCISE; RIGHTS AS A SHAREHOLDER.
-----------------------------------------------
(i) Any Option granted hereunder shall be exercisable at such
times and under such conditions as determined by the Board or the Committee,
including performance criteria with respect to the Company and/or the Optionee,
and as otherwise permissible under the terms of the Plan.
(ii) An Option may not be exercised for a fraction of a Share.
(iii) An Option shall be deemed to be exercised when written
notice of such exercise has been given to the Company in accordance with the
terms of the Option by the person entitled to exercise the Option and full
payment for the Shares with respect to which the Option is exercised has been
received by the Company; provided, however, that the Board or the Committee may
prescribe and adopt rules and procedures allowing an Optionee to exercise an
Option and sell the Optioned Stock simultaneously (or on the same business day)
under circumstances which provide reasonable certainty that the Company will
receive the Option exercise price by the settlement date of the sale of the
Optioned Stock. Until the issuance (as evidenced by an appropriate entry on the
books of the Company or of a duly authorized transfer agent of the Company) of
the stock certificate evidencing such Shares, no right to vote or receive
dividends or any other rights as a shareholder shall exist with respect to the
Optioned Stock, notwithstanding the exercise of the Option. No adjustment shall
be made for a dividend or other right for which the record date is prior to the
date the stock certificate is issued, except as provided in Section 11 below.
(iv) Exercise of an Option in any manner shall result in a
decrease in the number of Shares which thereafter may be available, both for
purposes of the Plan and for exercise under the Option, by the number of Shares
as to which the Option is exercised.
7
<PAGE>
(B) TERMINATION OF CONTINUOUS STATUS AS AN EMPLOYEE OR CONSULTANT.
-------------------------------------------------------------
(i) Except as set forth in Section 9(b)(ii) below, if an Employee
or Consultant ceases his/her Continuous Status as an Employee or Consultant (as
the case may be), he/she may, but only within ninety (90) days (or, with respect
to Nonqualified Options, such longer period of time as may be determined by the
Board or the Committee), after the date he/she ceases to have such Continuous
Status, exercise his/her Option to the extent that he/she was entitled to
exercise it at the date of such termination.
(ii) Notwithstanding the provisions of Section 9(b)(i) above, if
the holder of an Option (A) is terminated due to Optionee's willful refusal to
perform the normal and/or reasonable duties and responsibilities delegated to
Optionee as an Employee of the Company, (B) is terminated due to Optionee's
expropriation of Company property (including trade secrets or other proprietary
rights), or (C) leaves the employment of the Company in order to directly (or
indirectly, as an employee or agent of another business or business entity)
compete with the Company, the Board or the Committee 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.
(C) RETIREMENT. Notwithstanding the provisions of Section 9(a)
----------
above, if an Optionee ceases Continuous Status as an Employee or Consultant as a
result of retiring as an active Employee or Consultant of the Company at age 62
or older, such ninety-day period shall be extended to one (1) year. To the
extent that Optionee was not entitled to exercise the Option at the date of such
termination, or if Optionee does not exercise such Option within the time
specified herein, the Option shall terminate.
(D) DISABILITY. Notwithstanding the provisions of Section 9(a)
----------
above, in the event an Employee or Consultant is unable to continue his/her
employment or consulting relationship (as the case may be) with the Company as a
result of his/her total and permanent disability (as defined in Section
105(d)(4) of the Code), he/she may, but only within a period of up to twenty-
four (24) months (or such shorter or longer period of time as is determined by
the Board or the Committee or as set forth in the Option Agreement) from the
date of termination, exercise the Option to the extent Optionee was entitled to
exercise it at the date of such termination. To the extent that Optionee was
not entitled to exercise the Option at the date of termination, or if
8
<PAGE>
Optionee does not exercise such Option within the time specified herein, the
Option shall terminate.
(E) DEATH OF OPTIONEE. In the event of the death of an Optionee
-----------------
which occurs during the time in which an Option may be exercised, such Option
may be exercised at any time within two (2) years following the date of death or
such shorter period as may be set forth in the Option Agreement, by the
Optionee's estate or by a person who acquired the right to exercise the Option
by bequest or inheritance, but only to the extent of the right to exercise that
would have accrued had the Optionee continued living and remained in Continuous
Status as an Employee or Consultant for two (2) years after the date of death.
(F) DESIGNATION OF BENEFICIARY. Notwithstanding anything in the Plan
--------------------------
to the contrary, any Option Agreement issued under the Plan may provide for the
designation of a beneficiary of the Optionee (which may be an individual or a
trust) who may exercise the Option after the Optionee's death and enjoy the
economic benefits thereof, subject to the consent of Optionee's spouse if
required by law.
10. NON-TRANSFERABILITY OF OPTIONS.
------------------------------
Options shall not be transferable by the holder thereof otherwise than
(i) by will, (ii) pursuant to the laws of descent and distribution or (iii) if
then permitted by Rule 16b-3 promulgated under the Securities Exchange Act of
1934, as amended, pursuant to a qualified domestic relations order as defined in
the Code or Title I of the Employee Retirement Income Security Act (ERISA), or
the rules thereunder; provided, however, that an Optionee may designate a
beneficiary who, upon Optionee's death, may exercise the Option to the extent
permitted in Section 9 of the Plan.
11. ADJUSTMENTS.
-----------
(A) STOCK SPLITS, DIVIDENDS AND OTHER COMBINATIONS. Subject to any
----------------------------------------------
required action by the shareholders of the Company, the number of shares of
Common Stock covered by each outstanding Option, and the number of shares of
Common Stock which have been authorized for issuance under the Plan but as to
which no Options have yet been granted or which have been returned to the Plan
upon cancellation or expiration of an Option, as well as the price per share of
Common Stock covered by each such outstanding Option, shall be proportionately
adjusted for any increase or decrease in the number of issued shares of Common
Stock resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of the Common Stock, or any other increase or
9
<PAGE>
decrease in the number of issued shares of Common Stock effected without receipt
of consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Such adjustment shall be made by the Board
or the Committee, whose determination in that respect shall be final, binding
and conclusive. Except as expressly provided herein, no issuance by the Company
of shares of stock of any class, or securities convertible into shares of stock
of any class, shall affect, and no adjustment by reason thereof shall be made
with respect to, the number or price of shares of Common Stock subject to an
Option.
(B) DISSOLUTION OR LIQUIDATION. In the event of the proposed
--------------------------
dissolution or liquidation of the Company, each Option shall terminate
immediately prior to the consummation of such proposed action, unless otherwise
provided by the Board or the Committee. The Board or the Committee 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 or the Committee and give each
Optionee the right to exercise his/her Option as to all or any part of the
Optioned Stock, including Shares as to which the Option would not otherwise be
exercisable.
(C) SALE OF ASSETS OR MERGER. In the event of a proposed sale of all
------------------------
or substantially all of the assets of the Company, or the merger of the Company
with or into another corporation, the Option shall be assumed or an equivalent
option (containing the same vesting schedule and equivalent exercise price)
shall be substituted by such successor corporation or a parent or subsidiary of
such successor corporation, unless the Board or the Committee determines, in the
exercise of its sole discretion and in lieu of such assumption or substitution,
that the Optionee shall have the right to exercise the Option as to all of the
Optioned Stock, including Shares as to which the Option would not otherwise be
exercisable. If the Board or the Committee makes an Option fully exercisable in
lieu of assumption or substitution in the event of a merger or sale of assets,
then the Board shall notify the Optionee that the Option shall be fully
exercisable for a period of thirty (30) days from the date of such notice, and
the Option shall terminate upon the expiration of such period.
(D) CHANGE IN CONTROL. Upon a Change in Control (as defined below),
-----------------
which is not approved by the vote of a majority of the directors then in office,
all Optionees shall have the right to exercise Options as to all Optioned Stock,
including Optioned Stock which would not otherwise be exercisable. For purposes
of this Agreement, a "Change in Control" shall mean any event in
10
<PAGE>
which (i) any "person" or "group" (as defined in or pursuant to Sections 13(d)
and 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 twenty-five percent (25%) or more of the voting power of the Common
Stock outstanding which votes generally for the election of directors; (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 twenty-four (24) consecutive months, plus any new
directors whose election by such Board or nomination for election by the
stockholders of the Company is 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
twenty-four (24) consecutive months, cease for any reason during such period of
twenty-four (24) consecutive months to constitute at least two-thirds of the
members of such Board; or (iii) the Company or any of its subsidiaries sells, in
one or more transactions other than in the ordinary course of business, assets
constituting all or substantially all of the assets of the Company and its
subsidiaries on a consolidated basis. Notwithstanding the above, the following
events shall not constitute a Change in Control: (1) any acquisition of
beneficial ownership pursuant to a will or the laws of descent and distribution;
(2) or 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
stockholders of the Company (through their ownership of the Company or the
successor to the Company resulting from the reorganization) of the assets of the
Company and its subsidiaries, if such reclassification or reorganization is
approved by the Company's Board of Directors, a majority of whom are
disinterested directors.
12. 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 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
stock 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 a Parent or a Subsidiary of the Company. Notwithstanding the above, to the
extent the fair market value of Shares subject to
11
<PAGE>
Incentive Stock Options first exercisable in a calendar year is greater than
$100,000, the excess Options shall be treated as Non-qualified Options.
13. AMENDMENT AND TERMINATION OF THE PLAN.
-------------------------------------
(A) AMENDMENT AND TERMINATION. The Board or the Committee may at any
-------------------------
time suspend, amend or terminate the Plan with or without shareholder approval;
provided, however, that if the Plan has been previously approved by the
shareholders, no amendment or modification may be adopted without shareholder
approval if the amendment would (i) materially increase the benefits accruing to
participants under the Plan; (ii) materially increase the number of Shares which
may be issued under the Plan or (iii) materially modify the requirements as to
the eligibility for participation in the Plan.
(B) EFFECT OF AMENDMENT OR TERMINATION. Any such amendment or
----------------------------------
termination of the Plan shall not affect Options already granted and such
Options shall remain in full force and effect as if the Plan had not been
amended or terminated, unless mutually agreed otherwise between the Optionee and
the Board or the Committee, which agreement must be in writing and signed by the
Optionee and the Company.
14. CONDITIONS UPON ISSUANCE OF SHARES.
----------------------------------
(A) COMPLIANCE WITH SECURITIES LAWS. Shares shall not be issued
-------------------------------
pursuant to the exercise of an Option unless the exercise of such Option and the
issuance and delivery of such Shares pursuant thereto complies with all relevant
provisions of law, including, without limitation, the Securities Act of 1933,
the Securities Exchange Act of 1934, the rules and regulations promulgated
thereunder, and the requirements of any stock exchange upon which the Shares may
then be listed. The exercise of such Option and the issuance and delivery of
such Shares pursuant thereto shall be further subject to the approval of counsel
for the Company with respect to such compliance.
(B) INVESTMENT REPRESENTATION. As a condition to the exercise of an
-------------------------
Option, the Company may require the person exercising such Option to represent
and warrant at the time of any such exercise that the Shares are being purchased
only for investment and without any present intention to sell or distribute such
Shares if, in the opinion of counsel for the Company, such a representation is
required by any of the aforementioned relevant provisions of law.
15. RESERVATION OF SHARES. The Company, during the term of
---------------------
12
<PAGE>
the Plan, will at all times reserve and keep available such number of Shares as
shall be sufficient to satisfy the requirements of the Plan. The inability of
the Company to obtain authority from any regulatory body having jurisdiction,
which authority is deemed by the Company's counsel to be necessary to the lawful
issuance and sale of any Shares hereunder, shall relieve the Company of any
liability in respect of the failure to issue or sell such Shares as to which
such requisite authority shall not have been obtained.
16. OPTION AGREEMENTS. Options shall be evidenced by written Option
-----------------
Agreements in such form as the Board or the Committee shall approve.
17. SHAREHOLDER APPROVAL. The Plan shall become effective when approved
--------------------
by the Board or any committee thereof having authority to do so. The Plan may
be submitted to the shareholders for approval, but the lack of such shareholder
approval shall not affect the validity or effectiveness of any Option granted
hereunder.
Adopted and Approved
Effective July 8, 1992
13
<PAGE>
AMENDMENT NO. 1 TO
------------------
ADAC LABORATORIES
-----------------
1992 STOCK OPTION PLAN
----------------------
The 1992 Stock Option Plan of ADAC Laboratories (the "Plan") is hereby
amended, effective immediately, as follows:
1. Section 4(b)(viii), providing for the reduction of the exercise price
of outstanding options under certain circumstances, is hereby deleted.
2. The last full sentence of Section 8(a) of the Plan, providing for the
determination of the exercise price of stock options granted, is hereby amended
to read in full as follows:
"The per share exercise price for Shares to be issued
pursuant to the exercise of a Nonqualified Option shall
not be less than one hundred percent (100%) of the fair
market value of the Company's Common Stock on the date
of grant as determined by the Board or the Committee."
3. In all other respects the Plan is hereby ratified and confirmed.
4. The amendments to the Plan herein set forth have been approved and are
effective as of the fifteenth (15th) day of March, 1993.
By order of the Board of Directors:
By /s/ Stanley D. Czerwinski
---------------------------------
Stanley D. Czerwinski,
Chairman of the Board
<PAGE>
AMENDMENT NO. 2
---------------
TO
--
ADAC LABORATORIES
-----------------
1992 STOCK OPTION PLAN
----------------------
The 1992 Stock Option Plan of ADAC Laboratories (the "Plan") is hereby
amended, effective immediately, as follows:
1. Section 3, providing for the number of shares subject to the Plan, is
hereby amended to provide that the maximum aggregate number of shares that may
be optioned and sold under the Plan is 1,666,000 shares of Common Stock (such
number reflects the prior 1-for-3 reverse stock split).
2. In all other respects the Plan is hereby ratified and confirmed.
3. The amendments to the Plan herein set forth have been approved by the
Board of Directors on November 3, 1993 and approved by the shareholders on March
2, 1994, and are effective as of such later date.
By order of the Board of Directors:
By /s/ Stanley D. Czerwinski
--------------------------------
Stanley D. Czerwinski,
Chairman of the Board
<PAGE>
AMENDMENT NO. 3
---------------
TO
--
ADAC LABORATORIES
-----------------
1992 STOCK OPTION PLAN
----------------------
The 1992 Stock Option Plan of ADAC Laboratories (the "Plan") is hereby
amended, effective immediately, as follows:
1. Section 3, providing for the number of shares subject to the Plan, is
hereby amended to provide that the maximum aggregate number of shares that may
be optioned and sold under the Plan is 2,446,000 shares of Common Stock
2. Section 5, entitled "Eligibility," is hereby amended to change the
title to "Eligibility; Maximum Annual Limitation" and to add a new last
sentence to the first paragraph as follows:
"The aggregate number of shares of Common Stock with respect to
which Options may be granted to any one Optionee shall not exceed 300,000
shares in any calendar year, subject to adjustment in accordance with
Section 11."
3. The first sentence of Section 4(a)(i), entitled "Administration of the
Plan -- (a) Appointment of Committee," is hereby amended as follows:
"(i) Before any Option under the Plan is granted to an Officer or
Director of the Company, the Board shall appoint a Committee, comprised of
at least two (2) members of the Board, each of whom shall be
"disinterested," as that term is defined from time to time in Rule 16b-3
promulgated under the Securities Exchange Act of 1934, and, in addition, as
may be further defined under Section 162 (m) of the Internal Revenue Code
of 1986."
4. In all other respects the Plan is hereby ratified and confirmed.
5. The amendments to the Plan herein set forth have been approved by the
Board of Directors on November 2, 1994 and approved by the shareholders on March
1, 1995, and are effective as of such later date.
By order of the Board of Directors:
By /s/ Stanley D. Czerwinski
---------------------------------
Stanley D. Czerwinski,
Chairman of the Board
<PAGE>
AMENDMENT NO. 4
---------------
TO
--
ADAC LABORATORIES
-----------------
1992 STOCK OPTION PLAN
----------------------
The 1992 Stock Option Plan (the "Plan") of ADAC Laboratories, a
California corporation (the "Company"), is hereby amended as follows:
1. Section 10, entitled "Non-Transferability of Options," is hereby
amended as follows:
Options shall not be transferable by the holder
thereof otherwise than (i) by will, (ii) pursuant to the
laws of descent and distribution, or (iii) pursuant to a
division of property resulting from a dissolution of
marriage, whether pursuant to a qualified domestic
relationship order, stipulation between the option holder
and spouse or otherwise; provided, however, that an Optionee
may designate a beneficiary who, upon Optionee's death, may
exercise the Option to the extent permitted in Section 9 of
the Plan.
2. Except as amended above, in all other respects the Plan is hereby
ratified and confirmed. The above amendment shall be deemed effective and
applicable to all future grants of options and all presently outstanding option
grants under the terms of the Plan.
3. The amendment to the Plan herein set forth have been approved by
the Board of Directors on June 11, 1995 and is effective as of such date.
By order of the Board of Directors:
By: /s/ David L. Lowe
---------------------------------
David L. Lowe,
Chief Executive Officer
<PAGE>
AMENDMENT NO. 5
---------------
TO
--
ADAC LABORATORIES
-----------------
1992 STOCK OPTION PLAN
----------------------
The 1992 Stock Option Plan (the "Plan") of ADAC Laboratories, a
California corporation (the "Company"), is hereby amended in the following
respects:
1. Section 3, entitled "Stock Subject to the Plan," is hereby
amended to delete the first sentence and to add a new first sentence as follows:
"Subject to the provisions of Section 11 and Section 4(b)(xi)
below, the maximum aggregate number of shares that may be optioned and sold
under the Plan is 3,801,000 shares of Common Stock."
This amendment reflects an increase in the number of authorized shares by
1,355,000 shares.
2. Section 4(b), entitled "Administration of the Plan Powers of the
Board," is hereby amended to add a new subparagraph (xi) as follows:
"(xi) Notwithstanding the number of shares set forth in Section
3, the maximum aggregate number of shares subject to the Plan may be
automatically increased by the Board, at its discretion and without
shareholder approval, if the Board determines in connection with an
acquisition of another business (whether by merger, consolidation or
purchase of assets or otherwise) that it is necessary to grant a
substantial number of new options to employees of, or persons holding
options in, such acquired business to replace existing options, to grant
new options to incentivize the employees or replace other equity rights
previously granted to such persons by the acquired business. The amount of
the additional number of shares to become subject to the Plan shall not
exceed the number of new options granted in connection with such
acquisition."
3. Section 7, entitled "Term of Option," is hereby amended to delete
the last sentence and to replace such sentence with a new sentence as follows:
"The term of a Non-qualified Option shall be for a period of not
to exceed ten (10) years from the
1
<PAGE>
date on which it is granted, as determined by the Board of Directors or the
Committee."
4. Section 11(d), entitled "Adjustments - Change in Control," is
hereby deleted in its entirety and the following subsection 11(d) is substituted
in its place as follows:
"(d) 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,
2
<PAGE>
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."
5. Except as amended above, in all other respects the Plan is hereby
ratified and confirmed. The above amendments shall be deemed effective and
applicable to all future grants of options and all presently outstanding option
grants under the terms of the Plan.
6. The amendments to the Plan herein set forth have been approved by
the Board of Directors on November 2, 1995 and approved by the shareholders on
March 6, 1996, and are effective as of such later date.
By order of the Board of Directors:
By:/s/David L. Lowe
-------------------------------
David L. Lowe,
Chairman of the Board
3
<PAGE>
AMENDMENT NO. 6
---------------
TO
--
ADAC LABORATORIES
-----------------
1992 STOCK OPTION PLAN
----------------------
AMENDED AND RESTATED
--------------------
The 1992 Stock Option Plan (the "Plan") of ADAC Laboratories, a
California corporation (the "Company"), is hereby amended in the following
respects:
1. STOCK SUBJECT TO THE PLAN. Section 3, entitled "Stock Subject to
-------------------------
the Plan," is hereby amended to delete the first sentence and to add a new first
sentence as follows:
"Subject to the provisions of Section 11 and Section
4(b)(xi) below, the maximum aggregate number of shares that may be
optioned and sold under the Plan is 4,513,000 shares of Common Stock."
This amendment reflects an increase in the number of authorized shares by
712,000 shares.
2. SHAREHOLDER APPROVAL. Section 17, entitled "Shareholder
--------------------
Approval," is hereby amended and restated in its entirety as follows:
"The Plan shall become effective when approved by the Board
or an committee thereof having authority to do so and the shareholders
of the Company."
3. EFFECTIVE DATE. Except as amended above, in all other respects
--------------
the Plan is hereby ratified and confirmed. The amendments to the Plan herein
set forth have been approved by the Board of Directors on October 31, 1996 and
the amendment to Section 3 has been approved by the shareholders on May 15,
1997. The amendment of Section 3 is effective as of October 31, 1996 and the
amendment of Section 17 is effective as of May 15, 1997.
By Order of the Board of Directors:
By: /s/Karen L. Masterson
--------------------------------
Karen L. Masterson
Secretary
<PAGE>
EXHIBIT 10.4
ADAC LABORATORIES
-----------------
AMENDED AND RESTATED
--------------------
EMPLOYEE STOCK PURCHASE PLAN (1994)
-----------------------------------
1. ESTABLISHMENT OF THE PLAN; PURPOSE. This Employee Stock Purchase Plan
----------------------------------
(1994) (the "Plan") is established to provide Eligible Employees with an
opportunity through regular payroll deductions to purchase Common Stock of ADAC
Laboratories (the "Company") so that they may increase their proprietary
interest in the Company. The Plan is intended to qualify as an "employee stock
purchase plan" under Section 423 of the Internal Revenue Code.
2. DEFINITIONS. As used herein, the following definitions shall apply:
-----------
(a) "Board of Directors" means the Committee, if one has been
appointed, or the Board of Directors of the Company if no Committee has been
appointed.
(b) "Code" means the Internal Revenue Code, as amended from time to
time.
(c) "Committee" means the committee appointed by the Board of
Directors to administer the Plan in accordance with Section 3 below, if one is
appointed.
(d) "Company" means ADAC Laboratories and such present or future
Subsidiaries, as defined in Section 424 of the Code, of the Company as the Board
of Directors shall from time to time designate.
(e) "Compensation" means the annual base rate of pay of a
Participant, determined in accordance with nondiscriminatory rules adopted by
the Board of Directors, including commissions, but excluding bonuses, income
with respect to stock options or other stock purchases, moving expense
reimbursements, shift differentials or any pay for work outside the regular work
schedule.
(f) "Eligible Employee" means any regular employee of the Company who
is customarily employed for at least 20 hours per week and more than five (5)
months in any calendar year.
(g) "Fair Market Value" of a share of Stock means the NASDAQ closing
price on the applicable date. In the event the Stock is not traded on the date
as of which the Fair Market Value is to be determined, Fair Market Value shall
be determined as of the next preceding date on which the Stock is traded.
(h) "Interim Offering Period" means each period (of up to three
months in duration) during and within an Offering Period, all as established by
the Board of Directors.
<PAGE>
(i) "Option" means the right of a Participant to purchase Stock
during the applicable Offering Period.
(j) "Offering Date" means the first day of each Offering Period.
(k) "Offering Period" means, in the absence of a specific
determination to the contrary by the Board of Directors or the Committee, a 27-
month period during which contributions may be made toward the purchase of Stock
under the Plan. The Board of Directors or the Committee shall establish from
time to time Option Periods which shall be up to twenty-seven (27) months. The
first Offering Period under the Plan shall commence March 1, 1994.
(l) "Participant" means an Eligible Employee who elects to
participate in the Plan.
(m) "Plan Account" means the account established for each Participant
pursuant to the Plan. No interest shall accrue for the Participant in the Plan
Account.
(n) "Purchase Price" means the price at which Participants may
purchase Stock as determined pursuant to the Plan.
(o) "Stock" means the Common Stock of the Company.
(p) "Subsidiary" means a corporation a majority of whose voting
shares are owned by the Company.
3. ADMINISTRATION. The Plan shall be administered by the Board of
--------------
Directors and/or by a duly appointed Committee consisting of two or more
persons, at least two of which shall be members of the Board of Directors, and
having such powers as shall be specified by the Board. The Board of Directors
may from time to time remove members from, or add members to, the Committee.
Vacancies on the Committee, howsoever caused, shall be filled by the Board of
Directors. The Committee shall select one of its members as Chairman, and shall
hold meetings at such times and places as it may determine. The interpretation
and construction by the Board of Directors or the Committee of any provision of
the Plan or of any right to purchase Stock shall be conclusive and binding on
all persons.
4. NUMBER OF SHARES TO BE OFFERED. The maximum aggregate number of
------------------------------
shares which shall be offered under the Plan shall be 185,000 shares of Stock,
subject to adjustment as provided in Section 8 hereof. In the event that any
Option granted under the Plan expires or is terminated for any reason, such
shares allocable to the unexercised portion of such Option shall again be
2
<PAGE>
subject to an Option under the Plan.
5. ELIGIBILITY AND PARTICIPATION.
-----------------------------
(A) INITIAL PARTICIPATION. An Eligible Employee shall become a
---------------------
Participant on the Offering Date after satisfying the eligibility requirements
by delivering to the Company's payroll office an enrollment form authorizing
payroll deductions not less than ten (10) business days prior to such Offering
Date. An Eligible Employee who did not enroll in the Plan prior to the Offering
Date, or a person who becomes an Eligible Employee after an Offering Date, may
enroll in the Plan for the remainder of the Offering Period as of the beginning
of the next Interim Offering Period by completing and filing an enrollment form
prior to the commencement date of such Interim Offering Period.
(B) CONTINUED PARTICIPATION. A Participant shall automatically
-----------------------
participate in each successive Offering Period (including Interim Offering
Periods) until such time as such Participant withdraws from the Plan as set
forth below. A Participant is not required to file any additional enrollment
forms for subsequent Offering Periods in order to continue participation in the
Plan.
(C) PAYROLL DEDUCTION RATE. The Participant shall designate on the
----------------------
enrollment form the percentage of Compensation which he or she elects to have
withheld for the purchase of Stock, which may be any whole percentage from 1% to
10% of the Participant's Compensation. A Participant may reduce (but not
increase) the rate of payroll withholding during an Offering Period by filing an
amended enrollment form with the Committee at any time prior to the last day of
any Interim Offering Period (for which such change is to be effective), but not
more than three (3) changes may be made in any Offering Period (or such other
number of changes as may be approved by the Board or the Committee). A
Participant may increase or decrease the rate of payroll deduction for any
subsequent Offering Period by filing with the Company a new authorization for
payroll deductions not less than ten (10) days prior to the Offering Date for
such subsequent Offering Period.
By enrolling in the Plan, a Participant shall be deemed to have
elected to purchase the maximum number of whole shares of Stock which can be
purchased with the amount of the Participant's Compensation which is withheld
during the Offering Period; provided, however, that with respect to any Interim
Offering Period no Participant may purchase more than 100 shares of Stock or
shares of Stock in excess of the amount permitted under Section 9.
(D) OFFERING PERIOD. Any Options granted pursuant to the Plan shall
---------------
be subject to the Company obtaining all necessary
3
<PAGE>
governmental approvals and/or qualifications of the sale and/or issuance of
Options and/or Stock.
(E) PURCHASE PRICE. The Purchase Price for each share of Stock to be
--------------
purchased under the Plan shall be eighty-five percent (85%) of the Fair Market
Value of such share on either (i) the Offering Date (or the date of entry for
new or re-enrolling employees) or (ii) the last day of each Interim Offering
Period, whichever is less.
(F) CONTRIBUTIONS. The Purchase Price of the Stock shall be
-------------
accumulated by payroll deductions throughout the Offering Period, which shall be
applied automatically to purchase Stock at the end of each Interim Offering
Period. In the absence of a contrary determination prior to the commencement of
an Offering Period, each Interim Offering Period shall have the durations
described in Section 2(h) of the Plan. At the end of each Interim Offering
Period, accrued payroll deductions will be automatically applied to the purchase
of Stock at the Purchase Price as hereinabove defined. Payroll deductions shall
commence on the first payday following the Offering Date (or, in the case of a
new or re-enrolling employee, on the first payday following the commencement of
the applicable Interim Offering Period) and shall continue to the end of the
Offering Period unless sooner altered or terminated as provided in the Plan.
(G) EFFECT OF LEAVE OF ABSENCE. During a leave of absence approved
--------------------------
by the Company, a Participant may, for such period as the Committee shall deem
reasonable, continue contributions to the Plan by making cash payments to the
Company on his normal paydays in an amount equal to the difference between the
amount of his regular payroll deductions taken while such employee was
participating under the Plan and the amount of his payroll deductions taken
while on such leave of absence. Failure to pay any installment within ten (10)
days after the payday on which it is due shall be treated as a withdrawal from
the Plan.
(H) PURCHASE OF STOCK. The Company will maintain a Plan Account on
-----------------
its books in the name of each Participant. On each payday the amount deducted
from the Participant's Compensation will be credited to the Participant's Plan
Account. No interest shall accrue on any such payroll deductions. As of the
last day of each Interim Offering Period the amount then in the Participant's
Plan Account will be divided by the Purchase Price and the amount in the
Participant's Plan Account shall be used to purchase the number of whole shares
of Stock which result. Share certificates representing the number of shares of
Stock so purchased shall be issued and delivered to the Participant as soon as
reasonably practicable after the close of each Interim Offering Period. Any
amount remaining in the Participant's Plan Account at the end of an Offering
Period after deducting the amount of the Purchase Price for the number of whole
shares issued to the
4
<PAGE>
Participant shall remain in the Participant's Plan Account, without any accrual
of interest, and shall be applied against the purchases to be made during the
next Interim Offering Period.
(I) WITHDRAWAL. A Participant may elect to withdraw from
----------
participation in the Plan at any time up to the last day of an Interim Offering
Period by filing the prescribed form with the Committee. At the time of
withdrawal, the amount credited to the Participant's Plan Account will be
refunded in cash, without interest. Upon withdrawal from the Plan, the
accumulated payroll deductions shall be returned to the withdrawn Participant
and the withdrawn Participant's interest in the Plan shall terminate. In the
event a Participant voluntarily elects to withdraw from the Plan, such
Participant may not resume participation in the Plan until after the expiration
of one complete Interim Offering Period; provided, however, notwithstanding the
duration of any Interim Offering Period, any officer or director of the Company
participating under the Plan may not resume participation in the Plan for at
least six (6) months after his or her withdrawal. Re-enrollment in the Plan
shall be made in the same manner as set forth above for initial participation in
the Plan.
(J) PRO RATA ALLOCATION. In the event that the aggregate number of
-------------------
shares which all Participants elect to purchase during an Interim Offering
Period shall exceed the number of shares remaining available for issuance under
the Plan, the number of shares to which each Participant shall become entitled
shall be determined by multiplying the number of shares available for issuance
by a fraction, the numerator of which is the sum of the number of shares the
Participant has elected to purchase and the denominator of which is the sum of
the number of shares which all Participants have elected to purchase.
6. EFFECT OF TERMINATION OF EMPLOYMENT. Termination of a Participant's
-----------------------------------
employment for any reason, including retirement or death, or the failure of a
Participant to remain an Eligible Employee shall be treated as a withdrawal
under the Plan. In the event of the Participant's death, the refund of the
Participant's Plan Account shall be paid, without interest, to the
representative of the Participant's estate. A transfer by a Participant from
the Company to a Subsidiary, from one Subsidiary to another, or from a
Subsidiary to the Company shall not be treated as a termination of employment.
7. RIGHTS NOT TRANSFERABLE.
-----------------------
The rights or interests of any Participant in the Plan, in any Option
granted under the Plan, or in any Stock or moneys to which he or she may be
entitled under the Plan, shall not be transferable by voluntary or involuntary
assignment or by operation of law, or by any other manner otherwise than by will
or the applicable laws of descent and distribution. If the
5
<PAGE>
Participant shall in any manner attempt to transfer, assign or otherwise
encumber his or her rights or interests under the Plan, other than by will, such
act shall be treated as a withdrawal from the Plan.
8. RECAPITALIZATION, ETC.
---------------------
Subject to any required action by the shareholders of the Company, the
number of shares of Stock covered by each Option under the Plan which has not
yet been exercised and the number of shares of Stock which have been authorized
for issuance under the Plan but have not yet been placed under an Option
(collectively the "Reserves"), as well as the price per share of Stock covered
by each Option under the Plan which has not yet been exercised, shall be
proportionately adjusted for any increase or decrease in the number of issued
shares of Stock resulting from a stock split, reverse stock split, stock
dividend, combination or reclassification of Stock, or any other increase or
decrease in the number of shares of Stock effected without receipt of
consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Such adjustment shall be made by the Board,
whose determination in that respect shall be final, binding and conclusive.
Except as expressly provided herein, no issue by the Company of the shares of
Stock of any class shall affect, and no adjustment by reason thereof shall be
made with respect to, the number or price of shares of Stock subject to an
Option.
In the event of the proposed dissolution or liquidation of the
Company, the Offering Period will terminate immediately prior to the
consummation of such proposed action, unless otherwise provided by the Board.
In the event of a proposed sale of all or substantially all of the assets of the
Company, or the merger of the Company with or into another corporation, each
Option under the Plan shall be assumed or an equivalent option shall be
substituted by such successor corporation, unless the Board determines, in the
exercise of its sole discretion and in lieu of such assumption or substitution,
that the Participant shall have the right to exercise the Option as to all of
the optioned Stock, including shares as to which the Option would not otherwise
be exercisable. If the Board makes an Option fully exercisable in lieu of
assumption or substitution in the event of a merger or sale of assets, the Board
shall notify the Participant that the Option shall be fully exercisable for a
period of thirty (30) days from the date of such notice, and the Option will
terminate upon the expiration of such period.
The Board may also, if it so determines in the exercise of its sole
discretion, make provision for adjusting the Reserves, as well as the price per
share of Stock covered by each outstanding Option, in the event that the Company
effects one or
6
<PAGE>
more reorganizations, recapitalization, rights offerings or other increases or
reductions of shares of its outstanding Stock, and in the event of the Company
being consolidated with or merged into any other corporation.
9. LIMITATION ON STOCK OWNERSHIP.
-----------------------------
Notwithstanding any provision herein to the contrary, no Participant
shall be granted a right to purchase Stock pursuant to Section 5 if such
Participant, immediately after electing to purchase such Stock, would own Stock
possessing five percent (5%) or more of the total combined voting power or value
of all classes of stock of the Company or any parent or Subsidiary of the
Company, or (ii) if under the terms of the Plan the rights of the employee to
purchase Stock under this and all other qualified employee stock purchase plans
of the Company or its Subsidiaries would accrue at a rate that exceeds $25,000
of fair market value of such Stock (determined at the time such right is
granted) for each calendar year for which such right is outstanding at any time.
For purposes of this Section 9, ownership of Stock shall be determined by the
attribution rules of Section 424(d) of the Code and Participants shall be
considered to own any Stock which they have a right or option to purchase under
this or any other plan.
10. RIGHTS AS AN EMPLOYEE.
---------------------
Nothing in the Plan shall be construed to give any Participant the
right to remain in the employ of the Company or a Subsidiary or to affect the
right of the Company and its Subsidiaries or the Participant to terminate such
employment at any time with or without cause.
11. RIGHTS AS A SHAREHOLDER.
-----------------------
A Participant shall have no rights as a shareholder with respect to
any shares of Stock he or she may have a right to purchase under the Plan until
the date of issuance of a stock certificate to such Participant for shares
issued pursuant to the Plan.
12. AMENDMENT OR TERMINATION OF THE PLAN.
------------------------------------
The Board of Directors shall have the right to amend, modify or
terminate the Plan at any time without notice, provided that no Participant's
existing rights are adversely affected thereby, and provided further that no
amendment to the Plan shall be effective until such amendment is approved by a
vote of the holders of at least a majority of the outstanding shares of Common
Stock of the Company within twelve months before or after the date upon which
such action is taken by the Board of Directors, if such amendment would:
7
<PAGE>
(a) Increase the aggregate number of shares of Stock to be issued
under the Plan (except as provided in Section 8 hereof);
(b) Materially modify the requirements for eligibility to participate
in the Plan;
(c) Increase the maximum number of shares of Stock which a
Participant may purchase in any Offering Period;
(d) Extend the term of the Plan;
(e) Alter the Purchase Price formula so as to reduce the price for
shares of Stock to be purchased under the Plan;
(f) Otherwise materially increase the benefits accruing to
Participants under the Plan; or
(g) Cause the Plan to fail to meet the requirements of an "employee
stock purchase plan" under Section 423 of the Code.
The Plan shall terminate on December 31, 2003, unless it has been
earlier terminated pursuant to this Section 12, but the Plan shall remain in
full force and effect until the end of the Offering Period then in effect.
Adopted by the Board of Directors on November 3, 1993 and approved by the
Shareholders on March 2, 1994; amended by the Board of Directors on June 11,
1995; and amended by the Board of Directors on November 2, 1995 and approved by
the Shareholders on March 6, 1996.
8
<PAGE>
AMENDMENT NO. 1
---------------
TO
--
ADAC LABORATORIES
-----------------
EMPLOYEE STOCK PURCHASE PLAN (1994)
-----------------------------------
The Employee Stock Purchase Plan (1994) (the "Plan") of ADAC
Laboratories, a California corporation (the "Company"), is hereby amended in the
following respects:
1. NUMBER OF SHARES TO BE OFFERED.
------------------------------
The first sentence of Section 4, entitled "Number of Shares to be
Offered," is deleted in its entirety and the following sentence is substituted
in its place:
"The maximum aggregate number of shares which shall be offered under
the Plan shall be 270,000 shares of Stock, subject to adjustment as provided in
Section 8 hereof."
2. EFFECTIVE DATE.
--------------
Except as amended above, in all other respects, the Plan is hereby
confirmed. The amendment of the Plan, as set forth above, has been approved by
the Board of Directors on October 31, 1996, and by the shareholders on May 15,
1997 and is effective as of such later date.
By /s/ Karen L. Masterson
-------------------------------
Karen L. Masterson,
Secretary of the Company
<PAGE>
EXHIBIT 11.1
ADAC LABORATORIES
COMPUTATION OF NET INCOME PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
------------------ ------------------
JUNE 29, JUNE 30, JUNE 29, JUNE 30,
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Average shares outstanding 18,587 17,485 18,306 17,238
Net effect of dilutive stock
options and warrants 1,188 918 1,230 890
------- ------- ------- -------
Average common and common
equivalent shares
outstanding 19,775 18,403 19,536 18,128
======= ======= ======= =======
Net income $ 106 $ 4,353 $10,751 $11,832
======= ======= ======= =======
Net income per share $ 0.01 $ 0.24 $ 0.55 $ 0.65
======= ======= ======= =======
</TABLE>
Primary and fully diluted income per share differs by less than three percent in
all periods.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> SEP-30-1996
<PERIOD-END> JUN-29-1997
<CASH> 6,143
<SECURITIES> 0
<RECEIVABLES> 98,385
<ALLOWANCES> 2,820
<INVENTORY> 26,029
<CURRENT-ASSETS> 146,415
<PP&E> 27,582
<DEPRECIATION> 17,470
<TOTAL-ASSETS> 201,160
<CURRENT-LIABILITIES> 75,120
<BONDS> 0
0
0
<COMMON> 122,772
<OTHER-SE> (1,885)
<TOTAL-LIABILITY-AND-EQUITY> 201,160
<SALES> 158,183
<TOTAL-REVENUES> 209,851
<CGS> 91,061
<TOTAL-COSTS> 123,667
<OTHER-EXPENSES> 62,289
<LOSS-PROVISION> 1,855
<INTEREST-EXPENSE> 3,004
<INCOME-PRETAX> 20,139
<INCOME-TAX> 9,388
<INCOME-CONTINUING> 10,751
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,751
<EPS-PRIMARY> 0.55
<EPS-DILUTED> 0.55
</TABLE>
