SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Fiscal Year Ended September 28, 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
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(Exact name of registrant as specified in its charter)
California 94-1725806
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
540 Alder Drive
Milpitas, California 95035
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(Address of principal executive offices) (Zip Code)
(408) 321-9100
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(Registrant's telephone number including area code)
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Securities registered pursuant to Section 12(b)of the Act:
Name of each exchange
Title of Each Class on which registered
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None None
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Securities registered pursuant to Section 12(g) of the Act:
Common Stock
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(Title of class)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the 12 months (or for such shorter period that the Registrant was required to
file such reports), and (2) has been subject to such filing requirements for the
past 90 days.
Yes X No
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Indicate by check mark if disclosures of delinquent filers pursuant to item 405
of Regulation S-K is not contained herein, and will not be contained to the best
of the Registrant's knowledge, in definitive proxy or information definitive
proxy or information statements incorporated by reference in Part III of the
Form 10-K or any amendments to this Form 10-K. ( X )
The aggregate market value of the voting stock (which is the outstanding Common
Stock) of the Registrant held by non-affiliates thereof, based upon the closing
price of the Common Stock on December 1, 1997, on the NASDAQ National Market
System of $21.00 per share was approximately $388,514,448. For the purpose
of the foregoing computation, only the directors and executive officers of the
Registrant were deemed to be affiliates. This determination of affiliate status
is not necessarily a conclusive determination for other purposes.
As of December 1, 1997, Registrant had outstanding 19,024,666 shares of Common
Stock, no par value, which is the only class of shares publicly traded.
DOCUMENTS INCORPORATED BY REFERENCE
------------------------------------
Parts of the Proxy Statement for Registrant's 1998 Annual Meeting of
Shareholders, to be filed with the Commission on or before 120 days after the
end of the 1997 fiscal year, are incorporated by reference into Part III hereof.
THIS ANNUAL REPORT ON FORM 10-K CONTAINS FORWARD LOOKING STATEMENTS WITHIN THE
MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933, AS AMENDED, AND SECTION
21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. ACTUAL RESULTS MAY
DIFFER MATERIALLY FROM THOSE DESCRIBED IN ANY SUCH FORWARD LOOKING STATEMENTS.
RISKS INHERENT IN ADAC LABORATORIES' BUSINESS AND FACTORS THAT COULD CAUSE OR
CONTRIBUTE TO SUCH DIFFERENCES INCLUDE WITHOUT LIMITATION THE CONSIDERATIONS SET
FORTH UNDER "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS -- BUSINESS CONSIDERATIONS". THE COMPANY EXPRESSLY
DISCLAIMS ANY OBLIGATION TO UPDATE ANY FORWARD LOOKING STATEMENTS.
PART I
ITEM 1. BUSINESS
General
ADAC Laboratories ("ADAC" or "the Company") designs,
develops, manufactures, sells and services medical imaging and health
care information systems used in hospitals and clinics worldwide.
The Company conducts its business through two principal business
units, Medical Systems and Healthcare Information Systems ("HCIS").
The Company's Medical Systems products include nuclear medicine
systems used primarily in oncology and cardiology, and radiation
therapy planning systems for oncology, as well as refurbished ADAC
and third-party nuclear medicine systems. The Company's HCIS
products include radiology, cardiology and laboratory information
systems.
In October 1996, the United States Department of Commerce
awarded ADAC a Malcolm Baldrige National Quality Award in the large
manufacturing category in recognition of its performance management
system and its achievements in quality and business performance.
ADAC is the first healthcare manufacturer ever to receive this award.
ADAC was incorporated in California on October 14, 1970. Its
principal offices are located at 540 Alder Drive, Milpitas,
California, 95035. Its telephone number at that location is (408)
321-9100.
Medical Systems
The Medical Systems business unit includes the Company's
nuclear medicine and radiation therapy planning ("RTP") businesses,
as well as ADAC Medical Technologies ("AMT"), the Company's medical
imaging equipment refurbishing business. Medical Systems also
includes customer support and field service for Medical Systems
products. Medical Systems revenues represented 88%, 87% and 93% of
the Company's total revenues in fiscal 1997, 1996 and 1995,
respectively.
Nuclear Medicine. Nuclear medicine is primarily a diagnostic
imaging modality that images the function (physiology) of organs and
lesions. In a typical nuclear medicine procedure, the patient is
administered a small amount of a radioactive compound that localizes
in normal and abnormal tissues according to the functionality of the
tissue and the procedure being utilized. The patient is then imaged
with a gamma camera and the images are recorded on a computer. These
images may be processed further as described below. The physician
uses the final images and related clinical information to evaluate
the functional and metabolic performance of the portion of patient's
body under examination. Nuclear medicine is used primarily for
oncology and cardiology procedures, which account for approximately
70% of all nuclear medicine procedures performed. The Company
believes the functional imaging capability of nuclear medicine may
allow earlier diagnosis of certain diseases than anatomical imaging
modalities such as magnetic resonance imaging ("MRI"), computer
tomography ("CT"), and ultrasound.
There are three general methods for acquiring nuclear medicine
images: single photon emission computed tomography ("SPECT"), planar
and total body. In SPECT imaging, the camera rotates around the
patient and three dimensional images are produced. Planar or static
images are acquired at a single angle relative to a patient and are
similar to a "snapshot" image. In total body imaging, the camera
moves along the length of the patient to form a single image of the
whole body.
In its nuclear medicine business, the Company designs,
develops, manufactures and sells a broad line of nuclear medicine
cameras and related computer systems. These systems consist primarily
of a gamma camera, a computer workstation and clinical software that
permits the physician to process the resulting data. In fiscal 1997,
1996 and 1995, the Company's nuclear medicine product revenues
represented approximately 76%, 84% and 90% of the Company's total
product revenues, respectively.
The Company offers two different types of gamma cameras, single
head cameras with one detector head and dual head cameras with two
detector heads. Dual head cameras offer better patient throughput and
higher image quality than single head cameras. The detectors on the
Company's dual head camera may be fixed at either 90 or 180 degrees. In
fiscal 1997, ADAC generated approximately 44% of its total product
revenues from the sale of dual head cameras.
All of the Company's gamma cameras are equipped with the
Company's EPICTM digital detector. This innovative technology,
introduced in 1994, improved the reliability and stability of the
nuclear image over that achieved through the use of analog
technology. In addition, the Company believes that EPIC's auto-tuning
and remote diagnostics capabilities facilitate improved field service
efficiency and customer satisfaction.
The Company's nuclear medicine product line currently includes
the following single head gamma cameras:
o Single Head GenesysTM -- the Company's first single
detector gamma camera that was designed for general
purpose nuclear medicine studies: SPECT, total body
and planar imaging. The robotics and patient
ergonomics provide efficient patient handling and
transition from total body to SPECT studies in
oncology applications. The compact design allows
installation into small rooms.
o ArgusTM -- the Company's second single detector gamma
camera that was designed to perform general purpose
nuclear medicine studies and give added flexibility
for imaging patients when they are seated or in their
hospital bed. The detector orientation affords a
larger imaging volume for SPECT procedures especially
for cancer imaging.
The Company's dual head camera product line currently includes
the following:
o Vertex PlusTM Epic - the Company's leading variable
angle, dual head camera. The detectors may be
positioned in either a 180 degree orientation for whole body
or positron imaging with MCD for oncology or a 90 degree
orientation for cardiology. This camera is the most
efficient and flexible product offered by the Company.
o SolusTM Epic - the Company's fixed 180 degree dual head
camera. This camera is based on the Vertex design and
was engineered especially for the oncology market.
Due to the fixed angle of the detectors, this camera
is less expensive than the Vertex Plus Epic but offers
EPIC image quality and dual head throughput advantages
for oncology imaging.
o CardioTM Epic - the Company's fixed 90 degree dual
head camera. This camera is also based on the Vertex
design and was engineered especially for the
cardiology market. Like the Solus, this camera is
less expensive than the Vertex Plus Epic but also
offers EPIC image quality and dual head throughput
advantages for cardiology imaging.
The Company also manufactures and sells the TranscamTM and
Thyrus gamma cameras, which are niche cameras with a small field of
view and are produced by the Company's Danish subsidiary, ADAC A/S.
These cameras offer planar imaging for specific clinical diagnostic
procedures. The Transcam is mobile and allows imaging to be
performed in the hospital ward without moving the patient.
Traditionally, gamma cameras have been used only to perform
SPECT, total body, or planar studies. In June 1995, however, ADAC
introduced Molecular Coincidence Detection ("MCDTM"), which is a
hardware and software upgrade to the Vertex Plus Epic and Solus Epic
cameras that enables these SPECT cameras to perform positron imaging.
Prior to the introduction of MCD, positron imaging had been available
only on expensive, dedicated positron emission tomography ("PET")
imaging systems ranging in price between $1 million and $2 million.
Positron imaging is a valuable diagnostic tool because of its high
resolution and high accuracy in oncology, cardiology and neurology.
MCD offers physicians the ability to perform positron imaging with a
gamma camera at a fraction of the cost of a dedicated PET system.
The Company received United States Food and Drug Administration
("FDA") 510(k) clearance for MCD in November 1995.
The Company offers a number of other clinical hardware and
software enhancements to its cameras that enable physicians to
extract clinical information from nuclear medicine procedures to aid
in the diagnosis of disease. The principal clinical enhancements
offered by the Company, other than MCD, include the following:
o Vantage ExSPECT TM -- Co-developed with Emory
University, this product is offered as an upgrade
to the Company's earlier VantageTM product, and
corrects for image distortions created by
variations in tissue density, scatter and
resolution. Vantage ExSPECT is particularly useful
in cardiac studies, and the Company believes it
offers important advantages over cardiac
ultrasound, the alternate competitive procedure.
The Company received FDA 510(k) clearance for
Vantage ExSPECT in August 1997.
o MCD with Attenuation Correction ("MCD/AC TM") --
This product is designed to correct for
attenuation when imaging with MCD and provides
substantial improvements in image quality. Similar
to Vantage, MCD/AC corrects for image distortions
created by variations in tissue density. It is
important to note that attenuation is a greater
problem in positron imaging because the photons
travel twice as far through the body than in
traditional nuclear medicine procedures. The
Company received FDA 510(k) clearance for MCD/AC in
October 1997. To date, the Company is the only
vendor to offer attenuation correction for
coincidence imaging with a gamma camera.
o AutoSPECT PlusTM -- This product allows physicians
to process automatically through the use of a
single button one or more cardiac SPECT, gated
SPECT and Vantage SPECT data sets, and also
provides manual processing capability. Automated
processing offers the following advantages over
manual processing: reproducible results, accurate
results, reduced artifacts and processing time and
increased efficiency.
o Quantitave Gated SPECT ("QGS TM") -- Jointly
developed with Cedars Sinai Medical Center, this
software provides essential information for the
detection and analysis of cardiac disease and
enables physicians to study a number of different
snapshots of the heart simultaneously.
o Image Fusion and Review -- This product is used to
align and display different images such as MCD,
SPECT, PET, CT and MRI in three dimensions as
composite images. Image Fusion also permits the
operator to manipulate and align the images. This
functionality facilitates image interpretation by a
physician by combining functional and anatomical
data in the same image. The Company received FDA
510(k) clearance for this product in October 1997.
Radiation Therapy Planning. In its RTP business, the Company
designs, develops, markets and supports turnkey radiation therapy
planning systems that assist hospital radiation oncology departments
and cancer treatment centers in planning patient treatments. The
systems combine third-party workstations and printers with the
Company's proprietary application software, Pinnacle3TM. In fiscal
1997, 1996 and 1995, revenues from the sale of RTP products
represented 6%, 4% and 2%, respectively, of the Company's total
product revenues.
RTP's principal product, Pinnacle3TM, is a treatment planning
system that includes two dimensional and three dimensional planning
capabilities for external beam, brachytherapy and stereotactic
radiosurgery patient treatments. Pinnacle3 `s three-dimensional
volumetric image processing and dose computation capabilities enable
physicians to plan the precise application of high energy radiation
to a specific targeted area for the treatment of cancer and other
diseases. The Company believes Pinnacle3 provides improved image
processing and dose calculation methods compared to currently
available products. The Company received 510(k) clearance from the
FDA to market Pinnacle3 in the United States in April 1996. Pinnacle3
has also been introduced into international markets with positive
results.
In November 1996, the Company acquired Geometrics Corporation,
the architect of the core technology included in the Company's
Pinnacle3 product. Geometrics operates as the product development
unit of RTP.
RTP experienced significant revenue growth in fiscal 1997 due
to the launch of Pinnacle3 in the United States and internationally
during that period. Although the Company believes that RTP will
continue to experience significant revenue growth in fiscal 1998,
management does not expect that the growth rates experienced in
fiscal 1997 will be sustained in fiscal 1998.
ADAC Medical Technologies. In November 1995, ADAC acquired JD
Technical Services, Inc., and in February 1997, acquired Photon
Diagnostic Technologies, Inc., which were engaged in the multi-vendor
nuclear medicine equipment refurbishing and service business. In
October 1997, the Company acquired the business of Southern Cats,
Inc., one of the largest independent providers of CT and X-ray
equipment refurbishment and service. See Note 3 of Notes to
Consolidated Financial Statements. The Company operates the multi-
vendor service portion of these businesses as part of its Medical
Systems service business described below, and operates the multi-
vendor refurbishing and product sales business out of its subsidiary,
AMT. AMT currently refurbishes and sells nuclear medicine and other
imaging equipment manufactured by a number of vendors, including
General Electric Company, Siemens Medical Systems, and Elscint
Limited. In fiscal 1997 and 1996, the years in which AMT engaged in
this business, revenues from the sale of these products represented
7% and 3% of the Company's total product revenues, respectively.
Customer Support and Field Service. The Company maintains a
customer support center in California, and field service forces in
North America and Europe for its Medical Systems business. The
Company's network of service engineers and customer support
specialists provide installation, warranty, repair, training and
support services. Together with its distributors, the Company
services over 7,200 installed systems at over 2,800 sites worldwide,
including approximately 600 systems manufactured by vendors other
than ADAC. The Company generates service revenue under service
contracts with ADAC and non-ADAC customers, by providing service on a
time and materials basis to such customers and by offering multi-
vendor service under asset management contracts with third parties.
Medical Systems service revenues represented 78%, 74% and 87% of the
Company's total service revenues in fiscal 1997, 1996 and 1995,
respectively.
Healthcare Information Systems
The Company's Healthcare Information Systems business unit
("HCIS") designs, develops, markets, sells and supports integrated
solutions consisting of computer equipment and software applications
that offer healthcare providers the necessary tools to process and
archive patient and clinical information. HCIS' revenues represented
approximately 12%, 13% and 7% of the Company's total revenues in
fiscal 1997, 1996 and 1995, respectively.
The Company's principal HCIS products are QuadRIST, a radiology
information systems products, LabStatT, a laboratory information
systems product, and CorCAATT, a cardiology information system
product. The QuadRIS and LabStat products are based on advanced
client/server architectures, operating on an OracleTM database server
and the Microsoft Windows 95TM operating system, and are designed to
work in a distributed computing environment to meet the needs of
rapidly changing integrated healthcare delivery systems. In this
environment, the products must meet the demands of multiple
healthcare facilities that act as a single integrated delivery
network.
The Company acquired the rights to CorCAAT in May 1997 through
the acquisition of Cortet, Inc. ("Cortet"), a developer of client-
server computer systems for use in cardiac catheterization
laboratories. CorCAAT is a cardiac catheterization laboratory
information system that delivers comprehensive cath lab information
management from a single integrated system. CorCAAT reduces costs by
performing functions that previously required equipment and systems
from multiple vendors and by eliminating the need for expensive and
inflexible interfaces. CorCAAT simplifies the patient monitoring,
inventory management, case reporting, image management and outcomes
management processes by providing a single point of access to all
cath lab data. The product is based on networked computing
technology and standard components including Microsoft Windows NTTM,
Microsoft SQL ServerTM and IntelTM-based computers. CorCAAT is
currently installed at 11 sites in the United States. See "--
Government Regulation."
The Company also supports a line of other more mature products,
including MARS IITM, IMAGES/3000TM, RadCare rtm, MRM, RadStat rtm, and
LabCareTM, which are installed in hospitals throughout the United
States and Canada. These hospitals represent a cross-section of
major teaching hospitals, large and small community hospitals,
children's hospitals, and city and state institutions.
The HCIS business unit generated a cumulative operating loss
over the past three fiscal years of approximately $2.5 million,
including a substantial operating loss in fiscal 1997, and may
generate operating losses in fiscal 1998. The Company is continuing
to invest in HCIS to complete the development of the current updates
to its 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 or that these efforts will generate profits in
HCIS, which could have a material adverse effect on the results of
operations and financial condition of the Company. See
"Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Business Considerations."
Other
From time to time, the Company explores other opportunities for
expanding its business. For example, in fiscal 1996 ADAC formed a
new business unit, ADAC Radiology Services ("ARS"). ARS' business
strategy is to work closely with radiologists, referring physicians,
hospitals and payors to provide technology and management solutions
that enhance the delivery of radiology care. On October 30, 1997,
ARS exercised an option to acquire the business of Medical Transition
Strategies, Inc. ("MTS"), which was in the business of forming and
managing radiology networks. See Note 9 of Notes to Consolidated
Financial Statements. To date, the results of ARS have not been
material to the Company's overall results of operations. Because
ARS' business strategy is still in the development stage, there can
be no assurance that this strategy will be successful.
Marketing and Sales
ADAC has a direct sales force in the United States. The
Company also conducts certain sales and/or service activities through
its subsidiaries in Brazil, the Netherlands, Germany, France, Italy,
Denmark, the United Kingdom and Canada. Sales and service in other
countries are generally handled by distributors. See Note 11 of
Notes to Consolidated Financial Statements. North America is the
largest market for the Company's products and services followed by
Europe, Japan, Asia Pacific and Latin America. ADAC is represented
in all these geographic areas.
Research and Development
Developing products, systems and services based on advanced
technological concepts is essential to ADAC's ability to compete
effectively. The Company currently maintains a product development
and engineering staff responsible for product design and engineering.
In addition, as part of ADAC's research and development programs, the
Company has established the Advanced Clinical Research Program, which
provides annual grants to clinical trial sites at major institutions
to assist the Company in product development concepts and to measure
and establish product efficacy. There can be no assurance that the
Company's product development efforts will result in the development
or commercialization of successful products or product enhancements.
Research and development expenditures, net of software
capitalization, totaled $15.7 million, $12.5 million and $10.1
million in fiscal 1997, 1996, and 1995, respectively.
Competition
The medical systems and health care information system markets
are characterized by rapidly evolving technology, intense competition
and pricing pressure. There are a number of companies that currently
offer or are in the process of developing, products that compete with
products offered by the Company. Some of these competitors have
substantially greater capital, engineering, manufacturing and other
resources than the Company. These competitors could develop
technologies and products that are more effective than those
currently used or produced by the Company or that could render the
Company's products obsolete or noncompetitive. In addition, as the
Company enters new markets, there can be no assurance that the
Company will be able to penetrate such markets successfully.
In the nuclear medicine market, the Company competes with
approximately eight other suppliers. From fiscal 1996 to fiscal
1997, the U.S. nuclear medicine market grew by approximately 20%.
According to data provided by the National Electronics Manufacturers
Association, ADAC's share of the U.S. market, based on bookings
volume, was approximately 48% for fiscal 1997, which represents
approximately a two percentage point decrease in market share from
the prior year. During this period, however, the Company maintained
its price premium of approximately 15% in the dual head market over
its competitors. Given the competitiveness of the nuclear medicine
business, there can be no assurance that the Company will be able to
maintain its market share. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Business
Considerations."
The Company believes that the key to success in its markets is
to provide technologically superior products that deliver cost-
effective, high quality clinical diagnosis and that meet or exceed
customer quality and service expectations. ADAC's ability to compete
successfully depends on its ability to commercialize new products
ahead of its competitors. In addition to the rapid development of
innovative and cost-effective new products, the Company believes that
other competitive factors include patient throughput, system
functionality and reliability, image quality, computer processing
speed, customer service and support, and worldwide distribution
network. The Company's products also must focus on solutions for the
managed care environment in order to provide validated and improved
clinical outcomes at lower clinical process costs.
The Company believes that key competitive factors in the
HealthCare Information Systems business include system architecture,
functionality of the application software, post-sales support
services, time to market, integration expertise with hospital
information systems and price/performance. Although the Company
entered the laboratory information systems market in 1995, to date
the Company has not generated significant sales in this market.
There can be no assurance that the Company will be able to
successfully penetrate the laboratory information systems market.
Manufacturing and Suppliers
The Company's manufacturing process includes mechanical
assembly, final system integration and testing. In addition, the
Company purchases certain sub-systems, including SunTM workstations,
disk drives and sodium iodide crystals, from third party suppliers.
Although most materials and purchased components for Medical Systems
products are available from more than one source of supply, certain
essential components such as the sodium iodide crystals are presently
available from only one supplier. The Company also relies on several
significant vendors for hardware and software components for its HCIS
products such as Hewlett-Packard Company, Oracle Corporation and
others. The loss of any of these suppliers, including any single-
source supplier, would require obtaining one or more replacement
suppliers as well as potentially requiring a significant level of
hardware and software development to incorporate the new parts into
the Company's products. Although the Company has obtained insurance
to protect against loss due to business interruption from these and
other sources, there can be no assurance that such coverage would be
adequate.
In September 1996, the Medical Systems manufacturing operations
in Milpitas, California were certified to the requirements of the
international quality system requirements of ISO 9001.
Government Regulation
ADAC's Medical Systems business, as well as certain portions of
its HCIS business, are regulated by the United States Food and Drug
Administration. The FDA regulates the development, testing,
manufacturing, packaging, labeling, distribution and marketing of
medical devices under the Federal, Food, Drug and Cosmetic Act (the
"FDC Act") and regulations promulgated by the FDA. The State of
California (through its Department of Health Services), where the
Company maintains its factory, as well as other states, also
regulates the manufacture of medical devices.
In general, these laws require that manufacturers adhere to
certain standards designed to ensure the safety and effectiveness of
medical devices. Under the FDC Act, each medical device manufacturer
must comply with requirements applicable to manufacturing practices,
clinical investigations involving humans, sale and marketing of
medical devices, post-market surveillance, repairs, replacements and
refunds, recalls and other matters. The FDA is authorized to obtain
and inspect devices and their labeling and advertising, and to
inspect the facilities in which they are manufactured.
The FDC Act also requires compliance with specific
manufacturing and quality assurance standards, including regulations
promulgated by the FDA with respect to good manufacturing practices.
FDA regulations require that each manufacturer establish a quality
assurance program by which the manufacturer monitors the
manufacturing process and maintains records that show compliance with
FDA regulations and the manufacturer's written specifications and
procedures relating to the devices. Compliance is necessary to
receive FDA clearance to market new products and is necessary for a
manufacturer to be able to continue to market cleared product
offerings. Recently, the FDA promulgated new design process
regulations that revise the good manufacturing practices applicable
to medical device manufacturers. Among other things, these new
regulations require that manufacturers establish performance
requirements before production, insure that device components are
compatible, select adequate packaging materials, and, if appropriate,
do risk analyses. The regulations took effect on June 1, 1997, but
include a twelve-month transition period during which enforcement
action with respect to design control requirements will not be taken.
The FDA makes unannounced inspections of medical device
manufacturers and may issue reports of observations where the
manufacturer has failed to comply with applicable regulations and/or
procedures. Failure to comply with applicable regulatory
requirements can, among other things, result in warning letters,
civil penalties, injunctions, suspensions or losses of regulatory
clearances, product recalls, seizure or administrative detention of
products, operating restrictions through consent decrees or
otherwise, and criminal prosecution.
In fiscal 1997, the FDA conducted an inspection at Cortet,
ADAC's Winter Park, Florida, subsidiary. As a result of that
inspection, the FDA issued a Warning Letter to Cortet in August 1997
concerning the adequacy of Cortet's quality assurance system. Cortet
responded to the FDA's observations and Warning Letter and, in
October 1997, received correspondence from the FDA's Orlando District
Office indicating that Cortet's responses appeared to adequately
address the FDA's concerns. Failure of the Company to resolve the
issues raised by the FDA in the Cortet Warning Letter could have a
material adverse effect on Cortet's business and cause fluctuations
in the market price for the Company's common stock. To date, the
results of operations of Cortet have not been material to the
Company's overall results of operation.
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 may cause medical device
manufacturers to experience longer approval cycles, more uncertainty,
greater risk, and higher expenses.
The FDA requires that a new medical device or a new indication
for use of or other significant change in an existing medical device
obtain either 510(k) premarket notification clearance or an approved
Pre-Market Approval Application ("PMAA") before orders can be
obtained and the product distributed in the United States. The
510(k) clearance process is applicable when the new product being
submitted is substantially equivalent to an existing commercially
available product. If a product does not meet the eligibility
requirements for the 510(k) process, then it must instead be
submitted under the PMAA process. The process of obtaining 510(k)
clearance may take at least three months from the date of filing of
the application and generally requires the submission of supporting
data, which can be extensive and extend the process for a
considerable period of time. Under the PMAA process, the applicant
must generally conduct at least one clinical investigation and submit
extensive supporting data and clinical information in the PMAA, which
typically takes from one to two years, but sometimes longer for the
FDA to review. Generally, the Company has not been required to
resort to the PMAA process for approval of its products.
The sale of medical devices outside the United States is
subject to foreign regulatory requirements that vary widely from
country to country. The time required to obtain clearance in foreign
countries may be longer or shorter than in the United States. In
1995, ADAC implemented a program to enter the Japanese market and has
received Japanese Ministry of Health and Welfare (JMHW) approval to
market the Vertex Plus Epic, Solus Epic, Cardio Epic and MCD with the
Company's PegasysTM computer system. Recently, the Company submitted
an application for approval of the newest generation computer system,
the Pegasys UltraTM. In addition, ADAC is undertaking to meet the
requirements of the European Medical Device Directive which will
become effective in most European countries by June 1998. Failure of
the Company to comply with these requirements could have a material
adverse effect on the Company's results of operations and financial
condition. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Business Considerations".
Certain additional requirements of other Federal laws and of
state, local and foreign governments exist which may apply to the
manufacture and marketing of the Company's products and to products
such as radiopharmaceuticals which are used in conjunction with the
Company's products.
With the Company's overall emphasis on total quality
management, quality system compliance is expected to continue to
improve in fiscal 1998. The Company is anticipating that additional
costs, which may be substantial, will be incurred for compliance with
the European Medical Device Directive.
The Company is subject to various environmental laws and
regulations both in the United States and abroad. The operations of
the Company, like those of other medical device companies, involve
the use of substances regulated under environmental laws.
Patent, Copyrights and Royalties
The Company relies on a combination of trade secret, copyright,
patent and trademark laws and contractual provisions to protect its
proprietary rights. The Company has a policy of undertaking an
ongoing review of its products with patent counsel to determine to
what extent its products may be protectable under the patent or
copyright laws. ADAC also has a program in place to develop patent
portfolios to protect its intellectual property. At December 1,
1997, the Company held 32 United States patents, including several
patents that have been issued covering technology incorporated into
MCD, and 59 foreign patents. The Company has a total of 31 patent
applications pending at various stages of completion. While the
Company believes that it benefits from such patents, competitors may
develop competing products by "designing around" patents held by the
Company or may claim that the Company's products infringe their
proprietary rights.
The Company develops application software for its products and
also licenses software components from third parties. Third party
software developers include software companies and clinical
development sites that provide turnkey products or software code.
Under its agreements with third parties, the Company generally
obtains a license to use the third party software and to include such
software in its own products for a specified period of time in
exchange for the payment of a royalty to the developer. These
agreements may be either exclusive or non-exclusive.
Employees
As of December 1, 1997, the Company had approximately 880 full-
time employees worldwide, including 720 employed in Medical Systems
and 160 in HCIS. None of the Company's employees are represented by a
labor union. The Company believes its relations with its employees
are good. Many of the Company's employees are highly skilled and
competition in recruiting and retaining such employees is intense.
The Company believes its continued success is dependent in part upon
its ability to continue to attract and retain highly qualified
personnel.
ITEM 2. PROPERTIES
The Company's principal administrative, manufacturing and research
operations occupy approximately 150,000 square feet of leased space in buildings
located in Milpitas, California, under leases expiring through 1999. The
Company's principal healthcare information systems operations occupy
approximately 54,000 square feet of leased space in buildings located in
Houston, Texas, under leases expiring in 2002. Other smaller facilities are
leased in various states and foreign countries. Management believes that the
Company's facilities are adequate at least through fiscal 1998 to meet presently
anticipated manufacturing and other requirements.
ITEM 3. LEGAL PROCEEDINGS
The information required by this item is included under Note 5 of Notes to
Consolidated Financial Statements included under Item 8, Financial Statements
and Supplemental Data.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS.
The Company's Common Stock is traded in the NASDAQ National Market System
under the NASDAQ symbol "ADAC". There were approximately 2,844 holders of
record of the Company's Common Stock on December 1, 1997. The table below
provides the quarterly dividends declared and the quarterly high and low closing
prices in the NASDAQ National Market System, as reported by NASDAQ, during the
last two fiscal years of the Company by fiscal quarter.
<TABLE>
<CAPTION>
Fiscal 1997 Fiscal 1996
Per Share Per Share
---------------------------- ----------------------------
High Low Dividend High Low Dividend
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
First Quarter $ 24 1/8 $ 19 1/8 $ -- $ 12 5/8 $ 11 $0.12
Second Quarter 27 1/2 18 1/4 -- 17 5/8 11 5/8 0.12
Third Quarter 27 16 -- 22 3/4 15 3/8 0.12
Fourth Quarter 23 5/8 17 3/8 -- 25 16 0.12
</TABLE>
In October 1996, the Company's Board of Directors decided to discontinue
payment of its quarterly cash dividend in order to reinvest the funds in the
Company to further its growth strategy and enhance shareholder value.
Accordingly, the Company presently intends to retain its earnings for use in its
business and does not anticipate paying any cash dividends in the foreseeable
future.
Item 6. SELECTED CONSOLIDATED FINANCIAL DATA
ADAC LABORATORIES AND SUBSIDIARIES
<TABLE>
<CAPTION>
(Amounts in thousands, except per share data)
Fiscal Year
- ------------------------------------- ----------------------------------------------------------
1997 1996 1995 1994 1993
- ------------------------------------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Revenues $282,331 $240,785 $184,809 $176,280 $156,946
Cost of revenues 166,022 147,633 117,320 106,665 89,516
Operating expenses (1) 81,724 63,833 49,264 51,978 47,668
Other expense 4,940 3,407 1,222 6,452 242
- ------------------------------------- ---------- ---------- ---------- ---------- ----------
Income before income taxes 29,645 25,912 17,003 11,185 19,520
Provision (credit) for income taxes 12,867 9,275 5,930 (6,336) 1,461
- ------------------------------------- ---------- ---------- ---------- ---------- ----------
Net income (1) $16,778 $16,637 $11,073 $17,521 $18,059
- ------------------------------------- ========== ========== ========== ========== ==========
Net income per share (1) $0.86 $0.90 $0.65 $1.06 $1.10
Number of shares used in income
per share calculations 19,528 18,507 17,079 16,508 16,458
Dividends declared per share $ -- $0.48 $0.48 $0.48 $0.48
- ------------------------------------- ---------- ---------- ---------- ---------- ----------
Total assets $206,995 $186,628 $159,097 $121,603 $95,081
===================================== ========== ========== ========== ========== ==========
</TABLE>
(1) Operating expenses, net income and net income per share in fiscal 1997
include the effects of a one-time non-recurring, pre-tax charge of
approximately $5.9 million for the write-off of in-process research and
development related to the acquisition of Cortet, Inc., and certain
uncompleted acquisition costs and related expenses. Excluding this charge,
operating expenses, net income and net income per share for fiscal 1997
would have been $75,862, $22,515 and $1.16, respectively.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction
with the Company's Consolidated Financial Statements and related Notes
thereto contained elsewhere within this document.
RESULTS OF OPERATIONS
Fiscal 1997 Compared to Fiscal 1996 and Fiscal 1995
Revenues for fiscal 1997 increased 17%, or $41.5 million, over
fiscal 1996 revenues of $240.8 million, which were 30% above the $184.8
million of revenues generated in fiscal 1995. Revenues are primarily
generated from the sale and servicing of medical imaging products.
Medical Systems revenues represented 88%, 87% and 93% of the Company's
total revenues in fiscal 1997, 1996 and 1995, respectively. The
Company's Healthcare Information Systems revenues represented
approximately 12%, 13% and 7% of the Company's total revenues in fiscal
1997, 1996 and 1995, respectively. Gross profit for fiscal 1997 of
$116.3 million increased 25%, or $23.2 million, over fiscal 1996, which
increased 38%, or $25.7 million, over fiscal 1995.
Medical Systems
Medical Systems includes revenues from the sale of the Company's
nuclear medicine, RTP and AMT products, as well as customer service related
to those products. Summary information related to Medical Systems' product
and service revenues and gross profit margins for fiscal 1997 compared to
fiscal 1996 and 1995 is as follows:
<TABLE>
<CAPTION>
Fiscal Year
------------------------------------------
(Dollar amounts in thousands) 1997 1996 1995
- -------------------------------- ------------ ------------ ------------
<S> <C> <C> <C>
Revenues:
Product $194,434 $163,032 $129,445
Service $54,953 $46,445 $41,999
Geographical mix:
North America 75% 76% 73%
Europe 13% 14% 16%
Latin America, Japan and Asia 12% 10% 11%
Gross profit margin:
Product 43% 39% 37%
Service 34% 33% 33%
</TABLE>
Medical Systems' product revenues increased 26% from fiscal 1995 to
fiscal 1996 and 19% from fiscal 1996 to fiscal 1997 due to continued
customer acceptance of the Company's nuclear medicine, RTP and AMT
products, including new product introductions and enhancement options.
Product revenue growth is principally driven by the sale of higher priced
dual head products and MCD. In addition, RTP experienced significant
revenue growth in fiscal 1997 due to the launch of Pinnacle3 in the
United States and internationally during that period. In fiscal 1997
and 1996, Medical Systems' revenues increased in dollar volume in all of
the Company's geographical markets. In fiscal 1997, the growth rate was
highest in the Latin America market, and in fiscal 1996, the growth rate
was highest in North America. Gross profit margins for Medical Systems
products increased from fiscal 1996 to fiscal 1997 primarily due to the
sale of higher margin products and the elimination of certain license
fees payable on the sale of RTP products in connection with the
acquisition of Geometrics in November 1996, and increased from fiscal
1995 to fiscal 1996 largely due to reductions in product cost.
The increase in Medical Systems' service revenues and the
improvement in service gross profit margins from fiscal 1995 to fiscal
1997 resulted from an increase in the number of customers under service
contracts, economies of scale related to more effective coverage of field
service support costs and improved product reliability. Service revenues
increased 18% in fiscal 1997 over fiscal 1996 and 11% in fiscal 1996 over
fiscal 1995. The higher growth rate in fiscal 1997 primarily resulted
from the acceleration of the Company's multi-vendor service business
through acquisition.
Healthcare Information Systems (HCIS)
HCIS generates revenues from the sale of laboratory, radiology and
cardiology information systems, which include hardware and software, as
well as from the provision of service for these products. All of the
Company's HCIS revenues are generated in North America. Summary
information related to HCIS' product and service revenues and gross profit
margins for fiscal 1997 compared to fiscal 1996 and fiscal 1995 is as
follows:
<TABLE>
<CAPTION>
Fiscal Year
------------------------------------------
(Dollar amounts in thousands) 1997 1996 1995
- -------------------------------- ------------ ------------ ------------
<S> <C> <C> <C>
Revenues:
Product $17,113 $14,582 $7,270
Service $15,547 $16,726 $6,095
Gross profit margin:
Product 32% 41% 34%
Service 47% 51% 50%
</TABLE>
HCIS' product revenues increased 101% from fiscal 1995 to fiscal
1996 and 17% from fiscal 1996 to fiscal 1997. The increase from fiscal
1995 to fiscal 1996 resulted primarily from the acquisition of CHC and
the release by the Company of QuadRis, a new product in its radiology
information systems product line. Revenues increased in fiscal 1997
largely as a result of the introduction by the Company of CorCAAT, which
the Company acquired in a merger with Cortet in May 1997. Laboratory
product mix as a percentage of revenues decreased from fiscal 1996 to
fiscal 1997, and laboratory product revenues declined over the course of
fiscal 1997, due to continued product development delays, which slowed
new sales bookings and delayed the implementation of existing contract
backlog. Product gross profit margins decreased from fiscal 1996 to
fiscal 1997 due to higher levels of hardware in the revenue/cost mix for
laboratory and radiology sales, combined with increased laboratory
implementation personnel and travel costs and increased amortization
expense of capitalized software costs for all product lines. Product
gross margins increased from fiscal 1995 to fiscal 1996 primarily as a
result of increased product sales and efficiency gains related to the
installation of these products.
HCIS service revenues declined in fiscal 1997 from fiscal 1996 due
principally to a deterioration in the Company's laboratory support
customer base. Service revenues increased from fiscal 1995 to fiscal
1996 due to the acquisition of CHC and the expansion of the Company's
installed base of laboratory and radiology customers. Service margins
decreased from fiscal 1996 to fiscal 1997 due to increased third-party
hardware maintenance costs associated with the Company's laboratory
product, together with an increase in radiology and laboratory client
support costs. Service margins increased slightly from fiscal 1995 to
fiscal 1996 due to efficiency gains.
Operating and Other Expenses
As a percentage of Company's revenue, operating and other expense, net,
for fiscal 1997, 1996 and 1995 were as follows:
<TABLE>
<CAPTION>
Fiscal Year
------------------------------------------
1997 1996 1995
- -------------------------------- ------------ ------------ ------------
<S> <C> <C> <C>
Operating expenses:
Marketing and sales 15.0% 15.1% 16.2%
Research and development, net
of software capitalization 5.6% 5.2% 5.5%
General and administrative 6.0% 5.9% 4.9%
Goodwill amortization 0.3% 0.3% 0.1%
In-process research and
development and
acquisition expenses 2.1% 0.0% 0.0%
------------ ------------ ------------
29.0% 26.5% 26.7%
============ ============ ============
Other expense, net 1.8% 1.4% 0.7%
</TABLE>
Marketing and sales expenses decreased as a percentage of revenue
from fiscal 1995 to fiscal 1996 and remained essentially constant as a
percentage of revenue from fiscal 1996 to fiscal 1997. The decline from
fiscal 1995 to fiscal 1996 period resulted from certain cost reduction
efforts implemented by the Company in fiscal 1996.
Research and development expenditures, net of software
capitalization, totaled $15.7 million, $12.5 million and $10.1 million
in fiscal 1997, 1996, and 1995, respectively. Research and development
expenses, on both a gross and net basis, increased as a percentage of
revenue from fiscal 1996 to fiscal 1997. The increase resulted primarily
from additional investments made by the Company to accelerate the
development of the Company's laboratory product and to maintain and
enhance the Company's radiology product. Research and development
expenditures, net of software capitalization, increased by $2.4 million
from fiscal 1995 to fiscal 1996 as a result of increased expenditures for
new product introductions and product enhancements, while research and
development expenditures, net, decreased slightly as a percentage of
revenue over the same period. Capitalized software costs were $5.5
million $3.5 million and $2.0 million in fiscal 1997, 1996, and 1995,
respectively.
General and administrative expenses remained essentially constant
as a percentage of revenue from fiscal 1996 to fiscal 1997. General and
administrative expenses increased from fiscal 1995 to fiscal 1996 as a
percentage of revenue primarily due to increased labor costs resulting
from the acquisitions of J.D. Technical, a refurbisher of nuclear
medicine imaging equipment, and CHC.
Goodwill amortization remained flat as a percentage of revenue from
fiscal 1996 to fiscal 1997. Goodwill amortization increased from fiscal
1995 to fiscal 1996 as a result of the amortization of expenses
associated with the CHC acquisition in late fiscal 1995.
In fiscal 1997, the Company recognized a $5.9 million one-time,
pre-tax charge for in-process research and development related to the
purchase of Cortet and certain uncompleted acquisition costs and related
expenses. This charge represents 2% of the Company's total revenue for
fiscal 1997.
Other expense, net, which primarily consists of interest expense
and foreign currency transaction gains and losses, increased slightly as
a percentage of revenue from fiscal 1996 to fiscal 1997. Other expense,
net, increased from fiscal 1995 to fiscal 1996 due to the Company's
increased level of bank borrowings during fiscal 1996.
Income Taxes
The effective tax rate as a percentage of pretax income was 43%
compared to 36% in fiscal 1996. This increase for fiscal 1997 resulted
primarily from certain non-tax deductible items relating to the
acquisition of Cortet.
Fiscal 1996's effective tax rate as a percentage of pretax income
was 36% compared to 35% in fiscal 1995. This increase resulted from of a
prospective reinstatement of the research and development tax credit and
full utilization of net operating losses in certain of the Company's
European tax jurisdictions.
Segment Information
Segment and foreign operations information is contained in Note 11
of Notes to Consolidated Financial Statements.
Inflation
The Company does not believe that inflation has had a material
effect on its results of operations.
Liquidity and Capital Resources
The Company believes its available cash resources, generated
primarily from operations, lease discounting and credit lines will
provide adequate funds to finance the Company's operations in fiscal
1998.
The Company's financial condition strengthened from fiscal 1996 to
fiscal 1997. The Company's ratio of current assets to current liabilities
improved to 2.3 to one at September 28, 1997 from 1.7 to one at September
29, 1996. Working capital increased $22.2 million to $76.5 million in
fiscal 1997 from $54.3 million in fiscal 1996.
Cash and cash equivalents for fiscal 1997 increased by $2.0 million
compared to a decrease of $4.5 million for fiscal 1996. This increase
resulted from higher revenues, lower inventory and prepaid inventory,
increased stock option exercises and the elimination of the Company's
dividend. The primary uses of cash during fiscal 1997 were for (i) an
increase in accounts receivable; (ii) a decrease in accounts payable;
(iii) capital expenditures; (iv) an increase in capitalized software
costs; and (v) a reduction in long-term debt. The increase in accounts
receivable resulted from higher revenues, the lengthening of customer
payment terms to meet competitive conditions, and an increase in
international business, as well as 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 an increase in expenses related
to the volume of business.
Cash used for investing activities in fiscal 1997 of $11.8 million
consisted of capital expenditures for office, manufacturing and research
and development equipment and capitalized software research and
development costs in both the Medical Systems and HCIS business units.
Financing activities provided $1.6 million in cash in fiscal 1997.
This was primarily attributable to common stock issued to employees under
the Company's employee stock option and stock purchase plans and the
discontinuance of the dividend payment. These items were partially
offset by a reduction in bank loans during fiscal 1997, which reduced the
outstanding borrowings under the Company's lines of credit to $22.2
million at September 28, 1997 from $27.2 million September 29, 1996, See
Note 4 of Notes to Consolidated Financial Statements.
The Company's liquidity is affected by many factors, some based on
the normal ongoing operations of the business and others related to the
uncertainties of the industry and global economies. Although the
Company's cash requirements will fluctuate based on the timing and extent
of these factors, management believes that cash generated from
operations, together with the liquidity provided by existing cash
balances and borrowing capability, will be sufficient to satisfy
commitments for capital expenditures and other cash 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 changing 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.
RECENT ACCOUNTING PRONOUNCEMENTS
Information regarding the issuance of recent accounting
pronouncements and their expected effect on the Company's financial
position and results of operations is contained in Note 13 of Notes to
Consolidated Financial Statements.
BUSINESS CONSIDERATIONS
From time to time, the Company may disclose, through press
releases, filings with the SEC or otherwise, certain matters that
constitute forward looking statements within the meaning of the Federal
securities laws. Such statements are subject to a number of risks and
uncertainties, which could cause actual results to differ materially from
those projected, including without limitation those set forth below. The
Company expressly disclaims any obligation to update any forward looking
statements.
Healthcare Information Systems
The HCIS business unit has generated a cumulative operating loss
over the past three years, including a substantial operating loss in
fiscal 1997, and may generate operating losses in fiscal 1998. The
Company is continuing to invest in HCIS to complete the development of
the current updates to its 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 or that these efforts will generate profits
in HCIS, which could have a material adverse effect on the results of
operations and financial condition 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 the Company's 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 fiscal
1997 the introduction by certain of the Company's competitors of new
products resulted in a decrease in the Company's market share for that
year. In the future, these products may continue to have an adverse
effect on the Company's market share.
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 MCD, and the current updates to the Company's
products in order to pursue its growth strategy. Failure of the Company
to market and sell its products effectively in future periods 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 a number of
factors, including the commercial availability of, fleuro-deoxy-glucose
("FDG"). At this time, the infrastructure for the commercial supply of
FDG is not well developed. 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.
Government Regulation
There has been a trend in recent years, both in the United States
and abroad, toward more stringent regulation and enforcement of
requirements applicable to medical device manufacturers. The continuing
trend of more stringent regulatory oversight in product clearance and
enforcement activities has caused medical device manufacturers to
experience longer approval cycles, more uncertainty, greater risk, and
higher expenses. There can be no assurance that any necessary clearance
or approval will be granted the Company or that FDA review will not
involve delays adversely affecting the Company. In addition, a failure
to comply with FDA requirements relating to medical device testing,
manufacture, packaging, labeling, distribution, promotion, record
keeping, and reporting of adverse events could result in enforcement
actions including Warning Letters, such as the one issued to Cortet in
August 1997, as well as civil penalties, injunctions, suspensions or
losses of regulatory clearances, product recalls, seizure or
administrative detention of products, operating restrictions through
consent decrees or otherwise, and criminal prosecution. Failure of the
Company to address adequately the concerns raised by the FDA in the
Cortet Warning Letter could have a material adverse effect on Cortet's
business and cause fluctuations in the market price for the Company's
common stock. The Company is also subject to FTC restrictions on
advertising and 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.
Future Operating Results
The Company's future operating results may vary substantially from
period to period. The timing and amount of revenues are subject to a
number of factors that make estimation of revenues and operating results
prior to the end of the quarter very uncertain. The timing of revenues
can be affected by delays in product introductions, shipments and
installations, as well as general economic and industry conditions.
Furthermore, of the orders received by the Company in any fiscal
quarter, a disproportionately large percentage has typically been
received and shipped toward the end of that quarter. Accordingly,
results for a given quarter can be adversely affected if there is a
substantial order shortfall late in that quarter. In addition, although
both the Company's bookings and revenue have increased 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, receipt of applicable regulatory
approvals, and other factors. Accordingly, there can be no assurance
that the orders will mature into revenue.
Risks Related to Acquisitions
In the past fiscal year, the Company has acquired a number of
small businesses, and anticipates that it may continue to acquire
businesses whose products and services complement the Company's
business. Acquisitions involve numerous risks, including, among other
things, difficulties in successfully integrating the businesses
(including products and services, as well as sales and marketing
efforts), failure to retain existing customers of or attract new
customers to the acquired business operations, failure to retain key
technical and management personnel, coordinating geographically
separated organizations, and diversion of ADAC management attention.
These risks, as well as liabilities of any acquired business (whether
known or unknown at the time of acquisition), could have a material
adverse effect on the results of operations and financial condition of
the Company, including adverse short-term effects on its reported
operating results. The Company seeks to mitigate these risks by taking
reserves when appropriate in connection with these acquisitions. In
addition, the Company has in the past and may in the future issue stock
as consideration for acquisitions. Future sales of shares of the
Company's stock issued in such acquisitions could adversely affect or
cause fluctuations in the market price of the Company's Common Stock.
Year 2000 Compliance
Many currently installed computer systems and software products
are coded to accept only 2 digit entries in the date code field.
Beginning in the year 2000, these date code fields will need to accept 4
digit entries to distinguish 21st century dates from 20th century dates.
Systems that do not properly recognize such information could generate
erroneous data or cause a system to fail. As a result, in two years,
computer systems and/or software used by many companies may need to be
upgraded to comply with such Year 2000 requirements. The Company is
utilizing both internal and external resources to identify, correct or
reprogram, and test its internal systems, for Year 2000 compliance.
Management has not yet assessed the year 2000 compliance expense and
related potential effect on the Company's earnings.
In addition, the Company is currently seeking to ensure that the
software included in its nuclear medicine, healthcare information and
other systems is Year 2000 compliant. Failure (or perceived failure) of
such products to be Year 2000 compliant could significantly adversely
affect sales of such products, which could have a material adverse
effect on the Company's results of operations and financial condition.
In addition, the Company believes that the purchasing patterns of
customers and potential customers may be affected by Year 2000 issues in
a variety of ways. Many potential customers may choose to defer
purchasing Year 2000 compliant products until they believe it is
absolutely necessary, thus resulting in potentially stalled market sales
within the industries in which the Company competes. Conversely, Year
2000 issues may cause other companies to accelerate purchases, thereby
causing an increase in short-term demand and a consequent decrease in
long-term demand for the Company's products. Additionally, Year 2000
issues could cause a significant number of companies, including current
Company customers, to reevaluate their current system needs, and as a
result consider switching to other systems or suppliers. Any of the
foregoing could result in a material adverse effect on the Company's
business, operating results and financial condition.
Health Care Reform; Reimbursement and Pricing Pressure
There is significant concern today about the availability and
rising cost of healthcare in the United States. Cost containment
initiatives, market pressures and proposed changes in applicable laws
and regulations may have a dramatic effect on pricing or potential
demand for medical devices, the relative costs associated with doing
business and the amount of reimbursement by both government and third
party payors, which could have a material adverse effect on the
Company's results of operations.
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.
Reliance on Suppliers
Certain components used by the Company to manufacture its products
such as the sodium iodide crystals used in the Company's nuclear
medicine systems are presently available from only one supplier. The
Company also relies on several significant vendors for hardware and
software components for its healthcare information systems products.
The loss of any of these suppliers, including any single-source
supplier, would require obtaining one or more replacement suppliers as
well as potentially requiring a significant level of hardware and
software development to incorporate the new parts into the Company's
products. Although the Company has obtained insurance to 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.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
ADAC LABORATORIES AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(amounts in thousands, except per share data)
<TABLE>
<CAPTION>
Fiscal Year Ended
- -------------------------------- ------------------------------------------
September 28, September 29, October 1,
1997 1996 1995
- -------------------------------- ------------ ------------ ------------
<S> <C> <C> <C>
REVENUES, NET:
Product $211,831 $177,613 $136,715
Service 70,500 63,172 48,094
- -------------------------------- ------------ ------------ ------------
282,331 240,785 184,809
------------ ------------ ------------
COST OF REVENUES:
Product 121,766 108,091 85,914
Service 44,256 39,542 31,406
------------ ------------ ------------
166,022 147,633 117,320
------------ ------------ ------------
Gross profit 116,309 93,152 67,489
- -------------------------------- ------------ ------------ ------------
OPERATING EXPENSES:
Marketing and sales 42,445 36,275 29,928
Research and development 15,693 12,516 10,081
General and administrative 16,932 14,250 9,081
Goodwill amortization 792 792 174
In-process research and
development and
acquisition expenses 5,862 -- --
------------ ------------ ------------
81,724 63,833 49,264
- -------------------------------- ------------ ------------ ------------
Operating income 34,585 29,319 18,225
OTHER EXPENSE:
Interest and other, net 4,940 3,407 1,222
- -------------------------------- ------------ ------------ ------------
4,940 3,407 1,222
------------ ------------ ------------
Income before provision for
income taxes 29,645 25,912 17,003
Provision (credit) for
income taxes 12,867 9,275 5,930
- -------------------------------- ------------ ------------ ------------
Net income $16,778 $16,637 $11,073
- -------------------------------- ============ ============ ============
Net income per share $0.86 $0.90 $0.65
============ ============ ============
Number of shares used in per
share calculations 19,528 18,507 17,079
- -------------------------------- ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
ADAC LABORATORIES AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(amounts in thousands)
<TABLE>
<CAPTION>
September 28, September 29,
1997 1996
- -------------------------------------------------- ------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $5,088 $3,081
Accounts receivable, net of allowance for
returns and doubtful accounts of $2,386
in 1997 and $2,146 in 1996 99,495 80,654
Inventories 27,534 31,975
Prepaid expenses and other current assets 10,155 11,027
- -------------------------------------------------- ------------ ------------
Total current assets 142,272 126,737
- -------------------------------------------------- ------------ ------------
Service parts, net 17,278 15,482
Fixed assets, net 11,555 8,393
Capitalized software, net 14,007 11,656
Goodwill, net 10,110 10,901
Deferred income taxes 8,249 8,095
Other assets, net 3,524 5,364
- -------------------------------------------------- ------------ ------------
Total Assets $206,995 $186,628
- -------------------------------------------------- ============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable to banks $22,217 $27,226
Accounts payable 10,543 13,923
Dividends payable -- 2,137
Deferred revenues 11,561 13,302
Customer deposits and advance billings 2,841 2,302
Accrued compensation 7,522 7,825
Other accrued liabilities 11,115 13,797
- -------------------------------------------------- ------------ ------------
Total current liabilities 65,799 80,512
- -------------------------------------------------- ------------ ------------
Non-current deferred income taxes 11,103 2,275
Non-current liabilities and deferred credits 3,596 4,370
- -------------------------------------------------- ------------ ------------
Total Liabilities 80,498 87,157
- -------------------------------------------------- ------------ ------------
Commitments and contingencies (Note 5)
- --------------------------------------------------
SHAREHOLDERS' EQUITY
- --------------------------------------------------
Preferred stock, no par value:
Authorized: 5,000 shares;
Issued and outstanding: none in 1997 and 1996
Common stock, no par value:
Authorized: 50,000 shares;
Issued and outstanding: 18,812 shares as
of September 28, 1997 and 17,781 shares
as of September 29, 1996, respectively 123,269 110,661
Retained earnings (accumulated deficit) 5,593 (10,172)
Translation adjustment (2,365) (1,018)
- -------------------------------------------------- ------------ ------------
Shareholders' Equity 126,497 99,471
- -------------------------------------------------- ------------ ------------
Total Liabilities and Shareholders' Equity $206,995 $186,628
- -------------------------------------------------- ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
ADAC LABORATORIES AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(amounts in thousands)
<TABLE>
<CAPTION>
Fiscal Year Ended
- --------------------------------------- -----------------------------------------
September 28, September 29, October 1,
1997 1996 1995
- --------------------------------------- ------------- ------------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $16,778 $16,637 $11,073
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 10,191 9,035 6,377
Provision for product returns
and doubtful accounts 3,558 1,482 1,502
Deferred income taxes 8,413 4,912 4,145
Inventory allowance 1,008 1,099 (1,805)
In-process research and
development and
acquisition expenses 5,862 -- --
Changes in operating assets
and liabilities:
Accounts receivable (22,589) (27,089) (8,966)
Inventories 3,452 (4,857) (3,471)
Prepaid expenses and other
current assets 882 (5,512) (2,763)
Service parts (3,816) (3,712) (1,971)
Accounts and dividends payable (3,419) 886 (3,109)
Deferred revenues (1,895) (204) 7,059
Customer deposits and advance
billings 539 (1,899) (3,135)
Accrued compensation (383) 1,490 508
Other accrued liabilities (2,928) (15) (1,114)
Non-current liabilities and
deferred credits (2,068) 116 875
- --------------------------------------- ------------- ------------- -----------
Net cash provided by (used in)
operating activities 13,585 (7,631) 5,205
- --------------------------------------- ------------- ------------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (6,166) (2,789) (2,588)
Proceeds from sale and leaseback
of fixed assets -- -- 1,553
Increase in other assets (5,860) (2,467) (2,997)
Acquisition of CHC, net of
cash acquired -- -- (16,152)
Cash received upon acquisition
of Cortet 229
- --------------------------------------- ------------- ------------- -----------
Net cash used in investing activities (11,797) (5,256) (20,184)
- --------------------------------------- ------------- ------------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings (repayments) under
short-term debt arrangements, net (5,009) 8,928 18,298
Proceeds from issuance and
repurchase of common stock, net 8,712 9,589 3,986
Dividends paid (2,137) (8,400) (7,885)
- --------------------------------------- ------------- ------------- -----------
Net cash provided by
financing activities 1,566 10,117 14,399
- --------------------------------------- ------------- ------------- -----------
Effect of exchange rates on cash (1,347) (1,700) 928
- --------------------------------------- ------------- ------------- -----------
Net change in cash and cash equivalents 2,007 (4,470) 348
Cash and cash equivalents, at
beginning of the year 3,081 7,551 7,203
- --------------------------------------- ------------- ------------- -----------
Cash and cash equivalents, at end of
the year $5,088 $3,081 $7,551
- --------------------------------------- ============= ============= ===========
SUPPLEMENTAL CASH FLOW DISCLOSURE:
Interest paid $3,835 $3,325 $1,609
Income taxes paid 4,185 442 289
Noncash investing activities:
Issuance of common stock pursuant to the acquisitions of Geometrics,
Photon and Cortet (see Note 3).
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
ADAC LABORATORIES AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(amounts in thousands, except per share data)
<TABLE>
<CAPTION>
Retained
Common Stock Earnings Total
- --------------------------------------- -------------------- (Accumulated Translation Shareholders'
Shares Amount Deficit) Adjustment Equity
- --------------------------------------- --------- --------- ------------ ------------- ------------
<S> <C> <C> <C> <C> <C>
Balances, October 2, 1994 16,047 $97,086 ($22,174) ($246) $74,666
Employee stock purchases and
exercises of employee stock options 937 4,733 -- -- 4,733
Shares sold under dividend
reinvestment plan 17 181 -- -- 181
Shares withheld in payment of stock
options exercised (82) (1,087) -- -- (1,087)
Income tax benefit resulting from
exercises of stock options -- 159 -- -- 159
Translation adjustment -- -- -- 928 928
Dividends declared ($0.48 per share) -- -- (7,885) -- (7,885)
Net income -- -- 11,073 -- 11,073
- --------------------------------------- --------- --------- ------------ ------------- ------------
Balances, October 1, 1995 16,919 101,072 (18,986) 682 82,768
Employee stock purchases and
exercises of employee stock options 657 5,263 -- -- 5,263
Shares sold under dividend
reinvestment plan 69 971 -- -- 971
Shares withheld in payment of stock
options exercised (2) (45) -- -- (45)
Income tax benefit resulting from
exercises of stock options -- 3,400 -- -- 3,400
Pooling of interest with JD Technical 138 -- 577 577
Translation adjustment -- -- -- (1,700) (1,700)
Dividends declared ($0.48 per share) -- -- (8,400) -- (8,400)
Net income -- -- 16,637 -- 16,637
- --------------------------------------- --------- --------- ------------ ------------- ------------
Balances, September 29, 1996 17,781 110,661 (10,172) (1,018) 99,471
Employee stock purchases and
exercises of employee stock options 623 6,063 -- -- 6,063
Shares sold under dividend
reinvestment plan 38 776 -- -- 776
Shares withheld in payment of stock
options exercised (37) (794) -- -- (794)
Income tax benefit resulting from
exercises of stock options -- 2,666 -- -- 2,666
Pooling of interest with Geometrics
and Photon 248 -- (1,013) -- (1,013)
Acquisition of Cortet 159 3,897 -- -- 3,897
Translation adjustment -- -- -- (1,347) (1,347)
Net income -- -- 16,778 -- 16,778
- --------------------------------------- --------- --------- ------------ ------------- ------------
Balances, September 28, 1997 18,812 $123,269 $5,593 ($2,365) $126,497
- --------------------------------------- ========= ========= ============ ============= ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
ADAC LABORATORIES AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 1 Summary of Significant Accounting Policies
Fiscal Year
The Company's fiscal year ends on the Sunday closest to September 30.
Fiscal 1997, 1996 and 1995 all included 52 weeks.
Principles of Consolidation
The consolidated financial statements include the accounts of ADAC
Laboratories and its wholly-owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated.
Foreign Currency Translation and Transactions
The Company's European subsidiaries' functional currencies are considered to
be their respective local currencies. Adjustments that arise in translating
their financial statements into U.S. dollars are included as a separate
component of shareholders' equity in the consolidated balance sheets.
Gains and losses from foreign currency transactions are included as a
component of other expense, net, in the consolidated statements of
income, and amounted to losses of $0.6 million, $0.1 million, and $0.2
million in fiscal 1997, 1996, and 1995, respectively.
Revenue Recognition
Revenues related to the Company's Medical Systems business unit product
sales are recognized upon shipment to the customer or to the location
requested by the customer, at which time title and risk of ownership pass.
Estimated provisions for product sale returns, installation and warranty are
accrued upon revenue recognition. Revenues related to Medical Systems
service are recognized ratably over the relevant contractual period or as
the service is performed. Medical Systems revenue billed but unearned is
included on the consolidated balance sheets as deferred revenue.
Revenues related to the Company's Healthcare Information Systems business
unit are derived from software licenses, computer hardware sales, related
implementation, training and support services and maintenance contracts.
Revenues for software licenses are recognized either at the shipment date or
upon the renewal date if, in either case, payment is due within twelve
months after such date. Revenues for license fees that have payments due
beyond twelve months are generally recognized at the time fees are paid or
are billable. Revenues for computer hardware sales are recognized at the
time of shipment. The Company's obligations subsequent to shipment
primarily relate to implementation and training. Revenues for these
services are recognized as the services are provided. Revenues from
maintenance contracts are recognized ratably over the relevant contractual
period.
Research and Development
Research and development expenditures are charged to operations as
incurred, net of certain capitalized software costs.
Income Taxes
Under the liability method of accounting for income taxes, deferred tax
assets and liabilities are recognized for the future tax consequences
attributable to temporary differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. The effect
on deferred tax assets and liabilities of a change in tax rate is recognized
as income in the period that includes the enactment date.
Deferred tax assets are also recognized for deductible temporary differences
and operating loss and tax credit carryforwards and, if appropriate, with a
valuation allowance established against the resulting assets if it is more
likely than not that the related tax benefits will not be realized.
Income Per Share
Net income per common and common equivalent share has been computed using
the weighted average number of common shares outstanding after considering
the dilutive effect of common stock options and warrants using the treasury
stock method.
Cash Equivalents
All highly liquid investments purchased with an original maturity of three
months or less are considered cash equivalents.
Concentration of Credit Risk
The Company sells its products to hospitals and clinics worldwide. The
Company performs ongoing credit evaluations of its customers and generally
does not require collateral, except for sales within Latin America. The
Company maintains allowances for potential credit losses and such losses
have been within management's expectations. The Company invests any excess
cash on deposits with a major investment bank. The Company has not
experienced any losses on these deposits.
Reliance on Certain Suppliers
Certain components and services used by the Company to manufacture and
develop its products are presently available from only one, or a limited
number of, suppliers or vendors. The loss of any of these suppliers or
vendors would potentially require a significant level of hardware and/or
software development to incorporate the products or services from new
suppliers or vendors into the Company's products. Although the Company
has obtained business interruption insurance to protect against such
losses, there is no assurance that such coverage would be adequate.
Inventories
Inventories are stated at the lower of standard cost (which approximates
cost on a first-in, first-out basis) or market.
Service Parts
Service parts used for servicing installed equipment are stated at cost and
are depreciated over a 10-year period using the declining-balance method of
depreciation.
Fixed Assets
Major additions and improvements are capitalized at cost, while maintenance
and repairs which do not improve or extend the life of the respective assets
are expensed as incurred. When assets are retired or otherwise disposed
of, the costs and related accumulated depreciation are removed from the
financial statements, and any gain or loss on disposal is included in the
consolidated statements of income. Fixed assets, other than leasehold
improvements, are depreciated on a straight-line basis over their estimated
useful lives (3-7 years). Leasehold improvements are amortized on a
straight-line basis over the lesser of their estimated useful lives or the
remaining term of the related leases.
Capitalized Software
Costs related to the conceptual formulation and design of software products
are expensed as product development, and costs incurred subsequent to
establishing the technological feasibility of software products are
capitalized. Amortization of capitalized software costs, which begins when
products are available for general release to customers, is computed using
the greater of 1) the ratio that current gross revenues bear to the total of
current and anticipated future gross revenues; or 2) a straight-line basis
over the expected product lives, generally estimated to be three to seven
years.
Software costs capitalized during fiscal years 1997, 1996, and 1995
amounted to approximately $5.5 million, $3.4 million, and $2.0 million,
respectively. Additionally, $5.8 million of capitalized software was
acquired through the acquisition of Community Health Computing Corporation
during fiscal 1995. Amortization of capitalized software costs during the
fiscal years 1997, 1996 and 1995 amounting to approximately $3.2 million,
$2.1 million and $1.2 million, respectively, have been charged to cost of
product revenues.
Intangible Assets
Goodwill and other purchased intangibles, including technology and sales
partnerships, are capitalized and amortized on a straight-line basis over
the estimated useful life of the related asset (3-15 years).
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Reclassifications
Certain amounts in the financial statements have been reclassified to
conform with the current year's presentation. These classifications did not
change previously reported total assets, liabilities, shareholders' equity
or net income.
Note 2 Balance Sheet Detail:
($000) 1997 1996
- ------------------------------------------------ ---------- ----------
Inventories consist of:
Purchased parts and sub-assemblies $14,327 $16,000
Work in process 3,175 5,057
Finished goods 10,032 10,918
---------- ----------
$27,534 $31,975
========== ==========
($000) 1997 1996
- ------------------------------------------------ ---------- ----------
Service parts consist of:
Field service parts, at cost $24,653 $22,183
Less accumulated depreciation (7,375) (6,701)
---------- ----------
$17,278 $15,482
========== ==========
($000) 1997 1996
- ------------------------------------------------ ---------- ----------
Fixed assets, at cost, consist of:
Production and test equipment $9,144 $7,227
Field service equipment 2,443 2,374
Office and demonstration equipment 16,932 12,782
Leasehold improvements 1,181 1,112
---------- ----------
29,700 23,495
Less accumulated depreciation and
amortization (18,145) (15,102)
---------- ----------
$11,555 $8,393
========== ==========
($000) 1997 1996
- ------------------------------------------------ ---------- ----------
Other accrued liabilities consist of:
Accrued customer service costs $4,495 $3,663
Other accrued expenses 6,620 10,134
---------- ----------
$11,115 $13,797
========== ==========
($000) 1997 1996
- ------------------------------------------------ ---------- ----------
Non-current liabilities and
deferred credits consist of:
Deferred contract revenue $1,185 $2,185
Deferred gain on sale of fixed assets 688 1,329
Other non-current liabilities 1,723 856
---------- ----------
$3,596 $4,370
========== ==========
Note 3 Acquisitions
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 and the results of Cortet have been included in the
Company's consolidated financial statements subsequent to May 22, 1997.
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.
On February 19, 1997, the Company acquired Photon Diagnostic
Technologies, Inc. (Photon), of Miami, Florida, in exchange for 57,143
shares of the Company's common stock valued at approximately $1.5
million. Photon refurbishes, services and supports Elscint nuclear
medicine imaging systems. The acquisition has been accounted for as a
pooling of interests. Prior period financial statements have not been
restated because Photon is not material to the financial position or
results of operations of the Company.
On November 4, 1996, the Company acquired Geometrics Corporation
(Geometrics), of Madison, Wisconsin, a developer of specialized medical
software used in the planning of radiation therapy treatments for cancer
patients, in exchange for 190,561 shares of the Company's common stock
valued at approximately $3.9 million. The acquisition has been accounted
for as a pooling of interests. Prior period financial statements have
not been restated because Geometrics is not material to the financial
position or results of operations of the Company.
On November 9, 1995, the Company acquired JD Technical Services, Inc., of
Washington, Missouri, a leader in nuclear medicine imaging systems
refurbishing, as well as a nationwide provider of multivendor service and
support, in exchange for 138,301 shares of the Company's common stock
valued at $1.7 million. The transaction was accounted for as a pooling of
interests. Prior period financial statements were not restated, as the
operations of JD Technical were not material to the financial position or
the results of operations of the Company at the time of acquisition.
On July 12, 1995, the Company completed its acquisition of Community
Health Computing Corp. (CHC) of Houston, Texas for approximately $18.4
million, which included $1.9 million of expenses associated with the
acquisition. Through the acquisition, the Company acquired all the
rights to CHC's product portfolios for the laboratory information systems
and radiology information systems markets, and obtained CHC's installed
customer base. The acquisition was accounted for as a purchase, and the
results of operations of CHC have been included in the Company's
consolidated financial statements subsequent to July 12, 1995. The fair
value of assets acquired, including goodwill, was $27.6 million and
liabilities assumed totaled $23.6 million. Goodwill of $11.9 million is
being amortized over 15 years on a straight-line basis.
Note 4 Credit and Borrowing Arrangements
The Company has a $100 million revolving credit facility with a bank
syndicate. The credit facility offers borrowings in either U.S. dollars
or in foreign currencies and expires July 30, 1999. The Company pays
interest and commitment fees on its borrowings based on its debt level in
relation to its cash flow. Commitment fees range from 0.25% to 0.475% of
unused commitment and interest rates are based on the bank's prime rate
or Libor plus rates ranging from 0.875% to 1.5%. Borrowings are
generally repaid within 90 days. At September 28, 1997, the Company had
$77.8 million available for borrowing under this facility.
Borrowings are collateralized by the Company's assets, and the Company is
required to comply with certain financial and other covenants, including
restrictions on its ability to acquire or merge with other companies and
to incur additional debt.
Additional information with respect to such revolving lines of credit is as
follows:
($000) 1997 1996
- ------------------------------------------------ ---------- ----------
Maximum borrowings during the year $55,650 $49,700
Average borrowings during the year $39,645 33,177
Weighted average interest rates during the year 6.62% 6.79%
- ------------------------------------------------
Note 5 Commitments and Contingencies
Operating Leases
The Company leases its office and manufacturing facilities under operating
leases which expire at various dates through 2002. The Company is responsible
for maintenance, taxes and insurance on all facilities.
During fiscal 1995, the Company sold and leased back fixed assets with a
net book value of $0.6 million for total proceeds of $0.8 million. The gain
on the transaction will be recognized over the five year term of the
operating lease.
As of September 28, 1997, future annual minimum lease payments for all non
cancelable operating leases are as follows:
Fiscal Year ($000) Building Equipment
- ------------------------------------------------ ---------- ----------
1998 $3,001 $2,035
1999 1,611 3,053
2000 1,006 240
2001 955 6
2002 795 5
Thereafter 66 --
---------- ----------
Total minimum lease payments $7,434 $5,339
========== ==========
Rent expense totaled $5.9 million, $4.9 million, and $4.3 million for
fiscal years 1997, 1996 and 1995, respectively.
Capital Leases
During fiscal 1997, the Company entered into three capital leases all with
terms of three years. In 1995, the Company entered into three capital
leases both with terms of five years. Under these agreements, certain
leased fixed assets are pledged as collateral.
As of September 28, 1997, future annual minimum lease payments under these
capital leases are as follows:
Capital
Fiscal Year ($000) Leases
- ------------------------------------------------ ----------
1998 $248
1999 248
2000 82
2001 --
Thereafter --
----------
Total minimum lease payments 578
Amount representing interest (65)
----------
Present value of net minimum lease payments 513
Less current portion (205)
----------
$308
==========
Payments under these capital lease obligations totaled $0.2 million, $0.2
million and $0.1 million in fiscal 1997, 1996 and 1995, respectively.
As of September 28, 1997, the Company had $0.9 million of equipment under
capital leases with accumulated amortization of $0.4 million.
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.
Other
Under third party lease program agreements, the Company is contingently
liable for losses in the event of default by lessees, up to a specified
percentage (ranging from 2% to 100%) of the equipment lease, depending on
the agreement, and up to 100% for the related service contracts. At
September 28, 1997 the contingent liability was $2.9 million.
In conjunction with its third party financing and lease programs, the
Company sells certain receivables with recourse. The amount of recourse
on outstanding receivables ranges from 10% to 100% of the receivable.
Receivables are currently being sold by the Company with recourse ranging
from 0 to 10%. Proceeds from receivables sold totaled 29.8 million and
21.5 million in fiscal 1997 and 1996, respectively. As of September 28,
1997 the contingent liability was $12.3 million.
Note 6 Capital Stock
Preferred Stock
The Board of Directors is authorized to determine the rights and preferences
of the preferred stock, issuable in series. The Board of Directors may
increase or decrease the number of shares of any series of preferred stock,
but not below the number of shares of such series then outstanding.
Common Stock
In fiscal 1997 and 1995 the Board of Directors approved the issuance of
warrants to purchase up to 24,000 and 60,000 shares of common stock,
respectively, to a consulting firm as partial compensation for services
rendered and to be rendered. The exercise price for these warrants are
$22.00 and $11.88, respectively. The warrants were issued proportionately
as services were performed. At September 28, 1997, all of these warrants
were outstanding.
As of September 28, 1997, the Company has reserved a total of 3,706,000
shares of common stock for issuance under employee stock option plans and
89,855 under the employee stock purchase plan discussed in Note 7.
Note 7 Stock Plans
Stock Option Plans
The Company currently has one stock option plan for employees and
consultants under which options may be granted, the 1992 Stock Option Plan,
as amended.
The 1992 Option Plan allows for non-qualified as well as incentive options
to be granted to employees, officers, consultants and others. Incentive
stock options must be granted at exercise prices of not less than fair
market value and expire within 10 years from the date of grant. Under the
plan, non-qualified stock options can have exercise prices of not less than
85% of fair market value and also expire within 10 years of grant date.
In addition, the Company has a directors' stock option plan under which
options are granted to non-employee directors. Options under this plan are
granted for a period of 5 years from the date of grant at an option exercise
price equal to 100% of fair market value.
A summary of the activity under these plans is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------------------- ------------------- --------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
(Shares in thousands) Options Price Options Price Options Price
- --------------------------------- --------- --------- --------- --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Outstanding, beginning of year 2,826 $11.09 2,516 $8.30 2,557 $7.05
Granted 966 17.12 1,160 15.24 1,073 8.47
Exercised (564) 9.23 (549) 7.91 (879) 5.03
Cancelled (160) 14.59 (301) 9.15 (235) 7.85
--------- --------- ---------
Outstanding, end of year 3,068 13.09 2,826 11.09 2,516 8.30
========= ========= =========
Options exercisable
at end of year 1,064 10.62 631 9.01 685 8.64
========= ========= =========
Options available for grant
at end of year 638 653 469
========= ========= =========
</TABLE>
The following table summarizes information about stock options
outstanding as of September 28, 1997:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------ ------------------------
Average Weighted Weighted
Remaining Average Average
Range of Number Contractual Exercise Number Exercise
Exercise Prices Outstanding Life Price Outstanding Price
- ----------------- ------------ ----------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C>
$ 6.38 to $ 6.38 384,500 1.87 $6.38 384,500 $6.38
7.75 to 7.86 47,165 5.67 7.83 21,915 7.78
8.00 to 8.00 538,000 7.26 8.00 176,250 8.00
8.38 to 12.13 325,379 5.22 11.57 170,379 11.65
14.25 to 15.75 45,334 0.69 14.91 45,334 14.91
15.88 to 15.88 730,250 8.60 15.88 158,725 15.88
16.00 to 16.00 654,600 9.57 16.00 -- --
16.50 to 19.50 300,200 7.52 18.61 82,975 18.56
21.88 to 21.88 19,000 9.05 21.88 -- --
22.63 to 22.63 24,000 4.60 22.63 24,000 22.63
------------ ------------
$ 6.38 to $22.63 3,068,428 7.07 $13.09 1,064,078 $10.62
============ ============
</TABLE>
In fiscal 1997, the Company adopted the disclosure provisions of Statement
of Financial Accounting Standards No. 123 - Accounting for Stock-Based
Compensation ("SFAS 123"). SFAS 123 is effective for fiscal years
beginning after December 15, 1995 and provides, among other things, that
companies may elect to account for employee stock options using a fair
value-based method or continue to apply the intrinsic value-based method
prescribed by Accounting Principal Board Opinion No. 25 ("APB 25").
Under the fair value-based method prescribed by SFAS 123, all employee
stock options grants are considered compensatory. Compensation cost is
measured at the date of grant based on the estimated fair value of the
options determined using an option pricing model. The model takes into
account the stock price at the grant date, the exercise price, the expected
life of the option, the volatility of the stock, expected dividends on the
stock and the risk-free interest rate over the expected life of the option.
Under APB 25, generally only stock options that have intrinsic value at the
date of grant are considered compensatory. Intrinsic value represents the
excess, if any, of the market price of the stock at the grant date over the
exercise price of the options. Under both methods, compensation cost is
charged to earnings over the period the options become exercisable.
As permitted by SFAS 123, the Company has elected to continue to apply the
intrinsic value-based method for employee stock options. Accordingly, no
material compensation cost has been recognized.
The following table discloses the Company's pro forma net income and net
income per share assuming compensation costs for employee stock options had
been determined using the Black-Scholes option-pricing model with the
following assumptions: (i) no dividends, (ii) expected volatility of 55%
for both years, (iii) risk free interest rate of 6.16% and 6.23% for fiscal
1997 and 1996, respectively, (iv) and expected lives of 2 years.
1997 1996
----------- -----------
Net income: ($000)
As reported $16,778 $16,637
Pro forma 14,382 15,831
Net income per share:
As reported $0.86 $0.90
Pro forma 0.74 0.86
Because the accounting method prescribed by SFAS 123 is not applicable to
options granted prior to October 3, 1995, the compensation cost reflected
in the pro forma amounts shown above may not be representative of the
amounts to be expected in future years.
Employee Stock Purchase Plan
This plan, as amended, permits eligible employees to purchase common stock
through payroll deductions (which cannot exceed 10% of the employee's
compensation and cannot exceed 100 shares per employee per interim offering
period) at the lower of 85% of fair market value at the beginning of a 27
month offering period or at the end of each interim period. Each full-time
employee of the Company who has been employed for six months or more at the
commencement of an interim offering period is entitled to participate in the
plan. During fiscal years 1997, 1996, and 1995, 56,000, 64,000 and 58,000
shares were issued at an average price of $15.05, $10.94, and $7.21 per
share, respectively.
Preferred Share Purchase Rights Plan
In April 1996, the Company's Board of Directors adopted a Preferred Share
Purchase Rights Plan (the "Rights Plan"). Under the Rights Plan, a dividend
of one preferred share purchase right (a "Right") for each outstanding share
of common stock, without par value (the "Common Shares"), of the Company was
declared. Each Right entitles the registered holder to purchase from the
Company one one-hundredth of a share of Series A Junior Participating
Preferred Stock, without par value (the "Preferred Stock"), at a price of
seventy dollars ($70.00) per one one-hundredth of a Preferred Share. Each
one one-hundredth of a share of Preferred Stock has designations and the
powers, preferences and rights, and the qualifications, limitations and
restrictions which make its value approximately equal to the value of a
Common Share. In general, the Rights are exercisable upon the commencement
of, or announcement of an intention to make, a tender offer or exchange
offer, the consummation of which would result in the beneficial ownership by
a person or group of 15% or more of such outstanding Common Shares. The
Rights expire in April 2006 unless the expiration date is extended or unless
the Rights are earlier redeemed by the Company.
The Rights Plan is designed to provide an adequate opportunity for the
Company's Board of Directors to consider and evaluate all strategic
alternatives of the Company in the event an unsolicited attempt is made to
acquire the Company. The Rights are intended to enable all of the Company's
shareholders to realize the full value of their investment and to provide
for fair and equal treatment for all shareholders. The adoption of the
Rights Plan will not, nor is it intended to, prevent all takeover actions.
The Rights were not distributed in response to any proposal to acquire the
Company.
Note 8 Retirement Savings Plan
The Company maintains a qualified retirement plan, under the provisions of
Section 401(k) of the Internal Revenue Code, in which eligible employees may
participate. Substantially all participants in this plan are able to defer
compensation up to the annual maximum amount allowable under Internal
Revenue Service regulations. Additionally, the Company may match employee
contributions with discretionary amounts as may be determined by the Board
of Directors. During fiscal 1997 and 1996, the Company matched employee
contributions up to a maximum of $500 per employee, totaling $0.3 million
and $0.2 million respectively. Prior to fiscal 1996, no matching
contributions had been made.
Note 9 Subsequent Events
On October 30, 1997, one of the Company's subsidiaries, ADAC Radiology
Services, Inc. (ARS), exercised an option to purchase Medical Transition
Strategies, Inc. (MTS). MTS is in the business of forming and managing
radiology networks. ARS acquired the option in September 1996 in exchange
for the payment of $0.5 million in cash and $1.0 million payable over five
years. The exercise price equals $50,000 per validated network under
management plus a percentage of each validated network's net revenue in
calendar year 1998. The Company does not believe the amount of the exercise
price will be material. The operations of MTS were not material to the
financial position or the results of operations of the Company at the time
of acquisition.
Note 10 Income Taxes
Income tax expense consists of:
($000) 1997 1996 1995
- ---------------------------------------- --------- --------- ---------
Current:
Federal $2,420 $409 $267
Foreign 477 384 --
State 1,296 458 571
- ---------------------------------------- --------- --------- ---------
4,193 1,251 838
--------- --------- ---------
Deferred:
Federal 8,272 7,538 4,904
State 402 486 188
- ---------------------------------------- --------- --------- ---------
8,674 8,024 5,092
--------- --------- ---------
Total $12,867 $9,275 $5,930
- ---------------------------------------- ========= ========= =========
The reconciliation of the provision for income taxes, computed at the marginal
federal statutory income tax rate, to the reported amounts is as follows:
($000) 1997 1996 1995
- ---------------------------------------- --------- --------- ---------
Income taxes computed at marginal
statutory rate of 35% $10,375 $9,069 $5,951
State income taxes, net of
federal benefit 1,201 649 493
Non-deductible acquisition costs 1,824 -- --
Change in valuation allowance (704) (844) (980)
Business credits (462) (160) (196)
Other 633 561 662
- ---------------------------------------- --------- --------- ---------
Provision for income taxes $12,867 $9,275 $5,930
- ---------------------------------------- ========= ========= =========
As of September 28, 1997, the Company had net operating loss carryforwards
of approximately $30.8 million available to offset future federal taxable
income and approximately $5.9 million available to offset future taxable
income in various foreign jurisdictions. Federal operating loss
carryforwards of $9.2 million expire in fiscal year 2001, federal operating
loss carryforwards of $21.6 million expire 2006 to 2010, and foreign
operating loss carryforwards expire beginning in fiscal year 1998. The
federal operating loss carryforwards expiring 2006 to 2010 are subject to
certain restrictions on their utilization. The Company also has federal
credit carryforwards of $1.5 million which are not subject to expiration.
Significant components of the Company's deferred tax assets and liabilities at
September 28, 1997 and September 29, 1996 are as follows:
($000) 1997 1996
- ---------------------------------------- --------- ---------
Deferred income tax assets:
Net operating loss carryforwards $13,366 $17,082
Federal credit carryforwards 1,518 5,907
Inventory valuation 1,740 1,683
Employee benefits 901 751
Accrued customer service costs 1,036 842
Receivable valuation 704 789
Deferred income 454 914
Other 1,424 787
- --------------------------------------------------- --------- ---------
21,143 28,755
Less valuation allowance (12,894) (13,598)
- --------------------------------------------------- --------- ---------
Deferred income tax assets 8,249 15,157
- --------------------------------------------------- --------- ---------
Deferred income tax liabilities:
Fixed assets 5,780 3,426
Software development costs 5,195 4,873
Leases -- 1,038
Other 128 --
- --------------------------------------------------- --------- ---------
Deferred income tax liabilities 11,103 9,337
- --------------------------------------------------- --------- ---------
Net deferred income tax assets (liability) ($2,854) $5,820
- --------------------------------------------------- ========= =========
The valuation allowance identified above relates to net operating loss
carryforwards of certain foreign and domestic subsidiaries. Approximately $10.3
million of the valuation allowance when reduced will be credited to goodwill in
accordance with SFAS 109.
Note 11 Segment Information and Foreign Operations
The Company designs, manufactures, and markets medical imaging and health care
information systems to hospitals and clinics worldwide. During the fourth
quarter of fiscal 1995, the Company completed its acquisition of CHC, as
discussed in Note 3. As a result, the relative significance of the Company's
Healthcare Information Systems' segment increased in relation to the Company's
overall business. Accordingly, the Company's operations are now derived from
two major business units, Medical Systems business (MS) and Healthcare
Information Systems business (HCIS). Prior to fiscal 1995, the results of
operations from the Healthcare Information Systems' segment were not
significant. The following table summarizes the results of operations for
the Company's two major business segments.
Fiscal 1997
($000) MS HCIS Other Total
- ---------------------------------- --------- --------- --------- ---------
Revenues $249,387 $32,660 $284 $282,331
Operating income (loss) (1) 42,879 (7,798) (496) 34,585
Depreciation and amortization 5,804 4,387 -- 10,191
Capital expenditures 4,301 1,865 -- 6,166
Total assets 169,478 35,999 1,518 206,995
- ---------------------------------- --------- --------- --------- ---------
(1) Operating loss for HCIS include the effects of a one-time,
non-recurring pre-tax charge of approximately $5.9 million for the
write-off of in-process research and development related to the acquisition
of Cortet, Inc., and certain uncompleted acquisition costs and related
expenses. Excluding this charge, operating loss for HCIS was $1.9 million.
Fiscal 1996
($000) MS HCIS Other Total
- ---------------------------------- --------- --------- --------- ---------
Revenues $209,477 $31,308 $ -- $240,785
Operating income 28,765 554 -- 29,319
Depreciation and amortization 5,650 3,385 -- 9,035
Capital expenditures 2,022 767 -- 2,789
Total assets 151,417 35,181 -- 186,598
- ---------------------------------- --------- --------- --------- ---------
Fiscal 1995
($000) MS HCIS Other Total
- ---------------------------------- --------- --------- --------- ---------
Revenues $171,444 $13,365 $ -- $184,809
Operating income 19,288 (1,063) -- 18,225
Depreciation and amortization 5,403 974 -- 6,377
Capital expenditures 2,438 150 -- 2,588
Total assets 137,677 21,420 -- 159,097
- ---------------------------------- --------- --------- --------- ---------
Additionally, the Company has European operations which are those of its
subsidiaries in the Netherlands, France, Germany, Denmark, United Kingdom and
Italy, and substantially all of their sales are made to unaffiliated European
customers. The following table summarizes the European subsidiaries' operations:
Fiscal Year
-------------------------------
($000) 1997 1996 1995
- ---------------------------------- --------- --------- ---------
Revenues $32,308 $30,475 $27,282
Net income (loss) 397 419 (320)
Total assets 28,347 29,335 23,315
- ---------------------------------- --------- --------- ---------
The Company also has a subsidiary in Brazil and certain operations in Latin
America and Asia, none of which are material to the financial position or
results of operations of the Company.
Note 12 Quarterly Results of Operations (unaudited):
($000) First Second Third Fourth
except per share data Quarter Quarter Quarter Quarter
- ---------------------- --------- --------- --------- ---------
FISCAL 1997
- ----------------------
Revenues $68,365 $69,976 $71,510 $72,480
Gross profit 27,527 28,989 29,669 30,124
Net income 5,093 5,552 106 (1) 6,027
Net income per share $0.27 $0.29 $0.01 (1) $0.31
FISCAL 1996
- ----------------------
Revenues $54,988 $58,438 $62,434 $64,925
Gross profit 21,098 22,314 24,134 25,606
Net income 3,541 3,938 4,353 4,805
Net income per share $0.20 $0.22 $0.24 $0.26
FISCAL 1995
- ----------------------
Revenues $44,232 $44,727 $45,625 $50,225
Gross profit 15,858 16,141 16,563 18,927
Net income 2,430 2,754 3,054 2,835
Net income per share $0.15 $0.17 $0.18 $0.16
(1) Net income and net income per share include the effects of a one-time,
non-recurring pre-tax charge of approximately $5.9 million for the write-off
of in-process research and development related to the acquisition of
Cortet, Inc., and certain uncompleted acquisition costs and related expenses.
The sum of a year's quarterly earnings per share may not equal the annual
earnings per share as a result of changes in the outstanding number of shares
during the year and the application of the treasury stock method, which
considers changes in the market price of common stock during each period (see
Note 1, "Income Per Share").
Note 13 Recent Pronouncements
In February 1997, the FASB issued SFAS 128, "Earnings per Share." This
Statement establishes and simplifies standards for computing and
presenting earnings per share. SFAS 128 will be effective for the
Company's first quarter of fiscal 1998, and requires restatement of
all previously reported earnings per share data that are presented.
Early adoption of this Statement is not permitted. SFAS 128 replaces primary
and fully diluted earnings per share with basic and diluted earnings per
share. The Company expects that basic earnings per share amounts
will be accretive compared to the Company's primary earnings per share
amounts, and diluted earnings per share amounts will not be materially
different from the Company's fully diluted earnings per share amounts.
In June 1997, Financial Accounting Standard 130, "Reporting Comprehensive
Income" ("FAS 130"), was issued and is effective for fiscal years commencing
after December 15, 1997. The Company will comply with the requirements of
FAS 130 in fiscal year 1999. 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, Financial Accounting Standard 131, "Disclosures About Segments
of an Enterprise and Related Information" ("FAS 131"), was issued and is
effective for fiscal years commencing after December 15, 1997. The Company
will comply with the requirements of FAS 131 in fiscal year 1999. 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 October 1997, the American Institute of Certified Public Accountants
(AICPA) issued Statement of Position (SOP 97-2), Software Revenue
Recognition. This SOP supersedes SOP 91-1, Software Revenue Recognition.
The Company will comply with the requirements of SOP 97-2 in fiscal year
1999. The Company is currently assessing the implications of this new
statement and the impact of its implementation on the financial statements.
<PAGE>
To the Board of Directors and Shareholders of ADAC Laboratories and Subsidiaries
We have audited the accompanying consolidated balance sheets of ADAC
Laboratories and Subsidiaries as of September 28, 1997 and September 29,
1996, and the related consolidated statements of income, shareholders'
equity and cash flows for each of the three fiscal years in the period ended
September 28, 1997. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assur ance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of ADAC
Laboratories and Subsidiaries as of September 28, 1997 and September 29,
1996, and the consolidated results of their operations and their cash flows
for each of the three fiscal years in the period ended September 28, 1997 in
conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
San Jose, California
November 4, 1997
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
The information required by Items 10, 11, 12 and 13 is included in the
Proxy Statement for the Company's 1998 Annual Meeting of Shareholders to be
filed with the Securities and Exchange Commission not later than 120 days after
the end of the 1997 fiscal year and is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(A) (1) FINANCIAL STATEMENTS. Consolidated Financial Statements, Notes
---------------------
to Consolidated Financial Statements, and the Report of Independent Accountants
are included under Item 8. Financial Statements and Supplemental Data.
(2) FINANCIAL STATEMENT SCHEDULES. See "Index to Financial Statement
------------------------------
Schedules" attached hereto and made a part hereof.
(3) EXHIBITS. The following exhibits are included or, as indicated
---------
by the footnote, incorporated by reference into this filing:
3.1 (1) Restated Articles of Incorporation, as amended.
3.2 (1) Bylaws, as amended.
10.01(2) Leases for two buildings located at 540 Alder Drive, Milpitas,
California, between the Company and John Arrillaga and Richard T.
Peery, dated June 25, 1986.
10.02(3) Amendment to leases for two buildings located at 540 Alder Drive,
Milpitas, California, between the Company and John Arrillaga and
Richard T. Peery, dated February 2, 1992.
10.03(4) Amendment to lease for building located at 540 Alder Drive,
Milpitas, California, between the Company and John Arrillaga and
Richard T. Peery, dated August 31, 1993.
10.04(4) Lease agreement for building located at 630 Alder Drive,
Milpitas, California, between the Company and John Arrillaga and
Richard T. Peery, dated December 6, 1993.
10.05(1) Directors' Stock Option Plan (1987),as amended.
10.06(1) 1992 Stock Option Plan, as amended.
10.07(1) Employee Stock Purchase Plan (1994), as amended.
10.08(4) Employment/Severance agreement between the Company and
Stanley D. Czerwinski, dated November 2, 1994.
10.09(5) Stock Option Agreement between the Company and Robert L.
Miller.
10.10(6) Form of ADAC Executive Severance Agreement.
10.11(5) Form of ADAC Healthcare Information Systems, Inc. Executive
Severance Agreement.
10.12(7) Credit Agreement dated July 31, 1996 among the Company, the
Lenders named therein, and ABN AMRO Bank N.V., as agent for the
Lenders.
10.13(8) Rights Agreement dated as of April 22, 1996 between the
Company and Chemical Mellon Shareholder Services, LLC.
10.14(6) Option Agreement dated as of September 30, 1996 by and among the
Company, ADAC Radiology Services, Inc., Medical Transition
Strategies, Inc., and Ernest Berger.
10.15(6) Agreement and Plan of Reorganization dated November 4, 1996 among
the Company, Geometrics Corporation, and the shareholders of
Geometrics Corporation.
10.16 ADAC Healthcare Information Systems, Inc. 1997 Stock Option Plan
and related Stock Option Agreement.
10.17 ADAC Radiology Services, Inc. 1996 Amended and Restated
Stock Option Plan and related Stock Option Agreement.
10.18(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.
10.19(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, Inc.
10.20 Form of Community Health Computing Corp. Option Repurchase
Agreement.
11 Computation of net income per share.
21 Subsidiaries.
23 Consent of Independent Accountants.
27 Financial Data Schedule.
- - ----------------
(1) Incorporated by reference to Exhibits filed with the Company's
Quarterly Report on Form 10-Q (file no. 0-9428) for the quarter
ended June 29, 1997.
(2) Incorporated by reference to Exhibits filed with the Company's
Annual Report on Form 10-K (file no. 0-9428) for the fiscal year
ended September 28, 1986.
(3) Incorporated by reference to Exhibits filed with the Company's
Annual Report on Form 10-K (file no. 0-9428) for the fiscal year
ended October 1, 1989.
(4) Incorporated by reference to Exhibits filed with the Company's
Annual Report on Form 10-K (file no. 0-9428) for the fiscal year
ended October 2, 1994.
(5) Incorporated by reference to Exhibits included with the Company's
Registration Statement on Form S-8 (file no. 33-02749) filed with
the Commission on April 23, 1996.
(6) Incorporated by reference to Exhibits filed with the Company's
Annual Report on Form 10-K (file no. 0-9428) for the fiscal year
ended September 29, 1996.
(7) Incorporated by reference to Exhibits filed with the Company's
Quarterly Report on Form 10-Q (file no. 0-9428) for the quarter
ended June 30, 1995.
(8) Incorporated by reference to Exhibits filed with the Company's
Current Report on Form 8-K (file no. 0-9428) dated April 22, 1996.
(b) REPORTS ON FORM 8-K. No reports on Form 8-K were filed during
--------------------
the 1997 fiscal year.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this Report to be signed on its
behalf by the undersigned thereunto duly authorized.
Date: December 29, 1997 ADAC LABORATORIES
(Registrant)
BY:/s/ R. Andrew Eckert
----------------
R. Andrew Eckert,
Chief Executive Officer
(Principal Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------------------------- ------------------------------- ----------------
<S> <C> <C>
/s/ David L. Lowe Chairman of the Board December 29, 1997
- ------------------------- of Directors
David L. Lowe
/s/ R. Andrew Eckert Chief Executive Officer December 29, 1997
- ------------------------- and Director
R. Andrew Eckert (Principal Executive Officer)
/s/ P. Andre Simone Chief Financial Officer December 29, 1997
- ------------------------- (Principal Financial and
P. Andre Simone Accounting Officer)
/s/ Stanley D. Czerwinski Director December 29, 1997
- -------------------------
Stanley D. Czerwinski
/s/ Graham O. King Director December 29, 1997
- -------------------------
Graham O. King
/s/ F. David Rollo Director December 29, 1997
- -------------------------
F. David Rollo
/s/ Edmund H. Shea, Jr. Director December 29, 1997
- -------------------------
Edmund H. Shea, Jr.
</TABLE>
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENT SCHEDULES
Report of Independent Accountants
Financial Statement Schedules
Schedule VIII - Consolidated Valuation and Qualifying Accounts
Schedule X - Consolidated Supplementary Income Statement Information
Other schedules are omitted because of the absence of conditions under which
they are required or because the required information is given in the
consolidated financial statements or the notes thereto.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
Our report on the consolidated financial statements of ADAC Laboratories is
included on page 36 of this Form 10-K. In connection with our audit of such
financial statements, we have also audited the related financial statement
schedules listed in the index on page 41 of this Form 10-K.
In our opinion, the financial statement schedules referred to above, when
considered in relation to the basic financial statements taken as a whole,
present fairly, in all material respect, the information required to be
included therein.
COOPERS & LYBRAND L.L.P.
San Jose, California
November 4, 1997
<PAGE>
SCHEDULE VIII
ADAC LABORATORIES AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
(In Thousands)
For the three years in the period ended September 28, 1997
<TABLE>
<CAPTION>
Additions
-----------------------
Balance at Charged to Acquisition Deductions Balance
Beginning Costs and of from at end
Description of Year Expenses Business Reserves of Year
- ---------------------------------- ---------- ----------- ----------- --------- ----------
<S> <C> <C> <C> <C> <C>
Year Ended October 1, 1995:
Deducted from asset accounts:
Allowance for product returns
and doubtful accounts $1,644 $1,502 $373 $1,475 $2,044
========== =========== =========== ========= ==========
Year Ended September 29, 1996:
Deducted from asset accounts:
Allowance for product returns
and doubtful accounts $2,044 $1,482 $ -- $1,380 $2,146
========== =========== =========== ========= ==========
Year Ended September 28, 1997:
Deducted from asset accounts:
Allowance for product returns
and doubtful accounts $2,146 $3,558 $ -- $3,318 $2,386
========== =========== =========== ========= ==========
</TABLE>
<PAGE>
SCHEDULE X
ADAC LABORATORIES AND SUBSIDIARIES
SUPPLEMENTARY INCOME STATEMENT INFORMATION
(In Thousands)
For the three years in the period ended September 28, 1997
<TABLE>
<CAPTION>
ITEM CHARGED TO COSTS & EXPENSES
- ---------------------------------- ----------------------------------
1997 1996 1995
---------- ----------- -----------
<S> <C> <C> <C>
Depreciation and amortization
of intangible assets:
Software and technology $4,003 $3,268 $1,845
Goodwill and Sales Partnership $1,126 $1,203 $780
</TABLE>
Amounts charged to costs and expenses do not exceed one percent of net revenues
for all other items for all periods presented.
<PAGE>
ADAC LABORATORIES AND SUBSIDIARIES
INDEX OF EXHIBITS
EXHIBIT
NUMBER Description
- ------- ---------------
10.16 ADAC Healthcare Information Systems, Inc. 1997 Stock Option Plan
and related Stock Option Agreement.
10.17 ADAC Radiology Services, Inc. 1996 Amended and Restated
Stock Option Plan and related Stock Option Agreement.
10.20 Form of Community Health Computing Corp. Option Repurchase
Agreement.
11 Computation of net income per share.
21 Subsidiaries.
23 Consent of Independent Accountants.
27 Financial Data Schedule.
Exhibit 10.16
1997 STOCK OPTION PLAN
ADAC HEALTHCARE INFORMATION SYSTEMS, INC.
(Effective November 10, 1997)
ARTICLE 1.
INTRODUCTION
The Plan was originally adopted by the Board and approved by the
Company's sole stockholder, ADAC Laboratories, a California
corporation, on November 10, 1997. The purpose of the Plan is to
promote the long-term success of the Company and the creation of
incremental stockholder value by (a) encouraging directors, officers,
employees, partners, consultants and advisors to focus on critical
long-range objectives, (b) attracting and retaining such persons with
exceptional qualifications and (c) linking such persons directly to
stockholder interests through increased stock ownership. Options
granted under the Plan shall be designated at the time of grant as
either non-qualified stock options or incentive stock options, as
defined in Section 422 of the Internal Revenue Code of 1986, as amended
(the "Code"). The Plan shall be governed by, and construed in
accordance with the laws of the State of California.
ARTICLE 2.
ADMINISTRATION
2.1 The Committee. The Plan shall be administered by a
Committee (the "Committee") that shall consist of two or more persons
who are "non-employee directors," as defined in Rule 16b-3 promulgated
under the Exchange Act, and "outside directors," as defined in Section
162(m) of the Code.
2.2 Powers of the Committee. Subject to the other provisions
of the Plan and the approval of any relevant authorities, the Committee
shall have the authority, in its discretion:
(a) to determine the Fair Market Value;
(b) to select the Participants to whom Options may from
time to time be granted hereunder;
(c) to determine the number of Common Shares to be
covered by each Option granted hereunder;
(d) to approve forms of agreement for use under the Plan;
(e) to determine the terms and conditions of any Option
granted hereunder. Such terms and conditions include, but are not
limited to, the exercise price, the time or times when Options may be
exercised (which may be based on performance criteria), any vesting
acceleration or waiver of forfeiture restrictions, and any restriction
or limitation regarding any Option or the Common Shares relating
thereto, based in each case on such factors as the Committee, in its
sole discretion, shall determine;
(f) to determine whether and under what circumstances an
Option may be settled in cash instead of Common Shares;
(g) to reduce the exercise price of any Option to the
then current Fair Market Value if the Fair Market Value of the Common
Shares covered by such Option has declined since the date the Option
was granted, or to initiate an option exchange program;
(h) to prescribe, amend and rescind rules and regulations
relating to the Plan, including rules and regulations relating to sub-
plans established for the purpose of qualifying for preferred tax
treatment under foreign tax laws;
(i) to allow Optionees to satisfy withholding tax
obligations by electing to have the Company withhold from the Common
Shares to be issued upon exercise of an Option that number of Common
Shares having a Fair Market Value equal to the amount required to be
withheld. The Fair Market Value of the Common Shares to be withheld
shall be determined on the date that the amount of tax to be withheld
is to be determined. All elections by Optionees to have Common Shares
withheld for this purpose shall be made in such form and under such
conditions as the Committee may deem necessary or advisable; and
(j) to construe and interpret the terms of the Plan and
Options granted pursuant to the Plan.
2.3 Effect of Committee's Decision. All decisions,
determinations and interpretations of the Committee shall be final and
binding on all Optionees.
ARTICLE 3.
SHARES RESERVED UNDER THE PLAN
Subject to the provisions of Article 7 of the Plan, the maximum
aggregate number of Common Shares which may be subject to option and
sold under the Plan is 1,484,968 Common Shares. The Common Shares may
be authorized but unissued, or reacquired Common Shares. The maximum
number of Common Shares that may be available for grant to any
Participant in any financial year of the Company shall not exceed
300,000 Common Shares.
If an Option expires or becomes unexercisable without have been
exercised in full, or is surrendered pursuant to an option exchange
program, the unpurchased Common Shares which were subject thereto shall
become available for future grant or sale under the Plan (unless the
Plan has terminated). However, Common Shares that have actually been
issued under the Plan upon exercise of an Option, shall not be returned
to the Plan and shall not become available for future distribution
under the Plan, except that if Common Shares subject to vesting
restrictions are repurchased by the Company at their original purchase
price, such Common Shares shall become available for future grant under
the Plan.
ARTICLE 4.
ELIGIBILITY
The following persons shall be eligible for designation as
Participants by the Committee: (i) directors, officers, employees,
consultants and advisors of the Company, (ii) directors, officers,
employees, consultants and advisors of a parent of the Company, (iii)
directors, officer, employees, consultants and advisors of any
Subsidiary corporation, partnership or limited liability company (A)
which is controlled by the Company or (B) 50% or more or the voting
power of which is held by the Company (a "Controlled Entity") or (iv)
any individual, corporation, partnership or limited liability company
which is an equity owner of a Controlled Entity.
ARTICLE 5.
OPTIONS
5.1 Stock Option Agreement. Each grant of an Option under the
Plan shall be evidenced by a Stock Option Agreement between Optionee
and the Company. Such Option shall be subject to all applicable terms
and conditions of the Plan and may be subject to any other terms and
conditions which are not inconsistent with the Plan and which the
Committee deems appropriate for inclusion in a Stock Option Agreement.
The provisions of the various Stock Option Agreements entered into
under the Plan need not be identical.
5.2. Options Nontransferable. Unless the Stock Option Agreement
provides otherwise, no Option or interest therein may be transferred,
assigned or pledged by Optionee other than by will, the laws of descent
and distribution or operation of law. Unless the Stock Option
Agreement provides otherwise, an Option held by an individual may be
exercised during the lifetime of Optionee only by him or her.
5.3 Number of Shares. Each Stock Option Agreement shall
specify the number of Common Shares subject to the Option which number
may be adjusted in accordance with Article 7.
5.4 Exercise Price. Each Stock Option Agreement shall specify
the Exercise Price. The Exercise Price of Incentive Stock Options
shall not be less than the Fair Market Value of a Common Share on the
date of grant. Subject to the preceding sentence, the Exercise Price
under any Option shall be determined by the Committee.
5.5 Exercisability and Term. Each Stock Option Agreement shall
specify the date when all or any installment of the Option is to become
exercisable. The Stock Option Agreement shall also specify the term of
the Option provided that the term of an Option that is an Incentive
Stock Option shall in no event exceed ten (10) years from the date of
grant. A Stock Option Agreement may provide for accelerated
exercisability in the event of Optionee's death, disability or
retirement and may provide for expiration prior to the end of its term
in the event of the termination of Optionee's employment or service.
5.6 Modification, Extension and Renewal of Options. Within the
limitations of the Plan, the Committee may modify, extend or renew
outstanding Options or may accept the cancellation of outstanding
Options (to the extent not previously exercised) in return for the
grant of new Options at the same or a different price. The foregoing
notwithstanding, no modification of an Option shall, without the
consent of Optionee, impair his or her rights or obligations under such
Option.
5.7 Restrictions on Transfer of Common Shares. Any Common
Shares issued upon exercise of an option shall be subject to such
special forfeiture conditions, rights of repurchase, rights of first
refusal and other transfer restrictions as are set forth in the
Stockholders Agreement or as otherwise determined by the Committee.
Any additional restrictions shall be set forth in the applicable Stock
Option Agreement.
5.8 Limitations on Incentive Stock Options. Incentive Stock
Options may be granted only to Participants who are employees of the
Company or one of its subsidiaries (within the meaning of Section
424(f) of the Code) at the date of grant. The aggregate Fair Market
Value (determined as of the time the option is granted) of the Common
Shares with respect to which Incentive Stock Options are exercisable
for the first time by a Participant during any calendar year (under all
option plans of the Company) shall not exceed $100,000. Incentive
Stock Options may not be granted to any Participant who, at time of
grant, owns stock possessing (after the application of the attribution
rules of Section 424(d) of the Code) more than 10% of the total
combined voting power of all classes of stock of the Company, unless
the option price is fixed at not less than 110% of the Fair Market
Value of the Common Shares on the date of grant and the exercise of
such option is prohibited by its term after the expiration of five
years from the date of grant of such option.
ARTICLE 6.
PAYMENT FOR OPTION SHARES AND WITHHOLDING TAXES
Upon exercise of an Option, the Exercise Price of such Option,
together with the full amount of all federal and state withholding or
other employment taxes resulting from such exercise, shall be required
to be delivered to the Company. Subject to the sole discretion of the
Committee, all or any part of the aggregate Exercise Price and
withholding tax obligation may be satisfied by Optionee delivering
Common Shares, by having the Company withhold a portion of the Common
Shares that otherwise would be issued to Optionee under such Options or
by Optionee delivering a full recourse promissory note. Common Shares
so delivered or withheld shall be valued at their Fair Market Value on
the exercise date of the Option. The payment of the exercise price and
withholding taxes by delivering or withholding Common Shares to the
Company shall be subject to the discretion of the Committee and to such
restrictions as the Committee may impose, including any restrictions
required by rules of the Securities and Exchange Commission and
restrictions necessary to avoid a charge to earnings for financial
accounting purposes. The terms of the promissory note delivered in
payment of all or any portion of the aggregate Exercise Price and
withholding taxes and any required collateral to secure the obligations
under such promissory note and the applicable rate of interest thereon
shall be determined in the sole discretion of the Committee.
ARTICLE 7.
PROTECTION AGAINST DILUTION
7.1 General. In the event of a subdivision of the outstanding
Common Shares, a declaration of a dividend payable in Common Shares, a
declaration of a dividend payable in a form other than Common Shares in
amount that has a material effect on the price of Common Shares, a
combination or consolidation of the outstanding Common Shares (by
reclassification or otherwise) into a lesser number of Common Shares, a
recapitalization, a spinoff or a similar occurrence, the Committee
shall make appropriate adjustments in (a) the number of Options
available for future grant under Article 3 and (b) the number of Common
Shares covered by each outstanding Option, including a commensurate
adjustment in the Exercise Price, if necessary, under each outstanding
Option.
7.2 Dissolution or Liquidation. In the event of the proposed
dissolution or liquidation of the Company, the Committee shall notify
each Optionee as soon as practicable prior to the effective date of
such proposed transaction. The Committee in its discretion may provide
for an Optionee to have the right to exercise his or Option until
fifteen (15) days prior to such transaction as to all of the Common
Shares covered thereby, including Common Shares as to which the Option
would not otherwise be exercisable. In addition, the Committee may
provide that any Company repurchase option applicable to any Common
Shares purchased upon exercise of an Option shall lapse as to all such
Common Shares, provided the proposed dissolution or liquidation takes
place at the time and in the manner contemplated. To the extent it has
not been previously exercised, an Option will terminate immediately
prior to the consummation of such proposed action.
7.3 Merger or Asset Sale. In the event of a merger of the
Company with or into another corporation, or the sale of substantially
all of the assets of the Company, each outstanding Option shall be
assumed or an equivalent option or right substituted by the successor
corporation or a Parent or Subsidiary of the successor corporation. In
the event that the successor corporation refused to assume or
substitute for the Option, the Optionee shall fully vest in and have
the right to exercise the Option as to all of the Common Shares covered
thereby, including Common Shares as to which it would not otherwise be
exercisable. If an Option is exercisable in lieu of assumption or
substitution in the event of a merger or sale of assets, the Committee
shall notify the Optionee in writing or electronically that the Option
shall be fully vested and exercisable for a period of fifteen (15) days
from the date of such notice, and the Option shall be considered
assumed if, following the merger or sale of assets, the option confers
the right to purchase or receive, for each Common Share subject to the
Option immediately prior to the merger or sale of assets, the
consideration (whether stock, cash, or other securities or property)
received in the merger or sale of assets by holders of common stock of
the Company for each Common Share held on the effective date of the
transaction (and if holders were offered a choice of consideration, the
type of consideration chosen by the holders of a majority of the
outstanding common stock of the Company); provided, however, that if
such consideration received in the merger or sale of assets was not
solely common stock of the successor corporation or its Parent, the
Committee may, with the consent of the successor corporation, provide
the consideration to be received upon the exercise of the Option, for
each Common Share subject to the Option, to be solely common stock of
the successor corporation or its Parent equal in fair market value to
the par share consideration received by holders of common stock of the
Company in the merger or sale of assets.
7.4 Reservation of Rights. Except as provided in this Article
7, a Participant shall have no rights by reason of any subdivision or
consolidation of shares of stock of any class, the payment of any stock
dividend or any other increase or decrease in the number of shares of
stock of any class. Any issue by the Company of shares of stock of any
class, or securities convertible into shares of stock of any class,
shall not affect, and no adjustment by reason thereof shall be made
with respect to, the number or Exercise Price of Common Shares subject
to an Option. The grant of an Option under the Plan shall not affect
in any way the right or power of the Company to make adjustments,
reclassifications, reorganizations or changes of its capital or
business structure, to merge or consolidate or dissolve, liquidate,
sell or transfer all or any part of its business or assets.
ARTICLE 8.
LIMITATION OF RIGHTS
8.1 Employment Rights. Neither the Plan nor any Option granted
under the Plan shall be deemed to give any individual a right to remain
employed by the Company or a Subsidiary. The Company and its
Subsidiaries reserve the right to terminate the employment of any
employee at any time, and for any reason, subject only to a written
employment agreement (if any).
8.2 Stockholders' Rights. A Participant shall have no dividend
rights, voting rights or other rights as a stockholder with respect to
any Common Shares covered by his or her Option prior to the issuance of
such Common Shares. No adjustment shall be made for cash dividends or
other rights for which the record date is prior to the date when such
certificate is issued, except as expressly provided in Article 7.
8.3 Government Regulations. Any other provision of the Plan
notwithstanding, the obligations of the Company with respect to Common
Shares to be issued pursuant to the Plan shall be subject to all
applicable laws, rules and regulations and such approvals by any
governmental agencies as may be required. The Company reserves the
right to restrict, in whole or in part, the delivery of Common Shares
pursuant to any Option until such time as any legal requirements or
regulations have been met relating to the issuance of such Common
Shares or to their registration, qualification or exemption from
registration or qualification under the Securities Act or any
applicable state securities laws. With respect to any issuance of
Common Shares, the Company shall have no obligation to either (a)
register the issuance of the Common Shares under the Securities Act or
(b) issue Common Shares to persons who are not "Accredited Investors"
in reliance upon the exemption provided under Regulation D as
promulgated under the Securities Act.
8.4 Stockholders Agreement. Any other provision of the Plan
notwithstanding, unless and until the Common Shares are registered
under the Exchange Act, the obligations of the Company to issue Common
Shares upon the exercise of Options is subject to the condition that
Optionee become a party to and subject to all transfer restrictions and
other provisions of the Stockholders Agreement.
ARTICLE 9.
FUTURE OF THE PLAN
9.1 Term of the Plan. This Plan is effective on November 10,
1997 and shall remain in effect until November 9, 2002 unless
terminated earlier under Section 9.2.
9.2 Amendment or Termination. The Board may, at any time and
for any reason, amend or terminate the Plan. However, any amendment of
the Plan shall be subject to the approval of the Company's
stockholders, if the effect of the amendment is to increase the Common
Shares reserved for issuance under the Plan or to change the maximum
number of Common Shares that are available for grant to a Participant
in any fiscal year, or if otherwise required by applicable laws,
regulations or rules.
9.3 Effect of Amendment or Termination. No Options shall be
granted under the Plan after the termination thereof. The termination
of the Plan, or any amendment thereof, shall not affect any Option
previously granted under the Plan.
ARTICLE 10.
DEFINTIONS
10.1 "Board" means the Company's Board of Directors, as
constituted from time to time.
10.2 "Change in Control" means:
(a) the sale, lease, exchange or other transfer or
disposition by the Company of all or substantially all of the assets of
the Company and its subsidiaries; or
(b) when any person or group of persons other than ADAC
Laboratories or an affiliate of ADAC Laboratories is or becomes the
beneficial owner (as defined in Rule 13d-3 of the Exchange Act),
directly or indirectly, of voting securities of the Company having
greater combined voting power than the combined voting power of the
voting securities of the Company beneficially owned, directly or
indirectly, by ADAC Laboratories and any affiliate of ADAC
Laboratories.
10.3 "Committee" has the meaning set forth in Section 2.1.
10.4 "Common Share" means one share of the Company's Common
Stock, $.00l par value.
10.5 "Company" means ADAC Healthcare Information Systems, Inc.
a Texas corporation.
10.6 "Exchange Act" means the Securities and Exchange Act of
1934, as amended.
10.7 "Exercise Price" means the amount for which one Common
Share may be purchased upon exercise of an Option, as specified by the
Committee in the applicable Stock Option Agreement.
10.8 "Fair Market Value" means the market price of a Common
Share, determined by the Committee as follows:
(a) if the Common Share was traded on a stock exchange on
the date in question, then the Fair Market Value shall be equal to the
closing price reported by the applicable composite-transactions report
for such date;
(b) if the Common Share was traded over-the-counter on
the date in question but was classified as a national market issue,
then the Fair Market Value shall be equal to the last-transaction price
quoted by the Nasdaq National Market system for such date; and
(c) if the Common Share was traded over-the-counter on
the date in question but was not classified as a national market issue,
then the Fair Market Value shall be equal to the mean between the last
reported representative bid and asked prices quoted by the Nasdaq
National Market system for such date; and
(d) if none of the foregoing provisions is applicable,
then the Fair Market Value shall be determined by the Committee in good
faith on such basis as it deems appropriate.
10.9 "Option" means an Option granted under the Plan and
entitling the holder to purchase one Common Share.
10.10 "Optionee" means an individual or his or her
representative or transferee that holds an Option.
10.11 "Participant" means a person who has received an Option.
10.12 "Plan" means this 1997 Stock Option Plan, as it may be
amended from time to time.
10.13 "Securities Act" means the Securities Act of 1933, as
amended.
10.14 "Stock Option Agreement" means the agreement between the
Company and an Optionee which contains the terms, conditions and
restrictions pertaining to his or her Option.
10.15 "Stockholders Agreement" means that certain Stockholders
Agreement, dated as of November 10, 1997, between the Company and its
shareholders.
10.16 "Subsidiary" means any corporation, if the Company and/or
one or more other Subsidiaries own fifty percent (50%) or more of the
total combined voting power of all classes of outstanding stock of such
corporation. A corporation that attains the status of a Subsidiary on
a date after the adoption of the Plan shall be considered a Subsidiary
commencing as of such date.
ARTICLE 11.
EXECUTION
To record the adoption of the Plan by the Board, the Company has
caused its duly authorized officer to execute the Plan in its name and
on its behalf as of November 10, 1997.
ADAC Healthcare Information Systems, Inc.
By:___________________________________
Exhibit 10.16
INCENTIVE STOCK OPTION AGREEMENT
THIS OPTION AGREEMENT (the "Agreement") is made as of ,
1997, between ADAC HEALTHCARE INFORMATION SYSTEMS, INC., a Texas corporation
(the "Company"), and _____________ ("Optionee").
WHEREAS, pursuant to that certain 1997 Stock Option Plan, a copy of
which is attached hereto as Exhibit A (the "Plan"), the Committee of the
Board of Directors of the Company (the "Committee") has determined that
Optionee is to be granted, on the terms and conditions set forth herein,
an incentive stock option to purchase shares of the Company's common
stock, $.001 par value (the "Common Shares").
NOW, THEREFORE, in consideration of the representations, warranties,
covenants and agreement herein contained, the parties agree as follows:
1. Option. The Company hereby grants to Optionee an option (the
"Option") to purchase _____________________ (______) shares of Common
Shares (the "Option Shares") at an exercise price of __________ ($0.___)
per share. This Option is intended to be treated as an "incentive stock
option" within the meaning of Section 422 of the Internal Revenue Code
of 1986, or a successor thereto. Notwithstanding the foregoing, in the
event this Option fails to qualify as an "incentive stock option" under
the Code for any reason, in whole or in part, this Option shall not be
invalid but shall instead be treated as a "non-qualified stock option"
under the Code to the extent it does not qualify for incentive stock
option treatment.
2. Term of Option. The term of this Option shall commence on
the date hereof and terminate on _________________, unless earlier
terminated under the terms of the Plan or this Agreement. Upon the
termination of this Option, the right to purchase Option Shares hereunder
shall cease.
3. Time of Exercise. This Option may be exercised (in the
manner provided in Section 4 hereof) in whole or in part, and from time
to time after the date hereof, subject to the terms and conditions of the
Plan and the following additional limitations:
(a) Optionee shall have the right to exercise this Option
as to [_______ percent (____%) of the Option Shares on the _____________,
________ percent (___%) on the __________________ and __________ percent
(___%) on the _________________of the Option grant date].
(b) This Option may not be exercised after and shall
terminate upon the earliest to occur of any of the following:
(i) thirty (30) days after the termination of
Optionee's employment with the Company or any other affiliate of the
Company for any reason other than retirement, permanent disability or
death (and then only to the extent Optionee could have exercised this
Option on the date of termination); or
(ii) one hundred eighty (180) days after the
termination of Optionee's employment with the Company or one of its
subsidiaries as a result of retirement or permanent disability (and then
only to the extent Optionee could have exercised this Option on the date
of termination); or
(iii) one hundred eighty (180) days after Optionee's
death, if death occurs while Optionee is employed by the Company or one
of its subsidiaries (and then only to the extent Optionee could have
exercised this Option on the date of his or her death); or
(iv) Optionee's termination for cause. Cause shall
include gross and willful failure, after written warning, to discharge
the normal duties required of Optionee, theft or misappropriation of
Company property, commission of a crime such that the Company's
reputation with its customers is materially damaged, and breach of the
ADAC Nondisclosure and Inventions Agreement or other similar agreement
executed by Optionee.
(c) This Option may be exercised as to any or all of the
Option Shares that may be acquired by Optionee on the date of such
exercise subject to the following limitations: (i) this Option must be
exercised for no less than the greater of 2,500 Shares of Common Stock or
twenty percent (20%) of the Option Shares; provided, that if the number
of the Option Shares that may be acquired by Optionee is less than the
foregoing amount then this Option must be exercised as to all the Option
Shares that may be acquired by Optionee and (ii) this Option must be
exercised as to all of the Option Shares that may be acquired by Optionee
unless after such exercise Optionee would have the right to acquire no
less than 2,500 Shares of Common Stock or twenty percent (20%) of the
Option Shares.
4. Method of Exercise. This Option may be exercised only by the
giving of written notice thereof to the Company which notice shall be
accompanied by: (a) a certified or cashier's check in an aggregate
amount of the exercise price and the withholding taxes required to be
delivered to the Company upon exercise of this Option, or following any
initial public offering by the Company, the consideration required under
any cashless exercise program established by the Company; (b) an executed
counterpart signature page to the Stockholders Agreement (the
"Stockholders Agreement") in the form attached hereto as Exhibit B; and
(c) such other documents or representations as the Company may reasonably
request in order to comply with securities, tax or other laws then
applicable to the exercise of this Option.
5. Nontransferability of Option. This Option may not be
transferred, sold, assigned, pledged or hypothecated other than by will,
the laws of descent and distribution or by operation of law, and is
exercisable during the life of the Optionee only by the Optionee.
6. Stock Option Plan. This Option is granted under and is
subject to the terms and conditions of the Plan.
7. Mandatory Exercise. Upon ADAC Laboratories, a California
corporation ("Parent"), giving written notice to Optionee under
Section 2.4 of the Stockholders Agreement, Optionee hereby agrees to
exercise this Option (on a net payment basis in the manner hereinafter
described) as to that number of the Option Shares equal to (i) the number
of the Option Shares that Optionee may exercise on the date such notice
is given to Optionee, multiplied by (ii) the percentage of shares of
Common Stock held by Parent that are intended to be sold by Parent in the
proposed transaction. Optionee shall promptly execute and deliver a
counterpart signature page to the Stockholders Agreement in the form
attached hereto as Exhibit B and such other documents or representations
the Company may reasonably request in order to comply with securities,
tax or other laws then applicable to the exercise of this Option and
shall be bound by the provisions of the Stockholders Agreement. In
connection with a transaction contemplated under Section 2.4 of the
Stockholders Agreement, Optionee shall not deliver the exercise price and
withholding taxes and the Company shall cause Optionee to be paid the
consideration per Option Share less the aggregate exercise price and
withholding taxes. If the transaction price under Section 2.4 of the
Stockholders Agreement is less than the exercise price under this Option,
the Optionee may elect not to exercise this Option and this Option shall
terminate effective upon the closing of the transaction covered by
Section 2.4 of the Stockholders Agreement.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
signed and to be dated as of the date set forth on the first page hereof.
OPTIONEE: ____________________________________
ADAC HEALTHCARE
INFORMATION SYSTEMS, INC.: ADAC HEALTHCARE INFORMATION
SYSTEMS, INC.
a Texas corporation
By:_________________________________
Its:________________________________
EXHIBIT A
1997 STOCK OPTION PLAN
EXHIBIT B
STOCKHOLDERS AGREEMENT
Counterpart Signature Page
The undersigned hereby agrees to become a party to that certain
Stockholders Agreement, dated as of _______________, 1997 (the
"Agreement"), by and among ADAC Healthcare Information Systems, Inc., a
Texas corporation, and its stockholders and agrees to be bound by the
terms and conditions of the Agreement. The undersigned shall be an
"Employee Holder" for all purposes under the Agreement.
Dated as of ____________________, 1997.
EMPLOYEE HOLDER:
Exhibit 10.17
1996 AMENDED AND RESTATED STOCK OPTION PLAN
ADAC RADIOLOGY SERVICES, INC.
(Effective November 10, 1997)
ARTICLE 1.
INTRODUCTION
The Plan was originally adopted by the Board and approved by the
Company's sole stockholder, ADAC HealthCare Partners, Inc., a Delaware
corporation, on September 25, 1996 and was amended and restated on
November 10, 1997. The purpose of the Plan is to promote the long-term
success of the Company and the creation of incremental stockholder value
by (a) encouraging directors, officers, employees, partners, consultants
and advisors to focus on critical long-range objectives, (b) attracting
and retaining such persons with exceptional qualifications and
(c) linking such persons directly to stockholder interests through
increased stock ownership. Options granted under the Plan shall be
designated at the time of grant as either non-qualified stock options or
incentive stock options, as defined in Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code"). The Plan shall be
governed by, and construed in accordance with the laws of the State of
California.
ARTICLE 2.
ADMINISTRATION
2.1 The Committee. The Plan shall be administered by a
Committee (the "Committee") that shall consist of two or more persons
who are "non-employee directors," as defined in Rule 16b-3 promulgated
under the Exchange Act, and "outside directors," as defined in Section
162(m) of the Code.
2.2 Powers of the Committee. Subject to the other provisions of
the Plan and the approval of any relevant authorities, the Committee
shall have the authority, in its discretion:
(a) to determine the Fair Market Value;
(b) to select the Participants to whom Options may from
time to time be granted hereunder;
(c) to determine the number of Common Shares to be covered
by each Option granted hereunder;
(d) to approve forms of agreement for use under the Plan;
(e) to determine the terms and conditions of any Option
granted hereunder. Such terms and conditions include, but are not
limited to, the exercise price, the time or times when Options may be
exercised (which may be based on performance criteria), any vesting
acceleration or waiver of forfeiture restrictions, and any restriction
or limitation regarding any Option or the Common Shares relating
thereto, based in each case on such factors as the Committee, in its
sole discretion, shall determine;
(f) to determine whether and under what circumstances an
Option may be settled in cash instead of Common Shares;
(g) to reduce the exercise price of any Option to the then
current Fair Market Value if the Fair Market Value of the Common Shares
covered by such Option has declined since the date the Option was
granted, or to initiate an option exchange program;
(h) to prescribe, amend and rescind rules and regulations
relating to the Plan, including rules and regulations relating to sub-
plans established for the purpose of qualifying for preferred tax
treatment under foreign tax laws;
(i) to allow Optionees to satisfy withholding tax
obligations by electing to have the Company withhold from the Common
Shares to be issued upon exercise of an Option that number of Common
Shares having a Fair Market Value equal to the amount required to be
withheld. The Fair Market Value of the Common Shares to be withheld
shall be determined on the date that the amount of tax to be withheld is
to be determined. All elections by Optionees to have Common Shares
withheld for this purpose shall be made in such form and under such
conditions as the Committee may deem necessary or advisable; and
(j) to construe and interpret the terms of the Plan and
Options granted pursuant to the Plan.
2.3 Effect of Committee's Decision. All decisions,
determinations and interpretations of the Committee shall be final and
binding on all Optionees.
ARTICLE 3.
SHARES RESERVED UNDER THE PLAN
Subject to the provisions of Article 7 of the Plan, the maximum
aggregate number of Common Shares which may be subject to option and
sold under the Plan is 300,000 Common Shares. The Common Shares may be
authorized but unissued, or reacquired Common Shares. The maximum
number of Common Shares that may be available for grant to any
Participant in any financial year of the Company shall not exceed
150,000 Common Shares.
If an Option expires or becomes unexercisable without have been
exercised in full, or is surrendered pursuant to an option exchange
program, the unpurchased Common Shares which were subject thereto shall
become available for future grant or sale under the Plan (unless the
Plan has terminated). However, Common Shares that have actually been
issued under the Plan upon exercise of an Option, shall not be returned
to the Plan and shall not become available for future distribution under
the Plan, except that if Common Shares subject to vesting restrictions
are repurchased by the Company at their original purchase price, such
Common Shares shall become available for future grant under the Plan.
ARTICLE 4.
ELIGIBILITY
The following persons shall be eligible for designation as
Participants by the Committee: (i) directors, officers, employees,
consultants and advisors of the Company, (ii) directors, officers,
employees, consultants and advisors of a parent of the Company, (iii)
directors, officer, employees, consultants and advisors of any
Subsidiary corporation, partnership or limited liability company (A)
which is controlled by the Company or (B) 50% or more or the voting
power of which is held by the Company (a "Controlled Entity") or (iv)
any individual, corporation, partnership or limited liability company
which is an equity owner of a Controlled Entity.
ARTICLE 5.
OPTIONS
5.1 Stock Option Agreement. Each grant of an Option under the
Plan shall be evidenced by a Stock Option Agreement between Optionee and
the Company. Such Option shall be subject to all applicable terms and
conditions of the Plan and may be subject to any other terms and
conditions which are not inconsistent with the Plan and which the
Committee deems appropriate for inclusion in a Stock Option Agreement.
The provisions of the various Stock Option Agreements entered into under
the Plan need not be identical.
5.2. Options Nontransferable. Unless the Stock Option Agreement
provides otherwise, no Option or interest therein may be transferred,
assigned or pledged by Optionee other than by will, the laws of descent
and distribution or operation of law. Unless the Stock Option Agreement
provides otherwise, an Option held by an individual may be exercised
during the lifetime of Optionee only by him or her.
5.3 Number of Shares. Each Stock Option Agreement shall specify
the number of Common Shares subject to the Option which number may be
adjusted in accordance with Article 7.
5.4 Exercise Price. Each Stock Option Agreement shall specify
the Exercise Price. The Exercise Price of Incentive Stock Options shall
not be less than the Fair Market Value of a Common Share on the date of
grant. Subject to the preceding sentence, the Exercise Price under any
Option shall be determined by the Committee.
5.5 Exercisability and Term. Each Stock Option Agreement shall
specify the date when all or any installment of the Option is to become
exercisable. The Stock Option Agreement shall also specify the term of
the Option provided that the term of an Option that is an Incentive
Stock Option shall in no event exceed ten (10) years from the date of
grant. A Stock Option Agreement may provide for accelerated
exercisability in the event of Optionee's death, disability or
retirement and may provide for expiration prior to the end of its term
in the event of the termination of Optionee's employment or service.
5.6 Modification, Extension and Renewal of Options. Within the
limitations of the Plan, the Committee may modify, extend or renew
outstanding Options or may accept the cancellation of outstanding
Options (to the extent not previously exercised) in return for the grant
of new Options at the same or a different price. The foregoing
notwithstanding, no modification of an Option shall, without the consent
of Optionee, impair his or her rights or obligations under such Option.
5.7 Restrictions on Transfer of Common Shares. Any Common
Shares issued upon exercise of an option shall be subject to such
special forfeiture conditions, rights of repurchase, rights of first
refusal and other transfer restrictions as are set forth in the
Stockholders Agreement or as otherwise determined by the Committee. Any
additional restrictions shall be set forth in the applicable Stock
Option Agreement.
5.8 Limitations on Incentive Stock Options. Incentive Stock
Options may be granted only to Participants who are employees of the
Company or one of its subsidiaries (within the meaning of Section 424(f)
of the Code) at the date of grant. The aggregate Fair Market Value
(determined as of the time the option is granted) of the Common Shares
with respect to which Incentive Stock Options are exercisable for the
first time by a Participant during any calendar year (under all option
plans of the Company) shall not exceed $100,000. Incentive Stock
Options may not be granted to any Participant who, at time of grant,
owns stock possessing (after the application of the attribution rules of
Section 424(d) of the Code) more than 10% of the total combined voting
power of all classes of stock of the Company, unless the option price is
fixed at not less than 110% of the Fair Market Value of the Common
Shares on the date of grant and the exercise of such option is
prohibited by its term after the expiration of five years from the date
of grant of such option.
ARTICLE 6.
PAYMENT FOR OPTION SHARES AND WITHHOLDING TAXES
Upon exercise of an Option, the Exercise Price of such Option,
together with the full amount of all federal and state withholding or
other employment taxes resulting from such exercise, shall be required
to be delivered to the Company. Subject to the sole discretion of the
Committee, all or any part of the aggregate Exercise Price and
withholding tax obligation may be satisfied by Optionee delivering
Common Shares, by having the Company withhold a portion of the Common
Shares that otherwise would be issued to Optionee under such Options or
by Optionee delivering a full recourse promissory note. Common Shares
so delivered or withheld shall be valued at their Fair Market Value on
the exercise date of the Option. The payment of the exercise price and
withholding taxes by delivering or withholding Common Shares to the
Company shall be subject to the discretion of the Committee and to such
restrictions as the Committee may impose, including any restrictions
required by rules of the Securities and Exchange Commission and
restrictions necessary to avoid a charge to earnings for financial
accounting purposes. The terms of the promissory note delivered in
payment of all or any portion of the aggregate Exercise Price and
withholding taxes and any required collateral to secure the obligations
under such promissory note and the applicable rate of interest thereon
shall be determined in the sole discretion of the Committee.
ARTICLE 7.
PROTECTION AGAINST DILUTION
7.1 General. In the event of a subdivision of the outstanding
Common Shares, a declaration of a dividend payable in Common Shares, a
declaration of a dividend payable in a form other than Common Shares in
amount that has a material effect on the price of Common Shares, a
combination or consolidation of the outstanding Common Shares (by
reclassification or otherwise) into a lesser number of Common Shares, a
recapitalization, a spinoff or a similar occurrence, the Committee shall
make appropriate adjustments in (a) the number of Options available for
future grant under Article 3 and (b) the number of Common Shares covered
by each outstanding Option, including a commensurate adjustment in the
Exercise Price, if necessary, under each outstanding Option.
7.2 Dissolution or Liquidation. In the event of the proposed
dissolution or liquidation of the Company, the Committee shall notify
each Optionee as soon as practicable prior to the effective date of such
proposed transaction. The Committee in its discretion may provide for
an Optionee to have the right to exercise his or Option until fifteen
(15) days prior to such transaction as to all of the Common Shares
covered thereby, including Common Shares as to which the Option would
not otherwise be exercisable. In addition, the Committee may provide
that any Company repurchase option applicable to any Common Shares
purchased upon exercise of an Option shall lapse as to all such Common
Shares, provided the proposed dissolution or liquidation takes place at
the time and in the manner contemplated. To the extent it has not been
previously exercised, an Option will terminate immediately prior to the
consummation of such proposed action.
7.3 Merger or Asset Sale. In the event of a merger of the
Company with or into another corporation, or the sale of substantially
all of the assets of the Company, each outstanding Option shall be
assumed or an equivalent option or right substituted by the successor
corporation or a Parent or Subsidiary of the successor corporation. In
the event that the successor corporation refused to assume or substitute
for the Option, the Optionee shall fully vest in and have the right to
exercise the Option as to all of the Common Shares covered thereby,
including Common Shares as to which it would not otherwise be
exercisable. If an Option is exercisable in lieu of assumption or
substitution in the event of a merger or sale of assets, the Committee
shall notify the Optionee in writing or electronically that the Option
shall be fully vested and exercisable for a period of fifteen (15) days
from the date of such notice, and the Option shall be considered assumed
if, following the merger or sale of assets, the option confers the right
to purchase or receive, for each Common Share subject to the Option
immediately prior to the merger or sale of assets, the consideration
(whether stock, cash, or other securities or property) received in the
merger or sale of assets by holders of common stock of the Company for
each Common Share held on the effective date of the transaction (and if
holders were offered a choice of consideration, the type of
consideration chosen by the holders of a majority of the outstanding
common stock of the Company); provided, however, that if such
consideration received in the merger or sale of assets was not solely
common stock of the successor corporation or its Parent, the Committee
may, with the consent of the successor corporation, provide the
consideration to be received upon the exercise of the Option, for each
Common Share subject to the Option, to be solely common stock of the
successor corporation or its Parent equal in fair market value to the
par share consideration received by holders of common stock of the
Company in the merger or sale of assets.
7.4 Reservation of Rights. Except as provided in this Article
7, a Participant shall have no rights by reason of any subdivision or
consolidation of shares of stock of any class, the payment of any stock
dividend or any other increase or decrease in the number of shares of
stock of any class. Any issue by the Company of shares of stock of any
class, or securities convertible into shares of stock of any class,
shall not affect, and no adjustment by reason thereof shall be made with
respect to, the number or Exercise Price of Common Shares subject to an
Option. The grant of an Option under the Plan shall not affect in any
way the right or power of the Company to make adjustments,
reclassifications, reorganizations or changes of its capital or business
structure, to merge or consolidate or dissolve, liquidate, sell or
transfer all or any part of its business or assets.
ARTICLE 8.
LIMITATION OF RIGHTS
8.1 Employment Rights. Neither the Plan nor any Option granted
under the Plan shall be deemed to give any individual a right to remain
employed by the Company or a Subsidiary. The Company and its
Subsidiaries reserve the right to terminate the employment of any
employee at any time, and for any reason, subject only to a written
employment agreement (if any).
8.2 Stockholders' Rights. A Participant shall have no dividend
rights, voting rights or other rights as a stockholder with respect to
any Common Shares covered by his or her Option prior to the issuance of
such Common Shares. No adjustment shall be made for cash dividends or
other rights for which the record date is prior to the date when such
certificate is issued, except as expressly provided in Article 7.
8.3 Government Regulations. Any other provision of the Plan
notwithstanding, the obligations of the Company with respect to Common
Shares to be issued pursuant to the Plan shall be subject to all
applicable laws, rules and regulations and such approvals by any
governmental agencies as may be required. The Company reserves the
right to restrict, in whole or in part, the delivery of Common Shares
pursuant to any Option until such time as any legal requirements or
regulations have been met relating to the issuance of such Common Shares
or to their registration, qualification or exemption from registration
or qualification under the Securities Act or any applicable state
securities laws. With respect to any issuance of Common Shares, the
Company shall have no obligation to either (a) register the issuance of
the Common Shares under the Securities Act or (b) issue Common Shares to
persons who are not "Accredited Investors" in reliance upon the
exemption provided under Regulation D as promulgated under the
Securities Act.
8.4 Stockholders Agreement. Any other provision of the Plan
notwithstanding, unless and until the Common Shares are registered under
the Exchange Act, the obligations of the Company to issue Common Shares
upon the exercise of Options is subject to the condition that Optionee
become a party to and subject to all transfer restrictions and other
provisions of the Stockholders Agreement.
ARTICLE 9.
FUTURE OF THE PLAN
9.1 Term of the Plan. This Plan is effective on November 10,
1997 and shall remain in effect until November 9, 2002 unless terminated
earlier under Section 9.2.
9.2 Amendment or Termination. The Board may, at any time and
for any reason, amend or terminate the Plan. However, any amendment of
the Plan shall be subject to the approval of the Company's stockholders,
if the effect of the amendment is to increase the Common Shares reserved
for issuance under the Plan or to change the maximum number of Common
Shares that are available for grant to a Participant in any fiscal year,
or if otherwise required by applicable laws, regulations or rules.
9.3 Effect of Amendment or Termination. No Options shall be
granted under the Plan after the termination thereof. The termination
of the Plan, or any amendment thereof, shall not affect any Option
previously granted under the Plan.
ARTICLE 10.
DEFINTIONS
10.1 "Board" means the Company's Board of Directors, as
constituted from time to time.
10.2 "Change in Control" means:
(a) the sale, lease, exchange or other transfer or
disposition by the Company of all or substantially all of the assets of
the Company and its subsidiaries; or
(b) when any person or group of persons other than ADAC
Laboratories or an affiliate of ADAC Laboratories is or becomes the
beneficial owner (as defined in Rule 13d-3 of the Exchange Act),
directly or indirectly, of voting securities of the Company having
greater combined voting power than the combined voting power of the
voting securities of the Company beneficially owned, directly or
indirectly, by ADAC Laboratories and any affiliate of ADAC Laboratories.
10.3 "Committee" has the meaning set forth in Section 2.1.
10.4 "Common Share" means one share of the Company's Common
Stock, $.00l par value.
10.5 "Company" means ADAC Radiology Services, Inc. a Delaware
corporation.
10.6 "Exchange Act" means the Securities and Exchange Act of
1934, as amended.
10.7 "Exercise Price" means the amount for which one Common
Share may be purchased upon exercise of an Option, as specified by the
Committee in the applicable Stock Option Agreement.
10.8 "Fair Market Value" means the market price of a Common
Share, determined by the Committee as follows:
(a) if the Common Share was traded on a stock exchange on
the date in question, then the Fair Market Value shall be equal to the
closing price reported by the applicable composite-transactions report
for such date;
(b) if the Common Share was traded over-the-counter on the
date in question but was classified as a national market issue, then the
Fair Market Value shall be equal to the last-transaction price quoted by
the Nasdaq National Market system for such date; and
(c) if the Common Share was traded over-the-counter on the
date in question but was not classified as a national market issue, then
the Fair Market Value shall be equal to the mean between the last
reported representative bid and asked prices quoted by the Nasdaq
National Market system for such date; and
(d) if none of the foregoing provisions is applicable,
then the Fair Market Value shall be determined by the Committee in good
faith on such basis as it deems appropriate.
10.9 "Option" means an Option granted under the Plan and
entitling the holder to purchase one Common Share.
10.10 "Optionee" means an individual or his or her representative
or transferee that holds an Option.
10.11 "Participant" means a person who has received an Option.
10.12 "Plan" means this 1997 Stock Option Plan, as it may be
amended from time to time.
10.13 "Securities Act" means the Securities Act of 1933, as
amended.
10.14 "Stock Option Agreement" means the agreement between the
Company and an Optionee which contains the terms, conditions and
restrictions pertaining to his or her Option.
10.15 "Stockholders Agreement" means that certain Stockholders
Agreement, dated as of November 10, 1997, between the Company and its
shareholders.
10.16 "Subsidiary" means any corporation, if the Company and/or
one or more other Subsidiaries own fifty percent (50%) or more of the
total combined voting power of all classes of outstanding stock of such
corporation. A corporation that attains the status of a Subsidiary on a
date after the adoption of the Plan shall be considered a Subsidiary
commencing as of such date.
ARTICLE 11.
EXECUTION
To record the adoption of the Plan by the Board, the Company has
caused its duly authorized officer to execute the Plan in its name and
on its behalf as of November 10, 1997.
ADAC Radiology Services, Inc.
By:___________________________________
Exhibit 10.17
INCENTIVE STOCK OPTION AGREEMENT
THIS OPTION AGREEMENT (the "Agreement") is made as of ,
1997, between ADAC RADIOLOGY SERVICES, INC., a Delaware corporation (the
"Company"), and _____________ ("Optionee").
WHEREAS, pursuant to that certain 1997 Stock Option Plan, a copy of
which is attached hereto as Exhibit A (the "Plan"), the Committee of the
Board of Directors of the Company (the "Committee") has determined that
Optionee is to be granted, on the terms and conditions set forth herein,
an incentive stock option to purchase shares of the Company's common
stock, $.001 par value (the "Common Shares").
NOW, THEREFORE, in consideration of the representations, warranties,
covenants and agreement herein contained, the parties agree as follows:
1. Option. The Company hereby grants to Optionee an option (the
"Option") to purchase _____________________ (______) shares of Common
Shares (the "Option Shares") at an exercise price of __________ ($0.___)
per share. This Option is intended to be treated as an "incentive stock
option" within the meaning of Section 422 of the Internal Revenue Code of
1986, or a successor thereto. Notwithstanding the foregoing, in the event
this Option fails to qualify as an "incentive stock option" under the
Code for any reason, in whole or in part, this Option shall not be invalid
but shall instead be treated as a "non-qualified stock option" under the
Code to the extent it does not qualify for incentive stock option
treatment.
2. Term of Option. The term of this Option shall commence on the
date hereof and terminate on _________________, unless earlier terminated
under the terms of the Plan or this Agreement. Upon the termination of
this Option, the right to purchase Option Shares hereunder shall cease.
3. Time of Exercise. This Option may be exercised (in the manner
provided in Section 4 hereof) in whole or in part, and from time to time
after the date hereof, subject to the terms and conditions of the Plan and
the following additional limitations:
(a) Optionee shall have the right to exercise this Option as
to [___________ percent (___%) of the Option Shares on the
_________________, __________ percent (___%) on the __________________ and
____________ percent (___%) on the _______________ of the Option grant
date].
(b) This Option may not be exercised after and shall
terminate upon the earliest to occur of any of the following:
(i) thirty (30) days after the termination of
Optionee's employment with the Company or any other affiliate of the
Company for any reason other than retirement, permanent disability or
death (and then only to the extent Optionee could have exercised this
Option on the date of termination); or
(ii) one hundred eighty (180) days after the
termination of Optionee's employment with the Company or one of its
subsidiaries as a result of retirement or permanent disability (and then
only to the extent Optionee could have exercised this Option on the date
of termination); or
(iii) one hundred eighty (180) days after Optionee's
death, if death occurs while Optionee is employed by the Company or one of
its subsidiaries (and then only to the extent Optionee could have
exercised this Option on the date of his or her death); or
(iv) Optionee's termination for cause. Cause shall
include gross and willful failure, after written warning, to discharge the
normal duties required of Optionee, theft or misappropriation of Company
property, commission of a crime such that the Company's reputation with
its customers is materially damaged, and breach of the ADAC Nondisclosure
and Inventions Agreement or other similar agreement executed by Optionee.
(c) This Option may be exercised as to any or all of the
Option Shares that may be acquired by Optionee on the date of such
exercise subject to the following limitations: (i) this Option must be
exercised for no less than the greater of 2,500 Shares of Common Stock or
twenty percent (20%) of the Option Shares; provided, that if the number of
the Option Shares that may be acquired by Optionee is less than the
foregoing amount then this Option must be exercised as to all the Option
Shares that may be acquired by Optionee and (ii) this Option must be
exercised as to all of the Option Shares that may be acquired by Optionee
unless after such exercise Optionee would have the right to acquire no
less than 2,500 Shares of Common Stock or twenty percent (20%) of the
Option Shares.
4. Method of Exercise. This Option may be exercised only by the
giving of written notice thereof to the Company which notice shall be
accompanied by: (a) a certified or cashier's check in an aggregate amount
of the exercise price and the withholding taxes required to be delivered
to the Company upon exercise of this Option, or following any initial
public offering by the Company, the consideration required under any
cashless exercise program established by the Company; (b) an executed
counterpart signature page to the Stockholders Agreement (the
"Stockholders Agreement") in the form attached hereto as Exhibit B; and
(c) such other documents or representations as the Company may reasonably
request in order to comply with securities, tax or other laws then
applicable to the exercise of this Option.
5. Nontransferability of Option. This Option may not be
transferred, sold, assigned, pledged or hypothecated other than by will,
the laws of descent and distribution or by operation of law, and is
exercisable during the life of the Optionee only by the Optionee.
6. Stock Option Plan. This Option is granted under and is
subject to the terms and conditions of the Plan.
7. Mandatory Exercise. Upon ADAC Laboratories, a California
corporation ("Parent"), giving written notice to Optionee under
Section 2.4 of the Stockholders Agreement, Optionee hereby agrees to
exercise this Option (on a net payment basis in the manner hereinafter
described) as to that number of the Option Shares equal to (i) the number
of the Option Shares that Optionee may exercise on the date such notice is
given to Optionee, multiplied by (ii) the percentage of shares of Common
Stock held by Parent that are intended to be sold by Parent in the
proposed transaction. Optionee shall promptly execute and deliver a
counterpart signature page to the Stockholders Agreement in the form
attached hereto as Exhibit B and such other documents or representations
the Company may reasonably request in order to comply with securities, tax
or other laws then applicable to the exercise of this Option and shall be
bound by the provisions of the Stockholders Agreement. In connection with
a transaction contemplated under Section 2.4 of the Stockholders
Agreement, Optionee shall not deliver the exercise price and withholding
taxes and the Company shall cause Optionee to be paid the consideration
per Option Share less the aggregate exercise price and withholding taxes.
If the transaction price under Section 2.4 of the Stockholders Agreement
is less than the exercise price under this Option, the Optionee may elect
not to exercise this Option and this Option shall terminate effective upon
the closing of the transaction covered by Section 2.4 of the Stockholders
Agreement.
IN WITNESS WHEREOF, the parties have caused this Agreement to be signed
and to be dated as of the date set forth on the first page hereof.
OPTIONEE:
ADAC RADIOLOGY
SERVICES, INC.: ADAC RADIOLOGY
SERVICES, INC.
a Delaware corporation
By:
Its:
EXHIBIT A
1997 STOCK OPTION PLAN
EXHIBIT B
STOCKHOLDERS AGREEMENT
Counterpart Signature Page
The undersigned hereby agrees to become a party to that certain
Stockholders Agreement, dated as of _______________, 1997 (the
"Agreement"), by and among ADAC Radiology Services, Inc., a Delaware
corporation, and its stockholders and agrees to be bound by the terms and
conditions of the Agreement. The undersigned shall be an "Employee
Holder" for all purposes under the Agreement.
Dated as of ____________________, 1997.
EMPLOYEE HOLDER:
Exhibit 10.20
OPTION PURCHASE AGREEMENT
THIS OPTION PURCHASE AGREEMENT (the "Agreement") is made and
entered into as of May 12, 1997, by and among COMMUNITY HEALTH
COMPUTING CORP., a Delaware corporation ("CHC"), and
____________________ ("Optionee").
A. CHC previously granted Optionee certain stock options (the
"Options") under the CHC Stock Option Plan (1985);
B. The Options give Optionee the right to purchase the number
of shares of common stock of CHC set forth in Exhibit 1 at a purchase
price of $0.66 per share;
C. The Options expire in July 1997;
D. It was the intent of CHC that, through the grant of the
Options, Optionee would be given the opportunity to realize the
increased value of the CHC common stock which Optionee's efforts helped
produce, and, as of the date hereof, no general plan or program to
achieve this goal has been developed;
E. Accordingly, CHC has determined that it is in the best
interests of CHC and its shareholders to acquire from Optionee, and
Optionee desires to sell to CHC, the Options all on the terms and
conditions set forth herein.
NOW, THEREFORE, the parties agree as follows:
1. Closing
The closing (the "Closing") of the transactions contemplated
hereby shall be held at the offices of CHC on May 12, 1997, subject to
satisfaction or waiver of the conditions to Closing set forth in
Section 2 below. At the Closing, Optionee will deliver to CHC Option
Agreements representing the Options, and CHC will deliver to Optionee
the Purchase Price, net of required payroll withholding taxes. The
"Purchase Price" is set forth in Exhibit 1 hereto, is payable in cash
at the closing and is based on the fair market value of the CHC common
stock underlying the Options of $1.43, as determined by an independent
appraiser, less the aggregate exercise payable upon exercise of such
Options.
2. Conditions to Closing. The obligations of the parties
under this Agreement are subject to the fulfillment or waiver of the
following conditions:
(a) Covenants. All covenants, agreements and conditions
contained in this Agreement to be performed by the parties on or prior
to the Closing shall have been performed or complied with in all
material aspects.
(b) Board and Stockholder Approval. CHC shall have
obtained all necessary consents and approvals of its Board of Directors
and stockholders, if applicable, necessary to perform the transactions
contemplated by this Agreement.
3. Miscellaneous.
(a) Governing Law. This Agreement shall be governed in
all respects by the internal laws of the State of California.
(b) Survival. The representations, warranties, covenants
and agreements made herein shall survive any investigation made by any
of the parties hereto and the closing of the transactions contemplated
hereby.
(c) Successors and Assigns. Except as otherwise provided
herein, the provisions hereof shall inure to the benefit of, and be
binding upon, the successors, assigns, heirs, executors and
administrators of the parties hereto.
(d) Entire Agreement: Amendment. This Agreement and the
other documents delivered pursuant hereto at the Closing constitute
the full and entire understanding and agreement between the parties
with regard to the subjects hereof and thereof, and no party shall be
liable or bound to any other party in any manner by any warranties,
representations or covenants except as specifically set forth herein
or therein. Except as expressly provided herein, neither this
Agreement nor any term hereof may be amended, waived, discharged or
terminated other than by a written instrument signed by the party
against whom enforcement of any such amendment, waiver, discharge, or
termination is sought.
(e) Counterparts. This Agreement may be executed in any
number of counterparts, each of which shall be enforceable against the
parties actually executing such counterparts, and all of which
together shall constitute one instrument.
(f) Severability. In the event that any provision of
this Agreement becomes or is declared by a court of competent
jurisdiction to be illegal, unenforceable or void, this Agreement
shall continue in full force and effect without said provision;
provided that no such severability shall be effective it if materially
changes the economic benefit of this Agreement to any party.
(g) Titles and Subtitles. The titles and subtitles used
in this Agreement are used for convenience only and are not considered
in construing or interpreting this Agreement.
(h) Benefits of Agreement. Nothing in this Agreement,
express or implied, shall give to any person, other than the parties
hereto and their successors hereunder any benefit or any legal or
equitable right, remedy or claim under this Agreement.
IN WITNESS WHEREOF, the parties have executed this Option
Purchase Agreement as of the date first written above.
COMMUNITY HEALTH COMPUTING CORP.,
a Delaware corporation
By:____________________________________
David L. Lowe
Chairman and Chief Executive Officer
_______________________________________
Optionee
EXHIBIT 1
OPTIONEE:
OPTIONS: TO PURCHASE _________ SHARES OF CHC COMMON
STOCK
PURCHASE PRICE: $__________*
__________
* Amount is subject to normal payroll withholding taxes.
EXHIBIT 11
ADAC LABORATORIES AND SUBSIDIARIES
COMPUTATION OF CONSOLIDATED NET INCOME PER SHARE
(in thousands except per share data)
For the three years in the period ended September 28, 1997
<TABLE>
<CAPTION>
Fiscal Years
------------------------------------------
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Average shares outstanding 18,413 17,360 16,426
Net effect of dilutive stock
options and warrants 1,115 1,147 653
------------ ------------ ------------
Average common and common
equivalent shares outstanding 19,528 18,507 17,079
============ ============ ============
Net Income $16,778 $16,637 $11,073
============ ============ ============
Net income per share $0.86 $0.90 $0.65
============ ============ ============
</TABLE>
Primary and fully diluted income per share differs by less than one cent in all
periods.
<PAGE>
EXHIBIT 21
ADAC LABORATORIES AND SUBSIDIARIES
SUBSIDIARIES OF REGISTRANT
JURISDICTION
OF
NAME INCORPORATION
- ----- -------------
ADAC do Brasil Brazil
ADAC Laboratories Europe, B.V. The Netherlands
ADAC Laboratories, SARL (1) France
ADAC Laboratories, GmbH (1) Germany
ADAC Laboratories, A/S (1) Denmark
ADAC Laboratories, Canada Limited Canada
ADAC Laboratories, S.R.L. (1) Italy
ADAC Laboratories, Ltd. (1) The United Kingdom
ADAC Laboratories Pacific, Inc. California, U.S.
ADAC Foreign Sales Corporation, Inc. Virgin Islands, U.S.
ADAC Research and Manufacturing, Inc. California, U.S.
ADAC Medical Technologies, Inc. Delaware, U.S.
ADAC HealthCare Information Systems, Inc. (2) Texas, U.S.
ADAC Radiology Services, Inc. Delaware, U.S.
ADAC Healthcare Partners, Inc. Delaware, U.S.
Cortet, Inc. Florida, U.S.
The Company owns 100% of each of the above subsidiaries except as set forth in
the note below.
(1) ADAC Laboratories, B.V., owns 100% of this subsidiary.
(2) Community Health Computing Corporation owns 100% of this subsidiary.
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration
statements of ADAC Laboratories on Form S-8 (File Nos.333-34619, 333-
34625 and 333-34629) of our report dated November 4, 1997, on our audits
of the consolidated financial statements and financial statement
schedules of ADAC Laboratories as of September 28, 1997 and September
29, 1996, and for each of the three fiscal years ended September 28,
1997, which is included under Item 8. Financial Statements and
Supplemental Data of this Form 10-K.
COOPERS & LYBRAND L.L.P.
San Jose, California
December 22, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> This schedule contains summary financial information extracted
from the Balance Sheet and Statement of Operations included in
the Company's Form 10-K for the year ended September 28, 1997 and
is qualified in its entirety by reference to such Financial
Statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<FISCAL-YEAR-END> Sep-28-1997
<PERIOD-START> Sep-30-1996
<PERIOD-END> Sep-28-1997
<PERIOD-TYPE> 12-MOS
<CASH> 5,088
<SECURITIES> 0
<RECEIVABLES> 101,881
<ALLOWANCES> 2,386
<INVENTORY> 27,534
<CURRENT-ASSETS> 142,272
<PP&E> 29,700
<DEPRECIATION> 18,145
<TOTAL-ASSETS> 206,995
<CURRENT-LIABILITIES> 65,799
<BONDS> 0
0
0
<COMMON> 123,269
<OTHER-SE> 3,228
<TOTAL-LIABILITY-AND-EQUITY> 206,995
<SALES> 211,831
<TOTAL-REVENUES> 282,331
<CGS> 121,766
<TOTAL-COSTS> 166,022
<OTHER-EXPENSES> 75,070
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 29,645
<INCOME-TAX> 12,867
<INCOME-CONTINUING> 16,778
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 16,778
<EPS-PRIMARY> $0.86
<EPS-DILUTED> $0.86
</TABLE>
