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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
SOLICITATION/RECOMMENDATION STATEMENT PURSUANT TO
SECTION 14(d)(4) OF THE SECURITIES EXCHANGE ACT OF 1934
------------------------
ADAC LABORATORIES
(NAME OF SUBJECT COMPANY)
ADAC LABORATORIES
(NAME OF PERSON(S) FILING STATEMENT)
COMMON STOCK, NO PAR VALUE
(TITLE OF CLASS OF SECURITIES)
005313200
(CUSIP NUMBER OF COMMON STOCK)
R. ANDREW ECKERT
CHIEF EXECUTIVE OFFICER
ADAC LABORATORIES
540 ALDER DRIVE
MILPITAS, CALIFORNIA 95035
(408) 321-9100
(NAME, ADDRESS AND TELEPHONE NUMBER OF PERSON AUTHORIZED TO RECEIVE NOTICES AND
COMMUNICATIONS ON BEHALF OF THE PERSON(S) FILING STATEMENT)
------------------------
WITH COPIES TO:
PAGE MAILLIARD, ESQ.
WILSON SONSINI GOODRICH & ROSATI, P.C.
650 PAGE MILL ROAD
PALO ALTO, CA 94304
(650) 493-9300
AND
STEVE L. CAMAHORT, ESQ.
WILSON SONSINI GOODRICH & ROSATI, P.C.
ONE MARKET, SPEAR TOWER, 33RD FLOOR
SAN FRANCISCO, CA 94105
(415) 947-2000
[ ] Check the box if the filing relates solely to preliminary communications
made before the commencement of a tender offer.
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ITEM 1. SUBJECT COMPANY INFORMATION
The name of the subject company is ADAC Laboratories, a California
corporation ("ADAC"). ADAC designs, develops, manufactures, sells and services
medical imaging equipment and radiation therapy planning software systems used
in hospitals and clinics worldwide. ADAC conducts its business primarily through
its Medical Systems and Radiation Therapy Products ("RTP") business units. The
address of ADAC's principal executive offices is 540 Alder Drive, Milpitas, CA
95035. The telephone number of the principal executive offices of ADAC is (408)
321-9100. The title of the class of equity securities to which this Schedule
14D-9 relates is the Common Stock, no par value, of ADAC and the associated
rights to purchase Series A Junior Participating Preferred Stock of ADAC (the
"Common Stock"). As of November 12, 2000, there were 21,153,537 shares of Common
Stock issued and outstanding.
ITEM 2. IDENTITY AND BACKGROUND OF FILING PERSON
The name, business address and business telephone number of ADAC, which is
the person filing this Statement and the subject company, are set forth in Item
1 above.
This statement relates to the tender offer being made by Philips Medical
Acquisition Corporation, a Delaware corporation formerly known as Academy
Acquisition Company (the "Purchaser") and a wholly owned subsidiary of Philips
Holding USA Inc., a Delaware corporation ("Philips"), disclosed in a Tender
Offer Statement on Schedule TO (the "Schedule TO"), dated November 14, 2000 and
filed with the Securities and Exchange Commission (the "Commission"), to
purchase all the outstanding shares of Common Stock, at a price of $18.50 per
share, net to the sellers in cash, upon the terms and subject to the conditions
set forth in the Offer to Purchase, dated November 14, 2000 (as it may be
amended, the "Offer to Purchase"), and the related Letter of Transmittal (which,
together with the Offer to Purchase and any amendments or supplements thereto,
constitute the "Offer") included in the Schedule TO. A copy of the Offer to
Purchase and the related Letter of Transmittal have been filed as Exhibit 1 and
Exhibit 2 hereto, respectively, and each is incorporated herein by reference.
Copies of the Offer to Purchase and the Letter of Transmittal are being
furnished to ADAC's shareholders concurrently with this Schedule 14D-9.
The Offer is being made pursuant to an Agreement and Plan of Merger, dated
as of November 12, 2000, by and among Philips, the Purchaser and ADAC (the
"Merger Agreement"). The Merger Agreement provides, among other things, for the
commencement of the Offer by the Purchaser and further provides that, as soon as
practicable after consummation of the Offer and the satisfaction or waiver of
the other conditions set forth in the Merger Agreement, and in accordance with
the relevant provisions of the California General Corporation Law and the
Delaware General Corporation Law, the Purchaser will be merged with and into
ADAC (the "Merger"), with ADAC continuing as the surviving corporation and a
subsidiary of Philips. A copy of the Merger Agreement is filed as Exhibit 3
hereto.
The Offer is conditioned upon, among other things, (i) there being validly
tendered and not withdrawn prior to the expiration of the Offer a number of
shares of Common Stock that, together with the shares then owned by the
Purchaser, any other subsidiary of Philips, Philips and Koninklijke Philips
Electronics N.V., a Netherlands corporation and parent entity of Philips, would
represent ninety percent of the total number of outstanding shares of Common
Stock on a fully diluted basis (but excluding, solely for the purpose of
calculating the total number of shares of Common Stock outstanding on a fully
diluted basis, shares of Common Stock issuable upon exercise of any stock option
as to which a duly executed Option Cancellation, as described in the Schedule TO
under the caption "Treatment of Options," has been received by ADAC and
Purchaser on or prior to the expiration of the Offer) and as will permit
Purchaser to effect the Merger pursuant to Section 1110 of the CGCL (the
"Minimum Condition"), and (ii) the expiration or termination of any applicable
waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended, and the antitrust or competition laws and regulations of
jurisdictions outside of the United States. The Offer also is subject to certain
other conditions set forth in Annex A to the Merger Agreement. In the event that
more than 50% and less than 90% of the shares are validly tendered and not
withdrawn, Philips, under certain circumstances, may either exercise the Stock
Option Agreement or reduce the number of shares subject to the offer to a number
equal to 49.9% of the shares.
<PAGE> 3
As set forth in the Schedule TO, the principal executive offices of the
Purchaser are located at 1251 Avenue of the Americas, New York, New York 10020.
All information in this Schedule 14D-9 or incorporated by reference herein
concerning the Purchaser or its affiliates, or actions or events in respect of
any of them, was provided by the Purchaser or Philips, and ADAC assumes no
responsibility therefor.
ITEM 3. PAST CONTACTS, TRANSACTIONS, NEGOTIATIONS AND AGREEMENTS
Certain contracts, agreements, arrangements or understandings between ADAC
or its affiliates with certain of its directors and executive officers are,
except as noted below, described in the Information Statement pursuant to Rule
14f-1 that is attached as Annex A hereto and is incorporated herein by
reference. Except as described or referred to herein and in Annex A, to the
knowledge of ADAC, as of the date hereof, there are no material agreements,
arrangements or understandings, or any actual or potential conflicts of
interest, between ADAC or its affiliates and (i) ADAC, its executive officers,
directors or affiliates; or (ii) Philips or the Purchaser, their respective
officers, directors or affiliates.
In considering the recommendation of the Board of Directors of ADAC (the
"Board of Directors") set forth in Item 4 below, ADAC's shareholders should be
aware that certain executive officers of ADAC and certain members of the Board
of Directors have interests in the Offer and the Merger, which are described
herein and in Annex A hereto, and which may present them with certain conflicts
of interest. The Board of Directors is aware of these potential conflicts and
considered them along with the other factors described in Item 4 below.
The Merger Agreement and Related Agreements. A summary of the material
provisions of the Merger Agreement and the Stock Option Agreement related to it
is included in "The Purpose of the Offer; Plans for the Company; The
Merger -- The Merger Agreement; The Stock Option Agreement" of the Offer to
Purchase, which is incorporated herein by reference. Such summary is qualified
in its entirety by reference to the complete text of the Merger Agreement and
the Stock Option Agreement, a copy of which is filed as Exhibit 3 hereto and is
incorporated herein by reference. Such summary may not contain all of the
information that is important to you. Accordingly, you should read the Merger
Agreement and Stock Option Agreement in their entirety for a more complete
description of the material summarized in the Offer to Purchase.
Employment and Other Agreements. In connection with the Merger, ADAC
intends to offer continued employment to certain of its executive officers.
These employment arrangements are more fully described under the caption
"Employment" in the Offer to Purchase and that disclosure is incorporated herein
by reference. Once the offer letters are finalized they will be filed as an
amendment to this Schedule 14D-9. Philips Electronics North America and David
Crussell, the current Senior Vice President of the Radiation Therapy Planning
Division have entered into an employment agreement. This employment agreement is
filed herewith as Exhibit 7 and incorporated herein by reference. Such agreement
is described more fully in the Offer to Purchase under the caption "Employment."
Executive Severance Agreements. ADAC has entered into Executive Severance
Agreements (the "Agreements") with Ian Farmer, Gary Burbach, Neil Laird, and R.
Andrew Eckert. These Agreements are described in Annex A hereto. Notwithstanding
the foregoing, the value of any severance benefits described above shall be
reduced by such amount necessary so that no portion of the severance is subject,
in the opinion of tax counsel selected in good faith by ADAC, to excise taxes
under Section 280G of the Internal Revenue Code.
Supply Agreement. ADAC and Philips Medical Systems, International, an
affiliate of Philips, are both parties to an agreement, dated as of July 19,
2000, with Premier, Inc. ("Premier"), pursuant to which they agreed to jointly
supply Premier with imaging products and services for a multi-year period.
Treatment of Options and Restricted Stock. In connection with the Merger,
the unvested stock options and restricted stock held by ADAC's executive
officers and directors pursuant to its 1992 Stock Option Plan, 1999 Long-Term
Incentive Plan & 1999 Supplemental Incentive Plan and 1987 Directors' Stock
Option Plan will be accelerated and fully vested. On October 20, 2000, ADAC
granted Frank La Pallo and David
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Crussell stock options to purchase 35,000 and 30,000 shares of common stock,
respectively. Such options will be accelerated and fully vested in connection
with the Merger. On the same date, ADAC also granted Gary Burbach, R. Andrew
Eckert, Ian Farmer and Neil Laird 80,000, 135,000, 40,000 and 50,000 shares of
restricted common stock, respectively, under the 1999 Long-Term Incentive Plan.
Similarly such stock will fully vest in connection with the Merger.
<TABLE>
<CAPTION>
NUMBER OF SHARES OF
COMMON STOCK AND
RESTRICTED STOCK GRANTS
SUBJECT TO OPTIONS THAT WILL
BECOME IMMEDIATELY
EXERCISABLE IN CONNECTION
NAME POSITION WITH THE MERGER
---- -------- ----------------------------
<S> <C> <C>
R. Andrew Eckert................. Chairman and Chief Executive Officer 481,439
Gerhard Burbach.................. President and Chief Operating 265,000
Officer
Ian Farmer....................... Senior VP Business Development 165,000
Neil Laird....................... Senior VP and Chief Financial 127,500
Officer
David Crussell................... VP and General Manager, RTP 108,125
Francis LaPallo.................. VP and General Counsel 35,000
Debra Young...................... VP and Corporate Controller 27,500
Stanley Czerwinski............... Director 34,502
Denis Raney...................... Director 23,958
David Rollo...................... Director 26,041
Edmund Shea...................... Director 8,958
Donald Fowler.................... Director 20,000
</TABLE>
Indemnification. Philips has agreed to indemnify present and former
directors, officers, employees and agents of ADAC and its subsidiaries as of the
effective time of the Merger against, and advance expenses in connection with,
any costs, expenses, judgements, fines, losses, claims, damages or liabilities
incurred in connection with any claim, action, suit, proceeding or investigation
arising out of matters existing or occurring at or prior such effective time to
the fullest extent permissible under California General Corporation Law and the
provisions of the ADAC Articles of Incorporation or bylaws in effect on November
12, 2000. Furthermore, Philips has also agreed to maintain, for six years,
ADAC's policy of directors' and officers' insurance or, if doing so would exceed
certain cost limitations, a policy of directors' and officers' liability
insurance within such cost limitations with respect to matters occurring on or
before the effective time of the Merger for the benefit of the directors and
officers of ADAC.
Employee Retention Pool. The Merger Agreement permits ADAC to establish a
pool of $250,000 in cash for making payments prior to the effectiveness of the
Merger in connection with employee retention.
ITEM 4. THE SOLICITATION OR RECOMMENDATION
(a) Recommendation
The Board of Directors has (1) unanimously determined that each of the
Merger Agreement, the Offer and the Merger is fair to, and in the best interests
of, the shareholders of ADAC, (2) duly approved the Merger Agreement, the Stock
Option Agreement and other agreements related thereto and the transactions
contemplated thereby, including the Offer and the Merger, and (3) unanimously
recommended that the shareholders of ADAC accept the Offer and approve and adopt
the Merger Agreement and the Merger.
A copy of the joint press release issued by ADAC and Philips on November
13, 2000 announcing the Merger and the Offer is filed herewith as Exhibit 4 and
is incorporated herein by reference. A copy of a letter to ADAC's shareholders
communicating the recommendation of the Board of Directors is filed herewith as
Exhibit 5 and is incorporated herein by reference.
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(b) Background of the Transaction; Reasons for the Board of Director's
Recommendation
Background of the Transaction.
On an ongoing basis, the Board of Directors of ADAC evaluates ADAC's
strategic alternatives, including possible strategic business combinations and
continuing as a stand alone company. In early February 2000, the Board of
Directors retained Bear, Stearns & Co. Inc. ("Bear Stearns") to assist ADAC's
management in this evaluation. ADAC's management and Bear Stearns identified and
contacted nine (including Philips) prospective strategic partners for ADAC based
on strategic fit and their determination of which entities would most likely be
interested in engaging in a strategic combination or arrangement with ADAC. Four
of those parties expressed an interest in a potential transaction and were
provided with a limited amount of information concerning ADAC after executing
appropriate confidentiality agreements. Subsequently, however, only one of the
parties, Philips, provided a proposal to acquire ADAC.
On March 20, 2000, Philips and ADAC entered into a customary
confidentiality agreement.
In mid-April 2000, Philips provided a preliminary non-binding proposal,
subject to due diligence and several conditions, to acquire ADAC for up to
$18.00 per share of Common Stock.
On May 4, 2000, Bear Stearns discussed the preliminary proposal from
Philips with the Board of Directors, and the Board of Directors agreed to pursue
further discussions with Philips. Bear Stearns also made a presentation to the
Board of Directors concerning the status of discussions with the other four
parties who had entered into confidentiality agreements and received information
concerning ADAC.
In mid-May 2000, Philips began the first phase of its due diligence
investigation of ADAC. For the next month or so, Philips conducted this
investigation.
During the week and a half beginning on June 23, 2000, Philips's management
representatives outlined a plan for a second phase of due diligence but
indicated that certain items uncovered in the first phase of their due diligence
would prevent them from recommending an acquisition of ADAC to the Board of
Directors of Philips. In light of the protracted process involved and the lack
of a clear path to acceptable transaction terms, ADAC did not agree to the
Philips plan for a second phase of due diligence. However, both ADAC and Philips
expressed a desire to keep lines of communication open about a potential
strategic relationship.
On July 19, 2000, ADAC and an affiliate of Philips entered into a contract
with Premier to jointly supply Premier with imaging products and services.
Between August and October of 2000, there were numerous conversations
between representatives of Bear Stearns and certain senior officers of Philips
based in the United States regarding a potential acquisition of ADAC. The Board
of Directors met on August 10, 2000 and discussed strategic alternatives.
On October 10, 2000, ADAC announced the sale of its Cardiology Systems
Group to Camtronics, Ltd. a subsidiary of Analogic Corporation.
On October 20, 2000, Philips representatives met with senior management
from ADAC in Milpitas, California to discuss ADAC's financial performance.
On October 24, 2000, ADAC announced entering into a definitive agreement to
sell all of the stock of ADAC Healthcare Information Systems, Inc. to Cerner
Corporation.
On November 2 and 3, 2000, senior officers and advisors from ADAC and
Philips met in New York to discuss due diligence items and an action plan for
negotiating a merger agreement. Philips offered $16 per share of Common Stock
subject to completion of six weeks of due diligence. ADAC rejected the proposal.
Philips increased its offer to $17.00 per share of Common Stock subject to three
weeks of due diligence. ADAC rejected the revised proposal as well.
On November 7, 2000, Philips offered $18.50 per share of Common Stock
subject to completion of its due diligence and negotiation of definitive
agreements within a week.
On November 9, 2000, the Board of Directors of ADAC met with
representatives of ADAC's management, outside counsel, Wilson Sonsini Goodrich &
Rosati, P.C., and Bear Stearns and reviewed and discussed the terms of the
proposed acquisition and the status of the negotiations. At the meeting, outside
counsel gave a presentation to the Board of Directors on the terms of the Merger
Agreement and Stock Option
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Agreement, the structure of the Offer and the Merger and the Board of Director's
fiduciary duties. In addition, representatives from Bear Stearns reviewed the
financial aspects of the proposed transaction.
On November 12, 2000, the Board of Directors of ADAC met telephonically and
reviewed and discussed the proposed acquisition. Management and outside counsel
provided the Board of Directors with an update on the on the terms of the Merger
Agreement and related documents. The Board of Directors also received an opinion
from Bear Stearns that as of the date of the meeting, $18.50 cash per share of
Common Stock consideration to be received by the holders thereof pursuant to the
Offer and the Merger as contemplated in the Merger Agreement was fair from a
financial point of view to ADAC's shareholders. The full text of such opinion is
attached hereto as Exhibit 6. Following additional discussion of the terms of
the proposed acquisition, the Board of Directors unanimously:
- determined that the Merger Agreement and the transactions contemplated
thereby, including each of the Offer and the Merger, are fair to and in
the best interests of the holders of the Common Stock;
- approved and adopted the Merger Agreement and related Stock Option
Agreement and the transactions contemplated thereby; and
- resolved to recommend that the shareholders of ADAC accept the Offer and
approve and adopt the Merger Agreement and the transactions contemplated
thereby.
On the evening of November 12, 2000, following the meeting of the Board of
Directors of ADAC, the Merger Agreement and related Stock Option Agreement were
executed by ADAC, the Purchaser and Philips.
Reasons for the Recommendation of the Board of Directors of ADAC. In
approving the Merger Agreement and Stock Option Agreement and the transactions
contemplated thereby, and recommending that the shareholders accept the Offer
and approve and adopt the Merger Agreement and the transactions contemplated
thereby, the Board of Directors considered a number of factors, including:
- the financial and other terms of the Offer, the Merger Agreement and the
related transaction agreements;
- Bear Stearns' opinion to the effect that, as of the date of its opinion
and based upon and subject to certain matters stated therein, the $18.50
cash per share of Common Stock consideration to be received by the
holders of Common Stock pursuant to the Offer and the Merger was fair to
the shareholders of ADAC, from a financial point of view (the "Fairness
Opinion") and its presentation with respect to that opinion;
- the long-term prospects of ADAC and its core business of nuclear
medicine, particulary in light of slowing growth in that market;
- ADAC's difficulties as an independent company to effectively compete with
larger competitors given the shift in customer focus from technological
superiority to price and breadth of product offerings;
- the failure of any of the other potential bidders to submit a bona fide
proposal to acquire ADAC;
- the view of the Board of Directors, based in part upon the presentation
of management and Bear Stearns, regarding the likelihood of a superior
offer arising;
- the continued investment required in building ADAC's infrastructure;
- the provisions of the Merger Agreement, including the provisions allowing
ADAC to respond to certain unsolicited inquiries concerning an
acquisition of ADAC, and the provisions which permit ADAC to terminate
the Merger Agreement upon payment of a break-up fee under certain
circumstances;
- the fact that Philips' and the Purchaser's obligations under the Offer
were not subject to any financing condition; and
- Philips's financial condition and ability to cause the Purchaser to meet
its obligations under the Merger Agreement.
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The foregoing discussion of the information and factors considered and
given weight by the Board of Directors is not intended to be exhaustive. In view
of the variety of factors considered in connection with its evaluation of the
Merger Agreement and the Offer, the Board of Directors did not find it
practicable to, and did not, quantify or otherwise assign relative weights to
the specific factors considered in reaching its determination. In addition,
individual members of the Board of Directors may have given different weights to
different factors. Rather, the Board of Directors made its determination that
the Merger Agreement, the Offer and the Merger are fair to, and in the best
interests of, the shareholders of ADAC based on the totality of the information
presented to and considered by the Board of Directors.
The full text of Bear Stearns' written opinion discussed in the second
bullet point above, which sets forth, among other things, the assumptions made,
matters considered and limitations in the review undertaken by Bear Stearns in
connection with the opinion, is attached hereto as Annex B and is incorporated
herein by reference. Bear Stearns' opinion is directed only to the Board of
Directors, addresses only the fairness of $18.50 per share of Common Stock, from
a financial point of view, to be received in the Offer and the Merger by holders
of Common Stock and does not constitute a recommendation to any shareholder to
adopt the Merger Agreement, or to tender shares pursuant to the Offer. Holders
of shares of Common Stock are urged to read the opinion carefully and in its
entirety. The summary of the opinion of Bear Stearns in this Schedule 14D-9 is
qualified in its entirety by reference to the full text of such opinion.
To ADAC's knowledge, all its executive officers, directors, affiliates or
subsidiaries currently intend to tender all shares of Common Stock that are held
of record or are beneficially owned by them pursuant to the Offer, other than
the Common Stock, if any, held by such persons that, if tendered, could cause
them to incur liability under section 16(b) of the Securities Exchange Act of
1934.
ITEM 5. PERSONS/ASSETS RETAINED, EMPLOYED, COMPENSATED OR USED
Pursuant to a letter agreement entered into on March 29, 2000, ADAC
retained Bear Stearns as ADAC's exclusive financial advisor to provide financial
advisory and investment banking services in connection with potential business
combinations involving ADAC or any of its business units. Pursuant to the terms
of the letter agreement, ADAC agreed to pay Bear Stearns, in connection with a
business combination involving ADAC, (i) a cash fee of $600,000 payable upon the
earlier of Bear Stearns rendering its fairness opinion or the execution by ADAC
of an agreement relating to any business combination involving ADAC during the
term of the letter agreement or within 12 months thereafter and (ii) a
transaction fee (calculated as set forth below and against which the $600,000
fee would be credited) if any business combination involving ADAC was
consummated during the term of the letter agreement or within 12 months
thereafter. The transaction fee with respect to the Offer and the Merger is to
be calculated as 0.975% of the total consideration. In addition, ADAC agreed to
reimburse Bear Stearns for its reasonable out-of-pocket expenses, including
reasonable fees and disbursements of counsel and of other consultants and
advisors, and to indemnify Bear Stearns against liabilities and expenses arising
out of the engagement and the transactions in connection therewith.
ITEM 6. INTEREST IN SECURITIES OF THE COMPANY
Except as set forth below, no transactions in the Common Stock have been
effected in the past 60 days by ADAC or any subsidiary of ADAC, or, to the
knowledge of ADAC, any affiliate or any executive officer or director of ADAC.
On October 24, 2000, ADAC Healthcare Information System, Inc. ("HCIS") a Texas
corporation, a wholly-owned subsidiary entered into an Agreement and Plan of
Merger with ???? Corporation, a Delaware corporation, and ??? RIS Acquisition
Corporation, a Delaware corporation and wholly-owned subsidiary of ????
Corporation, whereby ???? ???? Heis will be the surviving corporation and a
wholly-owned subsidiary of ????? Corporation. On November 7, 2000, Heis sold its
cardiology assets to ????????????, Ltd. pursuant to an Asset Purchase Agreement.
On October 20, 2000, ADAC granted Frank La Pallo and David Crussell stock
options to purchase 35,000 and 30,000 shares of Common Stock, respectively. On
the same date, ADAC also granted Gary Burbach, R. Andrew Eckert, Ian Farmer and
Neil Laird 80,000, 135,000, 40,000 and 50,000 shares of restricted Common Stock,
respectively, under the 1999 Long-Term Incentive Plan.
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ITEM 7. PURPOSES OF THE TRANSACTION AND PLANS OR PROPOSALS
(a) Except as set forth in this Schedule 14D-9, no negotiation is being
undertaken or is underway by ADAC in response to the Offer that relates to: (i)
a tender offer for or other acquisition of ADAC's securities by ADAC, any
subsidiary of ADAC or any other person; (ii) any extraordinary transaction, such
as a merger, reorganization or liquidation, involving ADAC or any subsidiary of
ADAC; (iii) any purchase, sale or transfer of a material amount of assets of
ADAC or any subsidiary of ADAC; or (iv) any material change in the present
dividend rate or policy, or indebtedness or capitalization, of ADAC.
(b) Except as set forth in this Schedule 14D-9, there are no transactions,
board resolutions, agreements in principle or signed contracts in response to
the Offer that relate to or would result in one or more of the events referred
to in the first paragraph of this Item 7.
ITEM 8. ADDITIONAL INFORMATION
Rights Agreement. In 1996, ADAC authorized and declared a dividend
distribution of one preferred stock purchase right for each outstanding share of
common stock to stockholders of record at the close of business on May 8, 1996
("Right"), and authorized the issuance of one Right with each future share of
common stock issued by ADAC before the Rights became exercisable, or before the
Rights are redeemed by ADAC, or before the Rights expire on April 21, 2006. The
Rights will attach to all certificates representing shares of outstanding common
stock of ADAC and will not be exercisable or transferable apart from the common
stock until ten days after, among other things, another person or group of
persons acquires 15 percent or more of ADAC's outstanding common stock or
commences a tender or exchange offer for at least 15 percent of ADAC's common
stock.
ADAC and the Rights Agent under the Rights Agreement amended the Rights
Agreement as of November 12, 2000 to provide, among other things, that neither
the Offer nor the Merger will constitute a "Shares Acquisition Date" or give
rise to a "Distribution Date," in each case, for the purposes of and as defined
in the Rights Agreement, and that Philips, Purchaser, or any of their
affiliates, will not be considered an "Acquiring Person" for the purposes of and
as defined in the Rights Agreement solely by reason of the execution of the
Merger Agreement or consummatic of any of the transactions contemplated thereby,
including without limitation, the execution of the related Stock Option
Agreement, the commencement or consummation of the Offer or the consummation of
the Merger, or any announcement relating thereto. The Rights Agreement was
further amended to revise the definition of the "Final Expiration Date" of the
Rights to include "immediately prior to the Effective Time (as defined in the
Merger Agreement)."
The Information Statement attached as Annex A to this Schedule 14D-9 is being
furnished in connection with the possible designation by Merger Sub, pursuant to
the terms of the Merger Agreement, of certain persons to be elected to the Board
of Directors other than at a meeting of ADAC's shareholders.
ITEM 9. MATERIAL TO BE FILED AS EXHIBITS
<TABLE>
<C> <S>
Exhibit 1. Offer to Purchase dated November 14, 2000 (incorporated by
reference to Exhibit 99(a)(1) to the Schedule TO).
Exhibit 2. Letter of Transmittal (incorporated by reference to Exhibit
99(a)(2) to the Schedule TO).
Exhibit 3. Agreement and Plan of Merger dated as of November 12, 2000
among Philips, the Purchaser and ADAC (incorporated by
reference to Exhibit 99(d)(1)(A) to the Schedule TO).
Exhibit 4. Letter to Shareholders dated November 14, 2000.
Exhibit 5. Press Release, dated November 13, 2000, of ADAC and Philips
(incorporated by reference to Philips' filing of such on
Schedule TO dated November 13, 2000).
Exhibit 6. Opinion of Bear Stearns (attached to this Statement as Annex
B).
Exhibit 7. Employment Agreement dated November 14, 2000, between
Philips and David Crussell.
</TABLE>
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SIGNATURE
After reasonable inquiry and to the best of its knowledge and belief, the
undersigned certifies that the information set forth in this statement is true,
complete and correct.
ADAC LABORATORIES
By: /s/ R. Andrew Eckert
--------------------------------------
Name: R. Andrew Eckert
--------------------------------------
Title: Chairman of the Board
--------------------------------------
Dated: November 14, 2000
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ANNEX A
ADAC LABORATORIES
540 ALDER DRIVE
MILPITAS, CALIFORNIA 95035
INFORMATION STATEMENT PURSUANT TO
SECTION 14(F) OF THE SECURITIES EXCHANGE ACT
OF 1934 AND RULE 14F-1 THEREUNDER
This Information Statement is being mailed on or about November 14, 2000 as
part of the Solicitation/ Recommendation Statement on Schedule 14D-9 (the
"Statement") of ADAC Laboratories ("ADAC"). You are receiving this Information
Statement in connection with the possible election of persons designated by
Philips Medical Acquisition Corporation ("Purchaser"), a Delaware corporation
and a wholly owned subsidiary of Philips Holding USA Inc., a Delaware
corporation ("Philips"), to a majority of seats on the Board of Directors of
ADAC (the "Board of Directors" or the "Board"). On November 12, 2000, ADAC
entered into an Agreement and Plan of Merger (the "Merger Agreement") with
Purchaser and Philips, pursuant to which Purchaser is required to commence a
tender offer to purchase all issued and outstanding shares of common stock, no
par value, of ADAC and the associated rights to purchase Series A junior
participating preferred stock of ADAC (the "Common Stock"), at a price per share
of $18.50 (the "Offer Price"), net to the seller in cash, upon the terms and
subject to the conditions set forth in Purchaser's Offer to Purchase, dated
November 14, 2000, and in the related Letter of Transmittal (which, together
with any amendments and supplements thereto, collectively constitute the
"Offer"). Copies of the Offer to Purchase and the Letter of Transmittal have
been mailed to holders of Common Stock and are filed as Exhibits
and , respectively, to the Tender Offer Statement on Schedule TO (as
amended from time to time, the "Schedule TO") filed by Purchaser with the
Securities and Exchange Commission (the "Commission") on November 14, 2000. The
Merger Agreement provides, among other things, that as promptly as practicable
after the purchase of Common Stock pursuant to the Offer and the satisfaction
or, if permissible, waiver of the other conditions set forth in the Merger
Agreement and in accordance with the relevant provisions of the California
General Corporation Law and Delaware General Corporation Law, Purchaser will be
merged with and into ADAC (the "Merger"). As a result, ADAC will continue as the
surviving corporation (the "Surviving Corporation") and will become a subsidiary
of Philips. At the effective time of the Merger (the "Effective Time"), each
Share issued and outstanding immediately prior to the Effective Time (other than
Common Stock held in the treasury of ADAC or by Philips or any of its other
subsidiaries, which will be cancelled, and other than Common Stock held by
shareholders who will have demanded and perfected appraisal rights under the
California General Corporation Law) will be cancelled and converted
automatically into the right to receive $18.50 in cash, or any higher price that
may be paid per share of Common Stock in the Offer, without interest (the
"Merger Consideration"). Shareholders who demand and fully perfect appraisal
rights under California General Corporation Law will be entitled to receive, in
connection with the Merger, cash for the fair value of their Common Stock as
determined pursuant to the procedures prescribed by California General
Corporation Law.
The Offer, Merger and Merger Agreement and agreements related to it are
more fully described in the Statement, to which this Information Statement forms
Annex A, which was filed by ADAC with the Commission on November 14, 2000 and
which is being mailed to holders of Common Stock along with this Information
Statement.
This Information Statement is being mailed to you in accordance with
Section 14(f) of the Securities Exchange Act of 1934 ("Exchange Act") and Rule
14f-1 promulgated thereunder. The information set forth herein supplements
certain information set forth in the Statement. Information set forth herein
related to Philips, Purchaser or Purchaser Designees (as defined below) has been
provided by Philips. You are urged to read this Information Statement carefully.
You are not, however, required to take any action in connection with the matters
set forth herein.
<PAGE> 11
Pursuant to the Merger Agreement, Purchaser commenced the Offer on November
14, 2000. The Offer is currently scheduled to expire at 12:00 midnight, New York
City time, on Tuesday, December 12, 2000, unless Purchaser extends it.
GENERAL
The Common Stock is the only class of equity securities of ADAC outstanding
which is currently entitled to vote at a meeting of the shareholders of ADAC.
Each share of Common Stock entitles the holder thereof to one vote. As of the
close of business on November 12, 2000, there were 21,153,537 outstanding shares
of Common Stock, of which Philips and Purchaser owned no Common Stock.
RIGHTS TO DESIGNATE DIRECTORS AND PURCHASER DESIGNEES
The Merger Agreement provides that, immediately following the purchase of
and payment for Common Stock by Purchaser pursuant to the Offer and from time to
time thereafter, Purchaser will be entitled to designate up to such number of
directors (the "Purchaser Designees"), rounded up to the next whole number, on
the Board as will give Purchaser representation on the Board equal to the
product of the total number of directors on the Board multiplied by the
percentage that the aggregate number of Common Stock beneficially owned by
Purchaser or any affiliate of Purchaser following such purchases bears to the
total number of Common Stock then outstanding.
The Merger Agreement provides that ADAC will increase the size of the Board
or use its best efforts to secure the resignations of incumbent directors, or
both, as is necessary to permit the Purchaser Designees to be elected to the
Board of Directors.
At such times, if so requested, ADAC will use its best efforts to cause
persons designated by Purchaser to constitute the same percentages as Purchaser
Designees shall constitute of the Board of (i) each committee of the Board, (ii)
each board of directors of each subsidiary of ADAC, and (iii) each committee of
each such board, in each case only to the extent of ADAC's ability to elect such
persons. Notwithstanding the foregoing, until the Effective Time, the Board of
Directors shall have at least three members who are neither officers of Philips
nor designees, shareholders or affiliates of Philips or Philips' affiliates.
ADAC will promptly take all actions required pursuant to Section 14(f) of
the Exchange Act and Rule 14f-1 promulgated thereunder to fulfill such
obligations.
The Purchaser Designees will be selected by Purchaser from among the
individuals listed below. Each of the following individuals has consented to
serve as a director of ADAC if appointed or elected. None of the Purchaser
Designees currently is a director of, or holds any positions with, ADAC. The
Purchaser has advised ADAC that, to the best of Purchaser's knowledge, except as
set forth below, none of the Purchaser Designees or any of their affiliates
beneficially owns any equity securities or rights to acquire any such securities
of ADAC, nor has any such person been involved in any transaction with ADAC or
any of its directors, executive officers or affiliates that is required to be
disclosed pursuant to the rules and regulations of the Commission other than
with respect to transactions between Purchaser and ADAC that have been described
in the Statement.
The name, age, citizenship, present principal occupation or employment and
five-year employment history of each of the individuals who may be selected as
Purchaser Designees are set forth below. Unless otherwise indicated, each such
person has held his or her present position as set forth below for the past five
years and each occupation refers to employment with Philips. Unless otherwise
indicated, each such person is a citizen of the United States, and the business
address of each person listed below is 1251 Avenue of the Americas, New York, NY
10020.
A-2
<PAGE> 12
<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION OR
NAME AND BUSINESS EMPLOYMENT AND FIVE-YEAR
ADDRESS OFFICE(S) EMPLOYMENT HISTORY
------------------------------ ------------------------------ -------------------------------
<S> <C> <C>
William E. Curran............. President; Director Chairman, President and
Director of Philips Holding USA
Inc. Senior Vice President and
Chief Financial Officer of
Philips Electronics North
America Corporation since
February 1996. Prior to that
time, Vice President, Chief
Operating Officer and Chief
Financial Officer of Philips
Medical Systems.
Belinda W. Chew............... Vice President; Director Senior Vice President,
Secretary and Director of
Philips Holding USA Inc. Senior
Vice President, Secretary and
General Counsel of Philips
Electronics North America
Corporation since January 1999.
Prior to that time, General
Counsel of Philips Consumer
Communications L.P. Prior to
October 1997, Counsel of
Philips Electronics North
America Corporation.
Paul S. Friedlander........... Vice President Vice President - Tax, Vice
President of Philips Holding
USA Inc.
Martha Lee.................... Vice President Senior Vice President and Chief
Financial Officer, PENAC and
Senior Vice President of
Philips Holding USA Inc. since
March, 2000. Prior to that
time, Senior Vice President and
CFO, APAC Division of Philips
Consumer Communications; Senior
Vice President and CFO,
Wireless Division of Philips
Consumer Communications; Vice
President and CFO, Advance
Transformer Co., a division of
Philips.
Warren T. Oates, Jr........... Secretary Director - Legal Administration
and Assistant Secretary, PENAC
and Assistant Secretary for
Philips Holding USA Inc.
</TABLE>
A-3
<PAGE> 13
SECURITY OWNERSHIP BY CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth, as of November 12, 2000, the number and
percentage of shares of Common Stock beneficially owned (as defined in Rule
13d-3 adopted under the Securities Exchange Act of 1934) by (a) each director,
each of the Chief Executive Officer and the four other most highly compensated
executive officers of ADAC ("Named Executive Officers"), (b) all directors and
executive officers of ADAC as a group, and (c) all persons known to ADAC to own
beneficially more than five percent (5%) of any class of voting securities of
ADAC.
All such persons have sole voting and investment power with respect to all
shares shown as beneficially owned by them, except as otherwise stated in the
following footnotes or as may be shared with a spouse.
<TABLE>
<CAPTION>
BENEFICIAL PERCENT OF
OWNERSHIP OF VOTING
COMMON STOCK(1) SHARES(1)
--------------- ----------
<S> <C> <C>
(a) DIRECTORS, NOMINEES AND CERTAIN EXECUTIVE OFFICERS
Stanley D. Czerwinski....................................... 80,833(2) *
R. Andrew Eckert............................................ 558,466(3) 2.6%
Donald E. Fowler............................................ -- *
Dennis R. Raney............................................. 8,875(4) *
F. David Rollo.............................................. 51,459(5) *
Edmund H. Shea, Jr.......................................... 513,066(6) 2.4%
Bruce M. Blanco............................................. 16,875(6) *
Gerhard F. Burbach.......................................... 205,000(7) *
David Crusell............................................... 40,834(8) *
Ian R. Farmer............................................... 191,599(9) *
Neil J. Laird............................................... 62,699(1) *
All directors and executive officers a group (9 persons).... 1,712,831(11) 8.1%
(b) OTHER PRINCIPAL SHAREHOLDERS
Neuberger Berman LLC
605 Third Avenue
New York, NY 10158........................................ 1,597,050(12) 7.5%
FMR Corp.
82 Devonshire Street
Boston, MA 02109.......................................... 2,890,900(13) 13.7%
</TABLE>
---------------
* Less than one percent (1%).
(1) Based on information furnished by the persons named and shares of
Common Stock outstanding as of , 2000. All references to
options include options that were exercisable on and
within sixty (60) days thereafter.
(2) Includes 57,508 shares issuable upon exercise of options held by Mr.
Czerwinski.
(3) Includes 300,000 shares issuable upon exercise of options and 235,000
shares of restricted stock held by Mr. Eckert.
(4) Includes 6,875 shares issuable upon exercise of options held by Mr. Raney.
(5) Includes 36,458 shares issuable upon exercise of options held by Dr. Rollo.
(6) Includes 31,874 shares issuable upon exercise of options held by Mr. Shea.
Also includes 85,580 shares held by J.F. Shea, Co., Inc. and 11,506 shares
held by Mrs. Shea, as to which Mr. Shea disclaims beneficial interest.
(7) Includes 100,000 shares issuable upon exercise of options and 105,000
shares of restricted stock held by Mr. Burbach.
(8) Includes 38,875 shares issuable upon exercise.
A-4
<PAGE> 14
(9) Includes 125,000 shares issuable upon exercise of options and 65,000 shares
of restricted stock held by Mr. Farmer.
(10) Includes 12,500 shares issuable upon exercise of options and 50,000 shares
of restricted stock held by Mr. Laird.
(11) Includes options to purchase shares of Common Stock held by all
directors and executive officers as a group.
(12) ICM, Asset Management, Inc. has sole voting power over 972,200 shares and
sole dispositive power over 1,597,050.
(13) Wellington Management Company, LLP has shared voted power over 857,300
shares and shared dispositive power over 1,120,600 shares.
[Specify any change of control of ADAC since the beginning of the last
fiscal year]
[Specify any material proceeding in which a director, officer or 5% holder
is adverse to ADAC.]
BOARD OF DIRECTORS
At each annual meeting of shareholders, directors will be selected to serve
until the next succeeding annual meeting and until their successors are elected
and shall have qualified. Biographical information on each director, including
his or her age, follows:
There is no family relationship between any director or executive officer
of ADAC.
Mr. Czerwinski, age 64, was elected a director in November 1991 and served
as Chairman of the Board of ADAC from February 1992 until March 1996. Mr.
Czerwinski previously served as ADAC's Chief Executive Officer, President and
Chief Operating Officer at various times since January 1991. He originally
joined ADAC in May 1986. Mr. Czerwinski is currently serving as a consultant to
ADAC. Prior to joining ADAC, Mr. Czerwinski served for seventeen years in
various management capacities at TRW.
Mr. Eckert, age 39, was elected a director in April 1996 and Chairman of
the Board in April 1999. He has served as Chief Executive Officer of ADAC since
August 1997. From March 1997 until August 1997, Mr. Eckert served as the
President and Chief Operating Officer of ADAC. From November 1994 to March 1997,
he served as President and General Manager of ADAC Medical Systems, and from
February 1992 to November 1994, he served as Executive Vice President and
General Manager of ADAC's nuclear medicine business. Mr. Eckert joined ADAC in
February 1990 and from that date until February 1992 held several other senior
management positions with ADAC. Prior to joining ADAC, Mr. Eckert worked in the
venture capital and investment banking industries with Summit Partners and
Goldman Sachs, respectively.
Mr. Fowler, age 62, was elected a director in March 2000. Mr. Fowler is
currently on the boards of directors of ECCS Inc and TelCom Semiconductor. From
1996 to 1999, he was Chairman, President and Chief Executive Officer of ET
Communications. Prior to this, he served as Chief Executive Officer of World's
Inc. From 1986 to 1996, Mr. Fowler was Senior Vice President, General Manager
and a member of the Executive Committee at Tandem Computers. From 1976 to 1986
he was a managing principal of information technology at Bechtel Group, and
prior to that served in a number of capacities at IBM for 11 years.
Mr. Raney, age 58, was elected a director in March 1999. Mr. Raney is
currently the Senior Vice President and Chief Financial Officer of Novell, Inc.,
a publicly-traded software company, which he joined in March 1998. In the
preceding year, Mr. Raney served as Executive Vice President and Chief Financial
Officer
A-5
<PAGE> 15
of QAD, Inc., a producer of enterprise resource planning software. From May 1996
to February 1997, he served as Executive Vice President and Chief Financial
Officer of California Microwave, Inc., 4 a manufacturer of wireless and
satellite communications equipment and systems; and from December 1995 to May
1996, as Chief Financial Officer of General Magic, Inc., a developer of mobile
computing agents. During the period of October 1993 through December 1995, Mr.
Raney was the Senior Vice President and Chief Financial Officer of the
Pharmaceutical Products Group for Bristol Myers Squibb Company, and prior to
that served in a number of capacities at Hewlett-Packard Company for more than
24 years.
Dr. Rollo, age 61, was elected a director in 1991. In October 1999 Dr.
Rollo joined ADAC and is currently serving as its Chief Medical Officer. From
May 1996 to September 1999, Dr. Rollo was the Senior Vice President of Medical
Affairs and Executive Medical Director of Raytel Medical Corporation, a leading
cardiology services company. From April 1995 to May 1996, Dr. Rollo served as
Senior Vice President of Medical Affairs for HCIA, a healthcare information
company that develops and markets clinical and financial decision support
systems. From October 1992 to April 1995, he served as President and Chief
Executive Officer of MetriCor, Inc., a corporation engaged in medical
technology, quality assurance and health information management consulting
services. From 1984 until October 1992, Dr. Rollo served as Senior Vice
President-Medical Affairs for Humana Inc. Prior to that, he served as Vice
President for Humana from 1980 until 1984. He has held various academic and
administrative positions with Vanderbilt University Medical Center since 1977,
currently serving as Adjunct Professor of Radiology.
Mr. Shea, age 71, was elected a director in 1987. He co-founded, and since
1968 has served as the Executive Vice President and a director of J.F. Shea Co.,
Inc., a diversified construction, land development and venture investments
company. He also serves as a director of Ironstone Group, Inc., a real and
personal property tax appeal company.
(a) DIRECTOR COMPENSATION
During fiscal 1999, each non-employee director other than Mr. Raney and Mr.
Fowler received an option to purchase 3,333 shares of ADAC's Common Stock under
ADAC's Directors' Stock Option Plan, which vests in full on the first
anniversary of the date of grant. In accordance with the terms of the Directors'
Stock Option Plan, Mr. Raney received an option to purchase 20,000 shares of
ADAC's Common Stock under that Plan when he joined the Board of Directors. This
option vests ratably over a four-year period. In addition, each non-employee
director received an annual retainer of $10,000, payable in quarterly
installments, and $2,500 for each Board meeting attended in person and $500 for
each Board meeting attended by telephone.
(b) COMMITTEES OF THE BOARD
The Board of Directors of ADAC held a total of four regular meetings and
nine special meetings during the fiscal year ended October 3, 1999. Each of the
directors attended at least 75% of the aggregate number of meetings of the Board
of Directors and meetings of the committees of the Board on which he served. The
Board of Directors presently has an Audit Committee, a Compensation Committee,
and a Nominating Committee. The members of the Audit Committee are Messrs.
Raney, Shea and Fowler. The members of the Compensation Committee are Messrs.
Raney and Shea, and the members of the Nominating Committee are Messrs. Raney
and Shea.
The Audit Committee, among other things, oversees ADAC's internal controls
and financial reporting, as well as ADAC's compliance with legal and regulatory
matters. The Compensation Committee's responsibilities include setting the
compensation for ADAC's executive officers, approving grants of stock options
and other long-term incentives to employees, and administering ADAC's long-term
incentive plans. The Nominating Committee is responsible for nominating
directors to serve on the Board and the various committees of the Board,
nominating directors to fill vacancies and nominating a director to serve as
Chairman of the Board. The Nominating Committee will consider nominations
recommended by security holders provided that nominations are submitted in
writing to Mr. Eckert, Chairman of the Nominating Committee, no later than
September 30, 2000.
A-6
<PAGE> 16
(c) 1999 BOARD AND COMMITTEE MEETINGS
The Board of Directors of ADAC held a total of four regular meetings and
nine special meetings during the fiscal year ended October 3, 1999. Each of the
directors attended at least 75% of the aggregate number of meetings of the Board
of Directors and meetings of the committees of the Board on which he served. The
Audit Committee met seven times, the Compensation Committee met five times and
the Nominating Committee met once in fiscal 1999.
EXECUTIVE OFFICERS
In addition to Mr. Eckert, who is a director, the names, ages and
experience of the executive officers of ADAC are as follows:
Mr. Gerhard F. Burbach, age 38, currently serves as President of the
Medical Systems division of ADAC. From September 1996, when he joined ADAC,
until September 1998, Mr. Burbach served as Senior Vice President and General
Manager of the Radiation Therapy Products division of ADAC. Prior to joining
ADAC, from 1990 to 1996, Mr. Burbach was a Senior Engagement Manager for
McKinsey & Company, a management consulting firm.
Mr. David Crussell, age 38, currently serves as Senior Vice President,
General Manager of the Radiation Therapy Planning Division of ADAC. From 1994
when he joined ADAC, until 1995 Mr. Crussell served as Manager of Software
Engineering for Nuclear Medicine. From 1995 until 1998, he served as Vice
President of Operations and General Manager of ADAC's Radiology Information
Systems business in Houston, Texas. In 1998 until October 1999, Mr. Crussell
served as ADAC's Vice President of Information System Technology. Prior to
joining ADAC, Mr. Crussell served for eight years in various software
engineering management and project leadership notes for the Nuclear Medicine and
PET division of General Electric Medical Systems.
Mr. Ian R. Farmer, age 51, currently serves as Senior Vice President of
Business Development for ADAC. From 1995 to 1998, he served as Senior Vice
President and General Manager of Nuclear Medicine. From 1993, when he joined
ADAC, until 1995, he served as Vice President of Marketing.
Mr. Neil J. Laird, age 48, has served as ADAC's Senior Vice President and
Chief Financial Officer since September 1999, when he joined ADAC. From March
1999 until September 1999, Mr. Laird served as Vice President and Chief
Operating Officer of Coherent Medical Group, and from 1998 until March 1999 he
served as Vice President of Finance of Coherent Medical Group. From 1980 to
1997, he held various finance positions with Measurex Corporation and was Vice
President and Corporate Controller from 1994 to 1997.
The term of office of each of the above-named executive officers is at the
pleasure of the Board of Directors. To the knowledge of ADAC, there are no
arrangements or understandings between these officers and any other person
pursuant to which any of these officers was elected as an officer.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
The Securities and Exchange Commission's rules under Section 16 of the
Securities Exchange Act of 1934, as amended, require ADAC's officers and
directors, and persons who own more than ten percent (10%) of a registered class
of ADAC's equity securities, to file reports showing their initial stock
ownership and subsequent changes in such ownership with the SEC by specific
dates.
Based solely on its review of the copies of such forms received by it or
written representations from ADAC's appropriate officers and directors, ADAC
believes that, during the 1999 fiscal year, all filing requirements applicable
to its officers and directors were complied with.
A-7
<PAGE> 17
EXECUTIVE COMPENSATION AND BENEFIT PLANS
(d) EXECUTIVE COMPENSATION
The following table sets forth the compensation paid by ADAC to its Chief
Executive Officer and the Named Executive Officers who were serving as executive
officers at the end of the fiscal year ended October 3, 1999.
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION LONG-TERM COMPENSATION
--------------------------------------- ------------------------------------ ------------------------
RESTRICTED ADAC STOCK HCIS STOCK LONG TERM
FISCAL BASE STOCK OPTION OPTION INCENTIVE ALL OTHER
NAME AND CURRENT POSITION YEAR SALARY BONUS OTHER(1) AWARDS AWARDS AWARDS(2) PAYOUTS COMPENSATION
------------------------- ------ -------- -------- -------- ---------- ---------- ---------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
R. Andrew Eckert........ 1999 $500,000 $181,250 -- $220,000 100,000 75,000 -- --
Chief Executive Officer 1998 450,000 240,000 -- 170,000 107,931 -- --
1997 325,000 155,000 -- 100,000 -- -- --
Bruce M. Blanco(3)...... 1999 $157,503 $ 83,946 -- -- 50,000 -- -- --
Vice President, Finance 1998 145,976 45,125 -- -- 27,500 -- -- --
Gerhard F. Burbach(3)... 1999 $225,000 $175,950 -- $181,250 90,000 -- -- --
President, ADAC Medical
Systems 1998 154,000 138,000 -- -- 75,000 -- -- --
Ian R. Farmer(3)........ 1999 $190,000 $156,085 -- $181,250 50,000 15,000 -- --
Senior Vice President, 1998 175,000 109,000 -- -- 55,000 -- -- --
Business Development
Neil J. Laird(4)........ 1999 -- -- -- -- 50,000 -- -- --
Senior Vice President,
Chief Financial Officer
</TABLE>
---------------
(1) Not included in the compensation table are certain perquisites and other
benefits which do not, in the aggregate, exceed the lesser of either $50,000
or 10% of the total annual salary and bonus reported for each named
executive officer.
(2) Represents options granted by ADAC's subsidiary, ADAC Healthcare Information
Systems, Inc. ("HCIS"), under the 1997 HCIS Stock Option Plan.
(3) Messrs. Blanco, Burbach and Farmer became executive officers of ADAC in
fiscal 1998.
(4) Mr. Laird became an executive officer of ADAC at the end of fiscal 1999. Mr.
Laird's base salary and bonus compensation for fiscal 1999 are not disclosed
because they did not exceed $100,000 for that period.
(e) STOCK OPTION TRANSACTIONS IN 1999
The following table sets forth certain information concerning stock option
grants made to certain executive officers during fiscal 1999. No other option
grants were made to the named executive officers during fiscal 1999.
A-8
<PAGE> 18
OPTION/SAR GRANTS IN LAST FISCAL YEAR (1999)
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS(1) POTENTIAL REALIZABLE
----------------------------------------- VALUE AT ASSUMED
NUMBER OF % OF TOTAL ANNUAL RATES OF
SECURITIES OPTIONS STOCK PRICE APPRECIATION
UNDERLYING GRANTED TO PER SHARE FOR OPTION TERM(2)
OPTIONS EMPLOYEES EXERCISE EXPIRATION ------------------------
NAME GRANTED IN FISCAL 1999 PRICE($) DATE 5% 10%
---- ---------- -------------- --------- ---------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
R. Andrew Eckert...... 100,000 5.3 $ 7.25 07-07-09 $455,949 $1,155,463
75,000(3) 12.9(4) 7.13 09-10-09 336,301 852,254
Bruce M. Blanco....... 20,000(5) 1.1 $21.75 01-19-09 $273,569 $ 693,278
10,000(5) .5 13.50 03-15-09 84,901 215,155
20,000(5) 1.1 7.25 07-07-09 91,189 231,093
Gerhard F. Burbach.... 15,000(5) .8 $13.50 03-15-09 $126,351 $ 322,732
75,000 4.0 7.25 07-07-09 341,961 866,597
Ian R. Farmer......... 50,000 2.6 $ 7.25 07-07-09 $227,974 $ 577,732
15,000(3) 2.6(4) 7.13 09-10-09 67,260 170,451
Neil J. Laird......... 50,000 2.6 $ 6.31 09-10-09 $198,416 $ 502,826
</TABLE>
---------------
(1) All option grants, except those described in footnotes (3) and (5) below,
were made by ADAC under ADAC's 1999 Long-Term Incentive Plan.
(2) The 5% and 10% assumed rates of appreciation are mandated by the rules of
the Securities and Exchange Commission and are not an estimate or projection
of future prices or appreciation of ADAC's Common Stock or the actual future
value of these options.
(3) Represents grants by ADAC's subsidiary, HCIS, under the 1997 HCIS Stock
Option Plan.
(4) Represents percentage of total options granted under the 1997 HCIS Stock
Option Plan.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR (1999)
AND YEAR-END OPTION/SAR VALUES
The following table sets forth certain information concerning the exercise
of stock options by ADAC's executive officers during fiscal 1999, the "value
realized", and the number and value of unexpired stock options at October 3,
1999 which such executive officers can exercise or in the future could exercise.
<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED TOTAL VALUE OF UNEXERCISED
STOCK OPTIONS HELD AT IN-THE-MONEY STOCK OPTIONS
SHARES OCTOBER 3, 1999 HELD AT OCTOBER 3, 1999(2)
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
R. Andrew Eckert....... -- -- 292,500 280,379 $ -- $249,298
Bruce M. Blanco........ -- -- 16,875 60,625 -- 45,000
Gerhard F. Burbach..... -- -- 55,000 150,000 -- 168,750
Ian R. Farmer.......... -- -- 85,000 105,000 37,500 112,500
Neil J. Laird.......... -- -- -- 50,000 -- 159,350
</TABLE>
---------------
(1) The "value realized" is calculated by determining the difference between the
fair market value of ADAC Common Stock on the date of exercise of the
options and the exercise price of such options.
(2) The value of unexercised stock options is calculated by determining the
difference between the closing price of ADAC Common Stock on Friday, October
1, 1999, the last trading day of fiscal 1999, as reported on the Nasdaq
Stock Market, of $9.50, and the exercise price of such options.
Change-In-Control Agreements. The Company has entered into Executive
Severance Agreements with Messrs. Eckert, Burbach, Farmer and Laird. These
agreements provide for a severance payment and acceleration of the
exercisability of the executives' stock options upon a "change in control" of
ADAC. A "change in control" is deemed to occur if (a) any "person" or "group"
(as defined in or pursuant to
A-9
<PAGE> 19
Sections 13(d) or 14(d) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act")), becomes the "beneficial owner" (as defined in Rule 13d-3
promulgated under the Exchange Act), directly or indirectly, of securities of
ADAC representing 40% or more of the voting power of the common stock
outstanding which votes generally for the election of directors; (b) as a result
of market or corporate transactions or shareholder action, the individuals who
constitute the Board of Directors of ADAC at the beginning of any period of 12
consecutive months (but commencing not earlier than July 1, 1995), plus any new
directors whose election or nomination was approved by a vote of at least
two-thirds of the directors still in office who were directors at the beginning
of such period of 12 consecutive months, cease for any reason during such period
of 12 consecutive months to constitute at least two-thirds of the members of
such Board; or (c) ADAC sells, through merger, assignment or otherwise, in one
or more transactions other than in the ordinary course of business, assets which
provided at least 2/3 of the revenues or pre-tax net income of ADAC and its
subsidiaries on a consolidated basis during the most recently-completed fiscal
year.
Notwithstanding the foregoing, the following events do not constitute a
change in control: any acquisition of beneficial ownership pursuant to (a) a
reclassification, however effected, of ADAC's authorized common stock, (b) a
corporate reorganization involving ADAC or any of its subsidiaries which does
not result in a material change in the ultimate ownership by the shareholders of
ADAC (through their ownership of ADAC or its successor resulting from the
reorganization) of the assets of ADAC and its subsidiaries, but only if such
reclassification or reorganization has been approved by ADAC's Board of
Directors or (c) a spin-off by ADAC of all or any portion of the ownership of
any subsidiary whereby ADAC's shareholders become shareholders of the
subsidiary.
If a change in control of ADAC occurs, each executive will be entitled to a
severance payment equal to 2.99 times the average annual compensation received
by each such executive, including base salary, bonuses and other incentive
compensation and stock option gains during the sixty-month period ending
immediately preceding the calendar year in which the change in control occurs.
Such severance payment will not be immediately paid if not later than ten days
prior to the change in control, the executive is offered employment by ADAC or
its successor corporation on similar terms to those then applicable to the
executive as an officer of ADAC and, in such event, the severance payment would
be paid to the executive twelve months following the change in control, but only
if (i) the executive accepts such comparable employment with ADAC and (ii) the
executive is not, during such twelve-month period, terminated for cause. Such a
change in control of ADAC will also cause all stock options held by the
executive to become immediately exercisable. In the event that the executive (i)
purchases the shares subject to the accelerated stock options, (ii) sells the
shares so purchased and (iii) is offered comparable employment by ADAC or its
successor, the executive must deposit in escrow with ADAC an amount equal to 50%
of the difference between his sales proceeds received from the sold shares and
his option exercise price. These escrowed funds will be released to the
executive from the escrow account if the executive has accepted the comparable
employment offer and is not terminated for cause for twelve months after the
change in control. If the executive does not accept such comparable employment
from ADAC or its successor or is terminated for cause during such twelve-month
period, then the escrowed funds are released to ADAC.
COMPENSATION AND MANAGEMENT COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
As noted above, the members of ADAC's Compensation Committee are Messrs.
Raney and Shea.
REPORT OF THE COMPENSATION COMMITTEE ON
ANNUAL COMPENSATION OF EXECUTIVE OFFICERS
The Compensation Committee of the Board of Directors (the "Committee")
determines the level of compensation for ADAC's chief executive officer and its
other executive officers. The Committee determines the base salary and bonus
compensation, and also makes recommendations for the grants of incentive
compensation under ADAC's incentive plans.
A-10
<PAGE> 20
The goals of ADAC's compensation program are to structure incentive-based
compensation that is closely tied to ADAC's performance and long-term
objectives, and to attract, retain and reward qualified executives who
contribute to ADAC's success.
The primary components of ADAC's compensation package are base salary,
bonuses and incentive compensation.
Base Salary. Base salaries of executive officers are determined based upon
their level of responsibility, qualifications, level of experience, and
individual performance. The Company uses outside consultants to review salary
ranges for each executive officer against independent compensation analyses of
salaries paid to executive officers in similar positions at comparable
companies. Base salary levels are also designed to be competitive with the
marketplace.
Bonus Compensation. The Company's bonus plan provides for cash bonuses
based on the accomplishment of individual performance goals, company-wide profit
targets and strategic objectives. The objectives are designed to further ADAC's
financial and operating performance, implement its strategic business plan,
develop new products and maintain and increase market share. Generally, the
goals are set at the beginning of the fiscal year based on ADAC's long-term and
short-term objectives, and accomplishment of these goals is assessed quarterly
and annually. Bonuses range from 0% to 100% of base salary. To be awarded the
maximum bonus, the officer must accomplish most or all of the individual
objectives and ADAC must achieve its financial objectives for the fiscal year.
Long-Term Incentive Compensation. The Committee uses grants of stock
options and restricted stock to supplement executive officers' base salary and
bonus compensation. These grants provide long-term incentives for the
achievement of ADAC's strategic objectives and financial and operating goals,
and align the executives' interests with those of ADAC's shareholders. The
Committee also makes these grants in order to retain and attract high-quality
employees in the competitive job market of the Silicon Valley. The incentive
program utilizes a vesting schedule to encourage executive officers to maintain
a long-term perspective. The sizes of grants are based on the officers' level of
responsibility, satisfaction of individual performance objectives, and ADAC's
performance.
Compensation of the Chief Executive Officer. Mr. R. Andrew Eckert has been
ADAC's Chief Executive Officer since 1997. Mr. Eckert's overall compensation in
fiscal 1999 was based on ADAC's performance, Mr. Eckert's achievement of
specified goals, and upon a compensation study of peer organizations conducted
by an independent compensation consulting firm. Mr. Eckert's base salary for
fiscal 1999 was $500,000. He was also eligible to receive a bonus of up to
$300,000. Of this amount, up to $120,000 was payable quarterly based on ADAC's
financial results, and up to $180,000 was payable at year-end based on Mr.
Eckert's achievement of specified operating and strategic goals, including
management development and pursuit of growth opportunities in certain business
segments. Based on his level of achievement of these goals, ADAC awarded Mr.
Eckert a bonus of $131,250. In addition, ADAC awarded Mr. Eckert a discretionary
bonus of $50,000 for his achievement of certain additional objectives, including
maintaining ADAC's business momentum and improving ADAC's infrastructure and
internal controls. Mr. Eckert also received long-term incentive compensation
consisting of 100,000 shares of restricted stock, and stock options for a total
of 100,000 shares of Common Stock of ADAC and 75,000 shares of common stock of
ADAC Healthcare Information Systems, Inc. in accordance with the Committee's
philosophy set forth above under "Long-Term Incentive Compensation."
This report on executive compensation has been furnished by the following
members of the Compensation Committee of ADAC's Board of Directors:
Dennis R. Raney
Edmund H. Shea, Jr.
The foregoing Report on Executive Compensation shall not be deemed to be
incorporated by reference by any general statement incorporating by reference
this Information Statement into any filing under the Securities Act of 1933, as
amended, or the Securities Exchange Act of 1934, as amended, except to the
extent that ADAC specifically incorporates this information by reference, and
shall not otherwise be deemed filed under such Acts.
A-11
<PAGE> 21
PERFORMANCE GRAPH
The following graph sets forth ADAC's total cumulative shareholder return
as compared to the NASDAQ Stock Market (U.S.) Index and the Standard and Poor's
Health Care (Medical Products and Supplies) Index for the period September 30,
1994 through September 30, 1999. Total shareholder return assumes $100 invested
at the beginning of the period in ADAC's Common Stock, the stocks represented in
the NASDAQ Stock Market (U.S.) Index and the stocks represented in the Standard
and Poor's Health Care (Medical Products and Supplies) Index, in each case on a
"total return" basis assuming reinvestment of dividends.
<TABLE>
<CAPTION>
NASDAQ STOCK MARKET S & P HEALTH CARE MEDICAL
ADAC LABORATORIES (U.S.) PRODUCTS & SUPPLIES)
----------------- ------------------- -------------------------
<S> <C> <C> <C>
9/94 100.00 100.00 100.00
9/95 150.63 138.07 161.54
9/96 259.91 163.85 194.19
9/97 241.34 224.97 240.16
9/98 309.95 228.78 289.74
9/99 126.72 371.62 324.00
</TABLE>
A-12
<PAGE> 22
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Dr. David Rollow, a director of ADAC, also serves as a consultant to ADAC
at a rate of $15,000 per month.
A-13
<PAGE> 23
ANNEX B
LOGO
BEAR, STEARNS & CO. INC.
245 PARK AVENUE
NEW YORK, NEW YORK 10167
TEL: (212) 272-2000
ATLANTA -- BOSTON
CHICAGO -- DALLAS -- LOS ANGELES
NEW YORK -- SAN FRANCISCO
SAO PAULO -- LONDON -- PARIS -- GENEVA
BEIJING -- HONG KONG -- SHANGHAI -- TOKYO
November 12, 2000
The Board of Directors
ADAC Laboratories
540 Alder Drive
Milpitas, California 95035
Gentlemen:
We understand that ADAC Laboratories ("ADAC"), Philips Holding USA Inc.
("Philips") and Academy Acquisition Company, a wholly-owned subsidiary of
Philips ("Merger Sub") have entered into an Agreement and Plan of Merger (the
"Agreement") dated November 12, 2000, pursuant to which Merger Sub will make a
cash tender offer (the "Offer") to acquire all of the outstanding common stock
of ADAC at a purchase price per share of $18.50 in cash (the "Purchase Price").
The Offer will be followed by a merger of Merger Sub with and into ADAC (the
"Merger"), in which the remaining shares will be purchased for the Purchase
Price (the Offer and the Merger are collectively referred to herein as the
"Transaction"). You have provided us with a copy of the proposed Agreement in
substantially final form.
You have asked us to render our opinion as to whether the Purchase Price is
fair, from a financial point of view, to the shareholders of ADAC.
In the course of performing our review and analyses for rendering this
opinion, we have:
- reviewed a draft of the Agreement in substantially final form;
- reviewed ADAC's Annual Reports to Shareholders and Annual Reports on Form
10-K for the fiscal years ended September 30, 1997 through 1999, its
Quarterly Report on Form 10-Q for the period ended July 2, 2000 and its
Reports on Form 8-K for the three years ended November 10, 2000;
- reviewed certain operating and financial information, including
projections, provided to us by management relating to ADAC's business and
prospects;
- met with certain members of ADAC's senior management to discuss ADAC's
business, operations, historical and projected financial results and
future prospects;
- reviewed the historical prices, trading multiples and trading volume of
the common shares of ADAC;
- reviewed publicly available financial data, stock market performance data
and trading multiples of companies which we deemed generally comparable
to ADAC;
- reviewed the terms of recent mergers and acquisitions involving companies
which we deemed generally comparable to ADAC;
- performed discounted cash flow analyses based on the projections for ADAC
furnished to us; and
- conducted such other studies, analyses, inquiries and investigations as
we deemed appropriate.
B-1
<PAGE> 24
We have relied upon and assumed, without independent verification, the
accuracy and completeness of the financial and other information, including
without limitation the projections, provided to us by ADAC. With respect to
ADAC's projected financial results, we have assumed that they have been
reasonably prepared on bases reflecting the best currently available estimates
and judgments of the senior management of ADAC as to the expected future
performance of ADAC. We have not assumed any responsibility for the independent
verification of any such information or of the projections provided to us, and
we have further relied upon the assurances of the senior managements of ADAC
that they are unaware of any facts that would make the information and
projections provided to us incomplete or misleading.
In arriving at our opinion, we have not performed or obtained any
independent appraisal of the assets or liabilities (contingent or otherwise) of
ADAC, nor have we been furnished with any such appraisals. During the course of
our engagement, we were asked by the Board of Directors to solicit indications
of interest from various third parties regarding a transaction with ADAC, and we
have considered the results of such solicitation in rendering our opinion. We
have assumed that the Transaction will be consummated in a timely manner and in
accordance with the terms of the Agreement without any regulatory limitations,
restrictions, conditions, amendments or modifications that collectively would
have a material effect on ADAC.
We have acted as a financial advisor to ADAC in connection with the
Transaction and will receive a customary fee for such services, a substantial
portion of which is contingent on successful consummation of the Transaction.
Bear Stearns has been previously engaged by ADAC to provide certain investment
banking and financial advisory services for which we received customary fees. In
the ordinary course of business, Bear Stearns may actively trade the equity and
debt securities of ADAC for our own account and for the account of our customers
and, accordingly, may at any time hold a long or short position in such
securities.
It is understood that this letter is intended for the benefit and use of
the Board of Directors of ADAC and does not constitute a recommendation to the
Board of Directors of ADAC or any holders of ADAC common stock as to how to vote
in connection with the Transaction or whether to tender their shares in the
Offer. This opinion does not address ADAC's underlying business decision to
pursue the Transaction, the relative merits of the Transaction as compared to
any alternative business strategies that might exist for ADAC or the effects of
any other transaction in which ADAC might engage. This letter is not to be used
for any other purpose, or be reproduced, disseminated, quoted from or referred
to at any time, in whole or in part, without our prior written consent;
provided, however, that this letter may be included in its entirety in any offer
to purchase and/or any proxy statement to be distributed to the holders of ADAC
common stock in connection with the Offer or Merger, as the case may be. Our
opinion is subject to the assumptions and conditions contained herein and is
necessarily based on economic, market and other conditions, and the information
made available to us, as of the date hereof. We assume no responsibility for
updating or revising our opinion based on circumstances or events occurring
after the date hereof.
Based on and subject to the foregoing, it is our opinion that, as of the
date hereof, the Purchase Price is fair, from a financial point of view, to the
shareholders of ADAC.
Very truly yours,
BEAR, STEARNS & CO. INC.
By:
------------------------------------
Senior Managing Director
B-2
