-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, D13DRkiLrA1ZOGh9X5ufxoNq/oHNyFuZR8PpOUKOWc4PYVwF3+Hbwg+U3szFe+i5 pf+DEMs91WCGNgTQ7a+cbg== 0000891618-97-000091.txt : 19970120 0000891618-97-000091.hdr.sgml : 19970120 ACCESSION NUMBER: 0000891618-97-000091 CONFORMED SUBMISSION TYPE: PRE 14A PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19970306 FILED AS OF DATE: 19970117 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: ADAC LABORATORIES CENTRAL INDEX KEY: 0000313798 STANDARD INDUSTRIAL CLASSIFICATION: X-RAY APPARATUS & TUBES & RELATED IRRADIATION APPARATUS [3844] IRS NUMBER: 941725806 STATE OF INCORPORATION: CA FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: PRE 14A SEC ACT: 1934 Act SEC FILE NUMBER: 000-09428 FILM NUMBER: 97507572 BUSINESS ADDRESS: STREET 1: 540 ALDER DR CITY: MILPITAS STATE: CA ZIP: 95035 BUSINESS PHONE: 4083219100 MAIL ADDRESS: STREET 1: 540 ALDER DR CITY: MILPITAS STATE: CA ZIP: 95035 PRE 14A 1 PRELIMINARY NOTICE AND PROXY STATEMENT 1 SCHEDULE 14A INFORMATION PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES EXCHANGE ACT OF 1934 (AMENDMENT NO. ) Filed by the Registrant [X] Filed by a Party other than the Registrant [ ] Check the appropriate box: [X] Preliminary Proxy Statement [ ] Definitive Proxy Statement [ ] Definitive Additional Materials ADAC Laboratories - -------------------------------------------------------------------------------- (Name of Registrant as Specified In Its Charter) - -------------------------------------------------------------------------------- (Name of Person(s) Filing Proxy Statement, if other than the Registrant) Payment of Filing Fee (Check the appropriate box): [X] No fee required. [ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. (1) Title of each class of securities to which transaction applies: (2) Aggregate number of securities to which transaction applies: (3) Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is calculated and state how it was determined): (4) Proposed maximum aggregate value of transaction: (5) Total fee paid: [ ] Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. (1) Amount Previously Paid: (2) Form, Schedule or Registration Statement No.: (3) Filing Party: (4) Date Filed: [ ] Soliciting Material Pursuant to sec.240.14a-11(c) or sec.240.14a-12 [ ] Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) 2 ADAC LABORATORIES ------------------------ NOTICE OF ANNUAL MEETING OF SHAREHOLDERS MARCH 6, 1997 ------------------------ TO THE SHAREHOLDERS OF ADAC LABORATORIES: The Annual Meeting of Shareholders of ADAC Laboratories, a California corporation (the "Company"), will be held at the offices of the Company, located at 540 Alder Drive, Milpitas, California 95035, on Thursday, March 6, 1997, at 1:00 p.m., local time, for the following purposes: (1) To elect members of the Board of Directors; (2) To approve an amendment to the Company's 1992 Stock Option Plan to increase the number of shares authorized thereunder by 712,000 shares; (3) To approve an amendment to the Company's Employee Stock Purchase Plan (1994) to increase the number of shares authorized thereunder by 85,000 shares; (4) To approve an amendment to the Company's Directors' Stock Option Plan (1987) to increase the number of shares authorized thereunder by 56,665 shares; (5) To approve the amendment and restatement of the Company's Articles of Incorporation to delete therefrom the provisions setting forth the maximum and minimum number of directors that may serve on the Company's board; (6) To approve amendments to the Company's Bylaws, including an increase in the maximum and minimum number of directors that may serve on the Company's board; and (7) To transact such other business as may properly come before the meeting or any adjournment thereof. The Board of Directors has fixed the close of business on January 10, 1997 as the record date for the determination of shareholders entitled to vote at the Annual Meeting. A copy of the Company's Annual Report to Shareholders, including financial statements for the fiscal year ended September 29, 1996, is being sent to all shareholders as of the record date concurrently with the mailing of this Proxy Statement. Whether or not you expect to attend the Annual Meeting in person, please date, sign and mail the enclosed Proxy in the envelope provided as promptly as possible. The Proxy is revocable and will not affect your right to vote in person in the event you attend the Meeting. By Order of the Board of Directors David L. Lowe, Chairman of the Board Milpitas, California February , 1997 3 ADAC LABORATORIES 540 ALDER DRIVE MILPITAS, CALIFORNIA 95035 ------------------------------- PROXY STATEMENT ------------------------------- INFORMATION CONCERNING SOLICITATION AND VOTING GENERAL The enclosed Proxy is solicited on behalf of ADAC Laboratories, a California corporation (the "Company"), for use at the Annual Meeting of Shareholders to be held on March 6, 1997, at 1:00 p.m., local time, or at any adjournment or postponement thereof, for the purposes set forth herein and in the accompanying Notice of Annual Meeting of Shareholders. The Annual Meeting will be held at the offices of the Company, located at 540 Alder Drive, Milpitas, California 95035. This Proxy Statement and the accompanying proxy card are being mailed to all shareholders on or about February , 1997. Whether or not you plan to attend the Annual Meeting in person, please date, sign and return the enclosed Proxy as promptly as possible, in the postage prepaid envelope provided, to insure that your shares will be voted at the Annual Meeting. Any shareholder who returns a proxy in such form has the power to revoke it at any time prior to its effective use by filing an instrument revoking it or a duly executed proxy bearing a later date with the Secretary of the Company or by attending the Annual Meeting and voting in person. Any such proxy, if not revoked, will be voted at the Annual Meeting in accordance with the instructions specified therein. RECORD DATE AND SHARE OWNERSHIP Shareholders of record at the close of business on January 10, 1997 are entitled to notice of and to vote at the meeting. At the record date, there were issued and outstanding 18,068,168 shares of Common Stock, each entitled to one vote. The following table sets forth, as of December 2, 1996, the number and percentage of shares of Common Stock beneficially owned (as defined in Rule 13d-3 adopted under the Securities Exchange Act of 1934) by (a) each nominee for director, each existing director, all executive officers listed in the compensation disclosure table and all directors and executive officers of the Company as a group, and (b) all persons known to the Company to own beneficially more than five percent (5%) of any class of voting securities of the Company. All such persons have sole voting and investment power with respect to all shares shown as beneficially owned by them, except as otherwise stated in the following footnotes.
BENEFICIAL (A) DIRECTORS, NOMINEES AND CERTAIN OWNERSHIP PERCENT OF EXECUTIVE OFFICERS OF COMMON STOCK(1) VOTING SHARES(1) - ---------------------------------------- ------------------ ---------------- Stanley D. Czerwinski 82,725(2) * R. Andrew Eckert 84,753(3) * Graham O. King 9,000(4) * David L. Lowe 89,233(5) * Robert L. Miller 52,499(6) * F. David Rollo 30,000(7) * Edmund H. Shea, Jr. 491,190(8) 2.8%
1 4 (Continued)
BENEFICIAL (A) DIRECTORS, NOMINEES AND CERTAIN OWNERSHIP PERCENT OF EXECUTIVE OFFICERS OF COMMON STOCK(1) VOTING SHARES(1) - ---------------------------------------- ------------------ ---------------- Mark L. Lamp 83,300(9) * P. Andre Simone -- -- Peter C. Vermeeren 18,750(10) * All Directors and Executive Officers as a group (11 persons) 941,450(11) 5.3%
BENEFICIAL OWNERSHIP PERCENT OF (B) OTHER PRINCIPAL SHAREHOLDERS OF COMMON STOCK VOTING SHARES - ---------------------------------------- ------------------ ---------------- CREF 1,395,533 7.8% 730 Third Avenue New York, New York 10017
- ------------ * Less than one percent (1%). (1) Based on information furnished by the persons named and 17,853,734 shares of Common Stock outstanding as of December 2, 1996. All references to options include options that were exercisable on December 2, 1996 and within sixty (60) days thereafter. (2) Includes 17,500 shares issuable upon exercise of options held by Mr. Czerwinski. (3) Includes 84,166 shares issuable upon exercise of options held by Mr. Eckert. (4) Includes 7,500 shares issuable upon exercise of options held by Mr. King. (5) Includes 88,833 shares issuable upon exercise of options held by Mr. Lowe. (6) Includes 32,499 shares issuable upon exercise of options held by Mr. Miller. (7) Includes 23,333 shares issuable upon exercise of options held by Dr. Rollo. (8) Includes 23,333 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. (9) Includes 82,500 shares issuable upon exercise of options held by Mr. Lamp. (10) Includes 18,750 shares issuable upon exercise of options held by Mr. Vermeeren. (11) Includes options to purchase 378,414 shares of Common Stock held by all directors and executive officers as a group. VOTING AND SOLICITATION The required quorum for the meeting is a majority of the outstanding shares of Common Stock eligible to be voted on the matters to be considered at the meeting. In the election of directors, the candidates receiving the highest number of affirmative votes cast in person or by proxy at the meeting up to the number of directors to be elected will be elected to office. The affirmative vote of a majority of the shares represented and voting in person or by proxy at the meeting (which affirmative votes constitute a majority of the required quorum) is required for approval of the amendment to the 1992 Stock Option Plan (Proposal 2), the amendment to the Employee Stock Purchase Plan (1994) (Proposal 3), and the amendment to the Directors' Stock Option Plan (1987) (Proposal 4). The affirmative vote of a majority of the outstanding shares of Common Stock eligible to be voted at the meeting is required for approval of the amendment and restatement of the Company's Articles of Incorporation (Proposal 5) and the amendments to the Bylaws (Proposal 6). When your proxy is returned properly signed, the shares represented will be voted in accordance with your directions. Where specific choices are not indicated, proxies will be voted for Proposals 1 through 6. If a properly signed proxy or ballot indicates that a stockholder, broker or other nominee abstains from voting or that the shares are not to be voted on a particular proposal, the shares will not be counted as having been voted on that proposal, although such shares will be counted as being in attendance at the meeting for purposes of 2 5 determining the presence of a quorum. Abstentions will not be reflected in a final tally of the votes cast for the election of directors (Proposal 1). For purposes of determining whether the proposed amendment and restatement of the Articles of Incorporation (Proposal 5) and the proposed amendments to the Bylaws (Proposal 6) are approved under California law and the Bylaws of the Company, abstentions and broker non-votes will have the effect of a negative vote because those proposals require the approval of an absolute majority of the outstanding shares entitled to vote at the meeting. Every shareholder voting in the election of directors may cumulate such shareholder's votes and give one candidate a number of votes equal to the number of directors to be elected multiplied by the number of shares of Common Stock which such shareholder is entitled to vote, or may distribute the shareholder's votes on the same principle among as many candidates as the shareholder chooses, provided that votes cannot be cast for more than the number of candidates to be elected. However, no shareholder shall be entitled to cumulate its votes unless the candidate's name has been placed in nomination prior to the voting and the shareholder, or any other shareholder, has given notice at the meeting prior to the voting of such shareholder's intention to cumulate such shareholder's votes. On all other matters, as explained above, each share of Common Stock has one vote. The cost of soliciting proxies will be borne by the Company. The Company may reimburse brokerage firms and other persons representing beneficial owners of shares for their expenses in forwarding solicitation material to such beneficial owners, estimated at $20,000. The Company has retained Skinner & Co., a professional proxy solicitor, to assist in the solicitation of proxies and to arrange for dissemination of proxy materials. The agreement with Skinner & Co. provides that the fee payable for such services will amount to $3,500; such fee does not include expenses. Proxies may be solicited by the Company's directors, officers or other employees, without additional compensation, personally or by telephone, telegram or facsimile. (1) ELECTION OF DIRECTORS GENERAL Presently the Company's Bylaws authorize seven members to serve on the Board of Directors. All of the seven persons presently serving as directors, Messrs. Czerwinski, Eckert, King, Lowe, Miller, Shea and Rollo, are proposed for election as directors. The proxy holders will be voting for all seven nominees. In the event that any nominee is unable or declines to serve as a director at the time of the Annual Meeting, the proxies may be voted for a nominee designated by the present Board of Directors to fill the vacancy. In the event that additional persons are nominated for election as directors, the proxy holders intend to vote all proxies received by them in such a manner in accordance with cumulative voting as will assure the election of as many of the nominees listed below as possible, and, in such event, the specific nominees to be voted for will be determined by the proxy holders. The Company is not aware of any nominee who will be unable or will decline to serve as a director. Directors are elected annually by the shareholders, and the term of office of each person elected as a director will continue until the next Annual Meeting of Shareholders or until his successor has been elected and qualified. 3 6 NOMINEES The names of the nominees, and certain information about them, are set forth below:
DIRECTOR NOMINEE AND AGE PRINCIPAL OCCUPATION SINCE -------- Stanley D. Czerwinski (61) Consultant 1991 R. Andrew Eckert (35) President and General Manager, ADAC 1996 Medical Systems Graham O. King (56) Chairman of the Board and Chief Executive 1995 Officer of US Servis, Inc. David L. Lowe (36) Chairman of the Board and Chief Executive 1992 Officer of the Company Robert L. Miller (44) Attorney at Law and Consultant 1990 F. David Rollo (57) Senior Vice-President of Medical Affairs 1991 and Executive Medical Director of Raytel Medical Corporation Edmund H. Shea, Jr. (67) Executive Vice-President and a director of 1987 J.F. Shea Co., Inc.
Except as set forth below, each of the nominees has been engaged in his principal occupation set forth above during the past five years. There is no family relationship between any director or executive officer of the Company. Mr. Czerwinski was elected a director in November 1991 and served as Chairman of the Board of the Company from February 1992 until March 1996. Mr. Czerwinski previously served as the Company's Chief Executive Officer, President and Chief Operating Officer at various times since January 1991. He originally joined the Company in May 1986. Mr. Czerwinski is currently serving as a consultant to the Company. Prior to joining the Company, Mr. Czerwinski served for seventeen years in various management capacities at TRW, including Director of Sales and Marketing for the Electronics Components Group, and General Manager of the Semiconductor Division. Mr. Eckert was elected a director in April 1996, and has served as President and General Manager of ADAC Medical Systems since November 1994. From February 1992 to November 1994, he served as Executive Vice-President and General Manager of the Company. Mr. Eckert joined the Company in February 1990 and from that date until February 1992 held several other senior management positions with the Company. Prior to joining the Company, Mr. Eckert worked in the venture capital and investment banking industries with Summit Partners and Goldman Sachs, respectively. Mr. King was appointed a director in June 1995. Mr. King is currently the Chairman and Chief Executive Officer of US Servis, Inc., a healthcare management services company. From 1986 to 1993, Mr. King was with Shared Medical Systems, a company specializing in hospital information systems, most recently serving as its President from 1988. Previously, Mr. King served as President of Daseke and Company from 1983 to 1986 and as President and Chief Executive Officer of Auto-Troll Technology, a computer-aided design software company, from 1979 to 1982. Mr. King also held various management level positions with IBM from 1965 to 1979. Mr. King currently serves as a director of Optika Imaging Systems, Inc., a leading provider of client/server, integrated imaging systems and development tools. Mr. Lowe was elected a director of the Company in August 1992 and Chairman of the Board in March 1996. He has served as Chief Executive Officer of the Company since November 1994. From March 1994 until November 1994, Mr. Lowe served as Co-Chief Executive Officer and from February 1992 until November 1994 as President. He joined the Company in April 1988 and from that time until February 1992 served in a variety of senior management positions, including Chief Operating Officer. Prior to joining the Company, Mr. Lowe held management and consulting positions with several firms or companies providing services to or engaged in high-technology industries, including Bain & Company and Cygnet Systems, Inc. Mr. Lowe currently serves as a director of Vivra Incorporated, a leading provider of specialty healthcare 4 7 services including kidney dialysis, diabetes management and physician practice management, and Mecon, Inc., a provider of benchmark data and information products and consulting services in the health care industry. Mr. Miller was elected a director in 1990. Mr. Miller serves as counsel to a number of corporations and served as general counsel to the Company from 1986 to 1996. Mr. Miller is currently serving as a consultant to the Company. Mr. Miller previously served as general counsel and as a director of Read-Rite Corporation, a component manufacturer in the disk drive industry, from 1988 to 1993. Mr. Miller has also served as general counsel and as a director of other companies providing services to or engaged in high-technology industries. Dr. Rollo was elected a director in 1991 and is currently 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. 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 is a co-founder and has been, since 1968, Executive Vice-President and a director of J.F. Shea Co., Inc., a diversified construction, land development and venture investments company. He was elected a director of Hambrecht & Quist Group in November 1986 and serves as a director of Vanguard Airlines and Ironstone Group, Inc. BOARD MEETINGS, COMMITTEES AND DIRECTORS' COMPENSATION The Board of Directors of the Company held a total of four regular meetings and five special meetings during the fiscal year ended September 29, 1996. 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, a Stock Option Committee and a Governance Committee. The Audit Committee and the Compensation Committee each held one meeting and the Stock Option Committee held three meetings during fiscal 1996. The Governance Committee did not meet during the last fiscal year. The Stock Option Committee presently consists of Messrs. Rollo and Shea. The Compensation Committee presently consists of Messrs. Czerwinski, King and Shea. The Governance Committee presently consists of Messrs. Czerwinski, King and Lowe. The Audit Committee presently consists of Messrs. Czerwinski, Miller and Rollo. During fiscal 1996, non-employee directors received options to purchase 20,000 shares of the Company's Common Stock under the Company's Directors' Stock Option Plan, subject to specified vesting schedules. In addition, during fiscal 1996, 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. Dr. Rollo also received a $2,500 consulting fee for certain services provided to the Company in fiscal 1996. See "Certain Transactions". REPORT OF THE COMPENSATION COMMITTEE ON ANNUAL COMPENSATION OF EXECUTIVE OFFICERS Executive Compensation Components. The Compensation Committee of the Board of Directors is responsible for evaluating and establishing the level of executive compensation. It is the present philosophy of the Compensation Committee and the Company that to achieve continual growth and financial success, the Company must be able to attract and retain qualified executives and must structure incentive-based compensation which is closely tied to the Company's financial performance and operations. 5 8 In fiscal 1996 and in prior years, most executive officers and other executive-level employees participated in a management incentive program, which makes overall executive compensation dependent upon both the accomplishment of individual tasks and objectives, as well as Company-wide performance. Under the management incentive program, the objectives assigned to individual executives are intended to further the Company's financial and operating performance, implement its strategic business plan, develop new products and maintain and increase market share. The objectives may also include subjective criteria such as leadership ability, innovation, insuring compliance with Company policies, enhancing customer satisfaction and furthering the Company's strategy. Company-wide objectives, which include the accomplishment of targeted levels of revenues and net earnings, can also be a component of the management incentive program. In order for an executive to achieve his or her maximum bonus under such Program, he or she must accomplish most or all of the individual objectives and the Company must achieve its targeted level of revenue and earnings for a particular fiscal year. The Compensation Committee monitors the effectiveness and appropriateness of all of the Company's executive Compensation programs, approves the base salaries of the executive officers and, at its discretion, awards bonuses under the Company's management incentive program and makes recommendations concerning the grant of stock options under the Company's stock option plans. Base Salary. In determining the compensation of an executive officer, a base salary is determined based upon the executive's level of responsibility, the qualifications and experience required and the need to provide, together with incentive bonuses and stock options, competitive compensation. Salary increases are based upon periodic re-evaluations of these factors and the performance of the executive in meeting individually-assigned objectives. Bonus Compensation. Under the management incentive program in effect in fiscal 1996, the Compensation Committee sets objectives for each participant and establishes the bonuses that may be earned, based upon the achievement of those individual objectives and the Company's overall financial performance. In order for any portion of the bonus to be earned, the executive must achieve at least some of these objectives. Objectives may also be related to the participant's operating unit. The Compensation Committee may grant bonuses of between 0% and 100% of base salary, based upon the performance of each participant's individually-assigned objectives for the year, the Company's financial performance and the executive's level of responsibility. Stock Options. Stock option grants are intended to supplement an executive's base salary by providing long-term incentives for the achievement of the Company's strategic business plan and financial and operational goals and to align management's interests with those of the Company's shareholders. The size of any stock option grant is related to the individual's level of responsibility within the Company. Stock options are also granted to retain and attract key employees in the very competitive job market of the Silicon Valley in which the Company is located. CEO Compensation. Mr. David L. Lowe served as the Company's Chief Executive Officer during all of fiscal 1996, and also served as Chairman of the Board of the Company for the second half of fiscal 1996. Mr. Lowe's general compensation program was established during fiscal 1993 as a result of a compensation study of peer organizations conducted in that year by an independent compensation consulting firm which study is updated each year. Mr. Lowe's annual base salary for fiscal 1996 was $400,000 and he was eligible to receive a bonus of up to 50% of his base salary based upon quarterly and annual operating results and the accomplishment of certain goals. Of the maximum bonus for fiscal 1996 of $200,000, Mr. Lowe could be awarded an aggregate of $120,000 on the basis of the satisfaction of certain financial and operating goals, including revenues, earnings per share and bookings targets, progress in clinical trials and the results of the Company's product development and engineering efforts. On the basis of the Company's achievement of all of these goals in fiscal 1996, Mr. Lowe was awarded a bonus of $120,000. The remaining $80,000 of the total potential bonus could be earned on the basis of the accomplishment of certain other objective and subjective criteria. The objective criteria related to expanding the Company's 6 9 addressable markets through acquisitions and internal investment. The subjective criteria related to the development of Company systems and culture with a view towards better integrating human resource development plans and programs throughout the Company's operations and providing the Company with a sustainable competitive advantage. These criteria include leadership, long-term planning, product quality, innovation, employee satisfaction and customer satisfaction. On the basis of the Company's achievements in these areas, Mr. Lowe was awarded a bonus of $80,000. In addition, in light of all of the Company's outstanding achievements in fiscal 1996, including receipt of the Malcolm Baldrige National Quality Award, the doubling of the value of the Company's Common Stock over the year, the improved gross margins in the Company's Medical Systems business and the results of certain other key strategic initiatives, the Board of Directors awarded Mr. Lowe a one-time, additional bonus of $50,000. This Report on Executive Compensation has been furnished by the following members of the Compensation Committee of the Company's Board of Directors: Stanley D. Czerwinski Graham O. King Edmund H. Shea, Jr. Mr. Czerwinski did not participate in any decisions with respect to his own compensation while he served as Chairman of the Board of the Company. The Report on Executive Compensation shall not be deemed to be incorporated by reference by any general statement incorporating by reference this Proxy Statement into any filing under the Securities Act of 1933, as amended (the "Securities Act"), or under the Exchange Act, except to the extent that the Company specifically incorporates this information by reference, and shall not otherwise be deemed filed under such Acts. Compensation Committee Interlocks and Insider Participation. As noted above, the members of the Company's Compensation Committee are Messrs. Czerwinski, King and Shea. Mr. Czerwinski served as Chairman of the Board of Directors of the Company until March 1996. Executive Compensation. The following table sets forth all compensation earned by or paid or awarded to the Chief Executive Officer and to the next four most highly compensated executive officers of the Company for all services rendered in all capacities for the periods shown. SUMMARY COMPENSATION TABLE
LONG-TERM COMPENSATION ANNUAL COMPENSATION --------------------- --------------------------------------------- STOCK LONG- TERM NAME AND FISCAL OPTION INCENTIVE ALL OTHER PRINCIPAL POSITION YEAR SALARY BONUS OTHER(1) AWARDS PAYOUTS COMPENSATION - --------------------------------- ------ -------- -------- -------- ------- --------- ------------ David L. Lowe 1996 $399,984 $250,000 -- 140,000 -- -- Chairman of the Board and 1995 398,542 163,400 -- 196,000(2) -- -- Chief Executive Officer 1994 294,231 148,180 -- 150,000 -- -- R. Andrew Eckert 1996 $199,992 $225,000 -- 90,000 -- -- President and General 1995 199,031 173,957 -- 162,000(2) -- -- Manager, Medical Systems 1994 148,086 102,380 -- 165,000 -- -- Mark L. Lamp 1996 $199,992 $145,000 -- 50,000 -- -- President and General 1995 199,800 144,000 -- 156,000(2) -- -- Manager, Healthcare 1994 177,316 86,700 -- 165,000 -- -- Information Systems P. Andre Simone(3) 1996 $122,019 $ 67,292 -- 20,000 -- -- Vice President, Chief Financial Officer and Treasurer Peter C. Vermeeren(4) 1996 $150,000 $149,700 -- 75,000 -- -- Executive Vice President, Global Operations
7 10 - --------------- (1) Not included in the compensation table are certain expenses incurred or reimbursements paid by the Company such as the use of Company-owned or -leased automobiles, entertainment expenses and other benefits (such as meals and parking) and other miscellaneous items. The aggregate amount of such compensation did not exceed the lesser of either $50,000 or 10% of the total annual salary and bonus reported for each named officer. A small portion of such expenses may relate to personal expenses or use but are believed to constitute ordinary and incidental business costs and expenses which are paid or reimbursed by the Company in order to attract or retain qualified personnel, facilitate job performance and minimize the work-related expenses incurred by such persons. (2) These stock option awards include options granted by the Company's subsidiary, Community Health Computing Corp. ("CHC"), a provider of health care information systems. Of the options reported in the table, CHC granted 96,000 options to Mr. Lowe, 72,000 options to Mr. Eckert and 96,000 options to Mr. Lamp. (3) Mr. Simone became an executive officer of the Company in June 1996. (4) Mr. Vermeeren became an executive officer of the Company in January 1996. Executive Officers of the Company. A description of Mr. Lowe's and Mr. Eckert's positions with the Company and related information is set forth above under "(1) ELECTION OF DIRECTORS -- Nominees". Descriptions of the Company's other current executive officers are set forth below. Mr. Lamp was named President and General Manager of ADAC Healthcare Information Systems in August 1994. He previously served as Executive Vice President of Business Development and prior to that held a variety of other management and engineering-related positions with the Company. Ms. Karen L. Masterson, age 36, joined the Company in October 1996 as the Company's Vice President, General Counsel and Corporate Secretary. From January 1995 to October 1996, Ms. Masterson served as the Director of Intercontinental Legal Affairs for Sybase, Inc., a relational database software company. From January 1993 to December 1994, she was a partner, and prior to that, an associate, in the law firm of Morrison & Foerster in San Francisco, California. Mr. P. Andre Simone, age 39, was elected Chief Financial Officer of the Company in June 1996, and has served as Vice-President, Finance of the Company since October 1995 and Treasurer since May 1994, when he joined the Company. From February 1993 to March 1994, Mr. Simone served as the Assistant Treasurer for The Ask Group, Inc., a database and manufacturing accounting software firm. Prior to that time, he held positions with Emcor Treasury Consultants, Hewlett Packard and Bain & Company. Mr. Peter C. Vermeeren, age 56, joined the Company in January 1996 as the Company's Executive Vice President, Global Operations. From 1966 until he joined the Company, Mr. Vermeeren held a number of senior management and other positions with Mallinckrodt Medical, Inc., a global leader in the development and distribution of nuclear medicine radiopharmaceuticals, medical devices and imaging contrast media, having most recently served as Senior Vice President, International. For the past two years, Mr. Vermeeren has also served as Chairman of the Corporate Committee of the American College of Nuclear Physicians. The term of office of each of the above-named executive officers is at the pleasure of the Board of Directors. To the knowledge of the Company, there are no arrangements or understandings between these officers and any other person pursuant to which any of these officers was elected as an officer. 8 11 STOCK OPTIONS GRANTED IN FISCAL 1996 The following table sets forth certain information concerning stock option grants made by the Company to certain executive officers pursuant to the Company's stock option plans during fiscal year 1996.
INDIVIDUAL GRANTS POTENTIAL REALIZABLE - ------------------------------------------------------------------------------ VALUE AT ASSUMED NUMBER OF % OF TOTAL ANNUAL RATES OF STOCK SECURITIES OPTIONS PRICE APPRECIATION UNDERLYING GRANTED PER SHARE FOR OPTION TERM(1) OPTIONS TO EMPLOYEES EXERCISE EXPIRATION ------------------------- NAME GRANTED IN 1996 PRICE($) DATE 5% 10% - -------------------- ---------- ------------ --------- ---------- ---------- ---------- David L. Lowe....... 140,000 12.3% $15.875 5-29-06 $1,397,952 $3,542,665 R. Andrew Eckert.... 90,000 7.9 15.875 5-29-06 898,684 2,277,432 Mark L. Lamp........ 50,000 4.4 15.875 5-29-06 499,270 1,265,240 P. Andre Simone..... 20,000 1.8 15.875 5-29-06 199,680 506,096 Peter O. Vermeeren......... 75,000 6.6 11.875 11-07-05 560,203 1,419,656
- --------------- (1) The 5% and 10% assumed rates of appreciation are mandated by the rules of the Securities and Exchange Commission and are not an estimate or projection of future prices or appreciation of the Company's Common Stock or the actual future value of these options. Stock options generally vest and become partially exercisable one year from the date of grant, and vest fully over three years from the date of grant. At the time of grant, options may be designated as incentive stock options ("ISO's"), a type of option authorized under the 1981 amendments to the Internal Revenue Code. Options not designated as an ISO are granted as "non-qualified options." Options generally remain outstanding for five years or ten years from the date of grant, provided the recipient remains employed throughout that period. The post-termination exercise period is generally three months. AGGREGATED STOCK OPTION EXERCISES DURING FISCAL 1996 AND YEAR-END STOCK OPTION VALUES The following table sets forth certain information concerning the exercise of stock options by the Company's executive officers during fiscal 1996, the "value realized", and the number and value of unexpired stock options at September 29, 1996 which such executive officers can exercise or in the future could exercise.
SHARES ACQUIRED VALUE NAME ON EXERCISE REALIZED(1) - ------------------------ --------------- ----------- NUMBER OF UNEXERCISED TOTAL VALUE STOCK OPTIONS HELD OF UNEXERCISED AT SEPTEMBER 29, 1996 IN-THE-MONEY STOCK --------------------------- OPTIONS HELD AT EXERCISABLE UNEXERCISABLE SEPTEMBER 29, 1996(2) ----------- ------------- --------------------------- EXERCISABLE UNEXERCISABLE ----------- ------------- David L. Lowe........... -- $ -- 88,833 290,000 $ 1,105,538 $ 2,499,375 R. Andrew Eckert........ 15,000 264,375 84,166 240,000 863,326 2,099,063 Mark L. Lamp............ 15,000 256,375 82,500 177,500 893,437 1,664,063 P. Andre Simone......... 11,250 155,375 -- 43,750 -- 375,625 Peter C. Vermeeren...... -- -- 18,750 56,250 -- 609,375
- --------------- (1) The "value realized" is calculated by determining the difference between the fair market value of ADAC Common Stock on the date of exercise of the options and the exercise price of such options. (2) The value of unexercised stock options is calculated by determining the difference between the closing price of ADAC Common Stock on Friday, September 27, 1996 of $20.00, being the last trading date of fiscal 1996, as reported on the Nasdaq Stock Market, and the exercise price of such options. 9 12 Change-in-Control Agreements. In August 1995, the Company entered into Executive Severance Agreements with Messrs. Lowe, Eckert and Lamp and, in March 1996, the Company entered into an Executive Severance Agreement with Mr. Simone and amended Mr. Lamp's agreement. These Agreements provide for a severance payment and acceleration of the exercisability of the executives' stock options upon a "change in control" of the Company. A "change of control" is deemed to occur if (a) any "person" or "group" (as defined in or pursuant to Sections 13(d) or 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")), becomes the "beneficial owner" (as defined in Rule 13d-3 promulgated under the Exchange Act), directly or indirectly, of securities of the Company representing 40% or more of the voting power of the common stock outstanding which votes generally for the election of directors; (b) as a result of market or corporate transactions or shareholder action, the individuals who constitute the Board of Directors of the Company at the beginning of any period of 12 consecutive months (but commencing not earlier than July 1, 1995), plus any new directors whose election or nomination was approved by a vote of at least two- thirds of the directors still in office who were directors at the beginning of such period of 12 consecutive months, cease for any reason during such period of 12 consecutive months to constitute at least two-thirds of the members of such Board; or (c) the Company sells, through merger, assignment or otherwise, in one or more transactions other than in the ordinary course of business, assets which provided at least 2/3 of the revenues or pre-tax net income of the Company and its subsidiaries on a consolidated basis during the most recently-completed fiscal year. 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 the Company's authorized common stock, or (b) a corporate reorganization involving the Company or any of its subsidiaries which does not result in a material change in the ultimate ownership by the shareholders of the Company (through their ownership of the Company or its successor resulting from the reorganization) of the assets of the Company and its subsidiaries, but only if such reclassification or reorganization has been approved by the Company's Board of Directors. If a change in control of the Company occurs, each executive will be entitled to a severance payment equal to 2.99 times the total cash compensation received by each such executive, including base salary, bonuses and other incentive compensation (excluding the value of any options), during the period of the 12 months prior to such change in control. Such severance payment will not be immediately paid if not later than ten days prior to the change in control, the executive is offered employment by the Company or its successor corporation on similar terms to those then applicable to the executive as an officer of the Company and, in such event, the severance payment would be paid to the executive twelve months following the change of control, but only if (i) the executive accepts such comparable employment with the Company and (ii) the executive is not, during such twelve-month period, terminated for cause. Such a change in control of the Company will also cause all stock options held by the executive to become immediately exercisable. In the event that the executive (i) purchases the shares subject to the accelerated stock options, (ii) sells the shares so purchased and (iii) is offered comparable employment by the Company or its successor, the executive must deposit in escrow with the Company an amount equal to 50% of the difference between his sales proceeds received from the sold shares and his option exercise price. These escrowed funds will be released to the executive from the escrow account if the executive has accepted the comparable employment offer and is not terminated for cause for twelve months after the change in control. If the executive does not accept such comparable employment from the Company or its successor or is terminated for cause during such twelve-month period, then the escrowed funds are released to the Company. In addition, Mr. Lamp's amended Executive Severance Agreement provides that if there is a change of control of Community Health Computing Corp. ("CHC") (as defined in Mr. Lamp's CHC Stock Option Agreement) or if CHC is spun off by the Company to its shareholders and, as a result, Mr. Lamp is no longer employed by the Company or one of its subsidiaries, then, for twelve months thereafter, the Company will retain Mr. Lamp as a part-time employee or consultant at a salary of $1,000 per month without fringe benefits, and all of his Company stock options will continue to vest during such period. 10 13 PERFORMANCE GRAPH The following graph sets forth the Company's total cumulative shareholder return as compared to the NASDAQ Composite Index and the Standard and Poor's Medical Products and Supply Index for the period September 28, 1991 through September 29, 1996. Total shareholder return assumes $100 invested at the beginning of the period in the Company's Common Stock, the stocks represented in the NASDAQ Composite Index and the stocks represented in the Standard and Poor's Medical Products and Supply Index, in each case on a "total return" basis assuming reinvestment of dividends. FIVE-YEAR CUMULATIVE TOTAL RETURN COMPARISON
S&P MEDICAL MEASUREMENT PERIOD ADAC LABORATO- NASDAQ COMPOSITE PRODUCTS AND SUP- (FISCAL YEAR COVERED) RIES INDEX PLY IND EX 1991 100.00 100.00 100.00 1992 269.78 110.05 95.87 1993 294.88 145.52 72.28 1994 218.49 145.72 89.60 1995 329.12 198.97 143.16 1996 564.34 234.53 168.08
FISCAL YEAR ENDED --------------------------------------------------------- 1991 1992 1993 1994 1995 1996 ------- ------- ------- ------- ------- ------- ADAC Laboratories $100.00 $269.78 $294.88 $218.49 $329.12 $564.34 NASDAQ Composite Index 100.00 110.05 145.52 145.72 198.97 234.53 S&P Medical Products and Supply Index 100.00 95.87 72.28 89.60 143.16 168.08
CERTAIN TRANSACTIONS Mr. Robert L. Miller, a director and general counsel of the Company, received approximately $331,205 during fiscal 1996 as payment for a variety of legal services rendered to the Company in his capacity as outside general counsel to the Company and $21,000 for attending Board of Directors' meetings as a director of the Company. Mr. Miller, who is not characterized as a non-employee director, also received an option to purchase 25,000 shares of Common Stock of the Company in part as a result of his agreement to a revised fee arrangement with the Company for his services as outside general counsel. In November 1994, Mr. Stanley Czerwinski and the Company entered into a 10-year agreement under which he is now being paid a consulting fee of $3,000 per 8 hour day for services rendered. For the first 36 months of such agreement, the Company has agreed to pay Mr. Czerwinski an additional $20,833 per month in consideration of, among other things, not competing with the Company during the term of the agreement and not selling any of his shares of common stock to the extent that doing so would disqualify the Company from obtaining "pooling of interests" treatment for financial reporting purposes with regard to any acquisition transaction for which negotiations commenced on or before March 31, 1995, and which is completed on or before June 30, 1995. 11 14 (2) APPROVAL OF AMENDMENT TO 1992 STOCK OPTION PLAN GENERAL The Company currently has one stock option plan for employees and consultants pursuant to which new options may be granted for the purchase of Common Stock, the 1992 Stock Option Plan (the "1992 Plan"). At the 1996 Annual Meeting of Shareholders, the shareholders approved an amendment to the 1992 Plan increasing the number of shares authorized for issuance under the Plan to 3,801,000. During fiscal 1996, the Board of Directors granted options to purchase an aggregate of 959,000 shares under the 1992 Plan, and as of October 31, 1996, only 628,000 shares remained available for grant. Accordingly, on October 31, 1996, the Board of Directors approved an amendment to the 1992 Plan to increase the number of authorized option shares by 712,000. As amended, the 1992 Plan would have a total of 4,513,000 shares of Common Stock authorized for issuance, of which 1,340,000 shares would be available for future grant. The Board of Directors has approved and adopted this amendment because it believes it is very important to the long-term success of the Company for it to be able to continue to retain and attract key management and executives and that the continued ability to grant options is essential to retain these executives, especially in light of the current very competitive job market in the Silicon Valley. The following description of the 1992 Plan is necessarily brief and general. A copy of the 1992 Plan, as amended, is available upon request from the Company. DESCRIPTION OF THE 1992 PLAN, AS AMENDED The purposes of the 1992 Plan are to attract and retain the best available personnel for positions of substantial responsibility and to provide additional incentives to key employees, officers, consultants or other persons whose efforts are deemed worthy of encouragement to promote the growth and success of the Company's business. Non-employee directors may not participate under the 1992 Plan, and instead participate under the Directors' Option Plan (1987). The 1992 Plan sets a limit of 300,000 shares which may be granted to any one optionee during any calendar year. Options granted under the 1992 Plan may be incentive stock options, which are intended to meet the requirements of Section 422 of the Internal Revenue Code ("incentive options"), or nonqualified options, which are not intended to meet such requirements ("nonqualified options"). Incentive options must have terms of ten years or less from the date of grant; however, the term of any such option granted to a person who owns shares possessing more than 10% of the total combined voting power or value of all classes of stock of the Company or any subsidiary shall not exceed five years. The 1992 Plan also provides that nonqualified options have a term not to exceed ten years. The Stock Option Committee has generally set terms of five years or ten years for all options granted under the 1992 Plan. The Stock Option Committee also determines when options granted under the 1992 Plan may be exercisable; options granted have historically been exercisable to the extent of 25%, 25% and 50% of the number of option shares subject to an option grant 12, 24 and 36 months, respectively, after the date of grant. The option exercise prices are determined by the Board of Directors or the Stock Option Committee and may not be less than 100% of the fair market value of the Company's Common Stock on the date of grant, or 110% of such fair market value if the optionee holds more than 10% of the Company's Common Stock. The option price may be paid by cash, check, promissory note or surrender of other shares of Common Stock of the Company that have been held for at least six months, or a combination thereof, at the discretion of the Committee or as set forth in the applicable stock option agreement. The 1992 Plan also provides that whenever an optionee exercises an option by surrendering already-owned shares to pay all or a portion of the exercise price, if the option agreement so provides or if then approved by the Committee, the optionee may receive a new option for the purchase of a number of shares equal to the amount tendered for payment, with an exercise price equal to the then fair market value of a share of Common Stock. The 1992 Plan permits an optionee, if set forth in his or her option agreement, to have any required Federal and state withholding taxes satisfied by either (i) delivering outstanding shares of Common Stock of the Company previously owned for six (6) months by the Optionee or (ii) withholding of a sufficient number 12 15 of exercised option shares to satisfy such withholding obligations, based upon fair market value of such shares on the date of exercise. The 1992 Plan provides that any optionee who is terminated as an employee or who ceases to serve as a consultant, may, within 90 days (or such other period as may be determined by the Committee) after such termination or cessation, exercise the option but only to the extent the optionee was entitled to do so at the date of his or her termination or cessation of services. Special exercise rules are applicable to optionees who become totally and permanently disabled or who die during, or within 90 days after termination of, their period of employment with the Company. No option may be exercised after the expiration of its term. Options are not transferable by the optionee, other than by will, the laws of descent and distribution or pursuant to a divorce decree. The 1992 Plan provides that in the event any change, such as a stock split, reverse stock split or stock dividend, is made in the Company's capitalization which results in an increase or decrease in the number of outstanding shares of Common Stock without receipt of consideration by the Company, appropriate adjustment shall be made in the option price and the number of shares subject to the option. In the event of a proposed dissolution or liquidation of the Company, or the merger of the Company with or into another corporation, each outstanding option shall be assumed or an equivalent option shall be substituted by the successor corporation, unless the Board of Directors determines, in its discretion, to accelerate the exercisability of outstanding options. In addition, upon a "change in control", except as limited by any specific employment or severance agreement, all options will accelerate and be immediately exercisable. The definition of "change in control" is the same as that contained in the Executive Severance Agreements discussed earlier in this Proxy Statement. The maximum number of shares that may be optioned and sold under the 1992 Plan may be automatically adjusted by the Board if it determines in connection with an acquisition of another business that it is necessary to grant new or replacement options to employees of such acquired business. The Board of Directors may amend the 1992 Plan at any time or may terminate it without approval of the shareholders; provided, however, that shareholder approval is required for any amendment that materially increases the number of shares for which options may be granted under the Plan, materially increases the benefits accruing to participants under the Plan, or materially modifies the eligibility requirements of the Plan. However, no action by the Board of Directors or shareholders may alter or impair any option previously granted without the consent of the optionee. ADMINISTRATION The 1992 Plan is administered by a committee of the Board consisting of not less than two (2) persons who are "outside directors" as defined in Section 162(m) of the Internal Revenue Code. OUTSTANDING OPTIONS At September 29, 1996, there were outstanding options to purchase 2,830,724 shares of Common Stock. Of these options, 148,747 were granted under the 1985 Option Plan (no further options may be granted under such Plan), 159,997 were granted under the Directors' Stock Option Plan (1987), and 2,496,998 were granted under the 1992 Stock Option Plan. On September 29, 1996, these outstanding options had an aggregate exercise price of $31,284,102 or an average of $11.05 per share, and based upon a closing price of $20.00 on September 27, 1996 (being the last trading day of the Company's 1996 fiscal year), the shares underlying these outstanding options had an aggregate market value of approximately $56,614,480. SUMMARY OF FEDERAL TAX CONSEQUENCES Nonqualified Stock Options. There will be no Federal income tax consequences to an optionee at the time an option under the 1992 Plan is granted. Upon exercise of a nonqualified option, the optionee will recognize taxable ordinary income in an amount equal to the fair market value of the stock on the date of exercise less the exercise price paid, and the Company will be allowed a corresponding tax deduction for 13 16 compensation expense in an amount equal to the taxable income recognized by the optionee. If the optionee is an employee of the Company, the Company is required to withhold Federal income taxes with respect to such ordinary income amount. Upon the subsequent sale of shares acquired upon the exercise of a nonqualified option, the optionee generally will recognize a capital gain or loss in an amount equal to the difference between the proceeds received upon sale and the fair market value of such shares on the prior date of exercise. Incentive Stock Options. There will be no Federal income tax consequences to an optionee at the time of the initial grant of the option or at the time of an exercise of an incentive option, although the exercise may be an item of tax preference and may subject the optionee to the alternative minimum tax. The Company will not be entitled to a tax deduction for compensation expense at the time of the exercise of an incentive option. If an optionee holds stock acquired through exercise of an incentive option for (a) more than two years from the date on which the option is granted and (b) more than one year from the date on which the shares are transferred to the optionee upon exercise of the option, then income recognized at the time of the subsequent sale of the stock will be treated as a capital gain or loss. Generally, if the optionee disposes of the stock before the expiration of either of these holding periods (a "Disqualifying Disposition"), at that time the optionee will realize taxable ordinary income equal to the lesser of (i) the excess of the stock's fair market value on the date of exercise over the exercise price or (ii) the optionee's actual gain, if any, resulting from the purchase and sale. To the extent the optionee recognizes income by reason of a Disqualifying Disposition, the Company will be entitled to a corresponding tax deduction for compensation in the tax year in which the disposition occurs. Under Section 162(m) of the Code, enacted in August 1993, the Company may be precluded from claiming a federal income tax deduction for total remuneration in excess of $1,000,000 paid to the CEO or the other four executive officers named in the "Summary Compensation Table" in any one year beginning in 1995. Total remuneration would include amounts received upon the exercise of stock options granted after February 17, 1993. An exception does exist, however, for "performance-based compensation," including amounts received upon the exercise of stock options pursuant to a plan approved by shareholders that meets certain requirements. The terms of the 1992 Plan and the shareholder approval requested in this Proxy Statement are intended to comply with Section 162(m) of the Code and the regulations promulgated thereunder. The foregoing discussion is merely a summary of the more significant effects of current Federal income taxation upon optionees and the Company with respect to shares issued under the 1992 Plan and it does not purport to be a complete analysis of the tax laws dealing with this subject. Reference should be made to the applicable provisions of the Internal Revenue Code and the Regulations promulgated thereunder. In addition, this summary does not discuss the provisions of the income tax laws of any state or foreign country in which an employee may reside. Each employee should consult his or her own tax advisor concerning the Federal (and state and local) income tax consequences of participation in the 1992 Plan. VOTE REQUIRED Approval of the amendment to the 1992 Plan requires the affirmative vote of the holders of a majority of the voting shares represented and voting in person or by proxy at the Annual Meeting (which affirmative votes also constitute at least a majority of the required quorum). THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THIS PROPOSAL. (3) APPROVAL OF AMENDMENT TO EMPLOYEE STOCK PURCHASE PLAN (1994) BACKGROUND INFORMATION The Company has maintained an Employee Stock Purchase Plan since 1980 for the benefit of its employees. The most recent Employee Stock Purchase Plan (the "Purchase Plan") was approved by the shareholders during March 1994. Upon receipt of shareholder approval at the 1996 Annual Meeting of Shareholders, the Purchase Plan was amended to authorize the purchase of up to 185,000 shares of Common Stock under the Plan. During fiscal 1996, the Company's employees purchased 64,248 shares of Common Stock pursuant to the Purchase Plan, leaving only 38,836 shares available for future purchases. To enable the 14 17 Company's employees to continue to benefit under the Purchase Plan, on October 31, 1996, the Board of Directors approved an amendment to the Plan to increase the number of authorized shares by 85,000. The shareholders are being requested to approve this increase of an additional 85,000 shares under the Purchase Plan. None of the directors or executive officers of the Company other than Mark L. Lamp currently participates in the Purchase Plan. Mr. Lamp purchased an aggregate of 400 shares of Common Stock under the Purchase Plan in fiscal 1996. SHARES SUBJECT TO THE PURCHASE PLAN If approved by the shareholders, an additional 85,000 shares of Common Stock of the Company will be available for issuance under the Purchase Plan. In the event of a stock split, stock dividend or other subdivision, combination or classification of the Company's Common Stock, appropriate adjustments will be made with respect to the maximum number of shares subject to, and the purchase price of shares under, the Purchase Plan. OPERATION OF THE PURCHASE PLAN The Purchase Plan provides eligible employees with the opportunity to purchase shares of Common Stock pursuant to a payroll deduction program. The Purchase Plan provides for offering periods of up to 27 months (the "Offering Periods") during which contributions may be made to purchase shares of Common Stock. Each Offering Period shall consist of interim three-month purchase periods. At the end of each three-month interim purchase period, shares would be purchased automatically at 85% of the market price at the beginning of the 27-month Offering Period or 85% of the market price on the last day of each interim three-month purchase period, whichever price is lower. An employee may have up to 10% of his total compensation (including commissions, but excluding bonuses, overtime, etc.) withheld and applied to the purchase of shares under the Purchase Plan. However, during any one year no employee is entitled to purchase Common Stock under the Purchase Plan having a value of more than $25,000 or more than 100 shares of Common Stock during any interim three-month purchase period. ELIGIBILITY AND ENROLLMENT All employees of the Company may participate in the Plan. However, employees who are customarily employed for less than 20 hours per week or for less than 5 months in any calendar year are not eligible to participate. Further, any employee who owns, or holds options to acquire, or who, as a result of participation in the Purchase Plan, would own or hold options to purchase five percent (5%) or more of the Company's securities is not eligible to participate in the Purchase Plan. Under the Purchase Plan an employee may enroll in the Purchase Plan at the beginning of any of the three-month interim purchase periods within an Offering Period. An employee who joins the Purchase Plan after the beginning of the Offering Period will have a purchase price equal to 85% of the market price on the effective date of his joining the Purchase Plan or on the last day of each interim three-month purchase period, whichever price is lower. WITHDRAWAL; TERMINATION; RE-ENROLLMENT A participant may withdraw from the Purchase Plan at any time. Termination of a participant's employment for any reason, including retirement or death, or the employee's failure to remain an eligible employee, also terminates participation in the Purchase Plan. In the event of termination, all payroll deductions previously credited to the participant's account are returned, without interest. The Purchase Plan allows for re-enrollment after waiting for one complete interim three-month purchase period, except that officers and directors would be required to wait at least six (6) months before re-enrolling. 15 18 ADMINISTRATION The Purchase Plan is administered by the Board of Directors of the Company; the Board may also adopt and appoint a Committee thereof to administer the Purchase Plan. The Board or any Committee so appointed has the power to make, amend and repeal rules and regulations for the interpretation and administration of the Purchase Plan, all of which are final and binding upon each participant having an interest therein. DURATION AND MODIFICATION The Purchase Plan will remain in full force until December 31, 2003 unless terminated earlier by action of the Company's Board of Directors or until all of the shares reserved for issuance thereunder have been issued. The Purchase Plan may be terminated or amended from time to time by the Board of Directors, provided that a participant's existing rights cannot be adversely affected thereby, nor may any amendment be made without the approval of shareholders of the Company if such amendment would increase the aggregate number of shares of Common Stock to be issued under the Plan, materially modify the requirements for eligibility to participants in the Plan, increase the maximum number of shares which a participant may purchase during any Offering Period, extend the term of the Plan, alter the purchase price formula so as to reduce the price per share to be purchased under the Plan, materially increase the benefits accruing to participants under the Plan or cause the Plan to fail to meet the requirements of an "employee stock purchase plan" under Section 423 of the Internal Revenue Code. FEDERAL INCOME TAX CONSEQUENCES The Purchase Plan and the right of employees to make purchases thereunder are intended to qualify under the provisions of Sections 421 and 423 of the Internal Revenue Code. Under these provisions, no income will be taxable to an employee at the time shares are purchased under the Purchase Plan. As summarized below, an employee may be taxed upon disposition or sale of the shares acquired under the Purchase Plan: 1. If the shares are sold at least two years after the date of granting of the option and more than one year after the transfer of the shares to the employee: In this event, the lesser of (a) the excess of the fair market value of the shares at the time granted over the purchase price of the shares or (b) the excess of the fair market value of the shares at the time such shares are disposed of over the purchase price of the shares will be treated as ordinary income. Any further gain upon such sale will be treated as a capital gain. If the shares are sold and the sale price is less than the purchase price, there is no ordinary income and the employee has a capital loss equal to the difference. 2. If the shares are sold prior to the expiration of two years after the granting of the option and less than one year after the transfer of the shares to the employee: In this event (a "Disqualifying Disposition"), the excess of the fair market value of the shares at the date the shares are exercised over the purchase price will be treated as ordinary income to the employee. This excess will constitute ordinary income in the year of sale or other disposition. Any further gain upon such sale will be treated as a capital gain. If the shares are sold for less than their fair market value on the date of purchase the same amount of ordinary income is attributed to the employee and a capital loss will be recognized equal to the difference between the sale price and the fair market value of the shares on such purchase date. To the extent the employee recognizes ordinary income by reason of a Disqualifying Disposition, the Company will be entitled to a corresponding tax deduction for compensation in the tax year in which the disposition occurs, provided the Company has satisfied its withholding obligations under the Code. In the event an employee dies while owning stock acquired under the Purchase Plan, compensation must be reported in his/her final income return. The amount of compensation to be reported will be the lesser of (a) the excess of the fair market value of the shares at the time these shares were granted over the purchase price of the shares or (b) the excess of the fair market value of the shares at the time of the employee's death over the purchase price of the shares. 16 19 The foregoing discussion is merely a summary of the more significant effects of the Federal income tax on an employee and the Company with respect to the shares purchased under the Purchase Plan and does not purport to be a complete analysis of the tax laws dealing with this subject. Reference should be made to the applicable provisions of the Internal Revenue Code and the Income Tax Regulations promulgated thereunder. In addition, this summary does not discuss the provisions of the income tax laws of any state or foreign country in which an employee may reside. Each employee should consult his or her own tax advisor concerning the Federal (and any state and local) income tax consequences of participation in the Purchase Plan. VOTE REQUIRED The affirmative vote of the holders of a majority of the shares represented and voting in person or by proxy at the meeting (which affirmative votes constitute at least a majority of the required quorum) is required for the approval of the amendment to the Purchase Plan. THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THIS PROPOSAL. (4) APPROVAL OF AMENDMENT TO DIRECTORS' STOCK OPTION PLAN (1987) BACKGROUND INFORMATION The Company has previously determined that it is advisable and in the best interests of the Company and its shareholders to obtain independent directors with outstanding ability and experience and to provide incentives to such independent directors for the encouragement of the highest level of performance by providing such persons with a proprietary interest in the Company. Accordingly, the Board of Directors and the shareholders previously adopted the Directors' Stock Option Plan (1987) (the "Directors' Plan"). Under the Directors' Plan, stock options are granted annually to each non-employee director of the Company. An aggregate of 100,000 shares of Common Stock were originally reserved under the Directors' Plan. Upon receipt of shareholder approval at the 1996 Annual Meeting of Shareholders, the Directors' Plan was amended to increase the aggregate number of shares authorized for issuance under the Directors' Plan to 231,666. During fiscal 1996, an aggregate of 80,000 shares were optioned to non-employee directors, leaving as of October 31, 1996 only 1,668 shares available for future grants. The Board of Directors desires to continue to be able to attract outstanding independent directors and to provide incentives to such directors, including any additional directors that may be recruited to the Board in the future if Proposals 5 and 6 below are approved, and has approved an amendment to the Directors' Plan to increase the number of available shares by 56,665. DESCRIPTION OF THE DIRECTORS' PLAN The purpose of the Directors' Plan is to encourage and provide incentives for the highest level of performance by the Company's non-employee directors. Only directors who are not also employees of the Company or any of its subsidiaries are eligible to participate in the Directors' Plan. As amended, an aggregate of 288,331 shares of Common Stock are authorized under the Directors' Plan, of which 159,997 option shares have been previously granted. The Directors' Plan provides for 20,000 option shares to be granted to each new non-employee director upon being elected to the Board and for 3,333 option shares to be annually granted on March 15 of each year thereafter, except that on each fifth anniversary of the year the director first commenced serving as a director, he or she would receive on March 15 an additional grant of 20,000 shares. This schedule would repeat itself every five years (in all cases subject, of course, to the director remaining in office). The Board of Directors or a committee consisting of such Board members or other persons as may be appointed by the Board administers the Directors' Plan. Each option granted has a term of five years from the date of grant. The option exercise price must be equal to 100% of the "fair market value" (generally, the closing price of the Company's Common Stock as traded in the NASDAQ National Market System or other principal market) on the date of grant of the option. The option price may be paid in cash or by surrendering to the Company outstanding Common Stock of the Company having been owned by the optionee for at least six (6) months, valued at fair market value. Each 20,000 share option grant would be exercisable 25% per year from the date of grant. Each 3,333 share option grant would be fully exercisable after 12 months from the date of grant. However, options under the 17 20 Directors' Plan may be exercised in full immediately in the event of the death of the optionee. Upon a liquidation or dissolution of the Company, a reorganization or merger pursuant to which the Company does not survive, or a sale of substantially all of the Company's assets, each option will become immediately exercisable without regard to the original vesting schedule. In addition, the options would become immediately exercisable upon a "change in control" of the Company. The definition of "change of control" is the same as that contained in the Executive Severance Agreements and the 1992 Plan. If the holder of an option resigns or is removed as a director for reasons other than as set forth above, he may exercise the option within three (3) months after such resignation or removal but only to the extent it was exercisable on such date and only if the termination did not result from a violation of the director's normal duties. In the event of death while, or within three (3) months after, serving as a director, the option may be completely exercised by the person to whom the director's rights under the option pass by will or by the laws of descent and distribution. Options are not transferable by the optionee, other than by will or the laws of descent and distribution or, as amended, pursuant to a qualified domestic relations order. The Directors' Plan provides that the total number of option shares covered by such Plan, the number of shares covered by each option and the exercise price per share shall be proportionately adjusted in the event of a stock split, stock dividend or similar capital adjustment effected without receipt of consideration by the Company. The Board of Directors may amend the Directors' Plan no more than once every six (6) months. The Board may amend or terminate the Directors' Plan without approval of the shareholders; provided, however, that shareholder approval is required for any amendment that increases the number of shares for which options may be granted, changes the designation of the class of persons eligible to participate in the Directors' Plan or changes in any material respect the limitations or provisions of the options subject to the Directors' Plan. However, no action by the Board of Directors or shareholders may alter or impair any option previously granted without the consent of the optionee. Options granted to directors under the Directors' Plan will be treated as nonqualified stock options under the Internal Revenue Code. A brief description of certain Federal income tax effects resulting from the grant and exercise of nonqualified stock options, and the sale of the option shares, both to the optionee and the Company, is set forth under "Approval of 1992 Stock Option Plan -- Summary of Federal Tax Consequences" above. Such summary does not purport to be complete, and reference is made to the applicable provisions of the Internal Revenue Code. VOTE REQUIRED Approval of the amendment to the Directors' Plan requires the affirmative vote of the holders of a majority of the voting shares represented and voting in person or by proxy at the Annual Meeting (which affirmative votes must constitute at least a majority of the required quorum). THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THIS PROPOSAL. (5) APPROVAL OF AMENDMENT AND RESTATEMENT OF ARTICLES OF INCORPORATION The Board of Directors believes that it is in the best interests of both the Company and its shareholders to amend and restate the Company's Articles of Incorporation to delete therefrom provisions relating to the maximum and minimum number of directors that may comprise the Board (the "Amendment to the Articles"), in order that the Company may consolidate such provisions in the Company's Bylaws. The text of the proposed Amended and Restated Articles of Incorporation is set forth substantially in the form of Exhibit A to this Proxy Statement, and has been previously adopted by the Board of Directors, subject to approval by shareholders holding a majority of the outstanding shares of the Company's Common Stock. At present, both the Company's Articles of Incorporation and the Company's Bylaws contain provisions establishing a maximum and minimum number of directors that may serve on the Company's variable Board of Directors. The Board of Directors has determined that it is in the best interest of the shareholders and the 18 21 Company to simplify the Company's Articles of Incorporation by deleting the provisions contained therein in order that the Company may consolidate such provisions in the Company's Bylaws, which the Company is seeking approval to amend pursuant to Proposal 6 below. Because the shareholder approval required to change the maximum and minimum number of directors comprising a variable board is the same whether the maximum and minimum are set forth in the Articles or the Bylaws, the Company believes that the deletion of this provision from the Articles will not affect the shareholders' ability to vote on any changes in the size of the Company's variable board and will enable the Company, upon receipt of the appropriate shareholder approval, to make any such changes more efficiently as only one instrument would require amendment. VOTE REQUIRED Approval of the Amendment to the Articles requires the affirmative vote of the holders of a majority of the outstanding shares of Common Stock. THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THIS PROPOSAL. If the Amendment to the Articles is not approved but the amendments to the Bylaws described below in Proposal 6 are approved by the shareholders, the shareholders' approval of the Bylaw amendments will be deemed to constitute approval by the shareholders to amend the Articles of Incorporation to the extent necessary to conform the provisions of the Articles regarding the size of the Company's variable board to the corresponding amended Bylaw provision set forth in Exhibit B to this Proxy Statement. (6) APPROVAL OF AMENDMENTS TO BYLAWS The Board of Directors believes it is in the best interests of the Company and the shareholders to adopt amendments to the Bylaws of the Company to increase the number of directors that may serve on the Company's variable board. The Board of Directors believes it is advisable to increase the number of directors that may serve on the Company's variable board in order to give the Company the flexibility in the future to add directors with experience that may be critical to the Company's ability to achieve its long-term strategic goals. Accordingly, the Board of Directors has approved amendments to the Bylaws, subject to approval by shareholders holding a majority of the outstanding shares of Common Stock of the Company, that (i) provide that the Board of Directors will consist of not less than six nor more than eleven directors, with the exact number to be fixed by approval of the Board of Directors or the shareholders, and with the number initially fixed in the Bylaws at seven, and (ii) define the authority of the Board of Directors to fix the exact number of the directors within the foregoing range in accordance with California law. The proposed text of the amendments to the Bylaws is set forth substantially in the form of Exhibit B to this Proxy Statement. VOTE REQUIRED Approval of the amendments to the Bylaws requires the affirmative vote of the holders of a majority of the outstanding shares of Common Stock. THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THIS PROPOSAL. RELATIONSHIP WITH INDEPENDENT PUBLIC ACCOUNTANTS The firm of Coopers & Lybrand, L.L.P. has examined the financial statements of the Company for the fiscal year ended September 29, 1996, and has been selected to perform such service for the current fiscal year. A representative of Coopers & Lybrand, L.L.P. is expected to be present at the Annual Meeting with the opportunity to make a statement if he or she desires to do so and is expected to be available to respond to appropriate questions. The Company has been advised that neither that firm, nor any of its partners or associates, has any direct or indirect financial interest in or any connection with the Company other than as accountants and auditors. 19 22 OTHER MATTERS SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE The Securities and Exchange Commission's rules under Section 16 of the Securities Exchange Act of 1934 require the Company's officers and directors, and persons who own more than ten percent (10%) of a registered class of the Company's equity securities, to file reports showing their initial stock ownership and subsequent changes in such ownership with the SEC by specific dates. Based solely on its review of the copies of such forms received by it or written representations from the Company's appropriate officers and directors, the Company believes that, during the 1996 fiscal year, all filing requirements applicable to its officers and directors were complied with, except for the following: One report on Form 4 concerning the exercise of options to purchase 8,750 shares of Common Stock and the sale of such shares by Mr. Simone on September 4, 1996 was not filed but such transactions were reported in a Form 5 filed for the fiscal year ended September 29, 1996. Two Form 5s concerning Mr. Lamp's purchase of 100 shares of Common Stock under the Purchase Plan on each of the four quarterly purchase dates in fiscal 1995 and 1996 were not filed but were subsequently disclosed in an amended Form 4. SHAREHOLDER PROPOSALS Individual shareholders of the Company may be entitled to submit proposals which they believe should be voted upon by the shareholders. The Securities and Exchange Commission has adopted regulations which govern the inclusion of such proposals in annual proxy materials. All such proposals must be submitted to the Secretary of the Company no later than October 10, 1997 in order to be considered for inclusion in the Company's 1998 proxy materials related to the 1998 Annual Meeting of Shareholders. OTHER BUSINESS Management does not know of any business to be presented other than the matters set forth above, but if other matters properly come before the meeting, it is the intention of the persons named in the Proxy to vote in accordance with their best judgment on such matters. AVAILABILITY OF FORM 10-K THE COMPANY WILL FURNISH WITHOUT CHARGE A COPY OF ITS ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED SEPTEMBER 29, 1996, AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION, TO ANY SHAREHOLDER DESIRING A COPY. Shareholders may write to ADAC Laboratories, 540 Alder Drive, Milpitas, California 95035, attention of Robert Starr, Vice President of Administration. By Order of the Board of Directors, David L. Lowe, Chairman of the Board Dated: February , 1997 20 23 EXHIBIT A FORM OF AMENDED AND RESTATED ARTICLES OF INCORPORATION OF ADAC LABORATORIES A California Corporation ARTICLE I The name of this corporation is: ADAC LABORATORIES ARTICLE II The purpose of the Corporation is to engage in any lawful act or activity for which a corporation may be organized under the General Corporation Law of California other than the banking business, the trust company business or the practice of a profession permitted to be incorporated by the California Corporations Code. ARTICLE III This Corporation is authorized to issue two classes of stock, without par value, to be designated "Preferred Stock" and "Common Stock," respectively. The total number of shares of which this Corporation is authorized to issue is 55,000,000 shares, of which 50,000,000 shares shall be Common Stock and 5,000,000 shares shall be Preferred Stock. ARTICLE IV The Corporation hereby elects to be governed by all the provisions of the General Corporation Law of the State of California in effect as of January 1, 1977, which are not otherwise applicable to it pursuant to Chapter 23 of said law. ARTICLE V The liability of the directors of the Corporation for monetary damages shall be eliminated to the fullest extent permissible under California law. ARTICLE VI The Corporation is authorized to provide indemnification of Agents (as defined in Section 317 of the Corporations Code) for breach of duty to the Corporation and its shareholders through By-law provisions, agreements with the Agents, vote of shareholders or disinterested directors or otherwise in excess of the indemnification otherwise permitted by Section 317 of the Corporations Code), subject to the limits on such excess indemnification set forth in Section 204 of the Corporations Code or as to circumstances in which indemnity is expressly prohibited by Section 317. A-1 24 EXHIBIT B The following provisions of the Company's Bylaws are amended and restated in their entirety to read as follows: "Section 3.02. Number and Qualification of Directors. The number of directors of the corporation shall be not less than six (6) nor more than eleven (11). The exact number of directors shall be seven (7) until changed, within the limits specified above, by a bylaw amending this Section 3.02 duly adopted by the board of directors or approved by the shareholders; provided, however, that any amendment reducing the fixed number or the minimum number of directors to a number less than five (5) cannot be adopted if the votes cast against its adoption at a meeting of the shareholders, or the shares not consenting in the case of action by written consent, are equal to more than sixteen and two-thirds percent (16 2/3%) of the outstanding shares entitled to vote thereon. No amendment may change the stated maximum number of authorized directors to a number greater than two (2) times the stated minimum number of directors minus one (1)." "Section 9.02. Amendment of Bylaws by Directors. Subject to the right of the shareholders to adopt, amend or repeal bylaws, bylaws may be adopted, amended or repealed by a majority vote of the directors present at any meeting of the board at which a quorum is present; provided, however, that the board of directors may not adopt a bylaw or amendment thereof specifying or changing a fixed number of directors or the maximum or minimum number of directors or changing from a fixed to a variable board or vice versa." B-1 25 PROXY ADAC LABORATORIES PROXY FOR ANNUAL MEETING OF SHAREHOLDERS The undersigned shareholder of ADAC Laboratories, a California corporation, acting under the California General Corporation Law, hereby constitutes and appoints David L. Lowe and Robert L. Miller, and each of them, the attorneys and proxies of the undersigned, each with the power of substitution, to attend and act for the undersigned at the Annual Meeting of Shareholders of said corporation to be held on March 6, 1997, at 1:00 p.m., local time, at the offices of the Company, located at 540 Alder Drive, Milpitas, California 95035, and at any adjournments thereof, and in connection therewith to vote and represent all of the shares of Stock of said corporation which the undersigned would be entitled to vote, as follows: (1) ELECTION OF DIRECTORS: FOR ALL NOMINEES LISTED [ ] WITHHOLD AUTHORITY [ ] (except as listed below) to vote for all nominees listed
(mark one: the Board of Directors recommends a "FOR" vote for the election of the following nominees to the Board of Directors: Stanley D. Czerwinski, R. Andrew Eckert, Graham O. King, David L. Lowe, Robert L. Miller, F. David Rollo and Edmund H. Shea, Jr.). (INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, WRITE THE NAME(S) OF SUCH NOMINEE(S) BELOW.) - -------------------------------------------------------------------------------- (2) Approval of an Amendment to the 1992 Stock Option Plan, to increase the number of authorized shares by 712,000: (mark one; the Board recommends a "FOR" vote). FOR [ ] AGAINST [ ] ABSTAIN [ ] (3) Approval of an Amendment to the Employee Stock Purchase Plan (1994) to increase the number of shares authorized thereunder by 85,000 shares: (mark one; the Board recommends a "FOR" vote). FOR [ ] AGAINST [ ] ABSTAIN [ ] (4) Approval of an Amendment to the Directors' Stock Option Plan (1987), to increase the number of authorized shares by 56,665: (mark one; the Board recommends a "FOR" vote). FOR [ ] AGAINST [ ] ABSTAIN [ ] (5) Approval of the Amendment and Restatement of Articles of Incorporation to delete provisions pertaining to the variable board: (mark one; the Board recommends a "FOR" vote).(If Proposal 5 is not approved but Proposal 6 is approved, the approval of Proposal 6 will be deemed to constitute the requisite shareholder approval to amend the Articles to the extent necessary to give effect to the approval of Proposal 6.) FOR [ ] AGAINST [ ] ABSTAIN [ ] (6) Approval of Amendments to the Bylaws, including to provide for a variable board of directors consisting of not less than six and not more than 11 directors (mark one; the Board recommends a "FOR" vote.) - -------------------------------------------------------------------------------- Said attorneys and proxies, and each of them, shall have all the powers which the undersigned would have if acting in person. The undersigned hereby revokes any other proxy to vote at such meeting and hereby ratifies and confirms all that said attorneys and proxies, and each of them, may lawfully do by virtue hereof. Said proxies, without hereby limiting their general authority, are specifically authorized to vote in accordance with their best judgment with respect to all matters incident to the conduct of the meeting; all matters presented at the meeting but which are not known to the Board of Directors at the time of the solicitation of this proxy; and, with respect to the election of any person as a Director, if a bona fide nominee for the office is named in the Proxy Statement and such nominee is unable to serve or will not serve, to vote for any other person. 26 THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF ADAC LABORATORIES Each of the above-named proxies present at said meeting, either in person or by substitute, shall have and exercise all the powers of said proxies hereunder. This proxy will be voted in accordance with the choices specified by the undersigned on the other side of this proxy. IF NO INSTRUCTIONS TO THE CONTRARY ARE INDICATED HEREON, THIS PROXY WILL BE TREATED AS A GRANT OF AUTHORITY TO VOTE FOR THE ELECTION OF THE NOMINEES FOR THE BOARD OF DIRECTORS NAMED ON THE OTHER SIDE HEREOF AND AS A GRANT OF AUTHORITY TO VOTE FOR THE OTHER PROPOSALS STATED ON THE OTHER SIDE HEREOF AND ON ANY OTHER MATTERS TO BE VOTED UPON. The undersigned acknowledges receipt of a copy of the Notice of Annual Meeting and Proxy Statement relating to the meeting. [CAPTION] Signature
Date: , 1997 IMPORTANT: In signing this proxy, please sign your name or names on the signature lines in the same manner as it appears on your stock certificate. When signing as an attorney, executor, administrator, trustee or guardian, please give your full title as such. EACH JOINT TENANT SHOULD SIGN. PLEASE SIGN, DATE AND RETURN PROXY PROMPTLY IN THE POSTAGE PREPAID ENVELOPE PROVIDED. EX-99.1 2 DIRECTORS' STOCK OPTION PLAN (1987) 1 Exhibit 99.1 AMENDED AND RESTATED DIRECTORS' STOCK OPTION PLAN (1987) OF ADAC LABORATORIES 1. PURPOSE. The purpose of this Directors' Stock Option Plan (1987) (the "Plan") is to assist the Company in attracting, motivating and retaining qualified non-employee directors by providing a means whereby such persons will be given an opportunity to acquire a proprietary interest in the Company's future growth by purchasing shares of Company Common Stock. 2. DEFINITIONS. When used in this Plan, unless the context otherwise requires: (a) "Board of Directors" shall mean the Board of Directors of the Company as constituted at any time. (b) "Committee" shall mean the Committee as hereinafter described in Section 3 hereof. (c) "Company" shall mean ADAC Laboratories, a California corporation. (d) "Directors' Options" shall mean options to purchase shares of Company Common Stock which may be granted each fiscal year by the Company to each person serving as a director of the Company who is not also an employee of the Company or any of its Subsidiary corporations. (e) "Fair Market Value" shall mean the closing price of the Company's Common Stock, as traded on the NASDAQ National Market System (or, if such shares are then listed on any national securities exchange, the closing price on such exchange) on the date as of which such value is being determined. If the Common Stock is not traded on the NASDAQ National Market System or any national securities exchange, Fair Market Value shall be determined by the Board on the basis of the best available market value information. (f) "Options" shall mean the Directors' Options issued pursuant to the Plan. (g) "Plan" shall mean the Directors' Stock Option Plan (1987) of the Company authorized and adopted by the Board of Directors at its meeting held on July 28, 1987 and as amended from time to time. 2 Amended and Restated Directors' Stock Option Plan (1987) of ADAC Laboratories (h) "Share" shall mean a share of Common Stock of the Company. (i) "Subsidiary" shall mean any corporation in which the Company owns, directly or indirectly, stock possessing fifty percent (50%) or more of the total combined voting power of all classes of stock. 3. ADMINISTRATION. The Plan shall be administered by the Board of Directors or by a Committee which shall consist of such members of the Board of Directors of the Company or such other persons as may be appointed by the Board of Directors. The Board and, if any, the Committee, shall have full power and authority to construe, interpret and administer the Plan and to make determinations which shall be final, conclusive and binding upon all persons, including but not limited to the Company, the shareholders and any person having an interest in any Options. If a member of the Committee, for any reason, shall cease to serve, the vacancy may be filled by the Board of Directors. Any member of the Committee may be removed at any time, with or without cause, by the Board of Directors. 4. ELIGIBILITY. Options may be granted only to non-employee directors of the Company; employees of the Company or any of its Subsidiary corporations are not eligible to receive Options under the Plan. 5. SHARES SUBJECT TO THE PLAN. Subject to the provisions of Section 12 (relating to adjustments upon changes in shares), the Shares which may be sold pursuant to Directors' Options granted under the Plan shall not exceed in the aggregate 231,666 shares of the Company's authorized Common Stock, without par value. If any Option under the Plan shall for any reason terminate or expire without having been exercised in full, the Shares not purchased under such Option shall again be available under the Plan. 6. ANNUAL OPTION GRANTS. The number of shares to be optioned to each non-employee director shall be fixed at 3,333 Option Shares during each fiscal year of the Company and such grant shall automatically occur on March 15th of each year except during each fifth year the 2 3 Amended and Restated Directors' Stock Option Plan (1987) of ADAC Laboratories director shall receive a grant of 20,000 shares (in lieu of the 3,333 share annual grant), provided, however, that on the date a person first becomes a director such person shall receive an option grant of 20,000 shares. Each option shall be for a term of five (5) years from the date of grant and each annual 3,333 share grant shall vest and become fully exercisable upon the first anniversary of the date of grant and each 20,000 share grant shall vest and become exercisable 25% per year. An option agreement, signed by an officer of the Company, shall be issued to each person to whom an option is granted. 7. PRICE. The purchase price per Share for the Shares to be purchased pursuant to the exercise of any Option shall be fixed by the Board of Directors or the Committee at the time of grant of the Option, but shall always equal 100% of the Fair Market Value of the Shares on the date such Option is granted. 8. DURATION OF OPTIONS. All Directors' Options issued under the Plan shall have a duration of five (5) years from the date of grant, regardless of any termination of the Plan prior to the exercise of such Options. 9. NON-TRANSFERABILITY OF OPTIONS. (a) Options shall not be transferrable by the holder thereof otherwise than (i) by will, (ii) pursuant to the laws of descent and distribution or (iii) if then permitted by Rule 16b-3, promulgated under the Securities Exchange Act of 1934, as amended, pursuant to a qualified domestic relations order as defined by the Internal Revenue Code of 1986, as amended, or by Title I of the Employee Retirement Income Security Act (ERISA), or the rules thereunder; provided, however, that an Option holder may designate a beneficiary who, upon Option holder's death, may exercise the Option to the extent permitted in Section 10 of the Plan. (b) Subject to early acceleration as provided herein, at least six months must elapse from the date of the grant of the Directors' Options to the date of disposition of the Directors' Option (other than upon exercise or conversion) or the shares subject to such Directors' Option. 3 4 Amended and Restated Directors' Stock Option Plan (1987) of ADAC Laboratories 10. EXERCISE OF OPTIONS. (a) Except in the event of death, in which case they may be exercised in full immediately, and except as provided in Section 12 below, Directors' Options may be exercised only in installments as follows: (i) each annual 3,333 share grant shall vest and become fully exercisable upon the first anniversary of the date of grant and (ii) each 20,000 share grant shall vest and become fully exercisable 25% per year. (b) An Option shall be exercised by the delivery of a duly signed notice in writing to such effect, together with the full purchase price. Payment of the purchase price shall be made in cash or outstanding Common Stock of the Company already owned by the optionee (valued at Fair Market Value). Option Agreements under the Plan may contain a provision to the effect that all Federal and state taxes required to be withheld or collected from an Optionee upon exercise of an Option may be satisfied by the withholding of a sufficient number of exercised Option shares which, valued at Fair Market Value on the date of exercise, would be equal to the total withholding obligation of Optionee. (c) The Company will, as soon as practicable after the exercise of an Option, deliver to the person entitled thereto a certificate or certificates for the Shares purchased pursuant to the exercise of the Option. 11. TERMINATION. If a holder of a Directors' Option shall resign or be removed as a director, the Option of such holder shall terminate, except that, subject to the limitation stated in the last sentence of this Section 11, (i) if his director's status with the Company is terminated for any reason other than his death, he may at any time within three months after such termination exercise his Option but only to the extent that it was exercisable by him on the date of termination and only if his status was not terminated because of a violation of his normal duties; and (ii) if he dies while serving as a director of the Company, or within three months after termination of such status, his Option may be exercised by the person or persons to whom his rights under the Option shall pass by will or by the laws of descent and distribution, without regard to the vesting provisions included in the Option. In no event may an Option be exercised to any extent by anyone after the expiration of its term. 4 5 Amended and Restated Directors' Stock Option Plan (1987) of ADAC Laboratories 12. CHANGES IN CAPITALIZATION: SPLITS, LIQUIDATIONS, MERGERS AND REORGANIZATIONS. (a) The aggregate number of shares of Common Stock for which Options may be granted to eligible persons under the Plan, the number of shares of Common Stock covered by each outstanding Option and the price per share thereof in each such Option may be proportionately adjusted by the Board of Directors or the Committee for any increase or decrease in the number of issued shares of Common Stock of the Company resulting from a stock split, a reverse stock split, a subdivision or consolidation of shares or other similar capital adjustment, the payment of a stock dividend or any other increase or decrease in such shares effected without receipt of consideration by the Company. Any such determination by the Board of Directors of the Company shall be conclusive. (b)(i) Except and to the extent provided otherwise in, or limited by, employment, severance or similar written agreements between the Company and an Optionee, ten (10) days prior to a "Change in Control" (as defined below), all stock options which are then not exercisable shall immediately vest and become exercisable, regardless of the original vesting schedule. A "Change in Control" of the Company shall be deemed to have occurred if (a) any "person" or "group" (as defined in or pursuant to Sections 13(d) or 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")), becomes the "beneficial owner" (as defined in Rule 13d-3 promulgated under the Exchange Act), directly or indirectly, of securities of the Company representing 40% or more of the voting power of the common stock outstanding which votes generally for the election of directors; (b) as a result of market or corporate transactions or shareholder action, the individuals who constitute the Board of Directors of the Company at the beginning of any period of 12 consecutive months (but commencing not earlier than July 1, 1995), plus any new directors whose election or nomination was approved by a vote of at least two-thirds of the directors still in office who were directors at the beginning of such period of 12 consecutive months, cease for any reason during such period of 12 consecutive months to constitute at least two-thirds of the members of such Board; or (c) the Company sells, through merger, assignment or otherwise, in one or more transactions other than in the ordinary course of business, assets which provided at least 2/3 of the revenues or pre-tax net income of the Company and its subsidiaries on a consolidated basis during the most recently-completed fiscal year. 5 6 Amended and Restated Directors' Stock Option Plan (1987) of ADAC Laboratories (ii) Notwithstanding paragraph (i) above, the following events shall not constitute a Change in Control: any acquisition of beneficial ownership pursuant to (a) a reclassification, however effected, of the Company's authorized common stock, or (b) a corporate reorganization involving the Company or any of its subsidiaries which does not result in a material change in the ultimate ownership by the shareholders of the Company (through their ownership of the Company or its successor resulting from the reorganization) of the assets of the Company and its subsidiaries, but only if such reclassification or reorganization has been approved by the Company's Board of Directors. 13. ISSUANCE OF SHARES AND COMPLIANCE WITH SECURITIES ACT. The Company may postpone the issuance and delivery of Shares upon any exercise of an Option until (a) the admission of such Shares to listing on any stock exchange on which Shares of the Company of the same class are then listed and (b) the completion of such registration or other qualification of such Shares under any state or Federal law, rule or regulation as the Company shall determine to be necessary or advisable. Any person exercising an Option shall make such representations and furnish such information as may, in the opinion of counsel for the Company, be appropriate to permit the Company to issue the Shares in compliance with the provisions of the Securities Act of 1933, as amended. 14. AMENDMENT AND TERMINATION OF THE PLAN. (a) Except as hereinafter provided, the Board of Directors or the Committee may at any time withdraw or from time to time amend the Plan and the terms and conditions of any Options not theretofore issued, and the Board of Directors or the Committee, with the consent of the affected holder of an Option, may at any time amend the terms and conditions of such Options as have been theretofore granted. Notwithstanding the foregoing, any amendment to the Plan by the Board of Directors or Committee which would (i) increase the number of Shares issuable under Options, (ii) change the class of persons to whom Options may be granted or (iii) change in any material respect the limitations or provisions pertaining to Options, shall be subject to the approval of the holders of a majority of the shares of the Company present at any meeting of shareholders and entitled to vote thereat either prior to or within one year after such amendment. 6 7 Amended and Restated Directors' Stock Option Plan (1987) of ADAC Laboratories (b) The determination of the Board of Directors or the Committee as to any questions which may arise with respect to the interpretation of the provisions of the Plan and Options granted hereunder shall be final and conclusive. (c) The Board of Directors or the Committee may authorize and establish such rules, regulations and revisions thereof, not inconsistent with the provisions of the Plan, as it may deem advisable to make the Plan and Options effective or provide for their administration, and may take such other action with regard to the Plan and Options as it shall deem desirable to effectuate their purpose. (d) The Plan shall remain in effect until such time as it is terminated by the Board of Directors of the Company. No such termination shall affect Options granted prior thereto. (e) Notwithstanding anything in the Plan to the contrary, the terms and conditions of this Plan shall not be amended more than once every six months other than to comport with changes in the Internal Revenue Code, the Employee Retirement Income Securities Act, or the rules thereunder. 15. EFFECTIVE DATE OF THE PLAN. The Plan was adopted on July 28, 1987, and is subject to approval of the holders of a majority of the shares of the Company present at any meeting of shareholders and entitled to vote thereat. Options may not be granted under the Plan prior to such shareholder approval. Adopted by the Board of Directors on July 28, 1987 7 EX-99.2 3 1992 STOCK OPTION PLAN 1 Exhibit 99.2 ADAC LABORATORIES 1992 STOCK OPTION PLAN, AMENDED AND RESTATED 1. PURPOSES OF PLAN. The purposes of this 1992 Stock Option Plan of ADAC Laboratories (the "Plan") are to attract and retain the best available personnel for positions of substantial responsibility, and to provide additional incentives to key employees, officers, consultants and other persons whose efforts are deemed worthy of encouragement in order to promote the growth and success of the Company's business. 2. DEFINITIONS. As used herein, the following definitions shall apply: (a) "BOARD" shall mean the Board of Directors of the Company. (b) "CODE" shall mean the Internal Revenue Code of 1986, as amended. (c) "COMMON STOCK" shall mean the Common Stock of the Company. (d) "COMPANY" shall mean ADAC Laboratories, a California corporation. (e) "COMMITTEE" shall mean the Committee appointed by the Board of Directors in accordance with Section 4(a) below, if one has been appointed. (f) "CONSULTANT" shall mean any person who is engaged by the Company or any Parent or Subsidiary of the Company to render consulting services. (g) "CONTINUOUS STATUS AS AN EMPLOYEE OR CONSULTANT" shall mean the absence of any interruption or termination of services as an Employee or Consultant. Continuous Status as an Employee or Consultant shall not be considered interrupted in the case of sick leave, military leave, or any other leave of absence approved by the Board, provided that either such leave is for a period of not more than ninety (90) days or reemployment upon the expiration of such leave is guaranteed by contract or statute. (h) "EMPLOYEE" shall mean any person, including an officer or director, employed by the Company or any Parent or Subsidiary of the Company. The payment of a director's fee by the Company shall not be sufficient to constitute "employment" by the Company. (i) "OFFICER" shall mean any person, including a director, employed by the Company or any Parent or Subsidiary of the Company who has been elected an officer of the Company by the Board 2 ADAC Laboratories 1992 Stock Option Plan, Amended and Restated of Directors and who is required to file periodic reports under Section 16(a) of the Securities Exchange Act of 1934. (j) "OPTION" or "OPTIONS" shall mean one or more stock options issued pursuant to the Plan. Options may be either "Incentive Options," which are defined as Options intended to meet the requirements of Section 422A of the Code and any regulations promulgated thereunder, or "Nonqualified Options," which are defined as Options not intended to meet such requirements. (k) "OPTIONED STOCK" shall mean the Common Stock subject to an Option. (l) "OPTIONEE" shall mean a person who receives an Option. (m) "PARENT" shall mean a "parent corporation", whether now or hereafter existing, as defined in Section 425(e) of the Code. (n) "PLAN" shall mean this 1992 Stock Option Plan. (o) "SHARE" shall mean a share of Common Stock, as may be adjusted in accordance with Section 11 below. (p) "SUBSIDIARY" shall mean a "subsidiary corporation", whether now or hereafter existing, as defined in Section 425(f) of the Code. 3. STOCK SUBJECT TO THE PLAN. Subject to the provisions of Section 11 and Section 4(b)(x) below, the maximum aggregate number of shares that may be optioned and sold under the Plan is 3,801,000 shares of Common Stock. If an Option should expire or become unexercisable for any reason without having been exercised in full, then the unpurchased shares that were subject to the Option shall, unless the Plan has been terminated, become available for future grant under the Plan. 4. ADMINISTRATION OF THE PLAN. (a) APPOINTMENT OF COMMITTEE. (i) Before any Option under the Plan is granted to an Officer or Director of the Company, the Board shall appoint a Committee, comprised of not less than two (2) members of the Board, each of whom shall be a "disinterested person", as that term is defined from time to time 2 3 ADAC Laboratories 1992 Stock Option Plan, Amended and Restated in Rule 16b-3 promulgated under the Securities Exchange Act of 1934, as amended, and, in addition, as may be further defined under Section 162(m) of the Internal Revenue Code of 1986. The Committee may be an existing committee of the Board or a new committee organized for the purpose of administering the Plan. Options granted to any person who is both an employee and a Director may be granted only by the Committee. (ii) An Option to an Officer may be granted by the Board if each member thereof is then a "disinterested person" (as hereinabove defined). Otherwise, an Option to an Officer may be granted only by the Committee. (iii) A Option to a person who is neither an Officer nor a Director may be granted by either the Board or the Committee. (iv) Subject to the foregoing, the Board may, from time to time, increase the size of the Committee and appoint additional members thereof, remove members (with or without cause) and appoint new members in substitution therefor, fill vacancies however caused or remove all members of the Committee. All actions of the Board or the Committee, if taken in accordance with the Company's Bylaws, shall be valid notwithstanding the fact that one or more of the members thereof do not constitute "disinterested persons", as hereinabove defined. (b) POWERS OF THE BOARD. Subject to the provisions of the Plan, the Board and the Committee shall have the authority, in its discretion: (i) to determine, upon review of relevant information, the fair market value of the Common Stock; (ii) to determine the persons to whom Options shall be granted, the time or times at which Options shall be granted, the number of Shares to be represented by each Option and the exercise price per Share; (iii) to interpret the Plan; (iv) to prescribe, adopt, amend, and rescind rules and regulations relating to the Plan; 3 4 ADAC Laboratories 1992 Stock Option Plan, Amended and Restated (v) to determine whether an Option granted shall be an Incentive Option or a Nonqualified Option and to determine the terms and provisions of each Option granted (which need not be identical) and, with the consent of the holder thereof, to modify or amend each Option; (vi) to determine the exercise date(s) and the number of shares exercisable at each such date, and to accelerate or defer (with the consent of the Optionee) the exercise date of any Option; (vii) to authorize any person to execute on behalf of the Company any instrument required to effectuate the grant of an Option previously approved by the Board or the Committee; (viii) to make such adjustments to Options granted under the Plan to enable them to comply with the laws of foreign jurisdictions and/or to make them consistent with options customarily utilized by companies in foreign jurisdictions; (ix) to make all other determinations deemed necessary or advisable for the administration of the Plan. (x) Notwithstanding the number of shares set forth in Section 3, the maximum aggregate number of shares subject to the Plan may be automatically increased by the Board, at its discretion and without shareholder approval, if the Board determines in connection with an acquisition of another business (whether by merger, consolidation or purchase of assets or otherwise) that it is necessary to grant a substantial number of new options to employees of, or persons holding options in, such acquired business to replace existing options, to grant new options to incentivize the employees or replace other equity rights previously granted to such persons by the acquired business. The amount of the additional number of shares to become subject to the Plan shall not exceed the number of new options granted in connection with such acquisition. (c) EFFECT OF DECISIONS. All decisions, determinations, and interpretations of the Board or the Committee shall be final and binding on all Optionees and any other holders of any Options granted under the Plan. 4 5 ADAC Laboratories 1992 Stock Option Plan, Amended and Restated 5. ELIGIBILITY; MAXIMUM ANNUAL LIMITATION. Options may be granted only to Employees, Officers, Consultants or other persons whose efforts are deemed by the Board or the Committee to be worthy of encouragement in order to promote the growth and success of the Company. A person who has been granted an Option may, if he/she is otherwise eligible, be granted an additional Option or Options. Options under the Plan may not be granted to any non-employee director. The aggregate number of shares of Common Stock with respect to which Options may be granted to any one Optionee shall not exceed 300,000 shares in any calendar year, subject to adjustment in accordance with Section 11. Neither the Plan nor any Option granted hereunder shall confer upon any Optionee any right with respect to continuation of employment with the Company, nor shall it interfere in any way with his/her right or the Company's right to terminate his/her employment at any time, with or without cause. 6. TERM OF PLAN. The Plan shall continue in effect for a term of ten (10) years unless sooner terminated under Section 13 below. Options may be granted hereunder immediately. 7. TERM OF OPTION. The term of any Incentive Option granted under the Plan shall be for a period of not to exceed ten (10) years from the date on which it is granted, as determined by the Board of Directors or the Committee; provided, however, that any Incentive Option granted to any person who owns shares possessing more than ten percent (10%) of the total combined voting power or value of all classes of stock of the Company or of a Subsidiary of the Company shall have a term of not to exceed five (5) years. The term of a Nonqualified Option shall be for a period of not to exceed ten (10) years from the date on which it is granted, as determined by the Board of Directors or the Committee. 8. EXERCISE PRICE AND CONSIDERATION. (a) EXERCISE PRICE. The per share exercise price for the Shares to be issued pursuant to the exercise of an Incentive Option shall not be less than one hundred percent (100%) of the fair market value of the Company's Common Stock on the date of grant as determined by the Board or the Committee; provided, however, that any Incentive Option granted to any person who owns shares possessing more than ten percent (10%) of the total combined voting power or value of all classes of stock of the Company or of a Subsidiary thereof shall have a per share exercise price of one hundred ten percent (110%) of the fair market value of the Company's Common Stock on the date of grant as determined by the 5 6 ADAC Laboratories 1992 Stock Option Plan, Amended and Restated Board or the Committee. The per share exercise price for Shares to be issued pursuant to the exercise of a Nonqualified Option shall not be less than one hundred percent (100%) of the fair market value of the Company's Common Stock on the date of grant as determined by the Board or the Committee. (b) FAIR MARKET VALUE. The fair market value shall be determined by the Board or the Committee in its discretion; provided, however, that if there is a public market for the Common Stock, the fair market value per Share shall be, in the event the Common Stock is listed on the NASDAQ National Market System or on a stock exchange, the closing price on such National Market System or exchange on the date of grant of the Option, as reported in the "Wall Street Journal", and, if not so listed, fair market value shall be the mean of the bid and asked prices of the Common Stock on the date of the grant, as reported in the "Wall Street Journal" (or, if not so reported, as otherwise reported by the National Association of Securities Dealers Automated Quotation (NASDAQ) System). (c) CONSIDERATION. The consideration to be paid for the Shares to be issued upon exercise of an Option, including the method of payment, shall be determined by the Board or the Committee and may consist entirely of cash, check, promissory note or shares of Company Common Stock (which must have been held for at least six (6) months) having a fair market value on the date of surrender equal to the aggregate exercise price of the Shares as to which the Option shall be exercised, or any combination of such methods of payment, or other consideration and method of payment for the issuance of Shares to the extent permitted under Section 408 and 409 of the California General Corporation Law. In making its determination as to the type of consideration to accept, the Board or the Committee shall consider whether such consideration may be reasonably expected to benefit the Company. (d) RE-LOAD OPTION. Whenever an Optionee exercises an Option by surrendering already-owned shares to pay all or a portion of the exercise price, if the Option Agreement so provides or if permitted by the Board or the Committee, at its discretion, at the time of such exercise, the Optionee shall receive a new Option for the purchase of a number of Shares equal to the number of Shares so surrendered, and such new Option shall have an exercise price of not less than the fair market value of a Share of Common Stock on the date of such surrender and shall vest and become exercisable as may be determined by the Board or the Committee. 6 7 ADAC Laboratories 1992 Stock Option Plan, Amended and Restated (e) WITHHOLDING TO PAY TAXES. Option Agreements under the Plan may contain a provision to the effect that all Federal and state taxes required to be withheld or collected from an Optionee upon exercise of an Option may be satisfied by either (i) delivering outstanding shares of Common Stock of the Company previously owned for six (6) months by the Optionee or (ii) the withholding of a sufficient number of exercised Option shares which, valued at fair market value on the date of exercise, would be equal to the total withholding obligation of the Optionee; provided, however, that no person who is an "officer" of the Company, as such term is defined in Rule 3b-2 under the Securities Exchange Act of 1934, may elect to satisfy the withholding of Federal and state taxes upon the exercise of an Option by the withholding of Optioned Stock unless such election is made either (i) at least six months prior to the date that the exercise of the Option becomes a taxable event or (ii) during any of the periods beginning on the third business day following the date on which the Company releases publicly the operating results of a fiscal quarter or fiscal year and ending on the twelfth (12th) business day following such date. Such election shall be deemed made upon receipt of notice thereof by an officer of the Company, by mail, personal delivery or by facsimile message, and shall be operative for all Option exercises which occur following the election, until terminated by a notice revoking such withholding election (such termination shall become effective six (6) months after the date of such new notice). 9. EXERCISE OF OPTION. (a) PROCEDURE FOR EXERCISE; RIGHTS AS A SHAREHOLDER. (i) Any Option granted hereunder shall be exercisable at such times and under such conditions as determined by the Board or the Committee, including performance criteria with respect to the Company and/or the Optionee, and as otherwise permissible under the terms of the Plan. (ii) An Option may not be exercised for a fraction of a Share. (iii) An Option shall be deemed to be exercised when written notice of such exercise has been given to the Company in accordance with the terms of the Option by the person entitled to exercise the Option and full payment for the Shares with respect to which the Option is exercised has been received by the Company; provided, however, that the Board or the Committee may prescribe and adopt rules and procedures allowing an Optionee to exercise an Option and sell the Optioned Stock simultaneously (or on the same 7 8 ADAC Laboratories 1992 Stock Option Plan, Amended and Restated business day) under circumstances which provide reasonable certainty that the Company will receive the Option exercise price by the settlement date of the sale of the Optioned Stock. Until the issuance (as evidenced by an appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company) of the stock certificate evidencing such Shares, no right to vote or receive dividends or any other rights as a shareholder shall exist with respect to the Optioned Stock, notwithstanding the exercise of the Option. No adjustment shall be made for a dividend or other right for which the record date is prior to the date the stock certificate is issued, except as provided in Section 11 below. (iv) Exercise of an Option in any manner shall result in a decrease in the number of Shares which thereafter may be available, both for purposes of the Plan and for exercise under the Option, by the number of Shares as to which the Option is exercised. (b) TERMINATION OF CONTINUOUS STATUS AS AN EMPLOYEE OR CONSULTANT. (i) Except as set forth in Section 9(b)(ii) below, if an Employee or Consultant ceases his/her Continuous Status as an Employee or Consultant (as the case may be), he/she may, but only within ninety (90) days (or, with respect to Nonqualified Options, such longer period of time as may be determined by the Board or the Committee), after the date he/she ceases to have such Continuous Status, exercise his/her Option to the extent that he/she was entitled to exercise it at the date of such termination. (ii) Notwithstanding the provisions of Section 9(b)(i) above, if the holder of an Option (A) is terminated due to Optionee's willful refusal to perform the normal and/or reasonable duties and responsibilities delegated to Optionee as an Employee of the Company, (B) is terminated due to Optionee's expropriation of Company property (including trade secrets or other proprietary rights), or (C) leaves the employment of the Company in order to directly (or indirectly, as an employee or agent of another business or business entity) compete with the Company, the Board or the Committee shall have the authority, by notice to the holder of an Option, to immediately terminate such Option, effective on the date of termination, and such Option shall no longer be exercisable to any extent whatsoever. (c) RETIREMENT. Notwithstanding the provisions of Section 9(a) above, if an Optionee ceases Continuous Status as an 8 9 ADAC Laboratories 1992 Stock Option Plan, Amended and Restated Employee or Consultant as a result of retiring as an active Employee or Consultant of the Company at age 62 or older, such ninety-day period shall be extended to one (1) year. To the extent that Optionee was not entitled to exercise the Option at the date of such termination, or if Optionee does not exercise such Option within the time specified herein, the Option shall terminate. (d) DISABILITY. Notwithstanding the provisions of Section 9(a) above, in the event an Employee or Consultant is unable to continue his/her employment or consulting relationship (as the case may be) with the Company as a result of his/her total and permanent disability (as defined in Section 105(d)(4) of the Code), he/she may, but only within a period of up to twenty-four (24) months (or such shorter or longer period of time as is determined by the Board or the Committee or as set forth in the Option Agreement) from the date of termination, exercise the Option to the extent Optionee was entitled to exercise it at the date of such termination. To the extent that Optionee was not entitled to exercise the Option at the date of termination, or if Optionee does not exercise such Option within the time specified herein, the Option shall terminate. (e) DEATH OF OPTIONEE. In the event of the death of an Optionee which occurs during the time in which an Option may be exercised, such Option may be exercised at any time within two (2) years following the date of death or such shorter period as may be set forth in the Option Agreement, by the Optionee's estate or by a person who acquired the right to exercise the Option by bequest or inheritance, but only to the extent of the right to exercise that would have accrued had the Optionee continued living and remained in Continuous Status as an Employee or Consultant for two (2) years after the date of death. (f) DESIGNATION OF BENEFICIARY. Notwithstanding anything in the Plan to the contrary, any Option Agreement issued under the Plan may provide for the designation of a beneficiary of the Optionee (which may be an individual or a trust) who may exercise the Option after the Optionee's death and enjoy the economic benefits thereof, subject to the consent of Optionee's spouse if required by law. 10. NON-TRANSFERABILITY OF OPTIONS. Options shall not be transferable by the holder thereof otherwise than (i) by will, (ii) pursuant to the laws of descent and distribution or (iii) pursuant to a dissolution of marriage, whether pursuant to a qualified domestic relationship order, 9 10 ADAC Laboratories 1992 Stock Option Plan, Amended and Restated stipulation between the optionholder and spouse or otherwise; provided, however, that an Optionee may designate a beneficiary who, upon Optionee's death, may exercise the Option to the extent permitted in Section 9 of the Plan. 11. ADJUSTMENTS. (a) STOCK SPLITS, DIVIDENDS AND OTHER COMBINATIONS. Subject to any required action by the shareholders of the Company, the number of shares of Common Stock covered by each outstanding Option, and the number of shares of Common Stock which have been authorized for issuance under the Plan but as to which no Options have yet been granted or which have been returned to the Plan upon cancellation or expiration of an Option, as well as the price per share of Common Stock covered by each such outstanding Option, shall be proportionately adjusted for any increase or decrease in the number of issued shares of Common Stock resulting from a stock split, reverse stock split, stock dividend, combination or reclassification of the Common Stock, or any other increase or decrease in the number of issued shares of Common Stock effected without receipt of consideration by the Company; provided, however, that conversion of any convertible securities of the Company shall not be deemed to have been "effected without receipt of consideration." Such adjustment shall be made by the Board or the Committee, whose determination in that respect shall be final, binding and conclusive. Except as expressly provided herein, no issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of shares of Common Stock subject to an Option. (b) DISSOLUTION OR LIQUIDATION. In the event of the proposed dissolution or liquidation of the Company, each Option shall terminate immediately prior to the consummation of such proposed action, unless otherwise provided by the Board or the Committee. The Board or the Committee may, in the exercise of its sole discretion in such instances, declare that any Option shall terminate as of a date fixed by the Board or the Committee and give each Optionee the right to exercise his/her Option as to all or any part of the Optioned Stock, including Shares as to which the Option would not otherwise be exercisable. (c) SALE OF ASSETS OR MERGER. In the event of a proposed sale of all or substantially all of the assets of the Company, or the merger of the Company with or into another corporation, the Option shall be assumed or an equivalent option 10 11 ADAC Laboratories 1992 Stock Option Plan, Amended and Restated (containing the same vesting schedule and equivalent exercise price) shall be substituted by such successor corporation or a parent or subsidiary of such successor corporation, unless the Board or the Committee determines, in the exercise of its sole discretion and in lieu of such assumption or substitution, that the Optionee shall have the right to exercise the Option as to all of the Optioned Stock, including Shares as to which the Option would not otherwise be exercisable. If the Board or the Committee makes an Option fully exercisable in lieu of assumption or substitution in the event of a merger or sale of assets, then the Board shall notify the Optionee that the Option shall be fully exercisable for a period of thirty (30) days from the date of such notice, and the Option shall terminate upon the expiration of such period. (d) CHANGE IN CONTROL. (i) Except and to the extent provided otherwise in, or limited by, employment, severance or similar written agreements between the Company and an Optionee, ten (10) days prior to a "Change in Control" (as defined below), all stock options which are then not exercisable shall immediately vest and become exercisable, regardless of the original vesting schedule. A "Change in Control" of the Company shall be deemed to have occurred if (a) any "person" or "group" (as defined in or pursuant to Sections 13(d) or 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")), becomes the "beneficial owner" (as defined in Rule 13d-3 promulgated under the Exchange Act), directly or indirectly, of securities of the Company representing 40% or more of the voting power of the common stock outstanding which votes generally for the election of directors; (b) as a result of market or corporate transactions or shareholder action, the individuals who constitute the Board of Directors of the Company at the beginning of any period of 12 consecutive months (but commencing not earlier than July 1, 1995), plus any new directors whose election or nomination was approved by a vote of at least two-thirds of the directors still in office who were directors at the beginning of such period of 12 consecutive months, cease for any reason during such period of 12 consecutive months to constitute at least two-thirds of the members of such Board; or (c) the Company sells, through merger, assignment or otherwise, in one or more transactions other than in the ordinary course of business, assets which provided at least 2/3 of the revenues or pre-tax net income of the Company and its subsidiaries on a consolidated basis during the most recently-completed fiscal year. (ii) Notwithstanding paragraph (i) above, the following events shall not constitute a Change in Control: any 11 12 ADAC Laboratories 1992 Stock Option Plan, Amended and Restated acquisition of beneficial ownership pursuant to (a) a reclassification, however effected, of the Company's authorized common stock, or (b) a corporate reorganization involving the Company or any of its subsidiaries which does not result in a material change in the ultimate ownership by the shareholders of the Company (through their ownership of the Company or its successor resulting from the reorganization) of the assets of the Company and its subsidiaries, but only if such reclassification or reorganization has been approved by the Company's Board of Directors. 12. SPECIAL PROVISIONS RELATING TO INCENTIVE OPTIONS. The Company shall not grant Incentive Options under the Plan to any Optionee to the extent that the aggregate fair market value of the Common Stock covered by such Incentive Options which are exercisable for the first time during any calendar year, when combined with the aggregate fair market value of all stock covered by incentive stock options granted to such Optionee after December 31, 1986 by the Company, its Parent or a Subsidiary thereof which are exercisable for the first time during the same calendar year, exceeds $100,000. Incentive Options shall be granted only to persons who, on the date of grant, are Employees of the Company or a Parent or a Subsidiary of the Company. Notwithstanding the above, to the extent the fair market value of Shares subject to Incentive Stock Options first exercisable in a calendar year is greater than $100,000, the excess Options shall be treated as Non-qualified Options. 13. AMENDMENT AND TERMINATION OF THE PLAN. (a) AMENDMENT AND TERMINATION. The Board or the Committee may at any time suspend, amend or terminate the Plan with or without shareholder approval; provided, however, that if the Plan has been previously approved by the shareholders, no amendment or modification may be adopted without shareholder approval if the amendment would (i) materially increase the benefits accruing to participants under the Plan; (ii) materially increase the number of Shares which may be issued under the Plan or (iii) materially modify the requirements as to the eligibility for participation in the Plan. (b) EFFECT OF AMENDMENT OR TERMINATION. Any such amendment or termination of the Plan shall not affect Options already granted and such Options shall remain in full force and effect as if the Plan had not been amended or terminated, unless mutually agreed otherwise between the Optionee and the Board or the Committee, which agreement must be in writing and signed by the Optionee and the Company. 12 13 ADAC Laboratories 1992 Stock Option Plan, Amended and Restated 14. CONDITIONS UPON ISSUANCE OF SHARES. (a) COMPLIANCE WITH SECURITIES LAWS. Shares shall not be issued pursuant to the exercise of an Option unless the exercise of such Option and the issuance and delivery of such Shares pursuant thereto complies with all relevant provisions of law, including, without limitation, the Securities Act of 1933, the Securities Exchange Act of 1934, the rules and regulations promulgated thereunder, and the requirements of any stock exchange upon which the Shares may then be listed. The exercise of such Option and the issuance and delivery of such Shares pursuant thereto shall be further subject to the approval of counsel for the Company with respect to such compliance. (b) INVESTMENT REPRESENTATION. As a condition to the exercise of an Option, the Company may require the person exercising such Option to represent and warrant at the time of any such exercise that the Shares are being purchased only for investment and without any present intention to sell or distribute such Shares if, in the opinion of counsel for the Company, such a representation is required by any of the aforementioned relevant provisions of law. 15. RESERVATION OF SHARES. The Company, during the term of the Plan, will at all times reserve and keep available such number of Shares as shall be sufficient to satisfy the requirements of the Plan. The inability of the Company to obtain authority from any regulatory body having jurisdiction, which authority is deemed by the Company's counsel to be necessary to the lawful issuance and sale of any Shares hereunder, shall relieve the Company of any liability in respect of the failure to issue or sell such Shares as to which such requisite authority shall not have been obtained. 16. OPTION AGREEMENTS. Options shall be evidenced by written Option Agreements in such form as the Board or the Committee shall approve. 17. SHAREHOLDER APPROVAL. The Plan shall become effective when approved by the Board or any committee thereof having authority to do so and the shareholders of the Company. Adopted and Approved Effective July 8, 1992 13 EX-99.3 4 EMPLOYEE STOCK PURCHASE PLAN (1994) 1 Exhibit 99.3 ADAC LABORATORIES AMENDED AND RESTATED EMPLOYEE STOCK PURCHASE PLAN (1994) 1. ESTABLISHMENT OF THE PLAN; PURPOSE. This Employee Stock Purchase Plan (1994) (the "Plan") is established to provide Eligible Employees with an opportunity through regular payroll deductions to purchase Common Stock of ADAC Laboratories (the "Company") so that they may increase their proprietary interest in the Company. The Plan is intended to qualify as an "employee stock purchase plan" under Section 423 of the Internal Revenue Code. 2. DEFINITIONS. As used herein, the following definitions shall apply: (a) "Board of Directors" means the Committee, if one has been appointed, or the Board of Directors of the Company if no Committee has been appointed. (b) "Code" means the Internal Revenue Code, as amended from time to time. (c) "Committee" means the committee appointed by the Board of Directors to administer the Plan in accordance with Section 3 below, if one is appointed. (d) "Company" means ADAC Laboratories and such present or future Subsidiaries, as defined in Section 424 of the Code, of the Company as the Board of Directors shall from time to time designate. (e) "Compensation" means the annual base rate of pay of a Participant, determined in accordance with nondiscriminatory rules adopted by the Board of Directors, including commissions, but excluding bonuses, income with respect to stock options or other stock purchases, moving expense reimbursements, shift differentials or any pay for work outside the regular work schedule. (f) "Eligible Employee" means any regular employee of the Company who is customarily employed for at least 20 hours per week and more than five (5) months in any calendar year. (g) "Fair Market Value" of a share of Stock means the NASDAQ closing price on the applicable date. In the event the Stock is not traded on the date as of which the Fair Market Value is to be determined, Fair Market Value shall be determined as of the next preceding date on which the Stock is traded. (h) "Interim Offering Period" means each period (of up to three months in duration) during and within an Offering Period, all as established by the Board of Directors. 2 ADAC Laboratoires Amended and Restated Employee Stock Purchase Plan (1994) (i) "Option" means the right of a Participant to purchase Stock during the applicable Offering Period. (j) "Offering Date" means the first day of each Offering Period. (k) "Offering Period" means, in the absence of a specific determination to the contrary by the Board of Directors or the Committee, a 27-month period during which contributions may be made toward the purchase of Stock under the Plan. The Board of Directors or the Committee shall establish from time to time Option Periods which shall be up to twenty-seven (27) months. The first Offering Period under the Plan shall commence March 1, 1994. (l) "Participant" means an Eligible Employee who elects to participate in the Plan. (m) "Plan Account" means the account established for each Participant pursuant to the Plan. No interest shall accrue for the Participant in the Plan Account. (n) "Purchase Price" means the price at which Participants may purchase Stock as determined pursuant to the Plan. (o) "Stock" means the Common Stock of the Company. (p) "Subsidiary" means a corporation a majority of whose voting shares are owned by the Company. 3. ADMINISTRATION. The Plan shall be administered by the Board of Directors and/or by a duly appointed Committee consisting of two or more persons, at least two of which shall be members of the Board of Directors, and having such powers as shall be specified by the Board. The Board of Directors may from time to time remove members from, or add members to, the Committee. Vacancies on the Committee, howsoever caused, shall be filled by the Board of Directors. The Committee shall select one of its members as Chairman, and shall hold meetings at such times and places as it may determine. The interpretation and construction by the Board of Directors or the Committee of any provision of the Plan or of any right to purchase Stock shall be conclusive and binding on all persons. 4. NUMBER OF SHARES TO BE OFFERED. The maximum aggregate number of shares which shall be offered under the Plan shall be 185,000 shares of Stock, subject to adjustment as provided in Section 8 hereof. In the event that any Option granted under the Plan expires or is terminated for any reason, such shares allocable to the unexercised portion of such Option shall again be subject to an Option under the Plan. 2 3 ADAC Laboratoires Amended and Restated Employee Stock Purchase Plan (1994) 5. ELIGIBILITY AND PARTICIPATION. (a) INITIAL PARTICIPATION. An Eligible Employee shall become a Participant on the Offering Date after satisfying the eligibility requirements by delivering to the Company's payroll office an enrollment form authorizing payroll deductions not less than ten (10) business days prior to such Offering Date. An Eligible Employee who did not enroll in the Plan prior to the Offering Date, or a person who becomes an Eligible Employee after an Offering Date, may enroll in the Plan for the remainder of the Offering Period as of the beginning of the next Interim Offering Period by completing and filing an enrollment form prior to the commencement date of such Interim Offering Period. (b) CONTINUED PARTICIPATION. A Participant shall automatically participate in each successive Offering Period (including Interim Offering Periods) until such time as such Participant withdraws from the Plan as set forth below. A Participant is not required to file any additional enrollment forms for subsequent Offering Periods in order to continue participation in the Plan. (c) PAYROLL DEDUCTION RATE. The Participant shall designate on the enrollment form the percentage of Compensation which he or she elects to have withheld for the purchase of Stock, which may be any whole percentage from 1% to 10% of the Participant's Compensation. A Participant may reduce (but not increase) the rate of payroll withholding during an Offering Period by filing an amended enrollment form with the Committee at any time prior to the last day of any Interim Offering Period (for which such change is to be effective), but not more than three (3) changes may be made in any Offering Period (or such other number of changes as may be approved by the Board or the Committee). A Participant may increase or decrease the rate of payroll deduction for any subsequent Offering Period by filing with the Company a new authorization for payroll deductions not less than ten (10) days prior to the Offering Date for such subsequent Offering Period. By enrolling in the Plan, a Participant shall be deemed to have elected to purchase the maximum number of whole shares of Stock which can be purchased with the amount of the Participant's Compensation which is withheld during the Offering Period; provided, however, that with respect to any Interim Offering Period no Participant may purchase more than 100 shares of Stock or shares of Stock in excess of the amount permitted under Section 9. (d) OFFERING PERIOD. Any Options granted pursuant to the Plan shall be subject to the Company obtaining all necessary governmental approvals and/or qualifications of the sale and/or issuance of Options and/or Stock. 3 4 ADAC Laboratoires Amended and Restated Employee Stock Purchase Plan (1994) (e) PURCHASE PRICE. The Purchase Price for each share of Stock to be purchased under the Plan shall be eighty-five percent (85%) of the Fair Market Value of such share on either (i) the Offering Date (or the date of entry for new or re-enrolling employees) or (ii) the last day of each Interim Offering Period, whichever is less. (f) CONTRIBUTIONS. The Purchase Price of the Stock shall be accumulated by payroll deductions throughout the Offering Period, which shall be applied automatically to purchase Stock at the end of each Interim Offering Period. In the absence of a contrary determination prior to the commencement of an Offering Period, each Interim Offering Period shall have the durations described in Section 2(h) of the Plan. At the end of each Interim Offering Period, accrued payroll deductions will be automatically applied to the purchase of Stock at the Purchase Price as hereinabove defined. Payroll deductions shall commence on the first payday following the Offering Date (or, in the case of a new or re-enrolling employee, on the first payday following the commencement of the applicable Interim Offering Period) and shall continue to the end of the Offering Period unless sooner altered or terminated as provided in the Plan. (g) EFFECT OF LEAVE OF ABSENCE. During a leave of absence approved by the Company, a Participant may, for such period as the Committee shall deem reasonable, continue contributions to the Plan by making cash payments to the Company on his normal paydays in an amount equal to the difference between the amount of his regular payroll deductions taken while such employee was participating under the Plan and the amount of his payroll deductions taken while on such leave of absence. Failure to pay any installment within ten (10) days after the payday on which it is due shall be treated as a withdrawal from the Plan. (h) PURCHASE OF STOCK. The Company will maintain a Plan Account on its books in the name of each Participant. On each payday the amount deducted from the Participant's Compensation will be credited to the Participant's Plan Account. No interest shall accrue on any such payroll deductions. As of the last day of each Interim Offering Period the amount then in the Participant's Plan Account will be divided by the Purchase Price and the amount in the Participant's Plan Account shall be used to purchase the number of whole shares of Stock which result. Share certificates representing the number of shares of Stock so purchased shall be issued and delivered to the Participant as soon as reasonably practicable after the close of each Interim Offering Period. Any amount remaining in the Participant's Plan Account at the end of an Offering Period after deducting the amount of the Purchase Price for the number of whole shares issued to the Participant shall remain in the Participant's Plan Account, without any accrual of 4 5 ADAC Laboratoires Amended and Restated Employee Stock Purchase Plan (1994) interest, and shall be applied against the purchases to be made during the next Interim Offering Period. (i) WITHDRAWAL. A Participant may elect to withdraw from participation in the Plan at any time up to the last day of an Interim Offering Period by filing the prescribed form with the Committee. At the time of withdrawal, the amount credited to the Participant's Plan Account will be refunded in cash, without interest. Upon withdrawal from the Plan, the accumulated payroll deductions shall be returned to the withdrawn Participant and the withdrawn Participant's interest in the Plan shall terminate. In the event a Participant voluntarily elects to withdraw from the Plan, such Participant may not resume participation in the Plan until after the expiration of one complete Interim Offering Period; provided, however, notwithstanding the duration of any Interim Offering Period, any officer or director of the Company participating under the Plan may not resume participation in the Plan for at least six (6) months after his or her withdrawal. Re-enrollment in the Plan shall be made in the same manner as set forth above for initial participation in the Plan. (j) PRO RATA ALLOCATION. In the event that the aggregate number of shares which all Participants elect to purchase during an Interim Offering Period shall exceed the number of shares remaining available for issuance under the Plan, the number of shares to which each Participant shall become entitled shall be determined by multiplying the number of shares available for issuance by a fraction, the numerator of which is the sum of the number of shares the Participant has elected to purchase and the denominator of which is the sum of the number of shares which all Participants have elected to purchase. 6. EFFECT OF TERMINATION OF EMPLOYMENT. Termination of a Participant's employment for any reason, including retirement or death, or the failure of a Participant to remain an Eligible Employee shall be treated as a withdrawal under the Plan. In the event of the Participant's death, the refund of the Participant's Plan Account shall be paid, without interest, to the representative of the Participant's estate. A transfer by a Participant from the Company to a Subsidiary, from one Subsidiary to another, or from a Subsidiary to the Company shall not be treated as a termination of employment. 7. RIGHTS NOT TRANSFERABLE. The rights or interests of any Participant in the Plan, in any Option granted under the Plan, or in any Stock or moneys to which he or she may be entitled under the Plan, shall not be transferable by voluntary or involuntary assignment or by operation of law, or by any other manner otherwise than by will or the applicable laws of descent and distribution. If the Participant 5 6 ADAC Laboratoires Amended and Restated Employee Stock Purchase Plan (1994) shall in any manner attempt to transfer, assign or otherwise encumber his or her rights or interests under the Plan, other than by will, such act shall be treated as a withdrawal from the Plan. 8. RECAPITALIZATION, ETC. Subject to any required action by the shareholders of the Company, the number of shares of Stock covered by each Option under the Plan which has not yet been exercised and the number of shares of Stock which have been authorized for issuance under the Plan but have not yet been placed under an Option (collectively the "Reserves"), as well as the price per share of Stock covered by each Option under the Plan which has not yet been exercised, shall be proportionately adjusted for any increase or decrease in the number of issued shares of Stock resulting from a stock split, reverse stock split, stock dividend, combination or reclassification of Stock, or any other increase or decrease in the number of shares of Stock effected without receipt of consideration by the Company; provided, however, that conversion of any convertible securities of the Company shall not be deemed to have been "effected without receipt of consideration." Such adjustment shall be made by the Board, whose determination in that respect shall be final, binding and conclusive. Except as expressly provided herein, no issue by the Company of the shares of Stock of any class shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of shares of Stock subject to an Option. In the event of the proposed dissolution or liquidation of the Company, the Offering Period will terminate immediately prior to the consummation of such proposed action, unless otherwise provided by the Board. In the event of a proposed sale of all or substantially all of the assets of the Company, or the merger of the Company with or into another corporation, each Option under the Plan shall be assumed or an equivalent option shall be substituted by such successor corporation, unless the Board determines, in the exercise of its sole discretion and in lieu of such assumption or substitution, that the Participant shall have the right to exercise the Option as to all of the optioned Stock, including shares as to which the Option would not otherwise be exercisable. If the Board makes an Option fully exercisable in lieu of assumption or substitution in the event of a merger or sale of assets, the Board shall notify the Participant that the Option shall be fully exercisable for a period of thirty (30) days from the date of such notice, and the Option will terminate upon the expiration of such period. The Board may also, if it so determines in the exercise of its sole discretion, make provision for adjusting the Reserves, as well as the price per share of Stock covered by each outstanding Option, in the event that the Company effects one or more reorgani- 6 7 ADAC Laboratoires Amended and Restated Employee Stock Purchase Plan (1994) zations, recapitalization, rights offerings or other increases or reductions of shares of its outstanding Stock, and in the event of the Company being consolidated with or merged into any other corporation. 9. LIMITATION ON STOCK OWNERSHIP. Notwithstanding any provision herein to the contrary, no Participant shall be granted a right to purchase Stock pursuant to Section 5 if such Participant, immediately after electing to purchase such Stock, would own Stock possessing five percent (5%) or more of the total combined voting power or value of all classes of stock of the Company or any parent or Subsidiary of the Company, or (ii) if under the terms of the Plan the rights of the employee to purchase Stock under this and all other qualified employee stock purchase plans of the Company or its Subsidiaries would accrue at a rate that exceeds $25,000 of fair market value of such Stock (determined at the time such right is granted) for each calendar year for which such right is outstanding at any time. For purposes of this Section 9, ownership of Stock shall be determined by the attribution rules of Section 424(d) of the Code and Participants shall be considered to own any Stock which they have a right or option to purchase under this or any other plan. 10. RIGHTS AS AN EMPLOYEE. Nothing in the Plan shall be construed to give any Participant the right to remain in the employ of the Company or a Subsidiary or to affect the right of the Company and its Subsidiaries or the Participant to terminate such employment at any time with or without cause. 11. RIGHTS AS A SHAREHOLDER. A Participant shall have no rights as a shareholder with respect to any shares of Stock he or she may have a right to purchase under the Plan until the date of issuance of a stock certificate to such Participant for shares issued pursuant to the Plan. 12. AMENDMENT OR TERMINATION OF THE PLAN. The Board of Directors shall have the right to amend, modify or terminate the Plan at any time without notice, provided that no Participant's existing rights are adversely affected thereby, and provided further that no amendment to the Plan shall be effective until such amendment is approved by a vote of the holders of at least a majority of the outstanding shares of Common Stock of the Company within twelve months before or after the date upon which such action is taken by the Board of Directors, if such amendment would: 7 8 ADAC Laboratoires Amended and Restated Employee Stock Purchase Plan (1994) (a) Increase the aggregate number of shares of Stock to be issued under the Plan (except as provided in Section 8 hereof); (b) Materially modify the requirements for eligibility to participate in the Plan; (c) Increase the maximum number of shares of Stock which a Participant may purchase in any Offering Period; (d) Extend the term of the Plan; (e) Alter the Purchase Price formula so as to reduce the price for shares of Stock to be purchased under the Plan; (f) Otherwise materially increase the benefits accruing to Participants under the Plan; or (g) Cause the Plan to fail to meet the requirements of an "employee stock purchase plan" under Section 423 of the Code. The Plan shall terminate on December 31, 2003, unless it has been earlier terminated pursuant to this Section 12, but the Plan shall remain in full force and effect until the end of the Offering Period then in effect. Adopted by the Board of Directors on November 3, 1993 and approved by the Shareholders on March 2, 1994; amended by the Board of Directors on June 11, 1995; and amended by the Board of Directors on November 2, 1995 and approved by the Shareholders on March 6, 1996. 8 -----END PRIVACY-ENHANCED MESSAGE-----