-----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, FLgu+2CrOTy73YqceU3V89sKIe/CrISvg8DEyMx7YdnkBSENps1omTzkHDrnaz8i Z3+ehxhJor5IQ1nsfGYntQ== 0000898430-95-002746.txt : 19951229 0000898430-95-002746.hdr.sgml : 19951229 ACCESSION NUMBER: 0000898430-95-002746 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 19951001 FILED AS OF DATE: 19951228 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: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 000-09428 FILM NUMBER: 95605221 BUSINESS ADDRESS: STREET 1: 540 ALDER DR CITY: MILPITAS STATE: CA ZIP: 95035 BUSINESS PHONE: 4083219100 10-K405 1 ANNUAL REPORT ON FORM 10-K SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year Ended October 1, 1995 OR [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ________________ to ________________ Commission file number 0-9428 ADAC LABORATORIES ---- ------------ (Exact name of registrant as specified in its charter) California 94-1725806 ---------- ---------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 540 Alder Drive Milpitas, California 95035 -------------------- ----- (Address of principal executive offices) (Zip Code) (408) 321-9100 -------------- (Registrant's telephone number including area code) Securities registered pursuant to Section 12(b)of the Act: Name of each exchange Title of Each Class on which registered ------------------- --------------------- None None Securities registered pursuant to Section 12(g) of the Act: Common Stock ------------ (Title of class) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ----- 1 The aggregate market value of the voting stock (which is the outstanding Common Stock) of the Registrant held by non-affiliates thereof, based upon the closing price of the Common Stock on December 1, 1995, on the NASDAQ National Market System ($12.375 per share) was approximately $204,139,262. For the purpose of the foregoing computation, only the directors and executive officers of the Registrant were deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes. As of December 1, 1995, Registrant had outstanding 17,139,545 shares of Common Stock, no par value, which is the only class of shares publicly traded. DOCUMENTS INCORPORATED BY REFERENCE - ----------------------------------- Parts of the Proxy Statement for Registrant's 1996 Annual Meeting of Shareholders, to be filed with the Commission on or before 120 days after the end of the 1995 fiscal year, are incorporated by reference into Part III hereof. Indicate by check mark if disclosures of delinquent filers pursuant to item 405 of Regulation S-K is not contained herein, and will not be contained to the best of the Registrant's knowledge, in definitive proxy or information definitive proxy or information statements incorporated by reference in Part III of the Form 10-K or any amendments to this Form 10-K. ( X ) 205RS-290 Cover 2 PART I ITEM 1. BUSINESS - ------- -------- General - ------- ADAC Laboratories ("ADAC" or "the Company") designs, develops, manufactures, sells and services medical imaging and information systems used in hospitals and clinics worldwide. The Company's products include applications for nuclear medicine, laboratory, radiology, cardiology and oncology. In July 1995, ADAC completed the acquisition of Community Health Computing (CHC), a provider of radiology and laboratory healthcare information systems. This acquisition is expected to expand the Company's addressable information systems business in markets not previously serviced by the Company. The Company markets the following diagnostic imaging systems and information systems: Medical Systems - Nuclear Medicine Systems - Radiation Therapy Planning Systems - Digital Angiography Systems HealthCare Information Systems - Radiology Information Systems - Laboratory Information Systems ADAC was incorporated in California on October 14, 1970. Its principal offices are located at 540 Alder Drive, Milpitas, California, 95035. Its telephone number at that location is (408) 321-9100. PRODUCTS - -------- Nuclear Medicine Systems - ------------------------ Nuclear medicine is a diagnostic imaging procedure where the patient is administered a radiotracer compound. This compound is either injected or swallowed and flows to the organ(s) under examination. The patient is then scanned with a gamma camera which detects the radiotracer emissions from these organ(s). The data from the emissions are then processed to provide the physician with images and information regarding the functional and metabolic performance of the organ(s). The physician uses this information for the diagnosis of diseases and the evaluation of disease progression (staging), including cardiology, oncology and neurology. ADAC's gamma cameras are primarily designed to perform superior Single Photon Emission Computed Tomography (SPECT) imaging. In addition to SPECT, ADAC has recently developed the technology for its dual head gamma cameras to perform coincidence imaging using Molecular Coincidence Detection (MCD(TM)). Although market acceptance of dual head gamma cameras accelerated the replacement cycle of imaging systems, the ongoing restructuring of the healthcare delivery system in the United States caused many hospitals to reduce their capital budgets. ADAC estimates that the net effect of these two conditions resulted in unchanged North American, European and Japanese market volumes compared to 1994. However, the Asian and Latin American marketplaces are expanding primarily due to new capacity additions. The nuclear medicine market is characterized by two distinct segments: single head cameras and multihead cameras. ADAC is a market leader in both segments with the ARGUS EPIC(TM), CIRRUS EPIC(TM), and GENESYS(TM) single head products which have one detector head and DUAL GENESYS(TM), VERTEX EPIC(TM), SOLUS EPIC(TM) and CARDIO EPIC(TM) dual head products which have two detector heads. These systems are interfaced with ADAC's PEGASYS(TM), the leading UNIX-based nuclear medicine workstation. The TRANSCAM(TM), THYRUS, and POLARIS are niche gamma cameras produced by the Company's Danish subsidiary, ADAC A/S. These cameras which began shipping in early fiscal 1993 offer specialized functionality for specific clinical procedures. 3 ADAC generated approximately 80% of its nuclear medicine revenue in fiscal 1995 in the dual head market. Dual head cameras are complex systems that provide enhanced diagnostic accuracy and increased patient throughput efficiency primarily for oncology and cardiology procedures. These comprise approximately 70% of all nuclear medicine procedures performed. Single head cameras are less complex and expensive. Therefore, the most likely purchasers are capital- constrained institutions and those adding extra capacity. The VERTEX camera introduced in late 1992 is the cornerstone of ADAC's product line. It has the unique capability of variably positioning its two detectors in either a 180 degree orientation for whole body imaging or a 90 degree orientation for cardiac imaging. This capability enables nuclear medicine departments to increase their patient throughput by decreasing the time required to perform the procedures. In 1995, the VERTEX contributed over 60% of the Company's nuclear medicine product revenues and has allowed ADAC to accelerate its penetration into markets throughout the world. In 1994, ADAC introduced the EPIC(TM) digital detector. This innovative new technology obsoleted analog technology and created a new generation of high performance cameras: VERTEX EPIC, GENESYS EPIC, CIRRUS EPIC and ARGUS EPIC. The EPIC digital detector significantly improves the reliability and stability of nuclear image quality versus the analog detector. Also, the EPIC's auto- tuning and remote diagnostics capabilities have improved both ADAC's field service efficiency as well as customer satisfaction. EPIC began shipping in November 1994. In June 1995, the dual head gamma camera segment was further extended with the introduction of two new imaging systems: the SOLUS EPIC, a fixed 180 degree camera for oncology, and the CARDIO EPIC, a fixed 90 degree camera for cardiology. These systems satisfy the needs of special niche markets by providing less expensive products with VERTEX EPIC imaging quality and throughput advantages. In June 1995, ADAC introduced a new technology called Molecular Coincidence Detection (MCD(TM)). This technology enables ADAC's VERTEX EPIC and SOLUS EPIC cameras to perform coincidence imaging previously only available on expensive dedicated Positron Emission Tomography (PET) imaging systems costing between $1 million and $2 million. Coincidence imaging is a valuable diagnostic tool because of its high resolution and high accuracy in oncology, cardiology and neurology. It is particularly useful for identifying cancerous lesions throughout the body. Due to the high capital cost of PET systems, coincidence imaging has been too expensive for all but a few hospitals and clinics. MCD is expected to provide the capability to perform coincidence imaging using ADAC's cameras at a fraction of the cost of a dedicated PET system. The Company received Food and Drug Administration (FDA) 510k clearance for MCD in November 1995. The Company will begin MCD multicenter clinical trials in early 1996. These trials are expected to document the clinical efficacy of MCD while verifying the significant reduction in the costs of managing cancer patients relative to conventional diagnostic techniques. VANTAGE(TM), introduced in December 1994, is an optional upgrade to the VERTEX EPIC and the CARDIO EPIC. This option performs non-uniform attenuation correction which improves the diagnostic accuracy of nuclear medicine imaging by correcting for attenuation artifacts (random dark areas which compromise diagnostic accuracy). The ability to determine true defects is particularly important in nuclear cardiology and is believed to be an important advantage versus cardiac ultrasound, the primary competitive procedure. VANTAGE is currently in the final phase of a multicenter clinical trial that is expected to demonstrate improved cost-effectiveness and quality compared to current cardiac imaging techniques. The Company received FDA 510k clearance for VANTAGE in April 1995. MACROVISION(TM), introduced at the 1994 Radiological Society of North America trade show, is a new object-oriented programming tool that the Company has exclusively licensed from Advanced Visual Systems Inc. for use in nuclear medicine. MACROVISION is designed to improve the Company's software development productivity and also to 4 improve the customers' programming flexibility in developing unique clinical protocols. In November 1995, ADAC acquired JD Technical Services, Inc. Through this acquisition, ADAC believes it has gained the expertise to enter the multivendor refurbished nuclear medicine instrumentation market. Sales of Nuclear Medicine imaging systems, optics and accessories accounted for nearly 67%, 67% and 66% of total Company revenues in fiscal years 1995, 1994 and 1993, respectively. Radiation Therapy Planning Systems - ---------------------------------- Radiation Therapy Planning systems are "turnkey" computer systems that assist hospital radiation therapy departments and cancer treatment centers in planning patient treatments. The Company has developed software for a new treatment planning computer product, called Pinnacle/3/(TM) which combines two dimensional and three dimensional planning, including stereotactic radiosurgery planning capabilities. Stereotactic radiosurgery is the precise application of radiation beams to a specific targeted area. The Company believes Pinnacle/3/ will significantly improve image processing and dose calculation methods compared to currently available products. The FDA cleared the stereotactic radiosurgery component of the product in November 1994. The external beam and body therapy capabilities produce a three dimensional volumetric patient model and directs the application of radiation therapy beams to the treatment volume. These capabilities are still pending FDA 510k clearance. Pinnacle/3/'s external beam and body therapy capabilities have recently been introduced into the international markets with very positive results. The Company believes that the treatment planning systems may see significant revenue and income improvement due to this international penetration. Historically, Radiation Therapy Planning Systems have not been a significant contributor to Company revenues or income. Digital Angiography Systems - --------------------------- ADAC services existing ADAC X-Ray imaging and digital angiography computer systems for both radiology and cardiology applications. Sales of digital angiography products have not been a significant contributor to the company revenues or income over the past three years. HealthCare Information Systems - ------------------------------ Information systems for the healthcare industry consist of computer equipment and software applications designed to offer healthcare providers the mechanism to process and archive patient and clinical information. The healthcare environment is changing to one where managed care and health maintenance organizations demand information technology to capture and manage costs as well as measure the quality and results of patient care. A key objective of ADAC is to expand the Company's healthcare information systems business. In November 1993, ADAC acquired SD&G Healthcare Systems Inc. (SD&G) which strengthened the Company's market share and revenues in the radiology information systems business. In July 1995, ADAC acquired Community Health Computing, Inc. (CHC) for approximately $18.4 million which included $1.9 million of expenses associated with the acquisition. The acquisition of CHC strengthened ADAC's market share and revenue in the radiology information systems business and established its presence in the laboratory information systems business. ADAC's information systems products and services have been combined to form a subsidiary business unit named ADAC HealthCare Information Systems. The Company's existing products (MARS II(TM), IMAGES/3000(TM), RadCare(TM), MRM(TM), RadStat(R), and LabCare(TM)) are installed in over 300 hospitals throughout the United States and Canada. These hospitals represent a cross- section of major teaching hospitals, 5 large and small community hospitals, children's hospitals, and city and state institutions. During 1995, ADAC HealthCare Information Systems began installation of its two major product developments. QuadRIS(TM), a radiology information systems product, and LabStat(TM), a laboratory information systems product, represent significant investments in advanced client server architectures. ADAC developed both products with the latest open systems technology, including SQL relational database servers and Microsoft Windows based applications. QuadRIS is available on Hewlett Packard and IBM UNIX servers. LabStat is currently available on Hewlett Packard UNIX servers. Both QuadRIS and LabStat are designed to work in a distributed computing environment to meet the needs of rapidly changing integrated healthcare delivery systems. In this environment, the products must meet the demands of multiple healthcare facilities that act as a single integrated delivery network. In 1995, CHC diluted ADAC's earnings by approximately three cents per share primarily because the laboratory product line was unprofitable during development and product introduction. ADAC HealthCare Information Systems revenue in 1995 was approximately 7% of total Company revenues. Field Service - ------------- The Company maintains its own service force in North America and Europe, supporting over 5,900 installed systems at over 2,100 sites. This network of service engineers and applications specialists provides installation, warranty, repair, and training services. The Company's products are sold with warranty periods of generally one year. At the end of the warranty period, the Company provides customers with the option of purchasing a service contract or obtaining continuing service on a "per call" basis. The Company's warranty program is similar to those offered by most manufacturers of medical electronic equipment. In November 1995, ADAC acquired JD Technical Services, Inc. which expanded the Company's capabilities to service and support gamma cameras of the major vendors. Service revenues represented 26%, 23% and 23% of total Company revenues in fiscal years 1995, 1994 and 1993, respectively. Marketing - --------- ADAC has a direct sales force in North America which generates approximately 77% of all product, service and system sales. The Company maintains sales and service subsidiaries in the Netherlands, Germany, France, Italy, Denmark, the United Kingdom, Singapore, and Canada to market and service its products. Sales and service in other countries are generally handled by distributors. North America is the largest market for the Company's products, systems and services followed by Europe, Japan, Asia Pacific and Latin America. ADAC is represented in all these geographic areas. Until 1995, ADAC had not been represented in Japan, the third largest market in the world. In December 1994, ADAC signed a distribution agreement with Sumitomo Metal Industries. In June 1995, ADAC received approval from the Japanese Ministry of Health and Welfare to market the VERTEX EPIC throughout Japan. Research and Development - ------------------------ Developing products, systems and services based on advanced technological concepts is essential to ADAC's ability to compete effectively. The Company currently maintains a full-time product development and engineering staff responsible for product design and engineering. 6 As part of ADAC's research and development programs, the Company has established the Advanced Clinical Research Program (ACRP) which provides annual grants to clinical trial sites at major institutions to assist the Company in product development concepts and to measure and establish product efficacy. Research and development expenses, net of software capitalization, totaled $10,081,000, $11,644,000, and $11,031,000 in fiscal years 1995, 1994, 1993, respectively. Competition - ----------- In the Nuclear Medicine market, the Company competes with eight other suppliers in providing integrated camera/computer imaging systems, optics and accessories. According to the 1995 data provided by NEMA (National Electronics Manufacturers Association), the industry trade group, ADAC's share of the U.S. market in 1995 is believed to be 45%, giving ADAC a substantial lead over its nearest competitors. In 1995, ADAC's worldwide market share is believed to be over 30%. The Company believes that the key to success in its markets is to deliver cost- effective and technologically superior products which meet or exceed customer quality and service expectations. ADAC's ability to compete successfully depends on its capacity to commercialize new hardware technology and software ahead of its competitors. In addition to the rapid development of innovative and cost-effective new products, the Company believes that other competitive factors include patient throughput, system functionality and reliability, image quality, computer processing speed, customer service and support and worldwide distribution network. The Company's products must focus on solutions for the managed care environment in order to provide improved clinical outcomes at lower clinical process costs. With the acquisition of Community Health Computing (CHC), ADAC believes that it is now the leader in the radiology information systems market with an estimated 11% market share. The Company also entered the laboratory information systems market through CHC but has not yet registered significant new product sales from that business. The company believes that key competitive factors include system architecture, functionality of the application software, post-sales support services, integration expertise with hospital information systems and price. Manufacturing - ------------- The Company manufactures most of the sub-systems used in its products and systems. Manufacturing includes printed circuit board assembly and test, mechanical assembly, final system integration and testing. In addition, the Company purchases certain sub-systems, Sun Workstations and disk drives. Although most materials and purchased components for Medical Systems products are available from more than one source of supply, certain essential components such as the Sun Workstations and sodium iodide crystals are presently available from only one outside source. There are also several significant vendors for hardware and software components of the HealthCare Information Systems products: LabStat vendors are Hewlett Packard and Oracle; QuadRIS vendors are Sybase and Oracle; and LabCare's vendor is Stratus. The loss of any single-source supplier to ADAC would require obtaining one or more replacement suppliers as well as potentially requiring a significant level of hardware and software development to incorporate the new parts into the Company's products. The Company has obtained insurance to protect against loss due to business interruption from these and other sources. Government Regulation - --------------------- ADAC's Nuclear Medicine and Radiation Therapy Planning businesses are regulated by the Food and Drug Administration ("FDA") under the Food, Drug, and Cosmetic Act of 1976 and the Safe Medical Device Act of 1990. Regulations include meeting certain requirements related to marketing, manufacturing, labeling, packaging and distribution of most of the Company's products. The FDA has the authority to issue new performance standards on any medical device. Unscheduled FDA inspections of the 7 Company's facilities may occur from time to time to determine compliance with these and other FDA regulations. Since certain requirements must be met prior to the initial marketing of medical devices, the Company is required to make certain submissions to the FDA and comply with Good Manufacturing Practices (GMP) which includes the creation and maintenance of certain records. The FDA requires all manufacturers of medical devices to prove that their products are equivalent to predicate devices and are safe and effective. This process is known as 510k (pre-market notification). The 510k clearance is required for all new medical devices before orders can be obtained and the product distributed. Currently, this clearance for new product distribution is extending beyond the prescribed 90 day limit due to resource issues within the FDA. The Company is working with NEMA (National Electronics Manufacturers Association) to reduce the time needed for FDA pre-market review. In fiscal 1995, the Company submitted to the FDA three pre-market notifications (pending 510k). The Company also listed two new products via 510k, Pinnacle/3/ and VANTAGE. To date in fiscal 1996, the Company has listed MCD and INSPECT/PROSPECT via 510k. Occasionally, the Company receives Certificates for Export from the FDA which are required in order to ship equipment to certain foreign countries. To ensure product safety and to maintain certification, ADAC's policy is to list all its equipment with a national recognized testing laboratory such as ETL. In 1995, ADAC had several revisions to its existing product listings. In 1995, ADAC implemented a program to enter the Japanese market and has received Japanese Ministry of Health and Welfare (JMHW) approval to market the VERTEX EPIC. The Company is planning to list additional products in the Japanese market in 1996. The process to receive approval to market these additional products is expected to take four to six months each. In addition, ADAC is undertaking to meet the requirements of the European Medical Device Directive which will become effective in most European countries by June 1998. Certain additional requirements of other Federal laws and of state, local and foreign governments exist which may apply to the manufacture and marketing of the Company's products and to products such as radiopharmaceuticals which are used in conjunction with the Company's products. To date, the Company has not experienced any significant difficulty in complying with the requirements imposed on it by the FDA or other government agencies. With the company's overall emphasis on total quality management, quality system compliance is expected to continue to improve in 1996. The Company is anticipating that some costs will be incurred for compliance with the European Medical Device Directive and the Japanese Medical Device listing. These costs are expected to be absorbed by revenues derived from the Company's expansion into these markets. Patent, Copyrights, and Royalties - --------------------------------- The Company has a policy of undertaking an ongoing review of its products with patent counsel to determine to what extent its products may be protectable under the patent or copyright laws. ADAC also has a program in place to develop patent portfolios to protect its intellectual property. The Company holds Patent Des. 323,386, a system design patent for the GENESYS gamma camera. In 1994, in addition to receiving approval of three patents, the Company purchased thirteen patents related to the field of nuclear medicine from Philips Electronics N.V. In 1995, the Company received approval of nineteen United States patents and forty-two foreign patents. The Company has a total of thirty-one patents pending at various stages of completion. Several patent applications have been submitted for MCD. While the Company believes that it benefits from such patents, competitors may develop competing products by "designing around" patents held by the Company. The Company develops user software for its products and also uses software from outside sources as part of a deliverable software package. ADAC owns all licenses for software developed by the Company's internal software engineering department. Outside sources include software companies and clinical development sites that 8 provide turnkey products or software code. The Company believes the risk of losing access to software applications provided by outside vendors is negligible. The Company has negotiated contracts with these vendors which often include clauses that stipulate: 1) specific deliverables within specific time periods, 2) distribution and renewal agreements, and 3) procedures where related software code would be placed in escrow in the event adverse business conditions impact the vendor's ability to deliver the software contracted. In some cases, royalties are paid to the software originator. 9 Employees - --------- The Company had 559 full-time employees worldwide prior to the July 1995 acquisition of Community Health Computing which added 122 employees. ITEM 2. PROPERTIES - ------- ---------- The Company's principal administrative, manufacturing and research operations occupy approximately 150,000 square feet of leased space in modern buildings located in Milpitas, California, under leases expiring through 1999. The Company's principal healthcare information systems operations occupy approximately 54,000 square feet of leased space in modern buildings located in Houston, Texas, under lease expiring in 2002. Other smaller facilities are leased in various states and foreign countries. Management believes that the Company's facilities are adequate at least through fiscal 1996 to meet presently anticipated manufacturing and other requirements. ITEM 3. LEGAL PROCEEDINGS - ------- ----------------- The information required by this item is included under Note 5 of Notes to Consolidated Financial Statements included under Item 8, Financial Statements and Supplemental Data. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. - ------- ---------------------------------------------------- Not applicable. PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER - ------- ---------------------------------------------------------------- MATTERS. -------- The Company's Common Stock is traded in the NASDAQ National Market System under the NASDAQ symbol "ADAC". There were approximately 2,914 holders of record of the Company's Common Stock on November 24, 1995. The table below provides the quarterly dividends declared and the quarterly high and low closing prices in the NASDAQ National Market System, as reported by NASDAQ, during the last two fiscal years of the Company; the following quarters correspond to the Company's fiscal quarters. The payment of dividends in the future will depend on the assessment by the Board of Directors of various factors, including earnings, cash flow, capital requirements and other factors affecting the Company's financial position and operations. See Note 4 of Notes to Consolidated Financial Statements included under Item 8 Financial Statements and Supplemental Data regarding limitations upon the payments of dividends.
Fiscal 1995 Fiscal 1994 - ------------------------------------------------------------------------------------------ Per Share Per Share High Low Dividend High Low Dividend - ------------------------------------------------------------------------------------------ First Quarter $ 9 1/8 $ 7 1/4 $.12 $14 3/8 $11 3/4 $.12 Second Quarter 8 1/2 7 1/4 .12 14 1/8 8 .12 Third Quarter 13 7 7/8 .12 10 7 3/4 .12 Fourth Quarter 13 3/4 10 1/2 .12 9 1/8 6 1/8 .12
10 ITEM 6. ADAC LABORATORIES AND SUBSIDIARIES - ------------------------------------------- SELECTED CONSOLIDATED FINANCIAL DATA - ------------------------------------
FISCAL YEAR (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA) 1995 1994 1993 1992 1991 - -------------------------------------------- -------- -------- --------- --------- -------- Revenues $184,809 $176,280 $156,946 $121,213 $101,237 Cost of revenues 117,320 106,665 89,516 68,511 64,438 Operating expenses 49,264 51,978 47,668 39,330 34,364 Other income (expense) (1,222) (6,452) (242) 818 (1,436) - -------------------------------------------- -------- -------- --------- --------- -------- Income before income taxes 17,003 11,185 19,520 14,190 999 Provision (credit) for income taxes 5,930 (6,336) 1,461 1,331 111 - -------------------------------------------- -------- -------- --------- --------- -------- Net income $ 11,073 $ 17,521 $ 18,059 $ 12,859 $ 888 - -------------------------------------------- -------- -------- --------- --------- -------- Net income per share $ .65 $ 1.06 $ 1.10 $ .81 $.06 Number of shares used in income per share calculations 17,079 16,508 16,458 15,932 14,992 Dividends declared per share $ .48 $ .48 $ .48 $ .36 $ - - -------------------------------------------- -------- -------- --------- --------- -------- Total assets $158,348 $121,603 $ 95,081 $ 77,216 $ 60,054 - -------------------------------------------- -------- -------- --------- --------- --------
Net income and dividends per share have been restated for periods prior to fiscal year 1993 to reflect the one-for-three reverse stock split which was effective March 1993. See Note 1 of Notes to Consolidated Financial Statements. Net income in 1994 includes the net favorable effect of non-recurring items of approximately $4.6 million. Non-recurring items include: 1) litigation defense costs, 2) restructuring charges, and 3) income tax benefit in excess of federal statutory income tax expense rate of 35%. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND - ------------------------------------------------------------------------ RESULTS OF OPERATIONS - --------------------- LIQUIDITY AND CAPITAL RESOURCES Net cash generated by operating activities during fiscal 1995 and 1994 was $5.2 million and $11.9 million, respectively. Uses of cash in operations were increases in inventory in anticipation of additional product revenues based on higher product orders, an increase in accounts receivables as revenues grew during the second half of fiscal 1995 in relation to that experienced during the second half of fiscal 1994, and a decrease in accounts payable as the rate of inventory receipts declined during the later part of the fourth quarter of 1995. Offsetting these items was cash generated from operating activities primarily due to increased deferred revenues substantially related to the Company's service business. Cash used in investing activities rose substantially to $20.2 million, most of which was due to the Company's acquisition of Community Health Computing during fiscal 1995. Cash generated by financing activities increased $14.4 million primarily as a result of borrowings used to fund the acquisition. Additionally, financing cash inflows increased as a result of $4.0 million in stock option exercises, employee stock purchases, and dividend reinvestments. As a result of the above operating, investing and financing activities, the Company's cash and cash equivalents remained relatively consistent between fiscal 1995 to 1994 at $7.6 and $7.2 million, respectively. During fiscal 1995, the Company increased its available lines of credit from $30.0 million to $40.0 million, of which $18.3 million was outstanding as of the end of fiscal 1995. The Company believes that its cash, cash equivalents, cash flows from operating activities and, if necessary, remaining available lines of credit will be able to fund the Company's cash flow requirements for the next fiscal year. On a longer-term basis, the Company may need to increase its sources of capital in response to business conditions or to pursue new business opportunities. Additional borrowings or sale of securities are possible sources. However, there can be no assurance that such additional resources of financing will be available and/or on terms favorable to the Company. RESULTS OF OPERATIONS FISCAL 1995 COMPARED TO FISCAL 1994 REVENUES AND GROSS MARGIN: The Company's two business units are Medical Systems and Healthcare Information Systems (HCIS). The Medical Systems business unit includes Nuclear Medicine, Digital Systems Angiograpghy (DSA), and Radiation Therapy Planning (RTP) equipment products, as well as customer service related to those products. Medical Systems product orders increased from $122.8 million to $142.4 million, while its product revenues increased from $125.0 million to $129.4 million. This product revenue increase was primarily due to a 4.9% or $5.8 million increase in Nuclear Medicine product sales, which was offset by a $1.5 million decrease in DSA product sales as that product matured. Medical Systems service revenues increased from $36.8 million to $42.0 million, primarily as a result of the continued increase in the installed product base. Medical Systems product revenue also represented 94.7% and 92.3% of the Company's total product revenue during fiscal 1995 and 1994, respectively. 1995's geographical mix of Medical Systems product revenues were 73.3% in North America, 16.3% in Europe, and 10.4% in the rest of the world, primarily Latin America and Asia, compared with 1994's 76.7% in North America, 18.3% in Europe, and 5.0% in the rest of the world. The mix of product revenues as a percent of total Medical Systems product revenues for 1995 and 1994 were 95.1% and 93.8% respectively for Nuclear Medicine, 2.9% and 4.2% respectively for DSA, and 2.0% and 2.0% respectively for RTP. Product backlog for Medical Systems at the end of 1995 was up to $41.5 million, compared to $28.4 million at the end of 1994. Unfilled orders may be canceled or rescheduled by customers in most cases without penalty. For this reason, backlog may not be indicative of sales for any succeeding period. Medical Systems product margins decreased from 42.9% to 37.3%, primarily due to the continued industry-wide pricing pressures first experienced during the last half of 1994 as the overall market for Nuclear Medicine products in the United States declined. Service margins for Medical Systems increased from 26.2% to 32.5%, as the installed customer base increased, product reliability increased and overall costs were reduced. HCIS includes products comprising the hardware, software and related implementation of systems designed to manage information within the radiology and laboratory departments of healthcare organizations, as well as service related to those products. During all of 1994 and most of 1995, the Company's HCIS product mix included radiology products offered by the Company and ADAC/SD&G Healthcare Systems (SD&G), which the Company acquired in November 1993. In July 1995, the Company also acquired Community Health Computing (CHC), which provided the Company with an additional radiology product, as well as a laboratory product. The HCIS business unit now represents the combined businesses of SD&G, CHC, and the Company's existing radiology business. Although HCIS product orders remained constant at $12.0 million for both 1994 and 1995, product revenues declined from $10.5 million to $7.3 million. Product revenue of $0.8 million was contributed by the acquired CHC business during 1995. The decline in HCIS product revenues resulted from reduced sales of maturing radiology products that were not yet fully offset by sales of newer radiology products, which are still under development. HCIS service revenues increased from $4.0 million to $6.1 million. The acquired CHC business contributed $2.8 million of service revenue during 1995. All HCIS sales are in North America. For 1995 and 1994, radiology product revenues represented 91.9% and 100%, respectively, of HCIS product revenues, and laboratory product revenues represented 8.1% and 0.0%, respectively. HCIS product backlog increased from $10.4 million to $11.7 million at the end of 1994 and 1995, respectively. Backlog increased due to backlog acquired upon the purchase of CHC. Unfilled orders may be canceled or rescheduled by customers, in most cases without substantial penalty. For this reason, backlog may not be indicative of sales for any succeeding period. Product margins for HCIS declined from 58.2% to 33.8% due to lower margins experienced as proprietary third-party hardware platforms were replaced with non-proprietary open-systems hardware platforms providing lower margins. In addition, laboratory product margins presently are lower during the initial stages of new product introduction. HCIS service margins increased from 29.0% to 49.8% primarily due to obtaining a relatively large installed base of laboratory product customers when the Company acquired CHC. OPERATING AND OTHER EXPENSES: Overall operating expenses as a percentage of revenues decreased from 28.1% to 26.7% excluding 1994's nonrecurring restructuring charges (see "Fiscal 1994 Compared to Fiscal 1993"). This overall expense reduction was a result of the Company's continued cost reduction efforts started during the second half of 1994 concurrent with the restructuring. As a percentage of revenue for 1994 and 1995, marketing and sales expenses decreased from 17.3% to 16.2% and research and development expenses decreased from 6.4% to 5.5%. Research and development expenses represent continued investment in new product development and are net of software capitalization of $2.0 million in 1995 and $1.4 million in 1994. General and administrative expenses increased from 4.4% to 4.9%, which was entirely attributable to the acquired CHC business. Other expense, net, excluding 1994's litigation defense costs and related settlement (see "Fiscal 1994 Compared with Fiscal 1993 - Operating and Other Expenses"), increased from $0.2 million to $1.2 million as a result of the Company carrying short-term bank borrowings during 1995 to fund loans made to CHC prior to the Company's acquisition of such company and, subsequently, to fund the acquisition of CHC. INCOME TAXES: Fiscal 1995's effective tax rate was 35%, which is approximately equal to the Company's statutory Federal tax rate after utilization of business tax credits. In fiscal 1994, the Company recorded a tax benefit resulting from the release of a valuation allowance against deferred tax assets related to Federal net operating loss carryfowards (see "Fiscal 1994 Compared to Fiscal 1993 - Income Taxes"). OTHER: Segment and foreign operations information is contained in Note 12 of Notes to Consolidated Financial Statements. The Company does not believe that inflation has had a material effect on its revenues or results of operations. In order to maintain successful operating results in the highly competitive industry in which the Company does business, the Company must continue to produce innovative products equal to or better than those of its competitors. Within the industry, there is also uncertainty associated with the potential response of customers to new private and legislative health care cost containment initiatives, which may affect the size of marketplace and pricing. Although the Company has been able to develop and market advanced, innovative and cost effective new products in recent years, and has been able to increase its market share in the nuclear medicine industry, there is no assurance that this will continue. FISCAL 1994 COMPARED TO FISCAL 1993 REVENUES AND GROSS MARGIN: The Company's orders and revenues continued to increase in 1994 in all its core businesses, as well as through the acquisition of SD&G. Product orders modestly increased from $135.3 million to $137.8 million. Product backlog at the end of 1993 and 1994 was $38.9 million and $38.8 million, respectively. Total product revenues increased 11.8% as a result of an $11.4 million (10%) increase in Medical Systems product sales and a $3.0 million (40%) increase in revenues from HCIS products. The increased sales of HCIS products was primarily due to the acquisition of SD&G Healthcare Systems at the beginning of 1994, and represented $10.5 million (7.7%) of total product revenues compared to $7.5 million (6.2%) of total product revenues in the prior fiscal year. In Medical Systems, Nuclear Medicine products comprised 85% of the total Company's product revenues in both fiscal years, of which the Company's GENESYS VERTEX camera represented the largest percentage component. The increase in MS sales was particularly strong in Latin America and Europe, with non-domestic revenue increasing 27.7%. In addition to the Nuclear Medicine products, sales of the DSA and RTP products also showed modest growth. Service revenues increased 13.9%, primarily from the expansion of the Company's installed customer base. Margins on product sales decreased from 48.3% to 42.4% primarily due to significant pricing pressures as the overall market for Nuclear Medicine products in the United States declined. Service margins increased from 24.9% to 29.9%. The increase is attributable to service support costs remaining flat, despite increased revenue, as the Company focused on cost reduction and enhancing product reliability. OPERATING AND OTHER EXPENSES: Overall operating expenses decreased from 30.4% to 28.1% excluding restructuring charges. Marketing and sales expenses as a percent of revenue declined from 18.6% to 17.3%. The Company was able to reduce its marketing and sales expenses as a percentage of revenue while continuing to invest in developing its sales and marketing efforts in Europe, Asia, and Latin America. While research and development expenses as a percent of revenue decreased from 7.0% to 6.4%, research and development expenses increased 1.6% or $0.2 million. The expenses represent continued investment in new product development and are net of software capitalization of $1.4 million in 1994 and $0.7 million in 1993. General and administrative expenses as a percent of revenue decreased from 4.7% to 4.4%. Other expense of $6.5 million in 1994 includes $4.2 million in litigation defense costs and $2.0 million in settlement costs related to the Elscint litigation as discussed in Note 5 of Notes to Consolidated Financial Statements. Excluding the litigation defense costs, other expense remained relatively constant at $0.2 million. During the third quarter of 1994, the Company implemented a restructuring plan to eliminate functions and positions dedicated to rework and non-critical activities, consolidate certain job functions, redesign and streamline manufacturing systems and processes, and undertake a major program of proactive and preventive maintenance of the Company's installed base of equipment to further enhance the equipment's reliability. As a result, the Company recorded a restructuring charge of approximately $2.5 million for these costs, of which $2.1 million was paid prior to the 1994 fiscal year end. Of the total restructuring charge, severance and related costs for 67 employees accounted for 47%, manufacturing redesign 6%, preventive maintenance costs 28%, asset write-downs 8%, and other costs accounted for the remainder. INCOME TAXES: Effective October 4, 1993, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes," as discussed in Note 1 of Notes to Consolidated Financial Statements. On adoption of SFAS No. 109, management established a valuation allowance for the entire balance of its net deferred tax asset due to uncertainty with regard to the outcome of the Elscint litigation summarized in Note 5 of Notes to Consolidated Financial Statements, and concerns over healthcare reform legislation. Following the settlement of this litigation in September 1994, combined with new legislative developments in healthcare reform, the valuation allowance against the deferred tax asset was no longer deemed appropriate in the fourth quarter and therefore was released in the period. This resulted in an income tax benefit of $7.4 million, for a net income tax benefit for the year of $6.3 million (see Note 11 of Notes to Consolidated Financial Statements). This income tax benefit compares to an effective tax rate in 1993 of 7.5% for the provision for income taxes. OTHER: Segment and foreign operations information is contained in Note 12 of Notes to Consolidated Financial Statements. ITEM 8. ADAC LABORATORIES AND SUBSIDIARIES - ------------------------------------------- CONSOLIDATED STATEMENTS OF INCOME - ---------------------------------
FISCAL YEAR ENDED OCTOBER 1, OCTOBER 2, OCTOBER 3, (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA) 1995 1994 1993 - ------------------------------------------------ --------- ---------- --------- REVENUES, NET: Product $136,715 $135,485 $121,136 Service 48,094 40,795 35,810 - ------------------------------------------------ -------- -------- -------- 184,809 176,280 156,946 -------- -------- -------- COST OF REVENUES: Product 85,914 78,069 62,626 Service 31,406 28,596 26,890 - ------------------------------------------------ -------- -------- -------- 117,320 106,665 89,516 -------- -------- -------- Gross profit 67,489 69,615 67,430 - ------------------------------------------------ -------- -------- -------- OPERATING EXPENSES: Marketing and sales 29,928 30,565 29,254 Research and development 10,081 11,202 11,031 General and administrative 9,081 7,758 7,383 Goodwill amortization 174 Restructuring charges 2,453 - ------------------------------------------------ -------- -------- -------- 49,264 51,978 47,668 -------- -------- -------- Operating income 18,225 17,637 19,762 - ------------------------------------------------ -------- -------- -------- OTHER INCOME (EXPENSE): Litigation defense costs (6,240) Interest and other, net (1,222) (212) (242) - ------------------------------------------------ -------- -------- -------- (1,222) (6,452) (242) -------- -------- -------- Income before provision for income taxes 17,003 11,185 19,520 Provision (credit) for income taxes 5,930 (6,336) 1,461 - ------------------------------------------------ -------- -------- -------- Net income $ 11,073 $ 17,521 $ 18,059 - ------------------------------------------------ -------- -------- -------- Net income per share $.65 $1.06 $1.10 Number of shares used in per share calculations 17,079 16,508 16,458 - ------------------------------------------------ -------- -------- --------
The accompanying notes are an integral part of these consolidated financial statements. ADAC LABORATORIES AND SUBSIDIARIES - ---------------------------------- CONSOLIDATED BALANCE SHEETS - ---------------------------
AS OF OCTOBER 1, OCTOBER 2, (AMOUNTS IN THOUSANDS) 1995 1994 - ----------------------------------------------------------------- ---------- ---------- ASSETS Current assets: Cash and cash equivalents $ 7,551 $ 7,203 Accounts receivable, net of allowance for returns and doubtful accounts of $2,044 in 1995 and $1,644 in 1994 55,047 45,173 Inventories 28,217 22,600 Deferred income taxes 10,732 14,877 Prepaid expenses and other current assets 5,515 2,243 - ----------------------------------------------------------------- -------- -------- Total current assets 107,062 92,096 - ----------------------------------------------------------------- -------- -------- Service parts, net 13,571 13,300 Fixed assets, net 8,368 5,515 Capitalized software, net 10,280 3,646 Goodwill, net 11,692 Other assets, net 7,375 7,046 - ----------------------------------------------------------------- -------- -------- Total Assets $158,348 $121,603 - ----------------------------------------------------------------- ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Notes payable to banks $ 18,298 Accounts payable 13,147 $ 15,933 Dividends payable 2,027 1,904 Deferred revenues 13,506 6,447 Customer deposits and advance billings 4,201 2,327 Accrued compensation 6,335 5,827 Other accrued liabilities 13,812 11,120 - ----------------------------------------------------------------- -------- -------- Total current liabilities 71,326 43,558 - ----------------------------------------------------------------- -------- -------- Non-current liabilities and deferred credits 4,254 3,379 - ----------------------------------------------------------------- -------- -------- Total Liabilities 75,580 46,937 - ----------------------------------------------------------------- -------- -------- Commitments and contingencies (Note 5) - ----------------------------------------------------------------- SHAREHOLDERS' EQUITY Preferred stock, no par value: Authorized: 5,000 shares; issued and outstanding: none in 1995 and 1994 Common stock, no par value: Authorized: 25,000 shares; issued and outstanding: 16,919 shares as of October 1, 1995 and 16,047 shares as of October 2, 1994, respectively 101,072 97,086 Accumulated deficit (18,986) (22,174) Translation adjustment 682 (246) - ----------------------------------------------------------------- -------- -------- Shareholders' Equity 82,768 74,666 - ----------------------------------------------------------------- -------- -------- Total Liabilities and Shareholders' Equity $158,348 $121,603 - ----------------------------------------------------------------- ======== ========
The accompanying notes are an integral part of these consolidated financial statements. ADAC LABORATORIES AND SUBSIDIARIES - ---------------------------------- CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY - -----------------------------------------------
Common Stock Accumulated Translation Note (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA) Shares Amount Deficit Adjustment Receivable Total - --------------------------------------------- ------- -------- -------- ----------- ---------- ------- Balances, September 27, 1992 14,694 $ 84,275 $(40,917) $ (89) $43,269 Shares retired as a result of one for three reverse stock split (1) (14) (14) Employee stock purchases and exercises of employee stock options 566 1,952 1,952 Note for exercise of employee stock options $(453) (453) Income tax benefit resulting from exercises of stock options 415 415 Shares withheld in payment of stock options exercised (40) (90) (369) (459) Translation adjustment (770) (770) Dividends declared ($0.48 per share) (7,259) (7,259) Net income 18,059 18,059 - --------------------------------------------- ------ -------- -------- ----- ----- ------- Balances, October 3, 1993 15,219 86,538 (30,486) (859) (453) 54,740 Employee stock purchases and exercises of employee stock options 759 2,273 2,273 Shares repurchased (86) (487) (240) (727) Shares sold under dividend reinvestment plan 6 49 49 Repayment of employee note 453 453 Shares withheld in payment of stock options exercised (124) (411) (1,084) (1,495) Pooling of interest with SD&G 273 (210) (210) Income tax benefit resulting from exercises of stock options 9,124 9,124 Translation adjustment 613 613 Dividends declared ($0.48 per share) (7,675) (7,675) Net income 17,521 17,521 - --------------------------------------------- ------ -------- -------- ----- ----- ------- Balances, October 2, 1994 16,047 97,086 (22,174) (246) 74,666 Employee stock purchases and exercises of employee stock options 937 4,733 4,733 Shares sold under dividend reinvestment plan 17 181 181 Shares withheld in payment of stock options exercised (82) (1,087) (1,087) Income tax benefit resulting from exercises of stock options 159 159 Translation adjustment 928 928 Dividends declared ($0.48 per share) (7,885) (7,885) Net income 11,073 11,073 - --------------------------------------------- ------ -------- -------- ----- ----- ------- Balances, October 1, 1995 16,919 $101,072 $(18,986) $ 682 $82,768
The accompanying notes are an integral part of these consolidated financial statements. ADAC LABORATORIES AND SUBSIDIARIES - ---------------------------------- CONSOLIDATED STATEMENTS OF CASH FLOWS - -------------------------------------
FISCAL YEAR ENDED OCTOBER 1, OCTOBER 2, OCTOBER 3, (AMOUNTS IN THOUSANDS) 1995 1994 1993 - --------------------------------------------------------------------- ----------- ---------- ---------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 11,073 $ 17,521 $ 18,059 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 6,377 5,775 5,044 Provision for product returns and doubtful accounts 1,502 1,023 670 Loss on disposal of fixed assets 99 Deferred income taxes 4,145 (7,421) Changes in operating assets and liabilities: Accounts receivable (8,966) (6,058) (12,863) Inventories (5,276) (1,105) (7,705) Prepaid expenses and other current assets (2,763) (322) (633) Service parts (1,971) (3,175) (2,901) Accounts payable (3,109) 2,710 3,927 Deferred revenues 7,059 (1,805) 2,089 Customer deposits and advance billings (3,135) (242) 1,267 Accrued compensation 508 1,790 (535) Other accrued liabilities (1,114) 3,392 306 Non-current liabilities and deferred credits 875 (169) (1,008) - --------------------------------------------------------------------- -------- -------- -------- Net cash provided by operating activities 5,205 11,914 5,816 - --------------------------------------------------------------------- -------- -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures (2,588) (4,372) (2,992) Proceeds from sale and leaseback of fixed assets 1,553 6,000 504 Increase in other assets (2,997) (2,793) (2,335) Acquisition of business, net of cash acquired (16,152) - --------------------------------------------------------------------- -------- -------- -------- Net cash used in investing activities (20,184) (1,165) (4,823) - --------------------------------------------------------------------- -------- -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Borrowings (repayments) under short-term debt arrangements, net 18,298 (3,700) 700 Proceeds from issuance and repurchase of common stock, net 3,986 100 1,479 Employee stock purchase (loan) repayment 453 (453) Dividends paid (7,885) (7,675) (7,196) - --------------------------------------------------------------------- -------- -------- -------- Net cash provided by (used in) financing activities 14,399 (10,822) (5,470) - --------------------------------------------------------------------- -------- -------- -------- Effect of exchange rates on cash 928 613 (770) - --------------------------------------------------------------------- -------- -------- -------- Net change in cash and cash equivalents 348 540 (5,247) Cash and cash equivalents, at beginning of the year 7,203 6,663 11,910 - --------------------------------------------------------------------- -------- -------- -------- Cash and cash equivalents, at end of the year $ 7,551 $ 7,203 $ 6,663 - --------------------------------------------------------------------- -------- -------- -------- SUPPLEMENTAL CASH FLOW DISCLOSURE: Interest paid $ 1,609 $ 439 $ 231 Income taxes paid 289 457 1,647
The accompanying notes are an integral part of these consolidated financial statements. ADAC LABORATORIES AND SUBSIDIARIES (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - ------------------------------------------ NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Fiscal Year The Company's fiscal year ends on the Sunday closest to September 30. Fiscal 1995 and 1994 included 52 weeks compared to 53 weeks in fiscal 1993. Principles of Consolidation The consolidated financial statements include the accounts of ADAC Laboratories and its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated. Foreign Currency Translation and Transactions The Company's European subsidiaries' functional currencies are considered to be their respective local currencies. Adjustments that arise in translating their financial statements into the U.S. dollar are included as a separate component of shareholders' equity in the consolidated balance sheets. Gains and losses from foreign currency transactions are included as a component of interest and other income (expense), net, in the consolidated statements of income, and amounted to losses of $150, $68, and $73 in fiscal 1995, 1994, and 1993, respectively. Revenue Recognition The Company has two major business units for which specific revenue recognition policies are followed. Revenues related to the Company's Medical Systems business unit product sales are recognized upon shipment to the customer or its requested location, at which time title and risk of ownership passes. Estimated provisions for product sale returns, installation and warranty are accrued upon revenue recognition. Revenues related to Medical Systems service are recognized ratably over the relevant contractual period or as the service is performed. Medical Systems revenue billed but unearned is included on the consolidated balance sheets as deferred revenue. Revenues related to the Company's Healthcare Information Systems business unit are derived from software licenses, computer hardware sales, related implementation, training and support services and maintenance contracts. Revenues for software licenses are recognized either at the shipment date or upon the renewal date if, in either case, payment is due within twelve months after such date. Revenues for license fees that have payments due beyond twelve months are generally recognized at the time fees are paid or are billable. Revenues for computer hardware sales are recognized at the time of shipment. The Company's obligations subsequent to shipment primarily relate to implementation and training. Revenues for these services are recognized as the services are provided. Revenues from maintenance contracts are recognized ratably over the relevant contractual period. Research and Development Research and development expenditures are charged to operations as incurred, net of certain capitalized software costs. Income Taxes Effective October 4, 1993, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting For Income Taxes." Prior to fiscal 1994, the Company accounted for income taxes under SFAS 96. Under the asset and liability method prescribed by SFAS No. 109, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Deferred tax assets are also recognized for deductible temporary differences and operating loss and tax credit carryforwards and, if appropriate, with a valuation allowance established against the resulting assets if it is more likely than not that the related tax benefits will not be realized. Income Per Share Net income per common and common equivalent share has been computed using the weighted average number of common shares outstanding after considering the dilutive effect of common stock options and warrants. All per share data has been adjusted to reflect a one-for-three reverse stock split which was effected in March 1993. Cash Equivalents All highly liquid investments purchased with an original maturity of three months or less are considered cash equivalents. Concentration of Credit Risk The Company sells its products to hospitals and clinics worldwide. The Company performs ongoing credit evaluations of its customers and generally does not require collateral, except for sales within Latin America. The Company maintains allowances for potential credit losses and such losses have been within management's expectations. The Company invests any excess cash on deposits with a major bank. The Company has not experienced any losses on these deposits. 22 ADAC LABORATORIES AND SUBSIDIARIES (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA) Inventories Inventories are stated at the lower of standard cost (which approximates cost on a first-in, first-out basis) or market. Service Parts Service parts used for servicing installed equipment are stated at cost and are depreciated over a 10-year period using the declining-balance method of depreciation. Fixed Assets Major additions and improvements are capitalized at cost, while maintenance and repairs which do not improve or extend the life of the respective assets are expensed as incurred. When assets are retired or otherwise disposed of, the costs and related accumulated depreciation are removed from the financial statements, and any gain or loss on disposal is included in the consolidated statements of income. Fixed assets, other than leasehold improvements, are depreciated on a straight-line basis over their estimated useful lives (3-7 years). Leasehold improvements are amortized on a straight-line basis over the lesser of their estimated useful lives or the remaining term of the related leases. Capitalized Software Costs related to the conceptual formulation and design of software products are expensed as product development, and costs incurred subsequent to establishing the technological feasibility of software products are capitalized. Amortization of capitalized software costs, which begins when products are available for general release to customers, is computed using the greater of 1) the ratio that current gross revenues bear to the total of current and anticipated future gross revenues; or 2) a straight-line basis over the expected product lives, generally estimated to be three to seven years. Software costs capitalized during fiscal years 1995, 1994, and 1993 amounted to approximately $1,996, $1,402, and $699, respectively. Additionally, $5,802 of capitalized software was acquired through the acquisition of Community Health Computing Corporation during fiscal 1995 and $364 of capitalized software was acquired through the acquisition of SD&G Healthcare Systems, Inc during fiscal 1994 (see Note 3). Amortization of capitalized software costs amounting to approximately $1,164, $697 and $584, respectively, have been charged to cost of product revenues. Intangible Assets Goodwill and other purchased intangibles, including technology and sales partnerships, are capitalized and amortized on a straight-line basis over the estimated useful life of the related asset (3-15 years). Reclassifications Certain reclassifications have been made to prior year financial statements to conform with the 1995 presentation. NOTE 2 BALANCE SHEET DETAIL:
1995 1994 -------- -------- Inventories consist of: Purchased parts and sub-assemblies $ 14,138 $ 13,872 Work in process 1,421 3,171 Finished goods 12,658 5,557 -------- -------- $ 28,217 $ 22,600 ======== ======== 1995 1994 -------- -------- Service parts consist of: Field service parts, at cost $ 19,358 $ 18,237 Less accumulated depreciation (5,787) (4,937) -------- -------- $ 13,571 $ 13,300 ======== ======== 1995 1994 -------- -------- Fixed assets, at cost, consist of: Production and test equipment $ 9,686 $ 6,000 Field service equipment 1,138 865 Office and demonstration equipment 8,840 8,324 Leasehold improvements 1,042 612 -------- -------- 20,706 15,801 Less accumulated depreciation and amortization (12,338) (10,286) -------- -------- $ 8,368 $ 5,515 ======== ======== 1995 1994 -------- -------- Other accrued liabilities consist of: Accrued customer service costs $ 2,031 $ 2,578 Accrued settlement and litigation costs - 3,098 Other accrued expenses 11,781 5,444 -------- -------- $ 13,812 $ 11,120 ======== ======== 1995 1994 -------- -------- Non-current liabilities and deferred credits consist of: Deferred contract revenue $ 1,425 $ 823 Deferred gain on sale of fixed assets 2,251 2,556 Other non-current liabilities 578 - -------- -------- $ 4,254 $ 3,379 ======== ========
NOTE 3 ACQUISITIONS On July 12, 1995, the Company completed its acquisition of Community Health Computing (CHC) of Houston, Texas for approximately $18.4 million, which included $1.9 million of expenses associated with the acquisition. Through the acquisition, the Company acquired all the rights to CHC's product portfolios for the laboratory information systems and radiology information systems markets, and obtained CHC's installed customer base. 23 ADAC LABORATORIES AND SUBSIDIARIES (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA) The acquisition was accounted for as a purchase, and the results of operations of CHC have been included in the Company's consolidated financial statements subsequent to July 12, 1995. The fair value of assets acquired, including goodwill, was $27.6 million and liabilities assumed totaled $23.6 million. Goodwill of $11.9 million is being amortized over 15 years on a straight-line basis. The pro forma results listed below are unaudited and reflect purchase price accounting adjustments assuming the acquisition occurred at the beginning of each year presented.
1995 1994 -------- -------- Revenues $193,156 $196,233 Operating income (loss) 15,994 (3,324) Income (loss) before provision for income taxes 13,719 (11,725) Net income (loss) 7,789 (5,389) Net income per share 0.46 (0.33) Number of shares used in per share calculation 17,079 16,508 -------- --------
On November 16, 1993, the Company acquired SD&G Healthcare Systems, Inc. (SD&G), a company engaged in the sale and development of hospital information systems. The Company issued 273 shares of common stock in exchange for all the outstanding stock of SD&G. The transaction was accounted for as a pooling of interests. The Company also assumed options to purchase SD&G stock which will remain outstanding as options to purchase approximately 26 shares of the Company's common stock. Prior period financial statements have not been restated because the operations of SD&G were not material to the financial position or the results of operations of the Company at the time of acquisition. NOTE 4 CREDIT AND BORROWING ARRANGEMENTS The Company has revolving credit facilities with two separate banks totaling $40,000. Both credit facilities offer borrowings in either U.S. dollars or in foreign currencies. One credit facility for $20,000 expires April 5, 1996 and the other credit facility for $20,000 expires March 31, 1996. U.S. dollar and foreign currency borrowings under both credit facilities bear interest at either Libor plus 1.25% or the bank's base rate. Borrowings are generally repaid within 90 days. No borrowings in foreign currency have been received by the Company. At October 1, 1995, the Company had $21,702 available for borrowing under these facilities. Borrowings under both facilities are collateralized by the Company's assets, and the Company is required to comply with certain financial and other covenants, including restrictions on its ability to acquire or merge with another company, incur additional debt, or purchase or lease capital assets in excess of $3,000 per year. In addition, the Company cannot, without prior approval, pay cash dividends or repurchase common stock in excess of 50% of earnings for the prior period. Additional information with respect to such revolving lines of credit is as follows:
1995 1994 ------- ------- Maximum borrowings during the year $27,760 $13,925 Average borrowings during the year $14,521 $ 9,175 Weighted average interest rates during the year 7.45% 5.19% ------- -------
NOTE 5 COMMITMENTS AND CONTINGENCIES Operating Leases The Company leases its office and manufacturing facilities under operating leases which expire at various dates through 2002. The Company is responsible for maintenance, taxes and insurance on all facilities. During fiscal 1995, the Company sold and leased back fixed assets with a net book value of $591 for total proceeds of $832. The gain on the transaction will be recognized over the five year term of the operating lease. Similarly, in September 1994, the Company entered into a sale and leaseback transaction under which it sold fixed assets with a net book value of $2,809 for total proceeds of $6,000. As part of this agreement, the Company entered into two operating leases over terms of three and five years, respectively. The gain on the transaction will be recognized over the terms of the leases. In addition, the Company guaranteed to the lessors the final residual value of approximately $1,012. As of October 1, 1995, future annual minimum lease payments for all non- cancelable operating leases are as follows:
Fiscal Year Building Equipment - ----------- -------- --------- 1996 $ 2,810 $1,857 1997 2,949 1,881 1998 2,742 1,326 1999 1,614 2,487 2000 785 136 Thereafter 1,638 0 -------- --------- Total minimum lease payments $12,538 $7,687 -------- ---------
Rent expense totaled $4,284, $2,572, and $1,723 for fiscal years 1995, 1994 and 1993, respectively. Capital Leases During fiscal 1995, the Company entered into two capital leases having terms of five years. Under these two agreements, certain leased fixed assets are pledged as collateral. 24 ADAC LABORATORIES AND SUBSIDIARIES (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA) As of October 1, 1995, future annual minimum lease payments under these capital leases are as follows:
Fiscal Year Capital Leases - ----------- -------------- 1996 $ 185 1997 185 1998 185 1999 185 2000 60 Thereafter 0 -------------- Total minimum lease payments 800 Amount representing interest (149) -------------- Present value of net minimum lease payments 651 Less current portion (185) -------------- $466 --------------
Payments under these capital lease obligations totaled $126 in fiscal 1995. As of October 1, 1995, the Company had $729 of equipment under capital leases with accumulated amortization of $139. Litigation In September 1994, the Company settled a lawsuit with Elscint Limited which had alleged infringement of certain patents relating to Nuclear Medicine imaging and Digital Fluroscopy technology. Without admitting any liability or wrongdoing, the Company agreed to pay $2,000 to settle the lawsuit. As part of the settlement, each party agreed not to sue each other with respect to nuclear medicine intellectual property matters for the next ten years. This amount was included in other liabilities in the October 2, 1994 Consolidated Balance Sheet and was paid on October 4, 1994. In addition to the $2,000 settlement charge in fiscal 1994, approximately $4,240 in litigation defense costs were incurred and are included in other expense in the Consolidated Statement of Income for fiscal 1994. The Company is also a defendant in other legal proceedings incidental to its business. While it is not possible to determine the ultimate outcome of these other actions at this time, management is of the opinion that any unaccrued liability resulting from the claims would not have a material adverse effect on the Company's consolidated financial position or results of operations. Other Under third party lease program agreements, the Company is contingently liable for losses in the event of default by lessees, limited to a percentage (ranging from 2% to 16%) of the equipment lease, depending on the agreement, and up to 100% for the related service contracts. At October 1, 1995 the contingent liability was $1,923. In conjunction with its third party financing and lease programs, the Company sells certain receivables with recourse. The amount of recourse ranges from 10% to 100% of the receivable. As of October 1, 1995 the contingent liability was $4,043. NOTE 6 CAPITAL STOCK Preferred Stock The Board of Directors is authorized to determine the rights and preferences of the preferred stock, issuable in series. The Board of Directors may increase or decrease the number of shares of any series of preferred stock, but not below the number of shares of such series then outstanding. Common Stock In 1994 the Board of Directors approved the issuance of warrants to purchase up to 60 shares of common stock at the Company's then market price of $6.50 per share to a consulting firm as partial compensation for services rendered and to be rendered. The warrants were issued proportionately as services were performed through March 1995, and expire on July 1, 1999. At October 1, 1995, all of the warrants related to this issuance had been issued and were outstanding. As of October 1, 1995, the Company has reserved a total of 2,985 shares of common stock for issuance under employee stock option plans and 38 under the employee stock purchase plan as discussed in Note 7. NOTE 7 STOCK PLANS Stock Option Plans The Company currently has three stock option plans for employees and consultants, including the 1981 stock option plan (under which no further options may be granted), the 1985 option plan and the 1992 stock option plan, which was approved by the Board of Directors in July 1992. The 1985 Option Plan (as amended) and 1992 Option Plan allow for non-qualified as well as incentive options to be granted to employees, officers, consultants and others. Incentive stock options must be granted at exercise prices of not less than fair market value and expire within 10 years from the date of grant. Non-qualified stock options can have exercise prices of not less than 85% of fair market value and also expire within 10 years of grant date. In addition, the Company has a directors' stock option plan under which options are granted to non-employee directors. Options under this plan are granted for a period of 5 years from the date of grant at an option exercise price equal to 100% of fair market value. 25 ADAC LABORATORIES AND SUBSIDIARIES (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA) Options available for grant under all plans as of October 1, 1995 were 469. In addition, 685 of the options outstanding at October 1, 1995 were exercisable. A summary of the activity under these plans is as follows:
1995 1994 1993 - ------------------------------------------------------------------------------------------------------------------------ Price Price Price (Shares in thousands) Shares Per Share Shares Per Share Shares Per Share - ------------------------- ------ ------------ ------ ------------ ------ ------------- Outstanding at beginning of year 2,557 $2.25 -$15.75 2,267 $2.25 -$15.75 2,645 $ 2.25 -$ 9.75 Granted 1,073 7.75 - 11.875 1,169 6.38 - 14.25 202 10.12 - 15.75 Exercised (879) 7.375- 13.5 (702) 6.25 - 14.25 (525) 2.25 - 9.75 Canceled (235) 2.25 - 14.25 (177) 2.25 - 14.25 (55) 2.25 - 8.81 ------ ------------- ------ ------------- ------ -------------- Outstanding at end of year 2,516 $2.25 -$15.75 2,557 $2.25 -$15.75 2,267 $ 2.25 -$15.75 ------ ------------- ------ ------------- ------ --------------
26 ADAC LABORATORIES AND SUBSIDIARIES (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA) Employee Stock Purchase Plan This plan, as amended, permits eligible employees to purchase common stock through payroll deductions (which cannot exceed 10% of the employee's compensation and cannot exceed 100 shares per employee per interim offering period) at the lower of 85% of fair market value at the beginning of a 27 month offering period or at the end of each interim period. Each full-time employee of the Company who has been employed for six months or more at the commencement of an interim offering period is entitled to participate in the plan. During fiscal years 1995, 1994, and 1993, 58, 57, and 52 shares were issued at an average price of $7.21, $7.42, and $9.17 per share, respectively. NOTE 8 RETIREMENT SAVINGS PLAN The Company maintains a qualified retirement plan, under the provisions of Section 401(k) of the Internal Revenue Code, in which eligible employees may participate. Substantially all participants in this plan are able to defer compensation up to the annual maximum amount allowable under Internal Revenue Service regulations. Additionally, the Company may match employee contributions with discretionary amounts as may be determined by the Board of Directors. As of October 1, 1995, no matching contributions had been made. NOTE 9 RESTRUCTURING CHARGES During the third quarter of 1994, the Company implemented a restructuring plan to eliminate functions and positions dedicated to rework and non-critical activities, consolidate certain job functions, redesign and streamline manufacturing systems and processes, and undertake a major program of proactive and preventive maintenance of the Company's installed customer base of equipment to enhance further the equipment's reliability. As a result, the Company recorded a restructuring charge of approximately $2.5 million for these costs. Of the total restructuring charge, severance and related costs for 67 employees accounted for 47%, manufacturing redesign 6%, preventive maintenance costs 28%, asset writedowns 8%, and other costs accounted for the remainder. At October 1, 1995, the Company had $307 remaining in the restructuring reserve for these charges. Note 10 SUBSEQUENT EVENT On November 9, 1995, the Company acquired JD Technical Services, Inc., of Washington, Missouri, a leader in nuclear medicine imaging systems remanufacturing, as well as a nationwide provider of multivendor service and support. The Company issued 138 shares of common stock at the average closing price of the Company's common stock during a specified period, for a total price of $1.7 million, in exchange for all the outstanding stock of JD Technical. The transaction will be accounted for as a pooling of interests. Prior period financial statements will not be restated, as the operations of JD Technical were not material to the financial position or the results of operations of the Company at the time of acquisition. Note 11 INCOME TAXES As discussed in Note 1, the Company adopted SFAS No. 109 as of October 4, 1993. There was no cumulative effect of this change in accounting for income taxes determined as of October 4, 1993. In 1993, the Company accounted for income taxes under SFAS No. 96. Income tax expense (benefit) consists of:
1995 1994 1993 ------- ------- ------ Current: Federal $ 267 $ 319 $ 330 State 571 766 1,131 ------- ------- ------ 838 1,085 1,461 ------- ------- ------ Deferred: Federal 4,904 (7,170) State 188 (251) ------- ------- ------ 5,092 (7,421) ------- ------- ------ Total $ 5,930 $(6,336) $1,461 ------- ------- ------
The reconciliation of the provision for income taxes, computed at the statutory United States income tax rate, to the reported amounts is as follows:
1995 1994 1993 ------- ------- ------ Income taxes at statutory rate (35%, 35%, and 34.75% in 1995, 1994, and 1993, respectively) $ 5,951 $ 3,915 $6,783 State income taxes, net of federal benefit 493 335 1,011 Federal alternative minimum tax 330 Benefit from net operating loss carryforwards (3,956) (6,663) Losses on foreign subsidiaries not providing benefits in the current year 526 Change in valuation allowance, net of benefits attributable to the exercise of nonqualified stock options 980 (6,905) Business credits (2,156) (317) Other 662 66 ------- ------- ------ Provision for income taxes $ 5,930 $(6,336) $1,461 ------- ------- ------
27 ADAC LABORATORIES AND SUBSIDIARIES (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA) As of October 1, 1995, the Company had net operating loss carryforwards of approximately $15,265 available to offset future federal taxable income and approximately $6,787 available to offset future taxable income in various foreign jurisdictions. Federal tax carryforwards expire in years 1999 to 2000, and foreign tax carryforwards expire beginning in 1996 and extending indefinitely. Net operating loss carryforwards include $15,265 which arose from the exercise of non-qualified stock options, the tax benefit of which has been reflected as an increase in paid-in capital of $9.1 million during fiscal 1994. The Company also has credit carryforwards of $4,585. These credit carryforwards will expire in the years 1996 to 2009, if not utilized. Significant components of the Company's deferred tax assets and liabilities at October 1, 1995 and October 2, 1994 are as follows:
1995 1994 ------- ------- Deferred income tax assets: Net operating loss carryforwards $ 8,388 $13,812 Business credit carryforwards 4,585 4,089 Inventory related reserves 962 2,061 Alternative minimum tax credit carryforwards 878 674 Accrued vacation 376 575 Accrued customer service costs 388 606 Accounts receivable related reserves 458 529 Deferred income 672 287 Other 447 1,041 ------- ------- 17,154 23,674 Less valuation allowance (3,054) (4,034) ------- ------- Deferred income tax assets 14,100 19,640 ------- ------- Deferred income tax liabilities: Depreciation $ 1,963 $ 1,591 Capitalized software 1,405 1,504 ------- ------- Deferred income tax liabilities 3,368 3,095 ------- ------- Net deferred income tax assets $10,732 $16,545 ------- -------
On adoption of SFAS No. 109 in October 1993, the Company established a valuation allowance for the entire balance of its net deferred tax asset due to uncertainty with regards to the outcome of the litigation with Elscint Limited discussed in Note 5 of the Notes to Consolidated Financial Statements, and uncertainty of the impact of potential healthcare reform legislation on the Company's business. Following the settlement of the Elscint litigation in September 1994 and further developments on healthcare reform, the Company reassessed the requirement for a valuation allowance under the rules of SFAS No. 109 and concluded that it was more likely than not the deferred tax asset would be realized and therefore a valuation allowance against its future domestic income tax loss carryforwards was no longer appropriate. The remaining valuation allowance at October 1, 1995 and October 2, 1994 relate to net operating loss carryforwards available for the benefit of foreign operations. Note 12 SEGMENT INFORMATION AND FOREIGN OPERATIONS The Company designs, manufactures, and markets medical imaging and health care information systems to hospitals and clinics worldwide. During the fourth quarter of fiscal 1995, the Company completed its acquisition of CHC, as discussed in Note 3. As a result, the relative significance of the Company's Healthcare Information Systems' segment increased in relation to the Company's overall business. Accordingly, the Company's operations are now derived from two major business units, Medical Systems business (MS) and Healthcare Information Systems business (HCIS). Prior to 1995, the results of operations from the Healthcare Information Systems' segment were not significant. The following table summarizes the results of operations for the Company's two major business segments.
Fiscal 1995 MS HCIS -------- ------- Revenues $171,444 $13,365 Operating income (loss) 19,288 (1,063) Depreciation and amortization 5,403 974 Capital expenditures 2,438 150 Total assets 127 31 -------- -------
Additionally, the Company has foreign operations which are those of its subsidiaries in the Netherlands, France, Germany, Denmark, United Kingdom and Italy, and substantially all of their sales are made to unaffiliated European customers. The following table summarizes the foreign subsidiaries' operations:
1995 1994 1993 -------- ------- ------- Revenues $ 27,282 $28,436 $23,430 Net income (loss) (320) 73 43 Total assets 23,315 20,224 21,620 -------- ------ ------
28 ADAC LABORATORIES AND SUBSIDIARIES (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA) NOTE 13 QUARTERLY RESULTS OF OPERATIONS (UNAUDITED):
Fiscal 1995 First Second Third Fourth Quarter Quarter Quarter Quarter - --------------------------------------------------------------- Revenues $44,232 $44,727 $45,625 $50,225 Gross profit 15,858 16,141 16,563 18,927 Net income 2,430 2,754 3,054 2,835 Net income per share .15 .17 .18 .16 - --------------------------------------------------------------- Fiscal 1994 First Second Third Fourth Quarter Quarter Quarter Quarter - --------------------------------------------------------------- Revenues $46,546 $47,298 $40,081 $42,355 Gross profit 19,454 19,384 14,893 15,884 Net income 5,312 5,510 269 6,430 Net income per share .32 .33 .02 .39 - --------------------------------------------------------------- Fiscal 1993 First Second Third Fourth Quarter Quarter Quarter Quarter - --------------------------------------------------------------- Revenues $36,258 $37,631 $39,721 $43,336 Gross profit 15,801 16,308 16,893 18,428 Net income 4,134 4,409 4,543 4,973 Net income per share .25 .27 .28 .30 - ---------------------------------------------------------------
The sum of a year's quarterly earnings per share may not equal the annual earnings per share as a result of changes in the outstanding number of shares during the year and the application of the treasury stock method, which considers changes in the market price of common stock during each period (see Note 1, "Income Per Share"). As discussed in Note 12, during the fourth quarter of fiscal 1995, the Company completed its acquisition of CHC. As a result, the relative significance of the Company's Healthcare Information Systems' segment increased in relation to the Company's overall business. Accordingly, beginning in the fourth quarter of fiscal 1995, changes were made in the classification of certain income statement items related to the Company's Healthcare Information Systems' segment. Total revenue, operating income, net income, and earnings per share were not affected by these changes. Operating expenses of $416, $495, $577 and $610 were reclassified to cost of sales in the first, second, third and fourth quarter of 1994, respectively, to conform with the revised presentation, as were $107, $702 and $1,337 in the first, second, and third quarter of 1995, respectively. Prior to 1994, the results of operations from the Healthcare Information Systems' segment were not significant. Note 14 RECENT PRONOUNCEMENTS During March 1995, the Financial Accounting Standards Board issued Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of", and in October 1995, the Financial Accounting Standards Board issued Statement No. 123, "Accounting for Stock-Based Compensation". These pronouncements are effective for the Company's fiscal 1997. Their adoption is not expected to have a material effect on the financial statements of the company. 29 REPORT OF INDEPENDENT ACCOUNTS To the Board of Directors and Shareholders of ADAC Laboratories and Subsidiaries We have audited the accompanying consolidated balance sheets of ADAC Laboratories and Subsidiaries as of October 1, 1995 and October 2, 1994, and the related consolidated statements of income, shareholders' equity and cash flows for each of the three fiscal years in the period ended October 1, 1995. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of ADAC Laboratories and Subsidiaries as of October 1, 1995 and October 2, 1994, and the consolidated results of their operations and their cash flows for each of the three fiscal years in the period ended October 1, 1995 in conformity with generally accepted accounting principles. COOPERS & LYBRAND L.L.P. San Jose, California November 1, 1995 30 Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. SIGNATURE CAPACITIES DATE --------- ---------- ---- /s/ Stanley D. Czerwinski Chairman of the Board December 22, 1995 - ------------------------- Stanley D. Czerwinski /s/ David L. Lowe Chief Executive Officer December 22, 1995 - ------------------------- & Director David L. Lowe (Principal Executive Officer) /s/ P. Andre Simone Vice President, Finance December 22, 1995 - ------------------------- (Principal Financial Officer) P. Andre Simone /s/ Graham O. King Director December 22, 1995 - ------------------------- Graham O. King /s/ T. Alex McPherson Director December 22, 1995 - ------------------------- T. Alex McPherson /s/ Robert L. Miller Director December 22, 1995 - ------------------------- Robert L. Miller /s/ F. David Rollo Director December 22, 1995 - ------------------------- F. David Rollo /s/ Edmund H. Shea, Jr. Director December 22, 1995 - ------------------------- Edmund H. Shea, Jr. 31 ADAC Laboratories and Subsidiaries ---------------------------------- Index to Consolidated Financial Statement Schedules Report of Independent Accountants Financial Statement Schedules Schedule VIII - Consolidated Valuation and Qualifying Accounts Schedule X - Consolidated Supplementary Income Statement Information Other schedules are omitted because of the absence of conditions under which they are required or because the required information is given in the consolidated financial statements or the notes thereto. 32 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND - ------- --------------------------------------------------------------- FINANCIAL DISCLOSURE. -------------------- None. PART III The information required by Items 10, 11, 12 and 13 is included in the Proxy Statement for the Company's 1996 Annual Meeting of Shareholders to be filed with the Securities and Exchange Commission not later than 120 days after the end of the 1995 fiscal year and is incorporated herein by reference. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K. - -------- ----------------------------------------------------------------- (a) (1) Financial Statements. Consolidated Financial Statements, --------------------- Notes to Consolidated Financial Statements, and the Report of Independent Accountants are included under Item 8. Financial Statements and Supplemental Data. (2) Financial Statement Schedules. See "Index to Financial ------------------------------ Statement Schedules" attached hereto and made a part hereof. (b) Reports on Form 8-K. The following reports on Form 8-K were filed -------------------- during the Company's fourth fiscal quarter ended October 1, 1995: (i) Report on Form 8-K , dated July 12, 1995 (date of earliest event reported), concerning a series of transactions with Community Health Computing Corporation (CHCC), including the acquisition of 4,000,000 shares of Series A Preferred Stock of CHCC. (ii) Report on Form 8-K/A, dated September 27, 1995 (date of earliest event reported), which attached various financial statements and pro forma financial information concerning Community Health Computing Corporation. (3) Exhibits. The exhibits listed on the accompanying Index to --------- Exhibits below are filed as a part hereof and are incorporated by reference. SIGNATURES ---------- Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized. Date: December 22, 1995 ADAC Laboratories (Registrant) BY: /s/ David L. Lowe ----------------- David L. Lowe, Chief Executive Officer (Principal Executive Officer) 33 REPORT OF INDEPENDENT ACCOUNTANTS Our report on the consolidated financial statements of ADAC Laboratories is included on page 30 of this Form 10-K. In connection with our audit of such financial statements, we have also audited the related financial statement schedules listed in the index on page 32 on this Form 10-K. In our opinion, the financial statement schedules referred to above, when considered in relation to the basic financial statements taken as a whole, present fairly, in all material respect, the information required to be included therein. COOPERS & LYBRAND L.L.P. San Jose, California November 1, 1995 34 SCHEDULE VIII ADAC LABORATORIES AND SUBSIDIARIES VALUATION AND QUALIFYING ACCOUNTS (In Thousands) For the three years in the period ended October 1, 1995
Additions ----------------------------------------------- Charged to Acquisition Balance at Costs and of Balance at End Description Beginning of Period Expenses Business Deductions of Period - ----------- ------------------- ----------- ----------- ---------- -------------- Year Ended October 3, 1993: Deducted from asset accounts: Allowance for product returns and doubtful accounts $ 711 $ 670 $ - $ 449 $ 932 ====== ====== ==== ====== ====== Year Ended October 2, 1994: Deducted from asset accounts: Allowance for product returns and doubtful accounts $ 932 $1,023 $ - $ 311 $1,644 ====== ====== ==== ====== ====== Year Ended October 1, 1995: Deducted from asset accounts: Allowance for product returns and doubtful accounts $1,644 $1,502 $373 $1,475 $2,044 ====== ====== ==== ====== ======
35 SCHEDULE X ADAC LABORATORIES AND SUBSIDIARIES SUPPLEMENTARY INCOME STATEMENT INFORMATION (In Thousands) For the three years in the period ended October 1, 1995
CHARGED TO COSTS & EXPENSES --------------------------- ITEM 1995 1994 1993 ---- ------- ------ ------- Depreciation and amortization of intangible assets: Software and technology $1,845 $1,220 $1,021 Goodwill and Sales Partnership $ 780 $ 576 $ 656
Amounts charged to costs and expenses do not exceed one percent of net revenues for all other items for all periods presented. 36 ADAC LABORATORIES AND SUBSIDIARIES INDEX OF EXHIBITS Exhibit Number Title of Exhibit - ------ ---------------- (See Footnotes) 3.1(6) Restated Articles of Incorporation, as amended. 3.3(1) Bylaws, as amended. 3.4(4) Amendment to bylaws, effective January 14, 1988. 10.3(2) 1981 Non-qualified Stock Option Plan (as amended and restated effective December 19, 1982 and November 12, 1984). 10.4(2) Incentive Stock Option Plan (as amended and restated effective December 10, 1982 and November 12, 1984). 10.17(3) Leases for two buildings located at 540 Alder Drive, Milpitas, California, between the Company and John Arrillaga and Richard T. Peery, dated June 25, 1986. 10.45(4) 1985 Option Plan, as amended and restated through July 28, 1987. 10.52(4) Directors' Stock Option Plan (1987). 10.56(5) Amendment to leases for two buildings located at 540 Alder Drive, Milpitas, California, between the Company and John Arrillaga and Richard T. Peery, dated February 2, 1992. 10.60(6) 1992 Stock Option Plan. 10.61(6) Agreement between ADAC Laboratories Europe B.V. and Philips Medical Systems International B.V. on Nuclear Medicine Activities, dated February 21, 1992. 10.62(7) Line of Credit Agreement between the Registrant and Sanwa Bank California, dated August 12, 1993. 10.64(7) Intercreditor agreement between the Registrant and ABN Amro Bank N.V., and Sanwa Bank California. 10.66(8) Amendment to Line of Credit Agreement between the Registrant and Sanwa Bank California, dated September 21, 1994. 10.67(8) Amendment to Line of Credit Agreement between the Registrant and ABN Amro Bank N.V., dated December 15, 1994. 10.68(8) Master Lease Agreement between the Registrant and Metlife Capital Corporation, dated September 30, 1994. 10.69(8) Equipment Lease Agreement between the Registrant and Wasatch Funding Group, Inc., dated September 30, 1994. 10.70(8) Call Agreement between the Registrant and Community Health Computing Corporation and Exhibits, dated November 30, 1994 and December 7, 1994, respectively. 10.71(8) Amendment to lease for building located at 540 Alder Drive, Milpitas, California, between the Company and John Arrillaga and Richard T. Peery, dated August 31, 1993. 10.72(8) Lease agreement for building located at 630 Alder Drive, Milpitas, California, between the Company and John Arrillaga and Richard T. Peery, dated December 6, 1993. 10.73(8) Employment/Severance agreement between ADAC Laboratories and Stanley D. Czerwinski, dated November 2, 1994. 10.75(9) Employee Stock Purchase Plan (1994). 10.76(10) First Amended Series A Preferred Stock Purchase Agreement, dated February 24, 1995, among the Registrant, Community Health Computing Corp. and Community Health Computing, Inc., and related Promissory Notes, Security Agreement and Modification of Loan Agreements, dated July 12, 1995. 10.77 Amended and Restated Credit Agreement between the Registrant and ABN Amro Bank N.V., dated August 15, 1995. 10.78 Vendor Program Agreement between the Registrant and DVI Financial Services Inc., dated June 30, 1995. 10.79 Agreement and Plan of Reorganization Among the Registrant, ADAC Acquisition, Inc., J.D. Technical Services, Inc. and the Shareholders of J.D. Technical Services, Inc., dated November 9, 1995. 10.80 Amendments to Line of Credit Agreement between the Registrant and Sanwa Bank of California, dated June 1994, September 1994, January 1995 and September 29, 1995. 11 Computation of net income per share. 21 Subsidiaries. 23 Consent of Independent Accountants. 99 Undertakings. (1) Incorporated by reference to Exhibits filed with the Company's Annual Report on Form 10-K (file No. 0-9428) for the fiscal year ended September 30, 1983. (2) Incorporated by reference to Exhibits filed with the Company's Annual Report on Form 10-K (file No. 0-9428) for the fiscal year ended September 30, 1984. (3) Incorporated by reference to Exhibits filed with the Company's Annual Report on Form 10-K (file No. 0-9428) for the fiscal year ended September 28, 1986. (4) Incorporated by reference to Exhibits filed with the Company's 1988 proxy statement. (5) Incorporated by reference to Exhibits filed with the Company's Annual Report on Form 10-K (file No. 0-9428) for the fiscal year ended October 1, 1989. (6) Incorporated by reference to Exhibits filed with the Company's Annual Report on Form 10-K (file No. 0-9428) for the fiscal year ended September 27, 1992. (7) Incorporated by reference to Exhibits filed with the Company's Annual Report on Form 10-K (file No. 0-9428) for the fiscal year ended October 3, 1993. (8) Incorporated by reference to Exhibits filed with the Company's Annual Report on Form 10-K (file No. 0-9428) for the fiscal year ended October 2, 1994. (9) Incorporated by reference to Exhibit filed with the Company's Proxy Statement for the Annual Meeting of Shareholders held March 2, 1994. (10) Incorporated by reference to Exhibits filed with the Company's Current Report of Form 8-K (file No. 0-9428), dated July 12, 1995 (being the date of the earliest event reported). EX-10.77 2 AMENDED & RESTATED CREDIT AGREEMENT EXHIBIT 10.77 EXECUTION COPY AMENDED AND RESTATED CREDIT AGREEMENT between ADAC LABORATORIES and ABN AMRO BANK N.V. August 15, 1995 TABLE OF CONTENTS ----------------- Page ---- ARTICLE 1 DEFINITIONS 1.1 Definitions...................................................... 1 1.2 Accounting Terms................................................. 6 1.3 Interpretation................................................... 6 1.4 Other Terms...................................................... 6 1.5 Currency Equivalents Generally................................... 6 ARTICLE 2 CREDIT FACILITY 2.1 Loans............................................................ 7 2.2 Interest......................................................... 7 2.3 Notice of Borrowing.............................................. 7 2.4 Promissory Notes................................................. 8 2.5 Method of Payment of a Loan...................................... 8 2.6 Termination Date................................................. 8 2.7 Commitment Fee................................................... 8 2.8 Currency Equivalents............................................. 8 2.9 Default Interest Rate............................................ 9 ARTICLE 3 PREPAYMENTS 3.1 Voluntary Prepayments............................................ 9 3.2 Mandatory Prepayments............................................ 9 ARTICLE 4 LETTERS OF CREDIT 4.1 Issuance......................................................... 10 4.2 Procedure........................................................ 10 4.3 Conditions of Issuance........................................... 10 4.4 Reimbursement Obligation......................................... 10 4.5 Letters of Credit Outstanding on Termination Date................ 11 4.6 Indemnification; Nature of the Bank's Duties..................... 11 4.7 Letter of Credit Fees............................................ 12 4.8 Increased Costs.................................................. 12 i Page ---- ARTICLE 5 COLLATERAL 5.1 The Collateral................................................... 12 5.2 Rights of the Bank With or Without Default....................... 13 5.3 Survival......................................................... 14 ARTICLE 6 REPRESENTATIONS AND WARRANTIES 6.1 Corporate Status................................................. 14 6.2 Corporate Power and Authority.................................... 14 6.3 Binding Effect................................................... 15 6.4 Financial Information............................................ 15 6.5 Litigation....................................................... 15 6.6 Not an Investment Company........................................ 15 6.7 Compliance with ERISA............................................ 15 6.8 Taxes............................................................ 15 6.9 Full Disclosure.................................................. 16 6.10 Fictitious Trade Styles.......................................... 16 6.11 Title to Assets; Permitted Liens; Location of Collateral..................................................... 16 ARTICLE 7 COVENANTS 7.1 Preservation of Existence; Compliance with Applicable Laws................................................ 17 7.2 Maintenance of Insurance......................................... 17 7.3 Maintenance and Location of Collateral and Other Properties..................................................... 17 7.4 Payment of Obligations and Taxes................................. 18 7.5 Inspection Rights................................................ 18 7.6 Reporting Requirements........................................... 18 7.7 Payment of Dividends............................................. 19 7.8 Redemption or Repurchase of Stock................................ 20 7.9 Additional Indebtedness.......................................... 20 7.10 Loans............................................................ 20 7.11 Liens and Encumbrances........................................... 20 7.12 Transfer of Assets............................................... 21 7.13 Change in the Nature of Business................................. 21 7.14 Financial Condition.............................................. 21 7.15 Capital Expenditures............................................. 22 7.16 Notices.......................................................... 22 7.17 Environmental Compliance......................................... 22 7.18 Chief Executive Office........................................... 23 7.19 Use of Proceeds.................................................. 23 ii Page ---- ARTICLE 8 CONDITIONS PRECEDENT 8.1 All Loans and Letters of Credit.................................. 23 ARTICLE 9 DEFAULT 9.1 Events of Default................................................ 24 9.2 Remedies......................................................... 26 9.3 Letters of Credit................................................ 26 9.4 Notification of Account Debtors.................................. 26 9.5 Protection of Security Interest.................................. 27 9.6 Foreclosure...................................................... 27 9.7 Application of Proceeds.......................................... 28 ARTICLE 10 CHANGE IN CIRCUMSTANCES 10.1 Compensation for Funding Loss or Expense......................... 28 10.2 Illegality....................................................... 29 10.3 Taxes............................................................ 29 10.4 Reserve Requirements............................................. 30 10.5 Notice Certificates.............................................. 31 ARTICLE 11 MISCELLANEOUS 11.1 Waiver and Amendment............................................. 31 11.2 Notices.......................................................... 31 11.3 Execution in Counterparts........................................ 32 11.4 Binding Effect................................................... 32 11.5 Assignments and Participations................................... 32 11.6 Payment Instructions............................................. 33 11.7 Survival of Representations and Warranties....................... 33 11.8 Severability of Provisions....................................... 33 11.9 Headings......................................................... 33 11.10 Governing Law and Jurisdiction................................... 33 11.11 Judgment Currency................................................ 33 11.12 Costs and Expenses............................................... 34 11.13 Indemnity........................................................ 34 11.14 Entire Agreement................................................. 34 iii Page ---- ARTICLE 12 EFFECTIVE DATE OF THIS RESTATED CREDIT AGREEMENT 12.1 Effective Date................................................... 35 12.2 Effect........................................................... 35 EXHIBITS - -------- A Amended and Restated Note iv AMENDED AND RESTATED CREDIT AGREEMENT ------------------------------------- THIS AMENDED AND RESTATED CREDIT AGREEMENT (this "Restated Credit Agreement"), dated as of August 15, 1995 is entered into by and between: (1) ADAC LABORATORIES, a California corporation (the "Company"); and (2) ABN AMRO BANK N.V., a Netherlands public company acting through its San Francisco International Branch and/or Cayman Islands Branch (the "Bank"). RECITALS -------- A. Borrower and Bank are parties to a Credit Agreement dated as of August 6, 1993, as amended by a First Amendment to Credit Agreement dated as of August 5, 1994, a Second Amendment to Credit Agreement dated as of September 23, 1994 and a Third Amendment to Credit Agreement dated as of March 24, 1995 (as so amended, the "Existing Credit Agreement"), pursuant to which the Bank has provided to the Company certain credit facilities. B. The Company now has requested the Bank to amend the Existing Credit Agreement in certain additional respects. The Bank is willing to amend the Existing Credit Agreement upon the terms and subject to the conditions set forth herein. For convenience of reference, the Company and the Bank wish to restate the Existing Credit Agreement as so amended in its entirety. AGREEMENT --------- NOW, THEREFORE, in consideration of the above Recitals and the mutual covenants contained herein, the Company and the Bank hereby agree that the Existing Credit Agreement shall be amended and restated to read in its entirety as follows: ARTICLE 1 DEFINITIONS ----------- 1.1 Definitions. As used in this Agreement, the following terms shall ----------- have the meanings set forth below (such meanings to be equally applicable to both the singular and plural of the terms defined): "Account Debtor" shall mean the person obligated to the Company on an -------------- account. "Agreement" shall mean this Restated Credit Agreement as amended, --------- modified and supplemented from time to time and in effect at any given time and, if the context so permits, also shall include the Existing Credit Agreement as amended, modified and supplemented from time to time and in effect at any given time prior to the Effective Date. "Alternate Currency" shall mean Netherlands guilders, Deutsch marks, ------------------ British pounds sterling, French francs, Swiss francs and any other currency other than Dollars which the Bank shall, at any relevant time, have agreed upon the Company's request to treat as an Alternate Currency under this Agreement. "Alternate Currency Loan" shall mean a Loan made to the Company ----------------------- hereunder denominated in an Alternate Currency. "Bank" shall have the meaning given to that term in clause (2) of the ---- introductory paragraph hereof. "Bankruptcy Code" shall mean the Bankruptcy Reform Act, Title 11 of --------------- the United States Code, as amended from time to time. "Base Rate" shall mean the rate announced by the Bank from its office --------- in Chicago as its base rate. "Base Rate Loan" shall mean a Loan advanced to the Company under -------------- Article 2 at the Base Rate. "Business Day" shall mean a day of the year on which commercial banks ------------ are not required or authorized by law to close in the State of California and if the applicable Business Day relates to a LIBOR Loan, a day on which dealings are conducted in the interbank eurodollar market. "CHC" shall mean Community Health Computing Corporation, a Delaware --- corporation. "Code" shall mean the United States Internal Revenue Code of 1986, as ---- amended from time to time. "Collateral" shall have the meaning given such term in Section 5.1 ---------- hereof. "Commitment" shall mean the commitment of the Bank to make Loans to ---------- the Company hereunder up to the Maximum Amount. "Commitment Fee" shall have the meaning set forth in Section 2.7 -------------- hereof. "Company" shall have the meaning given to that term in clause (1) of ------- the introductory paragraph hereof. 2 "Credit Documents" shall mean this Agreement, the Note, the ---------------- Intercreditor Agreement, the Guaranties and all instruments and documents executed in connection with any thereof, including, without limitation, any instruments or documents executed in connection with any Letter of Credit. "Currency" shall mean Dollars or any Alternate Currency in which the -------- Bank has agreed upon the Company's request to make a Loan under this Agreement. "Debt" shall mean all liabilities of the Company as set forth on its ---- balance sheet less Subordinated Debt. "Default" shall mean any of the events specified in Section 9.1 ------- hereof, whether or not any requirement for the giving of notice, the lapse of time, or both, or any other condition has been satisfied. "Dollar Loan" shall mean a Loan made to the Company hereunder ----------- denominated in Dollars. "Dollars" and the sign "$" shall mean the lawful currency of the ------- United States of America. "Effective Date" shall have the meaning set forth in Section 12.1 -------------- hereof. "Effective Tangible Net Worth" shall mean the Company's stated net ---------------------------- worth plus Subordinated Debt but less all intangible assets of the Company (i.e., goodwill, trademarks, patents, copyrights, organization expense, loans and advances to employees, affiliates or subsidiaries, investments in subsidiaries and similar intangible items, provided however, that on a consolidated basis, Effective Tangible Net Worth shall exclude from intangible assets advances to affiliates and subsidiaries and investments in subsidiaries). "ERISA" shall mean the Employee Retirement Income Security Act of ----- 1974, as amended from time to time, including, (unless the context otherwise requires) any rules or regulations promulgated thereunder. "Eurocurrency Liabilities" shall have the meaning set forth in ------------------------ Regulation D of the Board of Governors of the Federal Reserve System, as in effect from time to time. "Existing Credit Agreement" shall have the meaning set forth in ------------------------- Recital A hereof. "Existing Note" shall have the meaning set forth in Section 12.2 ------------- hereof. "GAAP" shall mean generally accepted accounting principles applied on ---- a consistent basis, set forth in the 3 Opinions of the Accounting Principles Board of the American Institute of Certified Public Accountants and/or in statements of the Financial Accounting Standards Board and/or in such other statements by such other entity as the Bank or the Company may reasonably approve, which are applicable in the circumstances and as of the date in question, and the requisite that such principles be applied on a consistent basis shall mean that the accounting principles observed in a current period are comparable in all material respects to those applied in a preceding period except for the adoption within any permissible period of new accounting standards required or permitted by the Financial Accounting Standards Board from time to time. "Guaranties" shall mean, collectively, all guaranties executed by the ---------- Company in connection with sales by the Company to the Bank of promissory notes and other evidences of indebtedness held by the Company and all other documents, instruments and agreements executed by the Company in connection with such sales. "Intercreditor Agreement" shall mean the Intercreditor Agreement among ----------------------- the Bank, Sanwa and the Company delivered to the Bank pursuant to Section 12.1 hereof and any successor agreement thereto satisfactory to the Bank, as the same may be amended, modified or supplemented in accordance with its terms. "Interest Period" shall mean in the case of any LIBOR Loan (a) --------------- initially the period commencing on the date such LIBOR Loan is made and ending one, two or three months thereafter as selected by the Company in its irrevocable written notice given to the Bank pursuant to Section 2.3 hereof, and (b) thereafter a period commencing on the last day of the immediately preceding Interest Period for such LIBOR Loan and ending one, two or three months thereafter as selected by the Company; provided that all of the foregoing provisions are subject to the following: (i) if any Interest Period would otherwise end on a day which is not a Business Day, such Interest Period shall be extended to the next succeeding Business Day; and (ii) the Company may not select any Interest Period for a Loan that extends beyond the Termination Date. "Letter of Credit" means any standby letter of credit which is now or ---------------- at any time hereafter issued by the Bank pursuant to this Agreement at the request and for the account of the Company and which has not expired or been revoked or terminated. 4 "LIBOR" shall mean the rate generally offered to the Bank in the ----- London interbank market for deposits of amount, Currency and fixed term comparable to the amount, Currency and Interest Period of the Loan requested by the Company. "LIBOR Loan" shall mean a Loan advanced to the Company under Article 2 ---------- at a rate computed by reference to LIBOR. "Liquid Assets" shall mean all unrestricted cash and cash equivalents ------------- of the Company. "Loan" shall mean a LIBOR Loan or a Base Rate Loan made by the Bank to ---- the Company under this Agreement. "Margin Stock" shall mean margin stock as defined in Regulation U of ------------ the Board of Governors of the Federal Reserve System, as in effect from time to time. "Maximum Amount" shall mean $20,000,000 (or an equivalent thereof in -------------- an Alternate Currency) which is the maximum aggregate amount which the Bank will extend to the Company under this Agreement. "Multiemployer Plan" shall have the meaning set forth in Section ------------------ 4001(a)(3) of ERISA. "Note" shall mean the Restated Note as amended, modified and ---- supplemented from time to time and in effect at any given time and, if the context so permits, also shall include the Existing Note as amended, modified and supplemented from time to time and in effect at any given time prior to the Effective Date. "PBGC" shall mean the Pension Benefit Guaranty Corporation or any ---- successor entity or entities performing similar functions. "Permitted Liens" shall have the meaning set forth in Section 6.11 --------------- hereof. "Person" shall mean at any time an individual, a corporation, an ------ association, a trust, a government, a political subdivision, a governmental agency or instrumentality or any other entity or other organization. "Plan" shall mean a defined benefit pension plan under ERISA for the ---- unfunded liabilities of which, upon termination, the Company could be held liable by the PBGC. "Restated Credit Agreement" shall have the meaning set forth in the ------------------------- introductory paragraph hereof. "Restated Note" shall have the meaning set forth in Section 12.1(b). ------------- 5 "Sanwa" shall mean Sanwa Bank California, a California banking ----- corporation. "Secured Obligations" shall have the meaning set forth in Section 5.1 ------------------- hereof. "Subordinated Debt" shall mean such liabilities of the Company which ----------------- have been subordinated to those owed to the Bank in a manner acceptable to the Bank. "Termination Date" shall mean April 5, 1996. ---------------- 1.2 Accounting Terms. Unless otherwise specified in this Agreement, all ---------------- accounting terms used in this Agreement shall be interpreted, all accounting determinations under this Agreement shall be made, and all financial statements required to be delivered under this Agreement shall be prepared in accordance with GAAP. 1.3 Interpretation. The following rules shall apply to the construction -------------- of the Agreement unless the context requires otherwise: (a) the singular includes the plural and the plural, the singular; (b) words importing any gender include the other gender; (c) the references to statutes are to be construed as including all statutory provisions consolidating, amending or replacing the statute to which reference is made; (d) references to "writing" include printing, photocopying, typing, lithography and other means of reproducing words in a tangible visible form; (e) the words "including" "includes" and "include" shall be deemed to be followed by the words "without limitation"; (f) references to articles, sections (or subdivisions of sections), exhibits, annexes or schedules are to those of this Agreement unless otherwise indicated; (g) references to agreements and other contractual instruments shall be deemed to include all subsequent amendments or modifications that are not prohibited by the terms of this Agreement; (h) references to Persons include their respective permitted successors and assigns, and (i) headings herein are solely for convenience of reference and shall not constitute a part of this Agreement nor shall they affect its meaning. 1.4 Other Terms. All terms used herein and not otherwise defined shall ----------- have the meanings, if any, given to such terms in the California Uniform Commercial Code. 1.5 Currency Equivalents Generally. For all purposes of this Agreement ------------------------------ other than Article 2, the equivalent in any Alternate Currency of an amount in Dollars shall be determined at the rate of exchange quoted by the Bank in San Francisco, on the date of determination, for the spot purchase in the relevant foreign exchange market of such amount of Dollars with such Alternate Currency. 6 ARTICLE 2 CREDIT FACILITY --------------- 2.1 Loans. The Bank agrees, on the terms and conditions set forth in this ----- Agreement to lend the Company pursuant to this Section 2.1 from time to time amounts such that the aggregate principal amount of the Loans that are at any one time outstanding shall not exceed, together with the aggregate undrawn amount of all issued and outstanding Letters of Credit, the Maximum Amount. Within the foregoing limits, the Company may borrow under this Section 2.1, repay or, to the extent permitted by Article 3 prepay the Loans and reborrow under this Section 2.1 at any time prior to the Termination Date. Unless otherwise instructed in writing by the Company, the Bank shall wire the amount of loans advanced hereunder to Sanwa Bank California, San Jose, for the account of ADAC Laboratories, Acct. No. 1129-92463, Ref: Loan Proceeds. 2.2 Interest. Each Loan shall bear interest on its outstanding principal -------- amount at a rate equal to the Company's choice at the time such Loan is made of either: (a) LIBOR plus one and one quarter percent (1.25%) per annum; or (b) Base Rate. Interest on Loans shall be computed on the number of days elapsed and a year of 360 days. Interest on Base Rate Loans shall be due and payable at the end of each calendar month. Interest on LIBOR Loans shall be due and payable at the end of each Interest Period. Each determination of an interest rate by the Bank pursuant to any provision of this Agreement shall be conclusive and binding on the Company in the absence of manifest error. The Bank will, at the request of the Company, deliver to the Company, a statement showing the quotations used by the Bank in determining any interest rate. 2.3 Notice of Borrowing. Whenever the Company desires to obtain a Loan ------------------- hereunder, the Company shall give the Bank (at the Bank's office as set forth in Section 11.2 hereof) prior notice by 11:00 a.m. (California time) on the Business Day on which a Base Rate Loan that is a Dollar Loan is to be made hereunder and by 11:00 a.m. (California time) at least three (3) Business Days' prior to the Business Day on which a LIBOR Loan or Alternate Currency Loan is to be made hereunder. Each such notice shall specify (i) the principal amount of the Loan, (ii) the date such Loan is to be made (which shall be a Business Day), (iii) whether the Loan is to be a Base Rate Loan or a LIBOR Loan, (iv) the Currency in which such Loan is to be made, and (v) if a LIBOR Loan the initial Interest Period to be applicable thereto. The Bank shall notify the Company no later than one Business Day before the date on which an Alternate Currency Loan is to be made if such Alternate Currency is not available. 7 2.4 Promissory Notes. The Company's obligation to pay the principal of ---------------- and interest on the Loans made by the Bank shall be evidenced by a Note in the form of Exhibit A. The Note shall (i) be in the stated principal amount equal to the Maximum Amount, (ii) be payable in the principal amount of the Loans evidenced on the schedule to such Note, (iii) mature on the Termination Date, and (iv) bear interest as set forth in this Agreement. The Bank may endorse on the grid annexed to the Note the date, amount and maturity of each Loan made to the Company and the amount of each payment of principal made by the Company with respect thereto. The Bank is irrevocably authorized by the Company to endorse its Note and the Bank's record shall be conclusive absent manifest error; provided, however, that the failure of the Bank to make, or an error in making, - -------- ------- a notation thereon with respect to any Loan shall not limit or otherwise affect the obligations of the Company hereunder or under the Note to the Bank. 2.5 Method of Payment of a Loan. All payments made by the Company (in --------------------------- connection with a Loan) under this Agreement or a Note will be made as set forth in Section 11.6 hereof, or at such other place in the United States of America or elsewhere as the Bank may specify, in immediately available funds in the Currency in which the Loan was made. The obligations of the Company under this Article and under the Note are dischargeable only by payment in the requested Currency, regardless of any law, rule, regulation or statute, whether now or hereafter in existence or in effect in any jurisdiction, which affects or purports to affect such obligations. 2.6 Termination Date. The credit facility established hereunder shall ---------------- terminate on the Termination Date. The Company agrees to repay the principal amount of all outstanding Loans, together with accrued and unpaid interest thereon, on the Termination Date. 2.7 Commitment Fee. The Company agrees to pay to the Bank a commitment -------------- fee (the "Commitment Fee") for the period from August 6, 1993 to the Termination Date computed (on the basis of days elapsed and a year of 360 days) at a rate equal to 0.50% per annum on the unused amount of the Maximum Amount. The Company shall pay the Bank the Commitment Fee quarterly in arrears; such payment to be made in accordance with the Bank's instructions. 2.8 Currency Equivalents. For purposes of the provisions of this Article -------------------- 2, (i) the equivalent in Dollars of any Alternate Currency shall be determined by using the quoted spot rate at which Bank's office in San Francisco offers to exchange Dollars for such Alternate Currency three Business Days prior to the date on which such equivalent is to be determined, and (ii) the equivalent in any Alternate Currency of Dollars shall be determined by using the quoted spot rate at which Bank's office in San Francisco offers to exchange such Alternate Currency for Dollars three Business Days prior to the date on which such equivalent is to be determined. The equivalent in Dollars of 8 each Loan made in an Alternate Currency shall be recalculated hereunder on each date that it shall be necessary to determine the unused portion of the Commitment or the amount of any or all Loans outstanding on such date in Dollars. 2.9 Default Interest Rate. If any amount of principal of or interest on --------------------- any Loan or any other amount payable hereunder or under any other Credit Document is not paid in full when due, (whether at stated maturity, by acceleration, demand or otherwise), the Company agrees to pay interest on such unpaid principal, interest or other amount from the date such amount becomes due until the date such amount is paid in full, payable on demand, at a rate per annum equal to 3% in excess of the Base Rate. ARTICLE 3 PREPAYMENTS ----------- 3.1 Voluntary Prepayments. The Company may prepay, without premium or --------------------- penalty (except for losses and expenses under Section 11.1 hereof), all or any portion of the Loans upon three Business Days' irrevocable notice to the Bank. Prepayments under this Agreement shall be made in the Currency in which the amounts prepaid are denominated at the time of prepayment together with accrued interest thereon in the same Currency and any payment due under Section 10.1 hereof. The notice of prepayment shall specify the date of prepayment and the aggregate amount of prepayment, which amount shall be (i) no less than $500,000 with respect to a Dollar Loan, (ii) no less than the equivalent of $500,000 in the applicable Alternate Currency with respect to an Alternate Currency Loan, or (iii) integral multiples of the numbers set forth in clauses (i) and (ii). If any such notice is given, the amount of the prepayment specified in the notice shall be due and payable on the date specified therein together with accrued interest to such date on such amount and any payment due under Section 10.1 hereof. 3.2 Mandatory Prepayments. In the event that due to exchange rate --------------------- fluctuations, the amount of outstanding Loans plus the aggregate undrawn amount of all issued and outstanding Letters of Credit exceeds the Maximum Amount, the Company shall repay to the Bank the sum by which such amount exceeds the Maximum Amount. ARTICLE 4 LETTERS OF CREDIT ----------------- 4.1 Issuance. Subject to the provisions of Section 4.3 and Article 8 -------- hereof, at any time prior to the Termination Date the Company may request that the Bank issue one or more Letters of 9 Credit as provided herein with an expiration date not later than the date that is 360 days after the date of issuance. 4.2 Procedure. The Company shall deliver to the Bank, at least three --------- (3) Business Days prior to the date on which the Letter of Credit is requested to be issued, the Bank's standard letter of credit application and reimbursement agreement, modified as necessary to reflect the terms of this Agreement, and such other documents and materials as may be required pursuant to the terms thereof, and each of such documents shall be in form and substance satisfactory to the Bank; provided, however, that in the event of any conflict between the -------- ------- provisions of any such agreement or document and the provisions of this Agreement, the provisions of this Agreement shall control. 4.3 Conditions of Issuance. In addition to the issuance of any ---------------------- Letter of Credit being subject to the satisfaction of the conditions precedent set forth in Article 8 hereof, no Letter of Credit shall be issued hereunder if: (a) As of the date of issuance of the proposed Letter of Credit, any order, judgment or decree of any court, arbitrator or governmental authority shall purport by its terms to enjoin or restrain the Bank from issuing the Letter of Credit or any law, rule or regulation applicable to the Bank or any request or directive (whether or not having the force of law) from any governmental authority with jurisdiction over the Bank shall prohibit or request that the Bank refrain from the issuance of letters of credit generally; or (b) As of the date of issuance of the proposed Letter of Credit, the maximum amount available for drawing under the proposed Letter of Credit when added to the aggregate maximum amount available for drawing under all previously issued and outstanding Letters of Credit plus the amount of all outstanding Loans exceeds the Maximum Amount on the proposed date of issuance (giving effect to any other Letters of Credit and any Loans requested to be issued or made on such date). The foregoing conditions and the provisions of Section 4.1 shall also apply to any extension or renewal of or increase in the amount available for drawing under a Letter of Credit. 4.4 Reimbursement Obligation. In the event that the Bank shall make ------------------------ any payment on or pursuant to any Letter of Credit or shall incur any expense with respect to any Letter of Credit the amount of such payment or expense shall be due and owing from the Company to the Bank on the date that such payment is made or expense incurred, provided that if no Event of Default has then occurred and is continuing, the amount of any such payment that represents payment of a draw by the beneficiary under such Letter of Credit shall be deemed to constitute a Base Rate Loan made as of such date . 10 4.5 Letters of Credit Outstanding on Termination Date. In the event that ------------------------------------------------- any Letter of Credit, whether or not then due and payable, shall for any reason be outstanding on the Termination Date, the obligations of the Company with respect to each such Letter of Credit shall be governed by the letter of credit application and reimbursement agreement and other documentation executed pursuant to Section 4.2 in connection with such Letter of Credit. 4.6 Indemnification; Nature of the Bank's Duties. The Company hereby -------------------------------------------- agrees to protect, indemnify and save the Bank harmless from and against any and all claims, demands, liabilities, damages, losses, costs, charges and expenses (including reasonable attorneys' fees) which the Bank may incur or be subject to as a consequence, direct and indirect, of the issuance of any Letter of Credit, including without limitation that resulting from the failure of the Bank to honor a drawing under such Letter of Credit as a result of any act or omission, whether rightful or wrongful, of any present or future de jure or de facto government or governmental authority, but excluding that resulting from the gross negligence or willful misconduct of the Bank. As between the Company and the Bank, the Company assumes all risks of the acts and omissions of, or misuse of any Letter of Credit by the beneficiary of such Letter of Credit. In furtherance and not in limitation of the foregoing, subject to the provisions of any Letter of Credit application, the Bank shall not be responsible: (a) For the form, validity, sufficiency, accuracy, genuineness or legal effect of any document submitted by any party in connection with the application for and issuance of any Letter of Credit, even if it should in fact prove to be in any respect invalid, insufficient, inaccurate, fraudulent or forged; (b) For the validity or sufficiency of any instrument transferring or assigning or purporting to transfer or assign a Letter of Credit or the rights or benefits thereunder or proceeds thereof, in whole or in part, which may prove to be invalid or ineffective for any reason; (c) For failure of the beneficiary of a Letter of Credit to comply fully with conditions required in order to draw upon such Letter of Credit; (d) For errors, omissions, interruptions or delays in transmission or delivery of any notices, demands, protests or other messages, by mail, cable, telegraph, telex or otherwise; (e) For errors in interpretation of technical terms; (f) For any loss or delay in the transmission or otherwise of any document required in order to make a 11 drawing under any Letter of Credit or of the proceeds thereof; (g) For the misapplication by the beneficiary of the Letter of Credit of the proceeds of any drawing under such Letter of Credit; or (h) For any consequences arising from causes beyond the control of the Bank. None of the above shall affect, impair or prevent the vesting of any of the Bank's rights or powers hereunder or under any of the documentation described in Section 4.2. No action taken or omitted by the Bank under or in connection with the Letters of Credit or the related applications, agreements or certificates, if taken or omitted in good faith, shall put the Bank under any resulting liability to the Company. 4.7 Letter of Credit Fees. The Company shall pay to the Bank a fee with --------------------- respect to each Letter of Credit in advance on the date of issuance of the Letter of Credit equal to the greater of (a) 0.85% per annum of the face amount of the Letter of Credit, or (b) $500. The Company shall pay to the Bank a fee of $100 for each amendment to a Letter of Credit. 4.8 Increased Costs. The Company shall, upon the Bank's request, promptly --------------- pay to and reimburse the Bank for all costs incurred and payments made by the Bank by reason of any future assessment, reserve, deposit or similar requirement or any surcharge, tax or fee imposed upon the Bank or as a result of the Bank's compliance with any directive or requirement of any regulatory authority pertaining or relating to any Letter of Credit. The Bank shall use reasonable efforts to provide the Company, in advance, with an estimate of any such costs which may potentially be incurred hereunder. ARTICLE 5 COLLATERAL ---------- 5.1 The Collateral. To secure payment and performance of all the -------------- Company's obligations under this Agreement, including, without limitation, the payment of the Loans, and all other liabilities, loans, guarantees, covenants and duties owed by the Company to the Bank (including without limitation under the Guaranties), whether or not evidenced by this or by any other agreement, absolute or contingent, due or to become due, now existing or hereafter and howsoever created (collectively, the "Secured Obligations"), the Company hereby grants the Bank a security interest in and to all of the following property: (a) All goods now owned or hereafter acquired by the Company or in which the Company now has or may hereafter acquire any interest, including, but not limited to, all 12 machinery, equipment, furniture, furnishings, fixtures, tools, supplies and motor vehicles of every kind and description, and all additions, accessions, improvements, replacements and substitutions thereto and thereof; (b) All inventory now owned or hereafter acquired by the Company, including, but not limited to, all raw materials, work in process, finished goods, merchandise, parts and supplies of every kind and description, including inventory temporarily out of the Company's custody or possession, together with all returns on accounts; (c) All accounts, contract rights and general intangibles now owned or hereafter created or acquired by the Company, including but not limited to, all receivables, goodwill, trademarks, trade styles, trade names, patents, patent applications, software, customer lists and business records; (d) All documents, instruments and chattel paper now owned or hereafter acquired by the Company; and (e) All moneys, deposit accounts, certificates of deposit and securities now owned or hereafter acquired by the Company. The Bank's security interest in the Collateral shall be a continuing lien and shall include the proceeds and products of the Collateral including, but not limited to, the proceeds of any insurance thereon. 5.2 Rights of the Bank With or Without Default. The Company agrees that ------------------------------------------ the Bank may at any time and at its option, whether or not a Default or Event of Default shall have occurred: (a) Require the Company to deliver to the Bank, at such times designated by the Bank, such records and schedules or copies thereof as the Bank may reasonably require to protect its security interests hereunder. Such records and schedules may show the status and condition of the Collateral, where it is located and such contracts or other matters which affect the Collateral; (b) Send verification requests to any Account Debtor; (c) Make inquiries of the Company's trade vendors; and (d) Require the Company to promptly and duly execute and deliver any and all such further instruments and documents and take such further action as the Bank may reasonably deem desirable to obtain the full benefits of this Agreement and of the rights and powers herein granted, including, without limitation, (i) executing and delivering financing or continuation statements with respect to the liens and security interests granted hereby and 13 (ii) transferring Collateral to the Bank's possession (if a security interest in such Collateral can be perfected only by possession). 5.3 Survival. The provisions of this Article 5 and Sections 6.10, 7.1, -------- 7.2, 7.3, 7.11 and 7.18 shall survive the termination of this Agreement and shall continue in full force and effect until such time as all the Secured Obligations are indefeasibly paid in full. ARTICLE 6 REPRESENTATIONS AND WARRANTIES ------------------------------ In order to induce the Bank to enter into this Agreement and to make the Loans, the Company does hereby make the following representations, warranties and agreements as of the Effective Date and thereafter on and as of the date that any Loan is made or any Letter of Credit is issued: 6.1 Corporate Status. The Company is a duly organized and validly ---------------- existing corporation in good standing under the laws of the State of California. The Company (i) has the power and authority to own its property and assets and to transact the business in which it is engaged, (ii) is duly licensed, qualified as a foreign corporation and in good standing in each jurisdiction where it owns or leases real property and in which failure to be licensed, duly qualified and in good standing would have a material adverse effect on the financial condition or operations of the Company. 6.2 Corporate Power and Authority. The execution, delivery and ----------------------------- performance by the Company of this Agreement and the other Credit Documents are within the Company's corporate powers, have been duly authorized by all necessary corporate action, require no action by or in respect of, or filing with, any governmental body, agency or official or any consent or approval of the Company's stockholders and do not contravene, or constitute a default under any provision of applicable law or regulation or of any writ, order, judgment or injunction presently in effect affecting the Company or of the articles of incorporation or by-laws of the Company or of any agreement, indenture or instrument evidencing debt of the Company or other material instrument to which the Company is a party or by which it or its properties may be bound or affected or result in the creation or imposition of any lien on the property or assets of the Company (except for the liens created pursuant to Article 5 hereof). 6.3 Binding Effect. This Agreement constitutes a valid and binding -------------- agreement of the Company and the other Credit Documents, when executed and delivered in accordance with this Agreement, will constitute valid and binding obligations of the Company, in each case enforceable in accordance with their respective terms, except as enforcement may be limited by bankruptcy, insolvency, 14 or other laws affecting the enforcement of creditors' rights generally and except as the remedy of specific performance or of injunctive relief is subject to the discretion of the court hearing such proceedings. 6.4 Financial Information. --------------------- (a) The consolidated balance sheet of the Company as of October 2, 1994 and the related consolidated statements of earnings, shareholder's equity and changes in the financial position of the Company for the fiscal year then ended, reported on by Coopers & Lybrand, copies of which have been furnished to the Bank, fairly present, in conformity with generally accepted accounting principles, the consolidated financial position of the Company as of such date and its consolidated results of operations. (b) Since October 2, 1994 there has been no material adverse change in the business, financial position, results of operations or prospects of the Company taken as a whole. 6.5 Litigation. There is no action, suit or proceeding pending against, ---------- or to the knowledge of the Company threatened against or affecting, the Company before any court or arbitrator or any governmental body, agency or official which, if determined adversely to the Company, would have a material adverse effect on the Company's financial condition or operations or which in any manner draws into question the validity of this Agreement or the other Credit Documents. 6.6 Not an Investment Company. The Company is not an "investment company" ------------------------- within the meaning of the Investment Company Act of 1940, as amended. 6.7 Compliance with ERISA. The Company has fulfilled its obligations --------------------- under the minimum funding standards of ERISA and the Code with respect to each Plan, is in compliance in all material respects with the presently applicable provisions of ERISA and the Code and has not incurred any liability to the PBGC in connection with any Plan. 6.8 Taxes. The Company has filed all Federal, state and local tax returns ----- and reports required to be filed by it and has paid all taxes shown due on the returns so filed as well as all other material taxes, assessments and governmental charges which have become due other than taxes, assessments or governmental charges which are being duly contested in good faith by appropriate proceedings. The charges, accruals and reserves on the books of the Company in respect of taxes or other governmental charges are adequate. 6.9 Full Disclosure. All information heretofore furnished by the Company --------------- to the Bank for the purposes of or in connection with this Agreement, the other Credit Documents or any transaction contemplated hereby or thereby is, and all such 15 information hereafter furnished by the Company to the Bank will be, true, accurate and complete in every material respect on the date as of which such information is stated or certified and will not omit any material fact necessary to make such information not misleading. The Company has disclosed to the Bank in writing any and all facts which materially and adversely affect or may affect (to the extent that the Company can now reasonably foresee) the business, operations, prospects or condition (financial or otherwise) of the Company or the ability of the Company to perform its obligations under this Agreement and the other Credit Documents. 6.10 Fictitious Trade Styles. There are no fictitious trade styles used by ----------------------- the Company in connection with its business operations. The Company does not do, and has not done, business under any name other than ADAC Laboratories. The Company shall notify the Bank not less than 30 days prior to effecting any change in the matters described herein or prior to using any other name or fictitious trade style at any future date, indicating the name or trade style and state(s) of its use. 6.11 Title to Assets; Permitted Liens; Location of Collateral. The Company -------------------------------------------------------- has good and marketable title to all of its assets (including, but not limited to, the Collateral) and the same are not subject to any security interest, encumbrance, lien or claim of any third person other than: (i) liens and security interests securing indebtedness owed by the Company to the Bank; (ii) liens for taxes, assessments or similar charges either not yet due or being duly contested in good faith; (iii) liens of mechanics, materialmen, warehousemen or other like liens arising in the ordinary course of business and securing obligations which are not yet delinquent; (iv) liens and security interests which, as of August 6, 1993, have been disclosed to and approved by the Bank in writing; (v) purchase money liens or purchase money security interests upon or in any property acquired or held by the Company in the ordinary course of business to secure indebtedness outstanding on August 6, 1993 or permitted to be incurred hereunder; (vi) liens on the Collateral securing the indebtedness of the Company to Sanwa permitted pursuant to Section 7.10 hereof; and (vii) those liens and security interests which in the aggregate constitute an immaterial and insignificant monetary amount with respect to the net value of the Company's assets (collectively "Permitted Liens"). As of the Effective Date, not less than 80% in value of the Collateral described in Sections 5.1(a) and (b) will be located in the State of California. ARTICLE 7 COVENANTS --------- The Company covenants and agrees that so long as this Agreement or any other Credit Document is in effect or any liabilities (whether direct or indirect) of the Company to the 16 Bank under this Agreement remain outstanding or any amount payable under any other Credit Document remains unpaid that the Company shall, unless the Bank otherwise consents in writing: 7.1 Preservation of Existence; Compliance with Applicable Laws. Maintain ---------------------------------------------------------- and preserve its existence and all rights and privileges now enjoyed; not liquidate, dissolve, merge or consolidate with or into or acquire any other business organization (except for the purchase of CHC to the extent permitted by Section 7.15); and conduct its business in accordance with all applicable laws, rules and regulations except where such failure to so conduct its business would not have a material adverse affect upon the Company's business as a whole or its financial condition. 7.2 Maintenance of Insurance. Maintain insurance in such amounts and ------------------------ covering such risks as is usually carried by companies engaged in similar businesses and owning similar properties in the same general areas in which the Borrower operates and maintain such other insurance and coverages as reasonably may be required by the Bank. All such insurance shall be in form and amount and with companies satisfactory to the Bank. With respect to insurance covering properties in which the Bank maintains a security interest or lien, such insurance shall name the Bank as loss payee pursuant to a loss payable endorsement satisfactory to the Bank and shall not be altered or cancelled except upon 10 days' prior written notice to the Bank. Upon the Bank's request, the Company shall furnish the Bank with the original policy or binder of all such insurance. 7.3 Maintenance and Location of Collateral and Other Properties. Except ----------------------------------------------------------- for Permitted Liens, keep and maintain the Collateral free and clear of all levies, liens, encumbrances and security interests (including, but not limited to, any lien of attachment, judgment or execution) and defend the Collateral against any such levy, lien, encumbrance or security interest; comply in all material respects with all laws, statutes and regulations pertaining to the Collateral and its use and operation; execute, file and record such statements, notices and agreements, take such actions and obtain such certificates and other documents as necessary to perfect, evidence and continue the Bank's security interest in the Collateral and the first priority thereof (subject only to Permitted Liens); maintain accurate and complete records of the Collateral which show all sales, claims and allowances; and properly care for, house, store and maintain the Collateral in good condition, free of misuse, abuse and deterioration, other than normal wear and tear. The Company shall also maintain and preserve all its properties in good working order and condition in accordance with the general practice of other businesses of similar character and size, ordinary wear and tear excepted. 7.4 Payment of Obligations and Taxes. Make timely payment of all -------------------------------- assessments and taxes and all of its liabilities and obligations unless the same are being contested in good faith and 17 by appropriate proceedings, and maintain, in accordance with GAAP, appropriate reserves for the accrual of any of the same. 7.5 Inspection Rights. Keep proper books of record and account in which ----------------- full, true and correct entries in conformity with GAAP shall be made of all dealings and transactions in relation to its business and activities; and at any reasonable time and from time to time permit the Bank or any representative thereof to examine and make copies of the records and visit the properties of the Borrower to discuss the business and operations of the Borrower with any employee or representative thereof or its independent public accountants. If the Company now or at any time hereafter maintains any records (including, but not limited to, computer generated records and computer programs for the generation of such records) in the possession of a third party, the Company hereby agrees to notify such third party to permit the Bank free access to such records at all reasonable times and to provide the Bank with copies of any records it may request, all at the Company's expense, the amount of which shall be payable immediately upon demand. The Bank will use reasonable efforts, consistent with its normal business practices, to maintain the confidentiality of any information so received. 7.6 Reporting Requirements. Deliver or cause to be delivered to the Bank ---------------------- in form and detail satisfactory to the Bank: (a) As soon as available and in any event within 120 days after the end of each of the Company's fiscal years, an audited consolidated and an unaudited consolidating balance sheet of the Company as of the end of such fiscal year and the related statements of earnings, shareholders equity and cash flows for such fiscal year, setting forth in each case in comparative form the figures for the preceding fiscal year, all reported on in a manner acceptable to the Securities and Exchange Commission and, with respect to such consolidated statements, certified by independent public accountants of nationally recognized standing acceptable to the Bank; (b) As soon as available and in any event within 45 days after the end of the first three fiscal quarters of each fiscal year of the Company, a consolidated and consolidating balance sheet for the Company as of the end of such quarter and the related consolidated statements of cash flows of the Company for such quarter and for the portion of the Company's fiscal year ended at the end of such quarter, setting forth in each case in comparative form the figures for the corresponding quarter and the corresponding portion of the Company's previous fiscal year; (c) Simultaneously with the delivery of each set of financial statements referred to in clauses (a) and (b) above, a certificate of the Company's chief financial officer or treasurer (i) stating whether there exists on the 18 date of such certificate an Event of Default or an event which, with notice or lapse of time or both would constitute an Event of Default, and if any such event has occurred and is continuing, a statement as to the nature thereof and the action which the Company proposes to take with respect thereto, (ii) setting forth in reasonable detail the calculations required to establish whether the Company was in compliance with the requirements of Sections 7.7 through 7.10, 7.12, 7.14 and 7.15, and (iii) stating whether on the date of such certificate at least 80% in value of the Collateral described in Sections 5.1(a) and (b) hereof is located in the State of California, and if not, stating in which states of the United States or other countries such Collateral is located and the percentage in value of such Collateral that is located in each such state or country; (d) Not later than 60 days after the end of each of the Company's fiscal years, a copy of the Company's financial projections for the succeeding fiscal year; (e) Promptly upon the filing thereof, copies of all registration statements and annual, quarterly or other reports which the Company shall have filed with the Securities and Exchange Commission; and (f) From time to time such additional information regarding the business, financial condition and operations of the Company as the Bank may reasonably request. 7.7 Payment of Dividends. Not declare or pay any dividends on any class -------------------- of stock now or hereafter outstanding except dividends payable solely in the Company's capital stock and except dividends up to the sum of 50% of the preceding four fiscal quarters' net profit less any dividends previously paid during the preceding four fiscal quarters plus any amounts realized from the exercise of stock options or warrants in the preceding four fiscal quarters. 7.8 Redemption or Repurchase of Stock. Not redeem or repurchase any class --------------------------------- of the Company's stock now or hereafter outstanding, except, when combined with dividends paid pursuant to Section 7.7, up to the sum of 50% of the preceding four fiscal quarters' net profit less any dividends previously paid during the preceding four fiscal quarters or any previous repurchases plus any amounts realized from the exercise of stock options or warrants in the preceding four fiscal quarters. 7.9 Additional Indebtedness. Not, after August 6, 1993, create, incur or ----------------------- assume, directly or indirectly, any liability or indebtedness other than (a) indebtedness owed or to be owed to the Bank, (b) indebtedness to trade creditors incurred in the ordinary course of the Company's business, (c) indebtedness for loans made to the Company by Sanwa, provided that the aggregate principal amount of such loans outstanding at all times equals the sum of the aggregate principal amount of the Loans and the 19 aggregate face amount of the Letters of Credit then outstanding under this Agreement, (d) recourse obligations of the Company in connection with any Company arranged financings for its sales or sales by the Company of its accounts receivable, provided that the aggregate amount of all such obligations do not exceed $20,000,000 at any time, and (e) indebtedness of the Company under capital leases arising from the sale and leaseback by the Company of its assets, provided that the aggregate book value of the assets sold by the Company in connection with all such transactions does not exceed $5,000,000 during the term of this Agreement (all such permitted sale-leaseback transactions to be referred to herein as "Permitted Sale-Leaseback Transactions"). ------------------------------------- 7.10 Loans. Not make any loans or advances or extend credit to any third ----- person, including, but not limited to, directors, officers, shareholders, partners, employees, affiliated entities or subsidiaries of the Company, except for (a) credit extended in the ordinary course of the Company's business as presently conducted, provided that the aggregate amount of all such credit which is unsecured does not exceed $500,000 in any one fiscal year and the aggregate amount of such credit which is secured by the Company's stock does not exceed $1,500,000 in any one fiscal year, and (b) a loan or loans to CHC, provided that (i) the aggregate principal amount of all such loans does not exceed $12,100,000 and (ii) all such loans are fully secured by a security interest of first priority in property of CHC; provided that the provisions of clause (b) shall not apply from and after the date CHC has been merged into or otherwise has become a division of the Company. 7.11 Liens and Encumbrances. Not create, assume or permit to exist any ---------------------- security interest, encumbrance, mortgage, deed of trust or other lien including, but not limited to, a lien of attachment, judgment or execution, affecting any of the Company's properties, or execute or allow to be filed any financing statement or continuation thereof affecting any such properties, except for Permitted Liens and as otherwise provided in this Agreement. 7.12 Transfer of Assets. Not sell, contract for sale, convey, assign, ------------------ lease, sublet or otherwise transfer any of its assets except for (a) the sale of inventory in the ordinary course of business as presently conducted by the Company and (b) other transfers of assets (including, without limitation, (i) any sale of an asset which is to be the subject of a Permitted Sale-Leaseback Transaction and (ii) any recourse or non-recourse sale of its accounts receivable) in the ordinary course of business as presently conducted by the Company, provided that (i) each such transfer is for full, fair and reasonable consideration and (ii) the aggregate amount of all assets so transferred does not exceed $3,200,000 for any fiscal year. 7.13 Change in the Nature of Business. Not make any material change in its -------------------------------- financial structure or in the nature of its business as existing or conducted as of August 6, 1993. 20 7.14 Financial Condition. Maintain at all times on a consolidated basis: ------------------- (a) Debt to Net Worth Ratio. A Debt to Effective Tangible Net Worth ----------------------- ratio of not more than 1.25 to 1. (b) Current Ratio. A ratio of current assets to current liabilities ------------- of not less than 1.40 to 1. (c) Quick Ratio. A ratio of the sum of Liquid Assets plus accounts ----------- receivable to current liabilities of not less than .90 to 1. (d) Net Profit. A minimum net profit after tax for each fiscal ---------- quarter of at least $1.00. (e) Consolidated Working Capital. A minimum working capital of not ---------------------------- less than $15,000,000. (f) Net Worth. A minimum Effective Tangible Net Worth of not less --------- than $48,000,000, plus 50% of the net profits for each fiscal quarter after the second fiscal quarter of the Company that ends in calendar year 1994 and 100% of the net proceeds of any equity offerings after the end of such fiscal quarter, minus up to $6,000,000 used to repurchase or redeem the Company's stock prior to December 31, 1994. (g) Unconsolidated Working Capital. Maintain at all times, on an ------------------------------ unconsolidated basis, a minimum working capital of not less than $15,000,000. (h) Unconsolidated Tangible Net Worth. Maintain at all times on an --------------------------------- unconsolidated basis an Effective Tangible Net Worth of not less than $44,000,000, plus 50% of the net profits for each fiscal quarter after the second fiscal quarter of the Company that ends in calendar year 1994 and 100% of the net proceeds of any equity offerings after the end of such fiscal quarter, minus up to $6,000,000 used to repurchase or redeem the Company's stock prior to December 31, 1994. 7.15 Capital Expenditures. Not make any fixed capital expenditure or any -------------------- commitment therefor, including, but not limited to, incurring liability for uses which would be, in accordance with generally accepted accounting principles, reported as capital leases, or purchase any real or personal property, in an aggregate amount exceeding $3,000,000 in any one fiscal year; except that the Company may purchase all of the outstanding stock of CHC provided that (a) the aggregate cost to the Company of such purchase does not exceed $20,600,000 and (b) at the time of such purchase and after giving effect thereto, no Default or Event of Default shall have occurred and be continuing. 21 7.16 Notices. Give prompt written notice to the Bank of any and all (a) ------- Defaults or Events of Default, together with a statement of the Company's chief financial officer or treasurer setting forth the details of such Default or Event of Default and the action which the Company proposes to take with respect thereto, (b) litigation, arbitration or administrative proceedings to which the Company is a party and in which the claim or liability exceeds $300,000, (c) notices given or required to be given by the Company or any subsidiary or any plan administrator to the PBGC of any "reportable event" (as defined in Section 4043 of ERISA) with respect to any Plan that is not a Multiemployer Plan which might constitute grounds for termination of such Plan under Title IV of ERISA, or with respect to any Multiemployer Plan, notices received as prescribed in ERISA of any material withdrawal liability assessed against the Company or any subsidiary, and (d) events which would result in a change in the location of more than 20% in value of the Collateral described in Sections 5.1(a) and (b) (other than intrastate changes in location), which notice shall be given not less than 30 days prior to the occurrence of any such event. 7.17 Environmental Compliance. The Company shall: ------------------------ (a) Implement and comply in all material respects with all applicable federal, state and local laws, ordinances, statutes and regulations with respect to hazardous or toxic wastes, substances or related materials, industrial hygiene or environmental conditions; (b) Not own, use, generate, manufacture, store, handle, treat, release or dispose of any hazardous or toxic wastes, substances or related materials; (c) Give prompt written notice of any discovery of or suit, proceeding, claim, dispute, threat, inquiry or filing respecting hazardous or toxic wastes, substances or related materials; and (d) At all times indemnify and hold harmless Bank from and against any and all liability arising out of the use, generation, manufacture, storage, handling, treatment, disposal or presence of hazardous or toxic wastes, substances or related materials. 7.18 Chief Executive Office. At all times maintain its chief executive ---------------------- office at a location within the State of California. 7.19 Use of Proceeds. Not use any of the proceeds of the Loans in --------------- violation of any applicable law, regulation, order, decree or injunction of any governmental authority, and no use of such proceeds for general corporate purposes will include any use thereof, directly or indirectly, for the purpose, whether immediate, incidental or ultimate of purchasing or carrying any Margin Stock. 22 ARTICLE 8 CONDITIONS PRECEDENT -------------------- 8.1 All Loans and Letters of Credit. The obligation of the Bank to make a ------------------------------- Loan to the Company or to issue a Letter of Credit is subject to the satisfaction of the following conditions: (a) receipt by the Bank of the notice required in Section 2.3 for such Loan or the documents required by Section 4.2 for such Letter of Credit; (b) the fact that as of the making of such Loan or issuance of such Letter of Credit and immediately thereafter: (i) no Event of Default shall have occurred and be continuing nor shall any event have occurred and be continuing which with the lapse of time or notice or both shall constitute an Event of Default nor shall any such event or Event of Default result from the making of such Loan or issuance of such Letter of Credit, (ii) the representations and warranties of the Company in this Agreement continue to be true and correct in all material respects, and (iii) there has been no material adverse change in the business, financial position, results of operations or, to the extent reasonably foreseeable, prospects of the Company; and (c) the security interest in the Collateral has been duly authorized, created and perfected with first priority and is in full force and effect, subject to Permitted Liens. ARTICLE 9 DEFAULT ------- 9.1 Events of Default. If one or more of the following events ----------------- ("Events of Default") shall have occurred and be continuing, they shall constitute an Event of Default: (a) The Company shall fail to pay when due any principal of any Loan or any amounts owed with respect to a Letter of Credit or a Guaranty, or shall fail to pay within five days of the due date thereof any interest, fees or other amounts due hereunder or under any of the other Credit Documents; (b) The Company shall fail to observe or perform any covenant contained in Sections 7.1, 7.3, 7.7 through 7.15 or 7.19; (c) The Company shall fail to observe or perform any covenant contained in this Agreement or any of the other Credit Documents (other than those covered by clause (a) or (b) above) for twenty (20) days after written notice thereof has been given to the Company by the Bank; (d) Any representation, warranty, certification or statement made by the Company in this Agreement or any of the other Credit Documents or in any certificate, financial 23 statement or other document delivered pursuant to this Agreement or any of the other Credit Documents shall prove to have been incorrect in any material respect when made; (e) The Company shall fail to make any payment in respect of any debt for borrowed money (other than as evidenced by the Note) when due (or after giving effect to any applicable grace period) whether such debt shall become due by scheduled maturity, by required prepayment, by acceleration, by demand or otherwise; or the Company shall fail to perform beyond any period of grace with respect thereto any term, covenant or agreement on its part to be performed under any agreement or instrument (other than this Agreement) evidencing or securing or relating to such debt by the Company when required to be performed, if the effect of such failure is to accelerate, or to permit the holder of such debt to accelerate the maturity thereof; (f) The Company shall commence a voluntary case or other proceeding seeking liquidation, reorganization or other relief with respect to itself or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official of it or any substantial part of its property, or shall consent to any such relief or to the appointment of or taking possession by any such official in any involuntary case or other proceeding commenced against it, or shall make a general assignment for the benefit of creditors, or shall fail generally to pay its debts as they become due, or shall take any corporate action to authorize any of the foregoing; (g) An involuntary case or other proceeding shall be commenced against the Company seeking liquidation, reorganization or other relief with respect to it or its debts under any bankruptcy, insolvency or other similar laws now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official of its or any substantial part of its property, and such involuntary case or other proceeding shall remain undismissed and unstayed for a period of sixty (60) days; or an order for relief shall be entered against the Company under the Bankruptcy Code; (h) A judgment or order for the payment of money in excess of $300,000 shall be rendered against the Company and such judgment or order shall continue unsatisfied and unstayed for a period of 20 days; (i) The Company shall fail to pay when due any material amount which is either uncontested or if contested the subject of a final non-appealable decision and which it shall have become liable to pay to the PBGC or to a Plan under Title IV or ERISA, or the PBGC shall institute proceeding under Title VI of ERISA to terminate or to cause 24 a trustee to be appointed to administer any Plan or Plans which could give rise to a material liability to the Company under Title IV of ERISA; or the Company shall incur any material withdrawal liability with respect to any Multiemployer Plan which is uncontested or, if contested, is the subject of a final non-appealable decision and the Company fails to discharge, satisfy or otherwise eliminate such liability with respect to any Multiemployer Plan within the time required by the judgment; (j) The Company shall voluntarily suspend the transaction of business or allow to be suspended, terminated, revoked or expired any permit, license or approval of any governmental body necessary to conduct the Company's business as now conducted; (k) There shall occur a sale or transfer to, (whether voluntary or involuntary), or an agreement shall be entered into to do so with, any Person or group of Persons (as such terms are defined pursuant to Federal securities laws) who would own more than 40% of the issued and outstanding capital stock of the Company and, as a result thereof, such Person or group of Persons has the ability to direct or cause the direction of the management and policies of the Company; or (l) The Bank's security interest in the Collateral granted pursuant to Article 5 hereof shall at any time fail to be a valid security interest that has attached to all the Collateral in which the Company has rights. 9.2 Remedies. If an Event of Default shall occur: (a) any indebtedness -------- of the Company under the Note, this Agreement or any other Credit Document, any term thereof to the contrary notwithstanding, shall, at the Bank's option and without notice, become immediately due and payable without presentment, demand, protest or notice of dishonor, all of which are hereby expressly waived by the Company; (b) the obligation, if any, of the Bank to permit further Loans or issue further Letters of Credit hereunder shall immediately cease and terminate; and (c) the Bank shall have all rights, powers and remedies available under the Agreement and any document related thereto, including without limitation the right to resort to any or all security and to exercise any or all of the rights and remedies of a beneficiary or secured party pursuant to the California Uniform Commercial Code or other applicable law. All rights, powers and remedies of the Bank may be exercised at any time by the Bank and from time to time after the occurrence of an Event of Default. All rights, powers and remedies of the Bank contained herein or in any other Credit Document are cumulative and not exclusive and shall be in addition to any other rights, powers or remedies provided by law or equity. 9.3 Letters of Credit. If an Event of Default shall occur, the Bank may, ----------------- at its sole and absolute discretion and in addition 25 to any other remedies available to it hereunder, require the Company to pay immediately to the Bank, for prompt application against drawings under any outstanding Letters of Credit, the outstanding principal amount of any such Letters of Credit which have not expired. Any portion of the amount so paid to the Bank which is not applied to satisfy draws under any such Letters of Credit or any other obligations of the Company to the Bank shall be repaid to the Company or such other Persons who may be entitled thereto without interest upon expiration of all Letters of Credit and full satisfaction of all other obligations owed by the Company to the Bank. The provisions of this Section 9.3 shall be in addition to any other obligations of the Company contained in any other Credit Document to deposit cash with the Bank with respect to outstanding Letters of Credit. All amounts paid to the Bank under this Section shall be Collateral. 9.4 Notification of Account Debtors. If an Event of Default shall occur, ------------------------------- the Bank may at its sole and absolute discretion and in addition to any other remedies available to it hereunder: (a) Notify any Account Debtor, any buyers or transferee of the Collateral or any other Persons of the Bank's interest in the Collateral and the proceeds thereof; (b) Sign the Company's name (which authority the Company hereby irrevocably and unconditionally grants the Bank) on any invoice or bill of lading relating to accounts or other drafts against the Accounts Debtors, notify post office authorities to change the address for delivery of mail addressed to the Company to such address as the Bank may designate and take possession of and open mail addressed to the Company and remove therefrom, proceeds of an payment on the Collateral, and demand, receive and endorse payment and give receipts, releases and satisfactions for and sue for all money payable to the Company; (c) Require the Company to indicate on the face of all invoices (or such other documentation as may be specified by the Bank relating to the sale, delivery or shipment of goods giving rise to the account) that the account has been assigned to the Bank and that all payments are to be made directly to the Bank at such address as the Bank may designate; and (d) Require the Company to direct all Account Debtors to forward all remittances, payments and proceeds of the Collateral directly to the Bank at such address as the Bank may designate. In connection therewith, the Company hereby irrevocably constitutes and appoints the Bank as its attorney-in-fact to endorse the Company's name on any notes, acceptances, checks drafts, money orders or other evidence of payment that may come into the Bank's possession. 26 9.5 Protection of Security Interest. If an Event of Default occurs, the ------------------------------- Bank may, at its sole and absolute discretion and in addition to any other remedies available to it hereunder, make such payments and do such acts as the Bank, in its sole judgment, considers necessary and reasonable to protect its security interest or lien in the Collateral. The Company hereby irrevocably authorizes the Bank to pay, purchase, contest or compromise any encumbrance, lien or claim which the Bank, in its sole judgment, deems to be prior or superior to its security interest. Further, the Company hereby agrees to pay to the Bank, upon demand therefor, all expenses and expenditures (including attorneys' fees) incurred in connection with the foregoing. 9.6 Foreclosure. If an Event of Default occurs, the Bank may, at its sole ----------- and absolute discretion and in addition to any other remedies available to it hereunder, enforce any security interest or lien given or provided for under this Agreement or under any security agreement, mortgage, deed of trust or other document, in such manner and such order, as to all or any part of the properties subject to such security interest or lien, as the Bank, in its sole judgment, deems to be necessary or appropriate and the Company hereby waives any and all rights, obligations or defenses now or hereafter established by law relating to the foregoing. In the enforcement of its security interest or lien, the Bank is authorized to enter upon the premises where any Collateral is located and take possession of the Collateral or any part thereof, together with the Company's records pertaining thereto, or the Bank may require the Company to assemble the Collateral and records pertaining thereto and make such Collateral and records available to the Bank at a place designated by the Bank. The Bank may sell the Collateral or any portions thereof, together with all additions, accessions and accessories thereto, giving only such notices and following only such procedures as are required by law, at either a public or private sale, or both, with or without having the Collateral present at the time of the sale, which sale shall be on such terms and conditions and conducted in such manner as the Bank determines in its sole judgment to be commercially reasonable. Any deficiency which exists after the disposition or liquidation of the Collateral shall be a continuing liability of the Company to the Bank and shall be immediately paid by the Company to the Bank. 9.7 Application of Proceeds. All amounts received by the Bank as proceeds ----------------------- from the disposition or liquidation of the Collateral shall be applied to the Company's indebtedness to the Bank as follows: first, to the costs and expenses of collection, enforcement, protection and preservation of the Bank's lien in the Collateral including court costs and reasonable attorneys' fees, whether or not suit is commenced by the Bank; next to those costs and expenses incurred by the Bank in protecting, preserving, enforcing, collecting, liquidating, selling or disposing of the Collateral; next, to the payment of accrued and unpaid interest on all of the Loans; next, to the payment of the outstanding principal balance of the Loans; and last, to the 27 payment of any other obligations owed by the Company to the Bank. Any excess Collateral or excess proceeds existing after the disposition or liquidation of the Collateral will be returned or paid by the Bank to the Company or such other Persons who may be entitled thereto. ARTICLE 10 CHANGE IN CIRCUMSTANCES ----------------------- 10.1 Compensation for Funding Loss or Expense. The Company shall pay to ---------------------------------------- the Bank, upon the request of the Bank, such amount or amounts as shall compensate the Bank for any loss, cost or expense incurred by the Bank and promptly reported to the Company as a result of any payment or prepayment of a LIBOR Loan on a date other than the last day of an Interest Period. A certificate of the Bank shall be conclusive, except in the case of manifest error, as to the amount of such loss, cost or expenses due to the Bank in accordance with this Section. If for any reason any such certificate is delivered after the prepayment or payment by acceleration to which such certificate relates, the Company promptly upon receipt of the certificate shall pay to the Bank the amount set forth therein. 10.2 Illegality. If after August 6, 1993, the adoption of any applicable ---------- law, rule or regulation, or any change therein, or any change in the interpretation or administration thereof by any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by the Bank with any request or directive (whether or not having the force of law) of any such authority, central bank or comparable agency shall make it unlawful or impossible for any Bank to make, maintain or fund LIBOR Loans, the Bank shall forthwith give notice thereof to the Company whereupon until the Bank notifies the Company that the circumstances giving rise to such suspension no longer exist, the obligation of the Bank to make LIBOR Loans shall be suspended and outstanding LIBOR Loans shall be converted to Base Rate Loans. 10.3 Taxes. ----- (a) All payments made under this Agreement, the Note and the other Credit Documents shall be made free and clear of, and without set-off or counterclaim for or on account of, any present or future taxes levies, imposts, duties, deductions, withholdings, fees, liabilities and similar charges (collectively, the "Taxes") imposed by any government or any political subdivision or taxing authority thereof (other than taxes based solely on the overall net income of the Bank); provided, however, that such payments may be reduced by the amount of United States Federal income taxes required to be withheld by the Company with respect to any payment of interest to the extent that such withholding does not exceed such taxes which would be required to be 28 withheld if such interest were paid on August 6, 1993. If the Company is prevented by operation of law or otherwise from paying, causing to be paid, or remitting that portion of interest represented by Taxes withheld or deducted, then interest payable under this Agreement, the Note and the other Credit Documents will be increased to such amount as is necessary to yield and remit interest to the Bank at the applicable rate specified in Article 2 after provision for payment of such Taxes (other than as provided in the immediately preceding sentence). The Company will execute and deliver to the Bank at its request such further instruments as may be necessary or desirable to give full force and effect to such increase in the rate of interest, including but not limited to, a new Note of the Company to be issued in exchange for any Note theretofore issued. The Company will also hold the Bank harmless and indemnify it for any stamp or other taxes with respect to the preparation, execution, delivery, performance or enforcement of this Agreement, the Note or the other Credit Documents. If any of the Taxes required to be paid by the Company are not paid by the Company and are paid by the Bank, the Company will, upon demand of the Bank, reimburse the Bank for such payments, together with any interest penalties and expenses in connection therewith, plus interest thereon at a rate equal to 1% per annum over the cost to the Bank (as determined by the Bank) of funds acquired by it to pay the same, from the date such payment is made to the date of reimbursement by the Company. With respect to any deduction or withholding pursuant to this Section, the Company shall promptly (but in no event later than thirty (30) days thereafter) furnish to the Bank upon its request such certificates, receipts and other documents as may be required to establish any tax credit to which the Bank may be entitled. (b) In the event that any change in applicable law or regulation or in the interpretation or administration thereof by any governmental authority charged with the administration thereof subjects the Bank to any tax, levy, impost, duty, charge, fee, deduction or withholding of any kind whatsoever with respect to this Agreement, the Note or the other Credit Documents, or changes the basis of taxation of payments to the Bank of principal or interest payable on the Note or the other Credit Documents (other than any tax on the overall net income of the Bank) or imposes, modifies or deems applicable any reserve requirement against assets held by or deposits in or for the account of, or loans by, the Bank or imposes on the Bank, directly or indirectly, any other conditions affecting this Agreement, the Note or the other Credit Documents, and the result of any of the foregoing is to increase the cost to the Bank of maintaining the Loans by an amount which the Bank deems to be material in relation to the Loans, the Letters of Credit or the Guaranties or interest thereon, then the Company shall pay such additional costs to the Bank immediately upon its 29 demand; provided, however that the Company shall not be liable for additional costs hereunder in the event that it immediately prepays all the Loans and all other obligations in full, in accordance with Article 3 of this Agreement. 10.4 Reserve Requirements. It is understood that the cost to the Bank in -------------------- making or maintaining a LIBOR Loan may fluctuate as a result of the applicability of or changes in reserve requirements imposed by the Board of Governors of the Federal Reserve System of the United States, including but not limited to reserve requirements under Regulation D of such Board of Governors in connection with Eurocurrency Liabilities at the ratios provided for in Regulation D from time to time. The Company agrees to compensate the Bank for such costs of making or maintaining the LIBOR Loans made by it resulting from such reserve requirements since it is understood by the parties hereto that the rates of interest applicable to LIBOR Loans under this Agreement have been determined on the hypothetical assumption that no such reserve requirements exist or will exist and that such rates do not reflect costs imposed on the Bank in connection with such reserve requirements. Both parties to this Agreement acknowledge that as of the Effective Date, the reserve requirement is zero. 10.5 Notice Certificates. The Bank shall deliver to the Company from time ------------------- to time one or more certificates setting forth the amounts due to the Bank under this Article 10 and the method the Bank used to compute such amounts. Each such certificate shall be conclusive in the absence of manifest error. The Company shall pay to the Bank the amounts shown as due on each such certificate within ten Business Days of its receipt of same (except as otherwise indicated for the certificate sent under Section 10.1). No failure on the part of the Bank to demand compensation under this Article 10 on any one occasion shall constitute a waiver of its right to demand such compensation on any other occasion. ARTICLE 11 MISCELLANEOUS ------------- 11.1 Waiver and Amendment. No delay, failure or discontinuance of the -------------------- Bank in exercising any right, power or remedy under this Agreement or any other Credit Document shall affect or operate as a waiver of such right, power or remedy, nor shall any single or partial exercise of any such right, power or remedy preclude, waive or otherwise affect any further or other exercise thereof or the exercise of any other right, power or remedy. Any waiver, permit, consent or approval of any kind by the Bank of any provisions or conditions of, or any breach of or default under this Agreement or any other Credit Document must be in writing and shall be effective only to the extent set forth in such writing. No amendment or modification of this Agreement 30 shall be valid and binding unless agreed to in writing by both parties hereto. 11.2 Notices. All notices, requests and demands given to or made upon ------- any party hereto shall be deemed to have been given or made when personally delivered or two (2) days after any of the same are deposited in the U.S. mail, first class and postage prepaid, or on the day when sent if transmitted via facsimile with confirmation of receipt, and addressed as follows: The Company: ADAC Laboratories 540 Alder Drive Milpitas, California 95035 Attn: Andre' Simone Phone: 408-321-9100 FAX: 408-321-9686 The Bank: ABN AMRO Bank N.V. San Francisco International Branch 101 California Street Suite 4550 San Francisco, California 94111 Attn: Daniel Taylor Phone: 415-984-3700 FAX: 415-362-3524 Telex: 278137 Answerback: ABNSF UR or to such other address as any party hereto may designate by written notice to all other parties. 11.3 Execution in Counterparts. This Agreement may be executed in any ------------------------- number of counterparts and by each of the parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed to be an original and all of which taken together shall constitute but one and the same instrument. 11.4 Binding Effect. This Agreement shall become effective when it shall -------------- have been executed by the Company and the Bank, and thereafter it shall be binding upon and inure to the benefit of the Company and the Bank and their respective successors and assigns. 11.5 Assignments and Participations. ------------------------------ (a) The Bank may assign to one or more banks or other entities a part of its Commitment, Loans owing to the Bank and the Note and other Credit Documents held by the Bank and to the extent of such assignment (unless otherwise stated therein), the assignee or purchaser of such assignment shall, to the fullest extent permitted by law, be deemed to be a party to this Agreement and shall have the same rights, benefits and obligations hereunder and under the Commitment, the Loans, and the Note and other Credit Documents as it 31 would have if it were a party to this Agreement and the other Credit Documents. (b) The Bank may without the consent of the Company sell participation to one or more banks or other entities of all or a portion of its rights and obligations under this Agreement (including without limitation, all or a portion of its Commitment, the Loans owing to it and the Note and other Credit Documents) provided that (i) the Bank's obligations under this Agreement shall remain unchanged, (ii) the Bank shall remain solely responsible to the Company for the performance of such obligations and (iii) the participating banks or other entities shall be entitled to the benefits under Article 10 of the Agreement except that a participant shall not be entitled to receive pursuant to Article 10 an amount larger than its share of the amount to which the Bank would be entitled. 11.6 Payment Instructions. Unless the Bank otherwise instructs, all -------------------- payments made to the Bank under this Agreement or any other Credit Document shall be directed as follows: Federal Reserve Bank of New York For account of ABN AMRO Bank NV New York Federal Routing No. 026009580 For further credit to: ABN San Francisco A/C No. 6510-010-545-41 Ref: ADAC Laboratories Interest/principal payment 11.7 Survival of Representations and Warranties. All representations and ------------------------------------------ warranties made in this Agreement and any other Credit Document, and in any certificates and other documents delivered pursuant to any thereof, shall survive the execution and delivery of this Agreement and any such other Credit Document, certificate or other document and shall continue in full force and effect until payment in full of all liabilities on the part of the Company arising under this Agreement and the other Credit Documents. 11.8 Severability of Provisions. Any provision of this Agreement that is -------------------------- prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions in any other jurisdiction. 11.9 Headings. Section headings in this Agreement are included herein -------- for convenience of reference only and shall not constitute a part of the Agreement for any other purpose. 11.10 Governing Law and Jurisdiction. This Agreement shall be construed ------------------------------ in accordance with the laws of the State of California. The Company hereby irrevocably submits to the jurisdiction of the courts of the State of California in any action or proceeding arising out of or in connection with this Agreement, the Loans and the other Credit Documents. 32 11.11 Judgment Currency. If, for the purpose of obtaining judgment in any ----------------- court in any country, it becomes necessary to convert into any other currency ("the judgment currency") an amount due in Dollars, then the conversion shall be made at the rate of exchange prevailing at the close of business on the Business Day before the day on which the judgment is given. If there is a change in the rate of exchange prevailing between the Business Day before the day on which the judgment is given and the date of payment of the amount due, the Company will pay such additional amounts (if any) as may be necessary to ensure that the amount paid in the judgment currency when converted at the rate of exchange prevailing on the date of payment will produce the amount then due under this Agreement in Dollars and the Bank will apply any additional amounts (if any) over the amount then due under this Agreement in Dollars that the Bank receives as a result of such conversion to any other obligations owed by the Company to the Bank and, if all obligations of the Company to the Bank are fully satisfied, shall pay any excess to the Company or such other Persons who may be entitled thereto. The term judgment "rate of exchange" means the spot rate at which the Bank in accordance with its normal practice is able on the relevant date to purchase Dollars with the judgment currency and includes any premium and costs of exchange payable. 11.12 Costs and Expenses. The Company shall, whether or not the ------------------ transactions contemplated hereby shall be consummated, pay or reimburse the Bank on demand for all costs and expenses incurred in connection with the preparation and execution of, and any amendment, supplement, waiver or modification to, this Agreement, any Credit Document and any other documents prepared in connection herewith or therewith, the consummation of the transactions contemplated hereby and thereby, or the enforcement or preservation of any rights under this Agreement, any Credit Document, and any such other documents, including the reasonable costs and expenses of counsel to the Bank with respect thereto. 11.13 Indemnity. The Company shall pay, indemnify, and hold the Bank and --------- each of its officers, directors, employees, counsel, agents and attorneys-in- fact (each, an "Indemnified Person") harmless from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, charges, expenses or disbursements (including fees and expenses of counsel) of any kind or nature whatsoever with respect to the execution, delivery, enforcement, performance and administration of this Agreement and any other Credit Documents or the transactions contemplated herein, and with respect to any investigation, litigation or proceeding related to this Agreement or the Loans or the use of the proceeds thereof (whether or not any Indemnified Person is a party thereto) (all the foregoing, collectively, the "Indemnified Liabilities"); provided, that the Company shall have no obligation hereunder to -------- any Indemnified Person with respect to Indemnified Liabilities arising from the gross negligence or willful misconduct of such Indemnified Person. The agreements in this Section shall survive the termination of this Agreement. 33 11.14 Entire Agreement. This Agreement, together with the other Credit ---------------- Documents, embodies the entire agreement and understanding between the Company and the Bank and supersedes all prior or contemporaneous agreements and understandings of such persons, verbal or written, relating to the subject matter hereof and thereof except for any prior arrangements made with respect to the payment by the Company of (or any indemnification for) any fees, costs or expenses payable to or incurred (or to be incurred) by or on behalf of the Bank. ARTICLE 12 EFFECTIVE DATE OF THIS RESTATED CREDIT AGREEMENT ------------------------------------------------ 12.1 Effective Date. This Restated Credit Agreement and the -------------- amendments effected hereby shall become effective on the date the the conditions set forth in this Section 12.1 are satisfied (the "Effective Date"). Effectiveness of this Restated Credit Agreement and the amendments effected hereby are subject to receipt by the Bank of each of the following, each in form and substance satisfactory to the Bank: (a) This Restated Credit Agreement, duly executed by the Company; (b) A Note in the form of Exhibit A hereto (the "Restated Note"), duly executed by the Company; (c) An Intercreditor Agreement in form and substance satisfactory to the Bank, duly executed by Sanwa and the Company; (d) A copy or copies of all credit agreements between the Company and Sanwa currently in effect, together with all written amendments and modifications thereto through the Effective Date; (e) The Resolutions of the Board of Directors of the Company duly certified by the Secretary or Assistant Secretary of the Company evidencing approval of this Restated Credit Agreement, the other Credit Documents and other matters contemplated herein in the case of the Company; (f) An Incumbency Certificate executed by the Secretary or Assistant Secretary of the Company certifying the names and true signatures of the officers authorized to sign this Restated Credit Agreement, the other Credit Documents, and the other certificates and documents herein described; and (g) Such other documents as the Bank may reasonably request. 34 12.2 Effect. On and after the Effective Date, this Restated Credit ------ Agreement and the Restated Note shall amend, restate in their entirety and replace, without novation, the Existing Credit Agreement and the Amended and Restated Note dated August 6, 1993 executed by the Company in favor of the Bank (the "Existing Note"), respectively; provided, however, that: -------- ------- (a) Such amendment, restatement and replacement shall be deemed to have become effective on April 5, 1995; and (b) The execution and delivery of this Restated Credit Agreement, the Restated Note and the other Credit Documents shall not (i) operate as a waiver of any right, power or remedy of the Bank under the Existing Credit Agreement or the Existing Note except to the extent expressly waived in this Restated Credit Agreement, the Restated Note or the other Credit Documents, or (ii) extinguish or impair any obligations of the Company under the Existing Credit Agreement or the Existing Note except to the extent any such obligation is actually satisfied by the Company. [The next page is the signature page] 35 IN WITNESS WHEREOF, the Company and the Bank have caused this Agreement to be executed as of the day and year first above written. ADAC LABORATORIES By:___________________________ Name:______________________ Title:_____________________ ABN AMRO BANK N.V. By:___________________________ Name:______________________ Title:_____________________ By:___________________________ Name:______________________ Title:_____________________ 36 EXHIBIT A --------- AMENDED AND RESTATED NOTE ------------------------- August 15, 1995 $20,000,000 ADAC LABORATORIES, a California corporation (the "Company"), for value received, hereby promises to pay to the order of ABN AMRO BANK N.V. SAN FRANCISCO INTERNATIONAL BRANCH AND/OR CAYMAN ISLANDS BRANCH (the "Bank"), on the Termination Date, the principal sum of twenty million dollars ($20,000,000) or, if less (or more as a result of Currency fluctuations), the aggregate unpaid principal amount of all Loans made by the Bank to the Company pursuant to the Credit Agreement (as hereinafter defined) in the Currencies in which such Loans were made. This Note is the Note referred to in the Amended and Restated Credit Agreement, dated as of August 15, 1995 (as amended from time to time, the "Credit Agreement"), between the Company and the Bank. All capitalized terms used and not otherwise defined herein shall have the meanings assigned thereto in the Credit Agreement. Reference is made to the Credit Agreement for a more complete statement of the terms and conditions under which the Loans evidenced hereby are to be repaid. The Company promises to pay interest on the unpaid principal amount of the Loans at such interest rates, and at such times, as are specified in the Credit Agreement. Both principal and interest are payable in the Currency in which the Loans were made to the Bank, in immediately available funds, in accordance with the provisions of the Credit Agreement. This Note is subject to mandatory prepayment in certain circumstances and to prepayment at the option of the Company, in each case as more fully described in the Credit Agreement. Upon the occurrence of an Event of Default, the unpaid principal balance of this Note may become, or may be declared to be, due and payable in the manner, upon the conditions and with the effect provided in the Credit Agreement. THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF CALIFORNIA. The Company promises to pay pursuant to Section 11.12 of the Credit Agreement all fees, costs and expenses incurred in the collection and enforcement of this Note. The Company and endorsers of this Note hereby consent to renewals and extensions of time at or after the maturity hereof, without notice, and hereby waive diligence, presentment, protest, demand and notice of every kind (except such notices as may be required under the A-1 Credit Agreement) and, to the fullest extent permitted by law, the right to plead any statute of limitations as a defense to any demand hereunder. This Note amends, restates and replaces the Amended and Restated Note dated August 6, 1993 in the principal amount of $20,000,000 which was originally issued by the Company to the Bank pursuant to the terms of the Existing Credit Agreement. IN WITNESS WHEREOF, the Company has caused this Note to be executed and delivered by its duly authorized officer, as of the day and year first above written. ADAC LABORATORIES By _______________________ Its ___________________ A-2 LOANS AND PAYMENTS OF PRINCIPAL AND INTEREST --------------------------------------------
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A-3 EX-10.78 3 VENDOR PROGRAM AGREEMENT EXHIBIT 10.78 VENDOR PROGRAM AGREEMENT THIS VENDOR PROGRAM AGREEMENT ("Agreement") is made and entered into as of June 30, 1995, by and between DVI Financial Services Inc. ("DVI") and ADAC Laboratories ("ADAC"). RECITALS ADAC, in the regular course of its business, has entered into or acquired or may hereafter enter into or acquire "Contracts" and may desire from time to time to sell to DVI and DVI may desire to purchase from ADAC the "Obligations" on the terms and conditions set forth below. AGREEMENT 1. DEFINITIONS For the purpose of this Agreement the following terms shall have the following meanings: 1.1. "Bill of Lading". Any document(s) which evidence(s) that the -------------- Equipment has been shipped to a Customer. 1.2. "Contracts". Any lease, conditional sales contract, installment --------- sale contract, chattel mortgage, security agreement, promissory note, any other title retention or lien instrument, or any other agreement providing for deferred installment payments to ADAC, arising out of the sale or lease of Equipment or the extension of credit. 1.3. "Contract Term". The noncancellable term of any Contract as set ------------- forth in the Contract or any other documents evidencing such term. 1.4. "Customers". Customers of ADAC who enter into a Contract with --------- ADAC for the purpose of financing the acquisition of ADAC's Equipment. 1.5. "End User". Purchasers and/or users of ADAC equipment world-wide. -------- 1.6. "Equipment". The personal property, software or fixtures which --------- are the subject of a Financed Contract. 1.7. "Event of Default". Event of Default shall have the meaning given ---------------- to such term in Section 17 hereof. 1.8. "Financed Contract". Any Contract the Obligations of which have ----------------- been purchased by DVI. 1 1.9. "First Loss Recourse Pool". First Loss Recourse Pool shall have ------------------------ the meaning given to such term in Section 12 hereof. 1.10. "Installment Payments". The Customer's periodic installment -------------------- payments on Obligations due under a Financed Contract net of taxes, tariffs and imposts. Installment Payments may be due monthly, quarterly, or semi-annually. 1.11. "Installment Payment Start Date". The date on which the Customer's ------------------------------ payment obligation starts. 1.12. "Net Investment Value". DVI's net book value of an Obligation as -------------------- determined by calculating the present value of all Installment Payments remaining on a Financed Contract using the discount rate used in calculating the original Purchase Price. 1.13. "Obligations". The deferred payment and other obligations due or ----------- to become due under Financed Contracts. 1.14. "Portfolio". The entire group of Contracts purchased by DVI. --------- 1.15. "Purchase Price". The present value of all Installment Payments -------------- remaining on an Obligation as of the date of its purchase by DVI hereunder calculated using a discount rate equal to the yield of thirty-one (31) month United States Treasury Notes as quoted in the Wall Street Journal on the date ------------------- of purchase of the Obligation plus Four Hundred Fifteen (415) basis points. The Purchase Price will be calculated based upon the assumption that each Installment Payment will be due on the last calendar day of each respective month in which an Installment Payment is due. 1.16. "Remarketing Loss". Remarketing Loss shall have the meaning given ---------------- to such term in Section 13.4 hereof. 1.17. "Remarketing Proceeds". Remarketing Proceeds shall have the -------------------- meaning given to such term in Section 13.3 hereof. 2. FINANCING TRANSACTIONS. 2.1. DVI's Determination to Finance Contracts and Purchase Obligations. ----------------------------------------------------------------- Subject to the terms and conditions hereof, ADAC shall submit to DVI certain Contracts with Customers, and DVI, in its sole discretion, shall determine whether to finance any Contract and purchase the Obligations under said Contract. 2.2. No Liability For Non-Funding; Release of Rejected Contracts. DVI is ----------------------------------------------------------- not obligated under this Agreement to finance any Contract with any of ADAC's Customers, the decision to finance any such Contract being at the sole discretion of DVI. In the event DVI elects not to finance any proposed Contract submitted by ADAC, DVI will return the package containing all financial and 2 related information on the proposed Contract to ADAC and ADAC can place the rejected Contract with any other funding source. 2.3. Submittal of Proposed Contracts. With respect to each Contract, ------------------------------- prior to presenting such Contract to DVI, in accordance with DVI's formats, systems, methods, procedures and standards, ADAC will prepare for, and submit to, DVI a credit package for each Customer. ADAC shall also furnish such other credit information as DVI, from time to time, may reasonably require. 3. PURCHASE OF CONTRACTS 3.1. Terms of Purchase. If DVI decides, pursuant to Section 2 above, ----------------- to finance a Contract and purchase the Obligations, DVI shall purchase, from ADAC, the Obligations for the Purchase Price. 3.2. Purchase of Obligations. Upon payment of the Purchase Price ADAC ----------------------- shall sell, assign and transfer the Obligations under Financed Contracts to DVI and grant DVI a security interest in the Financed Contract and in any interest that ADAC has in the Equipment. Should ADAC fail to do so, DVI is authorized to execute on behalf of ADAC any necessary assignment or endorsement of Obligations which have been omitted in any financing statements necessary to perfect its security interest in the Financed Contract or Equipment. 3.3. ADAC's Warranties. ADAC agrees that all of ADAC's usual warranties, ----------------- express and implied as to the Equipment, and any service or maintenance agreed to between ADAC and its Customer, are hereby made to, and the agreements are with, the Customer as well as to and with DVI. 3.4. Representations and Warranties with Respect to Financed Contracts. ----------------------------------------------------------------- ADAC represents and warrants with respect to each Financed Contract, any related Equipment or related Acknowledgment and Consent to Assignment that: 3.4.1. The Contracts have been created or acquired by ADAC in the regular course of its business and represent existing and valid legally enforceable obligations in accordance with the terms thereof based on an actual and bona fide sale and delivery or lease of equipment or extension of credit to the named Customer which has been finally accepted by the Customer and for which the Customer is unconditionally liable to make payment in the amount stated in the Contract without right of rejection, return, offset, defense, counterclaim, discount or deduction; 3.4.2. All statements made in the contracts, including names, addresses, locations, descriptions of Equipment, down payments and unpaid balances, are true and accurate and are in all respects what they purport to be; 3 3.4.3. All signatures and endorsements that appear on the Contracts or any agreement or instruments relating thereto are genuine and all signatories and endorsers, if any, have full capacity to contract; 3.4.4. Absolute title to the Contract, free and clear of any liens, encumbrances or claims of others is vested absolutely in ADAC and no other assignment of, or security interest in, or other interest or benefit in the Contracts and in favor anyone other than DVI is in effect; 3.4.5. The transactions underlying or giving rise to the Contracts and the sale, delivery or assignment thereof by ADAC to DVI are in conformity with and do not violate any applicable U.S. state or federal laws or regulations and all documents constituting, securing or relating to the Contracts are legally sufficient and enforceable under such laws and regulations of the countries of the Customers under the Financed Contracts. 3.4.6. ADAC will use its best efforts to make all necessary filings, recordings, or give notice and obtain all necessary waivers and consents so as to enable DVI to obtain judgment against the Customer for the unpaid balance of the Contract and for ADAC to exercise the rights of a seller retaining title or a secured party as to the Equipment; 3.4.7. ADAC will not, without the prior written consent of DVI, accept any collections, repossess or consent to the return of any Equipment or modify the terms of any Contract; 3.4.8. Any down payment set forth in the Contracts was made in cash and no part of it was advanced to the Customer by ADAC or any assignor; and 3.4.9. Any related amendment, addendum, schedule, rider, supplement, agreement or instrument entered into with the Customer and any other documents relating to the Contract or Equipment has been delivered to DVI including, without limitation, Bills of Lading. 3.4.10. The Contracts require that the Equipment is and will continue to be insured by the Customer against risk of loss by fire and other insurable hazards and ADAC shall be named as loss payee under such policy as ADAC's interests may appear and ADAC hereby assigns its right, title and interest in and to said insurance policies and any proceeds therefrom to DVI. 4. TERM OF AGREEMENT AND AMOUNT OF COMMITMENT; RENEWAL 4.1. Term. The Term of this Agreement is for a period of one (1) year ---- from the effective date hereof, and thereafter will be automatically renewed for successive one (1) year terms unless 4 either party elects to terminate this Agreement by giving notice in writing to the other party of its intention to terminate thirty (30) days prior to the end of the then current Term; PROVIDED HOWEVER, that DVI shall have the right to immediately terminate this Agreement by giving notice to ADAC upon the occurrence of an Event of Default as defined in Section 17 below. 4.2. Commitment Amount. Subject to the terms and conditions of this ----------------- Agreement, and during the Initial Term of this Agreement, DVI agrees to purchase Obligations from ADAC up to the aggregate principal sum of Five Million Dollars ($5,000,000). At such time as DVI has completed the purchase of the initial Five Million Dollars ($5,000,000) of Obligations, DVI in its sole discretion may increase the Commitment Amount. 5. ADMINISTRATION OF CONTRACTS Until the happening of an Event of Default hereunder DVI authorizes ADAC or its agent, and ADAC agrees, as agent for DVI, to bill for and collect all monies due and to become due under the Financed Contracts and to make all appropriate efforts, by suit or otherwise, at ADAC's own cost and expense, subject at all times to DVI's right to direct and control the same. In connection therewith, ADAC agrees that ADAC may (a) obtain and enter judgments against Customers and undertake all proceedings supplementary thereto for the purpose of enforcing such judgments and (b) subject to Section 13 of this Agreement, repossess, resell, re-lease or otherwise dispose of the Equipment. ADAC agrees to exercise due care and diligence in so acting as DVI's agent and to indemnify and hold DVI harmless from and against all loss, liability (including negligence, tort and strict liability), damage, costs and expenses (including reasonable attorney's fees) caused by any of ADAC's actions and will not, without DVI's prior written consent, grant any extension of time of payment, compromise or settle for less than the full amount owing, or release in any manner Customers or any other persons liable for payment under any Financed Contract. ADAC agrees to direct any Customer under any Financed Contract to remit all Installment Payments directly to a demand deposit account designated by DVI entitled "ADAC Latin American Finance" which account shall be owned and controlled solely by DVI. ADAC agrees that it will not direct any Customer under any Financed Contract to make payment to any other place or address without DVI's prior written consent. Any payments received by ADAC under any Financed Contract will be held by ADAC in trust for DVI even though the same may have been commingled with ADAC's assets as a convenience to ADAC and ADAC agrees to remit all such funds received by it to DVI immediately upon receipt by ADAC. 5 6. SERVICE BY ADAC ADAC agrees promptly to fulfill all of its obligations to the Customers with respect to the Equipment. The purchase of the Contract and Obligations by DVI shall not be deemed an assumption by DVI of, or impose on DVI, any obligation with respect to the Customer or the Equipment. ADAC shall provide customer service and Equipment maintenance equivalent to that provided to ADAC's other customers whether purchasers or Customers. Such service shall be provided at ADAC's billing rates then in effect and include, but not be limited to, hardware and software maintenance, required engineering changes to the Equipment, customer training and program support. 7. RELATIONSHIP OF THE PARTIES 7.1. No Warranties by DVI; No Agency Created. It is understood and --------------------------------------- agreed to by the parties hereto that this Agreement does not create a fiduciary relationship between them, that DVI and ADAC are and shall continue to be independent contractors and that nothing in this Agreement is intended to make either party a general or special agent, legal representative, subsidiary, joint venturer, partner, employer or servant of the other for any purpose. It is further understood and agreed by the parties hereto that DVI is not the manufacturer, supplier, vendor, distributor, dealer, integrator or merchant in the Equipment which shall be the subject matter of any proposed Contract financed pursuant to this Agreement. The Customer, in every instance without exception, will have selected the Equipment. DVI DOES NOT AND WILL NOT MAKE ANY WARRANTY OR REPRESENTATION WHATSOEVER, EITHER EXPRESS OR IMPLIED, AS TO THE FITNESS, CONDITION, MERCHANTABILITY, DESIGN OR OPERATION OF THE EQUIPMENT, ITS FITNESS FOR ANY PARTICULAR PURPOSE, THE QUALITY OR CAPACITY OF MATERIALS IN THE EQUIPMENT OR WORKMANSHIP IN THE EQUIPMENT, OR ANY OTHER REPRESENTATION OR WARRANTY WHATSOEVER. 7.2. Insurance Maintained by ADAC. At all times while this Agreement ---------------------------- is in effect, and in any event, for as long as the term of any Financed Contract, ADAC shall maintain a general liability policy in form and amount satisfactory to DVI, insuring DVI and ADAC against any loss or damage resulting from the design, manufacture, purchase, financing, leasing, ownership, delivery, possession, transportation, storage, maintenance, repair, return, use, and operation of any item of Equipment. The aforementioned policy of insurance shall not be cancelled without the insurer first giving thirty (30) days written notice of said proposed cancellation to DVI. ADAC shall furnish to DVI a certificate of insurance evidencing the coverage herein required, or copy of said policy. 6 8. ENHANCEMENTS AND UPGRADES Any software developments or enhancements and hardware changes required by such developments or enhancements shall be made immediately available to Customers on the same basis as to other End Users of ADAC's Equipment. 9. REPAIRING AND REFURBISHING At DVI's request, ADAC agrees, at its own expense, to repair and refurbish any Equipment that is repossessed pursuant to Section 13 of this Agreement. ADAC will provide such services with respect to each Financed Contract until the earlier of one (1) year following the expiration date of such Financed Contract or when DVI has received all of its Net Investment Value with respect to such Financed Contract. 10. WARRANTIES ADAC hereby represents and warrants to DVI and its assignees as follows: 10.1. Patent/Trademark. All Equipment delivered to Customers under ---------------- any Contract financed under this Agreement shall be subject to (i) warranties and patent/trademark indemnities given by the Equipment's manufacturer and (ii) any further warranties or assurances of performance actually made to a Customer in writing by ADAC. 10.2. Design Changes. Engineering design changes and configuration -------------- changes, including software, which improve performance or extend product life will be made available to Customers on the same basis as other End Users and at a price not to exceed the standard End User price in effect at the time. 10.3. Spare Parts. ADAC will maintain or require its suppliers to ----------- maintain an inventory of spare parts for the Equipment for a period up to the latest expiration date of any outstanding Financed contract, including any extensions or renewals thereof. 11. GENERAL INDEMNITY ADAC agrees to indemnify and hold DVI, its subsidiaries, affiliates, stockholders, directors, officers, employees, agents, successors and assigns harmless from and to defend against all claims, losses, liabilities (including negligence, tort and strict liability), damages, judgments, suits, and all legal proceedings, and any and all costs and expenses in connection therewith and attorneys' fees, arising out of or in any manner connected with the design, manufacture, purchase, financing, ownership, delivery, rejection, non-delivery, possession, use, transportation, storage, operation, maintenance, repair, return or other disposition of the 7 Equipment, or with this Agreement, or with any Financed Contract, including, without limitation, claims for injury to or death or persons and for damage to property, and to give DVI prompt notice of any such claim or liability excluding any of the same arising from the negligence or willful misconduct of DVI, and provided that ADAC shall be given prompt notice of such claims and ADAC shall have the right to defend any such claims, at ADAC's expense. 12. ADAC FIRST LOSS RECOURSE POOL 12.1. Calculation of First Loss Recourse Pool, Limited Recourse. The --------------------------------------------------------- First Loss Recourse Pool ("Pool") will be established at the time DVI first purchases a contract from ADAC. No actual fund shall be established with respect to the Pool. ADAC shall, upon written request of DVI, pay to DVI the amount of Remarketing Loss arising as a consequence of any events set forth in Section 12.2, provided that ADAC shall not at any time be required to pay an amount exceeding the then amount of the Pool. All claims due DVI shall be payable to DVI by ADAC in U.S. dollars via check or wire transfer within five (5) days of the request for payment. The amount of the Pool will increase or decrease as follows: Ten percent (10%) of the Purchase Price of each new Financed Contract shall be added to the Pool. However, the Pool shall at no time become greater than fifteen percent (15%) (the "Ceiling Percentage") of the Net Investment Value of the then outstanding Financed Contracts. (If reductions in Net Investment Value of the outstanding Financed Contracts cause the Pool to exceed the Ceiling Percentage, the Pool will be reduced accordingly.) Any Remarketing Loss shall reduce the Pool by the amount of the Remarketing Loss. The foregoing calculation is subject to the further adjustment that at such time as the Pool becomes $150,000 or less, the Pool shall not be further reduced by amortization of the outstanding Financed Contracts. DVI and ADAC shall jointly prepare each month during the term of this Agreement a calculation of First Loss Recourse Pool in the form attached as Exhibit A to this Agreement. Except for breaches by ADAC of warranties, representations and covenants given and agreed to by ADAC in this Agreement, and for indemnities provided by ADAC hereunder to which this limited recourse provision does not apply, DVI will not at any time have recourse to ADAC, personally or to its assets, for an amount exceeding the then amount of the Pool, but rather DVI shall have recourse only to the Financed Contracts and its security interest in the Equipment for repayment of the Obligations. 12.1.1. Adjustments to Recourse Pool. ADAC and DVI agree to annually ---------------------------- analyze the performance of the Portfolio beginning eighteen (18) months from the date the first Contract is 8 purchased by DVI. If at such time the Default Rate is less than one percent (1%) the Ceiling Percentage will be decreased to ten percent (10%); if the Default Rate is between one percent (1%) and three percent (3%) inclusive the Ceiling Percentage will remain at fifteen percent (15%); and if the Default Rate is greater than three percent (3%) the Ceiling Percentage will increase to twenty percent (20%). The Default Rate at any time will be determined by dividing (x) the then Net Investment Value of those outstanding Financed Contracts having delinquencies of more than thirty (30) days by (y) the aggregate Net Investment Value of the Portfolio. 12.2. Amounts Payable from and Credits to Recourse Pool. The Recourse ------------------------------------------------- Pool shall be charged by DVI for the amount of any Remarketing Loss and said amount shall be payable by ADAC immediately upon the occurrence of any of the following events: (i) a Remarketing Loss under a Financed Contracts exists following the resale of repossessed Equipment related to such Financed Contract; (ii) an item of Equipment that has been repossessed from a Customer is determined to be non-saleable by agreement between DVI and ADAC, (iii) DVI and ADAC are unable to resell repossessed Equipment within one hundred and twenty (120) days after date of repossession, or (iv) ADAC is unable to take possession of the Equipment within one hundred and twenty (120) days from the date of DVI's written request for repossession. In the event that either event (iii) or event (iv) above occurs and ADAC or DVI is able to remarket the repossessed Equipment after the initial one hundred and twenty (120) day period, any proceeds from the remarketing payable to ADAC, up to an amount equal to the amount charged to the Recourse Pool, shall be credited to the Recourse Pool. Any amount in excess of the Recourse Pool amount shall be allocated as set forth in Section 13.3. 13. REPOSSESSION AND REMARKETING ADAC shall have the following obligations: 13.1. ADAC's Obligation to Repossess and Remarket. ADAC at its cost ------------------------------------------- agrees to use reasonable efforts to repossess the Equipment under any defaulted Financed Contract and said obligations shall continue for the entire term of said Contract respecting such Equipment, notwithstanding the termination or expiration of this Agreement and without regard to any extension or non- extension of this Agreement; provided however, that ADAC shall not be required to take legal action to effect collection or repossession of any Equipment. If DVI reasonably believes that any Financed Contract is unenforceable, upon the request of DVI, ADAC shall proceed, at its sole expense, to take legal action to enforce the terms of the Financed Contract. If a court of competent jurisdiction determines that the Financed Contract is not enforceable against the Customer in accordance with its terms, upon the request of DVI, ADAC shall repurchase the Financed Contract from DVI for the Purchase Price set forth in Section 18.2 of this 9 Agreement. In situations where circumstances make immediate recovery of the Equipment necessary and DVI has requested same, ADAC shall use all reasonable efforts necessary to obtain the Equipment on an expedited basis. If the Equipment cannot be repossessed, DVI may charge the Recourse Pool in accordance with Section 12 above. 13.2. Obligation to Remarket. In the event that a Customer should ---------------------- default in the payment or performance of any of the terms or conditions of any Financed Contract, ADAC shall, subject to DVI's instructions to the contrary, at ADAC's expense, attempt to peaceably take possession of, transport, store, repair or refurbish, if necessary and maintain the Equipment on behalf of DVI. ADAC agrees to use its best efforts to locate a purchaser or substitute Customer for the Equipment on terms satisfactory to DVI. 13.2.1. Upon resale, the equipment shall carry ADAC's regular warranty for a period equal to the greater of: (i) the warranty remaining for the benefit of the defaulting Customer as of the date of recovery by ADAC, or (ii) six (6) months. 13.3. Remarketing Proceeds. Remarketing Proceeds shall mean the -------------------- gross proceeds of resale or re-lease of any Equipment. The gross proceeds of any re-lease of Equipment shall be calculated on a present value basis using the formula set forth in the definition of Purchase Price. Any Remarketing Proceeds in excess of the Net Investment Value realized upon any sale or releasing of any Equipment shall be divided between DVI and ADAC as follows: ten percent (10%) to DVI, ninety percent (90%) to ADAC. 13.4. Remarketing Loss. Losses as a result of repurchase, repossession ---------------- and remarketing shall be determined as the excess of (i) the then Net Investment Value of the Financed Contract over (ii) Remarketing Proceeds with respect to such Financed Contract. 13.5. Remarketing Expenses All costs, fees and expenses of remarketing -------------------- or refurbishing the Equipment shall be borne solely by ADAC. 14. GENERAL ADMINISTRATIVE PROVISIONS 14.1. Site of Equipment and Inspection. Unless otherwise approved by -------------------------------- DVI in writing, all Equipment shall be installed at the Customer's location designated in the Financed Contract. ADAC shall promptly notify DVI when ADAC becomes aware of any change in the location of the Equipment after its installation. 14.2. Financial Statements. During the term of this Agreement, ADAC -------------------- will furnish to DVI, promptly upon their becoming available, or in any event within one hundred and twenty (120) days after the end of each fiscal year, copies of certified financial statements for the years covered therein. 10 14.3. Notices. All notices hereunder shall be in writing, shall be ------- dispatched by prepaid certified first class mail or responsible courier addressed to ADAC or DVI at the addresses set forth in Section 18.10 or to such other addresses as ADAC and DVI shall have furnished to the other in writing. 14.4. Non-Solicitation of Funding Sources. During the term of this ----------------------------------- Agreement and for one (1) year thereafter, ADAC agrees that it will not solicit, divert, take away or interfere with any of DVI's funding sources of which ADAC has actual knowledge. 15. ADAC REPRESENTATIONS, WARRANTIES, AND COVENANTS ADAC represents, warrants and covenants as follows: 15.1. Organization and Standing. ADAC is a corporation duly organized, ------------------------- validly existing and in good standing under the laws of the State of California and has all requisite power and authority to own and operate its properties, to carry on its business as now conducted and proposed to be conducted under this Agreement, to enter into this Agreement and the Contracts referred to herein to which ADAC is to be a party and to carry out the transactions contemplated hereby and thereby. 15.2. Compliance with Other Instruments. ADAC is not in violation of --------------------------------- any term of its articles of incorporation or bylaws, any material judgment, decree or other imposed by any state or federal court or government or agency thereof, or any agreement, instrument, statute, rule or government regulation, which violation would have a material adverse effect on ADAC. The execution, delivery and performance of this Agreement and any other instrument referred to herein to which ADAC is a party will not result in such violation, or be in conflict, or constitute a default under any such term, or result in the creation of any mortgage, lien, charge or encumbrance upon any of the properties or assets of ADAC pursuant to any such term except pursuant to this Agreement. 15.3. This Agreement. This Agreement has been duly authorized, -------------- executed and delivered by ADAC and constitutes its legal, valid and binding obligation, enforceable in accordance with its terms. 15.4. Agreements. ADAC hereby agrees (i) without prior written ---------- consent of DVI or any subsequent assignee, not to extend, amend, supplement or terminate any Financed Contract, or agree to, or permit, any modifications, waiver or other alteration of the terms thereof, and (ii) to deliver to DVI all notices or other communications received by ADAC in connection with any Financed Contract or any aspect thereof. ADAC constitutes and appoints DVI, its successors and assigns, or any designee of DVI, as ADAC's agent and attorney-in- fact, which appointment is irrevocable and coupled with an interest, and with full power (in the name of ADAC or 11 otherwise) to endorse without recourse ADAC's name upon any and all notes, checks or drafts or other instruments for payment of any obligation, ask, require, demand, receive, compound and give acquittance for any and all monies and claims for money due and to become due under, or arising out of any Financed Contract, and upon the occurrence and continuation of an Event of Default to give all or any of the notices, consents, instructions or other communications reserved to ADAC in any Financed Contract, and to file any claims or take any action or institute any proceedings which DVI with respect to the Financed Contracts or any subsequent assignee deem to be necessary or advisable, hereby ratifying and confirming whatsoever said attorney shall and may do by virtue thereof. Any repossessed Equipment will be held by ADAC in trust for ADAC and DVI and kept apart and distinguishable from ADAC's property. 15.5. Taxes. ADAC warrants and represents that all sales, use, property, ----- or other taxes, licenses, tolls, inspection and/or other fees, bonds, permits or certificates, including any penalties and interest with respect thereto, which were or may be required to be paid or obtained in connection with any Financed Contract of the Equipment by ADAC, subsequent sale of Equipment and assignment of any Financed Contract to DVI (excluding any tax on the net income of DVI and any tax arising from any financing by DVI of any Financed Contract or Equipment) have been, or when due will promptly be, paid in full by ADAC or the provision for the payment thereof by the Customers are provided for in any Financed Contract. 16. DVI REPRESENTS AND WARRANTS AS FOLLOWS: 16.1. Organization and Standing. DVI is a corporation duly organized, ------------------------- validly existing and in good standing under the laws of the State of Delaware and has all requisite power and authority to own and operate its properties, to carry on its business as now conducted and proposed to be conducted under this agreement, to enter into this agreement and other instruments referred to herein to which DVI is to be a party and to carry out the transactions contemplated hereby and thereby. 16.2. Compliance with Other Instruments. DVI is not in violation of --------------------------------- any term of its articles of incorporation or bylaws, any material judgment, decree or order imposed by any state or federal court or government or governmental regulation, which violation would have a material adverse effect upon ADAC. The execution, delivery and performance of this Agreement and any other instrument referred to herein to which DVI is a party will not result in such violation, or be in conflict with or constitute a default under such term, or result in the creation of any mortgage, lien, charge or encumbrance upon any of the properties or assets of DVI pursuant to any such term, except that a lien in favor of DVI's lenders may exist with respect to Financed Contracts, the financing of which by DVI obtained through such lenders. 12 17. EVENTS OF DEFAULT 17.1. Events of Default. Any one of the following occurrences or acts ----------------- shall constitute an "Event of Default" (or "Events of Default") under this Agreement: 17.1.1. Default by ADAC in the payment of any amounts due and payable from ADAC to DVI including, but not limited to, Recourse Pool payments, indemnities, or any Repurchase Price, and such Default shall not have been remedied within five (5) days after the written notice thereof to ADAC from DVI. 17.1.2. Default by ADAC in the performance or compliance of any material term or covenant not relating to payments due DVI from ADAC, contained in this Agreement that materially adversely affects ADAC's ability to perform under this Agreement as a whole and such Default shall not have been remedied within thirty (30) days after the written notice thereof to ADAC from DVI. 17.1.3. If any proceedings shall be commenced by or against ADAC, for dissolution or under any bankruptcy, insolvency, reorganization, arrangement, composition or similar laws at that time in effect and if involuntary, are not dismissed within sixty (60) days. 17.1.4. If ADAC fails to provide or cause to be provided, service, maintenance, replacement or repair of Equipment in accordance with the provisions of this Agreement. 17.1.5. Any representation or warranty set forth in Section 3.4 above (including Subsections 3.4.1 through 3.4.10) relating to any Financed Contract or any representation or warranty of ADAC made in any Financed Contract, or in any certificate or other writing delivered pursuant to any Financed Contract shall prove to be incorrect in any material respect. 17.1.6. Any representation or warranty of ADAC made in Sections 15.1, 15.2 and 15.3 of this Agreement, or in any certificate or other writing with respect to such Sections delivered pursuant hereto shall prove to be incorrect in any material respect. 17.1.7. There shall be levied any attachment, execution or like process in an amount which gives rise to an adverse change in ADAC's financial condition unless such attachment, execution or process is released within sixty (60) days thereafter. 17.1.8. ADAC shall voluntarily suspend its business. 13 18. REPURCHASE OBLIGATION OF ADAC 18.1. Repurchase Obligation. Upon the occurrence and continuance of --------------------- any Event of Default set forth in Sections 17.1.1, 17.1.4 and/or 17.1.5 above, ADAC, promptly upon receipt of DVI's demand, agrees to repurchase any Obligation directly affected by such default and accept assignment of any such Obligations ("Repurchase Obligation"). Upon the occurrence and continuance of any Event of Default set forth in Sections 17.1.2, 17.1.3, 17.1.6, 17.1.7 and/or 17.1.8 above or in the event ADAC fails to repurchase any Obligation or accept reassignment of any Obligations DVI shall have the right to require ADAC to immediately repurchase any or all Obligations purchased by DVI pursuant to this Agreement, and accept reassignment of any or all Financed Contracts. 18.2. Repurchase Price. ADAC shall repurchase the Obligations from ---------------- DVI pursuant to Section 18.1 above, by paying to DVI the Net Investment Value of the Contract. ADAC agrees to repurchase any or all Obligations hereunder without first requiring DVI to resort to any Customer or to any other guaranty, security or collateral which DVI may have or hold. ADAC's repurchase Obligation is unconditional. 18.3. Waivers. Upon the occurrence and continuance of an Event of ------- Default, ADAC further agrees that DVI may at any time and from time to time without notice to, or the consent of, ADAC, and without affecting or impairing this Repurchase obligation, do any of the following: (i) renew or extend any Obligations of any Customer or any of its guarantors or of any other party at any time directly or contingently liable for the payment of any Obligations; (ii) accept partial payments of any Obligation; (iii) settle, refinance (by operation of law or otherwise) compound, compromise, collect or liquidate any Obligations and the security therefor in any manner; (iv) consent to the transfer or sale of any Obligation or any security therefor; or (v) bid and purchase at any sale of any other Equipment or security. 18.4. Waiver of Impairment of Collateral. ADAC shall not be released ---------------------------------- or discharged, either in whole or in part, by DVI's failure or delay to perfect or continue the perfection or enforcement of any security interest in any Equipment or other security which secures the Obligation. 19. MISCELLANEOUS 19.1. Enforcement. THIS AGREEMENT SHALL BE GOVERNED, CONSTRUED AND ----------- ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA. This Agreement may be executed in one or more counterparts each of which shall have the full force and effect of an original. 14 19.2. Assignment or Agreement. Except as set forth below, each ----------------------- party shall not sell, transfer, assign, pledge or encumber this agreement or any right or duty granted hereunder without the prior written consent of the other party hereto, which consent shall not be unreasonably withheld. Notwithstanding the foregoing, DVI shall have the right, without obtaining written consent of ADAC, to transfer or assign its interest hereunder as follows: 19.2.1. Secured Party. ADAC agrees that DVI shall have the right to ------------- assign or grant a security interest to a bank or financial institution ("Secured Party") with respect to any or all of DVI's interests under this Agreement and in the Obligations purchased hereunder and in the Financed Contracts, and that the Secured Party shall, in entering into such transaction with DVI, be acting in reliance upon and be entitled to the benefits of this Section 19.2.1. ADAC agrees that it will not assert against any Secured Party any defense, counterclaim or offset that ADAC may have against DVI. Accordingly, ADAC agrees with DVI and the Secured Party (for whom this covenant is expressly made) that DVI may assign, pledge, transfer or otherwise dispose of or grant a security interest to Secured Party in any or all of DVI's interest under this Agreement, the Financed Contracts, or any portion thereof, or Equipment without notice to ADAC or consent of ADAC thereto. 19.2.2. Entities. DVI may assign all or any part of its interest -------- under this Agreement and in the Financed Contracts and Equipment to any entity with which DVI or the officers of DVI are affiliated, which entities shall thereupon be deemed to be bound by all the terms and conditions of this Agreement provided that such entities agree to permit DVI to act as their agent. In the event of any such assignment, such entities shall acquire the right to enforce rights and interests assigned to them hereunder individually and severally with respect to the Obligations purchased hereunder and Obligations (or part thereof) owned by or assigned to such entities, provided that ADAC shall nonetheless be required to honor notices from, report and be accountable to, only DVI (and not such entities) with respect to such Equipment and Obligations or part thereof, the services to be provided by ADAC hereunder and all other rights, duties and obligations of ADAC under this Agreement. 19.3. Inurement. This Agreement is for the benefit for the parties --------- hereto and shall be binding upon their successors, assignees, and surviving entities of any merger, sale, consolidation or reorganization. 19.4. Severability. In the event that any of the terms of this ------------ Agreement are or become or are declared to be illegal by any court or tribunal of competent jurisdiction, such term or terms shall be null and void and shall be deemed deleted from this 15 Agreement, and all remaining terms of this Agreement shall remain in full force and effect. 19.5. Waiver of Breach. No waiver of any breach of any provision of ---------------- this Agreement shall constitute a waiver of any prior, concurrent or subsequent breach of the same or any other provisions hereof and no waiver shall be effective unless made in writing. 19.6. Headings. The descriptive headings of the several sections of -------- this Agreement are inserted for convenience only and do not constitute a part of this Agreement. 19.7. Confidential Treatment and Disclosure by DVI and ADAC. Each ----------------------------------------------------- party will treat this Agreement and all documents contemplated to be delivered hereunder and all terms and conditions hereof and thereof as confidential and will not disclose or use the same without the prior written consent of the other unless such disclosure or use is required by law. 19.8. Attorney's Fees. In the event of litigation hereunder the --------------- prevailing party shall be entitled to reimbursement of all expenses incurred therewith including reasonable attorneys' fees and costs. 19.9. Entire Agreement. This Agreement constitutes the entire ---------------- understanding of the parties hereto, and no representations, except as contained in this Agreement have been made by either party to the other and none has been relied upon by the other party. Any term of this Agreement may be amended and the observance of any term hereof may be waived (either generally or in particular instance and either retroactively or prospectively) only upon written agreement of DVI and ADAC. 19.10. Notices. Notices will be deemed effective: (i) 3 days after ------- deposit in the U.S. Mail, (ii) the same day if personally delivered, or (iii) the following business day if sent by reliable overnight courier. All notices shall be in writing addressed as follows: If to ADAC: 540 Alder Drive, Milpitas, CA 95035 - ---------- Attention: Chief Financial Officer cc: Robert Miller, Esq. One Bush Street, 11th Floor San Francisco, California 94104 If to DVI: One Park Plaza, Suite 800, Irvine, CA 92714 - --------- Attention: Anthony Turek, Senior Vice President 16 cc: Jeffrey J. Wong Cooper, White & Cooper 201 California Street 17th Floor San Francisco, California 94111 20. SURVIVAL AND EFFECT OF REPRESENTATIONS, WARRANTIES AND INDEMNITIES All obligations, representations, warranties, covenants and indemnities made by ADAC herein, and in other documents or instruments delivered in connection with this Agreement shall survive the expiration or termination of any Financed Contract, and shall continue in effect so long as any Financed Contract is outstanding and shall survive the date of the expiration or any termination of this Agreement, if necessary. All such covenants, agreements, representations, warranties and indemnities shall bind the party making the same and its successors and assigns and shall inure to the benefit of and be enforceable by each party for whom made and its successors and assigns. 21. COUNTERPARTS This Agreement may be executed in counterparts which taken together shall constitute one Agreement. IN WITNESS WHEREOF, DVI and ADAC have caused this agreement to be executed by their respective officers thereunder duly authorized as of day and year first above written. DVI Financial Services Inc. By: /s/ RICHARD E. MILLER ----------------------------- Richard E. Miller Vice President ADAC Laboratories By: /s/ DENNIS R. MAHONEY ------------------------------ Dennis R. Mahoney Vice President Finance and Chief Financial Officer 17 EXHIBIT A TO VENDOR PROGRAM AGREEMENT BETWEEN DVI FINANCIAL SERVICES INC. AND ADAC LABORATORIES FIRST LOSS RECOURSE POOL CALCULATION FORM Total Net Balance of First Loss Recourse Pool from next previous Calculation Form $____________ Additions due to Purchases: Purchase Price Additions to Pool ABC Corp. $____________ X 10% $____________ DEF Corp. $____________ X 10% $____________ GHI Corp. $____________ X 10% $____________ Total Additions: $____________ Deductions due to Remarketing Losses: JKL Corp. $____________ MNO Corp. $____________ Total Deductions: $____________ Gross Balance of First Loss Recourse Pool $____________ Net Investment Value of the Portfolio $____________ Adjustments to First Loss Recourse Pool: In the event the Gross Balance of the First Loss Recourse Pool exceeds 15% of the Net Investment Value of the Portfolio, reduce the amount of the First Loss Recourse Pool to 15% of the Net Investment Value of the Portfolio. Total Net Balance of First Loss Recourse Pool $____________ 18 EX-10.79 4 AGREEMENT & PLAN OF REORGANIZATION EXHIBIT 10.79 AGREEMENT AND PLAN OF REORGANIZATION AMONG ADAC LABORATORIES, ADAC ACQUISITION, INC., J.D. TECHNICAL SERVICES, INC. AND THE SHAREHOLDERS OF J.D. TECHNICAL SERVICES, INC. NOVEMBER 9, 1995 AGREEMENT AND PLAN OF REORGANIZATION TABLE OF CONTENTS ----------------- (NOT PART OF THE AGREEMENT)
PAGE ---- AGREEMENT AND PLAN OF REORGANIZATION............... 1 - ------------------------------------ ARTICLE I.......................................... 1 THE MERGER......................................... 1 1.1 Surviving Corporation....................... 1 --------------------- 1.2 Articles of Incorporation and Bylaws........ 1 ------------------------------------ 1.3 Effective Time.............................. 2 -------------- 1.4 Effects of the Merger....................... 2 --------------------- 1.5 Conversion of J.D. Technical Shares......... 2 ----------------------------------- 1.6 Reorganization.............................. 3 -------------- 1.7 Delivery of ADAC Common Stock............... 3 ----------------------------- 1.8 Further Assurances.......................... 3 ------------------ 1.9 Consummation of Merger...................... 4 ---------------------- 1.10 Spin-off of Redi-Vu Product Line............ 4 -------------------------------- ARTICLE II......................................... 5 REPRESENTATIONS AND WARRANTIES OF ADAC AND SUBSIDIARY................................ 5 2.1 Corporate Status............................ 5 ---------------- 2.2 Authorization............................... 5 ------------- 2.3 Consents and Approvals; No Violation........ 5 ------------------------------------ 2.4 Capitalization of ADAC and Subsidiary....... 6 ------------------------------------- 2.5 ADAC Common Stock Issued in Merger.......... 6 ---------------------------------- 2.6 Accuracy of Disclosure Documents............ 6 -------------------------------- 2.7 Certain Fees................................ 7 ------------ 2.8 S-3 Eligibility............................. 7 ---------------
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PAGE ---- ARTICLE III........................................ 7 REPRESENTATIONS AND WARRANTIES OF J.D. TECHNICAL AND ITS SHAREHOLDERS............................... 7 3.1 Corporate Organization...................... 7 ---------------------- 3.2 Articles of Incorporation and Bylaws........ 7 ------------------------------------ 3.3 Capitalization.............................. 8 -------------- 3.4 Controlled Entities......................... 8 ------------------- 3.5 Authorization............................... 8 ------------- 3.6 Consents and Approvals; No Violation........ 8 ------------------------------------ 3.7 Financial Statements........................ 9 -------------------- 3.8 Material Contracts.......................... 9 ------------------ 3.9 Title to Properties and Assets; Liens, etc.. 9 ------------------------------------------- 3.10 Absence of Certain Changes.................. 10 -------------------------- 3.11 Intellectual Property Rights; ----------------------------- Licenses and Permits............................. 10 -------------------- 3.12 Compliance with Applicable Law.............. 10 ------------------------------ 3.13 No Default Under Material Contracts......... 10 ----------------------------------- 3.14 Subchapter S Status; Taxes.................. 10 -------------------------- 3.15 Litigation.................................. 11 ---------- 3.16 Employment Matters.......................... 11 ------------------ 3.17 Insurance................................... 12 --------- 3.18 Environmental Matters....................... 12 --------------------- 3.19 Zoning...................................... 13 ------ 3.20 Leased Premises............................. 13 --------------- 3.21 Full Disclosure............................. 13 --------------- ARTICLE IV......................................... 14
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PAGE ---- COVENANTS........................................... 14 4.1 Conduct of Business of J.D. Technical......... 14 ------------------------------------- 4.2 Subchapter S Taxes............................ 14 ------------------ 4.3 Expenses...................................... 15 -------- 4.4 Best Efforts.................................. 15 ------------ 4.5 Consents...................................... 16 -------- 4.6 Registration Statements....................... 16 ----------------------- (a) Registration on Form S-3.................. 16 ------------------------ 4.7 Actions Contrary to Stated Intent............. 17 --------------------------------- 4.9 PAYMENT OF CERTAIN OUTSTANDING LOANS.......... 17 ------------------------------------ ARTICLE V........................................... 17 CONDITIONS PRECEDENT TO J.D. TECHNICAL'S OBLIGATION TO EFFECT THE MERGER..................... 17 5.1 Representations, Covenants and Certificate.... 17 ------------------------------------------ 5.2 Action or Proceedings......................... 18 --------------------- 5.3 Permits and Approvals......................... 18 --------------------- 5.4 Third Party Consents.......................... 18 -------------------- 5.5 EMPLOYMENT/COVENANT NOT TO COMPETE AGREEMENTS. 18 --------------------------------------------- 5.6 Approval of Merger............................ 18 ------------------ 5.7 Opinion of Counsel for ADAC................... 18 --------------------------- 5.8 Escrow Agreement.............................. 19 ---------------- 5.9 LEASE OF 23 TOWN & COUNTRY DRIVE, WASHINGTON, --------------------------------------------- MISSOURI.......................................... 19 -------- ARTICLE VI.......................................... 19 CONDITIONS PRECEDENT TO OBLIGATIONS OF ADAC AND SUBSIDIARY.............................. 19 6.1 Representations, Covenants and Certificate.... 20 ------------------------------------------
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PAGE ---- 6.2 Exceptions to Representations and --------------------------------- Warranties; Delivery of J.D. Technical -------------------------------------- Schedule of Exceptions............................. 20 ---------------------- 6.3 Approval of Merger............................. 20 ------------------ 6.4 Permits and Approvals.......................... 20 --------------------- 6.5 Third Party Consents........................... 20 -------------------- 6.6 Actions or Proceedings......................... 20 ---------------------- 6.7 Opinion of Counsel for J.D. Technical.......... 20 ------------------------------------- 6.8 Escrow Agreement............................... 21 ---------------- 6.9 LEASE OF 23 TOWN & COUNTRY DRIVE, --------------------------------- WASHINGTON, MISSOURI............................... 21 -------------------- 6.10 Employment/Covenant Not to Compete Agreements. 21 --------------------------------------------- 6.11 Receipt of Pooling Letter from ADAC Auditors.. 22 -------------------------------------------- 6.12 RELEASE OF GUARANTY FROM SBA.................. 22 ---------------------------- ARTICLE VII.......................................... 22 CLOSING DATE......................................... 22 ARTICLE VIII......................................... 22 INDEMNIFICATION AND HOLD BACK........................ 22 8.1 Warranty Claims................................ 22 --------------- 8.2 Hold Back of ADAC Common Stock as --------------------------------- Security For Indemnification....................... 23 ---------------------------- ARTICLE IX........................................... 23 MISCELLANEOUS........................................ 23 9.1 Termination.................................... 23 ----------- 9.2 Survival of Representations and Warranties..... 24 ------------------------------------------ 9.3 Notices........................................ 24 ------- 9.4 Modification or Waiver......................... 26 ---------------------- 9.5 Binding Effect and Assignment.................. 26 -----------------------------
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PAGE ---- 9.6 Government Law................................. 26 -------------- 9.7 Entire Agreement............................... 26 ---------------- 9.8 Arbitration.................................... 26 ----------- 9.9 Counterparts................................... 27 ------------ 9.10 Severability................................... 27 ------------
v AGREEMENT AND PLAN OF REORGANIZATION EXHIBITS -------- A. Form of Investment Letter B. Schedule of Exceptions C. J.D. Technical's Material Contracts D. J.D. Technical's Intellectual Property Rights E. J.D. Technical's Insurance Policies F. D. Sutton Employment Agreement G. J. Pepmueller Employment Agreement H. Escrow Agreement I. Triple-Net Lease i AGREEMENT AND PLAN OF REORGANIZATION ------------------------------------ THIS AGREEMENT AND PLAN OF REORGANIZATION, dated as of November 9, 1995 (the "Agreement"), is made by and among ADAC LABORATORIES, a California corporation ("ADAC"), ADAC ACQUISITION, INC., a Delaware corporation and a wholly-owned subsidiary of ADAC ("SUBSIDIARY"), J.D. TECHNICAL SERVICES, INC., a Missouri corporation ("J.D. TECHNICAL") and David Sutton and Jerome W. Pepmueller, the sole shareholders of J.D. Technical (each, "J.D. TECHNICAL SHAREHOLDER" and collectively, the "J.D. TECHNICAL SHAREHOLDERS"). WHEREAS, the Boards of Directors of ADAC and Subsidiary and the shareholders of J.D. Technical have approved the merger of J.D. Technical and Subsidiary (the "MERGER"), upon the terms and subject to the conditions set forth herein; and WHEREAS, by executing this Agreement, the parties hereto intend to adopt a plan of reorganization within the meaning of Section 368(a)(1)(A) of the Internal Revenue Code of 1986, as amended (the "CODE"); NOW, THEREFORE, in consideration of the premises and of the mutual agreements, provisions and covenants herein contained and in order to set forth the terms and conditions of the Merger and the mode of carrying the same into effect, the parties hereto hereby agree as follows: ARTICLE I THE MERGER 1.1 SURVIVING CORPORATION. Subject to and in accordance with the terms --------------------- and conditions of this Agreement and the General and Business Corporation Law of Missouri (the "MISSOURI CORPORATION LAW") and the Delaware General Corporation Law ("DELAWARE CORPORATION LAW"), at the Effective Time (as defined in Section ------- 1.4 hereof), J.D. Technical shall be merged with and into the Subsidiary, in - --- accordance with the applicable provisions of the laws of the States of Missouri and Delaware and the separate existence of J.D. Technical shall thereupon cease, and the Subsidiary shall be the surviving corporation (hereinafter sometimes called the "SURVIVING CORPORATION") and shall continue its corporate existence under the laws of the State of Delaware. For purposes of this Agreement, Subsidiary and J.D. Technical are sometimes referred to as the "CONSTITUENT CORPORATIONS." 1.2 ARTICLES OF INCORPORATION AND BYLAWS. From and after the Effective ------------------------------------ Time, the Articles of Incorporation and Bylaws of the Surviving Corporation, as in effect immediately prior to the Effective Time, shall continue in full force and effect as the Articles and Bylaws of the Surviving Corporation until amended from time to time as provided therein or by law. 1.3 EFFECTIVE TIME. The Merger shall become effective at the -------------- time of filing with the Delaware Secretary of State of a Certificate of Merger (the "CERTIFICATE OF MERGER") in form satisfactory to the parties which filing shall be made on the Closing Date (as defined in Article VII hereof) or as soon as practicable thereafter. The date and time when the Merger shall become effective is herein referred to as the "EFFECTIVE TIME." The parties shall cause a conformed copy of the Certificate of Merger or Articles of Merger to be filed with the Missouri Secretary of State and any additional documents to effect the Merger. 1.4 EFFECTS OF THE MERGER. The Merger shall have the effects prescribed --------------------- by the Delaware Corporation Law and Missouri Corporation Law, including without further transfer, act or deed, the separate existence of J.D. Technical shall cease and the Surviving Corporation shall possess all of the rights, privileges, powers and franchises, and shall be subject to all of the restrictions, disabilities and duties of J.D. Technical, and all property, real, personal and mixed, and all debts due to J.D. Technical on whatever account shall be vested in and become the property of the Surviving Corporation, and the title to any real estate vested by deed or otherwise, if any, in J.D. Technical shall not revert or be in any way impaired by reason of the Merger; and all rights of creditors of J.D. Technical and all liens upon any property of J.D. Technical shall be preserved unimpaired and all debts, liabilities and duties of J.D. Technical shall thenceforth attach to the Surviving Corporation and may be enforced against it to the same extent as if such debts, liabilities and duties had been directly incurred or contracted by it. 1.5 CONVERSION OF J.D. TECHNICAL SHARES. At the Effective Time: ----------------------------------- (a) The conversion of shares of Common Stock of J.D. Technical (the "J.D. TECHNICAL COMMON STOCK") into shares of ADAC Common Stock (the "ADAC COMMON STOCK") shall occur automatically at the Effective Time without any further action by the holders thereof. Subject to a holdback of ADAC Common Stock pursuant to Section 8.2 hereof, J.D. Technical Common Stock shareholders ----------- shall receive that aggregate amount of shares of ADAC Common Stock determined by dividing $1,700,000 by $12.292, being the average closing price (rounded to the third decimal place) of ADAC Common Stock during the three (3) consecutive trading days (November 2 [$12-1/8], November 3 [$12-1/2] and November 6 [$12- 1/4]) as reported in The Wall Street Journal ending two (2) trading days prior ----------------------- to the date of execution of this Agreement by all of the parties hereto (the "PER SHARE PRICE"). Subject to such holdback of ADAC Common Stock pursuant to Section 8.2 hereof, each J.D. - ----------- 2 Technical Shareholder shall receive from the aggregate number of shares of ADAC Common Stock to be distributed a proportionate pro-rata number of shares based on the number of shares of J.D. Technical Common Stock held by such shareholder as compared to all of the issued and outstanding J.D. Technical Common Stock. (b) To the extent any J.D. Technical Shareholder would otherwise be entitled to receive a fraction of a share of ADAC Common Stock, such holder shall instead receive a full share of ADAC Common Stock. (c) As a condition to receiving the ADAC Common Stock, each J.D. Technical Shareholder shall execute and deliver to ADAC and the Surviving Corporation an investment letter substantially in the form attached hereto as Exhibit A. Pursuant to Section 4.6 ADAC will use its best efforts to cause the - --------- ----------- shares of ADAC Common Stock to be issued in connection with the Merger to be registered under the Securities Act of 1933, as amended (the "SECURITIES ACT"), on Form S-3. 1.6 REORGANIZATION. The parties intend to adopt the Agreement as a plan -------------- of reorganization and to consummate the Merger in accordance with Section 368(a)(1)(A) of the Code. Each J.D. Technical Shareholder is urged to consult with his or her own tax advisor or accountant as to the personal tax consequences, if any, resulting from the Merger. J.D. Technical Shareholders will be solely responsible for any tax consequences resulting to them from this Merger, the cancellation of their shares of J.D. Technical Common Stock and their receipt of shares of ADAC Common Stock. 1.7 DELIVERY OF ADAC COMMON STOCK. At or immediately after the Effective ----------------------------- Time each J.D. Technical Shareholder will surrender his or her respective stock certificates representing the J.D. Technical Common Stock extinguished in the Merger, and, subject to Section 8.2 hereof, ADAC will deliver to the J.D. ----------- Technical Shareholders entitled thereto stock certificates representing ADAC Common Stock, duly registered in the name of each such J.D. Technical Shareholder, with restrictive legends as may be required under the Securities Act. Such delivery shall occur within ten (10) business days after the Effective Time or otherwise in accordance with the practices of ADAC's transfer agent. 1.8 FURTHER ASSURANCES. If at any time after the Effective Time, the ------------------ Surviving Corporation shall be advised that any deeds, bills of sale, assignments or assurances or any other acts or things are necessary, desirable or proper to vest, perfect or confirm its right, title or interest in, to or under any of the 3 rights, properties or assets of J.D. Technical acquired or to be acquired as a result of the Merger and otherwise to carry out the purposes of this Agreement, the Surviving Corporation and its officers are hereby authorized to execute and deliver, in the name of J.D. Technical all such deeds, bills of sales and other documents and to take such other action as necessary to vest, perfect and confirm its right, title and interest in the properties and assets acquired pursuant to the Merger. 1.9 CONSUMMATION OF MERGER. The parties desire to consummate the closing ---------------------- of the Merger on or before November 15 or as soon thereafter as practicable upon satisfaction of the conditions set forth in Articles V and VI hereof. Upon satisfaction of such conditions, ADAC shall deliver to the Delaware Secretary of State a duly executed and verified Certificate of Merger and to the Missouri Secretary of State a duly executed and verified Articles of Merger and the parties shall take all such other and further actions as may be required by law to make the Merger effective. 1.10 SPIN-OFF OF REDI-VU PRODUCT LINE. At or prior to the Closing Date of -------------------------------- this Agreement, J.D. Technical shall transfer all of its products and assets and liabilities relating to its Redi-Vu Systems business or products line, as set forth on Schedule 1 attached hereto (collectively, the "REDI-VU BUSINESS"), to ---------- the J.D Technical Shareholders or their affiliates. Such transfer shall be without representation or warranty, expressed or implied, by J.D. Technical and shall be received on an "AS IS" basis. At the time of such transfer of the Redi-Vu Business, the J.D. Technical Shareholders represent and warrant that (i) the assets constituting the Redi-Vu Business shall constitute less than 10% of the total assets of J.D. Technical prior to such transfer, both in terms of historical costs and fair market value, (ii) the sales generated or associated with the Redi-Vu Business during the prior twelve (12) months shall constitute less than 10% of the gross sales of all of the products and services sold by J.D. Technical during such period, and (iii) the sales generated or associated with the Redi-Vu Business during the prior twelve (12) months shall have generated less than 10% of the gross operating profits of J.D. Technical derived from the sale of all of its products and services during such period. The J.D. Technical Shareholders represent and warrant that the transfer of the assets constituting the Redi-Vu Business are non-operating assets which are not an integral part of the business of J.D. Technical to be acquired by the Surviving Corporation pursuant to the Merger and such transfer by J.D. Technical shall not affect or negatively impact the ability of the Surviving Corporation and ADAC to account for the acquisition of J.D. Technical as a "pooling of interests." For up to three (3) 4 months after the Closing Date, the Redi-Vu Business may be located (to the extent not otherwise being used by the Surviving Corporation), without charge, in a small segregated area of J.D. Technical's facilities and the J.D. Technical Shareholders may devote an insignificant amount of their time and energies (not to exceed five (5) hours for each J.D. Technical Shareholder per week) to managing the Redi-Vu Business. J.D. Technical Shareholders shall have no right to use the Surviving Corporation's employees, resources or assets in connection with the Redi-Vu Business. ARTICLE II REPRESENTATIONS AND WARRANTIES OF ADAC AND SUBSIDIARY ADAC and Subsidiary hereby represent and warrant to J.D. Technical and each J.D. Technical Shareholder as follows: 2.1 CORPORATE STATUS. ADAC is a corporation duly organized and validly ---------------- existing under the laws of the State of California and is in good standing thereunder. Subsidiary is a newly-formed corporation duly organized and validly existing under the laws of the State of Delaware and in good standing thereunder. Each of ADAC and Subsidiary has all requisite corporate power and authority to own, lease, and operate its properties and assets, to carry on its present business, to enter into this Agreement, and to perform its obligations hereunder. 2.2 AUTHORIZATION. Each of ADAC and Subsidiary has full corporate ------------- authority to execute and deliver this Agreement and to consummate the transactions contemplated hereby, including the Merger. This Agreement and each document, instrument and certificate executed and delivered in connection with the transactions described herein has been duly and validly executed and delivered by ADAC and Subsidiary and constitutes the valid and binding obligations of each of ADAC and Subsidiary, enforceable against ADAC and Subsidiary in accordance with its terms, except as such enforcement may be affected or limited by bankruptcy, insolvency, reorganization and other laws of general applicability relating to or affecting creditors rights and to general equitable principles. 2.3 CONSENTS AND APPROVALS; NO VIOLATION. Except for any applicable ------------------------------------ requirements of the securities or "Blue Sky" laws of any state, if applicable, in which qualification or clearance may be required, and the filing of the Merger Agreement as required by the Missouri Corporation Laws and Delaware Corporation Laws, no filing with, and no permit, authorization, consent or approval of, any 5 public body or authority is necessary for the consummation by ADAC and Subsidiary of the transactions contemplated hereby. 2.4 CAPITALIZATION OF ADAC AND SUBSIDIARY. The entire authorized capital ------------------------------------- stock of ADAC consists of (i) 5,000,000 shares of Preferred Stock, no par value, of which none are issued or outstanding, and (ii) 25,000,000 shares of Common Stock, no par value, of which 16,919,100 shares were issued and outstanding on October 1, 1995. All shares of capital stock of ADAC which are outstanding as of the date of this Agreement are duly authorized, validly issued, fully paid and nonassessable, and are not subject to, nor were they issued in violation of, any preemptive rights. 2.5 ADAC COMMON STOCK ISSUED IN MERGER. The shares of ADAC Common to be ---------------------------------- issued pursuant to this Agreement will, when so issued and delivered, be duly authorized and reserved for issuance and validly issued, fully paid, and nonassessable. 2.6 ACCURACY OF DISCLOSURE DOCUMENTS. ADAC has previously furnished to -------------------------------- the shareholders of J.D. Technical true and complete copies of the following materials (collectively, the "Disclosure Documents") as filed by ADAC with the Securities and Exchange Commission ("SEC") pursuant to the Securities Exchange Act of 1934: (i) ADAC's Annual Report on Form 10-K (without exhibits) for the fiscal year ended October 2, 1994; and (ii) ADAC's Quarterly Reports on Form 10-Q for each fiscal quarter of the 1995 fiscal year. The audited consolidated financial statements (including any notes and related schedules required as a part thereof) and unaudited interim financial statements (including any notes and related schedules required as a part thereof) of ADAC included in such Disclosure Documents were prepared in accordance with generally accepted accounting principles applied on a consistent basis (except as may be indicated therein or in the notes thereto) and fairly present the financial position of ADAC and its consolidated subsidiaries as at the dates thereof and the results of operations for the periods then ended, subject, in the case of the unaudited interim financial statements, to normal year-end adjustments and any other adjustments described therein. To the knowledge of ADAC, no statement by ADAC or Subsidiary contained in this Agreement, the Disclosure Documents or the exhibits attached hereto or furnished to J.D. Technical Shareholders pursuant hereto or in connection with the transactions contemplated hereby contains any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements contained herein or therein not misleading in light of the circumstances under which they were made. 6 2.7 CERTAIN FEES. Neither ADAC nor Subsidiary nor any of their officers ------------ or directors has employed any broker or finder or incurred any liability for any brokerage fees, commissions or finders' fees in connection with the transactions contemplated herein. 2.8 S-3 ELIGIBILITY. ADAC satisfies the registrant eligibility --------------- requirements set forth in Item 1.A. of the General Instructions to Form S-3 and, to the knowledge of ADAC, there is no event or other circumstance that would cause ADAC to cease to meet such eligibility requirements. ARTICLE III REPRESENTATIONS AND WARRANTIES OF J.D. TECHNICAL AND ITS SHAREHOLDERS Except as otherwise disclosed or excepted in Exhibit B hereto (the "J.D. --------- Technical Schedule of Exceptions") delivered to ADAC and Subsidiary by J.D. Technical upon execution of this Agreement, J.D. Technical and each J.D. Technical Shareholder, jointly and severally, represent and warrant to ADAC and Subsidiary as follows: 3.1 CORPORATE ORGANIZATION. J.D. Technical (i) is a statutory close ---------------------- corporation duly organized, validly existing and in good standing under the laws of the State of Missouri and (ii) has all requisite corporate power and authority to own, lease and operate its properties and assets and to carry on its present business, to enter into this Agreement and to perform its obligations hereunder. J.D. Technical's principal executive offices and facilities are located in Washington, Missouri, and J.D. Technical is qualified to do business and is in good standing as a foreign corporation in Washington, California, Illinois, Ohio and Florida. J.D. Technical does not do business in any other jurisdiction in which the failure to so qualify would have a material adverse effect on the conduct of its business. 3.2 ARTICLES OF INCORPORATION AND BYLAWS. J.D. Technical has previously ------------------------------------ delivered to ADAC and Subsidiary complete and correct copies of the Articles of Incorporation and all amendments thereto to the date hereof and Bylaws, as presently in effect, of J.D. Technical. J.D. Technical is not in default in the performance, observation or fulfillment of any material term of its Articles of Incorporation or Bylaws. 3.3 CAPITALIZATION. The authorized capital stock of J.D. -------------- 7 Technical consists of (a) no shares of Preferred Stock and (b) 3,000 shares of Common Stock, $10.00 par value, of which 1,400 shares of Common Stock are issued and outstanding. All such shares which are outstanding as of the date of this Agreement are duly authorized, validly issued, fully paid and nonassessable, and are not subject to, nor were they issued in violation of, any preemptive rights. At the Effective Time there will not be any, subscriptions, options, conversion or exchange rights, warrants or other agreements, claims or commitments of any nature whatsoever obligating J.D. Technical to issue, transfer, deliver or sell additional shares of its capital stock or to register or qualify any such shares under any Federal or state securities laws. There are no rights of first refusal which are applicable to the transactions contemplated by this Agreement. 3.4 CONTROLLED ENTITIES. J.D. Technical does not own, directly or ------------------- indirectly, any of the outstanding capital stock of any corporation, or any partnership, joint venture, or other business enterprise. 3.5 AUTHORIZATION. J.D. Technical has full corporate authority to execute ------------- and deliver this Agreement and, subject to receiving shareholder approval in accordance with the Missouri Corporation Laws, to consummate the transactions contemplated hereby, including the Merger. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly and validly authorized by the shareholders of J.D. Technical and no other corporate proceedings on the part of J.D. Technical are necessary to consummate the transactions so contemplated. This Agreement has been duly and validly executed and delivered by J.D. Technical, and constitutes the valid and binding agreement of J.D. Technical, enforceable against it in accordance with its terms, except as such enforcement may be affected or limited by bankruptcy, insolvency, reorganization and other laws of general applicability relating to or affecting creditors rights and to general equitable principles. 3.6 CONSENTS AND APPROVALS; NO VIOLATION. Except for any applicable ------------------------------------ requirements of the securities or "Blue Sky" laws of any state, if applicable, in which qualification or clearance may be required, and the filing of the Merger Agreement as required by the Missouri Corporation Laws and Delaware Corporation Laws, no filing with, and no permit, authorization, consent or approval of, any public body or authority is necessary for the consummation by J.D. Technical of the transactions contemplated hereby. Neither the execution and delivery of this Agreement nor the consummation of the transactions contemplated hereby nor compliance with any of the 8 provisions hereof will (a) violate any provision of the Articles of Incorporation or Bylaws of J.D. Technical; (b) result in a violation or breach of, or constitute (with or without due notice or lapse of time or both) a default (or give rise to any right of termination, cancellation or acceleration) under any of the material terms, covenants, conditions or provisions of any note, bond, mortgage, indenture, deed of trust, license, franchise, permit, lease, contract, agreement or other instrument, commitment or obligation to which J.D. Technical is a party or by which any of its properties or assets may be bound; or (c) violate any order, writ, injunction, decree, judgment or ruling or, to J.D. Technical's best knowledge, any statute or rule, of any court or governmental authority, United States or foreign, applicable to J.D. Technical or any of its properties or assets. 3.7 FINANCIAL STATEMENTS. J.D. Technical has previously delivered to ADAC -------------------- and Subsidiary the unaudited balance sheets of J.D. Technical as of October 31, 1995, and December 31, 1991, 1992, 1993 and 1994, and the related statements of income, shareholders' equity and cash flow of J.D. Technical for such periods (collectively referred to as the "J.D. TECHNICAL FINANCIAL STATEMENTS"). The J.D. Technical Financial Statements fairly present the financial condition of J.D. Technical as of the respective dates indicated, and the results of its operations for the respective periods indicated, all in accordance with generally accepted accounting principles consistently applied on a consistent basis for the respective fiscal years or as of the respective dates set forth therein. 3.8 MATERIAL CONTRACTS. Attached hereto as Exhibit C is a complete list ------------------ --------- of each written or oral agreement, loan, lease or other contract to which J.D. Technical is a party (including amendments thereto) which requires or provides for the payment of, or receipt by, J.D. Technical of at least $5,000 annually or $20,000 in the aggregate over the life of the agreement, loan, lease or contract or which is otherwise material to the business, properties, condition (financial or otherwise) or results of operations. 3.9 TITLE TO PROPERTIES AND ASSETS; LIENS, ETC. J.D. Technical has good ------------------------------------------ and marketable title to its properties and assets, and valid leasehold interests in all its leasehold estates, in each case subject to no mortgage, pledge, lien, lease, encumbrance, or charge, other than (a) liens resulting from taxes which are not yet due and payable, or (b) minor liens, encumbrances, or defects of title which do not, individually or in the aggregate, materially detract from the value of the property subject thereto 9 or materially impair the operations of J.D. Technical. 3.10 ABSENCE OF CERTAIN CHANGES. Since the date of the most recent J.D. -------------------------- Technical Financial Statement, there has not been any material adverse change in the business, properties, condition (financial or otherwise) or results of operations of J.D. Technical. 3.11 INTELLECTUAL PROPERTY RIGHTS; LICENSES AND PERMITS. Attached hereto as -------------------------------------------------- Exhibit D is a list of any J.D. Technical patents, applications for patents, - --------- trademarks, trade names, service marks and copyrighted software programs and documentation, (collectively, "INTELLECTUAL PROPERTY"). J.D. Technical is the sole and exclusive owner of the Intellectual Property, free and clear of all liens and encumbrances. No royalties, license fees, honorarium or other fees are payable by J.D. Technical under any agreements or any license agreements. J.D. Technical has not licensed or otherwise granted rights to use, manufacture, assemble, sell or service its products to any other person nor is J.D. Technical bound by any agreement that affects its exclusive right to manufacture, assemble or sell its products. 3.12 COMPLIANCE WITH APPLICABLE LAW. J.D. Technical has no knowledge, and ------------------------------ has not received any written notice from any governmental authority, that the business of J.D. Technical is being conducted in violation of any applicable law, ordinance, regulation, decree or order of any governmental entity, except for violations which either singly or in the aggregate do not and are not expected to have a material adverse effect on the financial condition, business, operations or future prospects of J.D. Technical. 3.13 NO DEFAULT UNDER MATERIAL CONTRACTS. J.D. Technical is not in ----------------------------------- material default, and no event has occurred which would constitute a material default by J.D. Technical, under any of the material agreements, contracts or leases described in Section 3.8 of this Agreement. To the best knowledge of ----------- J.D. Technical, no other party to any such material agreement, contract or lease is in default, and no event has occurred which would constitute a default, under any such material agreement, contract or lease. 3.14 SUBCHAPTER S STATUS; TAXES. J.D. Technical duly elected on December -------------------------- 27, 1991 to be treated for Federal income tax purposes as an "S corporation" under Subchapter S of the Internal Revenue Code of 1986, as amended (the "CODE"). J.D. Technical has duly and timely delivered to its shareholders all Schedule K-1 (Form 1120S) required under the Code. J.D. Technical has duly filed all Tax 10 Returns (as hereinafter defined) required to be filed by it prior to the date of this Agreement. J.D. Technical or the J.D. Technical Shareholders have duly paid all Taxes (as hereinafter defined) required to be paid in respect of the periods covered by such Tax Returns. J.D. Technical is not delinquent in the payment of any amount of Taxes and no deficiencies for any Taxes have been proposed, asserted or assessed against J.D. Technical. With respect to United States Federal and state taxes, (i) no waivers of the time to assess any Taxes have been given or requested and (ii) the income tax returns of J.D. Technical for any year for which the statute of limitations has not expired, to the knowledge of J.D. Technical, are not currently being audited or examined. For purposes of this Section 3.14, the term "TAXES" shall include all taxes, assessments and ------------ governmental charges imposed by the United States or any state, local or foreign government or subdivision or agency thereof, including any interest, penalties or additions thereto, and the term "TAX RETURN" shall include any return, report or other information required to be supplied to a taxing authority with respect to Taxes. 3.15 LITIGATION. There is no action, suit or proceeding by or before any ---------- court, governmental agency, or by any other person, instituted, pending or, to the best knowledge of J.D. Technical, threatened, which, if adversely decided, would, directly or indirectly, have a material adverse effect on the business, properties, condition (financial or otherwise) or results of operations of J.D. Technical, nor is there any judgment, decree, injunction, rule or order of any court, governmental department, commission, agency, instrumentality or arbitrator outstanding against J.D. Technical having, or which J.D. Technical reasonably can foresee, in the future would be likely to have, any such effect. J.D. Technical is not in violation of any term of any judgment, decree, injunction or order outstanding against it the effect of which is reasonably likely to have a material adverse effect on its business, properties, condition (financial or otherwise) or results of operations. 3.16 EMPLOYMENT MATTERS. ------------------ (a) J.D. Technical is not subject to any collective bargaining agreement and, to the knowledge of J.D. Technical, there have not been any union organizational activities or attempts to effect a representation election with respect to J.D. Technical within the last 36 months. (b) J.D. Technical does not maintain and is not required to contribute to any "employee pension benefit plan" within the 11 meaning of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"); nor does J.D. Technical have any contingent or other undischarged payment obligations with respect to any such plan which was previously maintained by J.D. Technical. J.D. Technical is not required to contribute to any multi-employer plan within the meaning of ERISA. (c) J.D. Technical has no employment, management or consulting contracts, bonus, profit-sharing or other similar benefit plans, deferred compensation, stock option, stock ownership, or stock purchase plans, or any other plan, agreement, or arrangement for the provision of any benefits to its employees, consultants or directors other than normal and customary group health insurance, group life insurance and vacation and sick leave benefits; all of which may be terminated at the option of J.D. Technical. 3.17 INSURANCE. Attached hereto as Exhibit E is a list of all insurance --------- --------- policies carried by J.D. Technical and the amounts of coverage thereunder, all of which policies are in full force and effect on the date hereof. 3.18 ENVIRONMENTAL MATTERS. J.D. Technical's business and its operations --------------------- are in compliance with all Environmental Laws, and J.D. Technical is not now in violation of any federal, state or local Environmental Laws (as defined below) or other laws or regulations relating to industrial hygiene, environmental conditions, Hazardous Substances (as defined below), toxic materials or waste or soil or ground water conditions and J.D. Technical has never been the subject of any complaint, investigation or proceeding relating to any such matter, nor has the operation of its business resulted in any such violation. Neither J.D. Technical nor, to the best knowledge of J.D. Technical or the J.D. Technical Shareholders, any third party, has manufactured, stored or disposed of, on, under or about the premises presently occupied by J.D. Technical (or transported to or from such real property) any combustible, explosive, reactive, toxic or radioactive materials or wastes, or other Hazardous Substances. For purposes of this Section, "ENVIRONMENTAL LAWS" means all federal, state and local laws, statutes, codes, ordinances, regulations, rules or other requirements with the force of law, including but not limited to consent decrees and judicial or administrative orders, relating to the environment or the use, storage, treatment, disposal or release of any Hazardous Substances, all as amended or modified from time to time, including, without limitation: the Comprehensive Environmental Response, 12 Compensation and Liability Act ("CERCLA") as amended by the Superfund Amendments and Reauthorization Act of 1986 ("SARA"); the Resource Conservation and Recovery Act of 1976, as amended ("RCRA"); the Clean Water Act, as amended; the Clean Air Act, as amended; the Federal Insecticide, Fungicide and Rodenticide Act, as amended; the Hazardous Materials Transportation Act, as amended, and any and all environmental statutes of the State of Missouri, and all regulations promulgated under or pursuant to such federal and Missouri Statutes, and "HAZARDOUS SUBSTANCES" means any hazardous waste or hazardous substance, or any pollutant or contaminant or toxic substance or other chemicals or substances including, without limitation, asbestos, petroleum, petroleum-derived products and substances, polychlorinated biphenyls, and any other substance regulated by any Environmental Laws. 3.19 ZONING. All of J.D. Technical's property, buildings or structures ------ used in its business, and their operation and maintenance as now operated and maintained, comply in all material respects with all applicable zoning restrictions and other administrative regulations and do not violate any restrictive covenants or any provisions of law, the contravention or violation of which in any material respect would interfere with or prevent the continued use of such properties for the purposes for which they are now being used, or would materially affect their value. 3.20 LEASED PREMISES. J.D. Technical currently leases the facilities --------------- located at 23 Town & Country Drive, Washington, Missouri, from J.D. Investments, a Missouri partnership, under the terms of an Amendment to and Restatement of Triple-Net Lease Agreement, dated April 7, 1994 (the "REAL PROPERTY LEASE"). With respect to the Real Property Lease, no default or event of default on the part of J.D. Technical as lessee under the provisions of the Lease, and no event which with the giving of notice or passage of time, or both, would constitute such default or event of default on the part of J.D. Technical has occurred and is continuing unremedied or unwaived. J.D. Technical is in compliance with all its duties and obligations under the Lease, including any maintenance and repair obligations. There exists no pending or, to the knowledge of J.D. Technical or the J.D. Technical Shareholders, threatened, condemnation, eminent domain or similar proceedings with respect to, or which or could affect, the leased property or Lease. 3.21 FULL DISCLOSURE. To the knowledge of J.D. Technical, no statement by --------------- J.D. Technical contained in this Agreement or the exhibits attached hereto or any written statement or certificate furnished or to be furnished to ADAC pursuant hereto or in 13 connection with the transactions contemplated hereby contains any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements contained herein or therein not misleading in light of the circumstances under which they were made. ARTICLE IV COVENANTS 4.1 CONDUCT OF BUSINESS OF J.D. TECHNICAL. Except as otherwise expressly ------------------------------------- permitted by this Agreement, during the period from the date of this Agreement to the Effective Time, J.D. Technical will conduct its operations according to its ordinary and usual course of business, and J.D. Technical will use all reasonable efforts to proceed diligently to preserve intact its business organization, to retain and have available the services of its officers and employees and to maintain satisfactory relationships with licensors, licensees, suppliers, contractors, distributors, customers and others having business relationships with it. Without limiting the generality of the foregoing, prior to the Effective Time, J.D. Technical will not take, and will use its best efforts to prevent its shareholders from taking, any action to, (a) amend its Articles of Incorporation or Bylaws; (b) authorize for issuance, or issue, sell, pledge or deliver any stock of, or rights to purchase stock of, J.D. Technical; (c) enter into any transaction not in the ordinary course of business; (d) do anything that would cause any of the representations and warranties set forth in Article III to become false or misleading; (e) materially increase the compensation payable to any officer or shareholder of J.D. Technical in his capacity as an employee or otherwise or, except as permitted under Section 4.2 ----------- or Section 1.10, pay any dividend or distribution to shareholders of J.D. ------------ Technical; or (f) agree to do any of the foregoing. 4.2 SUBCHAPTER S TAXES. The J.D. Technical Shareholders jointly and ------------------ severally agree to be personally responsible for all federal and state income taxes owed by J.D. Technical (or severally responsible for all taxes owed by them as shareholders in such "subchapter S" corporation) for the period of January 1, 1995 through the Closing Date; provided, however, prior to the Effective Time, J.D. Technical shall declare, and as soon as practicable after such tax amount is determined to the reasonable satisfaction of the Surviving Corporation and the J.D. Technical Shareholders, J.D. Technical or the Surviving Corporation shall pay to the J.D. Technical Shareholders a special dividend equal to the lesser of (i) the taxable income of J.D. Technical, determined on the basis 14 of accounting methods consistent with the preceding years, which is attributable to the J.D. Technical Shareholders because of J.D. Technical's status as an S Corporation, times the maximum individual tax rate for Federal income tax and Missouri income tax purposes, less the amount of any such dividends that have been paid on account of this year's taxable income of J.D. Technical; or (ii) $100,000. The Surviving Corporation shall have the right to confer with the J.D. Technical Shareholders concerning the determination of the amount of taxable income of J.D. Technical and the Federal and states taxes attributable to the J.D. Technical Shareholders. Promptly following the Closing, but in no event later than the due date prescribed by the Code, the J.D. Technical Shareholders shall prepare (or cause to have prepared) and file final Subchapter S corporate Federal and state tax returns for J.D. Technical for the period commencing January 1, 1995, and ending as of the Effective Time. Fifteen (15) days prior to the filing of such tax returns, the J.D. Technical Shareholders shall provide copies of said returns to the Surviving Corporation and ADAC, along with any supporting documentation reasonably requested by the Surviving Corporation or ADAC. 4.3 EXPENSES. Whether or not the Merger is consummated, all costs and -------- expenses in connection with this Agreement and the related transactions (a) incurred by ADAC or the Subsidiary shall be the sole responsibility of ADAC or (b) incurred by J.D. Technical or the J.D. Technical Shareholders shall be the sole responsibility of the J.D. Technical Shareholders; provided, however, if the merger is consummated ADAC shall pay immediately following the Closing, up to $20,000 of J.D. Technical's and the J.D. Technical Shareholders' reasonable costs and expenses, including, without limitation, attorney's fees and accountant's fees (e.g. Coopers & Lybrand) upon submission of invoices. 4.4 BEST EFFORTS. Subject to the terms and conditions herein provided, ------------ each of the parties hereto agrees to use its best efforts to take, or cause to be taken, all action, and to do, or cause to be done, all things necessary, proper or advisable under applicable laws and regulations to consummate and make effective the transactions contemplated hereby. In case at any time after the Effective Time any further action is necessary or desirable to carry out the purposes of this Agreement, the parties hereto, by action of their proper officers and directors or otherwise, shall take all such necessary action. 4.5 CONSENTS. Each of the parties hereto will use its best efforts to -------- obtain consents of all third parties and governmental authorities necessary to the consummation of the transactions 15 contemplated hereby. 4.6 REGISTRATION STATEMENTS. ----------------------- (A) REGISTRATION ON FORM S-3. ADAC covenants to use its best efforts ------------------------ to prepare and file with the Securities and Exchange Commission ("SEC"), promptly after the Effective Time and after ADAC publicly discloses in a press release the financial results of the parties hereto covering at least thirty (30) days of post-merger operating results, a Registration Statement on Form S-3 (the "REGISTRATION STATEMENT") with respect to the shares of ADAC Common Stock (collectively, the "REGISTRABLE SECURITIES") to be received by J.D. Technical shareholders and to use its best efforts to cause such Registration Statement to become and remain effective until the second anniversary of the Effective Date. The number of shares of ADAC Common Stock being held for security of any indemnification obligations of the J.D. Technical Shareholders pursuant to Section 8.2 hereof shall be included under the Registration Statement, but shall not be released from the holdback until the time limitations set forth in Section 8.2 have lapsed. Because this registration is intended to permit sales - ----------- of the Registrable Securities from time to time (i.e., a so-called "shelf ---- registration"), ADAC shall in no event be obligated to cause any such registration to remain effective for more than two (2) years after the Effective Time of the Merger. ADAC shall also use its best efforts to prepare and file with the SEC such amendments and supplements to such Registration Statements and the prospectus used in connection therewith as may be necessary to permit the disposition of the Registrable Securities covered by such Registration Statements. ADAC shall also use its reasonable efforts to furnish to the J.D. Technical Shareholders such number of copies of a prospectus, including a preliminary prospectus, in conformity with the requirements of the Securities Act, and such other documents as they may reasonably request in order to facilitate the disposition of the Registrable Securities owned by them. All expenses incurred in connection with such registrations shall be borne by ADAC, except the J.D. Technical Shareholders shall bear all commissions and similar expenses. It shall be a condition precedent to the obligations of ADAC to take any action pursuant to this Subsection that the J.D. Technical Shareholders shall furnish to ADAC such information regarding them, the Registrable Securities held by them and the intended method of disposition thereof as ADAC shall reasonably request and as shall be required in connection with the action to be taken by ADAC. 4.7 ACTIONS CONTRARY TO STATED INTENT. Each party will use its reasonable --------------------------------- efforts to cause the Merger to qualify as a tax-free 16 reorganization under Section 368 of the Code and accordingly, will not, either before or after consummation of the Merger, take any action or fail to take any action that would prevent the Merger from so qualifying as a tax-free reorganization under such Section or be inconsistent with such qualification. 4.8 HOLD HARMLESS FROM ANY BROKERAGE CLAIMS. Notwithstanding any broker or --------------------------------------- finder's agreement naming J.D. Technical as the responsible party, the J.D. Technical Shareholders shall indemnify, defend and hold J.D. Technical, the Surviving Corporation and ADAC harmless from any and all demands, fees, expenses or costs claimed pursuant to such an agreement by any finder or broker arising from these transactions. 4.9 PAYMENT OF CERTAIN OUTSTANDING LOANS. After the Closing and within ------------------------------------ three (3) business days of presentation of a payoff demand from the following lenders of J.D. Technical, the Surviving Corporation shall pay the payoff amount needed to satisfy such outstanding loans and obtain releases of guarantees, mortgages and other collateral securing such loans. The loans to be satisfied are each of the note payables reflected on Exhibit C hereto as Items 4, 9 and --------- 10. ARTICLE V CONDITIONS PRECEDENT TO J.D. TECHNICAL'S OBLIGATION TO EFFECT THE MERGER The obligation of J.D. Technical to effect the Merger shall be subject to the following conditions: 5.1 REPRESENTATIONS, COVENANTS AND CERTIFICATE. The representations and ------------------------------------------ warranties of ADAC and Subsidiary contained herein shall in all material respects be true as of the date of this Agreement and the Effective Time with the same effect as though made at the Effective Time; ADAC and Subsidiary each shall in all material respects have performed all obligations and complied with all covenants required to be performed or complied with by it prior to the Effective Time; and ADAC and Subsidiary shall each have delivered to J.D. Technical a certificate, dated the Closing Date and signed by its Chairman, a President, Vice President or the Chief Financial Officer, to such effect. 5.2 ACTION OR PROCEEDINGS. There shall not be any actual or threatened --------------------- action or proceeding by or before any court or other 17 governmental body which shall seek to restrain, prohibit or invalidate the transactions contemplated by this Agreement, nor shall there be any actual action or proceeding seeking a material amount of damages by reason of the consummation of the Merger. 5.3 PERMITS AND APPROVALS. All permits, authorizations and regulatory --------------------- approvals of governmental authorities required to be obtained pursuant to Sections 2.3, 3.6 and 4.5 herein shall have been received. 5.4 THIRD PARTY CONSENTS. All consents required of lenders and other -------------------- persons deemed necessary or advisable by J.D. Technical shall have been duly obtained. 5.5 EMPLOYMENT/COVENANT NOT TO COMPETE AGREEMENTS. On or before the --------------------------------------------- Closing Date, the following transactions shall have been completed: (a) Mr. David Sutton and the Surviving Corporation shall have entered into an Employment Agreement in the form of Exhibit F attached hereto, providing --------- for a minimum employment term of six (6) months, a base salary of $175,000 (based upon an annual rate) and providing for bonuses of up to $12,500 for each three (3) month period of employment following the Effective Time based upon achievement of certain agreed-upon objectives. (b) Mr. Jerry Pepmueller and the Surviving Corporation shall have entered into an Employment Agreement in the form of Exhibit G attached hereto, --------- providing for a minimum employment term of eighteen (18) months, a base salary of $175,000 (based upon an annual rate) and providing for bonuses of up to $12,500 for each three (3) month period of employment following the Effective Time based upon achievement of certain agreed-upon objectives. 5.6 APPROVAL OF MERGER. The Board of Directors of ADAC and Subsidiary and ------------------ the stockholder of Subsidiary shall have approved this Agreement, the Merger and the transactions contemplated herein. 5.7 OPINION OF COUNSEL FOR ADAC. J.D. Technical and J.D. Technical --------------------------- Shareholders shall have received from counsel for ADAC an opinion, dated the Effective Time, in form and substance satisfactory to J.D. Technical and J.D. Technical Shareholders, to the effect (1) that ADAC is a corporation duly organized, validly existing and in good standing under the laws of the State of California, has the corporate power to own its properties and assets and to carry on its business as it is now being conducted 18 and has the corporate power and authority to enter into this Agreement and to carry out the transactions contemplated hereby; (2) that the Subsidiary is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware, has the corporate power to own its properties and assets and to carry on its business as it is now being conducted and has the corporate power and authority to enter into this Agreement and to carry out the transactions contemplated hereby; (3) that the ADAC stock to be issued to the J.D. Technical Shareholders shall have been duly authorized and validly issued, fully paid and nonassessable and, to the knowledge of counsel, are free of any preemptive or similar rights, and issued in accordance with Federal securities laws concerning the registration or exemption therefrom; (4) that this Agreement and the Escrow Agreement have been duly authorized, executed and delivered by ADAC and the Subsidiary and constitute the valid, binding and enforceable obligation of ADAC and the Subsidiary, as applicable, (except as such enforcement may be affected by bankruptcy or insolvency laws or equitable principles or considerations), and all corporate action required by ADAC and the Subsidiary in order to effect the transactions contemplated hereby has been taken. 5.8 ESCROW AGREEMENT. ADAC and the Subsidiary shall have executed the ---------------- Escrow Agreement attached hereto as Exhibit H. --------- 5.9 LEASE OF 23 TOWN & COUNTRY DRIVE, WASHINGTON, MISSOURI. The Surviving ------------------------------------------------------ Corporation and J.D. Investments, a Missouri partnership, as landlord, shall have executed a triple-net lease, in the form of Exhibit I attached hereto, --------- covering the facility and the adjacent land owned by the landlord at 23 Town & Country Drive, Washington, for an initial four (4) year period, with three (3) options to the Surviving Corporation to renew for subsequent four (4) year terms. The Lease will also provide the Surviving Corporation with certain rights to purchase if J.D. Investments decides to sell the facility and property located at 23 Town & Country Drive, Washington, Missouri 63090. ARTICLE VI CONDITIONS PRECEDENT TO OBLIGATIONS OF ADAC AND SUBSIDIARY The obligations of the Subsidiary to effect the Merger, and of ADAC to deliver the ADAC Common Stock to the J.D. Technical Shareholders, shall be subject to the following conditions: 6.1 REPRESENTATIONS, COVENANTS AND CERTIFICATE. The repre- ------------------------------------------ 19 sentations and warranties of J.D. Technical and J.D. Technical Shareholders herein contained shall in all material respects be true as of the date of this Agreement and as of the Effective Time with the same effect as though made at the Effective Time; J.D. Technical shall in all material respects have performed all obligations and complied with all covenants required by this Agreement to be performed or complied with by it prior to the Effective Time; and J.D. Technical shall have delivered to ADAC and Subsidiary a certificate, dated the Closing Date and signed by its President, a Vice President or Chief Financial Officer, to both such effects. 6.2 EXCEPTIONS TO REPRESENTATIONS AND WARRANTIES; DELIVERY OF J.D. -------------------------------------------------------------- TECHNICAL SCHEDULE OF EXCEPTIONS. J.D. Technical shall deliver to ADAC and - -------------------------------- Subsidiary the J.D. Technical Schedule of Exceptions in the form of Exhibit B, --------- dated the Closing Date, and as updated to reflect those changes occurring from the date of the earlier delivered Schedule of Exceptions and it shall contain no exceptions to representations and warranties of J.D. Technical except as to such exceptions which have been approved in writing by ADAC. 6.3 APPROVAL OF MERGER. All of the Shareholders of J.D. Technical shall ------------------ have approved this Agreement, the Merger and the transactions contemplated herein. 6.4 PERMITS AND APPROVALS. All permits, authorizations and regulatory --------------------- approvals of governmental authorities required to be obtained pursuant to Sections 2.3, 3.6 and 4.5 herein shall have been received. 6.5 THIRD PARTY CONSENTS. All consents required of lenders and other -------------------- persons deemed necessary or advisable by ADAC shall have been duly obtained. 6.6 ACTIONS OR PROCEEDINGS. There shall not be any actual or threatened ---------------------- action or proceeding by or before any court or other governmental body which shall seek to restrain, prohibit or invalidate the transactions contemplated by this Agreement, nor shall there be any actual action or proceeding seeking a material amount of damages by reason of the consummation of the Merger. 6.7 OPINION OF COUNSEL FOR J.D. TECHNICAL. ADAC shall have received from ------------------------------------- counsel for J.D. Technical an opinion, dated the Effective Time, in form and substance satisfactory to ADAC, to the effect (1) that J.D. Technical is a corporation duly organized, validly existing and in good standing under the laws of the State 20 of Missouri, has the corporate power to own its properties and assets and to carry on its business as it is now being conducted and has the corporate power and authority to enter into this Agreement and to carry out the transactions contemplated hereby; (2) that the number of issued and outstanding shares of capital stock is 1,400, all of which shall have been duly authorized and validly issued, fully paid and nonassessable; (3) that this Agreement and the Escrow Agreement have been duly authorized, executed and delivered by J.D. Technical and its shareholders and constitute the valid, binding and enforceable obligation of J.D. Technical and J.D. Technical Shareholders, as applicable, (except as such enforcement may be affected by bankruptcy or insolvency laws or equitable principles or considerations), and all corporate action required by J.D. Technical in order to effect the transactions contemplated hereby has been taken. 6.8 ESCROW AGREEMENT. J.D. Technical Shareholders shall have executed the ---------------- Escrow Agreement attached hereto as Exhibit H. --------- 6.9 LEASE OF 23 TOWN & COUNTRY DRIVE, WASHINGTON, MISSOURI. The Surviving ------------------------------------------------------ Corporation and J.D. Investments, a Missouri partnership, as landlord, shall have executed a triple-net lease, in the form of Exhibit I attached hereto, --------- covering the facility and the adjacent land owned by the landlord at 23 Town & Country Drive, Washington, for an initial four (4) year period, with three (3) options to the Surviving Corporation to renew for subsequent four (4) year terms, all on terms and conditions satisfactory to ADAC. The lease will also provide the Surviving Corporation with certain rights to purchase if J.D. Investments decides to sell the facility and property located at 23 Town & Country Drive, Washington, Missouri 63090. 6.10 EMPLOYMENT/COVENANT NOT TO COMPETE AGREEMENTS. On or before the --------------------------------------------- Closing Date, the following transactions shall have been completed: (a) Mr. David Sutton and the Surviving Corporation shall have entered into an Employment Agreement in the form of Exhibit F attached hereto, providing --------- for a minimum employment term of six (6) months, a base salary of $175,000 (based upon an annual rate) and providing for bonuses of up to $12,500 for each three (3) month period of employment following the Effective Time based upon achievement of certain agreed-upon objectives. (b) Mr. Jerry Pepmueller and the Surviving Corporation shall have entered into an Employment Agreement in the form of Exhibit G attached hereto, --------- providing for a minimum employment term 21 of eighteen (18) months, a base salary of $175,000 (based upon an annual rate) and providing for bonuses of up to $12,500 for each three (3) month period of employment following the Effective Time based upon achievement of certain agreed-upon objectives. 6.11 RECEIPT OF POOLING LETTER FROM ADAC AUDITORS. On or before the -------------------------------------------- Closing Date, ADAC shall have received a letter from its auditors, in form and substance reasonably satisfactory to ADAC, advising it that the Merger in accordance with the terms of this Agreement will be treated for accounting purposes as a "pooling of interests" and conforms with the requirements of APB Opinion No. 16. 6.12 RELEASE OF GUARANTY FROM SBA. On or before the Closing Date, ADAC ---------------------------- shall have received a release from the Small Business Administration of that certain Guaranty given by J.D. Technical to secure the SBA Loan No. 631-552-3004 in the original principal amount of $180,000. Such release by the SBA shall include a release of the security interest taken by the SBA in the assets of J.D. Technical. ARTICLE VII CLOSING DATE The closing of the Merger and the other transactions contemplated by this Agreement (the "CLOSING") shall take place on or before November 9, 1995 (or at such other hour or on such other date as shall be reasonably agreed upon by ADAC and J.D. Technical), at a location and at a time to be mutually agreed upon by the parties hereto (the "CLOSING DATE" or "CLOSING TIME"), if all conditions to the Merger have been satisfied or waived on or before such date. ARTICLE VIII INDEMNIFICATION AND HOLD BACK 8.1 WARRANTY CLAIMS. Except as hereinafter set forth, the J.D. Technical --------------- Shareholders shall jointly and severally indemnify and hold ADAC and the Surviving Corporation, and each of their successors and assigns, and their respective officers, directors, employees, agents and affiliates (collectively, the "BENEFICIARIES") harmless from and against, and in respect of, any and all damages, claims losses, liabilities and expenses, including, without limitation, legal, accounting and other expenses, which may arise out of or relate to: (a) any breach or violation of any 22 covenant, term, obligation or duty of J.D. Technical or the J.D. Technical Shareholders under this Agreement; or (b) any breach or misrepresentation of any of the representations or warranties made in this Agreement by J.D. Technical or the J.D. Technical Shareholders; or (c) any inaccuracy or misrepresentation in the schedules or exhibits attached hereto or in any certificate or document delivered in accordance with the terms of this Agreement by J.D. Technical or the J.D. Technical Shareholders (collectively, "WARRANTY CLAIMS"); provided however, that the Beneficiaries shall be entitled to indemnification hereunder only to the extent that the aggregate of all such Warranty Claims exceed $5,000 and shall be able to recover up to $170,000 of the Warranty Claims (without reduction for such initial threshold of $5,000). As security for J.D. Technical Shareholders' obligations set forth herein, ADAC shall withhold the delivery of shares of ADAC Common Stock valued at $170,000 pursuant to the formula set forth in Section 1.5(a). Such shares shall be held pursuant to the terms of the -------------- Escrow Agreement attached hereto as Exhibit H. The J.D. Technical Shareholders --------- shall not be personally liable for any indemnity under this Agreement. The Beneficiaries sole recourse for indemnity under this Agreement shall be the Deferred Shares (as defined in Section 8.2). ----------- 8.2 HOLD BACK OF ADAC COMMON STOCK AS SECURITY FOR INDEMNIFICATION. As -------------------------------------------------------------- security for J.D. Technical Shareholders' obligations set forth in Section 8.1, ----------- ADAC shall withhold for a period ending November 9, 1996 the delivery of up to $170,000 of shares of the ADAC Common Stock which would otherwise be delivered to the J.D. Technical Shareholders pursuant to Section 1.5(a) hereof (the -------------- "DEFERRED SHARES"). The Deferred Shares withheld by ADAC shall be delivered to the J.D. Technical Shareholders in accordance with the terms and conditions set forth in the Escrow Agreement attached hereto as Exhibit H. --------- ARTICLE IX MISCELLANEOUS 9.1 TERMINATION. Anything herein or elsewhere to the contrary ----------- notwithstanding, this Agreement may be terminated and abandoned at any time before the Effective Time whether before or after adoption and approval of this Agreement by the shareholders of J.D. Technical: (a) By the mutual consent of the Boards of Directors of J.D. Technical and the Board of Directors of ADAC; 23 (b) By the Board of Directors of J.D. Technical at any time after November 16, 1995, if, by that date, the conditions set forth in Article V hereof shall not have been met, unless such delay results from a breach or violation by J.D. Technical of the terms of this Agreement; (c) By the Board of Directors of ADAC or Subsidiary at any time after November 16, 1995, if, by that date, the conditions set forth in Article VI hereof shall not have been met, unless such delay results from a breach or violation by ADAC or Subsidiary of the terms of this Agreement; or In the event of termination and abandonment under this Section 9.1, ----------- this Agreement shall forthwith become void and there shall be no liability on the part of any of J.D. Technical, ADAC or Subsidiary (or their respective officers and directors). Nothing contained in this Section shall affect the obligations of the parties to comply with any confidentiality obligations under any agreements between the parties hereto. 9.2 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The representations and ------------------------------------------ warranties contained in this Agreement shall be true and correct as of the Closing Date, and shall survive the Closing without regard to any investigation made by the parties; provided, however, that all such representations and warranties shall expire on November 9, 1996, except with respect to claims made in writing by one party against the other during such time period pursuant to the Escrow Agreement. 9.3 NOTICES. Any notice or other communication required or which may be ------- given hereunder shall be in writing and either be delivered personally (by hand, messenger or other overnight courier service), by facsimile transmission (with hard copy to follow immediately thereafter) or deposited in the United States mail, first class, certified, return receipt requested, postage prepaid, and shall be deemed given (i) when delivered, if delivered personally, (ii) if sent by facsimile transmission, when so received or (iii) if mailed, three business days after the date of deposit with the United States mail; and shall be addressed as follows: 24 IF TO ADAC OR SUBSIDIARY: ADAC Laboratories 540 Alder Drive Milpitas, California 95035 Attention: David L. Lowe, Chief Executive Officer Facsimile: (408) 945-8086 WITH COPIES TO: Graven Perry Block Brody & Qualls 523 West Sixth Street, Suite 1130 Los Angeles, California 90014 Attention: Kriston D. Qualls, Esq. Facsimile: (213) 489-1332 IF TO J.D. TECHNICAL: J.D. Technical Services, Inc. 23 Town & Country Drive Washington, Missouri 63090 Attention: Jeremy Pepmueller Facsimile: (314) 239-2544 WITH COPIES TO: Greensfelder, Hemker & Gale, P.C. 10 South Broadway St. Louis, Missouri 63102 ATTN: Joseph D. Lehrer, Esq. Facsimile: (314) 241-3237 IF TO ANY SHAREHOLDER: Jerome W. Pepmueller 3 Wheatley Court Washington, Missouri 63090 David Sutton 7 Judy Lane Washington, Missouri 63090 Any party may change its address to which notices or other com- 25 munications are to be sent by giving written notice of any such change in the manner provided herein for giving notice. 9.4 MODIFICATION OR WAIVER. This Agreement may be amended, modified or ---------------------- superseded, and any of the terms, covenants, representations, warranties or conditions hereof may be waived, but only by a written instrument executed by J.D. Technical, ADAC and Subsidiary. No shareholder approval shall be required for any amendment, modification or waiver which does not materially affect the nature of the Merger provided for herein. 9.5 BINDING EFFECT AND ASSIGNMENT. This Agreement shall be binding upon ----------------------------- and inure to the benefit of the parties hereto and their respective successors and assigns; provided, however, that prior to the Merger, no assignment of any rights provided for herein may be made by any party without the express written consent of the other parties. 9.6 GOVERNING LAW. This Agreement shall be governed by, and construed in ------------- accordance with, the laws of the State of Delaware. 9.7 ENTIRE AGREEMENT. This Agreement, together with all exhibits and ---------------- schedules hereto, embodies the entire agreement and understanding between the parties hereto relating to the subject matter hereof and supersedes any prior agreements and understandings relating to the subject matter hereof. 9.8 ARBITRATION. Any controversy or claim arising out of, or relating to ----------- this Agreement, or the breach thereof, shall be settled by a three-person panel of arbitrators in an arbitration conducted in Denver, Colorado, in accordance with the Commercial Arbitration Rules of the American Arbitration Association ("AAA") as such rules shall be in effect on the date of delivery of demand for arbitration. Judgment upon the award rendered by the arbitrators may be entered in any court having jurisdiction thereof. The arbitrators' decision shall be in writing and shall be final and nonappealable. The arbitrators' authority shall include ordering discovery proceedings and the ability to render equitable types of relief and, in such event, any aforesaid court may enter an order enjoining or compelling such actions as found by the arbitrators. The arbitrators shall also make a determination regarding whether one party's legal position in any such controversy or claim is the more substantially correct (the "Prevailing Party") and the arbitrators shall require the other party or parties to pay the reasonable legal and other professional fees and costs incurred by 26 the Prevailing Party in connection with such arbitration proceeding and any necessary court action. The parties recognize and agree that the remedy of specific performance may be appropriate in order to enforce certain provisions of this Agreement. The parties agree that a party would be entitled to pursue such remedies for emergency or preliminary injunctive or other equitable relief in any court of competent jurisdiction, provided that there would be a stay of such judicial proceedings on the merits of the dispute arising out of or relating to this Agreement pending arbitration of all underlying claims between the parties immediately following the issuance of any such emergency or preliminary injunctive or other equitable relief. The arbitrators shall be chosen from a list provided by the AAA as follows: one arbitrator shall be chosen directly by ADAC, one arbitrator shall be chosen directly by the J.D. Technical Shareholders, and the third arbitrator shall be selected by the two arbitrators so chosen. 9.9 COUNTERPARTS. This Agreement may be executed in two or more ------------ counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 9.10 SEVERABILITY. If any provision of this Agreement, or the application ------------ thereof to any person or circumstance, should, for any reason and to any extent, be invalid or unenforceable, the remainder of this Agreement and the application of such provision to other persons or circumstances shall not be affected thereby, but rather shall be enforced to the greatest extent permitted by law. //// //// //// //// //// //// //// 27 IN WITNESS THEREOF, the undersigned parties have executed this Agreement, as of the date first hereinabove written. THIS CONTRACT CONTAINS A BINDING ARBITRATION PROVISION WHICH MAY BE ENFORCED BY THE PARTIES. J.D. TECHNICAL SERVICES, INC. ADAC LABORATORIES By___________________________ By___________________________ Jerome W. Pepmueller, Robert L. Miller, President Corporate Counsel By___________________________ David Sutton, Secretary ADAC ACQUISITION, INC. By____________________________ Robert L. Miller, Corporate Counsel and Vice President J.D. TECHNICAL SHAREHOLDERS: _____________________________ David Sutton _____________________________ Jerome W. Pepmueller 28 EXHIBIT A --------- INVESTMENT LETTER ----------------- TO: ADAC Laboratories 540 Alder Drive Milpitas, California 95035 J.D. TECHNICAL SHAREHOLDER: Jerome Pepmueller SECURITIES: Common Stock ================================================================================ In connection with the merger of J.D. Technical Service, Inc. ("J.D. Technical") and ADAC Acquisition, Inc. ("Acquisition") pursuant to that certain Agreement and Plan of Reorganization (the "Agreement"), I understand that I will receive shares of Common Stock (the "Securities") of ADAC Laboratories, a California corporation ("ADAC"), and, as a condition to receiving such Securities, the undersigned hereby represents to Acquisition and ADAC the following: (a) I have received copies of ADAC's Annual Report on Form 10-K for the fiscal year ended October 2, 1994, and Quarterly Reports on Form 10-Q for each fiscal quarter of the 1995 fiscal year. (b) I understand and acknowledge that the initial issuance of the Securities pursuant to the Agreement will not be registered under the Securities Act of 1933, as amended (the "Securities Act"), on the grounds that the issuances of these Securities are exempt from registration pursuant to Section 3(b) or Section 4(2) of the Securities Act or Regulation D promulgated thereunder, and that ADAC's reliance upon such exemption is predicated upon my representations contained herein. (c) I am aware of ADAC's business affairs and financial condition and I have acquired sufficient information about ADAC to reach an informed and knowledgeable decision. I have been given an opportunity to ask questions of management of ADAC concerning the the terms and conditions of the merger, the Agreement, the Securities and the business and financial condition of ADAC. (d) I am acquiring these Securities for my own account (or a trust account if the undersigned is a trustee) for investment purposes only and not with a view to, or for the resale in connection with, any "distribution" thereof in violation of the Securities Act of 1933, as amended (the "Securities Act"). I am able to fend for myself in connection with the purchase of the above Securities and I have such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of this investment and to protect my own interests in connection therewith. I have the financial ability and resources to bear the economic risks of this investment. (e) I understand that the Securities have not been registered under the Securities Act in reliance upon a specific exemption therefrom, which exemption depends, upon other things, the bona fide nature of my investment intent as expressed herein and my intent to hold indefinitely the Securities unless subsequently registered under the Securities Act or unless an exemption from such registration is otherwise available. (f) I understand that ADAC is obligated to use its best efforts to cause these Securities to be registered pursuant to the terms of the Agreement. I acknowledge that because the registration process involves review and approval by the Securities and Exchange Commission, no assurances can be given that such efforts will succeed in registering these Securities in a timely manner or ever. In addition, I understand that the certificate evidencing the Securities will be imprinted with a legend which prohibits the transfer of the Securities unless they are registered or such registration is not required in the opinion of counsel for ADAC. (g) I am aware of the provisions of Rule 144, promulgated under the Securities Act, which in substance, permits limited public resale of "restricted securities" acquired, directly or indirectly, from the issuer thereof (or from an affiliate of such issuer), in a non-public offering subject to the satisfaction of certain conditions, including, among other things: the availability of certain public information about ADAC; the resale occurring not less than two years after the party has purchased and paid for the securities to be sold (absent registration); the sale being made through a broker in an unsolicited "broker's transaction" or in transactions directly with a market maker (as said term is defined under the Securities Exchange Act of 1934) and the amount of securities being sold during any three-month period not exceeding the specified limitations stated therein. (h) I further understand that in the event all of the requirements of Rule 144 are not satisfied, registration under the Securities Act, compliance with Regulation A or some other registration exemption will be required before I may resell the Securities; and that, notwithstanding the fact that Rule 144 is not exclusive, the staff of the SEC has expressed its opinion that 2 persons proposing to sell private placement securities other than in a registered offering and otherwise than pursuant to Rule 144 will have a substantial burden of proof in establishing that an exemption from Registration is available for such offers or sales and that such persons and their respective brokers who participate in such transaction do so at their own risk. J.D. TECHNICAL SHAREHOLDER: ___________________________________ 3 EXHIBIT A --------- INVESTMENT LETTER ----------------- TO: ADAC Laboratories 540 Alder Drive Milpitas, California 95035 J.D. TECHNICAL SHAREHOLDER: David Sutton SECURITIES: Common Stock ================================================================================ In connection with the merger of J.D. Technical Service, Inc. ("J.D. Technical") and ADAC Acquisition, Inc. ("Acquisition") pursuant to that certain Agreement and Plan of Reorganization (the "Agreement"), I understand that I will receive shares of Common Stock (the "Securities") of ADAC Laboratories, a California corporation ("ADAC"), and, as a condition to receiving such Securities, the undersigned hereby represents to Acquisition and ADAC the following: (a) I have received copies of ADAC's Annual Report on Form 10-K for the fiscal year ended October 2, 1994, and Quarterly Reports on Form 10-Q for each fiscal quarter of the 1995 fiscal year. (b) I understand and acknowledge that the initial issuance of the Securities pursuant to the Agreement will not be registered under the Securities Act of 1933, as amended (the "Securities Act"), on the grounds that the issuances of these Securities are exempt from registration pursuant to Section 3(b) or Section 4(2) of the Securities Act or Regulation D promulgated thereunder, and that ADAC's reliance upon such exemption is predicated upon my representations contained herein. (c) I am aware of ADAC's business affairs and financial condition and I have acquired sufficient information about ADAC to reach an informed and knowledgeable decision. I have been given an opportunity to ask questions of management of ADAC concerning the the terms and conditions of the merger, the Agreement, the Securities and the business and financial condition of ADAC. (d) I am acquiring these Securities for my own account (or a trust account if the undersigned is a trustee) for investment purposes only and not with a view to, or for the resale in connection with, any "distribution" thereof in violation of the Securities Act of 1933, as amended (the "Securities Act"). I am able to fend for myself in connection with the purchase of the above Securities and I have such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of this investment and to protect my own interests in connection therewith. I have the financial ability and resources to bear the economic risks of this investment. (e) I understand that the Securities have not been registered under the Securities Act in reliance upon a specific exemption therefrom, which exemption depends, upon other things, the bona fide nature of my investment intent as expressed herein and my intent to hold indefinitely the Securities unless subsequently registered under the Securities Act or unless an exemption from such registration is otherwise available. (f) I understand that ADAC is obligated to use its best efforts to cause these Securities to be registered pursuant to the terms of the Agreement. I acknowledge that because the registration process involves review and approval by the Securities and Exchange Commission, no assurances can be given that such efforts will succeed in registering these Securities in a timely manner or ever. In addition, I understand that the certificate evidencing the Securities will be imprinted with a legend which prohibits the transfer of the Securities unless they are registered or such registration is not required in the opinion of counsel for ADAC. (g) I am aware of the provisions of Rule 144, promulgated under the Securities Act, which in substance, permits limited public resale of "restricted securities" acquired, directly or indirectly, from the issuer thereof (or from an affiliate of such issuer), in a non-public offering subject to the satisfaction of certain conditions, including, among other things: the availability of certain public information about ADAC; the resale occurring not less than two years after the party has purchased and paid for the securities to be sold (absent registration); the sale being made through a broker in an unsolicited "broker's transaction" or in transactions directly with a market maker (as said term is defined under the Securities Exchange Act of 1934) and the amount of securities being sold during any three-month period not exceeding the specified limitations stated therein. (h) I further understand that in the event all of the requirements of Rule 144 are not satisfied, registration under the Securities Act, compliance with Regulation A or some other registration exemption will be required before I may resell the Securities; and that, notwithstanding the fact that Rule 144 is not exclusive, the staff of the SEC has expressed its opinion that 2 persons proposing to sell private placement securities other than in a registered offering and otherwise than pursuant to Rule 144 will have a substantial burden of proof in establishing that an exemption from Registration is available for such offers or sales and that such persons and their respective brokers who participate in such transaction do so at their own risk. J.D. TECHNICAL SHAREHOLDER: ___________________________________ 3 EX-10.80 5 AMENDS TO LINE OF CREDIT EXHIBIT 10.80 EXHIBIT 10.80 AMENDMENT TO LINE OF CREDIT AGREEMENT This First Amendment to Line of Credit Agreement (the "Amendment") is made and entered into this _________________ day of June, 1994, by and between SANWA BANK CALIFORNIA (the "Bank") and ADAC LABORATORIES (the "Borrower") with respect to the following: This Amendment shall be deemed to be a part of and subject to that certain Line of Credit Agreement dated as of July ____, 1993, as it may be amended from time to time, and any and all addenda and riders thereto (collectively the "Agreement"). Unless otherwise defined herein, all terms used in this Amendment shall have the same meanings as in the Agreement. To the extent that any of the terms or provisions of this Amendment conflict with those contained in the Agreement, the terms and provisions contained herein shall control. WHEREAS, the Borrower and the Bank mutually desire to extend and/or modify the Agreement. NOW THEREFORE, for value received and hereby acknowledged, the Borrower and the Bank agree as follows: 1. EXTENSION OF EXPIRATION DATE. The Expiration Date provided for in Section 1.01(j) of the Agreement shall be extended to March 31, 1996. 2. MODIFICATION OF COMPENSATING BALANCES. Section 2.14 of the Agreement is deleted in its entirety and the following is substituted in lieu thereof: "2.14 COMPENSATING BALANCES: The Borrower shall, unless the Bank otherwise consents in writing, maintain demand deposits or market value savings deposits, provided that only 50% of all market value savings deposits maintained with Bank shall be counted against the net free compensating balances required hereunder, with the Bank with net free compensating balances in an amount equivalent to not less than $1,125,000 on an average daily basis during each calendar quarter (the "Compensating Balance Requirement"). In the event that the Compensating Balance Requirement is not met, the Borrower shall pay to the Bank, on the 30th day following the last day of each calendar quarter, a fee equivalent 3/8% per annum on the difference (if any) by which the Compensating Balance Requirement exceeded the amount of average daily balances actually maintained by the Borrower during such preceding calendar quarter, computed on a year of 360 days for actual days elapsed. For purposes of this paragraph, the term "net free compensating balances" mean balances excluding deposits for which funds have not yet been collected by the Bank". 3. CHANGE IN EFFECTIVE TANGIBLE NET WORTH. Section 8.14 E of the Agreement is deleted in its entirety and the following is substituted in lieu thereof: "E. NET WORTH. A minimum effective tangible net worth of not less than $48,000,000 plus 50% of each prior fiscal quarter's net profit and plus 90% of the net proceeds of any new equity offerings, minus up to $6,000,000 used to repurchase or redeem the Borrower's stock prior to December 31, 1994". 4. CONFIRMATION OF OTHER TERMS AND CONDITIONS OF THE AGREEMENT. Except as specifically provided in this Amendment, all other terms, conditions and covenants of the Agreement unaffected by this Amendment shall remain unchanged and shall continue in full force and effect and the Borrower hereby covenants and agrees to perform and observe all terms, covenants and agreements provided for in the Agreement, as hereby amended. -1- IN WITNESS WHEREOF, this Amendment has been executed by the parties hereto as of the date first hereinabove written. BANK: BORROWER: SANWA BANK CALIFORNIA ADAC LABORATORIES By:__________________________ By:__________________________ _____________________________ _____________________________ (Name/Title) (Name/Title) By:___________________________ ______________________________ (Name/Title) -2- AMENDMENT TO LINE OF CREDIT AGREEMENT This Second Amendment to Line of Credit Agreement (the "Amendment") is made and entered into this _________________ day of September, 1994, by and between SANWA BANK CALIFORNIA (the "Bank") and ADAC LABORATORIES (the "Borrower") with respect to the following: This Amendment shall be deemed to be a part of and subject to that certain Line of Credit Agreement dated as of July ____, 1993, as it may be amended from time to time, and any and all addenda and riders thereto (collectively the "Agreement"). Unless otherwise defined herein, all terms used in this Amendment shall have the same meanings as in the Agreement. To the extent that any of the terms or provisions of this Amendment conflict with those contained in the Agreement, the terms and provisions contained herein shall control. WHEREAS, the Borrower and the Bank mutually desire to extend and/or modify the Agreement. NOW THEREFORE, for value received and hereby acknowledged, the Borrower and the Bank agree as follows: 1. MODIFICATION OF EFFECTIVE TANGIBLE NET WORTH. The definition of Effective Tangible Net Worth provided for in Section 1.01(g) of the Agreement shall be deleted in its entirety and the following substituted in lieu thereof: "(g) "EFFECTIVE TANGIBLE NET WORTH": shall mean the Borrower's stated net worth plus Subordinated Debt but less all intangible assets of the Borrower (i.e., goodwill, trademarks, patents, copyrights, organization expense, loans and advances to employees, affiliates or subsidiaries, investments in subsidiaries and similar intangible items, provided however, that on a consolidated basis, Effective Tangible Net Worth shall exclude from intangible assets advances to affiliates and subidiaries and investments in subsidiaries and provided further, that the Dollar amount of any judgement obtained by Elcint against the Borrower, if not already accounted for by the Borrower, shall be deemed to be an intangible)". 2. CHANGE IN LINE OF CREDIT. All references in Section 2.01 of the Agreement to the figure "$10,000,000" shall be changed to "$20,000,000". 3. MODIFICATION OF COMPENSATING BALANCES. Section 2.14 of the Agreement is deleted in its entirety and the following is substituted in lieu thereof: "2.14 COMPENSATING BALANCES: The Borrower shall, unless the Bank otherwise consents in writing, maintain demand deposits or market value savings deposits, provided that only 50% of all market value savings deposits maintained with Bank shall be counted against the net free compensating balances required hereunder, with the Bank with net free compensating balances in an amount equivalent to not less than $1,500,000 on an average daily basis during each calendar quarter (the "Compensating Balance Requirement"). In the event that the Compensating Balance Requirement is not met, the Borrower shall pay to the Bank, on the 30th day following the last day of each calendar quarter, a fee equivalent 3/8% per annum on the difference (if any) by which the Compensating Balance Requirement exceeded the amount of average daily balances actually maintained by the Borrower during such preceding calendar quarter, computed on a year of 360 days for actual days elapsed. For purposes of this paragraph, the term "net free compensating balances" mean balances excluding deposits for which funds have not yet been collected by the Bank". -1- 4. CHANGE IN FINANCIAL CONDITION. Section 8.14 A through E of the Agreement is deleted in its entirety and the following is substituted in lieu thereof: "8.14 FINANCIAL CONDITION. Maintain at all times on a consolidated basis: A. DEBT TO NET WORTH RATIO. A debt to effective tangible net worth ratio of not more than 1 to 1 at September 30, 1995 and thereafter. B. CURRENT RATIO. A ratio of current assets to current liabilities of not less than 1.50 to 1 at September 30, 1995 and thereafter. C. QUICK RATIO. A ratio of the sum of Liquid Assets plus accounts receivable to current liabilities of not less than 1 to 1 at September 30, 1995 and thereafter. D. NET PROFIT. A minimum net profit after tax for each fiscal quarter of at least $1.00. E. NET WORTH. A minimum Effective Tangible Net Worth of not less than $48,000,000 plus 50% of each prior fiscal quarter's net profit and plus 90% of the net proceeds of any new equity offerings. F. WORKING CAPITAL. A minimum working capital of not less than $20,000,000 at September 30, 1995 and thereafter. Maintain at all times on a unconsolidated basis: A. NET WORTH. A minimum effective tangible net worth of not less than $34,000,000 plus 50% of each prior fiscal quarter's net profit and plus 100% of the net proceeds of any new equity offerings. B. WORKING CAPITAL. A minimum working capital of not less than $15,000,000". 5. CONFIRMATION OF OTHER TERMS AND CONDITIONS OF THE AGREEMENT. Except as specifically provided in this Amendment, all other terms, conditions and covenants of the Agreement unaffected by this Amendment shall remain unchanged and shall continue in full force and effect and the Borrower hereby covenants and agrees to perform and observe all terms, covenants and agreements provided for in the Agreement, as hereby amended. IN WITNESS WHEREOF, this Amendment has been executed by the parties hereto as of the date first hereinabove written. BANK: BORROWER: SANWA BANK CALIFORNIA ADAC LABORATORIES By:_________________________ By:_________________________ ____________________________ _____________________________ (Name/Title) (Name/Title) By:__________________________ ______________________________ (Name/Title) -2- AMENDMENT TO LINE OF CREDIT AGREEMENT This Third Amendment to Line of Credit Agreement (the "Amendment") is made and entered into this _________________ day of January, 1995, by and between SANWA BANK CALIFORNIA (the "Bank") and ADAC LABORATORIES (the "Borrower") with respect to the following: This Amendment shall be deemed to be a part of and subject to that certain Line of Credit Agreement dated as of August 12, 1993, as it may be amended from time to time, and any and all addenda and riders thereto (collectively the "Agreement"). Unless otherwise defined herein, all terms used in this Amendment shall have the same meanings as in the Agreement. To the extent that any of the terms or provisions of this Amendment conflict with those contained in the Agreement, the terms and provisions contained herein shall control. WHEREAS, the Borrower and the Bank mutually desire to extend and/or modify the Agreement. NOW THEREFORE, for value received and hereby acknowledged, the Borrower and the Bank agree as follows: 1. MODIFICATION OF EFFECTIVE TANGIBLE NET WORTH. The definition of Effective Tangible Net Worth provided for in Section 1.01(g) of the Agreement shall be deleted in its entirety and the following substituted in lieu thereof: "(g) "EFFECTIVE TANGIBLE NET WORTH": shall mean the Borrower's stated net worth plus Subordinated Debt but less all intangible assets of the Borrower (i.e., goodwill, trademarks, patents, copyrights, organization expense, loans and advances to employees, affiliates, subsidiaries or Community Health Computing Corporation, investments in subsidiaries or Community Health Computing Corporation, any tax-defered assets and similar intangible items, provided however, that on a consolidated basis, Effective Tangible Net Worth shall exclude from intangible assets advances to affiliates and subidiaries and investments in subsidiaries)". 2. MODIFICATION OF INTEREST RATE. All references to the timing of payment of interest on Variable Rate Advances and Cost of Funds Advances in Section 2.04 of the Agreement shall be deleted in their entirety and the following shall be substituted in lieu thereof: "Interest on Variable Rate Advances and Cost of Funds Advances shall be paid in Dollars in monthly installments commencing on the first day of the month following the date of the first such Advance and continuing on the first day of each month thereafter". 3. CHANGE IN REPORTING REQUIREMENTS. A new Section 8.06 D. is added to the Agreement as follows: "D. COMPLIANCE. Concurrently with the delivery of any financial statement hereunder, the Borrower shall provide the Bank with a compliance certificate, certifying compliance with all of the terms of this Agreement, executed by the chief financial officer or other financial officer of the Borrower". 4. MODIFICATION OF MERGERS AND ACQUISITIONS. Section 8.01 of the Agreement is deleted in its entirety and the following is substituted in lieu thereof: "8.01 PRESERVATION OF EXISTENCE; COMPLIANCE WITH APPLICABLE LAWS. Maintain and preserve its existence and all rights and privileges now enjoyed; not liquidate or dissolve, merge or consolidate with or into, or acquire any other business organization other than up to $20,600,000 for the assets or the going concern of Community Health Computing Corporation; and conduct its business in accordance with all applicable laws, rules and regulations except where such failure to so conduct its business would not have a material adverse affect upon the Borrower's business as a whole or its financial condition". -1- 5. CHANGE IN INDEBTEDNESS. Section 8.09 of the Agreement is deleted in its entirety and the following is substituted in lieu thereof: "8.09 ADDITIONAL INDEBTEDNESS. Not, after the date hereof, create, incur or assume, directly or indirectly, any liability or indebtedness other than (i) indebtedness owed or to be owed to the Bank and indebtedness owed or to be owed to ABN-Amro Bank N.V. or (ii) indebtedness to trade creditors incurred in the ordinary course of the Borrower's business or (iii) guarantees of indebtedness of up to $1,500,000 in any one fiscal year in connection with equipment leases to Borrower's customers in South America". 6. MODIFICATION OF LOANS. Section 8.10 of the Agreement is deleted in its entirety and the following is substituted in lieu thereof: "8.10 LOANS. Not make any loans or advances or extend credit to any third person, including, but not limited to, directors, officers, shareholders, partners, employees, affiliated entities or subsidiaries of the Borrower, except for credit extended in the ordinary course of the Borrower's business as presently conducted, except (i) up to an aggregate amount of unsecured credit not exceeding $500,000 in any one fiscal year and (ii) up to an aggregate amount of credit secured by Borrower's stock not exceeding $1,500,000 in any one fiscal year and (iii) up to $20,600,000 in the aggregate in loans and advances to Community Health Computing Corporation". 7. CHANGE IN FINANCIAL CONDITION. Section 8.14 of the Agreement is deleted in its entirety and the following is substituted in lieu thereof: "8.14 FINANCIAL CONDITION. Maintain at all times on a consolidated basis: A. DEBT TO NET WORTH RATIO. A Debt to Effective Tangible Net Worth ratio of not more than 1.75 to 1. B. CURRENT RATIO. A ratio of current assets to current liabilities of not less than 1.25 to 1. C. QUICK RATIO. A ratio of the sum of Liquid Assets plus accounts receivable to current liabilities of not less than .90 to 1 from the date hereof through September 29, 1995 and 1 to 1 at September 30, 1995 and thereafter. D. NET PROFIT. A minimum net profit after tax for each fiscal quarter of at least $1.00. E. NET WORTH. A minimum Effective Tangible Net Worth of not less than $37,500,000. F. WORKING CAPITAL. A minimum working capital of not less than $15,000,000 from the date hereof through September 29, 1995 and $20,000,000 at September 30, 1995 and thereafter. Maintain at all times on a unconsolidated basis (U.S. operations only): A. NET WORTH. A minimum Effective Tangible Net Worth of not less than $34,000,000. B. WORKING CAPITAL. A minimum working capital of not less than $15,000,000". 8. CHANGE IN CONTROL. Section 9.08 of the Agreement is deleted in its entirety and the following is substituted in lieu thereof: "9.08 CHANGE IN OWNERSHIP. There shall occur a sale or transfer to (whether voluntary or involuntary), or an agreement shall be entered into to do so with, any Person or group of Persons (as such terms are defined pursuant to Federal securities laws) who would own more than 40% of the issued and outstanding capital stock of the Borrower and, as a result thereof, such Person or group of Persons has the ability to direct or cause the direction of the management and policies of the -2- Borrower or more than 50% of the members of the board of directors of the Borrower shall be changed, other than as a result of death or retirement". 9. CONFIRMATION OF OTHER TERMS AND CONDITIONS OF THE AGREEMENT. Except as specifically provided in this Amendment, all other terms, conditions and covenants of the Agreement unaffected by this Amendment shall remain unchanged and shall continue in full force and effect and the Borrower hereby covenants and agrees to perform and observe all terms, covenants and agreements provided for in the Agreement, as hereby amended. IN WITNESS WHEREOF, this Amendment has been executed by the parties hereto as of the date first hereinabove written. BANK: BORROWER: SANWA BANK CALIFORNIA ADAC LABORATORIES By:_______________________________ By:_________________________________ JEFFREY D. BRYAN, VICE PRESIDENT DENNIS MAHONEY, VICE PRESIDENT-FINANCE AND CHIEF FINANCIAL OFFICER (Name/Title) (Name/Title) -3- AMENDMENT TO LINE OF CREDIT AGREEMENT This Fourth Amendment to Line of Credit Agreement (the "Amendment") is made and entered into as of this 29th day of September, 1995, by and between SANWA BANK CALIFORNIA (the "Bank") and ADAC LABORATORIES (the "Borrower") with respect to the following: This Amendment shall be deemed to be a part of and subject to that certain Line of Credit Agreement dated as of August 12, 1993, as it may be amended from time to time, and any and all addenda and riders thereto (collectively the "Agreement"). Unless otherwise defined herein, all terms used in this Amendment shall have the same meanings as in the Agreement. To the extent that any of the terms or provisions of this Amendment conflict with those contained in the Agreement, the terms and provisions contained herein shall control. WHEREAS, the Borrower and the Bank mutually desire to extend and/or modify the Agreement. NOW THEREFORE, for value received and hereby acknowledged, the Borrower and the Bank agree as follows: 1. CHANGE IN INDEBTEDNESS. Section 8.09 of the Agreement is deleted in its entirety and the following is substituted in lieu thereof: "8.09 ADDITIONAL INDEBTEDNESS. Not, after the date hereof, create, incur or assume, directly or indirectly, any liability or indebtedness other than (i) indebtedness owed or to be owed to the Bank and indebtedness owed or to be owed to ABN-Amro Bank N.V. or (ii) indebtedness to trade creditors incurred in the ordinary course of the Borrower's business or (iii) guarantees of indebtedness of up to $20,000,000 in any one fiscal year in connection with equipment financing to Borrower's customers in South America". 2. MODIFICATION OF LIENS. Section 8.11 of the Agreement is deleted in its entirety and the following is substituted in lieu thereof: "8.11 LIENS AND ENCUMBRANCES. Not create, assume or permit to exist any security interest, encumbrance, mortgage, deed of trust or other lien including, but not limited to, a lien of attachment, judgment or execution) affecting any of the Borrower's properties, or execute or allow to be filed any financing statement or continuation thereof affecting any such properties, except for Permitted Liens and as otherwise provided in this Agreement and except for a security interest in accounts receivable of the Borrower of up to $3,000,000 in favor of Imperial Bank", which lien shall be junior to Bank's lien. 3. CHANGE IN FINANCIAL CONDITION. Section 8.14 of the Agreement is deleted in its entirety and the following is substituted in lieu thereof: "8.14 FINANCIAL CONDITION. Maintain at all times on a consolidated basis: A. DEBT TO NET WORTH RATIO. A Debt to Effective Tangible Net Worth ratio of not more than 1.75 to 1. B. CURRENT RATIO. A ratio of current assets to current liabilities of not less than 1.40 to 1. C. QUICK RATIO. A ratio of the sum of Liquid Assets plus accounts receivable to current liabilities of not less than .80 to 1. D. NET PROFIT. A minimum net profit after tax for each fiscal quarter of at least $1.00. -1- E. NET WORTH. A minimum Effective Tangible Net Worth of not less than $37,500,000. F. WORKING CAPITAL. A minimum working capital of not less than $15,000,000. Maintain at all times on a unconsolidated basis (U.S. operations only): G. NET WORTH. A minimum Effective Tangible Net Worth of not less than $34,000,000. H. WORKING CAPITAL. A minimum working capital of not less than $15,000,000". 4. SALES WITH RECOURSE. A new Section 8.18 is added to the Agreement as follows: "8.18 SALES WITH RECOURSE. Not allow sales terms with recourse by the Borrower's customers to Borrower of more than $20,000,000 in any one fiscal year". 5. CONFIRMATION OF OTHER TERMS AND CONDITIONS OF THE AGREEMENT. Except as specifically provided in this Amendment, all other terms, conditions and covenants of the Agreement unaffected by this Amendment shall remain unchanged and shall continue in full force and effect and the Borrower hereby covenants and agrees to perform and observe all terms, covenants and agreements provided for in the Agreement, as hereby amended. IN WITNESS WHEREOF, this Amendment has been executed by the parties hereto as of the date first hereinabove written. BANK: BORROWER: SANWA BANK CALIFORNIA ADAC LABORATORIES By:________________________________ By:__________________________________ JEFFREY D. BRYAN, VICE PRESIDENT ANDRE SIMONE, VICE PRESIDENT-FINANCE (Name/Title) (Name/Title) -2- EX-11 6 COMPUTATION OF NET INCOME EXHIBIT 11 ADAC LABORATORIES AND SUBSIDIARIES COMPUTATION OF CONSOLIDATED NET INCOME PER SHARE (in thousands except per share data) For the three years in the period ended October 1, 1995
FISCAL YEARS ------------ 1995 1994 1993 ------- ------- ------- Average shares outstanding 16,426 15,858 15,048 Net effect of dilutive stock options and warrants 653 650 1,410 ------- ------- ------- Average common and common equivalent shares outstanding 17,079 16,508 16,458 ======= ======= ======= Net income $11,073 $17,521 $18,059 ======= ======= ======= Net income per share $ .65 $ 1.06 $ 1.10 ======= ======= =======
Primary and fully diluted income per share differs by less than one cent in all periods. 1 EX-21 7 SUBSIDIARIES EXHIBIT 21 ADAC LABORATORIES AND SUBSIDIARIES SUBSIDIARIES OF REGISTRANT
COUNTRY OF NAME CORPORATION - ---- ----------- ADAC Laboratories, B.V. The Netherlands ADAC Laboratories, SARL (1) France ADAC Laboratories, GmbH (1) Germany ADAC Laboratories, A/S (1) Denmark ADAC Laboratories, Canada Limited Canada ADAC Laboratories, S.R.L. (1) Italy ADAC Laboratories, Ltd. (1) The United Kingdom ADAC/SD&G Healthcare Systems, Inc. California, U.S. ADAC Laboratories Pacific, Inc. Singapore ADAC Foreign Sales Corporation, Inc. Virgin Islands, U.S. ADAC Research and Manufacturing, Inc. California, U.S. JD Technical Services, Inc. Delaware, U.S. Community Health Computing Corporation Delaware, U.S. ADAC HealthCare Information Systems, Inc. (2) Texas, U.S.
The Company owns 100% of each of the above subsidiaries except as set forth in the note below. (1) ADAC Laboratories, B.V., owns 100% of this subsidiary. (2) Community Health Computing Corporation owns 100% of this subsidiary. EX-23 8 CONSENT OF ACCOUNTANTS EXHIBIT 23 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference in the registration statements of ADAC Laboratories on Forms S-8 (File Nos. 33-82352, 33-72804, 33-66560, 2-98070 and 33-59633) of our report dated November 1, 1995, on our audits of the consolidated financial statements and financial statement schedules of ADAC Laboratories as of October 1, 1995 and October 2, 1994, and for each of the three fiscal years ended October 1, 1995, which is included under Item 8. Financial Statements and Supplemental Data of this Form 10-K. San Jose, California November 1, 1995 EX-27 9 FINANCIAL DATA SCHEDULE
5 1,000 12-MOS OCT-01-1995 OCT-03-1995 OCT-01-1995 7,551 0 57,091 2,044 28,217 107,062 20,706 12,338 158,348 71,326 0 101,072 0 0 (18,304) 82,768 136,715 184,809 85,914 117,320 49,264 1,502 1,222 17,003 5,930 11,073 0 0 0 11,073 0.65 0.65
EX-99 10 UNDERTAKING EXHIBIT 99 To Be Incorporated By Reference Into Form S-8 Registration Statement No. UNDERTAKINGS (a) The undersigned registrant hereby undertakes: (1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement: (i) To include any prospectus required by section 10(a)(3) of the Securities Act of 1933; (ii) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post- effective amendment thereof) which, individually or in the aggregate, represents a fundamental change in the information set forth in the registration statement; (iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement; Provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if the registration statement is on Form S-3 or Form S-8 and the information required to be included in a post-effective amendment by those paragraphs is contained in periodic reports filed by the registrant pursuant to section 13 or section 15(d) of the Securities Exchange Act of 1934 that are incorporated by reference in the registration statement. (2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. (b) The undersigned registrant hereby undertakes that, for purposes of determining any liability under the Securities Act of 1933, each filing of the registrant's annual report pursuant to section 13(a) or section 15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing of an employee benefit plan's annual report pursuant to section 15(d) of the Securities Exchange Act of 1934) that is incorporated by reference in the registration statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (f) Employee plans of Form S-8. (1) The undersigned registrant hereby undertakes to deliver or cause to be delivered with the prospectus to each employee to whom the prospectus is sent or given a copy of the registrant's annual report to stockholders for its last fiscal year, unless such employee otherwise has received a copy of such report, in which case the registrant shall state in the prospectus that it will promptly furnish, without charge, a copy of such report on written request of the employee. If the last fiscal year of the registrant has ended within 120 days prior to the use of the prospectus, the annual report of the registrant for the preceding fiscal year may be so delivered, but within such 120 day period the annual report for the last fiscal year will be furnished to each such employee. (2) The undersigned registrant hereby undertakes to transmit or cause to be transmitted to all employees participating in the plan who do not otherwise receive such material as stockholders of the registrant, at the time and in the manner such material is sent to its stockholders, copies of all reports, proxy statements and other communications distributed to its stockholders generally. (3) Where interests in a plan are registered herewith, the undersigned registrant and plan hereby undertake to transmit or cause to be transmitted promptly, without charge, to any participant in the plan who makes a written request, a copy of the then latest annual report of the plan filed pursuant to section 15(d) of the Securities Exchange Act of 1934 (Form 11-K). If such report is filed separately on Form 11-K, such form shall be delivered upon written request. If such report is filed separately on Form 11-K, such form shall be delivered upon written request. If such report is filed as a part of the registrant's annual report on Form 10-K, that entire report (excluding exhibits) shall be delivered upon written request. If such report is filed as a part of the registrant's annual report to stockholders delivered pursuant to paragraph (1) or (2) of this undertaking, additional delivery shall not be required. (i) Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. -----END PRIVACY-ENHANCED MESSAGE-----