1
Exhibit 8
MILBERG WEISS BERSHAD [ILLEGIBLE]
HYNES & LERACH LLP FILED
WILLIAM S. LERACH (68581) 2000 NOV 13 PM 4:04
DARREN J. ROBBINS (168593) KIRI TORRE, CEO
600 West Broadway, Suite 1800 SUPERIOR COURT OF CA.
San Diego, CA 92101 CO. OF SANTA CLARA
Telephone: 619/231-1058 By /s/ DEPUTY
-------------------
KIRBY, McINERNEY & SQUIRE, LLP Frances Tong-Miller
JEFFREY H. SQUIRE
830 Third Avenue, 10th Floor
New York, NY 10022
Telephone: 212/317-2300
Attorneys for Plaintiff
SUPERIOR COURT OF THE STATE OF CALIFORNIA
COUNTY OF SANTA CLARA
SIDNEY OLMSTED, On Behalf of Himself and ) BY FAX
All Others Similarly Situated, ) CV793923
Plaintiff, ) Case No.
)
vs. ) CLASS ACTION
)
ADAC LABORATORIES, R. ANDREW ) COMPLAINT FOR BREACH OF
ECKERT, STANLEY D. CZERWISNKI ) FIDUCIARY DUTY
DENNIS R. RANEY, F. DAVID ROLLO, )
EDMUND H. SHEA, JR. DONALD E. )
FOWLER, and DOES 1-25, inclusive, )
Defendants. )
- --------------------------------------------) DEMAND FOR JURY TRIAL
- --------------------------------------------------------------------------------
CLASS ACTION COMPLAINT FOR BREACH OF FIDUCIARY DUTY
2
Plaintiff, by his attorneys, alleges as follows:
INTRODUCTION
1. This is a shareholder class action on behalf of the public stockholders
of ADAC Laboratories ("ADAC" or the "Company") against ADAC and its Board of
Directors arising out of an offer to purchase the outstanding shares of ADAC in
a deal valued at $426 million. On November 13, 2000, Royal Philips Electronics
("Philips") offered to purchase the remaining outstanding shares of ADAC for
$18.50 per share.
2. Each of the defendants has directly violated their fiduciary duty of
care owed to the public shareholders of ADAC. Absent judicial intervention, the
merger will be consummated which will result in irreparable injury to plaintiff
and the Class. This action seeks to enjoin the unreasonable steps taken by
defendants, including the defendants' decision to enter into the merger
agreement without seeking higher offers from other potential acquirers.
JURISDICTION AND VENUE
3. This Court has jurisdiction over the cause of action asserted herein
pursuant to the California Constitution, Article VI, ss.10, because this case is
a cause not given by statute to other trial courts.
4. This Court has jurisdiction over each of the defendants because they
conduct business in, reside in and/or are citizens of California. Certain of the
defendants are citizens of California, including defendant ADAC, which has its
principal place of business in this state. The amount in controversy of
plaintiff's claim exclusive of interest and costs is less than $75,000. Venue is
proper in this Court because defendants' wrongful acts arose in and emanated
from this county.
PARTIES
5. Plaintiff Sidney Olmstead is a resident and citizen of New York and at
all times relevant hereto has been a stockholder of ADAC.
6. Defendant ADAC is a California corporation with its principal executive
offices located at 540 Alder Drive, Milpitas, California. ADAC is a
Milpitas-based company that designs, develops, manufactures, sells and services
medical imaging equipment and radiation therapy planning and healthcare
information software systems used in hospitals and clinics worldwide.
- 1 -
- --------------------------------------------------------------------------------
CLASS ACTION COMPLAINT FOR BREACH OF FIDUCIARY DUTY
3
ADAC's common shares are publicly traded on the NASDAQ. ADAC has over 20 million
shares outstanding held by thousands of shareholders.
7. Defendant R. Andrew Eckert ("Eckert") is the Chairman of the Board of
Directors and Chief Executive Officer of ADAC.
8. Defendant Stanley D. Czerwinski ("Czerwinski") has served as a director of
ADAC since 1991.
9. Defendant Dennis R. Raney ("Raney") has served as a director of ADAC since
March 1999.
10. Defendant F. David Rollo ("Rollo") has served as a director of ADAC since
1991.
11. Defendant Edmund H. Shea, Jr. ("Shea") has served as a director of ADAC
since 1987.
12. Defendant Donald E. Fowler ("Fowler") has served as a director of ADAC since
March 2000.
13. The defendants named in (Paragraphs)7-12 are sometimes collectively referred
to herein as the "Individual Defendants."
14. The true names and capacities of defendants sued herein under California
Code of Civil Procedure ss.474 as Does 1 through 25, inclusive, are presently
not known to plaintiff, who therefore sues these defendants by such fictitious
names. Plaintiff will seek to amend this Complaint and include these Doe
defendants' true names and capacities when they are ascertained. Each of the
fictitously named defendants is responsible in some manner for the conduct
alleged herein and for the injuries suffered by the Class.
15. By virtue of their positions as directors and/or officers of ADAC, the
individual Defendants have, and all relevant times had; the power to control
and influence, and did control and influence and cause ADAC to engage in the
practices complained of herein.
FIDUCIARY DUTIES OF THE INDIVIDUAL DEFENDANTS
16. By reason of the above Individual Defendants' positions with the Company as
officers and/or directors, said individuals are in a fiduciary relationship with
plaintiff and the other public
- 2 -
- --------------------------------------------------------------------------------
CLASS ACTION COMPLAINT FOR BREACH OF FIDUCIARY DUTY
4
stockholders of ADAC and owe plaintiff and the other members of the Class a duty
of highest good faith, fair dealing, loyalty and full, candid and adequate
disclosure.
17. The claims are brought under state laws which require every corporate
director to act in good faith, in the best interests of a corporation's
shareholders and with such care, including reasonable inquiry, as would be
expected of an ordinarily prudent person. In a situation where the directors of
a publicly traded company undertake a transaction that may result in a change in
corporate control (particularly when it involves a decision to eliminate the
shareholders' equity investment in a company), the applicable state law requires
the directors to take all steps reasonably required to maximize the value
shareholders will receive. To diligently comply with this duty, the directors of
a corporation may not take any action that:
(a) adversely affects the value provided to the corporation's
shareholders;
(b) contractually prohibits them from complying with or carrying out
their fiduciary duties;
(c) discourages or inhibits alternative offers to purchase control
of the corporation or its assets; or
(d) will otherwise adversely affect their duty to search and secure
the best value reasonably available under the circumstances for the
corporation's shareholders.
18. As described herein, the Individual Defendants have breached their
fiduciary duties by taking actions designed to halt any other offers and deter
higher offers from other potential acquirers so to protect the interests of
defendants at the expense of ADAC's shareholders. Defendants cannot possibly
fulfill their fiduciary obligations after implementing provisions which disable
them from maximizing shareholder value. The Individual Defendants have breached
their fiduciary obligation to act reasonably and establish a "level playing
field" for all potential bidders such that ADAC shareholders will benefit from
fair competition to acquire the Company.
CLASS ACTION ALLEGATIONS
19. Plaintiff brings this action pursuant to ss. 382 of the California
Code of Civil Procedure on his own behalf and as a class action on behalf of all
holders of ADAC common stock, who are being and will be harmed by defendants'
actions described below (the "Class"). Excluded from the
- 3 -
- --------------------------------------------------------------------------------
CLASS ACTION COMPLAINT FOR BREACH OF FIDUCIARY DUTY
5
Class are defendants herein and any person, firm, trust, corporation, or other
entity related to or affiliated with any defendants.
20. This action is properly maintainable as a class action.
21. The Class is so numerous that joinder of all members is impracticable.
There are over 20 million shares of ADAC stock issued. The shares trade on the
NASDAQ and thousands of ADAC stockholders of record are located throughout the
United States.
22. Questions of law and fact are common to the Class and predominate over
questions affecting any individual Class members. The common questions include,
inter alai, the following:
(a) whether the defendants breached their fiduciary duties of care,
loyalty and/or candor owed by them to plaintiff and the other members of the
Class in connection with the proposed sale of ADAC;
(b) whether the defendants have breached their fiduciary duty to
secure and obtain the best price reasonable under the circumstances for the
benefit of plaintiff and the other members of the Class in connection with the
proposed sale of ADAC;
(c) whether the defendants have, in bad faith or for improper
motives, erected and/or retained barriers to discourage other offers for the
Company or its assets;
(d) whether plaintiff and other members of the Class would be
irreparably damaged were the provisions and conduct detailed herein allowed to
persist; and
(e) whether the compensation to be paid to plaintiff and the Class
is unfair and inadequate.
23. The defendants have acted or refused to act on grounds generally applicable
to the Class thereby making appropriate final injunctive relief with respect to
the Class as a whole.
24. Plaintiff is committed to prosecuting this action and has retained competent
counsel experienced in litigation of this nature. The claims of plaintiff are
typical of the claims of the other members of the Class and plaintiff has the
same interests as the other members of the Class. Accordingly, plaintiff is an
adequate representative of the Class and will fairly and adequately protect the
interests if the Class.
- 4 -
- --------------------------------------------------------------------------------
CLASS ACTION COMPLAINT FOR BREACH OF FIDUCIARY DUTY
6
25. Plaintiff anticipates that there will be no difficulty in the
management of this litigation as a class action.
26. For the reasons stated herein, a class action is superior to other
available methods for the fair and efficient adjudication of this controversy.
BACKGROUND TO THE PROPOSED MERGER
27. ADAC is engaged in the designing, engineering and manufacturing of
medical imaging equipment and radiation therapy planning and healthcare
information software systems used in hospitals and clinics worldwide. ADAC's
Medical Systems business designs, develops, manufacturers, sells and services
nuclear medicine cameras and related computer systems capable of performing
singley photon imaging and positron emission tomography imaging. Its Radiation
Theraphy Products business unit designs, develops, markets and supports turnkey
radiation therapy planning systems that assist hospital radiation oncology
departments and cancer treatment centers in planning patient treatments and its
Health Care Information Systems business unit designs, develops, markets, sells
and supports integrated solutions consisting of computer equipment and software
applications that offer healthcare providers the necessary tools to process and
archive patient and clinical information. After resolving business problems that
came to a head in mid-1999, by the fall of 2000, ADAC's efforts to grow the
business and its shareholders' investment in ADAC were just beginning to pay off
as it was successfully bringing new products to market and generating strong
cash flows.
28. On November 2, 2000, ADAC announced that its fourth quarter (ended
October 1, 2000) revenue had increased by 9% from $73.8 million in the fourth
quarter of fiscal 1999 to $80.8 million. ADAC also announced that it had fourth
quarter net income of $4.9 million compared to a loss in the prior year fourth
quarter. Commenting on the fourth quarter results, defendant Eckert stated:
"Fiscal 2000 was a turnaround year for our company," said R. Andrew
Eckert, chairman and chief executive officer. We have executed well in
bringing new products to market, generated strong operating cash flow of
$50 million before the litigation expense, and narrowed our focus to the
core business we know best. The divestiture of our HCIS business is an
important move for our company as it will free up important resources to
continue our drive towards leadership in the rapidly
- 5 -
- --------------------------------------------------------------------------------
CLASS ACTION COMPLAINT FOR BREACH OF FIDUCIARY DUTY
7
growing and profitable positron emission tomography (PET) imaging segment
of the diagnostic imaging marketplace.
"In addition, we continued to make investments to expand our product
portfolio, investments that we believe will improve our competitive
position across each of our business lines," Mr. Eckert noted. "Last June,
we announced our C-PET Plus system, which offers faster PET imaging and
improved imaging quality. We also announced that we are continuing
development of our next-generation PET system, a work-in-process based on
Gadollinium Oxyortho Silicate (GOS), that we believe will offer very high
performance and will be useful in clinical and research applications."
Mr. Eckert concluded, "We enter fiscal 2000 fully focused on nuclear
medicine, PET, and radiation therapy products. We have a strong team in
place and technologically advanced products which we believe will allow us
to make further progress.
29. On November 3, 2000, just 10 days prior to the announcement of the
merger, ADAC's stock was upgraded by Chase H&Q to "Buy."
THE PROPOSED ACQUISITION
30. In or about October of 2000, ADAC and Philips entered into merger
negotiations wherein the Individual Defendants provided to Philips certain
proprietary information about the Company and the Company's prospects which has
not been disclosed to the Company's shareholders.
31. On November 13, 2000, ADAC announced that it had entered into a merger
agreement with Philips, for Philips to acquire, via a tender offer, all the
outstanding shares of ADAC for approximately $426 million dollars or $18.50 per
share.
32. The proposed acquisition price is at a discount to where ADAC stock
was trading less than six weeks prior to the announcement of the merger. In
fact, ADAC's stock traded as high as $18.50 on November 10, 2000, prior to the
announcement of the merger.
33. The price of $18.50 per share which Philips proposes to pay to Class
members is grossly unfair and inadequate because, among other things:
(a) The announcement of the proposed merger was made at a time when
the Company's stock price was trading below where it had traded less than six
weeks prior; and
(b) The defendants timed the announcement of the merger to place an
artificial cap on the price for ADAC's stock to enable them to acquire the stock
at the lowest possible price.
- 6 -
- --------------------------------------------------------------------------------
CLASS ACTION COMPLAINT FOR BREACH OF FIDUCIARY DUTY
8
34. If the acquisition is consummated, plaintiff and the other members of
the Class will no longer own shares in a "growth" company, but rather will be
cashed out of their ADAC shares for just $18.50 per share.
35. The shareholders have been denied the fair process and arm's-length
negotiated terms to which they are entitled in a sale of their Company. The
officers and directors are obligated to maximize shareholder value, not
structure a preferential deal for themselves where they will receive
"change-of-control" payments following the consummation of this proposed merger.
36. The director defendants are obligated to maximize the value of ADAC to
the shareholders. The Class members are being deprived of their right to a fair
and unbiased process to sell the Company, and the opportunity to obtain maximum
value and terms for their interests, without preferential treatment to the
insiders.
37. By reason of their positions with ADAC, the Individual Defendants are
in possession of non-public information concerning the financial condition and
prospects of ADAC, and especially the true value and expected increased future
value of ADAC and its assets, which they have not disclosed to ADAC's public
shareholders.
38. The Individual Defendants failed to conduct a market check or
otherwise ensure that ADAC shareholders obtained the highest value reasonably
available prior to entering into the merger agreement.
CAUSE OF ACTION
Breach Of Fiduciary Duty Of Loyalty
And Due Care Against All Defendants
39. Plaintiff repeats and realleges each allegation set forth herein.
40. The Individual Defendants have thus far failed to announce any active
auction, open bidding, or other procedures best calculated to maximize
shareholder value. Instead of attempting to obtain the highest price reasonably
available for ADAC's shareholders, the Individual Defendants have taken actions
that will only serve to inhibit the maximization of shareholder value.
41. The Individual Defendants were and are under a duty;
- 7 -
- --------------------------------------------------------------------------------
CLASS ACTION COMPLAINT FOR BREACH OF FIDUCIARY DUTY
9
(a) to fully inform themselves of the market value of ADAC before
taking, or agreeing to refrain from taking, action;
(b) to act in the interests of the equity owners;
(c) to maximize shareholder value;
(d) to obtain the best financial and other terms when the Company's
independent existence will be materially altered by a transaction; and
(e) to act in accordance with their fundamental duties of due care
and loyalty.
42. By the acts, transactions and courses of conduct alleged herein,
defendants, individually and as part of a common plan and scheme, or in breach
of their fiduciary duties to plaintiff and the other members of the Class, are
implementing and abiding by a process that will deprive plaintiff and other
members of the Class of the true value of their investment in ADAC.
43. ADAC shareholders will, if the defendants' actions are allowed to
stand, be deprived of the opportunity for substantial gains the plaintiff and
Class members may realize if an active auction or open bidding process is
allowed to occur.
44. By reason of the foregoing acts, practices and course of conduct, the
defendants have failed to exercise ordinary care and diligence in the exercise
of their fiduciary obligations toward plaintiff and the other ADAC public
shareholders.
45. In light of the foregoing, plaintiff demands that the Individual
Defendants, as their fiduciary obligations require, immediately:
o Undertake an independent evaluation of ADAC's worth as an
acquisition candidate.
o Rescind any and all provisions that inhibit the maximization of
shareholder value.
o Implement an active auction or open bidding process in order to
maximize shareholder value.
o Retain independent advisors and appoint a truly independent
committee so that the interests of ADAC's public shareholders will
be protected and any subsequent offers will be considered and
negotiated in the interest of ADAC's public stockholders.
46. As a result of the defendants' failure to take such steps to date,
plaintiff and the other members of the Class have been and will be damaged in
that they have been and will be prevented from obtaining a fair price for their
shares.
- 8 -
- --------------------------------------------------------------------------------
CLASS ACTION COMPLAINT FOR BREACH OF FIDUCIARY DUTY
10
47. Defendants are not acting in good faith toward plaintiff and the other
members of the Class, and have breached and are continuing to breach their
fiduciary duties to plaintiff and the members of the Class.
48. As a result of the defendants' unlawful actions, plaintiff and the
other members of the Class will be irreparably harmed in that they will not
receive fair value for ADAC's assets and business and will be prevented from
obtaining the real value of their equity ownership in ADAC. Unless the
defendants' actions are enjoined by the Court, defendants will continue to
breach their fiduciary duties owed to plaintiff and the members of the Class,
and will engage in a process that inhibits the maximization of shareholder
value.
49. Plaintiff and the other members of the Class have no adequate remedy
at law.
PRAYER
WHEREFORE, plaintiff demands judgment and preliminary and permanent
relief, including injunctive relief, in plaintiff's favor and in favor of the
Class and against defendants as follows:
A. Declaring that this action is properly maintainable as a class action;
B. Declaring and decreeing that the Philips merger agreement was entered
into in breach of the fiduciary duties of the Individual Defendants and is
therefore unlawful and unenforceable;
C. Enjoining defendants from proceeding with the Philips merger agreement
and tender offer;
D. Enjoining defendants from consummating the merger, or a business
combination with a third party, unless and until the Company adopts and
implements a procedure or process, such as an auction, to obtain the highest
possible price for the Company;
E. Directing the Individual Defendants to exercise their fiduciary duties
to obtain a transaction which is in the best interests of shareholders until
the process for the sale or auction of the Company is completed and the highest
possible price is obtained;
F. Awarding plaintiff and the Class appropriate damages;
G. Awarding plaintiff the costs and disbursements of this action,
including reasonable attorneys' and experts' fees; and
H. Granting such other and further relief as this Court may deem just and
proper.
- 9 -
- --------------------------------------------------------------------------------
CLASS ACTION COMPLAINT FOR BREACH OF FIDUCIARY DUTY
11
JURY DEMAND
Plaintiff demands a trial by jury.
DATED: November 13, 2000 MILBERG WEISS BERSHAD
HYNES & LERACH LLP
WILLIAM S. LERACH
DARREN J. ROBBINS
/s/ Darren J. Robbins
--------------------------------
DARREN J. ROBBINS
600 West Broadway, Suite 1800
San Diego, CA 92101
Telephone: 619/231-1058
KIRBY, McINERNEY & SQUIRE, LLP
JEFFREY H. SQUIRE
830 Third Avenue, 10th Floor
New York, NY 10022
Telephone: 212/317-2300
Attorneys for Plaintiff
- 10 -
- --------------------------------------------------------------------------------
CLASS ACTION COMPLAINT FOR BREACH OF FIDUCIARY DUTY