SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section240.14a-11(c) or
Section240.14a-12
ADAC LABORATORIES
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11.
(1) Title of each class of securities to which transaction applies:
-----------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
-----------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
-----------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
-----------------------------------------------------------------------
(5) Total fee paid:
-----------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
-----------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
-----------------------------------------------------------------------
(3) Filing Party:
-----------------------------------------------------------------------
(4) Date Filed:
-----------------------------------------------------------------------
ADAC LABORATORIES
------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
MAY 6, 1999
------------------------
TO THE SHAREHOLDERS OF ADAC LABORATORIES:
The Annual Meeting of Shareholders of ADAC Laboratories, a California
corporation (the "Company"), will be held at the offices of the Company, located
at 540 Alder Drive, Milpitas, California 95035, on Thursday, May 6, 1999, at
1:00 p.m., local time, for the following purposes:
(1) To elect members of the Board of Directors;
(2) To approve the Company's 1999 Long-Term Incentive Plan;
(3) To approve an amendment to the Company's 1999 Long-Term Incentive Plan to
increase the shares reserved for issuance thereunder on an annual basis;
(4) To approve an amendment to the Company's Amended and Restated 1994 Employee
Stock Purchase Plan to increase the number of shares of Common Stock
reserved for issuance thereunder by an additional 100,000 shares; and
(5) To transact such other business as may properly come before the meeting or
any adjournment thereof.
The Board of Directors has fixed the close of business on March 8, 1999 as
the record date for the determination of shareholders entitled to vote at the
Annual Meeting. A copy of the Company's Annual Report to Shareholders, including
financial statements for the fiscal year ended September 27, 1998, is being sent
to all shareholders as of the record date concurrently with the mailing of this
Proxy Statement.
Whether or not you expect to attend the Annual Meeting in person, please
date, sign and mail the enclosed Proxy in the envelope provided as promptly as
possible. The Proxy is revocable and will not affect your right to vote in
person in the event you attend the Meeting.
By Order of the Board of Directors,
[SIGNATURE]
Karen L. Masterson
SECRETARY
Milpitas, California
April 5, 1999
ADAC LABORATORIES
540 ALDER DRIVE
MILPITAS, CALIFORNIA 95035
------------------------
PROXY STATEMENT
---------------------
INFORMATION CONCERNING SOLICITATION AND VOTING
GENERAL
The enclosed Proxy is solicited on behalf of ADAC Laboratories, a California
corporation (the "Company"), for use at the Annual Meeting of Shareholders to be
held on Thursday, May 6, 1999, at 1:00 p.m., local time, or at any adjournment
or postponement thereof, for the purposes set forth herein and in the
accompanying Notice of Annual Meeting of Shareholders. The Annual Meeting will
be held at the offices of the Company, located at 540 Alder Drive, Milpitas,
California 95035. This Proxy Statement and the accompanying proxy card are being
mailed to all shareholders on or about April 5, 1999.
Whether or not you plan to attend the Annual Meeting in person, please date,
sign and return the enclosed Proxy as promptly as possible, in the postage
prepaid envelope provided, to insure that your shares will be voted at the
Annual Meeting. Any shareholder who returns a proxy in such form has the power
to revoke it at any time prior to its effective use by filing an instrument
revoking it or a duly executed proxy bearing a later date with the Secretary of
the Company or by attending the Annual Meeting and voting in person. Any such
proxy, if not revoked, will be voted at the Annual Meeting in accordance with
the instructions specified therein.
RECORD DATE AND SHARE OWNERSHIP
Shareholders of record at the close of business on March 8, 1999 are
entitled to notice of and to vote at the meeting. At the record date, there were
issued and outstanding 20,450,817 shares of Common Stock, each entitled to one
vote.
The following table sets forth, as of February 1, 1999, the number and
percentage of shares of Common Stock beneficially owned (as defined in Rule
13d-3 adopted under the Securities Exchange Act of 1934) by (a) each nominee for
director, each executive officer listed in the compensation disclosure table and
all directors and executive officers of the Company as a group, and (b) all
persons known to the Company to own beneficially more than five percent (5%) of
any class of voting securities of the Company. All such persons have sole voting
and investment power with respect to all shares shown as beneficially owned by
them, except as otherwise stated in the following footnotes.
BENEFICIAL
OWNERSHIP PERCENT OF
(A) DIRECTORS, NOMINEES AND CERTAIN EXECUTIVE OFFICERS OF COMMON STOCK(1) VOTING SHARES(1)
- ----------------------------------------------------------------- ------------------- -------------------
Stanley D. Czerwinski............................................ 87,491(2) *
R. Andrew Eckert................................................. 125,402(3) *
Graham O. King................................................... 43,506(4) *
David L. Lowe.................................................... 95,433(5) *
F. David Rollo................................................... 36,667(6) *
Edmund H. Shea, Jr............................................... 516,190(7) 2.5%
Gerhard F. Burbach............................................... 21,250(8) *
Earl H. Devanny III.............................................. 14,500(9) *
Ian R. Farmer.................................................... 51,200(10) *
P. Andre Simone.................................................. 42,500(11) *
All directors and executive officers as a group (12 persons)..... 1,042,889(12) 5.1%
(B) OTHER PRINCIPAL SHAREHOLDERS
- -----------------------------------------------------------------
Neuberger Berman LLC............................................. 1,733,900(13) 8.65%
605 Third Avenue
New York, NY 10158
FMR Corp......................................................... 1,657,300(14) 8.27%
82 Devonshire Street
Boston, MA 02109
- ------------------------
* Less than one percent (1%).
(1) Based on information furnished by the persons named and 20,450,817 shares
of Common Stock outstanding as of February 1, 1999. All references to
options include options that were exercisable on February 1, 1999 and
within sixty (60) days thereafter.
(2) Includes 64,166 shares issuable upon exercise of options held by Mr.
Czerwinski.
(3) Includes 124,815 shares issuable upon exercise of options held by Mr.
Eckert.
(4) Includes 39,666 shares issuable upon exercise of options held by Mr. King.
Also includes 2,600 shares held by the Leola J. King Pension Fund, of which
Mr. King is a trustee.
(5) Includes 95,033 shares issuable upon exercise of options held by Mr. Lowe.
(6) Includes 21,666 shares issuable upon exercise of options held by Dr. Rollo.
(7) Includes 34,998 shares issuable upon exercise of options held by Mr. Shea.
Also includes 85,580 shares held by J. F. Shea, Co., Inc. and 11,506 shares
held by Mrs. Shea, as to which Mr. Shea disclaims beneficial interest.
(8) Includes 21,250 shares issuable upon exercise of options held by Mr.
Burbach.
(9) Includes 12,500 shares issuable upon exercise of options held by Mr.
Devanny.
(10) Includes 50,000 shares issuable upon exercise of options held by Mr.
Farmer.
(11) Includes 42,500 shares issuable upon exercise of options held by Mr.
Simone.
(12) Includes options to purchase 515,344 shares of Common Stock held by all
directors and executive officers as a group.
(13) Neuberger Berman, LLC has sole voting power over 684,600 shares, shared
voting power over 1,043,300 shares, and shared dispositive power over
1,733,900 shares. Neuberger Berman Genesis Portfolio has shared voting
power and shared dispositive power over 1,043,300 shares. Neuberger
2
Berman Management, Inc. has shared dispositive power over 1,043,300
shares. The remaining balance of 6,000 shares is for individual client
accounts over which Neuberger Berman, LLC has shared dispositive power.
Neuberger Berman, LLC and Neuberger Berman Management, Inc. serve as
sub-adviser and investment manager, respectively, of Neuberger Berman
Genesis Portfolio.
(14) Edward C. Johnson III, Chairman of FMR Corp., and FMR Corp., through
Fidelity Management & Research Company ("Fidelity"), a wholly-owned
subsidiary of FMR Corp., each has sole dispositive power over the
1,502,600 shares owned by Fidelity funds. Neither Mr. Johnson nor FMR
Corp. has sole voting power over shares owned by the Fidelity funds, which
power is held by the funds' board of trustees. Mr. Johnson and FMR Corp.,
through Fidelity Management Trust Company, a wholly-owned subsidiary of
FMR Corp., each has sole dispositive power and sole voting power over
154,700 shares.
VOTING AND SOLICITATION
The required quorum for the meeting is a majority of the outstanding shares
of Common Stock eligible to be voted on the matters to be considered at the
meeting. In the election of directors, the candidates receiving the highest
number of affirmative votes cast in person or by proxy at the meeting up to the
number of directors to be elected will be elected to office. The affirmative
vote of a majority of the shares represented and voting in person or by proxy at
the meeting (which affirmative votes constitute a majority of the required
quorum) is required for approval of the 1999 Long-Term Incentive Plan (Proposal
2), the amendment to the 1999 Long-Term Incentive Plan (Proposal 3) and the
amendment to the Amended and Restated 1994 Employee Stock Purchase Plan
(Proposal 4).
When your proxy is returned properly signed, the shares represented will be
voted in accordance with your directions. Where specific choices are not
indicated, proxies will be voted for Proposals 1 through 4. If a properly signed
proxy or ballot indicates that a stockholder, broker or other nominee abstains
from voting or that the shares are not to be voted on a particular proposal, the
shares will not be counted as having been voted on that proposal, although such
shares will be counted as being in attendance at the meeting for purposes of
determining the presence of a quorum. Abstentions will not be reflected in a
final tally of the votes cast for the election of directors (Proposal 1).
Every shareholder voting in the election of directors may cumulate such
shareholder's votes and give one candidate a number of votes equal to the number
of directors to be elected multiplied by the number of shares of Common Stock
which such shareholder is entitled to vote, or may distribute the shareholder's
votes on the same principle among as many candidates as the shareholder chooses,
provided that votes cannot be cast for more than the number of candidates to be
elected. However, no shareholder shall be entitled to cumulate its votes unless
the candidate's name has been placed in nomination prior to the voting and the
shareholder, or any other shareholder, has given notice at the meeting prior to
the voting of such shareholder's intention to cumulate such shareholder's votes.
On all other matters, as explained above, each share of Common Stock has one
vote.
The cost of soliciting proxies will be borne by the Company. The Company may
reimburse brokerage firms and other persons representing beneficial owners of
shares for their expenses in forwarding solicitation material to such beneficial
owners, estimated at $20,000. The Company has retained Skinner & Co., a
professional proxy solicitor, to assist in the solicitation of proxies and to
arrange for dissemination of proxy materials. The agreement with Skinner & Co.
provides that the fee payable for such services will amount to $3,500; such fee
does not include expenses. Proxies may be solicited by the Company's directors,
officers or other employees, without additional compensation, personally or by
telephone, telegram or facsimile.
3
PROPOSAL NO. 1
ELECTION OF DIRECTORS
GENERAL
Presently the Company's Bylaws authorize seven members to serve on the Board
of Directors. The persons presently serving as directors, Messrs. Czerwinski,
Eckert, King, Lowe, Raney, Rollo and Shea, are proposed for election as
directors. The proxy holders will be voting for all seven nominees.
In the event that any nominee is unable or declines to serve as a director
at the time of the Annual Meeting, the proxies may be voted for a nominee
designated by the present Board of Directors to fill the vacancy. In the event
that additional persons are nominated for election as directors, the proxy
holders intend to vote all proxies received by them in such a manner in
accordance with cumulative voting as will assure the election of as many of the
nominees listed below as possible, and, in such event, the specific nominees to
be voted for will be determined by the proxy holders. The Company is not aware
of any nominee who will be unable or will decline to serve as a director.
Directors are elected annually by the shareholders, and the term of office of
each person elected as a director will continue until the next Annual Meeting of
Shareholders or until his successor has been elected and qualified.
NOMINEES
The names of the nominees, and certain information about them, are set forth
below:
DIRECTOR
NOMINEE AND AGE PRINCIPAL OCCUPATION SINCE
- ------------------------------ ------------------------------------------------------------- -----------
Stanley D. Czerwinski (63) Consultant 1991
R. Andrew Eckert (37) Chief Executive Officer of the Company 1996
Graham O. King (58) Senior Vice President of McKessonHBOC 1995
David L. Lowe (39) Vice Chairman, Friedman, Fleischer & Lowe, LLC; 1992
Chairman of the Board of the Company
Dennis R. Raney (56) Senior Vice President and Chief Financial Officer of Novell, 1999
Inc.
F. David Rollo (59) Senior Vice President of Medical Affairs and Executive 1991
Medical Director of Raytel Medical Corporation
Edmund H. Shea, Jr. (69) Executive Vice President and a director of J.F. Shea Co., 1987
Inc.
There is no family relationship between any director or executive officer of
the Company.
Mr. Czerwinski was elected a director in November 1991 and served as
Chairman of the Board of the Company from February 1992 until March 1996. Mr.
Czerwinski previously served as the Company's Chief Executive Officer, President
and Chief Operating Officer at various times since January 1991. He originally
joined the Company in May 1986. Mr. Czerwinski is currently serving as a
consultant to the Company. Prior to joining the Company, Mr. Czerwinski served
for seventeen years in various management capacities at TRW, including Director
of Sales and Marketing for the Electronics Components Group, and General Manager
of the Semiconductor Division.
Mr. Eckert was elected a director in April 1996. In August 1997, Mr. Eckert
became the Chief Executive Officer of the Company. From March 1997 until August
1997, Mr. Eckert served as the President and Chief Operating Officer of the
Company. From November 1994 to March 1997, he served as President and General
Manager of ADAC Medical Systems, and from February 1992 to November 1994, as
Executive Vice President and General Manager of the Company's nuclear medicine
business. Mr. Eckert joined the Company in February 1990 and from that date
until February 1992 held several other senior management positions with the
Company. Prior to joining the Company, Mr. Eckert worked
4
in the venture capital and investment banking industries with Summit Partners
and Goldman Sachs, respectively.
Mr. King was elected a director in June 1995. Mr. King is currently a Senior
Vice President with McKessonHBOC, which delivers software solutions and related
services to healthcare organizations. From 1994 to 1998, Mr. King was the
Chairman and Chief Executive Officer of US Servis, Inc., a healthcare management
services company. From 1986 to 1993, Mr. King was with Shared Medical Systems, a
company specializing in hospital information systems, most recently serving as
its President from 1988. Previously, Mr. King served as President of Daseke and
Company from 1983 to 1986 and as President and Chief Executive Officer of
Auto-Troll Technology, a computer-aided design software company, from 1979 to
1982. Mr. King also held various management level positions with IBM from 1965
to 1979. Mr. King currently serves as a director of Optika Imaging Systems,
Inc., a leading provider of client/server, integrated imaging systems and
development tools, and Longview Solutions, which develops software for budgeting
and financial reporting.
Mr. Lowe was elected a director of the Company in August 1992, and has been
serving as Chairman of the Board of Directors since March 1996. In March 1998,
Mr. Lowe joined Friedman, Fleischer & Lowe, LLC, a private investment firm
specializing in equity investments in buyouts, restructurings, recapitalizations
and friendly minority stakes in public and private companies, as Vice Chairman.
From November 1994 until August 1997, Mr. Lowe served as Chief Executive Officer
of the Company, from March 1994 until November 1994, as Co-Chief Executive
Officer, and from February 1992 until November 1994 as President of the Company.
He joined the Company in April 1988 and from that time until February 1992
served in a variety of senior management positions, including Chief Operating
Officer. Prior to joining the Company, Mr. Lowe held management and consulting
positions with several firms or companies providing services to or engaged in
high-technology industries, including Bain & Company and Cygnet Systems, Inc.
Mr. Lowe serves on the Board of Directors of Vivra Specialty Partners and the
National Children's Cancer Society.
Mr. Raney was elected a director in March 1999. Mr. Raney is currently the
Senior Vice President and Chief Financial Officer of Novell, Inc., a
publicly-traded software company, which he joined in March 1998. In the
preceding year, Mr. Raney served as Executive Vice President and Chief Financial
Officer of QAD, Inc., a producer of enterprise resource planning software. From
May 1996 to February 1997, he served as Executive Vice President and Chief
Financial Officer of California Microwave, Inc., a manufacturer of wireless and
satellite communications equipment and systems; and from December 1995 to May
1996, as Chief Financial Officer of General Magic, Inc., a developer of mobile
computing agents. During the period of October 1993 through December 1995, Mr.
Raney was the Senior Vice President and Chief Financial Officer of the
Pharmaceutical Products Group for Bristol Myers Squibb Company, and prior to
that served in a number of capacities at Hewlett-Packard Company for more than
24 years.
Dr. Rollo was elected a director in 1991 and is currently the Senior Vice
President of Medical Affairs and Executive Medical Director of Raytel Medical
Corporation, a leading cardiology services company. From April 1995 to May 1996,
Dr. Rollo served as Senior Vice President of Medical Affairs for HCIA, a
healthcare information company that develops and markets clinical and financial
decision support systems. From October 1992 to April 1995, he served as
President and Chief Executive Officer of MetriCor, Inc., a corporation engaged
in medical technology, quality assurance and health information management
consulting services. From 1984 until October 1992, Dr. Rollo served as Senior
Vice President-Medical Affairs for Humana Inc. Prior to that, he served as Vice
President for Humana from 1980 until 1984. He has held various academic and
administrative positions with Vanderbilt University Medical Center since 1977,
currently serving as Adjunct Professor of Radiology.
Mr. Shea was elected a director in 1987. He co-founded, and since 1968 has
served as the Executive Vice President and a director of, J.F. Shea Co., Inc., a
diversified construction, land development and
5
venture investments company. He was elected a director of Hambrecht & Quist
Group in November 1986 and also serves as a director of Ironstone Group, Inc., a
real and personal property tax appeal company.
BOARD MEETINGS, COMMITTEES AND DIRECTORS' COMPENSATION
The Board of Directors of the Company held a total of four regular meetings
and seven special meetings during the fiscal year ended September 27, 1998. Each
of the directors attended at least 75% of the aggregate number of meetings of
the Board of Directors and meetings of the committees of the Board on which he
served. The Board of Directors presently has an Audit Committee, a Compensation
Committee, a Stock Option Committee and a Governance Committee. The Audit
Committee and the Stock Option Committee met once, and the Compensation
Committee met three times in fiscal 1998.
The Stock Option Committee presently consists of Messrs. Rollo and Shea. The
Compensation Committee presently consists of Messrs. Czerwinski, King and Shea.
The Governance Committee presently consists of Messrs. King, Lowe and Shea, and
the Audit Committee presently consists of Messrs. Czerwinski, Rollo, Shea, and
King.
During fiscal 1998, each non-employee director received an option to
purchase 3,333 shares of the Company's Common Stock under the Company's
Directors' Stock Option Plan, subject to a specified vesting schedule. In
addition, each non-employee director received an annual retainer of $10,000,
payable in quarterly installments, and $2,500 for each Board meeting attended in
person and $500 for each Board meeting attended by telephone. From October 1997
through January 1998, Mr. Lowe was employed by the Company and received $238,000
in compensation. Beginning in February 1998 Mr. Lowe entered into a consulting
arrangement with the Company pursuant to which the Company paid Mr. Lowe
$258,000.
PROPOSAL NO. 2
APPROVAL OF THE 1999 LONG-TERM INCENTIVE PLAN
On February 3, 1999 the Board of Directors adopted the 1999 Long-Term
Incentive Plan (the "Plan") and reserved 920,000 shares of stock for issuance
thereunder, subject to shareholder approval. On such date, the Board also
approved the grant of 100,000 shares of restricted stock with a value of $22.00
per share to Mr. Eckert, subject to shareholder approval of the Plan. This grant
vests in full on February 3, 2003. As of the date hereof, no other options or
rights have been issued pursuant to the Plan.
The Board proposes the Plan principally to attract and retain the best
available personnel whose present and potential contributions are important to
the continued success of the Company, to afford these individuals the
opportunity to acquire a proprietary interest in the Company, to enable the
Company to enlist and retain in its service the best available talent for the
successful conduct of its business and to align the interest of such persons
with the interests of the Company's shareholders. At the Annual Meeting, the
shareholders are being asked to approve the Plan and the reservation of 920,000
shares thereunder.
SUMMARY OF THE 1999 LONG-TERM INCENTIVE PLAN
GENERAL. Options, Stock Purchase Rights ("SPRs"), Stock Appreciation Rights
("SARs") and Long-Term Performance Awards may be granted under the Plan. Options
granted under the Plan may be either "incentive stock options," as defined in
Section 422 of the Code, or nonstatutory stock options.
ADMINISTRATION. The Plan may generally be administered by the Board or the
Committee appointed by the Board (as applicable, the "Administrator").
ELIGIBILITY; LIMITATIONS. Nonstatutory stock options and rights may be
granted under the Plan to employees, directors and consultants of the Company
and any parent or subsidiary of the Company. Incentive stock options may be
granted only to employees. The Administrator, in its discretion, selects the
6
employees, directors and consultants to whom options and rights may be granted,
the time or times at which such options and rights shall be granted, and the
number of shares subject to each such grant.
Section 162(m) of the Code places limits on the deductibility for federal
income tax purposes of compensation paid to certain executive officers of the
Company. In order to preserve the Company's ability to deduct the compensation
income associated with options and SARs granted to such persons, the Plan
provides that no employee, director or consultant may be granted, in any fiscal
year of the Company, options and SARs to purchase more than 300,000 shares of
Common Stock. Notwithstanding this limit, however, in connection with such
individual's initial employment with the Company, he or she may be granted
options or rights to purchase up to an additional 300,000 shares of Common
Stock.
TERMS AND CONDITIONS OF OPTIONS. Each option is evidenced by a stock option
agreement between the Company and the optionee, and is subject to the following
additional terms and conditions:
(a) EXERCISE PRICE. The Administrator determines the exercise price of
options at the time the options are granted; provided, however, that the
exercise price of an option may not be less than 100% of the fair market value
of the Common Stock on the date such option is granted; provided, further, that
the exercise price of an incentive stock option granted to a 10% shareholder may
not be less than 110% of the fair market value of the Common Stock on the date
such option is granted. For purposes of the Plan, the fair market value of the
Common Stock is generally determined with reference to the closing sale price
for the Common Stock (or the closing bid if no sales were reported) on the last
market trading day prior to the date the option is granted.
(b) EXERCISE OF OPTION; FORM OF CONSIDERATION. The Administrator determines
when options become exercisable, and may in its discretion, accelerate the
vesting of any outstanding option. Stock options granted under the Plan
generally vest and become exercisable over three years. The means of payment for
shares issued upon exercise of an option is specified in each option agreement.
The Plan permits payment to be made by cash, check, promissory note, other
shares of Common Stock of the Company (with some restrictions), cashless
exercise, a reduction in the amount of any Company liability to the optionee,
any other form of consideration permitted by applicable law, or any combination
thereof.
(c) TERM OF OPTION. The term of an option shall be specified in the option
agreement; provided, however, that the term of an incentive stock option may be
no more than ten (10) years from the date of grant; provided further that in the
case of an incentive stock option granted to a 10% shareholder, the term of the
option may be no more than five (5) years from the date of grant. No option may
be exercised after the expiration of its term.
(d) TERMINATION OF EMPLOYMENT. If an optionee's employment or consulting
relationship terminates for any reason (other than death or disability), the
Optionee may exercise his or her option within such period as is determined by
the Administrator at the time of grant to the extent the option is exercisable
at the time of optionee's termination. In the absence of a determination by the
Administrator, the Option shall remain exercisable for three (3) months
following the Optionee's termination. To the extent the option is exercisable at
the time of such termination, or to the extent the optionee does not exercise
his or her option, the shares subject thereto shall revert to the Plan.
(e) DEATH OR DISABILITY. If an optionee's employment or consulting
relationship terminates as a result of death or disability, the Optionee may
exercise his or her option within such period as is determined by the
Administrator at the time of grant as to all of the shares subject thereto,
including shares as to which the option would not otherwise be exercisable. In
the absence of a determination by the Administrator, the Option shall remain
exercisable for twelve (12) months following the Optionee's termination. To the
extent that the optionee (or the optionee's estate or the person who acquires
the right to exercise the option by bequest or inheritance) does not exercise
the option before the expiration of such period, the shares subject thereto
shall revert to the Plan.
7
(f) OPTIONS TO OUTSIDE DIRECTORS. Except as set forth below, options
granted to outside directors shall be governed by the generally applicable terms
of the Plan. Each outside director shall be automatically granted an option (a
"First Option") for 20,000 shares on the date on which such person first becomes
an outside director (whether through election by the shareholders of the Company
or appointment by the Board to fill a vacancy). Each outside director shall
receive an additional grant (a "Subsequent Option") for 3,333 shares on March
15th of each year (or the next business day if a weekend or holiday), except
that each fourth year, the outside director's Subsequent Option shall cover
20,000 shares. The term of each First Option and each Subsequent Option shall be
five (5) years.
(g) NONTRANSFERABILITY OF OPTIONS. Options granted under the Plan are
generally not transferable other than by will or the laws of descent and
distribution, and may be exercised during the optionee's lifetime only by the
optionee.
(h) OTHER PROVISIONS. The stock option agreement may contain other terms,
provisions and conditions not inconsistent with the Plan as may be determined by
the Administrator.
STOCK PURCHASE RIGHTS. The Company may sell shares to eligible service
providers pursuant to SPRs. Unless the Administrator determines otherwise, the
restricted stock purchase agreement shall grant the Company a repurchase option
exercisable upon the voluntary or involuntary termination of the purchaser's
employment with the Company for any reason (including death or disability). The
purchase price for shares repurchased pursuant to the repurchase option shall be
the original price paid by the purchaser and may be paid by cancellation of any
indebtedness of the purchaser to the Company. The repurchase option shall lapse
at a rate determined by the Administrator; provided, however, that the vesting
period shall not be less than four (4) years, unless the Administrator
determines, in its sole discretion, to provide for vesting of no less than one
(1) year. No more than 25% of the shares available for issuance on the first day
of any fiscal year may be issued pursuant to SPRs in such fiscal year.
LONG-TERM PERFORMANCE AWARDS. Long-Term Performance Awards are cash or
stock bonus awards that may be granted either alone or in addition to other
awards granted under the Plan. Such awards may be granted for no cash
consideration. The Administrator shall determine the nature, length and starting
date of any performance period (the "Performance Period") for each Long-Term
Performance Award, and shall determine the performance or employment factors, if
any, to be used in the determination of Long-Term Performance Awards and the
extent to which such Long-Term Performance Awards are valued or have been
earned. Long-term Performance Awards shall be confirmed by, and be subject to
the terms of, a Long-Term Performance Award agreement. The terms of such awards
need not be the same with respect to each participant.
The Administrator may adjust the performance factors applicable to the
Long-Term Performance Awards to take into account changes in legal, accounting
and tax rules and to make such adjustments as the Administrator deems necessary
or appropriate to reflect the inclusion or exclusion of the impact of
extraordinary or unusual items, events or circumstances in order to avoid
windfalls or hardships.
STOCK APPRECIATION RIGHTS. The Plan also permits the granting of SARs. SARs
may be granted alone or in addition to other awards under the Plan. An SAR
entitles the optionee, by exercising the SAR, to receive from the Company an
amount equal to the excess of the fair market value of the Common Stock covered
by the exercised portion of the SAR, as of the date of such exercise, over the
fair market value of the Common Stock covered by the exercised portion of the
SAR as of the date of grant. Notwithstanding the foregoing, the Administrator of
the Plan may place limits on the aggregate amount that may be paid upon exercise
of an SAR. An SAR shall be exercisable, in whole or in part, at such time as the
Administrator shall specify in the optionee's SAR agreement.
The Company's obligation arising upon the exercise of an SAR may be paid in
Common Stock or in cash, or any combination thereof, as the Administrator may
determine. Shares issued upon the exercise of an SAR shall be valued at their
fair market value as of the date of exercise.
8
ADJUSTMENTS UPON CHANGES IN CAPITALIZATION. In the event that the stock of
the Company changes by reason of any stock split, reverse stock split, stock
dividend, combination, reclassification or other similar change in the capital
structure of the Company effected without the receipt of consideration,
appropriate adjustments shall be made in the number and class of shares of stock
subject to the Plan, the number and class of shares of stock subject to any
option or right outstanding under the Plan, and the exercise price of any such
outstanding option or right.
In the event of a liquidation or dissolution, any unexercised options or
rights will terminate. The Administrator may, in its discretion declare that any
option or right shall terminate as of a date fixed by the Administrator and
provide that the vesting and exercisability of each option and right shall
accelerate in full.
In connection with any merger, consolidation, acquisition of assets or like
occurrence involving the Company, each outstanding option or right shall be
assumed or an equivalent option or right substituted by the successor
corporation. If the successor corporation refuses to assume the options and
rights or to substitute substantially equivalent options and rights, the vesting
and exercisability of each option and right shall accelerate in full.
Notwithstanding the foregoing, in the event of a "Change in Control" as defined
in the Plan, all options and rights outstanding on the date such Change in
Control is determined to have occurred that are not yet fully exercisable and
vested on such date become fully exercisable and vested.
AMENDMENT AND TERMINATION OF THE PLAN. The Board may amend, alter, suspend
or terminate the Plan or any part thereof, at any time and for any reason.
However, the Company shall obtain shareholder approval for any amendment to the
Plan to the extent necessary to comply with Section 162(m) and Section 422 of
the Code, or any similar rule or statute. No such action by the Board or
shareholders may alter or impair any option or right previously granted under
the Plan without the written consent of the optionee. Unless terminated earlier,
the Plan shall terminate five years from the date of its adoption by the Board.
FEDERAL INCOME TAX CONSEQUENCES
INCENTIVE STOCK OPTIONS. An optionee who is granted an incentive stock
option does not recognize taxable income at the time the option is granted or
upon its exercise, although the exercise may subject the optionee to the
alternative minimum tax. Upon a disposition of the shares more than two years
after grant of the option and one year after exercise of the option, any gain or
loss is treated as long-term capital gain or loss. If these holding periods are
not satisfied, the optionee recognizes ordinary income at the time of
disposition equal to the difference between the exercise price and the lower of
(i) the fair market value of the shares at the date of the option exercise or
(ii) the sale price of the shares. Any gain or loss recognized on such a
premature disposition of the shares in excess of the amount treated as ordinary
income is treated as long-term or short-term capital gain or loss, depending on
the holding period. A different rule for measuring ordinary income upon such a
premature disposition may apply if the optionee is also an officer, director, or
10% shareholder of the Company. The Company is generally entitled to a deduction
in the same amount as the ordinary income recognized by the optionee.
NONSTATUTORY STOCK OPTIONS. An optionee does not recognize any taxable
income at the time he or she is granted a nonstatutory stock option. Upon
exercise, the optionee recognizes taxable income generally measured by the
excess of the then fair market value of the shares over the exercise price. Any
taxable income recognized in connection with an option exercise by an employee
of the Company is subject to tax withholding by the Company. The Company is
generally entitled to a deduction in the same amount as the ordinary income
recognized by the optionee. Upon a disposition of such shares by the optionee,
any difference between the sale price and the optionee's exercise price, to the
extent not recognized as taxable income as provided above, is treated as
long-term or short-term capital gain or loss, depending on the holding period.
9
STOCK PURCHASE RIGHTS. Stock purchase rights will generally be taxed in the
same manner as nonstatutory stock options. However, restricted stock is
generally purchased upon the exercise of a stock purchase right. At the time of
purchase, restricted stock is subject to a "substantial risk of forfeiture"
within the meaning of Section 83 of the Code. As a result, the purchaser will
not recognize ordinary income at the time of purchase. Instead, the purchaser
will recognize ordinary income on the date when the stock ceases to be subject
to a substantial risk of forfeiture. The stock will generally cease to be
subject to a substantial risk of forfeiture when it is no longer subject to the
Company's right to repurchase the stock upon the purchaser's termination of
employment with the Company. At such times, the purchaser will recognize
ordinary income measured as the difference between the purchase price and the
fair market value of the stock on the date the stock is no longer subject to a
substantial risk of forfeiture.
The purchaser may accelerate to the date of purchase his or her recognition
of ordinary income, if any, and the beginning of any capital gain holding period
by timely filing an election pursuant to Section 83(b)of the Code. In such
event, the ordinary income recognized, if any, is measured as the difference
between the purchase price and the fair market value of the stock on the date of
purchase, and the capital gain holding period commences on such date. The
ordinary income that is recognized by a purchaser who is an employee will be
subject to tax withholding by the Company. Different rules may apply if the
purchaser is also an officer, director, or 10% shareholder of the Company.
STOCK APPRECIATION RIGHTS. No income shall be recognized by a recipient in
connection with the grant of an SAR. When the SAR is exercised, the recipient
will generally be required to include as taxable ordinary income in the year of
exercise an amount equal to the amount of cash received and the fair market
value of any Common Stock received upon the exercise. In the case of a recipient
who is also an employee, any income recognized upon the exercise of an SAR will
constitute wages for which withholding may be required. The Company will
generally be entitled to a tax deduction in the same amount as the ordinary
income recognized by the recipient. If the optionee receives Common Stock upon
the exercise of an SAR, any gain or loss on the sale of such stock will be
treated in the same manner as discussed above under "Nonstatutory Stock
Options."
The foregoing is only a summary of the effect of federal income taxation
upon optionees, holders of rights, and the Company with respect to the grant and
exercise of options and rights under the Plan. It does not purport to be
complete, and does not discuss the tax consequences of the employee or
consultant's death or the provisions of the income tax laws of any municipality,
state or foreign country in which the employee or consultant may reside.
VOTE REQUIRED
At the Annual Meeting, the shareholders are being asked to approve the
adoption of the 1999 Long-Term Incentive Plan. The affirmative vote of the
holders of a majority of the shares represented and voting in person or by proxy
at the Annual Meeting will be required to approve the adoption of the 1999 Long-
Term Incentive Plan. THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE
"FOR" THE APPROVAL OF THE COMPANY'S 1999 LONG-TERM INCENTIVE PLAN.
10
PROPOSAL NO. 3
AMENDMENT OF COMPANY'S 1999 LONG-TERM INCENTIVE PLAN
TO INCREASE SHARES RESERVED FOR ISSUANCE
ON AN ANNUAL BASIS
The shareholders are being requested to consider and approve an amendment to
the 1999 Long-Term Incentive Plan (the "Plan"): (a) to provide an annual
increase to the shares reserved for issuance on the first day of each of the
Company's fiscal years during the term of the Plan beginning with the 2000
fiscal year in an amount equal to (i) 4.99% of the outstanding shares on such
date, or (ii) a lesser amount determined by the Board; (b) to provide that (i)
any Shares which have been reserved for issuance but not issued under the
Company's 1992 Stock Option Plan (the "1992 Plan") as of May 6, 1999, and (ii)
any Shares returned to the 1992 Plan for any reason (including an optionee's
termination) shall be added to the shares available for issuance under the Plan;
and (c) to provide that no more than 5,102,000 Shares may be issued pursuant to
Incentive Stock Options during the term of the Plan.
VOTE REQUIRED
The affirmative vote of the holders of a majority of the shares represented
and voting in person or by proxy at the Annual Meeting will be required to
approve the amendment to the 1999 Long-Term Incentive Plan. THE BOARD OF
DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" THIS PROPOSAL.
PROPOSAL NO. 4
APPROVAL OF AMENDMENT TO AMENDED AND RESTATED 1994 EMPLOYEE STOCK PURCHASE PLAN
The Company has maintained an Employee Stock Purchase Plan for the benefit
of its employees since 1980. The Amended and Restated 1994 Employee Stock
Purchase Plan (the "Purchase Plan") was approved by the shareholders in March
1994. As of February 1, 1999, a total of 370,000 shares of Common Stock were
reserved for issuance under the Purchase Plan but only 53,373 of these shares
were available for future purchases. To enable the Company's employees to
continue to benefit under the Purchase Plan, on February 3, 1999, the Board of
Directors approved an amendment to the Plan to increase the number of authorized
shares by 100,000. At the Annual Meeting, the shareholders are being requested
to approve this increase.
The following description of the Purchase Plan is necessarily brief and
general. A copy of the Purchase Plan, as amended, is available upon request from
the Company.
SUMMARY OF THE PURCHASE PLAN, AS AMENDED
GENERAL. The Purchase Plan is intended to qualify under Sections 421 and
423 of the Code as an "employee stock purchase plan."
ADMINISTRATION. The Purchase Plan is administered by the Board of Directors
or a Committee of the Board.
ELIGIBILITY. Only employees employed by the Company or its subsidiaries on
the first day of an offering period may participate in the Purchase Plan. For
this purpose, an "employee" is any person who is regularly employed at least
twenty hours per week and at least five months per calendar year by the Company
or any of its subsidiaries. No employee shall be granted an option under the
Purchase Plan if: (i) immediately after the grant of the option, the employee
(or any other person whose stock would be attributed to the employee pursuant to
Section 424(d) of the Code) would own five percent (5%) or more of the total
combined voting power or value of the stock of the Company or any of its
subsidiaries; or
11
(ii) which permits such participant's rights to purchase stock under all
employee stock purchase plans of the Company and its subsidiaries to accrue at a
rate which exceeds $25,000 worth of stock (determined with reference to the fair
market value of the Common Stock on the first day of the offering period) in a
calendar year. Subject to these eligibility criteria, the Purchase Plan permits
eligible employees to purchase Common Stock through payroll deductions subject
to certain limitations described below. See "Payment of Purchase Price; Payroll
Deductions."
OFFERING PERIOD. The Purchase Plan contains offering periods of
approximately twenty-four (24) months during which an option granted pursuant to
the Plan may be exercised, commencing on the first Trading Day on or after June
1 and December 1 of each year and terminating on the last Trading Day in the
periods ending twenty-four months later; provided however that the first three
(3) offering periods commencing after August 31, 1998, shall be consecutive and
overlapping periods of approximately nine (9), six (6) and three (3) months
duration, commencing on the first trading day on or after September 1, 1998,
December 1, 1998 and March 1, 1999, respectively. The Board has the power to
change the duration of offering periods (including the commencement dates
thereof) with respect to future offerings without shareholder approval. The
first day of an offering period is referred to as the "Enrollment Date," and the
last day of a purchase period is referred to as the "Exercise Date." The maximum
number of shares a participant may purchase during a single offering period is
100 shares.
PURCHASE PRICE. The purchase price per share at which shares will be sold
in an offering under the Purchase Plan is the lower of (i) 85% of the fair
market value of a share of Common Stock on the Enrollment Date or (ii) 85% of
the fair market value of a share of Common Stock on the relevant Exercise Date.
The fair market value of the Common Stock on a given date is generally
determined with reference to the closing sale price of the Common Stock for such
date. The Purchase Price may be adjusted by the Board.
PAYMENT OF PURCHASE PRICE; PAYROLL DEDUCTIONS. The purchase price of the
shares is accumulated by payroll deductions over the offering period. The
Purchase Plan provides that the aggregate of such payroll deductions during the
offering period shall not exceed 10% of the participant's compensation during
said offering period. Compensation is defined as the participant's base straight
time gross earnings and commissions but exclusive of payments for overtime,
profit sharing payments, shift premium payments, incentive compensation,
incentive payments and bonuses. During the offering period, a participant may
discontinue his or her participation in the Purchase Plan, and may decrease or
increase the rate of payroll deductions in an offering period within limits set
by the Board of Directors.
All payroll deductions made for a participant are credited to the
participant's account under the Purchase Plan, are withheld in whole percentages
only and are included with the general funds of the Company. Funds received by
the Company pursuant to exercises under the Purchase Plan are also used for
general corporate purposes. A participant may not make any additional payments
into his or her account.
WITHDRAWAL. A participant may terminate his or her participation in the
Purchase Plan at any time by giving the Company a written notice of withdrawal.
In such event, the payroll deductions credited to the participant's account will
be returned, without interest, to such participant. Payroll deductions will not
resume unless a new subscription agreement is delivered in connection with a
subsequent offering period.
TERMINATION OF EMPLOYMENT. Termination of a participant's employment for
any reason, including death, cancels his or her participation in the Purchase
Plan immediately. In such event, the payroll deductions credited to the
participant's account will be returned without interest to such participant, his
or her designated beneficiaries or the executors or administrators of his or her
estate. The preceding sentence notwithstanding, a participant who receives
payment in lieu of notice of termination of employment shall be treated as
continuing to be an Employee for the participant's customary number of hours per
week of employment during the period in which the participant is subject to such
payment in lieu of notice.
12
ADJUSTMENTS UPON CHANGES IN CAPITALIZATION. In the event of any changes in
the capitalization of the Company effected without receipt of consideration by
the Company, such as a stock split, stock dividend, combination or
reclassification of the Common Stock, resulting in an increase or decrease in
the number of shares of Common Stock, proportionate adjustments will be made by
the Board in the shares subject to purchase and in the price per share under the
Purchase Plan. In the event of the proposed liquidation or dissolution of the
Company, the offering periods then in progress shall be shortened by setting a
New Exercise Date (the "New Exercise Date"), and will terminate immediately
prior to the consummation of such proposed dissolution or liquidation, unless
otherwise provided by the Board. In the event of a proposed sale of all or
substantially all of the assets of the Company, or the merger of the Company
with or into another corporation, each option under the Purchase Plan shall be
assumed or an equivalent option shall be substituted by such successor
corporation or a parent or subsidiary of such successor corporation, unless the
Board determines to shorten the offering period then in progress by setting a
New Exercise Date. The New Exercise Date shall be before the date of the
Company's proposed sale or merger. If the Board shortens the offering period in
lieu of assumption or substitution in the event of a merger or sale of assets,
the Board shall provide notice to each participant at least ten business days
prior to the New Exercise Date that the Exercise Date has been changed to the
New Exercise Date and that his or her option will be automatically exercised on
the New Exercise Date unless prior to such date the participant has withdrawn
from the offering period.
AMENDMENT AND TERMINATION. The Board may at any time and for any reason
amend or terminate the Purchase Plan, except that no such termination shall
affect options previously granted and no amendment shall make any change in an
option granted prior thereto which adversely affects the rights of any
participant, provided that an offering period may be terminated by the Board on
any Exercise Date if the Board determines that the termination of the offering
period or the Plan is in the best interests of the Company and its shareholders.
In addition, if the Board determines that the ongoing operation of the Plan may
result in unfavorable financial accounting consequences, the Board has the
ability, without shareholder approval or the consent of Plan participants, to
alter the Purchase Price of any offering period including an offering period
underway and shorten any offering period so that the offering period ends on a
New Exercise Date. Shareholder approval for amendments to the Purchase Plan
shall be obtained in such a manner and to such a degree as required to comply
with Rule 16b-3 of the Exchange Act or with Section 423 of the Code (or any
successor rule or provision or any other applicable law or regulation). The Plan
will terminate in December, 2003, unless terminated earlier by the Board in
accordance with the Purchase Plan.
SHARE PURCHASES
None of the directors or executive officers of the Company other than Ian R.
Farmer currently participates in the Purchase Plan. Mr. Farmer purchased an
aggregate of 400 shares of Common Stock under the Purchase Plan in fiscal 1998.
In fiscal 1998, employees of the Company purchased an aggregate of 76,827 shares
of Common Stock under the Purchase Plan for an average purchase price of $16.22
per share and an aggregate purchase price of $1,246,000.
FEDERAL INCOME TAX CONSEQUENCES FOR THE PURCHASE PLAN
No income will be taxable to a participant until the shares purchased under
the Purchase Plan are sold or otherwise disposed of. Upon sale or other
disposition of the shares, the participant will generally be subject to tax in
an amount that depends upon the holding period. If the shares are sold or
otherwise disposed of more than two (2) years from the Enrollment Date and one
(1) year from the applicable Exercise Date, the participant will recognize
ordinary income measured as the lesser of (a) the excess of the fair market
value of the shares at the time of such sale or disposition over the purchase
price, or (b) an amount equal to 15% of the fair market value of the shares as
of the Enrollment Date. Any additional gain will be treated as long-term capital
gain. If the shares are sold or otherwise disposed of before the
13
expiration of these holding periods, the participant will recognize ordinary
income generally measured as the excess of the fair market value of the shares
on the date the shares are purchased over the purchase price. Any additional
gain or loss on such sale or disposition will be long-term or short-term capital
gain or loss, depending on the holding period. The Company generally is not
entitled to a deduction for amounts taxed as ordinary income or capital gain to
a participant except to the extent of ordinary income recognized by participants
upon a sale or disposition of shares prior to the expiration of the holding
periods described above.
The foregoing summary of the effect of federal income taxation upon the
participant and the Company with respect to the shares purchased under the
Purchase Plan does not purport to be complete, and does not discuss the tax
consequences of a participant's death or the income tax laws of any state or
foreign country in which the participant may reside.
VOTE REQUIRED
The affirmative vote of the holders of a majority of the shares represented
and voting in person or by proxy at the meeting is required for the approval of
the amendment to the Purchase Plan. THE BOARD OF DIRECTORS RECOMMENDS A VOTE
"FOR" THIS PROPOSAL.
REPORT OF THE COMPENSATION COMMITTEE ON
ANNUAL COMPENSATION OF EXECUTIVE OFFICERS
The Compensation Committee of the Board of Directors (the "Committee")
determines the level of compensation for the Company's chief executive officer
and its other executive officers. The Committee determines the base salary and
bonus compensation, and also makes recommendations for the grants of stock
options under the Company's stock option plans.
The goals of the Company's compensation program are to structure
incentive-based compensation that is closely tied to the Company's performance
and long-term objectives, and to attract, retain and reward qualified executives
who contribute to the Company's success.
The primary components of the Company's compensation package are salary,
bonuses and stock options.
SALARY
Base salaries of executive officers are determined based upon their level of
responsibility, qualifications, level of experience, and individual performance.
The Company uses outside consultants to review salary ranges for each executive
officer against independent compensation analyses of salaries paid to executive
officers in similar positions at comparable companies. Base salary levels are
also designed to be competitive with the marketplace.
BONUS COMPENSATION
The Company's bonus plan provides for cash bonuses based on the
accomplishment of individual performance goals, company-wide profit targets and
strategic objectives. The objectives are designed to further the Company's
financial and operating performance, implement its strategic business plan,
develop new products and maintain and increase market share. The goals are set
at the beginning of the fiscal year based on the Company's long-term and
short-term objectives, and accomplishment of these goals is assessed quarterly
and annually. Bonuses range from 0% to 100% of base salary. To be awarded the
maximum bonus, the officer must accomplish most or all of the individual
objectives and the Company must achieve its financial objectives for the fiscal
year.
14
STOCK OPTIONS
The Committee uses stock option grants to supplement executive officers'
base salary and bonus compensation. The stock option grants provide long-term
incentives for the achievement of the Company's strategic objectives and
financial and operating goals, and align the executives' interests with those of
the Company's shareholders. The Committee also grants stock options in order to
retain and attract high-quality employees in the competitive job market of the
Silicon Valley. The stock incentive program utilizes a vesting schedule to
encourage executive officers to maintain a long-term perspective. The sizes of
stock option grants are based on the officers' level of responsibility,
satisfaction of individual performance objectives, and the Company's
performance.
COMPENSATION OF THE CHIEF EXECUTIVE OFFICER Mr. R. Andrew Eckert has been
the Company's Chief Executive Officer since 1997. Mr. Eckert's overall
compensation in fiscal 1998 was based on the Company's performance, Mr. Eckert's
achievement of specified goals, and upon a compensation study of peer
organizations conducted by an independent compensation consulting firm. Mr.
Eckert's base salary for fiscal 1998 was $450,000. He was also eligible to
receive a bonus of up to $300,000. A maximum of $120,000 of this bonus amount
was payable quarterly based on the Company financial results, and a maximum of
the remaining $180,000 was payable at year-end based on his achievement of
operating and strategic goals, including management development and pursuit of
growth opportunities in certain business segments. Based on his level of
achievement of these goals, Mr. Eckert was awarded a $240,000 total bonus. Mr.
Eckert also received stock options for a total of 170,000 shares of Common Stock
of the Company and 107,931 shares of common stock of ADAC Healthcare Information
Systems, Inc. during fiscal 1998, in accordance with the Committee's philosophy
set forth above under "Stock Options."
This report on executive compensation has been furnished by the following
members of the Compensation Committee of the Company's Board of Directors:
Stanley D. Czerwinski
Graham O. King
Edmund H. Shea, Jr.
The foregoing Report on Executive Compensation shall not be deemed to be
incorporated by reference by any general statement incorporating by reference
this Proxy Statement into any filing under the Securities Act of 1933, as
amended, or the Securities Exchange Act of 1934, as amended, except to the
extent that the Company specifically incorporates this information by reference,
and shall not otherwise be deemed filed under such Acts.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION. As noted
above, the members of the Company's Compensation Committee are Messrs.
Czerwinski, King and Shea. Mr. Czerwinski served as an officer of the Company in
various capacities from January 1991 to March 1996.
EXECUTIVE COMPENSATION. The following table sets forth all compensation
earned by or paid or awarded to Mr. Eckert, the Chief Executive Officer of the
Company, and to the next four most highly compensated executive officers of the
Company for all services rendered in all capacities for the periods shown.
15
SUMMARY COMPENSATION TABLE
LONG-TERM COMPENSATION
-------------------------------------------
ANNUAL COMPENSATION HCIS STOCK LONG TERM
---------------------------------------------- ADAC STOCK OPTION INCENTIVE
NAME AND CURRENT POSITION FISCAL YEAR SALARY BONUS OTHER(1) OPTION AWARDS AWARDS(2) PAYOUTS
- ----------------------------------- ----------- --------- --------- ----------- ------------- ----------- ---------------
R. Andrew Eckert................... 1998 $ 450,000 $ 240,000 -- 170,000 107,931 --
Chief Executive Officer 1997 325,000 155,000 -- 100,000 -- --
1996 200,000 225,000 -- 90,000 -- --
Gerhard F. Burbach(3).............. 1998 $ 154,000 $ 138,000 -- 75,000 -- --
President, ADAC Medical Systems
Earl H. Devanny(3)................. 1998 $ 206,000 $ 216,000 -- 60,000 300,000 --
President, ADAC Healthcare
Information Systems, Inc.
Ian R. Farmer(3)................... 1998 $ 175,000 $ 109,000 -- 55,000 -- --
Senior Vice President, Business
Development
P. Andre Simone.................... 1998 $ 220,000 $ 81,000 -- 45,000 -- --
Vice President, Chief 1997 168,000 84,000 -- 20,000 -- --
Financial Officer and Treasurer 1996 122,000 67,000 20,000 --
ALL OTHER
NAME AND CURRENT POSITION COMPENSATION
- ----------------------------------- -------------------
R. Andrew Eckert................... --
Chief Executive Officer --
--
Gerhard F. Burbach(3).............. --
President, ADAC Medical Systems
Earl H. Devanny(3)................. --
President, ADAC Healthcare
Information Systems, Inc.
Ian R. Farmer(3)................... --
Senior Vice President, Business
Development
P. Andre Simone.................... --
Vice President, Chief --
Financial Officer and Treasurer
- ------------------------
(1) Not included in the compensation table are certain perquisites and other
benefits which do not, in the aggregate, exceed the lesser of either $50,000
or 10% of the total annual salary and bonus reported for each named
executive officer.
(2) Represents options granted by the Company's subsidiary, ADAC Healthcare
Information Systems, Inc. ("HCIS"), under the 1997 HCIS Stock Option Plan.
(3) Messrs. Burbach, Devanny and Farmer became executive officers of the Company
in fiscal 1998.
EXECUTIVE OFFICERS OF THE COMPANY. A description of Mr. Eckert's position
with the Company and related information is set forth above under "(1) ELECTION
OF DIRECTORS--Nominees". Descriptions of the Company's other current executive
officers are set forth below.
Mr. Bruce M. Blanco, age 49, has served as Vice President and Corporate
Controller of the Company since April 1998. From April 1997, when he joined the
Company, until April 1998, he served as Corporate Controller. Prior to that, Mr.
Blanco served as Corporate Controller of Triad Systems, Inc., and President and
General Manager of Triad Financial, Inc., a wholly owned subsidiary of Triad
Systems, Inc.
Mr. Gerhard F. Burbach, age 37, currently serves as President of the Medical
Systems division of the Company. From September 1996, when he joined the
Company, until September 1998, Mr. Burbach served as Senior Vice President and
General Manager of the Radiation Therapy Products division of the Company. Prior
to joining the Company, from 1990 to 1996, Mr. Burbach was a Senior Engagement
Manager for McKinsey & Company, a management consulting firm.
Mr. Earl H. Devanny III, age 47, was elected President of ADAC Healthcare
Information Systems, Inc. ("HCIS"), the Company's healthcare information system
subsidiary, in July 1998. From January 1997, when he joined HCIS, until that
date, he served as Chief Operating Officer of HCIS. From April 1994 until
January 1997, Mr. Devanny served as Vice President and Area General Manager of
Cerner Corporation, a healthcare information systems company. Prior to that,
from 1990 to 1994, Mr. Devanny served as the Business Unit Executive, Health
Section, Mid-Atlantic Area, of IBM Corporation.
Mr. Ian R. Farmer, age 49, currently serves as Senior Vice President of
Business Development for the Company. From 1995 to 1997, he served as Senior
Vice President and General Manager of Nuclear Medicine. From 1993, when he
joined the Company, until 1995, he served as Vice President of Marketing.
16
Ms. Karen L. Masterson, age 38, has served as the Company's Vice President,
General Counsel and Corporate Secretary since she joined the Company in October
1996. From January 1995 to October 1996, Ms. Masterson served as the Director of
Intercontinental Legal Affairs for Sybase, Inc., a relational database software
company. From January 1993 to December 1994, she was a partner, and prior to
that, an associate, in the law firm of Morrison & Foerster in San Francisco,
California.
Mr. P. Andre Simone, age 41, has served as the Company's Chief Financial
Officer since June 1996 and Treasurer since May 1994, when he joined the
Company. From October 1995 to June 1996, Mr. Simone served as Vice President,
Finance of the Company. Prior to joining the Company, Mr. Simone served as the
Assistant Treasurer for The Ask Group, Inc., a database and manufacturing
accounting software firm, from February 1993 to March 1994. Prior to that time,
he held positions with Emcor Treasury Consultants, Hewlett Packard and Bain &
Company.
The term of office of each of the above-named executive officers is at the
pleasure of the Board of Directors. To the knowledge of the Company, there are
no arrangements or understandings between these officers and any other person
pursuant to which any of these officers was elected as an officer.
STOCK OPTIONS GRANTED IN FISCAL 1998
The following table sets forth certain information concerning stock option
grants made to certain executive officers during fiscal 1998. No other option
grants were made to the named executive officers during fiscal 1998.
INDIVIDUAL GRANTS(1)
------------------------------------------------------ POTENTIAL REALIZABLE VALUE
NUMBER AT ASSUMED ANNUAL RATES OF
SECURITIES % OF TOTAL STOCK PRICE APPRECIATION
UNDERLYING OPTIONS GRANTED PER SHARE FOR OPTION TERM(2)
OF OPTIONS TO EMPLOYEES IN EXERCISE EXPIRATION --------------------------
NAME GRANTED 1998 PRICE($) DATE 5% 10%
- ---------------------------------- ----------- --------------- ----------- ----------- ------------ ------------
R. Andrew Eckert.................. 80,000 6.7 $ 16.00 12-18-08 $ 804,985 $ 2,039,990
90,000 7.5 19.50 06-02-08 1,103,710 2,797,018
107,931(3) 10.4(4) 4.29 11-07-07 291,193 737,941
Gerhard F. Burbach................ 25,000 2.1 $ 16.00 12-18-08 $ 251,558 $ 637,497
50,000 4.2 19.50 06-02-08 613,172 1,553,899
Earl H. Devanny................... 60,000 5.0 $ 19.50 06-02-08 $ 735,807 $ 1,864,679
300,000(3) 28.8(4) 4.29 11-07-07 809,387 2,051,147
Ian R. Farmer..................... 15,000 1.2 $ 16.00 12-18-08 $ 150,935 $ 382,498
40,000 3.3 19.50 06-02-08 490,538 1,243,119
P. Andre Simone................... 15,000 1.2 $ 16.00 12-18-08 $ 150,935 $ 382,498
30,000 2.5 19.50 06-02-08 367,903 932,339
- ------------------------
(1) All option grants, except those described in footnote (3) below, were made
by the Company under the Company's 1992 Stock Option Plan.
(2) The 5% and 10% assumed rates of appreciation are mandated by the rules of
the Securities and Exchange Commission and are not an estimate or projection
of future prices or appreciation of the Company's Common Stock or the actual
future value of these options.
(3) Represents grants by the Company's subsidiary, HCIS, under the 1997 HCIS
Stock Option Plan.
(4) Represents percentage of total options granted under the 1997 HCIS Stock
Option Plan.
The foregoing stock options vest in increments of 25%, 25% and 50% over
three years from the date of grant. At the time of grant, options may be
designated as incentive stock options. Options not designated incentive stock
options are granted as "non-qualified options." Options generally remain
outstanding for five years or ten years from the date of grant, provided the
recipient remains employed throughout that period. The post-termination exercise
period is generally three months.
17
AGGREGATED STOCK OPTION EXERCISES DURING FISCAL 1998 AND
YEAR-END STOCK OPTION VALUES
The following table sets forth certain information concerning the exercise
of stock options by the Company's executive officers during fiscal 1998, the
"value realized", and the number and value of unexpired stock options at
September 27, 1998 which such executive officers can exercise or in the future
could exercise.
TOTAL VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED IN-THE-MONEY STOCK OPTIONS
STOCK OPTIONS HELD AT HELD AT SEPTEMBER 27,
SEPTEMBER 27, 1998 1998(2)
SHARES ACQUIRED VALUE -------------------------- ---------------------------
NAME ON EXERCISE REALIZED(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------- --------------- ------------ ----------- ------------- ------------ -------------
R. Andrew Eckert......... 110,935 $ 1,511,600 104,815 290,000 $ 1,092,900 $ 2,300,600
Gerhard F. Burbach....... -- -- 5,000 110,000 45,000 747,500
Earl H. Devanny.......... -- -- 12,500 97,500 112,500 667,500
Ian R. Farmer............ 30,500 509,300 46,250 93,750 617,800 705,300
P. Andre Simone.......... -- -- 38,750 70,000 548,100 526,200
- ------------------------
(1) The "value realized" is calculated by determining the difference between the
fair market value of ADAC Common Stock on the date of exercise of the
options and the exercise price of such options.
(2) The value of unexercised stock options is calculated by determining the
difference between the closing price of ADAC Common Stock on Friday,
September 25, 1998, the last trading day of fiscal 1998, as reported on the
Nasdaq Stock Market, of $25.00, and the exercise price of such options.
CHANGE-IN-CONTROL AGREEMENTS. The Company has entered into Executive
Severance Agreements with Messrs. Eckert, Burbach, Devanny, Farmer and Simone.
These Agreements provide for a severance payment and acceleration of the
exercisability of the executives' stock options upon a "change in control" of
the Company. A "change in control" is deemed to occur if (a) any "person" or
"group" (as defined in or pursuant to Sections 13(d) or 14(d) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act")), becomes the "beneficial
owner" (as defined in Rule 13d-3 promulgated under the Exchange Act), directly
or indirectly, of securities of the Company representing 40% or more of the
voting power of the common stock outstanding which votes generally for the
election of directors; (b) as a result of market or corporate transactions or
shareholder action, the individuals who constitute the Board of Directors of the
Company at the beginning of any period of 12 consecutive months (but commencing
not earlier than July 1, 1995), plus any new directors whose election or
nomination was approved by a vote of at least two-thirds of the directors still
in office who were directors at the beginning of such period of 12 consecutive
months, cease for any reason during such period of 12 consecutive months to
constitute at least two-thirds of the members of such Board; or (c) the Company
sells, through merger, assignment or otherwise, in one or more transactions
other than in the ordinary course of business, assets which provided at least
2/3 of the revenues or pre-tax net income of the Company and its subsidiaries on
a consolidated basis during the most recently-completed fiscal year.
Notwithstanding the foregoing, the following events do not constitute a
change in control: any acquisition of beneficial ownership pursuant to (a) a
reclassification, however effected, of the Company's authorized common stock,
(b) a corporate reorganization involving the Company or any of its subsidiaries
which does not result in a material change in the ultimate ownership by the
shareholders of the Company (through their ownership of the Company or its
successor resulting from the reorganization) of the assets of the Company and
its subsidiaries, but only if such reclassification or reorganization has been
approved by the Company's Board of Directors or (c) a spin-off by the Company of
all or any portion of the ownership of any subsidiary whereby the Company's
shareholders become shareholders of the subsidiary.
18
If a change in control of the Company occurs, each executive will be
entitled to a severance payment equal to 2.99 times the average annual
compensation received by each such executive, including base salary, bonuses and
other incentive compensation and stock option gains during the sixty-month
period ending immediately preceding the calendar year in which the change in
control occurs. Such severance payment will not be immediately paid if not later
than ten days prior to the change in control, the executive is offered
employment by the Company or its successor corporation on similar terms to those
then applicable to the executive as an officer of the Company and, in such
event, the severance payment would be paid to the executive twelve months
following the change in control, but only if (i) the executive accepts such
comparable employment with the Company and (ii) the executive is not, during
such twelve-month period, terminated for cause. Such a change in control of the
Company will also cause all stock options held by the executive to become
immediately exercisable. In the event that the executive (i) purchases the
shares subject to the accelerated stock options, (ii) sells the shares so
purchased and (iii) is offered comparable employment by the Company or its
successor, the executive must deposit in escrow with the Company an amount equal
to 50% of the difference between his sales proceeds received from the sold
shares and his option exercise price. These escrowed funds will be released to
the executive from the escrow account if the executive has accepted the
comparable employment offer and is not terminated for cause for twelve months
after the change in control. If the executive does not accept such comparable
employment from the Company or its successor or is terminated for cause during
such twelve-month period, then the escrowed funds are released to the Company.
In addition, Mr. Devanny's Executive Severance Agreement provides that if there
is a change in control of HCIS or if HCIS is spun off by the Company to its
shareholders and, as a result, Mr. Devanny is no longer employed by the Company
or one of its subsidiaries, then, for twelve months thereafter, the Company will
retain Mr. Devanny as a part-time employee or consultant at a salary of $1,000
per month without fringe benefits, and all of his Company stock options will
continue to vest during such period.
19
PERFORMANCE GRAPH
The following graph sets forth the Company's total cumulative shareholder
return as compared to the NASDAQ Stock Market (U.S.) Index and the Standard and
Poor's Health Care (Medical Products and Supplies) Index for the period
September 28, 1993 through September 27, 1998. Total shareholder return assumes
$100 invested at the beginning of the period in the Company's Common Stock, the
stocks represented in the NASDAQ Stock Market (U.S.) Index and the stocks
represented in the Standard and Poor's Health Care (Medical Products and
Supplies) Index, in each case on a "total return" basis assuming reinvestment of
dividends.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
S & P HEALTH CARE
DOLLARS ADAC LABORATORIES NASDAQ STOCK MARKET (U.S.) (MEDICAL PRODUCTS & SUPPLIES)
9/1993 100 100 100
9/1994 72 103 121
9/1995 108 138 203
9/1996 187 165 249
9/1997 173 227 307
9/1998 223 231 371
CUMULATIVE TOTAL RETURN AS OF SEPTEMBER
-----------------------------------------------------
1993 1994 1995 1996 1997
--------- --- --- --- ---
ADAC Laboratories........................................................ $ 100 72 108 187 173
Nasdaq Stock Market (U.S.)............................................... 100 103 138 165 227
S & P Health Care (Medical Products & Supplies).......................... 100 121 203 249 307
1998
---
ADAC Laboratories........................................................ 223
Nasdaq Stock Market (U.S.)............................................... 231
S & P Health Care (Medical Products & Supplies).......................... 371
CERTAIN TRANSACTIONS
In connection with the merger of Community Health Computing Corp. ("CHC"),
the immediate parent of HCIS, with and into HCIS as part of the overall
recapitalization of HCIS, in May 1997 CHC repurchased all outstanding options to
purchase CHC common stock from the holders thereof for a purchase price equal to
the fair market value of the CHC common stock underlying the options, as
determined by an independent appraiser, less the aggregate exercise price for
such options. In these transactions, CHC repurchased 96,000 shares of CHC common
stock from Mr. Lowe for a purchase price of $73,920 and 72,000 shares of CHC
common stock from Mr. Eckert for a purchase price of $55,440.
RELATIONSHIP WITH INDEPENDENT PUBLIC ACCOUNTANTS
The firm of PricewaterhouseCoopers LLP has examined the financial statements
of the Company for the fiscal year ended September 27, 1998, and has been
selected to perform such service for the current fiscal year. A representative
of PricewaterhouseCoopers LLP is expected to be present at the Annual Meeting
with the opportunity to make a statement if he or she desires to do so and is
expected to be available to respond to appropriate questions. The Company has
been advised that neither that firm, nor any of its partners or associates, has
any direct or indirect financial interest in or any connection with the Company
other than as accountants and auditors.
20
OTHER MATTERS
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
The Securities and Exchange Commission's rules under Section 16 of the
Securities Exchange Act of 1934, as amended, require the Company's officers and
directors, and persons who own more than ten percent (10%) of a registered class
of the Company's equity securities, to file reports showing their initial stock
ownership and subsequent changes in such ownership with the SEC by specific
dates.
Based solely on its review of the copies of such forms received by it or
written representations from the Company's appropriate officers and directors,
the Company believes that, during the 1998 fiscal year, all filing requirements
applicable to its officers and directors were complied with, except that Mr. Ian
Farmer failed to timely file a Form 5 for fiscal 1998.
SHAREHOLDER PROPOSALS
Individual shareholders of the Company may be entitled to submit proposals
which they believe should be voted upon by the shareholders. The Securities and
Exchange Commission has adopted regulations which govern the inclusion of such
proposals in annual proxy materials. All such proposals must be submitted to the
Secretary of the Company no later than December 17, 1999 in order to be
considered for inclusion in the Company's proxy materials related to the 2000
Annual Meeting of Shareholders.
OTHER BUSINESS
Management does not know of any business to be presented other than the
matters set forth above, but if other matters properly come before the meeting,
it is the intention of the persons named in the Proxy to vote in accordance with
their best judgment on such matters.
AVAILABILITY OF FORM 10-K
THE COMPANY WILL FURNISH WITHOUT CHARGE A COPY OF ITS ANNUAL REPORT ON FORM
10-K FOR THE FISCAL YEAR ENDED SEPTEMBER 27, 1998, AS FILED WITH THE SECURITIES
AND EXCHANGE COMMISSION, TO ANY SHAREHOLDER DESIRING A COPY. Shareholders may
write to ADAC Laboratories, 540 Alder Drive, Milpitas, California 95035,
attention: Investor Relations.
By Order of the Board of Directors,
[SIGNATURE]
David L. Lowe,
CHAIRMAN OF THE BOARD
Dated: April 5, 1999
21
PROXY ADAC LABORATORIES
PROXY FOR ANNUAL MEETING OF SHAREHOLDERS
The undersigned shareholder of ADAC Laboratories, a California corporation,
acting under the California General Corporation Law, hereby constitutes and
appoints David L. Lowe and Karen L. Masterson, and each of them, the
attorneys and proxies of the undersigned, each with the power of
substitution, to attend and act for the undersigned at the Annual Meeting of
Shareholders of said corporation to be held on Thursday, May 6, 1999, at 1:00
p.m., local time, at the offices of the Company, located at 540 Alder Drive,
Milpitas, California 95035, and at any adjournments thereof, and in
connection therewith to vote and represent all of the shares of stock of said
corporation which the undersigned would be entitled to vote, as follows:
Said attorneys and proxies, and each of them, shall have all the powers which
the undersigned would have if acting in person. The undersigned hereby
revokes any other proxy to vote at such meeting and hereby ratifies and
confirms all that said attorneys and proxies, and each of them, may lawfully
do by virtue hereof. Said proxies, without hereby limiting their general
authority, are specifically authorized to vote in accordance with their best
judgment with respect to all matters incident to the conduct of the meeting;
all matters presented at the meeting but which are not known to the Board of
Directors at the time of the solicitation of this proxy; and, with respect to
the election of any person as a Director, if a bona fide nominee for the
office is named in the Proxy Statement and such nominee is unable to serve or
will not serve, to vote for any other person.
- -------------------------------------------------------------------------------
FOLD AND DETACH HERE
Please mark
your votes as
indicated in
this example /X/
FOR ALL NOMINEES LISTED WITHHOLD AUTHORITY TO VOTE
(except as listed below) FOR ALL NOMINEES LISTED
(1) ELECTION OF DIRECTORS: / / / /
(mark one: the Board of Directors recommends a "FOR" vote for the election of
the following nominees to the Board of Directors: Stanley D. Czerwinski, R.
Andrew Eckert, Graham O. King, David L. Lowe, Dennis R. Raney, F. David Rollo
and Edmund H. Shea, Jr.).
(INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, WRITE
THE NAME(S) OF SUCH NOMINEE(S) BELOW.)
- -------------------------------------------------------------------------------
(2) Approval of the Company's 1999 Long-Term Incentive FOR AGAINST ABSTAIN
Plan: (mark one; the Board recommends a "FOR" vote). / / / / / /
(3) Approval of an Amendment to the Company's 1999 FOR AGAINST ABSTAIN
Long-Term Incentive Plan to increase the shares reserved / / / / / /
for issuance thereunder on an annual basis: (mark one;
the Board recommends a "FOR" vote).
(4) Approval of an Amendment to the Amended and Restated / / / / / /
1994 Employee Stock Purchase Plan to reserve for issuance
thereunder an additional 100,000 shares: (mark one; the
Board recommends a "FOR" vote). FOR against abstain
Date: , 1999
--------------------------------------------------------------------
Each of the above-named proxies present at said meeting, either in person or
by substitute, shall have and exercise all the powers of said proxies
hereunder. This proxy will be voted in accordance with the choices specified
by the undersigned above. IF NO INSTRUCTIONS TO THE CONTRARY ARE INDICATED
HEREON, THIS PROXY WILL BE TREATED AS A GRANT OF AUTHORITY TO VOTE FOR THE
ELECTION OF THE NOMINEES FOR THE BOARD OF DIRECTORS NAMED ABOVE AND AS A
GRANT OF AUTHORITY TO VOTE FOR THE OTHER PROPOSALS STATED ABOVE AND ON ANY
OTHER MATTERS TO BE VOTED UPON.
IMPORTANT: In signing this proxy, please sign your name or names on the
signature lines in the same manner as it appears on your stock certificate.
When signing as an attorney, executor, administrator, trustee or guardian,
please give your full title as such. EACH JOINT TENANT SHOULD SIGN.
The undersigned acknowledges receipt of a copy of the Notice of Annual
Meeting and Proxy Statement relating to the meeting.
Signature Signature
------------------------------- ---------------------------
PLEASE SIGN, DATE AND RETURN PROXY PROMPTLY IN THE POSTAGE PREPAID ENVELOPE
PROVIDED.
- -------------------------------------------------------------------------------
FOLD AND DETACH HERE
ADAC LABORATORIES
1999 LONG-TERM INCENTIVE PLAN
1. PURPOSES OF THE PLAN. The purpose of the ADAC Laboratories 1999
Long-Term Incentive Plan is to enable ADAC Laboratories to provide an
incentive to eligible Service Providers whose present and potential
contributions are important to the continued success of the Company, to
afford these individuals the opportunity to acquire a proprietary interest in
the Company, and to enable the Company to enlist and retain in its service
the best available talent for the successful conduct of its business and
align the interests of such persons with the interests of the Company's
shareholders. It is intended that these purposes will be effected through
the granting of (a) Options, (b) Stock Purchase Rights, (c) SARs, and (d)
Long-Term Performance Awards.
2. DEFINITIONS. As used herein, the following definitions shall apply:
(a) "ADMINISTRATOR" means the Board or such of its Committees
as shall be administering the Plan, in accordance with Section 5 of the Plan.
(b) "APPLICABLE LAWS" means the requirements relating to the
administration of stock option plans under U. S. state corporate laws, U.S.
federal and state securities laws, the Code, any stock exchange or quotation
system on which the Common Stock is listed or quoted and the applicable laws
of any foreign country or jurisdiction where Options or Stock Purchase Rights
are granted under the Plan.
(c) "BOARD" means the Board of Directors of the Company.
(d) "CODE" means the Internal Revenue Code of 1986, as
amended.
(e) "COMMITTEE" means a committee of Directors appointed by
the Board in accordance with Section 5 of the Plan.
(f) "COMMON STOCK" means the Common Stock of the Company.
(g) "COMPANY" means ADAC Laboratories, a California
corporation.
(h) "CONSULTANT" means any person, including an advisor,
engaged by the Company or a Parent or Subsidiary to render services to such
entity.
(i) "DIRECTOR" means a member of the Board.
(j) "DISABILITY" means total and permanent disability as
defined in Section 22(e)(3) of the Code.
(k) "EMPLOYEE" means any person, including Officers and
Directors, employed by the Company or any Parent or Subsidiary of the
Company. A Service Provider shall not cease to be an Employee in the case of
(i) any leave of absence approved by the Company or (ii) transfers between
locations of the Company or between the Company, its Parent, any Subsidiary,
or any successor. For purposes of Incentive Stock Options, no such leave may
exceed ninety days, unless reemployment upon expiration of such leave is
guaranteed by statute or contract. If reemployment upon expiration of a
leave of absence approved by the Company is not so guaranteed, on the 181st
day of such leave any Incentive Stock Option held by the Optionee shall cease
to be treated as an Incentive Stock Option and shall be treated for tax
purposes as a Nonstatutory Stock Option. Neither service as a Director nor
payment of a director's fee by the Company shall be sufficient to constitute
"employment" by the Company.
(l) "EXCHANGE ACT" means the Securities Exchange Act of 1934,
as amended.
(m) "FAIR MARKET VALUE" means, as of any date, the value of
Common Stock determined as follows:
(i) If the Common Stock is listed on any established
stock exchange or a national market system, including without limitation the
Nasdaq National Market or The Nasdaq SmallCap Market of The Nasdaq Stock
Market, its Fair Market Value shall be the closing sales price for such stock
(or the closing bid, if no sales were reported) as quoted on such exchange or
system for the last market trading day prior to the time of determination, as
reported in THE WALL STREET JOURNAL or such other source as the Administrator
deems reliable;
(ii) If the Common Stock is regularly quoted by a
recognized securities dealer but selling prices are not reported, the Fair
Market Value of a Share of Common Stock shall be the mean between the high
bid and low asked prices for the Common Stock on the last market trading day
prior to the day of determination, as reported in The Wall Street Journal or
such other source as the Administrator deems reliable; or
(iii) In the absence of an established market for the
Common Stock, the Fair Market Value shall be determined in good faith by the
Administrator.
(n) "INCENTIVE STOCK OPTION" means an Option intended to
qualify as an incentive stock option within the meaning of Section 422 of the
Code and the regulations promulgated thereunder.
(o) "INSIDE DIRECTOR" means a Director who is an Employee.
(p) "LONG-TERM PERFORMANCE AWARD" means an award under
Section 10 below. A Long-Term Performance Award shall permit the recipient
to receive a cash or stock bonus (as determined by the Administrator) upon
satisfaction of such performance factors as determined by the Administrator
and as are set out in the recipient's individual grant.
-2-
(q) "LONG-TERM PERFORMANCE AWARD AGREEMENT" means a written
agreement between the Company and an Optionee evidencing the terms and
conditions of an individual Long-Term Performance Award. The Long-Term
Performance Award Agreement is subject to the terms and conditions of the
Plan.
(r) "NONSTATUTORY STOCK OPTION" means any Option that is not
an Incentive Stock Option.
(s) "NOTICE OF GRANT" means a written notice evidencing
certain terms and conditions of an individual Option, Stock Purchase Right,
SAR or Long-Term Performance Award. The Notice of Grant is part of the Option
Agreement, the SAR Agreement or the Long-Term Performance Award Agreement.
(t) "OFFICER" means a person who is an officer of the Company
within the meaning of Section 16 of the Exchange Act and the rules and
regulations promulgated thereunder.
(u) "OPTION" means a stock option granted pursuant to the
Plan.
(v) "OPTION AGREEMENT" means a written agreement between the
Company and an Optionee evidencing the terms and conditions of an individual
Option. The Option Agreement is subject to the terms and conditions of the
Plan.
(w) "OPTIONED STOCK" means the Common Stock subject to an
Option or Right.
(x) "OPTIONEE" means the holder of an outstanding Option or
Right.
(y) "OUTSIDE DIRECTOR" means a Director who is not an
Employee.
(z) "PARENT" means a "parent corporation," whether now or
hereafter existing, as defined in Section 424(e) of the Code.
(aa) "PLAN" means this 1999 Long-Term Incentive Plan.
(bb) "RESTRICTED STOCK" means shares of Common Stock subject
to a Restricted Stock Purchase Agreement acquired pursuant to a Stock
Purchase Right under Section 9 below.
(cc) "RESTRICTED STOCK PURCHASE AGREEMENT" means a written
agreement between the Company and the Optionee evidencing the terms and
restrictions applying to stock purchased under a Stock Purchase Right. The
Restricted Stock Purchase Agreement is subject to the terms and conditions of
the Plan and the Notice of Grant.
(dd) "RIGHT" means and includes SARs, Long-Term Performance
Awards and Stock Purchase Rights granted pursuant to the Plan.
(ee) "RULE 16B-3" means Rule 16b-3 of the Exchange Act or any
successor rule thereto, as in effect when discretion is being exercised with
respect to the Plan.
-3-
(ff) "SAR" means a stock appreciation right granted pursuant
to Section 7 of the Plan.
(gg) "SAR AGREEMENT" means a written agreement between the
Company and an Optionee evidencing the terms and conditions of an individual
SAR. The SAR Agreement is subject to the terms and conditions of the Plan.
(hh) "SERVICE PROVIDER" means an Employee, Director or
Consultant.
(ii) "SHARE" means a share of the Common Stock, as adjusted in
accordance with Section 11 of the Plan.
(jj) "STOCK PURCHASE RIGHT" means a right to purchase Common
Stock pursuant to Section 8 of the Plan.
(kk) "SUBSIDIARY" means a "subsidiary corporation," whether
now or hereafter existing, as defined in Section 424(f) of the Code.
3. ELIGIBILITY. Nonstatutory Stock Options and Rights may be granted
to Service Providers. Incentive Stock Options may be granted only to
Employees. If otherwise eligible, a Service Provider who has been granted an
Option or Right may be granted additional Options or Rights.
4. [STOCK SUBJECT TO THE PLAN. SUBJECT TO THE PROVISIONS OF SECTION
12 OF THE PLAN, THE MAXIMUM AGGREGATE NUMBER OF SHARES WHICH MAY BE ISSUED
UNDER THE PLAN IS 920,000 SHARES, PLUS (a) AN ANNUAL INCREASE TO BE ADDED ON
THE FIRST DAY OF EACH FISCAL YEAR OF THE COMPANY FOLLOWING ADOPTION OF THE
PLAN EQUAL TO (i) 4.99% OF THE THEN OUTSTANDING SHARES ON SUCH DATE OR (ii)
A LESSER AMOUNT DETERMINED BY THE BOARD, (b) ANY SHARES WHICH HAVE BEEN
RESERVED FOR ISSUANCE BUT NOT ISSUED UNDER THE COMPANY'S 1992 STOCK OPTION
PLAN (THE "1992 PLAN") AS OF THE DATE OF ADOPTION OF THIS PLAN, AND (c) ANY
SHARES RETURNED TO THE 1992 PLAN FOR ANY REASON (INCLUDING TERMINATION,
DEATH OR DISABILITY) FOLLOWING THE DATE OF ADOPTION OF THIS PLAN; PROVIDED,
HOWEVER THAT DURING THE TERM OF THIS PLAN NO MORE THAN 5,102,000 SHARES MAY
BE ISSUED PURSUANT TO INCENTIVE STOCK OPTIONS. THE SHARES MAY BE
AUTHORIZED, BUT UNISSUED, OR REACQUIRED COMMON STOCK.
IF AN OPTION OR RIGHT EXPIRES OR BECOMES UNEXERCISABLE WITHOUT
HAVING BEEN EXERCISED IN FULL, THE UNPURCHASED SHARES WHICH WERE SUBJECT
THERETO SHALL BECOME AVAILABLE FOR FUTURE GRANT OR SALE UNDER THE PLAN
(UNLESS THE PLAN HAS TERMINATED).]
4. [STOCK SUBJECT TO THE PLAN. SUBJECT TO THE PROVISIONS OF SECTION
11, THE MAXIMUM AGGREGATE NUMBER OF SHARES WHICH MAY BE ISSUED UNDER THE
PLAN IS 920,000 SHARES. THE SHARES MAY BE AUTHORIZED, BUT UNISSUED, OR
REACQUIRED COMMON STOCK.
IF AN OPTION OR RIGHT EXPIRES OR BECOMES UNEXERCISABLE WITHOUT
HAVING BEEN EXERCISED IN FULL, THE UNPURCHASED SHARES WHICH WERE SUBJECT
THERETO SHALL BECOME AVAILABLE
-4-
FOR FUTURE GRANT OR SALE UNDER THE PLAN (UNLESS THE PLAN HAS TERMINATED);
PROVIDED, HOWEVER, THAT SHARES THAT HAVE ACTUALLY BEEN ISSUED UNDER THE
PLAN, WHETHER UPON EXERCISE OF AN OPTION OR RIGHT, SHALL NOT BE RETURNED TO
THE PLAN AND SHALL NOT BECOME AVAILABLE FOR FUTURE DISTRIBUTION UNDER THE
PLAN, EXCEPT THAT IF SHARES OF RESTRICTED STOCK ARE REPURCHASE BY THE
COMPANY AT THEIR ORIGINAL PURCHASE PRICE, SUCH SHARES SHALL BECOME AVAILABLE
FOR FUTURE GRANT UNDER THE PLAN.]
5. ADMINISTRATION OF THE PLAN.
(a) PROCEDURE.
(i) MULTIPLE ADMINISTRATIVE BODIES. The Plan may be
administered by different Committees with respect to different groups of
Service Providers.
(ii) SECTION 162(M). To the extent that the
Administrator determines it to be desirable to qualify Options of SARs
granted hereunder as "performance-based compensation" within the meaning of
Section 162(m) of the Code, the Plan shall be administered by a Committee of
two or more "outside directors" within the meaning of Section 162(m) of the
Code.
(iii) RULE 16B-3. To the extent desirable to qualify
transactions hereunder as exempt under Rule 16b-3, the transactions
contemplated hereunder shall be structured to satisfy the requirements for
exemption under Rule 16b-3.
(iv) OTHER ADMINISTRATION. Other than as provided above,
the Plan shall be administered by (A) the Board or (B) a Committee, which
Committee shall be constituted to satisfy Applicable Laws.
(b) POWERS OF THE ADMINISTRATOR. Subject to the provisions
of the Plan, and in the case of a Committee, subject to the specific duties
delegated by the Board to such Committee, the Administrator shall have the
authority, in its discretion:
(i) to determine the Fair Market Value;
(ii) to select the Service Providers to whom Options and
Rights may be granted hereunder;
(iii) to determine the number of shares of Common Stock to
be covered by each Option or Right;
(iv) to approve forms of agreement for use under the Plan;
(v) to determine the terms and conditions, not
inconsistent with the terms of the Plan, of Options and Rights. Such terms
and conditions include, but are not limited to, the exercise price, the time
or times when Options or Rights may be exercised (which may be based on
performance criteria), any vesting acceleration or waiver of forfeiture
restrictions, and any restriction
-5-
or limitation regarding any Option or Right or the shares of Common Stock
relating thereto, based in each case on such factors as the Administrator, in
its sole discretion, shall determine;
(vi) to construe and interpret the terms of the Plan;
(vii) to prescribe, amend and rescind rules and
regulations relating to the Plan;
(viii) to modify or amend each Option or Right (subject to
Section 13 of the Plan);
(ix) to authorize any person to execute on behalf of the
Company any instrument required to effect the grant of an Option or Right
previously granted by the Administrator;
(x) to allow Optionees to satisfy withholding tax
obligations by electing to have the Company withhold from the Shares to be
issued upon exercise of an Option or Right that number of Shares having a
Fair Market Value equal to the amount required to be withheld. The Fair
Market Value of the Shares to be withheld shall be determined on the date
that the amount of tax to be withheld is to be determined. All elections by
an Optionee to have Shares withheld for this purpose shall be made in such
form and under such conditions as the Administrator may deem necessary or
advisable;
(xi) to determine the terms and restrictions applicable
to Options and Rights and any Restricted Stock; and
(xii) to make all other determinations deemed necessary or
advisable for administering the Plan.
(c) EFFECT OF ADMINISTRATOR'S DECISION. The Administrator's
decisions, determinations and interpretations shall be final and binding on
all Optionees and any other holders of Options or Rights.
6. DURATION OF THE PLAN. The Plan shall remain in effect until
terminated by the Board under the terms of the Plan; provided that in no
event shall the Plan terminate later than the date five (5) years from the
date the Plan was adopted by the Board.
7. OPTIONS AND SARS.
(a) OPTIONS. The Administrator, in its discretion, may grant
Options to eligible participants and shall determine whether such Options
shall be Incentive Stock Options or Nonstatutory Stock Options. Each Option
shall be evidenced by a Notice of Grant which shall expressly identify the
Option as Incentive Stock Option or as Nonstatutory Stock Option, and shall
be in such form and contain such provisions as the Administrator shall from
time to time deem appropriate. Option agreements shall contain the following
terms and conditions:
-6-
(i) OPTION EXERCISE PRICE. The per Share exercise price
for the Shares to be issued pursuant to the exercise of an Option shall be
determined by the Administrator; provided, however, that in no event shall it
be less than 100% of the Fair Market Value per Share on the date of grant,
although it may be in excess of such amount.
(ii) WAITING PERIOD AND EXERCISE DATES. At the time an
Option is granted, the Administrator shall fix the period within which the
Option may be exercised, and shall determine any conditions that must be
satisfied before the Option may be exercised.
(iii) FORM OF PAYMENT. The consideration to be paid for
the Shares to be issued upon exercise of an Option, including the method of
payment, shall be determined by the Administrator (and, in the case of an
Incentive Stock Option, shall be determined at the time of grant) and may
consist entirely of:
(A) cash;
(B) check;
(C) promissory note;
(D) other Shares which (1) in the case of Shares
acquired from the Company, have been owned by the Optionee for more than six
months on the date of surrender, and (2) have a Fair Market Value on the date
of surrender equal to the aggregate exercise price of the Shares as to which
said Option shall be exercised;
(E) consideration received by the Company under a
cashless exercise program implemented by the Company in connection with the
Plan;
(F) a reduction in the amount of any Company liability
to the Optionee;
(G) any combination of the foregoing methods of payment;
or
(H) such other consideration and method of payment for
the issuance of Shares to the extent permitted by Applicable Laws.
(iv) SPECIAL INCENTIVE STOCK OPTION PROVISIONS. In
addition to the foregoing, Incentive Stock Options shall be subject to the
following terms and conditions:
(A) DOLLAR LIMITATION. To the extent that the aggregate
Fair Market Value of (a) the Shares with respect to Options designated as
Incentive Stock Options, plus (b) the shares of stock of the Company, Parent
and any Subsidiary with respect to which other incentive stock options are
exercisable for the first time by an Optionee during any calendar year (under
all plans of the Company and any Parent and Subsidiary) exceeds $100,000,
such Options shall be treated as Nonstatutory Stock Options. For purposes of
the preceding sentence, (a) Options shall be
-7-
taken into account in the order in which they were granted, and (b) the Fair
Market Value of the Shares shall be determined as of the time the Option or
other incentive stock option is granted.
(B) EXERCISE PRICE. In the case of any Optionee who is,
on the date of grant, the owner of Common Stock (as determined under Section
424(d) of the Code) possessing more than 10% of the total combined voting
power of all classes of stock of the Company or any Parent or Subsidiary of
the Company (a "10% Owner"), then the per Share exercise price of an
Incentive Stock Option shall be not less than 110% of the Fair Market Value
on the date of grant. In the case of any other Optionee, the per Share
exercise price shall be no less than 100% of Fair Market Value on the date of
grant.
(C) TERM OF OPTION. The term of each Option shall be
stated in the Option Agreement. In the case of an Incentive Stock Option,
the term shall be ten (10) years from the date of grant or such shorter term
as may be provided in the Option Agreement; provided, however, that in the
case of an Incentive Stock Option granted to an Optionee who is a 10% Owner,
the term of the Incentive Stock Option shall be five (5) years from the date
of grant or such shorter term as may be provided in the Option Agreement.
(v) OTHER PROVISIONS. Each Option granted under the
Plan may contain such other terms, provisions, and conditions not
inconsistent with the Plan as may be determined by the Administrator.
(vi) BUYOUT PROVISIONS. The Administrator may at any
time offer to buyout for a payment in cash, promissory notes or Shares, an
Option previously granted, based on such terms and conditions as the
Administrator shall establish and communicate to the Optionee at the time
that such offer is made.
(b) PROCEDURE FOR GRANTS TO OUTSIDE DIRECTORS. Outside
Directors shall be granted Options in accordance with the following
provisions:
(i) Each Outside Director shall be automatically granted
an Option to purchase 20,000 Option Shares (the "First Option") on the date
on which such person first becomes an Outside Director, whether through
election by the shareholders of the Company or appointment by the Board to
fill a vacancy; provided, however, that an Inside Director who ceases to be
an Inside Director but who remains a Director shall not receive a First
Option.
(ii) Each Outside Director shall be automatically granted
a subsequent Option (a "Subsequent Option") to purchase 3,333 Shares on March
15th of each year after such person first becomes an Outside Director (or the
next business day if March 15 is on a weekend or holiday); provided he or she
is then an Outside Director, and if as of such date, he or she shall have
served on the Board for at least the preceding six (6) months; provided,
further, that on March 15 following the fourth anniversary of the date on
which such person first becomes an Outside Director, he or she shall receive
a Subsequent Option of 20,000 shares (in lieu of the 3,333 share Subsequent
Option) ( a "Fourth Year Subsequent Option").
-8-
(iii) The terms of all Outside Director Options granted
hereunder shall be as follows:
(A) the term of the each Option shall be five (5) years.
(B) each Option shall be exercisable only while the
Outside Director remains a Service Provider, and may be exercised only in
installments as follows:
(1) FIRST OPTIONS. Each First Option shall vest
and become exercisable as to 25% of the Shares subject thereto on the first
anniversary of the date of grant, and as to an additional 25% of the shares
subject thereto on each of the next three (3) anniversaries of its date of
grant, provided the Outside Director remains a Director on such dates.
(2) SUBSEQUENT OPTIONS. Each Subsequent Option
shall vest and become fully exercisable upon the first anniversary of the
date of grant provided the Outside Director remains a Director on such date
and provided further, however, that each Fourth Year Subsequent Option shall
vest and become exercisable pursuant to Section 7(b)(iii)(B)(1) as if it were
a First Option.
(3) the exercise price per Share shall be 100% of
the Fair Market Value per Share on the date of grant.
(C) Except as otherwise set forth in this Section 7(b),
Options granted pursuant to this Section 7(b) shall be governed by the terms
of the Plan applicable to Options generally.
(c) SARS. At the sole discretion of the Administrator, SARs
may be granted either alone, in addition to or in tandem with other Options
and Rights. The following provisions apply to SARs:
(i) The SAR shall entitle the Optionee, by exercising
the SAR, to receive from the Company an amount equal to the excess of (1) the
Fair Market Value of the exercised portion of the SAR, as of the date of such
exercise, over (2) the Fair Market Value of the exercised portion of the SAR,
as of the date on which the SAR was granted; PROVIDED, however, that the
Administrator may place limits on the aggregate amount that may be paid upon
exercise of an SAR.
(ii) SARs shall be exercisable, in whole or in part, at
such times as the Administrator shall specify in the Optionee's SAR agreement.
(iii) The Company's obligation arising upon the exercise
of an SAR may be paid in Shares or cash, or in any combination of Shares and
cash, as the Administrator, in its sole discretion, may determine. Shares
issued upon the exercise of an SAR shall be valued at their Fair Market Value
as of the date of exercise.
(d) LIMITATIONS.
-9-
(i) Neither the Plan nor any Option or Right shall
confer upon an Optionee any right with respect to continuing the Optionee's
relationship as a Service Provider with the Company, nor shall they interfere
in any way with the Optionee's right or the Company's right to terminate such
relationship at any time, with or without cause.
(ii) The following limitations shall apply to grants of
Options and SARs:
(A) No Service Provider shall be granted, in any
fiscal year of the Company, Options or SARs to purchase more than 300,000
Shares.
(B) In connection with his or her initial service,
a Service Provider may be granted Options or SARs to purchase up to an
additional 300,000 Shares that shall not count against the limit set forth in
subsection (i) above.
(C) The foregoing limitations shall be adjusted
proportionately in connection with any change in the Company's capitalization
as described in Section 11.
(D) If an Option or SAR is canceled in the same
fiscal year of the Company in which it was granted (other than in connection
with a transaction described in Section 11), the cancelled Option or SAR will
be counted against the limits set forth in subsections (1) and (2) above.
For this purpose, if the exercise price of an Option or SAR is reduced, the
transaction will be treated as a cancellation of the Option and the grant of
a new Option or SAR.
(e) METHOD OF EXERCISE.
(i) PROCEDURE FOR EXERCISE; RIGHTS AS A SHAREHOLDER. An
Option or SAR granted hereunder shall be exercisable at such times and under
such conditions as determined by the Administrator and as shall be
permissible under the terms of the Plan. An Option or SAR may not be
exercised for a fraction of a Share.
An Option or SAR shall be deemed to be exercised when written
notice of such exercise has been given to the Company in accordance with the
terms of the Option or SAR by the person entitled to exercise the Option or
SAR and (in the case of an Option) full payment for the Shares with respect
to which the Option is exercised has been received by the Company. Full
payment may, as authorized by the Administrator (and, in the case of an
Incentive Stock Option, determined at the time of grant) and permitted by the
Option Agreement consist of any consideration and method of payment allowable
under Section 7(a)(iii). Until the issuance (as evidenced by the appropriate
entry on the books of the Company or of a duly authorized transfer agent of
the Company) of the stock certificate evidencing such Shares, no right to
vote or receive dividends or any other rights as a shareholder shall exist
with respect to the Optioned Stock, notwithstanding the exercise of the
Option or SAR. No adjustment will be made for a dividend or other right for
which the record date is prior to the date the stock certificate is issued,
except as provided in Section 11 of the Plan.
-10-
Exercise of an Option or SAR in any manner shall result in a
decrease in the number of Shares which thereafter shall be available, both
for purposes of the Plan and for issuance under the Option or SAR, by the
number of Shares as to which the Option is exercised.
(ii) TERMINATION OF EMPLOYMENT/SERVICE PROVIDER. In the
event that an Optionee ceases to be a Service Provider (other than upon the
Optionee's death or Disability), the Optionee may exercise his or her Option
or SAR within such period of time as is determined by the Administrator at
the time of grant, but only to the extent that the Optionee was entitled to
exercise the Option or SAR at the date of such termination (but in no event
later than the expiration of the term of such Option or SAR as set forth in
the Option or SAR Agreement). In the absence of a determination by the
Administrator, the Option or SAR shall remain exercisable for three (3)
months following the Optionee's termination. To the extent that Optionee was
not entitled to exercise an Option or SAR at the date of such termination,
and to the extent that the Optionee does not exercise such Option or SAR (to
the extent otherwise so entitled) within the time specified herein, the
Option or SAR shall terminate.
(iii) DISABILITY OF OPTIONEE. In the event an Optionee
ceases to be a Service Provider as a result of the Optionee's Disability, the
Optionee may exercise his or her Option or SAR within such period of time as
is determined by the Administrator at the time of grant (but in no event
later than the expiration of the term of such Option or SAR as set forth in
the Option or SAR Agreement) as to all of the Shares subject thereto,
including Shares as to which the Option is not otherwise exercisable at the
date of Optionee's termination. In the absence of a determination by the
Administrator, the Option or SAR shall remain exercisable for twelve (12)
months following the Optionee's termination. To the extent that the Optionee
does not exercise such Option or SAR within the time specified herein, the
Option or SAR shall terminate.
(iv) DEATH OF OPTIONEE. In the event of an Optionee's
death, the Optionee's estate or the person(s) who acquired the right to
exercise the Optionee's Option or SAR by bequest or inheritance may exercise
the Option or SAR within such period of time as is determined by the
Administrator at the time of grant (but in no event later than the expiration
of the term of such Option or SAR as set forth in the Option or SAR
Agreement) as to all of the Shares subject thereto, including Shares as to
which the Option is not otherwise exercisable at the date of Optionee's
termination. In the absence of a determination by the Administrator, the
Option or SAR shall remain exercisable for twelve (12) months following the
Optionee's termination. To the extent that the Optionee's estate or a person
who acquired the right to exercise such Option does not exercise such Option
or SAR within the time specified herein, the Option or SAR shall terminate.
8. STOCK PURCHASE RIGHTS.
(a) RIGHTS TO PURCHASE. Stock Purchase Rights may be issued
either alone, in addition to, or in tandem with other awards granted under
the Plan and/or cash awards made outside of the Plan. After the
Administrator determines that it will offer Stock Purchase Rights under the
Plan, it shall advise the offeree in writing or electronically, by means of a
Notice of Grant, of the terms, conditions and restrictions related to the
offer, including the number of Shares that the offeree
-11-
shall be entitled to purchase, the price to be paid, and the time within
which the offeree must accept such offer, provided, however, that no more
than 25% of the shares available for issuance under this Plan on the first
day of each fiscal year during its term shall be issued pursuant to
Restricted Stock Purchase Rights (or Long Term Performance Awards) during
that fiscal year. The offer shall be accepted by execution of a Restricted
Stock Purchase Agreement in the form determined by the Administrator.
(b) REPURCHASE OPTION. Unless the Administrator determines
otherwise, the Restricted Stock Purchase Agreement shall grant the Company a
repurchase option exercisable upon the voluntary or involuntary termination
of the purchaser's service with the Company for any reason (including death
or Disability). The purchase price for Shares repurchased pursuant to the
Restricted Stock Purchase Agreement shall be the original price paid by the
purchaser and may be paid by cancellation of any indebtedness of the
purchaser to the Company. The repurchase option shall lapse at such rate as
the Administrator may determine (generally ratable over four (4) years, but
in no event shall it lapse over a period of less than one (1) year).
(c) OTHER PROVISIONS. The Restricted Stock Purchase
Agreement shall contain such other terms, provisions and conditions not
inconsistent with the Plan as may be determined by the Administrator in its
sole discretion.
(d) RIGHTS AS A SHAREHOLDER. Once the Stock Purchase Right
is exercised, the purchaser shall have the rights equivalent to those of a
shareholder, and shall be a shareholder when his or her purchase is entered
upon the records of the duly authorized transfer agent of the Company. No
adjustment will be made for a dividend or other right for which the record
date is prior to the date the Stock Purchase Right is exercised, except as
provided in Section 11 of the Plan.
9. LONG-TERM PERFORMANCE AWARDS.
(a) GENERAL. Long-Term Performance Awards are cash or stock
bonus awards that may be granted either alone or in addition to other awards
granted under the Plan. Such awards may be granted for no cash
consideration. The Administrator shall determine the nature, length and
starting date of any performance period (the "Performance Period") for each
Long-Term Performance Award, and shall determine the performance or
employment factors, if any, to be used in the determination of Long-Term
Performance Awards and the extent to which such Long-Term Performance Awards
are valued or have been earned. Long-Term Performance Awards may vary from
participant to participant and between groups of participants and shall be
based upon the achievement of Company, Subsidiary, Parent and/or individual
performance factors or upon such other criteria as the Administrator may deem
appropriate. Performance Periods may overlap and participants may
participate simultaneously with respect to Long-Term Performance Awards that
are subject to different Performance Periods and different performance
factors and criteria. Long-Term Performance Awards shall be confirmed by,
and be subject to the terms of, a Long-Term Performance Award agreement. The
terms of such awards need not be the same with respect to each participant.
-12-
(b) ADJUSTMENT OF AWARDS. The Administrator may adjust the
performance factors applicable to the Long-Term Performance Awards to take
into account changes in legal, accounting and tax rules and to make such
adjustments as the Administrator deems necessary or appropriate to reflect
the inclusion or exclusion of the impact of extraordinary or unusual items,
events or circumstances in order to avoid windfalls or hardships.
10. NON-TRANSFERABILITY OF OPTIONS AND RIGHTS. Unless determined
otherwise by the Administrator, Options and Rights may not be sold, pledged,
assigned, hypothecated, transferred or disposed of in any manner other than
by will or by the laws of descent or distribution and may be exercised,
during the lifetime of the Optionee, only by the Optionee. If the
Administrator makes an Option or Right transferable, such Option or Right may
contain such additional terms and conditions as the Administrator deems
appropriate.
11. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION, DISSOLUTION, MERGER,
ASSET SALE OR CHANGE OF CONTROL.
(a) CHANGES IN CAPITALIZATION. Subject to any required
action by the shareholders of the Company, the number of shares of Common
Stock covered by each outstanding Option and Right, and the number of shares
of Common Stock which have been authorized for issuance under the Plan but as
to which no Options or Rights have yet been granted or which have been
returned to the Plan upon cancellation or expiration of an Option or Right,
as well as the price per share of Common Stock covered by each such
outstanding Option or Right, shall be proportionately adjusted for any
increase or decrease in the number of issued shares of Common Stock resulting
from a stock split, reverse stock split, stock dividend, combination or
reclassification of the Common Stock, or any other increase or decrease in
the number of issued shares of Common Stock effected without receipt of
consideration by the Company; PROVIDED, however, that conversion of any
convertible securities of the Company shall not be deemed to have been
"effected without receipt of consideration." Such adjustment shall be made
by the Administrator, whose determination in that respect shall be final,
binding and conclusive. Except as expressly provided herein, no issuance by
the Company of shares of stock of any class, or securities convertible into
shares of stock of any class, shall affect, and no adjustment by reason
thereof shall be made with respect to, the number or price of shares of
Common Stock subject to an Option or Right.
(b) DISSOLUTION OR LIQUIDATION. In the event of the proposed
dissolution or liquidation of the Company, to the extent that an Option or
Right has not been previously exercised, it will terminate immediately prior
to the consummation of such proposed action. The Administrator may, in the
exercise of its sole discretion in such instances, declare that any Option or
Right shall terminate as of a date fixed by the Administrator and give each
Optionee the right to exercise his or her Option or Right as to all or any
part of the Optioned Stock, including Shares as to which the Option or Right
would not otherwise be exercisable.
(c) MERGER OR ASSET SALE. Subject to the provisions of
paragraph (d) hereof, in the event of a merger of the Company with or into
another corporation, or the sale of substantially all of the assets of the
Company, each outstanding Option and Right shall be assumed or an equivalent
-13-
Option or Right substituted by the successor corporation or a Parent or
Subsidiary of the successor corporation. In the event that the successor
corporation does not agree to assume the Option or Right, or to substitute an
equivalent option or right, the Optionee shall fully vest in and have the
right to exercise the Option or Right as to all of the Optioned Stock,
including Shares as to which it would not otherwise be vested or exercisable.
If an Option or Right becomes fully vested and exercisable in lieu of
assumption or substitution in the event of a merger or sale of assets, the
Administrator shall notify the Optionee that the Option or Right shall be
exercisable for a period of fifteen (15) days from the date of such notice,
and the Option or Right shall terminate upon the expiration of such period.
For the purposes of this paragraph, the Option or Right shall be considered
assumed if, immediately following the merger or sale of assets, the Option or
Right confers the right to purchase, for each Share of Optioned Stock subject
to the Option or Right immediately prior to the merger or sale of assets, the
consideration (whether stock, cash, or other securities or property) received
in the merger or sale of assets by holders of Common Stock for each Share
held on the effective date of the transaction (and if holders were offered a
choice of consideration, the type of consideration chosen by the holders of a
majority of the outstanding Shares); PROVIDED, however, that if such
consideration received in the merger or sale of assets was not solely common
stock of the successor corporation or its Parent, the Administrator may, with
the consent of the successor corporation, provide for the consideration to be
received upon the exercise of the Option or Right, for each Share of Optioned
Stock subject to the Option or Right, to be solely common stock of the
successor corporation or its Parent equal in Fair Market Value to the per
share consideration received by holders of Common Stock in the merger or sale
of assets.
(d) CHANGE IN CONTROL. In the event of a "Change in Control"
of the Company, as defined in paragraph (e) below, any Options and Rights
outstanding on the date such Change in Control is determined to have occurred
that are not yet fully exercisable and vested on such date shall become fully
exercisable and vested.
(e) DEFINITION OF "CHANGE IN CONTROL". For purposes of this
Section 11, a "Change in Control" means the happening of any of the following:
(i) When any "person," as such term is used in Sections 13(d)
and 14(d) of the Exchange Act (other than the Company, a Subsidiary or a
Company employee benefit plan, including any trustee of such plan acting as
trustee) is or becomes the "beneficial owner" (as defined in Rule 13d-3 under
the Exchange Act), directly or indirectly, of securities of the Company
representing fifty percent (50%) or more of the combined voting power of the
Company's then outstanding securities entitled to vote generally in the
election of directors; or
(ii) A merger or consolidation of the Company with any other
corporation, other than a merger or consolidation which would result in the
voting securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being
converted into voting securities of the surviving entity) more than fifty
percent (50%) of the total voting power represented by the voting securities
of the Company or such surviving entity outstanding immediately after such
merger or consolidation, or the shareholders of the Company
-14-
approve an agreement for the sale or disposition by the Company of all or
substantially all the Company's assets; or
(iii) A change in the composition of the Board, as a result of
which fewer than a majority of the directors are Incumbent Directors.
"Incumbent Directors" shall mean directors who either (A) are directors of
the Company as of the date hereof, or (B) are elected, or nominated for
election, to the Board with the affirmative votes of at least a majority of
those directors whose election or nomination was not in connection with any
transaction described in subsections (i) or (ii) or in connection with an
actual or threatened proxy contest relating to the election of directors of
the Company.
12. DATE OF GRANT. The date of grant of an Option or Right shall be,
for all purposes, the date on which the Administrator makes the determination
granting such Option or Right, or such other later date as is determined by
the Administrator.
13. AMENDMENT AND TERMINATION OF THE PLAN.
(a) AMENDMENT AND TERMINATION. The Administrator may at any
time amend, alter, suspend or terminate the Plan.
(b) SHAREHOLDER APPROVAL. The Company shall obtain
shareholder approval of any Plan amendment to the extent necessary and
desirable to comply with Applicable Laws. Such shareholder approval, if
required, shall be obtained in such a manner and to such a degree as is
required by Applicable Laws.
(c) EFFECT OF AMENDMENT OR TERMINATION. No amendment,
alteration, suspension or termination of the Plan shall impair the rights of
any Optionee under any previously granted Option or Right, unless mutually
agreed otherwise between the Optionee and the Administrator, which agreement
must be in writing and signed by the Optionee and the Company. Termination
of the Plan shall not affect the Administrator's ability to exercise the
powers granted to it hereunder with respect to Options or Rights granted
under the Plan prior to the date of such termination.
14. CONDITIONS UPON ISSUANCE OF SHARES.
(a) LEGAL COMPLIANCE. Shares shall not be issued pursuant to
the exercise of an Option or Right unless the exercise of such Option or
Right and the issuance and delivery of such Shares shall comply with all
Applicable Laws, and shall be further subject to the approval of counsel for
the Company with respect to such compliance.
(b) INVESTMENT REPRESENTATIONS. As a condition to the
exercise of an Option or Right, the Company may require the person exercising
such Option or Right to represent and warrant at the time of any such
exercise that the Shares are being purchased only for investment and without
any present intention to sell or distribute such Shares if, in the opinion of
counsel for the Company, such a representation is required.
-15-
15. INABILITY TO OBTAIN AUTHORITY. The inability of the Company to
obtain authority from any regulatory body having jurisdiction, which
authority is deemed by the Company's counsel to be necessary to the lawful
issuance and sale of any Shares hereunder, shall relieve the Company of any
liability in respect of the failure to issue or sell such Shares as to which
such requisite authority shall not have been obtained.
16. RESERVATION OF SHARES. The Company, during the term of this Plan,
will at all times reserve and keep available such number of Shares as shall
be sufficient to satisfy the requirements of the Plan.
17. SHAREHOLDER APPROVAL. Continuance of the Plan shall be subject to
approval by the shareholders of the Company within twelve (12) months before
or after the date the Plan is adopted. Such shareholder approval shall be
obtained in the manner and to the degree required under applicable federal
and state law.
-16-
ADAC LABORATORIES
AMENDED AND RESTATED
1994 EMPLOYEE STOCK PURCHASE PLAN
The following constitute the provisions of the 1994 Employee Stock Purchase
Plan of ADAC Laboratories.
1. PURPOSE. The purpose of the Plan is to provide employees of the
Company and its Designated Subsidiaries with an opportunity to purchase Common
Stock of the Company through accumulated payroll deductions. It is the
intention of the Company to have the Plan qualify as an "Employee Stock Purchase
Plan" under Section 423 of the Internal Revenue Code of 1986, as amended. The
provisions of the Plan, accordingly, shall be construed so as to extend and
limit participation in a manner consistent with the requirements of that section
of the Code.
2. DEFINITIONS.
(a) "BOARD" shall mean the Board of Directors of the Company.
(b) "CODE" shall mean the Internal Revenue Code of 1986, as amended.
(c) "COMMON STOCK" shall mean the common stock of the Company.
(d) "COMPANY" shall mean ADAC Laboratories and any Designated
Subsidiary of the Company.
(e) "COMPENSATION" shall mean all base straight time gross earnings
and commissions, but exclusive of payments for overtime, shift premium,
incentive compensation, incentive payments, bonuses and other compensation.
(f) "DESIGNATED SUBSIDIARY" shall mean any Subsidiary which has been
designated by the Board from time to time in its sole discretion as eligible to
participate in the Plan.
(g) "EMPLOYEE" shall mean any individual who is an Employee of the
Company for tax purposes whose customary employment with the Company is at least
twenty (20) hours per week and more than five (5) months in any calendar year.
For purposes of the Plan, the employment relationship shall be treated as
continuing intact while the individual is on sick leave or other leave of
absence approved by the Company. Where the period of leave exceeds 90 days and
the individual's right to reemployment is not guaranteed either by statute or by
contract, the employment relationship shall be deemed to have terminated on the
91st day of such leave.
(h) "ENROLLMENT DATE" shall mean the first Trading Day of each
Offering Period.
(i) "EXERCISE DATE" shall mean the last Trading Day of each Purchase
or Offering Period.
(j) "FAIR MARKET VALUE" shall mean, as of any date, the value of
Common Stock determined as follows:
(1) If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the Nasdaq
National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its
Fair Market Value shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such exchange or system for
the last market trading day on the date of such determination, as reported in
THE WALL STREET JOURNAL or such other source as the Board deems reliable;
(2) If the Common Stock is regularly quoted by a recognized
securities dealer but selling prices are not reported, its Fair Market Value
shall be the mean of the closing bid and asked prices for the Common Stock on
the date of such determination, as reported in THE WALL STREET JOURNAL or such
other source as the Board deems reliable; or
(3) In the absence of an established market for the Common
Stock, the Fair Market Value thereof shall be determined in good faith by the
Board.
(k) "OFFERING PERIODS" shall mean the periods of approximately
twenty-four (24) months during which an option granted pursuant to the Plan may
be exercised, commencing on the first Trading Day on or after March 1 and
September 1 of each year and terminating on the last Trading Day in the periods
ending twenty-four months later; provided however that the first three (3)
Offering Periods shall be consecutive and overlapping periods of approximately
nine (9), six (6) and three (3) months duration, commencing on the first Trading
Day on or after September 1, 1998, December 1, 1998, and March 1, 1999,
respectively. The duration and timing of Offering Periods may be changed
pursuant to Section 4 of this Plan.
(l) "PLAN" shall mean this 1994 Employee Stock Purchase Plan.
(m) "PURCHASE PERIOD" shall mean the approximately six month period
commencing after one Exercise Date and ending with the next Exercise Date,
except that the first Purchase Period of any Offering Period shall commence on
the Enrollment Date and end with the next Exercise Date; provided, however, that
the nine-month Offering Period commencing on the first Trading Day on or after
September 1 shall contain three (3) three-month Purchase Periods and the
six-month Offering Period commencing December 1, 1998, shall contain two (2)
three-month Purchase Periods.
-2-
(n) "PURCHASE PRICE" shall mean 85% of the Fair Market Value of a
share of Common Stock on the Enrollment Date or on the Exercise Date, whichever
is lower; provided however, that the Purchase Price may be adjusted by the Board
pursuant to Section 20.
(o) "RESERVES" shall mean the number of shares of Common Stock
covered by each option under the Plan which have not yet been exercised and the
number of shares of Common Stock which have been authorized for issuance under
the Plan but not yet placed under option.
(p) "SUBSIDIARY" shall mean a corporation, domestic or foreign, of
which not less than 50% of the voting shares are held by the Company or a
Subsidiary, whether or not such corporation now exists or is hereafter organized
or acquired by the Company or a Subsidiary.
(q) "TRADING DAY" shall mean a day on which national stock exchanges
and the Nasdaq System are open for trading.
3. ELIGIBILITY.
(a) Any Employee who shall be employed by the Company on a given
Enrollment Date shall be eligible to participate in the Plan.
(b) Any provisions of the Plan to the contrary notwithstanding, no
Employee shall be granted an option under the Plan (i) to the extent that,
immediately after the grant, such Employee (or any other person whose stock
would be attributed to such Employee pursuant to Section 424(d) of the Code)
would own capital stock of the Company and/or hold outstanding options to
purchase such stock possessing five percent (5%) or more of the total combined
voting power or value of all classes of the capital stock of the Company or of
any Subsidiary, or (ii) to the extent that his or her rights to purchase stock
under all employee stock purchase plans of the Company and its subsidiaries
accrues at a rate which exceeds Twenty-Five Thousand Dollars ($25,000) worth of
stock (determined at the fair market value of the shares at the time such option
is granted) for each calendar year in which such option is outstanding at any
time.
4. OFFERING PERIODS. The Plan shall be implemented by consecutive,
overlapping Offering Periods with a new Offering Period commencing on the first
Trading Day on or after March 1 and September 1 each year, or on such other
dates as the Board shall determine, and continuing thereafter until terminated
in accordance with Section 20 hereof. The Board shall have the power to change
the duration of Offering Periods (including the commencement dates thereof) with
respect to future offerings without shareholder approval if such change is
announced at least ten (10) days prior to the scheduled beginning of the first
Offering Period to be affected thereafter.
5. PARTICIPATION.
-3-
(a) An eligible Employee may become a participant in the Plan by
completing a subscription agreement authorizing payroll deductions in the form
of Exhibit A to this Plan and filing it with the Company's payroll office not
less than ten (10) business days prior to the applicable Enrollment Date.
(b) Payroll deductions for a participant shall commence on the first
payroll following the Enrollment Date and shall end on the last payroll in the
Offering Period to which such authorization is applicable, unless sooner
terminated by the participant as provided in Section 10 hereof.
6. PAYROLL DEDUCTIONS.
(a) At the time a participant files his or her subscription
agreement, he or she shall elect to have payroll deductions made on each pay day
during the Offering Period in an amount not exceeding ten (10%) of the
Compensation which he or she receives on each pay day during the Offering
Period.
(b) All payroll deductions made for a participant shall be credited
to his or her account under the Plan and shall be withheld in whole percentages
only. A participant may not make any additional payments into such account.
(c) A participant may discontinue his or her participation in the
Plan as provided in Section 10 hereof, or may increase or decrease the rate of
his or her payroll deductions during the Offering Period by completing or filing
with the Company a new subscription agreement authorizing a change in payroll
deduction rate, but not more than three (3) changes may be made in any Offering
Period. The Board may, in its discretion, change the number of participation
rate changes permitted during any Offering Period. The change in rate shall be
effective with the first full payroll period following five (5) business days
after the Company's receipt of the new subscription agreement unless the Company
elects to process a given change in participation more quickly. A participant's
subscription agreement shall remain in effect for successive Offering Periods
unless terminated as provided in Section 10 hereof.
(d) Notwithstanding the foregoing, to the extent necessary to comply
with Section 423(b)(8) of the Code and Section 3(b) hereof, a participant's
payroll deductions may be decreased to zero percent (0%) at any time during a
Purchase Period. Payroll deductions shall recommence at the rate provided in
such participant's subscription agreement at the beginning of the first Purchase
Period which is scheduled to end in the following calendar year, unless
terminated by the participant as provided in Section 10 hereof.
(e) At the time the option is exercised, in whole or in part, or at
the time some or all of the Company's Common Stock issued under the Plan is
disposed of, the participant must make adequate provision for the Company's
federal, state, or other tax withholding obligations, if any,
-4-
which arise upon the exercise of the option or the disposition of the Common
Stock. At any time, the Company may, but shall not be obligated to, withhold
from the participant's compensation the amount necessary for the Company to
meet applicable withholding obligations, including any withholding required
to make available to the Company any tax deductions or benefits attributable
to sale or early disposition of Common Stock by the Employee.
7. GRANT OF OPTION. On the Enrollment Date of each Offering Period, each
eligible Employee participating in such Offering Period shall be granted an
option to purchase on each Exercise Date during such Offering Period (at the
applicable Purchase Price) up to a number of shares of the Company's Common
Stock determined by dividing such Employee's payroll deductions accumulated
prior to such Exercise Date and retained in the Participant's account as of the
Exercise Date by the applicable Purchase Price; provided that in no event shall
an Employee be permitted to purchase during each three-month Purchase Period
more than 100 shares, or each six-month Purchase Period more than 200 shares, of
the Company's Common Stock (subject to any adjustment pursuant to Section 19),
and provided further that such purchase shall be subject to the limitations set
forth in Sections 3(b) and 12 hereof. The Board may, for future Offering
Periods, increase or decrease, in its absolute discretion, the maximum number of
shares of the Company's Common Stock an Employee may purchase during each
Purchase Period of such Offering Period. Exercise of the option shall occur as
provided in Section 8 hereof, unless the participant has withdrawn pursuant to
Section 10 hereof. The option shall expire on the last day of the Offering
Period.
8. EXERCISE OF OPTION.
(a) Unless a participant withdraws from the Plan as provided in
Section 10 hereof, his or her option for the purchase of shares shall be
exercised automatically on the Exercise Date, and the maximum number of full
shares subject to option shall be purchased for such participant at the
applicable Purchase Price with the accumulated payroll deductions in his or her
account. No fractional shares shall be purchased; any payroll deductions
accumulated in a participant's account which are not sufficient to purchase a
full share shall be retained in the participant's account for the subsequent
Purchase Period or Offering Period, subject to earlier withdrawal by the
participant as provided in Section 10 hereof. Any other monies left over in a
participant's account after the Exercise Date shall be returned to the
participant. During a participant's lifetime, a participant's option to
purchase shares hereunder is exercisable only by him or her.
(b) If the Board determines that, on a given Exercise Date, the
number of shares with respect to which options are to be exercised may exceed
(i) the number of shares of Common Stock that were available for sale under the
Plan on the Enrollment Date of the applicable Offering Period, or (ii) the
number of shares available for sale under the Plan on such Exercise Date, the
Board may in its sole discretion (x) provide that the Company shall make a pro
rata allocation of the shares of Common Stock available for purchase on such
Enrollment Date or Exercise Date, as applicable, in as uniform a manner as shall
be practicable and as it shall determine in its sole discretion to be equitable
among all participants exercising options to purchase Common Stock on
-5-
such Exercise Date, and continue all Offering Periods then in effect, or (y)
provide that the Company shall make a pro rata allocation of the shares
available for purchase on such Enrollment Date or Exercise Date, as
applicable, in as uniform a manner as shall be practicable and as it shall
determine in its sole discretion to be equitable among all participants
exercising options to purchase Common Stock on such Exercise Date, and
terminate any or all Offering Periods then in effect pursuant to Section 20
hereof. The Company may make pro rata allocation of the shares available on
the Enrollment Date of any applicable Offering Period pursuant to the
preceding sentence, notwithstanding any authorization of additional shares
for issuance under the Plan by the Company's shareholders subsequent to such
Enrollment Date.
9. DELIVERY. As promptly as practicable after each Exercise Date on
which a purchase of shares occurs, the Company shall arrange the delivery to
each participant, as appropriate, of a certificate representing the shares
purchased upon exercise of his or her option.
10. WITHDRAWAL.
(a) A participant may withdraw all but not less than all the payroll
deductions credited to his or her account and not yet used to exercise his or
her option under the Plan at any time by giving written notice to the Company in
the form of Exhibit B to this Plan. All of the participant's payroll deductions
credited to his or her account shall be paid to such participant promptly after
receipt of notice of withdrawal and such participant's option for the Offering
Period shall be automatically terminated, and no further payroll deductions for
the purchase of shares shall be made for such Offering Period. If a participant
withdraws from an Offering Period, payroll deductions shall not resume at the
beginning of the succeeding Offering Period unless the participant delivers to
the Company a new subscription agreement.
(b) A participant's withdrawal from an Offering Period shall not have
any effect upon his or her eligibility to participate in any similar plan which
may hereafter be adopted by the Company or in succeeding Offering Periods which
commence after the termination of the Offering Period from which the participant
withdraws.
11. TERMINATION OF EMPLOYMENT.
Upon a participant's ceasing to be an Employee, for any reason, he or
she shall be deemed to have elected to withdraw from the Plan and the payroll
deductions credited to such participant's account during the Offering Period but
not yet used to exercise the option shall be returned to such participant or, in
the case of his or her death, to the person or persons entitled thereto under
Section 15 hereof, and such participant's option shall be automatically
terminated. The preceding sentence notwithstanding, a participant who receives
payment in lieu of notice of termination of employment shall be treated as
continuing to be an Employee for the participant's customary number of hours per
week of employment during the period in which the participant is subject to such
payment in lieu of notice.
-6-
12. INTEREST. No interest shall accrue on the payroll deductions of a
participant in the Plan.
13. STOCK.
(a) Subject to adjustment upon changes in capitalization of the
Company as provided in Section 19 hereof, the maximum number of shares of the
Company's Common Stock which shall be made available for sale under the Plan
shall be one hundred eighty-five thousand (185,000) shares.
(b) The participant shall have no interest or voting right in shares
covered by his option until such option has been exercised.
(c) Shares to be delivered to a participant under the Plan shall be
registered in the name of the participant or in the name of the participant and
his or her spouse.
14. ADMINISTRATION. The Plan shall be administered by the Board or a
committee of members of the Board appointed by the Board. The Board or its
committee shall have full and exclusive discretionary authority to construe,
interpret and apply the terms of the Plan, to determine eligibility and to
adjudicate all disputed claims filed under the Plan. Every finding, decision
and determination made by the Board or its committee shall, to the full extent
permitted by law, be final and binding upon all parties.
15. DESIGNATION OF BENEFICIARY.
(a) A participant may file a written designation of a beneficiary who
is to receive any shares and cash, if any, from the participant's account under
the Plan in the event of such participant's death subsequent to an Exercise Date
on which the option is exercised but prior to delivery to such participant of
such shares and cash. In addition, a participant may file a written designation
of a beneficiary who is to receive any cash from the participant's account under
the Plan in the event of such participant's death prior to exercise of the
option. If a participant is married and the designated beneficiary is not the
spouse, spousal consent shall be required for such designation to be effective.
(b) Such designation of beneficiary may be changed by the participant
at any time by written notice. In the event of the death of a participant and
in the absence of a beneficiary validly designated under the Plan who is living
at the time of such participant's death, the Company shall deliver such shares
and/or cash to the executor or administrator of the estate of the participant,
or if no such executor or administrator has been appointed (to the knowledge of
the Company), the Company, in its discretion, may deliver such shares and/or
cash to the spouse or to any one or more dependents or relatives of the
participant, or if no spouse, dependent or relative is known to the Company,
then to such other person as the Company may designate.
-7-
16. TRANSFERABILITY. Neither payroll deductions credited to a
participant's account nor any rights with regard to the exercise of an option or
to receive shares under the Plan may be assigned, transferred, pledged or
otherwise disposed of in any way (other than by will, the laws of descent and
distribution or as provided in Section 15 hereof) by the participant. Any such
attempt at assignment, transfer, pledge or other disposition shall be without
effect, except that the Company may treat such act as an election to withdraw
funds from an Offering Period in accordance with Section 10 hereof.
17. USE OF FUNDS. All payroll deductions received or held by the Company
under the Plan may be used by the Company for any corporate purpose, and the
Company shall not be obligated to segregate such payroll deductions.
18. REPORTS. Individual accounts shall be maintained for each participant
in the Plan. Statements of account shall be given to participating Employees at
least annually, which statements shall set forth the amounts of payroll
deductions, the Purchase Price, the number of shares purchased and the remaining
cash balance, if any.
19. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION, DISSOLUTION, LIQUIDATION,
MERGER OR ASSET SALE.
(a) CHANGES IN CAPITALIZATION. Subject to any required action by the
shareholders of the Company, the Reserves, the maximum number of shares each
participant may purchase each Purchase Period (pursuant to Section 7), as well
as the price per share and the number of shares of Common Stock covered by each
option under the Plan which has not yet been exercised shall be proportionately
adjusted for any increase or decrease in the number of issued shares of Common
Stock resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of the Common Stock, or any other increase or
decrease in the number of shares of Common Stock effected without receipt of
consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration". Such adjustment shall be made by the Board,
whose determination in that respect shall be final, binding and conclusive.
Except as expressly provided herein, no issuance by the Company of shares of
stock of any class, or securities convertible into shares of stock of any class,
shall affect, and no adjustment by reason thereof shall be made with respect to,
the number or price of shares of Common Stock subject to an option.
(b) DISSOLUTION OR LIQUIDATION. In the event of the proposed
dissolution or liquidation of the Company, the Offering Period then in progress
shall be shortened by setting a new Exercise Date (the "New Exercise Date"), and
shall terminate immediately prior to the consummation of such proposed
dissolution or liquidation, unless provided otherwise by the Board. The New
Exercise Date shall be before the date of the Company's proposed dissolution or
liquidation. The Board shall notify each participant in writing, at least
ten (10) business days prior to the New Exercise Date, that the Exercise Date
for the participant's option has been changed to the
-8-
New Exercise Date and that the participant's option shall be exercised
automatically on the New Exercise Date, unless prior to such date the
participant has withdrawn from the Offering Period as provided in Section 10
hereof.
(c) MERGER OR ASSET SALE. In the event of a proposed sale of all or
substantially all of the assets of the Company, or the merger of the Company
with or into another corporation, each outstanding option shall be assumed or an
equivalent option substituted by the successor corporation or a Parent or
Subsidiary of the successor corporation. In the event that the successor
corporation refuses to assume or substitute for the option, any Purchase Periods
then in progress shall be shortened by setting a new Exercise Date (the "New
Exercise Date") and any Offering Periods then in progress shall end on the New
Exercise Date. The New Exercise Date shall be before the date of the Company's
proposed sale or merger. The Board shall notify each participant in writing, at
least ten (10) business days prior to the New Exercise Date, that the Exercise
Date for the participant's option has been changed to the New Exercise Date and
that the participant's option shall be exercised automatically on the New
Exercise Date, unless prior to such date the participant has withdrawn from the
Offering Period as provided in Section 10 hereof.
20. AMENDMENT OR TERMINATION.
(a) The Board of Directors of the Company may at any time and for any
reason terminate or amend the Plan. Except as provided in Section 19 hereof, no
such termination can affect options previously granted, provided that an
Offering Period may be terminated by the Board of Directors on any Exercise Date
if the Board determines that the termination of the Offering Period or the Plan
is in the best interests of the Company and its shareholders. Except as
provided in Section 19 and this Section 20 hereof, no amendment may make any
change in any option theretofore granted which adversely affects the rights of
any participant. To the extent necessary to comply with Section 423 of the Code
(or any successor rule or provision or any other applicable law, regulation or
stock exchange rule), the Company shall obtain shareholder approval in such a
manner and to such a degree as required.
(b) Without shareholder consent and without regard to whether any
participant rights may be considered to have been "adversely affected," the
Board (or its committee) shall be entitled to change the Offering Periods, limit
the frequency and/or number of changes in the amount withheld during an Offering
Period, establish the exchange ratio applicable to amounts withheld in a
currency other than U.S. dollars, permit payroll withholding in excess of the
amount designated by a participant in order to adjust for delays or mistakes in
the Company's processing of properly completed withholding elections, establish
reasonable waiting and adjustment periods and/or accounting and crediting
procedures to ensure that amounts applied toward the purchase of Common Stock
for each participant properly correspond with amounts withheld from the
participant's Compensation, and establish such other limitations or procedures
as the Board (or its committee) determines in its sole discretion advisable
which are consistent with the Plan.
-9-
(c) In the event the Board determines that the ongoing operation of
the Plan may result in unfavorable financial accounting consequences, the Board
may, in its discretion and, to the extent necessary or desirable, modify or
amend the Plan to reduce or eliminate such accounting consequence including, but
not limited to:
(1) altering the Purchase Price for any Offering Period
including an Offering Period underway at the time of the change in Purchase
Price;
(2) shortening any Offering Period so that Offering Period ends
on a new Exercise Date, including an Offering Period underway at the time of the
Board action; and
(3) allocating shares.
Such modifications or amendments shall not require stockholder
approval or the consent of any Plan participants.
21. NOTICES. All notices or other communications by a participant to the
Company under or in connection with the Plan shall be deemed to have been duly
given when received in the form specified by the Company at the location, or by
the person, designated by the Company for the receipt thereof.
22. CONDITIONS UPON ISSUANCE OF SHARES. Shares shall not be issued with
respect to an option unless the exercise of such option and the issuance and
delivery of such shares pursuant thereto shall comply with all applicable
provisions of law, domestic or foreign, including, without limitation, the
Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as
amended, the rules and regulations promulgated thereunder, and the requirements
of any stock exchange upon which the shares may then be listed, and shall be
further subject to the approval of counsel for the Company with respect to such
compliance.
As a condition to the exercise of an option, the Company may require
the person exercising such option to represent and warrant at the time of any
such exercise that the shares are being purchased only for investment and
without any present intention to sell or distribute such shares if, in the
opinion of counsel for the Company, such a representation is required by any of
the aforementioned applicable provisions of law.
23. TERM OF PLAN. The Plan shall become effective upon the earlier to
occur of its adoption by the Board of Directors or its approval by the
shareholders of the Company. It shall continue in effect for a term of ten (10)
years unless sooner terminated under Section 20 hereof.
24. AUTOMATIC TRANSFER TO LOW PRICE OFFERING PERIOD. To the extent
permitted by any applicable laws, regulations, or stock exchange rules if the
Fair Market Value of the Common Stock on any Exercise Date in an Offering Period
is lower than the Fair Market Value of the Common
-10-
Stock on the Enrollment Date of such Offering Period, then all participants
in such Offering Period shall be automatically withdrawn from such Offering
Period immediately after the exercise of their option on such Exercise Date
and automatically re-enrolled in the immediately following Offering Period as
of the first day thereof.
-11-
EXHIBIT A
ADAC LABORATORIES
1994 EMPLOYEE STOCK PURCHASE PLAN
SUBSCRIPTION AGREEMENT
_____ Original Application Enrollment Date: ___________
_____ Change in Payroll Deduction Rate
_____ Change of Beneficiary(ies)
1. _________________ hereby elects participate in the ADAC Laboratories 1994
Employee Stock Purchase Plan (the "Employee Stock Purchase Plan") and
subscribes to purchase shares of the Company's Common Stock in accordance
with this Subscription Agreement and the Employee Stock Purchase Plan.
2. I hereby authorize payroll deductions from each paycheck in the amount of
____% of my Compensation on each payday (from 1 to 10%) during the Offering
Period in accordance with the Employee Stock Purchase Plan. (Please note
that no fractional percentages are permitted.)
3. I understand that said payroll deductions shall be accumulated for the
purchase of shares of Common Stock at the applicable Purchase Price
determined in accordance with the Employee Stock Purchase Plan. I
understand that if I do not withdraw from an Offering Period, any
accumulated payroll deductions will be used to automatically exercise my
option.
4. I have received a copy of the complete Employee Stock Purchase Plan. I
understand that my participation in the Employee Stock Purchase Plan is in
all respects subject to the terms of the Plan. I understand that my
ability to exercise the option under this Subscription Agreement is subject
to shareholder approval of the Employee Stock Purchase Plan.
5. Shares purchased for me under the Employee Stock Purchase Plan should be
issued in the name(s) of (Employee or Employee and Spouse only):_________
______________.
6. I understand that if I dispose of any shares received by me pursuant to the
Plan within 2 years after the Enrollment Date (the first day of the
Offering Period during which I purchased such shares) or one year after
the Exercise Date, I will be treated for federal income tax purposes as
having received ordinary income at the time of such disposition in an
amount equal to the
excess of the fair market value of the shares at the time such shares were
purchased by me over the price which I paid for the shares. I HEREBY AGREE
TO NOTIFY THE COMPANY IN WRITING WITHIN 30 DAYS AFTER THE DATE OF ANY
DISPOSITION OF MY SHARES AND I WILL MAKE ADEQUATE PROVISION FOR FEDERAL,
STATE OR OTHER TAX WITHHOLDING OBLIGATIONS, IF ANY, WHICH ARISE UPON THE
DISPOSITION OF THE COMMON STOCK. The Company may, but will not be obligated
to, withhold from my compensation the amount necessary to meet any
applicable withholding obligation including any withholding necessary
to make available to the Company any tax deductions or benefits
attributable to sale or early disposition of Common Stock by me. If I
dispose of such shares at any time after the expiration of the 2-year and
1-year holding periods, I understand that I will be treated for federal
income tax purposes as having received income only at the time of such
disposition, and that such income will be taxed as ordinary income only to
the extent of an amount equal to the lesser of (1) the excess of the fair
market value of the shares at the time of such disposition over the
purchase price which I paid for the shares, or (2) 15% of the fair market
value of the shares on the first day of the Offering Period. The remainder
of the gain, if any, recognized on such disposition will be taxed as
capital gain.
7. I hereby agree to be bound by the terms of the Employee Stock Purchase
Plan. The effectiveness of this Subscription Agreement is dependent upon
my eligibility to participate in the Employee Stock Purchase Plan.
8. In the event of my death, I hereby designate the following as my
beneficiary(ies) to receive all payments and shares due me under the
Employee Stock Purchase Plan:
NAME: (Please print)
----------------------------------------------
(First) (Middle) (Last)
- ------------------------------- ---------------------------------------------
Relationship
---------------------------------------------
(Address)
-2-
Employee's Social
Security Number: ------------------------------------
Employee's Address: ------------------------------------
------------------------------------
------------------------------------
I UNDERSTAND THAT THIS SUBSCRIPTION AGREEMENT SHALL REMAIN IN EFFECT THROUGHOUT
SUCCESSIVE OFFERING PERIODS UNLESS TERMINATED BY ME.
Dated: ------------------------- ----------------------------------------
Signature of Employee
----------------------------------------
Spouse's Signature (If beneficiary other than
spouse)
-3-
EXHIBIT B
ADAC LABORATORIES
1994 EMPLOYEE STOCK PURCHASE PLAN
NOTICE OF WITHDRAWAL
The undersigned participant in the Offering Period of the ADAC Laboratories
1994 Employee Stock Purchase Plan which began on ____________, 19____ (the
"Enrollment Date") hereby notifies the Company that he or she hereby withdraws
from the Offering Period. He or she hereby directs the Company to pay to the
undersigned as promptly as practicable all the payroll deductions credited to
his or her account with respect to such Offering Period. The undersigned
understands and agrees that his or her option for such Offering Period will be
automatically terminated. The undersigned understands further that no further
payroll deductions will be made for the purchase of shares in the current
Offering Period and the undersigned shall be eligible to participate in
succeeding Offering Periods only by delivering to the Company a new Subscription
Agreement.
Name and Address of Participant:
--------------------------------
--------------------------------
--------------------------------
Signature:
--------------------------------
Date
----------------------------