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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED) October 14, 1997
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InSight Health Services Corp.
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(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
Delaware 0-28622 33-0702770
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(STATE OR OTHER JURISDICTION (COMMISSION (IRS EMPLOYER
OF INCORPORATION) FILE NUMBER) IDENTIFICATION NO.)
4400 MacArthur Boulevard, Suite 800, Newport Beach, CA 92660
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(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(714) 476-0733
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(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
N/A
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(FORMER NAME OR FORMER ADDRESS, IF CHANGED SINCE LAST REPORT)
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ITEM 5. OTHER EVENTS.
On October 14, 1997, InSight Health Services Corp., a Delaware corporation
("InSight" or the "Company"), consummated a recapitalization
("Recapitalization") pursuant to which (a) certain investors (the "Carlyle
Stockholders") affiliated with TC Group, L.L.C., a Delaware limited liability
company doing business as The Carlyle Group, a private merchant bank
headquartered in Washington, D.C., made a cash investment of $25 million in the
Company and received therefor 25,000 shares of newly issued Convertible
Preferred Stock, Series B of the Company, par value $0.001 per share ("Series B
Preferred Stock"), initially convertible, at the option of the holders thereof,
in the aggregate into 2,985,075 shares of InSight common stock, par value $0.001
per share ("Common Stock"), and warrants (the "Carlyle Warrants") to purchase up
to 250,000 shares of Common Stock at the initial exercise price of $10.00 per
share; (b) General Electric Company, a New York corporation ("GE"), (i)
surrendered its rights under an amended equipment service agreement to receive
annual supplemental service fee payments equal to 14% of pretax income in
exchange for the issuance of 7,000 shares of newly issued Convertible Preferred
Stock, Series C of the Company, par value $0.001 per share ("Series C Preferred
Stock"), initially convertible, at the option of GE, in the aggregate into
835,821 shares of Common Stock, and warrants (the "GE Warrants") to purchase up
to 250,000 shares of Common Stock at the initial exercise price of $10.00 per
share, and (ii) agreed to exchange all of its shares of InSight's Convertible
Preferred Stock, Series A of the Company, par value $0.001 per share (the
"Series A Preferred Stock"), on the business day (the "Second Closing") after
all waiting periods with respect to GE's filing under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended, have expired or been terminated,
for an additional 20,953 shares of Series C Preferred Stock, initially
convertible, at the option of GE, in the aggregate into 2,501,851 shares of
Common Stock; and (c) the Company executed a Credit Agreement with NationsBank,
N.A. pursuant to which NationsBank, as agent and lender, committed to provide, a
total of $125 million in senior secured credit (the "Bank Financing"), including
(i) a $50 million term loan facility consisting of a $20 million tranche with
increasing amortization over a five-year period and a $30 million tranche with
increasing amortization over a seven-year period, principally repayable in
years 6 and 7, (ii) a $25 million revolving working capital facility with a
five-year maturity, and (iii) a $50 million acquisition facility.
Initial funding under the Bank Financing occurred on October 22, 1997
and, on December 19, 1997, the acquisition facility was increased to $75
million. The Second Closing occurred on November 4, 1997. As a result of the
Second Closing, GE holds 27,953 shares of Series C Preferred Stock initially
convertible, at its option, into 3,337,672 shares of Common Stock, and there
are no shares of Series A Preferred Stock outstanding.
THE SERIES B PREFERRED STOCK
The following is a description of the rights, preferences and privileges of
the Series B Preferred Stock as set forth in the Certificate of Designation,
Preferences and Rights of Convertible Preferred Stock, Series B (the "Series B
Certificate of Designation"). Such description does not purport to be complete
and is subject to and qualified in its entirety by reference to the Series B
Certificate of Designation, a copy of which is filed with the Securities and
Exchange Commission (the "SEC") as Exhibit 3.2 to InSight's Annual Report on
Form 10-K for the year ended June 30, 1997 (the "1997 Form 10-K").
RANK. The Series B Preferred Stock ranks, with respect to dividend
distributions and distributions upon the liquidation, winding up and
dissolution of the Company, (i) senior to all classes of the Company's Common
Equity (defined to mean any class of common stock, including the Common
Stock, which has the right, subject to preferred stock rights, to participate
in any distribution of the assets or earnings of the Company without limit as
to per share amount) and to each other class or series of the Company's
capital stock ("Capital Stock"), the terms of which do not expressly provide
that it ranks senior to or on a parity with the Series B Preferred Stock with
respect to such distributions (collectively, the "Junior Securities"); (ii)
on a parity with any class or series of Capital Stock which expressly
provides that it ranks on a parity with the Series B Preferred Stock as to
such distributions (such shares, together with the Series C Preferred Stock
and the Convertible Preferred Stock, Series D, par value $0.001 (the "Series
D Preferred Stock") are, collectively, the "Parity Securities"); and (iii)
junior to each class or series of Capital Stock issued in accordance with the
"Protective Provisions" described below and which expressly provides that it
ranks senior to the Series B Preferred Stock as to such distributions
(collectively, the "Senior Securities").
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DIVIDEND RIGHTS. Each holder of Series B Preferred Stock is entitled to
receive dividends (when, as and if declared by InSight's Board of Directors
(the "Board"), together with holders of Series C Preferred Stock, Series D
Preferred Stock (collectively with the Series B Preferred Stock, the
"Preferred Stock") and Common Stock, on a basis proportionate to the number
of shares of Common Stock held by such holder (assuming conversion of all
Preferred Stock). No dividends will be paid on any Common Stock until the
holders of the Preferred Stock have been paid in full their pro rata portion
thereof.
LIQUIDATION PREFERENCE. Upon any Liquidating Event (as defined below), the
holders of the Series B Preferred Stock then outstanding shall be entitled to be
paid $1,000 per share of Series B Preferred Stock (the "Series B Liquidation
Preference"), plus any declared but unpaid dividends thereon, before any payment
shall be made on any assets distributed to the holders of any of the Junior
Securities, including Common Stock. Otherwise, holders of Series B Preferred
Stock shall not be entitled to any distribution in the event of liquidation,
dissolution or winding up of the affairs of the Company. "Liquidating Event"
means, with respect to a Person (as defined below), any of (i) the commencement
by such Person of a voluntary case under the bankruptcy laws of the United
States or the commencement of an involuntary case against such Person with
respect to which the petition shall not be controverted within 15 days or
dismissed within 60 days after commencement thereof; (ii) the appointment of a
custodian for, or the taking charge by a custodian of, all or substantially all
of the property of such Person; (iii) the commencement by such Person of any
proceeding under any reorganization, arrangement, adjustment of debt, relief of
debtors, dissolution, insolvency or liquidation or similar law relating to such
Person; (iv) the commencement against such Person of any proceeding set forth in
clause (iii) which is not controverted within 10 days thereof and dismissed
within 60 days after commencement thereof; (v) the adjudication of such Person
insolvent or bankrupt, or the adoption by such Person of a plan of liquidation;
(vi) the occurrence of any Change of Control (as defined below) with respect to
such Person; or (vii) the filing of a certificate of dissolution in respect of
InSight; in any of cases (i) through (vi) above, in a single transaction or
series of related transactions. "Person" means any individual, corporation,
partnership, joint venture, association, limited liability company, joint-stock
company, trust, unincorporated organization or government or agency or political
subdivision thereof (including any subdivision or ongoing business of any such
entity or substantially all of the assets of any such entity, subdivision or
business).
A "Change of Control" will be deemed to have occurred with respect to a
Person (i) at such time as any person (as defined in Section 13(d)(3) of the
Securities Exchange Act of 1934, as amended) at any time shall directly or
indirectly acquire more than 40% in outstanding voting power of such Person,
(ii) at such time as during any one year period, individuals who at the
beginning of such period constitute such Person's board of directors or other
governing body cease to constitute at least a majority of such board or
governing body (other than upon a Type B Event Date (as defined below)), (iii)
upon consummation of a merger or consolidation of such Person into or with
another Person in which the stockholders of the subject Person immediately prior
to the consummation of such transaction shall own less than 50% of the voting
securities of the surviving Person (or its parent corporation where the
surviving Person is wholly owned by the parent corporation) immediately
following consummation of such transaction or (iv) the sale, transfer or lease
of all or substantially all of the assets of such Person, in any of cases of
(i), (ii), (iii) or (iv) above, in a single transaction or series of related
transactions; provided that no Change of Control shall be deemed to occur solely
by reason of (x) the ownership by the Carlyle Stockholders or any of their
affiliates or by GE or any of its affiliates of any Capital Stock of the
Company, (y) the conversion of Series C Preferred Stock into Series D Preferred
Stock (and any Board changes incident thereto) or (z) the conversion of Series D
Preferred Stock into Common Stock.
CONVERSION RIGHTS. Each share of Series B Preferred Stock is initially
convertible, without payment, by the holder thereof, into 119.403 shares of
Common Stock based upon an initial conversion price of $8.375 per share, subject
to adjustment (the "Conversion Price"). The Conversion Price is subject to (i)
decrease if InSight at any time subdivides (by stock split, stock dividend,
reclassification, recapitalization or otherwise) one or more classes or series
of its outstanding Common Equity into a greater number of shares or (ii)
increase if InSight at any
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time combines (by reverse stock split or otherwise) one or more classes or
series of its outstanding Common Equity into a smaller number of shares. In the
event of any Corporate Change (defined to mean any recapitalization,
reorganization, reclassification, consolidation, merger, sale of all or
substantially all of InSight's assets or other transaction, effected in such a
way that the holders of Common Equity are entitled to receive stock, securities,
cash, debt instruments or assets with respect to or in exchange for Common
Equity), each share of Series B Preferred Stock then outstanding will become
convertible only into the kind and amount of securities, cash and other property
receivable upon such Corporate Change by the holder of the number of shares of
Common Stock into which such share of Series B Preferred Stock was convertible
immediately prior thereto. If InSight declares or pays a Liquidating Dividend
(defined to mean a dividend upon the Common Equity payable otherwise than out of
earnings or earned surplus except for a stock dividend payable in Common Stock),
InSight shall pay to each holder of a share of Series B Preferred Stock the
Liquidating Dividend that would have been paid to such holder on the Common
Stock such holder would have owned had such holder fully exercised its right to
convert the shares of Series B Preferred Stock into Common Stock immediately
prior to the record or determination date for such Liquidating Dividend. In
addition, if InSight issues any shares of Common Stock or securities convertible
into, or exercisable for, shares of Common Stock at a common stock equivalent
price of less than the Conversion Price in effect at the time of such issuance,
then, subject to certain exceptions, such Conversion Price shall be adjusted in
accordance with certain price-based antidilution provisions.
The Series B Preferred Stock may be converted only in a Type A Conversion
or a Type B Conversion, as described below.
TYPE A CONVERSION. Each holder of Series B Preferred Stock has the right,
at its option, at any time, to convert all, but not less than all, of its Series
B Preferred Stock then outstanding into such number of shares of Common Stock as
results from dividing (i) the sum of (A) the aggregate Liquidation Preference of
all shares of Series B Preferred Stock to be converted plus (B) any declared but
unpaid dividends on such shares, by (ii) the applicable Conversion Price on the
date of conversion (the "Conversion Date"). In addition, substantially
contemporaneous with any Partial Conversion Event (defined to mean (a) the sale
at any time of a holder's Series B Preferred Stock to a third party approved by
the Board, (b) the consummation at any time of a public offering of Common Stock
and (c) the consummation of a private sale of Common Stock after April 14,
1999), each holder of Series B Preferred Stock has the right, at its option, to
convert all or any part of its Series B Preferred Stock into such number of
shares of Common Stock as results from dividing (i) the sum of (A) the aggregate
Liquidation Preference of all shares of Series B Preferred Stock to be converted
plus (B) any declared but unpaid dividends on such shares, by (ii) the
applicable Conversion Price on the Conversion Date.
TYPE B CONVERSION. At any time on or after October 22, 1998 (the "Type B
Trigger Date"), the holders of a majority of the Series B Preferred Stock may
elect to deliver an irrevocable notice (a "Type B Conversion Notice") to convert
all of their Series B Preferred Stock into Series D Preferred Stock, provided
that such notice shall not be effective unless substantially contemporaneous
with its delivery the holders of a majority of the Series C Preferred Stock
deliver a similar notice to convert all of their Series C Preferred Stock into
Series D Preferred Stock. On the date of delivery of the Type B Conversion
Notice (the "Type B Event Date") each share of Series B Preferred Stock then
outstanding shall automatically be converted into such number of shares of
Series D Preferred Stock as results from dividing (i) the sum of (A) the
aggregate Series B Liquidation Preference of such share of Series B Preferred
Stock plus (B) any declared but unpaid dividends on such share, by (ii) the
product of ten (10) times the applicable Conversion Price on the Type B Event
Date. Each outstanding share of Series C Preferred Stock will also
automatically be converted into Series D Preferred Stock based upon a similar
formula. The rights of holders of Series B Preferred Stock with respect to a
Type B Conversion are not transferable except to an affiliate of an initial
purchaser of Series B Preferred Stock.
REDEMPTION. The Series B Preferred Stock is not subject to mandatory
redemption by InSight or the holder thereof, pursuant to InSight's or such
holder's unilateral election.
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VOTING AND RELATED RIGHTS. Holders of Series B Preferred Stock have the
right to vote with the holders of Common Stock and the holders of Series C
Preferred Stock with respect to all matters submitted to a stockholder vote,
except for the election of directors (with respect to which the holders of
the Series B Preferred Stock have the voting rights set forth in "Composition
of Board" below). With respect to all matters submitted to a stockholder
vote (except for the election of directors), each holder of Series B
Preferred Stock has one vote for every share of Common Stock into which each
share of Series B Preferred Stock is then convertible, provided that the
aggregate number of such votes, when combined with the aggregate number of
votes attributable to the holders of Series C Preferred Stock, shall not
exceed 37% of the total number of votes eligible to be cast.
SUPERMAJORITY BOARD VOTE. Prior to a Type B Event Date, approval of at
least six directors is required for the approval of the annual capital budget
plan and for any financing activity not approved by the Executive Committee (as
defined below) of the Board.
BYLAW AMENDMENTS. InSight's Bylaws may be amended, repealed or replaced by
InSight's stockholders or the Board only upon approval by (i) in the case of
adoption by the Board, prior to the first meeting of the newly constituted Board
held two calendar days after a Type B Event Date (a "First Meeting"), a majority
of the Preferred Stock Directors (as defined below) and either (A) a majority of
the entire Board (if such amendment, repeal or replacement does not increase the
size of the Board) or (B) at least 80% of the members of the entire Board (if
such amendment, repeal or replacement does increase the size of the Board); or
(ii) in case of adoption by the stockholders with a record date on or before a
Type B Event Date, holders of at least 80% of the outstanding shares entitled
to vote in the election of directors, voting as one class, and by holders of a
majority of the shares outstanding as of such record date of whichever (or both)
of Series B Preferred Stock or Series C Preferred Stock continued (as of such
record date) to have the right to elect one or more Preferred Stock Directors.
PROTECTIVE PROVISIONS. For so long as the Carlyle Stockholders and
certain affiliates thereof own at least 33% of the Series B Preferred Stock,
the approval of the holders of at least 67% of the Series B Preferred Stock
is required before the Company may take the following actions: (a) alter,
change or amend (by merger or otherwise) any of (i) the rights, preferences
and privileges of the Series B Preferred Stock or any other class of capital
stock; or (ii) the terms or provisions of any option or convertible security;
(b) enter into any transaction or event that could result in a Special
Corporate Event with respect to InSight or any subsidiary (defined to include
the acquisition of more than 20% of the voting power, a change in a majority
of the board of directors other than pursuant to a Type B Event, a merger
resulting in a change in ownership of 50% or more of the voting securities of
the Person surviving such merger or the sale of all or substantially all of
the assets); (c) initiate any Liquidating Event with respect to InSight or
any subsidiary; (d) amend, restate, alter, modify or repeal (by merger or
otherwise) the Certificate of Incorporation or the Bylaws of InSight,
including, without limitation, amendment, restating, modifying or repealing
(by merger or otherwise) any certificate of designation or preferences
relating to the Series B Preferred Stock, the Series C Preferred Stock or the
Series D Preferred Stock; (e) amend, restate, alter, modify or repeal (by
merger or otherwise) or permit any subsidiary to amend, restate, alter,
modify or repeal (by merger or otherwise) the certificate of incorporation,
other organizational documents, or bylaws of any subsidiary in any material
respect; (f) change the number of directors of InSight to a number less than
eight or more than nine or the manner in which the directors are selected, as
provided in the Certificate of Incorporation, Bylaws, Series B Preferred
Stock Certificate of Designation, the Certificate of Designations,
Preferences and Rights of Convertible Preferred Stock, Series C (the "Series
C Certificate of Designation"), and the Certificate of Designations,
Preferences and Rights of Convertible Preferred Stock, Series D (the "Series
D Certificate of Designation"); (g) except with respect to the Bank
Financing, or any other credit facility existing as of October 14, 1997,
incur any indebtedness, in the aggregate with respect to InSight and its
subsidiaries, in excess of $15 million in any fiscal year; (h) become a
party to operating leases during any fiscal year with respect to which the
present value of all payments due during the term of such operating leases in
the aggregate (determined using a discount rate of 10%) exceed $15 million;
(i) create, authorize or issue any shares of Series B Preferred Stock or any
class or series of
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Senior Securities, Parity Securities, or securities having the right to cast
more than one vote per share or to elect one or more members of the Board
("Supervoting Securities"), or shares of any such class or series; (j)
reclassify any authorized stock of the Company into Series B Preferred Stock or
any class or series of Senior Securities, Parity Securities, Supervoting
Securities or shares of any such class or series; (k) increase or decrease the
authorized number of shares of Series B Preferred Stock or any class or series
of Senior or Parity Securities or shares of any such class or series; (l) issue
any equity security below either the then current Market Price (without
deduction for any underwriters' discount) or the then-applicable Conversion
Price other than for (A) management stock options currently authorized and
available for grant for not more than Three Hundred Thousand (300,000) shares of
Common Stock in the aggregate, in which senior management of the Company shall
not participate, (B) management stock options exercisable at not less than the
then-applicable Conversion Price per share of Common Stock issued after October
14, 1997, and exercisable for not more than Five Hundred Thousand (500,000)
shares of Common Stock in the aggregate, in which only certain members of senior
management of the Company shall participate, and (C) the Common Stock underlying
such management stock options referred to in (A) and (B) above and other stock
options outstanding as of October 14, 1997; (m) declare or pay any dividend or
make any distribution with respect to shares of Capital Stock or any securities
convertible into, or exercisable, redeemable or exchangeable for, any share of
Capital Stock directly or indirectly, whether in cash, obligations or shares of
InSight or other property; (n) acquire, in one or a series of related
transactions, any equity ownership interest or interests of any Person, where
the aggregate consideration payable in connection with such acquisition is equal
to or greater than $15 million; (o) acquire any asset or assets of any Person in
any transaction or transactions, where the aggregate consideration payable in
connection with any single such transaction whether such transaction is effected
in a single transaction or series of related transactions, is greater than $15
million; provided that this provision shall not apply to certain capital
expenditures made by InSight in the ordinary course of business; (p) merge or
consolidate with any Person, or permit any other Person to merge into it, where
(i) the stockholders of InSight immediately prior to the consummation of such
merger or consolidation shall, immediately after the consummation of such merger
or consolidation, hold securities possessing more than 50% of both the total
voting power of and the beneficial ownership interests in the surviving entity
of such merger or consolidation and (ii) the equity holders of the subject
Person immediately prior to the consummation of such transaction shall receive
(directly or indirectly) aggregate consideration payable in connection with such
transaction equal to or greater than $15 million; (q) cause or permit any
subsidiary to merge or consolidate with any Person (other than InSight or a
wholly owned subsidiary of InSight), or cause or permit any other Person to
merge into it, where: (i) the stockholders of such subsidiary immediately prior
to the consummation of such merger or consolidation shall, immediately after the
consummation of such merger or consolidation, hold securities possessing more
than 50% of both the total voting power of and the beneficial ownership
interests in the surviving entity of such merger or consolidation and (ii) the
equity holders of the subject Person immediately prior to the consummation of
such transaction shall receive (directly or indirectly) aggregate consideration
payable in connection with such transaction equal to or greater than $15
million; (r) substantially and materially engage in, either through acquisition
or internal development, any business other than the business of providing
diagnostic services to the healthcare industry; (s) make or permit any of its
subsidiaries to make capital expenditures in any fiscal year in excess, in the
aggregate, of two percent (2%) above the approved capital budget plan for such
fiscal year of InSight unless such expenditure is approved by the Executive
Committee or a Supermajority Board Vote; (t) (i) sell, transfer, convey, lease
or dispose of, outside the ordinary course of business, any assets or properties
of InSight or any subsidiary, whether now or hereafter acquired, in any
transaction or transactions, if (X) the aggregate consideration payable in
connection with any single such transaction is greater than $5 million or
(Y) the aggregate consideration payable in connection with all such transactions
consummated after October 14, 1997, taken as a whole, is or would become as a
result of such transaction greater than $20 million; (ii) undergo or cause or
permit any subsidiary to undergo a reorganization or recapitalization;
(iii) merge or consolidate with any Person, or permit any other Person to merge
into it, where the stockholders of InSight immediately prior to the consummation
of such merger or consolidation shall, immediately after the consummation of
such merger or consolidation, hold securities possessing 50% or less of either
the total voting power of or the beneficial ownership interests in the surviving
entity of such merger or consolidation; (iv) cause or permit any subsidiary to
merge or consolidate with any other Person (other than InSight or a wholly owned
subsidiary of
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InSight), or cause or permit any other Person to merge into such subsidiary,
where the stockholders of such subsidiary immediately prior to the consummation
of such merger or consolidation shall, immediately after the consummation of
such merger or consolidation, hold 50% or less of either the total voting power
of or the beneficial ownership interests in the surviving entity of such merger
or consolidation if (X) the value of the assets of such subsidiary is greater
than $5 million or (Y) the aggregate value of the assets of all such
subsidiaries with respect to all such mergers or consolidations consummated
after October 14, 1997, taken as a whole and including such transaction, is or
would become as a result of such transaction greater than $20 million; (u)
permit any subsidiary of InSight to issue or sell any share of capital stock,
option or convertible security; provided that InSight may form a new subsidiary
not all of the equity securities of which need be owned directly or indirectly
by InSight (a "Partial Subsidiary"), but only if (i) at the time of creation of
such Partial Subsidiary, such Partial Subsidiary is designated as such in a
written notice to the holders of the shares of Series B Preferred Stock, and,
(ii) cumulatively through time no more than $5,000 of assets (in the aggregate)
are transferred to such Partial Subsidiary by InSight or any other subsidiary,
and (iii) no liabilities of such Partial Subsidiary are ever assumed or
guaranteed by InSight or any other subsidiary; or (v) issue any share of Series
D Preferred Stock, otherwise than pursuant to a Type B Conversion.
"Market Price" means as to any security the average of the closing prices of any
such security's sales on all domestic securities exchanges on which such
security may at the time be listed, or, if there have been no sales on any such
exchange on any day, the average of the highest bid and lowest asked prices on
all such exchanges at the end of such day, or, if on any day such security is
not so listed, the average of the representative bid and asked prices quoted in
Nasdaq as of 4:00 p.m., New York time, on such day, or, if on any day such
security is not quoted in Nasdaq, the average of the highest bid and lowest
asked prices on such day in the domestic over-the-counter market as reported by
the National Quotation Bureau, Incorporated, or any similar successor
organization, in each such case averaged over a period of 21 business days
consisting of the day as of which Market Price is to be determined and the 20
consecutive business days prior to such day. If such security is not so listed
or quoted, Market Price shall be the fair market value of such security
determined by the Company and the holders of a majority of the Series B
Preferred Stock in accordance with certain procedures.
PREEMPTIVE RIGHTS. The holders of Series B Preferred Stock have a right
of first offer with respect to future sales in any transaction or proposed
transaction not involving a public offering by InSight of Common Equity
(including Common Stock) or any securities convertible or exchangeable into
Common Equity, excluding offers of Common Stock pursuant to options granted
to its officers, directors and employees for the primary purpose of
soliciting or retaining their employment or services (the "Preemptive
Securities"). With respect to any proposed offering by InSight of Preemptive
Securities in which the proposed sale price reflects a price per share of
Common Stock at or above the higher (the "Trigger Price") of (i) the Market
Price per share of Common Stock as of the date of InSight's written notice
(the "Preemptive Notice") to such holders regarding the proposed offering or
(ii) $8.375 per share of Common Stock (a "Type A Offering"), each holder may
elect to purchase, pursuant to specified procedures, at the price and on the
terms specified in the Preemptive Notice, up to that portion of Preemptive
Securities which equals the proportion that the number of shares of Common
Stock issuable upon conversion of the Series B Preferred Stock then held by
such holder bears to the total number of shares of Common Stock then
outstanding (assuming full conversion of all convertible securities,
including all Series B Preferred Stock, Series C Preferred Stock and Series D
Preferred Stock). With respect to any proposed offering by InSight of
Preemptive Securities in which the proposed sale price reflects a price per
share of Common Stock below the Trigger Price (a "Type B Offering"), each
holder may elect to purchase, pursuant to specified procedures, at the price
and on the terms specified in the Preemptive Notice, up to that portion of
Preemptive Securities which equals the proportion that the number of shares
of Common Stock issuable upon conversion of the Series B Preferred Stock then
held by such holder bears to the total number of shares of Common Stock into
which the outstanding shares of Series B Preferred Stock are then
convertible. Certain procedures are provided to permit holders of Series B
Preferred Stock to purchase Preemptive Securities which other holders of
Series B Preferred Stock decline to purchase. In the event that there
remain any unpurchased Preemptive Securities InSight may offer and sell the
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remaining unsubscribed portion of such Preemptive Securities, on the same terms
and conditions specified in the Preemptive Notice to any Person for a specified
period of time.
THE SERIES C PREFERRED STOCK
The rights, preferences and privileges of the Series C Preferred Stock, as
set forth in the Series C Certificate of Designation, are substantially the same
as those described above with respect to the Series B Preferred Stock
(substituting therein "Series C Preferred Stock" for "Series B Preferred Stock"
and "Series B Preferred Stock" for "Series C Preferred Stock", as the case may
be), except as set forth below in "Composition of the Board." Such description
does not purport to be complete and is subject to and qualified in its entirety
by reference to the Series C Certificate of Designation, a copy of which is
filed as Exhibit 3.3 to the 1997 Form 10-K.
THE SERIES D PREFERRED STOCK
The following is a brief description of the rights, preferences and
privileges of the Series D Preferred Stock as set forth in the Series D
Certificate of Designation. Such description does not purport to be complete and
is subject to and qualified in its entirety by reference to the Series D
Certificate of Designation, a copy of which is filed as Exhibit 3.4 to the 1997
Form 10-K.
RANK. The Series D Preferred Stock ranks on a parity with the Series B
Preferred Stock and the Series C Preferred Stock.
DIVIDEND RIGHTS. Each holder of Series D Preferred Stock is entitled to
receive dividends (when, as and if declared by the Board) together with
holders of Series B Preferred Stock, Series C Preferred Stock and Common
Stock on a basis proportionate to the number of shares of Common Stock held
by such holder (assuming conversion of all Preferred Stock).
LIQUIDATION PREFERENCE. Upon any Liquidating Event, the holders of the
Series D Preferred Stock then outstanding shall be entitled to be paid $.001 per
share of Series D Preferred Stock, plus any declared but unpaid dividends
thereon, before any payment shall be made on any assets distributed to the
holders of any of the Junior Securities, including Common Stock. In addition,
holders of Series D Preferred Stock shall be entitled to receive any
distribution in the event of liquidation, dissolution or winding up of the
affairs of the Company on a parity with shares of Common Stock , on a pro rata
basis (assuming full conversion of all shares of Series D Preferred Stock into
Common Stock).
CONVERSION RIGHTS. Each holder of Series D Preferred Stock shall have the
right, at its option, to convert all or any part of its Series D Preferred Stock
into such number of shares of Common Stock as results from multiplying the
number of shares of Series D Preferred Stock to be converted by the Conversion
Multiple. The "Conversion Multiple" is initially ten (10) and is subject to (i)
increase if InSight at any time subdivides (by stock split, stock dividend,
reclassification, recapitalization or otherwise) one or more classes or series
of its outstanding Common Equity into a greater number of shares or (ii)
decrease if InSight at any time combines (by reverse stock split or otherwise)
one or more classes or series of its outstanding Common Equity into a smaller
number of shares. In the event of any Corporate Change, each share of Series D
Preferred Stock then outstanding will become convertible only into the kind and
amount of securities, cash and other property receivable upon such Corporate
Change by the holder of the number of shares of Common Stock into which such
share of Series D Preferred Stock was convertible immediately prior thereto. If
InSight declares or pays a Liquidating Dividend, InSight shall pay to each
holder of a share of Series D Preferred Stock the Liquidating Dividend that
would have been paid to such holder on the Common Stock such holder would have
owned had such holder fully exercised its right to convert the shares of Series
D Preferred Stock into Common Stock immediately prior to the record or
determination date for such Liquidating Dividend.
- 8 -
<PAGE>
REDEMPTION. The Series D Preferred Stock is not subject to mandatory
redemption by InSight or the holder thereof, pursuant to InSight's or such
holder's unilateral election.
VOTING RIGHTS. Holders of Series D Preferred Stock have the right to vote
with the holders of Common Stock with respect to all matters submitted to a
stockholder vote, except for the election of directors (with respect to which
the holders of the Series D Preferred Stock have the voting rights set forth in
"Composition of Board" below). With respect to all matters submitted to a
stockholder vote (except for the election of directors), each holder of Series D
Preferred Stock will have one vote for every share of Common Stock into which
each share of Series D Preferred Stock is then convertible.
PROTECTIVE PROVISIONS. The approval of the holders of at least 67% of the
Series D Preferred Stock is required before the Company may take the following
actions: (a) create, authorize or issue any shares of Series D Preferred Stock
or any class or series of Supervoting Securities or shares of such class or
series; (b) reclassify any authorized stock of InSight into Series D Preferred
Stock or any class or series of Supervoting Securities or shares of any such
class or series; or (c) increase or decrease the authorized number of shares of
Series D Preferred Stock or any class or series of Supervoting Securities or
shares of any such class or series.
COMPOSITION OF THE BOARD
Pursuant to the terms of the Recapitalization, the number of directors
comprising the Board is currently fixed at nine. Six directors (the "Common
Stock Directors") are to be elected by the Common Stock holders, one of whom
(the "Joint Director") is to be proposed by the majority holders of each of the
Series B Preferred Stock and the Series C Preferred Stock and approved by a
majority of the Board in its sole discretion. Of the three remaining directors
(the "Preferred Stock Directors"), two are to be elected by the holders of the
Series B Preferred Stock and one is to be elected by the holders of the Series C
Preferred Stock, in each case acting by written consent and without a meeting of
the Common Stock holders. As long as the Carlyle Stockholders and certain
affiliates thereof own at least 50% of the Series B Preferred Stock originally
purchased thereby, the holders of the Series B Preferred Stock will have the
right to elect two Preferred Stock Directors (the "Series B Director" or "Series
B Directors", as the case may be) and as long as the Carlyle Stockholders and
certain affiliates thereof own at least 25% of such stock, such holders will
have the right to elect one Series B Director. As long as GE owns at least 25%
of the Series C Preferred Stock originally purchased thereby, it will have the
right to elect one Preferred Stock Director (the "Series C Director"). Except
in the event of a Type B Conversion, if the ownership percentage of the Carlyle
Stockholders or GE falls below the applicable threshold, the Preferred Stock
Director(s) formerly entitled to be elected by the Carlyle Stockholders or GE
will initially be appointed by the Board and thereafter, be elected by the
Common Stock holders.
The Company's Certificate of Incorporation provides that the Common Stock
Directors serve for three-year terms which are staggered to provide for the
election of approximately one-third of the Board members each year. The term of
the Class I directors (which will include the Joint Director) expires at the
next annual stockholders' meeting, the term of the Class II directors expires at
the 1998 annual meeting and the term of the Class III directors expires at the
1999 annual meeting. The terms of the two Series B Directors will coincide with
the terms of the Class I and Class III directors, respectively, and the term of
the Series C Director will coincide with the term of the Class II directors.
In the event of a Type B Conversion, the number of members of the Board
will be increased automatically by the smallest whole number that will result in
at least the Type B Percentage (but less than 66 2/3%) of the members of the
Board being Series D Directors. Immediately following a Type B Event Date, the
holders of Series D Preferred Stock shall have the right to elect all of the new
directors (the "Conversion Directors") using cumulative voting. The "Type B
Percentage" equals a percentage equal to the number of shares of Common Stock
- 9 -
<PAGE>
held by all holders of Series B Preferred Stock and Series C Preferred Stock as
of the Type B Event Date (assuming conversion of all such shares of Series B
Preferred Stock and Series C Preferred Stock into Common Stock) divided by the
total number of shares of Common Stock outstanding as of such date (assuming
conversion of all shares of Series B Preferred Stock and Series C Preferred
Stock as of such date); provided that the maximum Type B Percentage is 64%.
"Series D Directors" means, collectively, the Preferred Stock Directors and the
Conversion Directors.
The holders of Series D Preferred Stock will have the right to vote with
the holders of Common Stock with respect to all matters submitted to a
stockholder vote except, until the second annual meeting of stockholders after
the Conversion Date, for the election of directors. At and after the second
annual stockholders meeting, the positions of all directors whose terms have
expired will be subject to election by holders of Common Stock and Series D
Preferred Stock voting together as a class, with each share of Series D
Preferred Stock having the number of votes equal to the number of shares of
Common Stock into which such share is then convertible.
COMMITTEES OF THE BOARD. Pursuant to the terms of the Series B Certificate
of Designation and the Series C Certificate of Designation, the following
committees of the Board were created or reconstituted, as applicable, with the
respective duties, membership and voting requirements stated below:
COMPENSATION COMMITTEE. The Compensation Committee consists of three
members, at least one of whom is to be selected jointly by the Preferred Stock
Directors. The affirmative vote of at least two members of the Compensation
Committee is required for approval of matters considered by the Compensation
Committee.
AUDIT COMMITTEE. The Audit Committee consists of three members, including
as many independent directors as are available. An affirmative vote of at least
two members of the Audit Committee is required for approval of matters
considered by the Audit Committee.
EXECUTIVE COMMITTEE. The Executive Committee consists of four members, one
of whom is to be selected by the Series B Directors (and shall be a Series B
Director), one of whom shall be the Series C Director and two of whom are to be
selected by the Board. The affirmative vote of at least three members of the
Executive Committee is required for approval of matters considered by the
Executive Committee.
ACQUISITIONS COMMITTEE. The Acquisitions Committee consists of four
members, one of whom is to be selected by the Series B Directors (and shall be a
Series B Director), one of whom shall be the Series C Director and two of whom
are to be selected by the Board (and shall be directors). The Acquisitions
Committee has the right to approve certain transactions where the aggregate
consideration payable is less than $15 million. A unanimous vote is required for
approval of matters considered by the Acquisitions Committee, although certain
matters which do not receive the Committee's unanimous approval may be referred
to the Board for approval by a majority of its members. The unanimous approval
of the Acquisitions Committee or of the Board is required for certain
transactions in which the aggregate consideration payable is less than $15
million and the Company is to issue its Common Equity at an implicit or explicit
price of less than $8.375 per share.
The foregoing Committees must be maintained by the Company until a Type B
Event Date unless otherwise approved by a majority of the Board and a majority
of the Preferred Stock Directors, provided that if the holders of the Series B
Preferred Stock cease to have the right to nominate and elect a Series B
Director (other than as a result of conversion of the Series B Preferred Stock
in a Type B Conversion), the holders of the Series B Preferred Stock shall no
longer have the right to select Committee members and their designees on such
Committees shall automatically cease to be members thereof.
TRANSFER RESTRICTIONS
- 10 -
<PAGE>
Pursuant to the definitive agreements relating to the Recapitalization,
each of the Carlyle Stockholders and GE has agreed (i) not to transfer, sell,
assign, or pledge to any person other than an affiliate, or dispose of, any
interest in any shares of Series B Preferred Stock or Series C Preferred Stock
without the prior approval of the Board, in its sole discretion, and (ii) not
to transfer, sell or assign to an affiliate any interest in any shares of Series
B Preferred Stock or Series C Preferred Stock if such affiliate is engaged in
the provision of diagnostic services to the healthcare industry.
In addition, until the earlier to occur of April 14, 1999 or a Type B
Event Date, each of the Carlyle Stockholders and GE has agreed not to
transfer, sell or assign to any Person any of the Series D Preferred Stock,
the Common Stock issuable upon conversion of the Series B Preferred Stock
(the "Series B Conversion Shares") (with respect to the Carlyle
Stockholders), the Common Stock issuable upon conversion of the Series C
Preferred Stock (the "Series C Conversion Shares") (with respect to GE) or
the Common Stock issuable upon conversion of the Series D Preferred Stock (the
"Series D Conversion Shares") without the prior approval of a majority of the
Board in its sole discretion, other than (i) a transfer to an affiliate
(provided that prior to any such transfer such affiliate agrees in writing to
be bound by the same transfer restrictions described herein), (ii) a transfer
permitted under Rule 144 of the Securities Act of 1933, as amended (the
"Securities Act"), (iii) a transfer pursuant to a registered offering
pursuant to Registration Rights Agreements (described below) or (iv) a
transfer pursuant to a transaction available to all stockholders of the
Company on the same terms as to the Carlyle Stockholders or GE, as
applicable, which has been approved by a majority of the Board.
If a Type B Event occurs prior to April 14, 1999, then from the Type B
Event Date until the second subsequent annual meeting of the Company's
stockholders after such Type B Event Date, each of the Carlyle Stockholders
and GE has agreed not to make a transfer of any of its Series D Preferred
Stock, Series B Conversion Shares (in the case of the Carlyle Stockholders),
the Series C Conversion Shares (in the case of GE) or the Series D Conversion
Shares (i) in a transaction available to all holders of Common Stock on the
same terms as to the Carlyle Stockholders or GE, as applicable, unless such
transaction has been approved by either (a) the affirmative vote of not less
than 80% of the outstanding shares of the Company entitled to vote (which
include the Common Stock and the Series D Preferred Stock) or (b) at least
two-thirds of the Company's directors (which must include, to the extent
still a director, either (1) the Joint Director, if such Joint Director
served in such position as of the Type B Event Date or has been approved by a
majority of the directors who were Common Stock Directors as of the Type B
Event Date or (2) at least one director who was a Common Stock Director prior
to the Type B Event Date); or (ii) in a transaction other than one available
to all holders of Common Stock on the same terms as to the Carlyle
Stockholders or GE, as applicable, unless such transaction has been approved
either by (a) the affirmative vote of not less than 80% of the outstanding
shares of the Company entitled to vote or (b) at least 50% of the Company's
directors who are not the Preferred Stock Directors or the Conversion
Directors.
If the Type B Event Date is prior to October 14, 1999, then from the Type B
Event Date until the second subsequent annual stockholders meeting, except as
provided in the next sentence, none of the following transactions may be
effected by the Company, and neither the Carlyle Stockholders, GE nor any other
holder of Series D Preferred Stock shall participate in such transactions, if
any transferee of the Carlyle Stockholders or GE or any other Person referred to
in the following clauses beneficially owns five percent (5%) or more of the
Company's voting shares: (a) any merger or consolidation of the Company or any
of its subsidiaries with or into such Person; (b) any sale, lease, exchange or
other disposition of all or any substantial part of the assets of the Company or
any of its subsidiaries to such other person; (c) the issuance or delivery of
any voting securities of the Company or any of its subsidiaries to such other
person in exchange for cash, other assets or securities, or a combination
thereof; or (d) any dissolution or liquidation of the Company. The foregoing
prohibition shall not apply with respect to a transaction approved by (i) at
least 80% of the Company's outstanding shares entitled to vote (which includes
the Common Stock and the Series D Preferred Stock) or (ii) at least two-thirds
of the Company's directors (which must include, to the extent still a director,
either (A) the Joint Director, if such Joint Director served in such position as
of the Type B Event Date or has been approved by a majority of the directors who
were Common Stock Directors as of
- 11 -
<PAGE>
the Type B Event Date or (B) at least one director who was a Common Stock
Director prior to the Type B Event Date).
The Carlyle Warrants and the GE Warrants and the Common Stock issuable upon
exercise of such Warrants are transferable by the Carlyle Stockholders and GE,
as applicable, subject to compliance with federal and state securities laws,
without the Board's approval.
REGISTRATION RIGHTS
The Company has granted certain registration rights to the Carlyle
Stockholders and GE with respect to the Series B Preferred Stock, the Series C
Preferred Stock, the Series D Preferred Stock, the Carlyle Warrants and the GE
Warrants. Pursuant to separate Registration Rights Agreements dated October 14,
1997 with (i) the Carlyle Stockholders and (ii) GE, upon the demand of the
Carlyle Stockholders or GE, as applicable, the Company will use commercially
reasonable efforts to effect the registration (a "Demand Registration") under
the Securities Act, of such number of Registrable Securities (as defined below)
as are requested to be registered. The Company will be obligated to effect no
more than two Demand Registrations for each of the Carlyle Stockholders and GE
and in each such case the aggregate public offering price of the Registrable
Securities to be registered must be at least $5 million. The Carlyle
Stockholders may elect to join in a GE Demand Registration with respect to a
number of shares less than or equal to the number of shares which is the subject
of the GE Demand Registration, and GE may similarly elect to join in a Demand
Registration of the Carlyle Stockholders. In either case, the party electing to
join in the other party's Demand Registration will not be charged with a Demand
Registration of its own for purposes of the two Demand Registration limit. Under
certain circumstances, the number of Registrable Securities that the Carlyle
Stockholders or GE will be entitled to include in a Demand Registration will be
limited.
"Registrable Securities" means (a) with respect to the Carlyle
Stockholders, (i) the Common Stock issued or issuable upon conversion of the
Series B Preferred Stock and the Series D Preferred Stock, whether or not owned
by the Carlyle Stockholders, (ii) the Common Stock issued or issuable upon
exercise of the Carlyle Warrants, whether or not owned by the Carlyle
Stockholders, (iii) any securities issued or issuable with respect to such
Common Stock by way of a stock dividend or stock split or in connection with a
combination of shares, recapitalization, merger, consolidation or
reorganization; and (iv) any Common Stock or securities issuable with respect to
such Common Stock as provided in (iii) above, acquired by the Carlyle
Stockholders from the Company subsequent to October 14, 1997, whether or not
owned by the Carlyle Stockholders at the time of such registration; and (b) with
respect to GE, (i) the Common Stock issued or issuable upon conversion of the
Series C Preferred Stock and the Series D Preferred Stock, whether or not owned
by GE, (ii) the Common Stock issued or issuable upon exercise of the GE
Warrants, whether or not owned by GE, (iii) any securities issued or issuable
with respect to such Common Stock by way of a stock dividend or stock split or
in connection with a combination of shares, recapitalization, merger,
consolidation or reorganization; and (iv) any Common Stock or securities
issuable with respect to such Common Stock as provided in (iii) above, acquired
by GE from the Company subsequent to October 14, 1997, whether or not owned by
GE at the time of such registration. Securities cease to be Registrable
Securities once they have been sold to or through a broker, dealer or
underwriter in a public distribution or other public securities transaction or
sold in a transaction pursuant to Rule 144 under the Securities Act.
In addition, if the Company proposes to register any of its securities for
sale for cash, each of the Carlyle Stockholders and GE, upon request, will have
the right to include the number of Registrable Securities such party wishes to
sell or distribute publicly under the registration statement proposed to be
filed by the Company and the Company will use commercially reasonable efforts to
register under the Securities Act the sale of such Registrable Securities (a
"Piggyback Registration"). Under certain circumstances, the number of
Registrable Securities that the Carlyle Stockholders or GE will be entitled to
include in a Piggyback Registration will be limited.
- 12 -
<PAGE>
The Registration Rights Agreements contain customary provisions regarding the
payment of expenses by the Company and regarding mutual indemnification and
contribution agreements between the Company and the holders of the Registrable
Securities.
THE CARLYLE WARRANTS AND THE GE WARRANTS
Each of the Carlyle Warrants and the GE Warrants represent the right to
purchase at any time until the expiration of such Warrants on October 14, 2002,
up to 250,000 shares of Common Stock at an initial purchase price of $10.00 per
share. The exercise price and the number of shares issuable upon exercise of
the Warrants are subject to adjustment under certain circumstances.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(c) Exhibits.
*3.2 Certificate of Designation, Preferences and Rights of
Convertible Preferred Stock, Series B (incorporated herein by
reference to Exhibit 3.2 to InSight's Annual Report on Form 10-K filed
with the SEC on October 14, 1997 (the "1997 Form 10-K").
*3.3 Certificate of Designation, Preferences and Rights of
Convertible Preferred Stock, Series C (incorporated herein by
reference to Exhibit 3.3 to the 1997 Form 10-K).
*3.4 Certificate of Designation, Preferences and Rights of
Convertible Preferred Stock, Series D (incorporated herein by
reference to Exhibit 3.4 to the 1997 Form 10-K).
10.23 Securities Purchase Agreement dated as of October 14, 1997 by
and among InSight and the Carlyle Stockholders, filed herewith.
10.24 Securities Purchase Agreement dated as of October 14, 1997 by
and between InSight and GE, filed herewith.
10.25 Registration Rights Agreement dated as of October 14, 1997 by
and among InSight and the Carlyle Stockholders, filed herewith.
10.26 Registration Rights Agreement dated as of October 14, 1997 by
and between InSight and GE, filed herewith.
10.27 Warrant Agreement dated as of October 14, 1997 by and among
InSight and the Carlyle Stockholders, filed herewith.
10.28 Warrant Agreement dated as of October 14, 1997 by and between
InSight and GE, filed herewith.
99.1 Press Release dated October 14, 1997 with respect to the
Recapitalization, filed herewith.
99.2 Press Release dated October 23, 1997 with respect to the Bank
Financing, filed herewith.
99.3 Press Release dated December 22, 1997 with respect to the Bank
Financing, filed herewith.
* Previously filed.
- 13 -
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: February 16, 1998
INSIGHT HEALTH SERVICES CORP.
By: /s/ E. Larry Atkins
-------------------------------------------------
E. Larry Atkins,
President and Chief Executive Officer
- 14 -
<PAGE>
EXHIBIT INDEX
SEQUENTIALLY
EXHIBIT NO. DOCUMENT DESCRIPTION NUMBERED PAGE
- ----------- -------------------- -------------
3.2 Certificate of Designation, Preferences and Rights
of Convertible Preferred Stock, Series B
(incorporated herein by reference to Exhibit 3.2
to InSight's Annual Report on Form 10-K filed with
the SEC on October 14, 1997 (the "1997
Form 10-K").
3.3 Certificate of Designation, Preferences and Rights of
Convertible Preferred Stock, Series C (incorporated
herein by reference to Exhibit 3.3 to
the 1997 Form 10-K).
3.4 Certificate of Designation, Preferences and Rights
of Convertible Preferred Stock, Series D
(incorporated herein by reference to Exhibit 3.4
to the 1997 Form 10-K).
10.23 Securities Purchase Agreement dated as of October
14, 1997 by and among InSight and the Carlyle
Stockholders, filed herewith.
10.24 Securities Purchase Agreement dated as of October
14, 1997 by and between InSight and GE, filed herewith.
10.25 Registration Rights Agreement dated as of October
14, 1997 by and among InSight and the Carlyle
Stockholders, filed herewith.
10.26 Registration Rights Agreement dated as of October
14, 1997 by and between InSight and GE, filed herewith.
10.27 Warrant Agreement dated as of October 14, 1997
by and among InSight and the Carlyle Stockholders,
filed herewith.
10.28 Warrant Agreement dated as of October 14, 1997
by and between InSight and GE, filed herewith.
99.1 Press Release dated October 14, 1997 with respect to
the Recapitalization, filed herewith.
99.2 Press Release dated October 23, 1997 with respect to the Bank
Financing, filed herewith.
99.3 Press Release dated December 22, 1997 with respect to the Bank
Financing, filed herewith.
*Previously filed.
<PAGE>
SECURITIES PURCHASE AGREEMENT
BY AND AMONG
INSIGHT HEALTH SERVICES CORP.
AND
CARLYLE PARTNERS II, L.P.,
CARLYLE PARTNERS III, L.P.,
CARLYLE INTERNATIONAL PARTNERS II, L.P.,
CARLYLE INTERNATIONAL PARTNERS III, L.P.,
C/S INTERNATIONAL PARTNERS,
STATE BOARD OF ADMINISTRATION OF FLORIDA,
CARLYLE INVESTMENT GROUP, L.P.,
CARLYLE-INSIGHT INTERNATIONAL PARTNERS, L.P., AND
CARLYLE-INSIGHT PARTNERS, L.P.
OCTOBER 14, 1997
<PAGE>
TABLE OF CONTENTS
PAGE
----
ARTICLE I DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.1 Defined Terms. . . . . . . . . . . . . . . . . . . . . . . . . . . 2
ARTICLE II PURCHASE AND SALE OF SECURITIES . . . . . . . . . . . . . . . . 15
2.1 Purchase and Sale of Securities. . . . . . . . . . . . . . . . . . 15
2.2 Consideration for Securities.. . . . . . . . . . . . . . . . . . . 15
ARTICLE III CLOSING. . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
3.1 Closing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
3.2 Deliveries by the Company at the Closing.. . . . . . . . . . . . . 16
3.3 Deliveries by the Purchaser at the Closing.. . . . . . . . . . . . 16
3.4 Second Closing.. . . . . . . . . . . . . . . . . . . . . . . . . . 16
3.5 Form of Documents and Instruments. . . . . . . . . . . . . . . . . 17
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE COMPANY . . . . . . . . . 17
4.1 Organization of the Company. . . . . . . . . . . . . . . . . . . . 17
4.2 Capitalization of the Company. . . . . . . . . . . . . . . . . . . 17
4.3 Authorization of Issuance. . . . . . . . . . . . . . . . . . . . . 19
4.4 Authorization. . . . . . . . . . . . . . . . . . . . . . . . . . . 20
4.5 Noncontravention.. . . . . . . . . . . . . . . . . . . . . . . . . 20
4.6 Consents.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
4.7 Subsidiaries.. . . . . . . . . . . . . . . . . . . . . . . . . . . 21
4.8 Employee Benefit Plans and Other Agreements. . . . . . . . . . . . 22
4.9 Governmental Filings.. . . . . . . . . . . . . . . . . . . . . . . 25
4.10 Financial Statements and Reports. . . . . . . . . . . . . . . . . 25
4.11 Absence of Undisclosed Liabilities: Guarantees. . . . . . . . . . 26
4.12 Absence of Certain Changes. . . . . . . . . . . . . . . . . . . . 26
4.13 Compliance With Laws. . . . . . . . . . . . . . . . . . . . . . . 27
4.14 Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
4.15 True and Complete Disclosure. . . . . . . . . . . . . . . . . . . 29
4.16 Taxes.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
4.17 Environmental Matters.. . . . . . . . . . . . . . . . . . . . . . 31
4.18 Insurance.. . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
4.19 Real Property and Leaseholds. . . . . . . . . . . . . . . . . . . 32
4.20 Tangible Assets.. . . . . . . . . . . . . . . . . . . . . . . . . 33
4.21 Contracts and Commitments.. . . . . . . . . . . . . . . . . . . . 34
4.22 Books and Records.. . . . . . . . . . . . . . . . . . . . . . . . 34
4.23 Labor Matters.. . . . . . . . . . . . . . . . . . . . . . . . . . 35
4.24 Payments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
4.25 Intellectual Property.. . . . . . . . . . . . . . . . . . . . . . 35
4.26 Securities Offerings. . . . . . . . . . . . . . . . . . . . . . . 36
i
<PAGE>
4.27 No Other Agreements to Sell the Assets or the Company.. . . . . . 36
4.28 No Brokers. . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
4.29 Accounts and Notes Receivable.. . . . . . . . . . . . . . . . . . 37
4.30 Indebtedness. . . . . . . . . . . . . . . . . . . . . . . . . . . 37
4.31 Transactions with Affiliates. . . . . . . . . . . . . . . . . . . 37
4.32 No Research Grants. . . . . . . . . . . . . . . . . . . . . . . . 37
4.33 Certain Regulatory Matters. . . . . . . . . . . . . . . . . . . . 37
4.34 Certain Additional Regulatory Matters.. . . . . . . . . . . . . . 38
4.35 Medicare/Medicaid Participation.. . . . . . . . . . . . . . . . . 39
4.36 Compliance with Medicare/Medicaid and Insurance Programs. . . . . 39
ARTICLE V REPRESENTATIONS AND WARRANTIES OF THE PURCHASER. . . . . . . . . 40
5.1 Organization of the Purchaser. . . . . . . . . . . . . . . . . . . 40
5.2 Authorization. . . . . . . . . . . . . . . . . . . . . . . . . . . 40
5.3 Noncontravention.. . . . . . . . . . . . . . . . . . . . . . . . . 41
5.4 Consents and Appeals.. . . . . . . . . . . . . . . . . . . . . . . 41
5.5 Purchase for Investment. . . . . . . . . . . . . . . . . . . . . . 41
5.6 No Brokers.. . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
5.7 No Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . 42
ARTICLE VI COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
6.1 Best Efforts.. . . . . . . . . . . . . . . . . . . . . . . . . . . 42
6.2 Restrictive Agreements Prohibited. . . . . . . . . . . . . . . . . 43
6.3 Continuing Operations. . . . . . . . . . . . . . . . . . . . . . . 43
6.4 Financial Statements and Information.. . . . . . . . . . . . . . . 43
6.5 Press Releases.. . . . . . . . . . . . . . . . . . . . . . . . . . 45
6.6 Notification of Certain Matters. . . . . . . . . . . . . . . . . . 45
6.7 Liability Insurance. . . . . . . . . . . . . . . . . . . . . . . . 45
6.8 Conversion Stock.. . . . . . . . . . . . . . . . . . . . . . . . . 46
6.9 Certain Regulatory Matters.. . . . . . . . . . . . . . . . . . . . 46
6.10 Employment Arrangements.. . . . . . . . . . . . . . . . . . . . . 47
6.11 Transactions with Affiliates. . . . . . . . . . . . . . . . . . . 47
6.12 Stockholder Approval of Certain Actions.. . . . . . . . . . . . . 48
6.13 Board of Directors. . . . . . . . . . . . . . . . . . . . . . . . 51
6.14 Restrictions on Transfer of Capital Stock.. . . . . . . . . . . . 53
6.15 Expiration of Certain Covenants.. . . . . . . . . . . . . . . . . 56
ARTICLE VII CONDITIONS TO CLOSING. . . . . . . . . . . . . . . . . . . . . 56
7.1 Conditions to Each Party's Obligations.. . . . . . . . . . . . . . 56
7.2 Conditions to the Company's Obligations. . . . . . . . . . . . . . 57
7.3 Conditions to the Purchaser' Obligations.. . . . . . . . . . . . . 58
ARTICLE VIII INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . 59
8.1 Survival of Representations, Etc.. . . . . . . . . . . . . . . . . 59
8.2 Indemnification by the Company.. . . . . . . . . . . . . . . . . . 60
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8.3 Limitation on Indemnities. . . . . . . . . . . . . . . . . . . . . 60
8.4 Losses.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
8.5 Defense of Claims. . . . . . . . . . . . . . . . . . . . . . . . . 61
ARTICLE IX MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . 62
9.1 Fees and Expenses. . . . . . . . . . . . . . . . . . . . . . . . . 62
9.2 Injunctive Relief. . . . . . . . . . . . . . . . . . . . . . . . . 62
9.3 Assignment.. . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
9.4 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
9.5 Choice of Law. . . . . . . . . . . . . . . . . . . . . . . . . . . 64
9.6 Entire Agreement.. . . . . . . . . . . . . . . . . . . . . . . . . 64
9.7 Counterparts.. . . . . . . . . . . . . . . . . . . . . . . . . . . 64
9.8 Invalidity.. . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
9.9 Headings; Language.. . . . . . . . . . . . . . . . . . . . . . . . 65
9.10 Limitation of Liability.. . . . . . . . . . . . . . . . . . . . . 65
9.11 Amendments and Waivers. . . . . . . . . . . . . . . . . . . . . . 65
EXHIBITS
EXHIBIT A: Form of Amended and Restated Bylaws
EXHIBIT B: Form of Registration Rights Agreement
EXHIBIT C: Form of Series B Certificate of Designation
EXHIBIT D: Form of Series C Certificate of Designation
EXHIBIT E: Form of Series D Certificate of Designation
EXHIBIT F: Form of Warrant Agreement
EXHIBIT G: Form of GE Warrant Agreement
EXHIBIT H: Form of Opinion of the Purchaser's Counsel
EXHIBIT I: Form of Opinion of the Company's Corporate Counsel
EXHIBIT J: Persons Whose Knowledge Is Attributed to the Company
EXHIBIT K: Center Operations
EXHIBIT L: Form of Supplemental Service Fee Termination Agreement
SCHEDULES
Schedule 4.1(b) Organization of the Company
Schedule 4.2 Capitalization of the Company
Schedule 4.6 Consents
Schedule 4.7 Subsidiaries
Schedule 4.8 Employee Benefit Plans and Other Agreements
Schedule 4.11 Absence of Undisclosed Liabilities: Guarantees
Schedule 4.12(x) Absence of Certain Changes
Schedule 4.13(a) Compliance With Laws
Schedule 4.14 Litigation
Schedule 4.16 Taxes
Schedule 4.17 Environmental Matters
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Schedule 4.19 Real Property and Leaseholds
Schedule 4.20 Tangible Assets
Schedule 4.21 Contracts and Commitments
Schedule 4.23 Labor Matters
Schedule 4.25 Intellectual Property
Schedule 4.26 Securities Offerings
Schedule 4.30 Indebtedness
Schedule 4.31 Transactions with Affiliates
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SECURITIES PURCHASE AGREEMENT
This SECURITIES PURCHASE AGREEMENT (this "Agreement"), dated as
of October 14, 1997, is by and among INSIGHT HEALTH SERVICES CORP., a Delaware
corporation (the "Company"), and CARLYLE PARTNERS II, L.P., a Delaware limited
partnership, CARLYLE PARTNERS III, L.P., a Delaware limited partnership, CARLYLE
INTERNATIONAL PARTNERS II, L.P., a Cayman Islands exempted limited partnership,
CARLYLE INTERNATIONAL PARTNERS III, L.P., a Cayman Islands exempted limited
partnership, C/S INTERNATIONAL PARTNERS, a Cayman Islands general partnership,
STATE BOARD OF ADMINISTRATION OF FLORIDA, a separate account maintained pursuant
to an Investment Management Agreement dated as of September 6, 1996 between the
State Board of Administration of Florida, Carlyle Investment Group, L.P. and
Carlyle Investment Management, L.L.C., CARLYLE INVESTMENT GROUP, L.P., a
Delaware limited partnership, CARLYLE-INSIGHT INTERNATIONAL PARTNERS, L.P., a
Cayman Islands exempted limited partnership, and CARLYLE-INSIGHT PARTNERS, L.P.,
a Delaware limited partnership (collectively, the "Purchaser").
RECITALS
WHEREAS, the Company desires to sell to the Purchaser, and the
Purchaser desires to purchase from the Company, for the consideration set forth
in Section 2.2 hereof, (i) an aggregate of 25,000 shares (the "Preferred
Shares") of its newly issued Series B Preferred Stock, each share of which
Series B Preferred Stock shall be convertible (a) initially into one hundred
nineteen and four hundred three one-thousandths (119.403) shares of Common Stock
at an initial conversion price of $8.375 per share of such Common Stock (so that
all of the shares of Series B Preferred Stock purchased by the Purchaser shall
be convertible initially into an aggregate of 2,985,075 shares of such Common
Stock), having the rights, designations and preferences set forth in the Series
B Certificate of Designation or (b) after the Type B Trigger Date, into shares
of Series D Preferred Stock having the rights, designations
<PAGE>
and preferences set forth in the Series D Certificate of Designation on the
terms set forth in the Series D Certificate of Designation and (ii) the
Warrants; and
WHEREAS, contemporaneously with the Purchaser's acquisition of
the Securities, and as a condition to such acquisition, General Electric
Company shall (i) acquire warrants (the "GE Warrants") initially to purchase
250,000 shares of Common Stock at an initial exercise price of $10.00 per
share and (ii) terminate the Supplemental Service Fee described in the Proxy
Statement in exchange for 7,000 shares of newly issued Series C Preferred
Stock, each share of which Series C Preferred Stock shall be convertible (a)
initially into one hundred nineteen and four hundred three one-thousandths
(119.403) shares of Common Stock at an initial conversion price of $8.375 per
share of Common Stock (so that such shares of Series C Preferred Stock
acquired in respect of such termination would be initially convertible into
an aggregate of 835,821 shares of Common Stock, at an initial conversion
price of $8.375 per share) or (b) after the Type B Trigger Date, into shares
of Series D Preferred Stock having the rights, designations and preferences
set forth in the Series D Certificate of Designation on the terms set forth
in the Series D Certificate of Designation; and
WHEREAS, contemporaneously with the Purchaser's acquisition of
the Securities, and as a condition to such acquisition, the Company shall
execute and deliver definitive documents with respect to the Credit Facility,
and funding shall occur upon filing by the lender under the Credit Facility
of appropriate UCC filings and certain other conditions set forth in the
documentation related to the Credit Facility, and upon such funding, certain
of the proceeds of the Credit Facility and the investment described herein
shall be used by the Company to repay (i) Seventy Million Seven Hundred One
Thousand Six Hundred Eleven Dollars and Seventy-Five Cents ($70,701,611.75)
in principal, interest and fees, plus additional accrued and unpaid interest
associated therewith at the rate of Nineteen Thousand, Two Hundred Ninety-Six
Dollars ($19,296) per day for each day after October 14, 1997, of
Indebtedness of the Company and certain of its Affiliates to GE pursuant to
the Master Debt Restructuring Agreement, and (ii) certain other Indebtedness;
and
WHEREAS, the parties contemplate that at the Second Closing, GE
shall convert all of its 2,501,760 shares of Series A Preferred Stock into
20,953 shares of newly issued Series C Preferred Stock.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual covenants and
premises contained herein and for other good and valuable consideration, the
receipt and adequacy of which are hereby acknowledged, the parties hereto
agree as follows:
ARTICLE I
DEFINITIONS
1.1 DEFINED TERMS.
As used herein, the terms below shall have the following meanings:
"AFFILIATE" of any specified Person means (a) any other Person
directly or indirectly controlling or controlled by or under direct or
indirect common control with such specified Person or (b) the beneficial
owner of ten percent (10%) or more of the voting securities of such Person).
For purposes of this definition, "control" (including, with correlative
meanings, the terms: "controlling," "controlled by" and "under common control
with"), as used with respect to any Person, shall mean the possession,
directly or indirectly, of the power to direct or cause the direction of the
management or policies of such Person, whether through the ownership of
voting securities, by agreement or otherwise.
"AGREEMENT" means this Securities Purchase Agreement, together
with all Schedules and Exhibits referenced herein, as the same hereinafter
may be amended from time to time.
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"AMENDED BYLAWS" means the Amended and Restated Bylaws of the
Company, in the form attached hereto as Exhibit A.
"ANCILLARY AGREEMENTS" means the Warrant Agreement and the
Registration Rights Agreement, as each hereinafter may be amended from time to
time.
"APPLICABLE LAW" means any statute, law, rule or regulation or
any judgment, order, writ, injunction, decree or financial assessment
(subject, in the case of financial assessments, to the exhaustion of appeals)
of any Governmental Entity to which a specified Person or its properties or
assets, or its officers, directors, employees, consultants or agents (in
their capacities as such) is subject, including, without limitation, all such
statutes, laws, rules, regulations, judgments, orders, writs, injunctions,
decrees and financial assessments relating to, without limitation, energy
regulation, public utility regulation, securities regulation, consumer
protection, equal opportunity, health care industry regulation, public health
and safety, motor vehicle safety or standards, third party reimbursement
(including Medicare and Medicaid), environmental protection, fire, zoning,
building and occupational safety and health matters and laws respecting
employment practices, employee documentation, terms and conditions of
employment and wages and hours.
"APPROVALS" has the meaning set forth in Section 4.13 of this
Agreement.
"BENEFIT ARRANGEMENT" means any employment, consulting,
severance or other similar contract, arrangement or policy and each plan,
arrangement (written or oral), program, agreement or commitment providing for
insurance coverage (including without limitation any self-insured
arrangements), workers' compensation, disability benefits, supplemental
unemployment benefits, vacation benefits, retirement benefits, life, health
or accident benefits (including without limitation any "voluntary employees'
beneficiary association" as defined in Section 501(c)(9) of the Code
providing for the same or other benefits) or for deferred compensation,
profit-sharing bonuses, stock options, stock appreciation rights, stock
purchases or other forms of incentive compensation or post-retirement
insurance, compensation or benefits which (a) is not a Welfare Plan, Pension
Plan or Multiemployer Plan, (b) is entered into, maintained, contributed to
or required to be contributed to, as the case may be, by the Company or an
ERISA Affiliate or under which the Company or any ERISA Affiliate may incur
any liability, and (c) covers any present or former employees, directors or
consultants of the Company (with respect to their relationship with such
entities).
"BOARD OF DIRECTORS" means the board of directors of the
Company as it is constituted from time to time in accordance with the terms
of this Agreement, the Certificate of Incorporation and the Amended Bylaws.
"BYLAWS" means the Bylaws of the Company as in effect on the
date hereof.
"BUSINESS" means the provision of diagnostic services to the
healthcare industry.
3
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"CAPITAL BUDGET PLAN" means, for each Fiscal Year, the plan of
the Company for making Capital Expenditures for such Fiscal Year which has been
approved for such Fiscal Year by either the Executive Committee or a
Supermajority Vote of the Board of Directors.
"CAPITAL EXPENDITURES" means, for any period, expenditures made
by the Company or any of its Subsidiaries to acquire or construct fixed assets,
plant and Fixtures and Equipment (including additions, improvements, upgrades
and replacements, but excluding repairs) during such period calculated in
accordance with GAAP.
"CAPITAL LEASE OBLIGATION" means, at the time any determination
thereof is to be made, the amount of the liability in respect of a lease that
would at such time be required to be capitalized on a balance sheet in
accordance with GAAP.
"CAPITAL STOCK" means (i) in the case of a corporation, corporate
stock, (ii) in the case of an association or business entity, any and all
shares, interests, participations, rights or other equivalents (however
designated) of corporate stock, (iii) in the case of a partnership, partnership
interests (whether general or limited) and (iv) any other interest or
participation that confers on a Person the right to receive a share of the
profits and losses of, or distributions of assets of, the issuing Person.
"CARLYLE AFFILIATES" means the Purchaser, TC Group, L.L.C., and
any investor in any entity comprising the Purchaser or TC Group, L.L.C. on the
date hereof.
"CARLYLE TRANSACTION EXPENSES" means the reasonable fees and
expenses incurred by the Purchaser and any Carlyle Affiliate (including, but not
limited to, reasonable fees and expenses of legal counsel, accountants,
consultants and travel expenses in connection with the preparation of this
Agreement and the Purchaser's due diligence examination) relating to this
Agreement and the Transaction, which, together with the GE Transaction Expenses
(as such term is defined in the GE Purchase Agreement) shall be in an amount not
to exceed $500,000.
"CENTER OPERATIONS" means the operations of the Company and its
Subsidiaries at the locations identified in Exhibit K hereto.
"CERTIFICATE OF INCORPORATION" means the certificate of
incorporation (as defined in Section 104 of the Delaware General Corporation
Law) of the Company in effect on the date hereof, including, without limitation,
the Series B, the Series C and the Series D Certificates of Designation.
"CHAMPUS" has the meaning set forth in Section 4.34 of this
Agreement.
"CHANGE OF CONTROL" shall be deemed to have occurred (i) at such
time as any person (as defined in Section 13(d)(3) of the Exchange Act but
excluding GE and the Purchaser, individually and collectively) at any time shall
directly or indirectly acquire more than 40% of the voting power of the Common
Stock of the Company, (ii) at such time as during any one (1) year period,
individuals who at the beginning of such period constitute the Company's Board
of Directors cease to constitute at least a majority of such Board of Directors
(provided, however,
4
<PAGE>
that a change in directors upon a Type B Event Date shall not be deemed to
cause a Change of Control pursuant to this clause (ii)), (iii) upon
consummation of a merger or consolidation of the Company into or with another
Person in which the stockholders of the Company immediately prior to the
consummation of such transaction shall own fifty percent (50%) or less of the
voting securities of the surviving corporation (or the parent corporation of
the surviving corporation where the surviving corporation is wholly-owned by
the parent corporation) immediately following the consummation of such
transaction, or (iv) the sale, transfer or lease of all or substantially all
of the assets of the Company, in any of cases (i), (ii), (iii) or (iv) in a
single transaction or series of related transactions; PROVIDED, that no
Change of Control hereunder with respect to the Company shall be deemed to
occur solely by reason of (x) the ownership by Carlyle or any Carlyle
Affiliate thereof or GE or its Affiliates of the Series C Preferred Stock or
any Affiliate thereof of any Capital Stock of the Company or (y) the
conversion of shares of Series B Preferred Stock into either Series D
Preferred Stock (and any change in the Board of Directors incident thereto)
or Common Stock, or (z) the conversion of shares of Series D Preferred Stock
into Common Stock. .
"CLAIM" has the meaning set forth in Section 8.5 of this
Agreement.
"CLAIM NOTICE" has the meaning set forth in Section 8.5 of this
Agreement.
"CLOSING" means the time at which this Agreement is executed
and delivered by the parties, the Purchaser purchases the Securities and GE
purchases the GE Warrants and exchanges the Supplemental Service Fee for
Series C Preferred Stock.
"CLOSING DATE" means the date on which the Closing occurs.
"CODE" means the Internal Revenue Code of 1986, as it may be
amended from time to time.
"COMMISSION" means the United States Securities and Exchange
Commission.
"COMMON EQUITY" means all shares now or hereafter authorized of
any class of common stock of the Company (including the Common Stock) and any
other stock of the Company, however designated, authorized after the date
hereof, which has the right (subject always to prior rights of any class or
series of preferred stock) to participate in any distribution of the assets
or earnings of the Company without limit as to per share amount, but shall
not include the Series A Preferred Stock, the Series B Preferred Stock, the
Series C Preferred Stock or the Series D Preferred Stock.
"COMMON STOCK" has the meaning set forth in Section 4.2(a) of
this Agreement.
"COMMON STOCK DIRECTOR" has the meaning set forth in the
Certificate of Incorporation.
"COMPANY" has the meaning set forth in the Preamble to this
Agreement, and, in addition, with respect to past events, means the Company
and its predecessors.
5
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"CONVERSION DIRECTOR" has the meaning set forth in the Amended
Bylaws.
"CONVERSION PRICE" means $8.375 per share of Common Stock,
subject to adjustment as set forth in the Series B Certificate of Designation.
"CONVERTIBLE SECURITIES" shall mean any stock or securities
directly or indirectly convertible into or exchangeable for Common Equity,
including, without limitation, any exchangeable debt securities.
"CREDIT FACILITY" means the credit facility provided to the
Company pursuant to the terms of the Credit Agreement dated as of October 14,
1997 among the Company, certain subsidiaries, as guarantors, certain
financial institutions party thereto and NationsBank, N.A., as Agent.
"CURRENT CUSTOMER" has the meaning set forth in Section 4.21 of
this Agreement.
"ELIGIBLE HOLDER" has the meaning set forth in Section 6.4 of
this Agreement.
"ELIGIBLE SECURITIES" means (i) the Series B Conversion Stock,
the Series C Conversion Stock and the Series D Conversion Stock, (ii) the
Warrants and (iii) any Common Stock of the Company issued or issuable in
respect of the Securities or other securities issued or issuable pursuant to
the conversion of the Securities upon any stock split, stock dividend,
recapitalization, merger, consolidation or similar event. Securities shall
cease to constitute "Eligible Securities" at such time that they are sold or
transferred in a transaction wherein the transferee does not acquire
"restricted securities" within the meaning of Rule 144 promulgated under the
Securities Act.
"EMPLOYEE PLANS" means all Benefit Arrangements, Multiemployer
Plans, Pension Plans and Welfare Plans.
"EMPLOYMENT AGREEMENTS" has the meaning set forth in Section
4.8 of this Agreement.
"ENCUMBRANCE" means any claim, lien, pledge, option, charge,
easement, security interest, right-of-way, encumbrance or other right of
third parties, and, with respect to any securities, any agreements,
understandings or restrictions affecting the voting rights or other incidents
of record or beneficial ownership pertaining to such securities.
"ENVIRONMENTAL CONDITION" means the Release or threatened
Release of any Hazardous Material (whether or not upon a Facility or any
former facility or other property and whether or not such Release constituted
at the time thereof a violation of any Environmental Law) as a result of
which the Company has or would reasonably be expected to become liable to any
Person or by reason of which any Facility, any former facility or any of the
assets of the Company may suffer or be subjected to any Encumbrances.
6
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"ENVIRONMENTAL LAWS" means any and all foreign, federal, state,
local or municipal laws, rules, orders, regulations, statutes, ordinances,
codes, legally binding decrees or other requirements of any Governmental
Entity (including, without limitation, common law) regulating, relating to or
imposing liability or standards of conduct concerning protection of the
environment or of human health relating to exposure of any kind of Hazardous
Materials, as have been, are now or may at any time hereafter be in effect.
"ENVIRONMENTAL PERMITS" means any and all permits, licenses,
registrations, notifications, exemptions and any other authorizations
required under any Environmental Law.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
"ERISA AFFILIATE" means any entity which is (or at any relevant
time was) a member of a "controlled group of corporations" with, under
"common control" with, a member of an "affiliated service group" with or
otherwise required to be aggregated with the Company, as set forth in Section
414(b), (c), (m) or (o) of the Code.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
"FACILITY" or "FACILITIES" means one or more of the offices and
buildings and all other real property and related facilities which are owned,
leased or operated by the Company or any Subsidiary.
"FEDERAL HEALTH CARE PROGRAM" has the meaning set forth in
Section 4.35 hereof.
"FINANCIAL STATEMENTS" has the meaning set forth in Section
4.10 hereof.
"FISCAL YEAR" means each year ending June 30, or any other
fiscal year as approved by the Board of Directors.
"FIXTURES AND EQUIPMENT" means all of the furniture, fixtures,
furnishings, machinery, equipment and other tangible assets owned by the
Company or any Subsidiary that are material to the conduct of their
businesses as currently conducted.
"GAAP" means generally accepted accounting principles set forth
in the opinions and pronouncements of the Accounting Principles Board of the
American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board, which are in
effect as of the date of this Agreement.
"GE" means General Electric Company, a New York corporation,
and its Affiliates.
"GE PURCHASE AGREEMENT" means that certain Securities Purchase
Agreement, of even date herewith, by and between the Company and GE in
respect of the Series C Preferred Stock and the GE Warrants.
7
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"GE WARRANT AGREEMENT" means that certain Warrant Agreement by
and between the Company and GE substantially in the form attached hereto as
Exhibit G pursuant to which the Company shall issue the GE Warrants to GE.
"GE WARRANTS" means the warrants to purchase Common Stock to be
acquired by GE at the Closing.
"GE WARRANT SHARES" means the Common Stock issuable to GE upon
the exercise of the GE Warrants.
"GOVERNMENTAL ENTITY" means any court or tribunal in any
jurisdiction (domestic or foreign) or any federal, state or local public,
governmental or regulatory body, agency, department, commission, board,
bureau or other authority or instrumentality (domestic or foreign).
"HAZARDOUS MATERIALS" means any hazardous substance, gasoline
or petroleum (including crude oil or any fraction thereof) or petroleum
products, polychlorinated biphenyls, ureaformaldehyde insulation, asbestos or
asbestos-containing materials, pollutants, contaminants, radioactivity and
any other materials or substances of any kind, whether solid, liquid or gas,
and whether or not any such substance is defined as hazardous under any
Environmental Law, that is regulated pursuant to any Environmental Law or
that could give rise to liability under any Environmental Law.
"HSR ACT" means the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended.
"INDEBTEDNESS" means, as to any Person without duplication, (a)
all items which, in accordance with GAAP, would be included as a liability on
the balance sheet of such Person and its Subsidiaries (including any
obligation of such Person to the issuer of any letter of credit for
reimbursement in respect of any drafts drawn under such letter of credit),
excluding (i) obligations in respect of deferred taxes and deferred employee
compensation and benefits, and (ii) anything in the nature of Capital Stock,
surplus capital and retained earnings; (b) Capital Lease Obligations of such
Person; and (c) all obligations of other Persons that such Person has
guaranteed, including, without limitation, all obligations of such Person
consisting of recourse liabilities with respect to accounts receivable sold
or otherwise disposed of by such Person, PROVIDED, HOWEVER, that the term
Indebtedness shall not include trade accounts payable (other than for
borrowed money) arising in, and accrued expenses incurred in, the ordinary
course of business of such Person, provided the same are not more than sixty
(60) days overdue or are being contested in good faith.
"INDEMNIFIED PARTY" has the meaning set forth in Section 8.2 of
this Agreement.
"INDEPENDENT" means any person who is not an officer or
employee of the Company or any Subsidiary or other Affiliate of the Company
or otherwise paid any compensation or remuneration by the Company or any
Subsidiary or other Affiliate of the Company other than director's fees.
8
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"JOINT DIRECTOR" has the meaning set forth in Section 6.13 of
this Agreement.
"LIABILITY" or "LIABILITIES" means, with respect to any Person,
any liability or obligation of such Person of any kind, character or
description, whether known or unknown, absolute or contingent, accrued or
unaccrued, liquidated or unliquidated, secured or unsecured, joint or
several, due or to become due, vested or unvested, executory, determined,
determinable or otherwise and whether or not the same is required to be
accrued on the financial statements of such Person.
"LIQUIDATING EVENT" means (i) the commencement by the Company
of a voluntary case under the bankruptcy laws of the United States, as now or
hereafter in effect, or, if an involuntary case against the Company has been
commenced, the decision by the Company not to timely controvert such petition
and seek its prompt dismissal; (ii) the commencement by the Company of any
proceeding under any reorganization, arrangement, adjustment of debt, relief
of debtors, dissolution, insolvency or liquidation or similar law of any
jurisdiction whether now or hereafter in effect relating to the Company or
the adoption of a plan of liquidation; (iii) if any proceeding set forth in
the preceding clause has been commenced against the Company, the decision by
the Company not to controvert such proceeding and seek its prompt dismissal;
or (iv) any Change of Control (A) pursuant to clauses (i) and (ii) of the
definition thereof if such Change of Control occurred in or as a result of a
transaction or series of related transactions approved by the Board of
Directors, or (B) pursuant to clauses (iii) or (iv) of the definition of
Change of Control; in any of cases (i) through (iv) above, in a single
transaction or series of related transactions.
"LOSSES" has the meaning set forth in Section 8.2 of this
Agreement.
"MARKET PRICE" means as to any security the average of the
closing prices of any such security's sales on all domestic securities
exchanges on which such security may at the time be listed, or, if there have
been no sales on any such exchange on any day, the average of the highest bid
and lowest asked prices on all such exchanges at the end of such day, or, if
on any day such security is not so listed, the average of the representative
bid and asked prices quoted in Nasdaq as of 4:00 P.M., New York time, on such
day, or, if on any day such security is not quoted in Nasdaq, the average of
the highest bid and lowest asked prices on such day in the domestic
over-the-counter market as reported by the National Quotation Bureau,
Incorporated, or any similar successor organization, in each such case
averaged over a period of twenty-one (21) business days consisting of the day
as of which "Market Price" is being determined and the twenty (20)
consecutive business days prior to such day; provided that if such security
is listed on any domestic securities exchange the term "business days" as
used in this sentence means business days on which such exchange is open for
trading. If at any time such security is not listed on any domestic
securities exchange or quoted in Nasdaq or the domestic over-the-counter
market, the "Market Price" shall be the fair value thereof determined by the
Company and approved by the Purchaser; provided that if such parties are
unable to reach agreement within a reasonable period of time, such fair value
shall be determined by an appraiser jointly selected by the Company and the
Purchaser. The determination of such appraiser shall be final and binding
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on the Company and the Purchaser, and the fees and expenses of such appraiser
shall be paid by the Company.
"MASTER DEBT RESTRUCTURING AGREEMENT" means that certain Master
Debt Restructuring Agreement dated as of June 26, 1996 by and among GE,
General Electric Capital Corporation, the Company, American Health Services
Corp. Maxum Health Corp. and certain subsidiaries of Maxum Health Corp., as
amended through the date hereof.
"MATERIAL ADVERSE EFFECT" with respect to any Person means a
material adverse effect on the results of operations, condition (financial or
otherwise), assets, liabilities (whether absolute, accrued, contingent or
otherwise) or business of such Person and its Subsidiaries (if any), taken as
a whole.
"MATERIAL AGREEMENTS" has the meaning set forth in Section 4.21
of this Agreement.
"MERGER AGREEMENT" means that certain Agreement and Plan of
Merger dated as of February 26, 1996 by and among the Company, American
Health Services Corp., AHSC Acquisition Corp., Maxum Health Corp. and MXHC
Acquisition Corp.
"MOBILE OPERATIONS" means all operations of the Company and its
Subsidiaries other than Center Operations.
"MULTIEMPLOYER PLAN" means any "multiemployer plan," as defined
in Section 400l(a)(3) or 3(37) of ERISA, which (a) the Company or any ERISA
Affiliate maintains, administers, contributes to or is required to contribute
to, or, after September 25, 1980, maintained, administered, contributed to or
was required to contribute to, or under which the Company or any ERISA
Affiliate may incur any liability and (b) covers any employee or former
employee of the Company or any ERISA Affiliate (with respect to their
relationship with such Persons).
"OPERATING LEASE" shall mean any lease with respect to which
the obligations of the lessee thereunder are, at the time any determination
thereof is to be made, not required to be capitalized on the lessee's balance
sheet in accordance with GAAP.
"OPTION" shall mean any rights or options to subscribe for or
purchase Common Equity or Convertible Securities.
"ORDINARY COURSE OF BUSINESS," for purposes of Section 6.12(s)
of this Agreement, means the ordinary course of business for a company
engaged in the business of providing diagnostic services to the health care
industry; provided, however, that all sales by the Company or any Subsidiary,
as the case may be, of inventory and sales of Fixtures and Equipment no
longer used or useful in such business shall be deemed to be in the Ordinary
Course of Business.
"PARITY SECURITIES" has the meaning set forth in Section 2 of
the Series B Certificate of Designation.
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"PBGC" means the Pension Benefit Guaranty Corporation.
"PENSION PLAN" means any "employee pension benefit plan" as
defined in Section 3(2) of ERISA (other than a Multiemployer Plan) which (a)
the Company or any ERISA Affiliate maintains, administers, contributes to or
is required to contribute to, or, within the five (5) years prior to the
Closing Date, maintained, administered, contributed to or was required to
contribute to, or under which the Company or any ERISA Affiliate may incur
any liability and (b) covers any employee or former employee of the Company
or any ERISA Affiliate (with respect to their relationship with such Persons).
"PERMITS" means all licenses, permits, orders, consents,
approvals, registrations, authorizations, qualifications and filings required
by any federal, state, local or foreign law or regulation or governmental or
regulatory bodies and all industry or other non-governmental self-regulatory
organizations.
"PERMITTED ENCUMBRANCES" means (a) any mechanic's or
materialmen's lien or similar Encumbrances with respect to amounts not yet
due and payable or which are being contested in good faith by appropriate
proceedings and for which appropriate reserves have been established, (b)
Encumbrances for Taxes not yet due and payable or which are being contested
in good faith by appropriate proceedings, for which appropriate reserves have
been established, (c) easements, licenses, covenants, rights of way and
similar Encumbrances which, individually or in the aggregate, would not
materially and adversely affect the marketability or value of the property
encumbered thereby or materially interfere with the operations of the
Business and (d) Encumbrances arising under the Credit Facility.
"PERSON" means any individual, corporation, partnership,
limited partnership, limited liability partnership, joint venture,
association, limited liability company, joint-stock company, trust,
unincorporated organization or government or agency or political subdivision
thereof (including any subdivision or ongoing business of any such entity or
substantially all of the assets of any such entity, subdivision or business).
"PRE-CLOSING ENVIRONMENTAL CONDITIONS" means any Environmental
Condition occurring or in existence on or prior to the Closing Date.
"PREFERRED SHARES" has the meaning set forth in the Recitals to
this Agreement.
"PREFERRED STOCK DIRECTOR" has the meaning set forth in the
Amended Bylaws.
"PROCEEDING" means any action, suit, claim, litigation, legal
or other proceeding, whether civil, criminal, administrative, arbitrative or
investigative, any appeal in such an action, suit, claim, litigation, legal
or other proceeding, and any investigation that could reasonably be expected
to lead to such an action, suit, claim, litigation, legal or other
proceeding, not including an audit other than an audit by a Governmental
Entity pursuant to any Applicable Laws relating to health care, the health
care industry and the provision of health care services, third party
reimbursement (including Medicare and Medicaid), public health and safety or
wrongful death and medical malpractice, which shall be included in this
definition of "Proceeding."
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"PROPRIETARY RIGHTS" has the meaning set forth in Section 4.25 of
this Agreement.
"PROXY STATEMENT" means that certain Maxum Health Corp. and
American Health Services Corp. Joint Proxy Statement for Special Meeting of
Stockholders to be held June 25, 1996, dated May 9, 1996.
"PURCHASER" has the meaning set forth in the Preamble to this
Agreement, and shall include the Purchaser's successors and permitted assigns.
"REGISTRATION RIGHTS AGREEMENT" means the Registration Rights
Agreement by and among the Company and the Purchaser substantially in the
form attached hereto as Exhibit B.
"REGULATION D" has the meaning set forth in Section 4.26 of
this Agreement.
"RELEASE" means and includes any spilling, leaking, pumping,
pouring, emitting, emptying, discharging, injecting, escaping, leaching,
dumping or disposing into the environment or the workplace of any Hazardous
Materials, and otherwise as defined in any Environmental Law.
"SEC FILINGS" has the meaning set forth in Section 4.9 of this
Agreement.
"SECOND CLOSING" means the time at which GE converts all of its
Series A Preferred Stock into Series C Preferred Stock.
"SECOND CLOSING DATE" means the business day after all waiting
periods with respect to GE's filing of a notification under the HSR Act with
respect to the transactions to occur at the Second Closing have expired or
have been terminated and neither the Federal Trade Commission nor the
Department of Justice shall have sent a letter giving notice of its intention
to initiate legal action to prevent such transactions or to seek further
information.
"SECURITIES" means the Preferred Shares and the Warrants.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SENIOR MANAGEMENT" means such members of the senior management
of the Company as are proposed by the President of the Company and accepted
by the Series B Directors and the Series C Director, which acceptance shall
not unreasonably be withheld.
"SENIOR SECURITIES" has the meaning set forth in Section 2 of
the Series B Certificate of Designation.
"SERIES A PREFERRED STOCK" means the Convertible Preferred
Stock, Series A, par value $0.001 per share, of the Company, all of the
outstanding shares of which as of the date of this Agreement are held by GE.
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"SERIES B CERTIFICATE OF DESIGNATION" means the Certificate of
Designation, Preferences and Rights of the Series B Preferred Stock, in the
form attached hereto as Exhibit C.
"SERIES B CONVERSION SHARES" means the shares of Common Stock
issuable, upon certain conditions, by the Company to the Purchaser in respect
of the Series B Preferred Stock.
"SERIES B PREFERRED STOCK" means the Convertible Preferred
Stock, Series B, par value $0.001 per share, of the Company, with the rights,
preferences and privileges set forth in the Series B Certificate of
Designation.
"SERIES C CERTIFICATE OF DESIGNATION" means the Certificate of
Designation, Preferences and Rights of the Series C Preferred Stock, in the
form attached hereto as Exhibit D.
"SERIES C CONVERSION SHARES" means the shares of Common Stock
issuable, upon certain conditions, by the Company to GE in respect of the
Series C Preferred Stock.
"SERIES C PREFERRED STOCK" means the Convertible Preferred
Stock, Series C, par value $0.001 per share, of the Company, with the rights,
preferences and privileges set forth in the Series C Certificate of
Designation.
"SERIES D CERTIFICATE OF DESIGNATION" means the Certificate of
Designation, Preferences and Rights of the Series D Preferred Stock, in the
form attached hereto as Exhibit E.
"SERIES D CONVERSION SHARES" means the shares of Common Stock
issuable, upon certain conditions, by the Company to the Purchaser in respect
of the Series D Preferred Stock.
"SERIES D PREFERRED STOCK" means the Convertible Preferred
Stock, Series D, par value $0.001 per share, of the Company, with the rights,
preferences and privileges set forth in the Series D Certificate of
Designation.
"SPECIAL CORPORATE EVENT" shall be deemed to have occurred (i)
at such time as any person (as defined in Section 13(d)(3) of the Exchange
Act), except the Purchaser, any Carlyle Affiliate, GE and/or any Affiliate of
GE, at any time shall directly or indirectly acquire more than twenty percent
(20%) of the voting power of the Common Stock of the Company, (ii) at such
time as during any one (1) year period, individuals who at the beginning of
such period constitute the Company's Board of Directors cease to constitute
at least a majority of such Board (provided, however, that a change in
directors upon a Type B Event Date shall not be deemed to cause a Special
Corporate Event pursuant to this clause (ii)), (iii) upon consummation of a
merger or consolidation of the Company into or with another Person in which
the stockholders of the Company immediately prior to the consummation of such
transaction shall own fifty percent (50%) or less of the voting securities of
the surviving corporation (or the parent corporation of the surviving
corporation where the surviving corporation is wholly-owned by the parent
corporation) immediately following the consummation of such transaction, or
(iv) the sale, transfer or lease of all or substantially all of the assets of
the Company, in any of cases (i), (ii), (iii) or (iv) in a single transaction
or series of related transactions.
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"SSA" has the meaning set forth in Section 4.34 of this Agreement.
"STATE HEALTH CARE PROGRAM" has the meaning set forth in Section
4.35 of this Agreement.
"SUBSIDIARY" means (a) any corporation of which at least a
majority in interest of the outstanding voting stock (having by the terms
thereof voting power under ordinary circumstances to elect a majority of the
directors of such corporation, irrespective of whether or not at the time
stock of any other class or classes of such corporation shall have or might
have voting power by reason of the happening of any contingency) is at the
time, directly or indirectly, owned or controlled by the Company and/or by
one or more Subsidiaries of the Company, or (b) any corporate or
non-corporate entity in which the Company and/or one or more Subsidiaries of
the Company, directly or indirectly, at the date of determination thereof,
has an ownership interest and one hundred percent (100%) of the revenue of
which is included in the consolidated financial reports of the Company
consistent with GAAP. With respect to past events, a reference to a
Subsidiary shall be a reference to such Subsidiary and its predecessors.
"SUPERMAJORITY VOTE" means the affirmative vote of six (6)
directors of the Company with respect to the matter subject to such vote.
"SUPERVOTING SECURITIES" means any class or series of the
Company's Capital Stock the holders of which have the right to cast more than
one vote per share and/or have the right to elect one or more members of the
Board of Directors, voting as a class or series.
"SUPPLEMENTAL SERVICE FEE" has the meaning set forth in the
Recitals hereof.
"SUPPLEMENTAL SERVICE FEE TERMINATION AGREEMENT" means the
Supplemental Service Fee Termination Agreement between the Company and the
Purchaser substantially in the form attached hereto as Exhibit L.
"TAX" or "TAXES" means any federal, state, local or foreign net
or gross income, gross receipts, license, payroll, employment, excise,
severance, stamp, occupation, premium, (including taxes under Section 59A of
the Code), customs duties, capital stock, franchise, profits, withholding,
social security (or similar), unemployment, disability, real property,
personal property, sales, use, transfer, registration, value added,
alternative or add-on minimum, estimated or other tax, governmental fee or
like assessment or charge of any kind whatsoever, including any interest,
penalty or addition thereto, whether disputed or not, imposed by any
Governmental Entity or arising under any tax law or agreement, including,
without limitation, any joint venture or partnership agreement.
"TAX RETURN" means any return, declaration, report, claim for
refund or information or return or statement relating to Taxes, including any
schedule or attachment thereto, and including any amendments thereof.
"THIRD PARTY NOTICE" has the meaning set forth in Section 8.5
of this Agreement.
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"TRANSACTION" means, taken together, the transactions
contemplated under this Agreement and the GE Purchase Agreement, including,
without limitation, the transactions that will occur at the Closing, the
initial funding of the Credit Facility and the Second Closing.
"TYPE B CONVERSION" has the meaning set forth in the Series B
Certificate of Designation and the Series C Certificate of Designation.
"TYPE B EVENT DATE" has the meaning set forth in the Series B
Certificate of Designation and the Series C Certificate of Designation.
"TYPE B TRIGGER DATE" means the date one year after the initial
borrowing of funds under the Credit Facility.
"WARRANT AGREEMENT" means that certain Warrant Agreement by and
between the Company and the Purchaser substantially in the form attached
hereto as Exhibit F pursuant to which the Company shall issue the Warrants to
the Purchaser.
"WARRANT CERTIFICATES" means one or more warrant certificates
evidencing the Warrants, in the form attached as an exhibit to the Warrant
Agreement.
"WARRANTS" means 250,000 warrants, issued pursuant to the
Warrant Agreement, to purchase, initially, an equivalent number of shares of
Common Stock at an initial exercise price of $10.00 per share, expiring on
the date that is the fifth anniversary of the Closing Date.
"WARRANT SHARES" means the Common Stock issuable upon the
exercise of the Warrants.
"WELFARE PLAN" means any "employee welfare benefit plan" as
defined in Section 3(1) of ERISA, which (a) the Company or any ERISA
Affiliate maintains, administers, contributes to or is required to
contribute to, or under which the Company or any ERISA Affiliate may incur
any liability and (b) covers any employee or former employee of the Company
or any ERISA Affiliate (with respect to their relationship with such
entities).
ARTICLE II
PURCHASE AND SALE OF SECURITIES
2.1 PURCHASE AND SALE OF SECURITIES.
Upon the terms and subject to the conditions contained herein, on
the Closing Date the Company shall sell to the Purchaser and the Purchaser shall
purchase from the Company all of the Securities.
2.2 CONSIDERATION FOR SECURITIES.
Upon the terms and subject to the conditions contained herein,
as consideration for the purchase of the Securities, on the Closing Date the
Purchaser shall pay to the Company an
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aggregate purchase price in the amount of $25,000,000 minus the Carlyle
Transaction Expenses and minus a private placement fee of One Hundred Twenty
Five Thousand Dollars ($125,000), payable by wire transfer of immediately
available funds to an account designated by the Company at least 24 hours
before the Closing.
ARTICLE III
CLOSING
3.1 CLOSING.
The Closing shall be held at 10:00 a.m. Los Angeles time on the
Closing Date, at the offices of Gibson, Dunn & Crutcher LLP, 333 South Grand
Avenue, Los Angeles, CA 90071, unless the parties hereto otherwise agree.
3.2 DELIVERIES BY THE COMPANY AT THE CLOSING.
At the Closing, the Company shall issue and deliver to the
Purchaser:
(a) Certificates evidencing the Preferred Shares in the names of
the Persons comprising the Purchaser (or their assignees), in the respective
amounts as set forth in a written notice provided to the Company by the
Purchaser 24 hours in advance;
(b) The Warrant Certificates in the names of the Persons
comprising the Purchaser (or their assignees), in the respective amounts as set
forth in a written notice provided to the Company by the Purchaser;
(c) The Ancillary Agreements;
(d) The certificates, opinions of counsel and other documents
described in Article VII of this Agreement; and
(e) All such other documents and instruments as the Purchaser or
its counsel shall reasonably request to consummate the Closing.
3.3 DELIVERIES BY THE PURCHASER AT THE CLOSING.
At the Closing, the Purchaser shall deliver to the Company:
(a) Wire transfer of immediately available funds as provided in
Section 2.2;
(b) The Ancillary Agreements;
(c) The certificates, opinions of counsel and other documents
described in Article VII of this Agreement; and
(d) All such other documents and instruments as the Company or
its counsel shall reasonably request to consummate the Closing.
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3.4 SECOND CLOSING.
The parties contemplate that the Second Closing shall occur on
the Second Closing Date. At the Second Closing, all of GE's shares of Series
A Preferred Stock shall be converted into Series C Preferred Stock.
3.5 FORM OF DOCUMENTS AND INSTRUMENTS.
All of the documents and instruments delivered at the Second
Closing shall be in form and substance, and shall be executed and delivered
in a manner, reasonably satisfactory to the respective counsel of the
Purchaser and the Company.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Purchaser as follows:
4.1 ORGANIZATION OF THE COMPANY.
(a) The Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware and has
all requisite corporate power and authority to own, lease and operate its
properties and assets and to carry on its business as presently being
conducted and as proposed to be conducted. No actions or Proceedings to
dissolve the Company are pending or, to the Knowledge of the Company,
threatened. The copies of the Certificate of Incorporation and Amended
Bylaws heretofore delivered by the Company to TC Group, L.L.C. are accurate
and complete as of the date hereof. The Company is duly qualified or licensed
to do business as a foreign corporation and is in good standing in each
jurisdiction in which the property owned, leased or operated by it or the
conduct of its business requires such qualification or licensing, except
where the failure to do so taken in the aggregate would not have a Material
Adverse Effect on the Company. The Certificate of Incorporation and the
Amended Bylaws of the Company comply in all material respects with Delaware
law.
(b) Each Subsidiary is a corporation or other business entity
duly organized, validly existing and in good standing under the laws of its
jurisdiction of organization, and has all requisite power and authority to
own, lease and operate its properties and assets and to carry on its business
as presently being conducted and as proposed to be conducted. Except as set
forth in Schedule 4.1(b), each Subsidiary is duly qualified or licensed to do
business as a foreign corporation and is in good standing in each
jurisdiction in which the property owned, leased or operated by it or the
conduct of its business requires such qualification or licensing, except
where the failure to do so would not have a Material Adverse Effect on the
Company. The terms and provisions of the organizational documents of each
Subsidiary comply in all material respects with the laws of such Subsidiary's
jurisdiction of incorporation.
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4.2 CAPITALIZATION OF THE COMPANY.
(a) The authorized Capital Stock of the Company consists of:
(i) Twenty-Five Million (25,000,000) shares of common stock, par value $0.001
per share (the "Common Stock"), Two Million Seven Hundred Fourteen Thousand
Seven Hundred Twenty Five (2,714,725) shares of which will be issued and
outstanding immediately after the Closing Date; (ii) Three Million Five
Hundred Thousand (3,500,000) shares of preferred stock, of which (A) Two
Million Five Hundred One Thousand Seven Hundred Sixty (2,501,760) shares of
Series A Preferred Stock are issued and outstanding as of the date hereof,
all of which shares are expected to be exchanged at the Second Closing for
shares of Series C Preferred Stock so that no shares of Series A Preferred
Stock are expected to be outstanding immediately after the Second Closing
Date; (B) Twenty Five Thousand (25,000) shares of Series B Preferred Stock
which will be designated and authorized as of the Closing Date, all of which
will be issued and outstanding immediately after the Closing Date; (C) Twenty
Seven Thousand Nine Hundred Fifty Three (27,953) shares of Series C Preferred
Stock which will be designated and authorized as of the Closing Date, Seven
Thousand (7,000) shares of which will be issued and outstanding immediately
after the Closing Date and all of which are expected to be issued and
outstanding immediately after the Second Closing Date; and (D) Six Hundred
Thirty Two Thousand Two Hundred Sixty Six (632,266) shares of Series D
Preferred Stock which will be designated and authorized as of the Closing
Date, no shares of which will be issued and outstanding immediately after the
Closing Date. All outstanding shares of Capital Stock of the Company are
fully paid, non-assessable, free and clear of all Encumbrances and have been
issued in compliance with all state and federal securities laws. Except for
the Series B Preferred Stock, the Series C Preferred Stock and the Series D
Preferred Stock, none of such shares is subject to, nor has been issued in
violation of, any preemptive rights.
(b) The Company has not become subject to any commitment or
obligation, either absolute or conditional, matured or unmatured, vested or
not yet vested, to issue, deliver or sell, or cause to be issued, delivered
or sold, under offers, stock option agreements, stock bonus agreements, stock
purchase plans, incentive compensation plans, warrants, options, calls,
conversion rights or otherwise, any shares of the Capital Stock or other
securities of the Company including securities or obligations convertible
into or exchangeable for any shares of Capital Stock, other equity securities
or ownership interests, upon payment of any consideration or otherwise,
except for (i) the commitments and obligations of the Company pursuant to
this Agreement, the Warrant Agreement, the GE Purchase Agreement, the GE
Warrant Agreement, the Series B Certificate of Designation and the Series C
Certificate of Designation; (ii) the issuance, sale or grant of the options
outstanding on the date hereof to Senior Management and directors of the
Company set forth on SCHEDULE 4.2 hereto; (iii) the warrants outstanding on
the date hereof set forth on SCHEDULE 4.2 hereto; (iv) as set forth on
SCHEDULE 4.2 hereto, the number of shares of Capital Stock (all of which are
included in the Two Million Seven Hundred Fourteen Thousand Seven Hundred
Twenty Five (2,714,725) outstanding shares of Common Stock stated in Section
4.2(a)) as to which the Company would be required to issue new stock
certificates if all stock certificates were now surrendered that represented
shares of Capital Stock of American Health Services Corp. or Maxum Health
Corp. (constituent corporations in the mergers contemplated by the Merger
Agreement) that either were outstanding immediately prior to such
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mergers or that were issuable pursuant to any commitment or obligation of
either of such constituent corporations, either absolute or conditional,
matured or unmatured, vested or not yet vested, to issue, deliver or sell, or
cause to be issued, delivered or sold, under offers, stock option agreements,
stock bonus agreements, stock purchase plans, incentive compensation plans,
warrants, options, calls, conversion rights or otherwise; and (v) as set
forth on SCHEDULE 4.2, and to the extent not otherwise described in clause
(iv) of this Section 4.2, the number of shares of Capital Stock of the
Company that would be required to be issued if the surviving corporations of
such mergers were to give their written approval (pursuant to Section 262(k)
of the Delaware General Corporation Law), to holders of shares of Capital
Stock of such constituent corporations who exercised their appraisal rights
with respect to such shares, to withdraw such holders' demands for appraisal
and accept such mergers. Except as provided in this Agreement, the Company
is not a party or subject to any agreement or understanding and, to the
Company's Knowledge, there is no agreement or understanding between any
Persons and/or entities, that affects or relates to the voting or giving of
written consents with respect to any of the Company's voting securities.
(c) Upon issuance to the Purchaser of the Twenty-Five Thousand
(25,000) shares of Series B Preferred Stock to be issued hereunder, if the
Purchaser were to immediately convert such shares into Common Stock, such
shares of Common Stock would represent Twenty Eight and Four-Tenths Percent
(28.4%) of the Common Stock of the Company on a fully diluted basis. Such
percentage shall equal one hundred (100) times the following quotient. The
numerator of such quotient shall be the number of shares of Common Stock that
the Purchaser would be entitled to receive if the Purchaser were to convert
into Common Stock, immediately following the Closing and pursuant to the
terms of the Series B Certificate of Designation, all of the shares of Series
B Preferred Stock the Purchaser is to receive at the Closing pursuant to the
terms of this Agreement. The denominator of such quotient shall equal the sum
of (1) such numerator, plus (2) the number of shares of Common Stock that
would need to be issued if all of the shares of Series C Preferred Stock to
be issued pursuant to the GE Purchase Agreement (whether issuable at the
Closing or at the Second Closing) were converted into Common Stock, pursuant
to the terms of the Series C Certificate of Designation, plus (3) the number
of shares of Common Stock that would need to be issued if the all of the
Warrants and GE Warrants were exercised in full, plus (4) the maximum number
of shares of Common Stock that would need to be issued if all of the
issuances of Capital Stock contemplated in clauses (ii), (iii), (iv) and (v)
of Section 4.2(b) were to occur immediately following the Closing plus (5)
all shares of Common Stock issued and outstanding on the Closing Date. The
calculation in the immediately preceding sentence shall be made as if all
issuances of Common Stock referred to in clauses (1), (2), (3), (4) and (5)
thereof were made immediately following the Closing, whether or not the
Company is or could be under any obligation to issue such shares of Common
Stock immediately following the Closing.
4.3 AUTHORIZATION OF ISSUANCE.
The rights, preferences, privileges and restrictions of the
Series B Preferred Stock are as stated in the Series B Certificate of
Designation. The rights, preferences, privileges and restrictions of the
Series C Preferred Stock are as stated in the Series C Certificate of
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Designation. The rights, preferences, privileges and restrictions of the
Series D Preferred Stock are as stated in the Series D Certificate of
Designation. Upon consummation of the Transaction, the Securities acquired by
the Purchaser from the Company will be duly authorized and validly issued,
fully paid and non-assessable and not subject to any preemptive rights except
as set forth in the Series B Certificate of Designation, and the Purchaser
will have good and marketable title to such Securities, free and clear of any
Encumbrances or preemptive rights. Upon consummation of the Transaction, the
Series B Conversion Shares and the Series C Conversion Shares (and the Series
D Conversion Shares, which will not be issued to the extent that Series B
Conversion Shares and Series C Conversion Shares are issued) will be duly
authorized and reserved for issuance and upon conversion in accordance with
the terms of the Series B Preferred Stock and the Series C Preferred Stock
(and the Series D Preferred Stock), respectively, will be validly issued,
fully paid and non-assessable and not subject to any preemptive rights except
as set forth in the Series B Certificate of Designation and the Series C
Certificate of Designation (and the Series D Certificate of Designation),
respectively, and the Purchaser will have good and marketable title to the
Series B Conversion Shares (and the Series D Conversion Shares), free and
clear of any Encumbrances or preemptive rights. Upon consummation of the
Transaction, the Warrant Shares and the GE Warrant Shares will be duly
authorized and reserved for issuance and, upon exercise of the Warrants or
the GE Warrants, as the case may be, and when issued and paid for in
accordance with the terms of the Warrants or the GE Warrants, as the case may
be, will be validly issued, fully paid and non-assessable and not subject to
any preemptive rights, and the Purchaser will have good and marketable title
to the Warrant Shares, free and clear of any Encumbrances or preemptive
rights.
4.4 AUTHORIZATION.
The Company has full corporate power and authority to execute
and deliver this Agreement, the GE Purchase Agreement and the Ancillary
Agreements and to consummate the Transaction. The execution and delivery by
the Company of this Agreement, the GE Purchase Agreement and the Ancillary
Agreements and the consummation by it of the Transaction, have been duly
authorized by all necessary corporate action of the Company. This Agreement,
the GE Purchase Agreement and each Ancillary Agreement has been duly executed
and delivered by the Company and each constitutes a valid and legally binding
obligation of the Company, enforceable against the Company in accordance with
its terms, except that such enforceability may be limited by (i) applicable
bankruptcy, insolvency, reorganization, moratorium, and similar laws
affecting creditors' rights generally, and (ii) general equitable principles
(regardless of whether such enforceability is considered in a proceeding in
equity or at law). No approval or consent of the Company's stockholders for
this Agreement, the GE Purchase Agreement, the Ancillary Agreements or the
consummation of the Transaction is required.
4.5 NONCONTRAVENTION.
The execution and delivery by the Company of this Agreement, the
GE Purchase Agreement and the Ancillary Agreements and the consummation by it of
the Transaction do not and will not (i) conflict with or result in a violation
of any provision of the Certificate of Incorporation or the Amended Bylaws, or
the charter, bylaws or other governing instruments of
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any Subsidiary, (ii) materially conflict with or result in a material
violation of any provision of, constitute (with or without the giving of
notice or the passage of time or both) a material default under or give rise
(with or without the giving of notice or the passage of time or both) to any
loss of material benefit or of any right of termination, cancellation or
acceleration under, any Material Agreement, (iii) result in the creation or
imposition of any material Encumbrance upon the properties of the Company or
any Subsidiary, or (iv) violate in any material respect any Applicable Law
binding upon the Company or any Subsidiary.
4.6 CONSENTS.
No material consent, approval, order, authorization of or
declaration, filing or registration with any Governmental Entity is required
to be obtained or made by the Company or any Subsidiary in connection with
the execution and delivery by the Company of this Agreement, the GE Purchase
Agreement and the Ancillary Agreements or the consummation of the
Transaction, other than (a) compliance with any applicable requirements of
the Securities Act; (b) compliance with any applicable requirements of the
Exchange Act; (c) compliance with any applicable state securities laws and
(d) compliance with applicable provisions of the HSR Act. Except as set
forth on SCHEDULE 4.6, no material consent or approval of any Person is
required to be obtained or made by the Company or any Subsidiary in
connection with the execution and delivery by the Company of this Agreement,
the GE Purchase Agreement and the Ancillary Agreements or the consummation of
the Transaction.
In addition, no consent, approval, order, authorization of or
declaration, filing or registration with any Governmental Entity is required
to be obtained or made by the Company or any Subsidiary that could affect the
validity of the issuance of the Series B Preferred Stock, the Series C
Preferred Stock, the Series D Preferred Stock, the Warrants, the GE Warrants,
the Warrant Shares or the GE Warrant Shares, other than (a) compliance with
any applicable requirements of the Securities Act; (b) compliance with any
applicable requirements of the Exchange Act; and (c) compliance with any
applicable state securities laws; and (d) compliance with applicable
provisions of the HSR Act. Except as set forth on SCHEDULE 4.6, no consent or
approval of any Person is required to be obtained or made by the Company or
any Subsidiary that could affect the validity of the issuance of the Series B
Preferred Stock, the Series C Preferred Stock, the Series D Preferred Stock,
the Warrants, the GE Warrants, the Warrant Shares or the GE Warrant Shares.
4.7 SUBSIDIARIES.
(a) Except as otherwise set forth on SCHEDULE 4.7, the Company
does not own, directly or indirectly, more than five percent (5%) of the
Capital Stock or other securities of any Person or have any direct or
indirect equity or ownership interest of more than five percent (5%) in any
other Person, other than its Subsidiaries. SCHEDULE 4.7 lists each
Subsidiary as of the date hereof, its respective jurisdiction of
incorporation and the jurisdictions in which it is qualified to do business,
the number of shares, partnership or other equity interests and the
percentage ownership interest held by the Company in each such Subsidiary.
Except as otherwise indicated on SCHEDULE 4.7, no actions or other
Proceedings to dissolve any Subsidiary are pending.
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(b) Except as otherwise indicated on SCHEDULE 4.7, all the
outstanding Capital Stock or other equity interests of each Subsidiary is
owned directly or indirectly by the Company, free and clear of all
Encumbrances and restrictions on voting, sale or disposition. All
outstanding shares of Capital Stock of each Subsidiary have been validly
issued and are fully paid and non-assessable. No shares of Capital Stock or
other equity interests of any Subsidiary are subject to, nor have any been
issued in violation of, preemptive or similar rights.
(c) Except for shares of common stock owned by the Company or
any Subsidiary and as set forth on SCHEDULE 4.7, there are outstanding (i) no
shares of Capital Stock or other voting securities of any Subsidiary; (ii) no
securities of any Subsidiary convertible into or exchangeable for shares of
Capital Stock or other voting securities of any Subsidiary; (iii) no
subscriptions, options, warrants, calls, commitments, preemptive rights or
other rights of any kind to acquire Capital Stock or other voting securities
from any Subsidiary, and no obligation of any Subsidiary to issue or sell,
any shares of Capital Stock or other voting securities of any Subsidiary or
any securities of any Subsidiary convertible into or exchangeable for such
Capital Stock or voting securities; and (iv) no equity equivalents, interests
in the ownership or earnings or other similar rights of or with respect to
any Subsidiary to repurchase, redeem or otherwise acquire any shares of
Capital Stock or any other securities of the type described in clauses
(i)-(iv) above. No Subsidiary holds shares of its Capital Stock in its
treasury.
4.8 EMPLOYEE BENEFIT PLANS AND OTHER AGREEMENTS.
(a) SCHEDULE 4.8 contains a complete list of Employee Plans.
True and complete copies of each of the following Employee Plan documents
have been delivered or made available by the Company to the Purchaser: (i)
each Employee Plan document (and, if applicable, related trust agreements and
all annuity contracts or other funding instruments) and all amendments
thereto, all reasonably available written descriptions thereof which have
been distributed to the Company's employees and those of its ERISA Affiliates
during the last thirty-six (36) months and a reasonably detailed description
of any Employee Plan which is not in writing,, (ii) the most recent
determination or opinion letter issued by the Internal Revenue Service with
respect to each Pension Plan and each Welfare Plan (other than a
Multiemployer Plan), (iii) for the three (3) most recent plan years, Annual
Reports on Form 5500 Series required to be filed with any governmental agency
for each Pension Plan, (iv) a description setting forth the amount of any
liability of the Company as of the Closing Date for payments more than thirty
(30) calendar days past due with respect to each Welfare Plan.
(b) EMPLOYEE PLANS.
(i) PENSION PLANS.
(A) No Pension Plan is or has been subject to
Title IV of ERISA or Section 412 of the Code.
(B) Each Pension Plan and each related trust
agreement, annuity contract or other funding instrument is qualified
and tax-exempt under the
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provisions of Code Sections 401(a) (or 403(a), as appropriate) and
501(a) and has been so qualified during the period from its adoption
to date.
(C) Each Pension Plan and each related trust
agreement, annuity contract or other funding instrument presently
complies and has been maintained in compliance, in all material
respects, with its terms and, both as to form and in operation, with
the requirements prescribed by any and all Applicable Laws, including
without limitation ERISA and the Code.
(ii) MULTIEMPLOYER PLANS.
(A) Neither the Company nor any ERISA Affiliate
has, at any time within the last seventy-two (72) months, maintained,
contributed to or been obligated to maintain or contribute to, or
withdrawn from, a Multiemployer Plan.
(iii) WELFARE PLANS.
(A) Each Welfare Plan presently complies and has
been maintained in compliance, in all material respects, with its
terms and, both as to form and operation, with the requirements
prescribed by any and all statutes, orders, rules and regulations
which are applicable to such Welfare Plan, including, without
limitation, ERISA and the Code.
(B) Except as disclosed on SCHEDULE 4.8, none of
the Company, any ERISA Affiliate or any Welfare Plan has any present
or future obligation to make any payment to, or with respect to any
present or former employee of the Company or any ERISA Affiliate
pursuant to, any retiree medical benefit plan or other retiree Welfare
Plan, and no condition exists which would prevent the Company from
amending or terminating any such benefit plan or Welfare Plan.
(C) Each Welfare Plan which is a "group health
plan," as defined in Section 607(1) of ERISA, has been operated in
compliance with provisions of Part 6 of Title I, Subtitle B of ERISA
and 4980B of the Code at all times. The Company is not obligated to
provide health care benefits of any kind to its retired or former
employees or their dependents pursuant to any agreement or
understanding.
(iv) BENEFIT ARRANGEMENTS. Each Benefit Arrangement has
been maintained in compliance, in all material respects, with its terms and
with the requirements prescribed by any and all statutes, orders, rules and
regulations which are applicable to such Benefit Arrangement, including
without limitation, the Code, and with all plan documents. Except as set
forth in SCHEDULE 4.8 and except as provided by law, the employment of all
persons presently employed or retained by the Company is terminable at
will.
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(v) UNRELATED BUSINESS TAXABLE INCOME. No Employee
Plan (or trust or other funding vehicle pursuant thereto) is subject to any
Tax under Section 511 of the Code.
(vi) DEDUCTIBILITY OF PAYMENTS. Except as disclosed in
SCHEDULE 4.8, there is no contract, agreement, plan or arrangement covering
any present or former employee, director or consultant of the Company or
any of its ERISA Affiliates (with respect to his or her relationship with
such entities) that, individually or collectively, provides for the payment
by the Company of any amount (i) that is not deductible under
Section 162(a)(l) or 404 of the Code or (ii) that is an "excess parachute
payment" pursuant to Section 280G of the Code.
(vii) FIDUCIARY DUTIES AND PROHIBITED TRANSACTIONS.
Neither the Company nor any plan fiduciary of any Welfare Plan or Pension
Plan has engaged in any transaction in violation of Sections 404 or 406 of
ERISA or any "prohibited transaction," as defined in Section 4975(c)(1) of
the Code, for which no exemption exists under Section 408 of ERISA or
Section 4975(c)(2) or (d) of the Code, or has otherwise violated the
provisions of Part 4 of Title I, Subtitle B of ERISA. The Company has not
participated in a violation of Part 4 of Title I, Subtitle B of ERISA by
any plan fiduciary of any Welfare Plan or Pension Plan. The Company has
not been assessed any civil penalty under Section 502(1) of ERISA.
(viii) VALIDITY AND ENFORCEABILITY. Each Welfare Plan
related trust agreement, annuity contract or other funding instrument is
legally valid, binding, enforceable against the Company and in full force
and effect, except as enforceability may be limited by (i) applicable
bankruptcy, insolvency, reorganization, moratorium, and similar laws
affecting creditors' rights generally, and (ii) general equitable
principles (regardless of whether such enforceability is considered in a
proceeding in equity or at law).
(ix) LITIGATION. There is no Proceeding relating to or
seeking benefits under any Employee Plan that is pending, or, to the
Knowledge of the Company, threatened against the Company, any ERISA
Affiliate or any Employee Plan other than routine claims for benefits.
(x) NO AMENDMENTS. Except as disclosed in Schedule
4.8, neither the Company nor any ERISA Affiliate has any announced plan or
legally binding commitment to create any additional Employee Plans which
are intended to cover present or former employees, directors or consultants
of the Company or any of its ERISA Affiliates (with respect to their
relationship with such Persons) or to amend or modify any existing Employee
Plan. Each Employee Plan can be amended or terminated at any time without
approval from any Person, without advance notice and without any liability
other than for benefits accrued prior to such amendments or termination.
(xi) NO OTHER MATERIAL LIABILITY. To the Knowledge of
the Company, no event has occurred in connection with which the Company or
any ERISA Affiliate or
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any Employee Plan, directly or indirectly, could be subject to any material
liability (A) under any statute, regulation or governmental order
relating to any Employee Plan or (B) pursuant to any obligation of the
Company to indemnify any person against liability incurred under any such
statute, regulation or order as they relate to the Employee Plans.
(xii) INSURANCE CONTRACTS. Neither the Company nor any
Employee Plan (other than a Multiemployer Plan) holds as an asset of any
Employee Plan any interest in any annuity contract, guaranteed investment
contract or any other investment or insurance contract issued by an
insurance company that is the subject of bankruptcy, conservatorship or
rehabilitation proceedings.
(xiii) NO ACCELERATION OR CREATION OF RIGHTS. Except as
disclosed on Schedule 4.8, neither the execution and delivery of this
Agreement by the Company nor the consummation of all or any portion of the
Transaction will result in the acceleration or creation of any rights of
any person to benefits under any Employee Plan (including, without
limitation, the acceleration of the vesting or exercisability of any stock
options, the acceleration of the vesting of any restricted stock, the
acceleration of the accrual or vesting of any benefits under any Pension
Plan or the acceleration or creation of any rights under any severance,
parachute or change in control agreement).
(c) There are no employment, consulting, change of control,
severance pay, continuation pay, termination pay, loans, guarantees or
indemnification agreements or other similar agreements of any nature whatsoever
(collectively, "Employment Agreements") between the Company, on the one hand,
and any current or former stockholder, officer, director, employee or Affiliate
of the Company or any consultant or agent of the Company, on the other hand,
that, as a direct result of the Transaction, (i) will require any payment by the
Company or any consent or waiver from any stockholder, officer, director,
employee or Affiliate of the Company or any consultant or agent of the Company,
or (ii) will result in any change in the nature of any rights of any
stockholder, officer, director, employee or Affiliate of the Company or any
consultant or agent of the Company under any such Employment Agreement or other
similar agreement (including, without limitation, any accelerated payments,
deemed satisfaction of goals or conditions, new or increased benefits or
additional or accelerated vesting).
4.9 GOVERNMENTAL FILINGS.
(a) Since June 30, 1994, the Company and each of its
Subsidiaries have filed with the Commission all forms, reports, schedules,
statements and other documents required to be filed by them under the Securities
Act, the Exchange Act and all other federal securities laws and the rules and
regulations promulgated thereunder (the "SEC Filings"). Each SEC Filing was
prepared in accordance with, and at the time of filing complied in all material
respects with, the requirements of the Securities Act, the Exchange Act or other
applicable federal securities law and the rules and regulations promulgated
thereunder, as the case may be, except as the same was corrected or superseded
in an amendment to such SEC Filing filed with the Commission. None of the SEC
Filings, including, without limitation, any financial statements or schedules
included therein, at the time filed, contained any untrue statement of a
material fact or omitted to state any
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material fact required to be stated therein or necessary in order to make the
statements contained therein, in light of the circumstances under which they
were made, not misleading, except as the same was corrected or superseded in
a subsequent document duly filed with the Commission. The Company has
heretofore furnished or made available to the Purchaser true, correct and
complete copies of all SEC Filings since June 30, 1996.
(b) Since June 30, 1992, all material reports, documents and
notices required to be filed, maintained or furnished to any Governmental
Entity (other than the Commission) by the Company or any Subsidiary have been
so filed, maintained or furnished. All such reports, documents and notices
were complete and correct in all material respects on the date filed (or were
corrected in or superseded by a subsequent filing) such that no Liabilities
exist with respect to such filing.
4.10 FINANCIAL STATEMENTS AND REPORTS.
(a) The financial statements contained in the SEC Filings
(collectively, the "Financial Statements") have been prepared in accordance
with GAAP applied on a consistent basis throughout the periods indicated and
with each other (except that the Financial Statements may not contain all
footnotes required by GAAP) and fairly present the consolidated financial
condition of the Company and the Subsidiaries and the consolidated results of
operations as of such dates and for such periods indicated. Since April 30,
1997, there has not been any change to the financial condition of the Company
or any Subsidiary as set forth in the Financial Statements that would have a
Material Adverse Effect on the Company. Except as reflected in the Financial
Statements, neither the Company nor any Subsidiary is a guarantor or
indemnitor of any Indebtedness of any other Person. The Company maintains a
standard system of accounting established and administered in accordance with
GAAP. The general ledger, accounts receivable, accounts payable, bank
reconciliations and payroll records of the Company have been maintained in
all material respects in the ordinary course and contain a materially correct
and complete record of the matters typically contained in records of such
nature.
(b) The Company has not received any management letters or
other letters (other than audit letters included in the SEC Filings) from the
Company's independent auditing firm(s) relating to the results of operations,
financial statements or internal controls of the Company or any Subsidiary
insofar as the same may pertain to the business or assets of the Company and
any Subsidiary during any period from and after June 30, 1994.
4.11 ABSENCE OF UNDISCLOSED LIABILITIES: GUARANTEES.
(a) Except as set forth in the Financial Statements or as set
forth on SCHEDULE 4.11: (i) as of April 30, 1997, neither the Company nor
any Subsidiary had any Liabilities or obligations (whether accrued, absolute,
contingent, unliquidated or otherwise) which are reasonably expected to have,
individually or in the aggregate, a Material Adverse Effect on the Company,
and (ii) since April 30, 1997, the Company and its Subsidiaries, taken as a
whole, have not incurred any such Liabilities or obligations that have had a
Material Adverse Effect on the Company.
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(b) Except as set forth on SCHEDULE 4.11, neither the Company
nor any Subsidiary is a party to (i) any Material Agreement relating to the
making of any advance to, or investment in, any Person, or (ii) any Material
Agreement providing for a guarantee or other contingent liability with
respect to any Indebtedness or similar obligation of any Person.
4.12 ABSENCE OF CERTAIN CHANGES.
Since April 30, 1997, except as reflected in the Financial
Statements or the SEC Filings, neither the Company nor any Subsidiary has (i)
declared or paid any dividends, or authorized or made any distribution upon
or with respect to any class or series of its Capital Stock; (ii) made
Capital Expenditures or commitments therefor, other than such Capital
Expenditures or commitments made in the ordinary course consistent with past
practice; (iii) made any loans or advances to any Person exceeding $5,000
individually or $25,000 in the aggregate (other than advances for business or
travel expenses) or guaranteed the obligations of any Person; (iv) sold,
exchanged or otherwise disposed of any of its assets or rights exceeding
$5,000 individually or $25,000 in the aggregate, other than the sale,
exchange or other disposition of its equipment and services in the ordinary
course of business consistent with past practice; (v) incurred any material
change in the assets, Liabilities, financial condition, operating results or
Business of the Company from that reflected in the Financial Statements,
except changes that have not, in the aggregate, had a Material Adverse Effect
on the Company; (vi) suffered any damage, destruction or loss, whether or not
covered by insurance, that had or would have a Material Adverse Effect on the
Company; (vii) waived a right or a debt owed to it exceeding $1,000
individually or $5,000 in the aggregate, except in the ordinary course of
business consistent with past practice; (viii) satisfied or discharged any
Encumbrance or payment of any obligation, except in the ordinary course of
business consistent with past practice and that has not had and is not
reasonably expected to have a Material Adverse Effect on the Company; (ix)
agreed to or made any material change or amendment to any Material Agreement,
except in the ordinary course of business consistent with past practice; (x)
except as set forth in SCHEDULE 4.12 (X), made any material change in any
compensation arrangement or agreement with any employee that would increase
such employees' compensation by more than ten percent (10%); (xi) permitted
or allowed any of its assets to be subjected to any material Encumbrance,
other than Encumbrances on equipment in the ordinary course of business
consistent with past practice; (xii) written up the value of any inventory,
notes or accounts receivable or other assets in any material respect; (xiii)
licensed, sold, transferred, pledged, modified, disclosed, disposed of or
permitted to lapse any right to the use of any Proprietary Rights; (xiv) made
any change in any method of accounting or accounting practice or any change
in depreciation or amortization policies or rates previously adopted; (xv)
paid, lent or advanced any amount to, sold, transferred or leased any assets
to or entered into any material agreement or material arrangement with any of
its Subsidiaries or GE (except for the GE Purchase Agreement, the GE
Registration Rights Agreement, the GE Warrant Agreement and related
documents) or entered into any agreement or arrangement whatsoever with any
of its Affiliates other than its Subsidiaries and GE, except for directors'
fees, travel expense advances and employment compensation to officers; or
(xvi) incurred or suffered any other event or condition of any character that
could reasonably be expected to have a Material Adverse Effect on the
Company.
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4.13 COMPLIANCE WITH LAWS.
(a) The Company and its Subsidiaries are in compliance in all
material respects with all material Applicable Laws. Material Applicable
Laws includes, without limitation, all Applicable Laws relating to health
care, the health care industry and the provision of health care services,
third party reimbursement (including Medicare and Medicaid), public health
and safety and wrongful death and medical malpractice. Neither the Company
nor any of its Subsidiaries has received any notice of, nor does the Company
or any of its Subsidiaries have any Knowledge of, any violation (or of any
investigation, inspection, audit or other proceeding by any Governmental
Entity involving allegations of any violation) of any Applicable Law
involving or related to the Company or any of its Subsidiaries which has not
been dismissed or otherwise disposed of. Except as set forth in SCHEDULE
4.13(A), neither the Company nor any of its Subsidiaries has received notice
or otherwise has any Knowledge that the Company or any Subsidiary is charged
with, threatened with or under investigation with respect to, any violation
of any Applicable Law, or has any Knowledge of any proposed change in any
Applicable Law that would have a Material Adverse Effect on the Transaction
or the Company.
(b) Each of the Company and its Subsidiaries has, and all
professional employees or agents of each of the Company and its Subsidiaries
who are performing health care or health care related functions on behalf of
the Company or any of its Subsidiaries or joint ventures have, all material
licenses, franchises, permits, accreditations, provider numbers,
authorizations, including certificates of need, consents or orders of, or
filings with, or other approvals from all Governmental Entities ("Approvals")
necessary for the conduct of, or relating to the operation of, the business
of each of the Company and its Subsidiaries and the occupancy and operation,
for its present uses, of the real and personal property which each of the
Company and its Subsidiaries owns or leases, and neither the Company nor any
Subsidiary or the professional employees or agents of either (acting in such
capacities) is in violation of any such Approval in any material respect or
any terms or conditions thereof. All such Approvals are in full force and
effect, have been issued to and fully paid for by the holder thereof and no
notice or warning from any Governmental Entity with respect to the
suspension, revocation or termination of any Approval has been, to the
Knowledge of the Company, threatened by any Governmental Entity or issued or
given to the Company or any Subsidiary. No such Approvals will in any way be
affected by, terminate or lapse by reason of the consummation of all or any
portion of the Transaction. There are no physicians (other than radiologists
and radiation oncologists) owning Capital Stock in any Subsidiary, and no
physicians own stock in the Company, except for physician ownership of
publicly traded stock of the Company acquired on terms equally available to
the public through trading on the Nasdaq Stock Market, and no physician owns
5% or more of the outstanding shares of any class of securities issued by the
Company.
4.14 LITIGATION.
Except as set forth on SCHEDULE 4.14 hereto, there is no
Proceeding (by any Governmental Entity or otherwise) of which the Company has
received notice or of which the Company has Knowledge pending against or
affecting the Company, any Subsidiary or the assets, products or business of
any of them or, to the Knowledge of the Company, any basis
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therefor or threat thereof. Except as set forth on SCHEDULE 4.14 hereto,
neither the Company nor any Subsidiary is a party or subject to the
provisions of any order, writ, injunction, judgment or decree of any court or
other Governmental Entity. Except as set forth on SCHEDULE 4.14 hereto, there
is no Proceeding by the Company or any Subsidiary currently pending or that
the Company or any Subsidiary currently intends to initiate. There are no
Proceedings pending or, to the Knowledge of the Company, threatened against
the Company, any Subsidiary or any of their respective businesses, assets or
products that seek to enjoin, question the validity of or rescind the
Transaction, the GE Purchase Agreement, the Ancillary Agreements or otherwise
prevent the Company from complying with the terms and provisions of this
Agreement, the GE Purchase Agreement, the Ancillary Agreements or any of such
other agreements. Any and all Liabilities of the Company and its
Subsidiaries under such Proceedings that are probable and subject to
reasonable estimation within the meaning of GAAP are adequately covered
(except for standard deductible amounts) by the existing insurance maintained
by the Company or estimates in accordance with GAAP for the uninsured costs
thereof are reflected in the Financial Statements. No holder of shares of
the Capital Stock of either American Health Services Corp. or Maxum Health
Corp. (constituent corporations in the mergers contemplated by the Merger
Agreement) that either were outstanding immediately prior to such mergers
made a demand for the appraisal of his shares pursuant to Section 262 of the
Delaware General Corporation Law.
4.15 TRUE AND COMPLETE DISCLOSURE.
Taken as a whole, this Agreement, the GE Purchase Agreement,
the Ancillary Agreements, the Exhibits, Schedules, statements and
certifications made or delivered in connection herewith or therewith, do not
contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements herein or therein not misleading. All
financial projections reflected in the 1998 budget provided by the Company to
the Purchaser were prepared in good faith on the basis of assumptions
believed to be reasonable at the time such projections were prepared.
4.16 TAXES.
(a) All Company Tax Returns have been properly and timely
filed and all such Tax Returns are correct and complete in all material
respects. Each affiliated group with which any of the Company and its
Subsidiaries files a consolidated or combined Tax Return has filed all such
Tax Returns that it was required to file for each taxable period during which
any of the Company and its Subsidiaries was a member of the group. All such
consolidated and combined Tax Returns were correct and complete in all
material respects.
(b) All material Taxes due and payable by the Company and/or
its Subsidiaries (whether or not shown on any Tax Return) have been timely
paid in full. All material Taxes owed by any affiliated group with which any
of the Company and its Subsidiaries files a consolidated or combined Tax
Return (whether or not shown on any Tax Return) have been paid for each
taxable period during which any of the Company and the Subsidiaries was a
member of the group.
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(c) There is no (nor is there any pending request for an)
agreement, waiver or consent providing for an extension of time with respect
to the assessment or collection of, or statute of limitations regarding, any
Taxes or the filing of any Tax Returns that is currently in effect and no
power of attorney granted by or with respect to the Company or any Subsidiary
with respect to any Tax matter is currently in force.
(d) To the Knowledge of the Company, there is no pending
audit, examination or investigation with respect to any Company Tax Returns,
nor to the Knowledge of the Company, is there pending any notice of the
initiation thereof; there is no Proceeding, claim, demand, deficiency or
additional assessment pending or threatened with respect to any Company Tax
Returns.
(e) To the Knowledge of the Company and its Subsidiaries, the
Company and its Subsidiaries have withheld all Taxes required to have been
withheld and paid by them on their behalf in connection with amounts paid or
owing to any employee, independent contractor, creditor, stockholder or other
related or unrelated third party, and such withheld Taxes have either been
duly paid to the proper Governmental Entity or set aside in accounts for such
purpose.
(f) None of the Company and its Subsidiaries (i) has been a
member of any affiliated group filing a consolidated federal income Tax
Return (other than a group the common parent of which is the Company) or (ii)
has any liability for the Taxes of any Person (other than the Company and its
Subsidiaries) under Treas. Reg. Section 1.1502-6 (or any similar provision
of state, local or foreign law), as a transferee or successor, by contract or
otherwise.
(g) The charges, accruals and reserves for Taxes (including
deferred Taxes) currently reflected on the Financial Statements in accordance
with GAAP are adequate to cover all unpaid Taxes accruing or payable by the
Company and its Subsidiaries in respect of taxable periods that end on or
before the Closing Date and for any taxable periods that begin before the
Closing Date and end thereafter to the extent such Taxes are attributable to
the portion of such period ending on the Closing Date.
(h) Neither the Company nor any Subsidiary has agreed,
requested or been requested to make, or is required to make, any adjustment
to taxable income for any taxable period after the Closing under Sections
481(a) or 263A of the Code or any comparable provision of state or foreign
tax laws by reasons of a change in accounting method or otherwise.
(i) There are no Encumbrances (other than Permitted
Encumbrances) on any asset or property of the Company or any Subsidiary
arising out of, connected with or related to any Tax imposed on the Company,
its Subsidiaries or any of their businesses or properties.
(j) The Company is not a party to, is not bound by and has no
obligation (or potential obligation) under any Tax sharing or allocation
agreement.
(k) Neither the Company nor any Subsidiary is a party to any
agreement with an Affiliate relating to a foreign sales corporation (or "FSC")
within the meaning of Section 922
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of the Code; or a domestic international sales corporation (or "DISC") within
the meaning of Section 992 of the Code.
(l) Other than the elections made in the Tax Returns provided
to or made available to the Purchaser, no agreement, consent or election for
foreign, federal, state or local tax purposes that would affect or be binding
on the Company or any Subsidiary after the Closing has been filed or entered
into by the Company or any Subsidiary. No consent has been filed with
respect to the Company or any Subsidiary under Section 341(f) of the Code.
(m) SCHEDULE 4.16 lists all federal, state, local and foreign
Tax Returns that have been audited, and indicates those Tax Returns that
currently are the subject of audit, other than (i) Tax Returns relating to
closed years, and (ii) Tax Returns that have been audited where such audit
did not result in any change in any tax due from the Company or any
Subsidiary to any Governmental Entity. Correct and complete copies of all
federal Tax Returns, examination reports and statements of deficiencies
assessed against or agreed to by the Company or any of its Subsidiaries since
June 30, 1996 have been delivered or made available to the Purchaser. Each
of the Company and its Subsidiaries has disclosed on its federal income Tax
Returns all positions taken therein that could reasonably be expected to give
rise to a substantial understatement of federal income Tax within the meaning
of Section 6662 of the Code.
4.17 ENVIRONMENTAL MATTERS.
(a) For purposes of this Section 4.17, the term "Company"
shall include (i) the Company, (ii) any Affiliates of the Company other than
GE, (iii) the Business, (iv) all partnerships, joint ventures and other
entities or organizations in which the Company or the Business was at any
time or is a partner, joint venturer, member or participant, and (v) all
predecessor or former corporations, partnerships, joint ventures,
organizations, businesses or other entities, whether in existence as of the
date hereof or at any time prior to the date hereof, the assets or
obligations of which have been acquired or assumed by the Company or the
Business or to which the Company or the Business has succeeded.
(b) The Company and its Subsidiaries: (i) are, and within the
period of all applicable statutes of limitation have been, in compliance in
all material respects with all applicable Environmental Laws PROVIDED, that
the representation and warranty contained in this clause (i) is limited to
the Knowledge of the Company to the extent (but only to the extent) that it
directly applies to real property that the Company has purchased or has
leased from another Person in a transaction other than the acquisition of
such Person (whether by merger or consolidation, stock purchase or exchange,
acquisition of all or substantially all of the assets of such Person or a
similar fundamental transaction); (ii) hold all Environmental Permits (each
of which is in full force and effect) required for any of their current or
intended operations or for any property owned, leased or otherwise operated
by any of them; (iii) are, and within the period of all applicable statutes
of limitation have been, in compliance with all of their Environmental
Permits; and (iv) reasonably believe that each of their Environmental Permits
currently in effect will be renewed effective prior to the expiration of such
Environmental Permit.
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(c) Except as set forth on SCHEDULE 4.17, the Company and its
Subsidiaries have not received any notice of alleged, actual or potential
responsibility for, or any inquiry or investigation regarding, any
Environmental Condition. The Company has not received any notice of any
other claim, demand or action by any individual or entity alleging any actual
or threatened injury or damage to any person, property, natural resource or
the environment arising from or relating to any Release or threatened Release
of any Hazardous Materials at, on, under, in, to or from any Facility or any
former Facilities, or in connection with any operations or activities of the
Company or any of its Subsidiaries.
(d) Except as disclosed in SCHEDULE 4.17 or with respect to
such matters as have been fully and finally resolved and as to which there
are to the Knowledge of the Company, no remaining obligations, neither the
Company nor any of its Subsidiaries has entered into or agreed to or is
subject to any consent decree, order or settlement or other agreement in any
judicial, administrative, arbitral or other similar forum relating to
compliance with or Liability under any Environmental Law.
(e) Except as disclosed in SCHEDULE 4.17, Hazardous Materials
have not been transported, disposed of, emitted, discharged or otherwise
Released or threatened to be Released to or at any real property presently or
formerly owned or leased by the Company or any of its Subsidiaries, which
Hazardous Materials are reasonably expected to (i) give rise to Liability of
the Company or any Subsidiary under any applicable Environmental Law, (ii)
interfere with the Company's or any Subsidiary's continued operations or
(iii) materially impair the fair salable value of any real property owned or
leased by the Company or any Subsidiary.
(f) Except as disclosed in SCHEDULE 4.17, neither the Company
nor any of its Subsidiaries has assumed or retained, by contract or, to the
Knowledge of the Company, by operation of law in connection with the sale or
transfer of any assets or business, Liabilities arising from or associated
with or otherwise in connection with such assets or business of any kind,
fixed or contingent, known or not known, under any applicable Environmental
Law. Neither the Company nor any of its Subsidiaries, to the Knowledge of
the Company, is required to make any capital or other expenditures to comply
with any Environmental Law nor to the Knowledge of the Company is there any
reasonable basis on which any Governmental Entity could take any action that
would require any such capital expenditures.
(g) True, complete and correct copies of the written reports,
and all parts thereof, of all environmental audits or assessments which have
been conducted in respect of any Facility or any former Facility within the
past five (5) years, either by the Company or any attorney, environmental
consultant or engineer or other Person engaged by the Company or any of its
Subsidiaries for such purpose, have been delivered to the Purchaser and a
list of all such reports, audits and assessments and any other similar
report, audit or assessment of which the Company has Knowledge is included on
SCHEDULE 4.17.
4.18 INSURANCE.
Each insurance policy held by or for the benefit of the Company
or any of its Subsidiaries is in full force and effect. Each of the Company and
its Subsidiaries carries, and
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will continue to carry, insurance with reputable insurers (except as to
self-insurance) with respect to such of their respective properties and
businesses, in such amounts and against such risks as is customarily
maintained by other entities of similar size engaged in similar businesses
(which may include self-insurance in amounts customarily maintained by
companies similarly situated or has been maintained in the past by the
Company and its Subsidiaries). None of such insurance was obtained through
the use of materially false or misleading information or the failure to
provide the insurer with all material information requested in order to
evaluate the liabilities and risks insured. Neither the Company nor any of
its Subsidiaries has received any notice of cancellation or non-renewal of
any insurance policies or binders.
4.19 REAL PROPERTY AND LEASEHOLDS.
(a) To the Knowledge of the Company, each lease agreement and
mortgage to which the Company or any Subsidiary is a party is in full force
and effect in accordance with its terms.
(b) With respect to each parcel of real property owned or leased
by the Company or any of its Subsidiaries:
(i) The Company or the relevant Subsidiary, as the case
may be, has good and valid title to and/or a valid and subsisting
leasehold interest in each item of real property and leasehold, as
appropriate, free and clear of all mortgages, liens, Encumbrances (except
Permitted Encumbrances), leases, equities, claims, charges, easements,
rights-of-way, covenants, conditions and restrictions, except for liens,
if any, for property taxes not due;
(ii) No officer, director or employee of the Company, of
any Subsidiary or of any Affiliate of the Company, nor any Subsidiary or
Affiliate of the Company, owns directly or indirectly in whole or in
part, any of such real properties or leaseholds;
(iii) Neither the Company nor any Subsidiary is in
default with respect to any material term or condition of any such
mortgage or lease, nor has any event occurred which, through the passage
of time or the giving of notice or both, would constitute a default
thereunder by the Company or any Subsidiary or would cause the
acceleration of any obligation of the Company or any Subsidiary or the
creation of a lien or encumbrance upon any asset of the Company or any
Subsidiary;
(iv) All of the buildings, fixtures and other
improvements described in SCHEDULE 4.19 are in reasonably good operating
condition, have been maintained in accordance with reasonable industry
practices and are adequate to conduct the business of the Company and its
Subsidiaries, as the case may be, as presently conducted; and
(v) Neither the Company nor any Subsidiary has received
any notice or otherwise has Knowledge that the Company or any such
Subsidiary, as the case may
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be, is in violation of any applicable building code, zoning ordinance
or other law or regulation.
4.20 TANGIBLE ASSETS.
(a) The Company and its Subsidiaries have good and valid title
to or valid and subsisting leasehold interests in all Fixtures and Equipment
having original cost or fair market value in excess of Five Thousand Dollars
($5,000), including all such Fixtures and Equipment reflected in the
Company's most recent balance sheet included in the Financial Statements and
all such Fixtures and Equipment purchased or otherwise acquired by the
Company or any Subsidiary since the date of such Balance Sheet. Except as
set forth on SCHEDULE 4.20, none of such Fixtures and Equipment is subject to
any Encumbrance except for Permitted Encumbrances and Encumbrances which,
individually or in the aggregate, are not substantial in amount and do not
materially detract from the value of the property or assets of the Company
and its Subsidiaries taken as a whole or interfere with the present use of
such property or assets (taken as a whole). The Company and each Subsidiary
has in all material respects performed all the obligations required to be
performed by it with respect to all such Fixtures and Equipment leased by it
through the date hereof, except where the failure to perform would not have a
Material Adverse Effect on the Company and its Subsidiaries, taken as a
whole. All such leases are valid, binding and enforceable with respect to
the Company and its Subsidiaries in accordance with their terms and are in
full force and effect. No default has occurred thereunder on the part of the
Company, any Subsidiary or, to the Knowledge of the Company, any other party
which default would be reasonably likely to have a Material Adverse Effect on
the Company.
(b) The buildings and Fixtures and Equipment of the Company
and its Subsidiaries are in reasonably good operating condition and repair
(except for ordinary wear and tear), with no material defects, are sufficient
for the operation of the business of the Company and its Subsidiaries as
presently conducted and are in conformity, in all material respects, with all
Applicable Laws relating thereto currently in effect, except where the
failure to conform would not have a Material Adverse Effect on the Company.
4.21 CONTRACTS AND COMMITMENTS.
(a) SCHEDULE 4.21 contains a correct and complete list of all
agreements, contracts, Indebtedness, Liabilities and other obligations to
which the Company or any Subsidiary is a party or by which it is bound that
are material to the conduct and operations of its business and properties,
which provide for payments to or by the Company or any Subsidiary in excess
of Five Hundred Thousand Dollars ($500,000) annually, which obligate the
Company or any Subsidiary to share, license or develop any product or
technology or which involve transactions or proposed transactions between the
Company and any Subsidiary, on the one hand, and any officer, director or
Affiliate or Subsidiary, on the other hand (collectively, the "Material
Agreements").
(b) The Company and its Subsidiaries have in all material
respects performed, and are now performing in all material respects, the
obligations under, and are not in default (or by the lapse of time and/or the
giving of notice or otherwise be in default) in respect of, any of
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the Material Agreements. Each of the Material Agreements is in full force
and effect and is a valid and enforceable obligation against the Company or a
Subsidiary, as applicable, and, to the Company's Knowledge, the other party
or parties thereto, in accordance with its terms.
(c) "Current Customer" means any Person from whom the Company
or any Subsidiary has recognized revenue since June 1, 1997 or to whom the
Company or any Subsidiary has any obligation to complete work or honor any
contractual warranty or has any obligation or Liabilities. Since June 1,
1997, no Current Customer with respect to a Center Operation has canceled or
terminated any Material Agreement or notified the Company or any Subsidiary
in writing or orally of its intent to cancel or terminate its contract, and
no Current Customer with respect to a Mobile Operation has canceled or
terminated any Material Agreement or notified the Company or any Subsidiary
in writing or orally of its intent to cancel or terminate its contract,
except any such cancellations, terminations or notifications from Current
Customers with respect to Mobile Operations that in the aggregate could not
have a Material Adverse Effect (taking into account revenue generated from
replacement customers) on the Company.
4.22 BOOKS AND RECORDS.
The Company has made and kept (and given the Purchaser access
to) books and records and accounts, which, in reasonable detail, accurately
and fairly reflect the activities of the Company and its Subsidiaries, taken
as a whole. The minute books of the Company and each such Subsidiary
previously made available to the Purchaser accurately and adequately reflect
all action previously taken by the stockholders, the Board of Directors and
committees of the Board of Directors and each of its Subsidiaries.
4.23 LABOR MATTERS.
(a) Since June 30, 1992, neither the Company nor any
Subsidiary has or has ever had any employees represented by collective
bargaining agreements. The Company and its Subsidiaries are in compliance in
all material respects with all material Applicable Laws respecting employment
practices, terms and conditions of employment and wages and hours and are not
engaged in any unfair labor practice. There is no unfair labor practice
charge or complaint against the Company or any Subsidiary pending before the
National Labor Relations Board or any other governmental agency arising out
of the activities of the Company or any of its Subsidiaries of which the
Company has received notice or of which the Company has Knowledge, and the
Company has no Knowledge of any facts or information which would give rise
thereto. There is no labor strike or labor disturbance pending or, to the
Knowledge of the Company, threatened against the Company or any of its
Subsidiaries. There is no grievance currently being asserted and neither the
Company nor any Subsidiary has experienced since June 30, 1994 a work
stoppage or other labor difficulty which grievance, work stoppage or other
labor difficulty is reasonably likely to have a Material Adverse Effect on
the Company. No collective bargaining representation petition is pending or,
to the Knowledge of the Company, threatened against the Company or any
Subsidiary.
(b) SCHEDULE 4.23 lists those employees of the Company that
prior to the Closing Date had written employment agreements with the Company in
effect.
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4.24 PAYMENTS.
Neither the Company nor any of its Subsidiaries has, directly
or indirectly, paid or delivered any fee, commission or other sum of money or
item of property, however characterized, to any finder, agent, government
official or other party, in the United States or any other country, which is
in any manner related to the business or operations of the Company or its
Subsidiaries and which the Company or any of its Subsidiaries knows or has
reason to believe to have been illegal under any federal, state or local laws
of the United States (including, without limitation the U.S. Foreign Corrupt
Practices Act) or any other country having jurisdiction. Neither the Company
nor any of its Subsidiaries has participated, directly or indirectly, in any
boycotts or other similar practices affecting any of its actual or potential
customers
4.25 INTELLECTUAL PROPERTY.
(a) The Company and its Subsidiaries either own or have valid
licenses or other rights to use all patents, copyrights, trademarks, service
marks, software, databases, data and other technical information used in
their businesses as presently conducted ("Proprietary Rights"), subject to
the limitations contained in the agreements governing the use of the same.
SCHEDULE 4.25 sets forth all such Proprietary Rights owned by, used by or
licensed to the Company or any Subsidiary. There are no limitations
contained in such agreements of the type described in the immediately
preceding sentence which, upon consummation of all or any portion of the
Transaction, will materially alter or materially impair any such rights,
breach any such material agreement with any third party vendor or require
payments of additional sums thereunder. The Company and its Subsidiaries are
in compliance in all material respects with such licenses and agreements.
Except as set forth on SCHEDULE 4.25, there are no pending or, to the
Knowledge of the Company, threatened Proceedings challenging or questioning
the validity or effectiveness of any license or agreement relating to such
property or the right of the Company or any Subsidiary to use, copy, modify
or distribute the same.
(b) No person has a right, other than those set forth on
SCHEDULE 4.25, to receive a royalty or similar payment in respect of any
material Proprietary Rights whether or not pursuant to any contractual
arrangements entered into by the Company or its Subsidiaries.
4.26 SECURITIES OFFERINGS.
(a) Except as set forth on SCHEDULE 4.26, since the
consummation of the merger pursuant to the Merger Agreement, the Company has
not sold any securities other than securities registered pursuant to the
Securities Act.
(b) Neither the Company nor any affiliate (as defined in Rule
501(b) of Regulation D under the Securities Act ("Regulation D")) of the Company
has, directly or through any agent (provided that no representation is made as
to the Purchaser or any person acting on their behalf), (i) sold, offered for
sale, solicited offers to buy or otherwise negotiated in respect of any security
(as defined in the Securities Act) that is or will be integrated with the
offering and sale of the Securities in a manner that would require the
registration of the Securities under the
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Securities Act or (ii) engaged in any form of general solicitation or general
advertising (within the meaning of Regulation D) in connection with the
offering of the Securities.
(c) Except as provided in Schedule 4.26(c), neither the
Company nor any Subsidiary is a party to any agreement or commitment that
obligates the Company to register under the Securities Act any of its
presently outstanding securities or any of its securities that hereafter may
be issued, except as contemplated hereby and by the Registration Rights
Agreement.
4.27 NO OTHER AGREEMENTS TO SELL THE ASSETS OR THE COMPANY.
Except as contemplated by this Agreement, none of the Company
or any of its Subsidiaries have any legal obligation, absolute or contingent,
to any other person or firm to sell the Capital Stock, material assets or the
business of the Company or any Subsidiary or to effect any merger,
consolidation, liquidation, dissolution, recapitalization or other
reorganization of the Company or any Subsidiary or to enter into any
agreement with respect thereto.
4.28 NO BROKERS.
Except for Shattuck Hammond Partners Inc., the aggregate fees
of which are Five Hundred Thousand Dollars ($500,000) in connection with the
Transaction, all of which shall be paid by the Company, neither the Company
nor any Subsidiary has employed, nor is any of them subject to the known
claim of, any broker, finder, consultant or other intermediary in connection
with all or any portion of the Transaction (or the negotiations looking
toward the consummation of all or any portion of the Transaction) who might
be entitled to a fee or commission from the Company in connection with all or
any portion of the Transaction (or the negotiations looking toward the
consummation of all or any portion of the Transaction).
4.29 ACCOUNTS AND NOTES RECEIVABLE.
None of the accounts, notes and other receivables owed to the
Company or any Subsidiary as of the date hereof is pledged to any third
party. The reserve for doubtful accounts shown on the Company's most recent
balance sheet included in the Financial Statements is in accordance with GAAP.
4.30 INDEBTEDNESS.
SCHEDULE 4.30 sets forth a true and complete list of all
Indebtedness of the Company or any Subsidiary for borrowed money as of
September 30, 1997.
4.31 TRANSACTIONS WITH AFFILIATES.
Except as set forth in SCHEDULE 4.31 and for regular salary
payments and fringe benefits under an individual's compensation package with the
Company or any Subsidiary, none of the officers, employees, directors or other
Affiliates of the Company or any Subsidiary or members of their families is a
party to any agreement, understanding, Indebtedness or proposed
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transaction with the Company or any Subsidiary or is directly interested in
any Material Agreement with the Company or any Subsidiary. Neither the
Company nor any Subsidiary has guaranteed or assumed any obligations of their
respective officers, directors, employees or other Affiliates or members of
any of their families. To the Company's Knowledge, none of such Persons has
any direct or indirect ownership interest in any Affiliate or Subsidiary,
with any Person with which the Company or any Subsidiary has a business
relationship or with any Person that competes with the Company or any
Subsidiary, other than an interest of less than five percent (5%) ownership
in any publicly traded company that may compete with the Company or any
Subsidiary. For purposes of this Section 4.31, the term "Affiliates" shall
not include GE.
4.32 NO RESEARCH GRANTS
Neither the Company nor any of its Subsidiaries since inception
has provided any research, educational or study grants of any kind to any
hospital, physician or health care provider.
4.33 CERTAIN REGULATORY MATTERS.
Neither the Company nor any of its Subsidiaries since inception
has received notice that the Company or any Subsidiary has been, or to the
Company's Knowledge has been, the subject of any investigative proceeding
before any federal or state regulatory authority or the agent of any such
authority, including, without limitation, federal and state health
authorities.
4.34 CERTAIN ADDITIONAL REGULATORY MATTERS.
Neither the Company nor any Subsidiary, nor the officers,
directors or managing employees, as that term is defined in 42 C.F.R. Section
1001.1001(a)(1), nor to the Knowledge of the Company or any Subsidiary, the
other employees or agents, of any of the Company or any Subsidiary have
engaged in any activities which are prohibited under criminal law, or are
cause for civil penalties or mandatory or permissive exclusion from Medicare
or Medicaid, or any other State Health Care Program or Federal Health Care
Program (as defined in Section 4.35 below) under Sections 1320a-7, 1320a-7a,
1320a-7b or 1395nn of Title 42 of the United States Code, the federal
Civilian Health and Medical Plan of the Uniformed Services statute
("CHAMPUS"), or the regulations promulgated pursuant to such statutes or
regulations or related state or local statutes or which are prohibited by any
private accrediting organization from which the Company or any of its
Subsidiaries seeks accreditation or by generally recognized professional
standards of care or conduct, including, but not limited to, the following
activities:
(a) Knowingly and willfully making or causing to be made a
false statement or representation of a material fact in any application for
any benefit or payment;
(b) Knowingly and willfully making or causing to be made any
false statement or representation of a material fact for use in determining
rights to any benefit or payment;
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(c) Presenting or causing to be presented a claim for
reimbursement under CHAMPUS, Medicare, Medicaid or any other State Health
Care Program or Federal Health Care Program that is (i) for an item or
service that the Person presenting or causing to be presented knows or should
know was not provided as claimed, or (ii) for an item or service that the
Person presenting knows or should know that the claim is false or fraudulent;
(d) Knowingly and willfully offering, paying, soliciting or
receiving any remuneration (including any kickback, bribe or rebate),
directly or indirectly, overtly or covertly, in cash or in kind (i) in return
for referring, or to induce the referral of, an individual to a Person for
the furnishing or arranging for the furnishing of any item or service for
which payment may be made in whole or in part by CHAMPUS, Medicare or
Medicaid or any other State Health Care Program or any Federal Health Care
Program, or (ii) in return for, or to induce the purchase, lease or order or
the arranging for or recommending of the purchase, lease or order of, any
good, facility, service or item for which payment may be made in whole or in
party by CHAMPUS, Medicare or Medicaid or any other State Health Care Program
or any Federal Health Care Program; or
(e) Knowingly and willfully making or causing to be made or
inducing or seeking to induce the making of any false statement or
representation (or omitting to state a material fact required to be stated
therein or necessary to make the statements contained therein not misleading)
or a material fact with respect to (i) the conditions or operations of a
facility in order that the facility may qualify for CHAMPUS, Medicare,
Medicaid or any other State Health Care Program certification or any Federal
Health Care Program certification, or (ii) information required to be
provided under Section 1124(A) of the Social Security Act ("SSA") (42 U.S.C.
Section 1320a-3).
4.35 MEDICARE/MEDICAID PARTICIPATION.
Neither (a) the Company nor any other Person who after the
Closing will have a direct or indirect ownership interest of 5% or more (as
those terms are defined in 42 C.F.R. Section 1001.1001(a)(2)) in the Company or
any Subsidiary, or who will have an ownership or control interest (as defined in
SSA Section 1124(a)(3) or any regulations promulgated thereunder) in the Company
or any Subsidiary, or who will be an officer, director or managing employee (as
defined in 42 C.F.R. Section 1001.1001(a)(1)) of the Company or any Subsidiary,
or, to the Knowledge of the Company and any Subsidiary, any other employee or
agent thereof, nor (b) any Person with any relationship with such entity
(including, without limitation, a parent company of or partner in a Subsidiary)
who after the Closing will have an indirect ownership interest of 5% or more (as
that term is defined in 42 C.F.R. Section 1001.1001(a)(2)) in the Company or any
Subsidiary: (i) has had a civil monetary penalty assessed against it under
Section 1128A of the SSA or any regulations promulgated thereunder; (ii) has
been excluded from participation under Medicare, Medicaid or a state health care
program as defined in SSA Section 1128(h) or any regulations promulgated
thereunder ("State Health Care Program") or a federal health care program as
defined in SSA Section 1128B(f) ("Federal Health Care Program"); or (iii) has
been convicted (as that term is defined in 42 C.F.R. Section 1001.2) of
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any of the following categories of offenses as described in SSA Section
1128(a) and (b)(1), (2), (3) or any regulations promulgated thereunder:
(A) Criminal offenses relating to the delivery of an
item or service under Medicare, Medicaid or any other State Health Care
Program or Federal Health Care Program;
(B) Criminal offenses under federal or state law
relating to patient neglect or abuse in connection with the delivery of a
health care item or service;
(C) Criminal offenses under federal or state law
relating to fraud, theft, embezzlement, breach of fiduciary responsibility
or other financial misconduct in connection with the delivery of a health
care item or service or with respect to any act or omission in a program
operated by or financed in whole or in part by any federal, state or local
governmental agency;
(D) Federal or state laws relating to the interference
with or obstruction of any investigation into any criminal offense
described in (A) through (C) above; or
(E) criminal offenses under federal or state law
relating to the unlawful manufacture, distribution, prescription or
dispensing of a controlled substance.
4.36 COMPLIANCE WITH MEDICARE/MEDICAID AND INSURANCE PROGRAMS
(a) The Company and its subsidiaries are eligible to receive
payments with respect to operations of their respective business under Title
XVIII of the SSA and under Title XIX of the SSA. The Company and its
Subsidiaries have timely filed (except where the failure to timely file would
not reasonably be expected to have a Material Adverse Effect on the Company) all
claims and reports required to be filed with respect to the operations of their
respective businesses in connection with all state Medicaid and federal Medicare
programs, which claims and reports are complete and correct. The failure to
timely file a medical claim or report resulting only in a late payment will not
for these purposes be deemed adverse to the Company or its Subsidiaries. There
are no actions, appeals or investigations pending or, to the best of the
Company's and its Subsidiaries' Knowledge, threatened before any entity,
commission, board or agency, including an intermediary or carrier or the
administrator of the Health Care Financing Administration, with respect to any
Medicare or Medicaid claims or reports filed by the Company or its Subsidiaries
with respect to the operations of their respective businesses on or before the
date hereof or program compliance matters, which would reasonably be expected to
have a Material Adverse Effect on the Company.
(b) Other than regularly scheduled audits and reviews, no
validation review, peer review or program integrity review related to the
operations of the Company or its Subsidiaries' respective businesses has been
conducted by any entity, commission, board or agency in connection with the
Medicare or Medicaid program, and to the best of the Company's
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and its Subsidiaries' Knowledge, no such reviews are scheduled, pending or
threatened against or affecting such businesses.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
Each Person that is part of the Purchaser hereby represents and
warrants to the Company, with respect to itself only, as follows:
5.1 ORGANIZATION OF THE PURCHASER.
Such Person is duly formed and validly existing and in good
standing under the laws of its jurisdiction of formation and has full power
and authority to carry on its business as currently being conducted.
5.2 AUTHORIZATION.
Such Person has full power and authority to execute and deliver
this Agreement and the Ancillary Agreements and to consummate the
Transaction. The execution and delivery by such Person of this Agreement and
the Ancillary Agreements and the consummation by it of the Transaction have
been duly authorized by all necessary action of such Person. This Agreement
and each Ancillary Agreement has been duly executed and delivered by such
Person and constitutes a valid and legally binding obligation of such Person,
enforceable against such Person in accordance with its terms, except that
such enforceability may be limited by (i) applicable bankruptcy, insolvency,
reorganization, moratorium and similar laws affecting creditors' rights
generally and (ii) general equitable principles (regardless of whether such
enforceability is considered in a proceeding in equity or at law).
5.3 NONCONTRAVENTION.
The execution and delivery by such Person of this Agreement and
the Ancillary Agreements and the consummation by it of the Transaction do not
and will not (i) conflict with or result in a violation of any provision of
the operating agreement or any other governing agreement of such Person, (ii)
conflict with or result in a violation of any provision of, constitute (with
or without the giving of notice or the passage of time or both) a default
under or give rise (with or without the giving of notice or the passage of
time or both) to any right of termination, cancellation, or acceleration
under any bond, debenture, note, mortgage, indenture, lease, agreement or
other instrument or obligation to which such Person is a party or by which
such Person or any of its properties may be bound, (iii) result in the
creation or imposition of any Encumbrance upon the properties of such Person,
or (iv) violate any Applicable Law binding upon such Person, except, in the
case of clauses (ii), (iii) and (iv) above, for any such conflicts,
violations, defaults, terminations, cancellations, accelerations or
Encumbrances which would not, individually or in the aggregate, have a
material adverse effect on the ability of such Person to consummate the
Transaction.
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5.4 CONSENTS AND APPEALS.
No consent, approval, order or authorization of or declaration,
filing or registration with any Governmental Entity is required to be
obtained or made by such Person in connection with the execution and delivery
by such Person of this Agreement and the Ancillary Agreements or the
consummation of the Transaction other than (i) any filings required under
Section 13 of the Exchange Act and Rule 13d-1 under the Exchange Act (ii)
compliance with applicable provisions of the HSR Act, as amended and (iii)
such consents, approvals, orders or authorization which, if not made, would
not, individually or in the aggregate, have a material adverse effect on the
ability of such Person to consummate the Transaction.
5.5 PURCHASE FOR INVESTMENT.
(a) Such Person and the Carlyle Affiliates have been furnished
with all information that it has requested for the purpose of evaluating the
proposed acquisition of the Securities pursuant hereto, and such Person and
the Carlyle Affiliates have had an opportunity to ask questions of and
receive answers from the Company regarding the Company and its Business,
assets, results of operations, financial condition and prospects and the
terms and conditions of the issuance of the Securities.
(b) Such Person is acquiring the Securities solely by and for
its own account, for investment purposes only and not for the purpose of
resale or distribution. Neither such Person nor any Carlyle Affiliate has
any contract, undertaking, agreement or arrangement with any Person to sell,
transfer or pledge to such Person or anyone else any Securities and such
Person has no present plans or intentions to enter into any such contract,
undertaking or arrangement.
(c) Such Person acknowledges and understands that (i) no
registration statement relating to the Securities, the Series B Conversion
Shares or the Warrant Shares has been or is to be filed with the Commission
under the Securities Act or pursuant to the securities laws of any state;
(ii) the Securities, the Series B Conversion Shares, the Series D Preferred
Stock, the Series D Conversion Shares and the Warrant Shares cannot be sold
or transferred without compliance with the registration provisions of the
Securities Act or compliance with exemptions, if any, available thereunder
and without the delivery to the Company by reputable counsel of such
counsel's opinion, in form and substance reasonably satisfactory to the
Company, to the effect that such sale or transfer is exempt from such
registration provisions; (iii) the certificates representing the respective
Securities will include a legend thereon that refers to the foregoing; and
(iv) the Company has no obligation or intention to register the Securities,
the Series B Conversion Shares, the Series D Preferred Stock, the Series D
Conversion Shares or the Warrant Shares under any federal or state securities
act or law, except to the extent, in each case, that the terms of the
Registration Rights Agreement shall otherwise provide.
(d) Such Person and each Carlyle Affiliate (i) is an "accredited
investor" as defined in Rule 501 of Regulation D under the Securities Act;
(ii) has such knowledge and experience in financial and business matters in
general that it has the capacity to evaluate the merits and risks of an
investment in the Securities and to protect its own interest in connection
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with an investment in the Securities; (iii) has such a financial condition
that it has no need for liquidity with respect to its investment in the
Securities to satisfy any existing or contemplated undertaking, obligation or
Indebtedness; and (iv) is able to bear the economic risk of its investment in
the Securities for an indefinite period of time.
5.6 NO BROKERS.
Such Person has not employed, and is not subject to the known
claim of, any broker, finder, consultant or other intermediary in connection
with all or any portion of the Transaction (or the negotiations looking
toward the consummation of all or any portion of the Transaction) who might
be entitled to a fee or commission in connection with all or any portion of
the Transaction (or the negotiations looking toward the consummation of all
or any portion of the Transaction).
5.7 NO AGREEMENTS.
Such Person has not entered into any agreement or arrangement
with respect to the disposition or voting of or exercise of any other rights
with respect to any Capital Stock of the Company with any Person who is not
an Affiliate of such Person (which shall in no event include GE).
ARTICLE VI
COVENANTS
6.1 BEST EFFORTS.
The Company shall comply with the GE Purchase Agreement and the
Credit Facility through and including the Second Closing.
6.2 RESTRICTIVE AGREEMENTS PROHIBITED.
Through and including the Second Closing, the Company shall not
become a party to any agreement which by its terms violates the terms of the
GE Purchase Agreement, the terms of the Series B Preferred Stock as set forth
in the Series B Certificate of Designation, the terms of the Series C
Preferred Stock as set forth in the Series C Certificate of Designation, the
terms of the Series D Preferred Stock as set forth in the Series D
Certificate of Designation, or the terms of the GE Warrants. From and after
the Second Closing, the Company shall not become a party to any agreement
which by its terms violates the terms of the Series B Preferred Stock as set
forth in the Series B Certificate of Designation or the terms of the Series D
Preferred Stock as set forth in the Series D Certificate of Designation .
6.3 CONTINUING OPERATIONS.
From and after the Closing Date, the Company shall, and shall use
its best efforts to cause each Subsidiary to, use all commercially reasonable
efforts to operate its business in a prudent fashion and in such a fashion as is
not likely to result in a Material Adverse Effect on the
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Company; PROVIDED, HOWEVER, that the Company shall not be liable to the
Purchaser for violation of this Section 6.3 in connection with any action or
operation of the Company that those members of the Board of Directors who
were elected by the Purchaser (as provided in Section 6.13 of this Agreement)
voted to approve, adopt or ratify (if such action or operation was voted upon
by the Board of Directors), unless the information provided to the Board of
Directors in connection with its vote upon such action or operation failed to
contain all information that a reasonable person would deem material in
considering such action or operation.
6.4 FINANCIAL STATEMENTS AND INFORMATION.
(a) For so long as the Purchaser and any Carlyle Affiliates
hold, in the aggregate, 25% or more of the shares of Series B Preferred Stock
issued to the Purchaser at the Closing, the Company shall furnish to the
Purchaser:
(i) MONTHLY REPORTS. Within thirty (30) days following the
end of each calendar month, a management report for the preceding calendar
month summarizing the Company's operating and financial performance during
such preceding calendar month and including, without limitation, an
unaudited income statement, an unaudited balance sheet and an unaudited
statement of cash flows for such preceding calendar month and a narrative
description of any event, condition or change in condition that had, or is
likely to have, a Material Adverse Effect on the Company (but such reports
need only be furnished if the Purchaser (and any Carlyle Affiliate who is
to receive such reports) shall have executed and delivered to the Company
an appropriate confidentiality agreement reasonably satisfactory to the
Company.
(ii) QUARTERLY FINANCIAL STATEMENTS. As soon as available
and in any event within sixty (60) days after the end of each of the first
three (3) fiscal quarterly periods of each Fiscal Year, the Company's
quarterly report on Form 10-Q as filed with the Commission.
(iii) ANNUAL FINANCIAL STATEMENTS. As soon as available
and in any event within one hundred twenty (120) days after the end of each
Fiscal Year, the Company's Annual Report on Form 10-K and related Annual
Report to Shareholders as filed with the Commission.
(iv) SEC REPORTS; MAILINGS TO STOCKHOLDERS. Promptly after
sending or making available or filing of the same, copies of all
registration statements, proxy statements, financial statements and reports
on Forms 10-K, 10-Q and 8-K (or any comparable successor form), if any,
which the Company or any of its Subsidiaries shall file with the Commission
or any national securities exchange. In addition, (A) at the same time
that the Company makes a mailing to its stockholders generally and (B)
promptly after the Company issues a press release, the Company shall
provide a copy of the same to the Purchaser.
(v) NOTICE OF DEFAULT OR CLAIMED DEFAULT. Promptly upon
(and in any event within five (5) business days following) any officer of
the Company obtaining
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Knowledge (A) of any condition or event which constitutes an event of
default or default (including, without limitation, by way of
cross-default) under any Indebtedness having a principal amount of at
least $5 million, (B) that the holder of any Indebtedness has given any
written notice or taken any other action with respect to a claimed
condition or event which constitutes such an event of default or default
or (C) that any Person has given any written notice to the Company or any
of its Subsidiaries or taken any other action with respect to a claimed
default under an agreement (other than Indebtedness included in clause
(A) of this Section 6.4(a)(v)) or other obligation having total
consideration to the parties of at least $1 million, an officer's
certificate describing the same and the period of existence thereof and
what action the Company has taken, is taking and proposes to take with
respect thereto.
(vi) BANKRUPTCY. Promptly upon receiving notice of any
Person's seeking to obtain or threatening to seek to obtain a decree or
order for relief with respect to the Company or any of its Subsidiaries in
an involuntary case under any applicable bankruptcy, insolvency or other
similar law now or hereafter in effect, a written notice thereof specifying
what action the Company or such Subsidiary is taking or proposes to take
with respect thereto.
(vii) ADDITIONAL INFORMATION. With reasonable
promptness, such other information, including financial statements and
computations, relating to the performance of the provisions of this
Agreement or the affairs of the Company or any of its Subsidiaries as the
Purchaser may from time to time reasonably request.
(b) The Company will furnish to the Purchaser, at the time it
furnishes each set of financial statements pursuant to Section 6.4(a)(ii) or
(iii) above, an officer's certificate to the effect that no event of default
under any Indebtedness has occurred and is continuing (or, if any such event of
default has occurred and is continuing, describing the same in reasonable
detail, the period of existence thereof and the action that the Company has
taken and proposes to take with respect thereto).
(c) The Company will keep at its principal executive offices
the books, accounts and records of the Company and cause the same to be
available for inspection at said offices during normal business hours by the
Purchaser or by any prospective purchaser of any of the Securities from
either the Purchaser or any Carlyle Affiliate (other than such a purchaser
proposing to purchase pursuant to a valid registration statement or pursuant
to Rule 144 promulgated under the Securities Act). The Purchaser may, at its
option and its own expense, conduct internal audits of the books, records and
accounts of the Company. Audits may be on either a continuous or periodic
basis or both and may be conducted by employees of the Purchaser or by
independent auditors or other consultants retained by the Purchaser. The
Company shall make available to the Purchaser such information and financial
statements in addition to the foregoing as shall be required by the Purchaser
in connection with the preparation of registration statements, current and
periodic reports, proxy statements, Tax Returns and other documents required
to be filed under Applicable Law and shall cooperate in the preparation of
any such documents.
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6.5 PRESS RELEASES.
Except as may be required by Applicable Law or by the rules of
any national securities exchange, neither the Purchaser nor the Company shall
issue any press release with respect to this Agreement or the Transaction
without the prior consent of the other party hereto (which consent shall not be
unreasonably withheld under the circumstances). Any such press release required
by Applicable Law or by the rules of any national securities exchange shall only
be made after reasonable notice to the other party as to the form and content of
such press release.
6.6 NOTIFICATION OF CERTAIN MATTERS.
The Company shall give prompt notice to the Purchaser, and the
Purchaser shall give prompt notice to the Company, of (i) the occurrence or
failure to occur of any event which occurrence or failure causes any
representation or warranty contained in this Agreement to be untrue or
inaccurate in any material respect at any time from and including the date
hereof through the time at which such representation or warranty ceases to
survive pursuant to Section 8.1 hereof, and (ii) any material failure of the
Company or the Purchaser, as the case may be, to comply with or satisfy any
covenant, condition or agreement to be complied with or satisfied by it
hereunder, and each party shall use all reasonable efforts to remedy such
failure. In addition, the Company shall give prompt notice to the Purchaser of
any developments that could reasonably be expected to have a Material Adverse
Effect on the Company.
6.7 LIABILITY INSURANCE.
For so long as the Purchaser and any Carlyle Affiliates hold, in
the aggregate, 25% or more of the shares of Series B Preferred Stock issued to
the Purchaser at Closing, the Company shall ensure that each person serving on
the Board of Directors on and after the Closing Date shall receive the same
liability insurance coverage as a member of the Board of Directors receives as
of the date hereof (including coverage for liabilities arising before the date
of taking office to the extent arising from such person's status as a
prospective member of the Board of Directors) and that such policies shall be in
full force and effect in accordance with their terms as of the Closing Date.
6.8 CONVERSION STOCK.
The Company shall at all times reserve and keep available out of
its authorized but unissued shares of Common Stock and preferred stock, par
value $.001 per share, solely for the purpose of effecting the conversion of
shares of Series B Preferred Stock and Series C Preferred Stock and the issuance
of Common Stock in respect of the Warrants and the GE Warrants, the full number
of whole shares of Common Stock and Series D Preferred Stock then deliverable
upon (a) the conversion of all shares of Series B Preferred Stock and Series C
Preferred Stock then outstanding, (b) the issuance of Common Stock in respect of
the Warrants and the GE Warrants, and (c) if any Series D Preferred Stock is
then outstanding, the full number of whole shares of Common Stock then
deliverable upon the conversion of all shares of Series D Preferred Stock then
outstanding. The Company shall take at all times such corporate action as
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shall be necessary in order that the Company may validly and legally issue
fully paid and non-assessable shares of Common Stock or Series D Preferred
Stock (as the case may be) upon the conversion of shares of Series B
Preferred Stock, Series C Preferred Stock, and Series D Preferred Stock and
the exercise of the then outstanding Warrants and GE Warrants. If at any
time the number of authorized but unissued shares of Common Stock or Series D
Preferred Stock shall not be sufficient to effect the conversion of all then
outstanding shares of the Series B Preferred Stock, Series C Preferred Stock,
and Series D Preferred Stock and the exercise of all the then outstanding
Warrants and GE Warrants, in addition to such other remedies as shall be
available to the holders of the Series B Preferred Stock, Series C Preferred
Stock, and Series D Preferred Stock, the Company shall forthwith take such
corporate action as may be necessary to increase its authorized but unissued
shares of Common Stock or Series D Preferred Stock to such numbers of shares
as shall be sufficient for such purpose, including but not limited to
promptly calling and holding a meeting of the Company's stockholders, at
which the Company's stockholders shall vote on a proposed amendment to the
Certificate of Incorporation that would so increase the number of authorized
shares of Common Stock or preferred stock, par value $.001 per share, as
appropriate, a favorable vote for which amendment shall have been recommended
to the Company's stockholders by the Board of Directors, pursuant to a duly
and validly adopted resolution of the Board of Directors setting forth the
amendment proposed and declaring its advisability, all in accordance with
Section 242 of the Delaware General Corporation Law; and, in case of an
increase in the number of authorized shares of such preferred stock, the
Board of Directors shall promptly cause to become effective a certificate of
increase pursuant to Section 151 of the Delaware General Corporation Law.
6.9 CERTAIN REGULATORY MATTERS.
(a) The operations of the Company and its Subsidiaries will be
conducted in compliance with all material Applicable Laws (material
Applicable Laws includes, without limitation, all Applicable Laws relating to
health care, the health care industry and the provision of health care
services, third party reimbursement (including Medicare and Medicaid), public
health and safety and wrongful death and medical malpractice). In addition
to, and without limiting the generality of the foregoing, the Company shall
adopt and implement a compliance plan adequate to assure such compliance.
The compliance plan shall include all material elements of an effective
program to prevent and detect violations of law as defined in Commentary 3(k)
to Section 8A1.2 of the Federal Sentencing Guidelines.
(b) Without limiting the generality of the foregoing, the
Company and all Affiliates shall comply in all material respects with all
lawful directives, orders, instructions, bulletins and other announcements
received from third party payors and their agents (including, without
limitation, Medicare carriers and fiscal intermediaries) regarding
participation in third party payment programs, including, without limitation,
preparation and submission of claims for reimbursement. Nothing in this
Section 6.9 shall be construed as or is intended to create any third party
beneficiaries.
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6.10 EMPLOYMENT ARRANGEMENTS.
(a) The Company will keep in effect following the Closing the
employment agreements with the employees set forth in SCHEDULE 4.23, on the
same terms and conditions contained in such employment agreements prior to
the Closing Date; provided, however, that such employment agreements shall be
modified so that none of (i) the Transaction, (ii) any conversion of Series B
Preferred Stock or Series C Preferred Stock acquired hereunder or under the
GE Purchase Agreement into shares of Series D Preferred Stock or Common Stock
, (iii) any conversion of shares of Series D Preferred Stock into Common
Stock, or (iv) any change in the membership, size or composition of the Board
of Directors incident to the transaction or such conversions, shall trigger
or constitute a change of control or otherwise give any party to such
employment agreements any right to receive any payment (or any acceleration
thereof) or protections whatsoever.
(b) Following the Closing, the Company and the Purchaser will
review the terms and conditions of the bonus plan currently in effect at the
Company to determine whether any changes should be made to such bonus plan.
6.11 TRANSACTIONS WITH AFFILIATES.
For so long as the Purchaser and any Carlyle Affiliates hold,
in the aggregate, 25% or more of the shares of Series B Preferred Stock
issued to the Purchaser at Closing, the Company covenants and agrees that it
will not, and will not permit any of its Subsidiaries to, directly or
indirectly, engage in any transaction with any Affiliate of the Company,
including, without limitation, the purchase, sale or exchange of assets or
the rendering of any service, except: (a) transactions with Affiliates of
the Company that involve consideration or payments in the aggregate of less
than $5,000; (b) transactions with Affiliates of the Company that are
approved by the Board of Directors; and (c) transactions with Affiliates of
the Company in the ordinary course of business and pursuant to the reasonable
requirements of the Company's or such Subsidiary's business and upon fair and
reasonable terms that are no less favorable to the Company or such
Subsidiary, as the case may be, than those which might be obtained in an
arm's-length transaction at the time from a Person which is not such an
Affiliate.
6.12 STOCKHOLDER APPROVAL OF CERTAIN ACTIONS.
Without limitation of the rights, restrictions and protections
contained in the Series B Certificate of Designation or otherwise available
to holders of shares of the Series B Preferred Stock, for so long as at least
thirty-three percent (33%) of the number of shares of the Series B Preferred
Stock originally issued to the Purchaser is outstanding, the Company shall
not take, and shall cause its Subsidiaries not to take, any of the following
actions without the affirmative vote of holders of at least sixty-seven
percent (67%) of the shares of the Series B Preferred Stock then outstanding:
(a) Alter, change or amend (by merger or otherwise) any of the
rights, preferences and privileges of the Series B Preferred Stock, the Series C
Preferred Stock or any other class of Capital Stock or the terms or provisions
of any Option or Convertible Security;
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(b) Effect or enter into any transaction or event that results
or could reasonably be expected to result, directly or indirectly, in a Special
Corporate Event with respect to the Company or any Subsidiary;
(c) The occurrence of any Liquidating Event with respect to the
Company or any Subsidiary;
(d) Amend, restate, alter, modify or repeal (by merger or
otherwise) the Certificate of Incorporation or the Amended Bylaws of the
Company, including, without limitation, amending, restating, modifying or
repealing (by merger or otherwise) any certificate of designation or
preferences (as in effect from time to time) relating to the Series A
Preferred Stock, the Series B Preferred Stock, the Series C Preferred Stock
or the Series D Preferred Stock, including, without limitation, the filing by
the Company of a certificate with the Secretary of State of the State of
Delaware, pursuant to Section 151(g) of the Delaware General Corporation Law,
setting forth a resolution or resolutions adopted by the Board of Directors
of the Company that none of the authorized shares of Series D Preferred Stock
are outstanding and that none will be issued subject to the Series D
Certificate of Designation, (provided however, that upon any Type A
Conversion pursuant to Section 5 of the Series B Certificate of Designation,
the Company shall immediately file a certificate with the Secretary of State
of the State of Delaware, pursuant to Section 151(g) of the Delaware General
Corporation Law, setting forth a resolution or resolutions adopted by the
Board of Directors of the Company that none of the authorized shares of
Series D Preferred Stock are outstanding and that none will be issued subject
to the Series D Certificate of Designation.)
(e) Change the number of directors of the Company to a number
less than eight (8) or more than nine (9) or the manner in which the
directors are selected, except as provided in the Certificate of
Incorporation, Amended Bylaws, Series B Certificate of Designation, Series C
Certificate of Designation and Series D Certificate of Designation;
(f) Incur any Indebtedness, in the aggregate with respect to
the Company and its Subsidiaries, in excess of $15 million in any Fiscal
Year; PROVIDED, HOWEVER, that this provision shall not apply to draw-downs
under any credit facility as to which a credit agreement had been executed
and delivered on or prior to the date hereof;
(g) Become a party to Operating Leases during any Fiscal Year
with respect to which the present value of all payments due during the term
of such Operating Leases in the aggregate (determined using a discount rate
of 10%) exceed $15 million;
(h) Create, authorize or issue any shares of Series B
Preferred Stock or any class or series of Senior Securities, Parity
Securities, Supervoting Securities or shares of any such class or series;
(i) Reclassify any authorized stock of the Company into Series
B Preferred Stock or any class or series of Senior Securities, Parity
Securities, Supervoting Securities or shares of such class or series;
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(j) Increase or decrease the authorized number of shares of
Series B Preferred Stock, Series D Preferred Stock or any class or series of
Senior Securities, Parity Securities, Supervoting Securities or shares of any
such class or series;
(k) Issue any equity security below either the then current
Market Price (without deduction for any underwriters' discount) or the then
applicable Conversion Price of the Series B Preferred Stock (as defined in
the Series B Certificate of Designation), other than for (i) management stock
options currently authorized and available for grant for not more than Three
Hundred Thousand (300,000) shares of Common Stock in the aggregate, in which
Senior Management of the Company shall not participate, (ii) management stock
options exercisable at not less than the then-applicable Conversion Price per
share of Common Stock issued after October 14, 1997, exercisable for not more
than Five Hundred Thousand (500,000) shares of Common Stock in the aggregate,
in which only Senior Management of the Company shall participate, and (iii)
the Common Stock underlying such management stock options and other stock
options outstanding as of October 14, 1997;
(l) Declare or pay any dividend or make any distribution
(including, without limitation, by way of redemption, purchase or other
acquisition) with respect to shares of Capital Stock or any securities
convertible into or exercisable, redeemable or exchangeable for any share of
Capital Stock of the Company or any Subsidiary (including, without
limitation, any Option or Convertible Security) directly or indirectly,
whether in cash, obligations or shares of the Company or other property;
(m) Acquire, in one or a series of related transactions, any
equity ownership interest or interests of any Person, where the aggregate
consideration payable in connection with such acquisition (including, without
limitation, cash consideration, the fair market value of any securities and
the net present value of any deferred consideration) is at least $15 million;
(n) Acquire, in one or a series of related transactions, any
asset or assets of any Person, where the aggregate consideration payable in
connection with such transaction (including, without limitation, cash
consideration, the fair market value of any securities and the net present
value of any deferred consideration) is equal to or greater that $15 million;
PROVIDED, HOWEVER, that this provision shall not apply to Capital
Expenditures made by the Company in the Ordinary Course of Business;
(o) Merge or consolidate with any Person, or permit any other
Person to merge into it where: (i) the stockholders of the Company
immediately prior to the consummation of such merger or consolidation shall,
immediately after the consummation of such merger or consolidation, hold
securities possessing more than 50% of both the total voting power of and the
beneficial ownership interests in the surviving entity of such merger or
consolidation and (ii) the equity holders of such other Person immediately
prior to the consummation of such transaction shall receive (directly or
indirectly) aggregate consideration payable in connection with such
transaction (including without limitation cash consideration, the fair market
value of any securities and the net present value of any deferred
consideration) equal to or greater than $15 million;
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(p) Cause or permit any Subsidiary to merge or consolidate
with any other Person (other than the Company or a wholly-owned Subsidiary),
or cause or permit any other Person to merge into it, where: (i) the
stockholders of such Subsidiary immediately prior to the consummation of such
merger or consolidation shall, immediately after the consummation of such
merger or consolidation, hold securities possessing more than 50% of both the
total voting power of and the beneficial ownership interests in the surviving
entity of such merger or consolidation and (ii) the equity holders of the
subject Person immediately prior to the consummation of such transaction
shall receive (directly or indirectly) aggregate consideration payable in
connection with such transaction (including without limitation cash
consideration, the fair market value of any securities and the net present
value of any deferred consideration) equal to or greater than $15 million;
(q) Substantially and materially engage in, either through
acquisition or internal development, any business other than the Business;
(r) Make or permit any of its Subsidiaries to make Capital
Expenditures in any Fiscal Year in excess, in the aggregate, of two percent
(2%) above the approved Capital Budget Plan for such Fiscal Year unless such
Capital Expenditure is approved by the Executive Committee of the Board of
Directors or a Supermajority Vote of the Board of Directors;
(s) (i) sell, transfer, convey, lease or dispose of, outside
the Ordinary Course of Business, any assets or properties of the Company or
any Subsidiary, whether now or hereafter acquired, in any transaction or
transactions, if (X) the aggregate consideration payable in connection with
any single such transaction (including, without limitation, cash
consideration, the fair market value of any securities and the net present
value of any deferred consideration), is greater than $5 million or (Y) the
aggregate consideration payable in connection with all such transactions
(including, without limitation, cash consideration, the fair market value of
any securities and the net present value of any deferred consideration),
consummated after the Initial Issue Date, taken as a whole, is or would
become as a result of such transaction greater than $20 million; (ii) undergo
or cause or permit any Subsidiary to undergo a reorganization or
recapitalization; (iii) merge or consolidate with any Person, or permit any
other Person to merge into it, where the stockholders of the Company
immediately prior to the consummation of such merger or consolidation shall,
immediately after the consummation of such merger or consolidation, hold
securities possessing 50% or less of either the total voting power of or the
beneficial ownership interests in the surviving entity of such merger or
consolidation; (iv) cause or permit any Subsidiary to merge or consolidate
with any other Person (other than the Company or a wholly-owned Subsidiary of
the Company), or cause or permit any other Person to merge into such
Subsidiary, where the stockholders of such Subsidiary immediately prior to
the consummation of such merger or consolidation shall, immediately after the
consummation of such merger or consolidation, hold 50% or less of either the
total voting power of or the beneficial ownership interests in the surviving
entity of such merger or consolidation, if (X) the value of the assets of
such Subsidiary is greater than $5 million or (Y) the aggregate value of the
assets of all such Subsidiaries with respect to all such mergers or
consolidations consummated after the Initial Issue Date, taken as a whole,
and including such transaction, is greater than $20 million;
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(t) Permit any Subsidiary to issue or sell any share of
Capital Stock, Option or Convertible Security; PROVIDED, HOWEVER, that the
Company may form a new Subsidiary not all of the equity securities of which
need be owned directly or indirectly by the Company (a "Partial Subsidiary"),
but only if (i) at the time of creation of such Partial Subsidiary, such
Partial Subsidiary is designated as such in a written notice to the
Purchaser, and, (ii) cumulatively through time no more than $5,000 of assets
(in the aggregate ) are transferred to such Partial Subsidiary by the Company
or any other Subsidiary, and (iii) no liabilities of such Partial Subsidiary
are ever assumed or guaranteed by the Company or any other Subsidiary;
(u) Amend, restate, alter, modify or repeal (by merger or
otherwise) or permit any Subsidiary to amend, restate, modify or repeal (by
merger or otherwise) the certificate of incorporation or bylaws of any
Subsidiary in any material respect; or
(v) Issue any shares of Series D Preferred Stock, otherwise
than pursuant to a Type B Conversion.
6.13 BOARD OF DIRECTORS.
(a) The Board of Directors at all times following the Closing
and before a Type B Event Date shall be comprised of between eight (8) and
nine (9) members with one vacancy until the ninth member, an Independent
nominated by the Purchaser and GE has been approved by the Board of Directors
(the "Joint Director") to fill such vacancy. After the occurrence of a Type
B Event Date, the Board of Directors shall be comprised of a number of
members that is consistent with the Series B Certificate of Designation, the
Series C Certificate of Designation, the Series D Certificate of Designation
and the Amended Bylaws. As long as the Purchaser and all Carlyle Affiliates
own at least fifty percent (50%) of the shares of Series B Preferred Stock
originally purchased by the Purchaser, the holders of the Series B Preferred
Stock, by a vote as provided in the Series B Certificate of Designation,
shall have the right to elect two (2) directors. As long as the Purchaser
and all Carlyle Affiliates own at least twenty-five percent (25%) but less
than fifty percent (50%) of the Series B Preferred Stock originally purchased
by the Purchaser, the holders of the Series B Preferred Stock, by a vote as
provided in the Series B Certificate of Designation, shall have the right to
elect one (1) director. Until the occurrence of a Type B Event Date, the
holders of the Common Stock shall have the right to elect between five (5)
and six (6) directors (one (1) of whom shall be the Joint Director) plus, if
any of the percentage ownership conditions contained in the two immediately
preceding sentences fail to be satisfied otherwise than pursuant to a Type B
Conversion, such director or directors as would, absent such failure, be
elected by holders of the Series B Preferred Stock or the Series C Preferred
Stock, as appropriate.
(b) Immediately following the Closing, the Board of Directors
shall appoint, and shall thereafter until a Type B Event Date, unless
approved by a majority of the entire board of directors and a majority of the
directors elected by the holders of the Series B Preferred Stock and the
Series C Preferred Stock, maintain as provided in the Amended Bylaws the
following committees of the Board of Directors with the respective duties,
membership and voting requirements stated below, PROVIDED, that if the
holders of the Series B Preferred Stock shall,
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otherwise than as a result of the conversion of their shares of Series B
Preferred Stock in a Type B Conversion, cease to have the right to nominate
and elect any Preferred Stock Director at all, then such holders shall no
longer have the right to select any member of any of the following committees
and the member or members of such committees selected by such holders shall
automatically cease to be a member or members of such committees:
(i) Compensation Committee, which shall consist of three
(3) directors, at least one (1) of whom shall be selected jointly by the
directors elected by the Series B Preferred Stock and the director elected
by the Series C Preferred Stock. An affirmative vote of at least two (2)
members of the Compensation Committee shall be required for approval of
matters considered by the Compensation Committee. The Compensation
Committee shall ensure that the representative on the Compensation
Committee selected by the directors elected by the Series B Preferred Stock
and the director elected by the Series C Preferred Stock shall receive
adequate notice of and an opportunity to participate in any meetings of the
Compensation Committee;
(ii) Audit Committee, which shall consist of three (3)
directors, including as many Independent directors as are available, not to
exceed three (3). An affirmative vote of at least two (2) members of the
Audit Committee shall be required for approval of matters considered by the
Audit Committee;
(iii) Executive Committee, which shall consist of four
(4) directors, one (1) of whom shall be selected by the directors elected
by the Series B Preferred Stock, one (1) of whom shall be selected by the
director elected by the Series C Preferred Stock and two (2) of whom shall
be selected by the Board of Directors. The members selected by the
directors elected by the Series B Preferred Stock and the director elected
by the Series C Preferred Stock may be removed only by the director or
directors, respectively, who selected such members. The Executive
Committee shall, in addition to the customary duties of an executive
committee, have the right to approve any financing activity, including but
not limited to the Capital Budget Plan. An affirmative vote of at least
three (3) members of the Executive Committee shall be required for approval
of any matters considered by the Executive Committee. Each financing
activity not approved by the Executive Committee may be referred to the
Board of Directors for approval, which approval shall require a
Supermajority Vote; and
(iv) Acquisitions Committee, which shall consist of four (4)
directors, one (1) of whom shall be selected by the directors elected by
the Series B Preferred Stock, one (1) of whom shall be selected by the
director elected by the Series C Preferred Stock, and two (2) of whom shall
be selected by the Board of Directors. The Acquisitions Committee shall
have the right to approve any transaction of the types described in
Sections 6.12(m), (n), (o) and (p) with respect to which transaction the
aggregate consideration payable in connection with such transaction
(including, without limitation, cash consideration, the fair market value
of any securities and the net present value of any deferred consideration)
is less than $15 million. A unanimous vote of the Acquisitions Committee
shall be required for approval of any matters considered by the
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Acquisitions Committee. Except as described in the next sentence, each
matter considered but not unanimously approved by the Acquisitions
Committee may be referred to the Board of Directors for approval, which
approval shall require a majority vote of the Board of Directors. The
unanimous approval of the Acquisitions Committee or the unanimous approval
of the Board of Directors shall be required before the Company or any of
its Subsidiaries engage in a transaction of the types described in Sections
6.12(m), (n) (which, only for purposes of this clause, shall also apply to
Capital Expenditures made by the Company in the ordinary course of
business), (o) and (p), in which transaction: (A) the aggregate
consideration payable in connection with such transaction (including,
without limitation, cash consideration, the fair market value of any
securities and the net present value of any deferred consideration) is less
than $15 million; and (B) the Company is to issue its common stock at an
implicit or explicit price of less than $8.375 per share. Such implicit
price shall be determined in an appraisal approved unanimously by the
Acquisitions Committee or unanimously by the Board of Directors, such
appraisal to be performed by an independent appraiser selected unanimously
by the Acquisitions Committee or unanimously by the Board of Directors.
(c) Regular meetings of the Board of Directors of the Company
shall be held at least once a calendar quarter at the offices of the Company or
at such other times and places as may be fixed by the Board of Directors upon
notice to the members of the Board of Directors.
(d) After the Closing, the following matters, among others
specified in the Amended Bylaws, shall be deemed approved by the Board of
Directors only upon a Supermajority Vote in respect of any such matter:
(i) Approving the annual Capital Budget Plan; and
(ii) Approving the Company entering into any financing
activity not approved by the Executive Committee.
(e) Upon any Type A Conversion pursuant to Section 5 of the
Series B Certificate of Designation and Section 5 of the Series C Certificate of
Designation, of all of the outstanding shares of Series B Preferred Stock and
Series C Preferred Stock, the Company shall immediately file a certificate with
the Secretary of State of the State of Delaware, pursuant to Section 151(g) of
the Delaware General Corporation Law, setting forth a resolution or resolutions
adopted by the Board of Directors of the Company that none of the authorized
shares of Series D Preferred Stock are outstanding and that none will be issued
subject to the Series D Certificate of Designation.
6.14 RESTRICTIONS ON TRANSFER OF CAPITAL STOCK.
(a) The Purchaser shall not transfer, sell, assign, or pledge to
any Person other than a Carlyle Affiliate, or dispose of, any interest in any
shares of the Series B Preferred Stock without the prior approval of the Board
of Directors, in its sole discretion. The Purchaser shall not transfer, sell or
assign to a Carlyle Affiliate, any interest in any shares of the Series B
Preferred Stock if such Carlyle Affiliate is engaged in the Business.
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(b) After the Closing Date and before the earlier to occur of
April 14, 1999 and a Type B Event Date, the Purchaser shall not transfer, sell
or assign to any Person any of the Series D Preferred Stock, Series B Conversion
Shares or Series D Conversion Shares without the prior approval of an ordinary
majority of the Board of Directors in its sole discretion, other than in the
following circumstances:
(i) A transfer to a Carlyle Affiliate (provided that
prior to any such transfer such Carlyle Affiliate shall have delivered to
the Company its written agreement to be bound by the terms of this
Section 6.14);
(ii) A transfer permitted under Rule 144 under the
Securities Act;
(iii) A transfer pursuant to a registered offering under
registration rights from the Company as provided in the Registration
Rights Agreement; or
(iv) A transfer pursuant to a transaction available to
all stockholders of the Company on the same terms as to the Purchaser,
which has been approved by a majority of the Board of Directors;
(c) If a Type B Event Date occurs prior to April 14, 1999,
then from the Type B Event Date until the second subsequent annual meeting of
stockholders of the Company after such Type B Event Date, (A) the Purchaser
shall not make a transfer of any of its Series D Preferred Stock, Series B
Conversion Shares or Series D Conversion Shares in a transaction available to
all holders of Common Stock on the same terms as to the Purchaser, unless
such transaction has been approved either by (I) the affirmative vote of not
less than 80 percent of the outstanding shares of the Company entitled to
vote, or (II) at least two-thirds (2/3) of the directors of the Company
(which must include either (i) the Joint Director if either (x) such Joint
Director served in such position as of the Type B Event Date, or (y) such
Joint Director has been approved by a majority of directors who were Common
Stock Directors as of the Type B Event Date, or (ii) at least one director
who was a Common Stock Director prior to the Type B Event Date, unless
neither such Joint Director, nor any of such Common Stock Directors continue
to serve on the Board of Directors at such time) and (B) the Purchaser shall
not make a transfer of any of its Series D Preferred Stock, Series B
Conversion Shares or Series D Conversion Shares in a transaction other than
one available to all holders of Common Stock on the same terms as to the
Purchaser, unless such transaction has been approved either by (I) the
affirmative vote of not less than 80 percent of the outstanding shares of the
Company entitled to vote, or (II) at least 50 percent of the directors of the
Company who are not the Preferred Stock Directors or the Conversion
Directors. If a Type B Event Date occurs prior to October 14, 1999, then
from the Type B Event Date until the second subsequent annual meeting of
stockholders of the Company after such Type B Event Date, none of the
following actions or transactions shall be effected by the Company or
approved by the Company as a stockholder of any subsidiary of the Company,
and neither the Purchaser nor any other holder of Series D Preferred Stock
(other than a holder pursuant to a transfer permitted in paragraphs (b)(ii)
or (b)(iii) of this Section 6.14) shall engage in, or be a party to, any of
the following actions or transactions involving the Company or any subsidiary
of the Company, if, as of the record date for the determination of the
stockholders
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entitled to vote thereon, or consent thereto, any other corporation, person or
entity referred to in clauses (i) through (iv) of this sentence beneficially
owns or controls, directly or indirectly, five percent (5%) or more of the
outstanding shares of the Company entitled to vote:
(i) any merger or consolidation of the Company or any of its
subsidiaries with or into such other corporation, person or entity; or
(ii) any sale, lease, exchange or other disposition of all or
any substantial part of the assets of the Company or any of its subsidiaries to,
or with, such other corporation, person or entity; or
(iii) the issuance or delivery of any voting securities of the
Company or any of its subsidiaries to such other corporation, person or entity
in exchange for cash, other assets or securities, or a combination thereof; or
(iv) any dissolution or liquidation of the Company;
PROVIDED, HOWEVER, that the prohibitions contained in this sentence shall not
apply with respect to any such action or transaction approved by (I) the
affirmative vote of not less than 80 percent of the outstanding shares of the
Company entitled to vote or (II) at least two-thirds (2/3) of the directors of
the Company (which must include either the Joint Director if either (x) such
Joint Director served in such position as of the Type B Event Date, or (y) such
Joint Director has been approved by a majority of directors who were Common
Stock Directors as of Type B Event Date, or at least one director who was a
Common Stock Director prior to the Type B Event Date, unless neither such Joint
Director, nor any of such Common Stock Directors continue to serve on the Board
of Directors at such time). For purposes of the immediately preceding sentence,
a Person shall be deemed to own or control directly or indirectly, any
outstanding shares of stock of the Company (A) which it has the right to acquire
pursuant to any agreement, or upon the exercise of, conversion rights, warrants,
options or otherwise or (B) which are beneficially owned, directly or indirectly
(including shares deemed owned through application of clause (A) above) by any
other corporation, person or other entity (x) with which it or its "affiliate"
or "associate," (as defined below) has any agreement, arrangement, or
understanding for the purpose of acquiring, holding, voting or disposing of
stock of the Company or (y) which is its "affiliate" or "associate" as those
terms are defined under the Securities Exchange Act of 1934, as amended, and the
rules and regulations promulgated thereunder.
No transfer of Series B Preferred Stock or Series B Conversion Shares may be
made by Purchaser or any Carlyle Affiliate (other than a transfer described in
paragraph (b)(ii) or (b)(iii) of this Section 6.14), unless prior thereto, the
transferee in such transfer shall have entered into an agreement in form and
substance reasonably satisfactory to the Company, agreeing to be bound by the
terms of this Section 6.14(c). Notwithstanding anything to the contrary
contained in this Section 6.14(c), the Purchaser shall not need any approval by
any directors, the Board of Directors or any stockholders under this Section
6.14 in order to transfer, sell or assign any of its Series B Conversion Shares
in the circumstances and the persons set forth in clauses (i), (ii) and (iii) of
Section 6.14(b).
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(d) The Warrants and the Warrant Shares shall be transferable
by the Purchaser, subject to compliance with federal and state securities laws,
without the approval of the Board of Directors.
(e) Except in the case of a transfer pursuant to Rule 144
promulgated pursuant to the Securities Act, or any successor rule, prior to
consummating any private sale or transfer of Common Stock to any Person other
than a Carlyle Affiliate, the Purchaser shall provide to the Company the written
opinion of reputable legal counsel in form reasonably acceptable to the Company
that such sale or transfer is being made in compliance with applicable federal
securities laws.
6.15 EXPIRATION OF CERTAIN COVENANTS.
The covenants contained in Sections 6.3, 6.5 and 6.9 of this
Agreement shall expire if, at any date after the Closing Date, the Purchaser and
the Carlyle Affiliates hold, and, upon conversion into Common Stock of all of
the Series B Preferred Stock or Series D Preferred Stock held by the Purchaser
and the Carlyle Affiliates, would hold less than 5% of the issued and
outstanding Common Stock of the Company on a fully diluted basis; PROVIDED,
HOWEVER, that to the extent that such covenants relate to or arise out of any
Applicable Laws relating to health care, the health care industry and the
provision of health care services, third party reimbursement (including Medicare
and Medicaid), public health and safety and wrongful death and medical
malpractice), such covenants shall expire if, at any date after the Closing
Date, the Purchaser and the Carlyle Affiliates hold less than 5% of the Series B
Preferred Stock originally purchased by the Purchaser.
ARTICLE VII
CONDITIONS TO CLOSING
7.1 CONDITIONS TO EACH PARTY'S OBLIGATIONS.
The respective obligation of each party to consummate the Closing
on the Closing Date is subject to the satisfaction or waiver, on or prior to the
Closing Date, of the condition that there shall be no injunction or court order
restraining consummation of all or any portion of the Transaction, there shall
be no pending or threatened Proceeding by or before a court or governmental body
brought by or on behalf of any Person or Governmental Entity seeking to restrain
or invalidate all or any portion of the Transaction and there shall not have
been adopted any law or regulation making all or any portion of the Transaction
illegal.
7.2 CONDITIONS TO THE COMPANY'S OBLIGATIONS.
The obligation of the Company to consummate the Transaction on
the Closing Date is subject to the satisfaction or waiver, by the Company, on or
prior to the Closing Date of each of the following conditions:
(a) All representations and warranties of the Purchaser
contained in this Agreement shall be true and correct in all material respects
at and as of the Closing Date as if
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such representations and warranties were made at and as of the Closing Date,
and the Purchaser shall have performed in all material respects all
agreements and covenants required hereby to be performed by it prior to or at
the Closing Date. There shall be delivered to the Company a certificate
(signed by an authorized person of the Purchaser) to the foregoing effect.
(b) All consents, approvals, Permits and waivers from
Governmental Entities and other parties necessary to permit the Company and
the Purchaser to consummate the Transaction shall have been obtained.
(c) The Purchaser shall have delivered to the Company the
opinions of Gibson, Dunn & Crutcher, LLP, counsel to the Purchaser, in the
form attached hereto as Exhibit H.
(d) No order enjoining the sale of the Securities or the GE
Warrants or the proposed issuance of the Series C Preferred Stock, the Series
B Conversion Shares, the Series C Conversion Shares, the Series D Preferred
Stock, the Series D Conversion Shares, the Warrant Shares or the GE Warrant
Shares shall have been issued and no proceedings for such purpose shall be
pending or threatened by the Commission or any commissioner of corporations
or similar officer of any state having jurisdiction over the Transaction. At
the time of the Closing, the sale and issuance of the Securities, the GE
Warrants, the Series C Preferred Stock, the Series B Conversion Shares, the
Series C Conversion Shares, the Series D Preferred Stock, the Series D
Conversion Shares, the Warrant Shares and the GE Warrant Shares shall be
legally permitted by all laws and regulations to which the Company and the
Purchaser are subject.
(e) The Supplemental Service Fee shall have been terminated
by GE.
(f) The Purchaser shall have delivered to the Company,
unless waived in writing by the Company, such other documents relating to the
Transaction as the Company or the Company's counsel may reasonably request.
(g) The lender under the Credit Facility shall have
executed and delivered the Credit Facility and all related documents.
7.3 CONDITIONS TO THE PURCHASER' OBLIGATIONS.
The obligation of the Purchaser to consummate the Closing on
the Closing Date is subject to the satisfaction or waiver on or prior to the
Closing Date of each of the following conditions:
(a) All representations and warranties of the Company
contained in this Agreement shall be true and correct in all material
respects at and as of the Closing Date as if such representations and
warranties were made at and as of the Closing Date, and the Company shall
have performed in all material respects all agreements and covenants required
hereby to be performed by it prior to or at the Closing Date. There shall be
delivered to the Purchaser a certificate (signed by the President and Chief
Executive Officer and the Secretary of the Company) to the foregoing effect.
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(b) All consents, approvals, Permits and waivers from
Governmental Entities and other parties necessary to permit the Purchaser and
the Company to consummate the Closing shall have been obtained.
(c) The Company shall have delivered to the Purchaser the
opinions of McDermott, Will & Emery, special counsel for the Company, in the
form attached hereto as Exhibit I.
(d) Since the date of this Agreement, there shall not have
been any Material Adverse Effect on the Company.
(e) All actions shall have been taken by the Company and its
Board of Directors so that, immediately upon the Purchaser's purchase of the
Securities, the Board of Directors shall consist of eight (8) directors, two (2)
of whom were elected by the holders of Series B Preferred Stock pursuant to the
Series B Certificate of Designation and one (1) of whom was elected by the
holders of Series C Preferred Stock pursuant to the Series C Certificate of
Designation.
(f) The Amended Bylaws shall be in effect in the form set
forth in Exhibit A hereto.
(g) The Company shall have provided to the Purchaser a copy
of the insurance policies together with the riders and schedules thereto which
evidence compliance with the provisions set forth in Section 6.7.
(h) No order enjoining the sale of the Securities or the GE
Warrants or the proposed issuance of the Series C Preferred Stock, the Series B
Conversion Shares, the Series C Conversion Shares, the Series D Preferred Stock,
the Series D Conversion Shares, the Warrant Shares or the GE Warrant Shares
shall have been issued and no Proceedings for such purpose shall be pending or
threatened by the Commission or any commissioner of corporations or similar
officer of any state having jurisdiction over the Transaction. At the time of
the Closing, the sale and issuance of the Securities, the GE Warrants, the
Series C Preferred Stock, the Series B Conversion Shares, the Series C
Conversion Shares, the Series D Preferred Stock, the Series D Conversion Shares,
the Warrant Shares and the GE Warrant Shares shall be legally permitted by all
laws and regulations to which the Company and the Purchaser are subject.
(i) The Company shall have adopted and duly filed with the
Secretary of State of Delaware the Series B Certificate of Designation, the
Series C Certificate of Designation, and the Series D Certificate of Designation
and each such Certificate shall have become effective under Delaware law.
(j) The Company shall have delivered to the Purchaser, unless
waived in writing by the Purchaser:
(A) copies (certified by the Secretary of the Company)
of the resolutions duly adopted by the Board of Directors of the Company,
authorizing the
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execution, delivery and performance of this Agreement and the other
agreements contemplated hereby;
(B) a copy (certified by the Secretary of the State of
Delaware) of the certificate of incorporation as amended through the date
of the Closing and a copy (certified by the Secretary of the Company) of
the Company's Amended Bylaws as amended through the date of the Closing;
and
(C) such other documents relating to the Transaction
as the Purchaser or the Purchaser's counsel may reasonably request.
(k) The Company shall have (A) terminated the Supplemental
Service Fee described in the Proxy Statement and issued the Series C Preferred
Stock in respect thereto and (B) issued the GE Warrants.
(l) The Company and the lender under the Credit Agreement
shall have executed and delivered the Credit Facility and related documents.
ARTICLE VIII
INDEMNIFICATION
8.1 SURVIVAL OF REPRESENTATIONS, ETC.
The representations and warranties of the parties hereto
contained herein shall survive the Closing for a period of sixty (60) days
following receipt by the Purchaser of the audited financial statements of the
Company for the Fiscal Year ended June 30, 1998, except as to (a) the
representations and warranties set forth in Sections 4.8, 4.9, 4.13 (to the
extent related to any Applicable Laws relating to health care, the health
care industry and the provision of health care services, third party
reimbursement (including Medicare and Medicaid), public health and safety and
wrongful death and medical malpractice), 4.16, 4.17, 4.32, 4.33, 4.34, 4.35
and 4.36 hereof, which shall survive for the period of the statute of
limitations applicable thereto; (b) any matter as to which a Claim has been
submitted in writing to the Company prior to such date; and (c) any matter
based on fraud by the Company in making any of the representations and
warranties contained in this Agreement. With respect to the matters set forth
in (b) and (c) above, the cause of action in favor of the Purchaser in
respect of such matters shall survive indefinitely.
8.2 INDEMNIFICATION BY THE COMPANY.
The Company agrees to indemnify and hold harmless the Purchaser,
its Subsidiaries, its Affiliates, the Carlyle Affiliates and the directors,
officers, employees, stockholders and partners of each of the Purchaser, its
Subsidiaries, its Affiliates and the Carlyle Affiliates (individually, an
"Indemnified Party" and collectively, the "Indemnified Parties"), from and
against any liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, claims, costs and reasonable attorneys' fees, expenses and
disbursements of any kind ("Losses") which may be imposed upon or incurred by
the Purchaser in any manner relating to or arising out
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of any untrue representation, breach of warranty or failure to perform any
covenant or agreement by the Company contained in this Agreement (including,
without limitation, the schedules and exhibits hereto), the Series B
Certificate of Designation, the Series D Certificate of Designation, the
Ancillary Agreements or in any certificate or document delivered pursuant
hereto or thereto or arising out of any Applicable Laws relating to health
care, the health care industry and the provision of health care services,
third party reimbursement (including Medicare and Medicaid), public health
and safety and wrongful death and medical malpractice or otherwise relating
to or arising out of the Transaction; PROVIDED, HOWEVER, that the Company
shall provide no indemnification with respect to Losses relating to or
arising out of the Transaction if such Losses were caused principally by the
gross negligence or willful misconduct of one or more Indemnified Parties.
8.3 LIMITATION ON INDEMNITIES.
No Claim may be made against the Company for indemnification
pursuant to Section 8.2 until the aggregate dollar amount of all Losses
indemnifiable pursuant to Section 8.2 exceeds $250,000 (in which event the
Purchaser shall be entitled to claim the whole amount of such Losses and not
merely the excess). In no event shall the aggregate amount paid by the
Company pursuant to Section 8.2 exceed $25 million with respect to Claims
arising out of or related to matters other than breaches of the
representations, warranties and covenants contained in Sections 4.13 (to the
extent related to Applicable Laws relating to health care, the health care
industry and the provision of health care services, third party reimbursement
(including Medicare and Medicaid), public health and safety and wrongful
death and medical malpractice), 4.32, 4.33, 4.34, 4.35, 4.36 and 6.9 (to the
extent related to Applicable Laws relating to health care, the health care
industry and the provision of health care services, third party reimbursement
(including Medicare and Medicaid), public health and safety and wrongful
death and medical malpractice), as to which breaches of the representations,
warranties and covenants contained in such Sections, there shall be no cap on
the Company's indemnification obligations under Section 8.2.
8.4 LOSSES.
The term "Losses" as used in this Article VIII is not limited
to matters asserted by third parties but includes Losses incurred or
sustained by an Indemnified Party in the absence of third party claims. The
difference between (a) any insurance proceeds received by an Indemnified
Party in respect of Losses and (b) the legal costs and expenses incurred by
such Indemnified Party, if any, in seeking the payment of such insurance
proceeds from the insurer or insurers who insured against such Loss, shall be
deducted from any Claim for indemnification made by such Indemnified Party
against the Company. Payments by an Indemnified Party of amounts for which
such Indemnified Party is indemnified hereunder shall not be a condition
precedent to recovery. If, after payment of any Claim by the Company to an
Indemnified Party, such Indemnified Party receives insurance proceeds on
account of the Loss indemnified by such payment by the Company, such
Indemnified Party shall pay to the Company the lesser of (a) the amount of
the payment on the Claim with respect to such Loss by the Company to the
Indemnified Party and (b) the amount of such insurance proceeds minus the
legal costs and
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expenses incurred by such Indemnified Party, if any, in seeking the payment
of such insurance proceeds from the insurer or insurers who insured against
such Loss.
8.5 DEFENSE OF CLAIMS.
If a claim for Losses (a "Claim") is to be made by an
Indemnified Party, such Indemnified Party shall give written notice (a "Claim
Notice") to the Company as soon as practicable after such Indemnified Party
becomes aware of any fact, condition or event which may give rise to Losses
for which indemnification may be sought under this Article VIII. If any
lawsuit or enforcement action is filed against any Indemnified Party
hereunder, notice thereof (a "Third Party Notice") shall be given to the
Company as promptly as practicable (and in any event within ten (10) calendar
days after the service of the citation or summons). The failure of any
Indemnified Party to give timely notice hereunder shall not affect rights to
indemnification hereunder, except to the extent that the Company demonstrates
actual damage caused by such failure. After receipt of a Third Party Notice,
if the Company shall acknowledge in writing to the Indemnified Party that the
Company shall be obligated under the terms of its indemnity hereunder in
connection with such lawsuit or action, then the Company shall be entitled,
if it so elects, (a) to take control of the defense and investigation of such
lawsuit or action, (b) to employ and engage attorneys of its own choice to
handle and defend the same, at the Company's cost, risk and expense unless
the named parties to such action or proceeding include both the Company and
the Indemnified Party and the Indemnified Party has been advised in writing
by counsel that there may be one or more legal defenses available to such
Indemnified Party that are different from or additional to those available to
the Company, and (c) to compromise or settle such claim, which compromise or
settlement (i) shall be made and entered into only with the advance written
consent of the Indemnified Party (in its sole discretion) if such compromise
or settlement, in the reasonable judgment of the Indemnified Party, would
cause more than de minimis harm to such Indemnified Party's business
reputation, (ii) may be made and entered into in the sole discretion of the
Company if such compromise or settlement provides for the payment solely of
cash to the claimant in such lawsuit in full satisfaction of such claimant's
claim therein and includes a release of the Indemnified Party to the maximum
extent permitted by law (and would not otherwise, in the reasonable judgment
of such Indemnified Party, cause more than de minimis harm to such
Indemnified Party's business reputation) and (iii) otherwise shall be entered
into only with the advance written consent of the Indemnified Party (such
consent not to be unreasonably withheld). The Indemnified Party shall
cooperate in all reasonable respects with the Company and such attorneys in
the investigation, trial and defense of such lawsuit or action and any appeal
arising therefrom; and the Indemnified Party may, at its own cost,
participate in the investigation, trial and defense of such lawsuit or action
and any appeal arising therefrom and appoint its own counsel therefor, at its
own cost. The parties shall also cooperate with each other in any
notifications to insurers. If the Company fails to assume the defense of
such claim within fifteen (15) calendar days after receipt of the Third Party
Notice, the Indemnified Party against which such claim has been asserted will
(upon delivering notice to such effect to the Company) have the right to
undertake the defense, compromise or settlement of such claim at the
Company's cost and the Company shall have the right to participate therein at
its own cost; provided, however, that such claim shall not be compromised or
settled without the written consent of the Company, which consent shall not
be unreasonably withheld. In the event the
62
<PAGE>
Indemnified Party assumes the defense of the claim, the Indemnified Party
will keep the Company reasonably informed of the progress of any such
defense, compromise or settlement. Notwithstanding the foregoing, the
Company shall not be liable for the reasonable fees and expenses of more than
one firm of attorneys at any time for any and all Indemnified Parties (which
firm shall be designated in writing by such Indemnified Party or Parties) in
connection with any one such action or proceeding or multiple actions or
proceedings provided that they are held in the same jurisdiction, arising out
of the same general allegations or circumstances.
ARTICLE IX
MISCELLANEOUS
9.1 FEES AND EXPENSES.
The Company shall be responsible for the payment of all
expenses incurred by the Company in connection with the Transaction,
regardless of whether any portion of the Transaction closes, including,
without limitation, all fees and expenses of the Company's legal counsel and
all third party consultants engaged by the Company to assist in the
Transaction.
9.2 INJUNCTIVE RELIEF.
The parties hereto acknowledge and agree that irreparable damage
would occur in the event any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise breached.
It is accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of the provisions of this Agreement and shall be
entitled to enforce specifically the provisions of this Agreement in any court
of the United States or any state thereof having jurisdiction, in addition to
any other remedy to which the parties may be entitled under this Agreement or at
law or in equity
9.3 ASSIGNMENT.
Neither this Agreement nor any of the rights or obligations
hereunder may be assigned by the Company without the prior written consent of
the Purchaser, or by the Purchaser without the prior written consent of the
Company, except that the Purchaser may, without such consent, assign, in whole
or in part, the right to acquire the Securities hereunder to a Carlyle
Affiliate. Subject to the foregoing, this Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
assigns, and no other person shall have any right, benefit or obligation
hereunder.
9.4 NOTICES.
Unless otherwise provided herein, any notice, request,
instruction or other document to be given hereunder by any party to the other
shall be in writing and delivered by hand-delivery, registered first-class mail,
return receipt requested, facsimile or air courier guaranteeing overnight
delivery, as follows:
If to the Company: InSight Health Services Corp.
63
<PAGE>
4400 MacArthur Boulevard, Suite 800
Newport Beach, CA 92660
Facsimile: 714.851.4488
Attn: Chief Financial Officer
With a copy to: McDermott, Will & Emery
2049 Century Park East - 34th Floor
Los Angeles, CA 90067
Facsimile: 310.277.4730
Attn: Mark J. Mihanovic, Esq.
and
Arent, Fox, Kintner, Plotkin & Kahn
1050 Connecticut Avenue, N.W., Suite 600
Washington, D.C. 20036
Facsimile: 202.857.6395
Attn: Gerald P. McCartin, Esq.
If to the Purchaser: c/o The Carlyle Group
1001 Pennsylvania Avenue, N W
Suite 2205
Washington, D.C. 20004
Facsimile: 202.347.9250
Attn: David W. Dupree
64
<PAGE>
With a copy to: Gibson, Dunn & Crutcher LLP
1050 Connecticut Avenue, N.W.
Washington, D.C. 20036
Facsimile: 202.467.0539
Attn: John F. Olson, Esq.
or to such other place and with such other copies as either party may
designate as to itself by written notice to the other. All such notices,
requests, instructions or other documents shall be deemed to have been duly
given at the time delivered by hand, if personally delivered, four (4)
business days after being deposited in the mail, postage prepaid, if mailed,
when receipt is acknowledged by addressee, if by facsimile, or on the next
business day, if timely delivered to an air courier guaranteeing overnight
delivery.
9.5 CHOICE OF LAW; JURISDICTION; VENUE.
This Agreement shall be construed, interpreted and the rights
of the parties determined in accordance with the internal laws of the State
of New York, without regard to the conflict of law principles thereof; except
with respect to matters of law concerning the internal corporate affairs of
any corporate entity which is a party to or the subject of this Agreement,
and as to those matters the law of the jurisdiction under which the
respective entity derives its powers shall govern. The parties irrevocably
elect as the sole judicial forum for the adjudication of any matters arising
under or in connection with this Agreement, the Ancillary Agreements and the
transactions contemplated hereby and thereby, and consent to the jurisdiction
of, the courts of the United States of America for the Southern District of
New York and of the State of New York in Manhattan in connection with the
adjudication of any matter arising under or in connection with this
Agreement, the Ancillary Agreements and the transactions contemplated hereby
and thereby, and waive any and all objections to such jurisdiction or venue
that they may have.
9.6 ENTIRE AGREEMENT.
All Exhibits and Schedules attached to this Agreement by this
reference are incorporated herein as if fully set forth herein. This
Agreement, including all Exhibits and Schedules attached hereto, constitutes
the entire agreement among the parties pertaining to the subject matter
hereof and supersedes all prior agreements, understandings, negotiations and
discussions, whether oral or written, of the parties, including the written
summary of proposed terms between the Company and the Purchaser dated
September 15, 1997. Capitalized terms used in the Exhibits and Schedules but
not defined therein shall have the respective meanings ascribed to such terms
in this Agreement. Any item disclosed in one Schedule shall be deemed to have
been disclosed in all other Schedules.
9.7 COUNTERPARTS.
This Agreement may be executed in two or more counterparts, each
of which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
65
<PAGE>
9.8 INVALIDITY.
In the event that any one or more of the provisions contained
in this Agreement or in any other instrument referred to herein shall for any
reason be held to be invalid, illegal or unenforceable in any respect, such
invalidity, illegality or unenforceability shall not affect any other
provision of this Agreement or any other such instrument.
9.9 HEADINGS; LANGUAGE.
The headings of the Articles and Sections herein are inserted
for convenience of reference only and are not intended to be a part of or to
affect the meaning or interpretation of this Agreement. In this Agreement,
unless the context otherwise requires, the masculine, feminine and neuter
genders and the singular and the plural include one another. Whenever used
in this Agreement: the term "Knowledge," with respect to any Person, means
the actual knowledge of such Person, after reasonable inquiry. For purposes
hereof, a Person shall be deemed to have actual knowledge of the contents of
all books and records with respect to which such Person has reasonable
access. Without limiting the generality of the foregoing, with respect to
any Person that is a corporation, partnership or other business entity,
actual knowledge shall be deemed to include the actual knowledge of all
principal employees of any such Person (which, for purposes of the Company,
shall include without limitation those Persons listed in Exhibit J) as well
as the Chief Executive Officer, President, Chief Financial Officer and all
Vice Presidents in the case of corporate Persons, and general partners in the
case of general or limited partnerships, as the case may be; "receipt by the
Company or any Subsidiary of notice," and similar phrases, means physical
receipt at a location owned, leased or operated by the Company or its
Subsidiaries; "including" means including, without limitation. All
capitalized terms used but not defined in this Agreement have the meaning
given to such terms in the Certificate of Incorporation, or, if not in the
Certificate of Incorporation, in the Amended Bylaws.
9.10 LIMITATION OF LIABILITY.
In no event shall (a) any Carlyle Affiliate, (b) any member or
representative of the Purchaser or of any Carlyle Affiliate or (c) any
direct or indirect member, stockholder, officer, director, limited partner,
employee or any other such person of the Purchaser or any Carlyle Affiliate
(other than a general partner of the entities constituting the Purchaser), be
personally liable for any obligation of the Purchaser under this Agreement.
In no event shall any direct or indirect stockholder, officer, director,
partner, employee or salesperson of the Company or any Subsidiary or any
other such Person be personally liable for any obligation of the Company
under this Agreement.
9.11 AMENDMENTS AND WAIVERS.
Any term of this Agreement may be amended and the observance of
any term of this Agreement may be waived (either generally or in a particular
instance and either retroactively or prospectively) only with the written
consent of the Purchaser, the Company and General Electric Company.
66
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Securities Purchase Agreement to be duly executed as of the day and year first
above written.
THE COMPANY:
------------
INSIGHT HEALTH SERVICES CORP.,
a Delaware corporation
By
-------------------------------------
Name:
----------------------------------
Title:
---------------------------------
THE PURCHASER:
--------------
CARLYLE PARTNERS II, L.P.,
a Delaware limited partnership
By: TC Group, L.L.C., as the General Partner
By
-------------------------------------
Name:
----------------------------------
Title: Managing Director
CARLYLE PARTNERS III, L.P.,
a Delaware limited partnership
By: TC Group, L.L.C., as the General Partner
By
-------------------------------------
Name:
----------------------------------
Title: Managing Director
CARLYLE INTERNATIONAL PARTNERS II, L.P.,
a Cayman Islands exempted limited partnership
By: TC Group, L.L.C., as the General Partner
By
-------------------------------------
Name:
----------------------------------
Title: Managing Director
<PAGE>
CARLYLE INTERNATIONAL PARTNERS III, L.P.,
a Cayman Islands exempted limited partnership
By: TC Group, L.L.C., as the General Partner
By
-------------------------------------
Name:
----------------------------------
Title: Managing Director
C/S INTERNATIONAL PARTNERS,
a Cayman Islands general partnership
By: TC Group, L.L.C., as the General Partner
By
-------------------------------------
Name:
----------------------------------
Title: Managing Director
STATE BOARD OF ADMINISTRATION OF FLORIDA,
a separate account maintained pursuant to an
Investment Management Agreement dated as of
September 6, 1996 between the State Board of
Administration of Florida, Carlyle Investment
Group, L.P. and Carlyle Investment Management,
L.L.C.
By: Carlyle Investment Management, L.L.C.,
as Investment Manager
By
-------------------------------------
Name:
----------------------------------
Title:
---------------------------------
2
<PAGE>
CARLYLE INVESTMENT GROUP, L.P.,
a Delaware limited partnership
By: TC Group, L.L.C., as the General Partner
By
-------------------------------------
Name:
----------------------------------
Title: Managing Director
CARLYLE-INSIGHT INTERNATIONAL PARTNERS, L.P.,
a Cayman Islands exempted limited partnership
By: TC Group, L.L.C., as the General Partner
By
-------------------------------------
Name:
----------------------------------
Title: Managing Director
CARLYLE-INSIGHT PARTNERS, L.P.,
a Delaware limited partnership
By: TC Group, L.L.C., as the General Partner
By
-------------------------------------
Name:
----------------------------------
Title: Managing Director
3
<PAGE>
SECURITIES PURCHASE AGREEMENT
BY AND BETWEEN
INSIGHT HEALTH SERVICES CORP.
AND
GENERAL ELECTRIC COMPANY
OCTOBER 14, 1997
<PAGE>
TABLE OF CONTENTS
PAGE
ARTICLE I DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.1 Defined Terms. . . . . . . . . . . . . . . . . . . . . . . . . . . 2
ARTICLE II PURCHASE AND SALE OF SECURITIES . . . . . . . . . . . . . . . . 15
2.1 Purchase and Sale of Securities. . . . . . . . . . . . . . . . . . 15
2.2 Consideration for Securities.. . . . . . . . . . . . . . . . . . . 15
2.3 Private Placement Fee. . . . . . . . . . . . . . . . . . . . . . . 16
ARTICLE III CLOSING. . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
3.1 Closings.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
3.2 Deliveries by the Company at the First Closing.. . . . . . . . . . 16
3.3 Deliveries by the Purchaser at the Closing.. . . . . . . . . . . . 16
3.4 Second Closing.. . . . . . . . . . . . . . . . . . . . . . . . . . 17
3.5 Form of Documents and Instruments. . . . . . . . . . . . . . . . . 17
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE COMPANY . . . . . . . . . 17
4.1 Organization of the Company. . . . . . . . . . . . . . . . . . . . 17
4.2 Capitalization of the Company. . . . . . . . . . . . . . . . . . . 18
4.3 Authorization of Issuance. . . . . . . . . . . . . . . . . . . . . 19
4.4 Authorization. . . . . . . . . . . . . . . . . . . . . . . . . . . 20
4.5 Noncontravention.. . . . . . . . . . . . . . . . . . . . . . . . . 20
4.6 Consents.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
4.7 Subsidiaries.. . . . . . . . . . . . . . . . . . . . . . . . . . . 21
4.8 Employee Benefit Plans and Other Agreements. . . . . . . . . . . . 22
4.9 Governmental Filings.. . . . . . . . . . . . . . . . . . . . . . . 25
4.10 Financial Statements and Reports. . . . . . . . . . . . . . . . . 26
4.11 Absence of Undisclosed Liabilities: Guarantees. . . . . . . . . . 26
4.12 Absence of Certain Changes. . . . . . . . . . . . . . . . . . . . 27
4.13 Compliance With Laws. . . . . . . . . . . . . . . . . . . . . . . 28
4.14 Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
4.15 True and Complete Disclosure. . . . . . . . . . . . . . . . . . . 29
4.16 Taxes.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
4.17 Environmental Matters.. . . . . . . . . . . . . . . . . . . . . . 31
4.18 Insurance.. . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
4.19 Real Property and Leaseholds. . . . . . . . . . . . . . . . . . . 33
4.20 Tangible Assets.. . . . . . . . . . . . . . . . . . . . . . . . . 33
4.21 Contracts and Commitments.. . . . . . . . . . . . . . . . . . . . 34
4.22 Books and Records.. . . . . . . . . . . . . . . . . . . . . . . . 35
4.23 Labor Matters.. . . . . . . . . . . . . . . . . . . . . . . . . . 35
4.24 Payments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
4.25 Intellectual Property.. . . . . . . . . . . . . . . . . . . . . . 36
i
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4.26 Securities Offerings. . . . . . . . . . . . . . . . . . . . . . . 36
4.27 No Other Agreements to Sell the Assets or the Company.. . . . . . 37
4.28 No Brokers. . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
4.29 Accounts and Notes Receivable.. . . . . . . . . . . . . . . . . . 37
4.30 Indebtedness. . . . . . . . . . . . . . . . . . . . . . . . . . . 37
4.31 Transactions with Affiliates. . . . . . . . . . . . . . . . . . . 37
4.32 No Research Grants. . . . . . . . . . . . . . . . . . . . . . . . 38
4.33 Certain Regulatory Matters. . . . . . . . . . . . . . . . . . . . 38
4.34 Certain Additional Regulatory Matters.. . . . . . . . . . . . . . 38
4.35 Medicare/Medicaid Participation.. . . . . . . . . . . . . . . . . 39
4.36 Compliance with Medicare/Medicaid and Insurance Programs. . . . . 40
ARTICLE V REPRESENTATIONS AND WARRANTIES OF THE PURCHASER. . . . . . . . . 40
5.1 Organization of the Purchaser. . . . . . . . . . . . . . . . . . . 40
5.2 Authorization. . . . . . . . . . . . . . . . . . . . . . . . . . . 41
5.3 Noncontravention.. . . . . . . . . . . . . . . . . . . . . . . . . 41
5.4 Consents and Appeals.. . . . . . . . . . . . . . . . . . . . . . . 41
5.5 Purchase for Investment. . . . . . . . . . . . . . . . . . . . . . 41
5.6 No Brokers.. . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
5.7 No Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . 43
ARTICLE VI COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
6.1 Best Efforts.. . . . . . . . . . . . . . . . . . . . . . . . . . . 43
6.2 Restrictive Agreements Prohibited. . . . . . . . . . . . . . . . . 43
6.3 Continuing Operations. . . . . . . . . . . . . . . . . . . . . . . 43
6.4 Financial Statements and Information.. . . . . . . . . . . . . . . 43
6.5 Press Releases.. . . . . . . . . . . . . . . . . . . . . . . . . . 45
6.6 Notification of Certain Matters. . . . . . . . . . . . . . . . . . 45
6.7 Liability Insurance. . . . . . . . . . . . . . . . . . . . . . . . 46
6.8 Conversion Stock.. . . . . . . . . . . . . . . . . . . . . . . . . 46
6.9 Certain Regulatory Matters.. . . . . . . . . . . . . . . . . . . . 47
6.10 Employment Arrangements.. . . . . . . . . . . . . . . . . . . . . 47
6.11 Transactions with Affiliates. . . . . . . . . . . . . . . . . . . 48
6.12 Stockholder Approval of Certain Actions.. . . . . . . . . . . . . 48
6.13 Board of Directors. . . . . . . . . . . . . . . . . . . . . . . . 52
6.14 Restrictions on Transfer of Capital Stock.. . . . . . . . . . . . 54
6.15 Expiration of Certain Covenants.. . . . . . . . . . . . . . . . . 56
ARTICLE VII CONDITIONS TO CLOSING. . . . . . . . . . . . . . . . . . . . . 57
7.1 Conditions to Each Party's Obligations.. . . . . . . . . . . . . . 57
7.2 Conditions to the Company's Obligations. . . . . . . . . . . . . . 57
7.3 Conditions to the Purchaser' Obligations.. . . . . . . . . . . . . 58
7.3 Conditions to Second Closing . . . . . . . . . . . . . . . . . . . 60
ARTICLE VIII INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . 60
ii
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8.1 Survival of Representations, Etc.. . . . . . . . . . . . . . . . . 60
8.2 Indemnification by the Company.. . . . . . . . . . . . . . . . . . 60
8.3 Limitation on Indemnities. . . . . . . . . . . . . . . . . . . . . 61
8.4 Losses.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
8.5 Defense of Claims. . . . . . . . . . . . . . . . . . . . . . . . . 61
ARTICLE IX MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . 62
9.1 Fees and Expenses. . . . . . . . . . . . . . . . . . . . . . . . . 62
9.2 Injunctive Relief. . . . . . . . . . . . . . . . . . . . . . . . . 63
9.3 Assignment.. . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
9.4 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
9.5 Choice of Law. . . . . . . . . . . . . . . . . . . . . . . . . . . 64
9.6 Entire Agreement.. . . . . . . . . . . . . . . . . . . . . . . . . 65
9.7 Counterparts.. . . . . . . . . . . . . . . . . . . . . . . . . . . 65
9.8 Invalidity.. . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
9.9 Headings; Language.. . . . . . . . . . . . . . . . . . . . . . . . 65
9.10 Limitation of Liability.. . . . . . . . . . . . . . . . . . . . . 66
9.11 Amendments and Waivers. . . . . . . . . . . . . . . . . . . . . . 66
EXHIBITS
EXHIBIT A: Form of Amended and Restated Bylaws
EXHIBIT B: Form of Registration Rights Agreement
EXHIBIT C: Form of Series B Certificate of Designation
EXHIBIT D: Form of Series C Certificate of Designation
EXHIBIT E: Form of Series D Certificate of Designation
EXHIBIT F: Form of Warrant Agreement
EXHIBIT G: Form of Carlyle Warrant Agreement
EXHIBIT H: Form of Opinion of the Purchaser's Counsel
EXHIBIT I: Form of Opinion of the Company's Corporate Counsel
EXHIBIT J: Persons Whose Knowledge Is Attributed to the Company
EXHIBIT K: Center Operations
EXHIBIT L: Form of Supplemental Service Fee Termination Agreement
SCHEDULES
Schedule 4.1(b) Organization of the Company
Schedule 4.2 Capitalization of the Company
Schedule 4.6 Consents
Schedule 4.7 Subsidiaries
Schedule 4.8 Employee Benefit Plans and Other Agreements
Schedule 4.11 Absence of Undisclosed Liabilities: Guarantees
Schedule 4.12(x) Absence of Certain Changes
Schedule 4.13(a) Compliance With Laws
Schedule 4.14 Litigation
iii
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Schedule 4.16 Taxes
Schedule 4.17 Environmental Matters
Schedule 4.19 Real Property and Leaseholds
Schedule 4.20 Tangible Assets
Schedule 4.21 Contracts and Commitments
Schedule 4.23 Labor Matters
Schedule 4.25 Intellectual Property
Schedule 4.26 Securities Offerings
Schedule 4.30 Indebtedness
Schedule 4.31 Transactions with Affiliates
iv
<PAGE>
SECURITIES PURCHASE AGREEMENT
This SECURITIES PURCHASE AGREEMENT (this "Agreement"), dated as
of October 14, 1997, is by and between INSIGHT HEALTH SERVICES CORP., a
Delaware corporation (the "Company"), and GENERAL ELECTRIC COMPANY, a New
York corporation (the "Purchaser").
RECITALS
WHEREAS, the Company desires to sell to the Purchaser, and the
Purchaser desires to purchase from the Company, for the consideration set
forth in Section 2.2 hereof, (i) an aggregate of 7,000 shares (the "First
Closing Preferred Shares") of its newly issued Series C Preferred Stock, each
share of which Series C Preferred Stock shall be convertible (a) initially
into one hundred nineteen and four hundred three one-thousandths (119.403)
shares of Common Stock at an initial conversion price of $8.375 per share of
such Common Stock (so that all of the shares of First Closing Preferred
Shares purchased by the Purchaser shall be convertible initially into an
aggregate of 835,821 shares of such Common Stock), having the rights,
designations and preferences set forth in the Series C Certificate of
Designation or (b) after the Type B Trigger Date, into shares of Series D
Preferred Stock having the rights, designations and preferences set forth in
the Series D Certificate of Designation on the terms set forth in the Series
D Certificate of Designation and (ii) the Warrants; and
WHEREAS, the Company desires to sell to the Purchaser, and the
Purchaser desires to purchase from the Company, for the consideration set
forth in Section 2.2 hereof, an aggregate of 20,953 shares (the "Second
Closing Preferred Shares", and, collectively with the First Closing Preferred
Shares, the "Preferred Shares") of Series C Preferred Stock, each share of
which Series C Preferred Stock shall be convertible initially into one
hundred nineteen and four hundred three one-thousandths (119.403) shares of
Common Stock at an initial conversion price of $8.375 per share of such
Common Stock (so that all of the Second Closing Preferred Shares purchased by
the Purchaser shall be convertible initially into an aggregate of 2,501,851
shares of such Common Stock), having the rights, designations and preferences
set forth in the Series C Certificate of Designation;
WHEREAS, contemporaneously with the Purchaser's acquisition of
the First Closing Preferred Shares, and as a condition to such acquisition,
TC Group, L.L.C. and certain of its Affiliates (collectively, "Carlyle")
shall (i) acquire warrants (the "Carlyle Warrants") initially to purchase
250,000 shares of Common Stock at an initial exercise price of $10.00 per
share and (ii) purchase 25,000 shares of newly issued Series B Preferred
Stock, each share of which Series B Preferred Stock shall be convertible (a)
initially into one hundred nineteen and four hundred three one-thousandths
(119.403) shares of Common Stock at an initial conversion price of $8.375 per
share of Common Stock (so that such shares of Series C Preferred Stock
acquired in respect of such purchase would be initially convertible into an
aggregate of 2,985,075 shares of Common Stock, at an initial conversion price
of $8.375 per share), or (b) after the Type B Trigger Date,
<PAGE>
into shares of Series D Preferred Stock having the rights, designations and
preferences set forth in the Series D Certificate of Designation on the terms
set forth in the Series D Certificate of Designation; and
WHEREAS, contemporaneously with the Purchaser's acquisition of
the Securities, and as a condition to such acquisition, the Company shall
execute and deliver definitive documents with respect to the Credit Facility,
and funding shall occur upon filing by the lender under the Credit Facility
of appropriate UCC filings and certain other conditions set forth in the
documentation related to the Credit Facility, and upon such funding, certain
of the proceeds of the Credit Facility and the investment described herein
shall be used by the Company to repay (i) Seventy Million Seven Hundred One
Thousand Six Hundred Eleven Dollars and Seventy-Five Cents ($70,701,611.75)
in principal, interest and fees, plus additional accrued and unpaid interest
associated therewith at the rate of Nineteen Thousand, Two Hundred Ninety-Six
Dollars ($19,296) per day for each day after October 14, 1997, of
Indebtedness of the Company and certain of its Affiliates to GE pursuant to
the Master Debt Restructuring Agreement, and (ii) certain other Indebtedness.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual covenants and
premises contained herein and for other good and valuable consideration, the
receipt and adequacy of which are hereby acknowledged, the parties hereto
agree as follows:
ARTICLE I
DEFINITIONS
1.1 DEFINED TERMS.
As used herein, the terms below shall have the following
meanings:
"AFFILIATE" of any specified Person means (a) any other Person
directly or indirectly controlling or controlled by or under direct or
indirect common control with such specified Person or (b) the beneficial
owner of ten percent (10%) or more of the voting securities of such Person).
For purposes of this definition, "control" (including, with correlative
meanings, the terms: "controlling," "controlled by" and "under common control
with"), as used with respect to any Person, shall mean the possession,
directly or indirectly, of the power to direct or cause the direction of the
management or policies of such Person, whether through the ownership of
voting securities, by agreement or otherwise.
"AGREEMENT" means this Securities Purchase Agreement, together
with all Schedules and Exhibits referenced herein, as the same hereinafter
may be amended from time to time.
"AMENDED BYLAWS" means the Amended and Restated Bylaws of the
Company, in the form attached hereto as Exhibit A.
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"ANCILLARY AGREEMENTS" means the Warrant Agreement and the
Registration Rights Agreement, as each hereinafter may be amended from time
to time.
"APPLICABLE LAW" means any statute, law, rule or regulation or
any judgment, order, writ, injunction, decree or financial assessment
(subject, in the case of financial assessments, to the exhaustion of appeals)
of any Governmental Entity to which a specified Person or its properties or
assets, or its officers, directors, employees, consultants or agents (in
their capacities as such) is subject, including, without limitation, all such
statutes, laws, rules, regulations, judgments, orders, writs, injunctions,
decrees and financial assessments relating to, without limitation, energy
regulation, public utility regulation, securities regulation, consumer
protection, equal opportunity, health care industry regulation, public health
and safety, motor vehicle safety or standards, third party reimbursement
(including Medicare and Medicaid), environmental protection, fire, zoning,
building and occupational safety and health matters and laws respecting
employment practices, employee documentation, terms and conditions of
employment and wages and hours.
"APPROVALS" has the meaning set forth in Section 4.13 of this
Agreement.
"BENEFIT ARRANGEMENT" means any employment, consulting,
severance or other similar contract, arrangement or policy and each plan,
arrangement (written or oral), program, agreement or commitment providing for
insurance coverage (including without limitation any self-insured
arrangements), workers' compensation, disability benefits, supplemental
unemployment benefits, vacation benefits, retirement benefits, life, health
or accident benefits (including without limitation any "voluntary employees'
beneficiary association" as defined in Section 501(c)(9) of the Code
providing for the same or other benefits) or for deferred compensation,
profit-sharing bonuses, stock options, stock appreciation rights, stock
purchases or other forms of incentive compensation or post-retirement
insurance, compensation or benefits which (a) is not a Welfare Plan, Pension
Plan or Multiemployer Plan, (b) is entered into, maintained, contributed to
or required to be contributed to, as the case may be, by the Company or an
ERISA Affiliate or under which the Company or any ERISA Affiliate may incur
any liability, and (c) covers any present or former employees, directors or
consultants of the Company (with respect to their relationship with such
entities).
"BOARD OF DIRECTORS" means the board of directors of the
Company as it is constituted from time to time in accordance with the terms
of this Agreement, the Certificate of Incorporation and the Amended Bylaws.
"BYLAWS" means the Bylaws of the Company as in effect on the
date hereof.
"BUSINESS" means the provision of diagnostic services to the
healthcare industry.
"CAPITAL BUDGET PLAN" means, for each Fiscal Year, the plan of
the Company for making Capital Expenditures for such Fiscal Year which has
been approved for such Fiscal Year by either the Executive Committee or a
Supermajority Vote of the Board of Directors.
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"CAPITAL EXPENDITURES" means, for any period, expenditures made
by the Company or any of its Subsidiaries to acquire or construct fixed
assets, plant and Fixtures and Equipment (including additions, improvements,
upgrades and replacements, but excluding repairs) during such period
calculated in accordance with GAAP.
"CAPITAL LEASE OBLIGATION" means, at the time any determination
thereof is to be made, the amount of the liability in respect of a lease that
would at such time be required to be capitalized on a balance sheet in
accordance with GAAP.
"CAPITAL STOCK" means (i) in the case of a corporation,
corporate stock, (ii) in the case of an association or business entity, any
and all shares, interests, participations, rights or other equivalents
(however designated) of corporate stock, (iii) in the case of a partnership,
partnership interests (whether general or limited) and (iv) any other
interest or participation that confers on a Person the right to receive a
share of the profits and losses of, or distributions of assets of, the
issuing Person.
"CARLYLE AFFILIATES" means the Purchaser (as such term is
defined in the Carlyle Purchase Agreement), TC Group, L.L.C., and any
investor in any entity comprising the Purchaser (as such term is defined in
the Carlyle Purchase Agreement) or TC Group, L.L.C. on the date hereof.
"CARLYLE PURCHASE AGREEMENT" means that certain Securities
Purchase Agreement, of even date herewith, by and between the Company and
Carlyle in respect of the Series B Preferred Stock and the Carlyle Warrants.
"CARLYLE WARRANT AGREEMENT" means that certain Warrant
Agreement by and between the Company and Carlyle substantially in the form
attached hereto as Exhibit F pursuant to which the Company shall issue the
Carlyle Warrants to Carlyle.
"CARLYLE WARRANTS" means the warrants to purchase Common Stock
to be acquired by Carlyle at the First Closing.
"CARLYLE WARRANT SHARES" means the Common Stock issuable to
Carlyle upon the exercise of the Carlyle Warrants.
"CENTER OPERATIONS" means the operations of the Company and its
Subsidiaries at the locations identified in Exhibit K hereto.
"CERTIFICATE OF INCORPORATION" means the certificate of
incorporation (as defined in Section 104 of the Delaware General Corporation
Law) of the Company in effect on the date hereof, including, without
limitation, the Series B, the Series C and the Series D Certificate of
Designation.
"CHAMPUS" has the meaning set forth in Section 4.34 of this
Agreement.
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"CHANGE OF CONTROL" shall be deemed to have occurred (i) at
such time as any person (as defined in Section 13(d)(3) of the Exchange Act
but excluding Carlyle and its Affiliates and the Purchaser, individually and
collectively) at any time shall directly or indirectly acquire more than 40%
of the voting power of the Common Stock of the Company, (ii) at such time as
during any one (1) year period, individuals who at the beginning of such
period constitute the Company's Board of Directors cease to constitute at
least a majority of such Board of Directors (provided, however, that a change
in directors upon a Type B Event Date shall not be deemed to cause a Change
of Control pursuant to this clause (ii)), (iii) upon consummation of a merger
or consolidation of the Company into or with another Person in which the
stockholders of the Company immediately prior to the consummation of such
transaction shall own fifty percent (50%) or less of the voting securities of
the surviving corporation (or the parent corporation of the surviving
corporation where the surviving corporation is wholly-owned by the parent
corporation) immediately following the consummation of such transaction, or
(iv) the sale, transfer or lease of all or substantially all of the assets of
the Company, in any of cases (i), (ii), (iii) or (iv) in a single transaction
or series of related transactions; PROVIDED, that no Change of Control
hereunder with respect to the Company shall be deemed to occur solely by
reason of (x) the ownership by Carlyle or any Carlyle Affiliate thereof or GE
or its Affiliates of the Series C Preferred Stock or any Affiliate thereof of
any Capital Stock of the Company or (y) the conversion of shares of Series B
Preferred Stock into either Series D Preferred Stock (and any change in the
Board of Directors incident thereto) or Common Stock, or (z) the conversion
of shares of Series D Preferred Stock into Common Stock.
"CLAIM" has the meaning set forth in Section 8.5 of this
Agreement.
"CLAIM NOTICE" has the meaning set forth in Section 8.5 of this
Agreement.
"CLOSING " means the time at which this Agreement is executed
and delivered by the parties, the Purchaser purchases the First Closing
Preferred Shares and Carlyle purchases the Carlyle Warrants and the Series B
Preferred Stock.
"CLOSING DATE" means the date on which the Closing occurs.
"CODE" means the Internal Revenue Code of 1986, as it may be
amended from time to time.
"COMMISSION" means the United States Securities and Exchange
Commission.
"COMMON EQUITY" means all shares now or hereafter authorized of
any class of common stock of the Company (including the Common Stock) and any
other stock of the Company, however designated, authorized after the date
hereof, which has the right (subject always to prior rights of any class or
series of preferred stock) to participate in any distribution of the assets
or earnings of the Company without limit as to per share amount, but shall
not include the Series A Preferred Stock, the Series B Preferred Stock, the
Series C Preferred Stock or the Series D Preferred Stock.
"COMMON STOCK" has the meaning set forth in Section 4.2(a) of
this Agreement.
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"COMMON STOCK DIRECTOR" has the meaning set forth in the
Certificate of Incorporation.
"COMPANY" has the meaning set forth in the Preamble to this
Agreement, and, in addition, with respect to past events, means the Company
and its predecessors.
"CONVERSION DIRECTOR" has the meaning set forth in the Amended
Bylaws.
"CONVERSION PRICE" means $8.375 per share of Common Stock,
subject to adjustment as set forth in the Series C Certificate of Designation.
"CONVERTIBLE SECURITIES" shall mean any stock or securities
directly or indirectly convertible into or exchangeable for Common Equity,
including, without limitation, any exchangeable debt securities.
"CREDIT FACILITY" means the credit facility provided to the
Company pursuant to the terms of the Credit Agreement dated as of October 14,
1997 among the Company, certain subsidiaries, as guarantors, certain
financial institutions party thereto and NationsBank, N.A., as Agent.
"CURRENT CUSTOMER" has the meaning set forth in Section 4.21 of
this Agreement.
"ELIGIBLE HOLDER" has the meaning set forth in Section 6.4 of
this Agreement.
"ELIGIBLE SECURITIES" means (i) the Series B Conversion Stock,
the Series C Conversion Stock and the Series D Conversion Stock, (ii) the
Warrants and (iii) any Common Stock of the Company issued or issuable in
respect of the Securities or other securities issued or issuable pursuant to
the conversion of the Securities upon any stock split, stock dividend,
recapitalization, merger, consolidation or similar event. Securities shall
cease to constitute "Eligible Securities" at such time that they are sold or
transferred in a transaction wherein the transferee does not acquire
"restricted securities" within the meaning of Rule 144 promulgated under the
Securities Act.
"EMPLOYEE PLANS" means all Benefit Arrangements, Multiemployer
Plans, Pension Plans and Welfare Plans.
"EMPLOYMENT AGREEMENTS" has the meaning set forth in Section
4.8 of this Agreement.
"ENCUMBRANCE" means any claim, lien, pledge, option, charge,
easement, security interest, right-of-way, encumbrance or other right of
third parties, and, with respect to any securities, any agreements,
understandings or restrictions affecting the voting rights or other incidents
of record or beneficial ownership pertaining to such securities.
"ENVIRONMENTAL CONDITION" means the Release or threatened Release
of any Hazardous Material (whether or not upon a Facility or any former facility
or other property and whether or not such Release constituted at the time
thereof a violation of any Environmental
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Law) as a result of which the Company has or would reasonably be expected to
become liable to any Person or by reason of which any Facility, any former
facility or any of the assets of the Company may suffer or be subjected to
any Encumbrances.
"ENVIRONMENTAL LAWS" means any and all foreign, federal, state,
local or municipal laws, rules, orders, regulations, statutes, ordinances,
codes, legally binding decrees or other requirements of any Governmental
Entity (including, without limitation, common law) regulating, relating to or
imposing liability or standards of conduct concerning protection of the
environment or of human health relating to exposure of any kind of Hazardous
Materials, as have been, are now or may at any time hereafter be in effect.
"ENVIRONMENTAL PERMITS" means any and all permits, licenses,
registrations, notifications, exemptions and any other authorizations
required under any Environmental Law.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
"ERISA AFFILIATE" means any entity which is (or at any relevant
time was) a member of a "controlled group of corporations" with, under
"common control" with, a member of an "affiliated service group" with or
otherwise required to be aggregated with the Company, as set forth in Section
414(b), (c), (m) or (o) of the Code.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
"FACILITY" or "FACILITIES" means one or more of the offices and
buildings and all other real property and related facilities which are owned,
leased or operated by the Company or any Subsidiary.
"FEDERAL HEALTH CARE PROGRAM" has the meaning set forth in
Section 4.35 hereof.
"FINANCIAL STATEMENTS" has the meaning set forth in Section
4.10 hereof.
"FIRST CLOSING" means the time at which this Agreement is
executed and delivered by the parties, the Purchaser purchases the First
Closing Preferred Shares and Carlyle purchases the Carlyle Warrants and the
shares of Series B Preferred Stock.
"FIRST CLOSING DATE" means the business day upon which the
First Closing occurs.
"FIRST CLOSING PREFERRED SHARES" has the meaning set forth in
the Recitals.
"FISCAL YEAR" means each year ending June 30, or any other
fiscal year as approved by the Board of Directors.
"FIXTURES AND EQUIPMENT" means all of the furniture, fixtures,
furnishings, machinery, equipment and other tangible assets owned by the
Company or any Subsidiary that are material to the conduct of their
businesses as currently conducted.
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"GAAP" means generally accepted accounting principles set forth
in the opinions and pronouncements of the Accounting Principles Board of the
American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board, which are in
effect as of the date of this Agreement.
"GE" means General Electric Company, a New York corporation,
and its Affiliates.
"GE TRANSACTION EXPENSES" means the reasonable fees and
expenses incurred by the Purchaser and any GE Affiliate (including, but not
limited to, reasonable fees and expenses of legal counsel, accountants,
consultants and travel expenses in connection with the preparation of this
Agreement and the Purchaser's due diligence examination) relating to this
Agreement and the Transaction, which, together with the Carlyle Transaction
Expenses (as such term is defined in the Carlyle Purchase Agreement) shall be
in an amount not to exceed $500,000.
"GOVERNMENTAL ENTITY" means any court or tribunal in any
jurisdiction (domestic or foreign) or any federal, state or local public,
governmental or regulatory body, agency, department, commission, board,
bureau or other authority or instrumentality (domestic or foreign).
"HAZARDOUS MATERIALS" means any hazardous substance, gasoline
or petroleum (including crude oil or any fraction thereof) or petroleum
products, polychlorinated biphenyls, ureaformaldehyde insulation, asbestos or
asbestos-containing materials, pollutants, contaminants, radioactivity and
any other materials or substances of any kind, whether solid, liquid or gas,
and whether or not any such substance is defined as hazardous under any
Environmental Law, that is regulated pursuant to any Environmental Law or
that could give rise to liability under any Environmental Law.
"HSR ACT" means the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended.
"INDEBTEDNESS" means, as to any Person without duplication, (a)
all items which, in accordance with GAAP, would be included as a liability on
the balance sheet of such Person and its Subsidiaries (including any
obligation of such Person to the issuer of any letter of credit for
reimbursement in respect of any drafts drawn under such letter of credit),
excluding (i) obligations in respect of deferred taxes and deferred employee
compensation and benefits, and (ii) anything in the nature of Capital Stock,
surplus capital and retained earnings; (b) Capital Lease Obligations of such
Person; and (c) all obligations of other Persons that such Person has
guaranteed, including, without limitation, all obligations of such Person
consisting of recourse liabilities with respect to accounts receivable sold
or otherwise disposed of by such Person, PROVIDED, HOWEVER, that the term
Indebtedness shall not include trade accounts payable (other than for
borrowed money) arising in, and accrued expenses incurred in, the ordinary
course of business of such Person, provided the same are not more than sixty
(60) days overdue or are being contested in good faith.
"INDEMNIFIED PARTY" has the meaning set forth in Section 8.2 of
this Agreement.
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"INDEPENDENT" means any person who is not an officer or
employee of the Company or any Subsidiary or other Affiliate of the Company
or otherwise paid any compensation or remuneration by the Company or any
Subsidiary or other Affiliate of the Company other than director's fees.
"JOINT DIRECTOR" has the meaning set forth in Section 6.13 of
this Agreement.
"LIABILITY" or "LIABILITIES" means, with respect to any Person,
any liability or obligation of such Person of any kind, character or
description, whether known or unknown, absolute or contingent, accrued or
unaccrued, liquidated or unliquidated, secured or unsecured, joint or
several, due or to become due, vested or unvested, executory, determined,
determinable or otherwise and whether or not the same is required to be
accrued on the financial statements of such Person.
"LIQUIDATING EVENT" means (i) the commencement by the Company
of a voluntary case under the bankruptcy laws of the United States, as now or
hereafter in effect, or, if an involuntary case against the Company has been
commenced, the decision by the Company not to timely controvert such petition
and seek its prompt dismissal; (ii) the commencement by the Company of any
proceeding under any reorganization, arrangement, adjustment of debt, relief
of debtors, dissolution, insolvency or liquidation or similar law of any
jurisdiction whether now or hereafter in effect relating to the Company or
the adoption of a plan of liquidation; (iii) if any proceeding set forth in
the preceding clause has been commenced against the Company, the decision by
the Company not to controvert such proceeding and seek its prompt dismissal;
or (iv) any Change of Control (A) pursuant to clauses (i) and (ii) of the
definition thereof if such Change of Control occurred in or as a result of a
transaction or series of related transactions approved by the Board of
Directors, or (B) pursuant to clauses (iii) or (iv) of the definition of
Change of Control; in any of cases (i) through (iv) above, in a single
transaction or series of related transactions.
"LOSSES" has the meaning set forth in Section 8.2 of this
Agreement.
"MARKET PRICE" means as to any security the average of the
closing prices of any such security's sales on all domestic securities
exchanges on which such security may at the time be listed, or, if there have
been no sales on any such exchange on any day, the average of the highest bid
and lowest asked prices on all such exchanges at the end of such day, or, if
on any day such security is not so listed, the average of the representative
bid and asked prices quoted in Nasdaq as of 4:00 P.M., New York time, on such
day, or, if on any day such security is not quoted in Nasdaq, the average of
the highest bid and lowest asked prices on such day in the domestic
over-the-counter market as reported by the National Quotation Bureau,
Incorporated, or any similar successor organization, in each such case
averaged over a period of twenty-one (21) business days consisting of the day
as of which "Market Price" is being determined and the twenty (20)
consecutive business days prior to such day; provided that if such security
is listed on any domestic securities exchange the term "business days" as
used in this sentence means business days on which such exchange is open for
trading. If at any time such security is not listed on any domestic
securities exchange or quoted in Nasdaq or the domestic over-the-counter
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market, the "Market Price" shall be the fair value thereof determined by the
Company and approved by the Purchaser; provided that if such parties are
unable to reach agreement within a reasonable period of time, such fair value
shall be determined by an appraiser jointly selected by the Company and the
Purchaser. The determination of such appraiser shall be final and binding
on the Company and the Purchaser, and the fees and expenses of such appraiser
shall be paid by the Company.
"MASTER DEBT RESTRUCTURING AGREEMENT" means that certain Master
Debt Restructuring Agreement dated as of June 26, 1996 by and among
Purchaser, General Electric Capital Corporation, the Company, American Health
Services Corp. Maxum Health Corp. and certain subsidiaries of Maxum Health
Corp., as amended through the date hereof.
"MATERIAL ADVERSE EFFECT" with respect to any Person means a
material adverse effect on the results of operations, condition (financial or
otherwise), assets, liabilities (whether absolute, accrued, contingent or
otherwise) or business of such Person and its Subsidiaries (if any), taken as
a whole.
"MATERIAL AGREEMENTS" has the meaning set forth in Section 4.21
of this Agreement.
"MERGER AGREEMENT" means that certain Agreement and Plan of
Merger dated as of February 26, 1996 by and among the Company, American
Health Services Corp., AHSC Acquisition Corp., Maxum Health Corp. and MXHC
Acquisition Corp.
"MOBILE OPERATIONS" means all operations of the Company and its
Subsidiaries other than Center Operations.
"MULTIEMPLOYER PLAN" means any "multiemployer plan," as defined
in Section 400l(a)(3) or 3(37) of ERISA, which (a) the Company or any ERISA
Affiliate maintains, administers, contributes to or is required to contribute
to, or, after September 25, 1980, maintained, administered, contributed to or
was required to contribute to, or under which the Company or any ERISA
Affiliate may incur any liability and (b) covers any employee or former
employee of the Company or any ERISA Affiliate (with respect to their
relationship with such Persons).
"OPERATING LEASE" shall mean any lease with respect to which
the obligations of the lessee thereunder are, at the time any determination
thereof is to be made, not required to be capitalized on the lessee's balance
sheet in accordance with GAAP.
"OPTION" shall mean any rights or options to subscribe for or
purchase Common Equity or Convertible Securities.
"ORDINARY COURSE OF BUSINESS," for purposes of Section 6.12(s) of
this Agreement, means the ordinary course of business for a company engaged in
the business of providing diagnostic services to the health care industry;
provided, however, that all sales by the Company
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or any Subsidiary, as the case may be, of inventory and sales of Fixtures and
Equipment no longer used or useful in such business shall be deemed to be in
the Ordinary Course of Business.
"PARITY SECURITIES" has the meaning set forth in Section 2 of
the Series B Certificate of Designation.
"PBGC" means the Pension Benefit Guaranty Corporation.
"PENSION PLAN" means any "employee pension benefit plan" as
defined in Section 3(2) of ERISA (other than a Multiemployer Plan) which (a)
the Company or any ERISA Affiliate maintains, administers, contributes to or
is required to contribute to, or, within the five (5) years prior to the
Closing Date, maintained, administered, contributed to or was required to
contribute to, or under which the Company or any ERISA Affiliate may incur
any liability and (b) covers any employee or former employee of the Company
or any ERISA Affiliate (with respect to their relationship with such Persons).
"PERMITS" means all licenses, permits, orders, consents,
approvals, registrations, authorizations, qualifications and filings required
by any federal, state, local or foreign law or regulation or governmental or
regulatory bodies and all industry or other non-governmental self-regulatory
organizations.
"PERMITTED ENCUMBRANCES" means (a) any mechanic's or
materialmen's lien or similar Encumbrances with respect to amounts not yet
due and payable or which are being contested in good faith by appropriate
proceedings and for which appropriate reserves have been established, (b)
Encumbrances for Taxes not yet due and payable or which are being contested
in good faith by appropriate proceedings, for which appropriate reserves have
been established, (c) easements, licenses, covenants, rights of way and
similar Encumbrances which, individually or in the aggregate, would not
materially and adversely affect the marketability or value of the property
encumbered thereby or materially interfere with the operations of the
Business and (d) Encumbrances arising under the Credit Facility.
"PERSON" means any individual, corporation, partnership,
limited partnership, limited liability partnership, joint venture,
association, limited liability company, joint-stock company, trust,
unincorporated organization or government or agency or political subdivision
thereof (including any subdivision or ongoing business of any such entity or
substantially all of the assets of any such entity, subdivision or business).
"PRE-CLOSING ENVIRONMENTAL CONDITIONS" means any Environmental
Condition occurring or in existence on or prior to the Closing Date.
"PREFERRED SHARES" has the meaning set forth in the Recitals to
this Agreement.
"PROCEEDING" means any action, suit, claim, litigation, legal or
other proceeding, whether civil, criminal, administrative, arbitrative or
investigative, any appeal in such an action, suit, claim, litigation, legal or
other proceeding, and any investigation that could reasonably be expected to
lead to such an action, suit, claim, litigation, legal or other proceeding, not
including
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an audit other than an audit by a Governmental Entity pursuant to any
Applicable Laws relating to health care, the health care industry and the
provision of health care services, third party reimbursement (including
Medicare and Medicaid), public health and safety and wrongful death and
medical malpractice, which shall be included in this definition of
"Proceeding."
"PROPRIETARY RIGHTS" has the meaning set forth in Section 4.25
of this Agreement.
"PROXY STATEMENT" means that certain Maxum Health Corp. and
American Health Services Corp. Joint Proxy Statement for Special Meeting of
Stockholders to be held June 25, 1996, dated May 9, 1996.
"PURCHASER" has the meaning set forth in the Preamble to this
Agreement, and shall include the Purchaser's successors and permitted assigns.
"REGISTRATION RIGHTS AGREEMENT" means the Registration Rights
Agreement by and among the Company and the Purchaser substantially in the
form attached hereto as Exhibit B.
"REGULATION D" has the meaning set forth in Section 4.26 of
this Agreement.
"RELEASE" means and includes any spilling, leaking, pumping,
pouring, emitting, emptying, discharging, injecting, escaping, leaching,
dumping or disposing into the environment or the workplace of any Hazardous
Materials, and otherwise as defined in any Environmental Law.
"SEC FILINGS" has the meaning set forth in Section 4.9 of this
Agreement.
"SECOND CLOSING" means the time at which the Purchaser converts
all of its Series A Preferred Stock into the Second Closing Preferred Shares.
"SECOND CLOSING PREFERRED SHARES" has the meaning set forth in
the Recitals.
"SECOND CLOSING DATE" means the business day after all waiting
periods with respect to Purchaser's filing of a notification under the HSR
Act with respect to the transactions to occur at the Second Closing have
expired or have been terminated and neither the Federal Trade Commission nor
the Department of Justice shall have sent a letter giving notice of its
intention to initiate legal action to prevent such transactions or to seek
further information.
"SECURITIES" means the Preferred Shares and the Warrants.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SENIOR MANAGEMENT" means such members of the senior management
of the Company as are proposed by the President of the Company and accepted
by the Series B Directors and the Series C Director, which acceptance shall
not unreasonably be withheld.
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"SENIOR SECURITIES" has the meaning set forth in Section 2 of
the Series C Certificate of Designation.
"SERIES A PREFERRED STOCK" means the Convertible Preferred
Stock, Series A, par value $0.001 per share, of the Company, all of the
outstanding shares of which as of the date of this Agreement are held by
Purchaser.
"SERIES B CERTIFICATE OF DESIGNATION" means the Certificate of
Designation, Preferences and Rights of the Series B Preferred Stock, in the
form attached hereto as Exhibit C.
"SERIES B CONVERSION SHARES" means the shares of Common Stock
issuable, upon certain conditions, by the Company to Carlyle in respect of
the Series B Preferred Stock.
"SERIES B PREFERRED STOCK" means the Convertible Preferred
Stock, Series B, par value $0.001 per share, of the Company, with the rights,
preferences and privileges set forth in the Series B Certificate of
Designation.
"SERIES C CERTIFICATE OF DESIGNATION" means the Certificate of
Designation, Preferences and Rights of the Series C Preferred Stock, in the
form attached hereto as Exhibit D.
"SERIES C CONVERSION SHARES" means the shares of Common Stock
issuable, upon certain conditions, by the Company to Purchaser in respect of
the Series C Preferred Stock.
"SERIES C PREFERRED STOCK" means the Convertible Preferred
Stock, Series C, par value $0.001 per share, of the Company, with the rights,
preferences and privileges set forth in the Series C Certificate of
Designation.
"SERIES D CERTIFICATE OF DESIGNATION" means the Certificate of
Designation, Preferences and Rights of the Series D Preferred Stock, in the
form attached hereto as Exhibit E.
"SERIES D CONVERSION SHARES" means the shares of Common Stock
issuable, upon certain conditions, by the Company to the Purchaser in respect
of the Series D Preferred Stock.
"SERIES D PREFERRED STOCK" means the Convertible Preferred
Stock, Series D, par value $0.001 per share, of the Company, with the rights,
preferences and privileges set forth in the Series D Certificate of
Designation.
"SPECIAL CORPORATE EVENT" shall be deemed to have occurred (i)
at such time as any person (as defined in Section 13(d)(3) of the Exchange Act),
except Carlyle, any Carlyle Affiliate, Purchaser and/or any Affiliate of
Purchaser, at any time shall directly or indirectly acquire more than twenty
percent (20%) of the voting power of the Common Stock of the Company, (ii) at
such time as during any one (1) year period, individuals who at the beginning of
such period constitute the Company's Board of Directors cease to constitute at
least a majority of such Board (provided, however, that a change in directors
upon a Type B Event Date shall not be deemed to cause a Special Corporate Event
pursuant to this clause (ii)), (iii) upon consummation of a merger or
consolidation of the Company into or with another Person in which the
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stockholders of the Company immediately prior to the consummation of such
transaction shall own fifty percent (50%) or less of the voting securities of
the surviving corporation (or the parent corporation of the surviving
corporation where the surviving corporation is wholly-owned by the parent
corporation) immediately following the consummation of such transaction, or
(iv) the sale, transfer or lease of all or substantially all of the assets of
the Company, in any of cases (i), (ii), (iii) or (iv) in a single transaction
or series of related transactions.
"SSA" has the meaning set forth in Section 4.34 of this
Agreement.
"STATE HEALTH CARE PROGRAM" has the meaning set forth in
Section 4.35 of this Agreement.
"SUBSIDIARY" means (a) any corporation of which at least a
majority in interest of the outstanding voting stock (having by the terms
thereof voting power under ordinary circumstances to elect a majority of the
directors of such corporation, irrespective of whether or not at the time
stock of any other class or classes of such corporation shall have or might
have voting power by reason of the happening of any contingency) is at the
time, directly or indirectly, owned or controlled by the Company and/or by
one or more Subsidiaries of the Company, or (b) any corporate or
non-corporate entity in which the Company and/or one or more Subsidiaries of
the Company, directly or indirectly, at the date of determination thereof,
has an ownership interest and one hundred percent (100%) of the revenue of
which is included in the consolidated financial reports of the Company
consistent with GAAP. With respect to past events, a reference to a
Subsidiary shall be a reference to such Subsidiary and its predecessors.
"SUPERMAJORITY VOTE" means the affirmative vote of six (6)
directors of the Company with respect to the matter subject to such vote.
"SUPERVOTING SECURITIES" means any class or series of the
Company's Capital Stock the holders of which have the right to cast more than
one vote per share and/or have the right to elect one or more members of the
Board of Directors, voting as a class or series.
"SUPPLEMENTAL SERVICE FEE" has the meaning set forth in the
Recitals hereof.
"SUPPLEMENTAL SERVICE FEE TERMINATION AGREEMENT" means the
Supplemental Service Fee Termination Agreement between the Company and the
Purchaser substantially in the form attached hereto as Exhibit L.
"TAX" or "TAXES" means any federal, state, local or foreign net
or gross income, gross receipts, license, payroll, employment, excise,
severance, stamp, occupation, premium, (including taxes under Section 59A of
the Code), customs duties, Capital Stock, franchise, profits, withholding,
social security (or similar), unemployment, disability, real property,
personal property, sales, use, transfer, registration, value added,
alternative or add-on minimum, estimated or other tax, governmental fee or
like assessment or charge of any kind whatsoever, including any interest,
penalty or addition thereto, whether disputed or not, imposed by any
Governmental Entity or arising under any tax law or agreement, including,
without limitation, any joint venture or partnership agreement.
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"TAX RETURN" means any return, declaration, report, claim for
refund or information or return or statement relating to Taxes, including any
schedule or attachment thereto, and including any amendments thereof.
"THIRD PARTY NOTICE" has the meaning set forth in Section 8.5
of this Agreement.
"TRANSACTION" means, taken together, the transactions
contemplated under this Agreement and the Carlyle Purchase Agreement,
including, without limitation, the transactions that will occur at the
Closing, the initial funding of the Credit Facility and the Second Closing.
"TYPE B CONVERSION" has the meaning set forth in the Series B
Certificate of Designation and the Series C Certificate of Designation.
"TYPE B EVENT DATE" has the meaning set forth in the Series B
Certificate of Designation and the Series C Certificate of Designation.
"TYPE B TRIGGER DATE" means the date one year after the inital
borrowing of funds under the Credit Facility.
"WARRANT AGREEMENT" means that certain Warrant Agreement by and
between the Company and the Purchaser substantially in the form attached
hereto as Exhibit E pursuant to which the Company shall issue the Warrants to
the Purchaser.
"WARRANT CERTIFICATES" means one or more warrant certificates
evidencing the Warrants, in the form attached as an exhibit to the Warrant
Agreement.
"WARRANTS" means 250,000 warrants, issued pursuant to the
Warrant Agreement, to purchase, initially, an equivalent number of shares of
Common Stock at an initial exercise price of $10.00 per share, expiring on
the date that is the fifth anniversary of the Closing Date.
"WARRANT SHARES" means the Common Stock issuable upon the
exercise of the Warrants.
"WELFARE PLAN" means any "employee welfare benefit plan" as
defined in Section 3(1) of ERISA, which (a) the Company or any ERISA
Affiliate maintains, administers, contributes to or is required to contribute
to, or under which the Company or any ERISA Affiliate may incur any liability
and (b) covers any employee or former employee of the Company or any ERISA
Affiliate (with respect to their relationship with such entities).
ARTICLE II
PURCHASE AND SALE OF SECURITIES
2.1 PURCHASE AND SALE OF SECURITIES.
Upon the terms and subject to the conditions contained herein, on
the First Closing Date the Company shall sell to the Purchaser and the Purchaser
shall purchase from the
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Company the First Closing Preferred Shares and the Warrants. Upon the terms
and subject to the conditions contained herein, on the Second Closing Date
the Company shall sell to the Purchaser and the Purchaser shall purchase from
the Company the Second Closing Preferred Shares.
2.2 CONSIDERATION FOR SECURITIES.
Upon the terms and subject to the conditions contained herein,
as consideration for the purchase of the First Closing Preferred Shares and
the Warrants, on the First Closing Date the Purchaser shall terminate the
Supplemental Service Fee. Upon the terms and subject to the conditions
contained herein (including without limitation the conditions relating to the
HSR Act), as consideration for the purchase of the Second Closing Preferred
Shares, on the Second Closing Date the Purchaser shall convert all of its
shares of Series A Preferred Stock into the Second Closing Preferred Shares.
2.3 PRIVATE PLACEMENT FEE.
On the First Closing Date, the Company shall pay by wire
transfer of immediately available funds to an account designated by the
Purchaser at least 24 hours before the Closing a private placement fee of One
Hundred Twenty Five Thousand Dollars ($125,000).
ARTICLE III
CLOSING
3.1 CLOSINGS.
The First Closing shall be held at 10:00 a.m. Los Angeles time
on the First Closing Date, at the offices of Gibson, Dunn & Crutcher LLP, 333
South Grand Avenue, Los Angeles, CA 90071, unless the parties hereto
otherwise agree. The Second Closing shall be held at 10:00 a.m. Los Angeles
time on the Second Closing Date, at the offices of Gibson, Dunn & Crutcher
LLP, 333 South Grand Avenue, Los Angeles, CA 90071, unless the parties hereto
otherwise agree.
3.2 DELIVERIES BY THE COMPANY AT THE FIRST CLOSING.
At the First Closing, the Company shall issue and deliver to
the Purchaser:
(a) Certificates evidencing the First Closing Preferred Shares
in the name of the Purchaser (or its assignees), in the respective amounts as
set forth in a written notice provided to the Company by the Purchaser 24
hours in advance of the First Closing;
(b) The Warrant Certificates in the names of the Purchaser (or
its assignees), in the respective amounts as set forth in a written notice
provided to the Company by the Purchaser;
(c) The Ancillary Agreements;
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(d) The certificates, opinions of counsel and other documents
described in Article VII of this Agreement; and
(e) All such other documents and instruments as the Purchaser
or its counsel shall reasonably request to consummate the First Closing.
3.3 DELIVERIES BY THE PURCHASER AT THE CLOSING.
At the First Closing, the Purchaser shall deliver to the
Company:
(a) The Supplemental Service Fee Termination Agreement;
(b) The Ancillary Agreements;
(c) The certificates, opinions of counsel and other documents
described in Article VII of this Agreement; and
(d) All such other documents and instruments as the Company or
its counsel shall reasonably request to consummate the Closing.
3.4 SECOND CLOSING.
The parties contemplate that the Second Closing shall occur on
the Second Closing Date. At the Second Closing, all of GE's shares of Series
A Preferred Stock shall be converted into Series C Preferred Stock. At the
Second Closing, the Company shall issue and deliver to the Purchaser
Certificates evidencing the Second Closing Preferred Shares in the names of
the Persons comprising the Purchaser (or their assignees), in the respective
amounts as set forth in a written notice provided to the Company by the
Purchaser 24 hours in advance of the Second Closing, and the Purchaser shall
deliver to the Company certificates evidencing the shares of Series A
Preferred Stock.
3.5 FORM OF DOCUMENTS AND INSTRUMENTS.
All of the documents and instruments delivered at the Second
Closing shall be in form and substance, and shall be executed and delivered
in a manner, reasonably satisfactory to the respective counsel of the
Purchaser and the Company.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Purchaser as follows:
4.1 ORGANIZATION OF THE COMPANY.
(a) The Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware and has
all requisite corporate power and authority to own, lease and operate its
properties and assets and to carry on its business as
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presently being conducted and as proposed to be conducted. No actions or
Proceedings to dissolve the Company are pending or, to the Knowledge of the
Company, threatened. The copies of the Certificate of Incorporation and
Amended Bylaws heretofore delivered by the Company to the Purchaser are
accurate and complete as of the date hereof. The Company is duly qualified or
licensed to do business as a foreign corporation and is in good standing in
each jurisdiction in which the property owned, leased or operated by it or
the conduct of its business requires such qualification or licensing, except
where the failure to do so taken in the aggregate would not have a Material
Adverse Effect on the Company. The Certificate of Incorporation and the
Amended Bylaws of the Company comply in all material respects with Delaware
law.
(b) Each Subsidiary is a corporation or other business entity
duly organized, validly existing and in good standing under the laws of its
jurisdiction of organization, and has all requisite power and authority to own,
lease and operate its properties and assets and to carry on its business as
presently being conducted and as proposed to be conducted. Except as set forth
in Schedule 4.1(b), each Subsidiary is duly qualified or licensed to do business
as a foreign corporation and is in good standing in each jurisdiction in which
the property owned, leased or operated by it or the conduct of its business
requires such qualification or licensing, except where the failure to do so
would not have a Material Adverse Effect on the Company. The terms and
provisions of the organizational documents of each Subsidiary comply in all
material respects with the laws of such Subsidiary's jurisdiction of
incorporation.
4.2 CAPITALIZATION OF THE COMPANY.
(a) The authorized Capital Stock of the Company consists of:
(i) Twenty-Five Million (25,000,000) shares of common stock, par value $0.001
per share (the "Common Stock"), Two Million Seven Hundred Fourteen Thousand
Seven Hundred Twenty Five (2,714,725) shares of which will be issued and
outstanding immediately after the Closing Date; (ii) Three Million Five
Hundred Thousand (3,500,000) shares of preferred stock, of which (A) Two
Million Five Hundred One Thousand Seven Hundred Sixty (2,501,760) shares of
Series A Preferred Stock are issued and outstanding as of the date hereof,
all of which shares are expected to be exchanged at the Second Closing for
shares of Series C Preferred Stock so that no shares of Series A Preferred
Stock are expected to be outstanding immediately after the Second Closing
Date; (B) Twenty Five Thousand (25,000) shares of Series B Preferred Stock
which will be designated and authorized as of the Closing Date, all of which
will be issued and outstanding immediately after the Closing Date; (C) Twenty
Seven Thousand Nine Hundred Fifty Three (27,953) shares of Series C Preferred
Stock which will be designated and authorized as of the Closing Date, Seven
Thousand (7,000) shares of which will be issued and outstanding immediately
after the Closing Date and all of which are expected to be issued and
outstanding immediately after the Second Closing Date; and (D) Six Hundred
Thirty Two Thousand Two Hundred Sixty Six (632,266) shares of Series D
Preferred Stock which will be designated and authorized as of the Closing
Date, no shares of which will be issued and outstanding immediately after the
Closing Date. All outstanding shares of Capital Stock of the Company are
fully paid, non-assessable, free and clear of all Encumbrances and have been
issued in compliance with all state and federal securities laws. Except for
the Series B Preferred Stock, the Series C Preferred
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Stock and the Series D Preferred Stock, none of such shares is subject to,
nor has been issued in violation of, any preemptive rights.
(b) The Company has not become subject to any commitment or
obligation, either absolute or conditional, matured or unmatured, vested or
not yet vested, to issue, deliver or sell, or cause to be issued, delivered
or sold, under offers, stock option agreements, stock bonus agreements, stock
purchase plans, incentive compensation plans, warrants, options, calls,
conversion rights or otherwise, any shares of the Capital Stock or other
securities of the Company including securities or obligations convertible
into or exchangeable for any shares of Capital Stock, other equity securities
or ownership interests, upon payment of any consideration or otherwise,
except for (i) the commitments and obligations of the Company pursuant to
this Agreement, the Warrant Agreement, the Carlyle Purchase Agreement, the
Carlyle Warrant Agreement, the Series B Certificate of Designation and the
Series C Certificate of Designation; (ii) the issuance, sale or grant of the
options outstanding on the date hereof to Senior Management and directors of
the Company set forth on SCHEDULE 4.2 hereto; (iii) the warrants outstanding
on the date hereof set forth on SCHEDULE 4.2 hereto; (iv) as set forth on
SCHEDULE 4.2 hereto, the number of shares of Capital Stock (all of which are
included in the Two Million Seven Hundred Fourteen Thousand Seven Hundred
Twenty Five (2,714,725) outstanding shares of Common Stock stated in Section
4.2(a)) as to which the Company would be required to issue new stock
certificates if all stock certificates were now surrendered that represented
shares of Capital Stock of American Health Services Corp. or Maxum Health
Corp. (constituent corporations in the mergers contemplated by the Merger
Agreement) that either were outstanding immediately prior to such mergers or
that were issuable pursuant to any commitment or obligation of either of such
constituent corporations, either absolute or conditional, matured or
unmatured, vested or not yet vested, to issue, deliver or sell, or cause to
be issued, delivered or sold, under offers, stock option agreements, stock
bonus agreements, stock purchase plans, incentive compensation plans,
warrants, options, calls, conversion rights or otherwise; and (v) as set
forth on SCHEDULE 4.2, and to the extent not otherwise described in clause
(iv) of this Section 4.2, the number of shares of Capital Stock of the
Company that would be required to be issued if the surviving corporations of
such mergers were to give their written approval (pursuant to Section 262(k)
of the Delaware General Corporation Law), to holders of shares of Capital
Stock of such constituent corporations who exercised their appraisal rights
with respect to such shares, to withdraw such holders' demands for appraisal
and accept such mergers. Except as provided in this Agreement, the Company
is not a party or subject to any agreement or understanding and, to the
Company's Knowledge, there is no agreement or understanding between any
Persons and/or entities, that affects or relates to the voting or giving of
written consents with respect to any of the Company's voting securities.
(c) Upon issuance to the Purchaser of the Twenty-Seven
Thousand, Nine Hundred and Fifty Three (27,953) shares of Series C Preferred
Stock to be issued hereunder, if the Purchaser were to immediately convert
such shares into Common Stock, such shares of Common Stock would represent
Thirty One and Seven Tenths (31.7%) of the Common Stock of the Company on a
fully diluted basis. Such percentage shall equal one hundred (100) times the
following quotient. The numerator of such quotient shall be the number of
shares of Common Stock that the Purchaser would be entitled to receive if the
Purchaser were to convert into
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Common Stock, immediately following the First Closing and the Second Closing
and pursuant to the terms of the Series C Certificate of Designation, all of
the shares of Series C Preferred Stock the Purchaser is to receive at the
First Closing and the Second Closing pursuant to the terms of this Agreement.
The denominator of such quotient shall equal the sum of (1) such numerator,
plus (2) the number of shares of Common Stock that would need to be issued if
all of the shares of Series B Preferred Stock to be issued pursuant to the
Carlyle Purchase Agreement were converted into Common Stock, pursuant to the
terms of the Series B Certificate of Designation, plus (3) the number of
shares of Common Stock that would need to be issued if the all of the
Warrants and Carlyle Warrants were exercised in full, plus (4) the maximum
number of shares of Common Stock that would need to be issued if all of the
issuances of Capital Stock contemplated in clauses (ii), (iii), (iv) and (v)
of Section 4.2(b) were to occur immediately following the Closing plus (5)
all shares of Common Stock issued and outstanding on the First Closing Date.
The calculation in the immediately preceding sentence shall be made as if all
issuances of Common Stock referred to in clauses (1), (2), (3), (4) and (5)
thereof were made immediately following the First Closing, whether or not the
Company is or could be under any obligation to issue such shares of Common
Stock immediately following the First Closing.
4.3 AUTHORIZATION OF ISSUANCE.
The rights, preferences, privileges and restrictions of the
Series B Preferred Stock are as stated in the Series B Certificate of
Designation. The rights, preferences, privileges and restrictions of the
Series C Preferred Stock are as stated in the Series C Certificate of
Designation. The rights, preferences, privileges and restrictions of the
Series D Preferred Stock are as stated in the Series D Certificate of
Designation. Upon consummation of the Transaction, the Securities acquired
by the Purchaser from the Company will be duly authorized and validly issued,
fully paid and non-assessable and not subject to any preemptive rights except
as set forth in the Series C Certificate of Designation, and the Purchaser
will have good and marketable title to such Securities, free and clear of any
Encumbrances or preemptive rights. Upon consummation of the Transaction, the
Series B Conversion Shares and the Series C Conversion Shares (and the Series
D Conversion Shares, which will not be issued to the extent that Series B
Conversion Shares and Series C Conversion Shares are issued) will be duly
authorized and reserved for issuance and upon conversion in accordance with
the terms of the Series B Preferred Stock and the Series C Preferred Stock
(and the Series D Preferred Stock), respectively, will be validly issued,
fully paid and non-assessable and not subject to any preemptive rights except
as set forth in the Series B Certificate of Designation and the Series C
Certificate of Designation (and the Series D Certificate of Designation),
respectively, and the Purchaser will have good and marketable title to the
Series C Conversion Shares (and the Series D Conversion Shares), free and
clear of any Encumbrances or preemptive rights. Upon consummation of the
Transaction, the Warrant Shares and the Carlyle Warrant Shares will be duly
authorized and reserved for issuance and, upon exercise of the Warrants or
the Carlyle Warrants, as the case may be, and when issued and paid for in
accordance with the terms of the Warrants or the Carlyle Warrants, as the
case may be, will be validly issued, fully paid and non-assessable and not
subject to any preemptive rights, and the Purchaser will have good and
marketable title to the Warrant Shares, free and clear of any Encumbrances or
preemptive rights.
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4.4 AUTHORIZATION.
The Company has full corporate power and authority to execute
and deliver this Agreement, the Carlyle Purchase Agreement and the Ancillary
Agreements and to consummate the Transaction. The execution and delivery by
the Company of this Agreement, the Carlyle Purchase Agreement and the
Ancillary Agreements and the consummation by it of the Transaction, have been
duly authorized by all necessary corporate action of the Company. This
Agreement, the Carlyle Purchase Agreement and each Ancillary Agreement has
been duly executed and delivered by the Company and each constitutes a valid
and legally binding obligation of the Company, enforceable against the
Company in accordance with its terms, except that such enforceability may be
limited by (i) applicable bankruptcy, insolvency, reorganization, moratorium,
and similar laws affecting creditors' rights generally, and (ii) general
equitable principles (regardless of whether such enforceability is considered
in a proceeding in equity or at law). No approval or consent of the
Company's stockholders for this Agreement, the Carlyle Purchase Agreement,
the Ancillary Agreements or the consummation of the Transaction is required.
4.5 NONCONTRAVENTION.
The execution and delivery by the Company of this Agreement,
the Carlyle Purchase Agreement and the Ancillary Agreements and the
consummation by it of the Transaction do not and will not (i) conflict with
or result in a violation of any provision of the Certificate of Incorporation
or the Amended Bylaws, or the charter, bylaws or other governing instruments
of any Subsidiary, (ii) materially conflict with or result in a material
violation of any provision of, constitute (with or without the giving of
notice or the passage of time or both) a material default under or give rise
(with or without the giving of notice or the passage of time or both) to any
loss of material benefit or of any right of termination, cancellation or
acceleration under, any Material Agreement, (iii) result in the creation or
imposition of any material Encumbrance upon the properties of the Company or
any Subsidiary, or (iv) violate in any material respect any Applicable Law
binding upon the Company or any Subsidiary.
4.6 CONSENTS.
No material consent, approval, order, authorization of or
declaration, filing or registration with any Governmental Entity is required
to be obtained or made by the Company or any Subsidiary in connection with
the execution and delivery by the Company of this Agreement, the Carlyle
Purchase Agreement and the Ancillary Agreements or the consummation of the
Transaction, other than (a) compliance with any applicable requirements of
the Securities Act; (b) compliance with any applicable requirements of the
Exchange Act; (c) compliance with any applicable state securities laws and
(d) compliance with applicable provisions of the HSR Act. Except as set
forth on SCHEDULE 4.6, no material consent or approval of any Person is
required to be obtained or made by the Company or any Subsidiary in
connection with the execution and delivery by the Company of this Agreement,
the Carlyle Purchase Agreement and the Ancillary Agreements or the
consummation of the Transaction.
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In addition, no consent, approval, order, authorization of or
declaration, filing or registration with any Governmental Entity is required
to be obtained or made by the Company or any Subsidiary that could affect the
validity of the issuance of the Series B Preferred Stock, the Series C
Preferred Stock, the Series D Preferred Stock, the Warrants, the Carlyle
Warrants, the Warrant Shares or the Carlyle Warrant Shares, other than (a)
compliance with any applicable requirements of the Securities Act; (b)
compliance with any applicable requirements of the Exchange Act; (c)
compliance with any applicable state securities laws; and (d) compliance with
applicable provisions of the HSR Act. Except as set forth on SCHEDULE 4.6,
no consent or approval of any Person is required to be obtained or made by
the Company or any Subsidiary that could affect the validity of the issuance
of the Series B Preferred Stock, the Series C Preferred Stock, the Series D
Preferred Stock, the Warrants, the Carlyle Warrants, the Warrant Shares or
the Carlyle Warrant Shares.
4.7 SUBSIDIARIES.
(a) Except as otherwise set forth on SCHEDULE 4.7, the Company
does not own, directly or indirectly, more than five percent (5%) of the
Capital Stock or other securities of any Person or have any direct or
indirect equity or ownership interest of more than five percent (5%) in any
other Person, other than its Subsidiaries. SCHEDULE 4.7 lists each
Subsidiary as of the date hereof, its respective jurisdiction of
incorporation and the jurisdictions in which it is qualified to do business,
the number of shares, partnership or other equity interests and the
percentage ownership interest held by the Company in each such Subsidiary.
Except as otherwise indicated on SCHEDULE 4.7, no actions or other
Proceedings to dissolve any Subsidiary are pending.
(b) Except as otherwise indicated on SCHEDULE 4.7, all the
outstanding Capital Stock or other equity interests of each Subsidiary is
owned directly or indirectly by the Company, free and clear of all
Encumbrances and restrictions on voting, sale or disposition. All
outstanding shares of Capital Stock of each Subsidiary have been validly
issued and are fully paid and non-assessable. No shares of Capital Stock or
other equity interests of any Subsidiary are subject to, nor have any been
issued in violation of, preemptive or similar rights.
(c) Except for shares of common stock owned by the Company or
any Subsidiary and as set forth on SCHEDULE 4.7, there are outstanding (i) no
shares of Capital Stock or other voting securities of any Subsidiary; (ii) no
securities of any Subsidiary convertible into or exchangeable for shares of
Capital Stock or other voting securities of any Subsidiary; (iii) no
subscriptions, options, warrants, calls, commitments, preemptive rights or
other rights of any kind to acquire Capital Stock or other voting securities
from any Subsidiary, and no obligation of any Subsidiary to issue or sell,
any shares of Capital Stock or other voting securities of any Subsidiary or
any securities of any Subsidiary convertible into or exchangeable for such
Capital Stock or voting securities; and (iv) no equity equivalents, interests
in the ownership or earnings or other similar rights of or with respect to
any Subsidiary to repurchase, redeem or otherwise acquire any shares of
Capital Stock or any other securities of the type described in clauses
(i)-(iv) above. No Subsidiary holds shares of its Capital Stock in its
treasury.
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4.8 EMPLOYEE BENEFIT PLANS AND OTHER AGREEMENTS.
(a) SCHEDULE 4.8 contains a complete list of Employee Plans.
True and complete copies of each of the following Employee Plan documents have
been delivered or made available by the Company to the Purchaser: (i) each
Employee Plan document (and, if applicable, related trust agreements and all
annuity contracts or other funding instruments) and all amendments thereto, all
reasonably available written descriptions thereof which have been distributed to
the Company's employees and those of its ERISA Affiliates during the last
thirty-six (36) months and a reasonably detailed description of any Employee
Plan which is not in writing,, (ii) the most recent determination or opinion
letter issued by the Internal Revenue Service with respect to each Pension Plan
and each Welfare Plan (other than a Multiemployer Plan), (iii) for the three (3)
most recent plan years, Annual Reports on Form 5500 Series required to be filed
with any governmental agency for each Pension Plan, (iv) a description setting
forth the amount of any liability of the Company as of the Closing Date for
payments more than thirty (30) calendar days past due with respect to each
Welfare Plan.
(b) EMPLOYEE PLANS.
(i) PENSION PLANS.
(A) No Pension Plan is or has been subject to
Title IV of ERISA or Section 412 of the Code.
(B) Each Pension Plan and each related trust
agreement, annuity contract or other funding instrument is qualified
and tax-exempt under the provisions of Code Sections 401(a) (or
403(a), as appropriate) and 501(a) and has been so qualified during
the period from its adoption to date.
(C) Each Pension Plan and each related trust
agreement, annuity contract or other funding instrument presently
complies and has been maintained in compliance, in all material
respects, with its terms and, both as to form and in operation, with
the requirements prescribed by any and all Applicable Laws, including
without limitation ERISA and the Code.
(ii) MULTIEMPLOYER PLANS.
(A) Neither the Company nor any ERISA Affiliate
has, at any time within the last seventy-two (72) months, maintained,
contributed to or been obligated to maintain or contribute to, or
withdrawn from, a Multiemployer Plan.
(iii) WELFARE PLANS.
(A) Each Welfare Plan presently complies and has
been maintained in compliance, in all material respects, with its
terms and, both as to form and operation, with the requirements
prescribed by any and all statutes,
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orders, rules and regulations which are applicable to such Welfare
Plan, including, without limitation, ERISA and the Code.
(B) Except as disclosed on SCHEDULE 4.8, none of
the Company, any ERISA Affiliate or any Welfare Plan has any present
or future obligation to make any payment to, or with respect to any
present or former employee of the Company or any ERISA Affiliate
pursuant to, any retiree medical benefit plan or other retiree Welfare
Plan, and no condition exists which would prevent the Company from
amending or terminating any such benefit plan or Welfare Plan.
(C) Each Welfare Plan which is a "group health
plan," as defined in Section 607(1) of ERISA, has been operated in
compliance with provisions of Part 6 of Title I, Subtitle B of ERISA
and 4980B of the Code at all times. The Company is not obligated to
provide health care benefits of any kind to its retired or former
employees or their dependents pursuant to any agreement or
understanding.
(iv) BENEFIT ARRANGEMENTS. Each Benefit Arrangement
has been maintained in compliance, in all material respects, with its
terms and with the requirements prescribed by any and all statutes,
orders, rules and regulations which are applicable to such Benefit
Arrangement, including without limitation, the Code, and with all plan
documents. Except as set forth in SCHEDULE 4.8 and except as provided by
law, the employment of all persons presently employed or retained by the
Company is terminable at will.
(v) UNRELATED BUSINESS TAXABLE INCOME. No Employee
Plan (or trust or other funding vehicle pursuant thereto) is subject to
any Tax under Section 511 of the Code.
(vi) DEDUCTIBILITY OF PAYMENTS. Except as disclosed in
SCHEDULE 4.8, there is no contract, agreement, plan or arrangement
covering any present or former employee, director or consultant of the
Company or any of its ERISA Affiliates (with respect to his or her
relationship with such entities) that, individually or collectively,
provides for the payment by the Company of any amount (i) that is not
deductible under Section 162(a)(l) or 404 of the Code or (ii) that is an
"excess parachute payment" pursuant to Section 280G of the Code.
(vii) FIDUCIARY DUTIES AND PROHIBITED TRANSACTIONS.
Neither the Company nor any plan fiduciary of any Welfare Plan or Pension
Plan has engaged in any transaction in violation of Sections 404 or 406
of ERISA or any "prohibited transaction," as defined in Section
4975(c)(1) of the Code, for which no exemption exists under Section 408
of ERISA or Section 4975(c)(2) or (d) of the Code, or has otherwise
violated the provisions of Part 4 of Title I, Subtitle B of ERISA. The
Company has not participated in a violation of Part 4 of Title I,
Subtitle B of ERISA by any plan fiduciary of any Welfare Plan or Pension
Plan. The Company has not been assessed any civil penalty under Section
502(1) of ERISA.
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(viii) VALIDITY AND ENFORCEABILITY. Each Welfare Plan
related trust agreement, annuity contract or other funding instrument is
legally valid, binding, enforceable against the Company and in full force
and effect, except as enforceability may be limited by (i) applicable
bankruptcy, insolvency, reorganization, moratorium, and similar laws
affecting creditors' rights generally, and (ii) general equitable
principles (regardless of whether such enforceability is considered in a
proceeding in equity or at law). .
(ix) LITIGATION. There is no Proceeding relating to or
seeking benefits under any Employee Plan that is pending, or, to the
Knowledge of the Company, threatened against the Company, any ERISA
Affiliate or any Employee Plan other than routine claims for benefits.
(x) NO AMENDMENTS. Except as disclosed in Schedule
4.8, neither the Company nor any ERISA Affiliate has any announced plan
or legally binding commitment to create any additional Employee Plans
which are intended to cover present or former employees, directors or
consultants of the Company or any of its ERISA Affiliates (with respect
to their relationship with such Persons) or to amend or modify any
existing Employee Plan. Each Employee Plan can be amended or terminated
at any time without approval from any Person, without advance notice and
without any liability other than for benefits accrued prior to such
amendments or termination.
(xi) NO OTHER MATERIAL LIABILITY. To the Knowledge of
the Company, no event has occurred in connection with which the Company
or any ERISA Affiliate or any Employee Plan, directly or indirectly,
could be subject to any material liability (A) under any statute,
regulation or governmental order relating to any Employee Plan or
(B) pursuant to any obligation of the Company to indemnify any person
against liability incurred under any such statute, regulation or order as
they relate to the Employee Plans.
(xii) INSURANCE CONTRACTS. Neither the Company nor any
Employee Plan (other than a Multiemployer Plan) holds as an asset of any
Employee Plan any interest in any annuity contract, guaranteed investment
contract or any other investment or insurance contract issued by an
insurance company that is the subject of bankruptcy, conservatorship or
rehabilitation proceedings.
(xiii) NO ACCELERATION OR CREATION OF RIGHTS. Except as
disclosed on Schedule 4.8, neither the execution and delivery of this
Agreement by the Company nor the consummation of all or any portion of
the Transaction will result in the acceleration or creation of any rights
of any person to benefits under any Employee Plan (including, without
limitation, the acceleration of the vesting or exercisability of any
stock options, the acceleration of the vesting of any restricted stock,
the acceleration of the accrual or vesting of any benefits under any
Pension Plan or the acceleration or creation of any rights under any
severance, parachute or change in control agreement).
(c) There are no employment, consulting, change of control,
severance pay, continuation pay, termination pay, loans, guarantees or
indemnification agreements or other
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similar agreements of any nature whatsoever (collectively, "Employment
Agreements") between the Company, on the one hand, and any current or former
stockholder, officer, director, employee or Affiliate of the Company or any
consultant or agent of the Company, on the other hand, that, as a direct
result of the Transaction, (i) will require any payment by the Company or any
consent or waiver from any stockholder, officer, director, employee or
Affiliate of the Company or any consultant or agent of the Company, or (ii)
will result in any change in the nature of any rights of any stockholder,
officer, director, employee or Affiliate of the Company or any consultant or
agent of the Company under any such Employment Agreement or other similar
agreement (including, without limitation, any accelerated payments, deemed
satisfaction of goals or conditions, new or increased benefits or additional
or accelerated vesting).
4.9 GOVERNMENTAL FILINGS.
(a) Since June 30, 1994, the Company and each of its
Subsidiaries have filed with the Commission all forms, reports, schedules,
statements and other documents required to be filed by them under the
Securities Act, the Exchange Act and all other federal securities laws and
the rules and regulations promulgated thereunder (the "SEC Filings"). Each
SEC Filing was prepared in accordance with, and at the time of filing
complied in all material respects with, the requirements of the Securities
Act, the Exchange Act or other applicable federal securities law and the
rules and regulations promulgated thereunder, as the case may be, except as
the same was corrected or superseded in an amendment to such SEC Filing filed
with the Commission. None of the SEC Filings, including, without limitation,
any financial statements or schedules included therein, at the time filed,
contained any untrue statement of a material fact or omitted to state any
material fact required to be stated therein or necessary in order to make the
statements contained therein, in light of the circumstances under which they
were made, not misleading, except as the same was corrected or superseded in
a subsequent document duly filed with the Commission. The Company has
heretofore furnished or made available to the Purchaser true, correct and
complete copies of all SEC Filings since June 30, 1996.
(b) Since June 30, 1992, all material reports, documents and
notices required to be filed, maintained or furnished to any Governmental
Entity (other than the Commission) by the Company or any Subsidiary have been
so filed, maintained or furnished. All such reports, documents and notices
were complete and correct in all material respects on the date filed (or were
corrected in or superseded by a subsequent filing) such that no Liabilities
exist with respect to such filing.
4.10 FINANCIAL STATEMENTS AND REPORTS.
(a) The financial statements contained in the SEC Filings
(collectively, the "Financial Statements") have been prepared in accordance with
GAAP applied on a consistent basis throughout the periods indicated and with
each other (except that the Financial Statements may not contain all footnotes
required by GAAP) and fairly present the consolidated financial condition of the
Company and the Subsidiaries and the consolidated results of operations as of
such dates and for such periods indicated. Since April 30, 1997, there has not
been any change to the financial condition of the Company or any Subsidiary as
set forth in the Financial
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Statements that would have a Material Adverse Effect on the Company. Except
as reflected in the Financial Statements, neither the Company nor any
Subsidiary is a guarantor or indemnitor of any Indebtedness of any other
Person. The Company maintains a standard system of accounting established
and administered in accordance with GAAP. The general ledger, accounts
receivable, accounts payable, bank reconciliations and payroll records of the
Company have been maintained in all material respects in the ordinary course
and contain a materially correct and complete record of the matters typically
contained in records of such nature.
(b) The Company has not received any management letters or
other letters (other than audit letters included in the SEC Filings) from the
Company's independent auditing firm(s) relating to the results of operations,
financial statements or internal controls of the Company or any Subsidiary
insofar as the same may pertain to the business or assets of the Company and
any Subsidiary during any period from and after June 30, 1994.
4.11 ABSENCE OF UNDISCLOSED LIABILITIES: GUARANTEES.
(a) Except as set forth in the Financial Statements or as set
forth on SCHEDULE 4.11: (i) as of April 30, 1997, neither the Company nor
any Subsidiary had any Liabilities or obligations (whether accrued, absolute,
contingent, unliquidated or otherwise) which are reasonably expected to have,
individually or in the aggregate, a Material Adverse Effect on the Company,
and (ii) since April 30, 1997, the Company and its Subsidiaries, taken as a
whole, have not incurred any such Liabilities or obligations that have had a
Material Adverse Effect on the Company.
(b) Except as set forth on SCHEDULE 4.11, neither the Company
nor any Subsidiary is a party to (i) any Material Agreement relating to the
making of any advance to, or investment in, any Person, or (ii) any Material
Agreement providing for a guarantee or other contingent liability with
respect to any Indebtedness or similar obligation of any Person.
4.12 ABSENCE OF CERTAIN CHANGES.
Since April 30, 1997, except as reflected in the Financial
Statements or the SEC Filings, neither the Company nor any Subsidiary has
(i) declared or paid any dividends, or authorized or made any distribution upon
or with respect to any class or series of its Capital Stock; (ii) made Capital
Expenditures or commitments therefor, other than such Capital Expenditures or
commitments made in the ordinary course consistent with past practice;
(iii) made any loans or advances to any Person exceeding $5,000 individually or
$25,000 in the aggregate (other than advances for business or travel expenses)
or guaranteed the obligations of any Person; (iv) sold, exchanged or otherwise
disposed of any of its assets or rights exceeding $5,000 individually or $25,000
in the aggregate, other than the sale, exchange or other disposition of its
equipment and services in the ordinary course of business consistent with past
practice; (v) incurred any material change in the assets, Liabilities, financial
condition, operating results or Business of the Company from that reflected in
the Financial Statements, except changes that have not, in the aggregate, had a
Material Adverse Effect on the Company; (vi) suffered any damage, destruction or
loss, whether or not covered by insurance, that had or would have a Material
Adverse Effect on the Company; (vii) waived a right or a debt owed to it
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exceeding $1,000 individually or $5,000 in the aggregate, except in the
ordinary course of business consistent with past practice; (viii) satisfied
or discharged any Encumbrance or payment of any obligation, except in the
ordinary course of business consistent with past practice and that has not
had and is not reasonably expected to have a Material Adverse Effect on the
Company; (ix) agreed to or made any material change or amendment to any
Material Agreement, except in the ordinary course of business consistent with
past practice; (x) except as set forth in SCHEDULE 4.12(X), made any material
change in any compensation arrangement or agreement with any employee that
would increase such employees' compensation by more than ten percent (10%);
(xi) permitted or allowed any of its assets to be subjected to any material
Encumbrance, other than Encumbrances on equipment in the ordinary course of
business consistent with past practice; (xii) written up the value of any
inventory, notes or accounts receivable or other assets in any material
respect; (xiii) licensed, sold, transferred, pledged, modified, disclosed,
disposed of or permitted to lapse any right to the use of any Proprietary
Rights; (xiv) made any change in any method of accounting or accounting
practice or any change in depreciation or amortization policies or rates
previously adopted; (xv) paid, lent or advanced any amount to, sold,
transferred or leased any assets to or entered into any material agreement or
material arrangement with any of its Subsidiaries or GE (except for the GE
Purchase Agreement, the GE Registration Rights Agreement, the GE Warrant
Agreement and related documents) or entered into any agreement or arrangement
whatsoever with any of its Affiliates other than its Subsidiaries and GE,
except for directors' fees, travel expense advances and employment
compensation to officers; or (xvi) incurred or suffered any other event or
condition of any character that could reasonably be expected to have a
Material Adverse Effect on the Company.
4.13 COMPLIANCE WITH LAWS.
(a) The Company and its Subsidiaries are in compliance in all
material respects with all material Applicable Laws. Material Applicable
Laws includes, without limitation, all Applicable Laws relating to health
care, the health care industry and the provision of health care services,
third party reimbursement (including Medicare and Medicaid), public health
and safety and wrongful death and medical malpractice. Neither the Company
nor any of its Subsidiaries has received any notice of, nor does the Company
or any of its Subsidiaries have any Knowledge of, any violation (or of any
investigation, inspection, audit or other proceeding by any Governmental
Entity involving allegations of any violation) of any Applicable Law
involving or related to the Company or any of its Subsidiaries which has not
been dismissed or otherwise disposed of. Except as set forth in SCHEDULE
4.13(A), neither the Company nor any of its Subsidiaries has received notice
or otherwise has any Knowledge that the Company or any Subsidiary is charged
with, threatened with or under investigation with respect to, any violation
of any Applicable Law, or has any Knowledge of any proposed change in any
Applicable Law that would have a Material Adverse Effect on the Transaction
or the Company.
(b) Each of the Company and its Subsidiaries has, and all
professional employees or agents of each of the Company and its Subsidiaries who
are performing health care or health care related functions on behalf of the
Company or any of its Subsidiaries or joint ventures have, all material
licenses, franchises, permits, accreditations, provider numbers, authorizations,
including certificates of need, consents or orders of, or filings with, or other
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approvals from all Governmental Entities ("Approvals") necessary for the
conduct of, or relating to the operation of, the business of each of the
Company and its Subsidiaries and the occupancy and operation, for its present
uses, of the real and personal property which each of the Company and its
Subsidiaries owns or leases, and neither the Company nor any Subsidiary or
the professional employees or agents of either (acting in such capacities) is
in violation of any such Approval in any material respect or any terms or
conditions thereof. All such Approvals are in full force and effect, have
been issued to and fully paid for by the holder thereof and no notice or
warning from any Governmental Entity with respect to the suspension,
revocation or termination of any Approval has been, to the Knowledge of the
Company, threatened by any Governmental Entity or issued or given to the
Company or any Subsidiary. No such Approvals will in any way be affected by,
terminate or lapse by reason of the consummation of all or any portion of the
Transaction. There are no physicians (other than radiologists and radiation
oncologists) owning Capital Stock in any Subsidiary, and no physicians own
stock in the Company, except for physician ownership of publicly traded stock
of the Company acquired on terms equally available to the public through
trading on the Nasdaq Stock Market, and no physician owns 5% or more of the
outstanding shares of any class of securities issued by the Company.
4.14 LITIGATION.
Except as set forth on SCHEDULE 4.14 hereto, there is no
Proceeding (by any Governmental Entity or otherwise) of which the Company has
received notice or of which the Company has Knowledge pending against or
affecting the Company, any Subsidiary or the assets, products or business of
any of them or, to the Knowledge of the Company, any basis therefor or threat
thereof. Except as set forth on SCHEDULE 4.14 hereto, neither the Company
nor any Subsidiary is a party or subject to the provisions of any order,
writ, injunction, judgment or decree of any court or other Governmental
Entity. Except as set forth on SCHEDULE 4.14 hereto, there is no Proceeding
by the Company or any Subsidiary currently pending or that the Company or any
Subsidiary currently intends to initiate. There are no Proceedings pending
or, to the Knowledge of the Company, threatened against the Company, any
Subsidiary or any of their respective businesses, assets or products that
seek to enjoin, question the validity of or rescind the Transaction, the
Carlyle Purchase Agreement, the Ancillary Agreements or otherwise prevent the
Company from complying with the terms and provisions of this Agreement, the
Carlyle Purchase Agreement, the Ancillary Agreements or any of such other
agreements. Any and all Liabilities of the Company and its Subsidiaries
under such Proceedings that are probable and subject to reasonable estimation
within the meaning of GAAP are adequately covered (except for standard
deductible amounts) by the existing insurance maintained by the Company or
estimates in accordance with GAAP for the uninsured costs thereof are
reflected in the Financial Statements. No holder of shares of the Capital
Stock of American Health Services Corp. or Maxum Health Corp. (constituent
corporations in the mergers contemplated by the Merger Agreement) that either
were outstanding immediately prior to such mergers made a demand for the
appraisal of such holder's shares pursuant to Section 262 of the Delaware
General Corporation Law.
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4.15 TRUE AND COMPLETE DISCLOSURE.
Taken as a whole, this Agreement, the Carlyle Purchase Agreement,
the Ancillary Agreements, the Exhibits, Schedules, statements and certifications
made or delivered in connection herewith or therewith, do not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements herein or therein not misleading. All financial projections
reflected in the 1998 budget provided by the Company to the Purchaser were
prepared in good faith on the basis of assumptions believed to be reasonable at
the time such projections were prepared.
4.16 TAXES.
(a) All Company Tax Returns have been properly and timely filed
and all such Tax Returns are correct and complete in all material respects.
Each affiliated group with which any of the Company and its Subsidiaries files a
consolidated or combined Tax Return has filed all such Tax Returns that it was
required to file for each taxable period during which any of the Company and its
Subsidiaries was a member of the group. All such consolidated and combined Tax
Returns were correct and complete in all material respects.
(b) All material Taxes due and payable by the Company and/or its
Subsidiaries (whether or not shown on any Tax Return) have been timely paid in
full. All material Taxes owed by any affiliated group with which any of the
Company and its Subsidiaries files a consolidated or combined Tax Return
(whether or not shown on any Tax Return) have been paid for each taxable period
during which any of the Company and the Subsidiaries was a member of the group.
(c) There is no (nor is there any pending request for an)
agreement, waiver or consent providing for an extension of time with respect to
the assessment or collection of, or statute of limitations regarding, any Taxes
or the filing of any Tax Returns that is currently in effect and no power of
attorney granted by or with respect to the Company or any Subsidiary with
respect to any Tax matter is currently in force.
(d) To the Knowledge of the Company, there is no pending audit,
examination or investigation with respect to any Company Tax Returns, nor to
the Knowledge of the Company, is there pending any notice of the initiation
thereof; there is no Proceeding, claim, demand, deficiency or additional
assessment pending or threatened with respect to any Company Tax Returns.
(e) To the Knowledge of the Company and its Subsidiaries, the
Company and its Subsidiaries have withheld all Taxes required to have been
withheld and paid by them on their behalf in connection with amounts paid or
owing to any employee, independent contractor, creditor, stockholder or other
related or unrelated third party, and such withheld Taxes have either been duly
paid to the proper Governmental Entity or set aside in accounts for such
purpose.
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(f) None of the Company and its Subsidiaries (i) has been a
member of any affiliated group filing a consolidated federal income Tax Return
(other than a group the common parent of which is the Company) or (ii) has any
liability for the Taxes of any Person (other than the Company and its
Subsidiaries) under Treas. Reg. Section 1.1502-6 (or any similar provision of
state, local or foreign law), as a transferee or successor, by contract or
otherwise.
(g) The charges, accruals and reserves for Taxes (including
deferred Taxes) currently reflected on the Financial Statements in accordance
with GAAP are adequate to cover all unpaid Taxes accruing or payable by the
Company and its Subsidiaries in respect of taxable periods that end on or
before the Closing Date and for any taxable periods that begin before the
Closing Date and end thereafter to the extent such Taxes are attributable to
the portion of such period ending on the Closing Date.
(h) Neither the Company nor any Subsidiary has agreed,
requested or been requested to make, or is required to make, any adjustment
to taxable income for any taxable period after the Closing under Sections
481(a) or 263A of the Code or any comparable provision of state or foreign
tax laws by reasons of a change in accounting method or otherwise.
(i) There are no Encumbrances (other than Permitted
Encumbrances) on any asset or property of the Company or any Subsidiary
arising out of, connected with or related to any Tax imposed on the Company,
its Subsidiaries or any of their businesses or properties.
(j) The Company is not a party to, is not bound by and has no
obligation (or potential obligation) under any Tax sharing or allocation
agreement.
(k) Neither the Company nor any Subsidiary is a party to any
agreement with an Affiliate relating to a foreign sales corporation (or
"FSC") within the meaning of Section 922 of the Code; or a domestic
international sales corporation (or "DISC") within the meaning of Section 992
of the Code.
(l) Other than the elections made in the Tax Returns provided
to or made available to the Purchaser, no agreement, consent or election for
foreign, federal, state or local tax purposes that would affect or be binding
on the Company or any Subsidiary after the Closing has been filed or entered
into by the Company or any Subsidiary. No consent has been filed with
respect to the Company or any Subsidiary under Section 341(f) of the Code.
(m) SCHEDULE 4.16 lists all federal, state, local and foreign
Tax Returns that have been audited, and indicates those Tax Returns that
currently are the subject of audit, other than (i) Tax Returns relating to
closed years, and (ii) Tax Returns that have been audited where such audit
did not result in any change in any tax due from the Company or any
Subsidiary to any Governmental Entity. Correct and complete copies of all
federal Tax Returns, examination reports and statements of deficiencies
assessed against or agreed to by the Company or any of its Subsidiaries since
June 30, 1996 have been delivered or made available to the Purchaser. Each
of the Company and its Subsidiaries has disclosed on its federal income Tax
Returns all positions taken therein that could reasonably be expected to give
rise to a substantial understatement of federal income Tax within the meaning
of Section 6662 of the Code.
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4.17 ENVIRONMENTAL MATTERS.
(a) For purposes of this Section 4.17, the term "Company"
shall include (i) the Company, (ii) any Affiliates of the Company other than
the Purchaser, (iii) the Business, (iv) all partnerships, joint ventures and
other entities or organizations in which the Company or the Business was at
any time or is a partner, joint venturer, member or participant, and (v) all
predecessor or former corporations, partnerships, joint ventures,
organizations, businesses or other entities, whether in existence as of the
date hereof or at any time prior to the date hereof, the assets or
obligations of which have been acquired or assumed by the Company or the
Business or to which the Company or the Business has succeeded.
(b) The Company and its Subsidiaries: (i) are, and within the
period of all applicable statutes of limitation have been, in compliance in
all material respects with all applicable Environmental Laws PROVIDED, that
the representation and warranty contained in this clause (i) is limited to
the Knowledge of the Company to the extent (but only to the extent) that it
directly applies to real property that the Company has purchased or has
leased from another Person in a transaction other than the acquisition of
such Person (whether by merger or consolidation, stock purchase or exchange,
acquisition of all or substantially all of the assets of such Person or a
similar fundamental transaction); (ii) hold all Environmental Permits (each
of which is in full force and effect) required for any of their current or
intended operations or for any property owned, leased or otherwise operated
by any of them; (iii) are, and within the period of all applicable statutes
of limitation have been, in compliance with all of their Environmental
Permits; and (iv) reasonably believe that each of their Environmental Permits
currently in effect will be renewed effective prior to the expiration of such
Environmental Permit.
(c) Except as set forth on SCHEDULE 4.17, the Company and its
Subsidiaries have not received any notice of alleged, actual or potential
responsibility for, or any inquiry or investigation regarding, any
Environmental Condition. The Company has not received any notice of any
other claim, demand or action by any individual or entity alleging any actual
or threatened injury or damage to any person, property, natural resource or
the environment arising from or relating to any Release or threatened Release
of any Hazardous Materials at, on, under, in, to or from any Facility or any
former Facilities, or in connection with any operations or activities of the
Company or any of its Subsidiaries.
(d) Except as disclosed in SCHEDULE 4.17 or with respect to
such matters as have been fully and finally resolved and as to which there
are to the Knowledge of the Company, no remaining obligations, neither the
Company nor any of its Subsidiaries has entered into or agreed to or is
subject to any consent decree, order or settlement or other agreement in any
judicial, administrative, arbitral or other similar forum relating to
compliance with or Liability under any Environmental Law.
(e) Except as disclosed in SCHEDULE 4.17, Hazardous Materials
have not been transported, disposed of, emitted, discharged or otherwise
Released or threatened to be Released to or at any real property presently or
formerly owned or leased by the Company or any of its Subsidiaries, which
Hazardous Materials are reasonably expected to (i) give rise to Liability of
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the Company or any Subsidiary under any applicable Environmental Law, (ii)
interfere with the Company's or any Subsidiary's continued operations or
(iii) materially impair the fair salable value of any real property owned or
leased by the Company or any Subsidiary.
(f) Except as disclosed in SCHEDULE 4.17, neither the Company
nor any of its Subsidiaries has assumed or retained, by contract or, to the
Knowledge of the Company, by operation of law in connection with the sale or
transfer of any assets or business, Liabilities arising from or associated
with or otherwise in connection with such assets or business of any kind,
fixed or contingent, known or not known, under any applicable Environmental
Law. Neither the Company nor any of its Subsidiaries, to the Knowledge of
the Company, is required to make any capital or other expenditures to comply
with any Environmental Law nor to the Knowledge of the Company is there any
reasonable basis on which any Governmental Entity could take any action that
would require any such capital expenditures.
(g) True, complete and correct copies of the written reports,
and all parts thereof, of all environmental audits or assessments which have
been conducted in respect of any Facility or any former Facility within the
past five (5) years, either by the Company or any attorney, environmental
consultant or engineer or other Person engaged by the Company or any of its
Subsidiaries for such purpose, have been delivered to the Purchaser and a
list of all such reports, audits and assessments and any other similar
report, audit or assessment of which the Company has Knowledge is included on
SCHEDULE 4.17.
4.18 INSURANCE.
Each insurance policy held by or for the benefit of the Company
or any of its Subsidiaries is in full force and effect. Each of the Company
and its Subsidiaries carries, and will continue to carry, insurance with
reputable insurers (except as to self-insurance) with respect to such of
their respective properties and businesses, in such amounts and against such
risks as is customarily maintained by other entities of similar size engaged
in similar businesses (which may include self-insurance in amounts
customarily maintained by companies similarly situated or has been maintained
in the past by the Company and its Subsidiaries). None of such insurance was
obtained through the use of materially false or misleading information or the
failure to provide the insurer with all material information requested in
order to evaluate the liabilities and risks insured. Neither the Company nor
any of its Subsidiaries has received any notice of cancellation or
non-renewal of any insurance policies or binders.
4.19 REAL PROPERTY AND LEASEHOLDS.
(a) To the Knowledge of the Company, each lease agreement and
mortgage to which the Company or any Subsidiary is a party is in full force
and effect in accordance with its terms.
(b) With respect to each parcel of real property owned or
leased by the Company or any of its Subsidiaries:
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(i) The Company or the relevant Subsidiary, as the
case may be, has good and valid title to and/or a valid and subsisting
leasehold interest in each item of real property and leasehold, as
appropriate, free and clear of all mortgages, liens, Encumbrances (except
Permitted Encumbrances), leases, equities, claims, charges, easements,
rights-of-way, covenants, conditions and restrictions, except for liens,
if any, for property taxes not due;
(ii) No officer, director or employee of the Company,
of any Subsidiary or of any Affiliate of the Company, nor any Subsidiary
or Affiliate of the Company, owns directly or indirectly in whole or in
part, any of such real properties or leaseholds;
(iii) Neither the Company nor any Subsidiary is in
default with respect to any material term or condition of any such
mortgage or lease, nor has any event occurred which, through the passage
of time or the giving of notice or both, would constitute a default
thereunder by the Company or any Subsidiary or would cause the
acceleration of any obligation of the Company or any Subsidiary or the
creation of a lien or encumbrance upon any asset of the Company or any
Subsidiary;
(iv) All of the buildings, fixtures and other
improvements described in SCHEDULE 4.19 are in reasonably good operating
condition, have been maintained in accordance with reasonable industry
practices and are adequate to conduct the business of the Company and its
Subsidiaries, as the case may be, as presently conducted; and
(v) Neither the Company nor any Subsidiary has
received any notice or otherwise has Knowledge that the Company or any
such Subsidiary, as the case may be, is in violation of any applicable
building code, zoning ordinance or other law or regulation.
4.20 TANGIBLE ASSETS.
(a) The Company and its Subsidiaries have good and valid title
to or valid and subsisting leasehold interests in all Fixtures and Equipment
having original cost or fair market value in excess of Five Thousand Dollars
($5,000), including all such Fixtures and Equipment reflected in the Company's
most recent balance sheet included in the Financial Statements and all such
Fixtures and Equipment purchased or otherwise acquired by the Company or any
Subsidiary since the date of such Balance Sheet. Except as set forth on
SCHEDULE 4.20, none of such Fixtures and Equipment is subject to any Encumbrance
except for Permitted Encumbrances and Encumbrances which, individually or in the
aggregate, are not substantial in amount and do not materially detract from the
value of the property or assets of the Company and its Subsidiaries taken as a
whole or interfere with the present use of such property or assets (taken as a
whole). The Company and each Subsidiary has in all material respects performed
all the obligations required to be performed by it with respect to all such
Fixtures and Equipment leased by it through the date hereof, except where the
failure to perform would not have a Material Adverse Effect on the Company and
its Subsidiaries, taken as a whole. All such leases are valid, binding and
enforceable with respect to the Company and its Subsidiaries in accordance with
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their terms and are in full force and effect. No default has occurred
thereunder on the part of the Company, any Subsidiary or, to the Knowledge of
the Company, any other party which default would be reasonably likely to have
a Material Adverse Effect on the Company.
(b) The buildings and Fixtures and Equipment of the Company
and its Subsidiaries are in reasonably good operating condition and repair
(except for ordinary wear and tear), with no material defects, are sufficient
for the operation of the business of the Company and its Subsidiaries as
presently conducted and are in conformity, in all material respects, with all
Applicable Laws relating thereto currently in effect, except where the
failure to conform would not have a Material Adverse Effect on the Company.
4.21 CONTRACTS AND COMMITMENTS.
(a) SCHEDULE 4.21 contains a correct and complete list of all
agreements, contracts, Indebtedness, Liabilities and other obligations to
which the Company or any Subsidiary is a party or by which it is bound that
are material to the conduct and operations of its business and properties,
which provide for payments to or by the Company or any Subsidiary in excess
of Five Hundred Thousand Dollars ($500,000) annually, which obligate the
Company or any Subsidiary to share, license or develop any product or
technology or which involve transactions or proposed transactions between the
Company and any Subsidiary, on the one hand, and any officer, director or
Affiliate or Subsidiary, on the other hand (collectively, the "Material
Agreements").
(b) The Company and its Subsidiaries have in all material
respects performed, and are now performing in all material respects, the
obligations under, and are not in default (or by the lapse of time and/or the
giving of notice or otherwise be in default) in respect of, any of the
Material Agreements. Each of the Material Agreements is in full force and
effect and is a valid and enforceable obligation against the Company or a
Subsidiary, as applicable, and, to the Company's Knowledge, the other party
or parties thereto, in accordance with its terms.
(c) "Current Customer" means any Person from whom the Company
or any Subsidiary has recognized revenue since June 1, 1997 or to whom the
Company or any Subsidiary has any obligation to complete work or honor any
contractual warranty or has any obligation or Liabilities. Since June 1,
1997, no Current Customer with respect to a Center Operation has canceled or
terminated any Material Agreement or notified the Company or any Subsidiary
in writing or orally of its intent to cancel or terminate its contract, and
no Current Customer with respect to a Mobile Operation has canceled or
terminated any Material Agreement or notified the Company or any Subsidiary
in writing or orally of its intent to cancel or terminate its contract,
except any such cancellations, terminations or notifications from Current
Customers with respect to Mobile Operations that in the aggregate could not
have a Material Adverse Effect (taking into account revenue generated from
replacement customers) on the Company.
4.22 BOOKS AND RECORDS.
The Company has made and kept (and given the Purchaser access to)
books and records and accounts, which, in reasonable detail, accurately and
fairly reflect the activities of the
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Company and its Subsidiaries, taken as a whole. The minute books of the
Company and each such Subsidiary previously made available to the Purchaser
accurately and adequately reflect all action previously taken by the
stockholders, the Board of Directors and committees of the Board of Directors
and each of its Subsidiaries.
4.23 LABOR MATTERS.
(a) Since June 30, 1992, neither the Company nor any
Subsidiary has or has ever had any employees represented by collective
bargaining agreements. The Company and its Subsidiaries are in compliance in
all material respects with all material Applicable Laws respecting employment
practices, terms and conditions of employment and wages and hours and are not
engaged in any unfair labor practice. There is no unfair labor practice
charge or complaint against the Company or any Subsidiary pending before the
National Labor Relations Board or any other governmental agency arising out
of the activities of the Company or any of its Subsidiaries of which the
Company has received notice or of which the Company has Knowledge, and the
Company has no Knowledge of any facts or information which would give rise
thereto. There is no labor strike or labor disturbance pending or, to the
Knowledge of the Company, threatened against the Company or any of its
Subsidiaries. There is no grievance currently being asserted and neither the
Company nor any Subsidiary has experienced since June 30, 1994 a work
stoppage or other labor difficulty which grievance, work stoppage or other
labor difficulty is reasonably likely to have a Material Adverse Effect on
the Company. No collective bargaining representation petition is pending or,
to the Knowledge of the Company, threatened against the Company or any
Subsidiary.
(b) SCHEDULE 4.23 lists those employees of the Company that
prior to the Closing Date had written employment agreements with the Company
in effect.
4.24 PAYMENTS.
Neither the Company nor any of its Subsidiaries has, directly
or indirectly, paid or delivered any fee, commission or other sum of money or
item of property, however characterized, to any finder, agent, government
official or other party, in the United States or any other country, which is
in any manner related to the business or operations of the Company or its
Subsidiaries and which the Company or any of its Subsidiaries knows or has
reason to believe to have been illegal under any federal, state or local laws
of the United States (including, without limitation the U.S. Foreign Corrupt
Practices Act) or any other country having jurisdiction. Neither the Company
nor any of its Subsidiaries has participated, directly or indirectly, in any
boycotts or other similar practices affecting any of its actual or potential
customers
4.25 INTELLECTUAL PROPERTY.
(a) The Company and its Subsidiaries either own or have valid
licenses or other rights to use all patents, copyrights, trademarks, service
marks, software, databases, data and other technical information used in their
businesses as presently conducted ("Proprietary Rights"), subject to the
limitations contained in the agreements governing the use of the same. SCHEDULE
4.25 sets forth all such Proprietary Rights owned by, used by or licensed to the
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Company or any Subsidiary. There are no limitations contained in such
agreements of the type described in the immediately preceding sentence which,
upon consummation of all or any portion of the Transaction, will materially
alter or materially impair any such rights, breach any such material
agreement with any third party vendor or require payments of additional sums
thereunder. The Company and its Subsidiaries are in compliance in all
material respects with such licenses and agreements. Except as set forth on
SCHEDULE 4.25, there are no pending or, to the Knowledge of the Company,
threatened Proceedings challenging or questioning the validity or
effectiveness of any license or agreement relating to such property or the
right of the Company or any Subsidiary to use, copy, modify or distribute the
same.
(b) No person has a right, other than those set forth on
SCHEDULE 4.25, to receive a royalty or similar payment in respect of any
material Proprietary Rights whether or not pursuant to any contractual
arrangements entered into by the Company or its Subsidiaries.
4.26 SECURITIES OFFERINGS.
(a) Except as set forth on SCHEDULE 4.26, since the
consummation of the merger pursuant to the Merger Agreement, the Company has
not sold any securities other than securities registered pursuant to the
Securities Act.
(b) Neither the Company nor any affiliate (as defined in Rule
501(b) of Regulation D under the Securities Act ("Regulation D")) of the
Company has, directly or through any agent (provided that no representation
is made as to the Purchaser or any person acting on their behalf), (i) sold,
offered for sale, solicited offers to buy or otherwise negotiated in respect
of any security (as defined in the Securities Act) that is or will be
integrated with the offering and sale of the Securities in a manner that
would require the registration of the Securities under the Securities Act or
(ii) engaged in any form of general solicitation or general advertising
(within the meaning of Regulation D) in connection with the offering of the
Securities.
(c) Except as provided in Schedule 4.26(c) neither the Company
nor any Subsidiary is a party to any agreement or commitment that obligates
the Company to register under the Securities Act any of its presently
outstanding securities or any of its securities that hereafter may be issued,
except as contemplated hereby and by the Registration Rights Agreement.
4.27 NO OTHER AGREEMENTS TO SELL THE ASSETS OR THE COMPANY.
Except as contemplated by this Agreement, none of the Company
or any of its Subsidiaries have any legal obligation, absolute or contingent,
to any other person or firm to sell the Capital Stock, material assets or the
business of the Company or any Subsidiary or to effect any merger,
consolidation, liquidation, dissolution, recapitalization or other
reorganization of the Company or any Subsidiary or to enter into any
agreement with respect thereto.
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4.28 NO BROKERS.
Except for Shattuck Hammond Partners Inc., the aggregate fees of
which are Five Hundred Thousand Dollars ($500,000) in connection with the
Transaction, all of which shall be paid by the Company, neither the Company nor
any Subsidiary has employed, nor is any of them subject to the known claim of,
any broker, finder, consultant or other intermediary in connection with all or
any portion of the Transaction (or the negotiations looking toward the
consummation of all or any portion of the Transaction) who might be entitled to
a fee or commission from the Company in connection with all or any portion of
the Transaction (or the negotiations looking toward the consummation of all or
any portion of the Transaction).
4.29 ACCOUNTS AND NOTES RECEIVABLE.
None of the accounts, notes and other receivables owed to the
Company or any Subsidiary as of the date hereof is pledged to any third party.
The reserve for doubtful accounts shown on the Company's most recent balance
sheet included in the Financial Statements is in accordance with GAAP.
4.30 INDEBTEDNESS.
SCHEDULE 4.30 sets forth a true and complete list of all
Indebtedness of the Company or any Subsidiary for borrowed money as of
September 30, 1997.
4.31 TRANSACTIONS WITH AFFILIATES.
Except as set forth in SCHEDULE 4.31 and except for regular
salary payments and fringe benefits under an individual's compensation
package with the Company or any Subsidiary, none of the officers, employees,
directors or other Affiliates of the Company or any Subsidiary or members of
their families is a party to any agreement, understanding, Indebtedness or
proposed transaction with the Company or any Subsidiary or is directly
interested in any Material Agreement with the Company or any Subsidiary.
Neither the Company nor any Subsidiary has guaranteed or assumed any
obligations of their respective officers, directors, employees or other
Affiliates or members of any of their families. To the Company's Knowledge,
none of such Persons has any direct or indirect ownership interest in any
Affiliate or Subsidiary, with any Person with which the Company or any
Subsidiary has a business relationship or with any Person that competes with
the Company or any Subsidiary, other than an interest of less than five
percent (5%) ownership in any publicly traded company that may compete with
the Company or any Subsidiary. For purposes of this Section 4.31, the term
"Affiliates" shall not include the Purchaser.
4.32 NO RESEARCH GRANTS
Neither the Company nor any of its Subsidiaries since inception
has provided any research, educational or study grants of any kind to any
hospital, physician or health care provider.
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4.33 CERTAIN REGULATORY MATTERS.
Neither the Company nor any of its Subsidiaries since inception
has received notice that the Company or any Subsidiary has been, or to the
Company's Knowledge has been, the subject of any investigative proceeding
before any federal or state regulatory authority or the agent of any such
authority, including, without limitation, federal and state health
authorities.
4.34 CERTAIN ADDITIONAL REGULATORY MATTERS.
Neither the Company nor any Subsidiary, nor the officers,
directors or managing employees, as that term is defined in 42 C.F.R. Section
1001.1001(a)(1), nor to the Knowledge of the Company or any Subsidiary, the
other employees or agents of any of the Company or any Subsidiary have
engaged in any activities which are prohibited under criminal law, or are
cause for civil penalties or mandatory or permissive exclusion from Medicare
or Medicaid, or any other State Health Care Program or Federal Health Care
Program (as defined in Section 4.35 below) under Sections 1320a-7, 1320a-7a,
1320a-7b or 1395nn of Title 42 of the United States Code, the federal
Civilian Health and Medical Plan of the Uniformed Services statute
("CHAMPUS"), or the regulations promulgated pursuant to such statutes or
regulations or related state or local statutes or which are prohibited by any
private accrediting organization from which the Company or any of its
Subsidiaries seeks accreditation or by generally recognized professional
standards of care or conduct, including, but not limited to, the following
activities:
(a) Knowingly and willfully making or causing to be made a
false statement or representation of a material fact in any application for
any benefit or payment;
(b) Knowingly and willfully making or causing to be made any
false statement or representation of a material fact for use in determining
rights to any benefit or payment;
(c) Presenting or causing to be presented a claim for
reimbursement under CHAMPUS, Medicare, Medicaid or any other State Health
Care Program or Federal Health Care Program that is (i) for an item or
service that the Person presenting or causing to be presented knows or should
know was not provided as claimed, or (ii) for an item or service that the
Person presenting knows or should know that the claim is false or fraudulent;
(d) Knowingly and willfully offering, paying, soliciting or
receiving any remuneration (including any kickback, bribe or rebate),
directly or indirectly, overtly or covertly, in cash or in kind (i) in return
for referring, or to induce the referral of, an individual to a Person for
the furnishing or arranging for the furnishing of any item or service for
which payment may be made in whole or in part by CHAMPUS, Medicare or
Medicaid or any other State Health Care Program or any Federal Health Care
Program, or (ii) in return for, or to induce the purchase, lease or order or
the arranging for or recommending of the purchase, lease or order of, any
good, facility, service or item for which payment may be made in whole or in
party by CHAMPUS, Medicare or Medicaid or any other State Health Care Program
or any Federal Health Care Program; or
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(e) Knowingly and willfully making or causing to be made or
inducing or seeking to induce the making of any false statement or
representation (or omitting to state a material fact required to be stated
therein or necessary to make the statements contained therein not misleading)
or a material fact with respect to (i) the conditions or operations of a
facility in order that the facility may qualify for CHAMPUS, Medicare,
Medicaid or any other State Health Care Program certification or any Federal
Health Care Program certification, or (ii) information required to be
provided under Section 1124(A) of the Social Security Act ("SSA") (42 U.S.C.
Section 1320a-3).
4.35 MEDICARE/MEDICAID PARTICIPATION.
Neither (a) the Company nor any other Person who after the
Closing will have a direct or indirect ownership interest of 5% or more (as
those terms are defined in 42 C.F.R. Section 1001.1001(a)(2)) in the Company
or any Subsidiary, or who will have an ownership or control interest (as
defined in SSA Section 1124(a)(3) or any regulations promulgated thereunder)
in the Company or any Subsidiary, or who will be an officer, director or
managing employee (as defined in 42 C.F.R. Section 1001.1001(a)(1)) of the
Company or any Subsidiary, or, to the Knowledge of the Company and any
Subsidiary, any other employee or agent thereof, nor (b) any Person with any
relationship with such entity (including, without limitation, a parent
company of or partner in a Subsidiary) who after the Closing will have an
indirect ownership interest of 5% or more (as that term is defined in 42
C.F.R. Section 1001.1001(a)(2)) in the Company or any Subsidiary: (i) has
had a civil monetary penalty assessed against it under Section 1128A of the
SSA or any regulations promulgated thereunder; (ii) has been excluded from
participation under Medicare, Medicaid or a state health care program as
defined in SSA Section 1128(h) or any regulations promulgated thereunder
("State Health Care Program") or a federal health care program as defined in
SSA Section 1128B(f) ("Federal Health Care Program"); or (iii) has been
convicted (as that term is defined in 42 C.F.R. Section 1001.2) of any of the
following categories of offenses as described in SSA Section 1128(a) and
(b)(1), (2), (3) or any regulations promulgated thereunder:
(A) Criminal offenses relating to the delivery of an
item or service under Medicare, Medicaid or any other State Health Care
Program or Federal Health Care Program;
(B) Criminal offenses under federal or state law
relating to patient neglect or abuse in connection with the delivery of a
health care item or service;
(C) Criminal offenses under federal or state law
relating to fraud, theft, embezzlement, breach of fiduciary responsibility
or other financial misconduct in connection with the delivery of a health
care item or service or with respect to any act or omission in a program
operated by or financed in whole or in part by any federal, state or local
governmental agency;
(D) Federal or state laws relating to the interference
with or obstruction of any investigation into any criminal offense
described in (A) through (C) above; or
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(E) criminal offenses under federal or state law
relating to the unlawful manufacture, distribution, prescription or
dispensing of a controlled substance.
4.36 COMPLIANCE WITH MEDICARE/MEDICAID AND INSURANCE PROGRAMS
(a) The Company and its subsidiaries are eligible to receive
payments with respect to operations of their respective business under Title
XVIII of the SSA and under Title XIX of the SSA. The Company and its
Subsidiaries have timely filed (except where the failure to timely file would
not reasonably be expected to have a Material Adverse Effect on the Company) all
claims and reports required to be filed with respect to the operations of their
respective businesses in connection with all state Medicaid and federal Medicare
programs, which claims and reports are complete and correct. The failure to
timely file a medical claim or report resulting only in a late payment will not
for these purposes be deemed adverse to the Company or its Subsidiaries. There
are no actions, appeals or investigations pending or, to the best of the
Company's and its Subsidiaries' Knowledge, threatened before any entity,
commission, board or agency, including an intermediary or carrier or the
administrator of the Health Care Financing Administration, with respect to any
Medicare or Medicaid claims or reports filed by the Company or its Subsidiaries
with respect to the operations of their respective businesses on or before the
date hereof or program compliance matters, which would reasonably be expected to
have a Material Adverse Effect on the Company.
(b) Other than regularly scheduled audits and reviews, no
validation review, peer review or program integrity review related to the
operations of the Company or its Subsidiaries' respective businesses has been
conducted by any entity, commission, board or agency in connection with the
Medicare or Medicaid program, and to the best of the Company's and its
Subsidiaries' Knowledge, no such reviews are scheduled, pending or threatened
against or affecting such businesses.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
The Purchaser hereby represents and warrants to the Company, with
respect to itself only, as follows:
5.1 ORGANIZATION OF THE PURCHASER.
The Purchaser is duly formed and validly existing and in good
standing under the laws of its jurisdiction of formation and has full power and
authority to carry on its business as currently being conducted.
5.2 AUTHORIZATION.
The Purchaser has full power and authority to execute and deliver
this Agreement and the Ancillary Agreements and to consummate the Transaction.
The execution and delivery by the Purchaser of this Agreement and the Ancillary
Agreements and the consummation by it of the Transaction have been duly
authorized by all necessary action of the Purchaser. This
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Agreement and each Ancillary Agreement has been duly executed and delivered
by the Purchaser and constitutes a valid and legally binding obligation of
the Purchaser, enforceable against the Purchaser in accordance with its
terms, except that such enforceability may be limited by (i) applicable
bankruptcy, insolvency, reorganization, moratorium and similar laws affecting
creditors' rights generally and (ii) general equitable principles (regardless
of whether such enforceability is considered in a proceeding in equity or at
law).
5.3 NONCONTRAVENTION.
The execution and delivery by the Purchaser of this Agreement
and the Ancillary Agreements and the consummation by it of the Transaction do
not and will not (i) conflict with or result in a violation of any provision
of the operating agreement or any other governing agreement of the Purchaser,
(ii) conflict with or result in a violation of any provision of, constitute
(with or without the giving of notice or the passage of time or both) a
default under or give rise (with or without the giving of notice or the
passage of time or both) to any right of termination, cancellation, or
acceleration under any bond, debenture, note, mortgage, indenture, lease,
agreement or other instrument or obligation to which the Purchaser is a party
or by which the Purchaser or any of its properties may be bound, (iii) result
in the creation or imposition of any Encumbrance upon the properties of the
Purchaser, or (iv) violate any Applicable Law binding upon the Purchaser,
except, in the case of clauses (ii), (iii) and (iv) above, for any such
conflicts, violations, defaults, terminations, cancellations, accelerations
or Encumbrances which would not, individually or in the aggregate, have a
material adverse effect on the ability of the Purchaser to consummate the
Transaction.
5.4 CONSENTS AND APPEALS.
No consent, approval, order or authorization of or declaration,
filing or registration with any Governmental Entity is required to be
obtained or made by the Purchaser in connection with the execution and
delivery by the Purchaser of this Agreement and the Ancillary Agreements or
the consummation of the Transaction other than (i) any filings required under
Section 13 of the Exchange Act and Rule 13d-1 under the Exchange Act (ii)
compliance with applicable provisions of the HSR Act, as amended and (iii)
such consents, approvals, orders or authorization which, if not made, would
not, individually or in the aggregate, have a material adverse effect on the
ability of the Purchaser to consummate the Transaction.
5.5 PURCHASE FOR INVESTMENT.
(a) The Purchaser has been furnished with all information that
it has requested for the purpose of evaluating the proposed acquisition of
the Securities pursuant hereto, and the Purchaser has had an opportunity to
ask questions of and receive answers from the Company regarding the Company
and its Business, assets, results of operations, financial condition and
prospects and the terms and conditions of the issuance of the Securities.
(b) The Purchaser is acquiring the Securities solely by and for
its own account, for investment purposes only and not for the purpose of resale
or distribution. The Purchaser has no contract, undertaking, agreement or
arrangement with any Person to sell,
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transfer or pledge to such Person or anyone else any Securities and the
Purchaser has no present plans or intentions to enter into any such contract,
undertaking or arrangement, except for a possible transfer or transfers to
Affiliates.
(c) The Purchaser acknowledges and understands that (i) no
registration statement relating to the Securities, the Series C Conversion
Shares or the Warrant Shares has been or is to be filed with the Commission
under the Securities Act or pursuant to the securities laws of any state;
(ii) the Securities, the Series C Conversion Shares, the Series D Preferred
Stock, the Series D Conversion Shares and the Warrant Shares cannot be sold
or transferred without compliance with the registration provisions of the
Securities Act or compliance with exemptions, if any, available thereunder
and without the delivery to the Company by reputable counsel of such
counsel's opinion, in form and substance reasonably satisfactory to the
Company, to the effect that such sale or transfer is exempt from such
registration provisions; (iii) the certificates representing the respective
Securities will include a legend thereon that refers to the foregoing; and
(iv) the Company has no obligation or intention to register the Securities,
the Series C Conversion Shares, the Series D Preferred Stock, the Series D
Conversion Shares or the Warrant Shares under any federal or state securities
act or law, except to the extent, in each case, that the terms of the
Registration Rights Agreement shall otherwise provide.
(d) The Purchaser (i) is an "accredited investor" as defined
in Rule 501 of Regulation D under the Securities Act; (ii) has such knowledge
and experience in financial and business matters in general that it has the
capacity to evaluate the merits and risks of an investment in the Securities
and to protect its own interest in connection with an investment in the
Securities; (iii) has such a financial condition that it has no need for
liquidity with respect to its investment in the Securities to satisfy any
existing or contemplated undertaking, obligation or Indebtedness; and (iv) is
able to bear the economic risk of its investment in the Securities for an
indefinite period of time.
5.6 NO BROKERS.
The Purchaser has not employed, and is not subject to the known
claim of, any broker, finder, consultant or other intermediary in connection
with all or any portion of the Transaction (or the negotiations looking
toward the consummation of all or any portion of the Transaction) who might
be entitled to a fee or commission in connection with all or any portion of
the Transaction (or the negotiations looking toward the consummation of all
or any portion of the Transaction).
5.7 NO AGREEMENTS.
Such Person has not entered into any agreement or arrangement
with respect to the disposition or voting of or exercise of any other rights
with respect to any Capital Stock of the Company with any Person who is not
an Affiliate of such Person (which shall in no event include Carlyle).
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ARTICLE VI
COVENANTS
6.1 BEST EFFORTS.
The Company shall comply with the Carlyle Purchase Agreement
and the Credit Facility through and including the Second Closing.
6.2 RESTRICTIVE AGREEMENTS PROHIBITED.
Through and including the Second Closing, the Company shall not
become a party to any agreement which by its terms violates the terms of the
Carlyle Purchase Agreement, the terms of the Series B Preferred Stock as set
forth in the Series B Certificate of Designation, the terms of the Series C
Preferred Stock as set forth in the Series C Certificate of Designation, the
terms of the Series D Preferred Stock as set forth in the Series D
Certificate of Designation, or the terms of the Carlyle Warrants. From and
after the Second Closing, the Company shall not become a party to any
agreement which by its terms violates the terms of the Series C Preferred
Stock as set forth in the Series C Certificate of Designation or the terms of
the Series D Preferred Stock as set forth in the Series D Certificate of
Designation.
6.3 CONTINUING OPERATIONS.
From and after the Closing Date, the Company shall, and shall
use its best efforts to cause each Subsidiary to, use all commercially
reasonable efforts to operate its business in a prudent fashion and in such
a fashion as is not likely to result in a Material Adverse Effect on the
Company; PROVIDED, HOWEVER, that the Company shall not be liable to the
Purchaser for violation of this Section 6.3 in connection with any action or
operation of the Company that those members of the Board of Directors who
were elected by the Purchaser (as provided in Section 6.13 of this Agreement)
voted to approve, adopt or ratify (if such action or operation was voted upon
by the Board of Directors), unless the information provided to the Board of
Directors in connection with its vote upon such action or operation failed to
contain all information that a reasonable person would deem material in
considering such action or operation.
6.4 FINANCIAL STATEMENTS AND INFORMATION.
(a) For so long as GE owns shares of Series C Preferred Stock
and Series A Preferred Stock with a total liquidation preference, taken as a
whole, at least equal to 25% of the total liquidation preference of the shares
of Series C Preferred Stock and Series A Preferred Stock outstanding on the
Closing Date, the Company shall furnish to the Purchaser:
(i) MONTHLY REPORTS. Within thirty (30) days following the
end of each calendar month, a management report for the preceding calendar
month summarizing the Company's operating and financial performance during
such preceding calendar month and including, without limitation, an
unaudited income statement, an unaudited balance sheet and an unaudited
statement of cash flows for such preceding calendar month and a narrative
description of any event, condition or change in condition
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that had, or is likely to have, a Material Adverse Effect on the Company
(but such reports need only be furnished if the Purchaser (and any
Affiliate of the Purchaser who is to receive such reports) shall have
executed and delivered to the Company an appropriate confidentiality
agreement reasonably satisfactory to the Company.
(ii) QUARTERLY FINANCIAL STATEMENTS. As soon as available
and in any event within sixty (60) days after the end of each of the first
three (3) fiscal quarterly periods of each Fiscal Year, the Company's
quarterly report on Form 10-Q as filed with the Commission.
(iii) ANNUAL FINANCIAL STATEMENTS. As soon as available
and in any event within one hundred twenty (120) days after the end of each
Fiscal Year, the Company's Annual Report on Form 10-K and related Annual
Report to Shareholders as filed with the Commission.
(iv) SEC REPORTS; MAILINGS TO STOCKHOLDERS. Promptly after
sending or making available or filing of the same, copies of all
registration statements, proxy statements, financial statements and reports
on Forms 10-K, 10-Q and 8-K (or any comparable successor form), if any,
which the Company or any of its Subsidiaries shall file with the Commission
or any national securities exchange. In addition, (A) at the same time
that the Company makes a mailing to its stockholders generally and (B)
promptly after the Company issues a press release, the Company shall
provide a copy of the same to the Purchaser.
(v) NOTICE OF DEFAULT OR CLAIMED DEFAULT. Promptly upon
(and in any event within five (5) business days following) any officer of
the Company obtaining Knowledge (A) of any condition or event which
constitutes an event of default or default (including, without limitation,
by way of cross-default) under any Indebtedness having a principal amount
of at least $5 million, (B) that the holder of any Indebtedness has given
any written notice or taken any other action with respect to a claimed
condition or event which constitutes such an event of default or default or
(C) that any Person has given any written notice to the Company or any of
its Subsidiaries or taken any other action with respect to a claimed
default under an agreement (other than Indebtedness included in clause (A)
of this Section 6.4(a)(v)) or other obligation having total consideration
to the parties of at least $1 million, an officer's certificate describing
the same and the period of existence thereof and what action the Company
has taken, is taking and proposes to take with respect thereto.
(vi) BANKRUPTCY. Promptly upon receiving notice of any
Person's seeking to obtain or threatening to seek to obtain a decree or
order for relief with respect to the Company or any of its Subsidiaries in
an involuntary case under any applicable bankruptcy, insolvency or other
similar law now or hereafter in effect, a written notice thereof specifying
what action the Company or such Subsidiary is taking or proposes to take
with respect thereto.
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(vii) ADDITIONAL INFORMATION. With reasonable
promptness, such other information, including financial statements and
computations, relating to the performance of the provisions of this
Agreement or the affairs of the Company or any of its Subsidiaries as the
Purchaser may from time to time reasonably request.
(b) The Company will furnish to the Purchaser, at the time it
furnishes each set of financial statements pursuant to Section 6.4(a)(ii) or
(iii) above, an officer's certificate to the effect that no event of default
under any Indebtedness has occurred and is continuing (or, if any such event of
default has occurred and is continuing, describing the same in reasonable
detail, the period of existence thereof and the action that the Company has
taken and proposes to take with respect thereto).
(c) The Company will keep at its principal executive offices the
books, accounts and records of the Company and cause the same to be available
for inspection at said offices during normal business hours by the Purchaser or
by any prospective purchaser of any of the Securities from either the Purchaser
or any Affiliate of the Purchaser (other than such a purchaser proposing to
purchase pursuant to a valid registration statement or pursuant to Rule 144
promulgated under the Securities Act). The Purchaser may, at its option and its
own expense, conduct internal audits of the books, records and accounts of the
Company. Audits may be on either a continuous or periodic basis or both and may
be conducted by employees of the Purchaser or by independent auditors or other
consultants retained by the Purchaser. The Company shall make available to the
Purchaser such information and financial statements in addition to the foregoing
as shall be required by the Purchaser in connection with the preparation of
registration statements, current and periodic reports, proxy statements, Tax
Returns and other documents required to be filed under Applicable Law and shall
cooperate in the preparation of any such documents.
6.5 PRESS RELEASES.
Except as may be required by Applicable Law or by the rules of
any national securities exchange, neither the Purchaser nor the Company shall
issue any press release with respect to this Agreement or the Transaction
without the prior consent of the other party hereto (which consent shall not be
unreasonably withheld under the circumstances). Any such press release required
by Applicable Law or by the rules of any national securities exchange shall only
be made after reasonable notice to the other party as to the form and content of
such press release.
6.6 NOTIFICATION OF CERTAIN MATTERS.
The Company shall give prompt notice to the Purchaser, and the
Purchaser shall give prompt notice to the Company, of (i) the occurrence or
failure to occur of any event which occurrence or failure causes any
representation or warranty contained in this Agreement to be untrue or
inaccurate in any material respect at any time from and including the date
hereof through the time at which such representation or warranty ceases to
survive pursuant to Section 8.1 hereof, and (ii) any material failure of the
Company or the Purchaser, as the case may be, to comply with or satisfy any
covenant, condition or agreement to be complied with or satisfied by
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it hereunder, and each party shall use all reasonable efforts to remedy such
failure. In addition, the Company shall give prompt notice to the Purchaser
of any developments that could reasonably be expected to have a Material
Adverse Effect on the Company.
6.7 LIABILITY INSURANCE.
For so long as GE owns shares of Series C Preferred Stock and
Series A Preferred Stock with a total liquidation preference, taken as a
whole, at least equal to 25% of the total liquidation preference of the
shares of Series C Preferred Stock and Series A Preferred Stock outstanding
on the Closing Date, the Company shall ensure that each person serving on the
Board of Directors on and after the Closing Date shall receive the same
liability insurance coverage as a member of the Board of Directors receives
as of the date hereof (including coverage for liabilities arising before the
date of taking office to the extent arising from such person's status as a
prospective member of the Board of Directors) and that such policies shall be
in full force and effect in accordance with their terms as of the Closing
Date.
6.8 CONVERSION STOCK.
The Company shall at all times reserve and keep available out
of its authorized but unissued shares of Common Stock and preferred stock,
par value $.001 per share, solely for the purpose of effecting the conversion
of shares of Series B Preferred Stock and Series C Preferred Stock and the
issuance of Common Stock in respect of the Warrants and the Carlyle Warrants,
the full number of whole shares of Common Stock and Series D Preferred Stock
then deliverable upon (a) the conversion of all shares of Series B Preferred
Stock and Series C Preferred Stock then outstanding, (b) the issuance of
Common Stock in respect of the Warrants and the Carlyle Warrants, and (c) if
any Series D Preferred Stock is then outstanding, the full number of whole
shares of Common Stock then deliverable upon the conversion of all shares of
Series D Preferred Stock then outstanding. The Company shall take at all
times such corporate action as shall be necessary in order that the Company
may validly and legally issue fully paid and non-assessable shares of Common
Stock or Series D Preferred Stock (as the case may be) upon the conversion of
shares of Series B Preferred Stock, Series C Preferred Stock, and Series D
Preferred Stock and the exercise of the then outstanding Warrants and Carlyle
Warrants. If at any time the number of authorized but unissued shares of
Common Stock or Series D Preferred Stock shall not be sufficient to effect
the conversion of all then outstanding shares of the Series B Preferred
Stock, Series C Preferred Stock, and Series D Preferred Stock and the
exercise of all the then outstanding Warrants and Carlyle Warrants, in
addition to such other remedies as shall be available to the holders of the
Series B Preferred Stock, Series C Preferred Stock, and Series D Preferred
Stock, the Company shall forthwith take such corporate action as may be
necessary to increase its authorized but unissued shares of Common Stock or
Series D Preferred Stock to such numbers of shares as shall be sufficient for
such purpose, including but not limited to promptly calling and holding a
meeting of the Company's stockholders, at which the Company's stockholders
shall vote on a proposed amendment to the Certificate of Incorporation that
would so increase the number of authorized shares of Common Stock or
preferred stock, par value $.001 per share, as appropriate, a favorable vote
for which amendment shall have been recommended to the Company's stockholders
by the Board of Directors, pursuant to a duly and
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validly adopted resolution of the Board of Directors setting forth the
amendment proposed and declaring its advisability, all in accordance with
Section 242 of the Delaware General Corporation Law; and, in case of an
increase in the number of authorized shares, of such preferred stock, the
Board of Directors shall promptly cause to become effective a certificate of
increase pursuant to Section 151 of the Delaware General Corporation Law.
6.9 CERTAIN REGULATORY MATTERS.
(a) The operations of the Company and its Subsidiaries will be
conducted in compliance with all material Applicable Laws (material
Applicable Laws includes, without limitation, all Applicable Laws relating to
health care, the health care industry and the provision of health care
services, third party reimbursement (including Medicare and Medicaid), public
health and safety and wrongful death and medical malpractice). In addition
to, and without limiting the generality of the foregoing, the Company shall
adopt and implement a compliance plan adequate to assure such compliance.
The compliance plan shall include all material elements of an effective
program to prevent and detect violations of law as defined in Commentary 3(k)
to Section 8A1.2 of the Federal Sentencing Guidelines.
(b) Without limiting the generality of the foregoing, the
Company and all Affiliates shall comply in all material respects with all
lawful directives, orders, instructions, bulletins and other announcements
received from third party payors and their agents (including, without
limitation, Medicare carriers and fiscal intermediaries) regarding
participation in third party payment programs, including, without limitation,
preparation and submission of claims for reimbursement. Nothing in this
Section 6.9 shall be construed as or is intended to create any third party
beneficiaries.
6.10 EMPLOYMENT ARRANGEMENTS.
(a) The Company will keep in effect following the First
Closing the employment agreements with the employees set forth in SCHEDULE
4.23, on the same terms and conditions contained in such employment
agreements prior to the First Closing Date; provided, however, that such
employment agreements shall be modified so that none of (i) the Transaction,
(ii) any conversion of Series B Preferred Stock or Series C Preferred Stock
acquired hereunder or under the GE Purchase Agreement into shares of Series D
Preferred Stock or Common Stock , (iii) any conversion of shares of Series D
Preferred Stock into Common Stock, or (iv) any change in the membership, size
or composition of the Board of Directors incident to the transaction or such
conversions, shall trigger or constitute a change of control or otherwise
give any party to such employment agreements any right to receive any payment
(or any acceleration thereof) or protections whatsoever.
(b) Following the First Closing, the Company and the Purchaser
will review the terms and conditions of the bonus plan currently in effect at
the Company to determine whether any changes should be made to such bonus
plan.
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6.11 TRANSACTIONS WITH AFFILIATES.
For so long as GE owns shares of Series C Preferred Stock and
Series A Preferred Stock with a total liquidation preference, taken as a
whole, at least equal to 25% of the total liquidation preference of the
shares of Series C Preferred Stock and Series A Preferred Stock outstanding
on the Closing Date, the Company covenants and agrees that it will not, and
will not permit any of its Subsidiaries to, directly or indirectly, engage in
any transaction with any Affiliate of the Company, including, without
limitation, the purchase, sale or exchange of assets or the rendering of any
service, except: (a) transactions with Affiliates of the Company that
involve consideration or payments in the aggregate of less than $5,000; (b)
transactions with Affiliates of the Company that are approved by the Board of
Directors; and (c) transactions with Affiliates of the Company in the
ordinary course of business and pursuant to the reasonable requirements of
the Company's or such Subsidiary's business and upon fair and reasonable
terms that are no less favorable to the Company or such Subsidiary, as the
case may be, than those which might be obtained in an arm's-length
transaction at the time from a Person which is not such an Affiliate.
6.12 STOCKHOLDER APPROVAL OF CERTAIN ACTIONS.
Without limitation of the rights, restrictions and protections
contained in the Series C Certificate of Designation or otherwise available
to holders of shares of the Series C Preferred Stock, for so long as the
Purchaser, any Affiliate of the Purchaser, or the Initial Purchaser and any
such Affiliate, taken as a whole, owns or own at least thirty-three percent
(33%) in total liquidation preference, taken as a whole, of (i) the
outstanding shares of Series C Preferred Stock and (ii) the outstanding
shares of Series A Preferred Stock, the Company shall not take, and shall
cause its Subsidiaries not to take, any of the following actions without the
affirmative vote of holders of at least sixty-seven percent (67%) of the
shares of the Series C Preferred Stock then outstanding:
(a) Alter, change or amend (by merger or otherwise) any of the
rights, preferences and privileges of the Series B Preferred Stock, the
Series C Preferred Stock or any other class of Capital Stock or the terms or
provisions of any Option or Convertible Security;
(b) Effect or enter into any transaction or event that results
or could reasonably be expected to result, directly or indirectly, in a
Special Corporate Event with respect to the Company or any Subsidiary;
(c) Initiate any Liquidating Event with respect to the Company
or any Subsidiary;
(d) Amend, restate, alter, modify or repeal (by merger or
otherwise) the Certificate of Incorporation or the Amended Bylaws of the
Company, including, without limitation, amending, restating, modifying or
repealing (by merger or otherwise) any certificate of designation or
preferences (as in effect from time to time) relating to the Series A
Preferred Stock, the Series B Preferred Stock, the Series C Preferred Stock
or the Series D Preferred Stock, including, without limitation, the filing by
the Company of a certificate with the Secretary of
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State of the State of Delaware, pursuant to Section 151(g) of the Delaware
General Corporation Law, setting forth a resolution or resolutions adopted by
the Board of Directors of the Company that none of the authorized shares of
Series D Preferred Stock are outstanding and that none will be issued subject
to the Series D Certificate of Designation, (provided however, that upon any
upon any Type A Conversion pursuant to Section 5 of the Series B Certificate
of Designation, the Company shall immediately file a certificate with the
Secretary of State of the State of Delaware, pursuant to Section 151(g) of
the Delaware General Corporation Law, setting forth a resolution or
resolutions adopted by the Board of Directors of the Company that none of the
authorized shares of Series D Preferred Stock are outstanding and that none
will be issued subject to the Series D Certificate of Designation.);
(e) Change the number of directors of the Company to a number
less than eight (8) or more than nine (9) or the manner in which the
directors are selected, except as provided in the Certificate of
Incorporation, Amended Bylaws, Series B Certificate of Designation, Series C
Certificate of Designation and Series D Certificate of Designation;
(f) Incur any Indebtedness, in the aggregate with respect to
the Company and its Subsidiaries, in excess of $15 million in any Fiscal
Year; PROVIDED, HOWEVER, that this provision shall not apply to draw-downs
under any credit facility as to which a credit agreement had been executed
and delivered on or prior to the date hereof;
(g) Become a party to Operating Leases during any Fiscal Year
with respect to which the present value of all payments due during the term
of such Operating Leases in the aggregate (determined using a discount rate
of 10%) exceed $15 million;
(h) Create, authorize or issue any shares of Series B
Preferred Stock or any class or series of Senior Securities, Parity
Securities, Supervoting Securities or shares of any such class or series;
(i) Reclassify any authorized stock of the Company into Series
B Preferred Stock or any class or series of Senior Securities, Parity
Securities, Supervoting Securities or shares of any such class or series;
(j) Increase or decrease the authorized number of shares of
Series B Preferred Stock, Series D Preferred Stock or any class or series of
Senior Securities, Parity Securities, Supervoting Securities or shares of any
such class or series;
(k) Issue any equity security below either the then current
Market Price (without deduction for any underwriters' discount) or the then
applicable Conversion Price of the Series B Preferred Stock (as defined in
the Series B Certificate of Designation), other than for (i) management stock
options currently authorized and available for grant for not more than Three
Hundred Thousand (300,000) shares of Common Stock in the aggregate, in which
Senior Management of the Company shall not participate, (ii) management stock
options exercisable at not less than the then-applicable Conversion Price per
share of Common Stock issued after October 14, 1997, exercisable for not more
than Five Hundred Thousand (500,000) shares of Common Stock in the aggregate,
in which only Senior Management of the Company shall
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participate, and (iii) the Common Stock underlying such management stock
options and other stock options outstanding as of October 14, 1997;
(l) Declare or pay any dividend or make any distribution
(including, without limitation, by way of redemption, purchase or other
acquisition) with respect to shares of Capital Stock or any securities
convertible into or exercisable, redeemable or exchangeable for any share of
Capital Stock of the Company or any Subsidiary (including, without
limitation, any Option or Convertible Security) directly or indirectly,
whether in cash, obligations or shares of the Company or other property;
(m) Acquire, in one or a series of related transactions, any
equity ownership interest or interests of any Person, where the aggregate
consideration payable in connection with such acquisition (including, without
limitation, cash consideration, the fair market value of any securities and
the net present value of any deferred consideration) is at least $15 million;
(n) Acquire, in one or a series of related transactions, any
asset or assets of any Person, where the aggregate consideration payable in
connection with such acquisition (including, without limitation, cash
consideration, the fair market value of any securities and the net present
value of any deferred consideration) is equal to or greater than $15 million;
PROVIDED, HOWEVER, that this provision shall not apply to Capital
Expenditures made by the Company in the Ordinary Course of Business;
(o) Merge or consolidate with any Person, or permit any other
Person to merge into it where: (i) the stockholders of the Company
immediately prior to the consummation of such merger or consolidation shall,
immediately after the consummation of such merger or consolidation, hold
securities possessing more than 50% of both the total voting power of and the
beneficial ownership interests in the surviving entity of such merger or
consolidation and (ii) the equity holders of such other Person immediately
prior to the consummation of such transaction shall receive (directly or
indirectly) aggregate consideration payable in connection with such
transaction (including without limitation cash consideration, the fair market
value of any securities and the net present value of any deferred
consideration) equal to or greater than $15 million;
(p) Cause or permit any Subsidiary to merge or consolidate
with any other Person (other than the Company or a wholly-owned Subsidiary),
or cause or permit any other Person to merge into it, where: (i) the
stockholders of such Subsidiary immediately prior to the consummation of such
merger or consolidation shall, immediately after the consummation of such
merger or consolidation, hold securities possessing more than 50% of both the
total voting power of and the beneficial ownership interests in the surviving
entity of such merger or consolidation and (ii) the equity holders of the
subject Person immediately prior to the consummation of such transaction
shall receive (directly or indirectly) aggregate consideration payable in
connection with such transaction (including without limitation cash
consideration, the fair market value of any securities and the net present
value of any deferred consideration) equal to or greater than $15 million;
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(q) Substantially and materially engage in, either through
acquisition or internal development, any business other than the Business;
(r) Make or permit any of its Subsidiaries to make Capital
Expenditures in any Fiscal Year in excess, in the aggregate, of two percent
(2%) above the approved Capital Budget Plan for such Fiscal Year unless such
Capital Expenditure is approved by the Executive Committee of the Board of
Directors or a Supermajority Vote of the Board of Directors;
(s) (i) Sell, transfer, convey, lease or dispose of, outside
the Ordinary Course of Business, any assets or properties of the Company or
any Subsidiary, whether now or hereafter acquired, in any transaction or
transactions, if (X) the aggregate consideration payable in connection with
any single such transaction (including, without limitation, cash
consideration, the fair market value of any securities and the net present
value of any deferred consideration), is greater than $5 million or (Y) the
aggregate consideration payable in connection with all such transactions
(including, without limitation, cash consideration, the fair market value of
any securities and the net present value of any deferred consideration),
consummated after the Closing Date, taken as a whole, is or would become as a
result of such transaction greater than $20 million; (ii) undergo or cause or
permit any Subsidiary to undergo a reorganization or recapitalization; (iii)
merge or consolidate with any Person, or permit any other Person to merge
into it, where the stockholders of the Company immediately prior to the
consummation of such merger or consolidation shall, immediately after the
consummation of such merger or consolidation, hold securities possessing 50%
or less of either the total voting power of or the beneficial ownership
interests in the surviving entity of such merger or consolidation; (iv) cause
or permit any Subsidiary to merge or consolidate with any other Person (other
than the Company or a wholly-owned Subsidiary of the Company), or cause or
permit any other Person to merge into such Subsidiary, where the stockholders
of such Subsidiary immediately prior to the consummation of such merger or
consolidation shall, immediately after the consummation of such merger or
consolidation, hold 50% or less of either the total voting power of or the
beneficial ownership interests in the surviving entity of such merger or
consolidation, if (X) the value of the assets of such Subsidiary is greater
than $5 million or (Y) the aggregate value of the assets of all such
Subsidiaries with respect to all such mergers or consolidations consummated
after the Closing Date, taken as a whole, and including such transaction, is
greater than $20 million;
(t) Permit any Subsidiary to issue or sell any share of
Capital Stock, Option or Convertible Security; PROVIDED, HOWEVER, that the
Company may form a new Subsidiary not all of the equity securities of which
need be owned directly or indirectly by the Company (a "Partial Subsidiary"),
but only if (i) at the time of creation of such Partial Subsidiary, such
Partial Subsidiary is designated as such in a written notice to the
Purchaser, and, (ii) cumulatively through time no more than $5,000 of assets
(in the aggregate ) are transferred to such Partial Subsidiary by the Company
or any other Subsidiary, and (iii) no liabilities of such Partial Subsidiary
are ever assumed or guaranteed by the Company or any other Subsidiary; or
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(u) Amend, restate, alter, modify or repeal (by merger or
otherwise) or permit any Subsidiary to amend, restate, modify or repeal (by
merger or otherwise) the certificate of incorporation or bylaws of any
Subsidiary in any material respect; or
(v) Issue any shares of Series D Preferred Stock, otherwise
than pursuant to a Type B Conversion.
6.13 BOARD OF DIRECTORS.
(a) The Board of Directors at all times following the Closing
and before a Type B Event Date shall be comprised of between eight (8) and
nine (9) members with one vacancy until the ninth member, an Independent
nominated by the Purchaser and Carlyle has been approved by the Board of
Directors (the "Joint Director") to fill such vacancy. After the occurrence
of a Type B Event Date, the Board of Directors shall be comprised of a number
of members that is consistent with the Series B Certificate of Designation,
the Series C Certificate of Designation, the Series D Certificate of
Designation and the Amended Bylaws. As long as Carlyle and all Carlyle
Affiliates own at least fifty percent (50%) of the shares of Series B
Preferred Stock originally purchased by Carlyle, the holders of the Series B
Preferred Stock, by a vote as provided in the Series B Certificate of
Designation, shall have the right to elect two (2) directors. As long as the
Purchaser, any Affiliate of the Initial Purchaser, or the Purchaser and any
such Affiliate of the Purchaser, taken as a whole owns or own shares of
Series C Preferred Stock and Series A Preferred Stock with a total
liquidation preference, taken as a whole, at least equal to 25% of the total
liquidation preference of the shares of Series C Preferred Stock and Series A
Preferred Stock outstanding as of the First Closing Date, the holders of the
Series C Preferred Stock, by a vote as provided in the Series C Certificate
of Designation, shall have the right to elect one (1) director. Until the
occurrence of a Type B Event Date, the holders of the Common Stock shall have
the right to elect between five (5) and six (6) directors (one (1) of whom
shall be the Joint Director) plus, if any of the percentage ownership
conditions contained in the two immediately preceding sentences fail to be
satisfied otherwise than pursuant to a Type B Conversion, such director or
directors as would, absent such failure, be elected by holders of the Series
B Preferred Stock or the Series C Preferred Stock, as appropriate.
(b) Immediately following the Closing, the Board of Directors
shall appoint, and shall thereafter until a Type B Event Date, unless
approved by a majority of the entire board of directors and a majority of the
directors elected by the holders of the Series B Preferred Stock and the
Series C Preferred Stock, maintain as provided in the Amended Bylaws the
following committees of the Board of Directors with the respective duties,
membership and voting requirements stated below, PROVIDED, that if the
holders of the Series C Preferred Stock shall, otherwise than as a result of
the conversion of their shares of Series C Preferred Stock in a Type B
Conversion, cease to have the right to nominate and elect any Preferred Stock
Director at all, then such holders shall no longer have the right to select
any member of any of the following committees and the member or members of
such committees selected by such holders shall automatically cease to be a
member or members of such committees:
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(i) Compensation Committee, which shall consist of three
(3) directors, at least one (1) of whom shall be selected jointly by the
directors elected by the Series B Preferred Stock and the director elected
by the Series C Preferred Stock. An affirmative vote of at least two (2)
members of the Compensation Committee shall be required for approval of
matters considered by the Compensation Committee. The Compensation
Committee shall ensure that the representative on the Compensation
Committee selected by the directors elected by the Series B Preferred Stock
and the director elected by the Series C Preferred Stock shall receive
adequate notice of and an opportunity to participate in any meetings of the
Compensation Committee;
(ii) Audit Committee, which shall consist of three (3)
directors, including as many Independent directors as are available, not to
exceed three (3). An affirmative vote of at least two (2) members of the
Audit Committee shall be required for approval of matters considered by the
Audit Committee;
(iii) Executive Committee, which shall consist of four
(4) directors, one (1) of whom shall be selected by the directors elected
by the Series B Preferred Stock, one (1) of whom shall be selected by the
director elected by the Series C Preferred Stock, and two (2) of whom shall
be selected by the Board of Directors. The members selected by the
directors elected by the Series B Preferred Stock and the director elected
by the Series C Preferred Stock may be removed only by the director or
directors, respectively, who selected such members. The Executive
Committee shall, in addition to the customary duties of an executive
committee, have the right to approve any financing activity, including but
not limited to the Capital Budget Plan. An affirmative vote of at least
three (3) members of the Executive Committee shall be required for approval
of any matters considered by the Executive Committee. Each financing
activity not approved by the Executive Committee may be referred to the
Board of Directors for approval, which approval shall require a
Supermajority Vote; and
(iv) An Acquisitions Committee, which shall consist of four
(4) directors, one (1) of whom shall be selected by the directors elected
by the Series B Preferred Stock, one (1) of whom shall be selected by the
director elected by the Series C Preferred Stock, and two (2) of whom shall
be selected by the Board of Directors. The Acquisitions Committee shall
have the right to approve any transaction of the types described in
Sections 6.12(m), (n), (o) and (p) with respect to which transaction the
aggregate consideration payable in connection with such transaction
(including, without limitation, cash consideration, the fair market value
of any securities and the net present value of any deferred consideration)
is less than $15 million. A unanimous vote of the Acquisitions Committee
shall be required for approval of any matters considered by the
Acquisitions Committee. Except as described in the next sentence, each
matter considered but not unanimously approved by the Acquisitions
Committee may be referred to the Board of Directors for approval, which
approval shall require a majority vote of the Board of Directors. The
unanimous approval of the Acquisitions Committee or the unanimous approval
of the Board of Directors shall be required before the Company or any of
its Subsidiaries engage in a transaction of the types described in
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Sections 6.12(m), (n) (which, only for purposes of this clause, shall also
apply to Capital Expenditures made by the Company in the ordinary course of
business), (o) and (p), in which transaction: (A) the aggregate
consideration payable in connection with such transaction (including,
without limitation, cash consideration, the fair market value of any
securities and the net present value of any deferred consideration) is less
than $15 million; and (B) the Company is to issue its common stock at an
implicit or explicit price of less than $8.375 per share. Such implicit
price shall be determined in an appraisal approved unanimously by the
Acquisitions Committee or unanimously by the Board of Directors, such
appraisal to be performed by an independent appraiser selected unanimously
by the Acquisitions Committee or unanimously by the Board of Directors.
(c) Regular meetings of the Board of Directors of the Company
shall be held at least once a calendar quarter at the offices of the Company
or at such other times and places as may be fixed by the Board of Directors
upon notice to the members of the Board of Directors.
(d) After the Closing, the following matters, among others
specified in the Bylaws, shall be deemed approved by the Board of Directors
only upon a Supermajority Vote in respect of any such matter:
(i) Approving the annual Capital Budget Plan; and
(ii) Approving the Company entering into any financing
activity not approved by the Executive Committee.
(e) Upon any Type A Conversion pursuant to Section 5 of the
Series B Certificate of Designation and Section 5 of the Series C Certificate
of Designation, of all of the outstanding shares of Series B Preferred Stock
and Series C Preferred Stock, the Company shall immediately file a
certificate with the Secretary of State of the State of Delaware, pursuant to
Section 151(g) of the Delaware General Corporation Law, setting forth a
resolution or resolutions adopted by the Board of Directors of the Company
that none of the authorized shares of Series D Preferred Stock are
outstanding and that none will be issued subject to the Series D Certificate
of Designation.
6.14 RESTRICTIONS ON TRANSFER OF CAPITAL STOCK.
(a) The Purchaser shall not transfer, sell, assign, or pledge
to any Person other than an Affiliate of the Purchaser, or dispose of, any
interest in any shares of the Series C Preferred Stock without the prior
approval of the Board of Directors, in its sole discretion. The Purchaser
shall not transfer, sell or assign to any Affiliate of the Purchaser, any
interest in any shares of the Series C Preferred Stock if such Affiliate is
engaged in the Business.
(b) After the Closing Date and before the earlier to occur of
April 14, 1999 and a Type B Event, the Purchaser shall not transfer, sell or
assign to any Person any of the Series C Conversion Shares without the prior
approval of an ordinary majority of the Board of Directors in its sole
discretion, other than in the following circumstances:
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(i) A transfer to an Affiliate of the Purchaser (provided
that prior to any such transfer such Affiliate shall have delivered to the
Company its written agreement to be bound by the terms of this Section
6.14);
(ii) A transfer permitted under Rule 144 under the
Securities Act;
(iii) A transfer pursuant to a registered offering under
registration rights from the Company as provided in the Registration Rights
Agreement; or
(iv) A transfer pursuant to a transaction available to all
stockholders of the Company on the same terms as to the Purchaser, which
has been approved by a majority of the Board of Directors;
(c) If a Type B Event Date occurs prior to April 14, 1999, then
from the Type B Event Date until the second subsequent annual meeting of
stockholders of the Company after such Type B Event Date, (A) the Purchaser
shall not make a transfer of any of its Series D Preferred Stock, Series C
Conversion Shares or Series D Conversion Shares in a transaction available to
all holders of Common Stock on the same terms as to the Purchaser, unless such
transaction has been approved either by (I) the affirmative vote of not less
than 80 percent of the outstanding shares of the Company entitled to vote, or
(II) at least two-thirds (2/3) of the directors of the Company (which must
include either (i) the Joint Director, if either (x) such Joint Director served
in such position as of the Type B Event Date, or (y) such Joint Director has
been approved by a majority of the directors who were Common Stock Directors as
of the Type B Event Date, or (ii) at least one director who was a Common Stock
Director prior to the Type B Event Date, unless neither such Joint Director, nor
any of such Common Stock Directors continue to serve on the Board of Directors
at such time) and (B) the Purchaser shall not make a transfer of any of its
Series D Preferred Stock, Series C Conversion Shares or Series D Conversion
Shares in a transaction other than one available to all holders of Common Stock
on the same terms as to the Purchaser, unless such transaction has been approved
either by (I) the affirmative vote of not less than 80 percent of the
outstanding shares of the Company entitled to vote, or (II) at least 50 percent
of the directors of the Company who are not the Preferred Stock Directors or the
Conversion Directors. If a Type B Event Date occurs prior to October 14, 1999,
then from the Type B Event Date until the second subsequent annual meeting of
stockholders of the Company after such Type B Event Date, none of the following
actions or transactions shall be effected by the Company or approved by the
Company as a stockholder of any subsidiary of the Company, and neither the
Purchaser nor any other holder of Series D Preferred Stock (other than a holder
pursuant to a transfer permitted in paragraphs (b)(ii) or (b)(iii) of this
Section 6.14) shall engage in, or be a party to, any of the following actions or
transactions involving the Company or any subsidiary of the Company, if, as of
the record date for the determination of the stockholders entitled to vote
thereon, or consent thereto, any other corporation, person or entity referred to
in clauses (i) through (iv) of this sentence beneficially owns or controls,
directly or indirectly, five percent (5%) or more of the outstanding shares of
the Company entitled to vote:
(i) any merger or consolidation of the Company or any of its
subsidiaries with or into such other corporation, person or entity; or
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(ii) any sale, lease, exchange or other disposition of all
or any substantial part of the assets of the Company or any of its
subsidiaries to, or with, such other corporation, person or entity; or
(iii) the issuance or delivery of any voting securities of
the Company or any of its subsidiaries to such other corporation, person or
entity in exchange for cash, other assets or securities, or a combination
thereof; or
(iv) any dissolution or liquidation of the Company;
PROVIDED, HOWEVER, that the prohibitions contained in this sentence shall not
apply with respect to any such action or transaction approved by (I) the
affirmative vote of not less than 80 percent of the outstanding shares of the
Company entitled to vote or (II) at least two-thirds (2/3) of the directors
of the Company (which must include either the Joint Director if either (x)
such Joint Director served in such position as of the Type B Event Date, or
(y) such Joint Director has been approved by a majority of the directors who
were Common Stock Directors as of the Type B Event Date, or at least one
director who was a Common Stock Director prior to the Type B Event Date,
unless neither such Joint Director, nor any of such Common Stock Directors
continue to serve on the Board of Directors at such time).
For purposes of the immediately preceding sentence, a Person shall be deemed
to own or control directly or indirectly, any outstanding shares of stock of
the Company (A) which it has the right to acquire pursuant to any agreement,
or upon the exercise of, conversion rights, warrants or options, or otherwise
or (B) which are beneficially owned, directly or indirectly (including shares
deemed owned through application of clause (A) above) by any other
corporation, person or other entity (x) with which it or its "affiliate" or
"associate" (as defined below) has any agreement, arrangement, or
understanding for the purpose of acquiring, holding, voting or disposing of
stock of the Company or (y) which is its "affiliate" or "associate" as those
terms are defined under the Securities Exchange Act of 1934, as amended, and
the rules and regulations promulgated thereunder.
No transfer of Series C Preferred Stock or Series C Conversion Shares may be
made by Purchaser or any Affiliate (other than a transfer described in
paragraph (b)(ii) or (b)(iii) of this Section 6.14), unless prior thereto,
the transferee in such transfer shall have entered into an agreement in form
and substance reasonably satisfactory to the Company, agreeing to be bound by
the terms of this Section 6.14(c). Notwithstanding anything to the contrary
contained in this Section 6.14(c), the Purchaser shall not need any approval
by any directors, the Board of Directors or any stockholders under this
Section 6.14 in order to transfer, sell or assign any of its Series C
Conversion Shares in the circumstances and the persons set forth in clauses
(i), (ii) and (iii) of Section 6.14(b).
(d) The Warrants and the Warrant Shares shall be
transferable by the Purchaser, subject to compliance with federal and state
securities laws, without the approval of the Board of Directors.
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(e) Except in the case of a transfer pursuant to Rule 144
promulgated pursuant to the Securities Act, or any successor rule, prior to
consummating any private sale or transfer of Common Stock to any Person other
than an Affiliate of Purchaser, the Purchaser shall provide to the Company
the written opinion of reputable legal counsel in form reasonably acceptable
to the Company that such sale or transfer is being made in compliance with
applicable federal securities laws.
6.15 EXPIRATION OF CERTAIN COVENANTS.
The covenants contained in Sections 6.3, 6.5 and 6.9 of this
Agreement shall expire if, at any date after the Closing Date, the Purchaser
and Affiliates of the Purchaser collectively hold, and, upon conversion into
Common Stock of all of the Series C Preferred Stock and Series A Preferred
Stock and Series D Preferred Stock held by the Purchaser and its Affiliates,
would hold less than 5% of the issued and outstanding Common Stock of the
Company on a fully diluted basis; PROVIDED, HOWEVER, that to the extent that
such covenants relate to or arise out of any Applicable Laws relating to
health care, the health care industry and the provision of health care
services, third party reimbursement (including Medicare and Medicaid), public
health and safety and wrongful death and medical malpractice), such covenants
shall expire if, at any date after the Closing Date, the Purchaser and
Affiliates of the Purchaser collectively hold less than 5% of the Series C
Preferred Stock originally purchased by the Purchaser.
ARTICLE VII
CONDITIONS TO CLOSING
7.1 CONDITIONS TO EACH PARTY'S OBLIGATIONS.
The respective obligations of each party to consummate the
First Closing on the First Closing Date and the Second Closing on the Second
Closing Date are subject to the satisfaction or waiver, on or prior to each
respective closing date, of the condition that there shall be no injunction
or court order restraining consummation of all or any portion of the
Transaction, there shall be no pending or threatened Proceeding by or before
a court or governmental body brought by or on behalf of any Person or
Governmental Entity seeking to restrain or invalidate all or any portion of
the Transaction and there shall not have been adopted any law or regulation
making all or any portion of the Transaction illegal.
7.2 CONDITIONS TO THE COMPANY'S OBLIGATIONS.
The obligation of the Company to consummate the Transaction on
the First Closing Date is subject to the satisfaction or waiver, by the
Company, on or prior to the First Closing Date of each of the following
conditions:
(a) All representations and warranties of the Purchaser
contained in this Agreement shall be true and correct in all material
respects at and as of the First Closing Date as if such representations and
warranties were made at and as of the First Closing Date, and the Purchaser
shall have performed in all material respects all agreements and covenants
required
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hereby to be performed by it prior to or at the First Closing Date. There
shall be delivered to the Company a certificate (signed by an authorized
person of the Purchaser) to the foregoing effect.
(b) All consents, approvals, Permits and waivers from
Governmental Entities and other parties necessary to permit the Company and
the Purchaser to consummate the Transaction shall have been obtained.
(c) The Purchaser shall have delivered to the Company the
opinions of Gibson, Dunn & Crutcher, LLP, counsel to the Purchaser, in the
form attached hereto as Exhibit H.
(d) No order enjoining the sale of the Securities or the
Carlyle Warrants or the proposed issuance of the Series C Preferred Stock,
the Series B Conversion Shares, the Series C Conversion Shares, the Series D
Preferred Stock, the Series D Coversion Shares, the Warrant Shares or the
Carlyle Warrant Shares shall have been issued and no proceedings for such
purpose shall be pending or threatened by the Commission or any commissioner
of corporations or similar officer of any state having jurisdiction over the
Transaction. At the time of the Closing, the sale and issuance of the
Securities, the Carlyle Warrants, the Series C Preferred Stock, the Series B
Conversion Shares, the Series C Conversion Shares, the Series D Preferred
Stock, the Series D Coversion Shares, the Warrant Shares and the Carlyle
Warrant Shares shall be legally permitted by all laws and regulations to
which the Company and the Purchaser are subject.
(e) The Supplemental Service Fee shall have been terminated.
(f) The Purchaser shall have delivered to the Company,
unless waived in writing by the Company, such other documents relating to the
Transaction as the Company or the Company's counsel may reasonably request.
(g) The lender under the Credit Facility shall have
executed and delivered the Credit Facility and all related documents.
7.3 CONDITIONS TO THE PURCHASER' OBLIGATIONS.
The obligation of the Purchaser to consummate the First
Closing on the First Closing Date is subject to the satisfaction or waiver on
or prior to the First Closing Date of each of the following conditions:
(a) All representations and warranties of the Company
contained in this Agreement shall be true and correct in all material
respects at and as of the First Closing Date as if such representations and
warranties were made at and as of the First Closing Date, and the Company
shall have performed in all material respects all agreements and covenants
required hereby to be performed by it prior to or at the First Closing Date.
There shall be delivered to the Purchaser a certificate (signed by the
President and Chief Executive Officer and the Secretary of the Company) to
the foregoing effect.
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(b) All consents, approvals, Permits and waivers from
Governmental Entities and other parties necessary to permit the Purchaser and
the Company to consummate the First Closing shall have been obtained.
(c) The Company shall have delivered to the Purchaser the
opinions of McDermott, Will & Emery, special counsel for the Company, in the
form attached hereto as Exhibit I.
(d) Since the date of this Agreement, there shall not have
been any Material Adverse Effect on the Company.
(e) All actions shall have been taken by the Company and its
Board of Directors so that, immediately upon the Purchaser's purchase of the
Securities, the Board of Directors shall consist of eight (8) directors, two (2)
of whom were elected by the holders of Series B Preferred Stock pursuant to the
Series B Certificate of Designation and one (1) of whom was elected by the
holders of Series C Preferred Stock pursuant to the Series C Certificate of
Designation.
(f) The Amended Bylaws shall be in effect in the form set
forth in Exhibit A hereto.
(g) The Company shall have provided to the Purchaser a copy
of the insurance policies together with the riders and schedules thereto which
evidence compliance with the provisions set forth in Section 6.7.
(h) No order enjoining the sale of the Securities or the
Carlyle Warrants or the proposed issuance of the Series C Preferred Stock, the
Series B Conversion Shares, the Series C Conversion Shares, the Series D
Preferred Stock, the Series D Conversion Shares, the Warrant Shares or the
Carlyle Warrant Shares shall have been issued and no Proceedings for such
purpose shall be pending or threatened by the Commission or any commissioner of
corporations or similar officer of any state having jurisdiction over the
Transaction. At the time of the Closing, the sale and issuance of the
Securities, the Carlyle Warrants, the Series C Preferred Stock, the Series B
Conversion Shares, the Series C Conversion Shares, the Series D Preferred Stock,
the Series D Conversion Shares, the Warrant Shares and the Carlyle Warrant
Shares shall be legally permitted by all laws and regulations to which the
Company and the Purchaser are subject.
(i) The Company shall have adopted and duly filed with the
Secretary of State of Delaware the Series B Certificate of Designation, the
Series C Certificate of Designation and the Series D Certificate of Designation
and each such Certificate shall have become effective under Delaware law.
(j) The Company shall have delivered to the Purchaser, unless
waived in writing by the Purchaser:
(A) copies (certified by the Secretary of the Company)
of the resolutions duly adopted by the Board of Directors of the Company,
authorizing the
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execution, delivery and performance of this Agreement and
the other agreements contemplated hereby;
(B) a copy (certified by the Secretary of the State of
Delaware) of the certificate of incorporation as amended through the date
of the Closing and a copy (certified by the Secretary of the Company) of
the Company's bylaws as amended through the date of the Closing; and
(C) such other documents relating to the Transaction
as the Purchaser or the Purchaser's counsel may reasonably request.
(k) The Company shall have (A) issued the Series B Preferred
Stock and (B) issued the Carlyle Warrants.
(l) The Company and the lender under the Credit Agreement
shall have executed and delivered the Credit Facility and related documents.
7.3 CONDITIONS TO SECOND CLOSING
The sole condition to the Purchaser's and the Company's
obligations to consummate the Second Closing shall be the expiration or
termination of all waiting periods with respect to Purchaser's filing of a
notification under the HSR Act with respect to the transactions to occur at the
Second Closing, and that neither the Federal Trade Commission nor the Department
of Justice shall have given notice of its intention to challenge the legality of
such transaction or to seek further information.
ARTICLE VIII
INDEMNIFICATION
8.1 SURVIVAL OF REPRESENTATIONS, ETC.
The representations and warranties of the parties hereto
contained herein shall survive the Closing for a period of sixty (60) days
following receipt by the Purchaser of the audited financial statements of the
Company for the Fiscal Year ended June 30, 1998, except as to (a) the
representations and warranties set forth in Sections 4.8, 4.9, 4.13 (to the
extent related to any Applicable Laws relating to health care, the health care
industry and the provision of health care services, third party reimbursement
(including Medicare and Medicaid), public health and safety and wrongful death
and medical malpractice), 4.16, 4.17, 4.32, 4.33, 4.34, 4.35 and 4.36 hereof,
which shall survive for the period of the statute of limitations applicable
thereto; (b) any matter as to which a Claim has been submitted in writing to the
Company prior to such date; and (c) any matter based on fraud by the Company in
making any of the representations and warranties contained in this Agreement.
With respect to the matters set forth in (b) and (c) above, the cause of action
in favor of the Purchaser in respect of such matters shall survive indefinitely.
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8.2 INDEMNIFICATION BY THE COMPANY.
The Company agrees to indemnify and hold harmless the Purchaser,
its Subsidiaries, and its Affiliates and the directors, officers, employees,
stockholders and partners of each of the Purchaser, its Subsidiaries, and its
Affiliates (individually, an "Indemnified Party" and collectively, the
"Indemnified Parties"), from and against any liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, claims, costs and reasonable
attorneys' fees, expenses and disbursements of any kind ("Losses") which may be
imposed upon or incurred by the Purchaser in any manner relating to or arising
out of any untrue representation, breach of warranty or failure to perform any
covenant or agreement by the Company contained in this Agreement (including,
without limitation, the schedules and exhibits hereto), the Series C Certificate
of Designation, the Series D Certificate of Designation, the Ancillary
Agreements or in any certificate or document delivered pursuant hereto or
thereto or arising out of any Applicable Laws relating to health care, the
health care industry and the provision of health care services, third party
reimbursement (including Medicare and Medicaid), public health and safety and
wrongful death and medical malpractice or otherwise relating to or arising out
of the Transaction; PROVIDED, HOWEVER, that the Company shall provide no
indemnification with respect to Losses relating to or arising out of the
Transaction if such Losses were caused principally by the gross negligence or
willful misconduct of one or more Indemnified Parties.
8.3 LIMITATION ON INDEMNITIES.
No Claim may be made against the Company for indemnification
pursuant to Section 8.2 until the aggregate dollar amount of all Losses
indemnifiable pursuant to Section 8.2 exceeds $250,000 (in which event the
Purchaser shall be entitled to claim the whole amount of such Losses and not
merely the excess). In no event shall the aggregate amount paid by the Company
pursuant to Section 8.2 exceed $25 million with respect to Claims arising out of
or related to matters other than breaches of the representations, warranties and
covenants contained in Sections 4.13 (to the extent related to Applicable Laws
relating to health care, the health care industry and the provision of health
care services, third party reimbursement (including Medicare and Medicaid),
public health and safety and wrongful death and medical malpractice), 4.32,
4.33, 4.34, 4.35, 4.36 and 6.9 (to the extent related to Applicable Laws
relating to health care, the health care industry and the provision of health
care services, third party reimbursement (including Medicare and Medicaid),
public health and safety and wrongful death and medical malpractice), as to
which breaches of the representations, warranties and covenants contained in
such Sections, there shall be no cap on the Company's indemnification
obligations under Section 8.2.
8.4 LOSSES.
The term "Losses" as used in this Article VIII is not limited to
matters asserted by third parties but includes Losses incurred or sustained by
an Indemnified Party in the absence of third party claims. The difference
between (a) any insurance proceeds received by an Indemnified Party in respect
of Losses and (b) the legal costs and expenses incurred by such Indemnified
Party, if any, in seeking the payment of such insurance proceeds from the
insurer or
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insurers who insured against such Loss, shall be deducted from any
Claim for indemnification made by such Indemnified Party against the Company.
Payments by an Indemnified Party of amounts for which such Indemnified Party is
indemnified hereunder shall not be a condition precedent to recovery. If, after
payment of any Claim by the Company to an Indemnified Party, such Indemnified
Party receives insurance proceeds on account of the Loss indemnified by such
payment by the Company, such Indemnified Party shall pay to the Company the
lesser of (a) the amount of the payment on the Claim with respect to such Loss
by the Company to the Indemnified Party and (b) the amount of such insurance
proceeds minus the legal costs and expenses incurred by such Indemnified Party,
if any, in seeking the payment of such insurance proceeds from the insurer or
insurers who insured against such Loss.
8.5 DEFENSE OF CLAIMS.
If a claim for Losses (a "Claim") is to be made by an Indemnified
Party, such Indemnified Party shall give written notice (a "Claim Notice") to
the Company as soon as practicable after such Indemnified Party becomes aware of
any fact, condition or event which may give rise to Losses for which
indemnification may be sought under this Article VIII. If any lawsuit or
enforcement action is filed against any Indemnified Party hereunder, notice
thereof (a "Third Party Notice") shall be given to the Company as promptly as
practicable (and in any event within ten (10) calendar days after the service of
the citation or summons). The failure of any Indemnified Party to give timely
notice hereunder shall not affect rights to indemnification hereunder, except to
the extent that the Company demonstrates actual damage caused by such failure.
After receipt of a Third Party Notice, if the Company shall acknowledge in
writing to the Indemnified Party that the Company shall be obligated under the
terms of its indemnity hereunder in connection with such lawsuit or action, then
the Company shall be entitled, if it so elects, (a) to take control of the
defense and investigation of such lawsuit or action, (b) to employ and engage
attorneys of its own choice to handle and defend the same, at the Company's
cost, risk and expense unless the named parties to such action or proceeding
include both the Company and the Indemnified Party and the Indemnified Party has
been advised in writing by counsel that there may be one or more legal defenses
available to such Indemnified Party that are different from or additional to
those available to the Company, and (c) to compromise or settle such claim,
which compromise or settlement (i) shall be made and entered into only with the
advance written consent of the Indemnified Party (in its sole discretion) if
such compromise or settlement, in the reasonable judgment of the Indemnified
Party, would cause more than de minimis harm to such Indemnified Party's
business reputation, (ii) may be made and entered into in the sole discretion of
the Company if such compromise or settlement provides for the payment solely of
cash to the claimant in such lawsuit in full satisfaction of such claimant's
claim therein and includes a release of the Indemnified Party to the maximum
extent permitted by law (and would not otherwise, in the reasonable judgment of
such Indemnified Party, cause more than de minimis harm to such Indemnified
Party's business reputation) and (iii) otherwise shall be entered into only with
the advance written consent of the Indemnified Party (such consent not to be
unreasonably withheld). The Indemnified Party shall cooperate in all reasonable
respects with the Company and such attorneys in the investigation, trial and
defense of such lawsuit or action and any appeal arising therefrom; and the
Indemnified Party may, at its own cost, participate in the investigation, trial
and defense of such lawsuit or action and any appeal arising therefrom and
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appoint its own counsel therefor, at its own cost. The parties shall also
cooperate with each other in any notifications to insurers. If the Company
fails to assume the defense of such claim within fifteen (15) calendar days
after receipt of the Third Party Notice, the Indemnified Party against which
such claim has been asserted will (upon delivering notice to such effect to the
Company) have the right to undertake the defense, compromise or settlement of
such claim at the Company's cost and the Company shall have the right to
participate therein at its own cost; provided, however, that such claim shall
not be compromised or settled without the written consent of the Company, which
consent shall not be unreasonably withheld. In the event the Indemnified Party
assumes the defense of the claim, the Indemnified Party will keep the Company
reasonably informed of the progress of any such defense, compromise or
settlement. Notwithstanding the foregoing, the Company shall not be liable for
the reasonable fees and expenses of more than one firm of attorneys at any time
for any and all Indemnified Parties (which firm shall be designated in writing
by such Indemnified Party or Parties) in connection with any one such action or
proceeding or multiple actions or proceedings provided that they are held in the
same jurisdiction, arising out of the same general allegations or circumstances.
ARTICLE IX
MISCELLANEOUS
9.1 FEES AND EXPENSES.
The Company shall be responsible for the payment of all expenses
incurred by the Company in connection with the Transaction, regardless of
whether any portion of the Transaction closes, including, without limitation,
all fees and expenses of the Company's legal counsel and all third party
consultants engaged by the Company to assist in the Transaction.
9.2 INJUNCTIVE RELIEF.
The parties hereto acknowledge and agree that irreparable damage
would occur in the event any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise breached.
It is accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of the provisions of this Agreement and shall be
entitled to enforce specifically the provisions of this Agreement in any court
of the United States or any state thereof having jurisdiction, in addition to
any other remedy to which the parties may be entitled under this Agreement or at
law or in equity
9.3 ASSIGNMENT.
Neither this Agreement nor any of the rights or obligations
hereunder may be assigned by the Company without the prior written consent of
the Purchaser, or by the Purchaser without the prior written consent of the
Company, except that the Purchaser may, without such consent, assign, in whole
or in part, the right to acquire the Securities hereunder to an Affiliate of the
Purchaser. Subject to the foregoing, this Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
assigns, and no other person shall have any right, benefit or obligation
hereunder.
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9.4 NOTICES.
Unless otherwise provided herein, any notice, request,
instruction or other document to be given hereunder by any party to the other
shall be in writing and delivered by hand-delivery, registered first-class mail,
return receipt requested, facsimile or air courier guaranteeing overnight
delivery, as follows:
If to the Company: InSight Health Services Corp.
4400 MacArthur Boulevard, Suite 800
Newport Beach, CA 92660
Facsimile: 714.851.4488
Attn: Chief Financial Officer
With a copy to: McDermott, Will & Emery
2049 Century Park East - 34th Floor
Los Angeles, CA 90067
Facsimile: 310.277.4730
Attn: Mark J. Mihanovic, Esq.
and
Arent, Fox, Kintner, Plotkin & Kahn
1050 Connecticut Avenue, N.W., Suite 600
Washington, D.C. 20036
Facsimile: 202.857.6395
Attn: Gerald P. McCartin, Esq.
If to the Purchaser: General Electric Company
P.O. Box 414, W-490
Milwaukee, WI 53201-0414
Facsimile: 414.789.4573
Attn: Richard S. Berger, Finance Manager
and
GE Capital
260 Long Ridge Road
Stamford, CT 06927-5000
Facsimile: 203.357.6567
Attn: Michael E. Aspinwall, Senior Vice President
With a copy to: Gibson, Dunn & Crutcher LLP
333 S. Grand Avenue
Los Angeles, CA 90071-3197
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Facsimile: 213.229.7520
Attn: Ronald S. Beard, Esq.
or to such other place and with such other copies as either party may
designate as to itself by written notice to the other. All such notices,
requests, instructions or other documents shall be deemed to have been duly
given at the time delivered by hand, if personally delivered, four (4)
business days after being deposited in the mail, postage prepaid, if mailed,
when receipt is acknowledged by addressee, if by facsimile, or on the next
business day, if timely delivered to an air courier guaranteeing overnight
delivery.
9.5 CHOICE OF LAW.
This Agreement shall be construed, interpreted and the rights
of the parties determined in accordance with the internal laws of the State
of New York, without regard to the conflict of law principles thereof; except
with respect to matters of law concerning the internal corporate affairs of
any corporate entity which is a party to or the subject of this Agreement,
and as to those matters the law of the jurisdiction under which the
respective entity derives its powers shall govern. The parties irrevocably
elect as the sole judicial forum for the adjudication of any matters arising
under or in connection with this Agreement, the Ancillary Agreements and the
transactions contemplated hereby and thereby, and consent to the jurisdiction
of, the courts of the United States of America for the Southern District of
New York and of the State of New York in Manhattan in connection with the
adjudication of any matter arising under or in connection with this
Agreement, the Ancillary Agreements and the transactions contemplated hereby
and thereby, and waive any and all objections to such jurisdiction or venue
that they may have.
9.6 ENTIRE AGREEMENT.
All Exhibits and Schedules attached to this Agreement by this
reference are incorporated herein as if fully set forth herein. This
Agreement, including all Exhibits and Schedules attached hereto, constitutes
the entire agreement among the parties pertaining to the subject matter
hereof and supersedes all prior agreements, understandings, negotiations and
discussions, whether oral or written, of the parties, including the written
summary of proposed terms between the Company and the Purchaser dated
September 15, 1997. Capitalized terms used in the Exhibits and Schedules but
not defined therein shall have the respective meanings ascribed to such terms
in this Agreement. Any item disclosed in one Schedule shall be deemed to have
been disclosed in all other Schedules.
9.7 COUNTERPARTS.
This Agreement may be executed in two or more counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
9.8 INVALIDITY.
In the event that any one or more of the provisions contained
in this Agreement or in any other instrument referred to herein shall for any
reason be held to be invalid, illegal or
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unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provision of this Agreement or any other such
instrument.
9.9 HEADINGS; LANGUAGE.
The headings of the Articles and Sections herein are inserted
for convenience of reference only and are not intended to be a part of or to
affect the meaning or interpretation of this Agreement. In this Agreement,
unless the context otherwise requires, the masculine, feminine and neuter
genders and the singular and the plural include one another. Whenever used
in this Agreement: the term "Knowledge," with respect to any Person, means
the actual knowledge of such Person, after reasonable inquiry. For purposes
hereof, a Person shall be deemed to have actual knowledge of the contents of
all books and records with respect to which such Person has reasonable
access. Without limiting the generality of the foregoing, with respect to
any Person that is a corporation, partnership or other business entity,
actual knowledge shall be deemed to include the actual knowledge of all
principal employees of any such Person (which, for purposes of the Company,
shall include without limitation those Persons listed in Exhibit J) as well
as the Chief Executive Officer, President, Chief Financial Officer and all
Vice Presidents in the case of corporate Persons, and general partners in the
case of general or limited partnerships, as the case may be; "receipt by the
Company or any Subsidiary of notice," and similar phrases, means physical
receipt at a location owned, leased or operated by the Company or its
Subsidiaries; "including" means including, without limitation.
9.10 LIMITATION OF LIABILITY.
In no event shall (a) any Affiliate of the Purchaser, (b) any
member or representative of the Purchaser or of any Affiliate of the Purchaser
or (c) any direct or indirect member, stockholder, officer, director, limited
partner, employee or any other such person of the Purchaser or any Affiliate of
the Purchaser, be personally liable for any obligation of the Purchaser under
this Agreement. In no event shall any direct or indirect stockholder, officer,
director, partner, employee or salesperson of the Company or any Subsidiary or
any other such Person be personally liable for any obligation of the Company
under this Agreement.
9.11 AMENDMENTS AND WAIVERS.
Any term of this Agreement may be amended and the observance
of any term of this Agreement may be waived (either generally or in a
particular instance and either retroactively or prospectively) only with the
written consent of the Purchaser, the Company and TC Group, L.L.C.
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IN WITNESS WHEREOF, the parties hereto have caused this
Securities Purchase Agreement to be duly executed as of the day and year
first above written.
THE COMPANY:
------------
INSIGHT HEALTH SERVICES CORP.,
a Delaware corporation
By ____________________________
Name: ____________________________
Title: ____________________________
THE PURCHASER:
--------------
GENERAL ELECTRIC COMPANY
a New York corporation
By ____________________________
Name: ____________________________
Title: ____________________________
<PAGE>
REGISTRATION RIGHTS AGREEMENT
BETWEEN
INSIGHT HEALTH SERVICES CORP.
AND
CERTAIN INVESTORS DEFINED HEREIN
DATED AS OF OCTOBER 14, 1997
<PAGE>
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (the "Agreement") is made and
entered into as of October __, 1997, between InSight Health Services Corp.,
a Delaware corporation (the "Company"), and Carlyle Partners II, L.P., a
Delaware limited partnership ("CP II"), Carlyle Partners III, L.P., a
Delaware limited partnership ("CP III"), Carlyle International Partners II,
L.P., a Cayman Islands exempted limited partnership ("CIP II"), Carlyle
International Partners III, L.P., a Cayman Islands exempted limited
partnership ("CIP III"), C/S International Partners, a Cayman Islands general
partnership ("C/S"), the State Board of Administration of Florida ("SBAF"),
Carlyle Investment Group, L.P., a Delaware limited partnership("CIG"),
Carlyle-Insight International Partners, L.P., a Cayman Islands exempted
limited partnership ("C-IIP"), and Carlyle-Insight Partners, L.P., a Delaware
limited partnership ("C-IP") (CP II, CP III, CIP II, CIP III, C/S, SBAF, CIG,
C-IIP and C-IP, collectively, the "Investors" and, individually, an
"Investor"). In order to induce the Investors to enter into the Purchase
Agreement, the Company has agreed to provide the registration rights set
forth in this Agreement. The execution of this Agreement is a condition to
the closing under the Purchase Agreement.
The parties hereby agree as follows:
Section 1. DEFINITIONS
Capitalized terms not otherwise defined herein shall have the
respective meanings given them in the Purchase Agreement. As used in this
Agreement, the following capitalized terms shall have the following meanings:
"Board of Directors" shall mean the Board of Directors of the
Company.
"Claim" shall mean any loss, claim, damages, liability or expense
(including the reasonable costs of investigation and reasonable legal fees
and expenses).
"Common Stock" shall mean the Common Stock, par value $.001 per
share, of the Company.
"Demand Registration" shall mean a registration pursuant to
Section 2 hereof.
"Equity Security" shall mean any capital stock of the Company or
any security convertible, with or without consideration, into any such stock,
or any security carrying any warrant or right to subscribe for or purchase
any such stock, or any such warrant or right.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
from time to time amended.
<PAGE>
"Firm Commitment Underwritten Offering" shall mean an offering in
which the underwriters agree to purchase securities for distribution pursuant
to a Registration Statement under the Securities Act and in which the
obligation of the underwriters is to purchase all the securities being
offered if any are purchased.
"GE" shall mean General Electric Company, a New York corporation
and its Affiliates.
"GE Registrable Securities" shall mean (a) the shares of Common
Stock issued or issuable upon conversion of the Series C Preferred Stock or
Series D Preferred Stock, whether or not owned by GE; (b) the shares of
Common Stock issued or issuable upon exercise of any GE Warrants, whether or
not owned by GE; (c) any securities issued or issuable with respect to such
Common Stock by way of a stock dividend or stock split or in connection with
a combination of shares, recapitalization, merger, consolidation or
reorganization; and (d) any shares of Common Stock or securities issued or
issuable with respect to such Common Stock as provided in (c) above, acquired
by GE from the Company subsequent to the date hereof, whether or not owned by
GE at the time of a Registration; provided that any such share or other
security shall be deemed to be Registrable Securities only if and so long as
it is a Transfer Restricted Security.
"GE Registration Rights Agreement" shall mean a Registration
Rights Agreement substantially in the form of this Agreement entered into
between GE and the Company as of the date hereof.
"GE Warrants" shall mean the warrants to purchase Common Stock
issued pursuant to a Warrant Agreement dated of even date herewith by and
between the Company and GE.
"Holder" shall mean the beneficial owner of a security. For all
purposes of this Agreement, the Company shall be entitled to treat the record
owner of a security as the beneficial owner of such security unless the
Company has been given written notice of the existence and identity of a
different beneficial owner. A Holder of Preferred Stock shall be deemed to
be the Holder of the Common Stock into which such Preferred Stock could be
converted.
"Indemnified Holder" shall mean any Holder of Registrable
Securities, any officer, director, employee or agent of any such Holder and
any Person who controls any such Holder within the meaning of either Section
15 of the Securities Act or Section 20 of the Exchange Act.
"Misstatement" shall mean an untrue statement of a material fact
or an omission to state a material fact required to be stated in a
Registration Statement or Prospectus or necessary to make the statements in a
Registration Statement, Prospectus or preliminary prospectus not misleading.
"Person" shall mean a natural person, partnership, corporation,
business trust, association, joint venture or other entity or a government or
agency or political subdivision thereof.
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"Piggyback Registration" shall mean a registration pursuant to
Section 3 hereof.
"Preferred Stock" shall mean the Series B Convertible Preferred
Stock of the Company being issued pursuant to the Purchase Agreement and
Series D Preferred Stock of the Company issued or issuable upon conversion of
the Series B Convertible Preferred Stock.
"Prospectus" shall mean the prospectus included in any
Registration Statement, as supplemented by any and all prospectus supplements
and as amended by any and all post-effective amendments and including all
material incorporated by reference in such prospectus.
"Purchase Agreement" shall mean that certain Securities Purchase
Agreement dated as of the date hereof between the Company and the Investors.
"Registrable Securities" shall mean (a) the shares of Common
Stock issued or issuable upon conversion of the Preferred Stock, whether or
not owned by the Investors, (b) the shares of Common Stock issued or issuable
upon exercise of any Warrants, whether or not owned by the Investors, (c) any
securities issued or issuable with respect to such Common Stock by way of a
stock dividend or stock split or in connection with a combination of shares,
recapitalization, merger, consolidation or reorganization; and (d) any shares
of Common Stock or securities issued or issuable with respect to such Common
Stock as provided in (c) above, acquired by the Investors from the Company
subsequent to the date hereof, whether or not owned by the Investors at the
time of a Registration; provided that any such share or other security shall
be deemed to be Registrable Securities only if and so long as it is a
Transfer Restricted Security.
"Registration" shall mean a Demand Registration or a Piggyback
Registration.
"Registration Expenses" shall mean the out-of-pocket expenses of
a Registration, including:
(1) all registration and filing fees (including fees with respect
to filings required to be made with the National Association of
Securities Dealers);
(2) fees and expenses of compliance with securities or blue sky
laws (including fees and disbursements of counsel for the
underwriters or selling holders in connection with blue sky
qualifications of the Registrable Securities and determinations
of their eligibility for investment under the laws of such
jurisdictions as the managing underwriters or holders of a
majority of the Registrable Securities being sold may
designate);
(3) printing, messenger, telephone and delivery expenses;
(4) fees and disbursements of counsel for the Company and of not
more than one firm of attorneys for the sellers of the
Registrable Securities;
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(5) expenses of the underwriters and fees and disbursements of
counsel for the underwriters, in each case, to the extent
required to be paid pursuant to an underwriting agreement
relating to a Registration;
(6) fees and disbursements of all independent certified public
accountants of the Company incurred in connection with such
Registration (including the expenses of any special audit and
"cold comfort" letters incident to such registration);
(7) premiums and other costs of securities acts liability insurance
if the Company so desires or if the underwriters so require or
selling holders of Registrable Securities reasonably so
require; and
(8) fees and expenses of any other Persons retained by the Company.
"Registration Statement" shall mean any registration statement
under the Securities Act on an appropriate form (which form shall be
available for the sale of the Registrable Securities in accordance with the
intended method or methods of distribution thereof and shall include all
financial statements required by the SEC to be filed therewith) which covers
Registrable Securities pursuant to the provisions of this Agreement,
including the Prospectus included in such registration statement, amendments
(including post-effective amendments) and supplements to such registration
statement, and all exhibits to and all material incorporated by reference in
such registration statement.
"Securities Act" shall mean the Securities Act of 1933, as from
time to time amended.
"SEC" shall mean the Securities and Exchange Commission.
"Series C Preferred Stock" shall mean the Series C Convertible
Preferred Stock of the Company.
"Series D Preferred Stock" shall mean the Series D Convertible
Preferred Stock of the Company.
"Transfer Restricted Security" shall mean a security that has not
been sold to or through a broker, dealer or underwriter in a public
distribution or other public securities transaction or sold in a transaction
exempt from the registration and prospectus delivery requirements of the
Securities Act under Rule 144 promulgated thereunder (or any successor rule).
The foregoing notwithstanding, a security shall remain a Transfer Restricted
Security until all stop transfer instructions or notations and restrictive
legends with respect to such security have been lifted or removed.
"Underwriters' Commissions" shall mean discounts of and
commissions to underwriters, selling brokers, dealer managers or similar
securities professionals relating to the distribution of the Registrable
Securities.
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"Underwritten Registration" or "Underwritten Offering" shall mean
a registration in which securities of the Company are sold to an underwriter
for distribution to the public.
"Warrants" shall mean the warrants to purchase Common Stock
issued pursuant to a Warrant Agreement dated of even date herewith by and
between the Company and the Investors.
Section 2. DEMAND REGISTRATIONS
(a) TIMING OF DEMAND REGISTRATIONS.
The Investors (on behalf of themselves and all permitted
assignees who are Holders of Registrable Securities) may request at any time
that the Company file a Registration Statement under the Securities Act on an
appropriate form (which form shall be available for the sale of the
Registrable Securities in accordance with the intended method or methods of
distribution thereof and shall include all financial statements required by
the SEC to be filed herewith) covering the shares of Registrable Securities
that are the subject of such request.
(b) NUMBER OF DEMAND REGISTRATIONS; REQUIRED THRESHOLD.
The Company shall be obligated to prepare, file and cause to
become effective pursuant to this Section 2 no more than two (2) Registration
Statements in the aggregate for the Investors (on behalf of themselves and
all permitted assignees who are Holders of Registrable Securities); provided,
however, that a Registration Statement shall not be counted as one of the two
(2) Demand Registrations hereunder unless it becomes effective and is
maintained effective in accordance with the requirements specified in Section
5(a). The Company shall not be obligated to prepare, file and cause to
become effective pursuant to this Section 2 a Registration Statement unless
the proposed aggregate public offering price of the Registrable Securities to
be included in such Demand Registration is at least $5 million.
(c) DEFERRAL BY COMPANY.
Notwithstanding anything in this Section 2 to the contrary, the
Company shall not be obligated to prepare, file and cause to become effective
pursuant to this Section 2 a Registration Statement if the Company furnishes
the Investors a certificate signed by the President of the Company that in
the good faith judgment of the Board of Directors it would be detrimental in
any material respect to the Company and its shareholders for the Company to
comply with the Demand Registration, and it is therefore essential to defer
the filing of the Registration Statement relating thereto. Any such deferral
shall be for a period of not more than six (6) months after the Company's
receipt of the Investor's written request for registration pursuant to this
Section 2; PROVIDED, HOWEVER, that the Company may not exercise this right
more than once with respect to a Demand Registration and that any requested
registration deferred, and not ultimately effected, by the Company pursuant
to the provisions of this Section 2(c) shall thereafter not be deemed to be a
requested registration for purposes of the limitation to two (2) Demand
Registrations pursuant to Section 2(a) above.
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(d) PARTICIPATION.
The Company shall promptly give written notice to all Holders of
Registrable Securities and to GE upon receipt of a request for a Demand
Registration pursuant to Section 2(a) above. GE may, by written notice to
the Company and the Investors, within thirty (30) business days of the
Company's notice, elect to join in a request for a Demand Registration
pursuant to Section 2(a) above, with respect to a number of shares of GE
Registrable Securities that is less than or equal to the number of shares of
Registrable Securities requested to be registered in such Demand Registration
by the Investors. The GE Registrable Securities being offered by GE in such
Demand Registration shall be treated pari passu with the Registrable
Securities being offered by the Investors for all purposes including
"underwriter's cutbacks" under subsection (e) of this Section and any such
request by GE shall not be treated as either a request for "piggyback" rights
under Section 3 hereof or be treated as the exercise of a demand registration
right by GE under the GE Registration Rights Agreement. In addition, the
Company shall include in such Demand Registration such shares of Registrable
Securities for which it has received written requests to register such shares
within thirty (30) days after such written notice has been given.
(e) UNDERWRITER'S CUTBACK.
If the public offering of Registrable Securities and/or GE
Registrable Securities is to be underwritten and, in the good faith judgment
of the managing underwriter, the inclusion of all the Registrable Securities
and/or GE Registrable Securities requested to be registered hereunder would
interfere with the successful marketing of a smaller number of such shares of
Registrable Securities and/or GE Registrable Securities, the number of shares
of Registrable Securities and/or GE Registrable Securities to be included
shall be reduced to such smaller number with the participation in such
offering to be pro rata among the Holders of Registrable Securities and/or GE
Registrable Securities requesting such registration, based upon the number of
shares of Registrable Securities and/or GE Registrable Securities owned by
such Holders.
Any shares that are thereby excluded from the offering shall be
withheld from the market by the Holders thereof for a period (not to exceed
thirty (30) days prior to the effective date and one hundred twenty (120)
days thereafter) that the managing underwriter reasonably determines is
reasonably necessary in order to successfully market the securities to be
offered in the Underwritten Offering.
The Company and, subject to the requirements of Section 11
hereof, other Holders of securities of the Company may include such
securities in such Registration if, but only if, the managing underwriter
concludes that such inclusion will not interfere with the successful
marketing of all the Registrable Securities requested to be included in such
registration.
(f) MANAGING UNDERWRITER.
The managing underwriter or underwriters of any Underwritten
Offering covered by a Demand Registration shall be selected by Investors
participating in the Underwritten Offering owning a majority of the shares of
Common Stock to be offered therein, subject to the
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approval of the Board of Directors (by a majority of the Directors not
elected by the holders of the Preferred Stock and the Series C Preferred
Stock), which approval shall not be unreasonably withheld.
3. PIGGYBACK REGISTRATIONS
(a) PARTICIPATION.
Each time the Company decides to file a Registration Statement
under the Securities Act (other than registrations on Forms S-4 or S-8 or any
successor form thereto, and other than a Demand Registration) covering the
offer and sale by it or any of its security holders of any of its securities
for money, the Company shall give written notice thereof to all Holders of
Registrable Securities. The Company shall include in such Registration
Statement such shares of Registrable Securities for which it has received
written requests to register such shares within twenty (20) days after such
written notice has been given. If the Registration Statement is to cover an
Underwritten Offering, such Registrable Securities shall be included in the
underwriting on the same terms and conditions as the securities otherwise
being sold through the underwriters.
(b) UNDERWRITER'S CUTBACK.
Subject to the requirements of Section 11 hereof, if in the good
faith judgment of the managing underwriter of such offering the inclusion of
all of the shares of Registrable Securities and any other Common Stock
requested to be registered would interfere with the successful marketing of a
smaller number of such shares, then the number of shares of Registrable
Securities and other Common Stock to be included in the offering shall be
reduced to such smaller number with the participation in such offering to be
in the following order of priority: (1) first, the shares of Common Stock
which the Company proposes to sell for its own account, (2) second, the
shares of Registrable Securities of all Holders of Registrable Securities
requested to be included, PARI PASSU with all shares of GE Registrable
Securities requested by GE to be included and all shares of any Person
granted "piggyback" registration rights by the Company prior to the date
hereof with respect to the Company's securities, as set forth in Schedule A
attached hereto, requested by such Person to be included, and (3) third, any
other shares of Common Stock requested to be included. Any necessary
allocation among the Holders of shares within each of the foregoing groups
shall be pro rata among such Holders requesting such registration based upon
the number of shares of Common Stock and Registrable Securities owned by such
Holders.
All shares so excluded from the Underwritten Offering shall be
withheld from the market by the Holders thereof for a period (not to exceed
thirty (30) days prior to the effective date and one hundred twenty (120)
days thereafter) that the managing underwriter reasonably determines is
reasonably necessary in order to successfully market the securities to be
offered in the Underwritten Offering.
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<PAGE>
(c) COMPANY CONTROL.
The Company may decline to file a Registration Statement after
giving notice to Holders pursuant to Section 3(a) above, or withdraw a
Registration Statement after filing and after such notice, but prior to the
effectiveness thereof; provided that the Company shall promptly notify each
Holder of Registrable Securities in writing of any such action and provided
further that the Company shall bear all expenses incurred by each Holder or
otherwise in connection with such withdrawn Registration Statement.
4. HOLD-BACK AGREEMENTS
(a) BY HOLDERS OF REGISTRABLE SECURITIES
Upon the written request of the managing underwriter of any
Underwritten Offering of the Company's securities, a Holder of Registrable
Securities shall not sell, make any short sale of, loan, grant any option for
the purchase of, or otherwise dispose of any Registrable Securities (other
than those included in such registration) without the prior written consent
of such managing underwriter for a period (not to exceed thirty (30) days
before the effective date and one hundred twenty (120) days thereafter) that
such managing underwriter reasonably determines is necessary in order to
effect the Underwritten Offering; provided that each of the officers and
directors of the Company shall have entered into substantially similar
holdback agreements with such managing underwriter covering at least the same
period.
(b) BY THE COMPANY AND OTHERS.
The Company agrees:
(1) not to effect any public or private sale or distribution of
its Equity Securities during the 30-day period prior to, and during the
60-day period after, the effective date of each Underwritten Offering made
pursuant to a Demand Registration or a Piggyback Registration, if so
requested in writing by the managing underwriter (except as part of such
Underwritten Offering, pursuant to registrations on Forms S-4 or S-8 or any
successor forms thereto or private issuances of Equity Securities as
consideration for any acquisition by the Company or a subsidiary of assets
or capital stock of any unaffiliated third party), and
(2) not to issue any Equity Securities other than for sale in a
registered public offering unless each of the Persons to which such
securities are issued has entered a written agreement binding on its
transferees not to effect any public sale or distribution of such
securities (except for employee stock options issued to Persons other than:
directors or officers; or shareholders owning five percent (5%) or more of
the Company's Equity Securities) during such period, including without
limitation a sale pursuant to Rule 144 under the Securities Act (except as
part of such Underwritten Registration, if and to the extent permitted
hereunder).
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5. REGISTRATION PROCEDURES
If and whenever the Company is required to register Registrable
Securities in a Demand Registration,, the Company will use all commercially
reasonable efforts to effect such registration to permit the sale of such
Registrable Securities in accordance with the intended plan of distribution
thereof. With respect to both Demand Registrations and Piggyback
Registrations (except as otherwise specifically provided), the Company will
as expeditiously as practicable:
(a) prepare and file with the SEC as soon as practicable a
Registration Statement with respect to such Registrable Securities and use
all commercially reasonable efforts to cause such Registration Statement to
become effective and remain continuously effective until the date that is the
earlier to occur of (i) the date six months from the date such Registration
Statement was declared effective, and (ii) the date the last of the
Registrable Securities covered by such Registration Statement have been sold,
provided that before filing a Registration Statement or Prospectus or any
amendments or supplements thereto, the Company shall furnish to Holders of
Registrable Securities covered by such Registration Statement and the
underwriters, if any, draft copies of all such documents proposed to be
filed, which documents will be subject to the review of such Investor and
underwriters, and the Company shall not file any Registration Statement or
amendment thereto or any Prospectus or any supplement thereto to which the
Investor or the underwriters, if any, shall reasonably object;
(b) prepare and file with the SEC such amendments and
post-effective amendments to the Registration Statement, and such supplements
to the Prospectus, as may be requested by any underwriter of Registrable
Securities or as may be required by the rules, regulations or instructions
applicable to the registration form used by the Company or by the Securities
Act or rules and regulations thereunder to keep the Registration Statement
effective until all Registrable Securities covered by such Registration
Statement are sold in accordance with the intended plan of distribution set
forth in such Registration Statement or supplement to the Prospectus;
(c) promptly notify the selling Holders of Registrable
Securities and the managing underwriter, if any, and (if requested by any
such Person) confirm such advice in writing,
(1) when the Prospectus or any supplement or post-effective
amendment has been filed, and, with respect to the Registration Statement
or any post-effective amendment, when the same has become effective,
(2) of any request by the SEC for amendments or supplements to
the Registration Statement or the Prospectus or for additional information,
(3) of the issuance by the SEC of any stop order suspending
the effectiveness of the Registration Statement or the initiation of any
proceedings for that purpose,
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(4) if at any time the representations and warranties of the
Company contemplated by clause (1) of paragraph (o) below cease to be
accurate in all material respects,
(5) of the receipt by the Company of any notification with
respect to the suspension of the qualification of the Registrable
Securities for sale in any jurisdiction or the initiation or threatening
of any proceeding for such purpose, and
(6) of the existence of any fact which results in the
Registration Statement, the Prospectus or any document incorporated
therein by reference containing a Misstatement;
(d) make all commercially reasonable efforts to obtain the
withdrawal of any order suspending the effectiveness of the Registration
Statement at the earliest practicable time;
(e) unless the Company objects in writing on reasonable grounds,
if requested by the managing underwriter or Investors holding more than 50%
of the Registrable Securities then outstanding (on behalf of themselves and
all permitted assignees who are Holders of Registrable Securities), as
promptly as practicable incorporate in a supplement or post-effective
amendment such information as the managing underwriter and the Investors
agree should be included therein relating to the sale of the Registrable
Securities, including, without limitation, information with respect to the
number of shares of Registrable Securities being sold to underwriters, the
purchase price being paid therefor by such underwriters and with respect to
any other terms of the Underwritten Offering of the Registrable Securities to
be sold in such offering; and make all required filings of such supplement or
post-effective amendment as soon as notified of the matters to be
incorporated in such supplement or post-effective amendment;
(f) only with respect to Demand Registrations, promptly prior to
the filing of any document which is to be incorporated by reference into the
Registration Statement or the Prospectus (after initial filing of the
Registration Statement) provide copies of such document to counsel to the
Investors (on behalf of themselves and all permitted assignees who are
Holders of Registrable Securities) and to the managing underwriter, if any,
and make the Company's representatives available for discussion of such
document and make such changes in such document prior to the filing thereof
as counsel for the Investors or underwriters may reasonably request;
(g) furnish to each selling Holder of Registrable Securities and
the managing underwriter, without charge, at least one signed copy of the
Registration Statement and any post-effective amendments thereto, including
financial statements and schedules, all documents incorporated therein by
reference and all exhibits (including those incorporated by reference);
(h) deliver to TC Group, L.L.C. or Carlyle Investment Management,
L.L.C., as appropriate (on behalf of each selling Holder of Registrable
Securities) and the underwriters, if any, without charge, as many copies of
each Prospectus (and each preliminary prospectus) as such Persons may
reasonably request (the Company hereby consenting to the use of each such
Prospectus (or preliminary prospectus) by each of the selling Holders of
Registrable Securities
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and the underwriters, if any, in connection with the offering and sale of the
Registrable Securities covered by such Prospectus (or preliminary
prospectus));
(i) prior to any public offering of Registrable Securities, use
all commercially reasonable efforts to register or qualify or cooperate with
the selling Holders of Registrable Securities, the underwriters, if any, and
their respective counsel in connection with the registration or qualification
of such Registrable Securities for offer and sale under the securities or
blue sky laws of such jurisdictions as such Investor or underwriters may
designate in writing and do anything else necessary or advisable to enable
from a legal perspective the disposition in such jurisdictions of the
Registrable Securities covered by the Registration Statement; provided that
the Company shall not be required to qualify generally to do business in any
jurisdiction where it is not then so qualified or to take any action which
would subject it to general service of process in any such jurisdiction where
it is not then so subject;
(j) cooperate with the selling Holders of Registrable Securities
and the managing underwriter, if any, to facilitate the timely preparation
and delivery of certificates not bearing any restrictive legends representing
the Registrable Securities to be sold and cause such Registrable Securities
to be in such denominations and registered in such names as the managing
underwriter may request at least three business days prior to any sale of
Registrable Securities to the underwriters;
(k) use all commercially reasonable efforts to cause the
Registrable Securities covered by the Registration Statement to be registered
with or approved by such other governmental agencies or authorities as may be
necessary to enable the seller or sellers thereof or the underwriters, if
any, to consummate the disposition of such Registrable Securities;
(l) if the Registration Statement or the Prospectus contains a
Misstatement, prepare a supplement or post-effective amendment to the
Registration Statement or the related Prospectus or any document incorporated
therein by reference or file any other required document so that, as
thereafter delivered to the purchasers of the Registrable Securities, the
Prospectus will not contain a Misstatement;
(m) use all commercially reasonable efforts to cause all
Registrable Securities covered by the Registration Statement to be listed on
any national securities exchange on which the Company's securities are listed
or authorized for quotation on Nasdaq, if requested by the Investors (on
behalf of themselves and all permitted assignees who are Holders of
Registrable Securities) or the managing underwriter, if any; provided,
however, that the payment of any required listing or other fee shall always
be deemed to be "commercially reasonable" for purposes of this Section 5(m);
(n) provide a CUSIP number for all Registrable Securities not
later than the effective date of the Registration Statement;
(o) enter into such agreements (including an underwriting
agreement) and do anything else reasonably necessary or advisable in order to
expedite or facilitate the disposition
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of such Registrable Securities, and in such connection, whether or not the
registration is an Underwritten Registration:
(1) make such representations and warranties to the Holders of
such Registrable Securities and the underwriters, if any, in form,
substance and scope as are customarily made by issuers to holders and
underwriters, respectively, in similar Underwritten Offerings;
(2) obtain opinions of counsel to the Company and updates thereof
(which counsel and opinions (in form, scope and substance) shall be
reasonably satisfactory to the managing underwriter, if any, and the
Investor (on behalf of itself and all permitted assignees who are
Holders of Registrable Securities)) addressed to each selling Holder and
the underwriter, if any, covering the matters customarily covered in
opinions delivered to holders and underwriters, respectively, in similar
Underwritten Offerings and such other matters as may be reasonably
requested by such Investor or underwriters;
(3) obtain "cold comfort" letters and updates thereof from the
Company's independent certified public accountants addressed to the
selling Holders of Registrable Securities and the underwriters, if any,
such letters to be in customary form and covering matters of the type
customarily covered in "cold comfort" letters by holders and
underwriters, respectively, in connection with similar Underwritten
Offerings;
(4) if an underwriting agreement is entered into, cause the same to
include customary indemnification and contribution provisions and
procedures with respect to such underwriters; and
(5) deliver such documents and certificates as may be reasonably
requested by the Investor (on behalf of itself and all permitted
assignees who are Holders of Registrable Securities) and the managing
underwriter, if any, to evidence compliance with clause (1) above and
with any customary conditions contained in the underwriting agreement or
other agreement entered into by the Company.
The above shall be done at each closing under such underwriting or similar
agreement or as and to the extent otherwise reasonably requested by the
Investor (on behalf of itself and all permitted assignees who are Holders of
Registrable Securities);
(p) make available for inspection by representatives of TC Group,
L.L.C. or Carlyle Investment Management, L.L.C., as appropriate (on behalf of
themselves and all permitted assignees who are Holders of Registrable
Securities), any underwriter participating in any disposition pursuant to
such Registration Statement, and any attorney or accountant retained by the
sellers or any such underwriter, all financial and other records and
pertinent corporate documents and properties of the Company, and cause the
Company's officers, directors and employees to supply all information
reasonably requested by any such seller or underwriter in connection with the
Registration; provided that any records, information or documents that are
designated by the Company in writing as confidential shall be kept
confidential by such Persons
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unless disclosure of such records, information or documents is required by
court or administrative order; and
(q) otherwise use all commercially reasonable efforts to comply
with all applicable rules and regulations of the SEC relating to such
Registration, and make generally available to its security holders earnings
statements satisfying the provisions of Section 11(a) of the Securities Act,
no later than forty-five (45) days after the end of any 12-month period (or
ninety (90) days, if such period is a fiscal year) commencing at the end of
any fiscal quarter in which Registrable Securities are sold to underwriters
in an Underwritten Offering, or, if not sold to underwriters in such an
offering, beginning with the first month of the Company's first fiscal
quarter commencing after the effective date of the Registration Statement,
which statements shall cover said 12-month period.
6. REGISTRATION EXPENSES
(a) DEMAND REGISTRATIONS.
The Company shall bear all Registration Expenses incurred in
connection with any Demand Registrations and of any Registrations which do
not become or are not maintained effective in accordance with the
requirements specified in Section 5(a) other than any Registration terminated
prior to effectiveness at the request of, or primarily as a result of, the
actions of Holders whose Registrable Securities are included in such
registration. Notwithstanding the foregoing, the Underwriters' Commissions
incurred in connection with a Demand Registration that becomes effective
shall be shared by the Holders of the Registrable Securities whose
Registrable Securities are included in such Registration and the Holders of
the GE Registrable Securities whose GE Registrable Securities are included in
such Registration, pro rata, in accordance with the aggregate amount of
Registrable Securities and GE Registrable Securities sold by such Holders.
(b) PIGGYBACK REGISTRATIONS.
The Company shall bear all Registration Expenses incurred in
connection with any Piggyback Registrations, except that each Holder of the
Registrable Securities whose Registrable Securities are included in such
Registration shall pay its pro rata share of the Underwriters' Commissions
incurred in such Registration, in accordance with the amount of Registrable
Securities sold by all such Holders.
(c) COMPANY EXPENSES.
The Company also will, in any event, pay its internal expenses
(including, without limitation, all salaries and expenses of its officers and
employees performing legal or accounting duties), the expense of any annual
audit, the fees and expenses incurred in connection with any listing of the
securities to be registered on a securities exchange, and the fees and
expenses of any Person, including special experts, retained by the Company.
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7. INDEMNIFICATION
(a) INDEMNIFICATION BY COMPANY.
The Company agrees to indemnify and hold harmless each Indemnified
Holder from and against all Claims arising out of or based upon any
Misstatement or alleged Misstatement, except insofar as such Misstatement or
alleged Misstatement was based upon information furnished in writing to the
Company by such Indemnified Holder expressly for use in the document
containing such Misstatement or alleged Misstatement. This indemnity shall
not be exclusive and shall be in addition to any liability which the Company
may otherwise have.
The foregoing notwithstanding, the Company shall not be liable to
the extent that any such Claim arises out of or is based upon a Misstatement
or alleged Misstatement made in any preliminary prospectus if (i) such
Indemnified Holder failed to send or deliver a copy of the Prospectus with or
prior to the delivery of written confirmation of the sale of Registrable
Securities giving rise to such Claim and (ii) the Prospectus would have
corrected such untrue statement or omission.
In addition, the Company shall not be liable to the extent that any
such Claim arises out of or is based upon a Misstatement or alleged
Misstatement in a Prospectus, (x) if such Misstatement or alleged
Misstatement is corrected in an amendment or supplement to such Prospectus
and (y) having previously been furnished by or on behalf of the Company with
copies of the Prospectus as so amended or supplemented, such Indemnified
Holder thereafter fails to deliver such Prospectus as so amended or
supplemented prior to or concurrently with the sale to the person who
purchased a Registrable Security from such Indemnified Holder and who is
asserting such Claim.
The Company shall also provide customary indemnifications to
underwriters, selling brokers, dealer managers and similar securities
industry professionals participating in a distribution covered by a
Registration Statement, their officers and directors and each Person who
controls such Persons (within the meaning of Section 15 of the Securities Act
or Section 20 of the Exchange Act).
(b) INDEMNIFICATION PROCEDURES.
If any action or proceeding (including any governmental
investigation or inquiry) shall be brought or asserted against an Indemnified
Holder in respect of which indemnity may be sought from the Company, such
Indemnified Holder shall promptly notify the Company in writing, and the
Company may assume the defense thereof, including the employment of counsel
reasonably satisfactory to such Indemnified Holder and the payment of all
expenses.
Such Indemnified Holder shall have the right to employ separate
counsel in any such action and to participate in the defense thereof, but the
fees and expenses of such separate counsel shall be at the expense of such
Indemnified Holder unless (i) the Company has agreed to pay such fees and
expenses, (ii) the Company shall have failed to assume the defense of such
action or proceeding or has failed to employ counsel reasonably satisfactory
to such Indemnified
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Holder in any such action or proceeding, or (iii) the named parties to any
such action or proceeding (including any impleaded parties) include both such
Indemnified Holder and the Company, and such Indemnified Holder shall have
been advised in writing by counsel that there may be one or more legal
defenses available to such Indemnified Holder that are different from or
additional to those available to the Company.
If such Indemnified Holder notifies the Company in writing that it
elects to employ separate counsel at the expense of the Company as permitted
by the provisions of the preceding paragraph, the Company shall not have the
right to assume the defense of such action or proceeding on behalf of such
Indemnified Holder. The foregoing notwithstanding, the Company shall not be
liable for the reasonable fee and expenses of more than one separate firm of
attorneys at any time for such Indemnified Holder and any other Indemnified
Holders (which firm shall be designated in writing by such Indemnified
Holders) in connection with any one such action or proceeding or separate but
substantially similar or related actions or proceedings in the same
jurisdiction arising out of the same general allegations or circumstances.
The Company shall not be liable for any settlement of any such
action or proceeding effected without its written consent, but if settled
with its written consent, or if there be a final judgment for the plaintiff
in any such action or proceeding, the Company agrees to indemnify and hold
harmless such Indemnified Holders from and against any loss or liability by
reason of such settlement or judgment.
(c) INDEMNIFICATION BY HOLDER OF REGISTRABLE SECURITIES.
Each Holder of Registrable Securities agrees to indemnity and hold
harmless the Company, its directors and officers and each Person, if any, who
controls the Company within the meaning of either Section 15 of the
Securities Act or Section 20 of the Exchange Act to the same extent as the
foregoing indemnity from the Company to such Holder, but only with respect to
information relating to such Holder furnished in writing by such Holder
expressly for use in any Registration Statement, Prospectus or preliminary
prospectus. In no event, however, shall the liability hereunder of any
selling Holder of Registrable Securities be greater than the dollar amount of
the proceeds received by such Holder upon the sale of the Registrable
Securities giving rise to such indemnification obligation.
In case any action or proceeding shall be brought against the
Company or its directors or officers or any such controlling person, in
respect of which indemnity may be sought against a Holder of Registrable
Securities, such Holder shall have the rights and duties given the Company
and the Company or its directors or officers or such controlling person shall
have the rights and duties given to each Holder by Sections 7(a) and 7(b)
above.
The Company shall be entitled to receive indemnities from
underwriters, selling brokers, dealer managers and similar securities
industry professionals participating in the distribution, to the same extent
as provided above with respect to information so furnished in writing by such
Persons specifically for inclusion in any Prospectus or Registration
Statement.
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<PAGE>
(d) CONTRIBUTION.
If the indemnification provided for in this Section 7 is
unavailable to an indemnified party under Section 7(a) or Section 7(c) above
(other than by reason of exceptions provided in those Sections) in respect of
any Claims referred to in such Sections, then each applicable indemnifying
party, in lieu of indemnifying such indemnified party, shall contribute to
the amount paid or payable by such indemnified party as a result of such
Claims in such proportion as is appropriate to reflect the relative fault of
the Company on the one hand and of the Holder on the other in connection with
the statements or omissions which resulted in such Claims as well as any
other relevant equitable considerations. The amount paid or payable by a
party as a result of the Claims referred to above shall be deemed to include,
subject to the limitations set forth in Section 7(b), any legal or other fees
or expenses reasonably incurred by such party in connection with
investigating or defending any action or claim.
The relative fault of the Company on the one hand and of the Holder
on the other shall be determined by reference to, among other things, whether
the Misstatement or alleged Misstatement relates to information supplied by
the Company or by the Holder and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such Misstatement
or alleged Misstatement.
The Company and each Holder of Registrable Securities agree that it
would not be just and equitable if contribution pursuant to this Section 7(d)
were determined by pro rata allocation or by any other method of allocation
which does not take account of the equitable considerations referred to above.
Notwithstanding the provisions of this Section 7(d), an Indemnified
Holder shall not be required to contribute any amount in excess of the amount
by which (i) the total price at which the securities that were sold by such
Indemnified Holder and distributed to the public were offered to the public
exceeds (ii) the amount of any damages which such Indemnified Holder has
otherwise been required to pay by reason of such Misstatement.
No person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation.
8. EXCHANGE ACT REPORTING REQUIREMENTS
From and after the date hereof, the Company shall (whether or not
it shall then be required to do so) timely file such information, documents
and reports as the Commission may require or prescribe under Section 13 or
15(d) (whichever is applicable) of the Exchange Act. In addition, the
Company shall use all commercially reasonable efforts to file such other
information, documents and reports, as shall hereafter be required by the
Commission as a condition to the availability of Rule 144 under the
Securities Act (or any successor provision) and the use of Form S-3.
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From and after the date hereof, the Company shall forthwith upon
reasonable request furnish any Holder of Registrable Securities (i) a written
statement by the Company that it has complied with such reporting
requirements, (ii) a copy of the most recent annual or quarterly report of
the Company, and (iii) such other reports and documents filed by the Company
with the Commission as such Holder may reasonably request in availing itself
of an exemption for the sale of Registrable Securities without registration
under the Securities Act pursuant to Rule 144 thereunder.
The purpose of the foregoing requirements are (a) to enable any
such Holder to comply with the current public information requirements
contained in paragraph (c) of Rule 144 under the Securities Act (or any
successor provision) and (b) to qualify the Company for the use of
Registration Statements on Form S-3.
9. REQUIREMENTS FOR PARTICIPATION IN UNDERWRITTEN OFFERINGS
No Person may participate in any Underwritten Offering pursuant to
a Registration hereunder unless such Person (a) agrees to sell such Person's
securities on the basis provided in any underwriting arrangements approved by
the Persons entitled hereunder to approve such arrangements, and (b)
completes and executes all questionnaires, powers of attorney, indemnities,
underwriting agreements and other documents required under the terms of such
underwriting arrangements
10. SUSPENSION OF SALES
Upon receipt of written notice from the Company that (i) a
Registration Statement or Prospectus contains a Misstatement, or (ii) in the
reasonable determination of the Company, there exists circumstances not yet
disclosed to the public which would be required to be disclosed in such
Registration Statement and the disclosure of which would be materially
harmful to the Company, each Holder of Registrable Securities shall forthwith
discontinue disposition of Registrable Securities until such Holder has
received copies of the supplemented or amended Prospectus required by Section
5(l) hereof, or until such Holder is advised in writing by the Company that
the use of the Prospectus may be resumed, and, if so directed by the Company,
such Holder shall deliver to the Company (at the Company's expense) all
copies, other than permanent file copies then in such Holder's possession, of
the Prospectus covering such Registrable Securities current at the time of
receipt of such notice. The Company shall use all commercially reasonable
efforts to minimize the length of such suspension of sales, provided, that
the Company may require the suspension of sales for a period of ninety (90)
days in the event that the disclosure of any circumstances, in the reasonable
determination of the Company would be harmful in any material respect to the
Company. In no event, however, shall the aggregate period of time that the
Company postpones the filing or declaration of effectiveness of any
Registration Statement pursuant to Section 5, or suspends sales of
Registrable Securities pursuant to Section 10 under any Registration
Statement, taken together with all such other periods with respect to such
Registrations Statement exceed, in the aggregate, ninety (90) days.
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11. FUTURE REGISTRATION RIGHTS AGREEMENTS
Except for an underwriting agreement between the Company and one or
more professional underwriters of securities, the Company shall not agree to
register any Equity Securities under the Securities Act unless such agreement
specifically provides that:
(a) the Holder of such Equity Securities may not participate in any
Demand Registration without the consent of the Investors unless:
(i) the offering of the Registrable Securities is to be a Firm
Commitment Underwritten Offering and the managing underwriter concludes
that the public offering or sale of such Equity Securities would not
interfere with the successful marketing of all Registrable Securities
requested to be sold and
(ii) the Holders of Registrable Securities shall have the right
to participate, to the extent they may request, in any Registration
Statement initiated under a Demand Registration right exercised by
Investors holding more than 50% of the Registrable Securities then
outstanding, except that if the managing underwriter of a public
offering made pursuant to such a Demand Registration limits the number
of shares of Common Stock to be sold, the participation of the Holders
of the Registrable Securities and the Holders of all other Common Stock
(other than the Equity Securities held by such Holder of Equity
Securities) shall be determined as set forth in Section 3 hereof.
(b) the Holder of such Equity Securities may not participate in
any Piggyback Registration if the sale of Registrable Securities is to be
underwritten unless, if the managing underwriter limits the total number of
shares to be sold, the Holders of such Equity Securities and the Holders of
Registrable Securities are entitled to participate in such underwritten
distribution based on the order of priority set forth in Section 3 hereof, and
(c) all Equity Securities excluded from any Registration as a
result of the foregoing limitations may not be publicly offered or sold for a
period (not to exceed at least thirty (30) days prior to the effective date
and sixty (60) days thereafter) that the managing underwriter reasonably
determines is necessary in order to effect the underwritten public offering
of Registrable Securities registered pursuant to this Agreement.
12. TRANSFER OF REGISTRATION RIGHTS
The rights of Holders of Registrable Securities hereunder may be
transferred as permitted in the Purchase Agreement. The Company shall be
given written notice by the Holder at the time of any such transfer permitted
by the Purchase Agreement stating the name and address of the transferee,
including a writing by such transferee to the effect that such transferee
agrees to by bound by the terms hereof and identifying the securities with
respect to which the rights hereunder are being transferred.
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13. MISCELLANEOUS
(a) REMEDIES.
Each Holder of Registrable Securities, in addition to being
entitled to exercise all rights provided herein, in the Purchase Agreement
and granted by law, including recovery of damages, shall be entitled to
specific performance of its rights under this Agreement. The Company agrees
that monetary damages would not be adequate compensation for any loss
incurred by reason of a breach by it of the provisions of this Agreement and
hereby agrees to waive the defense in any action for specific performance
that a remedy at law would be adequate.
(b) NO INCONSISTENT AGREEMENTS.
The Company shall not, on or after the date of this Agreement,
enter into any agreement with respect to its securities that is inconsistent
with the rights granted to the Holders of Registrable Securities in this
Agreement or otherwise conflicts with the provisions hereof.
Other than as disclosed on Schedule A attached hereto, the Company
has not previously entered into any agreement with respect to its securities
granting any "piggy back" registration rights to any Person. The Company
represents and warrants to the Investors that, except as set forth in this
Agreement and the GE Registration Rights Agreement, as of the date hereof,
there are no outstanding "demand" registration rights with respect to the
Company's securities. The rights granted to the Holders of Registrable
Securities hereunder do not in any way conflict with and are not inconsistent
with the rights granted to the holders of the Company's securities under any
such agreements.
(c) AMENDMENTS AND WAIVERS.
The provisions of this Agreement, including the provisions of this
sentence, may not be amended, modified or supplemented, and waivers or
consents to departures from the provisions hereof may not be given unless the
Company has obtained the written consent of General Electric Company, a New
York corporation (but such consent of General Electric Company shall only be
necessary if, at the time such consent is sought, GE owns GE Registrable
Securities) and of Investors holding more than 50% of the Registrable
Securities then outstanding (on behalf of themselves and all permitted
assignees who are Holders of Registrable Securities). The foregoing
notwithstanding, a waiver or consent to departure from the provisions hereof
that relates exclusively to the rights of Holders of shares of Registrable
Securities whose shares are being sold pursuant to a Registration Statement
and that does not directly or indirectly affect the rights of other Holders
of shares of Registrable Securities may be given by the Holders of a majority
of the shares of Registrable Securities being sold.
(d) NOTICES.
All notices and other communications provided for or permitted
hereunder shall be made in writing by hand-delivery, registered first-class
mail, telex, facsimile, or air courier guaranteeing overnight delivery:
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(i) if to a Holder of Registrable Securities who is an Investor
or a Carlyle Affiliate ( as such term is defined in the Purchase
Agreement), at the address of the Purchaser (as such term is defined in the
Purchase Agreement) set forth in Section 9.4 of the Purchase Agreement,
with a copy to Gibson, Dunn & Crutcher LLP, 1050 Connecticut Avenue, N.W.,
Suite 900, Washington, D.C. 20036, Facsimile: (202) 467-0539, Attention:
John F. Olson, Esq.;
(ii) if to a Holder of Registrable Securities who is not an
Investor or a Carlyle Affiliate (as such term is defined in the Purchase
Agreement), at the most current address given by the Holder to the Company
in accordance with the provisions hereof, which address initially is the
address of the Purchaser (as such term is defined in the Purchase
Agreement) set forth in the Purchase Agreement, with a copy to Gibson, Dunn
& Crutcher LLP, 1050 Connecticut Avenue, N.W., Suite 900, Washington, D.C.
20036, Facsimile: (202) 467-0539, Attention: John F. Olson, Esq.; and
(iii) if to the Company, initially at its address set forth
in the Purchase Agreement and thereafter at such other address, notice of
which is given in accordance with the provisions hereof, with a copy to
McDermott, Will & Emery, 2049 Century Park East, Los Angeles, CA 90067,
Facsimile: 310.277.4730, Attn: Mark J. Mihanovic, Esq., and Arent, Fox,
Kintner, Plotkin & Kahn, 1050 Connecticut Avenue, N.W., Suite 600,
Washington, D.C. 20036, Facsimile: 202.857.6395, Attn: Gerald P. McCartin,
Esq.
All such notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered; five business
days after being deposited in the mail, postage prepaid, if mailed; when
answered back, if telexed; when receipt acknowledged, if telecopied; and on the
next business day, if timely delivered to an air courier guaranteeing overnight
delivery. The Company shall promptly provide a list of the most current
addresses of the Holders of Registrable Securities given to it in accordance
with the provisions hereof to any such Holder for the purpose of enabling such
Holder to communicate with other Holders in connection with this Agreement.
(e) SUCCESSORS AND ASSIGNS.
This Agreement shall inure to the benefit of and be binding upon the
successors and assigns of each of the parties.
(f) COUNTERPARTS.
This Agreement may be executed in any number of counterparts and by
the parties hereto in separate counterparts, each of which when so executed
shall be deemed to be an original and all of which taken together shall
constitute one and the same agreement.
(g) HEADINGS.
The headings in this Agreement are for convenience of reference only
and shall not limit or otherwise affect the meaning hereof.
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(h) GOVERNING LAW.
This Agreement shall be construed, interpreted and the rights of the
parties determined in accordance with the internal laws of the State of New
York, without regard to the conflict of law principles thereof; except with
respect to matters of law concerning the internal corporate affairs of any
corporate entity which is a party to or the subject of this Agreement, and as to
those matters the law of the jurisdiction under which the respective entity
derives its powers shall govern.
(i) SEVERABILITY.
In the event that any one or more of the provisions contained herein,
or the application thereof in any circumstance, is held invalid, illegal or
unenforceable, the validity, legality and enforceability of any such provision
in every other respect and of the remaining provisions contained herein shall
not be affected or impaired thereby.
(j) FORMS.
All references in this Agreement to particular forms of Registration
Statements are intended to include all successor forms which are intended to
replace, or to apply to similar transactions as, the forms herein referenced.
(k) ENTIRE AGREEMENT.
This Agreement and the Purchase Agreement are intended by the parties
as the final expression of their agreement and intended to be a complete and
exclusive statement of the agreement and understanding of the parties hereto in
respect of the subject matter contained herein. There are no restrictions,
promises, warranties or undertakings, other than those set forth or referred to
herein or therein with respect to the registration rights granted by the Company
with respect to the securities sold pursuant to the Purchase Agreement. This
Agreement and the Purchase Agreement supersede all prior agreements and
understandings between the parties with respect to such subject matter.
(l) GE REGISTRATION RIGHTS AGREEMENT.
If Holders elect to join in a request for Demand Registration pursuant
to Section 2(d) of the GE Registration Rights Agreement, then such registration
of Holders' shares shall, with respect to the terms and conditions of this
Agreement, be treated as if such registration were a Demand Registration
pursuant to Section 2 of this Agreement; PROVIDED, HOWEVER, that such
registration of Holders' shares pursuant to Section 2(d) of the GE Registration
Rights Agreement shall not: (i) count as one of the two Demand Registrations
available to Holders pursuant to this Agreement, or (ii) be subject in any way
whatsoever to the $5 million threshold of Section 2(b) of this Agreement.
[signature page follows]
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed, as of the day and year first above written.
INSIGHT HEALTH SERVICES CORP.,
a Delaware corporation
By: ___________________________
Name: __________________________
Title: _________________________
CARLYLE PARTNERS II, L.P.,
a Delaware limited partnership
By: TC Group, L.L.C., as the General Partner
By: ___________________________
Name: __________________________
Title: Managing Director
CARLYLE PARTNERS III, L.P.,
a Delaware limited partnership
By: TC Group, L.L.C., as the General Partner
By: ___________________________
Name: __________________________
Title: Managing Director
CARLYLE INTERNATIONAL PARTNERS II, L.P.,
a Cayman Islands exempted limited partnership
By: TC Group, L.L.C., as the General Partner
By: ___________________________
Name: __________________________
Title: Managing Director
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CARLYLE INTERNATIONAL PARTNERS III, L.P.,
a Cayman Islands exempted limited partnership
By: TC Group, L.L.C., as the General Partner
By: ___________________________
Name: __________________________
Title: Managing Director
C/S INTERNATIONAL PARTNERS,
a Cayman Islands general partnership
By: TC Group, L.L.C., as the General Partner
By: ___________________________
Name: __________________________
Title: Managing Director
STATE BOARD OF ADMINISTRATION OF
FLORIDA,
a separate account maintained pursuant to an
Investment Management Agreement dated as of
September 6, 1996 between the State Board of
Administration of Florida, Carlyle Investment
Group, L.P. and Carlyle Investment
Management, L.L.C.
By: Carlyle Investment Management, L.L.C.,
as Investment Manager
By: ___________________________
Name: __________________________
Title: _________________________
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CARLYLE INVESTMENT GROUP, L.P.,
a Delaware limited partnership
By: TC Group, L.L.C., as the General Partner
By: ___________________________
Name: __________________________
Title: Managing Director
CARLYLE-INSIGHT INTERNATIONAL
PARTNERS, L.P.,
a Cayman Islands exempted limited partnership
By: TC Group, L.L.C., as the General Partner
By: ___________________________
Name: __________________________
Title: Managing Director
CARLYLE-INSIGHT PARTNERS, L.P.,
a Delaware limited partnership
By: TC Group, L.L.C., as the General Partner
By: ___________________________
Name: __________________________
Title: Managing Director
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REGISTRATION RIGHTS AGREEMENT
BETWEEN
INSIGHT HEALTH SERVICES CORP.
AND
GENERAL ELECTRIC COMPANY
DATED AS OF OCTOBER 14, 1997
<PAGE>
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (the "Agreement") is made and entered
into as of October 14, 1997, between InSight Health Services Corp., a
Delaware corporation (the "Company"), and General Electric Company, a New
York corporation (together with its Affiliates, "GE"). In order to induce GE
to enter into the Purchase Agreement, the Company has agreed to provide the
registration rights set forth in this Agreement. The execution of this
Agreement is a condition to the closing under the Purchase Agreement.
The parties hereby agree as follows:
Section 1. DEFINITIONS
Capitalized terms not otherwise defined herein shall have the respective
meanings given them in the Purchase Agreement. As used in this Agreement,
the following capitalized terms shall have the following meanings:
"Board of Directors" shall mean the Board of Directors of the Company.
"Carlyle Investors" shall mean Carlyle Partners II, L.P., a Delaware
limited partnership ("CP II"), Carlyle Partners III, L.P., a Delaware limited
partnership ("CP III"), Carlyle International Partners II, L.P., a Cayman
Islands exempted limited partnership ("CIP II"), Carlyle International
Partners III, L.P., a Cayman Islands exempted limited partnership ("CIP
III"), C/S International Partners, a Cayman Islands general partnership
("C/S"), the State Board of Administration of Florida ("SBAF"), Carlyle
Investment Group, L.P., a Delaware limited partnership ("CIG"),
Carlyle-Insight International Partners, L.P., a Cayman Islands exempted
limited partnership ("C-IIP"), and Carlyle-Insight Partners, L.P., a Delaware
limited partnership ("C-IP").
"Carlyle Investors' Registrable Securities" shall mean (a) the shares of
Common Stock issued or issuable upon conversion of the Series B Preferred
Stock or Series D Preferred Stock, whether or not owned by the Carlyle
Investors; (b) the shares of Common Stock issued or issuable upon exercise of
any Carlyle Investors' Warrants, whether or not owned by Carlyle Investors;
(c) any securities issued or issuable with respect to such Common Stock by
way of a stock dividend or stock split or in connection with a combination of
shares, recapitalization, merger, consolidation or reorganization; and (d)
any shares of Common Stock or securities issued or issuable with respect to
such Common Stock as provided in (c) above, acquired by the Carlyle Investors
from the Company subsequent to the date hereof, whether or not owned by the
Carlyle Investors at the time of a Registration; provided that any such share
or other security shall be deemed to be Registrable Securities only if and so
long as it is a Transfer Restricted Security.
<PAGE>
"Carlyle Investors' Registration Rights Agreement" shall mean a
Registration Rights Agreement substantially in the form of this Agreement
entered into between the Carlyle Investors and the Company as of the date
hereof.
"Carlyle Investors' Warrants" shall mean the warrants to purchase Common
Stock issued pursuant to a Warrant Agreement dated of even date herewith by
and between the Company and the Carlyle Investors.
"Claim" shall mean any loss, claim, damages, liability or expense
(including the reasonable costs of investigation and reasonable legal fees
and expenses).
"Common Stock" shall mean the Common Stock, par value $.001 per share,
of the Company.
"Demand Registration" shall mean a registration pursuant to Section 2
hereof.
"Equity Security" shall mean any capital stock of the Company or any
security convertible, with or without consideration, into any such stock, or
any security carrying any warrant or right to subscribe for or purchase any
such stock, or any such warrant or right.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as from
time to time amended.
"Firm Commitment Underwritten Offering" shall mean an offering in which
the underwriters agree to purchase securities for distribution pursuant to a
Registration Statement under the Securities Act and in which the obligation
of the underwriters is to purchase all the securities being offered if any
are purchased.
"Holder" shall mean the beneficial owner of a security. For all
purposes of this Agreement, the Company shall be entitled to treat the record
owner of a security as the beneficial owner of such security unless the
Company has been given written notice of the existence and identity of a
different beneficial owner. A Holder of Preferred Stock shall be deemed to
be the Holder of the Common Stock into which such Preferred Stock could be
converted.
"Indemnified Holder" shall mean any Holder of Registrable Securities,
any officer, director, employee or agent of any such Holder and any Person
who controls any such Holder within the meaning of either Section 15 of the
Securities Act or Section 20 of the Exchange Act.
"Misstatement" shall mean an untrue statement of a material fact or an
omission to state a material fact required to be stated in a Registration
Statement or Prospectus or necessary to make the statements in a Registration
Statement, Prospectus or preliminary prospectus not misleading.
"Person" shall mean a natural person, partnership, corporation, business
trust, association, joint venture or other entity or a government or agency
or political subdivision thereof.
"Piggyback Registration" shall mean a registration pursuant to Section 3
hereof.
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"Preferred Stock" shall mean the Series A Preferred Stock, the Series C
Convertible Preferred Stock of the Company being issued pursuant to the
Purchase Agreement and Series D Preferred Stock of the Company issued or
issuable upon conversion of the Series C Convertible Preferred Stock.
"Prospectus" shall mean the prospectus included in any Registration
Statement, as supplemented by any and all prospectus supplements and as
amended by any and all post-effective amendments and including all material
incorporated by reference in such prospectus.
"Purchase Agreement" shall mean that certain Securities Purchase
Agreement dated as of the date hereof between the Company and GE.
"Registrable Securities" shall mean (a) the shares of Common Stock
issued or issuable upon conversion of the Preferred Stock, whether or not
owned by GE, (b) the shares of Common Stock issued or issuable upon exercise
of any Warrants, whether or not owned by GE, (c) any securities issued or
issuable with respect to such Common Stock by way of a stock dividend or
stock split or in connection with a combination of shares, recapitalization,
merger, consolidation or reorganization; and (d) any shares of Common Stock
or securities issued or issuable with respect to such Common Stock as
provided in (c) above, acquired by GE from the Company subsequent to the date
hereof, whether or not owned by GE at the time of a Registration; provided
that any such share or other security shall be deemed to be Registrable
Securities only if and so long as it is a Transfer Restricted Security.
"Registration" shall mean a Demand Registration or a Piggyback
Registration.
"Registration Expenses" shall mean the out-of-pocket expenses of a
Registration, including:
(1) all registration and filing fees (including fees with respect
to filings required to be made with the National Association of
Securities Dealers);
(2) fees and expenses of compliance with securities or blue sky laws
(including fees and disbursements of counsel for the underwriters
or selling holders in connection with blue sky qualifications of
the Registrable Securities and determinations of their
eligibility for investment under the laws of such jurisdictions
as the managing underwriters or holders of a majority of the
Registrable Securities being sold may designate);
(3) printing, messenger, telephone and delivery expenses;
(4) fees and disbursements of counsel for the Company and of not more
than one firm of attorneys for the sellers of the Registrable
Securities;
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(5) expenses of the underwriters and fees and disbursements of
counsel for the underwriters, in each case, to the extent
required to be paid pursuant to an underwriting agreement
relating to a Registration;
(6) fees and disbursements of all independent certified public
accountants of the Company incurred in connection with such
Registration (including the expenses of any special audit and
"cold comfort" letters incident to such registration);
(7) premiums and other costs of securities acts liability insurance
if the Company so desires or if the underwriters so require or
selling holders of Registrable Securities reasonably so require;
and
(8) fees and expenses of any other Persons retained by the Company.
"Registration Statement" shall mean any registration statement under the
Securities Act on an appropriate form (which form shall be available for the
sale of the Registrable Securities in accordance with the intended method or
methods of distribution thereof and shall include all financial statements
required by the SEC to be filed therewith) which covers Registrable
Securities pursuant to the provisions of this Agreement, including the
Prospectus included in such registration statement, amendments (including
post-effective amendments) and supplements to such registration statement,
and all exhibits to and all material incorporated by reference in such
registration statement.
"Securities Act" shall mean the Securities Act of 1933, as from time to
time amended.
"SEC" shall mean the Securities and Exchange Commission.
"Series A Preferred Stock" shall mean the Series A Convertible Preferred
Stock of the Company.
"Series B Preferred Stock" shall mean the Series B Convertible Preferred
Stock of the Company.
"Series D Preferred Stock" shall mean the Series D Convertible Preferred
Stock of the Company.
"Transfer Restricted Security" shall mean a security that has not been
sold to or through a broker, dealer or underwriter in a public distribution
or other public securities transaction or sold in a transaction exempt from
the registration and prospectus delivery requirements of the Securities Act
under Rule 144 promulgated thereunder (or any successor rule). The foregoing
notwithstanding, a security shall remain a Transfer Restricted Security until
all stop transfer instructions or notations and restrictive legends with
respect to such security have been lifted or removed.
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<PAGE>
"Underwriters' Commissions" shall mean discounts of and commissions to
underwriters, selling brokers, dealer managers or similar securities
professionals relating to the distribution of the Registrable Securities.
"Underwritten Registration" or "Underwritten Offering" shall mean a
registration in which securities of the Company are sold to an underwriter
for distribution to the public.
"Warrants" shall mean the warrants to purchase Common Stock issued
pursuant to a Warrant Agreement dated of even date herewith by and between
the Company and GE.
Section 2. DEMAND REGISTRATIONS
(a) TIMING OF DEMAND REGISTRATIONS.
GE (on behalf of itself and all permitted assignees who are Holders of
Registrable Securities) may request at any time that the Company file a
Registration Statement under the Securities Act on an appropriate form (which
form shall be available for the sale of the Registrable Securities in
accordance with the intended method or methods of distribution thereof and
shall include all financial statements required by the SEC to be filed
herewith) covering the shares of Registrable Securities that are the subject
of such request.
(b) NUMBER OF DEMAND REGISTRATIONS; REQUIRED THRESHOLD.
The Company shall be obligated to prepare, file and cause to become
effective pursuant to this Section 2 no more than two (2) Registration
Statements in the aggregate for GE (on behalf of itself and all permitted
assignees who are Holders of Registrable Securities); provided, however, that
a Registration Statement shall not be counted as one of the two (2) Demand
Registrations hereunder unless it becomes effective and is maintained
effective in accordance with the requirements specified in Section 5(a). The
Company shall not be obligated to prepare, file and cause to become effective
pursuant to this Section 2 a Registration Statement unless the proposed
aggregate public offering price of the Registrable Securities to be included
in such Demand Registration is at least $5 million.
(c) DEFERRAL BY COMPANY.
Notwithstanding anything in this Section 2 to the contrary, the Company
shall not be obligated to prepare, file and cause to become effective
pursuant to this Section 2 a Registration Statement if the Company furnishes
GE a certificate signed by the President of the Company that in the good
faith judgment of the Board of Directors it would be detrimental in any
material respect to the Company and its shareholders for the Company to
comply with the Demand Registration, and it is therefore essential to defer
the filing of the Registration Statement relating thereto. Any such deferral
shall be for a period of not more than six (6) months after the Company's
receipt of GE's written request for registration pursuant to this Section 2;
PROVIDED, HOWEVER, that the Company may not exercise this right more than
once with respect to a Demand Registration and that any requested
registration deferred, and not ultimately effected, by the Company pursuant
to the provisions of this Section 2(c) shall thereafter not be deemed to be a
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<PAGE>
requested registration for purposes of the limitation to two (2) Demand
Registrations pursuant to Section 2(a) above.
(d) PARTICIPATION.
The Company shall promptly give written notice to all Holders of
Registrable Securities and to the Carlyle Investors upon receipt of a request
for a Demand Registration pursuant to Section 2(a) above. The Carlyle
Investors may, by written notice to the Company and GE, within thirty (30)
business days of the Company's notice, elect to join in a request for a
Demand Registration pursuant to Section 2(a) above, with respect to a number
of shares of the Carlyle Investors' Registrable Securities that is less than
or equal to the number of shares of Registrable Securities requested to be
registered in such Demand Registration by GE. The Carlyle Investors'
Registrable Securities being offered by the Carlyle Investors in such Demand
Registration shall be treated pari passu with the Registrable Securities
being offered by GE for all purposes including "underwriter's cutbacks" under
subsection (e) of this Section and any such request by the Carlyle Investors
shall not be treated as either a request for "piggyback" rights under Section
3 hereof or be treated as the exercise of a demand registration right by the
Carlyle Investors under the Carlyle Investors' Registration Rights Agreement.
In addition, the Company shall include in such Demand Registration such
shares of Registrable Securities for which it has received written requests
to register such shares within thirty (30) days after such written notice has
been given.
(e) UNDERWRITER'S CUTBACK.
If the public offering of Registrable Securities and/or Carlyle
Investors' Registrable Securities is to be underwritten and, in the good
faith judgment of the managing underwriter, the inclusion of all the
Registrable Securities and/or Carlyle Investors' Registrable Securities
requested to be registered hereunder would interfere with the successful
marketing of a smaller number of such shares of Registrable Securities and/or
Carlyle Investors' Registrable Securities, the number of shares of
Registrable Securities and/or Carlyle Investors' Registrable Securities to be
included shall be reduced to such smaller number with the participation in
such offering to be pro rata among the Holders of Registrable Securities
and/or Carlyle Investors' Registrable Securities requesting such
registration, based upon the number of shares of Registrable Securities
and/or Carlyle Investors' Registrable Securities owned by such Holders.
Any shares that are thereby excluded from the offering shall be withheld
from the market by the Holders thereof for a period (not to exceed thirty
(30) days prior to the effective date and one hundred twenty (120) days
thereafter) that the managing underwriter reasonably determines is reasonably
necessary in order to successfully market the securities to be offered in the
Underwritten Offering.
The Company and, subject to the requirements of Section 11 hereof, other
Holders of securities of the Company may include such securities in such
Registration if, but only if, the managing underwriter concludes that such
inclusion will not interfere with the successful marketing of all the
Registrable Securities requested to be included in such registration.
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<PAGE>
(f) MANAGING UNDERWRITER.
The managing underwriter or underwriters of any Underwritten Offering
covered by a Demand Registration shall be selected by GE (if GE owns a
majority of the shares of Common Stock to be offered therein), subject to the
approval of the Board of Directors (by a majority of the Directors not
elected by the holders of the Preferred Stock and the Series B Preferred
Stock), which approval shall not be unreasonably withheld.
3. PIGGYBACK REGISTRATIONS
(a) PARTICIPATION.
Each time the Company decides to file a Registration Statement under the
Securities Act (other than registrations on Forms S-4 or S-8 or any successor
form thereto, and other than a Demand Registration) covering the offer and
sale by it or any of its security holders of any of its securities for money,
the Company shall give written notice thereof to all Holders of Registrable
Securities. The Company shall include in such Registration Statement such
shares of Registrable Securities for which it has received written requests
to register such shares within twenty (20) days after such written notice has
been given. If the Registration Statement is to cover an Underwritten
Offering, such Registrable Securities shall be included in the underwriting
on the same terms and conditions as the securities otherwise being sold
through the underwriters.
(b) UNDERWRITER'S CUTBACK.
Subject to the requirements of Section 11 hereof, if in the good faith
judgment of the managing underwriter of such offering the inclusion of all of
the shares of Registrable Securities and any other Common Stock requested to
be registered would interfere with the successful marketing of a smaller
number of such shares, then the number of shares of Registrable Securities
and other Common Stock to be included in the offering shall be reduced to
such smaller number with the participation in such offering to be in the
following order of priority: (1) first, the shares of Common Stock which the
Company proposes to sell for its own account, (2) second, the shares of
Registrable Securities of all Holders of Registrable Securities requested to
be included, PARI PASSU with all shares of Carlyle Investors' Registrable
Securities requested by the Carlyle Investors to be included and all shares
of any Person granted "piggyback" registration rights by the Company prior to
the date hereof with respect to the Company's securities, as set forth in
Schedule A attached hereto, requested by such Person to be included, and (3)
third, any other shares of Common Stock requested to be included. Any
necessary allocation among the Holders of shares within each of the foregoing
groups shall be pro rata among such Holders requesting such registration
based upon the number of shares of Common Stock and Registrable Securities
owned by such Holders.
All shares so excluded from the Underwritten Offering shall be withheld
from the market by the Holders thereof for a period (not to exceed thirty
(30) days prior to the effective date and one hundred twenty (120) days
thereafter) that the managing underwriter reasonably determines is reasonably
necessary in order to successfully market the securities to be offered in the
Underwritten Offering.
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(c) COMPANY CONTROL.
The Company may decline to file a Registration Statement after giving
notice to Holders pursuant to Section 3(a) above, or withdraw a Registration
Statement after filing and after such notice, but prior to the effectiveness
thereof; provided that the Company shall promptly notify each Holder of
Registrable Securities in writing of any such action and provided further
that the Company shall bear all expenses incurred by each Holder or otherwise
in connection with such withdrawn Registration Statement.
4. HOLD-BACK AGREEMENTS
(a) BY HOLDERS OF REGISTRABLE SECURITIES
Upon the written request of the managing underwriter of any Underwritten
Offering of the Company's securities, a Holder of Registrable Securities shall
not sell, make any short sale of, loan, grant any option for the purchase of, or
otherwise dispose of any Registrable Securities (other than those included in
such registration) without the prior written consent of such managing
underwriter for a period (not to exceed thirty (30) days before the effective
date and one hundred twenty (120) days thereafter) that such managing
underwriter reasonably determines is necessary in order to effect the
Underwritten Offering; provided that each of the officers and directors of the
Company shall have entered into substantially similar holdback agreements with
such managing underwriter covering at least the same period.
(b) BY THE COMPANY AND OTHERS.
The Company agrees:
(1) not to effect any public or private sale or distribution
of its Equity Securities during the 30-day period prior to, and during
the 60-day period after, the effective date of each Underwritten
Offering made pursuant to a Demand Registration or a Piggyback
Registration, if so requested in writing by the managing underwriter
(except as part of such Underwritten Offering, pursuant to registrations
on Forms S-4 or S-8 or any successor forms thereto or private issuances
of Equity Securities as consideration for any acquisition by the Company
or a subsidiary of assets or capital stock of any unaffiliated third
party), and
(2) not to issue any Equity Securities other than for sale in
a registered public offering unless each of the Persons to which such
securities are issued has entered a written agreement binding on its
transferees not to effect any public sale or distribution of such
securities (except for employee stock options issued to Persons other
than: directors or officers; or shareholders owning five percent (5%) or
more of the Company's Equity Securities) during such period, including
without limitation a sale pursuant to Rule 144 under the Securities Act
(except as part of such Underwritten Registration, if and to the extent
permitted hereunder).
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5. REGISTRATION PROCEDURES
If and whenever the Company is required to register Registrable Securities
in a Demand Registration, the Company will use all commercially reasonable
efforts to effect such registration to permit the sale of such Registrable
Securities in accordance with the intended plan of distribution thereof. With
respect to both Demand Registrations and Piggyback Registrations (except as
otherwise specifically provided), the Company will as expeditiously as
practicable:
(a) prepare and file with the SEC as soon as practicable a Registration
Statement with respect to such Registrable Securities and use all commercially
reasonable efforts to cause such Registration Statement to become effective and
remain continuously effective until the date that is the earlier to occur of (i)
the date six months from the date such Registration Statement was declared
effective, and (ii) the date the last of the Registrable Securities covered by
such Registration Statement have been sold, provided that before filing a
Registration Statement or Prospectus or any amendments or supplements thereto,
the Company shall furnish to Holders of Registrable Securities covered by such
Registration Statement and the underwriters, if any, draft copies of all such
documents proposed to be filed, which documents will be subject to the review of
GE and such underwriters, and the Company shall not file any Registration
Statement or amendment thereto or any Prospectus or any supplement thereto to
which GE or the underwriters, if any, shall reasonably object;
(b) prepare and file with the SEC such amendments and post-effective
amendments to the Registration Statement, and such supplements to the
Prospectus, as may be requested by any underwriter of Registrable Securities or
as may be required by the rules, regulations or instructions applicable to the
registration form used by the Company or by the Securities Act or rules and
regulations thereunder to keep the Registration Statement effective until all
Registrable Securities covered by such Registration Statement are sold in
accordance with the intended plan of distribution set forth in such Registration
Statement or supplement to the Prospectus;
(c) promptly notify the selling Holders of Registrable Securities and the
managing underwriter, if any, and (if requested by any such Person) confirm such
advice in writing,
(1) when the Prospectus or any supplement or post-effective
amendment has been filed, and, with respect to the Registration Statement
or any post-effective amendment, when the same has become effective,
(2) of any request by the SEC for amendments or supplements to
the Registration Statement or the Prospectus or for additional information,
(3) of the issuance by the SEC of any stop order suspending the
effectiveness of the Registration Statement or the initiation of any
proceedings for that purpose,
(4) if at any time the representations and warranties of the
Company contemplated by clause (1) of paragraph (o) below cease to be
accurate in all material respects,
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(5) of the receipt by the Company of any notification with
respect to the suspension of the qualification of the Registrable
Securities for sale in any jurisdiction or the initiation or threatening of
any proceeding for such purpose, and
(6) of the existence of any fact which results in the
Registration Statement, the Prospectus or any document incorporated therein
by reference containing a Misstatement;
(d) make all commercially reasonable efforts to obtain the withdrawal of
any order suspending the effectiveness of the Registration Statement at the
earliest practicable time;
(e) unless the Company objects in writing on reasonable grounds, if
requested by the managing underwriter or GE (if GE holds more than 50% of the
Registrable Securities then outstanding) (on behalf of itself and all permitted
assignees who are Holders of Registrable Securities), as promptly as practicable
incorporate in a supplement or post-effective amendment such information as the
managing underwriter and GE agree should be included therein relating to the
sale of the Registrable Securities, including, without limitation, information
with respect to the number of shares of Registrable Securities being sold to
underwriters, the purchase price being paid therefor by such underwriters and
with respect to any other terms of the Underwritten Offering of the Registrable
Securities to be sold in such offering; and make all required filings of such
supplement or post-effective amendment as soon as notified of the matters to be
incorporated in such supplement or post-effective amendment;
(f) only with respect to Demand Registrations, promptly prior to the
filing of any document which is to be incorporated by reference into the
Registration Statement or the Prospectus (after initial filing of the
Registration Statement) provide copies of such document to counsel to GE (on
behalf of itself and all permitted assignees who are Holders of Registrable
Securities) and to the managing underwriter, if any, and make the Company's
representatives available for discussion of such document and make such changes
in such document prior to the filing thereof as counsel for GE or underwriters
may reasonably request;
(g) furnish to each selling Holder of Registrable Securities and the
managing underwriter, without charge, at least one signed copy of the
Registration Statement and any post-effective amendments thereto, including
financial statements and schedules, all documents incorporated therein by
reference and all exhibits (including those incorporated by reference);
(h) deliver to GE (on behalf of each selling Holder of Registrable
Securities) and the underwriters, if any, without charge, as many copies of each
Prospectus (and each preliminary prospectus) as such Persons may reasonably
request (the Company hereby consenting to the use of each such Prospectus (or
preliminary prospectus) by each of the selling Holders of Registrable Securities
and the underwriters, if any, in connection with the offering and sale of the
Registrable Securities covered by such Prospectus (or preliminary prospectus));
(i) prior to any public offering of Registrable Securities, use all
commercially reasonable efforts to register or qualify or cooperate with the
selling Holders of Registrable Securities, the underwriters, if any, and their
respective counsel in connection with the
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registration or qualification of such Registrable Securities for offer and
sale under the securities or blue sky laws of such jurisdictions as GE or
such underwriters may designate in writing and do anything else necessary or
advisable to enable from a legal perspective the disposition in such
jurisdictions of the Registrable Securities covered by the Registration
Statement; provided that the Company shall not be required to qualify
generally to do business in any jurisdiction where it is not then so
qualified or to take any action which would subject it to general service of
process in any such jurisdiction where it is not then so subject;
(j) cooperate with the selling Holders of Registrable Securities and the
managing underwriter, if any, to facilitate the timely preparation and delivery
of certificates not bearing any restrictive legends representing the Registrable
Securities to be sold and cause such Registrable Securities to be in such
denominations and registered in such names as the managing underwriter may
request at least three business days prior to any sale of Registrable Securities
to the underwriters;
(k) use all commercially reasonable efforts to cause the Registrable
Securities covered by the Registration Statement to be registered with or
approved by such other governmental agencies or authorities as may be necessary
to enable the seller or sellers thereof or the underwriters, if any, to
consummate the disposition of such Registrable Securities;
(l) if the Registration Statement or the Prospectus contains a
Misstatement, prepare a supplement or post-effective amendment to the
Registration Statement or the related Prospectus or any document incorporated
therein by reference or file any other required document so that, as thereafter
delivered to the purchasers of the Registrable Securities, the Prospectus will
not contain a Misstatement;
(m) use all commercially reasonable efforts to cause all Registrable
Securities covered by the Registration Statement to be listed on any national
securities exchange on which the Company's securities are listed or authorized
for quotation on Nasdaq, if requested by GE (on behalf of itself and all
permitted assignees who are Holders of Registrable Securities) or the managing
underwriter, if any; provided, however, that the payment of any required listing
or other fee shall always be deemed to be "commercially reasonable" for purposes
of this Section 5(m);
(n) provide a CUSIP number for all Registrable Securities not later than
the effective date of the Registration Statement;
(o) enter into such agreements (including an underwriting agreement) and
do anything else reasonably necessary or advisable in order to expedite or
facilitate the disposition of such Registrable Securities, and in such
connection, whether or not the registration is an Underwritten Registration:
(1) make such representations and warranties to the Holders of
such Registrable Securities and the underwriters, if any, in form,
substance and scope as are customarily made by issuers to holders and
underwriters, respectively, in similar Underwritten Offerings;
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(2) obtain opinions of counsel to the Company and updates
thereof (which counsel and opinions (in form, scope and substance) shall be
reasonably satisfactory to the managing underwriter, if any, and GE (on
behalf of itself and all permitted assignees who are Holders of Registrable
Securities)) addressed to each selling Holder and the underwriter, if any,
covering the matters customarily covered in opinions delivered to holders
and underwriters, respectively, in similar Underwritten Offerings and such
other matters as may be reasonably requested by GE or such underwriters;
(3) obtain "cold comfort" letters and updates thereof from the
Company's independent certified public accountants addressed to the selling
Holders of Registrable Securities and the underwriters, if any, such
letters to be in customary form and covering matters of the type
customarily covered in "cold comfort" letters to holders and underwriters,
respectively, in connection with similar Underwritten Offerings;
(4) if an underwriting agreement is entered into, cause the same
to include customary indemnification and contribution provisions and
procedures with respect to such underwriters; and
(5) deliver such documents and certificates as may be reasonably
requested by GE (on behalf of itself and all permitted assignees who are
Holders of Registrable Securities) and the managing underwriter, if any, to
evidence compliance with clause (1) above and with any customary conditions
contained in the underwriting agreement or other agreement entered into by
the Company.
The above shall be done at each closing under such underwriting or similar
agreement or as and to the extent otherwise reasonably requested by GE (on
behalf of itself and all permitted assignees who are Holders of Registrable
Securities);
(p) make available for inspection by representatives of GE (on behalf of
itself and all permitted assignees who are Holders of Registrable Securities),
any underwriter participating in any disposition pursuant to such Registration
Statement, and any attorney or accountant retained by the sellers or any such
underwriter, all financial and other records and pertinent corporate documents
and properties of the Company, and cause the Company's officers, directors and
employees to supply all information reasonably requested by any such seller or
underwriter in connection with the Registration; provided that any records,
information or documents that are designated by the Company in writing as
confidential shall be kept confidential by such Persons unless disclosure of
such records, information or documents is required by court or administrative
order; and
(q) otherwise use all commercially reasonable efforts to comply with all
applicable rules and regulations of the SEC relating to such Registration, and
make generally available to its security holders earnings statements satisfying
the provisions of Section 11(a) of the Securities Act, no later than forty-five
(45) days after the end of any 12-month period (or ninety (90) days, if such
period is a fiscal year) commencing at the end of any fiscal quarter in which
Registrable Securities are sold to underwriters in an Underwritten Offering, or,
if not sold to underwriters in such an offering, beginning with the first month
of the Company's first fiscal quarter
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commencing after the effective date of the Registration Statement, which
statements shall cover said 12-month period.
6. REGISTRATION EXPENSES
(a) DEMAND REGISTRATIONS.
The Company shall bear all Registration Expenses incurred in connection
with any Demand Registrations and of any Registrations which do not become or
are not maintained effective in accordance with the requirements specified in
Section 5(a) other than any Registration terminated prior to effectiveness at
the request of, or primarily as a result of, the actions of Holders whose
Registrable Securities are included in such registration. Notwithstanding the
foregoing, the Underwriters' Commissions incurred in connection with a Demand
Registration that becomes effective shall be shared by the Holders of the
Registrable Securities whose Registrable Securities are included in such
Registration and the Holders of the Carlyle Investors' Registrable Securities
whose Carlyle Investors' Registrable Securities are included in such
Registration, pro rata, in accordance with the aggregate amount of Registrable
Securities and Carlyle Investors' Registrable Securities sold by such Holders.
(b) PIGGYBACK REGISTRATIONS.
The Company shall bear all Registration Expenses incurred in connection
with any Piggyback Registrations, except that each Holder of the Registrable
Securities whose Registrable Securities are included in such Registration shall
pay its pro rata share of the Underwriters' Commissions incurred in such
Registration, in accordance with the amount of Registrable Securities sold by
all such Holders.
(c) COMPANY EXPENSES.
The Company also will, in any event, pay its internal expenses (including,
without limitation, all salaries and expenses of its officers and employees
performing legal or accounting duties), the expense of any annual audit, the
fees and expenses incurred in connection with any listing of the securities to
be registered on a securities exchange, and the fees and expenses of any Person,
including special experts, retained by the Company.
7. INDEMNIFICATION
(a) INDEMNIFICATION BY COMPANY.
The Company agrees to indemnify and hold harmless each Indemnified Holder
from and against all Claims arising out of or based upon any Misstatement or
alleged Misstatement, except insofar as such Misstatement or alleged
Misstatement was based upon information furnished in writing to the Company by
such Indemnified Holder expressly for use in the document containing such
Misstatement or alleged Misstatement. This indemnity shall not be exclusive and
shall be in addition to any liability which the Company may otherwise have.
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<PAGE>
The foregoing notwithstanding, the Company shall not be liable to the
extent that any such Claim arises out of or is based upon a Misstatement or
alleged Misstatement made in any preliminary prospectus if (i) such Indemnified
Holder failed to send or deliver a copy of the Prospectus with or prior to the
delivery of written confirmation of the sale of Registrable Securities giving
rise to such Claim and (ii) the Prospectus would have corrected such untrue
statement or omission.
In addition, the Company shall not be liable to the extent that any such
Claim arises out of or is based upon a Misstatement or alleged Misstatement in a
Prospectus, (x) if such Misstatement or alleged Misstatement is corrected in an
amendment or supplement to such Prospectus and (y) having previously been
furnished by or on behalf of the Company with copies of the Prospectus as so
amended or supplemented, such Indemnified Holder thereafter fails to deliver
such Prospectus as so amended or supplemented prior to or concurrently with the
sale to the person who purchased a Registrable Security from such Indemnified
Holder and who is asserting such Claim.
The Company shall also provide customary indemnifications to underwriters,
selling brokers, dealer managers and similar securities industry professionals
participating in a distribution covered by a Registration Statement, their
officers and directors and each Person who controls such Persons (within the
meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act).
(b) INDEMNIFICATION PROCEDURES.
If any action or proceeding (including any governmental investigation or
inquiry) shall be brought or asserted against an Indemnified Holder in respect
of which indemnity may be sought from the Company, such Indemnified Holder shall
promptly notify the Company in writing, and the Company may assume the defense
thereof, including the employment of counsel reasonably satisfactory to such
Indemnified Holder and the payment of all expenses.
Such Indemnified Holder shall have the right to employ separate counsel in
any such action and to participate in the defense thereof, but the fees and
expenses of such separate counsel shall be at the expense of such Indemnified
Holder unless (i) the Company has agreed to pay such fees and expenses, (ii) the
Company shall have failed to assume the defense of such action or proceeding or
has failed to employ counsel reasonably satisfactory to such Indemnified Holder
in any such action or proceeding, or (iii) the named parties to any such action
or proceeding (including any impleaded parties) include both such Indemnified
Holder and the Company, and such Indemnified Holder shall have been advised in
writing by counsel that there may be one or more legal defenses available to
such Indemnified Holder that are different from or additional to those available
to the Company.
If such Indemnified Holder notifies the Company in writing that it elects
to employ separate counsel at the expense of the Company as permitted by the
provisions of the preceding paragraph, the Company shall not have the right to
assume the defense of such action or proceeding on behalf of such Indemnified
Holder. The foregoing notwithstanding, the Company shall not be liable for the
reasonable fee and expenses of more than one separate firm of attorneys
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<PAGE>
at any time for such Indemnified Holder and any other Indemnified Holders
(which firm shall be designated in writing by such Indemnified Holders) in
connection with any one such action or proceeding or separate but
substantially similar or related actions or proceedings in the same
jurisdiction arising out of the same general allegations or circumstances.
The Company shall not be liable for any settlement of any such action or
proceeding effected without its written consent, but if settled with its written
consent, or if there be a final judgment for the plaintiff in any such action or
proceeding, the Company agrees to indemnify and hold harmless such Indemnified
Holders from and against any loss or liability by reason of such settlement or
judgment.
(c) INDEMNIFICATION BY HOLDER OF REGISTRABLE SECURITIES.
Each Holder of Registrable Securities agrees to indemnity and hold harmless
the Company, its directors and officers and each Person, if any, who controls
the Company within the meaning of either Section 15 of the Securities Act or
Section 20 of the Exchange Act to the same extent as the foregoing indemnity
from the Company to such Holder, but only with respect to information relating
to such Holder furnished in writing by such Holder expressly for use in any
Registration Statement, Prospectus or preliminary prospectus. In no event,
however, shall the liability hereunder of any selling Holder of Registrable
Securities be greater than the dollar amount of the proceeds received by such
Holder upon the sale of the Registrable Securities giving rise to such
indemnification obligation.
In case any action or proceeding shall be brought against the Company or
its directors or officers or any such controlling person, in respect of which
indemnity may be sought against a Holder of Registrable Securities, such Holder
shall have the rights and duties given the Company and the Company or its
directors or officers or such controlling person shall have the rights and
duties given to each Holder by Sections 7(a) and 7(b) above.
The Company shall be entitled to receive indemnities from underwriters,
selling brokers, dealer managers and similar securities industry professionals
participating in the distribution, to the same extent as provided above with
respect to information so furnished in writing by such Persons specifically for
inclusion in any Prospectus or Registration Statement.
(d) CONTRIBUTION.
If the indemnification provided for in this Section 7 is unavailable to an
indemnified party under Section 7(a) or Section 7(c) above (other than by reason
of exceptions provided in those Sections) in respect of any Claims referred to
in such Sections, then each applicable indemnifying party, in lieu of
indemnifying such indemnified party, shall contribute to the amount paid or
payable by such indemnified party as a result of such Claims in such proportion
as is appropriate to reflect the relative fault of the Company on the one hand
and of the Holder on the other in connection with the statements or omissions
which resulted in such Claims as well as any other relevant equitable
considerations. The amount paid or payable by a party as a result of the Claims
referred to above shall be deemed to include, subject to the limitations set
forth in
16
<PAGE>
Section 7(b), any legal or other fees or expenses reasonably incurred
by such party in connection with investigating or defending any action or claim.
The relative fault of the Company on the one hand and of the Holder on the
other shall be determined by reference to, among other things, whether the
Misstatement or alleged Misstatement relates to information supplied by the
Company or by the Holder and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such Misstatement or alleged
Misstatement.
The Company and each Holder of Registrable Securities agree that it would
not be just and equitable if contribution pursuant to this Section 7(d) were
determined by pro rata allocation or by any other method of allocation which
does not take account of the equitable considerations referred to above.
Notwithstanding the provisions of this Section 7(d), an Indemnified Holder
shall not be required to contribute any amount in excess of the amount by which
(i) the total price at which the securities that were sold by such Indemnified
Holder and distributed to the public were offered to the public exceeds (ii) the
amount of any damages which such Indemnified Holder has otherwise been required
to pay by reason of such Misstatement.
No person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Securities Act) shall be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation.
8. EXCHANGE ACT REPORTING REQUIREMENTS
From and after the date hereof, the Company shall (whether or not it shall
then be required to do so) timely file such information, documents and reports
as the Commission may require or prescribe under Section 13 or 15(d) (whichever
is applicable) of the Exchange Act. In addition, the Company shall use all
commercially reasonable efforts to file such other information, documents and
reports, as shall hereafter be required by the Commission as a condition to the
availability of Rule 144 under the Securities Act (or any successor provision)
and the use of Form S-3.
From and after the date hereof, the Company shall forthwith upon reasonable
request furnish any Holder of Registrable Securities (i) a written statement by
the Company that it has complied with such reporting requirements, (ii) a copy
of the most recent annual or quarterly report of the Company, and (iii) such
other reports and documents filed by the Company with the Commission as such
Holder may reasonably request in availing itself of an exemption for the sale of
Registrable Securities without registration under the Securities Act pursuant to
Rule 144 thereunder.
The purpose of the foregoing requirements are (a) to enable any such
Holder to comply with the current public information requirements contained
in paragraph (c) of Rule 144 under the Securities Act (or any successor
provision) and (b) to qualify the Company for the use of Registration
Statements on Form S-3.
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<PAGE>
9. REQUIREMENTS FOR PARTICIPATION IN UNDERWRITTEN OFFERINGS
No Person may participate in any Underwritten Offering pursuant to a
Registration hereunder unless such Person (a) agrees to sell such Person's
securities on the basis provided in any underwriting arrangements approved by
the Persons entitled hereunder to approve such arrangements, and (b) completes
and executes all questionnaires, powers of attorney, indemnities, underwriting
agreements and other documents required under the terms of such underwriting
arrangements
10. SUSPENSION OF SALES
Upon receipt of written notice from the Company that (i) a Registration
Statement or Prospectus contains a Misstatement, or (ii) in the reasonable
determination of the Company, there exist circumstances not yet disclosed to the
public which would be required to be disclosed in such Registration Statement
and the disclosure of which would be materially harmful to the Company, each
Holder of Registrable Securities shall forthwith discontinue disposition of
Registrable Securities until such Holder has received copies of the supplemented
or amended Prospectus required by Section 5(l) hereof, or until such Holder is
advised in writing by the Company that the use of the Prospectus may be resumed,
and, if so directed by the Company, such Holder shall deliver to the Company (at
the Company's expense) all copies, other than permanent file copies then in such
Holder's possession, of the Prospectus covering such Registrable Securities
current at the time of receipt of such notice. The Company shall use all
commercially reasonable efforts to minimize the length of such suspension of
sales, provided, that the Company may require the suspension of sales for a
period of ninety (90) days in the event that the disclosure of any
circumstances, in the reasonable determination of the Company, would be harmful
in any material respect to the Company. In no event, however, shall the
aggregate period of time that the Company postpones the filing or declaration of
effectiveness of any Registration Statement pursuant to Section 5, or suspends
sales of Registrable Securities pursuant to Section 10 under any Registration
Statement, taken together with all such other periods with respect to such
Registrations Statement exceed, in the aggregate, ninety (90) days.
11. FUTURE REGISTRATION RIGHTS AGREEMENTS
Except for an underwriting agreement between the Company and one or more
professional underwriters of securities, the Company shall not agree to register
any Equity Securities under the Securities Act unless such agreement
specifically provides that:
(a) the Holder of such Equity Securities may not participate in any Demand
Registration without the consent of GE unless:
(i) the offering of the Registrable Securities is to be a Firm
Commitment Underwritten Offering and the managing underwriter concludes
that the public offering or sale of such Equity Securities would not
interfere with the successful marketing of all Registrable Securities
requested to be sold and
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<PAGE>
(ii) the Holders of Registrable Securities shall have the right
to participate, to the extent they may request, in any Registration
Statement initiated under a Demand Registration right exercised GE (if GE
holds more than 50% of the Registrable Securities then outstanding), except
that if the managing underwriter of a public offering made pursuant to such
a Demand Registration limits the number of shares of Common Stock to be
sold, the participation of the Holders of the Registrable Securities and
the Holders of all other Common Stock (other than the Equity Securities
held by such Holder of Equity Securities) shall be determined as set forth
in Section 3 hereof.
(b) the Holder of such Equity Securities may not participate in any
Piggyback Registration if the sale of Registrable Securities is to be
underwritten unless, if the managing underwriter limits the total number of
shares to be sold, the Holders of such Equity Securities and the Holders of
Registrable Securities are entitled to participate in such underwritten
distribution based on the order of priority set forth in Section 3 hereof, and
(c) all Equity Securities excluded from any Registration as a result of
the foregoing limitations may not be publicly offered or sold for a period (not
to exceed at least thirty (30) days prior to the effective date and sixty (60)
days thereafter) that the managing underwriter reasonably determines is
necessary in order to effect the underwritten public offering of Registrable
Securities registered pursuant to this Agreement.
12. TRANSFER OF REGISTRATION RIGHTS
The rights of Holders of Registrable Securities hereunder may be
transferred as permitted in the Purchase Agreement. The Company shall be given
written notice by the Holder at the time of any such transfer permitted by the
Purchase Agreement stating the name and address of the transferee, including a
writing by such transferee to the effect that such transferee agrees to be bound
by the terms hereof and identifying the securities with respect to which the
rights hereunder are being transferred.
13. MISCELLANEOUS
(a) REMEDIES.
Each Holder of Registrable Securities, in addition to being entitled to
exercise all rights provided herein, in the Purchase Agreement and granted by
law, including recovery of damages, shall be entitled to specific performance of
its rights under this Agreement. The Company agrees that monetary damages would
not be adequate compensation for any loss incurred by reason of a breach by it
of the provisions of this Agreement and hereby agrees to waive the defense in
any action for specific performance that a remedy at law would be adequate.
(b) NO INCONSISTENT AGREEMENTS.
The Company shall not, on or after the date of this Agreement, enter into
any agreement with respect to its securities that is inconsistent with the
rights granted to the Holders of Registrable Securities in this Agreement or
otherwise conflicts with the provisions hereof.
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<PAGE>
Other than as disclosed on Schedule A attached hereto, the Company has not
previously entered into any agreement with respect to its securities granting
any "piggy back" registration rights to any Person. The Company represents and
warrants to GE that, except as set forth in this Agreement and the Carlyle
Investors' Registration Rights Agreement, as of the date hereof, there are no
outstanding "demand" registration rights with respect to the Company's
securities. The rights granted to the Holders of Registrable Securities
hereunder do not in any way conflict with and are not inconsistent with the
rights granted to the holders of the Company's securities under any such
agreements.
(c) AMENDMENTS AND WAIVERS.
The provisions of this Agreement, including the provisions of this
sentence, may not be amended, modified or supplemented, and waivers or consents
to departures from the provisions hereof may not be given unless the Company has
obtained the written consent of the Carlyle Investors (but such consent of the
Carlyle Investors shall only be necessary if, at the time such consent is
sought, the Carlyle Investors own the Carlyle Investors' Registrable Securities)
and of GE (if GE holds more than 50% of the Registrable Securities then
outstanding) (on behalf of itself and all permitted assignees who are Holders of
Registrable Securities). The foregoing notwithstanding, a waiver or consent to
departure from the provisions hereof that relates exclusively to the rights of
Holders of shares of Registrable Securities whose shares are being sold pursuant
to a Registration Statement and that does not directly or indirectly affect the
rights of other Holders of shares of Registrable Securities may be given by the
Holders of a majority of the shares of Registrable Securities being sold.
(d) NOTICES.
All notices and other communications provided for or permitted hereunder
shall be made in writing by hand-delivery, registered first-class mail, telex,
facsimile, or air courier guaranteeing overnight delivery:
(i) if to a Holder of Registrable Securities who is GE, at the
address of the Purchaser (as such term is defined in the Purchase
Agreement) set forth in Section 9.4 of the Purchase Agreement, with a copy
to Gibson, Dunn & Crutcher LLP, 333 South Grand Avenue, Los Angeles, CA
90071-3197, Facsimile: (213) 229-7250, Attention: Ronald S. Beard;
(ii) if to a Holder of Registrable Securities who is not GE, at
the most current address given by the Holder to the Company in accordance
with the provisions hereof, which address initially is the address of the
Purchaser (as such term is defined in the Purchase Agreement) set forth in
the Purchase Agreement, with a copy to Gibson, Dunn & Crutcher LLP, 333
South Grand Avenue, Los Angeles, CA 90071-3197, Facsimile:
(213) 229-7250, Attention: Ronald S. Beard; and
(iii) if to the Company, initially at its address set forth
in the Purchase Agreement and thereafter at such other address, notice of
which is given in accordance with the provisions hereof, with a copy to
McDermott, Will & Emery, 2049 Century Park
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<PAGE>
East, Los Angeles, CA 90067, Facsimile: 310.277.4730, Attn: Mark J.
Mihanovic, Esq., and Arent, Fox, Kintner, Plotkin & Kahn, 1050 Connecticut
Avenue, N.W., Suite 600, Washington, D.C. 20036, Facsimile: 202.857.6395,
Attn: Gerald P. McCartin, Esq.
All such notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered; five business
days after being deposited in the mail, postage prepaid, if mailed; when
answered back, if telexed; when receipt acknowledged, if telecopied; and on the
next business day, if timely delivered to an air courier guaranteeing overnight
delivery. The Company shall promptly provide a list of the most current
addresses of the Holders of Registrable Securities given to it in accordance
with the provisions hereof to any such Holder for the purpose of enabling such
Holder to communicate with other Holders in connection with this Agreement.
(e) SUCCESSORS AND ASSIGNS.
This Agreement shall inure to the benefit of and be binding upon the
successors and assigns of each of the parties.
(f) COUNTERPARTS.
This Agreement may be executed in any number of counterparts and by the
parties hereto in separate counterparts, each of which when so executed shall be
deemed to be an original and all of which taken together shall constitute one
and the same agreement.
(g) HEADINGS.
The headings in this Agreement are for convenience of reference only and
shall not limit or otherwise affect the meaning hereof.
(h) GOVERNING LAW.
This Agreement shall be construed, interpreted and the rights of the
parties determined in accordance with the internal laws of the State of New
York, without regard to the conflict of law principles thereof; except with
respect to matters of law concerning the internal corporate affairs of any
corporate entity which is a party to or the subject of this Agreement, and as to
those matters the law of the jurisdiction under which the respective entity
derives its powers shall govern.
(i) SEVERABILITY.
In the event that any one or more of the provisions contained herein, or
the application thereof in any circumstance, is held invalid, illegal or
unenforceable, the validity, legality and enforceability of any such provision
in every other respect and of the remaining provisions contained herein shall
not be affected or impaired thereby.
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(j) FORMS.
All references in this Agreement to particular forms of Registration
Statements are intended to include all successor forms which are intended to
replace, or to apply to similar transactions as, the forms herein referenced.
(k) ENTIRE AGREEMENT.
This Agreement and the Purchase Agreement are intended by the parties as
the final expression of their agreement and intended to be a complete and
exclusive statement of the agreement and understanding of the parties hereto in
respect of the subject matter contained herein. There are no restrictions,
promises, warranties or undertakings, other than those set forth or referred to
herein or therein with respect to the registration rights granted by the Company
with respect to the securities sold pursuant to the Purchase Agreement. This
Agreement and the Purchase Agreement supersede all prior agreements and
understandings between the parties with respect to such subject matter
(including any prior agreements and understandings with respect to registration
rights regarding the Series A Preferred Stock).
(l) CARLYLE INVESTORS' REGISTRATION RIGHTS AGREEMENT.
If Holders elect to join in a request for Demand Registration pursuant to
Section 2(d) of the Carlyle Investors' Registration Rights Agreement, then such
registration of Holders' shares shall, with respect to the terms and conditions
of this Agreement, be treated as if such registration were a Demand Registration
pursuant to Section 2 of this Agreement; PROVIDED, HOWEVER, that such
registration of Holders' shares pursuant to Section 2(d) of the Carlyle
Investors' Registration Rights Agreement shall not: (i) count as one of the two
Demand Registrations available to Holders pursuant to this Agreement, or (ii) be
subject in any way whatsoever to the $5 million threshold of Section 2(b) of
this Agreement.
[signature page follows]
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed, as of the day and year first above written.
INSIGHT HEALTH SERVICES CORP.,
a Delaware corporation
By: __________________________________
Name: ___________________________
Title: ___________________________
GENERAL ELECTRIC COMPANY,
a New York corporation
By: __________________________________
Name: ___________________________
Title: ___________________________
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<PAGE>
WARRANT AGREEMENT
BETWEEN
INSIGHT HEALTH SERVICES CORP.
AND
CERTAIN WARRANT HOLDERS DEFINED HEREIN
DATED AS OF OCTOBER 14, 1997
<PAGE>
WARRANT AGREEMENT
THIS WARRANT AGREEMENT (the "Agreement") is made as of October 14,
1997 (the "Effective Date"), between InSight Health Services Corp., a
Delaware corporation (the "Company"), and Carlyle Partners II, L.P., a
Delaware limited partnership ("CP II"), Carlyle Partners III, L.P., a
Delaware limited partnership ("CP III"), Carlyle International Partners II,
L.P., a Cayman Islands exempted limited partnership ("CIP II"), Carlyle
International Partners III, L.P., a Cayman Islands exempted limited
partnership ("CIP III"), C/S International Partners, a Cayman Islands general
partnership ("C/S"), the State Board of Administration of Florida ("SBAF"),
Carlyle Investment Group, L.P., a Delaware limited partnership("CIG"),
Carlyle-Insight International Partners, L.P., a Cayman Islands exempted
limited partnership ("C-IIP"), and Carlyle-Insight Partners, L.P., a Delaware
limited partnership ("C-IP") (CP II, CP III, CIP II, CIP III, C/S, SBAF, CIG,
C-IIP and C-IP, collectively, the "Warrant Holders" and, individually, a
"Warrant Holder").
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, the Company has entered into (i) that certain Securities
Purchase Agreement with the Warrant Holders dated as of October 14, 1997 (the
"Purchase Agreement"), pursuant to which the Company agrees, among other
things, to issue to the Warrant Holders warrants (the "Warrants") to purchase
up to an aggregate of two hundred fifty thousand (250,000) shares of common
stock, $.001 par value per share, of the Company (the "Common Stock," and the
Common Stock issuable upon exercise of the Warrants being herein referred to
as the "Warrant Shares"), and (ii) that certain Securities Purchase Agreement
with General Electric Company ("GE") dated as of October 14, 1997, pursuant
to which the Company agrees, among other things, to issue to GE warrants (the
"GE Warrant") to purchase up to an aggregate of two hundred fifty hundred
thousand (250,000) shares of Common Stock of the Company. Each Warrant shall
be a warrant to purchase one (1) Warrant Share, unless and until adjusted
pursuant to Section 10 hereof. Certain terms used herein and not elsewhere
defined are defined in the Purchase Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements herein set forth, and for other good and lawful consideration, the
receipt, sufficiency and adequacy of which are hereby acknowledged, the
parties hereto agree as follows:
SECTION 1. WARRANT CERTIFICATE.
The certificates evidencing the Warrants (the "Warrant
Certificates") to be delivered pursuant to this Agreement shall be in
registered form only and shall be substantially in the form set forth in
Exhibit A attached hereto.
SECTION 2. EXECUTION OF WARRANT CERTIFICATE.
(a) The Warrant Certificates shall be signed on behalf of the
Company by its Chairman of the Board of Directors (the "Board") or its
President or a Vice President, and by its Secretary or an Assistant Secretary
under its corporate seal. Each such signature upon the Warrant Certificates
may be in the form of a facsimile signature of the present or any future
Chairman of the Board, President, Vice President, Secretary or Assistant
Secretary, as the case may be, and may be imprinted or otherwise
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<PAGE>
reproduced on the Warrant Certificates. The seal of the Company may be in
the form of a facsimile thereof and may be impressed, affixed, imprinted or
otherwise reproduced on the Warrant Certificates.
(b) In case any officer of the Company who shall have signed any
Warrant Certificate shall cease to be such officer before the Warrant
Certificate so signed shall have been disposed of by the Company, such
Warrant Certificate nevertheless may be delivered or disposed of as though
such person had not ceased to be such officer of the Company; and any Warrant
Certificate may be signed on behalf of the Company by any person who, at the
actual date of the execution of such Warrant Certificate, shall be a proper
officer of the Company to sign such Warrant Certificate, although at the date
of the execution of this Agreement any such person was not such officer.
SECTION 3. REGISTRATION.
The Company shall register the Warrant Certificates in a Warrant
register to be maintained by the Company (the "Warrant Register") when
Warrants are issued. The Company may deem and treat the registered holders of
the Warrant Certificates as the absolute owners thereof (notwithstanding any
notation of ownership or other writing thereon made by anyone) for all
purposes and shall not be affected by any notice to the contrary.
SECTION 4. REGISTRATION OF TRANSFERS AND EXCHANGES.
(a) The Company shall from time to time register the transfer of
any outstanding Warrant Certificate in the Warrant Register upon surrender
thereof accompanied by a written instrument or instruments of transfer in
form satisfactory to the Company, duly executed by the registered holder or
holders thereof or by the duly appointed legal representative thereof or by a
duly authorized attorney. Upon any such registration of transfer, a new
Warrant Certificate shall be issued to the transferee and the surrendered
Warrant Certificate shall be canceled and disposed of by the Company.
(b) The Warrant Holders agree that prior to any proposed transfer
of the Warrants or of the Warrant Shares, which transfer shall not be to any
Person engaged in the Business, if such transfer is not made pursuant to an
effective Registration Statement under the Securities Act of 1933, as amended
(the "Securities Act"), the Warrant Holder(s) will, if requested by the
Company, deliver to the Company:
(1) an investment representation letter reasonably
satisfactory to the Company signed by the proposed transferee;
(2) an agreement by such transferee to the impression of the
restrictive investment legend set forth below in Section 4(c) on
the Warrants or the Warrant Shares;
(3) an agreement by such transferee that the Company may place
a notation in the stock books of the Company or a "stop transfer
order" with any transfer agent or registrar with respect to the
Warrant Shares;
(4) an agreement by such transferee to be bound by the
provisions of this Section 4 relating to the transfer of such
Warrants or Warrant Shares; and
(5) except in the case of a transfer pursuant to Rule 144
promulgated pursuant to the Securities Act, or any successor rule,
prior to consummating any private sale or transfer of such Warrants
or Warrant Shares, the written opinion of reputable legal counsel
in form reasonably
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acceptable to the Company that such sale or transfer is being made
in compliance with applicable federal securities laws.
(c) The Warrant Holders agree that each certificate
representing Warrants or Warrant Shares will bear the following
legend until such Warrants or Warrant Shares have been sold
pursuant to an effective registration statement under the
Securities Act:
"THE SECURITIES EVIDENCED OR CONSTITUTED HEREBY HAVE
BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED. SUCH SECURITIES MAY NOT BE SOLD,
TRANSFERRED, PLEDGED, HYPOTHECATED OR OTHERWISE
DISPOSED OF IN THE ABSENCE OF REGISTRATION UNDER
SAID ACT AND THE RULES AND REGULATIONS THEREUNDER
AND OF ALL APPLICABLE STATE SECURITIES OR "BLUE SKY"
LAWS OR AN EXEMPTION THEREFROM UNDER SAID ACT AND
ALL APPLICABLE STATE SECURITIES OR "BLUE SKY" LAWS.
IN THE CASE OF A SALE OF THE SECURITIES EVIDENCED OR
CONSTITUTED HEREBY, OTHER THAN A SALE PURSUANT TO A
VALID REGISTRATION STATEMENT UNDER SAID ACT OR A
SALE PURSUANT TO RULE 144 PROMULGATED UNDER SAID
ACT, THE HOLDER OF THE SECURITIES EVIDENCED OR
CONSTITUTED HEREBY SHALL PROVIDE TO THE CORPORATION
THE WRITTEN OPINION OF REPUTABLE LEGAL COUNSEL IN
FORM REASONABLY ACCEPTABLE TO THE CORPORATION THAT
SUCH SALE OR TRANSFER IS BEING MADE IN COMPLIANCE
WITH APPLICABLE FEDERAL SECURITIES LAWS."
(d) A Warrant Certificate may be exchanged at the option of the
holder(s) thereof, when surrendered to the Company at its office for another
Warrant Certificate or other Warrant Certificates of like tenor and
representing in the aggregate a like number of Warrants. A Warrant
Certificate surrendered for exchange shall be canceled and disposed of by the
Company
SECTION 5. WARRANTS; EXERCISE OF WARRANTS.
(a) Subject to the terms of this Agreement, the Warrant Holders
shall have the right, which may be exercised during the period commencing on
the Effective Date until 5:00 p.m., Washington, D.C. time, on the fifth
anniversary of the Effective Date (the "Exercise Period"), to receive from
the Company the number of fully paid and non-assessable Warrant Shares that
the Warrant Holder may at the time be entitled to receive on exercise of the
number of Warrants that the Warrant Holder elects to exercise and payment of
the Exercise Price (as defined below) then in effect for such Warrant Shares.
In the alternative, the Warrant Holder may exercise its right, during the
Exercise Period, to receive Warrant Shares on a net basis, such that, without
payment of any funds kind, the Warrant Holder receives that number of Warrant
Shares equal to the number of Warrants being exercised times the quotient of
(i) the "fair market value" of a Warrant Share (as defined below) minus the
Exercise Price, divided by (ii) the fair market value of a Warrant Share.
For purposes of the foregoing sentence, "fair market value" of a Warrant
Share shall mean the average of the closing prices of the Common Stock's
sales on all domestic
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securities exchanges on which such Common Stock may at the time be listed,
or, if there have been no sales on any such exchange on any day, the average
of the highest bid and lowest asked prices on all such exchanges at the end
of such day, or, if on any day such Common Stock is not so listed, the
average of the representative bid and asked prices quoted on Nasdaq as of
4:00 P.M., New York time, on such day, or, if on any day such Common Stock is
not quoted on Nasdaq, the average of the highest bid and lowest asked prices
on such day in the domestic over-the-counter market as reported by the
National Quotation Bureau, Incorporated, or any similar successor
organization, in each such case averaged over a period of twenty-one (21)
business days consisting of the day as of which the "fair market value" of
the Warrant Shares is being determined and the twenty (20) consecutive
business days prior to such day; provided that if such Common Stock is listed
on any domestic securities exchange the term "business days" as used in this
sentence means business days on which such exchange is open for trading. If
at any time such Common Stock is not listed on any domestic securities
exchange or quoted on Nasdaq or the domestic over-the-counter market, the
"fair market value" of the Warrant Shares shall be the fair value thereof
determined by the Company and approved by the Warrant Holder; provided that
if such parties are unable to reach agreement within a reasonable period of
time, such fair market value shall be determined by an appraiser reasonably
selected by the Company and reasonably approved by the Warrant Holder. The
determination of such appraiser shall be final and binding on the Company and
the Warrant Holder, and the fees and expenses of such appraiser shall be paid
by the Company, unless the fair market value determined by such appraiser is
less than five percent (5%) above the value proposed in writing by the
Company and rejected by the Warrant Holder prior to the selection of such
appraiser, in which event the fees and expenses of such appraiser shall be
for the Warrant Holder's account. Each Warrant not exercised prior to 5:00
p.m., Washington, D.C. time, on the fifth anniversary of the Effective Date
shall become void and all rights thereunder and all rights in respect thereof
under this agreement shall cease as of such time. No adjustments as to
dividends will be made upon exercise of the Warrants.
(b) A Warrant may be exercised upon surrender to the Company at its
office designated for such purpose (the address of which is set forth in
Section 14 hereof) of the certificate or certificates evidencing the Warrants
to be exercised with the form of election to purchase on the reverse thereof
duly filled in and signed, and upon (i) payment to the Company of the
exercise price of ten dollars ($10.00) per Warrant Share, as adjusted as
herein provided (as so adjusted, the "Exercise Price"), for the number of
Warrant Shares in respect of which such Warrants are then exercised, or (ii)
the Warrant Holder's exercise of its right to receive Warrant Shares on a net
basis, as more fully described in Section 5(a). Payment of the aggregate
Exercise Price shall be made (i) in cash or by certified or official bank
check payable to the order of the Company or (ii) in the manner provided in
subsection (a) of this Section 5.
(c) Subject to the provisions of Section 6 hereof, upon such
surrender of Warrants and payment of the Exercise Price, the Company shall
issue and cause to be delivered with all reasonable dispatch to or upon the
written order of the Warrant Holder and in such name or names as the Warrant
Holder may designate, a certificate or certificates for the number of full
Warrant Shares issuable upon the exercise of such Warrants together with cash
as provided in Section 11; PROVIDED, HOWEVER, that if any consolidation,
merger, or sale or other transfer of all or substantially all of the assets
of the Company is proposed to be effected by the Company, or a tender offer
or an exchange offer for shares of Common Stock of the Company shall be made,
upon such surrender of Warrants and payment of the Exercise Price as
aforesaid, the Company shall, as soon as practicable, but in any event not
later than five business days thereafter, issue and cause to be delivered the
full number of Warrant Shares issuable upon the exercise of such Warrants in
the manner described in this sentence together with cash as provided in
Section 11. Such certificate or certificates shall be deemed to have been
issued and any person so designated to be named therein shall be deemed to
have become a holder of record of such Warrant Shares as of the date of the
surrender of such Warrants and payment of the Exercise Price.
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(d) The Warrants shall be exercisable, at the election of the
holder thereof, either in full or from time to time in part and, in the event
that a Warrant Certificate evidencing Warrants is exercised in respect of
fewer than all of the Warrant Shares issuable on such exercise at any time
prior to the date of expiration of the Warrants, a new Warrant Certificate
evidencing the remaining Warrant or Warrants will be issued and delivered by
the Company and at its expense pursuant to the provisions of this Section and
of Section 2 hereof.
(e) All Warrant Certificates surrendered upon exercise of Warrants
shall be canceled and disposed of by the Company. The Company shall keep
copies of this Agreement and any notices given or received hereunder
available for inspection by the Warrant Holder during normal business hours
at its office.
SECTION 6. PAYMENT OF TAXES.
The Company will pay all documentary stamp taxes or other similar
taxes attributable to the initial issuance of Warrant Shares upon the
exercise of Warrants; PROVIDED, HOWEVER, that the Company shall not be
required to pay any tax or taxes which may be payable in respect of any
transfer involved in the issue of any Warrant Certificate or any certificates
for Warrant Shares in a name other than that of the registered holder of a
Warrant Certificate surrendered upon the exercise of a Warrant, and the
Company shall not be required to issue or deliver such Warrant Certificates
unless or until the person or persons requesting the issuance thereof shall
have paid to the Company the amount of such tax or shall have established to
the satisfaction of the Company that such tax has been paid.
SECTION 7. MUTILATED OR MISSING WARRANT CERTIFICATES.
In case any of the Warrant Certificates shall be mutilated, lost,
stolen or destroyed, the Company may issue, in exchange and substitution for,
and upon cancellation of, the mutilated Warrant Certificate, or in lieu of
and substitution for the Warrant Certificate lost, stolen or destroyed, a new
Warrant Certificate of like tenor and representing an equivalent number of
Warrants, but only upon receipt of evidence reasonably satisfactory to the
Company of such loss, theft or destruction of such Warrant Certificate and
indemnity, if requested, also reasonably satisfactory to it. Applicants for
such substitute Warrant Certificates shall also comply with such other
reasonable regulations and pay such other reasonable charges as the Company
may prescribe.
SECTION 8. RESERVATION OF WARRANT SHARES.
(a) The Company will at all times reserve and keep available, free
from preemptive rights, out of the aggregate of its authorized but unissued
Common Stock or its authorized and issued Common Stock held in its treasury,
for the purpose of enabling it to satisfy any obligation to issue Warrant
Shares upon exercise of Warrants, the maximum number of shares of Common
Stock which may then be deliverable upon the exercise of all outstanding
Warrants.
(b) The Company or, if appointed, the transfer agent for the Common
Stock (the "Transfer Agent") and every subsequent Transfer Agent for any
shares of the Company's capital stock issuable upon the exercise of any of
the rights of purchase aforesaid will be irrevocably authorized and directed
at all times to reserve such number of authorized shares as shall be required
for such purpose. The Company will keep a copy of this Agreement on file with
the Transfer Agent and with every subsequent transfer agent for any shares of
the Company's capital stock issuable upon the exercise of the rights of
purchase
5
<PAGE>
represented by the Warrants. The Company will furnish such Transfer
Agent a copy of all notices of adjustments and certificates related thereto
transmitted to each holder pursuant to Section 13 hereof.
(c) Before taking any action which would cause an adjustment
pursuant to Section 10 hereof to reduce the Exercise Price below the then par
value (if any) of the Warrant Shares, the Company will take any corporate
action which may, in the opinion of its counsel (which may be counsel
employed by the Company), be necessary in order that the Company may validly
and legally issue fully paid and nonassessable Warrant Shares at the Exercise
Price as so adjusted.
(d) The Company covenants that all Warrant Shares which may be
issued upon exercise of Warrants will, upon issue, be fully paid,
nonassessable, free of preemptive rights and free from all taxes, liens,
charges and security interests with respect to the issue thereof
SECTION 9. STOCK EXCHANGE LISTINGS.
The Company will from time to time take all commercially reasonable
action, at its expense, which may be necessary so that the Warrant Shares,
immediately upon their issuance upon the exercise of Warrants, will be listed
and maintained on the principal securities exchanges and markets within the
United States of America, if any, on which other shares of Common Stock are
then listed and registered under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), or authorized for quotation on Nasdaq,
provided, however, that the payment of any required listing or other fee
shall always be deemed to be "commercially reasonable" for purposes of this
Section 9.
SECTION 10. ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF WARRANT SHARES
ISSUABLE.
(a) In order to prevent the dilution of the rights granted under
this Agreement, the Exercise Price shall be subject to adjustment from time
to time as provided in this Section 10, and the number of shares of Common
Stock obtainable upon exercise of the Warrants shall be subject to adjustment
from time to time as provided in this Section 10. For purposes of this
Section 10, "Trigger Price" shall be $6.75 per share of Common Equity;
"Convertible Security" means any stock or securities, directly or indirectly,
convertible into or exchangeable for Common Equity, including without
limitation any exchangeable debt securities; "Option" shall mean any rights
or options to subscribe for or purchase Common Equity or Convertible
Securities.
(b) If and whenever the Company issues or sells or, in accordance
with Section 10(c), is deemed to have issued or sold, any share of Common
Equity without consideration or for a net consideration per share less than
the Trigger Price, then immediately upon such issuance or sale, the Exercise
Price, which shall equal $10 per share until the first such issuance or sale
below the Trigger Price, shall be reduced to the price per share determined
by dividing (i) an amount equal to the sum of (A) the number of shares of
Common Equity outstanding immediately prior to such issuance multiplied by
the Exercise Price in effect immediately prior to such issuance, and (B) the
consideration, if any, received by the Company upon such issuance, by (ii)
the total number of shares of Common Equity outstanding immediately after
such issuance.
Notwithstanding the foregoing, there shall be no adjustment to the
Exercise Price with respect to the granting of, or issuance of Common Equity
upon exercise of, stock options to employees of the Company authorized but
not granted as of the Effective Date for an aggregate of up to 300,000 shares
of Common Equity (as such shares are equitably adjusted for subsequent stock
splits, stock combinations, stock dividends and recapitalizations). For
purposes of this Section 10, "Common Equity" means all
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shares now or hereafter authorized of any class of common stock of the
Company (including the Common Stock) and any other stock of the Company,
however designated, authorized on or after the date hereof, which has the
right (subject always to prior rights of any class or series of preferred
stock) to participate in any distribution of the assets or earnings of the
Company without limit as to per share amount, and "Fully Diluted Equity"
means, with respect to the Company at any given time, (A) the number of
shares of Common Equity actually outstanding at such time, plus (B) the
maximum number of shares of Common Equity that are issuable upon the
exercise, exchange or conversion of any unexpired right or unexpired option
(including the Warrants) to subscribe for, to purchase or to receive Common
Equity or other securities convertible into or exchangeable for Common
Equity, including without limitation any exchangeable debt securities,
regardless of whether any of the foregoing are actually exercisable at such
time; provided, however, the number of shares of Common Equity outstanding at
any given time shall not include shares, directly or indirectly, owned or
held by or for the account of the Company.
(c) For purposes of determining the adjusted Exercise Price under
Section 10(b) above, the following shall be applicable:
(1) CONSIDERATION. If any Common Equity, Options or Convertible
Securities are issued or sold or deemed to have been issued or sold
for cash, the consideration received therefor shall be deemed to be
(i) in the case of any public offering of such securities for cash,
the gross proceeds of such offering (without deduction for any
underwriters discount) and (ii) in the case of any other issuance,
sale or deemed issuance or sale for cash, the gross amount received
by the Company therefor. In case any Common Equity, Options or
Convertible Securities are issued or sold for a consideration other
than cash, the amount of the consideration other than cash received
by the Company shall be the fair market value of such consideration.
In case any Common Equity, Options or Convertible Securities are
issued to the owners of the non-surviving entity in connection with
any merger in which the Company is the surviving corporation, the
amount of consideration therefor shall be deemed to be the fair
market value of such portion of the net assets and business of the
non-surviving entity as is attributable to such Common Equity,
Options or Convertible Securities, as the case may be. The fair
market value of any consideration other than cash shall be
determined jointly by the Company and a majority in interest of the
Warrant Holders. If such parties are unable to reach agreement
within a reasonable period of time, such fair market value shall be
determined by an appraiser reasonably selected by the Company and
reasonably approved by such Warrant Holders. The determination of
such appraiser shall be final and binding on the Company and the
Warrant Holders, and the fees and expenses of such appraiser shall
be paid by the Company, unless the fair market value determined by
such appraiser is less than five percent (5%) above the value
proposed in writing by the Company and rejected by such Warrant
Holders prior to the selection of such appraiser, in which event the
fees and expenses of such appraiser shall be for such Warrant
Holders' account.
(2) OPTIONS AND CONVERTIBLE SECURITIES. In the case of the
granting or sale of any Option or Convertible Security (whether or
not at the time convertible, exercisable or exchangeable):
(A) the aggregate maximum number of shares of Common Equity
deliverable, directly or indirectly, upon exercise of any
Option shall be deemed to have been issued at the time such
Option was granted and for a consideration equal to the
consideration (determined in the manner provided in subsection
(1) above), if any, received by the Company upon the issuance
of
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such Option plus the minimum purchase price provided in such
Option for the Common Equity covered thereby;
(B) the aggregate maximum number of shares of Common Equity
deliverable upon conversion of or in exchange for any such
Convertible Security, or upon the exercise of any Option to
purchase or acquire any Convertible Security and the subsequent
conversion or exchange thereof, shall be deemed to have been
issued at the time such Convertible Security was issued or such
Option was issued and for a consideration equal to the
consideration, if any, received by the Company for any such
Convertible Security and any related Option (excluding any cash
received on account of accrued interest or accrued dividends),
plus the additional consideration (determined in the manner
provided in subsection (1) above), if any, to be received by
the Company upon the conversion or exchange of such Convertible
Security, or upon the exercise of any related Option to purchase
or acquire any Convertible Security and the subsequent
conversion or exchange thereof;
(C) on any change in the number of shares of Common Equity
deliverable, directly or indirectly, upon conversion, exercise
or exchange of any such Option or Convertible Security or any
change in the consideration to be received by the Company upon
such exercise, conversion or exchange, including, but not
limited to, a change resulting from the anti-dilution provisions
thereof, the Exercise Price as then in effect shall forthwith
be readjusted to such Exercise Price as would have been obtained
had an adjustment been made upon the issuance of such Option or
Convertible Security upon the basis of such change;and
(D) if the Exercise Price shall have been adjusted upon the
issuance of any such Option or Convertible Security, no further
adjustment of the Exercise Price shall be made for the actual
issuance of Common Equity upon any exercise, conversion, or
exchange thereof;
provided, however, that none of the events set forth in Section 10(c)(2)(A)
through 10(c)(2)(D), inclusive, shall result in any increase in the Exercise
Price.
(3) INTEGRATED TRANSACTION. In case any Option is issued in connection
with the issue or sale of other securities of the Company, together
comprising one integrated transaction in which no specific consideration is
allocated to such Options by the parties thereto, the Options shall be deemed
to have been issued without consideration.
(4) TREASURY SHARES. The number of shares of Common Equity outstanding
at any given time does not include shares owned or held by or for the account
of the Company, and the disposition of any shares so owned or held shall be
considered an issuance or sale of Common Equity.
(5) RECORD DATE. If the Company takes a record of the holders of
Common Equity for the purpose of entitling them (A) to receive a dividend or
other distribution payable in Common Equity, Options or in Convertible
Securities or (B) to subscribe for or purchase
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Common Equity, Options or Convertible Securities, then such record
date shall be deemed to be the date of the issuance or sale of the
shares of Common Equity deemed to have been issued or sold upon the
declaration of such dividend or the making of such other
distribution or the date of the granting of such right of
subscription or purchase, as the case may be.
(d) If the Company at any time subdivides (by any stock split,
stock dividend, recapitalization or otherwise) one or more classes of its
outstanding shares of Common Equity into a greater number of shares, the
Exercise Price in effect immediately prior to such subdivision shall be
proportionately reduced and the number of shares of Common Stock obtainable
upon exercise of the Warrant shall be proportionately increased. If the
Company at any time combines (by reverse stock split or otherwise) one or
more classes of its outstanding shares of Common Stock into a smaller number
of shares, the Exercise Price in effect immediately prior to such combination
shall be proportionately increased and the number of shares of Common Stock
obtainable upon exercise of this Warrant shall be proportionately decreased.
(e) Any recapitalization, reorganization, reclassification,
consolidation, merger, sale of all or substantially all of the Company's
assets or other transaction, in each case which is effected in such a way
that the holders of Common Equity are entitled to receive (either directly or
upon subsequent liquidation) stock, securities or assets with respect to or
in exchange for Common Equity is referred to herein as a "Corporate Change."
Prior to the consummation of any Corporate Change, the Company shall make
appropriate provision (in form and substance satisfactory to the Warrant
Holder) to insure that the Warrant Holder shall thereafter have the right to
acquire and receive, in lieu of or in addition to (as the case may be) the
Warrant Shares acquirable and receivable upon the exercise of such holder's
Warrants, such shares of stock, securities or assets as may be issued or
payable with respect to or in exchange for the number of Warrant Shares
acquirable and receivable upon exercise of such holder's Warrant had such
Corporate Change not taken place. In any such case, the Company shall make
appropriate provision (in form and substance reasonably satisfactory to the
Warrant Holder) with respect to such holder's rights and interests to insure
that the provisions of this Agreement shall thereafter be applicable to the
Warrants (including, in the case of any such consolidation, merger or sale in
which the successor entity or purchasing entity is other than the Company,
any adjustment of the Exercise Price based on Section 10 hereof). The
Company shall not effect any such consolidation, merger or sale, unless prior
to the consummation thereof, the successor entity (if other than the Company)
resulting from consolidation or merger or the entity purchasing such assets
assumes by written instrument (in form and substance reasonably satisfactory
to the Warrant Holder), the obligation to deliver to the Warrant Holder such
shares of stock, securities or assets as, in accordance with the foregoing
provisions, such holder may be entitled to acquire.
(f) If any event occurs of the type contemplated by the provisions
of this Section 10 but not expressly provided for by such provisions
(including, without limitation, the granting of stock appreciation rights,
phantom stock rights or other rights with equity features), then the
Company's Board shall make an appropriate adjustment in the Exercise Price
and the number of shares of Common Stock obtainable upon exercise of this
Warrant so as to protect the rights of the Warrant Holder; provided that no
such adjustment shall increase the Exercise Price or decrease the number of
shares of Common Stock obtainable as otherwise determined pursuant to this
Section 10.
(g) If the Company declares or pays a dividend upon the Common Equity
payable otherwise than in cash out of earnings or earned surplus (determined
in accordance with generally accepted accounting principles, consistently
applied) except for a stock dividend payable in shares of Common Stock (a
"Liquidating Dividend"), then the Company shall pay to the Warrant Holder at
the time of
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payment thereof the Liquidating Dividend which would have been paid to such
Warrant Holder on the Common Stock had the Warrants been fully exercised
immediately prior to the date on which a record is taken for such Liquidating
Dividend, or, if no record is taken, the date as of which the record holders of
Common Equity entitled to such dividends are to be determined.
SECTION 11. FRACTIONAL INTERESTS.
The Company shall not be required to issue fractional Warrant
Shares upon the exercise of Warrants. If more than one Warrant shall be
presented for exercise in full at the same time by the Warrant Holder, the
number of full Warrant Shares which shall be issuable upon the exercise
thereof shall be computed on the basis of the aggregate number of Warrant
Shares purchasable on exercise of the Warrants so presented. If any fraction
of a Warrant Share would, except for the provisions of this Section 11, be
issuable on the exercise of any Warrants (or specified portion thereof), the
Company shall pay an amount in cash equal to the "fair market value"
(determined as provided in Section 5(a) above) of the Common Stock on the day
immediately preceding the date the Warrant is presented for exercise,
multiplied by such fraction.
SECTION 12. FINANCIAL STATEMENTS.
(a) Whether or not required by the rules and regulations of
the Securities and Exchange Commission (the "Commission"), so long as any of
the Warrants remain outstanding, the Company shall furnish to the Warrant
Holders (i) all quarterly and annual financial information that would be
required to be contained in a filing with the Commission on Forms 10-Q and
10-K if the Company were required to file such Forms, including "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
and, with respect to the annual information only, a report thereon by the
Company's certified independent accountants and (ii) all current reports that
would be required to be filed with the Commission on Form 8-K if the Company
were required to file such reports. In addition, whether or not required by
the rules and regulations of the Commission, the Company shall file a copy of
all such information and reports with the Commission for public availability
(unless the Commission will not accept such a filing).
(b) The Company shall, so long as any of the Warrants are
outstanding, deliver to the Warrant Holders, forthwith upon any Executive
Officer of the Corporation becoming aware of any default under this
Agreement, an Officers' Certificate specifying such default and what action
the Company is taking or proposes to take with respect thereto.
SECTION 13. NOTICES TO WARRANT HOLDERS.
(a) Upon any adjustment of the Exercise Price or exercise
privileges pursuant to Section 10, the Company shall promptly thereafter (i)
cause to be filed with the Company a certificate of a firm of independent
public accountants of recognized standing, selected by the Board (who may be
the regular auditors of the Company) and acceptable to the Warrant Holders,
setting forth the Exercise Price after such adjustment and setting forth in
reasonable detail the method of calculation and the facts upon which such
calculations are based and setting forth the number of Warrant Shares (or
portion thereof) issuable after such adjustment in the Exercise Price, which
certificate shall be conclusive evidence of the correctness of the matters
set forth therein, upon exercise of a Warrant and payment of the adjusted
Exercise Price, and (ii) cause to be given to each of the registered holders
of the Warrant Certificate(s), at his or her address appearing on the Warrant
register, written notice of such adjustments by first-class
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mail, postage prepaid. Where appropriate, such notice may be given in
advance and included as a part of the notice required to be mailed under the
other provisions of this Section 13.
(b) In case:
(1) the Company shall authorize the issuance to all holders
of shares of Common Stock of the Company rights to subscribe for,
or to purchase shares of, Common Stock or of any other
subscription rights or warrants; or
(2) the Company shall authorize the distribution to all
holders of shares of Common Stock of evidences of its
indebtedness or assets; or
(3) of any consolidation or merger to which the Company is
a party and for which approval of any shareholders of the Company
is required, or of the conveyance or transfer of the properties
and assets of the Company substantially as an entirety, or of
any reclassification or change of Common Stock issuable upon
exercise of the Warrants, or a tender offer or exchange offer
for shares of Common Stock; or
(4) of the voluntary or involuntary dissolution,
liquidation or winding up of the Company or a Liquidating
Dividend; or
(5) the Company proposes to take any action which would
require an adjustment of the Exercise Price or the Warrant
Shares pursuant to Section 10;
then the Company shall cause to be given to each of the registered holders of
the Warrant Certificates at his or her address appearing on the Warrant
register, at least twenty (20) days prior to the applicable record date
hereinafter specified, or promptly in the case of events for which there is
no record date, by first-class mail, postage prepaid, a written notice
stating (i) the date as of which the holders of record of shares of Common
Stock to be entitled to receive any such rights or distribution are to be
determined, or (ii) the initial expiration date set forth in any tender offer
or exchange offer for shares of Common Stock, or (iii) the date on which any
such consolidation, merger, conveyance, transfer, dissolution, liquidation or
winding up is expected to become effective or consummated, and the date as of
which it is expected that holders of record of shares of Common Stock shall
be entitled to exchange such shares for securities or other property, if any,
deliverable upon such reclassification, consolidation, merger, conveyance,
transfer, dissolution, liquidation or winding up. The failure to give the
notice required by this Section 13 or any defect therein shall not affect the
legality or validity of any distribution, right, option, warrant,
consolidation, merger, conveyance, transfer, dissolution, liquidation or
winding up, or the vote upon any action.
(c) Nothing contained in this Agreement or in the Warrant
Certificate shall be construed as conferring upon the holders thereof the
right to vote or to consent or to receive notice as shareholders in respect
of the meetings of shareholders or the election of Directors of the Company
or any other matter, or any rights whatsoever as shareholders of the Company.
SECTION 14. NOTICES TO THE COMPANY AND THE WARRANT HOLDERS.
(a) Unless otherwise provided herein, any notice, request,
instruction or other document to be given hereunder by any party to the other
shall be in writing and delivered by hand-delivery, registered first-class
mail, return receipt requested, facsimile or air courier guaranteeing
overnight delivery, as follows:
11
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If to the Company: InSight Health Services Corp.
4400 MacArthur Boulevard, Suite 800
Newport Beach, CA 92660
Facsimile: 714.851.4488
Attn: Chief Financial Officer
With a copy to: McDermott, Will & Emery
2049 Century Park East, 34th Floor
Los Angeles, CA 90067
Facsimile: 310.277.4730
Attn: Mark J. Mihanovic, Esq.
and
Arent, Fox, Kintner, Plotkin & Kahn
1050 Connecticut Avenue, N.W., Suite 600
Washington, D.C. 20036
Facsimile: 202.857.6395
Attn: Gerald P. McCartin, Esq.
If to the Purchaser: c/o The Carlyle Group
1001 Pennsylvania Avenue, N W
Suite 2205
Washington, D.C. 20004
Facsimile: 202.347.9250
Attn: David W. Dupree
With a copy to: Gibson, Dunn & Crutcher LLP
1050 Connecticut Avenue, N.W.
Washington, D.C. 20036
Facsimile: 202.467.0539
Attn: John F. Olson, Esq.
or to such other place and with such other copies as either party may
designate as to itself by written notice to the other. All such notices,
requests, instructions or other documents shall be deemed to have been duly
given at the time delivered by hand, if personally delivered, four (4)
business days after being deposited in the mail, postage prepaid, if mailed,
when receipt is acknowledged by addressee, if by facsimile, or on the next
business day, if timely delivered to an air courier guaranteeing overnight
delivery.
SECTION 15. SUPPLEMENTS AND AMENDMENTS.
The Company may from time to time supplement or amend this
Agreement with the express written approval of the holder(s) of the Warrant
Certificate(s) in order to cure any ambiguity or to correct or supplement any
provision contained herein which may be defective or inconsistent with any
other provision herein, or to make any other provisions in regard to matters
or questions arising hereunder which the Company may deem necessary or
desirable and which shall not in any way adversely affect the interests of
the holder(s) of Warrant Certificate(s).
12
<PAGE>
SECTION 16. SUCCESSORS.
All the covenants and provisions of this Agreement by or for
the benefit of the Company shall bind and inure to the benefit of its
respective successors and assigns hereunder. All the covenants and
provisions by or for the benefit of the Warrant Holders shall bind and inure
to the benefit of their respective successors and assigns hereunder.
SECTION 17. TERMINATION.
This Agreement shall terminate at 5:00 p.m., Eastern Standard
Time on the fifth anniversary of the Effective Date. Notwithstanding the
foregoing, this Agreement will terminate on any earlier date if all Warrants
have been exercised.
SECTION 18. GOVERNING LAW.
This Agreement and each Warrant Certificate issued hereunder
shall be deemed to be a contract made under the laws of the State of New York
and for all purposes shall be construed in accordance with the internal laws
of said State.
SECTION 19. BENEFITS OF THIS AGREEMENT.
Nothing in this Agreement shall be construed to give to any
person or corporation other than the Company and the registered holder(s) of
the Warrant Certificate(s) any legal or equitable right, remedy or claim
under this Agreement; but this Agreement shall be for the sole and exclusive
benefit of the Company and the registered holder(s) of the Warrant
Certificate(s).
SECTION 20. HSR ACT.
The Company shall cooperate with any Warrant Holder, promptly
after receipt of notice from any such Warrant Holder of its intention to
exercise any Warrants, in making all filings required to be made under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act") in connection with such exercise; provided, however, that in no event
shall such cooperation include payment of any fee which may be required to be
paid. The applicable waiting period, including any extension thereof, under
the HSR Act shall have expired or been terminated prior to the issuance of
any Warrant Shares upon exercise of Warrants.
SECTION 21. COUNTERPARTS.
This Agreement may be executed in any number of
counterparts and each of such counterparts shall for all purposes be deemed
to be an original, and all such counterparts shall together constitute but
one and the same instrument.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed, as of the day and year first above written
INSIGHT HEALTH SERVICES CORP.,
a Delaware corporation
By: ___________________________________
Name: ___________________________________
Title:___________________________________
CARLYLE PARTNERS II, L.P.,
a Delaware limited partnership
By: TC Group, L.L.C., its General Partner
By: ___________________________________
Name: ___________________________________
Title:___________________________________
CARLYLE PARTNERS III, L.P.,
a Delaware limited partnership
By: TC Group, L.L.C., its General Partner
By: ___________________________________
Name: ___________________________________
Title:___________________________________
CARLYLE INTERNATIONAL PARTNERS II, L.P.,
a Cayman Islands exempted limited partnership
By: TC Group, L.L.C., its General Partner
By: ___________________________________
Name: ___________________________________
Title:___________________________________
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CARLYLE INTERNATIONAL PARTNERS III, L.P.,
a Cayman Islands exempted limited partnership
By: TC Group, L.L.C., its General Partner
By: ___________________________________
Name: ___________________________________
Title:___________________________________
C/S INTERNATIONAL PARTNERS,
a Cayman Islands general partnership
By: TC Group, L.L.C., its General Partner
By: ___________________________________
Name: ___________________________________
Title:___________________________________
STATE BOARD OF ADMINISTRATION OF FLORIDA,
a separate account maintained pursuant to an
Investment Management Agreement dated as of
September 6, 1996 between the State Board of
Administration of Florida, Carlyle Investment
Group, L.P. and Carlyle Investment
Management, L.L.C.
By: Carlyle Investment Management, L.L.C.,
as Investment Manager
By: ___________________________________
Name: ___________________________________
Title:___________________________________
CARLYLE INVESTMENT GROUP, L.P.,
a Delaware limited partnership
By: TC Group, L.L.C., its General Partner
By: ___________________________________
Name: ___________________________________
Title:___________________________________
2
<PAGE>
CARLYLE-INSIGHT INTERNATIONAL
PARTNERS, L.P.,
a Cayman Islands exempted limited partnership
By: TC Group, L.L.C., its General Partner
By: ___________________________________
Name: ___________________________________
Title:___________________________________
CARLYLE-INSIGHT PARTNERS, L.P.,
a Delaware limited partnership
By: TC Group, L.L.C., its General Partner
By: ___________________________________
Name: ___________________________________
Title:___________________________________
3
<PAGE>
EXHIBIT A
[FORM OF WARRANT CERTIFICATE]
[FACE]
"THE SECURITIES EVIDENCED OR CONSTITUTED HEREBY HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED. SUCH SECURITIES MAY NOT BE SOLD, TRANSFERRED, PLEDGED, HYPOTHECATED
OR OTHERWISE DISPOSED OF IN THE ABSENCE OF REGISTRATION UNDER SAID ACT AND
THE RULES AND REGULATIONS THEREUNDER AND OF ALL APPLICABLE STATE SECURITIES
OR "BLUE SKY" LAWS OR AN EXEMPTION THEREFROM UNDER SAID ACT AND ALL
APPLICABLE STATE SECURITIES OR "BLUE SKY" LAWS. IN THE CASE OF A SALE OF THE
SECURITIES EVIDENCED OR CONSTITUTED HEREBY, OTHER THAN A SALE PURSUANT TO A
VALID REGISTRATION STATEMENT UNDER SAID ACT OR A SALE PURSUANT TO RULE 144
PROMULGATED UNDER SAID ACT, THE HOLDER OF THE SECURITIES EVIDENCED OR
CONSTITUTED HEREBY SHALL PROVIDE TO THE CORPORATION THE WRITTEN OPINION OF
REPUTABLE LEGAL COUNSEL IN FORM REASONABLY ACCEPTABLE TO THE CORPORATION THAT
SUCH SALE OR TRANSFER IS BEING MADE IN COMPLIANCE WITH APPLICABLE FEDERAL
SECURITIES LAWS."
EXERCISABLE ON OR BEFORE OCTOBER 14, 2002
No. Warrants
------- ------
WARRANT CERTIFICATE
INSIGHT HEALTH SERVICES CORP.
This Warrant Certificate certifies that ______________ or registered
assigns, is the registered holder of ______ warrants (the "Warrants")
expiring October 14, 2002 (the "Expiration Date") to purchase Common Stock,
$.001 par value (the "Common Stock"), of InSight Health Services Corp., a
Delaware corporation (the "Company"). Each Warrant entitles the holder upon
exercise to receive from the Company on or before 5:00 p.m., Washington, D.C.
time, on the Expiration Date, one fully paid and non-assessable share of
Common Stock (a "Warrant Share") at the initial exercise price of $10.00 per
Warrant Share, subject to adjustment (as adjusted, the exercise price is the
"Exercise Price") upon the occurrence of certain events set forth in the
Warrant Agreement, upon surrender of this Warrant Certificate and payment of
the Exercise Price, or as otherwise provided in the Warrant Agreement, at the
office of the Company designated for such purpose, but only subject to the
conditions set forth herein and in the Warrant Agreement dated as of October
14, 1997 (the "Warrant Agreement"). The number and kind of Warrant Shares
issuable upon exercise of the Warrants are subject to adjustment upon the
occurrence of certain events set forth in the Warrant Agreement.
No Warrant may be exercised after 5:00 p.m., Washington, D.C. time, on the
Expiration Date, and to the extent not exercised by such time such Warrants
shall become void.
Reference is hereby made to the further provisions of this Warrant
Certificate set forth on the reverse hereof and such further provisions shall
for all purposes have the same effect as though fully set forth at this place.
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<PAGE>
This Warrant Certificate shall not be valid unless countersigned by the
Company, as such term is used in the Warrant Agreement.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be
signed by its President and by its Secretary and has caused its corporate seal
to be affixed hereunto or imprinted hereon.
Date:
---------------------
INSIGHT HEALTH SERVICES CORP.
By:
----------------------------------
President
By:
----------------------------------
Secretary
ii
<PAGE>
[FORM OF WARRANT CERTIFICATE]
[REVERSE]
The Warrants evidenced by this Warrant Certificate are part of a duly
authorized issue of Warrants expiring on the Expiration Date, entitling the
holder on exercise to receive shares of Common Stock, $.001 par value, of the
Company (the "Common Stock"), and are issued or to be issued pursuant to the
Warrant Agreement, duly executed and delivered by the Company, which Warrant
Agreement is hereby incorporated by reference in and made a part of this
instrument and is hereby referred to for a description of the rights,
limitation of rights, obligations, duties and immunities thereunder of the
Company and the holders (the words "holders" or "holder" meaning the
registered holders or registered holder) of the Warrants (the "Warrant
Holders"). A copy of the Warrant Agreement may be obtained by the holder
hereof upon written request to the Company.
Warrants may be exercised at any time on or before the Expiration Date.
The holder of Warrants evidenced by this Warrant Certificate may exercise
them by surrendering this Warrant Certificate, with the form of election to
purchase set forth herein properly completed and executed, together with
payment of the Exercise Price in cash at the office of the Company designated
for such purpose. In the alternative, each Warrant Holder may exercise its
right, during the Exercise Period, as defined in the Warrant Agreement, to
receive Warrant Shares on a net basis, such that, without the exchange of any
funds, the Warrant Holder receives that number of Warrant Shares otherwise
issuable (or payable) upon exercise of its Warrants less that number of
Warrant Shares having an aggregate fair market value (as defined below) at
the time of exercise equal to the aggregate Exercise Price that would
otherwise have been paid by the Warrant Holder of the Warrant Shares. For
purposes of the foregoing sentence, "fair market value" of the Warrant Shares
will be determined in the manner set forth in the Warrant Agreement. In the
event that upon any exercise of Warrants evidenced hereby the number of
Warrants exercised shall be less than the total number of Warrants evidenced
hereby, there shall be issued to the holder hereof or his assignee a new
Warrant Certificate evidencing the number of Warrants not exercised. Except
as provided in Section 10 of the Warrant Agreement, no adjustment shall be
made for any dividends on any Common Stock issuable upon exercise of this
Warrant.
The Warrant Agreement provides that, upon the occurrence of certain
events, the Exercise Price and the number of Warrant Shares set forth on the
face hereof may, subject to certain conditions, be adjusted. No fractions of
a share of Common Stock will be issued upon the exercise of any Warrant, but
the Company will pay the cash value thereof determined as provided in the
Warrant Agreement.
The holders of the Warrants are entitled to certain registration rights
with respect to the Common Stock purchasable upon exercise thereof. Said
registration rights are set forth in full in a Registration Rights Agreement
dated as of October 14, 1997, between the Company and the Warrant Holder. A
copy of the Registration Rights may be obtained by the holder hereof upon
written request to the Company.
Warrant Certificates, when surrendered at the office of the Company by
the registered holder thereof in person or by legal representative or
attorney duly authorized in writing, may be exchanged, in the manner and
subject to the limitations provided in the Warrant Agreement, but without
payment of any service charge, for another Warrant Certificate or Warrant
Certificates of like tenor evidencing in the aggregate a like number of
Warrants.
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<PAGE>
Upon due presentation for registration of transfer of this Warrant
Certificate at the office of the Company, a new Warrant Certificate or
Warrant Certificates of like tenor and evidencing in the aggregate a like
number of Warrants shall be issued to the transferee(s) in exchange for this
Warrant Certificate, subject to the limitations provided in the Warrant
Agreement, without charge except for any tax or other governmental charge
imposed in connection therewith.
The Company may deem and treat the registered holder(s) thereof as the
absolute owner(s) of this Warrant Certificate (notwithstanding any notation
of ownership or other writing hereon made by anyone), for the purpose of any
exercise hereof, of any distribution to the holder(s) hereof, and for all
other purposes, and the Company shall not be affected by any notice to the
contrary. Neither the Warrants nor this Warrant Certificate entitles any
holder hereof to any rights of a stockholder of the Company.
iv
<PAGE>
[FORM OF ELECTION TO PURCHASE]
(TO BE EXECUTED UPON EXERCISE OF WARRANT)
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant Certificate, to receive ___________ shares of
Common Stock and herewith tenders payment for such shares to the order of
InSight Health Services Corp. in the amount of $_______ or by delivery of
____ Warrants or in accordance with the terms hereof. The undersigned
requests that a certificate for such shares be registered in the name of
___________________ whose address is __________________________________ and
that such shares be delivered to _________________ whose address is
__________________________________. If said number of shares is less than all
of the shares of Common Stock purchasable hereunder after giving effect to
any delivery of Warrants in payment of the Exercise Price, the undersigned
requests that a new Warrant Certificate representing the remaining balance of
such shares be registered in the name of _______________, whose address is
________________________, and that such Warrant Certificate be delivered to
_________________ whose address is _____________________.
Signature:
------------------------
Date:
--------------------
v
<PAGE>
WARRANT AGREEMENT
BETWEEN
INSIGHT HEALTH SERVICES CORP.
AND
GENERAL ELECTRIC COMPANY
DATED AS OF OCTOBER 14, 1997
<PAGE>
WARRANT AGREEMENT
THIS WARRANT AGREEMENT (the "Agreement") is made as of October 14,
1997 (the "Effective Date"), between InSight Health Services Corp., a
Delaware corporation (the "Company"), and General Electric Company, a New
York corporation (together with its Affiliates, "GE" or the "Warrant Holder").
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, the Company has entered into (i) that certain Securities
Purchase Agreement with the Warrant Holder dated as of October 14, 1997 (the
"Purchase Agreement"), pursuant to which the Company agrees, among other
things, to issue to the Warrant Holder warrants (the "Warrants") to purchase
up to an aggregate of two hundred fifty thousand (250,000) shares of common
stock, $.001 par value per share, of the Company (the "Common Stock," and the
Common Stock issuable upon exercise of the Warrants being herein referred to
as the "Warrant Shares"), and (ii) that certain Securities Purchase Agreement
with Carlyle Partners II, L.P., a Delaware limited partnership ("CP II"),
Carlyle Partners III, L.P., a Delaware limited partnership ("CP III"),
Carlyle International Partners II, L.P., a Cayman Islands exempted limited
partnership (CIP II"), Carlyle International Partners III, L.P., a Cayman
Islands exempted limited partnership ("CIP III"), C/S International Partners,
a Cayman Islands general partnership ("C/S"), the State Board of
Administration of Florida ("SBAF"), Carlyle Investment Group, L.P., a
Delaware limited partnership ("CIG"), Carlyle-Insight International Partners,
L.P., a Cayman Islands exempted limited partnership ("C-IIP"), and
Carlyle-Insight Partners, L.P., a Delaware limited partnership ("C-IP") (CP
II, CP III, CIP II, CIP III, C/S, SBAF, CIG, C-IIP and C-IP collectively the
"Carlyle Investors"), dated as of October 14, 1997, pursuant to which the
Company agrees, among other things, to issue to the Carlyle Investors
warrants (the "Carlyle Investors' Warrants") to purchase up to an aggregate
of two hundred fifty hundred thousand (250,000) shares of Common Stock of the
Company. Each Warrant shall be a warrant to purchase one (1) Warrant Share,
unless and until adjusted pursuant to Section 10 hereof. Certain terms used
herein and not elsewhere defined are defined in the Purchase Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements herein set forth, and for other good and lawful consideration, the
receipt, sufficiency and adequacy of which are hereby acknowledged, the
parties hereto agree as follows:
SECTION 1. WARRANT CERTIFICATE.
The certificates evidencing the Warrants (the "Warrant
Certificates") to be delivered pursuant to this Agreement shall be in
registered form only and shall be substantially in the form set forth in
Exhibit A attached hereto.
SECTION 2. EXECUTION OF WARRANT CERTIFICATE.
(a) The Warrant Certificates shall be signed on behalf of the
Company by its Chairman of the Board of Directors (the "Board") or its
President or a Vice President, and by its Secretary or an Assistant Secretary
under its corporate seal. Each such signature upon the Warrant Certificates
may be in the form of a facsimile signature of the present or any future
Chairman of the Board, President, Vice President, Secretary or Assistant
Secretary, as the case may be, and may be imprinted or otherwise
1
<PAGE>
reproduced on the Warrant Certificates. The seal of the Company may be in
the form of a facsimile thereof and may be impressed, affixed, imprinted or
otherwise reproduced on the Warrant Certificates.
(b) In case any officer of the Company who shall have signed any
Warrant Certificate shall cease to be such officer before the Warrant
Certificate so signed shall have been disposed of by the Company, such
Warrant Certificate nevertheless may be delivered or disposed of as though
such person had not ceased to be such officer of the Company; and any Warrant
Certificate may be signed on behalf of the Company by any person who, at the
actual date of the execution of such Warrant Certificate, shall be a proper
officer of the Company to sign such Warrant Certificate, although at the date
of the execution of this Agreement any such person was not such an officer.
SECTION 3. REGISTRATION.
The Company shall register the Warrant Certificates in a Warrant
register to be maintained by the Company (the "Warrant Register") when
Warrants are issued. The Company may deem and treat the registered holders of
the Warrant Certificates as the absolute owners thereof (notwithstanding any
notation of ownership or other writing thereon made by anyone) for all
purposes and shall not be affected by any notice to the contrary.
SECTION 4. REGISTRATION OF TRANSFERS AND EXCHANGES.
(a) The Company shall from time to time register the transfer of
any outstanding Warrant Certificate in the Warrant Register upon surrender
thereof accompanied by a written instrument or instruments of transfer in
form satisfactory to the Company, duly executed by the registered holder or
holders thereof or by the duly appointed legal representative thereof or by a
duly authorized attorney. Upon any such registration of transfer, a new
Warrant Certificate shall be issued to the transferee and the surrendered
Warrant Certificate shall be canceled and disposed of by the Company.
(b) The Warrant Holder agrees that prior to any proposed transfer
of the Warrants or of the Warrant Shares, which transfer shall not be to any
Person engaged in the Business, if such transfer is not made pursuant to an
effective Registration Statement under the Securities Act of 1933, as amended
(the "Securities Act"), the Warrant Holder will, if requested by the Company,
deliver to the Company:
(1) an investment representation letter reasonably
satisfactory to the Company signed by the proposed transferee;
(2) an agreement by such transferee to the impression of the
restrictive investment legend set forth below in Section 4(c) on
the Warrants or the Warrant Shares;
(3) an agreement by such transferee that the Company may place
a notation in the stock books of the Company or a "stop transfer
order" with any transfer agent or registrar with respect to the
Warrant Shares;
(4) an agreement by such transferee to be bound by the
provisions of this Section 4 relating to the transfer of such
Warrants or Warrant Shares; and
(5) except in the case of a transfer pursuant to Rule 144
promulgated pursuant to the Securities Act, or any successor rule,
prior to consummating any private sale or transfer of such Warrants
or Warrant Shares, the written opinion of reputable legal counsel
in form reasonably
2
<PAGE>
acceptable to the Company that such sale or transfer is being made
in compliance with applicable federal securities laws.
(c) The Warrant Holder agrees that each certificate representing
Warrants or Warrant Shares will bear the following legend until such Warrants
or Warrant Shares have been sold pursuant to an effective registration
statement under the Securities Act:
"THE SECURITIES EVIDENCED OR CONSTITUTED HEREBY HAVE BEEN
ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED. SUCH
SECURITIES MAY NOT BE SOLD, TRANSFERRED, PLEDGED,
HYPOTHECATED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF
REGISTRATION UNDER SAID ACT AND THE RULES AND REGULATIONS
THEREUNDER AND OF ALL APPLICABLE STATE SECURITIES OR
"BLUE SKY" LAWS OR AN EXEMPTION THEREFROM UNDER SAID ACT
AND ALL APPLICABLE STATE SECURITIES OR "BLUE SKY" LAWS.
IN THE CASE OF A SALE OF THE SECURITIES EVIDENCED OR
CONSTITUTED HEREBY, OTHER THAN A SALE PURSUANT TO A VALID
REGISTRATION STATEMENT UNDER SAID ACT OR A SALE PURSUANT
TO RULE 144 PROMULGATED UNDER SAID ACT, THE HOLDER OF THE
SECURITIES EVIDENCED OR CONSTITUTED HEREBY SHALL PROVIDE
TO THE CORPORATION THE WRITTEN OPINION OF REPUTABLE LEGAL
COUNSEL IN FORM REASONABLY ACCEPTABLE TO THE CORPORATION
THAT SUCH SALE OR TRANSFER IS BEING MADE IN COMPLIANCE
WITH APPLICABLE FEDERAL SECURITIES LAWS."
(d) A Warrant Certificate may be exchanged at the option of the
holder thereof, when surrendered to the Company at its office for another
Warrant Certificate or other Warrant Certificates of like tenor and
representing in the aggregate a like number of Warrants. A Warrant
Certificate surrendered for exchange shall be canceled and disposed of by the
Company
SECTION 5. WARRANTS; EXERCISE OF WARRANTS.
(a) Subject to the terms of this Agreement, the Warrant Holder
shall have the right, which may be exercised during the period commencing on
the Effective Date until 5:00 p.m., Washington, D.C. time, on the fifth
anniversary of the Effective Date (the "Exercise Period"), to receive from
the Company the number of fully paid and non-assessable Warrant Shares that
the Warrant Holder may at the time be entitled to receive on exercise of the
number of Warrants that the Warrant Holder elects to exercise and payment of
the Exercise Price (as defined below) then in effect for such Warrant Shares.
In the alternative, the Warrant Holder may exercise its right, during the
Exercise Period, to receive Warrant Shares on a net basis, such that, without
payment of any funds kind, the Warrant Holder receives that number of Warrant
Shares equal to the number of Warrants being exercised times the quotient of
(i) the "fair market value" of a Warrant Share (as defined below) minus the
Exercise Price, divided by (ii) the fair market value of a Warrant Share.
For purposes of the foregoing sentence, "fair market value" of a Warrant
Share shall mean the average of the closing prices of the Common Stock's
sales on all domestic
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<PAGE>
securities exchanges on which such Common Stock may at the time be listed,
or, if there have been no sales on any such exchange on any day, the average
of the highest bid and lowest asked prices on all such exchanges at the end
of such day, or, if on any day such Common Stock is not so listed, the
average of the representative bid and asked prices quoted on Nasdaq as of
4:00 P.M., New York time, on such day, or, if on any day such Common Stock is
not quoted on Nasdaq, the average of the highest bid and lowest asked prices
on such day in the domestic over-the-counter market as reported by the
National Quotation Bureau, Incorporated, or any similar successor
organization, in each such case averaged over a period of twenty-one (21)
business days consisting of the day as of which the "fair market value" of
the Warrant Shares is being determined and the twenty (20) consecutive
business days prior to such day; provided that if such Common Stock is listed
on any domestic securities exchange the term "business days" as used in this
sentence means business days on which such exchange is open for trading. If
at any time such Common Stock is not listed on any domestic securities
exchange or quoted on Nasdaq or the domestic over-the-counter market, the
"fair market value" of the Warrant Shares shall be the fair value thereof
determined by the Company and approved by the Warrant Holder; provided that
if such parties are unable to reach agreement within a reasonable period of
time, such fair market value shall be determined by an appraiser reasonably
selected by the Company and reasonably approved by the Warrant Holder. The
determination of such appraiser shall be final and binding on the Company and
the Warrant Holder, and the fees and expenses of such appraiser shall be paid
by the Company, unless the fair market value determined by such appraiser is
less than five percent (5%) above the value proposed in writing by the
Company and rejected by the Warrant Holder prior to the selection of such
appraiser, in which event the fees and expenses of such appraiser shall be
for the Warrant Holder's account. Each Warrant not exercised prior to 5:00
p.m., Washington, D.C. time, on the fifth anniversary of the Effective Date
shall become void and all rights thereunder and all rights in respect thereof
under this agreement shall cease as of such time. No adjustments as to
dividends will be made upon exercise of the Warrants.
(b) A Warrant may be exercised upon surrender to the Company at its
office designated for such purpose (the address of which is set forth in
Section 14 hereof) of the certificate or certificates evidencing the Warrants
to be exercised with the form of election to purchase on the reverse thereof
duly filled in and signed, and upon (i) payment to the Company of the
exercise price of ten dollars ($10.00) per Warrant Share, as adjusted as
herein provided (as so adjusted, the "Exercise Price"), for the number of
Warrant Shares in respect of which such Warrants are then exercised, or (ii)
the Warrant Holder's exercise of its right to receive Warrant Shares on a net
basis, as more fully described in Section 5(a). Payment of the aggregate
Exercise Price shall be made (i) in cash or by certified or official bank
check payable to the order of the Company or (ii) in the manner provided in
subsection (a) of this Section 5.
(c) Subject to the provisions of Section 6 hereof, upon such
surrender of Warrants and payment of the Exercise Price, the Company shall
issue and cause to be delivered with all reasonable dispatch to or upon the
written order of the Warrant Holder and in such name or names as the Warrant
Holder may designate, a certificate or certificates for the number of full
Warrant Shares issuable upon the exercise of such Warrants together with cash
as provided in Section 11; PROVIDED, HOWEVER, that if any consolidation,
merger, or sale or other transfer of all or substantially all of the assets
of the Company is proposed to be effected by the Company, or a tender offer
or an exchange offer for shares of Common Stock of the Company shall be made,
upon such surrender of Warrants and payment of the Exercise Price as
aforesaid, the Company shall, as soon as practicable, but in any event not
later than five business days thereafter, issue and cause to be delivered the
full number of Warrant Shares issuable upon the exercise of such Warrants in
the manner described in this sentence together with cash as provided in
Section 11. Such certificate or certificates shall be deemed to have been
issued and any person so designated to be named therein shall be deemed to
have become a holder of record of such Warrant Shares as of the date of the
surrender of such Warrants and payment of the Exercise Price.
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(d) The Warrants shall be exercisable, at the election of the
holder thereof, either in full or from time to time in part and, in the event
that a Warrant Certificate evidencing Warrants is exercised in respect of
fewer than all of the Warrant Shares issuable on such exercise at any time
prior to the date of expiration of the Warrants, a new Warrant Certificate
evidencing the remaining Warrant or Warrants will be issued and delivered by
the Company and at its expense pursuant to the provisions of this Section and
of Section 2 hereof.
(e) All Warrant Certificates surrendered upon exercise of Warrants
shall be canceled and disposed of by the Company. The Company shall keep
copies of this Agreement and any notices given or received hereunder
available for inspection by the Warrant Holder during normal business hours
at its office.
SECTION 6. PAYMENT OF TAXES.
The Company will pay all documentary stamp taxes or other similar
taxes attributable to the initial issuance of Warrant Shares upon the
exercise of Warrants; PROVIDED, HOWEVER, that the Company shall not be
required to pay any tax or taxes which may be payable in respect of any
transfer involved in the issue of any Warrant Certificate or any certificates
for Warrant Shares in a name other than that of the registered holder of a
Warrant Certificate surrendered upon the exercise of a Warrant, and the
Company shall not be required to issue or deliver such Warrant Certificates
unless or until the person or persons requesting the issuance thereof shall
have paid to the Company the amount of such tax or shall have established to
the satisfaction of the Company that such tax has been paid.
SECTION 7. MUTILATED OR MISSING WARRANT CERTIFICATES.
In case any of the Warrant Certificates shall be mutilated, lost,
stolen or destroyed, the Company may issue, in exchange and substitution for,
and upon cancellation of, the mutilated Warrant Certificate, or in lieu of
and substitution for the Warrant Certificate lost, stolen or destroyed, a new
Warrant Certificate of like tenor and representing an equivalent number of
Warrants, but only upon receipt of evidence reasonably satisfactory to the
Company of such loss, theft or destruction of such Warrant Certificate and
indemnity, if requested, also reasonably satisfactory to it. Applicants for
such substitute Warrant Certificates shall also comply with such other
reasonable regulations and pay such other reasonable charges as the Company
may prescribe.
SECTION 8. RESERVATION OF WARRANT SHARES.
(a) The Company will at all times reserve and keep available, free
from preemptive rights, out of the aggregate of its authorized but unissued
Common Stock or its authorized and issued Common Stock held in its treasury,
for the purpose of enabling it to satisfy any obligation to issue Warrant
Shares upon exercise of Warrants, the maximum number of shares of Common
Stock which may then be deliverable upon the exercise of all outstanding
Warrants.
(b) The Company or, if appointed, the transfer agent for the Common
Stock (the "Transfer Agent") and every subsequent Transfer Agent for any
shares of the Company's capital stock issuable upon the exercise of any of
the rights of purchase aforesaid will be irrevocably authorized and directed
at all times to reserve such number of authorized shares as shall be required
for such purpose. The Company will keep a copy of this Agreement on file with
the Transfer Agent and with every subsequent transfer agent for any shares of
the Company's capital stock issuable upon the exercise of the rights of
purchase
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represented by the Warrants. The Company will furnish such Transfer
Agent a copy of all notices of adjustments and certificates related thereto
transmitted to each holder pursuant to Section 13 hereof.
(c) Before taking any action which would cause an adjustment
pursuant to Section 10 hereof to reduce the Exercise Price below the then par
value (if any) of the Warrant Shares, the Company will take any corporate
action which may, in the opinion of its counsel (which may be counsel
employed by the Company), be necessary in order that the Company may validly
and legally issue fully paid and nonassessable Warrant Shares at the Exercise
Price as so adjusted.
(d) The Company covenants that all Warrant Shares which may be
issued upon exercise of Warrants will, upon issue, be fully paid,
nonassessable, free of preemptive rights and free from all taxes, liens,
charges and security interests with respect to the issue thereof.
SECTION 9. STOCK EXCHANGE LISTINGS.
The Company will from time to time take all commercially reasonable
action, at its expense, which may be necessary so that the Warrant Shares,
immediately upon their issuance upon the exercise of Warrants, will be listed
and maintained on the principal securities exchanges and markets within the
United States of America, if any, on which other shares of Common Stock are
then listed and registered under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), or authorized for quotation on Nasdaq,
provided, however, that the payment of any required listing or other fee
shall always be deemed to be "commercially reasonable" for purposes of this
Section 9.
SECTION 10. ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF WARRANT SHARES
ISSUABLE.
(a) In order to prevent the dilution of the rights granted under
this Agreement, the Exercise Price shall be subject to adjustment from time
to time as provided in this Section 10, and the number of shares of Common
Stock obtainable upon exercise of the Warrants shall be subject to adjustment
from time to time as provided in this Section 10. For purposes of this
Section 10, "Trigger Price" shall be $6.75 per share of Common Equity;
"Convertible Security" means any stock or securities, directly or indirectly,
convertible into or exchangeable for Common Equity, including without
limitation any exchangeable debt securities; "Option" shall mean any rights
or options to subscribe for or purchase Common Equity or Convertible
Securities.
(b) If and whenever the Company issues or sells or, in accordance
with Section 10(c), is deemed to have issued or sold, any share of Common
Equity without consideration or for a net consideration per share less than
the Trigger Price, then immediately upon such issuance or sale, the Exercise
Price, which shall equal $10 per share until the first such issuance or sale
below the Trigger Price, shall be reduced to the price per share determined
by dividing (i) an amount equal to the sum of (A) the number of shares of
Common Equity outstanding immediately prior to such issuance multiplied by
the Exercise Price in effect immediately prior to such issuance, and (B) the
consideration, if any, received by the Company upon such issuance, by (ii)
the total number of shares of Common Equity outstanding immediately after
such issuance.
Notwithstanding the foregoing, there shall be no adjustment to the
Exercise Price with respect to the granting of, or issuance of Common Equity
upon exercise of, stock options to employees of the Company authorized but
not granted as of the Effective Date for an aggregate of up to 300,000 shares
of Common Equity (as such shares are equitably adjusted for subsequent stock
splits, stock combinations, stock dividends and recapitalizations). For
purposes of this Section 10, "Common Equity" means all
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shares now or hereafter authorized of any class of common stock of the
Company (including the Common Stock) and any other stock of the Company,
however designated, authorized on or after the date hereof, which has the
right (subject always to prior rights of any class or series of preferred
stock) to participate in any distribution of the assets or earnings of the
Company without limit as to per share amount, and "Fully Diluted Equity"
means, with respect to the Company at any given time, (A) the number of
shares of Common Equity actually outstanding at such time, plus (B) the
maximum number of shares of Common Equity that are issuable upon the
exercise, exchange or conversion of any unexpired right or unexpired option
(including the Warrants) to subscribe for, to purchase or to receive Common
Equity or other securities convertible into or exchangeable for Common
Equity, including without limitation any exchangeable debt securities,
regardless of whether any of the foregoing are actually exercisable at such
time; provided, however, the number of shares of Common Equity outstanding at
any given time shall not include shares, directly or indirectly, owned or
held by or for the account of the Company.
(c) For purposes of determining the adjusted Exercise Price under
Section 10(b) above, the following shall be applicable:
(1) CONSIDERATION. If any Common Equity, Options or Convertible
Securities are issued or sold or deemed to have been issued or sold
for cash, the consideration received therefor shall be deemed to be
(i) in the case of any public offering of such securities for cash,
the gross proceeds of such offering (without deduction for any
underwriters discount) and (ii) in the case of any other issuance,
sale or deemed issuance or sale for cash, the gross amount received
by the Company therefor. In case any Common Equity, Options or
Convertible Securities are issued or sold for a consideration other
than cash, the amount of the consideration other than cash received
by the Company shall be the fair market value of such consideration.
In case any Common Equity, Options or Convertible Securities are
issued to the owners of the non-surviving entity in connection with
any merger in which the Company is the surviving corporation, the
amount of consideration therefor shall be deemed to be the fair
market value of such portion of the net assets and business of the
non-surviving entity as is attributable to such Common Equity,
Options or Convertible Securities, as the case may be. The fair
market value of any consideration other than cash shall be
determined jointly by the Company and the Warrant Holder. If such
parties are unable to reach agreement within a reasonable period of
time, such fair market value shall be determined by an appraiser
reasonably selected by the Company and reasonably approved by the
Warrant Holder. The determination of such appraiser shall be final
and binding on the Company and the Warrant Holder, and the fees and
expenses of such appraiser shall be paid by the Company, unless the
fair market value determined by such appraiser is less than five
percent (5%) above the value proposed in writing by the Company and
rejected by the Warrant Holder prior to the selection of such
appraiser, in which event the fees and expenses of such appraiser
shall be for the Warrant Holder's account.
(2) OPTIONS AND CONVERTIBLE SECURITIES. In the case of
the granting or sale of any Option or Convertible Security
(whether or not at the time convertible, exercisable or
exchangeable):
(A) the aggregate maximum number of shares of Common
Equity deliverable, directly or indirectly, upon
exercise of any Option shall be deemed to have been
issued at the time such Option was granted and for a
consideration equal to the consideration (determined
in the manner provided in subsection (1) above), if
any, received by the Company upon the issuance of
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<PAGE>
such Option plus the minimum purchase price provided in
such Option for the Common Equity covered thereby;
(B) the aggregate maximum number of shares of
Common Equity deliverable upon conversion of or in
exchange for any such Convertible Security, or upon
the exercise of any Option to purchase or acquire
any Convertible Security and the subsequent
conversion or exchange thereof, shall be deemed to
have been issued at the time such Convertible
Security was issued or such Option was issued and
for a consideration equal to the consideration, if
any, received by the Company for any such
Convertible Security and any related Option
(excluding any cash received on account of accrued
interest or accrued dividends), plus the additional
consideration (determined in the manner provided in
subsection (1) above), if any, to be received by the
Company upon the conversion or exchange of such
Convertible Security, or upon the exercise of any
related Option to purchase or acquire any
Convertible Security and the subsequent conversion
or exchange thereof;
(C) on any change in the number of shares of Common
Equity deliverable, directly or indirectly, upon
conversion, exercise or exchange of any such Option
or Convertible Security or any change in the
consideration to be received by the Company upon
such exercise, conversion or exchange, including,
but not limited to, a change resulting from the
anti-dilution provisions thereof, the Exercise Price
as then in effect shall forthwith be readjusted to
such Exercise Price as would have been obtained had
an adjustment been made upon the issuance of such
Option or Convertible Security upon the basis of
such change; and
(D) if the Exercise Price shall have been adjusted
upon the issuance of any such Option or Convertible
Security, no further adjustment of the Exercise
Price shall be made for the actual issuance of
Common Equity upon any exercise, conversion, or
exchange thereof;
provided, however, that none of the events set forth in Section
10(c)(2)(A) through 10(c)(2)(D), inclusive, shall result in any
increase in the Exercise Price.
(3) INTEGRATED TRANSACTION. In case any Option is issued in
connection wit+h the issue or sale of other securities of the
Company, together comprising one integrated transaction in which no
specific consideration is allocated to such Options by the parties
thereto, the Options shall be deemed to have been issued without
consideration.
(4) TREASURY SHARES. The number of shares of Common Equity
outstanding at any given time does not include shares owned or held
by or for the account of the Company, and the disposition of any
shares so owned or held shall be considered an issuance or sale of
Common Equity.
(5) RECORD DATE. If the Company takes a record of the holders
of Common Equity for the purpose of entitling them (A) to receive a
dividend or other distribution payable in Common Equity, Options or
in Convertible Securities or (B) to subscribe for or purchase
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<PAGE>
Common Equity, Options or Convertible Securities, then such record
date shall be deemed to be the date of the issuance or sale of the
shares of Common Equity deemed to have been issued or sold upon the
declaration of such dividend or the making of such other
distribution or the date of the granting of such right of
subscription or purchase, as the case may be.
(d) If the Company at any time subdivides (by any stock split,
stock dividend, recapitalization or otherwise) one or more classes of its
outstanding shares of Common Equity into a greater number of shares, the
Exercise Price in effect immediately prior to such subdivision shall be
proportionately reduced and the number of shares of Common Stock obtainable
upon exercise of the Warrant shall be proportionately increased. If the
Company at any time combines (by reverse stock split or otherwise) one or
more classes of its outstanding shares of Common Stock into a smaller number
of shares, the Exercise Price in effect immediately prior to such combination
shall be proportionately increased and the number of shares of Common Stock
obtainable upon exercise of this Warrant shall be proportionately decreased.
(e) Any recapitalization, reorganization, reclassification,
consolidation, merger, sale of all or substantially all of the Company's
assets or other transaction, in each case which is effected in such a way
that the holders of Common Equity are entitled to receive (either directly or
upon subsequent liquidation) stock, securities or assets with respect to or
in exchange for Common Equity is referred to herein as a "Corporate Change."
Prior to the consummation of any Corporate Change, the Company shall make
appropriate provision (in form and substance satisfactory to the Warrant
Holder) to insure that the Warrant Holder shall thereafter have the right to
acquire and receive, in lieu of or in addition to (as the case may be) the
Warrant Shares acquirable and receivable upon the exercise of such holder's
Warrants, such shares of stock, securities or assets as may be issued or
payable with respect to or in exchange for the number of Warrant Shares
acquirable and receivable upon exercise of such holder's Warrant had such
Corporate Change not taken place. In any such case, the Company shall make
appropriate provision (in form and substance reasonably satisfactory to the
Warrant Holder) with respect to such holder's rights and interests to insure
that the provisions of this Agreement shall thereafter be applicable to the
Warrants (including, in the case of any such consolidation, merger or sale in
which the successor entity or purchasing entity is other than the Company,
any adjustment of the Exercise Price based on Section 10 hereof). The
Company shall not effect any such consolidation, merger or sale, unless prior
to the consummation thereof, the successor entity (if other than the Company)
resulting from consolidation or merger or the entity purchasing such assets
assumes by written instrument (in form and substance reasonably satisfactory
to the Warrant Holder), the obligation to deliver to the Warrant Holder such
shares of stock, securities or assets as, in accordance with the foregoing
provisions, such holder may be entitled to acquire.
(f) If any event occurs of the type contemplated by the provisions
of this Section 10 but not expressly provided for by such provisions
(including, without limitation, the granting of stock appreciation rights,
phantom stock rights or other rights with equity features), then the
Company's Board shall make an appropriate adjustment in the Exercise Price
and the number of shares of Common Stock obtainable upon exercise of this
Warrant so as to protect the rights of the Warrant Holder; provided that no
such adjustment shall increase the Exercise Price or decrease the number of
shares of Common Stock obtainable as otherwise determined pursuant to this
Section 10.
(g) If the Company declares or pays a dividend upon the Common
Equity payable otherwise than in cash out of earnings or earned surplus
(determined in accordance with generally accepted accounting principles,
consistently applied) except for a stock dividend payable in shares of Common
Stock (a "Liquidating Dividend"), then the Company shall pay to the Warrant
Holder at the time of
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payment thereof the Liquidating Dividend which would have been paid to such
Warrant Holder on the Common Stock had the Warrants been fully exercised
immediately prior to the date on which a record is taken for such Liquidating
Dividend, or, if no record is taken, the date as of which the record holders
of Common Equity entitled to such dividends are to be determined.
SECTION 11. FRACTIONAL INTERESTS.
The Company shall not be required to issue fractional Warrant
Shares upon the exercise of Warrants. If more than one Warrant shall be
presented for exercise in full at the same time by the Warrant Holder, the
number of full Warrant Shares which shall be issuable upon the exercise
thereof shall be computed on the basis of the aggregate number of Warrant
Shares purchasable on exercise of the Warrants so presented. If any fraction
of a Warrant Share would, except for the provisions of this Section 11, be
issuable on the exercise of any Warrants (or specified portion thereof), the
Company shall pay an amount in cash equal to the "fair market value"
(determined as provided in Section 5(a) above) of the Common Stock on the day
immediately preceding the date the Warrant is presented for exercise,
multiplied by such fraction.
SECTION 12. FINANCIAL STATEMENTS.
(a) Whether or not required by the rules and regulations of
the Securities and Exchange Commission (the "Commission"), so long as any of
the Warrants remain outstanding, the Company shall furnish to the Warrant
Holder (i) all quarterly and annual financial information that would be
required to be contained in a filing with the Commission on Forms 10-Q and
10-K if the Company were required to file such Forms, including "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
and, with respect to the annual information only, a report thereon by the
Company's certified independent accountants and (ii) all current reports that
would be required to be filed with the Commission on Form 8-K if the Company
were required to file such reports. In addition, whether or not required by
the rules and regulations of the Commission, the Company shall file a copy of
all such information and reports with the Commission for public availability
(unless the Commission will not accept such a filing).
(b) The Company shall, so long as any of the Warrants are
outstanding, deliver to the Warrant Holder, forthwith upon any Executive
Officer of the Corporation becoming aware of any default under this
Agreement, an Officers' Certificate specifying such default and what action
the Company is taking or proposes to take with respect thereto.
SECTION 13. NOTICES TO WARRANT HOLDER.
(a) Upon any adjustment of the Exercise Price or exercise
privileges pursuant to Section 10, the Company shall promptly thereafter (i)
cause to be filed with the Company a certificate of a firm of independent
public accountants of recognized standing, selected by the Board (who may be
the regular auditors of the Company) and acceptable to the Warrant Holder,
setting forth the Exercise Price after such adjustment and setting forth in
reasonable detail the method of calculation and the facts upon which such
calculations are based and setting forth the number of Warrant Shares (or
portion thereof) issuable after such adjustment in the Exercise Price, which
certificate shall be conclusive evidence of the correctness of the matters
set forth therein, upon exercise of a Warrant and payment of the adjusted
Exercise Price, and (ii) cause to be given to each of the registered holders
of the Warrant Certificate(s), at his or her address appearing on the Warrant
Register, written notice of such adjustments by first-class
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<PAGE>
mail, postage prepaid. Where appropriate, such notice may be given in
advance and included as a part of the notice required to be mailed under the
other provisions of this Section 13.
(b) In case:
(1) the Company shall authorize the issuance to all
holders of shares of Common Stock of the Company rights to
subscribe for, or to purchase shares of, Common Stock or of any
other subscription rights or warrants; or
(2) the Company shall authorize the distribution to all
holders of shares of Common Stock of evidences of its
indebtedness or assets; or
(3) of any consolidation or merger to which the Company is
a party and for which approval of any shareholders of the Company
is required, or of the conveyance or transfer of the properties
and assets of the Company substantially as an entirety, or of any
reclassification or change of Common Stock issuable upon
exercise of the Warrants, or a tender offer or exchange offer
for shares of Common Stock; or
(4) of the voluntary or involuntary dissolution,
liquidation or winding up of the Company or a Liquidating
Dividend; or
(5) the Company proposes to take any action which would
require an adjustment of the Exercise Price or the Warrant Shares
pursuant to Section 10;
then the Company shall cause to be given to each of the registered holders of
the Warrant Certificates at his or her address appearing on the Warrant
register, at least twenty (20) days prior to the applicable record date
hereinafter specified, or promptly in the case of events for which there is
no record date, by first-class mail, postage prepaid, a written notice
stating (i) the date as of which the holders of record of shares of Common
Stock to be entitled to receive any such rights or distribution are to be
determined, or (ii) the initial expiration date set forth in any tender offer
or exchange offer for shares of Common Stock, or (iii) the date on which any
such consolidation, merger, conveyance, transfer, dissolution, liquidation or
winding up is expected to become effective or consummated, and the date as of
which it is expected that holders of record of shares of Common Stock shall
be entitled to exchange such shares for securities or other property, if any,
deliverable upon such reclassification, consolidation, merger, conveyance,
transfer, dissolution, liquidation or winding up. The failure to give the
notice required by this Section 13 or any defect therein shall not affect the
legality or validity of any distribution, right, option, warrant,
consolidation, merger, conveyance, transfer, dissolution, liquidation or
winding up, or the vote upon any action.
(c) Nothing contained in this Agreement or in the Warrant
Certificate shall be construed as conferring upon the holders thereof the
right to vote or to consent or to receive notice as shareholders in respect
of the meetings of shareholders or the election of Directors of the Company
or any other matter, or any rights whatsoever as shareholders of the Company.
SECTION 14. NOTICES TO THE COMPANY AND THE WARRANT HOLDER.
(a) Unless otherwise provided herein, any notice, request,
instruction or other document to be given hereunder by any party to the other
shall be in writing and delivered by hand-delivery, registered first-class
mail, return receipt requested, facsimile or air courier guaranteeing
overnight delivery, as follows:
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If to the Company: InSight Health Services Corp.
4400 MacArthur Boulevard, Suite 800
Newport Beach, CA 92660
Facsimile: 714.851.4488
Attn: Chief Financial Officer
With a copy to: McDermott, Will & Emery
2049 Century Park East, 34th Floor
Los Angeles, CA 90067
Facsimile: 310.277.4730
Attn: Mark J. Mihanovic, Esq.
and
Arent, Fox, Kintner, Plotkin & Kahn
1050 Connecticut Avenue, N.W., Suite 600
Washington, D.C. 20036
Facsimile: 202.857.6395
Attn: Gerald P. McCartin, Esq.
to the Warrant Holder: General Electric Company
P.O. Box 414, W-490
Milwaukee, WI 53201-0414
Facsimile: 414.789.4573
Attn: Richard S. Berger, Finance Manager
and
GE Capital
260 Long Ridge Road
Stanford, CT 06927-5000
Facsimile: 203.357.6567
Attn: Michael E. Aspinwall,
Senior Vice President
With a copy to: Gibson, Dunn & Crutcher LLP
333 S. Grand Avenue
Los Angeles, CA 90071-3197
Facsimile: 213.229-7250
Attn: Ronald S. Beard, Esq.
or to such other place and with such other copies as either party may
designate as to itself by written notice to the other. All such notices,
requests, instructions or other documents shall be deemed to have been duly
given at the time delivered by hand, if personally delivered, four (4)
business days after being deposited in the mail, postage prepaid, if mailed,
when receipt is acknowledged by addressee, if by facsimile, or on the next
business day, if timely delivered to an air courier guaranteeing overnight
delivery.
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SECTION 15. SUPPLEMENTS AND AMENDMENTS.
The Company may from time to time supplement or amend this
Agreement with the express written approval of the holder(s) of the Warrant
Certificate(s) in order to cure any ambiguity or to correct or supplement any
provision contained herein which may be defective or inconsistent with any
other provision herein, or to make any other provisions in regard to matters
or questions arising hereunder which the Company may deem necessary or
desirable and which shall not in any way adversely affect the interests of
the holder(s) of Warrant Certificate(s).
SECTION 16. SUCCESSORS.
All the covenants and provisions of this Agreement by or for
the benefit of the Company shall bind and inure to the benefit of its
respective successors and assigns hereunder. All the covenants and
provisions by or for the benefit of the Warrant Holder shall bind and inure
to the benefit of its respective successors and assigns hereunder.
SECTION 17. TERMINATION.
This Agreement shall terminate at 5:00 p.m., Eastern Standard
Time on the fifth anniversary of the Effective Date. Notwithstanding the
foregoing, this Agreement will terminate on any earlier date if all Warrants
have been exercised.
SECTION 18. GOVERNING LAW.
This Agreement and each Warrant Certificate issued hereunder
shall be deemed to be a contract made under the laws of the State of New York
and for all purposes shall be construed in accordance with the internal laws
of said State.
SECTION 19. BENEFITS OF THIS AGREEMENT.
Nothing in this Agreement shall be construed to give to any
person or corporation other than the Company and the registered holder(s) of
the Warrant Certificate(s) any legal or equitable right, remedy or claim
under this Agreement; but this Agreement shall be for the sole and exclusive
benefit of the Company and the registered holder(s) of the Warrant
Certificate(s).
SECTION 20. HSR ACT.
The Company shall cooperate with any Warrant Holder, promptly
after receipt of notice from any such Warrant Holder of its intention to
exercise any Warrants, in making all filings required to be made under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act") in connection with such exercise; provided, however, that in no event
shall such cooperation include payment of any fee which may be required to be
paid. The applicable waiting period, including any extension thereof, under
the HSR Act shall have expired or been terminated prior to the issuance of
any Warrant Shares upon exercise of Warrants.
SECTION 21. COUNTERPARTS.
This Agreement may be executed in any number of counterparts
and each of such counterparts shall for all purposes be deemed to be an
original, and all such counterparts shall together constitute but one and the
same instrument.
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IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed, as of the day and year first above written
INSIGHT HEALTH SERVICES CORP.,
a Delaware corporation
By: ___________________________________
Name: ___________________________________
Title:___________________________________
GENERAL ELECTRIC COMPANY,
a New York corporation
By: ___________________________________
Name: ___________________________________
Title:___________________________________
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EXHIBIT A
[FORM OF WARRANT CERTIFICATE]
[FACE]
"THE SECURITIES EVIDENCED OR CONSTITUTED HEREBY HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED. SUCH SECURITIES MAY NOT BE SOLD, TRANSFERRED, PLEDGED, HYPOTHECATED
OR OTHERWISE DISPOSED OF IN THE ABSENCE OF REGISTRATION UNDER SAID ACT AND
THE RULES AND REGULATIONS THEREUNDER AND OF ALL APPLICABLE STATE SECURITIES
OR "BLUE SKY" LAWS OR AN EXEMPTION THEREFROM UNDER SAID ACT AND ALL
APPLICABLE STATE SECURITIES OR "BLUE SKY" LAWS." IN THE CASE OF A SALE OF THE
SECURITIES EVIDENCED OR CONSTITUTED HEREBY, OTHER THAN A SALE PURSUANT TO A
VALID REGISTRATION STATEMENT UNDER SAID ACT OR A SALE PURSUANT TO RULE 144
PROMULGATED UNDER SAID ACT, THE HOLDER OF THE SECURITIES EVIDENCED OR
CONSTITUTED HEREBY SHALL PROVIDE TO THE CORPORATION THE WRITTEN OPINION OF
REPUTABLE LEGAL COUNSEL IN FORM REASONABLY ACCEPTABLE TO THE CORPORATION THAT
SUCH SALE OR TRANSFER IS BEING MADE IN COMPLIANCE WITH APPLICABLE FEDERAL
SECURITIES LAWS."
EXERCISABLE ON OR BEFORE OCTOBER __, 2002
No. _____ ______ Warrants
WARRANT CERTIFICATE
INSIGHT HEALTH SERVICES CORP.
This Warrant Certificate certifies that ______________ or
registered assigns, is the registered holder of ______ warrants (the
"Warrants") expiring October ___, 2002 (the "Expiration Date") to purchase
Common Stock, $.001 par value (the "Common Stock"), of InSight Health
Services Corp., a Delaware corporation (the "Company"). Each Warrant
entitles the holder upon exercise to receive from the Company on or before
5:00 p.m., Washington, D.C. time, on the Expiration Date, one fully paid and
non-assessable share of Common Stock (a "Warrant Share") at the initial
exercise price of $10.00 per Warrant Share, subject to adjustment (as
adjusted, the exercise price is the "Exercise Price") upon the occurrence of
certain events set forth in the Warrant Agreement, upon surrender of this
Warrant Certificate and payment of the Exercise Price, or as otherwise
provided in the Warrant Agreement, at the office of the Company designated
for such purpose, but only subject to the conditions set forth herein and in
the Warrant Agreement dated as of October __, 1997 (the "Warrant Agreement").
The number and kind of Warrant Shares issuable upon exercise of the Warrants
are subject to adjustment upon the occurrence of certain events set forth in
the Warrant Agreement.
No Warrant may be exercised after 5:00 p.m., Washington, D.C.
time, on the Expiration Date, and to the extent not exercised by such time
such Warrants shall become void.
Reference is hereby made to the further provisions of this
Warrant Certificate set forth on the reverse hereof and such further
provisions shall for all purposes have the same effect as though fully set
forth at this place.
<PAGE>
This Warrant Certificate shall not be valid unless
countersigned by the Company, as such term is used in the Warrant Agreement.
IN WITNESS WHEREOF, the Company has caused this Warrant
Certificate to be signed by its President and by its Secretary and has caused
its corporate seal to be affixed hereunto or imprinted hereon.
Date: ___________________
INSIGHT HEALTH SERVICES CORP.
By: _______________________________
President
By: _______________________________
Secretary
3
<PAGE>
[FORM OF WARRANT CERTIFICATE]
[REVERSE]
The Warrants evidenced by this Warrant Certificate are part of
a duly authorized issue of Warrants expiring on the Expiration Date,
entitling the holder on exercise to receive shares of Common Stock, $.001 par
value, of the Company (the "Common Stock"), and are issued or to be issued
pursuant to the Warrant Agreement, duly executed and delivered by the
Company, which Warrant Agreement is hereby incorporated by reference in and
made a part of this instrument and is hereby referred to for a description of
the rights, limitation of rights, obligations, duties and immunities
thereunder of the Company and the holders (the words "holders" or "holder"
meaning the registered holders or registered holder) of the Warrants (the
"Warrant Holders"). A copy of the Warrant Agreement may be obtained by the
holder hereof upon written request to the Company.
Warrants may be exercised at any time on or before the
Expiration Date. The holder of Warrants evidenced by this Warrant Certificate
may exercise them by surrendering this Warrant Certificate, with the form of
election to purchase set forth herein properly completed and executed,
together with payment of the Exercise Price in cash at the office of the
Company designated for such purpose. In the alternative, each Warrant Holder
may exercise its right, during the Exercise Period, as defined in the Warrant
Agreement, to receive Warrant Shares on a net basis, such that, without the
exchange of any funds, the Warrant Holder receives that number of Warrant
Shares otherwise issuable (or payable) upon exercise of its Warrants less
that number of Warrant Shares having an aggregate fair market value (as
defined below) at the time of exercise equal to the aggregate Exercise Price
that would otherwise have been paid by the Warrant Holder of the Warrant
Shares. For purposes of the foregoing sentence, "fair market value" of the
Warrant Shares will be determined in the manner set forth in the Warrant
Agreement. In the event that upon any exercise of Warrants evidenced hereby
the number of Warrants exercised shall be less than the total number of
Warrants evidenced hereby, there shall be issued to the holder hereof or his
assignee a new Warrant Certificate evidencing the number of Warrants not
exercised. Except as provided in Section 10 of the Warrant Agreement, no
adjustment shall be made for any dividends on any Common Stock issuable upon
exercise of this Warrant.
The Warrant Agreement provides that, upon the occurrence of
certain events, the Exercise Price and the number of Warrant Shares set forth
on the face hereof may, subject to certain conditions, be adjusted. No
fractions of a share of Common Stock will be issued upon the exercise of any
Warrant, but the Company will pay the cash value thereof determined as
provided in the Warrant Agreement.
The holders of the Warrants are entitled to certain
registration rights with respect to the Common Stock purchasable upon
exercise thereof. Said registration rights are set forth in full in a
Registration Rights Agreement dated as of October __, 1997, between the
Company and the Warrant Holder. A copy of the Registration Rights may be
obtained by the holder hereof upon written request to the Company.
Warrant Certificates, when surrendered at the office of the
Company by the registered holder thereof in person or by legal representative
or attorney duly authorized in writing, may be exchanged, in the manner and
subject to the limitations provided in the Warrant Agreement, but without
payment of any service charge, for another Warrant Certificate or Warrant
Certificates of like tenor evidencing in the aggregate a like number of
Warrants.
Upon due presentation for registration of transfer of this
Warrant Certificate at the office of the Company, a new Warrant Certificate
or Warrant Certificates of like tenor and evidencing in the aggregate
4
<PAGE>
a like number of Warrants shall be issued to the transferee(s) in exchange
for this Warrant Certificate, subject to the limitations provided in the
Warrant Agreement, without charge except for any tax or other governmental
charge imposed in connection therewith.
The Company may deem and treat the registered holder(s)
thereof as the absolute owner(s) of this Warrant Certificate (notwithstanding
any notation of ownership or other writing hereon made by anyone), for the
purpose of any exercise hereof, of any distribution to the holder(s) hereof,
and for all other purposes, and the Company shall not be affected by any
notice to the contrary. Neither the Warrants nor this Warrant Certificate
entitles any holder hereof to any rights of a stockholder of the Company.
5
<PAGE>
[FORM OF ELECTION TO PURCHASE]
(TO BE EXECUTED UPON EXERCISE OF WARRANT)
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant Certificate, to receive ___________ shares of
Common Stock and herewith tenders payment for such shares to the order of
InSight Health Services Corp. in the amount of $_______ or by delivery of
____ Warrants or in accordance with the terms hereof. The undersigned
requests that a certificate for such shares be registered in the name of
___________________ whose address is __________________________________ and
that such shares be delivered to _________________ whose address is
__________________________________. If said number of shares is less than all
of the shares of Common Stock purchasable hereunder after giving effect to
any delivery of Warrants in payment of the Exercise Price, the undersigned
requests that a new Warrant Certificate representing the remaining balance of
such shares be registered in the name of _______________, whose address is
________________________, and that such Warrant Certificate be delivered to
_________________ whose address is _____________________.
Signature: ______________________
Date: _________________
6
<PAGE>
CONTACTS:
At Lippert/Heilshorn & Associates
Lillian Armstrong
Adam Aron
415-433-3777
At InSight:
E. Larry Atkins
President & CEO
Tom Croal
Executive Vice President/
Chief Financial Officer
714-476-0733
INSIGHT HEALTH SERVICES ANNOUNCES $25 MILLION EQUITY
INVESTMENT BY THE CARLYLE GROUP
--INVESTMENT IS PART OF $150 MILLION CAPITAL INFUSION TO FUEL GROWTH --
Newport Beach, CA, October 14, 1997 - InSight Health Services Corp.
(NASDAQ: IHSC) today announced a major capital infusion, which includes the
purchase by The Carlyle Group of $25 million in new Preferred Stock at $8.38 per
share. Simultaneously, InSight has executed a definitive agreement with
NationsBank, N.A. for $125 million in senior secured credit financing. In
addition, InSight has created a new class of Preferred Stock, part of which has
been issued to GE in exchange for the early buyout of its supplemental service
fee arrangement with InSight, and the balance of which is expected to be issued
to GE shortly in exchange for its existing Series A Preferred Stock. The
Company's Board will be expanded to nine members. As a result of their
investment in InSight, Carlyle and GE have received the right to appoint two
directors, and one director, respectively.
- MORE -
<PAGE>
INSIGHT HEALTH SERVICES
PAGE 2
Frank E. Egger, InSight's Chairman of the Board stated, "This capital
infusion is strong evidence of The Carlyle Group's and GE's support for this
management team and the long-term strategic direction InSight is pursuing. It
places the Company in a significantly stronger financial position from which to
execute its business plan. It also enhances InSight's ability to maximize
shareholder value."
E. Larry Atkins, InSight's President and Chief Executive Officer added,
"This capital infusion is an enormous step forward for InSight - one that
substantially boosts our resources, lowers our cost of capital and fuels our
future growth. We are in the midst of several growth initiatives, including
acquisitions, expansion of open MRI units and continued development of our
radiology co-sourcing product. All these programs will be supported from a
stronger capital base as a result of this investment. We are delighted to be
associated with organizations of Carlyle's, NationsBank's and GE's caliber. The
conversion price of the new Preferred Stock is at a supplemental premium to the
recent trading price of our Common Stock, which we believe is a real vote of
confidence from these organizations."
INVESTMENT BY THE CARLYLE GROUP
The Carlyle Group is a private global investment firm, based in Washington,
D.C., which originates, structures and acts as lead equity investor in regulated
industry sectors concentrating the extensive operating, corporate and
governmental experience of its partners. Certain investments, such as its
investment in InSight, are focused in industries impacted by federal government
policies and regulations, and experiencing consolidation. Formed in 1987, The
Carlyle Group has invested over $1.2 billion of equity in 39 transactions.
- MORE -
<PAGE>
INSIGHT HEALTH SERVICES
PAGE 3
NATIONSBANK CREDIT AGREEMENT
The $125 million NationsBank financing will include a term loan designed to
refinance existing debt, a working capital facility and an acquisition facility.
The working capital and acquisition facilities will result in $75 million of new
capacity to fuel growth and acquisitions. These senior credit facilities will
result in a two hundred basis point reduction in current interest rate costs
over the refinanced debt. Funding is subject to the satisfaction of certain
customary conditions and is expected to occur within two weeks.
THE CONVERTIBLE SECURITIES
As part of the transaction, GE has agreed to convert all of its existing
non-voting Series A Preferred Stock into the new Series C Preferred Stock
upon expiration or earlier termination of the 30-day waiting period under the
Hart-Scott-Rodino Antitrust Improvements Act. GE has also received 835,821
shares of Series C Preferred Stock in exchange for the early cancellation of
the supplemental service fee agreement, thereby eliminating InSight's annual
expense representing a fourteen percent pretax income payment to GE. This
termination will result in a non-recurring expense of approximately $6.7
million in the second quarter of fiscal 1998. When converted, GE's holdings
would represent 34 percent of the current fully-diluted outstanding shares,
and has an initial conversion price of $8.38 per share of Common Stock. GE
has also acquired warrants to purchase 250,000 shares of InSight Common Stock
at an initial exercise price of $10.00 per share.
The Series B Preferred Stock purchased by Carlyle will be convertible
initially into an aggregate of 2,985,075 shares of InSight Common Stock, or 31
percent of the fully-diluted outstanding shares, at an initial conversion price
of $8.38 per share of Common Stock. Carlyle has also acquired warrants to
purchase 250,000 shares of InSight Common Stock at an initial exercise price of
$10.00 per share.
- MORE -
<PAGE>
INSIGHT HEALTH SERVICES
PAGE 4
The new Preferred will vote with the Common Stock on all matters except the
election of directors, but will be limited to a maximum aggregate vote equal to
37 percent of the votes eligible to be cast on such matters. The Series B and
the Series C Preferred Stock also will vote as separate classes with respect to
certain matters.
ABOUT INSIGHT HEALTH SERVICES
InSight, headquartered in Newport Beach, California, provides diagnostic
imaging and information, treatment and related management services. It serves
managed care, hospitals and other contractual customers in 26 US states,
including five major US markets: California, the Southwest, including a major
presence in Texas, the Midwest, the Northeast and the Southeast.
SAFE HARBOR STATEMENT
Statements made in this news release that state the Company's or
management's intentions, hopes, beliefs, expectations or predictions for the
future are forward-looking statements that involve risks and uncertainties. It
is important to note that the Company's actual results and experience could
differ materially from the anticipated results or other expectations expressed
in such forward-looking statements. The risks and uncertainties that may affect
the operations, performance, developments and results of the Company's business
include, but are not limited to changing regulatory environment, limitations and
delays in reimbursement by third party payors, contract renewals, financial
stability of customers, aggressive competition, closing on the NationsBank or
other suitable financing, industry-wide market factors and other risk factors
detailed in the Company's SEC filings.
<PAGE>
EXHIBIT 99.2
[LETTERHEAD]
INSIGHT HEALTH SERVICES RECEIVES $125 MILLION
IN CREDIT FINANCING FROM NATIONSBANK
Newport Beach, CA, October 23, 1997 -- InSight Health Services Corp.
(NASDAQ: IHSC) today announced that it received initial funding under its
NationsBank, N.A. $125 million senior secured credit financing.
The credit financing was originally announced in conjunction with a $25
million equity investment in InSight by The Carlyle Group on October 14,
1997. As previously stated, the $125 million NationsBank financing includes a
term loan to refinance existing debt, a working capital facility and an
acquisition facility. The working capital and acquisition facilities provide
$75 million to fuel growth and acquisitions. These credit facilities result
in a two hundred basis point reduction in InSight's current interest rate
costs.
ABOUT INSIGHT HEALTH SERVICES
InSight, headquartered in Newport Beach, California, provides diagnostic
imaging and information, treatment and related management services. It serves
managed care, hospitals and other contractual customers in 26 US states,
including five major US markets: California, the Southwest, including a
major presence in Texas, the Midwest, the Northeast and the Southeast.
-MORE-
<PAGE>
Page 2
SAFE HARBOR STATEMENT
Statements made in this news release that state the Company's or
management's intentions, hopes, beliefs, expectations or predictions for the
future are forward-looking statements that involve risks and uncertainties.
It is important to note that the Company's actual results and experience
could differ materially from the anticipated results or other expectations
expressed in such forward-looking statements. The risks and uncertainties
that may affect the operations, performance, developments and results of the
Company's business include, but are not limited to changing regulatory
environment, limitations and delays in reimbursement by third party payors,
contract renewals, financial stability of customers, aggressive competition,
industry-wide market factors and other risk factors detailed in the
Company's SEC filings.
###
<PAGE>
EXHIBIT 99.3
[LETTERHEAD]
INSIGHT HEALTH SERVICES INCREASES CREDIT FINANCING TO $150 MILLION
-TERMS OF ORIGINAL CREDIT FINANCING INCREASED BY $25 MILLION-
Newport Beach, CA, December 22, 1997 -- InSight Health Services Corp.
(NASDAQ: IHSC) today announced it had closed an additional $25 million in
senior secured credit financing from a group of banks led by NationsBank,
N.A. The original credit financing was announced in conjunction with a $25
million equity investment in InSight by The Carlyle Group on October 14,
1997. Since that time, the financing has been syndicated and increased from
its original $125 million to its current $150 million.
The $150 million financing includes a term loan to refinance existing
debt, a working capital facility and an acquisition facility. The working
capital and acquisition facilities provide $100 million to fuel growth and
acquisitions. The new credit facilities result in a two hundred basis point
reduction in InSight's current interest rate costs. This closing completes
the Company's equity and debt transactions totaling $175 million.
E. Larry Atkins, commenting on the financing, stated, "This financing
significantly strengthens our resources and lowers our cost of capital. The
capital infusion will be used largely to fuel the company's future
acquisitions, expand our open MRI program, and continue with the development
of our radiology co-sourcing product. The $25 million increase in funding
over the amount originally announced in October is a vote of confidence in
InSight and its strategy. We have a robust acquisition pipeline and this
funding will make it possible to accelerate strategic acquisitions that are
immediately accretive to the Company."
-MORE-
<PAGE>
Page 2
SAFE HARBOR STATEMENT
Statements made in this news release that state the Company's or
management's intentions, hopes, beliefs, expectations or predictions for the
future are forward-looking statements that involve risks and uncertainties.
It is important to note that the Company's actual results and experience
could differ materially from the anticipated results or other expectations
expressed in such forward-looking statements. The risks and uncertainties
that may affect the operations, performance, developments and results of the
Company's business include, but are not limited to changing regulatory
environment, limitations and delays in reimbursement by third party payors,
contract renewals, financial stability of customers, aggressive competition,
industry-wide market factors and other risk factors detailed in the
Company's SEC filings.
ABOUT INSIGHT HEALTH SERVICES
InSight, headquartered in Newport Beach, California, provides diagnostic
imaging and information, treatment and related management services. It serves
managed care, hospitals and other contractual customers in 28 US states,
including five major US markets: California, the Southwest, including a major
presence in Texas, the Midwest, the Northeast and the Southeast.
###
