<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 13D
Under the Securities Exchange Act of 1934
Alliance Imaging, Inc.
(Name of Issuer)
Common Stock, $0.01 par value
(Title of Class of Securities)
018606-10-3
(CUSIP Number)
---
ROBERT E. HEALING, ESQ.
GENERAL ELECTRIC COMPANY
3135 EASTON TURNPIKE
FAIRFIELD, CONNECTICUT 06431
(203)373-2243
(Name, address, including zip code, and telephone number, including
area code of agent for service)
Copies to:
RONALD S. BEARD, ESQ.
GIBSON, DUNN & CRUTCHER LLP
333 SOUTH GRAND AVENUE
LOS ANGELES, CALIFORNIA 90071-3197
(213) 229-7000
December 31, 1996
(Date of Event which Requires Filing
of this Statement)
If the filing person has previously filed a statement on Schedule 13G to report
the acquisition which is the subject of this Schedule 13D, and is filing this
schedule because of Rule 13d-1(b)(3) or (4), check the following box / /.
Check the following box if a fee is being paid with the statement / /.
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE 13D
CUSIP No. 018606-10-3 Page 2 of ___ Pages
<S> <C> <C>
1 NAMES OF REPORTING PERSON
General Electric Company
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSONS
(I.R.S. # 14-0689340)
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) [ ]
(b) [ ]
3 SEC USE ONLY
4 SOURCE OF FUNDS*
Not Applicable
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED
PURSUANT TO ITEMS 2(d) or 2(e) [ ]
6 CITIZENSHIP OR PLACE OF ORGANIZATION
New York
</TABLE>
<TABLE>
<S> <C> <C>
NUMBER OF 7 SOLE VOTING POWER
SHARES 4,550,000
BENEFICIALLY (see Item 5(a))
OWNED BY 8 SHARED VOTING POWER
EACH 0
REPORTING 9 SOLE DISPOSITIVE POWER
PERSON 4,550,000
WITH (see Item 5(a))
10 SHARED DISPOSITIVE POWER
0
</TABLE>
<TABLE>
<S> <C> <C>
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING
PERSON 4,550,000 (see Item 5(a))
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES
CERTAIN SHARES* [ ]
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
29.5%
14 TYPE OF REPORTING PERSON*
CO
</TABLE>
<PAGE>
*SEE INSTRUCTIONS BEFORE FILLING OUT!
INCLUDE BOTH SIDES OF THE COVER PAGE, RESPONSES TO ITEMS 1-7
(INCLUDING EXHIBITS) OF THE SCHEDULE, AND THE SIGNATURE ATTESTATION.
STATEMENT PURSUANT TO RULE 13d-1
OF THE
GENERAL RULES AND REGULATIONS
UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED
<PAGE>
Item 1 - SECURITY AND ISSUER
- ----------------------------
This statement relates to the Common Stock, $0.01 par value per share
("Common Stock"), of Alliance Imaging, Inc., a Delaware corporation
("Alliance"), having its principal executive offices at 3111 North Tustin
Avenue, Orange, California 92865.
Item 2 - IDENTITY AND BACKGROUND
- --------------------------------
This statement is filed by General Electric Company, a New York corporation
("GE") with principal executive offices located at 3135 Easton Turnpike,
Fairfield, Connecticut. GE engages in providing a wide variety of industrial,
commercial and consumer products and services.
For information with respect to the identity and background of each
director and executive officer of GE, see Schedule I attached hereto.
During the last five years, neither GE nor, to its best knowledge, any
person identified on Schedule I has, except as set forth on Schedule II hereto
(a) been convicted in a criminal proceeding (excluding traffic violations or
similar misdemeanors) or (b) been a party to a civil proceeding of a judicial or
administrative body of competent jurisdiction as a result of which GE or such
person, as the case may be, was or is subject to a judgment, decree or final
order enjoining future violations of, or prohibiting or mandating activities
subject to, federal or state securities laws or finding any violation
withrespect to such laws.
To the best knowledge of GE, all persons identified on Schedule I are
United States citizens, except that Paolo Fresco, Vice Chairman of the Board and
an executive officer of GE, is an Italian citizen and Claudio X. Gonzalez, a
director of GE, is a Mexican citizen.
Item 3 - SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION
- ----------------------------------------------------------
On December 31, 1996, GE acquired a Senior Bridge Note of Alliance, a copy
of which is attached as Exhibit 1 hereto (the "Note"). The Note was issued to
GE to evidence an unsecured loan made by GE in the amount of $18,000,000
pursuant to a Bridge Loan Agreement dated as of December 31, 1996 (the "Bridge
Loan Agreement") between GE and Alliance, a copy of which is attached as Exhibit
2 hereto. The maturity date of the Note is February 28, 1997, but under certain
circumstances GE may, at its option, extend the maturity date to March 31, 1997.
GE may, at its election (the "Conversion Option") at any time prior to
February 28, 1997, enter into a series of transactions with Alliance
(collectively, the "Conversion Transactions"). The Conversion Transactions
include (i) the conversion of the Note into 18,000 shares of Alliance's Series D
4% Cumulative Redeemable Convertible Preferred Stock (the "Series D Preferred
Stock") and (ii) the conversion of $9,000,000 in principal amount due to GE
under the Note Purchase Agreement dated as of April 14, 1989, as amended to the
date hereof (the "Note Purchase Agreement") currently evidenced by a 7.5% Senior
Note Due 2003 (the "Senior Note") into a note evidenced by a senior note (the
"Convertible Senior Note") convertible, under certain circumstances, into shares
of Alliance's Series E 4% Cumulative Redeemable Convertible Preferred Stock (the
"Series E Preferred Stock"). If GE does not timely elect to exercise the
Conversion Option, then the maturity date with respect to the Note will
automatically be
<PAGE>
extended to March 31, 1997, and GE's Conversion Option will
lapse; provided, however, that if for any reason all or part of the outstanding
-------- -------
principal under the Note is still unpaid after the maturity date (as extended,
if applicable), then GE shall at and after such time have the Conversion Option.
The rights, terms, and privileges of the Series D Preferred Stock are set
forth in a Certificate of Designation (the "Series D Certificate of
Designation"), a copy of which is attached hereto as Exhibit 3. The Series D
Preferred Stock is nonvoting preferred stock. Each share of Series D Preferred
Stock is convertible at any time through December 31, 2006 at the holder's
option into shares of Alliance Common Stock at a conversion price of $6.00 per
share of Common Stock (with such conversion price being subject to certain
adjustments). Accordingly, if GE were to exercise the Conversion Option, and
then immediately exercise its right to convert its shares of Series D Preferred
Stock into Common Stock, GE would be entitled to approximately 3,000,000 shares
of Alliance Common Stock on account of its original loan under the Bridge Loan
Agreement (assuming no interim adjustments in the conversion price). Under the
terms of the Series D Certificate of Designation, each holder has the right
under certain circumstances to require Alliance to repurchase or redeem all or
part of the shares of Series D Preferred Stock held by such holder, subject to
certain conditions (and in certain cases, at a price premium to the face amount
of each such share). In addition, under certain conditions, Alliance has the
right to redeem the outstanding shares of Series D Preferred Stock (in certain
cases, at a price premium to the face amount of each such share).
The foregoing response to this Item 3 is qualified in its entirety by
reference to the Note, the Bridge Loan Agreement, and the Series D Certificate
of Designation, each of which is hereby incorporated herein.
Item 4 - PURPOSE OF TRANSACTION
- -------------------------------
GE has made the loan evidenced by the Note to provide Alliance funds solely
(i) to make certain payments due from Alliance to the holders of its Series A
Preferred Stock and Alliance's 7.50% Senior Subordinated Debentures due 2005,
(ii) to make payments with respect to certain transaction costs incurred by GE,
and (iii) to the extent any proceeds remain after the payments set forth in
items (i) and (ii) above, for general working capital purposes. GE has acquired
its rights under the Bridge Loan Agreement and the Note (including, to the
extent applicable, its rights thereunder to acquire Common Stock of Alliance) as
a possible future investment in the ordinary course of business, and not with
the purpose of changing control of Alliance. GE intends to review on a
continuing basis its loan to Alliance, including Alliance's business, financial
condition and operating results and general market and industry conditions and,
based upon such review, will determine whether or not to enter into the
Conversion Transactions or other transactions relating to the securities of
Alliance.
GE may change its current intentions, acquire additional Common Stock or
rights that are convertible into or exercisable for Common Stock or take any
other action with respect to Alliance or any of its debt or equity securities in
any manner permitted by law. Other than as set forth herein, GE has no current
plans which relate to or would result in any of the events described in Items
(a) through (j) of the instructions to this Item 4 of Schedule 13D.
Item 5 - INTEREST IN SECURITIES OF THE ISSUER
- ---------------------------------------------
<PAGE>
(a) The responses to Item 3 and Item 6 are incorporated by reference
herein. Under the assumptions set forth in those Items, GE has the right to
acquire approximately 4,550,000 shares of Common Stock (representing 29.5% of
the shares of Common Stock that as a result of the issuance of the foregoing
shares would be outstanding, based on 10,867,388 shares of Common Stock reported
by Alliance as outstanding as of October 31, 1996), which number is subject to
adjustment under various circumstances.
(b) GE has sole voting and investment power with respect to the securities
that are the subject of this Schedule 13D.
(c) On November 6, 1996, Alliance issued to GE a warrant (the "Warrant") to
purchase an aggregate of 50,000 shares of Common Stock. The Warrant has a term
of three years and an exercise price per share equal to $5.00 (subject to
certain adjustments).
(d) No other person is known to GE to have the right to receive or the
power to direct the receipt of dividends from, or any proceeds from the sale of,
the securities that are the subject of this Schedule 13D.
(e) Not applicable.
Item 6 - CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH RESPECT
- ------------------------------------------------------------------------------
TO SECURITIES OF THE ISSUER
---------------------------
The current principal balance due to GE from Alliance with respect to the
loan evidenced by the Senior Note under the Note Purchase Agreement is
approximately $9,000,000. If GE exercises its Conversion Option, the Note
Purchase Agreement shall be amended and the Senior Note shall be converted into
the Convertible Senior Note. The Convertible Senior Note, if and when issued,
shall be convertible at GE's option any time after January 1, 1998 into shares
of Alliance Series E Preferred Stock. The rights, terms, and privileges of the
Series E Preferred Stock are set forth in a Certificate of Designation (the
"Series E Certificate of Designation"). The Series E Preferred Stock is
nonvoting preferred stock. Each share of Series E Preferred Stock, if and when
issued, shall be convertible at any time through December 31, 2006 at the
holder's option into shares of Alliance Common Stock at a conversion price (the
"Conversion Price") equal to the greater of (i) the Market Price as of the issue
date (as defined in the Series E Certificate of Designation) and (ii) the Base
Conversion Price (initially, $6 per share of Common Stock), subject to certain
adjustments. Accordingly, if GE were to exercise the Conversion Option, and
then immediately after January 1, 1998, exercise its right to convert the
outstanding principal amount due under the Convertible Senior Note into Series E
Preferred Stock, and then immediately exercise its right to convert the shares
of Series E Preferred Stock into Common Stock, GE would be entitled to
approximately 1,500,000 shares of Alliance Common Stock on account of the
conversion of the debt evidenced by the Senior Note into Common Stock (assuming
the Conversion Price was $6.00 per share). Under the terms of the Series E
Certificate of Designation, each holder under certain circumstances will have
the right to require Alliance to repurchase or redeem all or part of the shares
of Series E Preferred Stock held by such holder, subject to certain conditions
(and in certain cases, at a price premium to the face amount of each such
share). In addition, under certain conditions, Alliance has the right to redeem
the outstanding shares of Series E Preferred Stock (in certain cases, at a price
premium to the face amount of each such share).
<PAGE>
On November 6, 1996, Alliance issued to GE a warrant (the "Warrant") to
purchase an aggregate of 50,000 shares of Common Stock. The Warrant has a term
of three years and an exercise price per share equal to $5.00 (subject to
certain adjustments).
Alliance has granted GE certain registration rights with respect to the
shares of Common Stock issuable upon exercise of the Warrant, and has agreed to
provide registration rights with respect to the shares of Common Stock issuable
upon conversion of the Series D Preferred Stock and the Series E Preferred
Stock.
Item 7 - MATERIAL TO BE FILED AS EXHIBITS.
- -------------------------------------------
(1) Senior Bridge Note dated December 31, 1996
(2) Bridge Loan Agreement dated December 31, 1996
(3) Certificate of Designation, Preferences and Rights of Series D 4%
Cumulative Redeemable Convertible Preferred Stock
SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
GENERAL ELECTRIC COMPANY
By: /s/ Robert E. Healing
Name: Robert E. Healing
Title: Corporate Counsel
Dated: January 10, 1997
<PAGE>
SCHEDULE I
GENERAL ELECTRIC COMPANY
DIRECTORS
<TABLE>
<CAPTION>
PRESENT PRESENT
NAME BUSINESS ADDRESS PRINCIPAL OCCUPATION
- ---------------- ------------------------ ----------------------
<S> <C> <C>
D.W. Calloway PepsiCo, Inc. Chairman of the Board,
700 Anderson Hill Road PepsiCo, Inc.
Purchase, NY 10577
S.S. Cathcart 222 Wisconsin Avenue Director and Retired
Suite 103 Chairman, Illinois Tool
Lake Forest, IL 60045 Works
D.D. Dammerman General Electric Company Senior Vice President-
3135 Easton Turnpike Finance, General
Fairfield, CT 06431 Electric Company
P. Fresco General Electric Company Vice Chairman of the
(U.S.A.) Board and Executive
3 Shortlands, Hammersmith Officer, General
London, W6 8BX, England Electric Company
C.X. Gonzalez Kimberly-Clark de Mexico, Chairman of the Board
S.A. de C.V. and Chief Executive
Jose Luis Lagrange 103, Officer
Tercero Piso Kimberly-Clark de Mexico,
Colonia Los Morales S.A. de C.V.
Mexico, D.F. 11510, Mexico
R.E. Mercer General Electric Company Retired Chairman of the
3135 Easton Turnpike Board and former
Fairfield, CT 06431 Director, The Goodyear
Tire & Rubber Company
G.G. Michelson Federated Department Stores Former Member of the
151 West 34th Street Board of Directors -
New York, NY 10001 Federated Department
Stores
S. Nunn King and Spalding Partner
191 Peachtree Street, N.E.
Atlanta, Georgia 30303
J.D. Opie General Electric Company Vice Chairman of the
3135 Easton Turnpike Board and Executive
Fairfield, CT 06431 Officer
</TABLE>
<PAGE>
GENERAL ELECTRIC COMPANY DIRECTORS (CONTINUED)
<TABLE>
<CAPTION>
PRESENT PRESENT
NAME BUSINESS ADDRESS PRINCIPAL OCCUPATION
- ------------------ --------------------------- -----------------------
<S> <C> <C>
R.S. Penske Penske Corporation President, Penske
13400 Outer Drive, West Corporation
Detroit, MI 48239-4001
B.S. Prieskel Suite 3125 Former Senior Vice
60 East 42nd Street President, Motion
New York, NY 10165 Picture Associations
of America
F.H.T. Rhodes Cornell University President Emeritus
3104 Snee Building Cornell University
Ithaca, NY 14853
A.C. Sigler Champion International Retired Chairman of the
Corporation Board and CEO
1 Champion Plaza and former Director,
Stamford, CT 06921 Champion International
Corporation
D.A. Warner III J. P. Morgan & Co., Inc. Chairman of the Board,
& Morgan Guaranty Trust Co. President, and Chief
60 Wall Street Executive Officer,
New York, NY 10260 J.P. Morgan & Co.
Incorporated and Morgan
Guaranty Trust Company
J.F. Welch, Jr. General Electric Company Chairman of the Board
3135 Easton Turnpike and Chief Executive
Fairfield, CT 06431 Officer, General
Electric Company
</TABLE>
Citizenship
-----------
C. X. Gonzalez Mexico
P. Fresco Italy
All Others U.S.A.
January 7, 1997
(g:\common\13D D&O List
<PAGE>
GENERAL ELECTRIC COMPANY EXECUTIVE OFFICERS
<TABLE>
<CAPTION>
PRESENT PRESENT
NAME BUSINESS ADDRESS PRINCIPAL OCCUPATION
- --------------------- -------------------------- -----------------------
<S> <C> <C>
J.F. Welch, Jr. General Electric Company Chairman of the Board
3135 Easton Turnpike and Chief Executive
Fairfield, CT 06431 Officer
P. Fresco General Electric Company Vice Chairman of the
(U.S.A.) Board and Executive
3 Shortlands, Hammersmith Officer
London, W6 8BX, England
P.D. Ameen General Electric Company Vice President and
3135 Easton Turnpike Comptroller
Fairfield, CT 06431
J.R. Bunt General Electric Company Vice President and
3135 Easton Turnpike Treasurer
Fairfield, CT 06431
D.L. Calhoun General Electric Company Vice President -
2901 East Lake Road GE Transportation
Erie, PA 16531 Systems
W.J. Conaty General Electric Company Senior Vice President -
3135 Easton Turnpike Human Resources
Fairfield, CT 06431
D. M. Cote General Electric Company Vice President -
3135 Easton Turnpike GE Appliances
Fairfield, CT 06431
D.D. Dammerman General Electric Company Senior Vice President -
3135 Easton Turnpike Finance
Fairfield, CT 06431
L.S. Edelheit General Electric Company Senior Vice President -
P. O. Box 8 Corporate Research
Schenectady, NY 12301 and Development
B.W. Heineman, Jr. General Electric Company Senior Vice President -
3135 Easton Turnpike General Counsel
Fairfield, CT 06431 and Secretary
J. R. Immelt General Electric Company Senior Vice President -
P.O. Box 414 GE Medical Systems
Milwaukee, WI 53201
W.J. Lansing General Electric Company Vice President-
3135 Easton Turnpike Corporate Business
Fairfield, CT 06431 Development
W.J. McNerney, Jr. General Electric Company Senior Vice President -
Nela Park GE Lighting
Cleveland, OH 44122
</TABLE>
<PAGE>
GENERAL ELECTRIC COMPANY EXECUTIVE OFFICERS (Continued)
<TABLE>
<CAPTION>
PRESENT PRESENT
NAME BUSINESS ADDRESS PRINCIPAL OCCUPATION
- ---------------- ------------------------ -----------------------
<S> <C> <C>
E.F. Murphy General Electric Company Senior Vice President -
1 Newmann Way GE Aircraft Engines
Cincinnati, OH 05215
R.L. Nardelli General Electric Company Senior Vice President -
1 River Road GE Power Systems
Schenectady, NY 12345
R.W. Nelson General Electric Company Vice President -
3135 Easton Turnpike Corporate Financial
Fairfield, CT 06431 Planning and Analysis
J.D. Opie General Electric Company Vice Chairman of the
3135 Easton Turnpike Board and Executive
Fairfield, CT 06431 Officer
G.M. Reiner General Electric Company Senior Vice President -
3135 Easton Turnpike Chief Information
Fairfield, CT 06431 Officer
G.L. Rogers General Electric Company Senior Vice President -
1 Plastics Avenue GE Plastics
Pittsfield, MA 01201
J.W. Rogers General Electric Company Vice President -
1635 Broadway GE Motors
Fort Wayne, IN 46801
L.G. Trotter General Electric Company Vice President -
41 Woodford Avenue GE Electrical
Plainville, CT 06062 Distribution and
Control
</TABLE>
Citizenship
-----------
P. Fresco Italy
All Others U.S.A.
January 10, 1997
<PAGE>
RECENT GE CONVICTIONS
---------------------
1. United States ex rel. Taxpayers Against Fraud and Chester L. Walsh v.
---------------------------------------------------------------------
General Electric Company
------------------------
On November 15, 1990, an action under the federal False Claims Act, 31
U.S.C. (S)(S) 3729-32, was filed under seal against General Electric Company
("GE") in the United States District Court for the Southern District of Ohio.
The qui tam action, brought by an organization called Taxpayers Against Fraud
and an employee of GE's Aircraft Engines division ("GEAE"), alleged that GEAE,
in connection with its sales of F110 aircraft engines and support equipment to
Israel, made false statements to the Israeli Ministry of Defense (MoD), causing
MoD to submit false claims to the United States Department of Defense under the
Foreign Military Sales Program. Senior GE management became aware of possible
misconduct in GEAE's Israeli F110 program in December 1990. Before learning of
the sealed qui tam suit, GE immediately made a voluntary disclosure to the
Departments of Defense and Justice, promised full cooperation and restitution,
and began an internal investigation. In August 1991, the federal court action
was unsealed, and the Department of Justice intervened and took over
responsibility for the case.
On July 22, 1992, after GE had completed its investigation and made a
complete factual disclosure to the U.S. government as part of settlement
discussions, the United States and GE executed a settlement agreement and filed
a stipulation dismissing the civil action. Without admitting or denying the
allegations in the complaint, GE agreed to pay $59.5 million in full settlement
of the civil fraud claims. Also on July 22, 1992, in connection with the same
matter, the United States filed a four count information charging GE with
violations of 18 U.S.C. (S) 287 (submitting false claims against the United
States), 18 U.S.C. (S)1957 (engaging in monetary transactions in criminally
derived property), and 15 U.S.C. (S)(S) 78m(b)(2)(A) and 78ff(a) (inaccurate
books and records), and 18 U.S.C. (S) 371 (conspiracy to defraud the United
States and to commit offenses against the United States). The same day, GE and
the United States entered a plea agreement in which GE agreed to waive
indictment, plead guilty to the information, and pay a fine of $9.5 million. GE
was that day sentenced by the federal court in accordance with the plea
agreement.
2. Her Majesty's Inspectorate of Pollution v. IGE Medical Systems Limited
----------------------------------------------------------------------
(St. Albans Magistrates Court, St. Albans, Hertsfordshire, England, Case
No. 04/00320181)
In April, 1994, GEMS' U.K. subsidiary, IGE Medical Systems Limited (IGEMS)
discovered the loss of a radioactive barium source at the Radlett, England
facility. The lost source, used to calibrate nuclear camera detectors, emits a
very low level of radiation. IGEMS immediately reported the loss as required by
the U.K. Radioactive Substances Act. An ensuing investigation, conducted in
cooperation with government authorities, failed to locate the source. On July
21, 1994, Her Majesty's Inspectorate of Pollution (HMIP) charged IGEMS with
violating the Radioactive Substances Act by failing to comply with a condition
of registration. The Act provides that a registrant like IGEMS, which "does not
comply with a limitation or condition subject to which (it) is so registered ...
shall be guilty of (a criminal) offense." Condition 7 of IGEMS' registration
states that it "shall so far as is reasonably practicable prevent ... loss of
any registered source."
At the beginning of trial on February 24, 1995, IGEMS entered a guilty plea
and agreed to pay of fine of 5,000(Pounds) and assessed costs of 5,754(Pounds).
The prosecutors presentation focused primarily on the 1991 change in internal
ITEMS procedures and, in particular, the source logging procedure. The
prosecutor complimented ITEMS' investigation and efforts to locate the source
and advised the court that ITEMS had no previous violations of the Radioactive
Substances Act. He also told the court that the Radlett plant had been
highlighted as an exemplary facility to HIMP inspectors as part of their
training. In mitigation, ITEMS emphasized the significant infrastructure
<PAGE>
and expense undertaken by ITEMS to provide security for radiation sources and
the significant effort and expense incurred in attempting to locate the missing
source.
3. Except for the foregoing, GE has not and, to the best of GE's knowledge,
none of the directors and executive officers of GE has been, during the last
five years, convicted in a criminal proceeding (excluding traffic violations or
similar misdemeanors).
4. GE has not and, to the best of GE's knowledge, none of the directors and
executive officers of GE has been, during the last five years, a party to a
civil proceeding of a judicial or administrative body of competent jurisdiction
and as a result of such proceeding was or is subject to a judgment, decree, or
final order enjoining future violations of, or prohibiting or mandating
activities subject to, federal or state securities laws or finding any violation
with respect to such laws.
LC970090.001
<PAGE>
SENIOR BRIDGE NOTE
$18,000,000 New York, N.Y.
December 31, 1996
FOR VALUE RECEIVED, the undersigned, Alliance Imaging, Inc., a Delaware
corporation ("Borrower"), promises to pay to the order of General Electric
--------
Company, a New York corporation or its assigns ("Lender"), in New York, New
------
York, or at such other place as may be designated in writing by the holder of
this Senior Bridge Note (together with all supplements, amendments or
modifications hereto or renewals hereof, the "Note"), on February 28, 1997 (the
----
"Maturity Date"), the principal sum of Eighteen Million Dollars
($18,000,000.00), with interest (computed on the basis of a 360-day year of
twelve 30-day months) on the unpaid principal hereof at the rate of 10% per
annum from December 31, 1996, payable on the Maturity Date, and thereafter to
pay interest (so computed) at the rate of 14% per annum on any overdue principal
and, to the extent permitted by applicable law, on any overdue interest, until
the same shall be paid. All sums owing hereunder are payable in lawful money of
the United States of America, in immediately available funds. The loan
evidenced hereby (the "Loan") has been extended by Lender to Borrower pursuant
----
to the Bridge Loan Agreement between Borrower and Lender dated as of December
31, 1996 (the "Loan Agreement"). All of the terms, covenants and conditions of
--------------
the Loan Agreement and all other instruments evidencing the indebtedness
hereunder are hereby made a part of this Note and are deemed incorporated herein
in full. In particular, but without limitation of the foregoing, the Maturity
Date is subject to extension in the circumstances described in the Loan
Agreement.
Notwithstanding the previous paragraph, at any time after the occurrence and
during the continuation of a Default, interest shall accrue on this Note at the
rate of 14% per annum.
1. Principal Payments. The principal amount of the indebtedness from time to
------------------
time evidenced hereby shall be payable in the amounts and on the dates
specified in the Loan Agreement and, if not sooner paid in full, the
outstanding principal balance of this Note, together with all accrued and
unpaid interest, shall be due and payable in full on the Maturity Date.
2. Prepayment. Borrower shall not have the right to prepay the Loan.
----------
3. Lender's Option to Accelerate. If: (a) Borrower shall fail to pay when
-----------------------------
due any sums payable hereunder; or (b) a Default occurs, THEN Lender may,
-- ----
at its sole option, declare all sums owing under this Note immediately due
and payable.
4. Lender's Option to Convert. Lender may, at its sole option, convert
--------------------------
principal amounts owing under this Note to shares of the Borrower's Series
D 4% Cumulative Redeemable Convertible Preferred Stock, on the terms and as
set forth in the Loan Agreement.
5. Attorneys' Fees. If any attorney is engaged by Lender to enforce or defend
---------------
any provision of this Note or the Loan Agreement, or as a consequence of
any Default, with or without the filing of any legal action or proceeding,
then Borrower shall pay to Lender immediately upon demand all attorneys'
fees and all costs incurred by Lender in connection therewith, together
with interest thereon from the date of such demand until paid at the rate
of interest applicable to the principal balance owing hereunder as if such
unpaid attorneys' fees and costs had been added to the principal.
6. No Waiver. No previous waiver and no failure or delay by Lender in acting
---------
with respect to the terms of this Note or any Loan Document shall
constitute a waiver of any breach, default, or failure of condition under
this Note, such Loan Document or the obligations secured thereby. A waiver
of any term of this Note, any Loan Document or of any of the obligations
secured thereby must be made in writing and shall be limited to the express
written terms of such waiver. In the event of
1
<PAGE>
any inconsistencies between the terms of this Note and the terms of any
other document related to the Loans, the terms of this Note shall prevail.
7. Borrower Waivers. Except as otherwise provided in any agreement executed
----------------
in connection with this Note, Borrower waives: presentment; demand; notice
of dishonor; notice of default or delinquency; notice of acceleration;
notice of protest and nonpayment; notice of costs, expenses or losses and
interest thereon; notice of late charges; and diligence in taking any
action to collect any sums owing under this Note.
8. Time of the Essence. Time is of the essence with respect to every
-------------------
provision hereof.
9. Governing Law. This Note is made and delivered in New York, New York, and
-------------
shall be governed by the laws of the State of New York.
"BORROWER"
ALLIANCE IMAGING, INC.,
a Delaware corporation
By: ______________________________
Its:
2
<PAGE>
EXHIBIT 2
EXECUTION COPY
BRIDGE LOAN AGREEMENT
---------------------
BETWEEN
ALLIANCE IMAGING, INC.,
AS BORROWER
AND
GENERAL ELECTRIC COMPANY,
AS LENDER
DATED AS OF DECEMBER 31, 1996
<PAGE>
EXECUTITION COPY
TABLE OF CONTENTS
-----------------
<TABLE>
<S> <C>
ARTICLE I. DEFINITIONS................................................... 1
1.1. Defined Terms................................................. 1
1.2. Exhibits and Schedules Incorporated........................... 8
ARTICLE II. SENIOR LOAN.................................................. 9
2.1. Senior Loan................................................... 9
2.2. Senior Note................................................... 9
2.3. Interest; Payments............................................ 9
2.4. Prepayments................................................... 9
2.5. Maturity Date................................................. 9
2.6. Default Interest.............................................. 9
2.7. Payments on Non-Business Days; Calculations................... 9
2.8. Stamp Taxes, Etc.............................................. 9
2.09. Costs of Closing.............................................. 10
2.10. Use of Proceeds............................................... 10
ARTICLE III. CONDITIONS PRECEDENT TO CLOSING AND LOANS................... 10
3.1. Conditions Precedent to Closing............................... 10
3.2. Closing Mechanics............................................. 11
ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF BORROWER................... 11
4.1. Organization, Powers and Good Standing........................ 11
4.2. Capitalization................................................ 12
4.3. Subsidiaries.................................................. 13
4.4. Authorization................................................. 13
4.5. Governmental and Other Consents; No Violation................. 14
4.6. Litigation.................................................... 14
4.7. Financial Statements.......................................... 14
4.8. Proprietary Information....................................... 15
4.9. Registration Rights........................................... 15
4.10. Contracts..................................................... 15
4.11. Absence of Changes............................................ 16
4.12. Intellectual Property......................................... 17
4.13. Compliance with Other Instruments............................. 17
4.14. Compliance with Law; Approvals................................ 17
4.15. Title to Assets............................................... 18
4.16. Plant, Property and Equipment................................. 19
4.17. Accounts and Notes Receivable................................. 19
4.18. Indebtedness.................................................. 19
4.19. Real Property................................................. 19
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
4.20. Employee Plans and Arrangements............................... 20
4.21. Employees..................................................... 22
4.22. Insurance..................................................... 23
4.23. Environmental Compliance...................................... 23
4.24. No Undisclosed Liabilities.................................... 24
4.25. Taxes......................................................... 24
4.26. No Research Grants............................................ 25
4.27. Certain Regulatory Matters.................................... 26
4.28. Transactions with Affiliates.................................. 26
4.29. Reports; SEC Documents........................................ 26
4.30. Disclosure.................................................... 26
4.31. Brokers....................................................... 26
4.32. Certain Additional Regulatory Matters......................... 26
4.33. Medicare/Medicaid Participation............................... 27
ARTICLE V. COVENANTS OF BORROWER......................................... 28
5.1. Corporate Existence, Etc...................................... 28
5.2. Payment of Taxes.............................................. 28
5.3. Maintenance of Properties..................................... 29
5.4. Maintenance of Insurance...................................... 29
5.5. Expenses...................................................... 29
5.6. Conversion Stock.............................................. 29
5.7. Compliance with Note Purchase Agreement....................... 29
5.8. Certain Regulatory Matters.................................... 29
ARTICLE VI. DEFAULTS AND REMEDIES........................................ 30
6.1. Default....................................................... 30
6.2. Acceleration Upon Default..................................... 31
6.3. Repayment of Funds Advanced................................... 31
6.4. Rights Cumulative, No Waiver.................................. 31
ARTICLE VII. LENDER'S OPTION TO EXTEND MATURITY DATE; OPTIONAL
CONVERSION OF SENIOR LOAN................................... 32
7.1. Lender's Option to Extend Maturity Date....................... 32
7.2. Conversion of Senior Loan Prior to Maturity Date.............. 32
7.3. Conversion of Senior Loan After Maturity Date................. 33
7.4. Acknowledgement............................................... 33
ARTICLE VIII. MISCELLANEOUS PROVISIONS.................................... 33
8.1. Indemnity..................................................... 33
8.2. Notices....................................................... 34
8.3. Attorneys' Fees and Expenses; Enforcement..................... 34
8.4. Immediately Available Funds................................... 34
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
8.5. Successors and Assigns........................................ 34
8.6. Participations................................................ 34
8.7. Severability.................................................. 35
8.8. No Waiver; Successors......................................... 35
8.9. Time.......................................................... 35
8.10. Headings...................................................... 35
8.11. Governing Law................................................. 35
8.12. Integration; Interpretation................................... 35
8.13. Waiver of Allocation Rights................................... 36
8.14. Usury Savings................................................. 36
8.15. Revival....................................................... 36
8.16. Counterparts.................................................. 37
</TABLE>
iii
<PAGE>
EXECUTION COPY
BRIDGE LOAN AGREEMENT
---------------------
BRIDGE LOAN AGREEMENT (this "Agreement") dated as of December 31, 1996
---------
between Alliance Imaging, Inc., a Delaware corporation (the "Borrower"), and
--------
General Electric Company, a New York Corporation acting through GE Medical
Systems (the "Lender").
RECITALS
WHEREAS, Borrower has requested that Lender make a loan to Borrower in
a principal amount of $18,000,000, and Lender has agreed to make the requested
loan upon the terms and subject to the conditions set forth herein.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants set forth herein, the parties agree as follows:
ARTICLE I. DEFINITIONS
1.1 Defined Terms. The following capitalized terms generally used
--------------
in this Agreement shall have the meanings defined or referenced below. Certain
other capitalized terms used only in specific sections of this Agreement are
defined in such sections.
"Affiliate" means, with respect to any Person, any other Person which
---------
directly or indirectly controls or is controlled by or is under common
control with such Person, and, with respect to the Borrower only, includes
any other Person with whom the Borrower has any joint venture, partnership,
or other shared investment interest. As used in this definition, "control"
(including its correlative meanings, "controlled by" and "under common
control with") shall mean possession, directly or indirectly, of power to
(i) direct or cause the direction of management or policies of such Person
(whether through ownership of securities or partnership or other ownership
interests, by contract or otherwise) or (ii) vote 10% or more of the
securities having ordinary voting power for the election of directors of
such Person.
"Agreement" is defined in the preamble hereto.
---------
"Applicable Law" means, with respect to any Person, any federal, state
--------------
or local statute, law, ordinance, rule, administrative interpretation,
regulation, order, writ, injunction, directive, judgment, decree or other
requirement of any Governmental Authority (including any Environmental Law)
applicable to such Person or any of its Affiliates or Plan Affiliates or
any of their respective properties, assets, officers, directors, employees,
consultants or agents.
"Approvals" is defined in Section 4.14(d).
---------
"Bankruptcy Code" means Title 11 of the United States Code, as amended
---------------
from time to time, and any state law relating to creditor's rights,
reorganization or insolvency generally.
1
<PAGE>
"Benefit Arrangement" means any material benefit arrangement that is
-------------------
not an Employee Benefit Plan, including (i) each employment, consulting or
change of control agreement, (ii) each arrangement providing for fringe
benefits, insurance coverage or workers' compensation benefits, (iii) each
bonus, incentive, or performance pay or deferred bonus, incentive, or
performance pay arrangement, (iv) each arrangement providing any
termination allowance, severance or similar benefits, (v) each equity
compensation plan, (vi) each deferred compensation plan and (vii) each
compensation policy and practice maintained by the Borrower covering the
employees, former employees, officers, former officers, directors and
former directors of the Borrower, and the beneficiaries of any of them.
"Benefit Plan" means an Employee Benefit Plan or Benefit Arrangement.
------------
"Borrower" is defined in the preamble hereto.
--------
"Business Day" means a day of the week (other than any Saturday or
------------
Sunday) on which banks are not authorized or required to close in the State
of California. Unless specifically referenced in this Agreement as a
Business Day, all references to "days" shall be to calendar days.
"BSC" is defined in Section 5.8(b).
---
"Capital Stock" means any and all shares, interests, participations,
-------------
or other equivalents (however designated) of capital stock and any rights
(other than debt securities convertible into capital stock), warrants or
options to acquire such capital stock.
"CHAMPUS" is defined in Section 4.32.
-------
"Change in Control" shall be deemed to have occurred (i) at such time
-----------------
as any person (as defined in Section 13(d)(3) of the Securities and
Exchange Act of 1934) at any time shall directly or indirectly acquire more
than Forty Percent (40%) of the voting power of the Common Stock of the
Borrower, (ii) upon consummation of a merger or consolidation of the
Borrower into or with another corporation in which the shareholders of the
Borrower immediately prior to the consummation of such transaction shall
own less than Fifty Percent (50%) 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 (iii) the
sale, transfer or lease of all or substantially all of the assets of the
company; in any of cases (i), (ii) and (iii), in a single transaction or
series of transactions.
"Charter Documents" is defined in Section 4.13.
-----------------
"Claims" is defined in Section 8.1.
------
"Closing" means the consummation of the transactions contemplated by
-------
this Agreement to be consummated on the Closing Date.
"Closing Date" means the date upon which each of the conditions
------------
precedent set forth in Section 3.1 hereof is satisfied or waived by Lender
in its sole and absolute discretion.
2
<PAGE>
"Code" means the Internal Revenue Code of 1986, as amended from time
----
to time.
"Common Stock" is defined in Section 4.2.
------------
"Contract" means all contracts and agreements, contract rights,
--------
executory commitments, license agreements, purchase and sales orders,
written or oral, relating to the operation of the business of the Borrower
or any Subsidiary.
"Contractual Obligation" means, as applied to any Person, any
----------------------
provision of any agreement or other instrument to which that Person is a
party or by which it or any of the properties owned or leased by it is
bound or otherwise subject.
"Conversion Date" is defined in Section 7.1(a).
---------------
"Conversion Notice" is defined in Section 7.1(a).
-----------------
"Conversion Transactions" is defined in Section 7.1(b).
-----------------------
"Conversion Stock" means the shares of Common Stock issuable upon
----------------
conversion of the shares of Series D Preferred Stock.
"Current Customer" is defined in Section 4.10(a).
---------------- ---------------
"Default" is defined in Section 6.1.
-------
"Default Rate" is defined in Section 2.8.
------------
"Employee Benefit Plan" means any employee benefit plan, as defined in
---------------------
Section 3(3) of ERISA, that is sponsored or contributed to by the Borrower
or any ERISA Affiliate covering employees or former employees of the
Borrower, or with respect to which the Borrower or any ERISA Affiliate is a
party or is otherwise bound.
"Employee Pension Benefit Plan" means any Employee Benefit Plan, as
-----------------------------
defined in Section 3(2) of ERISA, that is regulated under Title IV of ERISA
or is subject to the funding requirements of Part III of Title I of ERISA
or Section 412 of the Code, other than a Multiemployer Plan.
"Employment Agreements" is defined in Section 4.20(a).
---------------------
"Environmental Law" means all laws, ordinances and regulations
-----------------
regulating or otherwise concerning the environment or relating to Hazardous
Materials, including, without limitation, the Clean Air Act, as amended, 42
U.S.C. Section 7401 et seq.; the Federal Water Pollution Control Act, as
-- ---
amended, 33 U.S.C. Section 1251 et seq.; the Resource Conservation and
-- ---
Recovery Act of 1976, as amended, 42 U.S.C. Section 6901 et seq.; the
-- ---
Comprehensive Environment Response, Compensation and Liability Act of 1980,
as amended (including the Superfund Amendments and Reauthorization Act of
1986, "CERCLA"), 42 U.S.C. Section 9601 et seq.; the Toxic Substances
-- ---
Control Act, as amended, 15 U.S.C. Section 2601 et seq.; the Occupational
-- ---
Safety and Health Act, as amended, 29 U.S.C.
3
<PAGE>
Section 651, the Emergency Planning and Community Right-to-Know Act of
1986, 42 U.S.C. Section 11001 et seq.; the Mine Safety and Health Act of
-- ---
1977, as amended, 30 U.S.C. Section 801 et seq.; the Safe Drinking Water
-- ---
Act, as amended, 42 U.S.C. Section 300f et seq.; and all comparable state
-- ---
and local laws, orders and regulations of applicable jurisdictions.
"Existing Preferred Stock" means, collectively, the Series A Preferred
------------------------
Stock, the Series B Preferred Stock, and the Series C Preferred Stock.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
-----
amended.
"ERISA Affiliate" of the Borrower means any other Person that,
---------------
together with the Borrower as of the relevant measuring date under ERISA,
was or is required to be treated as a single employer under Section 414 of
the Code.
"Financial Statements" is defined in Section 4.7.
-------------------- -----------
"GAAP" is defined in Section 4.7.
---- -----------
"Governmental Authority" means any federal, territorial, state or
----------------------
local governmental authority, quasi-governmental authority,
instrumentality, court, government or self-regulatory organization,
commission, tribunal or organization or any regulatory, administrative or
other agency, or any political or other subdivision, department or branch
of any of the foregoing, in all such cases whether domestic or foreign.
"Group Health Plan" means any group health plan, as defined in Section
-----------------
5000(b)(1) of the Code.
"Hazardous Materials" means oil, flammable explosives, asbestos, urea
-------------------
formaldehyde insulation, radioactive materials, hazardous wastes, toxic or
contaminated substances or similar materials, including, without
limitation, any substances which are "hazardous substances," "hazardous
wastes," "hazardous materials" or "toxic substances" under any
Environmental Laws.
"Interest Payment Date" shall have the meaning ascribed to such term
---------------------
in the Senior Note.
"Knowledge" or "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
Borrower, shall include without limitation Richard N. Zehner, Vincent S.
Pino, Terrence M. White, Jay A. Mericle, Terry A. Andrues, Neil M. Culinan,
Ph.D., Cheryl A. Ford, and Michael W. Grismer) as well as the Chief
Executive Officer, President, Chief Financial Officer and all Vice
4
<PAGE>
Presidents in the case of corporate Persons, and general partners in the
case of general or limited partnerships, as the case may be.
"Lease Agreements" is defined in Section 4.19(b).
----------------
"Leased Real Property" means all real property leased, occupied,
--------------------
operated or controlled by the Borrower or any Subsidiary or otherwise
related to or used in the business of the Borrower or any Subsidiary.
"Lender" is defined in the preamble hereto.
------
"Liability" 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.
"Lien" means any lien, mortgage, pledge, security interest, charge, or
----
encumbrance of any kind (including any conditional sale or other title
retention agreement or any lease in the nature thereof) and any agreement
to give or refrain from giving any lien, mortgage, pledge, security
interest, charge, or other encumbrance of any kind.
"Loan" means the Senior Loan.
----
"Loan Documents" means, collectively, this Agreement and the Senior
--------------
Note, as hereafter amended, supplemented, replaced or modified, each as
properly executed and in recordable form, if necessary.
"Material Adverse Effect" means, with respect to any Person or
-----------------------
designated group of Persons, a change in, or effect on, or group of such
changes in or effects on, the operations, financial condition or results of
operations, prospects, assets or Liabilities of the Person or group of
Persons, as the case may be, taken as a whole, that results in a material
adverse effect on, or a material adverse change in, the operations,
financial condition, results of operations, prospects, assets or
Liabilities of the Person or group of Persons, as the case may be, taken as
a whole, excluding adverse changes in the general economy.
"Material Contracts" is defined in Section 4.10(b).
------------------
"Maturity Date" means February 28, 1997; provided, however, that if
-------------
Lender exercises its option to extend the Maturity Date to March 31, 1997,
as set forth in Section 7.1, , or if Lender fails to timely deliver the
Conversion Notice to Borrower as provided in Section 7.2(c), then the
"Maturity Date" shall mean March 31, 1997.
"Maximum Amount" is defined in Section 8.14.
--------------
"Multiemployer Plan" means any multiemployer plan as defined in either
------------------
Section 3(37) or 4001(a)(3) of ERISA.
5
<PAGE>
"Multiple Employer Plan" means any Employee Benefit Plan sponsored by
----------------------
more than one employer, within the meaning of Sections 4063 or 4064 of
ERISA or Code Section 413(c).
"Note Purchase Agreement" is defined in Section 5.7.
-----------------------
"Obligations" means each and all of the obligations of Borrower under
-----------
or with respect to the Loan or the Loan Documents.
"Permitted Encumbrances" means: (i) Liens for taxes, assessments or
----------------------
charges for claims that are not yet due and payable or being contested in
good faith by appropriate proceedings and with respect to which adequate
reserves or other appropriate provisions are being maintained in accordance
with of GAAP; (ii) statutory Liens of carriers, warehousemen, mechanics,
materialmen, bankers and other Liens imposed by law and created in the
ordinary course of business for amounts that are not material, and that are
not yet due and payable or that are being contested in good faith by
appropriate proceedings and with respect to which adequate reserves or
other appropriate provisions are being maintained in accordance with GAAP;
(iii) Liens incurred and deposits made in the ordinary course of business
to secure the performance (including by way of surety bonds or appeal
bonds) of tenders, bids, leases, contracts, statutory obligations or
similar obligations or arising as a result of progress payments under
contracts, in each case in the ordinary course of business and not relating
to the repayment of debt; (iv) easements, rights-of-way, covenants,
consents, reservations, encroachments, variations and other restrictions,
charges, encumbrances; (v) building restrictions, zoning laws and other
statutes, laws, rules, regulations, ordinances and restrictions; (vi)
leases or subleases approved by, or deemed approved by Lender; (vii) any
attachment or judgment Lien, not otherwise constituting a Default
hereunder, in existence less than thirty (30) days after the entry thereof
or with respect to which (A) execution has been stayed, (B) payment is
covered in full by insurance to which Lender has been made the loss payable
party, or (C) Borrower is in good faith prosecuting an appeal or other
appropriate proceedings for review and has set aside on its books and
granted to Lender a priority perfected security interest in such reserves
as may be required by GAAP with respect to such judgment or award; and
(viii) Liens with respect to purchase money security interests (including
refinancings thereof) granted in the ordinary course of the Borrower's
business, consistent with past practice.
"Person" means an individual, a corporation, a partnership, a limited
------
liability company, a trust, an unincorporated organization or any other
entity or organization, including a government or any agency or political
subdivision thereof and, for the purpose of the definition of "ERISA
Affiliate" a trade or business.
"Plan Affiliate" means, with respect to any Person, any employee
--------------
benefit plan or arrangement sponsored by, maintained by or contributed to
such Person, and with respect to any employee benefit plan or arrangement,
any Person sponsoring, maintaining or contributing to such plan or
arrangement.
6
<PAGE>
"Prohibited Transaction" means a transaction that is prohibited under
----------------------
Section 4975 of the Code or Section 406 of ERISA and not exempt under
Section 4975 of the Code or Section 408 of ERISA.
"Refinancing Agreements" means the Assignment and Amended & Restated
----------------------
Standstill Agreement between the Borrower, on the one hand, and
Northwestern Mutual Life Insurance Company, The Travelers Insurance
Company, The Travelers Indemnity Company, the Travelers Life and Annuity
Company, The Lincoln National Life Insurance Company and Bedrock Asset
Trust I, on the other hand, dated as of December 31, 1996.
"Refinancing Transactions" means the transactions contemplated by the
------------------------
Refinancing Agreements, including without limitation (i) the repurchase by
the Borrower of the Subordinated Debentures for the face amount thereof
plus accrued and unpaid interest through the date of such repurchase, and
(ii) the repurchase by the Borrower of all outstanding shares of its Series
A Preferred Stock for an aggregate of $6,830,000 plus accrued and unpaid
dividends through the closing date of such repurchase.
"SEC Documents" is defined in Section 4.29.
-------------
"Securities" means, collectively, the Series D Preferred Stock, the
----------
Conversion Stock, the Series E Preferred Stock, and the Series E Conversion
Stock.
"Securities Act" shall mean the Securities Act of 1933, as amended, or
--------------
any similar federal statute and the rules and regulations of the SEC
thereunder, all as the same shall be in effect at the time.
"Senior Loan" means the Senior Loan made by Lender to Borrower
-----------
pursuant to Section 2.1 in the principal amount not to exceed Eighteen
Million Dollars ($18,000,000), all pursuant to the terms and conditions of
this Agreement.
"Senior Note" means a note in the form of the Senior Note attached
-----------
hereto as Exhibit A, as hereafter amended, supplemented, replaced or
---------
modified.
"Series A Preferred Stock" means the Borrower's Series A 6.0%
------------------------
Cumulative Preferred Stock.
"Series B Preferred Stock" means the Borrower's Series B Cumulative
------------------------
Preferred Stock.
"Series C Preferred Stock" means the Borrower's Series C Convertible
------------------------
Preferred Stock.
"Series D Certificate of Designation" means the Certificate of
-----------------------------------
Designation, Preferences and Rights of Series D 4% Cumulative Redeemable
Convertible Preferred Stock in the form set forth as Exhibit B hereto.
---------
7
<PAGE>
"Series D Preferred Stock" means the Series D 4% Cumulative Redeemable
------------------------
Convertible Preferred Stock, with the rights, preferences and privileges
set forth in the Series D Certificate of Designation.
"Series E Certificate of Designation" means the Certificate of
-----------------------------------
Designation, Preferences and Rights of Series E 4% Cumulative Redeemable
Convertible Preferred Stock in the form set forth as Exhibit C hereto.
"Series E Conversion Stock" means the shares of Common Stock issuable,
-------------------------
upon certain conditions, by the Borrower to the Lender in respect of the
Series E Preferred Stock.
"Series E Preferred Stock" means the Series E 4% Cumulative Redeemable
------------------------
Convertible Preferred Stock, with the rights, preferences and privileges
set forth in the Series E Certificate of Designation.
"State Health Care Program" is defined in Section 4.33.
-------------------------
"Subordinated Debentures" means the Borrower's 7.50% Senior
-----------------------
Subordinated Debentures due 2005.
"Subsidiary" is defined in Section 4.3.
----------
"Tax" or "Taxes" means any tax or other similar Liability imposed or
--------------
collected by any Governmental Authority, including all federal, state,
county, local and foreign income, profits, franchise, gross receipts,
payroll, sales, employment, use, occupation, property, excise, value added,
withholding and other taxes, duties or assessments (including the recapture
of any tax items such as investment tax credits), together with any related
interest, penalties and additions and shall include any transferee or
secondary Liability for a Tax and any Liability arising as a result of
being (or ceasing to be) a member of any affiliated, consolidated,
combined, or unitary group or being included (or required to be included)
in any Tax Return relating thereto.
"Tax Agreement" means any sharing, allocation, indemnity or other
-------------
agreement or arrangement (written or unwritten) relating to Taxes (other
than this Agreement).
"Tax Return" means any return, report, information return or other
----------
documents (including any related or supporting schedules, statements or
information) filed or required to be filed with any Tax authority or
Governmental Authority in connection with the determination, assessment or
collection of any Taxes of any Person or the administration of any laws,
regulations or administrative requirements relating to any Taxes.
1.2 Exhibits and Schedules Incorporated. All Exhibits and Schedules
-----------------------------------
attached hereto are hereby incorporated into this Agreement.
8
<PAGE>
ARTICLE II. SENIOR LOAN
2.1 Senior Loan. Upon the terms of, and subject to the conditions
-----------
set forth in, this Agreement, Lender agrees to make a loan (the
"Senior Loan") to Borrower in the principal amount of Eighteen Million Dollars.
- ------------
The Senior Loan, or any portion thereof, once repaid, cannot be reborrowed.
2.2 Senior Note. The Senior Loan shall be evidenced by the Senior
-----------
Note. The date and amount of each payment made on account of the principal of
the Senior Loan, and interest thereon, shall be recorded by Lender on its books
and records, which books and records shall constitute prima facie evidence of
the accuracy of the information contained therein, but the failure of Lender to
make any such notation shall not affect the obligations of Borrower hereunder or
under the Senior Note.
2.3 Interest; Payments. Interest shall accrue upon the outstanding
------------------
principal amount of the Senior Loan at the rate provided in the Senior Note, and
such interest shall be payable as required therein. Interest on the Loan shall
be computed on the basis of actual days elapsed in a year of 360 days (including
the first day but excluding the last day) occurring in the period for which it
is payable.
2.4 Prepayments. Borrower shall not have the right to prepay the
-----------
Loan at any time.
2.5 Maturity Date. On the Maturity Date, the Senior Loan shall
-------------
mature and be repaid in full, and all sums due and owing under this Agreement
and the other Loan Documents shall be paid in full. All payments due to Lender
under this Agreement, whether at the Maturity Date or otherwise, shall be paid
in immediately available funds.
2.6 Default Interest. After the occurrence and during the
----------------
continuance of a Default, all amounts outstanding under any Loan Document,
including without limitation the outstanding principal balance of the Senior
Loan, shall, at the option of the Lender, bear interest at the rate of interest
applicable to overdue payments of principal and interest under the Senior Note
(the "Default Rate").
------------
2.7 Payments on Non-Business Days; Calculations. If any payment to
-------------------------------------------
be made under any Loan Document shall be stated to be due on a day which is not
a Business Day, then the date for payment thereof shall be extended to the next
following Business Day.
2.8 Stamp Taxes, Etc. The Borrower shall pay any Taxes on the
----------------
issuance, execution and delivery of the Loan Documents, any stamp or other taxes
levied by any jurisdiction on the execution, delivery, filing, recording,
performance and enforcement of the Loan Documents, and all Taxes levied by any
jurisdiction by reason or in respect of any payments under the Senior Note,
hereunder or under any other Loan Document (other than any tax on, or measured
by, the net income of Lender by the jurisdiction in which it is organized or
maintains its principal office).
2.9 Costs of Closing. Whether or not the Closing occurs, Borrower
----------------
will reimburse Lender for all reasonable legal fees and expenses, and all other
costs incurred by Lender or
9
<PAGE>
its counsel in connection with this Agreement and the transactions contemplated
hereby, including without limitation the Loan, provided that Borrower's maximum
responsibility therefore shall be $81,000. Such reimbursement shall be due on
the Closing Date or, if the Closing does not occur, promptly upon Borrower's
receipt from the Lender of a bill for such costs and expenses.
2.10 Use of Proceeds. The proceeds of the Loan shall be used by the
---------------
Borrower solely (i) to make payments due from it to the holders of the Series A
Preferred Stock and the Subordinated Debentures pursuant to the Refinancing
Agreements, (ii) to make payments with respect to the transaction costs referred
to in Section 2.9 and (iii) to the extent any proceeds remain after the payments
set forth in items (i) and (ii) above, for general working capital purposes, all
in accordance with the Funds Flow Memorandum attached hereto as Exhibit D. All
Persons receiving proceeds under clause (i) above shall acknowledge receipt of
such amounts and that such amounts shall represent payment in full of the
amounts owed to such Persons under the instruments or agreements evidencing such
obligations of the Borrower.
ARTICLE III. CONDITIONS PRECEDENT TO CLOSING AND LOANS
3.1 Conditions Precedent to Closing. The Lender's obligation to
-------------------------------
make the Senior Loan, and the occurrence of the Closing Date, shall be subject
to satisfaction or waiver, in Lender's sole and absolute discretion, of each of
the following conditions precedent on or prior to December 31, 1996:
(a) Compliance. There shall be no Default and each of the
----------
representations and warranties contained in Article 4 hereof shall be true
and correct on and as of the Closing Date.
(b) Senior Note. The Borrower shall have delivered to the Lender the
-----------
Senior Note, in form and substance satisfactory to the Lender in its sole
and absolute discretion, duly executed by the Borrower.
(c) Corporate Documents. The Lender shall have received true and
-------------------
complete copies of the following documents from the applicable Governmental
Authority, dated a recent date prior to the Closing, for the Borrower: (i)
tax status certificates, if available, showing no unpaid tax Liabilities;
and (ii) a good standing certificate from the jurisdiction in which the
Borrower is organized.
(d) Corporate Proceedings. The Lender shall have received a copy of
---------------------
the resolutions, in form and substance satisfactory to the Lender, of the
Board of Directors of Borrower, authorizing the execution, delivery and
performance of the Loan Documents and the transactions contemplated
thereby, as well as the adoption of the Series D Certificate of Designation
and the Series E Certificate of Designation.
(e) Fees and Expenses. The Lender shall have received evidence
-----------------
(including, without limitation payment instructions given by the Borrower)
that all fees and expenses payable to the Lender have been paid in full.
10
<PAGE>
(f) Certificates of Designation. The Borrower shall have adopted and
---------------------------
duly filed with the Secretary of State of Delaware the Series D Certificate
of Designation and the Series E Certificate of Designation.
(g) Refinancing. The Refinancing Agreements shall have been executed
-----------
by the parties thereto. On the Closing Date, the Refinancing Transactions
shall have been consummated.
(h) Opinion of Borrower's Counsel. The Lender shall have received the
-----------------------------
legal opinion of Irell & Manella LLP, counsel to the Borrower, in the form
set forth as Exhibit E hereto.
(i) Other Documents. The Lender shall have received such other
---------------
documents, instruments, agreements, certificates, forms of evidence and
other materials relating to the transactions contemplated hereby as the
Lender may reasonably require.
(j) Completion of Review of Borrower. The Lender shall have completed
--------------------------------
and been satisfied in its sole discretion with its review of the business,
operations, properties, assets, liabilities, prospects and condition,
financial and otherwise, of the Borrower and its Subsidiaries.
3.2 Closing Mechanics. Upon the satisfaction (or waiver in the
-----------------
Lender's sole and absolute discretion) of each of the conditions precedent set
forth in Section 3.1, the Lender shall disburse the proceeds of the Loan by
-----------
making the payments set forth in the Flow of Funds Memo. The Senior Loan shall
be deemed made, and interest shall begin to accrue, upon disbursement thereof.
ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF BORROWER
As a material inducement to Lender's entry into this Agreement,
Borrower represents and warrants to Lender as of the date hereof and continuing
thereafter that, except as set forth in Schedule 4 attached hereto (the
"Borrower Disclosure Schedule"):
----------------------------
4.1 Organization, Powers and Good Standing. The Borrower 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 and operate its properties and assets and to carry on its business as now
conducted and as proposed to be conducted. The Borrower is duly qualified to
transact business and is in good standing in each jurisdiction in which the
failure to so qualify, either alone or together with all other such failures,
would have a Material Adverse Effect on the Borrower. Schedule 4.1 includes
true and complete copies of the Borrower's Certificate of Incorporation and
Bylaws currently in effect and a list of all states or other jurisdictions in
which the Borrower is qualified to do business. All of the terms and provisions
of the Certificate of Incorporation and Bylaws are legal, valid and enforceable.
11
<PAGE>
4.2 Capitalization.
--------------
(a) The authorized capital of the Borrower consists of: (i) Twenty-
Five Million (25,000,000) shares of common stock ("Common Stock"), 10,913,388
------------
shares of which are issued and outstanding as of the date hereof and shall be
issued and outstanding as of the Closing; (ii) One Million (1,000,000) shares of
Preferred Stock, of which (A) 155,000 shares of Series A Preferred Stock have
been designated and authorized, 155,000 shares of which are issued and
outstanding as of the date hereof (all of which will be repurchased by the
Borrower as part of the Refinancing Transactions); (B) 125,000 shares of Series
B Preferred Stock have been designated and authorized, no shares of which are
issued and outstanding as of the date hereof; and (C) 4,000 shares of Series C
Preferred Stock have been designated and authorized, 3,876 shares of which are
issued and outstanding as of the date hereof. The outstanding shares of Common
Stock and Existing Preferred Stock are fully paid, non assessable, free and
clear of all encumbrances and have been issued in compliance with all state and
federal securities laws. None of such shares is subject to any preemptive
rights.
(b) Upon the consummation of the Refinancing Transactions and the
transactions contemplated by this Agreement, the authorized capital of the
Borrower will consist of: (i) Twenty-Five Million (25,000,000) shares of Common
Stock, 10,913,388 shares of which will be issued and outstanding immediately
after the Closing Date; (ii) One Million (1,000,000) shares of Preferred Stock,
of which (A) no shares of Series A Preferred Stock or Series B Preferred Stock
will have been designated and authorized, (B) 4,000 shares of Series C Preferred
Stock will have been designated and authorized, 3,876 shares of which will be
issued and outstanding immediately after the Closing Date; (C) Eighteen Thousand
(18,000) shares of Series D Preferred Stock will have been designated and
authorized, no shares of which will be issued and outstanding immediately after
the Closing Date; and (D) Nine Thousand (9,000) shares of Series E Preferred
Stock will have been designated and authorized, none of which will be issued and
outstanding immediately after the Closing Date.
(c) The rights, preferences, privileges and restrictions of the Series
D Preferred Stock are as stated in the Series D Certificate of Designation. The
rights, preferences, privileges and restrictions of the Series E Preferred Stock
are as stated in the Series E Certificate of Designation.
(d) Except (i) as otherwise contemplated by this Agreement, (ii) for
the issuance, sale or grant of rights to purchase (including options and
warrants) aggregating up to 990,983 shares of Common Stock to key employees and
directors of the Borrower outstanding on the date hereof, (iii) for warrants
relating to an aggregate of 328,900 shares of Common Stock outstanding on the
date hereof, and (iv) for 77,520 shares of Common Stock currently issuable upon
conversion of the Company's outstanding Series C Preferred Stock, the Borrower
has not become subject to any commitment or obligation, either absolute or
conditional, 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 of the Borrower.
Except as provided in this Agreement, the Borrower is not a party or subject to
any agreement or understanding, and, to the Borrower'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
Borrower's voting securities.
12
<PAGE>
4.3 Subsidiaries. Schedule 4.3 sets forth a correct and complete
------------ ------------
list of: (i) the name, number of shares, partnership interests or other equity
interests held, and percentage ownership by the Borrower in each corporation,
partnership, joint venture or other entity in which the Borrower has, directly
or indirectly, any equity interest in the capital stock thereof, any partnership
interest, or any other equity interest therein (individually a "Subsidiary" and
----------
collectively "Subsidiaries".) Except as specifically set forth in Schedule 4.3,
------------ ------------
the Borrower owns of record and beneficially all of the outstanding capital
stock of each of the Subsidiaries free and clear of all Liens. Each of the
Subsidiaries is duly organized, validly existing and in good standing under the
laws of its jurisdiction of incorporation, is entitled to own, lease or operate
the properties and assets it now owns, leases or operates, and is qualified to
do business, is in good standing and has all required and appropriate licenses
in each jurisdiction in which its failure to obtain or maintain such
qualification, good standing or licensing, or group of the foregoing, would have
a Material Adverse Effect on such Subsidiary. The shares of capital stock of
each Subsidiary shown in Schedule 4.3 to be issued and outstanding have been
------------
validly authorized and issued and are validly outstanding, fully paid and non
assessable. No Subsidiary holds shares of its capital stock in its treasury,
and there are not outstanding (i) any options, warrants or other rights with
respect to the capital stock of any of the Subsidiaries, (ii) any securities
convertible into or exchangeable for shares of such stock or (iii) any other
commitments of any kind for the issuance of additional shares of capital stock
or options, warrants or other securities of any of them. The Borrower has
provided or made available to the Lender copies of the certificates of
incorporation, articles of incorporation, partnership agreements, limited
liability company operating agreements, joint venture agreements, or other
governing documents with respect to each Subsidiary.
4.4 Authorization.
--- -------------
(a) The Borrower has all corporate and other requisite authority to
execute, deliver and carry out and perform its obligations under the terms of
the Loan Documents and the other agreements referred to herein, and all of the
transactions contemplated hereunder and thereunder, including the sale and
issuance of the Securities. The execution and delivery of the Loan Documents,
and the consummation of the transactions contemplated hereby and thereby, have
been duly authorized by all necessary action on the part of the Borrower and,
except as set forth herein, no other approval is required for the performance by
the Borrower of its obligations hereunder, or thereunder. The Loan Documents
and the other agreements referred to herein have been, and at Closing will be,
duly executed and delivered by the Borrower.
(b) The Loan Documents and the other agreements referred to herein,
when executed and delivered by the Borrower, will constitute valid and binding
obligations of the Borrower, enforceable against the Borrower in accordance with
their respective terms.
(c) The Board of Directors of the Borrower, by a unanimous written
consent, has in light of and subject to the terms and conditions set forth
herein, (i) determined that the Loan Documents, the other agreements referred to
herein, and the transactions contemplated hereby and thereby, taken together,
are in the best interest of the Borrower and its shareholders and (ii) approved
the Loan Documents, the other agreements referred to herein, and the
transactions contemplated hereby and thereby. All required notices to, and
approvals and consents of, the Borrower's shareholders for the Loan Documents
and the other agreements referred to herein, and
13
<PAGE>
the consummation of the transactions contemplated hereby and thereby, have been
validly given and obtained.
4.5 Governmental and Other Consents; No Violation. No consent,
---------------------------------------------
approval, order or authorization of, or registration, qualification,
designation, declaration or filing with, any Governmental Authority or any other
Person is required on the part of the Borrower in connection with the Borrower's
valid execution, delivery or performance of the Loan Documents or the other
agreements referred to herein. The execution, delivery and performance by
Borrower of each Loan Document to which it is party, and the consummation of the
transactions contemplated thereby, do not and will not (a) violate any provision
of the Borrower's Certificate of Incorporation or Bylaws as currently in effect,
(b) conflict with, result in a breach of, or constitute (or, with the giving of
notice or lapse of time or both, would constitute) a default under, or, except
for consents that have been obtained and are in full force and effect, require
the approval or consent of any Person pursuant to, any Contractual Obligation of
Borrower, or (c) result in the creation or imposition of any Lien upon any asset
of Borrower.
4.6 Litigation. There is no action, suit, claim, arbitration,
----------
litigation, legal, administrative or other proceeding, or investigation (by any
Governmental Authority or otherwise) pending against or affecting the Borrower,
any Subsidiary or the assets, products or business of any of them or, to the
Knowledge of the Borrower, any reasonable basis therefor or threat thereof,
other than disputes and claims arising in the ordinary course of the Borrower's
business that could not in the aggregate have a Material Adverse Effect on the
Borrower and its Subsidiaries. Neither the Borrower 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 Authority. There is no action, suit,
claim, arbitration, litigation, legal, administrative or other proceeding, or
investigation by the Borrower or any Subsidiary currently pending or that the
Borrower or any Subsidiary currently intends to initiate. There are no judicial
or administrative actions, proceedings or investigations pending or, to the
Borrower's Knowledge, threatened, against the Borrower, any Subsidiary or any of
their respective businesses, assets or products that seek to enjoin, question
the validity of, or rescind the transactions contemplated by this Agreement or
any of the other agreements referred to herein or otherwise prevent the Borrower
from complying with the terms and provisions of this Agreement or any of such
other agreements.
4.7 Financial Statements and Reports.
--------------------------------
(a) The financial statements contained in the SEC Documents
(collectively, the "Financial Statements") have been prepared in accordance with
--------------------
generally accepted accounting principles ("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 Borrower and the Subsidiaries and
the consolidated results of operations as of such dates and for such periods
indicated. Since September 30, 1996, there has not been any material adverse
change to the financial condition of the Borrower or any Subsidiary as set forth
in the Financial Statements. There are no Liabilities required by GAAP to be
disclosed in the Financial Statements that are not disclosed in the Financial
Statements. Except as reflected in the Financial Statements, neither the
Borrower nor any Subsidiary is a guarantor or indemnitor of any indebtedness of
any other Person. The Borrower maintains a standard system of
14
<PAGE>
accounting established and administered in accordance with GAAP. The Borrower's
accounting policies relating to revenue recognition, reserves, capitalization
expense, depreciation and amortization are administered in accordance with GAAP.
The general ledger, accounts receivable, accounts payable, bank reconciliations
and payroll records of the Borrower have been maintained in the ordinary course
and contain a correct and complete record of the matters typically contained in
records of such nature.
(b) Schedule 4.7(b) lists all management letters and all other letters
---------------
(other than audit letters included in the SEC Documents) delivered to the
Borrower by the Borrower's independent auditing firm(s) relating to the results
of operations, financial statements or internal controls of the Borrower or any
Subsidiary insofar as the same may pertain to the business or assets of the
Borrower and any Subsidiary during any period from and after January 1, 1994.
(c) Since January 1, 1994, there has been no material disagreement
(within the meaning of Item 304(a)(1)(iv) of Regulation S-K under the Securities
Act between the Borrower and its independent auditing firm(s) concerning any
aspect of the manner in which the Borrower has reported upon the financial
condition and results of operations of the business or assets of the Borrower
since such date, that has not been resolved to the satisfaction of the relevant
independent auditing firm.
4.8 Proprietary Information. To the Borrower's Knowledge (which for
-----------------------
purposes hereof shall not include the knowledge of the applicable officer,
director or employee), none of the officers, directors or employees of the
Borrower or any of its Subsidiaries is in violation of any agreement regarding
proprietary information and inventions. To the Borrower's Knowledge (which for
purposes hereof shall not include the knowledge of the applicable officer or
employee), none of the officers or employees of the Borrower or any of its
Subsidiaries is in violation of any prior employment contract or proprietary
information agreement with any Person.
4.9 Registration Rights. Neither the Borrower nor any Subsidiary is
-------------------
a party to any agreement or commitment that obligates the Borrower to register
under the Securities Act any of its presently outstanding securities or any of
its securities that may hereafter be issued.
4.10 Contracts.
---------
(a) "Current Customer" means any Person from whom the Borrower or any
----------------
Subsidiary has recognized revenue since January 1, 1995 through the date hereof
or to whom the Borrower or any Subsidiary has any obligation to complete work or
honor any contractual warranty or has any obligation or Liabilities. Since
January 1, 1996 no Current Customers of the business have canceled or terminated
their Contracts, or notified the Borrower or any Subsidiary in writing or, to
the Knowledge of the Borrower or any Subsidiary, orally, of their specific
intent to cancel or terminate their contract, except any such cancellations,
terminations or notifications that in the aggregate could not have a Material
Adverse Effect (taking into account revenue generated from replacement
customers) on the Borrower and its Subsidiaries.
(b) Schedule 4.10(b) contains a correct and complete list of all
----------------
agreements, contracts, indebtedness, liabilities and other obligations to which
the Borrower or any Subsidiary is a party or by which it is bound that are
material to the conduct and operations of its business and
15
<PAGE>
properties, which provide for payments to or by the Borrower or any Subsidiary
in excess of $500,000 annually or $2,000,000 in the aggregate, which obligate
the Borrower or any Subsidiary to share, license or develop any product or
technology, or which involve transactions or proposed transactions between the
Borrower and any Subsidiary on the one hand, and the officers, directors,
Affiliates or any Affiliate of the Borrower or any Subsidiary, on the other hand
(collectively, the "Material Contracts"), excluding any such Material Contracts
------------------
that are contracts with Current Customers.
(c) The Borrower and the Subsidiaries have in all material respects
performed, and are now performing in all material respects, the obligations
under, and are not in default (or to the Borrower's Knowledge, would by the
lapse of time and/or the giving of notice or otherwise be in default) in respect
of, any of the Material Contracts. To the Borrower's Knowledge, each of the
Material Contracts is in full force and effect and is a valid and enforceable
obligation against the Borrower or a Subsidiary, as applicable, and the other
party thereto, in accordance with its terms.
4.11 Absence of Changes. Since January 1, 1996, except as
------------------
reflected in the Financial Statements or the SEC Documents, neither the Borrower
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) incurred any indebtedness for money borrowed other than in the
ordinary course or any other Liabilities other than in the ordinary course;
(iii) made any loans or advances to any Person (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, 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
change in the assets, liabilities, financial condition, operating results,
prospects or business of the Borrower from that reflected in the Financial
Statements, except changes in the ordinary course of business consistent with
past practice that have not been, in the aggregate, materially adverse; (vi)
suffered any damage, destruction or loss, whether or not covered by insurance,
materially and adversely affecting the assets, properties, financial condition,
operating results, prospects or business of the Borrower (as such business is
presently conducted and as it is proposed to be conducted); (vii) waived a
valuable right or a debt owed to it, except in the ordinary course of business
consistent with past practice; (viii) satisfied or discharged any Lien, claim or
encumbrance or payment of any obligation, except in the ordinary course of
business consistent with past practice and that is not material to the assets,
properties, financial condition, operating results, prospects or business of the
Borrower or any Subsidiary (as such business is presently conducted and as it is
proposed to be conducted); (ix) agreed to or made any material change or
amendment to any Material Contract, except in the ordinary course of business
consistent with past practice; (x) made any material change in any compensation
arrangement or agreement with any employee; (xi) permitted or allowed any of its
assets to be subjected to any material Lien, other than Liens 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;
(xiii) licensed, sold, transferred, pledged, modified, disclosed, disposed of or
permitted to lapse any right to the use of any Intellectual Property Right;
(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, or sold, transferred or leased any
assets to, or entered into any agreement or arrangement with, any of its
affiliates, except for directors' fees, and employment compensation to officers;
(xvi) made capital expenditures
16
<PAGE>
or commitments therefor, other than such capital expenditures or commitments
made in the ordinary course consistent with past practice and not exceeding, in
the aggregate, $22,000,000 for the period from September 30, 1996 through the
Closing Date and (xvii) to the Borrower's Knowledge, incurred or suffered any
other event or condition of any character that could reasonably be expected to
result in a Material Adverse Effect on the Borrower or any Subsidiary.
4.12 Intellectual Property. The Borrower and each of the
---------------------
Subsidiaries owns or possesses adequate rights to use all material patents,
patent applications, trademarks, service marks, trade names, trademark
registrations, service mark registrations, copyrights, technology, software,
trade secrets, know-how and licenses necessary for the conduct of their
respective businesses and have no reason to believe that the conduct of their
respective businesses will conflict with, and have not received any notice of
any claim of conflict with, any such rights of others.
4.13 Compliance with Other Instruments. Neither the Borrower nor
---------------------------------
any Subsidiary is in violation or default of any provisions of its Charter or
Bylaws (the "Charter Documents"), or of any provision of Applicable Law. Neither
-----------------
the Borrower nor any Subsidiary is in violation or default of any instrument,
judgment, order, writ, decree or oral or written contract or other agreement to
which it is a party or by which it is bound, except with respect to any such
defaults which could not have a Material Adverse Effect on the Borrower or the
relevant Subsidiary, as the case may be. The execution, delivery and performance
of the Loan Documents and the other agreements referred to in this Agreement,
and the consummation of the transactions contemplated hereby and thereby, will
not result in any such violation or be in conflict with any provision of the
Charter Documents or Applicable Law, or any instrument, judgment, order, writ,
decree, contract or other agreement, and will not be an event that results in
the creation of any Lien upon any assets of the Borrower or any Subsidiary or
constitute a default under or give rise to any right of termination,
cancellation or acceleration of, or to a loss of any benefit to which the
Borrower or any Subsidiary is entitled, under any contract or any license,
franchise, permit or similar authorization relating to the Borrower or any
Subsidiary or by which its business or assets may be bound.
4.14 Compliance with Law; Approvals.
------------------------------
(a) The operations of the Borrower and its Affiliates have been and
will continue to be conducted in accordance with all Applicable Laws, including,
without limitation, all such laws, regulations, orders and requirements
promulgated by or relating to consumer protection, equal opportunity, health,
third party reimbursement (including Medicare and Medicaid), environmental
protection, fire, zoning and building and occupational safety matters, except
for violations that individually or in the aggregate would not and, insofar as
may reasonably be foreseen, in the future will not, have a Material Adverse
Effect on the Borrower or any Subsidiary.
(b) Neither the Borrower nor any Affiliate has received notice of any
violation (or of any investigation, inspection, audit, or other proceeding by
any Governmental Authority involving allegations of any violation ) of any
Applicable Law, or is in material default with respect to any Applicable Law,
and to the best Knowledge of the Borrower and all Affiliates, no investigation,
inspection, audit, or other proceeding by any Governmental Authority involving
allegations of violation of any Applicable Law is threatened or contemplated.
17
<PAGE>
(c) Neither the Borrower nor any Affiliate has any Knowledge of any
proposed change in any Applicable Law that would materially adversely affect the
transactions contemplated by this Agreement or all or any material part of the
assets or business of the Borrower or any Affiliate.
(d) Each of the Borrower and its Affiliates has, and all professional
employees or agents of each of the Borrower and its Affiliates have, all
licenses, franchises, permits, authorizations, including certificates of need,
or approvals from all Governmental Authorities ("Approvals") required for the
---------
conduct of the business of each of the Borrower and its Affiliates and the
occupancy and operation, for its present uses, of the real and personal property
which each of the Borrower and its Affiliates owns or leases, except where the
failure to have such Approvals would not, individually or in the aggregate, have
a Material Adverse Effect on any of the Borrower or any Affiliate, and neither
the Borrower nor any Affiliate or the professional employees or agents of either
is in violation of any such Approval or any terms or conditions thereof, except
for such violations as would not, individually or in the aggregate, have a
Material Adverse Effect on any of the Borrower or any Affiliate. Each of the
Borrower and its Affiliates has all Approvals required for the conduct of the
business of each of the Borrower and its Affiliates and the occupancy and
operation, for its present uses, of the real and personal property which each of
the Borrower and its Affiliates owns or leases, and neither the Borrower nor any
Affiliate is in violation of any such Approval or the terms or conditions
thereof.
(e) Schedule 4.14(e) sets forth a true and complete list of all
----------------
Approvals issued or granted to each of the Borrower and any Affiliate (excluding
any licenses granted to any natural person); such list contains a summary
description of each such item and, where applicable, specifies the date issued,
granted or applied for, the expiration date and the current status thereof.
(f) All such Approvals are in full force and effect, have been issued
to and fully paid for by the holder thereof and, to the Knowledge of each of the
Borrower and its Affiliates, no suspension or cancellation thereof has been
threatened.
(g) No such Approvals will in any way be affected by, or terminate or
lapse by reason of, the transactions contemplated by this Agreement.
4.15 Title to Assets. The Borrower and the Subsidiaries have good
---------------
and valid title to or a valid leasehold interest in all of the material tangible
assets owned or leased by them, or otherwise used in or pertaining to the
business of the Borrower and the Subsidiaries as presently conducted, including
all material tangible assets reflected in the Borrower's most recent balance
sheet included in the Financial Statements and all material tangible assets
purchased or otherwise acquired by the Borrower or any Subsidiary since the date
of such balance sheet (except for properties and assets sold since such date in
the ordinary course consistent with past practice). None of such material
tangible assets is subject to any material Lien except for Permitted
Encumbrances.
4.16 Plant, Property, and Equipment. To the Borrower's Knowledge,
-------------------------------
the Leased Real Property, and other plant, property, equipment, leasehold
improvements and other material tangible assets of the business, conform in all
material respects with Applicable Law; are structurally sound with no material
defects; are in good operating condition and repair (ordinary wear and tear
excepted); and are adequate in all material respects for the purposes for which
they are being used.
18
<PAGE>
4.17 Accounts and Notes Receivable. Except to the extent of
------------------------------
applicable reserves for doubtful accounts and contract reserves shown on the
Borrower's most recent balance sheet included in the Financial Statements, all
of the accounts, notes and other receivables owed to the Borrower or any
Subsidiary as of the date hereof or thereafter acquired or arising prior to the
Closing Date, constitute, and as of the Closing Date will constitute, valid and
enforceable claims (subject, as to the enforcement of remedies, to applicable
bankruptcy, reorganization, insolvency, moratorium and similar laws affecting
creditors' rights, and, with respect to the remedy of specific performance,
equitable doctrines applicable thereto) arising from bona fide transactions on
the part of the Borrower and the Subsidiaries and, to the Borrower's Knowledge,
bona fide transactions for parties other than the Borrower and the Subsidiary in
the ordinary course, and there are no claims, refusals to pay or other rights of
set-off against any thereof (other than ordinary course disputes that could not
in the aggregate have a Material Adverse Effect on the Borrower and its
Subsidiaries, taken as a whole). None of such accounts is pledged to any third
party. The reserve for doubtful accounts shown on the Borrower's most recent
balance sheet included in the Financial Statements is in accordance with GAAP.
4.18 Indebtedness. Schedule 4.18 sets forth a true and complete
------------ -------------
list of all indebtedness of the Borrower or any Subsidiary for borrowed money as
of December 1, 1996.
4.19 Real Property.
-------------
(a) No Owned Real Property. Neither the Borrower nor any Subsidiary
----------------------
has or has ever had any fee or other direct or indirect ownership interest in
any real property.
(b) Leased Real Property Agreements. Schedule 4.19(b) sets forth a
------------------------------- ----------------
true and complete list of all Leased Real Property and a list of all of the
agreements (as amended) to which the Borrower or any Subsidiary is a party
relating thereto (the "Lease Agreements"). To the Borrower's Knowledge, all the
----------------
Lease Agreements are in full force and effect and are valid and enforceable
against the other parties thereto in accordance with their terms (subject, as to
the enforcement of remedies, to applicable bankruptcy, reorganization,
insolvency, moratorium and similar laws affecting creditors' rights, and, with
respect to the remedy of specific performance, equitable doctrines applicable
thereto). Neither the Borrower nor any Subsidiary is in default under any of
the Lease Agreements. To the Borrower's Knowledge, no other Person party to the
Lease Agreements is in default under any of the Lease Agreements. There are no
other agreements that concern any right, title or interest in or to the Leased
Real Property or grant to a third party the right to occupy the premises used in
the business, other than Permitted Liens. The Closing will not affect the
rights to the continued use and possession of the Leased Real Property on the
terms and conditions specified in the Lease Agreements for the purposes for
which such property is now used in the business.
(c) Leases of Real Property to Others. To the Borrower's Knowledge,
---------------------------------
no Leased Real Property is subject to any lease or other right of use of
possession by any Person other than the Borrower or a Subsidiary.
(d) Legal Proceedings Affecting Property. To the Borrower's
------------------------------------
Knowledge, there is not: (i) any planned public improvement that will result in
any charge being levied or assessed against any Leased Real Property or that
would create any encumbrance upon such property, (ii) any
19
<PAGE>
condemnation proceeding with respect to any Leased Real Property, (iii) any
proposal by a tax authority to change materially the assessed value or
assessment rates of any Leased Real Property, or (iv) any other claim, suit,
proceeding, order or demand of any Governmental Authority or any Persons that
could have a material adverse impact on the value, right to develop, use or
condition of any Leased Real Property.
(e) Disputes. There is no currently pending material claim, dispute
--------
or controversy with respect to any of the Lease Agreements. To the Borrower's
Knowledge, no Person has raised any material claim, dispute or controversy with
respect to any of the Lease Agreements since January 1, 1995.
4.20 Employee Plans and Arrangements.
-------------------------------
(a) 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 Borrower, on the one hand, and any current
- ----------------------
or former shareholder, officer, director, employee or Affiliate of the Borrower
or any consultant or agent of the Borrower, on the other hand, that, as a direct
result of the transactions contemplated by this Agreement, (i) will require any
payment by the Borrower or any consent or waiver from any shareholder, officer,
director, employee or Affiliate of the Borrower or any consultant or agent of
the Borrower, or (ii) will result in any change in the nature of any rights of
any shareholder, officer, director, employee or Affiliate of the Borrower or any
consultant or agent of the Borrower 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).
(b) Schedule 4.20(b) sets forth all Employee Benefit Plans and Benefit
----------------
Arrangements of the Borrower and each Subsidiary that are currently in effect.
(c) Neither the Borrower nor any of its ERISA Affiliates sponsors or
has sponsored, maintained, contributed to, or incurred an obligation to
contribute to, any Employee Pension Benefit Plan (whether or not terminated).
(d) Neither the Borrower nor any of its ERISA Affiliates sponsors or
has sponsored, maintained, contributed to, or incurred an obligation to
contribute to any Multiemployer Plan or Multiple Employer Plan (whether or not
terminated).
(e) No agreement, commitment or obligation exists to increase benefits
under any Benefit Plan or to adopt any new Benefit Plan. Further, no individual
will accrue or receive additional benefits, service or accelerated rights to
payments of benefits under any Benefit Plan, including the right to receive any
parachute payment, as defined in Section 280G of the Code, or become entitled to
severance, termination allowance or similar payments as a result of the
transactions contemplated by this Agreement, and the Borrower is not a party to
any agreement or arrangement that could result in the payment of any such
benefits or payments.
(f) No Employee Benefit Plan has participated in, engaged in or been a
party to any Prohibited Transaction, and neither the Borrower nor any of its
ERISA Affiliates has had
20
<PAGE>
asserted against it any claim for any excise tax or penalty imposed under ERISA
or the Code with respect to any Employee Benefit Plan nor, to the knowledge of
the Borrower, is there a basis for any such claim. No officer, director or
employee of the Borrower or any ERISA Affiliate has committed a material breach
of any responsibility or obligation imposed upon fiduciaries by Title I of ERISA
with respect to any Employee Benefit Plan, with respect to which breach the
Borrower is or could be directly or indirectly liable.
(g) Other than routine uncontested claims for benefits, there is no
claim pending involving any Benefit Plan by any Person against such plan or the
Borrower or any ERISA Affiliate, nor, to the knowledge of the Borrower, is any
such claim threatened. There is no pending or to the knowledge of the Borrower,
threatened, Proceeding involving any Employee Benefit Plan before the Internal
Revenue Service, the United States Department of Labor or any other Governmental
Authority.
(h) There is no material violation of any reporting or disclosure
requirement imposed by ERISA or the Code with respect to any Employee Benefit
Plan.
(i) Each Benefit Plan has been maintained in all material respects, by
its terms and in operation, in accordance with both its plan documents and with
ERISA, the Code and all other Applicable Laws. The Borrower and its ERISA
Affiliates have made full and timely payment of all amounts required to be
contributed under the terms of each Benefit Plan and Applicable Law or required
to be paid as expenses or benefits under such Benefit Plan, and has made
adequate provision for reserves to satisfy contributions and payments not yet
made because they are not yet due under the terms of the Benefit Plan or
Applicable Law. Each Employee Benefit Plan that is intended to be qualified
under Section 401(a) of the Code is and has always been so qualified, and either
has received a favorable determination letter with respect to such qualified
status from the IRS or has filed a request for such a determination letter with
the IRS within the remedial amendment period such that such determination of
qualified status will apply from and after the effective date of any such
Employee Benefit Plan.
(j) With respect to any Group Health Plans maintained by the Borrower
or its ERISA Affiliates, whether or not for the benefit of the Borrower's
employees, the Borrower and its ERISA Affiliates have complied in all material
respects with the provisions of COBRA. The Borrower 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.
(k) Except pursuant to the provisions of COBRA, neither the Borrower
nor any ERISA Affiliate maintains any Employee Benefit Plan that provides
benefits described in Section 3(1) of ERISA to any former employees or retirees,
or the beneficiaries of any of them, of the Borrower or its ERISA Affiliates.
(l) The Borrower has made available to the Lender a copy of (i) the
three (3) most recently filed Federal Form 5500 series and accountant's opinion,
if applicable, for each Employee Benefit Plan other than Multiemployer Plans.
All information provided by the Borrower, as applicable, to any individual in
connection with the preparation of any such opinion or report was true, correct
and complete in all respects.
21
<PAGE>
(m) Each Benefit 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 amendment or termination.
(n) In connection with any Employee Pension Benefit Plan currently
maintained by the Borrower or any ERISA Affiliate, (i) there have been no
accumulated funding deficiencies (within the meaning of Code Section 412),
whether or not waived, (ii) there have been no reportable events (within the
meaning of ERISA Section 4043(b)), and (iii) no circumstances exist that would
warrant a termination of any such plan by the Pension Benefit Guaranty
Corporation pursuant to ERISA Section 4042. No Employee Pension Benefit Plan
has been terminated within the last five years in other than a standard
termination under Section 4041(b) of ERISA and all liabilities under such plans
have been adequately and properly discharged.
4.21 Employees.
---------
(a) Neither the Borrower nor any Subsidiary has or has ever had any
employees represented by collective bargaining agents.
(b) The Borrower and each Subsidiary has complied in all material
respects with all Applicable Laws respecting employment and employment
practices, terms and conditions of employment, and wages and hours. Neither the
Borrower nor any Subsidiary has or could reasonably be expected to have any
material Liability to any former employee or individual who provided services to
the Borrower in a capacity other than as an employee in circumstances where such
Liability arises or would arise under the express terms of a Benefit Plan. No
charges of employment or labor law violations exist or, to the Borrower's
Knowledge, are threatened, before any Governmental Authority concerning any
current, prospective or former employees or independent contractors of the
Borrower or any Subsidiary, and no valid basis exists for any such charge.
(c) There is no strike, labor dispute, work slowdown or work stoppage
actually pending or, to the Knowledge of the Borrower, threatened, against the
Borrower or any of its Subsidiaries or, to the Knowledge of the Borrower, any of
its key subcontractors or suppliers. No collective bargaining representation
petition is pending or, to the Knowledge of Borrower, threatened against the
Borrower or any Subsidiary.
4.22 Insurance. Each of the Borrower and each Subsidiary has in
---------
full force and effect and will maintain (i) insurance on its assets and
activities of a type customarily insured, covering property damage and loss of
income by fire or other casualty, in amounts customary for companies similarly
situated as the Borrower or the Subsidiary, as the case may be, and (ii)
insurance protection against all Liabilities, claims and risks against which,
and in such amounts as, are customary for companies similarly situated as the
Borrower to insure.
4.23 Environmental Compliance.
------------------------
(a) The Borrower and each Subsidiary has obtained all approvals,
authorizations, certificates, consents, licenses, orders and permits or other
similar authorizations of any Governmental Authority, or from any other Person,
that are required under any Environmental Law
22
<PAGE>
and relate to its business, its assets or its products. Schedule 4.23(a) sets
----------------
forth (i) all permits, licenses and other authorizations issued under any
Environmental Law to the Borrower or any Subsidiary relating to its business,
its assets or its products and (ii) a description and good faith estimate by the
Borrower of the costs of all capital expenditures that may be necessary to
maintain or continue to be qualified for each such permit, license or other
authorization.
(b) The Borrower and each Subsidiary is in compliance in all material
respects with all terms and conditions of all approvals, authorizations,
certificates, consents, licenses, orders and permits or other similar
authorizations of any Governmental Authority (and all other Persons) required
under all Environmental Laws and used in its business or that relate to its
assets, and is also in compliance in all material respects with all other
limitations, restrictions, conditions, standards, requirements, schedules and
timetables required or imposed under all Environmental Laws.
(c) There is no pending or, to the Borrower's Knowledge, threatened,
proceeding, citation or notice of violation under any Environmental Law relating
to the Borrower or any Subsidiary, or any of the equipment, business or assets
of the Borrower or any Subsidiary.
(d) There are no past or present events, conditions, circumstances,
activities, practices, incidents, actions, omissions or plans that may interfere
with or prevent continued compliance by the Borrower or any Subsidiary with any
Environmental Law, or that may give rise to any Liability, or otherwise form the
basis of any claim, action, demand, suit, proceeding, hearing, study or
investigation (1) under any Environmental Law, (2) based on or related to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling, or the emission, discharge, release or threatened release
of any Hazardous Material, or (3) resulting from exposure to workplace hazards.
(e) Neither the Borrower nor any Subsidiary is required to make any
capital or other expenditures to comply with any Environmental Law nor is there
any reasonable basis on which any Governmental Authority could take any action
that would require any such capital expenditures.
4.24 No Undisclosed Liabilities. There are no Liabilities of the
--------------------------
Borrower or any Subsidiary required to be reflected on a balance sheet prepared
in accordance with GAAP except: (a) Liabilities accrued or reserved on the
Financial Statements; and (b) Liabilities incurred in the ordinary course of
business since the most recent Financial Statement that are not individually or
in the aggregate material to the Borrower or any Subsidiary.
4.25 Taxes.
-----
(a) All Borrower 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 Borrower 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 Borrower and
its Subsidiaries was a member of the group. All such consolidated and combined
Tax Returns were correct and complete in all material respects.
23
<PAGE>
(b) All Taxes due and payable by the Borrower and/or its Subsidiaries
(whether or not shown on any Tax Return) have been timely paid in full. All
income Taxes owed by any affiliated group with which any of the Borrower 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 Borrower 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 Borrower or any Subsidiary with
respect to any Tax matter is currently in force.
(d) There is no pending audit, examination or investigation with
respect to any Borrower Tax Returns, nor is there pending any notice of the
initiation thereof; there is no action, suit, proceeding (administrative or
court), claim, demand, deficiency or additional assessment pending or, to the
Knowledge of Borrower, threatened with respect to any Borrower Tax Returns.
(e) The Borrower 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 third party, and such withheld Taxes have either been duly
paid to the proper Governmental Authority or set aside in accounts for such
purpose.
(f) None of the Borrower and its Subsidiaries (A) 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 Borrower) and (B) has any liability
for the Taxes of any person as defined in Section 7701(a)(1) of the Code (other
than the Borrower and its Subsidiaries) under Treas. Reg. (S) 1.1502-6 (or any
similar provision of state, local, or foreign tax), 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 Borrower 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 (determined under the closing of the books
method of allocation).
(h) Neither the Borrower 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 Section 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 Borrower or any Subsidiary arising out of,
connected with, or related to any Tax imposed on the Borrower, its Subsidiaries,
or any of their businesses or properties.
24
<PAGE>
(j) The Borrower is not a party to, is not bound by, and has no
obligation (or potential obligation) under any Tax Agreement.
(k) Neither the Borrower 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) All Tax years (or periods) with respect to the Federal income Tax
Liabilities of the Borrower, and its assets or operations are closed.
(m) Other than the elections made in the Tax Returns provided to or
made available to the Lender, no agreement, consent, or election for foreign,
Federal, state or local tax purposes that would affect or be binding on the
Borrower or any Subsidiary after the Closing has been filed or entered into by
the Borrower or any Subsidiary. No consent has been filed with respect to the
Borrower or any Subsidiary under Section 341(f) of the Code.
(n) Schedule 4.25 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 material change in any tax due from Borrower or any Subsidiary to any
Governmental Authority. Correct and complete copies of all federal Tax Returns,
examination reports, and statements of deficiencies assessed against or agreed
to by the Borrower or any of its Subsidiaries since January 1, 1995 have been
delivered or made available to Lender.
4.26 No Research Grants. Neither the Borrower nor any of its
------------------
subsidiaries since inception has provided any research, educational or study
grants or other financial support of any kind to any hospital, physician, or
health care provider.
4.27 Certain Regulatory Matters. To the Borrower's Knowledge,
--------------------------
neither the Borrower nor any of its Subsidiaries since inception has been the
subject of any investigative proceeding before any Governmental Authority or the
agent of any such authority, including without limitation federal and state
health authorities.
4.28 Transactions with Affiliates. Except for regular salary
----------------------------
payments and fringe benefits under an individual's compensation package with the
Borrower or any Subsidiary, none of the officers, employees, directors or other
Affiliates of the Borrower or any Subsidiary or members of their families is a
party to any agreements, understandings, indebtedness or proposed transactions
with the Borrower or any Subsidiary or is directly interested in any Contract
with the Borrower or any Subsidiary. Neither the Borrower 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 Borrower's Knowledge, none of such persons has any direct or indirect
ownership interest in any firm or entity with which the Borrower or any
Subsidiary is affiliated or with which the Borrower or any Subsidiary has a
business relationship, or any entity that competes with the Borrower or any
Subsidiary, other than publicly traded companies that may compete with the
Borrower or any Subsidiary.
25
<PAGE>
4.29 Reports; SEC Documents. All material reports, documents and
----------------------
notices required to be filed, maintained or furnished with or to any
Governmental Authority by the Borrower 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
the original filing, maintenance or furnishing thereof). The Borrower has
heretofore furnished to or made available to the Lender complete copies of all
registration statements, reports and proxy statements, including amendments
thereto, filed with the Securities and Exchange Commission (the "SEC") since
---
January 1, 1995 and prior to the date of this Agreement (collectively, the "SEC
---
Documents"). None of the SEC Documents contains any untrue statement of a
- ---------
material fact or omits to state a material fact necessary to make the statements
contained therein not misleading.
4.30 Disclosure. Neither this Agreement nor the other agreements
----------
referred to in this Agreement nor any other statements or certificates made or
delivered in connection herewith contains any untrue statement of a material
fact or omits to state a material fact necessary to make the statements herein
or therein, in light of the circumstances in which they are made, not
misleading.
4.31 Brokers. Neither the Borrower nor any Subsidiary has dealt
-------
with, or incurred liability for a fee to, any finder, broker, investment banker
or financial advisor in connection with any of the transactions contemplated by
this Agreement or the negotiations looking toward the consummation of such
transactions.
4.32 Certain Additional Regulatory Matters. Neither the Borrower
-------------------------------------
nor any Affiliate, nor the officers, directors, employees or agents of any of
the Borrower or any Affiliate, and none of the persons who provide professional
services under agreements with any of the Borrower or any Affiliate as agents of
such entities have engaged in any activities which are prohibited, or are cause
for civil penalties or mandatory or permissive exclusion from Medicare or
Medicaid, under (S)(S) 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 Borrower or
any of its Affiliates 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 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
and the person presenting knows or should know that the claim is false or
fraudulent;
26
<PAGE>
(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 other state health
care program, or (iii) 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
(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 (ii) information required to be provided under
(S) 1124(A) of the Social Security Act ("SSA") (42 U.S.C. (S) 1320a-3).
---
4.33 Medicare/Medicaid Participation. (i) Neither the Borrower nor
-------------------------------
any other Person who after the Closing will have a direct or indirect ownership
interest (as those terms are defined in 42 C.F.R. (S) 1001.1001(a)(2)) in the
Borrower or any Affiliate of 5% or more (other than Lender), or who will have an
ownership or control interest (as defined in SSA (S) 1124(a)(3), or any
regulations promulgated thereunder) in the Borrower or any Affiliate (other than
Lender), or who will be an officer, director, agent (as defined in 42 C.F.R. (S)
1001.1001(a)(2)), or managing employee (as defined in SSA (S) 1126(b) or any
regulations promulgated thereunder) of the Borrower or any Affiliate and (ii) to
the best Knowledge of the Borrower and any Affiliate, no person or entity with
any relationship with such entity (including without limitation a parent company
or shareholder of, or partner in an Affiliate) who after the Closing will have
an indirect ownership interest (as that term is defined in 42 C.F.R. (S)
1001.1001(a)(2)) in the Borrower or any Affiliate of 5% or more (other than
Lender): (1) has had a civil monetary penalty assessed against it under (S)
1128a of the SSA or any regulations promulgated thereunder; (2) has been
excluded from participation under the Medicare program or a state health care
program as defined in SSA (S) 1128(h) or any regulations promulgated thereunder
("State Health Care Program"); or (3) has been convicted (as that term is
-------------------------
defined in 42 C.F.R. (S) 1001.2) of any of the following categories of offenses
as described in SSA (S) 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 or any State 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;
27
<PAGE>
(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.
ARTICLE V. COVENANTS OF BORROWER
The Borrower covenants that until indefeasible payment and performance
of all Obligations:
5.1 Corporate Existence, Etc. The Borrower shall, at all times
-------------------------
preserve and keep in full force and effect its corporate existence and all
material rights and franchises.
5.2 Payment of Taxes. The Borrower shall pay and discharge all
----------------
Taxes imposed upon it or any of its properties or in respect of any of its
franchises, business, income or property before any penalty shall be incurred
with respect to such Taxes, provided, however, that, unless and until
foreclosure, distraint, levy, sale or similar proceedings shall have commenced,
the Borrower need not pay or discharge any such tax so long as the validity or
amount thereof is being contested in good faith and by appropriate proceedings
and so long as any reserves or other appropriate provisions as may be required
by GAAP shall have been made therefor.
5.3 Maintenance of Properties. The Borrower shall maintain or
-------------------------
cause to be maintained in good repair, working order and condition (ordinary
wear and tear excepted), all properties and other assets useful or necessary to
its business, and from time to time Borrower shall make or cause to be made all
appropriate repairs, renewals and replacements thereto.
5.4 Maintenance of Insurance. The Borrower shall maintain insurance
------------------------
in at least such amounts, of such character and against at least such risks as
is maintained by companies of established repute engaged in the same or a
similar business in the same general area as the Borrower. Such insurance shall
include all-risk property insurance, public liability, property damage and flood
insurance (if such insurance is required under applicable law).
5.5 Expenses. Borrower shall immediately pay Lender upon demand
---------
all reasonable costs and expenses incurred by Lender in connection with: (a)
the preparation of this Agreement (and all Exhibits and Schedules thereto), the
Senior Note, the Series D Certificate of Designation, and the Series E
Certificate of Designation; provided, however, that the Borrower's maximum
-------- -------
responsibility therefore shall be $81,000; and (b) following a Default, the
enforcement or satisfaction by Lender of any of Borrower's obligations under
this Agreement or the Senior Note.
5.6 Conversion Stock. The Borrower shall at all times keep
-----------------
available out of its authorized but unissued shares of Common Stock, for the
purpose of effecting the conversion of the shares of Series D Preferred Stock
and the shares of Series E Preferred Stock, such number of its duly authorized
shares of Common Stock as shall be sufficient to effect the conversion of the
shares of Series D Preferred Stock and Series E Preferred Stock from time to
time outstanding. If at any time the number of authorized but unissued shares
of Common Stock shall not be sufficient to effect the conversion of the then
outstanding shares of Series D Preferred Stock and Series E Preferred
28
<PAGE>
Stock, the Borrower shall forthwith take such corporate action as may be
necessary to increase its authorized but unissued shares of Common Stock to such
number of shares as shall be sufficient for such purpose.
5.7 Compliance with Note Purchase Agreement. So long as any
----------------------------------------
portion of the Obligations has not been indefeasibly satisfied in full, Borrower
shall comply in all respects with the terms of the Note Purchase Agreement dated
as of April 14, 1989, as amended to the date hereof (the "Note Purchase
-------------
Agreement"). Without limiting the foregoing, the Borrower shall comply with all
- ---------
affirmative and negative covenants contained in the Note Purchase Agreement.
5.8 Certain Regulatory Matters.
--------------------------
(a) The operations of the Borrower and its Affiliates will be
conducted in accordance with all Applicable Laws, including, without limitation,
all such laws, regulations, orders and requirements promulgated by or relating
to consumer protection, equal opportunity, health, third party reimbursement
(including Medicare and Medicaid), environmental protection, fire, zoning and
building and occupational safety matters, except for violations that
individually or in the aggregate would not and, insofar as may reasonably be
foreseen, in the future will not, have a Material Adverse Effect on the Borrower
or any Subsidiary.
(b) Without limiting the generality of the foregoing, the Borrower and
all Affiliates shall comply in all material respects with all 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, and including without limitation preparation and submission of claims
for reimbursement. Without limiting the generality of the foregoing, the
Borrower and all Affiliates shall follow instructions recently received in a
bulletin from Blue Shield of California ("BSC") limiting reimbursement of the
services of independent physiological laboratories to Medicare beneficiaries in
BSC's region to cardiovascular studies, diagnostic ultrasound studies, and non-
invasive vascular studies, all conducted according to the common procedural
terminology ("CPT") codes listed in the most recent version of the CPT codebook
for such studies, and shall refrain from submitting claims for Medicare
reimbursement for MRI or CT studies to BSC until and unless written approval to
submit such claims is received from the medical director of BSC, unless the
Borrower or any Affiliate identifies an alternative proper resolution of such
matter that is acceptable to the Lender, in its sole discretion. Nothing in
this Section 5.8 shall be construed as or is intended to create any third party
beneficiaries.
ARTICLE VI. DEFAULTS AND REMEDIES
6.1 Default. The occurrence of any one or more of the following
--------
shall constitute an event of default (hereinafter, "Default") under this
-------
Agreement and the other Loan Documents:
(a) Borrower (i) shall fail to pay as and when due any scheduled
installment of principal due hereunder or under the Senior Note; or (ii)
shall fail to pay within one day after the due date thereof any interest,
any fees or any other amount payable hereunder or under the Senior Note; or
29
<PAGE>
(b) Borrower shall fail to perform or observe any agreement or
covenant in any Section of Article V, including without limitation the
covenants incorporated by reference to the Note Purchase Agreement in
Section 5.7 (provided, however, that with respect to the covenants
incorporated by reference in Section 5.7, no Default shall be deemed to
have occurred until the expiration of any grace or cure period provided for
in the Note Purchase Agreement with respect to such covenant); or
(c) Borrower shall fail to perform any other obligation under any of
the Loan Documents (other than those referred to in Sections 6.1(a) and
6.1(b) above) for a period of thirty (30) days after receipt of written
notice of such failure (or, if delivery of such notice is stayed or
prohibited by applicable law, for a period of thirty (30) days after such
failure to perform); or
(d) the failure of any representation or warranty of Borrower in any
of the Loan Documents to be true on each date made or deemed made; or
(e) (i) the filing of a petition by Borrower for relief under the
Bankruptcy Code, or under any other present or future state or federal law
regarding bankruptcy, reorganization or other debtor relief law; (ii) the
filing of any pleading or an answer by Borrower in any involuntary
proceeding under the Bankruptcy Code or other debtor relief law which
admits the jurisdiction of the court or the petition's material allegations
regarding Borrower's insolvency; (iii) a general assignment by Borrower for
the benefit of creditors; or (iv) Borrower applying for, or the appointment
of, a receiver, trustee, custodian or liquidator of Borrower or any of its
assets; or
(f) the failure of Borrower to effect a full dismissal of any
involuntary petition under the Bankruptcy Code or under any other debtor
relief law that is filed against Borrower or in any way restrains or limits
Borrower or Lender regarding the Loan prior to the earlier of (i) the entry
of any court order granting relief sought in such involuntary petition or
(ii) thirty (30) days after the date of filing of such involuntary
petition;
(g) there shall occur any default or event of default under the Note
Purchase Agreement; or
(h) there shall occur any Change in Control.
6.2 Acceleration Upon Default. Upon the occurrence and during the
--------------------------
continuance of a Default specified in Section 6.1(e) or (f), all sums owing to
Lender under the Loan Documents immediately shall be due and payable. Upon the
occurrence and during the continuance of any Default specified in this Article
VII (other than those referred to in the immediately preceding sentence), Lender
may, at its sole option, declare all sums owing to Lender under the Loan
Documents immediately due and payable.
6.3 Repayment of Funds Advanced. Any funds expended by Lender in
----------------------------
the exercise of its rights or remedies under this Agreement and the other Loan
Documents shall be payable to Lender upon demand, together with interest at the
rate applicable to the principal balance of the Senior Note from the date the
funds were expended.
30
<PAGE>
6.4 Rights Cumulative, No Waiver. All Lender's rights and remedies
-----------------------------
provided in this Agreement and the other Loan Documents, together with those
granted by law or at equity, are cumulative and may be exercised by Lender at
any time. Lender's exercise of any right or remedy shall not constitute a cure
of any Default unless all sums then due and payable to Lender under the Loan
Documents are repaid and Borrower has cured all other Defaults. No waiver shall
be implied from any failure of Lender to take, or any delay by Lender in taking,
action concerning any Default or failure of condition under the Loan Documents,
or from any previous waiver of any similar or unrelated Default or failure of
condition. Any waiver or approval under any of the Loan Documents must be in
writing and shall be limited to its specific terms.
ARTICLE VII. LENDER'S OPTION TO EXTEND MATURITY DATE; OPTIONAL CONVERSION OF
SENIOR LOAN
7.1 Lender's Option to Extend Maturity Date. At any time prior
----------------------------------------
to the original Maturity Date, Lender shall have the option to extend the
Maturity Date to March 31, 1997. If Lender determines, in its sole discretion,
to extend the Maturity Date to March 31, 1997, Lender shall deliver written
notice of such election to Borrower no later than ten (10) Business Days prior
to the original Maturity Date. Upon delivery of such notice, the Maturity Date
for all purposes under this Agreement (including without limitation, with
respect to Sections 7.2, 7.3, 7.4, and 7.5) shall be deemed to be March 31,
1997.
7.2 Conversion of Senior Loan Prior to Maturity Date. At any
-------------------------------------------------
time at or prior to the Maturity Date, Lender shall have the option, in its sole
discretion, to convert the Senior Loan into shares of Series D Preferred Stock,
and to enter into certain transactions with Borrower related thereto, as further
provided in this Section 7.2.
(a) If Lender determines, in its sole discretion, to convert the
Senior Loan into shares of Series D Preferred Stock, and to enter into the other
Conversion Transactions (as defined below), Lender shall deliver written notice
of such election to Borrower no later than two (2) Business Days prior to the
Maturity Date in substantially the form set forth as Exhibit F hereto (the
---------
"Conversion Notice"); provided, however, that a Conversion Notice delivered
----------------- -------- -------
after February 26, 1997 will not be effective if the Maturity Date is extended
to March 31, 1997 solely as a result of the Lender's not delivering the
Conversion Notice prior to the original Maturity Date (rather than the Lender's
exercise of its extension election under Section 7.1 above). The Conversion
Notice shall set forth the effective date of the Conversion Transactions (as
defined below) (the "Conversion Date"), which date shall not be earlier than
---------------
five (5) nor later than ten (10) Business Days following the date of the
Conversion Notice.
(b) If Lender timely delivers the Conversion Notice to Borrower, then
Lender and Borrower shall consummate the following transactions (collectively,
the "Conversion Transactions") as soon as practicable after the date of the
-----------------------
Conversion Notice, but in any event no later than the Conversion Date:
(i) Lender and Borrower shall enter into a Series D Preferred
Stock Purchase Agreement substantially in the form attached hereto as
Exhibit G (with all Exhibits and Schedules thereto, and all documents to be
---------
delivered thereunder (including without
31
<PAGE>
limitation any legal opinions), to be satisfactory to Lender, in its sole
discretion), and Lender and Borrower shall consummate the transactions
contemplated thereby;
(ii) Borrower shall pay to Lender on the Conversion Date all
accrued interest on the Senior Loan in cash (including without limitation
any interest accrued at the Default Rate);
(iii) Borrower and Lender shall enter into an Eleventh Amendment
to the Note Purchase Agreement, substantially in the form attached hereto
as Exhibit H, and Lender and Borrower shall consummate the transactions
---------
contemplated thereby.
(c) If Lender does not timely deliver the Conversion Notice to
Borrower pursuant to this Section 7.2, then the Maturity Date shall be extended
automatically to March 31, 1997, and the Maturity Date for all purposes under
this Agreement (including without limitation, with respect to Sections 7.2, 7.3,
7.4, and 7.5) shall be deemed to be March 31, 1997.
7.3 Conversion of Senior Loan After Maturity Date. If for any
----------------------------------------------
reason all or part of the Senior Loan is still outstanding after the Maturity
Date, then Lender shall have the option, in its sole discretion, to convert the
Senior Loan into shares of Series D Preferred Stock, and to enter into the other
Conversion Transactions, as further provided in this Section 7.3.
(a) If Lender determines, in its sole discretion, to convert the
Senior Loan into shares of Series D Preferred Stock, and to enter into the other
Conversion Transactions, after the Maturity Date, Lender may deliver a
Conversion Notice at any such time to Borrower. The Conversion Notice shall set
forth the Conversion Date.
(b) After delivery of the Conversion Notice to Borrower, Lender and
Borrower shall consummate the Conversion Transactions as soon as practicable
after the date of the Conversion Notice, but in any event no later than the
Conversion Date.
7.4 Acknowledgement. Lender and Borrower acknowledge and agree
---------------
that Lender shall under no circumstances be under any obligation to exercise its
right to elect to enter into the Conversion Transactions contemplated by this
Article 7, that notwithstanding the provisions of this Article 7, if Lender
does not deliver the Conversion Notice, Lender shall have the absolute right at
and at any time after the Maturity Date to repayment of the Senior Loan and all
other amounts due and payable to Lender from Borrower under the Loan Documents.
ARTICLE VIII. MISCELLANEOUS PROVISIONS
8.1 Indemnity. Borrower hereby agrees to defend, indemnify and
---------
hold harmless Lender, and its directors, officers, employees, agents, successors
and assigns from and against any and all losses, damages, liabilities, claims,
actions, judgments, costs and reasonable legal or other expenses (including,
without limitation, reasonable attorneys' fees and expenses) ("Claims") such
------
indemnified party may incur as a direct or indirect consequence of: (a) the
transactions contemplated hereby; (b) the purpose to which Borrower applies the
proceeds of the Loan; (c) the failure of Borrower to perform any obligations as
and when required by this Agreement or any of the other Loan Documents; or (d)
any failure at any time of any of Borrower's representations or warranties to
32
<PAGE>
be true and correct. Borrower shall immediately pay to Lender upon demand any
amounts owing under this indemnity, together with interest from the date the
indebtedness arises until paid at the rate of interest applicable to the
principal balance of the Senior Note. BORROWER'S DUTY TO INDEMNIFY LENDER
HEREUNDER SHALL SURVIVE THE REPAYMENT OF THE LOAN.
8.2 Notices. All notices, demands, or other communications under
-------
this Agreement and the other Loan Documents shall be in writing and shall be
delivered via confirmed facsimile, overnight courier, by hand delivery or by
certified mail, return receipt requested, to the appropriate party at the
address set forth on the signature page of this Agreement (subject to change
from time to time by written notice to all other parties to this Agreement).
All communications shall be deemed served upon delivery of, or if mailed, upon
the first to occur of receipt or the expiration of three (3) days after the
deposit in the United States Postal Service mail, postage prepaid and addressed
to the address of Borrower or Lender at the address specified or, if transmitted
via facsimile, upon electronic confirmation of receipt; provided, however, that
-------- -------
non-receipt of any communication as the result of any change of address or
facsimile number of which the sending party was not notified or as the result of
a refusal to accept delivery shall be deemed receipt of such communication.
8.3 Attorneys' Fees and Expenses; Enforcement. If any attorney is
-----------------------------------------
engaged by Lender to interpret, administer, enforce or defend any provision of
this Agreement or any of the other Loan Documents, or as a consequence of any
Default under the Loan Documents, with or without the filing of any legal action
or proceeding, Borrower shall immediately pay to Lender, upon demand, the amount
of all reasonable attorneys' fees and expenses and all costs incurred by Lender
in connection therewith, together with interest thereon from the date of such
demand until paid at the rate of interest applicable to the principal balance of
the Senior Note as specified therein.
8.4 Immediately Available Funds. Unless otherwise expressly
---------------------------
provided for in this Agreement, all amounts payable by Borrower to Lender shall
be payable only in United States currency, immediately available funds.
8.5 Successors and Assigns. This Agreement shall be binding upon
----------------------
and inure to the benefit of the parties hereto and their respective successors
and permitted assigns. Borrower may not assign or transfer any interest
hereunder without the prior written consent of Lender.
8.6 Participations. Lender may, at any time, sell, assign or grant
--------------
participations in all or any portion of its rights and obligations under the
Loan Documents to one or more Affiliates of Lender, with Borrower's consent and
approval (which consent and approval will not be unreasonably withheld,
conditioned or delayed). Borrower further agrees that, in connection with any
such sale, assignment or participation, Lender may disseminate to any such
actual or potential servicer(s), purchaser(s), assignee(s) or participant(s) all
documents and information (including, without limitation, all financial
information) which has been or is hereafter provided to or known to Lender with
respect to: (a) any Property and its operation; (b) any party connected with
the Loan (including, without limitation, Borrower; and/or (c) any relationship
other than the Loan which Lender may have with any party connected with the
Loan. Borrower shall supply to Lender all reasonably requested information and
execute and deliver all such instruments and take all such further action Lender
may reasonably request in connection with any such sale, assignment or
33
<PAGE>
participation. In the event of any such sale, assignment or participation,
Lender and the parties to such transaction shall share in the rights and
obligations of Lender as set forth in the Loan Documents only as and to the
extent they agree among themselves. In connection with any such sale,
assignment or participation, Borrower further agrees that the Loan Documents
shall be sufficient evidence of the obligations of Borrower to each purchaser,
assignee, or participant, and upon written request by Lender, Borrower shall
enter into such amendments or modifications to the Loan Documents as may be
reasonably required in order to evidence any such sale, assignment or
participation. The indemnity obligations of Borrower under the Loan Documents
shall also apply with respect to any purchaser, assignee or participant.
8.7 Severability. If any provision or obligation under this
------------
Agreement and the other Loan Documents shall be determined by a court of
competent jurisdiction to be invalid, illegal or unenforceable, that provision
shall be deemed severed from the Loan Documents and the validity, legality and
enforceability of the remaining provisions or obligations shall remain in full
force as though the invalid, illegal, or unenforceable provision had never been
a part of the Loan Documents, provided, however, that if the rate of interest or
-------- -------
any other amount payable under the Senior Note or this Agreement or any other
Loan Document, or the right of collectability therefore, are declared to be or
become invalid, illegal or unenforceable, Lender's obligations to make advances
under the Loan Documents shall not be enforceable by Borrower.
8.8 No Waiver; Successors. No waiver shall be implied from any
---------------------
failure of Lender to take, or any delay by Lender in taking, action concerning
any Default or failure of condition, or from any previous waiver of any similar
or unrelated Default or failure of condition. Any waiver or approval hereunder
must be in writing and shall be limited to its specific terms. No amendment of
any provision of this Agreement or any other Loan Document (including a waiver
thereof or consent relating thereto) shall be effective unless the same shall be
in writing and signed by Borrower and Lender.
8.9 Time. Time is of the essence of each and every term of this
----
Agreement.
8.10 Headings. All article, section or other headings appearing in
--------
this Agreement and any of the other Loan Documents are for convenience of
reference only and shall be disregarded in construing this Agreement and any of
the other Loan Documents.
8.11 Governing Law. This Agreement shall be governed by, and
-------------
construed and enforced in accordance with the laws of the State of New York.
Borrower and all persons and entities in any manner obligated to Lender under
the Loan Documents consent to the jurisdiction of any Federal or State Court
within the State of New York and also consent to service of process by any means
authorized by New York or Federal Law.
8.12 Integration; Interpretation. The Loan Documents contain or
---------------------------
expressly incorporate by reference the entire agreement of the parties with
respect to the matters contemplated therein and supersede all prior negotiations
or agreements, written or oral. Any reference to the Loan Documents includes
any amendments, renewals or extensions now or hereafter approved by Lender in
writing.
34
<PAGE>
8.13 Waiver of Allocation Rights. Borrower hereby irrevocably
----------------------------
waives, disclaims and renounces any right to designate the portion of the
Obligations satisfied, or deemed to be satisfied, upon payment of any of the
Obligations by any guarantor or surety of all or any portion of the Obligations,
it being the understanding and agreement of Borrower, Lender and any such
guarantor or surety that Lender may allocate any and all payments on the
Obligations so as to maximize Lender's recovery against Borrower and all
guarantors or sureties.
8.14 Usury Savings. It is the intention of the parties hereto to
-------------
conform strictly to the usury and other laws relating to interest from time to
time in force, and all agreements between Borrower and Lender, whether now
existing or hereafter arising and whether oral or written, are hereby expressly
limited so that in no contingency or event whatsoever, whether by acceleration
or maturity or otherwise, shall the amount paid or agreed to be paid to Lender,
or collected by Lender for the use, forbearance or detention of the money to be
loaned under the Senior Note, this Agreement or otherwise, or for the payment or
performance of any covenant or obligation contained herein or in any of the
other Loan Documents or in any other security agreement given to secure the Loan
or in any other document evidencing, securing or pertaining to the Loan, exceed
the maximum amount of interest allowable under applicable law (the "Maximum
-------
Amount"). If under any circumstances whatsoever fulfillment of any provision
- ------
hereof or any other Loan Document, at the time performance of such provision
shall be due, shall involve transcending the Maximum Amount, then ipso facto,
the obligation to be fulfilled shall be reduced to the Maximum Amount. For the
purposes of calculating the actual amount of interest paid and or payable, in
respect of laws pertaining to usury or such other laws, all sums paid or agreed
to be paid to the holder of the Senior Note for the use, forbearance or
detention of the Loan shall, to the extent permitted by applicable law, be
amortized, allocated and spread from the date of disbursement of the proceeds of
the Loan until payment in full of the Loan, so that the actual rate of interest
on account of the Loan is uniform throughout the term hereof. If under any
circumstances Lender shall ever receive an amount deemed interest by applicable
law, which would exceed the Maximum Amount, such amount that would be excessive
interest under applicable usury laws shall be deemed a payment in reduction of
the principal amount owing under the Senior Note and shall be so applied to
principal and not to the payment of interest, or if such excessive interest
exceeds the outstanding principal balance of the Loan, such excessive interest
shall be deemed to have been a payment made by mistake and shall be refunded to
Borrower or to any other person making such payment on Borrower's behalf.
8.15 Revival. To the extent Borrower makes a payment to Lender,
-------
which payment or the proceeds or any part thereof are subsequently invalidated,
declared to be fraudulent or preferential, set aside or required to be repaid to
a trustee, receiver or any other party having requisite authority under the
Bankruptcy Code or any bankruptcy law, state or federal law, common law or
equitable cause, then, to the extent of such payment or proceeds received, the
obligation hereunder or part thereof intended to be satisfied shall be revived
and continue in full force and effect, as if such payment or proceeds had not
been received.
35
<PAGE>
8.16 Counterparts. This Agreement, any of the other Loan Documents
------------
(except for the Senior Note), and any subsequent modifications, amendments,
waivers, consents or supplements thereof, if any, may be executed in any number
of counterparts, each of which when executed and delivered shall be deemed to be
an original and all such counterparts together, shall constitute one and the
same instrument.
IN WITNESS WHEREOF, Borrower and Lender have executed this Agreement
as of the date appearing on the first page of this Agreement.
"Lender" "Borrower"
GENERAL ELECTRIC COMPANY, a New ALLIANCE IMAGING, INC., a Delaware
York corporation acting through corporation
GE Medical Systems
By: By:
--------------------------------- ----------------------------------
Title: Title:
36
<PAGE>
LIST OF SCHEDULES AND EXHIBITS
------------------------------
EXHIBITS
- --------
Exhibit A Senior Note
Exhibit B Series D Certificate of Designation
Exhibit C Series E Certificate of Designation
Exhibit D Funds Flow Memorandum
Exhibit E Form of Opinion of Counsel to Borrower
Exhibit F Form of Conversion Notice
Exhibit G Series D Preferred Stock Purchase Agreement
Exhibit H Eleventh Amendment to Note Purchase Agreement
SCHEDULES
- ---------
Schedule 4 Borrower Disclosure Schedule
Schedule 4.1 Certificate and Bylaws; Jurisdictions
Schedule 4.3 Subsidiaries
Schedule 4.7(b) Accountant Letters
Schedule 4.10(b) Material Contracts
Schedule 4.14(e) Approvals
Schedule 4.18 Indebtedness
Schedule 4.19(b) Lease Agreements
Schedule 4.20(b) Employee Benefit Plans
Schedule 4.23(a) Environmental Permits
Schedule 4.25 Tax Returns
<PAGE>
EXHIBIT 3
EXECUTION COPY
ALLIANCE IMAGING, INC.
CERTIFICATE OF DESIGNATION, PREFERENCES AND RIGHTS
OF SERIES D 4% CUMULATIVE REDEEMABLE
CONVERTIBLE PREFERRED STOCK
(Pursuant to Section 151(g) of the General Corporation
Law of the State of Delaware.)
Alliance Imaging, Inc., a corporation organized and existing under the laws
of the State of Delaware (hereinafter the "Company"), DOES HEREBY CERTIFY THAT,
pursuant to authority conferred upon the Board of Directors of the Company (the
"Board") by the Restated Certificate of Incorporation of the Company, as amended
(the "Certificate of Incorporation"), the Board, pursuant to a unanimous written
consent dated as of December 20, 1996, adopted the following resolutions
authorizing the issuance of Series D 4% Cumulative Redeemable Convertible
Preferred Stock of the Company, which resolutions are still in full force and
effect and are not in conflict with any provisions of the Certificate of
Incorporation or Bylaws of the Company:
RESOLVED, that pursuant to authority vested in the Board by the Certificate
of Incorporation, the Board does hereby establish a series of Preferred Stock of
the Company from the Company's authorized class of 1,000,000 shares of $0.01 par
value preferred shares, such series to consist of 18,000 shares, which number
may be decreased (but not below the number of shares thereof then outstanding)
from time to time by the Board, and to the extent that the voting rights,
designation, powers, preferences and relative participating, optional or other
special rights and the qualifications, limitations or restrictions of that
series are not stated and expressed in the Certificate of Incorporation, does
hereby fix and state the voting rights, designation, powers, preferences and
relative participating, optional or other special rights and the qualifications,
limitations or restrictions thereof, as follows:
1. DEFINITIONS. Unless otherwise specified herein, the following
-----------
capitalized terms shall have the meanings ascribed to them below:
ACCUMULATED DIVIDENDS. "Accumulated Dividends" shall have the meaning
---------------------
set forth in Section 4(c).
AVAILABLE ASSETS. "Available Assets" shall have the meaning set forth
----------------
in Section 5(a).
COMMON STOCK. "Common Stock" shall mean the Company's Common Stock,
------------
$0.01 par value per share.
<PAGE>
CONVERSION DATE. "Conversion Date" shall have the meaning set forth
---------------
in Section 6(a).
CHANGE IN CONTROL. "Change in Control" shall be deemed to have
-----------------
occurred (i) at such time as any person (as defined in Section 13(d)(3) of the
Securities and Exchange Act of 1934) 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 year period, individuals who at the
beginning of such period constitute the Company's Board cease to constitute at
least a majority of such Board, (iii) upon consummation of a merger or
consolidation of the Company into or with another corporation in which the
shareholders of the Company immediately prior to the consummation of such
transaction shall own less than Fifty Percent (50%) 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 (but not including a transfer or lease by pledge or
mortgage to a bona fide lender) of all or substantially all of the assets of the
Company, in any of cases (i), (ii), (iii) and (iv) in a single transaction or
series of transactions; provided, however, that no Change in Control shall be
-----------------
deemed to have occurred solely as a result of General Electric Company, a New
York corporation, directly or indirectly acquiring more than 40% of the voting
power of the Common Stock of the Company.
CHANGE IN CONTROL SPECIAL DIVIDEND A. "Change in Control Special
------------------------------------
Dividend A" shall have the meaning set forth in Section 8(c).
CHANGE IN CONTROL SPECIAL DIVIDEND B. "Change in Control Special
------------------------------------
Dividend B" shall have the meaning set forth in Section 9(b).
CONVERSION PRICE. "Conversion Price" shall have the meaning set forth
----------------
in Section 7, as adjusted from time to time as set forth therein.
DGCL. "DGCL" shall mean the Delaware General Corporation Law.
----
DIVIDEND PAYMENT DATE. "Dividend Payment Date" shall have the meaning
---------------------
set forth in Section 4(b).
DIVIDEND PERIOD. "Dividend Period" shall have the meaning set forth
---------------
in Section 4(b).
EXCLUDED STOCK. "Excluded Stock" shall have the meaning set forth in
--------------
Section 7(b).
FACE AMOUNT. The "Face Amount" of each share of Series D Preferred
-----------
Stock (regardless of its par value) shall be One Thousand Dollars ($1,000.00),
as the Series D Preferred Stock is presently constituted, such amount to be
proportionately adjusted to reflect any combination, consolidation,
reclassification or like adjustment of or to the Series D Preferred Stock.
2
<PAGE>
ISSUE DATE. "Issue Date" shall mean, with respect to any shares of
----------
Series D Preferred Stock, the date such shares of Series D Preferred Stock are
issued.
JUNIOR SECURITIES. "Junior Securities" shall have the meaning set
-----------------
forth in Section 3.
LIQUIDATION EVENT. "Liquidation Event" shall mean any of the
-----------------
following: (i) a liquidation or winding up of the Company, (ii) a merger or
consolidation of the Company into or with another corporation in which the
shareholders of the Company immediately prior to the consummation of such
transaction shall own less than Fifty Percent (50%) 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
(iii) the sale, transfer or lease (but not including a transfer or lease by
pledge or mortgage to a bona fide lender) of all or substantially all of the
assets of the Company; in any of cases (i), (ii) or (iii) in a single
transaction or series of transactions.
LIQUIDATION PREFERENCE AMOUNT. "Liquidation Preference Amount" shall
-----------------------------
have the meaning set forth in Section 5(a).
MARKET PRICE. The "Market Price" of a share of Common Stock on or
------------
with respect to any day shall mean (i) the closing sales price on the
immediately preceding trading day of a share of Common Stock on the principal
national securities exchange or automated quotation system on which the shares
of Common Stock are listed or admitted to trading or, if not listed or admitted
to trading on any national securities exchange or automated quotation system,
the average of the last reported bid and asked prices on such immediately
preceding trading day in the over-the-counter market as furnished by the
National Association of Securities Dealers, Inc., or, if such firm is not then
engaged in the business of reporting such prices, as furnished by any similar
firm then engaged in such business selected in good faith by the Company or, if
there is no such firm, as furnished by any member of the National Association of
Securities Dealers, Inc., selected in good faith by the Company, or (ii) if the
shares of Common Stock are not then traded on any such exchange or system, the
amount determined in good faith by the Board to represent the fair value of a
share of Common Stock.
RECORD DATE. "Record Date" shall have the meaning set forth in
-----------
Section 4(b).
REDEMPTION DATE. "Redemption Date" shall have the meaning set forth
---------------
in Section 9(c).
REDEMPTION PRICE. "Redemption Price" shall have the meaning set forth
----------------
in Section 9(d).
REGULAR DIVIDENDS. "Regular Dividends" shall have the meaning set
-----------------
forth in Section 4(a).
REPURCHASE EVENT TRIGGER DATE. "Repurchase Event Trigger Date" shall
-----------------------------
have the meaning set forth in Section 8(d).
3
<PAGE>
REPURCHASE NOTICE. "Repurchase Notice" shall have the meaning set
-----------------
forth in Section 8(d).
REPURCHASE OPTION PERIOD. "Repurchase Option Period" shall have the
------------------------
meaning set forth in Section 8(d).
SERIES D PREFERRED STOCK. "Series D Preferred Stock" shall have the
------------------------
meaning set forth in Section 2.
SERIES E PREFERRED STOCK. "Series E Preferred Stock" shall mean the
-------------------------
Company's Series E 4% Cumulative Redeemable Convertible Preferred Stock
designated pursuant to the Certificate of Designation, Preferences and Rights of
Series E 4% Cumulative Redeemable Convertible Preferred Stock dated as of even
date herewith.
2. DESIGNATION OF SERIES; ISSUANCE AND FACE AMOUNT. This series of
-----------------------------------------------
Preferred Stock is designated "Series D 4% Cumulative Redeemable Convertible
Preferred Stock" (hereinafter the "Series D Preferred Stock"), and the number of
shares which shall constitute such series shall be 18,000, which number may be
decreased (but not below the number thereof then outstanding) from time to time
by the Board. The shares of Series D Preferred Stock shall be issued by the
Company for their Face Amount (as herein defined), in such amounts, at such
times and to such persons as shall be specified by the Board, from time to time.
3. RANK. The Series D Preferred Stock shall, with respect to dividend
----
rights and rights on any Liquidation Event, rank senior to all Junior
Securities. "Junior Securities" shall mean (i) the Company's Series A 6.0%
Cumulative Preferred Stock, (ii) the Company's Series B Cumulative Preferred
Stock, (iii) the Company's Series C Convertible Preferred Stock, (iv) Common
Stock, and (v) any other classes or series of stock or other equity securities
of the Company; provided, however, that the term "Junior Securities" shall not
--------- -------
include the Series E Preferred Stock. Shares of the Company's Series E
Preferred Stock shall, with respect to dividend rights and rights on any
Liquidation Event, rank on a pari passu basis with shares of the Series D
Preferred Stock.
4. DIVIDENDS.
---------
a. REGULAR DIVIDENDS. The holders of record of the Series D
-----------------
Preferred Stock shall be entitled to receive, out of funds legally available for
such purpose, cumulative preferential cash dividends accruing from the Issue
Date at the rate of Four Percent (4%) per annum of the Face Amount per share
("Regular Dividends").
b. TIME OF PAYMENT. Regular Dividends shall be cumulative from the
---------------
Issue Date and shall be payable in arrears, when and as declared by the Board,
on March 31, June 30, September 30, and December 31 of each year (each such date
being herein referred to as a "Dividend Payment Date"), commencing on March 31,
1997. The quarterly period between consecutive Dividend Payment Dates shall
hereinafter be referred to as a "Dividend Period." Each such Regular Dividend
shall be paid to the holders of record of the Series D Preferred Stock as their
names appear on the share register of the Company on the corresponding Record
Date. As
4
<PAGE>
used above, the term "Record Date" means, with respect to the Regular Dividend
payable on March 31, June 30, September 30 and December 31, respectively, of
each year, the preceding March 15, June 15, September 15 and December 15, or
such other record date designated by the Board of the Company with respect to
the Regular Dividend payable on such respective Dividend Payment Date. Dividends
on account of arrears for any past Dividend Periods may be declared and paid at
any time, without reference to any Dividend Payment Date, to holders of record
on such date, not exceeding 50 days preceding the payment date thereof, as may
be fixed by the Board.
c. ACCUMULATION. In the event that full cash Regular Dividends are
------------
not paid to the holders of all outstanding shares of Series D Preferred Stock,
and funds available shall be insufficient to permit payment in full in cash to
all such holders of the preferential amounts to which they are they entitled,
the entire amount available for payment of cash dividends shall be distributed
among the holders of the Series D Preferred Stock ratably in proportion to the
full amount to which they would otherwise be respectively entitled, and any
remainder not paid in cash to the holders of the Series D Preferred Stock shall
cumulate as provided in this subsection 4(c). If, on any Dividend Payment Date,
the holders of the Series D Preferred Stock shall not have received the full
Regular Dividends provided for in this Section 4, then such dividends shall
cumulate, whether or not earned or declared, with additional dividends thereon
to accrue at the rate of eight percent (8%) per annum for each succeeding full
Dividend Period during which such dividends shall remain unpaid. Unpaid
dividends for any period less than a full Dividend Period shall cumulate on a
day-to-day basis and shall be computed on the basis of a 360 day year.
"Accumulated Dividends" shall mean, as of any date, all Regular Dividends that
are either undeclared or unpaid as of such date.
d. RESTRICTION WITH RESPECT TO JUNIOR SECURITIES. So long as any
---------------------------------------------
Series D Preferred Stock shall remain outstanding, no cash dividend whatsoever
shall be declared or paid upon or set apart for payment on any class of Junior
Securities nor shall any shares of Junior Securities be redeemed or purchased
for cash by the Company or any parent or subsidiary thereof nor shall any moneys
be paid to or made available for a sinking fund for redemption or purchase of
any shares of Junior Securities, unless in each instance all Accumulated
Dividends with respect to all previous Dividend Payment Dates shall have been
paid; provided, however, that the restriction set forth in this Section 4(d)
-------- -------
shall not apply to (i) up to $100,000 per calendar year applied to redemption or
purchase by the Company of Junior Securities owned by employees of the Company
in connection with the separation of such employees from their employment with
the Company, or (ii) any particular cash dividend, redemption or purchase if the
holders of a majority of then outstanding shares of Series D Preferred Stock
consent in writing to the declaration or payment of such cash dividend,
redemption or purchase, as the case may be.
5. LIQUIDATION PREFERENCE.
----------------------
a. GENERAL. Upon a Liquidation Event, the holders of Series D
-------
Preferred Stock then outstanding shall be entitled to be paid, out of the assets
of the Company available for distribution to its shareholders, whether from
capital, surplus or earnings ("Available Assets"), before any payment shall be
made in respect of any Junior Security, an amount equal to the Face Amount per
share plus an amount equal to all Accumulated Dividends, if any (in the
----
aggregate,
5
<PAGE>
the "Liquidation Preference Amount"). If upon a Liquidation Event, the Available
Assets shall be insufficient to pay the holders of the Series D Preferred Stock
the full Liquidation Preference Amount, the holders of the Series D Preferred
Stock shall share ratably in any distribution of assets according to the
respective amounts which would be payable in respect of the shares held by them
upon such distribution if all amounts payable on or with respect to said shares
were paid in full.
b. NOTICE REQUIRED. Written notice of any voluntary or involuntary
---------------
Liquidation Event, stating the payment date and the place where the
distributable amount shall be payable, shall be given by mail, postage prepaid,
not less than thirty (30) days prior to the payment date stated therein, to the
holders of record of the Series D Preferred Stock at their respective addresses
as the same shall then appear on the books of the Company.
6. CONVERSION.
----------
a. EXERCISE OF CONVERSION RIGHT. Each holder of Series D Preferred
----------------------------
Stock shall have the right, at its option, at any time from the Issue Date
through December 31, 2006, to convert, subject to the terms and provisions of
this Section 6, all or any portion of its Series D Preferred Stock then
outstanding into such number of fully paid and non-assessable shares of Common
Stock as results from dividing (i) the sum of (A) the Face Amount of all shares
of Series D Preferred Stock to be converted plus (B) any Accumulated Dividends
on such shares, by (ii) the applicable Conversion Price (as defined below) on
the Conversion Date (as defined below). Such conversion shall be deemed to
have been made at the close of business on the date that the certificate or
certificates for shares of Series D Preferred Stock shall have been surrendered
for conversion and written notice shall have been received as provided in
Section 6(b) (the "Conversion Date"), so that the person or persons entitled to
receive the shares of Common Stock upon conversion of such shares of Series D
Preferred Stock shall be treated for all purposes as having become the record
holder or holders of such shares of Common Stock at such time and such
conversion shall be at the Conversion Price in effect at such time. Upon
conversion of any shares of Series D Preferred Stock pursuant to this Section 6,
the rights of the holder of such shares upon the Conversion Date shall be the
rights of a holder of Common Stock only, and each such holder shall not have any
rights in its former capacity as a holder of shares of Series D Preferred Stock.
b. NOTICE TO COMPANY. In order to convert all or any portion of its
-----------------
outstanding Series D Preferred Stock into shares of Common Stock, the holder of
such Series D Preferred Stock shall deliver the shares of Series D Preferred
Stock to be converted to the Company at its principal office, together with
written notice that it elects to convert those shares of Series D Preferred
Stock into shares of Common Stock in accordance with the provisions of this
Section 6. Such notice shall specify the number of shares of Series D Preferred
Stock to be converted and the name or names in which the holder wishes the
certificates for shares of Common Stock to be registered, together with the
address or addresses of the person or persons so named, and, if so required by
the Company, shall be accompanied by a written instrument or instruments of
transfer in form satisfactory to the Company, duly executed by the registered
holder of the shares of Series D Preferred Stock to be converted or by its
attorney duly authorized in writing.
6
<PAGE>
c. DELIVERY OF CERTIFICATE. As promptly as practicable after the
-----------------------
surrender as hereinabove provided of shares of Series D Preferred Stock for
conversion into shares of Common Stock, the Company shall deliver or cause to be
delivered to the holder, or the holder's designees, certificates representing
the number of fully paid and non-assessable shares of Common Stock into which
the shares of Series D Preferred Stock are entitled to be converted, together
with a cash adjustment in respect of any fraction of a share to which the holder
shall be entitled as provided in Section 6(d), and, if less than the entire
number of shares of Series D Preferred Stock represented by the certificate or
certificates surrendered is to be converted, a new certificate for the number of
shares of Series D Preferred Stock not so converted. So long as any shares of
Series D Preferred Stock remain outstanding, the Company shall not close its
Common Stock transfer books. The issuance of certificates for shares of Common
Stock upon the conversion of shares of Series D Preferred Stock shall be made
without charge to the holder for any tax in respect of the issuance of such
certificates (other than any transfer, withholding or other tax if the shares of
Common Stock are to be registered in a name different from that of the
registered holder of Series D Preferred Stock).
d. FRACTIONAL SHARES. No fractional shares of Common Stock or scrip
-----------------
representing fractional shares of Common Stock shall be issued upon any
conversion of any shares of Series D Preferred Stock, but, in lieu thereof,
there shall be paid an amount in cash equal to the same fraction of the Market
Price of a whole share of Common Stock as of the Conversion Date.
e. RESERVATION OF SHARES. The Company shall at all times reserve and
---------------------
keep available out of its authorized but unissued shares of Common Stock, solely
for the purpose of effecting the conversion of shares of Series D Preferred
Stock, 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 upon the conversion of shares of Series D
Preferred Stock in accordance with the provisions of this Section 6.
f. REGISTRATION. If any shares of Common Stock to be reserved for
------------
the purpose of conversion of Series D Preferred Stock require registration or
listing with, or approval of, any governmental authority, stock exchange or
other regulatory body under any federal or state law or regulation or otherwise,
before such shares may be validly issued or delivered upon conversion, the
Company shall, in good faith and as expeditiously as possible, endeavor to
secure such registration, listing or approval, as the case may be.
g. SHARES VALIDLY ISSUED AND NON-ASSESSABLE. All shares of Common
----------------------------------------
Stock that may be issued upon conversion of the Series D Preferred Stock shall
upon issuance by the Company be validly issued, fully paid and nonassessable and
free from all taxes, liens and charges with respect to the issuance thereof.
h. RETIREMENT OF SHARES. Any shares of Series D Preferred Stock
--------------------
converted pursuant to the provisions of this Section 6 shall be retired and
given the status of authorized and unissued Preferred Stock, undesignated as to
series, subject to reissuance by the Company as
7
<PAGE>
shares of Preferred Stock of one or more series, as may be determined from time
to time by the Board.
7. CONVERSION PRICE. As used herein, the "Conversion Price" shall
----------------
initially be $6.00 per share of Common Stock, subject to adjustment as set forth
below. No payment or adjustment shall be made for any dividends on the Common
Stock issuable in such conversion. The Conversion Price shall be subject to
adjustment from time to time as follows:
a. COMMON STOCK ISSUED AT LESS THAN THE CONVERSION PRICE. If the
-----------------------------------------------------
Company shall issue any Common Stock other than Excluded Stock (as hereinafter
defined) without consideration or for a consideration per share less than the
Conversion Price in effect immediately prior to such issuance, the Conversion
Price in effect immediately prior to each such issuance shall immediately be
reduced to the price determined by dividing (i) an amount equal to the sum of
(A) the number of shares of Common Stock outstanding immediately prior to such
issuance multiplied by the Conversion 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 Stock outstanding
immediately after such issuance. For the purposes of any adjustment of the
Conversion Price pursuant to this Section 7(a), the following provisions shall
be applicable:
(1) Cash. In the case of the issuance of Common Stock for cash,
----
the amount of the consideration received by the Company shall be deemed to
be the amount of the cash proceeds received by the Company for such Common
Stock before deducting therefrom any discounts, commissions, taxes or other
expenses allowed, paid or incurred by the Company for any underwriting or
otherwise in connection with the issuance and sale thereof.
(2) Consideration Other Than Cash. In the case of the issuance
-----------------------------
of Common Stock (otherwise than upon the conversion of shares of capital
stock or other securities of the Company) for a consideration in whole or
in part other than cash, including securities acquired in exchange therefor
(other than securities by their terms so exchangeable), the consideration
other than cash shall be deemed to be the fair value thereof as determined
by the Board; provided that such fair value as determined by the Board
shall not exceed the aggregate Market Price of the shares of Common Stock
being issued as of the date the Board authorizes the issuance of such
shares.
(3) Options and Convertible Securities. In the case of the
----------------------------------
issuance of (i) options, warrants or other rights to purchase or acquire
Common Stock (whether or not at the time exercisable), (ii) securities by
their terms convertible into or exchangeable for Common Stock (whether or
not at the time so convertible or exchangeable) or (iii) options, warrants
or rights to purchase such convertible or exchangeable securities (whether
or not at the time exercisable):
(A) the aggregate maximum number of shares of Common Stock
deliverable upon exercise of such options, warrants or other
rights to purchase or acquire Common Stock shall be deemed to
have been issued
8
<PAGE>
at the time such options, warrants or rights were issued and for
a consideration equal to the consideration (determined in the
manner provided in subsections (1) and (2) above), if any,
received by the Company upon the issuance of such options,
warrants or rights plus the minimum purchase price provided in
such options, warrants or rights for the Common Stock covered
thereby;
(B) the aggregate maximum number of shares of Common Stock
deliverable upon conversion of or in exchange for any such
convertible or exchangeable securities, or upon the exercise of
options, warrants or other rights to purchase or acquire such
convertible or exchangeable securities and the subsequent
conversion or exchange thereof, shall be deemed to have been
issued at the time such securities were issued or such options,
warrants or rights were issued and for a consideration equal to
the consideration, if any, received by the Company for any such
securities and related options, warrants or rights (excluding
any cash received on account of accrued interest or accrued
dividends), plus the additional consideration (determined in the
manner provided in subsections (1) and (2) above), if any, to be
received by the Company upon the conversion or exchange of such
securities, or upon the exercise of any related options,
warrants or rights to purchase or acquire such convertible or
exchangeable securities and the subsequent conversion or
exchange thereof;
(C) on any change in the number of shares of Common Stock
deliverable upon exercise of any such options, warrants or
rights or conversion or exchange of such convertible or
exchangeable securities 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 Conversion Price as
then in effect shall forthwith be readjusted to such Conversion
Price as would have been obtained had an adjustment been made
upon the issuance of such options, warrants or rights not
exercised prior to such change, or of such convertible or
exchangeable securities not converted or exchanged prior to such
change, upon the basis of such change;
(D) on the expiration or cancellation of any such options,
warrants or rights, or the termination of the right to convert
or exchange such convertible or exchangeable securities, if the
Conversion Price shall have been adjusted upon the issuance
thereof, the Conversion Price shall forthwith be readjusted to
such Conversion Price as would have been obtained had an
adjustment been made upon the issuance of such options,
warrants, rights or such convertible or exchangeable securities
on the basis of the issuance of only the number of shares of
Common Stock actually issued upon the exercise of such options,
warrants or rights, or
9
<PAGE>
upon the conversion or exchange of such convertible or
exchangeable securities, if any; and
(E) if the Conversion Price shall have been adjusted upon the
issuance of any such options, warrants, rights or convertible or
exchangeable securities, no further adjustment of the Conversion
Price shall be made for the actual issuance of Common Stock upon
the exercise, conversion, or exchange thereof;
provided, however, that no increase in the Conversion Price shall be made
pursuant to subsections (A) or (B) of this subsection (3).
b. EXCLUDED STOCK. "Excluded Stock" shall mean (i) shares of Common
--------------
Stock issued or reserved for issuance by the Company as a stock dividend payable
in shares of Common Stock, or upon any subdivision or split-up of the
outstanding shares of Common Stock or Series D Preferred Stock, or upon
conversion of shares of Series D Preferred Stock; (ii) shares of Common Stock
reserved for issuance under options and warrants outstanding on the date hereof;
(iii) 750,000 shares of Common Stock reserved for issuance to key employees and
directors of the Corporation pursuant to the Company's employee stock option
plan in effect as of the date hereof; (iv) shares of Series E Preferred Stock
and shares of Common Stock issuable upon the conversion thereof, and (v) 77,520
shares of Common Stock issuable upon the conversion of the shares of Series C
Convertible Preferred Stock outstanding on the date hereof.
c. STOCK DIVIDENDS, SUBDIVISIONS, RECLASSIFICATIONS OR COMBINATIONS.
----------------------------------------------------------------
If the Company shall (i) declare a dividend or make a distribution on its Common
Stock in shares of its Common Stock, (ii) subdivide or reclassify the
outstanding shares of Common Stock into a greater number of shares, or (iii)
combine or reclassify the outstanding Common Stock into a smaller number of
shares, the Conversion Price in effect at the time of the record date for such
dividend or distribution or the effective date of such subdivision, combination
or reclassification shall be proportionately adjusted so that the holder of any
shares of Series D Preferred Stock surrendered for conversion after such date
shall be entitled to receive the number of shares of Common Stock which he would
have owned or been entitled to receive had such shares of Series D Preferred
Stock been converted immediately prior to such date. Successive adjustments in
the Conversion Price shall be made whenever any event specified above shall
occur.
d. OTHER DISTRIBUTIONS. In case the Company shall fix a record date
-------------------
for the making of a distribution to all holders of shares of its Common Stock
(i) of shares of any class other than its Common Stock, (ii) of evidence of
indebtedness of the Company or any subsidiary of the Company, (iii) of assets,
or (iv) of rights or warrants, in each such case the Conversion Price in effect
immediately prior thereto shall be reduced immediately thereafter to the price
determined by dividing (1) an amount equal to the difference resulting from (A)
the number of shares of Common Stock outstanding on such record date multiplied
by the Conversion Price per share on such record date, less (B) the fair market
value (as determined by the Board) of said shares or evidences of indebtedness
or assets or rights or warrants to be so distributed, by (2) the number of
shares of Common Stock outstanding on such record date; provided, however, that,
-------- -------
so long as there are no Accumulated Dividends on the Series D Preferred Stock or
the Series E
10
<PAGE>
Preferred Stock then outstanding for any previous Dividend Payment Date, the
provisions of this Section 7(d) shall not apply to distributions consisting of
cash dividends on the shares of Common Stock up to an amount equal to 50% of
consolidated net income of the Company and its Subsidiaries as of the calendar
year immediately preceding the proposed record date for such dividend. Any
adjustment provided for by this Section 7(d) shall be made successively whenever
such a record date is fixed.
e. CONSOLIDATION, MERGER, SALE, LEASE OR CONVEYANCE. In case of any
------------------------------------------------
consolidation with or merger of the Company with or into another corporation or
other entity, or in case of any sale, lease or conveyance to another entity of
the assets of the Company as an entirety or substantially as an entirety, each
share of Series D Preferred Stock shall after the date of such consolidation,
merger, sale, lease or conveyance be convertible into the number of shares of
stock or other securities or property (including cash) to which the Common Stock
issuable (at the time of such consolidation, merger, sale, lease or conveyance)
upon conversion of such share of Series D Preferred Stock would have been
entitled upon such consolidation, merger, sale, lease or conveyance; and in any
such case, if necessary, the provisions set forth herein with respect to the
rights and interests thereafter of the holders of the shares of Series D
Preferred Stock shall be appropriately adjusted so as to be applicable, as
nearly as may reasonably be, to any shares of stock or other securities or
property thereafter deliverable on the conversion of the shares of Series D
Preferred Stock. Nothing in this Section 7(e) shall be construed in any way to
derogate from the right of the holders of the Series D Preferred Stock to
require the Company to repurchase their shares at the Change in Control
Repurchase Price upon a Change in Control, as set forth in Section 8(c) hereof.
f. NOTICE TO HOLDERS. In the event the Company shall propose to take
-----------------
any action of the type described in subsections (a), (c), (d), and (e) of this
Section 7, the Company shall give notice to each holder of shares of Series D
Preferred Stock, which notice shall specify the record date, if any, with
respect to any such action and the approximate date on which such action is to
take place. Such notice shall also set forth such facts with respect thereto as
shall be reasonably necessary to indicate the effect of such action on the
Conversion Price and the number, kind or class of shares or other securities or
property which shall be deliverable upon conversion of shares of Series D
Preferred Stock. In the case of any action which would require the fixing of a
record date, such notice shall be given at least 10 days prior to the date so
fixed, and in the case of all other action, such notice shall be given at least
15 days prior to the taking of such proposed action.
g. STATEMENT REGARDING ADJUSTMENTS. Upon the occurrence of each
-------------------------------
adjustment or readjustment of the Conversion Price of the Series D Preferred
Stock pursuant to this Section 7, the Company shall compute such adjustment or
readjustment in accordance with the terms hereof and prepare and furnish to each
holder a certificate setting forth such adjustment or readjustment and showing
in detail the facts upon which such adjustment or readjustment is based. Each
such statement shall be signed by the Company's public accountants.
h. TREASURY STOCK. For the purposes of this Section 7, the sale or
--------------
other disposition of any Common Stock theretofore held in the Company's treasury
shall be deemed to be an issuance thereof.
11
<PAGE>
i. GOOD FAITH. The Company shall not, by amendment of its
----------
Certificate of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issuance or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed hereunder by the Company, but shall at all
times in good faith assist in the carrying out of all the provisions of this
Section 7 and in the taking of all such action as may be necessary or
appropriate in order to protect the conversion rights of the holders of the
shares of Series D Preferred Stock shares against impairment of any kind.
8. VOTING RIGHTS; PROTECTIVE PROVISIONS; CHANGE OF CONTROL; REPURCHASE
-------------------------------------------------------------------
UPON CERTAIN EVENTS.
- --------------------
a. GENERAL. Except as specifically set forth in the DGCL or provided
-------
in the balance of this Section 8, the holders of shares of Series D Preferred
Stock shall not be entitled to any voting rights with respect to any matters
voted upon by stockholders.
b. PROTECTIVE PROVISIONS. So long as any shares of Series D
---------------------
Preferred Stock are outstanding, the written consent or the affirmative vote at
a meeting called for that purpose of the holders of a majority of the shares of
Series D Preferred Stock then outstanding, voting separately as a class, shall
be necessary to validate or effectuate any of the following: (i) amend, repeal,
alter or change any of the rights, preferences or privileges of the shares of
Series D Preferred Stock; or (ii) create (by reclassification of an existing
class or series, or otherwise) any new class or series of shares of the
Company's capital stock, except for classes or series of shares ranking, with
respect to dividend rights and rights on any Liquidation Event, junior to the
Series D Preferred Stock and the Series E Preferred Stock.
c. HOLDER'S ELECTION UPON CHANGE OF CONTROL. In the event of any
----------------------------------------
Change in Control, each holder of shares of Series D Preferred Stock shall have
the right, at such holder's election as set forth below, to receive in respect
of each share owned by such holder a sum equal to (i) the then applicable Face
Value, plus (ii) Accumulated Dividends, plus (iii) a "Change of Control Special
---- ----
Dividend A" equal to 18% of the then applicable Face Value. The Company shall
notify each holder of shares of Series D Preferred Stock in writing within three
(3) days after any Change in Control in a notice (the "Change of Control
Notice") setting forth a description of the nature of the Change in Control and
the date at which such Change in Control took place. Within five (5) days after
receipt of the Change of Control Notice, each holder shall notify the Company in
writing whether or not such holder will require such holder's shares of Series D
Preferred Stock to be redeemed by the Company pursuant to this Section. The
Company shall redeem the shares of each holder of Series D Preferred Stock so
electing such a redemption as promptly as practicable after receipt of such
holder's notice of such election, but in any event no later than two (2) days
after receipt of such holder's election. If any Change in Control Special
Dividend A dividends shall not be paid in full when due under this Section 8(c),
such Change in Control Special Dividend A dividends shall cumulate, whether or
not declared, with additional dividends thereon to accrue at the rate of eight
percent (8%) per annum for each succeeding full Dividend Period during which
such dividends shall remain unpaid.
12
<PAGE>
d. REPURCHASE EVENT. If after January 1, 2007, for fifteen (15) days
----------------
out of any twenty (20) consecutive trading days on which the Common Stock is
traded (the last such trading date being the "Repurchase Event Trigger Date"),
the Market Price per share of Common Stock shall be $5.00 or less, then during
the sixty (60) day period following the Repurchase Event Trigger Date (the
"Repurchase Option Period"), each holder shall have the right to require the
Company to repurchase all or part of such holder's shares of Series D Preferred
Stock at a price per share equal to the Face Amount per share, as then in
effect, together with all Accumulated Dividends on such shares to the date of
the Repurchase Notice (as defined below). At any time during the Repurchase
Option Period, any holder may notify the Company in writing that such holder
will require all or part of such holder's shares of Series D Preferred Stock to
be repurchased pursuant to this Section 8(d) (a "Repurchase Notice"). The
Company shall repurchase all or part, as the case may be, of the shares of
Series D Preferred Stock of each holder of Series D Preferred Stock making the
election set forth in this Section 8(d) as promptly as practicable, but in any
event no later than 30 days after receipt of the Repurchase Notice
9. REDEMPTION.
----------
a. OPTIONAL REDEMPTION. The Company may at any time from and after
-------------------
January 1, 2007, and from time to time thereafter, redeem out of funds legally
available therefor all of the shares of Series D Preferred Stock at its election
expressed by resolution of the Board, upon not less than thirty (30) days' prior
notice to the holders of record of the Series D Preferred Stock to be redeemed,
given by mail, at the Redemption Price (as hereinafter defined) on the
Redemption Date (as hereinafter defined). The Company shall not redeem less
than all the outstanding shares of Series D Preferred Stock under this Section
9(a).
b. COMPANY'S ELECTION UPON CHANGE IN CONTROL. In the event of any
-----------------------------------------
Change in Control, the Company may redeem out of funds legally available
therefor all of the shares of Series D Preferred Stock at its election expressed
by resolution of the Board upon not less than thirty (30) days' prior notice to
the holders of record of the Series D Preferred Stock to be redeemed, given by
mail. Upon such resolution of the Board, each holder of shares of Series D
Preferred Stock shall have the right to receive on the Redemption Date (as
defined below) in respect of each share owned by such holder a sum equal to (i)
the then applicable Face Value, plus (ii) Accumulated Dividends, plus (iii) a
---- ----
"Change of Control Special Dividend B" equal to 23% of the then applicable Face
Value. If any Change in Control Special Dividend B dividends shall not be paid
in full when due under this Section 9, such Change in Control Special Dividend B
dividends shall cumulate, whether or not declared, with additional dividends
thereon to accrue at the rate of eight percent (8%) per annum for each
succeeding full Dividend Period during which such dividends shall remain unpaid.
The Company shall not redeem less than all of the outstanding shares of Series D
Preferred Stock under this Section 9(b).
c. REDEMPTION DATE. The "Redemption Date" shall be the date fixed
---------------
for redemption in the notice of redemption under Sections 9(a) or 9(b) above.
d. REDEMPTION PRICE. The price at which outstanding shares of Series
----------------
D Preferred Stock shall be redeemed pursuant to Section 9(a) shall be the Face
Amount per share,
13
<PAGE>
as then in effect, together with all Accumulated Dividends on such shares to the
Redemption Date (the "Redemption Price").
e. NOTICE OF REDEMPTION. Each notice of redemption shall state (i)
--------------------
the Redemption Date, (ii) the number of shares of Series D Preferred Stock to be
redeemed, (iii) as the case may be, pursuant to Sections 9(a) and 9(b) above,
either (x) the Redemption Price or (y) the sum equal to (A) the then applicable
Face Value, plus (B) Accumulated Dividends, plus (C) the Change of Control
---- ----
Special Dividend B equal to 23% of the then applicable Face Value applicable to
the shares to be redeemed, (iv) the place or places where such shares are to be
surrendered, and (v) that dividends on shares to be redeemed will cease to
accrue on the Redemption Date. No defect in any such notice to any holder of
Series D Preferred Stock shall affect the validity of the proceedings for the
redemption of any other shares of such Series D Preferred Stock.
f. RETIREMENT OF SHARES. Any shares of Series D Preferred Stock
--------------------
redeemed pursuant to the provisions of this Section 9 shall be retired and given
the status of authorized and unissued Preferred Stock, undesignated as to
series, subject to reissuance by the Company as shares of Preferred Stock of one
or more series, as may be determined from time to time by the Board.
g. RESTRICTIONS ON REDEMPTIONS. No shares of Series D Preferred
---------------------------
Stock shall be redeemed under this Section 9: (i) at any time that such
redemption is prohibited by the DGCL; or (ii) at any time that the terms and
provisions of any contract or other agreement of the Company or any of its
subsidiaries entered into or assumed providing financing (including acquisition
financing) or working capital to the Company or any of its subsidiaries (whether
or not entered into prior to, at or after the issuance of the Series D Preferred
Stock), specifically prohibits such redemption or provides that such redemption
would constitute a breach thereof or a default thereunder.
10. NO SINKING FUND. No sinking fund shall be established for the
---------------
retirement or redemption of shares of Series D Preferred Stock.
11. PREEMPTIVE OR SUBSCRIPTION RIGHTS. No holder of shares of Series D
---------------------------------
Preferred Stock shall have any preemptive or subscription rights in respect of
any securities of the Company that may be issued.
12. NO OTHER RIGHTS. The shares of Series D Preferred Stock shall not
---------------
have any designations, preferences or relative, participating, optional or other
special rights except as expressly set forth in the Company's Certificate of
Incorporation, this Certificate or as otherwise required by law.
RESOLVED, FURTHER, that the Secretary of the Company be, and he hereby is,
authorized, empowered and directed to execute a Certificate of Designation,
Preferences and
14
<PAGE>
Rights of Series D Preferred Stock and that such Certificate be delivered to and
filed with the Secretary of State of the State of Delaware pursuant to the
provisions of Section 103 and Section 151(g) of the DGCL, both as amended.
IN WITNESS WHEREOF, Alliance Imaging, Inc. has caused this Certificate of
Designation to be executed by its Secretary as of December 20, 1996.
ALLIANCE IMAGING, INC.
By:____________________________________
Terrence M. White,
Secretary
15
