<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 13D
Under the Securities Exchange Act of 1934
(Amendment No. 1)
Insight Health Services Corp.
(Name of Issuer)
Common Stock, $0.001 par value
(Title of Class of Securities)
45766Q 10 1
(CUSIP Number)
Robert E. Healing, Esq.
General Electric Company
3134 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
October 14, 1997
(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>
SCHEDULE 13D
CUSIP No. 45766Q 10 1 Page 2 of ___ Pages
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) [X]
6 CITIZENSHIP OR PLACE OF ORGANIZATION
New York
NUMBER OF 7 SOLE VOTING POWER
SHARES
BENEFICIALLY 2,501,760 shares of Series A Preferred Stock convertible
into Common Stock; and
7,000 shares of Series C Preferred Stock convertible into
Common Stock or Series D Preferred Stock; and
250,000 Warrants
See Item 5(a)
OWNED BY 8 SHARED VOTING POWER
EACH 0
REPORTING 9 SOLE DISPOSITIV
PERSON E POWER
WITH 2,501,760 shares of Series A Preferred Stock convertible
into Common Stock; and
7,000 shares of Series C Preferred Stock convertible into
Common Stock or Series D Preferred Stock; and
250,000 Warrants
See Item 5(a)
10 SHARED DISPOSITIVE POWER
0
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING
PERSON
2,501,760 shares of Series A Preferred Stock convertible into Common
Stock;
<PAGE>
7,000 shares of Series C Preferred Stock convertible into Common Stock
or Series D Preferred Stock; and
250,000 Warrants
(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)
100% of outstanding Series A Preferred Stock
100% of outstanding Series C Preferred Stock
56.9% of Common Stock, par value $0.001 per share (assuming conversion of
shares of Series A Preferred Stock and Series C Preferred Stock and
exercise of GE Warrants)
14 TYPE OF REPORTING PERSON*
CO
<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>
This amendment amends a statement on Schedule 13D (the "Original 13D")
relating to the Common Stock, $0.001 par value per share ("Common Stock"), of
Insight Health Services Corp., a Delaware corporation ("Insight"), filed with
the Securities and Exchange Commission on July 12, 1996. This amendment reports
(i) the purchase by General Electric Company, a New York corporation ("GE"), of
7,000 shares of newly issued InSight Convertible Preferred Stock, Series C, par
value $0.001 per share ("Series C Preferred Stock"), (ii) the purchase by GE of
warrants to purchase up to 250,000 shares of Insight Common Stock at the initial
exercise price of $10.00 per share (the "GE Warrants"), and (iii) an agreement
between GE and InSight (subject to certain conditions) for GE to convert all of
its shares of existing InSight Convertible Preferred Stock, Series A, par value
$0.001 per share ("Series A Preferred Stock"), into shares of Series C Preferred
Stock.
ITEM 2 - IDENTITY AND BACKGROUND
This statement is filed by GE. GE's principal executive offices are
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 with
respect 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, Claudio X. Gonzalez, a
director of GE, is a Mexican citizen and G.S. Malm, an executive officer of
GE, is a Swedish citizen.
ITEM 3 - SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION
On October 14, 1997, InSight consummated a recapitalization
("Recapitalization") pursuant to which (a) certain investors affiliated with TC
Group, LLC and its affiliates (collectively, "Carlyle"), a private merchant bank
headquartered in Washington, D.C., made a cash investment of $25 million in
InSight and received therefor (i) 25,000 shares of newly issued InSight
Convertible Preferred Stock, Series B, par value $0.001 per share ("Series B
Preferred Stock"), initially convertible, at the option of the holders thereof,
in the aggregate into 2,985,075 shares of InSight Common Stock, and (ii)
warrants (the "Carlyle Warrants") to purchase up to 250,000 shares of InSight
Common Stock at the initial exercise price of $10.00 per share; (b) GE (i)
surrendered its rights with respect to a supplemental service fee payable from
InSight to GE in exchange for (A) the issuance of 7,000 shares of newly issued
Series C Preferred Stock, initially convertible, at the option of GE, in the
aggregate into 835,821 shares of InSight Common Stock, and (B) the GE Warrants,
and (ii) agreed to exchange all of its Series A Preferred Stock on the
<PAGE>
business day (the "Second Closing") after all waiting periods with respect to
GE's filing under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended, have expired or been terminated, for an additional 20,953 shares of
Series C Preferred Stock, initially convertible, at the option of the holders
thereof, in the aggregate into 2,501,851 shares of InSight Common Stock; and (c)
InSight executed a Credit Agreement with NationsBank, N.A. pursuant to which
NationsBank, as agent, committed to provide a total of $125 million in senior
secured credit, including a $50 million acquisition facility (the "Credit
Facility"), upon the satisfaction of certain customary conditions. The shares
of Series B Preferred Stock and Series C Preferred Stock are convertible, at the
option of the majority of the holders of each such series and under certain
conditions, one year after the initial funding under the Credit Facility
(which such initial funding took place on October 22, 1997), into shares of
InSight Convertible Preferred Stock, Series D, par value $0.001 per share
("Series D Preferred Stock"). The Series D Preferred Stock is convertible
into Common Stock.
The holders of the shares of Series C Preferred Stock have the right to
vote with the holders of Common Stock and the holders of the Series B Preferred
Stock with respect to all matters submitted to a shareholder vote, except for
the election of directors (with respect to which the holders of the shares of
Series C Preferred Stock have the voting rights set forth in the next
paragraph). With respect to all matters submitted to a shareholder vote (except
for the election of directors), each holder of Series C Preferred Stock has one
vote for every share of Common Stock into which each share of Series C Preferred
Stock is convertible pursuant to the terms of the Series C Certificate of
Designation; provided, however, that the aggregate number of such votes, when
combined with the aggregate number of votes attributable to the holders of the
shares of Series B Preferred Stock, shall not exceed 37% of the total number of
votes eligible to be cast.
Pursuant to the terms of the Recapitalization, the number of directors
comprising the Company's Board of Directors (the "Board") is currently fixed
at nine. Six directors (the "Common Stock Directors") are to be elected by
the common stockholders, one of whom (the "Joint Director") is to be proposed
by the majority holders of each of the Series B Preferred Stock and the
Series C Preferred Stock and approved by a majority of the Board in its sole
discretion. Of the three remaining directors, two are to be elected by the
holders of the Series B Preferred Stock and one is to be elected by the
holders of the Series C Preferred Stock, subject to increase or decrease in
certain circumstances (the "Preferred Stock Directors"). Presently, the
Board of the Company consists of seven directors, five of whom are Common
Stock Directors and two of whom are Preferred Stock Directors elected by the
holders of the Series B Preferred Stock. GE does not currently intend to
elect its Preferred Stock Director until after the Second Closing. The
vacancy created for the Joint Director has not been filled.
Upon a conversion by the holders of the Series B Preferred Stock and the
Series C Preferred Stock of their shares of preferred stock into shares of
Series D Preferred Stock (a "Type B Event Date"), the number of members of the
Board shall be increased automatically by the smallest whole number that will
result in at least the Type B Percentage (but less than sixty six and two-thirds
percent (66 2/3%)) of the members of the Board being Series D Directors.
Immediately following a Type B Event Date, the holders of Series D Preferred
Stock shall have the right to elect all of the new directors (the "Conversion
Directors"). The "Type B Percentage" equals a percentage equal to the number of
shares of Common Stock held by all holders of Series B Preferred Stock and
Series C Preferred Stock as of the Type B Event Date (assuming conversion of all
such shares of Series B Preferred Stock and Series C Preferred Stock into Common
Stock) divided by the total number of shares of Common Stock outstanding as of
such
<PAGE>
date (assuming conversion of all convertible shares of Preferred Stock as of
such date); provided, however, that the maximum Type B Percentage is sixty-four
percent (64%). "Series D Directors" means, collectively, the Preferred Stock
Directors and the Conversion Directors.
The foregoing discussion in response to this Item 3 is qualified in its
entirety by reference to the Securities Purchase Agreement dated October 14,
1997 between GE and InSight (the "Securities Purchase Agreement"), the
Certificate of Designation, Preferences and Rights of Convertible Preferred
Stock, Series B, the Certificate of Designation, Preferences and Rights of
Convertible Preferred Stock, Series C, and the Certificate of Designation,
Preferences and Rights of Convertible Preferred Stock, Series D, all of which
are attached as Exhibits hereto and which are hereby incorporated herein.
ITEM 4 - PURPOSE OF TRANSACTION
GE has acquired its shares of Series A Preferred Stock, shares of Series C
Preferred Stock (including its right to purchase shares of Series C Preferred
Stock at the Second Closing) and GE Warrants (including, to the extent
applicable, its rights thereunder to acquire Common Stock of InSight) as an
investment in the ordinary course of business, and not with the purpose of
changing control of InSight.
GE may, from time to time, transfer all or part of its shares of Series C
Preferred Stock to one or more of its affiliates pursuant to the provisions of
the Securities Purchase Agreement. 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 InSight or
its 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
(a) GE beneficially owns all 2,501,760 shares of InSight's outstanding
Series A Preferred Stock, all 7,000 issued shares of InSight's Series C
Preferred Stock, and all 250,000 GE Warrants. If GE converted all of the
shares of Series A Preferred Stock and Series C Preferred Stock to Common
Stock pursuant to the terms thereof and exercised the GE Warrants, GE would
own approximately 56.9% of the outstanding shares of Common Stock of InSight
(assuming conversion of all shares of Series A Preferred Stock and Series C
Preferred Stock and exercise of the GE Warrants, and based upon a number of
shares of Common Stock reported as outstanding by InSight as of September 30,
1997 of 2,714,725).
(b) GE has sole voting and investment power with respect to the securities
that are the subject of this Schedule 13D.
(c) Not applicable.
(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.
<PAGE>
(e) Not applicable.
ITEM 6 - CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH RESPECT
TO SECURITIES OF THE ISSUER
The response to Item 3 is incorporated by reference herein.
Pursuant to the Securities Purchase Agreement and the terms of the Series C
Preferred Stock, GE has certain class voting rights with respect to InSight's
Series C Preferred Stock and preemptive rights with respect to certain
securities issuances by InSight. In addition, InSight has granted GE certain
registration rights with respect to the shares of Common Stock issuable upon
exercise of the GE Warrants, and has agreed to provide registration rights with
respect to the shares of Common Stock issuable upon conversion of the Series A
Preferred Stock and the Series C Preferred Stock.
The foregoing response to this Item 6 is qualified in its entirety by
reference to the Securities Purchase Agreement, the Warrant Purchase Agreement
(a copy of which is attached hereto as Exhibit 3) and the Registration Rights
Agreement (a copy of which is attached hereto as Exhibit 2), which are hereby
incorporated herein.
ITEM 7 - MATERIAL TO BE FILED AS EXHIBITS.
(1) Securities Purchase Agreement dated as of October 14, 1997
(2) Registration Rights Agreement dated as of October 14, 1997
(3) Warrant Purchase Agreement dated as of October 14, 1997
(4) Certificate of Designation, Preferences and Rights of Series B
Preferred Stock
(5) Certificate of Designation, Preferences and Rights of Series C
Preferred Stock
(6) Certificate of Designation, Preferences and Rights of Series D
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/
Name:
Title:
Dated: October __, 1997
<PAGE>
GENERAL ELECTRIC COMPANY DIRECTORS
PRESENT PRINCIPAL
NAME PRESENT BUSINESS ADDRESS OCCUPATION
---------------- ------------------------ ----------------------
D.W. Calloway PepsiCo, Inc. Retired Director and
700 Anderson Hill Road Chairman of the Board,
Purchase, NY 10577 Pepsico, Inc.
J.I.Cash, Jr. Harvard Business School Professor of Business
Baker Library 187 Administration-Graduate
Soldiers Field School of Business
Boston, MA 02163 Administration, Harvard
University
S.S. Cathcart 222 Wisconsin Avenue Retired Chairman,
Suite 103 Illinois Tool Works
Lake Forest, IL 60045
D.D. Dammerman General Electric Company Senior Vice President-
3135 Easton Turnpike Finance, General Electric
Fairfield, CT 06431 Company
P. Fresco General Electric Company Vice Chairman of the
(U.S.A.) Board and Executive
3 Shortlands, Officer, General
Hammersmith Electric Company
London, W6 8BX, England
C.X. Gonzalez Kimberly-Clark de Chairman of the Board and
Mexico, Chief Executive Officer,
S.A. de C.V. Kimberly-Clark de Mexico,
Jose Luis Lagrange 103, S.A. de C.V.
Tercero Piso
Colonia Los Morales
Mexico, D.F. 11510,
Mexico
G.G. Michelson Federated Department Former Member of the
Stores Board of Directors,
151 West 34th Street Federated Department
New York, NY 10001 Stores
S. Nunn King & Spalding Partner, King & Spalding
191 Peachtree Street,
N.E.
Atlanta, Georgia 30303
<PAGE>
GENERAL ELECTRIC COMPANY EXECUTIVE OFFICERS
PRESENT PRINCIPAL
NAME PRESENT BUSINESS ADDRESS OCCUPATION
---------------- ------------------------ ----------------------
J.F. Welch, Jr. General Electric Company Chairman of the Board and
3135 Easton Turnpike Chief Executive Officer
Fairfield, CT 06431
P. Fresco General Electric Company Vice Chairman of the
(U.S.A.) Board
3 Shortlands, Board and Executive
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 Systems
Erie, PA 16531
W.J. Conaty General Electric Company Senior Vice President -
3135 Easton Turnpike Human Resources
Fairfield, CT 06431
D. M. Cote General Electric Company Senior 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 and
Schenectady, NY 12301 Development
<PAGE>
PRESENT PRINCIPAL
NAME PRESENT BUSINESS ADDRESS OCCUPATION
---------------- ------------------------ ----------------------
J.D. Opie General Electric Company Vice Chairman of the
3135 Easton Turnpike Board and Executive
Fairfield, CT 06431 Officer
R.S. Penske Penske Corporation Chairman of the Board and
13400 Outer Drive, West President, Penske
Detroit, MI 48239-4001
B.S. Prieskel Suite 3125 Former Senior Vice
60 East 42nd Street President,
New York, NY 10165 Motion 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 President, and Chief
Co. Executive Officer,
60 Wall Street J.P. Morgan & Co.
New York, NY 10260 Incorporated and
Morgan Guaranty Trust
Company
J.F. Welch, Jr. General Electric Company Chairman of the Board and
3135 Easton Turnpike Chief Executive Officer,
Fairfield, CT 06431 General Electric Company
CITIZENSHIP
C. X. Gonzalez Mexico
P. Fresco Italy
All Others U.S.A.
2
<PAGE>
PRESENT PRINCIPAL
NAME PRESENT BUSINESS ADDRESS OCCUPATION
---------------- ------------------------ ----------------------
B.W. Heineman, General Electric Company Senior Vice President -
Jr. 3135 Easton Turnpike General Counsel and
Fairfield, CT 06431 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- Corporate
3135 Easton Turnpike Business Development
Fairfield, CT 06431
G. S. Malm General Electric Company Senior Vice President -
3135 Easton Turnpike Asia
Fairfield, CT 06431
W.J. McNerney, General Electric Company Senior Vice President -
Jr. Nela Park GE Lighting
Cleveland, OH 44122
E.F. Murphy General Electric Company Senior Vice President -
1 Neumann 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
Fairfield, CT 06431 Executive Officer
G.M. Reiner General Electric Company Senior Vice President -
3135 Easton Turnpike Chief Information Officer
Fairfield, CT 06431
4
<PAGE>
PRESENT PRINCIPAL
NAME PRESENT BUSINESS ADDRESS OCCUPATION
---------------- ------------------------ ----------------------
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 - GE
1635 Broadway Motors
Fort Wayne, IN 46801
L.G. Trotter General Electric Company Vice President -
41 Woodford Avenue GE Electrical
Plainville, CT 06062 Distribution
and Control
CITIZENSHIP
P. Fresco Italy
G. S. Malm Sweden
All Others U.S.A.
5
<PAGE>
RECENT GE CONVICTIONS
1. 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 5,000L and assessed costs of 5,754L. The
prosecutors presentation focused primarily on the 1991 change in internal IGEMS
procedures and, in particular, the source logging procedure. The prosecutor
complimented IGEMS' investigation and efforts to locate the source and advised
the court that IGEMS 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 HMIP inspectors as part of their training. In mitigation,
IGEMS emphasized the significant infrastructure and expense undertaken by IGEMS
to provide security for radiation sources and the significant effort and expense
incurred in attempting to locate the missing source.
2. 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).
3. 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.
October 21, 1997
<PAGE>
INSIGHT HEALTH SERVICES CORP.
CERTIFICATE OF DESIGNATION, PREFERENCES AND RIGHTS
OF CONVERTIBLE PREFERRED STOCK, SERIES B
(Pursuant to Section 151(g) of the General Corporation
Law of the State of Delaware.)
InSight Health Services Corp., 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 certificate of incorporation of the Company, as
amended, the Board unanimously adopted the following resolutions on October 14,
1997 authorizing the issuance of the Series B 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
3,500,000 shares of $.001 par value preferred shares, such series to consist
of 25,000 shares, and 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:
SECTION 1. DESIGNATION.
The Preferred Stock created and authorized hereby shall be designated as
the "Convertible Preferred Stock, Series B" (hereinafter called the "SERIES B
PREFERRED STOCK"). The number of shares of Series B Preferred Stock shall be
25,000 and no more.
SECTION 2. RANK.
The Series B Preferred Stock shall, with respect to dividend distributions
and distributions upon the liquidation, winding up and dissolution of the
Company, rank senior to all classes of Common Equity of the Company, and to each
other class or series of Capital Stock of the Company (except for the
Convertible Preferred Stock, Series A (hereinafter called the "SERIES A
PREFERRED STOCK")) the terms of which do not expressly provide that it ranks
senior to or on a parity with the Series B Preferred Stock as to dividend
distributions and distributions upon the liquidation, winding up and dissolution
of the Company (collectively referred to with the Common Equity of the Company
as "JUNIOR SECURITIES"). The Series B Preferred Stock shall, with respect to
dividend distributions and distributions upon the liquidation, winding up and
dissolution of the Company, rank on a parity with any class or series of Capital
Stock hereafter created which expressly provides that it ranks on a parity with
the Series B Preferred Stock as to dividend distributions and distributions upon
the liquidation, winding up and dissolution of the Company (shares of such a
class or series, together with shares of the Series A Preferred Stock, shares of
the Convertible Preferred Stock, Series C (the "SERIES C PREFERRED STOCK"), and
shares
<PAGE>
of the Convertible Preferred Stock, Series D (the "SERIES D PREFERRED
STOCK") are, collectively, the "PARITY SECURITIES"); provided that any purported
Parity Securities that were not created, authorized or issued in accordance with
Section 11 hereof shall be deemed to be Junior Securities and not Parity
Securities. The Series B Preferred Stock shall, with respect to dividend
distributions and distributions upon the liquidation, winding up and dissolution
of the Company, rank junior to each class or series of Capital Stock hereafter
issued in accordance with Section 11 hereof and which expressly provides that it
ranks senior to the Series B Preferred Stock as to dividend distributions or
distributions upon the liquidation, winding up and dissolution of the Company
("SENIOR SECURITIES"). Any purported Supervoting Securities that were not
created, authorized or issued in accordance with Section 11 hereof shall be
deemed for all purposes related to voting rights to be identical to Common
Stock, including, without limitation, as to voting rights with respect to the
election of directors and all other matters submitted to a vote of stockholders.
SECTION 3. DIVIDENDS.
(a) The Company may (when, as and if declared by the Board of Directors
of the Company) declare and pay dividends, out of the entire assets and funds of
the Company legally available therefor to the holders of the Series A Preferred
Stock, the Series B Preferred Stock, the Series C Preferred Stock, the Series D
Preferred Stock and the common stock, $.001 par value per share, of the Company
(the "COMMON STOCK") ratably based on the number of shares of Common Stock held
by each such Holder (assuming full conversion of all such shares of Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, and Series
D Preferred Stock into Common Stock); PROVIDED, HOWEVER, that no dividend
whatsoever shall be paid, and no distribution shall be made, on any Common Stock
unless and until each holder of the Series A Preferred Stock, Series B Preferred
Stock, Series C Preferred Stock, and Series D Preferred Stock shall have been
paid in full its respective pro rata portion of such dividend.
(b) Holders of shares of the Series B Preferred Stock shall be entitled
to receive the dividends provided for in Section 3(a) hereof in preference to
and in priority over any dividends upon any of the Junior Securities, except
for the Common Stock.
(c) Holders of shares of the Series B Preferred Stock shall be entitled
to receive the dividends provided for in Section 3(a) hereof on a pro rata basis
with respect to any dividends upon any Parity Securities.
SECTION 4. LIQUIDATION PREFERENCE.
(a) Upon any Liquidating Event with respect to the Company, the Holders
of shares of Series B Preferred Stock then outstanding shall be entitled to be
paid, out of the assets of the Company available for distribution to its
stockholders, $1,000 per share of Series B Preferred Stock (the "LIQUIDATION
PREFERENCE"), plus an amount in cash equal to any declared but unpaid dividends
thereon, before any payment shall be made or any assets distributed to the
holders of any of the Junior Securities, including, without limitation, Common
Stock. Except as provided in the preceding sentence, holders of shares of
Series B Preferred Stock shall not be entitled to any distribution in the event
of liquidation, dissolution or winding up of the affairs of the
2
<PAGE>
Company. If the assets of the Company are not sufficient to pay in full the
liquidation payments payable to the holders of outstanding shares of the
Series B Preferred Stock and all Parity Securities, then the holders of all
such shares shall share equally and ratably in such distribution of assets of
the Company in accordance with the amounts which would be payable on such
distribution if the amount to which the holders of outstanding shares of
Series B Preferred Stock and the holders of outstanding shares of all Parity
Securities are entitled were paid in full.
(b) "LIQUIDATING EVENT" shall mean, with respect to any Person, any of
the following events: (i) the commencement by such Person of a voluntary case
under the bankruptcy laws of the United States, as now or hereafter in effect,
or the commencement of an involuntary case against such Person with respect to
which the petition shall not be controverted within 15 days, or be dismissed
within 60 days, after commencement thereof; (ii) the appointment of a custodian
for, or the taking charge by a custodian of, all or substantially all of the
property of such Person; (iii) the commencement by such Person of any proceeding
under any reorganization, arrangement, adjustment of debt, relief of debtors,
dissolution, insolvency or liquidation or similar law of any jurisdiction
whether now or hereafter in effect relating to such Person; (iv) the
commencement against such Person of any proceeding set forth in the preceding
clause (iii), which is not controverted within 10 days thereof and dismissed
within 60 days after the commencement thereof; (v) the adjudication of such
Person insolvent or bankrupt, or the adoption by such Person of a plan of
liquidation; (vi) the occurrence of any Change of Control with respect to
such Person or (vii) the filing of a certificate of dissolution in respect of
the Company with the Secretary of State of the State of Delaware; in any of
cases (i) through (vi) above, in a single transaction or series of related
transactions.
SECTION 5. TYPE A CONVERSION
(a) Each holder of Series B Preferred Stock shall have the right, at its
option, at any time, to convert, subject to the terms and provisions of this
Section 5, all, but not less than all, of its Series B 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 aggregate Liquidation
Preference of all shares of Series B Preferred Stock to be converted plus (B)
any declared but unpaid dividends on such shares, by (ii) the applicable
Conversion Price on the Conversion Date. In addition, and without limiting the
right to conversion in whole set forth above, substantially contemporaneously
with any Partial Conversion Event, each holder of Series B Preferred Stock shall
have the right, at its option, to convert (which conversion, if such option is
exercised, shall be deemed to occur on such Partial Conversion Event), subject
to the terms and provisions of this Section 5, all or any part of its Series B
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 aggregate Liquidation Preference of all shares of Series B Preferred
Stock to be converted plus (B) any declared but unpaid dividends on such shares,
by (ii) the applicable Conversion Price (as defined below) on the Conversion
Date. The person or persons entitled to receive the shares of Common Stock upon
conversion of such shares of Series B Preferred Stock shall be treated for all
purposes as having become the record holder or holders of such shares of Common
Stock on the Conversion Date and such conversion shall be at the Conversion
Price in effect at such time.
3
<PAGE>
(b) In order to convert all or any portion of its outstanding Series B
Preferred Stock into shares of Common Stock pursuant to this Section 5, the
holder of such Series B Preferred Stock shall deliver certificates representing
the shares of Series B 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 B Preferred Stock into shares of Common Stock in accordance
with the provisions of this Section 5. Such notice shall specify the number of
shares of Series B 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.
(c) Upon any Type A Conversion, pursuant to this Section 5 and Section 5
of the certificate of designation of Series C Preferred Stock, of all of the
outstanding shares of Series B Preferred Stock and Series C Preferred Stock, the
Company shall immediately file a certificate with the Secretary of State of the
State of Delaware, pursuant to Section 151(g) of the Delaware General
Corporation Law, setting forth a resolution or resolutions adopted by the Board
of Directors of the Company that none of the authorized shares of Series D
Preferred Stock are outstanding and that none will be issued subject to the
Series D Certificate of Designation.
SECTION 6. TYPE B CONVERSION
(a) The right to conversion set forth in this Section 6 shall be in
addition to, and not in lieu of, the conversion rights set forth in Section 5.
(b) At any time on or after the Type B Trigger Date, the Majority Holders
may elect to deliver an irrevocable Type B Conversion notice (the "TYPE B
CONVERSION NOTICE") to the Company; PROVIDED, HOWEVER, that no such Type B
Conversion Notice shall be effective unless substantially contemporaneously with
the delivery of such Type B Conversion Notice, Majority Holders of the Series C
Preferred Stock shall deliver a Type B Conversion Notice (as defined in the
Certificate of Designation relating to the Series C Preferred Stock) to the
Company. The date of delivery to the Company of a Type B Conversion Notice
shall be denominated herein a "TYPE B EVENT DATE" or a "CONVERSION DATE". Upon
receipt of a Type B Conversion Notice, the Company shall as soon as practicable
deliver a copy of such Type B Conversion Notice to each holder of Series B
Preferred Stock and each holder of Series C Preferred Stock.
(c) On the Type B Event Date, each share of Series B Preferred Stock then
outstanding shall automatically be converted into such number of fully paid and
non-assessable shares of Series D Preferred Stock as results from dividing (i)
the sum of (A) the aggregate Liquidation Preference of such share of Series B
Preferred Stock plus (B) any declared but unpaid dividends on such share, by
(ii) the product of ten (10) times the applicable Conversion Price on the
Conversion Date. The person or persons entitled to receive the shares of Series
D Preferred Stock upon conversion of such shares of Series B Preferred Stock
shall be treated for all purposes (including without limitation voting rights)
as having become the record holder or holders of such shares of Series D
Preferred Stock on the Type B Event Date, whether or not such person or persons
deliver its certificates for shares of Series B Preferred Stock to the Company
on the Type B Event Date.
4
<PAGE>
(d) As soon as practicable after the Type B Event Date, each holder of
Series B Preferred Stock shall deliver its certificates for shares of Series B
Preferred Stock to the Company at its principal office. Except as provided in
this Certificate of Designation, all rights with respect to such Series B
Preferred Stock shall terminate on the Type B Event Date, and on such Type B
Event Date the holders of the shares of Series D Preferred Stock into which the
shares of Series B Preferred Stock were converted shall have all of the rights
accorded to holders of the Company's Series D Preferred Stock.
(e) The rights of holders of shares of Series B Preferred Stock pursuant
to this Section 6 shall not be transferable, except to an Initial Purchaser
Affiliate.
SECTION 7. GENERAL PROVISIONS RELATING TO CONVERSION
The following provisions shall be applicable to any conversion pursuant to
either Section 5 or Section 6 hereof.
(a) As promptly as practicable after the surrender as hereinabove
provided of certificates representing shares of Series B Preferred Stock
converted or to be converted into shares of Common Stock or Series D
Preferred Stock, the Company shall deliver or cause to be delivered to the
holder, or the holder's designee, certificates representing the number of
fully paid and non-assessable shares of Common Stock or Series D Preferred
Stock into which the shares of Series B Preferred Stock are converted
(including any adjustment pursuant to Section 8(b) below) and, if less than
the entire number of shares of Series B Preferred Stock represented by the
certificate or certificates surrendered is to be converted, a new certificate
for the number of shares of Series B Preferred Stock not so converted. So
long as any shares of Series B Preferred Stock remain outstanding, the
Company shall not close its Common Stock transfer books. The issuance of
certificates representing shares of Common Stock or Series D Preferred Stock
issued upon the conversion of shares of Series B Preferred Stock shall be
made without charge to the holder of Series B Preferred Stock 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 or Series D Preferred
Stock are to be registered in a name different from that of the registered
holder of Series B Preferred Stock).
(b) No fractional shares of Common Stock or scrip representing
fractional shares of Common Stock or Series D Preferred Stock shall be issued
upon any conversion of any shares of Series B Preferred Stock, and the number
of shares of Common Stock or Series D Preferred Stock to be issued shall be
rounded up to a whole share.
(c) The Company shall at all times reserve and keep available out of
its authorized but unissued shares of Common Stock and preferred stock, par
value $.001 per share, solely for the purpose of effecting the conversion of
shares of Series B Preferred Stock and the Series C Preferred Stock and the
issuance of Common Stock in respect of the Warrants and the GE Warrants, the
full number of whole shares of Common Stock and Series D Preferred Stock then
deliverable upon the conversion of all shares of Series B Preferred Stock and
Series C Preferred Stock then outstanding and the issuance of Common Stock in
respect of the Warrants and the GE Warrants. The Company shall take at all
times such corporate action as shall be necessary in
5
<PAGE>
order that the Company may validly and legally issue fully paid and
non-assessable shares of Common Stock or Series D Preferred Stock upon the
conversion of shares of Series B Preferred Stock in accordance with the
provisions of Section 5 and Section 6, the conversion of shares of Series C
Preferred Stock and the issuance of Common Stock in respect of the Warrants
and the GE Warrants. If at any time the number of authorized but unissued
shares of Common Stock or Series D Preferred Stock shall not be sufficient to
effect the conversion of all then outstanding shares of the Series B
Preferred Stock, the conversion of all then outstanding shares of Series C
Preferred Stock and the issuance of Common Stock in respect of the Warrants
and the GE Warrants, in addition to such other remedies as shall be available
to the holders of the Series B Preferred Stock, the Company shall forthwith
take such corporate action as may be necessary to increase its authorized but
unissued shares of Common Stock or Series D Preferred Stock to such numbers
of shares as shall be sufficient for such purpose, including but not limited
to promptly calling and holding a meeting of the Company's stockholders, at
which the Company's stockholders shall vote on a proposed amendment to the
Certificate of Incorporation that would so increase the number of authorized
shares of Common Stock or preferred stock, par value $.001 per share, as
appropriate, a favorable vote for which amendment shall have been recommended
to the Company's stockholders by the Board of Directors, pursuant to a duly
and validly adopted resolution of the Board of Directors setting forth the
amendment proposed and declaring its advisability, all in accordance with
Section 242 of the Delaware General Corporation Law; and, in case of an
increase in the number of authorized shares, of such preferred stock, the
Board of Directors shall promptly cause to become effective a certificate of
increase pursuant to Section 151 of the Delaware General Corporation Law.
(d) If any shares of Common Stock or Series D Preferred Stock to be
reserved for the purpose of conversion of Series B Preferred Stock require
registration or listing with, or approval of, any governmental authority,
stock exchange, NASD Inc., Nasdaq or other regulatory body under any federal
or state law, federal or state regulation, rule of NASD Inc., Nasdaq or
otherwise, before such shares may be validly issued or delivered upon
conversion, the Company shall, in good faith and as expeditiously as
practicable, endeavor to secure such registration, listing or approval, as
the case may be.
(e) All shares of Common Stock or Series D Preferred
Stock that may be issued upon conversion of the Series B Preferred Stock
shall upon issuance by the Company be validly issued, fully paid and
non-assessable and free from all taxes, liens and charges with respect to the
issuance thereof.
(f) In the event of any taking by the Company of a
record of the holders of any class of Capital Stock for the purpose of
determining the holders thereof who are entitled to receive any dividend or
other distribution, any right to subscribe for, purchase or otherwise acquire
any shares of Capital Stock or any other securities or property, or to
receive any other right, the Company shall mail to each holder of Series B
Preferred Stock, at least 20 days prior to the date specified therein, a
notice specifying the date on which any such record is to be taken for the
purpose of such dividend, distribution or right, and the amount and character
of such dividend, distribution or right.
6
<PAGE>
(g) 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 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
Sections 5, 6 and 8 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 B Preferred Stock against impairment of any kind.
SECTION 8. CONVERSION PRICE.
(a) As used herein, the "Conversion Price" shall initially be $8.375 per
share of Common Stock, subject to adjustment as set forth below. In order to
prevent the dilution of the rights granted hereunder, the Conversion Price shall
be subject to adjustment from time to time as provided in this Section 8.
(b) If and whenever the Company issues or sells or, in accordance with
Section 8(c), is deemed to have issued or sold, any share of Common Equity
without consideration or for a consideration per share less than the Conversion
Price in effect immediately prior to such issuance or sale, the Conversion Price
in effect immediately prior to such time 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 Equity 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 Equity outstanding immediately
after such issuance. Notwithstanding the foregoing, there shall be no
adjustment to the Conversion Price with respect to (i) the granting of stock
options to employees of the Company authorized but not granted as of the Initial
Issue Date for an aggregate of up to 300,000 shares of Common Equity (as such
number of shares is equitably adjusted for subsequent stock splits
reclassifications, stock combinations, stock dividends and recapitalizations),
or (ii) the issuance upon exercise of up to 300,000 shares of Common Equity (as
such number of shares is equitably adjusted for subsequent stock splits, stock
combinations, stock dividends and recapitalizations) in connection with the
stock options described in clause (i) of this sentence.
(c) For purposes of determining the adjusted Conversion Price under
Section 8(b) above, the following shall be applicable:
(1) CONSIDERATION. If any Common Equity, Options or Convertible
Securities are issued or sold or deemed to have been issued or sold for
cash, the consideration received therefor shall be deemed to be the cash
amount received by the Company therefor (which, in the case of any public
offering of such securities for cash, shall not be reduced for any
underwriters discount, and in no event shall be reduced by the amount of
any reasonable expenses actually paid by the Company in connection
therewith). In case any Common Equity, Options or Convertible Securities
are issued or sold for a consideration other than cash, the amount of the
consideration other than cash received by
7
<PAGE>
the Company shall be the fair market value of such consideration. In
case any Common Equity, Options or Convertible Securities are issued to
the owners of the other constituent entity in connection with any merger
in which the Company or any Subsidiary of the Company is a constituent
entity, the amount of consideration for such Common Equity, Options or
Convertible Securities shall be deemed to be the fair market value of
such portion of the net assets and business of such other constituent
entity as is fairly attributable to such Common Equity, Options or
Convertible Securities, as the case may be. The fair market value of any
consideration other than cash shall be determined jointly by the Company
and the Majority Holders. If such parties are unable to reach agreement
within a reasonable period of time, such fair market value shall be
determined by an appraiser jointly selected by the Company and the
Majority Holders. If such parties are unable to reach agreement within a
reasonable period of time, such fair market value shall be determined by
an appraiser reasonably selected by the Company and reasonably approved
by the Majority Holders. The determination of such appraiser shall be
final and binding on the Company and the holders of the shares of Series
B Preferred Stock, and the fees and expenses of such appraiser shall be
paid by the Company, unless the fair market value determined by such
appraiser is less than five percent (5%) above the value proposed in
writing by the Company and rejected by the Majority Holders prior to the
selection of such appraiser, in which event the fees and expenses of such
appraiser shall be for the account of the holders of the then outstanding
shares of Series B Preferred Stock (on a pro rata basis).
(2) OPTIONS AND CONVERTIBLE SECURITIES. In the case of the granting
or sale of any Option or Convertible Security (whether or not at the time
convertible, exercisable or exchangeable):
(A) the aggregate maximum number of shares of Common Equity
deliverable, directly or indirectly, upon exercise of any
Option shall be deemed to have been issued at the
time such Option was granted and for a consideration equal
to the (i) consideration (determined in the manner provided in
subsection (1) above), if any, received by the Company upon the
issuance of such Option plus (ii) the minimum purchase price
provided in such Option for the Common Equity covered thereby,
up to an amount equal to the Conversion Price in effect at the
time such Option was granted;
(B) the aggregate maximum number of shares of Common Equity
deliverable upon conversion of or in exchange for any such
Convertible Security, or upon the exercise of any Option to
purchase or acquire any Convertible Security and the
subsequent conversion or exchange thereof, shall be deemed to
have been issued at the time such Convertible Security was
issued or such Option was issued and for a consideration equal
to the consideration, if any, received by the Company for any
such Convertible Security and any related Option, plus the
additional consideration (determined in the manner provided in
subsection (1)
8
<PAGE>
above), if any, to be received by the Company upon the
conversion or exchange of such Convertible Security, or upon
the exercise of any related Option to purchase or acquire any
Convertible Security and the subsequent conversion or exchange
thereof;
(C) on any change in the number of shares of Common Equity
deliverable, directly or indirectly, upon conversion, exercise
or exchange of any such Option or Convertible Security or any
change in the consideration to be received by the Company upon
such exercise, conversion or exchange, including, but not
limited to, a change resulting from the anti-dilution
provisions thereof, the 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 Option or Convertible Security upon the basis
of such change;
(D) if the Conversion Price shall have been adjusted upon the
issuance of any such Option or Convertible Security, no further
adjustment of the Conversion Price shall be made for the actual
issuance of Common Equity upon any exercise, conversion, or
exchange thereof;
provided, however, that none of the events set forth in Section 8(c)(2)(A)
through 8(c)(2)(D), inclusive, shall result in any increase in the
Conversion Price.
(3) INTEGRATED TRANSACTION. In case any Option is issued in
connection with the issue or sale of other securities of the Company,
together comprising one integrated transaction in which no specific
consideration is allocated to such Options by the parties thereto, the
Options shall be deemed to have been issued without consideration.
(4) TREASURY SHARES. The number of shares of Common Equity
outstanding at any given time shall not include shares owned or held by or
for the account of the Company, and the disposition of any shares so owned
or held shall be considered an issuance or sale of Common Equity.
(5) RECORD DATE. If the Company takes a record of the holders of
Common Equity for the purpose of entitling them (A) to receive a dividend
or other distribution payable in Common Equity, Options or in Convertible
Securities or (B) to subscribe for or purchase Common Equity, Options or
Convertible Securities, then such record date shall be deemed to be the
date of the issuance or sale of the shares of Common Equity deemed to have
been issued or sold upon the declaration of such dividend or the making of
such other distribution or the date of the granting of such right of
subscription or purchase, as the case may be.
(d) If the Company at any time subdivides (by any stock split, stock
dividend, reclassification, recapitalization or otherwise) one or more classes
of its outstanding shares of Common Equity into a greater number of shares, the
Conversion Price in effect immediately prior to such subdivision shall be
proportionately reduced. If the Company at any time combines
9
<PAGE>
(by reverse stock split or otherwise) one or more classes of its outstanding
shares of Common Stock into a smaller number of shares, the Conversion Price
in effect immediately prior to such combination shall be proportionately
increased.
(e) Any recapitalization, reorganization, reclassification,
consolidation, merger, sale of all or substantially all of the Company's
assets or other transaction, in each case which is effected in such a way
that the holders of Common Equity are entitled to receive (either directly or
upon subsequent liquidation) stock, securities, cash, debt instruments or
assets with respect to or in exchange for Common Equity is referred to herein
as a "CORPORATE CHANGE." In case of any Corporate Change, each share of
Series B Preferred Stock then outstanding will become convertible only into
the kind and amount of securities, cash and other property receivable upon
such Corporate Change by the holder of the number of shares of Common Stock
into which such share of Series B Preferred Stock was convertible immediately
prior thereto (assuming such holder of Common Stock failed to exercise any
rights of election). The Company shall not effect any such consolidation,
merger or sale, unless prior to the consummation thereof, the successor
entity (if other than the Company) resulting from consolidation or merger or
the entity purchasing such assets assumes by written instrument the
obligation to deliver to the holders of shares of Series B Preferred Stock
such shares of stock, securities, cash, debt instruments or assets as, in
accordance with the foregoing provisions, such holder may be entitled to
acquire.
(f) If any event occurs of the type contemplated by the provisions of
this Section 8 but not expressly provided for by such provisions (including,
without limitation, the granting of stock appreciation rights, phantom stock
rights or other rights with equity features), then the Company's Board of
Directors shall make an appropriate adjustment in the Conversion Price so as
to protect the rights of the holders of the shares of Series B Preferred
Stock; provided that no such adjustment shall increase the Conversion Price
obtainable as otherwise determined pursuant to this Section 8.
(g) If the Company declares or pays a dividend upon the Common Equity
payable otherwise than out of earnings or earned surplus (determined in
accordance with generally accepted accounting principles, consistently
applied) except for a stock dividend payable in shares of Common Stock (a
"LIQUIDATING DIVIDEND"), then the Company shall pay to each holder of a share
of Series B Preferred Stock at the time of payment thereof the Liquidating
Dividend which would have been paid to such holder on the Common Stock such
holder would have owned had such holder fully exercised its right to convert
the shares of Series B Preferred Stock into shares of Common Stock
immediately prior to the date on which a record is taken for such Liquidating
Dividend, or, if no record is taken, the date as of which the record holders
of Common Equity entitled to such dividends are to be determined; provided,
however, that if a Liquidating Dividend would involve the declaration or
payment as a dividend of at least the lesser of (i) twenty percent (20%) of
the Company's assets and (ii) Five Million Dollars ($5,000,000), then such
Liquidating Dividend shall, at the option of the Majority Holders, be deemed
to be a Liquidating Event and the rights of the holders of the shares of
Series B Preferred Stock upon such Liquidating Event shall be governed by
Section 4 hereof.
10
<PAGE>
(h) Any transaction approved by the unanimous vote of
the Acquisitions Committee or the unanimous vote of the Board pursuant to
Section 10(c)(4) hereof shall not result in any adjustment to the Conversion
Price in effect as of the closing of such transaction.
SECTION 9. NO REDEMPTION.
The shares of Series B Preferred Stock shall not be
subject to mandatory redemption by the Company.
11
<PAGE>
SECTION 10. VOTING RIGHTS AND RELATED PROVISIONS.
(a) The Holders of shares of the Series B Preferred Stock will have
the right to vote with the holders of Common Stock and the holders of the
Series C Preferred Stock with respect to all matters submitted to a
shareholder vote, except for the election of directors, which will be
governed by Section 10(b) below. Each Holder of Series B Preferred Stock
will have one vote for every share of Common Stock into which each share of
Series B Preferred Stock is convertible pursuant to Sections 5 and 7 hereof
as of the record date for such vote; provided, however, that the aggregate
number of votes under this Section 10(a), when combined with the aggregate
number of votes attributable to the holders of the Series C Preferred Stock
pursuant to Section 10(a) of the Certificate of Designation with respect to
the Series C Preferred Stock, with respect to any given matter submitted to a
shareholder vote, shall not exceed 37% of the total number of votes eligible
to be cast with respect to such matter (the "AGGREGATE VOTING LIMITATION").
In order to effectuate the Aggregate Voting Limitation, the eligible votes
allocable to each holder of shares of Series B Preferred Stock and Series C
Preferred Stock shall be reduced, on a pro rata basis based on the percentage
of aggregate Series B Preferred Stock and Series C Preferred Stock
liquidation preference attributable to the shares owned by such holder, to
the highest whole number consistent with the Aggregate Voting Limitation.
Any shares of Series B Preferred Stock or Series C Preferred Stock held by
the Company or any Subsidiary of the Company shall not have voting rights
hereunder and shall not be counted in determining the presence of a quorum or
in calculating any percentage of shares under this Section 10.
(b) The provisions set forth in this Section 10(b) shall govern the
rights of the holders of the Series B Preferred Stock to elect directors of
the Company:
(1) SERIES B DIRECTORS; JOINT DIRECTOR.
(A) The number of directors of the Company shall be as from time
to time fixed by, or determined in the manner provided in, the Certificate
of Incorporation and the Bylaws of the Company (subject, in all respects,
to the protective provisions contained in Section 11 hereof). Prior to a
Type B Event Date, the number of directors shall be no less than eight (8)
nor more than nine (9), of which one member shall be the Joint Director.
Two of such directors shall be designated as "SERIES B DIRECTORS" and shall
be elected by the Majority Holders and one such director shall be
designated as "Joint Director" and shall be an Independent director
nominated by the Majority Holders of the Series B Preferred Stock and the
Majority Holders of the Series C Preferred Stock, approved by the Board of
Directors in its sole discretion. Unless a Type B Conversion Notice has
been given, one Series B Director shall automatically be removed if the
aggregate liquidation preference with respect to the Series B Preferred
Stock owned by the Initial Purchaser and the Initial Purchaser Affiliates,
taken as a whole, falls below 50% but is no less than 25% of the total
liquidation preference of the shares of Series B Preferred Stock outstanding
on the Initial Issue Date. Unless a Type B Conversion Notice has been
given, both Series B Directors shall automatically be removed if the
aggregate liquidation preference with respect to the Series B Preferred
Stock owned by the Initial Purchaser and the Initial Purchaser Affiliates,
taken as a whole, falls below
12
<PAGE>
25% of the total liquidation preference of the shares of Series B Preferred
Stock outstanding on the Initial Issue Date. Prior to a Type B Event Date,
the Majority Holders shall have the exclusive right to remove such Series B
Director or Series B Directors without cause at any time and to designate
another person or persons as the Series B Director or Series B Directors.
(B) The Preferred Stock Directors shall be divided into three (3)
classes as nearly equal in number as possible, with the term of office of
the first Preferred Stock Director to be nominated and elected by the
holders of the Series B Preferred Stock, at their option at any time after
the initial issuance of the shares of Series B Preferred Stock, to expire
at the annual meeting of stockholders held in 1998, the term of office of
the second Preferred Stock Director to be nominated and elected by the
holders of the Series B Preferred Stock upon initial issuance of the shares
of Series B Preferred Stock to expire at the annual meeting of stockholders
held in 2000, the term of office of the Preferred Stock Director to be
nominated and elected by the holders of the Series C Preferred Stock upon
initial issuance of the shares of Series C Preferred Stock to expire at the
annual meeting of stockholders held in 1999, and the term of office of the
Joint Director to expire at the annual meeting of stockholders for 1997.
At each annual meeting of stockholders after such initial classification
and election, directors elected to succeed those directors whose terms
expire at such annual meeting shall be elected for a term of office to
expire at the third succeeding annual meeting of stockholders after their
election.
(C) Upon a Type B Event Date, any Series B Director already
serving as a member of the Board shall continue to serve in such position
until the expiration of his term and the election of his successor or until
his earlier death, removal, resignation or retirement. After a Type B Event
Date, the Joint Director and the Series B Director or Directors shall be
subject to removal only for cause and only by the affirmative vote of
eighty percent (80%) of the combined voting power of the outstanding shares
of the Corporation entitled to vote. The Preferred Stock Directors and the
Joint Director shall not be removed without cause otherwise than as
described in this Section 10(b)(1).
(D) After a Type B Event Date, the Board of Directors shall
comprise: (i) one Joint Director, until the expiration of his term, as
provided herein; (ii) three Preferred Stock Directors, until the expiration
of their respective terms, after which time such positions previously
elected by holders of the series of Preferred Stock that gave the Type B
Conversion Notice shall be subject to election by holders of shares of
Series D Preferred Stock, subject to the limitations contained in the
Series D Certificate of Designation; (iii) not less than four (4) nor more
than five (5) additional directors elected by holders of shares of Common
Equity and Series D Preferred Stock, subject to the limitations contained
in the Series D Certificate of Designation; and (iv) such number of other
directors (the "Conversion Directors") elected following a Type B Event
Date by the holders of shares of Series D Preferred Stock as is determined
pursuant to the Series D Certificate of Designation.
13
<PAGE>
(2) With respect to filling the vacancy on the Board of Directors
with the initial Joint Director, the holders of shares of Series B
Preferred Stock and Series C Preferred Stock shall give written notice to
the Secretary of the Company of the identity of the person nominated by
such holders. Such written notice shall be executed, manually, or by
photocopy or facsimile, in any number of counterparts, by the Majority
Holders of the Series B Preferred Stock and by the Majority Holders of the
Series C Preferred Stock. The person so nominated shall be "independent,"
which means that such person shall not be a director, officer, or employee
or affiliate (as defined in Section 203(c) of the Delaware General
Corporation Law) of any of the holders of Series B Preferred Stock or
Series C Preferred Stock or the Company. Upon receipt of such written
notice, the Board of Directors shall have ten (10) business days in which
to approve or disapprove such nominee. If the Board of Directors approves
such nominee, such nominee shall immediately fill such vacancy. If the
Board of Directors disapproves such nominee, the Secretary of the Company
shall immediately give written notice thereof to all of the holders of
shares of Series B Preferred Stock and Series C Preferred Stock. If such a
written notice from the Secretary has not been received by such holders
twelve (12) business days after the receipt by the Company of such written
notice of nomination, then the Board of Directors shall be conclusively
deemed to have approved such nominee and such nominee shall immediately
fill such vacancy. If such written notice from the Secretary has been so
received within such twelve (12) business days, such holders may nominate
another independent person by written notice to the Secretary, subject to
the same approval process as hereinabove provided. Such process of
nomination and approval or disapproval shall continue until an independent
person is nominated who is approved or deemed to be approved by the Board
of Directors. No nominations for such director shall be made or received
other than as described in this Section 10(b)(2).
(3) With respect to the nomination and election of succeeding Joint
Directors, the holders of shares of Series B Preferred Stock and Series C
Preferred Stock shall give timely written notice to the Secretary of the
Company of the identity of the person nominated by such holders. Such
written notice shall be executed, manually, or by photocopy or facsimile,
in any number of counterparts, by the Majority Holders of the Series B
Preferred Stock and by the Majority Holders of the Series C Preferred
Stock. Such written notice shall be timely if received at the principal
executive office of the Company not less than 60 days nor more than 120
days before the meeting of shareholders at which such director is to be
elected. The person so nominated shall be "independent," which means that
such person shall not be a director, officer, employee or affiliate (as
defined in Section 203(c) of the Delaware General Corporation Law) of any
of the holders of Series B Preferred Stock or Series C Preferred Stock or
the Company. Upon receipt of such written notice, the Board of Directors
shall have ten (10) business days in which to approve or disapprove such
nominee. If the Board of Directors disapproves such nominee, the Secretary
of the Company shall immediately give written notice thereof to all of the
holders of shares of Series B Preferred Stock and Series C Preferred Stock.
If such a written notice from the Secretary has not been received by such
holders twelve (12) business days after the receipt by the Company of such
written
14
<PAGE>
notice of nomination, then the Board of Directors shall be
conclusively deemed to have approved such nominee. If such written notice
from the Secretary has been so received within such twelve (12) business
days, such holders may nominate another independent person by written
notice to the Secretary, subject to the same approval process as
hereinabove provided. Such process of nomination and approval or
disapproval shall continue until an independent person is nominated who is
approved or deemed to be approved by the Board of Directors. No
nominations for such director shall be made or received other than as
described in this Section 10(b)(3). Election of such person shall be by
the holders of shares of the Company's Common Stock.
(4) Prior to a Type B Event Date, a vacancy of a Preferred Stock
Director position shall be filled only by a majority vote of or written
consent of holders of a majority of the then outstanding shares of the
series of Preferred Stock that elected the director whose death,
resignation, retirement, disqualification or removal from office caused the
vacancy. Prior to a Type B Event Date, a vacancy of the position of Joint
Director shall be filled only by the Board of Directors, following
nomination by holders of a majority of the then outstanding shares of
Series B Preferred Stock and holders of a majority of the then outstanding
shares of the Series C Preferred Stock, pursuant to the procedure described
in Section 10(b)(2). Directors chosen pursuant to any of the foregoing
provisions shall hold office for a term expiring at the annual meeting of
stockholders at which the term of the class to which they have been elected
expires and until their successors are duly elected and have qualified or
until their earlier resignation or removal. If holders of shares of Series
B Preferred Stock shall, pursuant to the certificate of incorporation,
cease to have the right to elect two Preferred Stock Directors but still
shall have the right to elect one Preferred Stock Director, then holders of
a majority of the then outstanding shares of Series B Preferred Stock shall
promptly designate by written notice to the Company one of the two
Preferred Stock Directors elected by holders of shares of Series B
Preferred Stock as the director to be retained, and the other such director
shall be deemed to have resigned immediately upon receipt by the Company of
such written notice. If holders of shares of Series B Preferred Stock
shall, pursuant to the certificate of incorporation, but not as a result of
a Type B Conversion, cease to have the right to elect any Preferred Stock
Directors, then the two directors elected by holders of shares of Series B
Preferred Stock shall be deemed to have resigned immediately upon such
cessation. Upon the occurrence of any such deemed resignation referred to
in the immediately preceding two sentences, the directorship previously
held by the director deemed to have resigned shall automatically become a
vacancy to be filled by the Board of Directors.
(5) Shares of Series B Preferred Stock shall be deemed to be shares
"entitled to vote" or "entitled to vote in the election of directors" for
purposes of the provisions of the Certificate of Incorporation that employ
such terms, and, for purposes of such provisions at any time, each
outstanding share of Series B Preferred Stock shall count as such number of
shares of Common Stock into which such share of Series B Preferred Stock is
then convertible pursuant to Sections 5 and 7 hereof (subject to the
percentage
15
<PAGE>
limitation set forth in Section 10(a) hereof as such percentage
limitation would otherwise apply pursuant to such Section).
(c) Immediately following the initial issuance of shares of Series B
Preferred Stock, the Board of Directors shall appoint the following committees
of the Board of Directors with the respective duties, membership and voting
requirements stated below. After such appointment and until a Type B Event
Date, the following matters shall be deemed approved by the Board of Directors
only upon receiving the affirmative vote of a majority of the Board of Directors
and a majority of the directors elected by the holders of the Series B Preferred
Stock and the Series C Preferred Stock: (A) a decision to eliminate or discharge
the Audit Committee, Compensation Committee, Executive Committee or the
Acquisitions Committee, as described more fully below (such committees are the
"Committees"), (B) a decision to reduce, narrow, attenuate or otherwise weaken
the delegation of powers by the Board of Directors to any of the Committees,
unless such reduction, narrowing, attenuation or other weakening is the transfer
of delegated powers from the Compensation Committee or the Acquisitions
Committee to the Executive Committee, (C) a decision to change the number of
members of any Committee, the identity of the persons or entities entitled to
select each of the members of any Committee, the size of the required vote for
approval by any Committee and the size of the required vote of the Board of
Directors necessary to approve actions that failed to obtain the required
approval vote on the appropriate Committee; and (D) a decision to create any new
committee. If the holders of the Series B Preferred Stock shall cease to have
the right to nominate and elect any director at all, otherwise than as a result
of the conversion of their shares of Series B Preferred Stock in a Type B
Conversion, then such holders shall no longer have the right to select any
member of any of the committees set forth below and the member or members of
such committees selected by such holders shall automatically cease to be a
member or members of such committees.
(1) COMPENSATION COMMITTEE. The Compensation Committee shall
consist of three (3) members, at least one (1) of whom shall be
selected jointly by the Series B Directors and director elected by
holders of the Series C Preferred Stock (the "SERIES C DIRECTOR"), and
who shall be a director. An affirmative vote of at least two (2)
members of the Compensation Committee shall be required for approval
of matters considered by the Compensation Committee. The Compensation
Committee shall ensure that the representative on the Compensation
Committee nominated by the Series B Directors and the Series C
Director receive adequate notice of and an opportunity to participate
in any meetings of the Compensation Committee;
(2) AUDIT COMMITTEE. The Audit Committee shall consist of three
(3) directors, including as many Independent directors as are
available, not to exceed three (3). An affirmative vote of at least
two (2) members of the Audit Committee shall be required for approval
of matters considered by the Audit Committee.
(3) EXECUTIVE COMMITTEE. The Executive Committee shall consist
of four (4) members, one (1) of whom shall be selected by the Series B
Directors (and shall be a Series B Director), one (1) of whom shall be
the Series C Director
16
<PAGE>
and two (2) of whom shall be selected by the Board of Directors. The members
selected by the Series B Directors and the Series C Director may be removed
only by the Series B Directors and the Series C Director, respectively.
The Executive Committee shall, in addition to the customary duties of an
executive committee, have the right to approve any financing activity,
including but not limited to the Capital Budget Plan. An affirmative vote
of at least three (3) members of the Executive Committee shall be required
for approval of any matters considered by the Executive Committee.
Each financing activity not approved by the Executive Committee may be
referred to the Board of Directors for approval, which approval shall
require a Supermajority Vote; and
(4) ACQUISITIONS COMMITTEE. The Acquisitions Committee shall
consist of four (4) members, one (1) of whom shall be selected by the
Series B Directors (and shall be a Series B Director), one (1) of whom
shall be the Series C Director, and two (2) of whom shall be selected
by the Board of Directors (and shall be directors). The Acquisitions
Committee shall have the right to approve any transaction of the types
described in Section 11(n), (o), (p) and (q) with respect to which
transaction the aggregate consideration payable in connection with
such transaction (including, without limitation, cash consideration,
the fair market value of any securities and the net present value of
any deferred consideration) is less than $15 million. A unanimous
vote of the Acquisitions Committee shall be required for approval of
any matters considered by the Acquisitions Committee. Except as
described in Section 10(d)(5) below, each matter considered but not
unanimously approved by the Acquisitions Committee may be referred to
the Board of Directors for approval, which approval shall require a
majority vote of the Board of Directors.
(5) CERTAIN TRANSACTIONS. The unanimous approval of the
Acquisitions Committee or the unanimous approval of the Board of
Directors shall be required before the Company or any of its
Subsidiaries engage in a transaction of the types described in Section
11(n), (o) (which, only for purposes of this clause, shall also apply
to Capital Expenditures made by the Company in the ordinary course of
business), (p) and (q), in which transaction: (A) the aggregate
consideration payable in connection with such transaction (including,
without limitation, cash consideration, the fair market value of any
securities and the net present value of any deferred consideration) is
less than $15 million; and (B) the Company is to issue its Common
Equity at an implicit or explicit price of less than $8.375 per share.
Such implicit price shall be determined in an appraisal approved
unanimously by the Acquisitions Committee or unanimously by the Board
of Directors, such appraisal to be performed by an independent
appraiser selected unanimously by the Acquisitions Committee or
unanimously by the Board of Directors.
(d) Prior to a Type B Event Date, the following matters shall be deemed
approved by the Board of Directors only upon a Supermajority Vote in respect of
any such matter:
17
<PAGE>
(1) Approving the annual Capital Budget Plan; and
(2) Approving the Company entering into any financing activity
not approved by the Executive Committee.
(e) The bylaws of the Company may be altered, amended, or repealed or new
bylaws may be adopted by the stockholders or by the Board of Directors at any
regular or special meeting of the stockholders or the Board of Directors, but
only if such alteration, amendment, repeal, or adoption has been approved:
(1) in case of adoption by the Board of Directors prior to the First
Meeting following a Type B Event Date, by a majority of the Preferred Stock
Directors and either (A) a majority of the entire Board of Directors (if
such alteration, amendment, repeal, or adoption does not increase the
number of directors) or (B) by at least 80% of the members of the entire
Board of Directors (if such alteration, amendment, repeal, or adoption does
increase the number of directors);
(2) in case of adoption by the stockholders at any meeting of
stockholders (other than the First Meeting following a Type B Event Date)
with a record date on or prior to a Type B Event Date, by holders of at
least eighty percent (80%) of the outstanding shares of the Corporation
entitled to vote in the election of directors, voting as one class, and by
holders of a majority of the shares, outstanding as of such record date, of
whichever (or both) of Series B Preferred Stock and Series C Preferred
Stock continued (as of such record date) to have the right under the
certificate of incorporation to elect one or more Preferred Stock
Directors.
(f) If a Type B Event Date occurs prior to October 14, 1999, then the
following provisions shall apply:
(1) From such Type B Event Date until the second subsequent annual
stockholders meeting of the Company after such Type B Event Date, none of
the following actions or transactions shall be effected by the Company or
approved by the Company as a stockholder of any Subsidiary of the Company,
and neither the Initial Purchaser nor any Initial Purchaser Affiliates
shall engage in, or be a party to, any of the following actions or
transactions involving the Company or any Subsidiary of the Company, if, as
of the record date for the determination of the stockholders entitled to
vote thereon, or consent thereto, any other Person which obtained its
equity interest in the Company as a result of a transfer of securities from
the Initial Purchaser or any Initial Purchaser Affiliate beneficially owns
or controls, directly or indirectly, five percent (5%) or more of the
outstanding shares of the Company entitled to vote:
(A) any merger or consolidation of the Company or any of its
Subsidiaries with or into such other Person;
18
<PAGE>
(B) any sale, lease, exchange or other disposition of all or any
substantial part of the assets of the Company or any of its
Subsidiaries to such other Person;
(C) the issuance or delivery of any voting securities of the
Company or any of its Subsidiaries to such other Person in exchange
for cash, other assets or securities, or a combination thereof; or
(D) any dissolution or liquidation of the Company;
PROVIDED, HOWEVER, that such prohibition shall not apply with respect to
any such action or transaction approved by (I) the affirmative vote of not
less than eighty percent (80%) of the outstanding shares of the Company
entitled to vote or (II) at least two-thirds (2/3) of the directors of the
Company (which must include either (i) the Joint Director, if either (x)
such Joint Director served in such position as of the Type B Event Date, or
(y) such Joint Director has been approved by a majority of the directors
who were Common Stock Directors as of the Type B Event Date, or (ii) at
least one director who was a Common Stock Director prior to the Type B
Event Date, unless neither the Joint Director, nor any of such Common Stock
Directors continue to serve on the Board of Directors at such time). For
purposes of this Section 10(f), a Person shall be deemed to own or control,
directly or indirectly, any outstanding shares of stock of the Company (A)
which it has the right to acquire pursuant to any agreement, or upon the
exercise of conversion rights, warrants or options, or otherwise, or (B)
which are beneficially owned, directly or indirectly (including shares
deemed owned through application of clause (A) above), by any other
corporation, person or other entity (x) with which it or its "affiliate" or
"associate" (as defined below) has any agreement, arrangement, or
understanding for the purpose of acquiring, holding, voting or disposing of
stock of the Company or (y) which is its "affiliate" or "associate," as
those terms are defined under the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder.
(2) No transfer of Series C Preferred Stock may be made by the
Initial Purchaser or any Initial Purchaser Affiliate (other than a transfer
permitted under Rule 144 under the Securities Act or a transfer pursuant to
a registered offering under registration rights from the Company) unless
prior thereto, the transferee in such transfer shall have agreed to be
bound by the terms of Section 10(f)(1).
SECTION 11. PROTECTIVE PROVISIONS.
Without limiting the provisions of any other Series of Preferred Stock, for
so long as the Initial Purchaser and the Initial Purchaser Affiliates, taken as
a whole, owns or own at least 33% in total liquidation preference, taken as a
whole, of the outstanding shares of Series B Preferred Stock, the Company shall
not take, and shall cause its Subsidiaries not to take, any of the following
actions without the affirmative vote of holders of at least sixty-seven percent
(67%) of the shares of the Series B Preferred Stock then outstanding:
19
<PAGE>
(a) alter, change or amend (by merger or otherwise) any of (i) the rights,
preferences and privileges of the Series B Preferred Stock or any other class of
Capital Stock, or (ii) the terms or provisions of any Option or Convertible
Security;
(b) enter into any transaction or event that could result in a Special
Corporate Event with respect to the Company or any Subsidiary;
(c) initiate any Liquidating Event with respect to the Company or any
Subsidiary;
(d) amend, restate, alter, modify or repeal (by merger or otherwise) the
Certificate of Incorporation or the Amended Bylaws of the Company, including,
without limitation, amendment, restating, modifying or repealing (by merger or
otherwise) any certificate of designation or preferences (as in effect from time
to time) relating to the Series A Preferred Stock, the Series B Preferred Stock,
the Series C Preferred Stock or the Series D Preferred Stock, including, without
limitation, the filing by the Company of a certificate with the Secretary of
State of the State of Delaware, pursuant to Section 151(g) of the Delaware
General Corporation Law, setting forth a resolution or resolutions adopted by
the Board of Directors of the Company that none of the authorized shares of
Series D Preferred Stock are outstanding and that none will be issued subject to
the Series D Certificate of Designation;
(e) amend, restate, alter, modify or repeal (by merger or otherwise) or
permit any Subsidiary to amend, restate, alter, modify or repeal (by merger or
otherwise) the certificate of incorporation, other organizational documents, or
bylaws of any Subsidiary in any material respect;
(f) change the number of directors of the Company to a number less than
eight (8) or more than nine (9) or the manner in which the directors are
selected, as provided in the Certificate of Incorporation, Amended Bylaws,
Series B Preferred Stock Certificate of Designation, Series C Preferred Stock
Certificate of Designation and Series D Preferred Stock Certificate of
Designation;
(g) incur any Indebtedness, in the aggregate with respect to the Company
and its Subsidiaries, in excess of $15 million in any Fiscal Year; PROVIDED,
HOWEVER, that this provision shall not apply to draw-downs under any credit
facility as to which a credit agreement had been executed and delivered on or
prior to the Initial Issue Date;
(h) become a party to Operating Leases during any Fiscal Year with respect
to which the present value of all payments due during the term of such Operating
Leases in the aggregate (determined using a discount rate of 10%) exceed $15
million;
(i) create, authorize or issue any shares of Series B Preferred Stock or
any class or series of Senior Securities, Parity Securities or Supervoting
Securities or shares of any such class or series;
20
<PAGE>
(j) reclassify any authorized stock of the Company into Series B Preferred
Stock or any class or series of Senior Securities, Parity Securities,
Supervoting Securities or shares of such class or series;
(k) increase or decrease the authorized number of shares of Series B
Preferred Stock or any class or series of Senior Securities or Parity Securities
or shares of any such class or series;
(l) issue any equity security below either the then current Market Price
(without deduction for any underwriters' discount) or the then-applicable
Conversion Price other than for (A) management stock options currently
authorized and available for grant for not more than Three Hundred Thousand
(300,000) shares of Common Stock in the aggregate, in which senior management of
the Company shall not participate, (B) management stock options exercisable at
not less than the then-applicable Conversion Price per share of Common Stock
issued after October 14, 1997, exercisable for not more than Five Hundred
Thousand (500,000) shares of Common Stock in the aggregate, in which only
certain members of senior management of the Company shall participate, and
(C) the Common Stock underlying such management stock options and other stock
options outstanding as of October 14, 1997;
(m) declare or pay any dividend or make any distribution (including
without limitation by way of redemption, purchase or other acquisition) with
respect to shares of Capital Stock or any securities convertible into, or
exercisable, redeemable or exchangeable for, any share of Capital Stock
(including without limitation any Option or Convertible Security) directly or
indirectly, whether in cash, obligations or shares of the Company or other
property;
(n) acquire, in one or a series of related transactions, any equity
ownership interest or interests of any Person, where the aggregate consideration
payable in connection with such acquisition (including without limitation cash
consideration, the fair market value of any securities and the net present value
of any deferred consideration) is equal to or greater than $15 million;
(o) acquire any asset or assets of any Person in any transaction or
transactions, where the aggregate consideration payable in connection with any
single such transaction (including, without limitation, cash consideration, the
fair market value of any securities and the net present value of any deferred
consideration), whether such transaction is effected in a single transaction or
series of related transactions, is greater than $15 million; PROVIDED, HOWEVER,
that this provision shall not apply to Capital Expenditures made by the Company
in the Ordinary Course of Business;
(p) merge or consolidate with any Person, or permit any other Person to
merge into it, where (i) the stockholders of the Company immediately prior to
the consummation of such merger or consolidation shall, immediately after the
consummation of such merger or consolidation, hold securities possessing more
than 50% of both the total voting power of and the beneficial ownership
interests in the surviving entity of such merger or consolidation and (ii) the
equity holders of the subject Person immediately prior to the consummation of
such transaction shall receive (directly or indirectly) aggregate consideration
payable in connection with such
21
<PAGE>
transaction (including without limitation cash consideration, the fair market
value of any securities and the net present value of any deferred consideration)
equal to or greater than $15 million,
(q) cause or permit any Subsidiary to merge or consolidate with any Person
(other than the Company or a wholly-owned Subsidiary of the Company), or cause
or permit any other Person to merge into it, where: (i) the stockholders of such
Subsidiary immediately prior to the consummation of such merger or consolidation
shall, immediately after the consummation of such merger or consolidation, hold
securities possessing more than 50% of both the total voting power of and the
beneficial ownership interests in the surviving entity of such merger or
consolidation and (ii) the equity holders of the subject Person immediately
prior to the consummation of such transaction shall receive (directly or
indirectly) aggregate consideration payable in connection with such transaction
(including without limitation cash consideration, the fair market value of any
securities and the net present value of any deferred consideration) equal to or
greater than $15 million;
(r) substantially and materially engage in, either through acquisition or
internal development, any business other than the business of providing
diagnostic services to the healthcare industry;
(s) make or permit any of its Subsidiaries to make Capital Expenditures
any fiscal year in excess, in the aggregate, of two percent (2%) above the
approved Capital Budget Plan for such fiscal year of the Company unless such
expenditure is approved by the Executive Committee of the Board of Directors or
a Supermajority Vote of the Board of Directors of the Company;
(t) (i) sell, transfer, convey, lease or dispose of, outside the Ordinary
Course of Business, any assets or properties of the Company or any Subsidiary,
whether now or hereafter acquired, in any transaction or transactions, if (X)
the aggregate consideration payable in connection with any single such
transaction (including, without limitation, cash consideration, the fair market
value of any securities and the net present value of any deferred
consideration), is greater than $5 million or (Y) the aggregate consideration
payable in connection with all such transactions (including, without limitation,
cash consideration, the fair market value of any securities and the net present
value of any deferred consideration), consummated after the Initial Issue Date,
taken as a whole, is or would become as a result of such transaction greater
than $20 million; (ii) undergo or cause or permit any Subsidiary to undergo a
reorganization or recapitalization; (iii) merge or consolidate with any Person,
or permit any other Person to merge into it, where the stockholders of the
Company immediately prior to the consummation of such merger or consolidation
shall, immediately after the consummation of such merger or consolidation,
hold securities possessing 50% or less of either the total voting power of or
the beneficial ownership interests in the surviving entity of such merger or
consolidation; (iv) cause or permit any Subsidiary to merge or consolidate
with any other Person (other than the Company or a wholly-owned Subsidiary of
the Company), or cause or permit any other Person to merge into such
Subsidiary, where the stockholders of such Subsidiary immediately prior to
the consummation of such merger or consolidation shall, immediately after the
consummation of
22
<PAGE>
such merger or consolidation, hold 50% or less of either the total voting
power of or the beneficial ownership interests in the surviving entity of such
merger or consolidation if (X) the value of the assets of such Subsidiary is
greater than $5 million or (Y) the aggregate value of the assets of all such
Subsidiaries with respect to all such mergers or consolidations consummated
after the Initial Issue Date, taken as a whole and including such transaction,
is or would become as a result of such transaction greater than $20 million;
(u) permit any Subsidiary of the Company to issue or sell any share of
Capital Stock, Option or Convertible Security; PROVIDED, HOWEVER, that the
Company may form a new Subsidiary not all of the equity securities of which need
be owned directly or indirectly by the Company (a "PARTIAL SUBSIDIARY"), but
only if (i) at the time of creation of such Partial Subsidiary, such Partial
Subsidiary is designated as such in a written notice to the holders of the
shares of Series B Preferred Stock, and, (ii) cumulatively through time no more
than $5,000 of assets (in the aggregate) are transferred to such Partial
Subsidiary by the Company or any other Subsidiary, and (iii) no liabilities of
such Partial Subsidiary are ever assumed or guaranteed by the Company or any
other Subsidiary; or
(v) issue any share of Series D Preferred Stock, otherwise than pursuant
to a Type B Conversion.
The rights provided to holders of shares of Series B Preferred Stock in
this Section 11 shall be in addition to and not in lieu of the other rights and
protections granted to the holders of the shares of Series B Preferred Stock
hereunder.
SECTION 12. REISSUANCE OF SERIES B PREFERRED STOCK.
Shares of Series B Preferred Stock that have been issued and reacquired or
converted in any manner, including shares purchased, redeemed, exchanged, or
converted into shares of Common Equity, shall (upon compliance with any
applicable provisions of the laws of Delaware) have the status of authorized but
unissued shares of preferred stock of the Company undesignated as to series and
may be designated or redesignated and issued or reissued, as the case may be, as
part of any series of preferred stock of the Company, provided that such shares
may not in any event be reissued as Series B Preferred Stock.
SECTION 13. BUSINESS DAY.
If any payment, redemption or exchange shall be required by the terms
hereof to be made on a day that is not a Business Day, such payment, redemption
or exchange shall be made on the immediately succeeding Business Day.
SECTION 14. CERTAIN NOTIFICATION OBLIGATIONS.
The Company will notify the Initial Purchaser of each subsequent sale or
disposition of any assets or properties of either the Company or any Subsidiary
(other than in the Ordinary Course of Business) once the aggregate consideration
payable in connection with all such sales or dispositions for the Company and
its Subsidiaries outside the Ordinary Course of Business
23
<PAGE>
(including without limitation cash consideration, the fair market value of any
securities and the net present value of any deferred consideration) exceeds
$10,000,000 in any fiscal year.
SECTION 15. PREEMPTIVE RIGHTS
(a) Subject to the terms and conditions specified in this Section 15, the
Company hereby grants to each holder of shares of Series B Preferred Stock a
right of first offer with respect to future sales in any transaction or proposed
transaction not involving a public offering by the Company of its shares of
Common Equity or any securities convertible or exchangeable, directly or
indirectly, into Common Equity (collectively, "PREEMPTIVE SECURITIES").
Preemptive Securities shall include, without limitation, all shares of Common
Stock and all Convertible Securities.
(b) Each time the Company proposes to offer any Preemptive Securities in a
transaction not involving a public offering of such Preemptive Securities, the
Company shall first make an offering of such Preemptive Securities to each
holder of shares of Series B Preferred Stock in accordance with the following
provisions:
(1) The Company shall deliver a notice by certified mail (the
"PREEMPTIVE NOTICE") to each holder of shares of Series B Preferred Stock
stating (i) its bona fide intention to offer Preemptive Securities, (ii)
the number of such Preemptive Securities to be offered, and (iii) the price
and terms, if any, upon which it proposes to offer such Preemptive
Securities. In addition, the Preemptive Notice will contain all other
information which would be provided to prospective purchasers with respect
to the proposed offering.
(2) With respect to any Type A Offering of Preemptive Securities, by
written notification given by each holder of shares of Series B Preferred
Stock within 15 Business Days from the date of the Preemptive Notice, each
holder may elect to purchase or obtain, at the price and on the terms
specified in the Preemptive Notice, up to that portion of such Preemptive
Securities which equals the proportion that the number of shares of Common
Stock issuable upon conversion of the shares of Series B Preferred Stock
then held by such holder bears to the total number of shares of Common
Stock of the Company then outstanding (assuming full conversion of all
convertible securities, including without limitation the Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock and Series D
Preferred Stock).
(3) With respect to any Type B Offering of Preemptive Securities, by
written notification given by each holder of shares of Series B Preferred
Stock within 15 Business Days from the date of the Preemptive Notice, each
holder may elect to purchase or obtain, at the price and on the terms
specified in the Preemptive Notice, up to that portion of such Preemptive
Securities which equals the proportion that the number of shares of Common
Stock issuable upon conversion of the shares of Series B Preferred Stock
then held by such holder bears to the number of shares of Common Stock of
the Company into which the outstanding shares of Series B Preferred Stock
and the outstanding shares of Series B Preferred Stock are then
convertible.
24
<PAGE>
(4) If any of the holders of Series B Preferred Stock decline to
exercise any right of refusal with respect to any offering to such holders
of Series B Preferred Stock of any Preemptive Securities, such holders (the
"DECLINING SERIES B HOLDERS") shall give written notification of such
election to decline to exercise such rights to the Company within 15
Business Days from the date of the Preemptive Notice. Within 3 Business
Days thereafter, the Company shall give written notification (the "DECLINED
PREEMPTIVE SECURITIES NOTICE") to each holder of Series B Preferred Stock
of the following: (i) the total number of shares of Preemptive Securities
which the Declining Series B Holders declined to purchase (collectively,
the "DECLINED PREEMPTIVE SECURITIES"), and (ii) the price and terms
specified in the Preemptive Notice relating to such Declined Preemptive
Securities.
(5) By written notification given by each holder of shares of Series
B Preferred Stock within 3 Business Days from the date of the Declined
Preemptive Securities Notice, each holder of Series B Preferred Stock may
elect to purchase or obtain, at the price and on the terms specified by the
Company for such sale of such Preemptive Securities, such Declined
Preemptive Securities at the price and on the terms specified in the
Preemptive Notice; PROVIDED, HOWEVER, that if the total number of Declined
Preemptive Securities so elected to be purchased by such holders of Series
B Preferred Stock pursuant hereto (collectively, the "ELECTING HOLDERS")
exceeds the total number of Declined Preemptive Securities, each such
Electing Holder shall purchase, and the Company shall sell to such Electing
Holder, that portion of the total number of Declined Preemptive Securities
which equals the proportion that the number of shares of Common Stock
issuable upon conversion of the shares of Series B Preferred Stock then
held by such holder bears to the number of shares of Common Stock of the
Company into which the outstanding shares of all Electing Holders are then
convertible.
(6) If all Preemptive Securities referred to in any Preemptive Notice
are not elected to be obtained as provided in Section 15(b)(2) or 15(b)(3),
or Section 15(b)(4) or 15(b)(5), as applicable, the Company may, at any
time after the latest date set forth above for the exercise of the right to
purchase any such Preemptive Securities by any holder of Series B Preferred
Stock (the "PREEMPTIVE RIGHT EXPIRATION DATE") to the date sixty (60) days
from the Preemptive Right Expiration Date offer the remaining unsubscribed
portion of such Preemptive Securities to any Person or Persons at a price
equal to the price specified in the relevant Preemptive Notice. If the
Company does not enter into an agreement for the sale of the Preemptive
Securities within sixty (60) days after the Preemptive Right Expiration
Date, or if such agreement is not consummated within ninety (90) days of
the Preemptive Right Expiration Date, the right provided under this Section
15 shall be deemed to be revived and such Preemptive Securities shall not
be offered unless first reoffered to each holder of shares of Series B
Preferred Stock in accordance herewith.
(7) The rights set forth in this Section 15 shall not be applicable
to the issuance or sale of shares of Common Stock pursuant to Options
approved by the Board
25
<PAGE>
to officers, directors and employees of the Company for the primary
purpose of soliciting or retaining their employment or services.
SECTION 16. DEFINITIONS.
As used in this Certificate, the following terms shall have the following
meanings (with terms defined in the singular having comparable meanings when
used in the plural and vice versa), unless the context otherwise requires:
"AFFILIATE" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as used with respect to any Person, shall mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise; provided that
beneficial ownership of a majority or more of the voting securities of a Person
shall be deemed to be control.
"AMENDED BYLAWS" means the Amended and Restated Bylaws of the Company, as
in effect from time to time.
"AGGREGATE VOTING LIMITATION" has the meaning set forth in Section 10(a).
"BOARD" or "BOARD OF DIRECTORS" means the Board of Directors of the
Company.
"BUSINESS DAY" means any day other than a Legal Holiday.
"CAPITAL BUDGET PLAN" means, for each fiscal year of the Company, the plan
of the Company for making Capital Expenditures for such fiscal year which has
been approved for such fiscal year by either the Executive Committee or a
Supermajority Vote of the Board of Directors of the Company.
"CAPITAL EXPENDITURES" means, for any period, expenditures made by the
Company or any of its Subsidiaries to acquire or construct fixed assets, plant
and Fixtures and Equipment (including additions, improvements, upgrades and
replacements, but excluding repairs) during such period calculated in accordance
with GAAP.
"CAPITAL LEASE OBLIGATION" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a lease that would at such
time be required to be capitalized on a balance sheet in accordance with GAAP.
"CAPITAL STOCK" means (i) in the case of a corporation, corporate stock,
(ii) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however designated) of
corporate stock, (iii) in the case of a partnership, partnership interests
(whether general or limited) and (iv) any other interest or participation that
confers on a
26
<PAGE>
Person the right to receive a share of the profits and losses of,
or distributions of assets of, the issuing Person.
"CERTIFICATE OF INCORPORATION" means the certificate of incorporation (as
defined in Section 104 of the Delaware General Corporation Law) of the Company
in effect on the date hereof, including, without limitation, the Series A,
Series B, Series C and the Series D Certificates of Designation.
"CHANGE OF CONTROL" with respect to a Person 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% in outstanding voting power of such Person, (ii) at such
time as during any one year period, individuals who at the beginning of such
period constitute such Person's Board of Directors or other governing body cease
to constitute at least a majority of such board or governing body (provided,
however, that a change in directors upon a Type B Event Date shall not be deemed
to cause a Change in Control pursuant to this clause (ii)), (iii) upon
consummation of a merger or consolidation of such Person into or with another
Person in which the shareholders of the subject Person immediately prior to the
consummation of such transaction shall own less than Fifty Percent (50%) of the
voting securities of the surviving Person (or the parent corporation of the
surviving Person where the surviving Person is wholly-owned by the parent
corporation) immediately following the consummation of such transaction or (iv)
the sale, transfer or lease of all or substantially all of the assets of such
Person, in any of cases (i), (ii), (iii) or (iv) in a single transaction or
series of related transactions; PROVIDED, that no Change of Control hereunder
with respect to the Company shall be deemed to occur solely by reason of (x) the
ownership by the Initial Purchaser or any Affiliate thereof or the Majority
Holders of the Series C Preferred Stock or any Affiliate thereof of any Capital
Stock of the Company or (y) the conversion of shares of Series C Preferred Stock
into either Series D Preferred Stock (and any change in the Board of Directors
incident thereto) or Common Stock, or (z) the conversion of shares of Series D
Preferred Stock into Common Stock.
"COMMITTEES" has the meaning set forth in Section 10(e).
"COMMON EQUITY" means all shares now or hereafter authorized of any class
of common stock of the Company (including the Common Stock) and any other stock
of the Company, however designated, authorized after the date hereof, which has
the right (subject always to prior rights of any class or series of preferred
stock) to participate in any distribution of the assets or earnings of the
Company without limit as to per share amount.
"COMMON STOCK" has the meaning set forth in Section 3(a).
"COMMON STOCK DIRECTOR" means, for any period prior to any Type B Event
Date, any director other than the Joint Director or a director elected by the
holders of the Series B Preferred Stock or the Series C Preferred Stock.
"COMPANY" means InSight Health Services Corp., a Delaware corporation.
27
<PAGE>
"CONVERSION DATE" means (i) in the event of a Type A Conversion, the date
set forth in Section 5(a) (in the event of a partial conversion relating to a
Partial Conversion Event) or Section 5(b) (in the event of any other conversion
pursuant to Section 5), and (ii) in the event of a Type B Conversion, the date
of receipt by the Company of the relevant Type B Conversion Notice.
"CONVERSION DIRECTORS" has the meaning set forth in Section 10.
"CONVERSION PRICE" has the meaning set forth in Section 8.
"CONVERTIBLE SECURITY" means any stock or securities, directly or
indirectly, convertible into or exchangeable for Common Equity, including
without limitation any exchangeable debt securities.
"CORPORATE CHANGE" has the meaning set forth in Section 8(e).
"CREDIT FACILITY" means a credit facility to which the Company is a party
with NationsBank, N.A.
"DECLINED PREEMPTIVE SECURITIES" has the meaning set forth in Section
15(b)(4).
"DECLINED PREEMPTIVE SECURITIES NOTICE" has the meaning set forth in
Section 15(b)(4).
"DECLINING SERIES B HOLDERS" has the meaning set forth in Section 15(b)(4).
"ELECTING HOLDERS" has the meaning set forth in Section 15(b)(5).
"ENCUMBRANCE" means any claim, lien, pledge, option, charge, easement,
security interest, right-of-way, encumbrance or other right of third parties,
and, with respect to any securities, any agreements, understandings or
restrictions affecting the voting rights or other incidents of record or
beneficial ownership pertaining to such securities.
"FIRST MEETING" means the meeting of the newly constituted Board of
Directors to be held two calendar days after a Type B Event Date, at the
principal offices of the Corporation.
"FISCAL YEAR" means each year ending June 30, or any other fiscal year as
approved by the Board of Directors.
"FIXTURES AND EQUIPMENT" means all of the furniture, fixtures, furnishings,
machinery, equipment and other tangible assets owned by the Company or any
Subsidiary that are material to the conduct of their businesses as currently
conducted.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession, which are in effect as of the Initial Issue Date.
28
<PAGE>
"INDEBTEDNESS" means, as to any Person without duplication, (a) all items
which, in accordance with GAAP, would be included as a liability on the balance
sheet of such Person and its Subsidiaries (including any obligation of such
Person to the issuer of any letter of credit for reimbursement in respect of any
drafts drawn under such letter of credit), excluding obligations in respect of
deferred taxes and deferred employee compensation and benefits, and anything in
the nature of capital stock, surplus capital and retained earnings; (b) the
amount available for drawing under all letters of credit issued for the account
of such Person; (c) Capital Lease Obligations of such Person; and (d) all
obligations of other Persons that such Person has guaranteed, including, without
limitation, all obligations of such Person consisting of recourse liabilities
with respect to accounts receivable sold or otherwise disposed of by such
Person; provided, however, that the term Indebtedness shall not include trade
accounts payable (other than for borrowed money) arising in, and accrued
expenses incurred in, the ordinary course of business of such Person, provided
the same are not more than sixty (60) days overdue or are being contested in
good faith.
"INDEPENDENT" means any Person who is not an officer or employee of the
Company or any Subsidiary or other Affiliate of the Company or otherwise paid
any compensation or remuneration by the Company or any Subsidiary or other
Affiliate of the Company other than director's fees.
"INITIAL ISSUE DATE" means October 14, 1997.
"INITIAL PURCHASER" shall mean the Persons to whom shares of Series B
Preferred Stock are initially issued by the Company.
"INITIAL PURCHASER AFFILIATE" means the Initial Purchaser, the general
partner of any Initial Purchaser, and any investor in any Initial Purchaser or
in the general partner of any Initial Purchaser, in any case, as of the date
hereof.
"JOINT DIRECTOR" has the meaning set forth in Section 10(b)(4).
"JUNIOR SECURITIES" has the meaning set forth in Section 2.
"LEGAL HOLIDAY" means a Saturday, a Sunday or a day on which banking
institutions in the Company's principal place of business, the City of New York
or at a place of payment are authorized by law, regulation or executive order to
remain closed. If a payment date is a Legal Holiday at a place of payment,
payment may be made at that place on the next succeeding day that is not a Legal
Holiday, and no interest shall accrue for the intervening period.
"LIEN" means any lien, mortgage, deed of trust, pledge, security interest,
charge or encumbrance of any kind (including any conditional sale or other title
retention agreement, any lease in the nature thereof and any agreement to give
any security interest).
"LIQUIDATING DIVIDEND" has the meaning set forth in Section 8(g).
"LIQUIDATING EVENT" has the meaning set forth in Section 4(b).
29
<PAGE>
"LIQUIDATION PREFERENCE" has the meaning set forth in Section 4(a).
"MAJORITY HOLDERS," at any time, and with respect to any class or series of
Capital Stock of the Company, means holders of a majority of the shares of such
class or series then outstanding. If the term is used without reference to a
particular class or series of Capital Stock of the Company, it means Majority
Holders of the Series B Preferred Stock.
"MARKET PRICE" means as to any security the average of the closing prices
of any such security's sales on all domestic securities exchanges on which such
security may at the time be listed, or, if there have been no sales on any such
exchange on any day, the average of the highest bid and lowest asked prices on
all such exchanges at the end of such day, or, if on any day such security is
not so listed, the average of the representative bid and asked prices quoted in
Nasdaq as of 4:00 P.M., New York time, on such day, or, if on any day such
security is not quoted in Nasdaq, the average of the highest bid and lowest
asked prices on such day in the domestic over-the-counter market as reported by
the National Quotation Bureau, Incorporated, or any similar successor
organization, in each such case averaged over a period of twenty-one (21)
Business Days consisting of the day as of which "Market Price" is being
determined and the twenty (20) consecutive Business Days prior to such day;
provided that if such security is listed on any domestic securities exchange the
term "Business Days" as used in this sentence means business days on which such
exchange is open for trading. If at any time such security is not listed on any
domestic securities exchange or quoted in Nasdaq or the domestic over-the-
counter market, the "Market Price" shall be the fair value thereof determined by
the Company and approved by the Majority Holders; provided that if such parties
are unable to reach agreement within a reasonable period of time, such fair
value shall be determined by an appraiser jointly selected by the Company and
the Majority Holders. The determination of such appraiser shall be final and
binding on the Company and holders of the shares of Series B Preferred Stock,
and the fees and expenses of such appraiser shall be paid by the Company.
"OPERATING LEASE" shall mean any lease with respect to which the
obligations of the lessee thereunder are, at the time any determination thereof
is to be made, not required to be capitalized on the lessee's balance sheet in
accordance with GAAP.
"OPTION" shall mean any rights or options to subscribe for or purchase
Common Equity or Convertible Securities.
"ORDINARY COURSE OF BUSINESS" shall mean the ordinary course of business
for a company engaged in the business of providing diagnostic services to the
healthcare industry as so provided by the Company as of the Initial Issue Date;
provided, that all sales by the Company or any Subsidiary, as the case may be,
of inventory and sales of Fixtures and Equipment no longer used or useful in
such business shall be deemed to be in the Ordinary Course of Business.
"PARITY SECURITIES" has the meaning set forth in Section 2.
"PARTIAL CONVERSION EVENT" means (i) the consummation of the sale by any
holder of its shares of Series B Preferred Stock to a third party at any time
approved by the Board, (ii) the
30
<PAGE>
consummation of a public offering of the Common Stock at any time and
(iii) at any time following April 14, 1999, the consummation of a private
sale of Common Stock.
"PARTIAL SUBSIDIARY" has the meaning set forth in Section 11(u).
"PERSON" means any individual, corporation, partnership, joint venture,
association, limited liability company, joint-stock company, trust,
unincorporated organization or government or agency or political subdivision
thereof (including any subdivision or ongoing business of any such entity or
substantially all of the assets of any such entity, subdivision or business).
"PREEMPTIVE NOTICE" has the meaning set forth in Section 15(b).
"PREEMPTIVE RIGHT EXPIRATION DATE" has the meaning set forth in Section
15(b)(6).
"PREEMPTIVE SECURITIES" has the meaning set forth in Section 15(a).
"PREFERRED STOCK DIRECTORS" means the Series B Directors and the Series C
Director.
"SECURITIES PURCHASE AGREEMENT" means the Securities Purchase Agreement
dated as of October 14, 1997 between the Company and the Initial Purchaser.
"SENIOR SECURITIES" has the meaning set forth in Section 2.
"SERIES A PREFERRED STOCK" has the meaning set forth in Section 2.
"SERIES B DIRECTOR" has the meaning set forth in Section 10.
"SERIES B PREFERRED STOCK" has the meaning set forth in Section 1.
"SERIES C DIRECTOR" has the meaning set forth in Section 10.
"SERIES C PREFERRED STOCK" has the meaning set forth in Section 2.
"SERIES D PREFERRED STOCK" has the meaning set forth in Section 2.
"SPECIAL CORPORATE EVENT" with respect to a Person 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 20% in outstanding voting power of such Person, (ii) at such
time as during any one year period, individuals who at the beginning of such
period constitute such Person's Board of Directors or other governing body cease
to constitute at least a majority of such board or governing body (provided,
however, that a change in directors upon a Type B Event Date shall not be deemed
to cause a Special Corporate Event pursuant to this clause (ii)), (iii) upon
consummation of a merger or consolidation of such Person into or with another
Person in which the shareholders of the subject Person immediately prior to the
consummation of such transaction shall own less than Fifty Percent (50%) of the
voting securities of the surviving Person (or the parent corporation of the
surviving Person where the surviving Person is wholly-owned by the parent
corporation) immediately following the
31
<PAGE>
consummation of such transaction or (iv) the sale, transfer or lease of all or
substantially all of the assets of such Person, in any of cases (i), (ii), (iii)
or (iv) in a single transaction or series of related transactions; provided,
that no Special Corporate Event hereunder with respect to the Company shall be
deemed to occur solely by reason of the ownership by the Initial Purchaser or
any Affiliate thereof or the Majority Holders of the Series C Preferred Stock
or any Affiliate thereof of any Capital Stock of the Company.
"SUBSIDIARY" means, with respect to any Person, (a) any corporation of
which at least a majority in interest of the outstanding voting stock (having by
the terms thereof voting power under ordinary circumstances to elect a majority
of the directors of such corporation, irrespective of whether or not at the time
stock of any other class or classes of such corporation shall have or might have
voting power by reason of the happening of any contingency) is at the time,
directly or indirectly, owned or controlled by such Person, by one or more
Subsidiaries of such Person or by such Person and one or more of its
Subsidiaries, or (b) any corporate or non-corporate entity in which such Person,
one or more Subsidiaries of such Person, or such person and one or more
Subsidiaries of such Person, directly or indirectly, at the date of
determination thereof, has an ownership interest and one hundred percent (100%)
of the revenue of which is included in the consolidated financial reports of
such Person consistent with GAAP.
"SUPERMAJORITY VOTE" means the affirmative vote of six (6) directors of the
Company with respect to the matter subject to such vote.
"SUPERVOTING SECURITIES" means any class or series of the Company's Capital
Stock the holders of which have the right to cast more than one vote per share
and/or have the right to elect one or more members of the Board of Directors,
voting as a class or series.
"TYPE A CONVERSION" means a conversion of shares of Series B Preferred
Stock into shares of Common Stock pursuant to Section 5 hereof.
"TYPE A OFFERING OF PREEMPTIVE SECURITIES" means any proposed offering by
the Company of Preemptive Securities in which the proposed sale price reflects a
price per share of Common Stock at or above the higher of (i) the Market Price
per share of Common Stock, determined as of the date of the Preemptive Notice
relating to such offering and (ii) $8.375 per share of Common Stock.
"TYPE B CONVERSION" means a conversion of shares of Series B Preferred
Stock into shares of Series D Preferred Stock pursuant to Section 6 hereof.
"TYPE B CONVERSION NOTICE" has the meaning set forth in Section 6(b).
"TYPE B EVENT DATE" has the meaning set forth in Section 6(b).
"TYPE B OFFERING OF PREEMPTIVE SECURITIES" means any proposed offering by
the Company of Preemptive Securities in which the proposed sale price reflects a
price per share of Common Stock below the higher of (i) the Market Price per
share of Common Stock, determined
32
<PAGE>
as of the date of the Preemptive Notice relating to such offering and (ii)
$8.375 per share of Common Stock.
"TYPE B TRIGGER DATE" means the date one year after the initial borrowing
of funds under the Credit Facility.
33
<PAGE>
IN WITNESS WHEREOF, InSight Health Services Corp. has caused this
Certificate to be executed by its Executive Vice President and Secretary this
14th day of October, 1997.
INSIGHT HEALTH SERVICES CORP.
By: /s/ Thomas V. Croal
----------------------------------
Name: Thomas V. Croal
Office: Executive Vice President
and Secretary
34
<PAGE>
INSIGHT HEALTH SERVICES CORP.
CERTIFICATE OF DESIGNATION, PREFERENCES AND RIGHTS
OF CONVERTIBLE PREFERRED STOCK, SERIES C
(Pursuant to Section 151(g) of the General Corporation
Law of the State of Delaware.)
InSight Health Services Corp., 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 certificate of incorporation of the Company,
as amended, the Board unanimously adopted the following resolutions on
October 14, 1997 authorizing the issuance of the Series C 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
3,500,000 shares of $.001 par value preferred shares, such series to consist
of 27,953 shares, and 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:
SECTION 1. DESIGNATION.
The Preferred Stock created and authorized hereby shall be designated as
the "Convertible Preferred Stock, Series C" (hereinafter called the "SERIES C
PREFERRED STOCK"). The number of shares of Series C Preferred Stock shall be
27,953 and no more.
SECTION 2. RANK.
The Series C Preferred Stock shall, with respect to dividend distributions
and distributions upon the liquidation, winding up and dissolution of the
Company, rank senior to all classes of Common Equity of the Company, and to each
other class or series of Capital Stock of the Company (except for the
Convertible Preferred Stock, Series A (hereinafter called the "SERIES A
PREFERRED STOCK")) the terms of which do not expressly provide that it ranks
senior to or on a parity with the Series C Preferred Stock as to dividend
distributions and distributions upon the liquidation, winding up and dissolution
of the Company (collectively referred to with the Common Equity of the Company
as "JUNIOR SECURITIES"). The Series C Preferred Stock shall, with respect to
dividend distributions and distributions upon the liquidation, winding up and
dissolution of the Company, rank on a parity with any class or series of Capital
Stock hereafter created which expressly provides that it ranks on a parity with
the Series C Preferred Stock as to dividend distributions and distributions upon
the liquidation, winding up and dissolution of the Company (shares of such a
class or series, together with shares of the Series A Preferred Stock, shares of
the Convertible Preferred Stock, Series B (the "SERIES B PREFERRED STOCK"), and
shares
<PAGE>
of the Convertible Preferred Stock, Series D (the "SERIES D PREFERRED STOCK")
are, collectively, the "Parity Securities"); provided that any purported
Parity Securities that were not created, authorized or issued in accordance
with Section 11 hereof shall be deemed to be Junior Securities and not Parity
Securities. The Series C Preferred Stock shall, with respect to dividend
distributions and distributions upon the liquidation, winding up and
dissolution of the Company, rank junior to each class or series of Capital
Stock hereafter issued in accordance with Section 11 hereof and which
expressly provides that it ranks senior to the Series C Preferred Stock as to
dividend distributions or distributions upon the liquidation, winding up and
dissolution of the Company ("SENIOR SECURITIES"). Any purported Supervoting
Securities that were not created, authorized or issued in accordance with
Section 11 hereof shall be deemed for all purposes related to voting rights
to be identical to Common Stock, including, without limitation, as to voting
rights with respect to the election of directors and all other matters
submitted to a vote of stockholders.
SECTION 3. DIVIDENDS.
(a) The Company may (when, as and if declared by the Board of Directors
of the Company) declare and pay dividends, out of the entire assets and funds
of the Company legally available therefor, to the holders of the Series A
Preferred Stock, the Series B Preferred Stock, the Series C Preferred Stock,
the Series D Preferred Stock and the common stock, $.001 par value per share,
of the Company (the "COMMON STOCK") ratably based on the number of shares of
Common Stock held by each such Holder (assuming full conversion of all such
shares of Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, and Series D Preferred Stock into Common Stock); PROVIDED,
HOWEVER, that no dividend whatsoever shall be paid, and no distribution shall
be made, on any Common Stock unless and until each holder of the Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and
Series D Preferred Stock shall have been paid in full its respective pro rata
portion of such dividend.
(b) Holders of shares of the Series C Preferred Stock shall be entitled
to receive the dividends provided for in Section 3(a) hereof in preference to
and in priority over any dividends upon any of the Junior Securities, except
for the Common Stock.
(c) Holders of shares of the Series C Preferred Stock shall be entitled
to receive the dividends provided for in Section 3(a) hereof on a pro rata
basis with respect to any dividends upon any Parity Securities.
SECTION 4. LIQUIDATION PREFERENCE.
(a) Upon any Liquidating Event with respect to the Company, the Holders
of shares of Series C Preferred Stock then outstanding shall be entitled to
be paid, out of the assets of the Company available for distribution to its
stockholders, $1,000 per share of Series C Preferred Stock (the "LIQUIDATION
PREFERENCE"), plus an amount in cash equal to any declared but unpaid
dividends thereon, before any payment shall be made or any assets distributed
to the holders of any of the Junior Securities, including, without
limitation, Common Stock. Except as provided in the preceding sentence,
holders of shares of Series C Preferred Stock shall not be entitled to any
distribution in the event of liquidation, dissolution or winding up of the
affairs of the
2
<PAGE>
Company. If the assets of the Company are not sufficient to pay in full the
liquidation payments payable to the holders of outstanding shares of the
Series C Preferred Stock and all Parity Securities, then the holders of all
such shares shall share equally and ratably in such distribution of assets of
the Company in accordance with the amounts which would be payable on such
distribution if the amount to which the holders of outstanding shares of
Series C Preferred Stock and the holders of outstanding shares of all Parity
Securities are entitled were paid in full.
(b) "LIQUIDATING EVENT" shall mean, with respect to any Person, any of
the following events: (i) the commencement by such Person of a voluntary
case under the bankruptcy laws of the United States, as now or hereafter in
effect, or the commencement of an involuntary case against such Person with
respect to which the petition shall not be controverted within 15 days, or be
dismissed within 60 days, after commencement thereof; (ii) the appointment of
a custodian for, or the taking charge by a custodian of, all or substantially
all of the property of such Person; (iii) the commencement by such Person of
any proceeding under any reorganization, arrangement, adjustment of debt,
relief of debtors, dissolution, insolvency or liquidation or similar law of
any jurisdiction whether now or hereafter in effect relating to such Person;
(iv) the commencement against such Person of any proceeding set forth in the
preceding clause (iii), which is not controverted within 10 days thereof and
dismissed within 60 days after the commencement thereof; (v) the adjudication
of such Person insolvent or bankrupt, or the adoption by such Person of a
plan of liquidation; (vi) the occurrence of any Change of Control with
respect to such Person or (vii) the filing of a certificate of dissolution in
respect of the Company with the Secretary of State of the State of Delaware;
in any of cases (i) through (vi) above, in a single transaction or series of
related transactions.
SECTION 5. TYPE A CONVERSION
(a) Each holder of Series C Preferred Stock shall have the right, at its
option, at any time, to convert, subject to the terms and provisions of this
Section 5, all, but not less than all, of its Series C 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 aggregate
Liquidation Preference of all shares of Series C Preferred Stock to be
converted plus (B) any declared but unpaid dividends on such shares, by (ii)
the applicable Conversion Price on the Conversion Date. In addition, and
without limiting the right to conversion in whole set forth above,
substantially contemporaneously with any Partial Conversion Event, each
holder of Series C Preferred Stock shall have the right, at its option, to
convert (which conversion, if such option is exercised, shall be deemed to
occur on such Partial Conversion Event), subject to the terms and provisions
of this Section 5, all or any part of its Series C 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 aggregate
Liquidation Preference of all shares of Series C Preferred Stock to be
converted plus (B) any declared but unpaid dividends on such shares, by (ii)
the applicable Conversion Price (as defined below) on the Conversion Date.
The person or persons entitled to receive the shares of Common Stock upon
conversion of such shares of Series C Preferred Stock shall be treated for
all purposes as having become the record holder or holders of such shares of
Common Stock on the Conversion Date and such conversion shall be at the
Conversion Price in effect at such time.
3
<PAGE>
(b) In order to convert all or any portion of its outstanding Series C
Preferred Stock into shares of Common Stock pursuant to this Section 5, the
holder of such Series C Preferred Stock shall deliver certificates
representing the shares of Series C 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 C Preferred Stock into shares of Common
Stock in accordance with the provisions of this Section 5. Such notice shall
specify the number of shares of Series C 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.
(c) Upon any Type A Conversion, pursuant to this Section 5 and Section 5
of the certificate of designation of Series B Preferred Stock, of all of the
outstanding shares of Series B Preferred Stock and Series C Preferred Stock,
the Company shall immediately file a certificate with the Secretary of State
of the State of Delaware, pursuant to Section 151(g) of the Delaware General
Corporation Law, setting forth a resolution or resolutions adopted by the
Board of Directors of the Company that none of the authorized shares of
Series D Preferred Stock are outstanding and that none will be issued subject
to the Series D Certificate of Designation.
SECTION 6. TYPE B CONVERSION
(a) The right to conversion set forth in this Section 6 shall be in
addition to, and not in lieu of, the conversion rights set forth in Section
5.
(b) At any time on or after the Type B Trigger Date, the Majority
Holders may elect to deliver an irrevocable Type B Conversion notice (the
"TYPE B CONVERSION NOTICE") to the Company; PROVIDED, HOWEVER, that no such
Type B Conversion Notice shall be effective unless substantially
contemporaneously with the delivery of such Type B Conversion Notice,
Majority Holders of the Series B Preferred Stock shall deliver a Type B
Conversion Notice (as defined in the Certificate of Designation relating to
the Series B Preferred Stock) to the Company. The date of delivery to the
Company of a Type B Conversion Notice shall be denominated herein a "TYPE B
EVENT DATE" or a "CONVERSION DATE". Upon receipt of a Type B Conversion
Notice, the Company shall as soon as practicable deliver a copy of such Type
B Conversion Notice to each holder of Series C Preferred Stock and each
holder of Series B Preferred Stock.
(c) On the Type B Event Date, each share of Series C Preferred Stock
then outstanding shall automatically be converted into such number of fully
paid and non-assessable shares of Series D Preferred Stock as results from
dividing (i) the sum of (A) the aggregate Liquidation Preference of such
share of Series C Preferred Stock plus (B) any declared but unpaid dividends
on such share, by (ii) the product of ten (10) times the applicable
Conversion Price on the Conversion Date. The person or persons entitled to
receive the shares of Series D Preferred Stock upon conversion of such shares
of Series C Preferred Stock shall be treated for all purposes (including
without limitation voting rights) as having become the record holder or
holders of such shares of Series D Preferred Stock on the Type B Event Date,
whether or not such person or persons deliver its certificates for shares of
Series C Preferred Stock to the Company on the Type B Event Date.
4
<PAGE>
(d) As soon as practicable after the Type B Event Date, each holder of
Series C Preferred Stock shall deliver its certificates for shares of Series
C Preferred Stock to the Company at its principal office. Except as provided
in this Certificate of Designation, all rights with respect to such Series C
Preferred Stock shall terminate on the Type B Event Date, and on such Type B
Event Date the holders of the shares of Series D Preferred Stock into which
the shares of Series C Preferred Stock were converted shall have all of the
rights accorded to holders of the Company's Series D Preferred Stock.
(e) The rights of holders of shares of Series C Preferred Stock pursuant
to this Section 6 shall not be transferable, except to an Affiliate as of the
Initial Issue Date of the holder.
SECTION 7. GENERAL PROVISIONS RELATING TO CONVERSION
The following provisions shall be applicable to any conversion pursuant
to either Section 5 or Section 6 hereof.
(a) As promptly as practicable after the surrender as hereinabove
provided of certificates representing shares of Series C Preferred Stock
converted or to be converted into shares of Common Stock or Series D
Preferred Stock, the Company shall deliver or cause to be delivered to the
holder, or the holder's designee, certificates representing the number of
fully paid and non-assessable shares of Common Stock or Series D Preferred
Stock into which the shares of Series C Preferred Stock are converted
(including any adjustment pursuant to Section 8(b) below) and, if less than
the entire number of shares of Series C Preferred Stock represented by the
certificate or certificates surrendered is to be converted, a new certificate
for the number of shares of Series C Preferred Stock not so converted. So
long as any shares of Series C Preferred Stock remain outstanding, the
Company shall not close its Common Stock transfer books. The issuance of
certificates representing shares of Common Stock or Series D Preferred Stock
issued upon the conversion of shares of Series C Preferred Stock shall be
made without charge to the holder of Series C Preferred Stock 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 or Series D Preferred
Stock are to be registered in a name different from that of the registered
holder of Series C Preferred Stock).
(b) No fractional shares of Common Stock or scrip representing
fractional shares of Common Stock or Series D Preferred Stock shall be issued
upon any conversion of any shares of Series C Preferred Stock, and the number
of shares of Common Stock or Series D Preferred Stock to be issued shall be
rounded up to a whole share.
(c) The Company shall at all times reserve and keep available out of its
authorized but unissued shares of Common Stock and preferred stock, par value
$.001 per share, solely for the purpose of effecting the conversion of shares
of Series C Preferred Stock and Series B Preferred Stock and the issuance of
Common Stock in respect of the Warrants and the Carlyle Warrants, the full
number of whole shares of Common Stock and Series D Preferred Stock then
deliverable upon the conversion of all shares of Series B Preferred Stock and
Series C Preferred Stock then outstanding and the issuance of Common Stock in
respect of the Warrants and the Carlyle Warrants. The Company shall take at
all times such corporate action as shall be
5
<PAGE>
necessary in order that the Company may validly and legally issue fully paid
and non-assessable shares of Common Stock or Series D Preferred Stock upon
the conversion of shares of Series B Preferred Stock and Series C Preferred
Stock in accordance with the provisions of Section 5 and Section 6, and the
issuance of Common Stock in respect of the Warrants and the Carlyle Warrants.
If at any time the number of authorized but unissued shares of Common Stock
or Series D Preferred Stock shall not be sufficient to effect the conversion
of all then outstanding shares of the Series B Preferred Stock and the Series
C Preferred Stock and the issuance of Common Stock in respect of the Warrants
and the GE Warrants, in addition to such other remedies as shall be available
to the holders of the Series C Preferred Stock, the Company shall forthwith
take such corporate action as may be necessary to increase its authorized but
unissued shares of Common Stock and Series D Preferred Stock to such numbers
of shares as shall be sufficient for such purpose, including but not limited
to promptly calling and holding a meeting of the Company's stockholders, at
which the Company's stockholders shall vote on a proposed amendment to the
Certificate of Incorporation that would so increase the number of authorized
shares of Common Stock or preferred stock, par value $.001 per share, as
appropriate, a favorable vote for which amendment shall have been recommended
to the Company's stockholders by the Board of Directors, pursuant to a duly
and validly adopted resolution of the Board of Directors setting forth the
amendment proposed and declaring its advisability, all in accordance with
Section 242 of the Delaware General Corporation Law; and, in case of an
increase in the number of authorized shares of such preferred stock, the
Board of Directors shall promptly cause to become effective a certificate of
increase pursuant to Section 151 of the Delaware General Corporation Law.
(d) If any shares of Common Stock or Series D Preferred Stock to be
reserved for the purpose of conversion of Series C Preferred Stock require
registration or listing with, or approval of, any governmental authority,
stock exchange, NASD Inc., Nasdaq or other regulatory body under any federal
or state law, federal or state regulation, rule of NASD Inc., Nasdaq or
otherwise, before such shares may be validly issued or delivered upon
conversion, the Company shall, in good faith and as expeditiously as
practicable, endeavor to secure such registration, listing or approval, as
the case may be.
(e) All shares of Common Stock or Series D Preferred Stock that may be
issued upon conversion of the Series C Preferred Stock shall upon issuance by
the Company be validly issued, fully paid and non-assessable and free from
all taxes, liens and charges with respect to the issuance thereof.
(f) In the event of any taking by the Company of a record of the holders
of any class of Capital Stock for the purpose of determining the holders
thereof who are entitled to receive any dividend or other distribution, any
right to subscribe for, purchase or otherwise acquire any shares of Capital
Stock or any other securities or property, or to receive any other right, the
Company shall mail to each holder of Series C Preferred Stock, at least 20
days prior to the date specified therein, a notice specifying the date on
which any such record is to be taken for the purpose of such dividend,
distribution or right, and the amount and character of such dividend,
distribution or right.
6
<PAGE>
(g) 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 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 Sections 5, 6 and 8 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 C Preferred Stock against impairment
of any kind.
SECTION 8. CONVERSION PRICE.
(a) As used herein, the "Conversion Price" shall initially be $8.375 per
share of Common Stock, subject to adjustment as set forth below. In order to
prevent the dilution of the rights granted hereunder, the Conversion Price
shall be subject to adjustment from time to time as provided in this Section
8.
(b) If and whenever the Company issues or sells or, in accordance with
Section 8(c), is deemed to have issued or sold, any share of Common Equity
without consideration or for a consideration per share less than the
Conversion Price in effect immediately prior to such issuance or sale, the
Conversion Price in effect immediately prior to such time 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 Equity 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 Equity
outstanding immediately after such issuance. Notwithstanding the foregoing,
there shall be no adjustment to the Conversion Price with respect to (i) the
granting of stock options to employees of the Company authorized but not
granted as of the Initial Issue Date for an aggregate of up to 300,000 shares
of Common Equity (as such number of shares is equitably adjusted for
subsequent stock splits, reclassifications, stock combinations, stock
dividends and recapitalizations), or (ii) the issuance upon exercise of up to
300,000 shares of Common Equity (as such number of shares is equitably
adjusted for subsequent stock splits, stock combinations, stock dividends and
recapitalizations) in connection with the stock options described in clause
(i) of this sentence.
(c) For purposes of determining the adjusted Conversion Price under
Section 8(b) above, the following shall be applicable:
(1) CONSIDERATION. If any Common Equity, Options or Convertible
Securities are issued or sold or deemed to have been issued or sold for
cash, the consideration received therefor shall be deemed to be the cash
amount received by the Company therefor (which, in the case of any public
offering of such securities for cash, shall not be reduced for any
underwriters discount, and in no event shall be reduced by the amount of
any reasonable expenses actually paid by the Company in connection
therewith). In case any Common Equity, Options or Convertible Securities
are issued or sold for a consideration other than cash, the amount of the
consideration other than cash received by
7
<PAGE>
the Company shall be the fair market value of such consideration. In
case any Common Equity, Options or Convertible Securities are issued to
the owners of the other constituent entity in connection with any merger
in which the Company or any Subsidiary of the Company is a constituent
entity, the amount of consideration for such Common Equity, Options or
Convertible Securities shall be deemed to be the fair market value of
such portion of the net assets and business of such other constituent
entity as is fairly attributable to such Common Equity, Options or
Convertible Securities, as the case may be. The fair market value of any
consideration other than cash shall be determined jointly by the Company
and the Majority Holders. If such parties are unable to reach agreement
within a reasonable period of time, such fair market value shall be
determined by an appraiser jointly selected by the Company and the
Majority Holders. If such parties are unable to reach agreement within a
reasonable period of time, such fair market value shall be determined by
an appraiser reasonably selected by the Company and reasonably approved
by the Majority Holders. The determination of such appraiser shall be
final and binding on the Company and the holders of the shares of Series
C Preferred Stock, and the fees and expenses of such appraiser shall be
paid by the Company, unless the fair market value determined by such
appraiser is less than five percent (5%) above the value proposed in
writing by the Company and rejected by the Majority Holders prior to the
selection of such appraiser, in which event the fees and expenses of such
appraiser shall be for the account of the holders of the then outstanding
shares of Series C Preferred Stock (on a pro rata basis).
(2) OPTIONS AND CONVERTIBLE SECURITIES. In the case of the granting
or sale of any Option or Convertible Security (whether or not at the time
convertible, exercisable or exchangeable):
(A) the aggregate maximum number of shares of Common Equity
deliverable, directly or indirectly, upon exercise of any
Option shall be deemed to have been issued at the time such
Option was granted and for a consideration equal to the (i)
consideration (determined in the manner provided in subsection
(1) above), if any, received by the Company upon the issuance
of such Option plus (ii) the minimum purchase price provided in
such Option for the Common Equity covered thereby, up to an
amount equal to the Conversion Price in effect at the time such
Option was granted;
(B) the aggregate maximum number of shares of Common Equity
deliverable upon conversion of or in exchange for any such
Convertible Security, or upon the exercise of any Option to
purchase or acquire any Convertible Security and the subsequent
conversion or exchange thereof, shall be deemed to have been
issued at the time such Convertible Security was issued or such
Option was issued and for a consideration equal to the
consideration, if any, received by the Company for any such
Convertible Security and any related Option, plus the
additional consideration (determined in the manner provided in
subsection (1)
8
<PAGE>
above), if any, to be received by the Company upon the
conversion or exchange of such Convertible Security, or upon
the exercise of any related Option to purchase or acquire any
Convertible Security and the subsequent conversion or exchange
thereof;
(C) on any change in the number of shares of Common Equity
deliverable, directly or indirectly, upon conversion, exercise
or exchange of any such Option or Convertible Security or any
change in the consideration to be received by the Company upon
such exercise, conversion or exchange, including, but not
limited to, a change resulting from the anti-dilution
provisions thereof, the 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 Option or Convertible Security upon the basis
of such change;
(D) if the Conversion Price shall have been adjusted upon the
issuance of any such Option or Convertible Security, no further
adjustment of the Conversion Price shall be made for the actual
issuance of Common Equity upon any exercise, conversion, or
exchange thereof;
provided, however, that none of the events set forth in Section 8(c)(2)(A)
through 8(c)(2)(D), inclusive, shall result in any increase in the
Conversion Price.
(3) INTEGRATED TRANSACTION. In case any Option is issued in
connection with the issue or sale of other securities of the Company,
together comprising one integrated transaction in which no specific
consideration is allocated to such Options by the parties thereto, the
Options shall be deemed to have been issued without consideration.
(4) TREASURY SHARES. The number of shares of Common Equity
outstanding at any given time shall not include shares owned or held by or
for the account of the Company, and the disposition of any shares so owned
or held shall be considered an issuance or sale of Common Equity.
(5) RECORD DATE. If the Company takes a record of the holders of
Common Equity for the purpose of entitling them (A) to receive a dividend
or other distribution payable in Common Equity, Options or in Convertible
Securities or (B) to subscribe for or purchase Common Equity, Options or
Convertible Securities, then such record date shall be deemed to be the
date of the issuance or sale of the shares of Common Equity deemed to have
been issued or sold upon the declaration of such dividend or the making of
such other distribution or the date of the granting of such right of
subscription or purchase, as the case may be.
(d) If the Company at any time subdivides (by any stock split, stock
dividend, reclassification, recapitalization or otherwise) one or more classes
of its outstanding shares of Common Equity into a greater number of shares, the
Conversion Price in effect immediately prior to such subdivision shall be
proportionately reduced. If the Company at any time combines
9
<PAGE>
(by reverse stock split or otherwise) one or more classes of its outstanding
shares of Common Stock into a smaller number of shares, the Conversion Price
in effect immediately prior to such combination shall be proportionately
increased.
(e) Any recapitalization, reorganization, reclassification,
consolidation, merger, sale of all or substantially all of the Company's
assets or other transaction, in each case which is effected in such a way
that the holders of Common Equity are entitled to receive (either directly or
upon subsequent liquidation) stock, securities, cash, debt instruments or
assets with respect to or in exchange for Common Equity is referred to herein
as a "CORPORATE CHANGE." In case of any Corporate Change, each share of
Series C Preferred Stock then outstanding will become convertible only into
the kind and amount of securities, cash and other property receivable upon
such Corporate Change by the holder of the number of shares of Common Stock
into which such share of Series C Preferred Stock was convertible immediately
prior thereto (assuming such holder of Common Stock failed to exercise any
rights of election). The Company shall not effect any such consolidation,
merger or sale, unless prior to the consummation thereof, the successor
entity (if other than the Company) resulting from consolidation or merger or
the entity purchasing such assets assumes by written instrument the
obligation to deliver to the holders of shares of Series C Preferred Stock
such shares of stock, securities, cash, debt instruments or assets as, in
accordance with the foregoing provisions, such holder may be entitled to
acquire.
(f) If any event occurs of the type contemplated by the provisions of
this Section 8 but not expressly provided for by such provisions (including,
without limitation, the granting of stock appreciation rights, phantom stock
rights or other rights with equity features), then the Company's Board of
Directors shall make an appropriate adjustment in the Conversion Price so as
to protect the rights of the holders of the shares of Series C Preferred
Stock; provided that no such adjustment shall increase the Conversion Price
obtainable as otherwise determined pursuant to this Section 8.
(g) If the Company declares or pays a dividend upon the Common Equity
payable otherwise than out of earnings or earned surplus (determined in
accordance with generally accepted accounting principles, consistently
applied) except for a stock dividend payable in shares of Common Stock (a
"LIQUIDATING DIVIDEND"), then the Company shall pay to each holder of a share
of Series C Preferred Stock at the time of payment thereof the Liquidating
Dividend which would have been paid to such holder on the Common Stock such
holder would have owned had such holder fully exercised its right to convert
the shares of Series C Preferred Stock into shares of Common Stock
immediately prior to the date on which a record is taken for such Liquidating
Dividend, or, if no record is taken, the date as of which the record holders
of Common Equity entitled to such dividends are to be determined; provided,
however, that if a Liquidating Dividend would involve the declaration or
payment as a dividend of at least the lesser of (i) twenty percent (20%) of
the Company's assets and (ii) Five Million Dollars ($5,000,000), then such
Liquidating Dividend shall, at the option of the Majority Holders, be deemed
to be a Liquidating Event and the rights of the holders of the shares of
Series C Preferred Stock upon such Liquidating Event shall be governed by
Section 4 hereof.
10
<PAGE>
(h) Any transaction approved by the unanimous vote of the Acquisitions
Committee or the unanimous vote of the Board pursuant to Section 10(c)(4)
hereof shall not result in any adjustment to the Conversion Price in effect
as of the closing of such transaction.
SECTION 9. NO REDEMPTION.
The shares of Series C Preferred Stock shall not be subject to
mandatory redemption by the Company.
SECTION 10. VOTING RIGHTS AND RELATED PROVISIONS.
(a) The Holders of shares of the Series C Preferred Stock will have the
right to vote with the holders of Common Stock and the holders of the Series
B Preferred Stock with respect to all matters submitted to a shareholder
vote, except for the election of directors, which will be governed by Section
10(b) below. Each Holder of Series C Preferred Stock will have one vote for
every share of Common Stock into which each share of Series C Preferred Stock
is convertible pursuant to Sections 5 and 7 hereof as of the record date for
such vote; provided, however, that the aggregate number of votes under this
Section 10(a), when combined with the aggregate number of votes attributable
to the holders of the Series B Preferred Stock pursuant to Section 10(a) of
the Certificate of Designation with respect to the Series C Preferred Stock,
with respect to any given matter submitted to a shareholder vote, shall not
exceed 37% of the total number of votes eligible to be cast with respect to
such matter (the "AGGREGATE VOTING LIMITATION"). In order to effectuate the
Aggregate Voting Limitation, the eligible votes allocable to each holder of
shares of Series B Preferred Stock and Series C Preferred Stock shall be
reduced, on a pro rata basis based on the percentage of aggregate Series B
Preferred Stock and Series C Preferred Stock liquidation preference
attributable to the shares owned by such holder, to the highest whole number
consistent with the Aggregate Voting Limitation. Any shares of Series B
Preferred Stock or Series C Preferred Stock held by the Company or any
Subsidiary of the Company shall not have voting rights hereunder and shall
not be counted in determining the presence of a quorum or in calculating any
percentage of shares under this Section 10.
(b) The provisions set forth in this Section 10(b) shall govern the
rights of the holders of the Series C Preferred Stock to elect directors of
the Company:
(1) SERIES C DIRECTOR; JOINT DIRECTOR.
(A) The number of directors of the Company shall be as from time
to time fixed by, or determined in the manner provided in, the Certificate
of Incorporation and the Bylaws of the Company (subject, in all respects,
to the protective provisions contained in Section 11 hereof). Prior to a
Type B Event Date, the number of directors shall be no less than eight (8)
nor more than nine (9), of which one member shall be the Joint Director.
One such director shall be designated as "SERIES C DIRECTOR" and shall be
elected by the Majority Holders and one such director shall be designated
as "JOINT DIRECTOR" and shall be an Independent director nominated by the
Majority Holders of the Series B Preferred Stock and the Majority Holders
of the Series C Preferred Stock,
11
<PAGE>
approved by the Board of Directors in its sole discretion. Unless a Type
B Conversion Notice has been given, the Series C Director shall
automatically be removed if the aggregate liquidation preference with
respect to the Series C Preferred Stock owned by the Initial Purchaser
and any Affiliate as of the Initial Issue Date of the Initial Purchaser,
taken as a whole, falls below 25% of the total liquidation preference of
the shares of Series C Preferred Stock and shares of Series A Preferred
Stock outstanding on the Initial Issue Date. Prior to a Type B Event
Date, the Majority Holders shall have the exclusive right to remove such
Series C Director without cause at any time and to designate another
person as the Series C Director.
(B) The Preferred Stock Directors shall be divided into three (3)
classes as nearly equal in number as possible, with the term of office of
the first Preferred Stock Director to be nominated and elected by the
holders of the Series B Preferred Stock, at their option at any time after
the initial issuance of the shares of Series B Preferred Stock, to expire
at the annual meeting of stockholders held in 1998, the term of office of
the second Preferred Stock Director to be nominated and elected by the
holders of the Series B Preferred Stock upon initial issuance of the shares
of Series B Preferred Stock to expire at the annual meeting of stockholders
held in 2000, the term of office of the Preferred Stock Director to be
nominated and elected by the holders of the Series C Preferred Stock upon
initial issuance of the shares of Series C Preferred Stock to expire at the
annual meeting of stockholders held in 1999, and the term of office of the
Joint Director to expire at the annual meeting of stockholders held in
1997. At each annual meeting of stockholders after such initial
classification and election, directors elected to succeed those directors
whose terms expire at such annual meeting shall be elected for a term of
office to expire at the third succeeding annual meeting of stockholders
after their election.
(C) Upon a Type B Event Date, any Series C Director already
serving as a member of the Board shall continue to serve in such position
until the expiration of his term and the election of his successor or until
his earlier death, removal, resignation or retirement. After a Type B Event
Date, the Joint Director and the Series C Director shall be subject to
removal only for cause and only by the affirmative vote of eighty percent
(80%) of the combined voting power of the outstanding shares of the
Corporation entitled to vote. The Preferred Stock Directors and the Joint
Director shall not be removed without cause otherwise than as described in
this Section 10(b)(1).
(D) After a Type B Event Date, the Board of Directors shall
comprise: (i) one Joint Director, until the expiration of his term, as
provided herein; (ii) three Preferred Stock Directors, until the expiration
of their respective terms, after which time such positions previously
elected by holders of the series of Preferred Stock that gave the Type B
Conversion Notice shall be subject to election by holders of shares of
Series D Preferred Stock, subject to the limitations contained in the
Series D Certificate of Designation; (iii) not less than four (4) nor more
than five (5) additional directors elected by holders of shares of Common
Equity and Series D Preferred Stock, subject to the limitations contained
in the Series D Certificate of Designation; and (iv) such number of other
directors (the "CONVERSION DIRECTORS") elected following a Type B Event
Date by
12
<PAGE>
the holders of shares of Series D Preferred Stock as is determined
pursuant to the Series D Certificate of Designation.
(2) With respect to filling the vacancy on the Board of Directors
with respect to the initial Joint Director, the holders of shares of Series
B Preferred Stock and Series C Preferred Stock shall give written notice to
the Secretary of the Company of the identity of the person nominated by
such holders. Such written notice shall be executed, manually, or by
photocopy or facsimile, in any number of counterparts, by the Majority
Holders of the Series B Preferred Stock and by the Majority Holders of the
Series C Preferred Stock. The person so nominated shall be "independent,"
which means that such person shall not be a director, officer, or employee
or affiliate (as defined in Section 203(c) of the Delaware General
Corporation Law) of any of the holders of Series B Preferred Stock or
Series C Preferred Stock or of the Company. Upon receipt of such written
notice, the Board of Directors shall have ten (10) business days in which
to approve or disapprove such nominee. If the Board of Directors approves
such nominee, such nominee shall immediately fill such vacancy. If the
Board of Directors disapproves such nominee, the Secretary of the Company
shall immediately give written notice thereof to all of the holders of
shares of Series B Preferred Stock and Series C Preferred Stock. If such a
written notice from the Secretary has not been received by such holders
twelve (12) business days after the receipt by the Company of such written
notice of nomination, then the Board of Directors shall be conclusively
deemed to have approved such nominee and such nominee shall immediately
fill such vacancy. If such written notice from the Secretary has been so
received within such twelve (12) business days, such holders may nominate
another independent person by written notice to the Secretary, subject to
the same approval process as hereinabove provided. Such process of
nomination and approval or disapproval shall continue until an independent
person is nominated who is approved or deemed to be approved by the Board
of Directors. No nominations for such director shall be made or received
other than as described in this Section 10(b)(2).
(3) With respect to the nomination and election of succeeding Joint
Directors, the holders of shares of Series B Preferred Stock and Series C
Preferred Stock shall give timely written notice to the Secretary of the
Company of the identity of the person nominated by such holders. Such
written notice shall be executed, manually, or by photocopy or facsimile,
in any number of counterparts, by the Majority Holders of the Series B
Preferred Stock and by the Majority Holders of the Series C Preferred
Stock. Such written notice shall be timely if received at the principal
executive office of the Company not less than 60 days nor more than 120
days before the meeting of shareholders at which such director is to be
elected. The person so nominated shall be "independent," which means that
such person shall not be a director, officer, employee or affiliate (as
defined in Section 203(c) of the Delaware General Corporation Law) of any
of the holders of Series B Preferred Stock or Series C Preferred Stock or
the Company. Upon receipt of such written notice, the Board of Directors
shall have ten (10) business days in which to approve or disapprove such
nominee. If the Board of Directors disapproves such nominee, the Secretary
of the Company shall immediately give written
13
<PAGE>
notice thereof to all of the holders of shares of Series B Preferred
Stock and Series C Preferred Stock. If such a written notice from the
Secretary has not been received by such holders twelve (12) business days
after the receipt by the Company of such written notice of nomination,
then the Board of Directors shall be conclusively deemed to have approved
such nominee. If such written notice from the Secretary has been so
received within such twelve (12) business days, such holders may nominate
another independent person by written notice to the Secretary, subject to
the same approval process as hereinabove provided. Such process of
nomination and approval or disapproval shall continue until an
independent person is nominated who is approved or deemed to be approved
by the Board of Directors. No nominations for such director shall be
made or received other than as described in this Section 10(b)(3).
Election of such person shall be by the holders of shares of the
Company's Common Stock.
(4) Prior to a Type B Event Date, a vacancy of a Preferred Stock
Director position shall be filled only by a majority vote of or written
consent of holders of a majority of the then outstanding shares of the
series of Preferred Stock that elected the director whose death,
resignation, retirement, disqualification or removal from office caused the
vacancy. Prior to a Type B Event Date, a vacancy of the position of Joint
Director shall be filled only by the Board of Directors, following
nomination by holders of a majority of the then outstanding shares of
Series B Preferred Stock and holders of a majority of the then outstanding
shares of the Series C Preferred Stock, pursuant to the procedure described
in Section 10(b)(2). Directors chosen pursuant to any of the foregoing
provisions shall hold office for a term expiring at the annual meeting of
stockholders at which the term of the class to which they have been elected
expires and until their successors are duly elected and have qualified or
until their earlier resignation or removal. If holders of shares of Series
C Preferred Stock shall, pursuant to the Certificate of Incorporation, but
not as a result of a Type B Conversion, cease to have the right to elect
any Preferred Stock Directors, then the director elected by holders of
shares of Series C Preferred Stock shall be deemed to have resigned
immediately upon such cessation. Upon the occurrence of any such deemed
resignation referred to in the immediately preceding two sentences, the
directorship previously held by the director deemed to have resigned shall
automatically become a vacancy to be filled by the Board of Directors.
(5) Shares of Series C Preferred Stock shall be deemed to be shares
"entitled to vote" or entitled to vote in the election of directors for
purposes of the provisions of the Certificate of Incorporation that employ
such terms, and, for purposes of such provisions at any time, each
outstanding share of Series C Preferred Stock shall count as such number of
shares of Common Stock into which such share of Series C Preferred Stock is
then convertible pursuant to Sections 5 and 7 hereof (subject to the
percentage limitation set forth in Section 10(a) hereof as such percentage
limitation would otherwise apply pursuant to such Section 10(a)).
(c) Immediately following the initial issuance of shares of Series B
Preferred Stock, the Board of Directors shall appoint the following
committees of the Board of Directors with the
14
<PAGE>
respective duties, membership and voting requirements stated below. After
such appointment and until a Type B Event Date, the following matters shall
be deemed approved by the Board of Directors only upon receiving the
affirmative vote of a majority of the Board of Directors and a majority of
the directors elected by the holders of the Series B Preferred Stock and the
Series C Preferred Stock: (A) a decision to eliminate or discharge the Audit
Committee, Compensation Committee, Executive Committee or the Acquisitions
Committee, as described more fully below (such committees are the
"COMMITTEES"), (B) a decision to reduce, narrow, attenuate or otherwise
weaken the delegation of powers by the Board of Directors to any of the
Committees, unless such reduction, narrowing, attenuation or other weakening
is the transfer of delegated powers from the Compensation Committee or the
Acquisitions Committee to the Executive Committee, (C) a decision to change
the number of members of any Committee, the identity of the persons or
entities entitled to select each of the members of any Committee, the size of
the required vote for approval by any Committee and the size of the required
vote of the Board of Directors necessary to approve actions that failed to
obtain the required approval vote on the appropriate Committee; and (D) a
decision to create any new committee. If the holders of the Series C
Preferred Stock shall cease to have the right to nominate and elect any
director at all, otherwise than as a result of the conversion of their shares
of Series C Preferred Stock in a Type B Conversion, then such holders shall
no longer have the right to select any member of any of the committees set
forth below and the member or members of such committees selected by such
holders shall automatically cease to be a member or members of such
committees.
(1) COMPENSATION COMMITTEE. The Compensation Committee shall
consist of three (3) members, at least one (1) of whom shall be
selected jointly by the Series C Director and directors elected by
holders of the Series B Preferred Stock (the "SERIES B DIRECTORS"),
and who shall be a director. An affirmative vote of at least two (2)
members of the Compensation Committee shall be required for approval
of matters considered by the Compensation Committee. The Compensation
Committee shall ensure that the representative on the Compensation
Committee nominated by the Series B Directors and the Series C
Director receive adequate notice of and an opportunity to participate
in any meetings of the Compensation Committee;
(2) AUDIT COMMITTEE. The Audit Committee shall consist of three
(3) directors, including as many Independent directors as are
available, not to exceed three (3). An affirmative vote of at least
two (2) members of the Audit Committee shall be required for approval
of matters considered by the Audit Committee.
(3) EXECUTIVE COMMITTEE. The Executive Committee shall consist
of four (4) members, one (1) of whom shall be the Series C Director,
one (1) of whom shall be selected by the Series B Directors (and shall
be a Series B Director) and two (2) of whom shall be selected by the
Board of Directors (and shall be directors). The members selected by
the Series B Directors and the Series C Director may be removed only
by the Series B Directors and the Series C Director, respectively.
The Executive Committee shall, in addition to the customary duties of
an executive committee, have the right to approve any
15
<PAGE>
financing activity, including but not limited to the Capital Budget Plan.
An affirmative vote of at least three (3) members of the Executive
Committee shall be required for approval of any matters considered by the
Executive Committee. Each financing activity not approved by the
Executive Committee may be referred to the Board of Directors for
approval, which approval shall require a Supermajority Vote; and
(4) ACQUISITIONS COMMITTEE. The Acquisitions Committee shall
consist of four (4) members, one (1) of whom shall be the Series C
Director, one (1) of whom shall be selected by the Series B Directors
(and shall be a Series B Director), and two (2) of whom shall be
selected by the Board of Directors (and shall be directors). The
Acquisitions Committee shall have the right to approve any transaction
of the types described in Section 11(n), (o), (p) and (q) with respect
to which transaction the aggregate consideration payable in connection
with such transaction (including, without limitation, cash
consideration, the fair market value of any securities and the net
present value of any deferred consideration) is less than $15 million.
A unanimous vote of the Acquisitions Committee shall be required for
approval of any matters considered by the Acquisitions Committee.
Except as described in Section 10(d)(5) below, each matter considered
but not unanimously approved by the Acquisitions Committee may be
referred to the Board of Directors for approval, which approval shall
require a majority vote of the Board of Directors.
(5) CERTAIN TRANSACTIONS. The unanimous approval of the
Acquisitions Committee or the unanimous approval of the Board of
Directors shall be required before the Company or any of its
Subsidiaries engage in a transaction of the types described in Section
11(n), (o) (which, only for purposes of this clause, shall also apply
to Capital Expenditures made by the Company in the ordinary course of
business), (p) and (q), in which transaction: (A) the aggregate
consideration payable in connection with such transaction (including,
without limitation, cash consideration, the fair market value of any
securities and the net present value of any deferred consideration) is
less than $15 million; and (B) the Company is to issue its Common
Equity at an implicit or explicit price of less than $8.375 per share.
Such implicit price shall be determined in an appraisal approved
unanimously by the Acquisitions Committee or unanimously by the Board
of Directors, such appraisal to be performed by an independent
appraiser selected unanimously by the Acquisitions Committee or
unanimously by the Board of Directors.
(d) Prior to a Type B Event Date, the following matters shall be deemed
approved by the Board of Directors only upon a Supermajority Vote in respect of
any such matter:
(A) Approving the annual Capital Budget Plan; and
16
<PAGE>
(B) Approving the Company entering into any financing activity
not approved by the Executive Committee.
(e) The bylaws of the Company may be altered, amended, or repealed or new
bylaws may be adopted by the stockholders or by the Board of Directors at any
regular or special meeting of the stockholders or the Board of Directors, but
only if such alteration, amendment, repeal, or adoption has been approved:
(1) in case of adoption by the Board of Directors prior to the First
Meeting following a Type B Event Date, by a majority of the Preferred Stock
Directors and either (A) a majority of the entire Board of Directors (if such
alteration, amendment, repeal, or adoption does not increase the number of
directors) or (B) by at least 80% of the members of the entire Board of
Directors (if such alteration, amendment, repeal, or adoption does increase the
number of directors);
(2) in case of adoption by the stockholders at any meeting of
stockholders (other than the First Meeting following a Type B Event Date) with a
record date on or prior to a Type B Event Date, by holders of at least eighty
percent (80%) of the outstanding shares of the Corporation entitled to vote in
the election of directors, voting as one class, and by holders of a majority of
the shares, outstanding as of such record date, of whichever (or both) of Series
B Preferred Stock and Series C Preferred Stock continued (as of such record
date) to have the right under the certificate of incorporation to elect one or
more Preferred Stock Directors.
(f) If a Type B Event Date occurs prior to October 14, 1999, then the
following provisions shall apply:
(1) From such Type B Event Date until the second subsequent annual
stockholders meeting of the Company after such Type B Event Date, none of
the following actions or transactions shall be effected by the Company or
approved by the Company as a stockholder of any Subsidiary of the Company,
and neither the Initial Purchaser nor any other holder of shares of
Series D Preferred Stock (other than a holder pursuant to either a transfer
permitted under Rule 144 under the Securities Act of 1933, as amended or a
transfer pursuant to a registered offering under registration rights from
the Company) shall engage in, or be a party to, any of the following
actions or transactions involving the Company or any Subsidiary of the
Company, if, as of the record date for the determination of the
stockholders entitled to vote thereon, or consent thereto, any other Person
which obtained its equity interest in the Company as a result of a transfer
of securities from the Initial Purchaser or any other Person referred to in
clauses (A) through (D) of this sentence beneficially owns or controls,
directly or indirectly, five percent (5%) or more of the outstanding shares
of the Company entitled to vote:
(A) any merger or consolidation of the Company or any of its
Subsidiaries with or into such other Person;
17
<PAGE>
(B) any sale, lease, exchange or other disposition of all or any
substantial part of the assets of the Company or any of its
Subsidiaries to such other Person;
(C) the issuance or delivery of any voting securities of the
Company or any of its Subsidiaries to such other Person in exchange
for cash, other assets or securities, or a combination thereof; or
(D) any dissolution or liquidation of the Company;
PROVIDED, HOWEVER, that such prohibition shall not apply with respect to
any such action or transaction approved by (I) the affirmative vote of not
less than eighty percent (80%) of the outstanding shares of the Company
entitled to vote or (II) at least two-thirds (2/3) of the directors of the
Company (which must include either (i) the Joint Director, if either (x)
such Joint Director served in such position as of the Type B Event Date, or
(y) such Joint Director has been approved by a majority of the directors
who were Common Stock Directors as of the Type B Event Date, or (ii) at
least one director who was a Common Stock Director prior to the Type B
Event Date, unless neither the Joint Director, nor any of such Common Stock
Directors continue to serve on the Board of Directors at such time). For
purposes of this Section 10(f), a Person shall be deemed to own or control,
directly or indirectly, any outstanding shares of stock of the Company (A)
which it has the right to acquire pursuant to any agreement, or upon the
exercise of conversion rights, warrants or options, or otherwise, or (B)
which are beneficially owned, directly or indirectly (including shares
deemed owned through application of clause (A) above), by any other
corporation, person or other entity (x) with which it or its "affiliate" or
"associate" (as defined below) has any agreement, arrangement, or
understanding for the purpose of acquiring, holding, voting or disposing of
stock of the Company or (y) which is its "affiliate" or "associate," as
those terms are defined under the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder.
(2) No transfer of Series C Preferred Stock may be made by the
Initial Purchaser or any Affiliate of the Initial Purchaser (other than a
transfer permitted under Rule 144 under the Securities Act or a transfer
pursuant to a registered offering under registration rights from the
Company) unless prior thereto, the transferee in such transfer shall have
entered into an agreement in form and substance reasonably satisfactory to
the Company, agreeing to be bound by the terms of Section 10(f)(1).
(g) The Majority Holders shall have the right to appoint one (1) observer
(who may be, but shall not be required to be, an employee of the Initial
Purchaser) to attend each meeting of the Board of Directors of the Company and
each meeting of any committee of the Board of Directors (the "Board Observer")
The Board Observer shall be entitled to a copy of all written materials
(including Board meeting agendas and background materials) distributed to each
member of the Board of Directors of the Company as and when so distributed.
SECTION 11. PROTECTIVE PROVISIONS.
18
<PAGE>
Without limiting the provisions of any other Series of Preferred Stock, for
so long as the Initial Purchaser and any Affiliate as of the Initial Date of the
Initial Purchaser, taken as a whole, owns or own at least 33% in total
liquidation preference, taken as a whole, of the outstanding shares of Series C
Preferred Stock and the outstanding shares of Series A Preferred Stock, the
Company shall not take, and shall cause its Subsidiaries not to take, any of the
following actions without the affirmative vote of holders of at least
sixty-seven percent (67%) of the shares of the Series C Preferred Stock then
outstanding:
(a) alter, change or amend (by merger or otherwise) any of (i) the rights,
preferences and privileges of the Series C Preferred Stock or any other class of
Capital Stock, or (ii) the terms or provisions of any Option or Convertible
Security;
(b) enter into any transaction or event that could result in a Special
Corporate Event with respect to the Company or any Subsidiary;
(c) initiate any Liquidating Event with respect to the Company or any
Subsidiary;
(d) amend, restate, alter, modify or repeal (by merger or otherwise) the
Certificate of Incorporation or the Amended Bylaws of the Company, including,
without limitation, amendment, restating, modifying or repealing (by merger or
otherwise) any certificate of designation or preferences (as in effect from time
to time) relating to the Series A Preferred Stock, the Series B Preferred Stock,
the Series C Preferred Stock or the Series D Preferred Stock, including, without
limitation, the filing by the Company of a certificate with the Secretary of
State of the State of Delaware, pursuant to Section 151(g) of the Delaware
General Corporation Law, setting forth a resolution or resolutions adopted by
the Board of Directors of the Company that none of the authorized shares of
Series D Preferred Stock are outstanding and that none will be issued subject to
the Series D Certificate of Designation;
(e) amend, restate, alter, modify or repeal (by merger or otherwise) or
permit any Subsidiary to amend, restate, alter, modify or repeal (by merger or
otherwise) the certificate of incorporation, other organizational documents, or
bylaws of any Subsidiary in any material respect;
(f) change the number of directors of the Company to a number less than
eight (8) or more than nine (9) or the manner in which the directors are
selected, as provided in the Certificate of Incorporation, Amended Bylaws,
Series B Preferred Stock Certificate of Designation, Series C Preferred Stock
Certificate of Designation and Series D Preferred Stock Certificate of
Designation;
(g) incur any Indebtedness, in the aggregate with respect to the Company
and its Subsidiaries, in excess of $15 million in any Fiscal Year; PROVIDED,
HOWEVER, that this provision shall not apply to draw-downs under any credit
facility as to which a credit agreement had been executed and delivered on or
prior to the Initial Issue Date;
19
<PAGE>
(h) become a party to Operating Leases during any Fiscal Year with respect
to which the present value of all payments due during the term of such Operating
Leases in the aggregate (determined using a discount rate of 10%) exceed $15
million;
(i) create, authorize or issue any shares of Series C Preferred Stock or
any class or series of Senior Securities, Parity Securities or Supervoting
Securities or shares of any such class or series;
(j) reclassify any authorized stock of the Company into Series C Preferred
Stock or any class or series of Senior Securities, Parity Securities,
Supervoting Securities or shares of such class or series;
(k) increase or decrease the authorized number of shares of Series C
Preferred Stock or any class or series of Senior Securities or Parity Securities
or shares of any such class or series;
(l) issue any equity security below either the then current Market Price
(without deduction for any underwriters' discount) or the then-applicable
Conversion Price other than for (A) management stock options currently
authorized and available for grant for not more than Three Hundred Thousand
(300,000) shares of Common Stock in the aggregate, in which senior management of
the Company shall not participate, (B) management stock options exercisable at
not less than the then-applicable Conversion Price per share of Common Stock
issued after October 14, 1997, exercisable for not more than Five Hundred
Thousand (500,000) shares of Common Stock in the aggregate, in which only
certain members of senior management of the Company shall participate, and
(C) the Common Stock underlying such management stock options and other stock
options outstanding as of October 14, 1997;
(m) declare or pay any dividend or make any distribution (including
without limitation by way of redemption, purchase or other acquisition) with
respect to shares of Capital Stock or any securities convertible into, or
exercisable, redeemable or exchangeable for, any share of Capital Stock
(including without limitation any Option or Convertible Security) directly or
indirectly, whether in cash, obligations or shares of the Company or other
property;
(n) acquire, in one or a series of related transactions, any equity
ownership interest or interests of any Person, where the aggregate consideration
payable in connection with such acquisition (including without limitation cash
consideration, the fair market value of any securities and the net present value
of any deferred consideration) is equal to or greater than $15 million;
(o) acquire any asset or assets of any Person in any transaction or
transactions, where the aggregate consideration payable in connection with any
single such transaction (including, without limitation, cash consideration, the
fair market value of any securities and the net present value of any deferred
consideration), whether such transaction is effected in a single transaction or
a series of related transactions, is greater than $15 million; PROVIDED,
HOWEVER, that this provision shall not apply to Capital Expenditures made by the
Company in the Ordinary Course of Business;
20
<PAGE>
(p) merge or consolidate with any Person, or permit any other Person to
merge into it, where (i) the stockholders of the Company immediately prior to
the consummation of such merger or consolidation shall, immediately after the
consummation of such merger or consolidation, hold securities possessing more
than 50% of either the total voting power of and the beneficial ownership
interests in the surviving entity of such merger or consolidation and (ii) the
equity holders of the subject Person immediately prior to the consummation of
such transaction shall receive (directly or indirectly) aggregate consideration
payable in connection with such transaction (including without limitation cash
consideration, the fair market value of any securities and the net present value
of any deferred consideration) equal to or greater than $15 million,
(q) cause or permit any Subsidiary to merge or consolidate with any Person
(other than the Company or a wholly-owned Subsidiary of the Company), or cause
or permit any other Person to merge into it, where: (i) the stockholders of such
Subsidiary immediately prior to the consummation of such merger or consolidation
shall, immediately after the consummation of such merger or consolidation, hold
securities possessing more than 50% of both the total voting power of and the
beneficial ownership interests in the surviving entity of such merger or
consolidation and (ii) the equity holders of the subject Person immediately
prior to the consummation of such transaction shall receive (directly or
indirectly) aggregate consideration payable in connection with such transaction
(including without limitation cash consideration, the fair market value of any
securities and the net present value of any deferred consideration) equal to or
greater than $15 million;
(r) substantially and materially engage in, either through acquisition or
internal development, any business other than the business of providing
diagnostic services to the healthcare industry;
(s) make or permit any of its Subsidiaries to make Capital Expenditures
any fiscal year in excess, in the aggregate, of two percent (2%) above the
approved Capital Budget Plan for such fiscal year of the Company unless such
expenditure is approved by the Executive Committee of the Board of Directors or
a Supermajority Vote of the Board of Directors of the Company;
(t) (i) sell, transfer, convey, lease or dispose of, outside the Ordinary
Course of Business, any assets or properties of the Company or any Subsidiary,
whether now or hereafter acquired, in any transaction or transactions, if (X)
the aggregate consideration payable in connection with any single such
transaction (including, without limitation, cash consideration, the fair market
value of any securities and the net present value of any deferred
consideration), is greater than $5 million or (Y) the aggregate consideration
payable in connection with all such transactions (including, without limitation,
cash consideration, the fair market value of any securities and the net present
value of any deferred consideration), consummated after the Initial Issue Date,
taken as a whole, is or would become as a result of such transaction greater
than $20 million; (ii) undergo or cause or permit any Subsidiary to undergo a
reorganization or recapitalization; (iii) merge or consolidate with any Person,
or permit any other Person to merge into it, where the stockholders of the
Company immediately prior to the consummation of such
21
<PAGE>
merger or consolidation shall, immediately after the consummation of such
merger or consolidation, hold securities possessing 50% or less of either the
total voting power of or the beneficial ownership interests in the surviving
entity of such merger or consolidation; or (iv) cause or permit any
Subsidiary to merge or consolidate with any other Person (other than the
Company or a wholly-owned Subsidiary of the Company), or cause or permit any
other Person to merge into such Subsidiary, where the stockholders of such
Subsidiary immediately prior to the consummation of such merger or
consolidation shall, immediately after the consummation of such merger or
consolidation, hold 50% or less of either the total voting power of or the
beneficial ownership interests in the surviving entity of such merger or
consolidation, if (X) the value of the assets of such Subsidiary is greater
than $5 million or (Y) the aggregate value of the assets of all such
Subsidiaries with respect to all such mergers or consolidations consummated
after the Initial Issue Date, taken as a whole, and including such
transaction, is greater than $20 million;
(u) permit any Subsidiary of the Company to issue or sell any share of
Capital Stock, Option or Convertible Security; PROVIDED, HOWEVER, that the
Company may form a new Subsidiary not all of the equity securities of which need
be owned directly or indirectly by the Company (a "PARTIAL SUBSIDIARY"), but
only if (i) at the time of creation of such Partial Subsidiary, such Partial
Subsidiary is designated as such in a written notice to the holders of the
shares of Series C Preferred Stock, and, (ii) cumulatively through time no more
than $5,000 of assets (in the aggregate) are transferred to such Partial
Subsidiary by the Company or any other Subsidiary, and (iii) no liabilities of
such Partial Subsidiary are ever assumed or guaranteed by the Company or any
other Subsidiary; or
(v) issue any share of Series D Preferred Stock, otherwise than pursuant
to a Type B Conversion.
The rights provided to holders of shares of Series C Preferred Stock in
this Section 11 shall be in addition to and not in lieu of the other rights and
protections granted to the holders of the shares of Series C Preferred Stock
hereunder.
SECTION 12. REISSUANCE OF SERIES C PREFERRED STOCK.
Shares of Series C Preferred Stock that have been issued and reacquired or
converted in any manner, including shares purchased, redeemed, exchanged, or
converted into shares of Common Equity, shall (upon compliance with any
applicable provisions of the laws of Delaware) have the status of authorized but
unissued shares of preferred stock of the Company undesignated as to series and
may be designated or redesignated and issued or reissued, as the case may be, as
part of any series of preferred stock of the Company, provided that such shares
may not in any event be reissued as Series C Preferred Stock.
SECTION 13. BUSINESS DAY.
If any payment, redemption or exchange shall be required by the terms
hereof to be made on a day that is not a Business Day, such payment, redemption
or exchange shall be made on the immediately succeeding Business Day.
22
<PAGE>
SECTION 14. CERTAIN NOTIFICATION OBLIGATIONS.
The Company will notify the Initial Purchaser of each subsequent sale or
disposition of any assets or properties of either the Company or any Subsidiary
(other than in the Ordinary Course of Business) once the aggregate consideration
payable in connection with all such sales or dispositions for the Company and
its Subsidiaries outside the Ordinary Course of Business (including without
limitation cash consideration, the fair market value of any securities and the
net present value of any deferred consideration) exceeds $10,000,000 in any
fiscal year.
SECTION 15. PREEMPTIVE RIGHTS
(a) Subject to the terms and conditions specified in this Section 15, the
Company hereby grants to each holder of shares of Series C Preferred Stock a
right of first offer with respect to future sales in any transaction or proposed
transaction not involving a public offering by the Company of its shares of
Common Equity or any securities convertible or exchangeable, directly or
indirectly, into Common Equity (collectively, "PREEMPTIVE SECURITIES").
Preemptive Securities shall include, without limitation, all shares of Common
Stock and all Convertible Securities.
(b) Each time the Company proposes to offer any Preemptive Securities in a
transaction not involving a public offering of such Preemptive Securities, the
Company shall first make an offering of such Preemptive Securities to each
holder of shares of Series C Preferred Stock in accordance with the following
provisions:
(1) The Company shall deliver a notice by certified mail (the
"PREEMPTIVE NOTICE") to each holder of shares of Series C Preferred Stock
stating (i) its bona fide intention to offer Preemptive Securities, (ii)
the number of such Preemptive Securities to be offered, and (iii) the price
and terms, if any, upon which it proposes to offer such Preemptive
Securities. In addition, the Preemptive Notice will contain all other
information which would be provided to prospective purchasers with respect
to the proposed offering.
(2) With respect to any Type A Offering of Preemptive Securities, by
written notification given by each holder of shares of Series C Preferred
Stock within 15 Business Days from the date of the Preemptive Notice, each
holder may elect to purchase or obtain, at the price and on the terms
specified in the Preemptive Notice, up to that portion of such Preemptive
Securities which equals the proportion that the number of shares of Common
Stock issuable upon conversion of the shares of Series C Preferred Stock
then held by such holder bears to the total number of shares of Common
Stock of the Company then outstanding (assuming full conversion of all
convertible securities, including without limitation the Series A Preferred
Stock, Series B Preferred Stock and Series C Preferred Stock).
(3) With respect to any Type B Offering of Preemptive Securities, by
written notification given by each holder of shares of Series C Preferred
Stock within 15 Business Days from the date of the Preemptive Notice, each
holder may elect to purchase
23
<PAGE>
or obtain, at the price and on the terms specified in the Preemptive
Notice, up to that portion of such Preemptive Securities which equals the
proportion that the number of shares of Common Stock issuable upon
conversion of the shares of Series C Preferred Stock then held by such
holder bears to the number of shares of Common Stock of the Company into
which the outstanding shares of Series B Preferred Stock and the
outstanding shares of Series C Preferred Stock are then convertible.
(4) If any of the holders of Series B Preferred Stock decline to
exercise any right of refusal with respect to any offering to such holders
of Series B Preferred Stock of any Preemptive Securities, such holders (the
"DECLINING SERIES B HOLDERS") shall give written notification of such
election to decline to exercise such rights to the Company within 15
Business Days from the date of the Preemptive Notice. Within 3 Business
Days thereafter, the Company shall give written notification (the "DECLINED
PREEMPTIVE SECURITIES NOTICE") to each holder of Series C Preferred Stock
of the following: (i) the total number of shares of Preemptive Securities
which the Declining Series C Holders declined to purchase (collectively,
the "DECLINED PREEMPTIVE SECURITIES"), and (ii) the price and terms
specified in the Preemptive Notice relating to such Declined Preemptive
Securities.
(5) By written notification given by each holder of shares of Series
C Preferred Stock within 3 Business Days from the date of the Declined
Preemptive Securities Notice, each holder of Series C Preferred Stock may
elect to purchase or obtain, at the price and on the terms specified by the
Company for such sale of such Preemptive Securities, such Declined
Preemptive Securities at the price and on the terms specified in the
Preemptive Notice; PROVIDED, HOWEVER, that if the total number of Declined
Preemptive Securities so elected to be purchased by such holders of Series
C Preferred Stock pursuant hereto (collectively, the "ELECTING HOLDERS")
exceeds the total number of Declined Preemptive Securities, each such
Electing Holder shall purchase, and the Company shall sell to such Electing
Holder, that portion of the total number of Declined Preemptive Securities
which equals the proportion that the number of shares of Common Stock
issuable upon conversion of the shares of Series C Preferred Stock then
held by such holder bears to the number of shares of Common Stock of the
Company into which the outstanding shares of all Electing Holders are then
convertible.
(6) If all Preemptive Securities referred to in any Preemptive Notice
are not elected to be obtained as provided in Section 15(b)(2) or 15(b)(3),
or Section 15(b)(4) or 15(b)(5), as applicable, the Company may, at any
time after the latest date set forth above for the exercise of the right to
purchase any such Preemptive Securities by any holder of Series C Preferred
Stock (the "PREEMPTIVE RIGHT EXPIRATION DATE") to the date sixty (60) days
from the Preemptive Right Expiration Date offer the remaining unsubscribed
portion of such Preemptive Securities to any Person or Persons at a price
equal to the price specified in the relevant Preemptive Notice. If the
Company does not enter into an agreement for the sale of the Preemptive
Securities within sixty (60) days after the Preemptive Right Expiration
Date, or if such agreement is not consummated within ninety (90) days of
the Preemptive Right Expiration Date, the right provided under this
24
<PAGE>
Section 15 shall be deemed to be revived and such Preemptive Securities
shall not be offered unless first reoffered to each holder of shares of
Series C Preferred Stock in accordance herewith.
(7) The rights set forth in this Section 15 shall not be applicable
to the issuance or sale of shares of Common Stock pursuant to Options
approved by the Board to officers, directors and employees of the Company
for the primary purpose of soliciting or retaining their employment or
services.
SECTION 16. DEFINITIONS.
As used in this Certificate, the following terms shall have the following
meanings (with terms defined in the singular having comparable meanings when
used in the plural and vice versa), unless the context otherwise requires:
"AFFILIATE" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition,
"control" (including, with correlative meanings, the terms "controlling,"
"controlled by" and "under common control with"), as used with respect to any
Person, shall mean the possession, directly or indirectly, of the power to
direct or cause the direction of the management or policies of such Person,
whether through the ownership of voting securities, by agreement or
otherwise; provided that beneficial ownership of a majority or more of the
voting securities of a Person shall be deemed to be control.
"AMENDED BYLAWS" means the Amended and Restated Bylaws of the Company, as
in effect from time to time.
"AGGREGATE VOTING LIMITATION" has the meaning set forth in Section 10(a).
"BOARD" or "BOARD OF DIRECTORS" means the Board of Directors of the
Company.
"BOARD OBSERVER" has the meaning set forth in Section 10(g).
"BUSINESS DAY" means any day other than a Legal Holiday.
"CAPITAL BUDGET PLAN" means, for each fiscal year of the Company, the
plan of the Company for making Capital Expenditures for such fiscal year
which has been approved for such fiscal year by either the Executive
Committee or a Supermajority Vote of the Board of Directors of the Company.
"CAPITAL EXPENDITURES" means, for any period, expenditures made by the
Company or any of its Subsidiaries to acquire or construct fixed assets,
plant and Fixtures and Equipment (including additions, improvements, upgrades
and replacements, but excluding repairs) during such period calculated in
accordance with GAAP.
25
<PAGE>
"CAPITAL LEASE OBLIGATION" means, at the time any determination thereof
is to be made, the amount of the liability in respect of a lease that would
at such time be required to be capitalized on a balance sheet in accordance
with GAAP.
"CAPITAL STOCK" means (i) in the case of a corporation, corporate stock,
(ii) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however designated)
of corporate stock, (iii) in the case of a partnership, partnership interests
(whether general or limited) and (iv) any other interest or participation
that confers on a Person the right to receive a share of the profits and
losses of, or distributions of assets of, the issuing Person.
"CERTIFICATE OF INCORPORATION" means the certificate of incorporation (as
defined in Section 104 of the Delaware General Corporation Law) of the
Company in effect on the date hereof, including, without limitation, the
Series A, Series B, Series C and Series D Certificates of Designation.
"CHANGE OF CONTROL" with respect to a Person shall be deemed to have
occurred (i) at such time as any person (as defined in Section 13(d)(3) of
the Securities Exchange Act of 1934) at any time shall directly or indirectly
acquire more than 40% in outstanding voting power of such Person, (ii) at
such time as during any one year period, individuals who at the beginning of
such period constitute such Person's Board of Directors or other governing
body cease to constitute at least a majority of such board or governing body
(provided, however, that a change in directors upon a Type B Event Date shall
not be deemed to cause a Change in Control pursuant to this clause (ii)),
(iii) upon consummation of a merger or consolidation of such Person into or
with another Person in which the shareholders of the subject Person
immediately prior to the consummation of such transaction shall own less than
Fifty Percent (50%) of the voting securities of the surviving Person (or the
parent corporation of the surviving Person where the surviving Person is
wholly-owned by the parent corporation) immediately following the
consummation of such transaction or (iv) the sale, transfer or lease of all
or substantially all of the assets of such Person, in any of cases (i), (ii),
(iii) or (iv) in a single transaction or series of related transactions;
PROVIDED, that no Change of Control hereunder with respect to the Company
shall be deemed to occur solely by reason of (x) the ownership by the Initial
Purchaser or any Affiliate thereof or the Majority Holders of the Series C
Preferred Stock or any Affiliate thereof of any Capital Stock of the Company
or (y) the conversion of shares of Series C Preferred Stock into either
Series D Preferred Stock (and any change in the Board of Directors incident
thereto) or Common Stock, or (z) the conversion of shares of Series D
Preferred Stock into Common Stock.
"COMMITTEES" has the meaning set forth in Section 10(e).
"COMMON EQUITY" means all shares now or hereafter authorized of any class
of common stock of the Company (including the Common Stock) and any other
stock of the Company, however designated, authorized after the date hereof,
which has the right (subject always to prior rights of any class or series of
preferred stock) to participate in any distribution of the assets or earnings
of the Company without limit as to per share amount.
26
<PAGE>
"COMMON STOCK" has the meaning set forth in Section 3(a).
"COMMON STOCK DIRECTOR" means, for any period prior to any Type B Event
Date, any director other than the Joint Director or a director elected by the
holders of the Series B Preferred Stock or the Series C Preferred Stock.
"COMPANY" means InSight Health Services Corp., a Delaware corporation.
"CONVERSION DATE" means (i) in the event of a Type A Conversion, the date
set forth in Section 5(a) (in the event of a partial conversion relating to a
Partial Conversion Event) or Section 5(b) (in the event of any other
conversion pursuant to Section 5), and (ii) in the event of a Type B
Conversion, the date of receipt by the Company of the relevant Type B
Conversion Notice.
"CONVERSION DIRECTORS" has the meaning set forth in Section 10.
"CONVERSION PRICE" has the meaning set forth in Section 8.
"CONVERTIBLE SECURITY" means any stock or securities, directly or
indirectly, convertible into or exchangeable for Common Equity, including
without limitation any exchangeable debt securities.
"CORPORATE CHANGE" has the meaning set forth in Section 8(e).
"CREDIT FACILITY" means a credit facility to which the Company is a party
with NationsBank, N.A.
"DECLINED PREEMPTIVE SECURITIES" has the meaning set forth in Section
15(b)(4).
"DECLINED PREEMPTIVE SECURITIES NOTICE" has the meaning set forth in
Section 15(b)(4).
"DECLINING SERIES B HOLDERS" has the meaning set forth in Section
15(b)(4).
"ELECTING HOLDERS" has the meaning set forth in Section 15(b)(5).
"ENCUMBRANCE" means any claim, lien, pledge, option, charge, easement,
security interest, right-of-way, encumbrance or other right of third parties,
and, with respect to any securities, any agreements, understandings or
restrictions affecting the voting rights or other incidents of record or
beneficial ownership pertaining to such securities.
"FIRST MEETING" means the meeting of the newly constituted Board of
Directors to be held two calendar days after a Type B Event Date, at the
principal offices of the Corporation.
"FISCAL YEAR" means each year ending June 30, or any other fiscal year as
approved by the Board of Directors.
27
<PAGE>
"FIXTURES AND EQUIPMENT" means all of the furniture, fixtures,
furnishings, machinery, equipment and other tangible assets owned by the
Company or any Subsidiary that are material to the conduct of their
businesses as currently conducted.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the
American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as have been approved by a significant
segment of the accounting profession, which are in effect as of the Initial
Issue Date.
"INDEBTEDNESS" means, as to any Person without duplication, (a) all items
which, in accordance with GAAP, would be included as a liability on the
balance sheet of such Person and its Subsidiaries (including any obligation
of such Person to the issuer of any letter of credit for reimbursement in
respect of any drafts drawn under such letter of credit), excluding
obligations in respect of deferred taxes and deferred employee compensation
and benefits, and anything in the nature of capital stock, surplus capital
and retained earnings; (b) the amount available for drawing under all letters
of credit issued for the account of such Person; (c) Capital Lease
Obligations of such Person; and (d) all obligations of other Persons that
such Person has guaranteed, including, without limitation, all obligations of
such Person consisting of recourse liabilities with respect to accounts
receivable sold or otherwise disposed of by such Person; provided, however,
that the term Indebtedness shall not include trade accounts payable (other
than for borrowed money) arising in, and accrued expenses incurred in, the
ordinary course of business of such Person, provided the same are not more
than sixty (60) days overdue or are being contested in good faith.
"INDEPENDENT" means any Person who is not an officer or employee of the
Company or any Subsidiary or other Affiliate of the Company or otherwise paid
any compensation or remuneration by the Company or any Subsidiary or other
Affiliate of the Company other than director's fees.
"INITIAL ISSUE DATE" means October 14, 1997.
"INITIAL PURCHASER" shall mean the Person to whom shares of Series C
Preferred Stock are initially issued by the Company.
"JOINT DIRECTOR" has the meaning set forth in Section 10(b)(4).
"JUNIOR SECURITIES" has the meaning set forth in Section 2.
"LEGAL HOLIDAY" means a Saturday, a Sunday or a day on which banking
institutions in the Company's principal place of business, the City of New
York or at a place of payment are authorized by law, regulation or executive
order to remain closed. If a payment date is a Legal Holiday at a place of
payment, payment may be made at that place on the next succeeding day that is
not a Legal Holiday, and no interest shall accrue for the intervening period.
28
<PAGE>
"LIEN" means any lien, mortgage, deed of trust, pledge, security
interest, charge or encumbrance of any kind (including any conditional sale
or other title retention agreement, any lease in the nature thereof and any
agreement to give any security interest).
"LIQUIDATING DIVIDEND" has the meaning set forth in Section 8(g).
"LIQUIDATING EVENT" has the meaning set forth in Section 4(b).
"LIQUIDATION PREFERENCE" has the meaning set forth in Section 4(a).
"MAJORITY HOLDERS," at any time, and with respect to any class or series
of Capital Stock of the Company, means holders of a majority of the shares of
such class or series then outstanding. If the term is used without reference
to a particular class or series of Capital Stock of the Company, it means
Majority Holders of the Series C Preferred Stock.
"MARKET PRICE" means as to any security the average of the closing prices
of any such security's sales on all domestic securities exchanges on which
such security may at the time be listed, or, if there have been no sales on
any such exchange on any day, the average of the highest bid and lowest asked
prices on all such exchanges at the end of such day, or, if on any day such
security is not so listed, the average of the representative bid and asked
prices quoted in Nasdaq as of 4:00 P.M., New York time, on such day, or, if
on any day such security is not quoted in Nasdaq, the average of the highest
bid and lowest asked prices on such day in the domestic over-the-counter
market as reported by the National Quotation Bureau, Incorporated, or any
similar successor organization, in each such case averaged over a period of
twenty-one (21) Business Days consisting of the day as of which "Market
Price" is being determined and the twenty (20) consecutive Business Days
prior to such day; provided that if such security is listed on any domestic
securities exchange the term "Business Days" as used in this sentence means
business days on which such exchange is open for trading. If at any time
such security is not listed on any domestic securities exchange or quoted in
Nasdaq or the domestic over-the-counter market, the "Market Price" shall be
the fair value thereof determined by the Company and approved by the Majority
Holders; provided that if such parties are unable to reach agreement within a
reasonable period of time, such fair value shall be determined by an
appraiser jointly selected by the Company and the Majority Holders. The
determination of such appraiser shall be final and binding on the Company and
holders of the shares of Series C Preferred Stock, and the fees and expenses
of such appraiser shall be paid by the Company.
"OPERATING LEASE" shall mean any lease with respect to which the
obligations of the lessee thereunder are, at the time any determination
thereof is to be made, not required to be capitalized on the lessee's balance
sheet in accordance with GAAP.
"OPTION" shall mean any rights or options to subscribe for or purchase
Common Equity or Convertible Securities.
"ORDINARY COURSE OF BUSINESS" shall mean the ordinary course of business
for a company engaged in the business of providing diagnostic services to the
healthcare industry as so provided by the Company as of the Initial Issue
Date; provided, that all sales by the Company or any
29
<PAGE>
Subsidiary, as the case may be, of inventory and sales of Fixtures and
Equipment no longer used or useful in such business shall be deemed to be in
the Ordinary Course of Business.
"PARITY SECURITIES" has the meaning set forth in Section 2.
"PARTIAL CONVERSION EVENT" means (i) the consummation of the sale by any
holder of its shares of Series C Preferred Stock to a third party at any time
approved by the Board, (ii) the consummation of a public offering of the
Common Stock at any time and (iii) at any time following April 14, 1999, the
consummation of a private sale of Common Stock.
"PARTIAL SUBSIDIARY" has the meaning set forth in Section 11(u).
"PERSON" means any individual, corporation, partnership, joint venture,
association, limited liability company, joint-stock company, trust,
unincorporated organization or government or agency or political subdivision
thereof (including any subdivision or ongoing business of any such entity or
substantially all of the assets of any such entity, subdivision or business).
"PREEMPTIVE NOTICE" has the meaning set forth in Section 15(b).
"PREEMPTIVE RIGHT EXPIRATION DATE" has the meaning set forth in Section
15(b)(6).
"PREEMPTIVE SECURITIES" has the meaning set forth in Section 15(a).
"PREFERRED STOCK DIRECTORS" means the Series B Director and the Series C
Directors.
"SECURITIES PURCHASE AGREEMENT" means the Securities Purchase Agreement
dated as of October 14, 1997 between the Company and the Initial Purchaser.
"SENIOR SECURITIES" has the meaning set forth in Section 2.
"SERIES A PREFERRED STOCK" has the meaning set forth in Section 2.
"SERIES B DIRECTOR" has the meaning set forth in Section 10.
"SERIES B PREFERRED STOCK" has the meaning set forth in Section 1.
"SERIES C DIRECTOR" has the meaning set forth in Section 10.
"SERIES C PREFERRED STOCK" has the meaning set forth in Section 2.
"SERIES D PREFERRED STOCK" has the meaning set forth in Section 2.
"SPECIAL CORPORATE EVENT" with respect to a Person 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 20% in outstanding voting power of such Person,
(ii) at such time as during any one year period, individuals who at the
beginning of such period constitute such Person's Board of Directors or other
governing body cease to
30
<PAGE>
constitute at least a majority of such board or governing body (provided,
however, that a change in directors upon a Type B Event Date shall not be
deemed to cause a Special Corporate Event pursuant to this clause (ii)),
(iii) upon consummation of a merger or consolidation of such Person into or
with another Person in which the shareholders of the subject Person
immediately prior to the consummation of such transaction shall own less than
Fifty Percent (50%) of the voting securities of the surviving Person (or the
parent corporation of the surviving Person where the surviving Person is
wholly-owned by the parent corporation) immediately following the
consummation of such transaction or (iv) the sale, transfer or lease of all
or substantially all of the assets of such Person, in any of cases (i), (ii),
(iii) or (iv) in a single transaction or series of related transactions;
provided, that no Special Corporate Event hereunder with respect to the
Company shall be deemed to occur solely by reason of the ownership by the
Initial Purchaser or any Affiliate thereof or the Majority Holders of the
Series C Preferred Stock or any Affiliate thereof of any Capital Stock of the
Company.
"SUBSIDIARY" means, with respect to any Person, (a) any corporation of
which at least a majority in interest of the outstanding voting stock (having
by the terms thereof voting power under ordinary circumstances to elect a
majority of the directors of such corporation, irrespective of whether or not
at the time stock of any other class or classes of such corporation shall
have or might have voting power by reason of the happening of any
contingency) is at the time, directly or indirectly, owned or controlled by
such Person, by one or more Subsidiaries of such Person or by such Person and
one or more of its Subsidiaries, or (b) any corporate or non-corporate entity
in which such Person, one or more Subsidiaries of such Person, or such person
and one or more Subsidiaries of such Person, directly or indirectly, at the
date of determination thereof, has an ownership interest and one hundred
percent (100%) of the revenue of which is included in the consolidated
financial reports of such Person consistent with GAAP.
"SUPERMAJORITY VOTE" means the affirmative vote of six (6) directors of
the Company with respect to the matter subject to such vote.
"SUPERVOTING SECURITIES" means any class or series of the Company's
Capital Stock the holders of which have the right to cast more than one vote
per share and/or have the right to elect one or more members of the Board of
Directors, voting as a class or series.
"TYPE A CONVERSION" means a conversion of shares of Series C Preferred
Stock into shares of Common Stock pursuant to Section 5 hereof.
"TYPE A OFFERING OF PREEMPTIVE SECURITIES" means any proposed offering by
the Company of Preemptive Securities in which the proposed sale price
reflects a price per share of Common Stock at or above the higher of (i) the
Market Price per share of Common Stock, determined as of the date of the
Preemptive Notice relating to such offering and (ii) $8.375 per share of
Common Stock.
"TYPE B CONVERSION" means a conversion of shares of Series C Preferred
Stock into shares of Series D Preferred Stock pursuant to Section 6 hereof.
"TYPE B CONVERSION NOTICE" has the meaning set forth in Section 6(b).
31
<PAGE>
"TYPE B EVENT DATE" has the meaning set forth in Section 6(b).
"TYPE B OFFERING OF PREEMPTIVE SECURITIES" means any proposed offering by
the Company of Preemptive Securities in which the proposed sale price
reflects a price per share of Common Stock below the higher of (i) the Market
Price per share of Common Stock, determined as of the date of the Preemptive
Notice relating to such offering and (ii) $8.375 per share of Common Stock.
"TYPE B TRIGGER DATE" means the date one year after the initial borrowing
of funds under the Credit Facility.
IN WITNESS WHEREOF, InSight Health Services Corp. has caused this
Certificate to be executed by its Executive Vice President and Secretary this
14th day of October, 1997.
INSIGHT HEALTH SERVICES CORP.
By: /s/ Thomas V. Croal
----------------------------------
Name: Thomas V. Croal
Office: Executive Vice President
and Secretary
32
<PAGE>
INSIGHT HEALTH SERVICES CORP.
CERTIFICATE OF DESIGNATION, PREFERENCES AND RIGHTS
OF CONVERTIBLE PREFERRED STOCK, SERIES D
(Pursuant to Section 151(g) of the General Corporation
Law of the State of Delaware.)
InSight Health Services Corp., 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 certificate of incorporation of the Company,
as amended, the Board unanimously adopted the following resolutions on
October 14, 1997 authorizing the issuance of the Series D 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
3,500,000 shares of $.001 par value preferred shares, such series to consist
of 632,266 shares, and 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:
SECTION 1. DESIGNATION.
The Preferred Stock created and authorized hereby shall be designated as
the "Convertible Preferred Stock, Series D" (hereinafter called the "SERIES D
PREFERRED STOCK"). The number of shares of Series D Preferred Stock shall be
632,266 and no more, provided, however, that the Board of Directors of the
Company may increase the number of shares of Series D Preferred Stock
pursuant to Section 151(g) of the Delaware General Corporation Law, but only
in accordance with the provisions of Section 7(c) of the Series B Certificate
of Designation and Section 7(c) of the Series C Certificate of Designation.
SECTION 2. RANK.
The Series D Preferred Stock shall, with respect to dividend
distributions and distributions upon the liquidation, winding up and
dissolution of the Company, rank senior to all classes of Common Equity of
the Company, and to each other class or series of Capital Stock of the
Company (except for the Convertible Preferred Stock, Series A (hereinafter
called the "SERIES A PREFERRED STOCK")) the terms of which do not expressly
provide that it ranks senior to or on a parity with the Series D Preferred
Stock as to dividend distributions and distributions upon the liquidation,
winding up and dissolution of the Company (collectively referred to with the
Common Equity of the Company as "JUNIOR SECURITIES"). The Series D Preferred
Stock shall, with respect to dividend distributions and distributions upon
the liquidation, winding up and dissolution of the Company, rank on a parity
with any class or series of Capital Stock hereafter
<PAGE>
created which expressly provides that it ranks on a parity with the Series D
Preferred Stock as to dividend distributions and distributions upon the
liquidation, winding up and dissolution of the Company (shares of such a
class or series, together with shares of the Series A Preferred Stock, shares
of the Convertible Preferred Stock, Series B (the "SERIES B PREFERRED
STOCK"), and shares of the Convertible Preferred Stock, Series C (the "SERIES
C PREFERRED STOCK") are, collectively, the "PARITY SECURITIES"). The Series
D Preferred Stock shall, with respect to dividend distributions and
distributions upon the liquidation, winding up and dissolution of the
Company, rank junior to each class or series of Capital Stock hereafter
issued in accordance with Section 10 hereof and which expressly provides that
it ranks senior to the Series D Preferred Stock as to dividend distributions
or distributions upon the liquidation, winding up and dissolution of the
Company ("SENIOR SECURITIES"). Any purported Supervoting Securities that were
not created, authorized or issued in accordance with Section 10 hereof shall
be deemed for all purposes related to voting rights to be identical to Common
Stock, including, without limitation, as to voting rights with respect to the
election of directors and all other matters submitted to a vote of
stockholders.
SECTION 3. DIVIDENDS.
(a) The Company may (when, as and if declared by the Board of Directors
of the Company) declare and pay dividends, out of the entire assets and funds
of the Company legally available therefor, to the holders of the Series A
Preferred Stock, the Series B Preferred Stock, the Series C Preferred Stock,
the Series D Preferred Stock and the common stock, $.001 par value per share,
of the Company (the "COMMON STOCK") ratably based on the number of shares of
Common Stock held by each such Holder (assuming full conversion of all such
shares of Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, and Series D Preferred Stock into Common Stock).
(b) Holders of shares of the Series D Preferred Stock shall be entitled
to receive the dividends provided for in Section 3(a) hereof in preference to
and in priority over any dividends upon any of the Junior Securities, except
for the Common Stock.
(c) Holders of shares of the Series D Preferred Stock shall be entitled
to receive the dividends provided for in Section 3(a) hereof on a pro rata
basis with respect to any dividends upon any Parity Securities.
SECTION 4. LIQUIDATION PREFERENCE.
(a) Upon any Liquidating Event with respect to the Company, the Holders
of shares 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
stockholders, $.001 per share of Series D Preferred Stock (the "LIQUIDATION
PREFERENCE"), plus an amount in cash equal to any declared but unpaid
dividends thereon, before any payment shall be made or any assets distributed
to the holders of any of the Junior Securities, including, without
limitation, Common Stock. In addition, holders of shares of Series D
Preferred Stock shall be entitled to receive any distribution in the event of
liquidation, dissolution or winding up of the affairs of the Company pari
passu with shares of Common Stock, on a pro rata basis (assuming full
conversion of all shares of Series D Preferred Stock into Common Stock). If
the assets of the Company are not sufficient to pay in full the
2
<PAGE>
liquidation payments payable to the holders of outstanding shares of the
Series D Preferred Stock and all Parity Securities, then the holders of all
such shares shall share equally and ratably in such distribution of assets of
the Company in accordance with the amounts which would be payable on such
distribution if the amount to which the holders of outstanding shares of
Series D Preferred Stock and the holders of outstanding shares of all Parity
Securities are entitled were paid in full.
(b) "LIQUIDATING EVENT" shall mean, with respect to any Person, any of
the following events: (i) the commencement by such Person of a voluntary
case under the bankruptcy laws of the United States, as now or hereafter in
effect, or the commencement of an involuntary case against such Person with
respect to which the petition shall not be controverted within 15 days, or be
dismissed within 60 days, after commencement thereof; (ii) the appointment of
a custodian for, or the taking charge by a custodian of, all or substantially
all of the property of such Person; (iii) the commencement by such Person of
any proceeding under any reorganization, arrangement, adjustment of debt,
relief of debtors, dissolution, insolvency or liquidation or similar law of
any jurisdiction whether now or hereafter in effect relating to such Person;
(iv) the commencement against such Person of any proceeding set forth in the
preceding clause (iii), which is not controverted within 10 days thereof and
dismissed within 60 days after the commencement thereof; (v) the adjudication
of such Person insolvent or bankrupt, or the adoption by such Person of a
plan of liquidation; (vi) the occurrence of any Change of Control with
respect to such Person or (vii) the filing of a certificate of dissolution in
respect of the Company with the Secretary of State of the State of Delaware;
in any of cases (i) through (vi) above, in a single transaction or series of
related transactions.
SECTION 5. CONVERSION
(a) Each holder of Series D Preferred Stock shall have the right, at its
option, to convert, subject to the terms and provisions of this Section 5,
all or any part of its Series D Preferred Stock then outstanding into such
number of fully paid and non-assessable shares of Common Stock as results
from multiplying the number of shares of Series D Preferred Stock to be
converted by the Conversion Multiple. The 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 on the date such holder or
holders deliver certificates representing the shares of Series D Preferred
Stock to be converted to the Company as set forth in Section 5(b) below (the
"CONVERSION DATE").
(b) 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 certificates representing 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 5. 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.
3
<PAGE>
SECTION 6. GENERAL PROVISIONS RELATING TO CONVERSION
The following provisions shall be applicable to any conversion pursuant
to Section 5 hereof.
(a) As promptly as practicable after the surrender as hereinabove
provided of certificates representing shares of Series D Preferred Stock
converted or to be converted into shares of Common Stock, the Company shall
deliver or cause to be delivered to the holder, or the holder's designee,
certificates representing the number of fully paid and non-assessable shares
of Common Stock into which the shares of Series D Preferred Stock are
converted, 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 representing shares of
Common Stock issued upon the conversion of shares of Series D Preferred Stock
shall be made without charge to the holder of Series D Preferred Stock 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).
(b) 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, and the number of shares of Common Stock
to be issued shall be rounded up to a whole share.
(c) 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 and the
exercise of the Warrants and the GE Warrants, the full number of whole shares
of Common Stock then deliverable upon the conversion of all shares of Series
D Preferred Stock then outstanding and the issuance of Common Stock in
respect of the Warrants and the GE Warrants. 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 and the
exercise of the then outstanding Warrants and GE Warrants. If at any time
the number of authorized but unissued shares of Common Stock shall not be
sufficient to effect the conversion of all then outstanding shares of the
Series D Preferred Stock and the exercise of all the then outstanding
Warrants and GE Warrants, in addition to such other remedies as shall be
available to the holders of the Series B Preferred Stock, Series C Preferred
Stock, and Series D Preferred Stock, the Company shall forthwith take such
corporate action as may be necessary to increase its authorized but unissued
shares of Common Stock to such numbers of shares as shall be sufficient for
such purpose, including but not limited to promptly calling and holding a
meeting of the Company's stockholders, at which the Company's stockholders
shall vote on a proposed amendment to the Certificate of Incorporation that
would so increase the number of authorized shares of Common Stock, a
favorable vote for which amendment shall have been recommended to the
Company's stockholders by the Board of Directors, pursuant to a duly and
validly adopted resolution of the Board of Directors setting forth the
amendment proposed and
4
<PAGE>
declaring its advisability, all in accordance with Section 242 of the
Delaware General Corporation Law.
(d) 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, NASD, Inc.,
Nasdaq or other regulatory body under any federal or state law, federal or
state regulation, rule of NASD, Inc., Nasdaq or otherwise, before such shares
may be validly issued or delivered upon conversion, the Company shall, in
good faith and as expeditiously as practicable, endeavor to secure such
registration, listing or approval, as the case may be.
(e) 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 non-assessable and free from all taxes, liens and
charges with respect to the issuance thereof.
(f) In the event of any taking by the Company of a record of the holders
of any class of Capital Stock for the purpose of determining the holders
thereof who are entitled to receive any dividend or other distribution, any
right to subscribe for, purchase or otherwise acquire any shares of Capital
Stock or any other securities or property, or to receive any other right, the
Company shall mail to each holder of Series D Preferred Stock, at least 20
days prior to the date specified therein, a notice specifying the date on
which any such record is to be taken for the purpose of such dividend,
distribution or right, and the amount and character of such dividend,
distribution or right.
(g) 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 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 6 and Sections 5 and 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 against impairment of
any kind.
SECTION 7. CONVERSION MULTIPLE.
(a) As used herein, the "CONVERSION MULTIPLE" shall initially be ten
(10), subject to adjustment as set forth below.
(b) If the Company at any time subdivides (by any stock split, stock
dividend, reclassification, recapitalization or otherwise) one or more
classes or series of its outstanding shares of Common Equity into a greater
number of shares, the Conversion Multiple in effect immediately prior to such
subdivision shall be proportionately increased. If the Company at any time
combines (by reverse stock split or otherwise) one or more classes or series
of its outstanding shares of Common Stock into a smaller number of shares,
the Conversion Multiple in effect immediately prior to such combination shall
be proportionately decreased.
5
<PAGE>
(c) Any recapitalization, reorganization, reclassification,
consolidation, merger, sale of all or substantially all of the Company's
assets or other transaction, in each case which is effected in such a way
that the holders of Common Equity are entitled to receive (either directly or
upon subsequent liquidation) stock, securities, cash, debt instruments or
assets with respect to or in exchange for Common Equity is referred to herein
as a "CORPORATE CHANGE." In case of any Corporate Change, each share of
Series D Preferred Stock then outstanding will become convertible only into
the kind and amount of securities, cash and other property receivable upon
such Corporate Change by the holder of the number of shares of Common Stock
into which such share of Series D Preferred Stock was convertible immediately
prior thereto (assuming such holder of Common Stock failed to exercise any
rights of election). The Company shall not effect any such consolidation,
merger or sale, unless prior to the consummation thereof, the successor
entity (if other than the Company) resulting from such consolidation or
merger or the entity purchasing such assets assumes by written instrument the
obligation to deliver to the holders of shares of Series D Preferred Stock
such shares of stock, securities, cash, debt instruments or assets as, in
accordance with the foregoing provisions, such holder may be entitled to
acquire.
(d) If any event occurs of the type contemplated by the provisions of
this Section 7 but not expressly provided for by such provisions, then the
Company's Board of Directors shall make an appropriate adjustment in the
Conversion Multiple so as to protect the rights of the holders of the shares
of Series D Preferred Stock; provided that no such adjustment shall decrease
the Conversion Multiple obtainable as otherwise determined pursuant to this
Section 7.
(e) If the Company declares or pays a dividend upon the Common Equity
payable otherwise than out of earnings or earned surplus (determined in
accordance with generally accepted accounting principles, consistently
applied) except for a stock dividend payable in shares of Common Stock (a
"LIQUIDATING DIVIDEND"), then the Company shall pay to each holder of a share
of Series D Preferred Stock at the time of payment thereof the Liquidating
Dividend which would have been paid to such holder on the Common Stock such
holder would have owned had such holder fully exercised its right to convert
the shares of Series D Preferred Stock into shares of Common Stock
immediately prior to the date on which a record is taken for such Liquidating
Dividend, or, if no record is taken, the date as of which the record holders
of Common Equity entitled to such dividends are to be determined.
SECTION 8. NO REDEMPTION.
The shares of Series D Preferred Stock shall not be subject to
mandatory redemption by the Company.
SECTION 9. VOTING RIGHTS AND RELATED PROVISIONS.
(a) Shares of Series D Preferred Stock (i) shall only be issuable to
holders of shares of Series B Preferred Stock and Series C Preferred Stock
and (ii) shall only be issuable upon the terms and conditions set forth in
the Series B Certificate of Designation and Series C Certificate of
Designation. The holders of shares of the Series D Preferred Stock shall have
the right to vote with the holders of Common Stock with respect to all
matters submitted to a shareholder vote (except for the election of
directors, which will be governed by Sections 9(b) through 9(f)
6
<PAGE>
below), with each share of Series D Preferred Stock having the number of
votes equal to the number of shares of Common Stock into which such share of
Series D Preferred Stock then is convertible.
(b) Upon a Type B Event Date, without any action on the part of the
Company or the Board, the number of members of the Board shall be increased
automatically by the smallest whole number that will result in at least the
Type B Percentage (but less than 66 2/3%) of the members of the Board being
Series D Directors. Immediately following such Type B Event Date, the
holders of Series D Preferred Stock shall have the right to elect all of such
number of new directors (the "CONVERSION DIRECTORS"), such election to occur
pursuant to the Series D Selection Procedure. The Conversion Directors shall
immediately upon such election become members of the Board of Directors as
Series D Directors. The term of the Conversion Directors shall run until the
third annual meeting of stockholders following the Type B Event Date.
"SERIES D DIRECTORS" shall mean, collectively, any Preferred Stock Directors
and any Conversion Directors. After a Type B Event Date and until the
expiration of the terms of office of directors serving as members of the
board of directors immediately prior to the second annual meeting of
stockholders following a Type B Event Date, the board of directors shall
comprise: (i) one Joint Director; (ii) three Preferred Stock Directors;
(iii) not less than four (4) nor more than five (5) additional directors
elected by holders of shares of Common Equity and (iv) the Conversion
Directors. At and after the second annual meeting of stockholders after the
Type B Event Date, upon expiration of the term of any director, such position
shall be subject to election by holders of shares of Common Stock and Series
D Preferred Stock, voting as a class, with each share of Series D Preferred
Stock having the number of votes equal to the number of shares of Common
Stock into which such share of Series D Preferred Stock then is convertible;
the directors so elected shall not be designated as to series or class of
Capital Stock. Upon the expiration of the terms of the Conversion Directors,
their successors shall be classified into three (3) classes as nearly equal
in number as possible, with appropriate terms of office.
(c) Immediately following a Type B Event Date, any Preferred Stock
Director already serving as a member of the Board shall continue to serve in
such position until the expiration of his term and the election and
qualification of a successor, or until his earlier death, resignation or
retirement. Any vacancy, for any reason, in the position of a Series D
Director prior to the second annual meeting of stockholders after a Type B
Event Date, shall be filled by majority vote of the Series D Directors then
serving. Until the second annual meeting following a Type B Event Date,
election of Series D Directors to succeed those whose terms expire prior to
such second annual meeting shall be solely by holders of the Series D
Preferred Stock, and shall follow the Series D Selection Procedure. A Series
D Director may be removed, with or without cause, by the holders of Series D
Preferred Stock, in compliance with the requirements of Section 141(k)(2) of
the Delaware General Corporation Law. A Series D Director shall not be
removed, with or without cause, otherwise than as described in this Section
9(c).
(d) Until the second annual meeting after the Type B Event Date, upon
expiration of the term of the Joint Director, such position shall be subject
to nomination, approval by the board of directors and election by the holders
of Common Stock in the same fashion as provided in the Series B and C
Certificates of Designation for the period before a Type B Event Date, except
that
7
<PAGE>
until the second annual meeting after the Type B Event Date, such nomination
shall be by holders of a majority of the then outstanding shares of Series D
Preferred Stock. Until the second annual meeting after the Type B Event
Date, any vacancy in the position of Joint Director shall be filled in the
same fashion as provided in the Series B and C Certificates of Designation
for the period before a Type B Event Date.
(e) Until the second annual meeting after the Type B Event Date, upon
expiration of the term of any director who is neither a Series D Director nor
the Joint Director, such position shall be subject to election by holders of
shares of Common Stock only.
(f) Shares of Series D Preferred Stock shall be deemed to be shares
"entitled to vote" or entitled to vote in the election of directors" for
purposes of the provisions of the Certificate of Incorporation that employ
such terms, and, for purposes of such provisions at any time, each
outstanding share of Series D Preferred Stock shall count as such number of
shares of Common Stock into which such share of Series D Preferred Stock is
then convertible pursuant to Sections 5 and 6 hereof.
(g) If a Type B Event Date occurs prior to October 14, 1999, then the
following provisions shall apply:
(1) From such Type B Event Date until the second subsequent annual
stockholders meeting of the Company after such Type B Event Date, none of
the following actions or transactions shall be effected by the Company or
approved by the Company as a stockholder of any Subsidiary of the Company,
and neither the Initial Purchaser nor any other holder of shares of
Series D Preferred Stock (other than a holder pursuant to either a transfer
permitted under Rule 144 under the Securities Act of 1933, as amended, or a
transfer pursuant to a registered offer under registration rights from the
Company) shall engage in, or be a party to, any of the following actions or
transactions involving the Company or any Subsidiary of the Company, if, as
of the record date for the determination of the stockholders entitled to
vote thereon, or consent thereto, any other Person which obtained its
equity interest in the Company as a result of a transfer of securities from
the Initial Purchaser or any other Person referred to in clauses (A)
through (D) of this sentence beneficially owns or controls, directly or
indirectly, five percent (5%) or more of the outstanding shares of the
Company entitled to vote:
(A) any merger or consolidation of the Company or any of its
Subsidiaries with or into such other Person;
(B) any sale, lease, exchange or other disposition of all or any
substantial part of the assets of the Company or any of its
Subsidiaries to such other Person;
(C) the issuance or delivery of any voting securities of the
Company or any of its Subsidiaries to such other Person in exchange
for cash, other assets or securities, or a combination thereof; or
8
<PAGE>
(D) any dissolution or liquidation of the Company;
PROVIDED, HOWEVER, that such prohibition shall not apply with respect to
any such action or transaction approved by (I) the affirmative vote of not
less than eighty percent (80%) of the outstanding shares of the Company
entitled to vote or (II) at least two-thirds (2/3) of the directors of the
Company (which must include either (i) the Joint Director, if either (x)
such Joint Director served in such position as of the Type B Event Date of
(y) such Joint Director has been approved by a majority of the directors
who were Common Stock Directors as of the Type B Event Date or (ii) at
least one director who was a Common Stock Director prior to the Type B
Event Date, unless neither the Joint Director, nor any of such Common Stock
Directors continue to serve on the Board of Directors at such time). For
purposes of this Section 9(g) a Person shall be deemed to own or control,
directly or indirectly, any outstanding shares of stock of the Company (A)
which it has the right to acquire pursuant to any agreement, or upon the
exercise of conversion rights, warrants or options, or otherwise, or (B)
which are beneficially owned, directly or indirectly (including shares
deemed owned through application of clause (A) above), by any other
corporation, person or other entity (x) with which it or its "affiliate" or
"associate" (as defined below) has any agreement, arrangement, or
understanding for the purpose of acquiring, holding, voting or disposing of
stock of the Company or (y) which is its "affiliate" or "associate" as
those terms are defined under the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder.
No transfer of Series D Preferred Stock may be made by a Person who obtained
shares of Series D Preferred Stock upon conversion of Series B Preferred
Stock or Series C Preferred Stock, unless prior thereto, the transferee in
such transfer shall have entered into an agreement in form and substance
reasonably satisfactory to the Company, agreeing to be bound by the terms of
this Section 9(g). Notwithstanding anything to the contrary contained in
this Section 9(g), such Person shall not need any approval by any directors,
the Board of Directors or any stockholders under this Section 9 in order to
transfer, sell or assign any of its Series D Conversion Shares in any of the
following transactions (i) a transfer to an Initial Purchaser Affiliate (as
defined in the Series B Certificate of Designation) or an Affiliate of the
Initial Purchaser (as defined in the Series C Certificate of Designation, in
either case as of the Initial Issue Date, (provided that prior to any such
transfer such Initial Purchaser Affiliate or such Affiliate of the Initial
Purchaser shall have delivered to the Company its written agreement to be
bound by the terms of this Section 9(g); (ii) a transfer permitted under Rule
144 under the Securities Act of 1933, as amended; or (iii) a transfer
pursuant to a registered offering under registration rights from the Company.
SECTION 10. PROTECTIVE PROVISIONS.
Without limiting the provisions of any other Series of Preferred Stock,
the Company shall not take, and shall cause its Subsidiaries not to take, any
of the following actions without the affirmative vote of holders of at least
sixty-seven percent (67%) of the shares of the Series D Preferred Stock then
outstanding:
9
<PAGE>
(a) create, authorize or issue any shares of Series D Preferred Stock or
any class or series of Supervoting Securities or shares of any such class or
series;
(b) reclassify any authorized stock of the Company into Series D
Preferred Stock or any class or series of Supervoting Securities or shares of
such class or series;
(c) increase or decrease the authorized number of shares of Series D
Preferred Stock or any class or series of Supervoting Securities or shares of
any such class or series.
The rights provided to holders of shares of Series D Preferred Stock in
this Section 10 shall be in addition to and not in lieu of the other rights
and protections granted to the holders of the shares of Series D Preferred
Stock hereunder.
SECTION 11. REISSUANCE OF SERIES D PREFERRED STOCK.
Shares of Series D Preferred Stock that have been issued and reacquired
or converted in any manner, including shares purchased, redeemed, exchanged,
or converted into shares of Common Equity, shall (upon compliance with any
applicable provisions of the laws of Delaware) have the status of authorized
but unissued shares of preferred stock of the Company undesignated as to
series and may be designated or redesignated and issued or reissued, as the
case may be, as part of any series of preferred stock of the Company,
provided that such shares may not in any event be reissued as Series D
Preferred Stock.
SECTION 12. BUSINESS DAY.
If any payment, redemption or exchange shall be required by the
terms hereof to be made on a day that is not a Business Day, such payment,
redemption or exchange shall be made on the immediately succeeding Business
Day.
SECTION 13. DEFINITIONS.
As used in this Certificate, the following terms shall have the following
meanings (with terms defined in the singular having comparable meanings when
used in the plural and vice versa), unless the context otherwise requires:
"AFFILIATE" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition,
"control" (including, with correlative meanings, the terms "controlling,"
"controlled by" and "under common control with"), as used with respect to any
Person, shall mean the possession, directly or indirectly, of the power to
direct or cause the direction of the management or policies of such Person,
whether through the ownership of voting securities, by agreement or
otherwise; provided that beneficial ownership of a majority or more of the
voting securities of a Person shall be deemed to be control.
"AMENDED BYLAWS" means the Amended and Restated Bylaws of the Company, as
in effect from time to time.
10
<PAGE>
"BOARD" or "BOARD OF DIRECTORS" means the Board of Directors of the
Company.
"BUSINESS DAY" means any day other than a Legal Holiday.
"CAPITAL STOCK" means (i) in the case of a corporation, corporate stock,
(ii) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however designated)
of corporate stock, (iii) in the case of a partnership, partnership interests
(whether general or limited) and (iv) any other interest or participation
that confers on a Person the right to receive a share of the profits and
losses of, or distributions of assets of, the issuing Person.
"CERTIFICATE OF INCORPORATION" means the certificate of incorporation (as
defined in Section 104 of the Delaware General Corporation Law) of the
Company in effect on the date hereof, including, without limitation, the
Series A, Series B, Series C and Series D Certificates of Designation.
"CHANGE OF CONTROL" with respect to a Person 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% in outstanding voting power of such Person,
(ii) at such time as during any one year period, individuals who at the
beginning of such period constitute such Person's board of directors or other
governing body cease to constitute at least a majority of such board or
governing body (provided, however, that a change in directors upon a Type B
Event Date shall not be deemed to cause a Change in Control pursuant to this
clause (ii)), (iii) upon consummation of a merger or consolidation of such
Person into or with another Person in which the shareholders of the subject
Person immediately prior to the consummation of such transaction shall own
less than Fifty Percent (50%) of the voting securities of the surviving
Person (or the parent corporation of the surviving Person where the surviving
Person is wholly-owned by the parent corporation) immediately following the
consummation of such transaction or (iv) the sale, transfer or lease of all
or substantially all of the assets of such Person, in any of cases (i), (ii),
(iii) or (iv) in a single transaction or series of related transactions;
PROVIDED, that no Change of Control hereunder with respect to the Company
shall be deemed to occur solely by reason of (x) the ownership by the
Majority Holders of the Series B Preferred Stock, Series C Preferred Stock,
Series D Preferred Stock or any Affiliate thereof of any Capital Stock of the
Company or (y) the conversion of shares of Series D Preferred Stock into
Common Stock.
"COMMON EQUITY" means all shares now or hereafter authorized of any class
of common stock of the Company (including the Common Stock) and any other
stock of the Company, however designated, authorized after the date hereof,
which has the right (subject always to prior rights of any class or series of
preferred stock) to participate in any distribution of the assets or earnings
of the Company without limit as to per share amount.
"COMMON STOCK" has the meaning set forth in Section 3(a).
11
<PAGE>
"COMMON STOCK DIRECTOR" means, for any period prior to any Type B Event
Date, any director other than the Joint Director or a director elected by the
holders of the Series B Preferred Stock or the Series C Preferred Stock.
"COMPANY" means InSight Health Services Corp., a Delaware corporation.
"CONVERSION DATE" has the meaning set forth in Section 5(a).
"CONVERSION MULTIPLE" has the meaning set forth in Section 7(a).
"CONVERSION DIRECTORS" has the meaning set forth in Section 9(b).
"CORPORATE CHANGE" has the meaning set forth in Section 7(c).
"FISCAL YEAR" means each year ending June 30, or any other fiscal year as
approved by the Board of Directors.
"INITIAL ISSUE DATE" means October 14, 1997.
"INITIAL PURCHASER" means the Initial Purchasers of the Series B
Preferred Stock and the Series C Preferred Stock (as defined in the
respective Certificates of Designation).
"JOINT DIRECTOR" has the meaning set forth in the Series B Certificate of
Designation and the Series C Certificate of Designation.
"JUNIOR SECURITIES" has the meaning set forth in Section 2.
"LEGAL HOLIDAY" means a Saturday, a Sunday or a day on which banking
institutions in the Company's principal place of business, the City of New
York or at a place of payment are authorized by law, regulation or executive
order to remain closed. If a payment date is a Legal Holiday at a place of
payment, payment may be made at that place on the next succeeding day that is
not a Legal Holiday, and no interest shall accrue for the intervening period.
"LIQUIDATING DIVIDEND" has the meaning set forth in Section 7(e).
"LIQUIDATING EVENT" has the meaning set forth in Section 4(b).
"LIQUIDATION PREFERENCE" has the meaning set forth in Section 4(a).
"MAJORITY HOLDERS," at any time, and with respect to any class or series
of Capital Stock of the Company, means holders of a majority of the shares of
such class or series then outstanding. If the term is used without reference
to a particular class or series of Capital Stock of the Company, it means
Majority Holders of the Series D Preferred Stock.
"PARITY SECURITIES" has the meaning set forth in Section 2.
12
<PAGE>
"PERSON" means any individual, corporation, partnership, joint venture,
association, limited liability company, joint-stock company, trust,
unincorporated organization or government or agency or political subdivision
thereof (including any subdivision or ongoing business of any such entity or
substantially all of the assets of any such entity, subdivision or business).
"PREFERRED STOCK DIRECTORS" means the Series B Directors and the Series C
Director.
"SENIOR SECURITIES" has the meaning set forth in Section 2.
"SERIES A CERTIFICATE OF DESIGNATION" means the Certificate of
Designation, Preferences and Rights of the Series A Preferred Stock.
"SERIES A PREFERRED STOCK" has the meaning set forth in Section 2.
"SERIES B CERTIFICATE OF DESIGNATION" means the Certificate of
Designation, Preferences and Rights of the Series B Preferred Stock.
"SERIES B DIRECTOR" has the meaning set forth in the Series B Certificate
of Designation.
"SERIES B PREFERRED STOCK" has the meaning set forth in Section 1.
"SERIES C CERTIFICATE OF DESIGNATION" means the Certificate of
Designation, Preferences and Rights of the Series C Preferred Stock.
"SERIES C DIRECTOR" has the meaning set forth in the Series C Certificate
of Designation.
"SERIES C PREFERRED STOCK" has the meaning set forth in Section 2.
"SERIES D CERTIFICATE OF DESIGNATION" means this document.
"SERIES D DIRECTOR" has the meaning set forth in Section 9(b).
"SERIES D PREFERRED STOCK" has the meaning set forth in Section 1.
"SERIES D SELECTION PROCEDURE" shall mean selection of the Series D
Directors by the holders of the shares of Series D Preferred Stock, which
election shall employ cumulative voting of the shares of Series D Preferred
Stock.
"SUBSIDIARY" means, with respect to any Person, (a) any corporation of
which at least a majority in interest of the outstanding voting stock (having
by the terms thereof voting power under ordinary circumstances to elect a
majority of the directors of such corporation, irrespective of whether or not
at the time stock of any other class or classes of such corporation shall
have or might have voting power by reason of the happening of any
contingency) is at the time, directly or indirectly, owned or controlled by
such Person, by one or more Subsidiaries of such Person or by such Person and
one or more of its Subsidiaries, or (b) any corporate or non-corporate entity
in which such Person, one or more Subsidiaries of such Person, or such person
and one or more Subsidiaries of such Person, directly or indirectly, at the
date of determination thereof, has an
13
<PAGE>
ownership interest and one hundred percent (100%) of the revenue of which is
included in the consolidated financial reports of such Person consistent with
GAAP.
"SUPERMAJORITY VOTE" means the affirmative vote of six (6) directors of
the Company with respect to the matter subject to such vote.
"SUPERVOTING SECURITIES" means any class or series of the Company's
Capital Stock the holders of which have the right to cast more than one vote
per share and/or have the right to elect one or more members of the Board of
Directors, voting as a class or series.
"TYPE B EVENT DATE" has the meaning set forth in Section 6 of the Series
C Certificate of Designation and the Series B Certificate of Designation.
"TYPE B PERCENTAGE" means a percentage equal to (i) the number of shares
of Common Stock held by all holders of Series B Preferred Stock and Series C
Preferred Stock as of a Type B Event Date (assuming full conversion of all
such shares of Series B Preferred Stock and Series C Preferred Stock into
Common Stock) divided by (ii) the total number of shares of Common Stock
outstanding as of a Type B Event Date (assuming full conversion of all
convertible shares of Preferred Stock as of such Type B Event Date);
PROVIDED, HOWEVER, that the maximum Type B Percentage shall be sixty-four
percent (64%).
14
<PAGE>
IN WITNESS WHEREOF, InSight Health Services Corp. has caused this
Certificate to be executed by its Executive Vice President and Secretary this
14th day of October, 1997.
INSIGHT HEALTH SERVICES CORP.
By: /s/ Thomas V. Croal
----------------------------------
Name: Thomas V. Croal
Office: Executive Vice President
and Secretary
15
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
WARRANT AGREEMENT
BETWEEN
INSIGHT HEALTH SERVICES CORP.
AND
GENERAL ELECTRIC COMPANY
DATED AS OF OCTOBER 14, 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
WARRANT AGREEMENT
THIS WARRANT AGREEMENT (the "Agreement") is made as of October 14, 1997
(the "Effective Date"), between InSight Health Services Corp., a Delaware
corporation (the "Company"), and General Electric Company, a New York
corporation (together with its Affiliates, "GE" or the "Warrant Holder").
W I T N E S S E T H :
WHEREAS, the Company has entered into (i) that certain Securities Purchase
Agreement with the Warrant Holder dated as of October 14, 1997 (the "Purchase
Agreement"), pursuant to which the Company agrees, among other things, to issue
to the Warrant Holder warrants (the "Warrants") to purchase up to an aggregate
of two hundred fifty thousand (250,000) shares of common stock, $.001 par value
per share, of the Company (the "Common Stock," and the Common Stock issuable
upon exercise of the Warrants being herein referred to as the "Warrant Shares"),
and (ii) that certain Securities Purchase Agreement with Carlyle Partners II,
L.P., a Delaware limited partnership ("CP II"), Carlyle Partners III, L.P., a
Delaware limited partnership ("CP III"), Carlyle International Partners II,
L.P., a Cayman Islands exempted limited partnership (CIP II"), Carlyle
International Partners III, L.P., a Cayman Islands exempted limited partnership
("CIP III"), C/S International Partners, a Cayman Islands general partnership
("C/S"), the State Board of Administration of Florida ("SBAF"), Carlyle
Investment Group, L.P., a Delaware limited partnership ("CIG"), Carlyle-Insight
International Partners, L.P., a Cayman Islands exempted limited partnership
("C-IIP"), and Carlyle-Insight Partners, L.P., a Delaware limited partnership
("C-IP") (CP II, CP III, CIP II, CIP III, C/S, SBAF, CIG, C-IIP and C-IP
collectively the "Carlyle Investors"), dated as of October __, 1997, pursuant to
which the Company agrees, among other things, to issue to the Carlyle Investors
warrants (the "Carlyle Investors' Warrants") to purchase up to an aggregate of
two hundred fifty hundred thousand (250,000) shares of Common Stock of the
Company. Each Warrant shall be a warrant to purchase one (1) Warrant Share,
unless and until adjusted pursuant to Section 10 hereof. Certain terms used
herein and not elsewhere defined are defined in the Purchase Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual agreements
herein set forth, and for other good and lawful consideration, the receipt,
sufficiency and adequacy of which are hereby acknowledged, the parties hereto
agree as follows:
SECTION 1. WARRANT CERTIFICATE.
The certificates evidencing the Warrants (the "Warrant Certificates") to be
delivered pursuant to this Agreement shall be in registered form only and shall
be substantially in the form set forth in Exhibit A attached hereto.
SECTION 2. EXECUTION OF WARRANT CERTIFICATE.
(a) The Warrant Certificates shall be signed on behalf of the Company by
its Chairman of the Board of Directors (the "Board") or its President or a Vice
President, and by its Secretary or an Assistant Secretary under its corporate
seal. Each such signature upon the Warrant Certificates may be in the form of a
facsimile signature of the present or any future Chairman of the Board,
President, Vice President, Secretary or Assistant Secretary, as the case may be,
and may be imprinted or otherwise reproduced on the
1
<PAGE>
Warrant Certificates. The seal of the Company may be in the form of a facsimile
thereof and may be impressed, affixed, imprinted or otherwise reproduced on the
Warrant Certificates.
(b) In case any officer of the Company who shall have signed any Warrant
Certificate shall cease to be such officer before the Warrant Certificate so
signed shall have been disposed of by the Company, such Warrant Certificate
nevertheless may be delivered or disposed of as though such person had not
ceased to be such officer of the Company; and any Warrant Certificate may be
signed on behalf of the Company by any person who, at the actual date of the
execution of such Warrant Certificate, shall be a proper officer of the Company
to sign such Warrant Certificate, although at the date of the execution of this
Agreement any such person was not such an officer.
SECTION 3. REGISTRATION.
The Company shall register the Warrant Certificates in a Warrant register
to be maintained by the Company (the "Warrant Register") when Warrants are
issued. The Company may deem and treat the registered holders of the Warrant
Certificates as the absolute owners thereof (notwithstanding any notation of
ownership or other writing thereon made by anyone) for all purposes and shall
not be affected by any notice to the contrary.
SECTION 4. REGISTRATION OF TRANSFERS AND EXCHANGES.
(a) The Company shall from time to time register the transfer of any
outstanding Warrant Certificate in the Warrant Register upon surrender thereof
accompanied by a written instrument or instruments of transfer in form
satisfactory to the Company, duly executed by the registered holder or holders
thereof or by the duly appointed legal representative thereof or by a duly
authorized attorney. Upon any such registration of transfer, a new Warrant
Certificate shall be issued to the transferee and the surrendered Warrant
Certificate shall be canceled and disposed of by the Company.
(b) The Warrant Holder agrees that prior to any proposed transfer of the
Warrants or of the Warrant Shares, which transfer shall not be to any Person
engaged in the Business, if such transfer is not made pursuant to an effective
Registration Statement under the Securities Act of 1933, as amended (the
"Securities Act"), the Warrant Holder will, if requested by the Company, deliver
to the Company:
(1) an investment representation letter reasonably satisfactory to
the Company signed by the proposed transferee;
(2) an agreement by such transferee to the impression of the
restrictive investment legend set forth below in Section 4(c) on the
Warrants or the Warrant Shares;
(3) an agreement by such transferee that the Company may place a
notation in the stock books of the Company or a "stop transfer order" with
any transfer agent or registrar with respect to the Warrant Shares;
(4) an agreement by such transferee to be bound by the provisions of
this Section 4 relating to the transfer of such Warrants or Warrant Shares;
and
(5) except in the case of a transfer pursuant to Rule 144 promulgated
pursuant to the Securities Act, or any successor rule, prior to
consummating any private sale or transfer of such Warrants or Warrant
Shares, the written opinion of reputable legal counsel in form reasonably
2
<PAGE>
acceptable to the Company that such sale or transfer is being made in
compliance with applicable federal securities laws.
(c) The Warrant Holder agrees that each certificate representing Warrants
or Warrant Shares will bear the following legend until such Warrants or Warrant
Shares have been sold pursuant to an effective registration statement under the
Securities Act:
"THE SECURITIES EVIDENCED OR CONSTITUTED HEREBY HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED. SUCH SECURITIES MAY NOT BE SOLD, TRANSFERRED,
PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF
REGISTRATION UNDER SAID ACT AND THE RULES AND REGULATIONS THEREUNDER
AND OF ALL APPLICABLE STATE SECURITIES OR "BLUE SKY" LAWS OR AN
EXEMPTION THEREFROM UNDER SAID ACT AND ALL APPLICABLE STATE SECURITIES
OR "BLUE SKY" LAWS. IN THE CASE OF A SALE OF THE SECURITIES EVIDENCED
OR CONSTITUTED HEREBY, OTHER THAN A SALE PURSUANT TO A VALID
REGISTRATION STATEMENT UNDER SAID ACT OR A SALE PURSUANT TO RULE 144
PROMULGATED UNDER SAID ACT, THE HOLDER OF THE SECURITIES EVIDENCED OR
CONSTITUTED HEREBY SHALL PROVIDE TO THE CORPORATION THE WRITTEN
OPINION OF REPUTABLE LEGAL COUNSEL IN FORM REASONABLY ACCEPTABLE TO
THE CORPORATION THAT SUCH SALE OR TRANSFER IS BEING MADE IN COMPLIANCE
WITH APPLICABLE FEDERAL SECURITIES LAWS."
(d) A Warrant Certificate may be exchanged at the option of the holder
thereof, when surrendered to the Company at its office for another Warrant
Certificate or other Warrant Certificates of like tenor and representing in the
aggregate a like number of Warrants. A Warrant Certificate surrendered for
exchange shall be canceled and disposed of by the Company
SECTION 5. WARRANTS; EXERCISE OF WARRANTS.
(a) Subject to the terms of this Agreement, the Warrant Holder shall have
the right, which may be exercised during the period commencing on the Effective
Date until 5:00 p.m., Washington, D.C. time, on the fifth anniversary of the
Effective Date (the "Exercise Period"), to receive from the Company the number
of fully paid and non-assessable Warrant Shares that the Warrant Holder may at
the time be entitled to receive on exercise of the number of Warrants that the
Warrant Holder elects to exercise and payment of the Exercise Price (as defined
below) then in effect for such Warrant Shares. In the alternative, the Warrant
Holder may exercise its right, during the Exercise Period, to receive Warrant
Shares on a net basis, such that, without payment of any funds kind, the Warrant
Holder receives that number of Warrant Shares equal to the number of Warrants
being exercised times the quotient of (i) the "fair market value" of a Warrant
Share (as defined below) minus the Exercise Price, divided by (ii) the fair
market value of a Warrant Share. For purposes of the foregoing sentence, "fair
market value" of a Warrant Share shall mean the average of the closing prices of
the Common Stock's sales on all domestic securities exchanges on
3
<PAGE>
which such Common Stock may at the time be listed, or, if there have been no
sales on any such exchange on any day, the average of the highest bid and lowest
asked prices on all such exchanges at the end of such day, or, if on any day
such Common Stock is not so listed, the average of the representative bid and
asked prices quoted on Nasdaq as of 4:00 P.M., New York time, on such day, or,
if on any day such Common Stock is not quoted on Nasdaq, the average of the
highest bid and lowest asked prices on such day in the domestic over-the-counter
market as reported by the National Quotation Bureau, Incorporated, or any
similar successor organization, in each such case averaged over a period of
twenty-one (21) business days consisting of the day as of which the "fair market
value" of the Warrant Shares is being determined and the twenty (20) consecutive
business days prior to such day; provided that if such Common Stock is listed on
any domestic securities exchange the term "business days" as used in this
sentence means business days on which such exchange is open for trading. If at
any time such Common Stock is not listed on any domestic securities exchange or
quoted on Nasdaq or the domestic over-the-counter market, the "fair market
value" of the Warrant Shares shall be the fair value thereof determined by the
Company and approved by the Warrant Holder; provided that if such parties are
unable to reach agreement within a reasonable period of time, such fair market
value shall be determined by an appraiser reasonably selected by the Company and
reasonably approved by the Warrant Holder. The determination of such appraiser
shall be final and binding on the Company and the Warrant Holder, and the fees
and expenses of such appraiser shall be paid by the Company, unless the fair
market value determined by such appraiser is less than five percent (5%) above
the value proposed in writing by the Company and rejected by the Warrant Holder
prior to the selection of such appraiser, in which event the fees and expenses
of such appraiser shall be for the Warrant Holder's account. Each Warrant not
exercised prior to 5:00 p.m., Washington, D.C. time, on the fifth anniversary of
the Effective Date shall become void and all rights thereunder and all rights in
respect thereof under this agreement shall cease as of such time. No
adjustments as to dividends will be made upon exercise of the Warrants.
(b) A Warrant may be exercised upon surrender to the Company at its office
designated for such purpose (the address of which is set forth in Section 14
hereof) of the certificate or certificates evidencing the Warrants to be
exercised with the form of election to purchase on the reverse thereof duly
filled in and signed, and upon (i) payment to the Company of the exercise price
of ten dollars ($10.00) per Warrant Share, as adjusted as herein provided (as so
adjusted, the "Exercise Price"), for the number of Warrant Shares in respect of
which such Warrants are then exercised, or (ii) the Warrant Holder's exercise of
its right to receive Warrant Shares on a net basis, as more fully described in
Section 5(a). Payment of the aggregate Exercise Price shall be made (i) in cash
or by certified or official bank check payable to the order of the Company or
(ii) in the manner provided in subsection (a) of this Section 5.
(c) Subject to the provisions of Section 6 hereof, upon such surrender of
Warrants and payment of the Exercise Price, the Company shall issue and cause to
be delivered with all reasonable dispatch to or upon the written order of the
Warrant Holder and in such name or names as the Warrant Holder may designate, a
certificate or certificates for the number of full Warrant Shares issuable upon
the exercise of such Warrants together with cash as provided in Section 11;
PROVIDED, HOWEVER, that if any consolidation, merger, or sale or other transfer
of all or substantially all of the assets of the Company is proposed to be
effected by the Company, or a tender offer or an exchange offer for shares of
Common Stock of the Company shall be made, upon such surrender of Warrants and
payment of the Exercise Price as aforesaid, the Company shall, as soon as
practicable, but in any event not later than five business days thereafter,
issue and cause to be delivered the full number of Warrant Shares issuable upon
the exercise of such Warrants in the manner described in this sentence together
with cash as provided in Section 11. Such certificate or certificates shall be
deemed to have been issued and any person so designated to be named therein
shall be deemed to have become a holder of record of such Warrant Shares as of
the date of the surrender of such Warrants and payment of the Exercise Price.
4
<PAGE>
(d) The Warrants shall be exercisable, at the election of the holder
thereof, either in full or from time to time in part and, in the event that a
Warrant Certificate evidencing Warrants is exercised in respect of fewer than
all of the Warrant Shares issuable on such exercise at any time prior to the
date of expiration of the Warrants, a new Warrant Certificate evidencing the
remaining Warrant or Warrants will be issued and delivered by the Company and at
its expense pursuant to the provisions of this Section and of Section 2 hereof.
(e) All Warrant Certificates surrendered upon exercise of Warrants shall
be canceled and disposed of by the Company. The Company shall keep copies of
this Agreement and any notices given or received hereunder available for
inspection by the Warrant Holder during normal business hours at its office.
SECTION 6. PAYMENT OF TAXES.
The Company will pay all documentary stamp taxes or other similar taxes
attributable to the initial issuance of Warrant Shares upon the exercise of
Warrants; PROVIDED, HOWEVER, that the Company shall not be required to pay any
tax or taxes which may be payable in respect of any transfer involved in the
issue of any Warrant Certificate or any certificates for Warrant Shares in a
name other than that of the registered holder of a Warrant Certificate
surrendered upon the exercise of a Warrant, and the Company shall not be
required to issue or deliver such Warrant Certificates unless or until the
person or persons requesting the issuance thereof shall have paid to the Company
the amount of such tax or shall have established to the satisfaction of the
Company that such tax has been paid.
SECTION 7. MUTILATED OR MISSING WARRANT CERTIFICATES.
In case any of the Warrant Certificates shall be mutilated, lost, stolen or
destroyed, the Company may issue, in exchange and substitution for, and upon
cancellation of, the mutilated Warrant Certificate, or in lieu of and
substitution for the Warrant Certificate lost, stolen or destroyed, a new
Warrant Certificate of like tenor and representing an equivalent number of
Warrants, but only upon receipt of evidence reasonably satisfactory to the
Company of such loss, theft or destruction of such Warrant Certificate and
indemnity, if requested, also reasonably satisfactory to it. Applicants for such
substitute Warrant Certificates shall also comply with such other reasonable
regulations and pay such other reasonable charges as the Company may prescribe.
SECTION 8. RESERVATION OF WARRANT SHARES.
(a) The Company will at all times reserve and keep available, free from
preemptive rights, out of the aggregate of its authorized but unissued Common
Stock or its authorized and issued Common Stock held in its treasury, for the
purpose of enabling it to satisfy any obligation to issue Warrant Shares upon
exercise of Warrants, the maximum number of shares of Common Stock which may
then be deliverable upon the exercise of all outstanding Warrants.
(b) The Company or, if appointed, the transfer agent for the Common Stock
(the "Transfer Agent") and every subsequent Transfer Agent for any shares of the
Company's capital stock issuable upon the exercise of any of the rights of
purchase aforesaid will be irrevocably authorized and directed at all times to
reserve such number of authorized shares as shall be required for such purpose.
The Company will keep a copy of this Agreement on file with the Transfer Agent
and with every subsequent transfer agent for any shares of the Company's capital
stock issuable upon the exercise of the rights of purchase represented
5
<PAGE>
by the Warrants. The Company will furnish such Transfer Agent a copy of all
notices of adjustments and certificates related thereto transmitted to each
holder pursuant to Section 13 hereof.
(c) Before taking any action which would cause an adjustment pursuant to
Section 10 hereof to reduce the Exercise Price below the then par value (if any)
of the Warrant Shares, the Company will take any corporate action which may, in
the opinion of its counsel (which may be counsel employed by the Company), be
necessary in order that the Company may validly and legally issue fully paid and
nonassessable Warrant Shares at the Exercise Price as so adjusted.
(d) The Company covenants that all Warrant Shares which may be issued upon
exercise of Warrants will, upon issue, be fully paid, nonassessable, free of
preemptive rights and free from all taxes, liens, charges and security interests
with respect to the issue thereof.
SECTION 9. STOCK EXCHANGE LISTINGS.
The Company will from time to time take all commercially reasonable action,
at its expense, which may be necessary so that the Warrant Shares, immediately
upon their issuance upon the exercise of Warrants, will be listed and maintained
on the principal securities exchanges and markets within the United States of
America, if any, on which other shares of Common Stock are then listed and
registered under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), or authorized for quotation on Nasdaq, provided, however, that the
payment of any required listing or other fee shall always be deemed to be
"commercially reasonable" for purposes of this Section 9.
SECTION 10. ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF WARRANT SHARES
ISSUABLE.
(a) In order to prevent the dilution of the rights granted under this
Agreement, the Exercise Price shall be subject to adjustment from time to time
as provided in this Section 10, and the number of shares of Common Stock
obtainable upon exercise of the Warrants shall be subject to adjustment from
time to time as provided in this Section 10. For purposes of this Section 10,
"Trigger Price" shall be $6.75 per share of Common Equity; "Convertible
Security" means any stock or securities, directly or indirectly, convertible
into or exchangeable for Common Equity, including without limitation any
exchangeable debt securities; "Option" shall mean any rights or options to
subscribe for or purchase Common Equity or Convertible Securities.
(b) If and whenever the Company issues or sells or, in accordance with
Section 10(c), is deemed to have issued or sold, any share of Common Equity
without consideration or for a net consideration per share less than the Trigger
Price, then immediately upon such issuance or sale, the Exercise Price, which
shall equal $10 per share until the first such issuance or sale below the
Trigger Price, shall be reduced to the price per share determined by dividing
(i) an amount equal to the sum of (A) the number of shares of Common Equity
outstanding immediately prior to such issuance multiplied by the Exercise Price
in effect immediately prior to such issuance, and (B) the consideration, if any,
received by the Company upon such issuance, by (ii) the total number of shares
of Common Equity outstanding immediately after such issuance.
Notwithstanding the foregoing, there shall be no adjustment to the Exercise
Price with respect to the granting of, or issuance of Common Equity upon
exercise of, stock options to employees of the Company authorized but not
granted as of the Effective Date for an aggregate of up to 300,000 shares of
Common Equity (as such shares are equitably adjusted for subsequent stock
splits, stock combinations, stock dividends and recapitalizations). For
purposes of this Section 10, "Common Equity" means all shares
6
<PAGE>
now or hereafter authorized of any class of common stock of the Company
(including the Common Stock) and any other stock of the Company, however
designated, authorized on or after the date hereof, which has the right (subject
always to prior rights of any class or series of preferred stock) to participate
in any distribution of the assets or earnings of the Company without limit as to
per share amount, and "Fully Diluted Equity" means, with respect to the Company
at any given time, (A) the number of shares of Common Equity actually
outstanding at such time, plus (B) the maximum number of shares of Common Equity
that are issuable upon the exercise, exchange or conversion of any unexpired
right or unexpired option (including the Warrants) to subscribe for, to purchase
or to receive Common Equity or other securities convertible into or exchangeable
for Common Equity, including without limitation any exchangeable debt
securities, regardless of whether any of the foregoing are actually exercisable
at such time; provided, however, the number of shares of Common Equity
outstanding at any given time shall not include shares, directly or indirectly,
owned or held by or for the account of the Company.
(c) For purposes of determining the adjusted Exercise Price under Section
10(b) above, the following shall be applicable:
(1) CONSIDERATION. If any Common Equity, Options or Convertible
Securities are issued or sold or deemed to have been issued or sold for
cash, the consideration received therefor shall be deemed to be (i) in the
case of any public offering of such securities for cash, the gross proceeds
of such offering (without deduction for any underwriters discount) and (ii)
in the case of any other issuance, sale or deemed issuance or sale for
cash, the gross amount received by the Company therefor. In case any
Common Equity, Options or Convertible Securities are issued or sold for a
consideration other than cash, the amount of the consideration other than
cash received by the Company shall be the fair market value of such
consideration. In case any Common Equity, Options or Convertible
Securities are issued to the owners of the non-surviving entity in
connection with any merger in which the Company is the surviving
corporation, the amount of consideration therefor shall be deemed to be the
fair market value of such portion of the net assets and business of the
non-surviving entity as is attributable to such Common Equity, Options or
Convertible Securities, as the case may be. The fair market value of any
consideration other than cash shall be determined jointly by the Company
and the Warrant Holder. If such parties are unable to reach agreement
within a reasonable period of time, such fair market value shall be
determined by an appraiser reasonably selected by the Company and
reasonably approved by the Warrant Holder. The determination of such
appraiser shall be final and binding on the Company and the Warrant Holder,
and the fees and expenses of such appraiser shall be paid by the Company,
unless the fair market value determined by such appraiser is less than five
percent (5%) above the value proposed in writing by the Company and
rejected by the Warrant Holder prior to the selection of such appraiser, in
which event the fees and expenses of such appraiser shall be for the
Warrant Holder's account.
(2) OPTIONS AND CONVERTIBLE SECURITIES. In the case of the granting
or sale of any Option or Convertible Security (whether or not at the time
convertible, exercisable or exchangeable):
(A) the aggregate maximum number of shares of Common Equity
deliverable, directly or indirectly, upon exercise of any Option
shall be deemed to have been issued at the time such Option was
granted and for a consideration equal to the consideration
(determined in the manner provided in subsection (1) above), if
any, received by the Company upon the issuance of such Option
plus the
7
<PAGE>
minimum purchase price provided in such Option for the Common
Equity covered thereby;
(B) the aggregate maximum number of shares of Common Equity
deliverable upon conversion of or in exchange for any such
Convertible Security, or upon the exercise of any Option to
purchase or acquire any Convertible Security and the subsequent
conversion or exchange thereof, shall be deemed to have been
issued at the time such Convertible Security was issued or such
Option was issued and for a consideration equal to the
consideration, if any, received by the Company for any such
Convertible Security and any related Option (excluding any cash
received on account of accrued interest or accrued dividends),
plus the additional consideration (determined in the manner
provided in subsection (1) above), if any, to be received by the
Company upon the conversion or exchange of such Convertible
Security, or upon the exercise of any related Option to purchase
or acquire any Convertible Security and the subsequent conversion
or exchange thereof;
(C) on any change in the number of shares of Common Equity
deliverable, directly or indirectly, upon conversion, exercise or
exchange of any such Option or Convertible Security or any change
in the consideration to be received by the Company upon such
exercise, conversion or exchange, including, but not limited to,
a change resulting from the anti-dilution provisions thereof, the
Exercise Price as then in effect shall forthwith be readjusted to
such Exercise Price as would have been obtained had an adjustment
been made upon the issuance of such Option or Convertible
Security upon the basis of such change; and
(D) if the Exercise Price shall have been adjusted upon the
issuance of any such Option or Convertible Security, no further
adjustment of the Exercise Price shall be made for the actual
issuance of Common Equity upon any exercise, conversion, or
exchange thereof;
provided, however, that none of the events set forth in Section 10(c)(2)(A)
through 10(c)(2)(D), inclusive, shall result in any increase in the
Exercise Price.
(3) INTEGRATED TRANSACTION. In case any Option is issued in
connection with the issue or sale of other securities of the Company,
together comprising one integrated transaction in which no specific
consideration is allocated to such Options by the parties thereto, the
Options shall be deemed to have been issued without consideration.
(4) TREASURY SHARES. The number of shares of Common Equity
outstanding at any given time does not include shares owned or held by or
for the account of the Company, and the disposition of any shares so owned
or held shall be considered an issuance or sale of Common Equity.
(5) RECORD DATE. If the Company takes a record of the holders of
Common Equity for the purpose of entitling them (A) to receive a dividend
or other distribution payable in Common Equity, Options or in Convertible
Securities or (B) to subscribe for or purchase Common Equity, Options or
Convertible Securities, then such record date shall be deemed to be the
date of the issuance or sale of the shares of Common Equity deemed to have
been issued or sold upon the
8
<PAGE>
declaration of such dividend or the making of such other distribution or
the date of the granting of such right of subscription or purchase, as the
case may be.
(d) If the Company at any time subdivides (by any stock split, stock
dividend, recapitalization or otherwise) one or more classes of its outstanding
shares of Common Equity into a greater number of shares, the Exercise Price in
effect immediately prior to such subdivision shall be proportionately reduced
and the number of shares of Common Stock obtainable upon exercise of the Warrant
shall be proportionately increased. If the Company at any time combines (by
reverse stock split or otherwise) one or more classes of its outstanding shares
of Common Stock into a smaller number of shares, the Exercise Price in effect
immediately prior to such combination shall be proportionately increased and the
number of shares of Common Stock obtainable upon exercise of this Warrant shall
be proportionately decreased.
(e) Any recapitalization, reorganization, reclassification, consolidation,
merger, sale of all or substantially all of the Company's assets or other
transaction, in each case which is effected in such a way that the holders of
Common Equity are entitled to receive (either directly or upon subsequent
liquidation) stock, securities or assets with respect to or in exchange for
Common Equity is referred to herein as a "Corporate Change." Prior to the
consummation of any Corporate Change, the Company shall make appropriate
provision (in form and substance satisfactory to the Warrant Holder) to insure
that the Warrant Holder shall thereafter have the right to acquire and receive,
in lieu of or in addition to (as the case may be) the Warrant Shares acquirable
and receivable upon the exercise of such holder's Warrants, such shares of
stock, securities or assets as may be issued or payable with respect to or in
exchange for the number of Warrant Shares acquirable and receivable upon
exercise of such holder's Warrant had such Corporate Change not taken place. In
any such case, the Company shall make appropriate provision (in form and
substance reasonably satisfactory to the Warrant Holder) with respect to such
holder's rights and interests to insure that the provisions of this Agreement
shall thereafter be applicable to the Warrants (including, in the case of any
such consolidation, merger or sale in which the successor entity or purchasing
entity is other than the Company, any adjustment of the Exercise Price based on
Section 10 hereof). The Company shall not effect any such consolidation, merger
or sale, unless prior to the consummation thereof, the successor entity (if
other than the Company) resulting from consolidation or merger or the entity
purchasing such assets assumes by written instrument (in form and substance
reasonably satisfactory to the Warrant Holder), the obligation to deliver to the
Warrant Holder such shares of stock, securities or assets as, in accordance with
the foregoing provisions, such holder may be entitled to acquire.
(f) If any event occurs of the type contemplated by the provisions of this
Section 10 but not expressly provided for by such provisions (including, without
limitation, the granting of stock appreciation rights, phantom stock rights or
other rights with equity features), then the Company's Board shall make an
appropriate adjustment in the Exercise Price and the number of shares of Common
Stock obtainable upon exercise of this Warrant so as to protect the rights of
the Warrant Holder; provided that no such adjustment shall increase the Exercise
Price or decrease the number of shares of Common Stock obtainable as otherwise
determined pursuant to this Section 10.
(g) If the Company declares or pays a dividend upon the Common Equity
payable otherwise than in cash out of earnings or earned surplus (determined in
accordance with generally accepted accounting principles, consistently applied)
except for a stock dividend payable in shares of Common Stock (a "Liquidating
Dividend"), then the Company shall pay to the Warrant Holder at the time of
payment thereof the Liquidating Dividend which would have been paid to such
Warrant Holder on the Common Stock had the Warrants been fully exercised
immediately prior to the date on which a record is taken for such Liquidating
Dividend, or, if no record is taken, the date as of which the record holders of
Common Equity entitled to such dividends are to be determined.
9
<PAGE>
SECTION 11. FRACTIONAL INTERESTS.
The Company shall not be required to issue fractional Warrant Shares upon
the exercise of Warrants. If more than one Warrant shall be presented for
exercise in full at the same time by the Warrant Holder, the number of full
Warrant Shares which shall be issuable upon the exercise thereof shall be
computed on the basis of the aggregate number of Warrant Shares purchasable on
exercise of the Warrants so presented. If any fraction of a Warrant Share
would, except for the provisions of this Section 11, be issuable on the exercise
of any Warrants (or specified portion thereof), the Company shall pay an amount
in cash equal to the "fair market value" (determined as provided in Section 5(a)
above) of the Common Stock on the day immediately preceding the date the Warrant
is presented for exercise, multiplied by such fraction.
SECTION 12. FINANCIAL STATEMENTS.
(a) Whether or not required by the rules and regulations of the Securities
and Exchange Commission (the "Commission"), so long as any of the Warrants
remain outstanding, the Company shall furnish to the Warrant Holder (i) all
quarterly and annual financial information that would be required to be
contained in a filing with the Commission on Forms 10-Q and 10-K if the Company
were required to file such Forms, including "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and, with respect to
the annual information only, a report thereon by the Company's certified
independent accountants and (ii) all current reports that would be required to
be filed with the Commission on Form 8-K if the Company were required to file
such reports. In addition, whether or not required by the rules and regulations
of the Commission, the Company shall file a copy of all such information and
reports with the Commission for public availability (unless the Commission will
not accept such a filing).
(b) The Company shall, so long as any of the Warrants are outstanding,
deliver to the Warrant Holder, forthwith upon any Executive Officer of the
Corporation becoming aware of any default under this Agreement, an Officers'
Certificate specifying such default and what action the Company is taking or
proposes to take with respect thereto.
SECTION 13. NOTICES TO WARRANT HOLDER.
(a) Upon any adjustment of the Exercise Price or exercise privileges
pursuant to Section 10, the Company shall promptly thereafter (i) cause to be
filed with the Company a certificate of a firm of independent public accountants
of recognized standing, selected by the Board (who may be the regular auditors
of the Company) and acceptable to the Warrant Holder, setting forth the Exercise
Price after such adjustment and setting forth in reasonable detail the method of
calculation and the facts upon which such calculations are based and setting
forth the number of Warrant Shares (or portion thereof) issuable after such
adjustment in the Exercise Price, which certificate shall be conclusive evidence
of the correctness of the matters set forth therein, upon exercise of a Warrant
and payment of the adjusted Exercise Price, and (ii) cause to be given to each
of the registered holders of the Warrant Certificate(s), at his or her address
appearing on the Warrant Register, written notice of such adjustments by
first-class mail, postage prepaid. Where appropriate, such notice may be given
in advance and included as a part of the notice required to be mailed under the
other provisions of this Section 13.
(b) In case:
10
<PAGE>
(1) the Company shall authorize the issuance to all holders of shares
of Common Stock of the Company rights to subscribe for, or to purchase
shares of, Common Stock or of any other subscription rights or warrants; or
(2) the Company shall authorize the distribution to all holders of
shares of Common Stock of evidences of its indebtedness or assets; or
(3) of any consolidation or merger to which the Company is a party
and for which approval of any shareholders of the Company is required, or
of the conveyance or transfer of the properties and assets of the Company
substantially as an entirety, or of any reclassification or change of
Common Stock issuable upon exercise of the Warrants, or a tender offer or
exchange offer for shares of Common Stock; or
(4) of the voluntary or involuntary dissolution, liquidation or
winding up of the Company or a Liquidating Dividend; or
(5) the Company proposes to take any action which would require an
adjustment of the Exercise Price or the Warrant Shares pursuant to Section
10;
then the Company shall cause to be given to each of the registered holders of
the Warrant Certificates at his or her address appearing on the Warrant
register, at least twenty (20) days prior to the applicable record date
hereinafter specified, or promptly in the case of events for which there is no
record date, by first-class mail, postage prepaid, a written notice stating (i)
the date as of which the holders of record of shares of Common Stock to be
entitled to receive any such rights or distribution are to be determined, or
(ii) the initial expiration date set forth in any tender offer or exchange offer
for shares of Common Stock, or (iii) the date on which any such consolidation,
merger, conveyance, transfer, dissolution, liquidation or winding up is expected
to become effective or consummated, and the date as of which it is expected that
holders of record of shares of Common Stock shall be entitled to exchange such
shares for securities or other property, if any, deliverable upon such
reclassification, consolidation, merger, conveyance, transfer, dissolution,
liquidation or winding up. The failure to give the notice required by this
Section 13 or any defect therein shall not affect the legality or validity of
any distribution, right, option, warrant, consolidation, merger, conveyance,
transfer, dissolution, liquidation or winding up, or the vote upon any action.
(c) Nothing contained in this Agreement or in the Warrant Certificate
shall be construed as conferring upon the holders thereof the right to vote or
to consent or to receive notice as shareholders in respect of the meetings of
shareholders or the election of Directors of the Company or any other matter, or
any rights whatsoever as shareholders of the Company.
SECTION 14. NOTICES TO THE COMPANY AND THE WARRANT HOLDER.
(a) Unless otherwise provided herein, any notice, request, instruction or
other document to be given hereunder by any party to the other shall be in
writing and delivered by hand-delivery, registered first-class mail, return
receipt requested, facsimile or air courier guaranteeing overnight delivery, as
follows:
If to the Company: InSight Health Services Corp.
4400 MacArthur Boulevard, Suite 800
Newport Beach, CA 92660
11
<PAGE>
Facsimile: 714.851.4488
Attn: Chief Financial Officer
With a copy to: McDermott, Will & Emery
2049 Century Park East, 34th Floor
Los Angeles, CA 90067
Facsimile: 310.277.4730
Attn: Mark J. Mihanovic, Esq.
and
Arent, Fox, Kintner, Plotkin & Kahn
1050 Connecticut Avenue, N.W., Suite 600
Washington, D.C. 20036
Facsimile: 202.857.6395
Attn: Gerald P. McCartin, Esq.
If to the Warrant Holder: General Electric Company
P.O. Box 414, W-490
Milwaukee, WI 53201-0414
Facsimile: 414.789.4573
Attn: Richard S. Berger, Finance Manager
and
GE Capital
260 Long Ridge Road
Stanford, CT 06927-5000
Facsimile: 203.357.6567
Attn: Michael E. Aspinwall, Senior Vice
President
With a copy to: Gibson, Dunn & Crutcher LLP
333 S. Grand Avenue
Los Angeles, CA 90071-3197
Facsimile: 213.229-7250
Attn: Ronald S. Beard, Esq.
or to such other place and with such other copies as either party may designate
as to itself by written notice to the other. All such notices, requests,
instructions or other documents shall be deemed to have been duly given at the
time delivered by hand, if personally delivered, four (4) business days after
being deposited in the mail, postage prepaid, if mailed, when receipt is
acknowledged by addressee, if by facsimile, or on the next business day, if
timely delivered to an air courier guaranteeing overnight delivery.
SECTION 15. SUPPLEMENTS AND AMENDMENTS.
The Company may from time to time supplement or amend this Agreement with
the express written approval of the holder(s) of the Warrant Certificate(s) in
order to cure any ambiguity or to correct or supplement any provision contained
herein which may be defective or inconsistent with any other provision herein,
or to make any other provisions in regard to matters or questions arising
hereunder which the
12
<PAGE>
Company may deem necessary or desirable and which shall not in any way adversely
affect the interests of the holder(s) of Warrant Certificate(s).
SECTION 16. SUCCESSORS.
All the covenants and provisions of this Agreement by or for the benefit of
the Company shall bind and inure to the benefit of its respective successors and
assigns hereunder. All the covenants and provisions by or for the benefit of
the Warrant Holder shall bind and inure to the benefit of its respective
successors and assigns hereunder.
SECTION 17. TERMINATION.
This Agreement shall terminate at 5:00 p.m., Eastern Standard Time on the
fifth anniversary of the Effective Date. Notwithstanding the foregoing, this
Agreement will terminate on any earlier date if all Warrants have been
exercised.
SECTION 18. GOVERNING LAW.
This Agreement and each Warrant Certificate issued hereunder shall be
deemed to be a contract made under the laws of the State of New York and for all
purposes shall be construed in accordance with the internal laws of said State.
SECTION 19. BENEFITS OF THIS AGREEMENT.
Nothing in this Agreement shall be construed to give to any person or
corporation other than the Company and the registered holder(s) of the Warrant
Certificate(s) any legal or equitable right, remedy or claim under this
Agreement; but this Agreement shall be for the sole and exclusive benefit of the
Company and the registered holder(s) of the Warrant Certificate(s).
SECTION 20. HSR ACT.
The Company shall cooperate with any Warrant Holder, promptly after receipt
of notice from any such Warrant Holder of its intention to exercise any
Warrants, in making all filings required to be made under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the "HSR Act") in connection
with such exercise; provided, however, that in no event shall such cooperation
include payment of any fee which may be required to be paid. The applicable
waiting period, including any extension thereof, under the HSR Act shall have
expired or been terminated prior to the issuance of any Warrant Shares upon
exercise of Warrants.
SECTION 21. COUNTERPARTS.
This Agreement may be executed in any number of counterparts and each of
such counterparts shall for all purposes be deemed to be an original, and all
such counterparts shall together constitute but one and the same instrument.
13
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed, as of the day and year first above written
INSIGHT HEALTH SERVICES CORP.,
a Delaware corporation
By
-------------------------------
Name:
-------------------------------
Title:
-------------------------------
GENERAL ELECTRIC COMPANY,
a New York corporation
By
-------------------------------
Name:
-------------------------------
Title:
-------------------------------
1
<PAGE>
EXHIBIT A
[FORM OF WARRANT CERTIFICATE]
[FACE]
"THE SECURITIES EVIDENCED OR CONSTITUTED HEREBY HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED. SUCH SECURITIES MAY NOT BE SOLD, TRANSFERRED, PLEDGED, HYPOTHECATED OR
OTHERWISE DISPOSED OF IN THE ABSENCE OF REGISTRATION UNDER SAID ACT AND THE
RULES AND REGULATIONS THEREUNDER AND OF ALL APPLICABLE STATE SECURITIES OR "BLUE
SKY" LAWS OR AN EXEMPTION THEREFROM UNDER SAID ACT AND ALL APPLICABLE STATE
SECURITIES OR "BLUE SKY" LAWS." . IN THE CASE OF A SALE OF THE SECURITIES
EVIDENCED OR CONSTITUTED HEREBY, OTHER THAN A SALE PURSUANT TO A VALID
REGISTRATION STATEMENT UNDER SAID ACT OR A SALE PURSUANT TO RULE 144 PROMULGATED
UNDER SAID ACT, THE HOLDER OF THE SECURITIES EVIDENCED OR CONSTITUTED HEREBY
SHALL PROVIDE TO THE CORPORATION THE WRITTEN OPINION OF REPUTABLE LEGAL COUNSEL
IN FORM REASONABLY ACCEPTABLE TO THE CORPORATION THAT SUCH SALE OR TRANSFER IS
BEING MADE IN COMPLIANCE WITH APPLICABLE FEDERAL SECURITIES LAWS."
EXERCISABLE ON OR BEFORE OCTOBER __, 2002
No. _____ ______ Warrants
WARRANT CERTIFICATE
INSIGHT HEALTH SERVICES CORP.
This Warrant Certificate certifies that ______________ or registered
assigns, is the registered holder of ______ warrants (the "Warrants") expiring
October ___, 2002 (the "Expiration Date") to purchase Common Stock, $.001 par
value (the "Common Stock"), of InSight Health Services Corp., a Delaware
corporation (the "Company"). Each Warrant entitles the holder upon exercise to
receive from the Company on or before 5:00 p.m., Washington, D.C. time, on the
Expiration Date, one fully paid and non-assessable share of Common Stock (a
"Warrant Share") at the initial exercise price of $10.00 per Warrant Share,
subject to adjustment (as adjusted, the exercise price is the "Exercise Price")
upon the occurrence of certain events set forth in the Warrant Agreement, upon
surrender of this Warrant Certificate and payment of the Exercise Price, or as
otherwise provided in the Warrant Agreement, at the office of the Company
designated for such purpose, but only subject to the conditions set forth herein
and in the Warrant Agreement dated as of October __, 1997 (the "Warrant
Agreement"). The number and kind of Warrant Shares issuable upon exercise of
the Warrants are subject to adjustment upon the occurrence of certain events set
forth in the Warrant Agreement.
No Warrant may be exercised after 5:00 p.m., Washington, D.C. time, on the
Expiration Date, and to the extent not exercised by such time such Warrants
shall become void.
Reference is hereby made to the further provisions of this Warrant
Certificate set forth on the reverse hereof and such further provisions shall
for all purposes have the same effect as though fully set forth at this place.
2
<PAGE>
This Warrant Certificate shall not be valid unless countersigned by the
Company, as such term is used in the Warrant Agreement.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be
signed by its President and by its Secretary and has caused its corporate seal
to be affixed hereunto or imprinted hereon.
Date: ___________________
INSIGHT HEALTH SERVICES CORP.
By:
------------------------------------
President
By:
------------------------------------
Secretary
3
<PAGE>
[FORM OF WARRANT CERTIFICATE]
[REVERSE]
The Warrants evidenced by this Warrant Certificate are part of a duly
authorized issue of Warrants expiring on the Expiration Date, entitling the
holder on exercise to receive shares of Common Stock, $.001 par value, of the
Company (the "Common Stock"), and are issued or to be issued pursuant to the
Warrant Agreement, duly executed and delivered by the Company, which Warrant
Agreement is hereby incorporated by reference in and made a part of this
instrument and is hereby referred to for a description of the rights, limitation
of rights, obligations, duties and immunities thereunder of the Company and the
holders (the words "holders" or "holder" meaning the registered holders or
registered holder) of the Warrants (the "Warrant Holders"). A copy of the
Warrant Agreement may be obtained by the holder hereof upon written request to
the Company.
Warrants may be exercised at any time on or before the Expiration Date. The
holder of Warrants evidenced by this Warrant Certificate may exercise them by
surrendering this Warrant Certificate, with the form of election to purchase set
forth herein properly completed and executed, together with payment of the
Exercise Price in cash at the office of the Company designated for such purpose.
In the alternative, each Warrant Holder may exercise its right, during the
Exercise Period, as defined in the Warrant Agreement, to receive Warrant Shares
on a net basis, such that, without the exchange of any funds, the Warrant Holder
receives that number of Warrant Shares otherwise issuable (or payable) upon
exercise of its Warrants less that number of Warrant Shares having an aggregate
fair market value (as defined below) at the time of exercise equal to the
aggregate Exercise Price that would otherwise have been paid by the Warrant
Holder of the Warrant Shares. For purposes of the foregoing sentence, "fair
market value" of the Warrant Shares will be determined in the manner set forth
in the Warrant Agreement. In the event that upon any exercise of Warrants
evidenced hereby the number of Warrants exercised shall be less than the total
number of Warrants evidenced hereby, there shall be issued to the holder hereof
or his assignee a new Warrant Certificate evidencing the number of Warrants not
exercised. Except as provided in Section 10 of the Warrant Agreement, no
adjustment shall be made for any dividends on any Common Stock issuable upon
exercise of this Warrant.
The Warrant Agreement provides that, upon the occurrence of certain events,
the Exercise Price and the number of Warrant Shares set forth on the face hereof
may, subject to certain conditions, be adjusted. No fractions of a share of
Common Stock will be issued upon the exercise of any Warrant, but the Company
will pay the cash value thereof determined as provided in the Warrant Agreement.
The holders of the Warrants are entitled to certain registration rights
with respect to the Common Stock purchasable upon exercise thereof. Said
registration rights are set forth in full in a Registration Rights Agreement
dated as of October __, 1997, between the Company and the Warrant Holder. A
copy of the Registration Rights may be obtained by the holder hereof upon
written request to the Company.
Warrant Certificates, when surrendered at the office of the Company by the
registered holder thereof in person or by legal representative or attorney duly
authorized in writing, may be exchanged, in the manner and subject to the
limitations provided in the Warrant Agreement, but without payment of any
service charge, for another Warrant Certificate or Warrant Certificates of like
tenor evidencing in the aggregate a like number of Warrants.
Upon due presentation for registration of transfer of this Warrant
Certificate at the office of the Company, a new Warrant Certificate or Warrant
Certificates of like tenor and evidencing in the aggregate a
4
<PAGE>
like number of Warrants shall be issued to the transferee(s) in exchange for
this Warrant Certificate, subject to the limitations provided in the Warrant
Agreement, without charge except for any tax or other governmental charge
imposed in connection therewith.
The Company may deem and treat the registered holder(s) thereof as the
absolute owner(s) of this Warrant Certificate (notwithstanding any notation of
ownership or other writing hereon made by anyone), for the purpose of any
exercise hereof, of any distribution to the holder(s) hereof, and for all other
purposes, and the Company shall not be affected by any notice to the contrary.
Neither the Warrants nor this Warrant Certificate entitles any holder hereof to
any rights of a stockholder of the Company.
5
<PAGE>
[FORM OF ELECTION TO PURCHASE]
(TO BE EXECUTED UPON EXERCISE OF WARRANT)
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant Certificate, to receive ___________ shares of Common
Stock and herewith tenders payment for such shares to the order of InSight
Health Services Corp. in the amount of $_______ or by delivery of ____ Warrants
or in accordance with the terms hereof. The undersigned requests that a
certificate for such shares be registered in the name of ___________________
whose address is __________________________________ and that such shares be
delivered to _________________ whose address is
__________________________________. If said number of shares is less than all of
the shares of Common Stock purchasable hereunder after giving effect to any
delivery of Warrants in payment of the Exercise Price, the undersigned requests
that a new Warrant Certificate representing the remaining balance of such shares
be registered in the name of _______________, whose address is
________________________, and that such Warrant Certificate be delivered to
_________________ whose address is _____________________.
Signature:
----------------------
Date:
-----------------
6
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
REGISTRATION RIGHTS AGREEMENT
BETWEEN
INSIGHT HEALTH SERVICES CORP.
AND
GENERAL ELECTRIC COMPANY
DATED AS OF OCTOBER 14, 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (the "Agreement") is made and entered
into as of October 14, 1997, between InSight Health Services Corp., a Delaware
corporation (the "Company"), and General Electric Company, a New York
corporation (together with its Affiliates, "GE"). In order to induce GE to enter
into the Purchase Agreement, the Company has agreed to provide the registration
rights set forth in this Agreement. The execution of this Agreement is a
condition to the closing under the Purchase Agreement.
The parties hereby agree as follows:
Section 1. DEFINITIONS
Capitalized terms not otherwise defined herein shall have the respective
meanings given them in the Purchase Agreement. As used in this Agreement, the
following capitalized terms shall have the following meanings:
"Board of Directors" shall mean the Board of Directors of the Company.
"Carlyle Investors" shall mean Carlyle Partners II, L.P., a Delaware
limited partnership ("CP II"), Carlyle Partners III, L.P., a Delaware limited
partnership ("CP III"), Carlyle International Partners II, L.P., a Cayman
Islands exempted limited partnership ("CIP II"), Carlyle International Partners
III, L.P., a Cayman Islands exempted limited partnership ("CIP III"), C/S
International Partners, a Cayman Islands general partnership ("C/S"), the State
Board of Administration of Florida ("SBAF"), Carlyle Investment Group, L.P., a
Delaware limited partnership ("CIG"), Carlyle-Insight International Partners,
L.P., a Cayman Islands exempted limited partnership ("C-IIP"), and
Carlyle-Insight Partners, L.P., a Delaware limited partnership ("C-IP").
"Carlyle Investors' Registrable Securities" shall mean (a) the shares of
Common Stock issued or issuable upon conversion of the Series B Preferred Stock
or Series D Preferred Stock, whether or not owned by the Carlyle Investors; (b)
the shares of Common Stock issued or issuable upon exercise of any Carlyle
Investors' Warrants, whether or not owned by Carlyle Investors; (c) any
securities issued or issuable with respect to such Common Stock by way of a
stock dividend or stock split or in connection with a combination of shares,
recapitalization, merger, consolidation or reorganization; and (d) any shares of
Common Stock or securities issued or issuable with respect to such Common Stock
as provided in (c) above, acquired by the Carlyle Investors from the Company
subsequent to the date hereof, whether or not owned by the Carlyle Investors at
the time of a Registration; provided that any such share or other security shall
be deemed to be Registrable Securities only if and so long as it is a Transfer
Restricted Security.
"Carlyle Investors' Registration Rights Agreement" shall mean a
Registration Rights Agreement substantially in the form of this Agreement
entered into between the Carlyle Investors and the Company as of the date
hereof.
<PAGE>
"Carlyle Investors' Warrants" shall mean the warrants to purchase Common
Stock issued pursuant to a Warrant Agreement dated of even date herewith by and
between the Company and the Carlyle Investors.
"Claim" shall mean any loss, claim, damages, liability or expense
(including the reasonable costs of investigation and reasonable legal fees and
expenses).
"Common Stock" shall mean the Common Stock, par value $.001 per share, of
the Company.
"Demand Registration" shall mean a registration pursuant to Section 2
hereof.
"Equity Security" shall mean any capital stock of the Company or any
security convertible, with or without consideration, into any such stock, or any
security carrying any warrant or right to subscribe for or purchase any such
stock, or any such warrant or right.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as from time
to time amended.
"Firm Commitment Underwritten Offering" shall mean an offering in which the
underwriters agree to purchase securities for distribution pursuant to a
Registration Statement under the Securities Act and in which the obligation of
the underwriters is to purchase all the securities being offered if any are
purchased.
"Holder" shall mean the beneficial owner of a security. For all purposes
of this Agreement, the Company shall be entitled to treat the record owner of a
security as the beneficial owner of such security unless the Company has been
given written notice of the existence and identity of a different beneficial
owner. A Holder of Preferred Stock shall be deemed to be the Holder of the
Common Stock into which such Preferred Stock could be converted.
"Indemnified Holder" shall mean any Holder of Registrable Securities, any
officer, director, employee or agent of any such Holder and any Person who
controls any such Holder within the meaning of either Section 15 of the
Securities Act or Section 20 of the Exchange Act.
"Misstatement" shall mean an untrue statement of a material fact or an
omission to state a material fact required to be stated in a Registration
Statement or Prospectus or necessary to make the statements in a Registration
Statement, Prospectus or preliminary prospectus not misleading.
"Person" shall mean a natural person, partnership, corporation, business
trust, association, joint venture or other entity or a government or agency or
political subdivision thereof.
"Piggyback Registration" shall mean a registration pursuant to Section 3
hereof.
"Preferred Stock" shall mean the Series A Preferred Stock, the Series C
Convertible Preferred Stock of the Company being issued pursuant to the Purchase
Agreement and Series D Preferred Stock of the Company issued or issuable upon
conversion of the Series C Convertible Preferred Stock.
3
<PAGE>
"Prospectus" shall mean the prospectus included in any Registration
Statement, as supplemented by any and all prospectus supplements and as amended
by any and all post-effective amendments and including all material incorporated
by reference in such prospectus.
"Purchase Agreement" shall mean that certain Securities Purchase Agreement
dated as of the date hereof between the Company and GE.
"Registrable Securities" shall mean (a) the shares of Common Stock issued
or issuable upon conversion of the Preferred Stock, whether or not owned by GE,
(b) the shares of Common Stock issued or issuable upon exercise of any Warrants,
whether or not owned by GE, (c) any securities issued or issuable with respect
to such Common Stock by way of a stock dividend or stock split or in connection
with a combination of shares, recapitalization, merger, consolidation or
reorganization; and (d) any shares of Common Stock or securities issued or
issuable with respect to such Common Stock as provided in (c) above, acquired by
GE from the Company subsequent to the date hereof, whether or not owned by GE at
the time of a Registration; provided that any such share or other security shall
be deemed to be Registrable Securities only if and so long as it is a Transfer
Restricted Security.
"Registration" shall mean a Demand Registration or a Piggyback
Registration.
"Registration Expenses" shall mean the out-of-pocket expenses of a
Registration, including:
(1) all registration and filing fees (including fees with respect to
filings required to be made with the National Association of
Securities Dealers);
(2) fees and expenses of compliance with securities or blue sky laws
(including fees and disbursements of counsel for the underwriters
or selling holders in connection with blue sky qualifications of
the Registrable Securities and determinations of their eligibility
for investment under the laws of such jurisdictions as the
managing underwriters or holders of a majority of the Registrable
Securities being sold may designate);
(3) printing, messenger, telephone and delivery expenses;
(4) fees and disbursements of counsel for the Company and of not more
than one firm of attorneys for the sellers of the Registrable
Securities;
(5) expenses of the underwriters and fees and disbursements of
counsel for the underwriters, in each case, to the extent required
to be paid pursuant to an underwriting agreement relating to a
Registration;
(6) fees and disbursements of all independent certified public
accountants of the Company incurred in connection with such
Registration (including the expenses of any special audit and
"cold comfort" letters incident to such registration);
4
<PAGE>
(7) premiums and other costs of securities acts liability insurance
if the Company so desires or if the underwriters so require or
selling holders of Registrable Securities reasonably so require;
and
(8) fees and expenses of any other Persons retained by the Company.
"Registration Statement" shall mean any registration statement under the
Securities Act on an appropriate form (which form shall be available for the
sale of the Registrable Securities in accordance with the intended method or
methods of distribution thereof and shall include all financial statements
required by the SEC to be filed therewith) which covers Registrable Securities
pursuant to the provisions of this Agreement, including the Prospectus included
in such registration statement, amendments (including post-effective amendments)
and supplements to such registration statement, and all exhibits to and all
material incorporated by reference in such registration statement.
"Securities Act" shall mean the Securities Act of 1933, as from time to
time amended.
"SEC" shall mean the Securities and Exchange Commission.
"Series A Preferred Stock" shall mean the Series A Convertible Preferred
Stock of the Company.
"Series B Preferred Stock" shall mean the Series B Convertible Preferred
Stock of the Company.
"Series D Preferred Stock" shall mean the Series D Convertible Preferred
Stock of the Company.
"Transfer Restricted Security" shall mean a security that has not been sold
to or through a broker, dealer or underwriter in a public distribution or other
public securities transaction or sold in a transaction exempt from the
registration and prospectus delivery requirements of the Securities Act under
Rule 144 promulgated thereunder (or any successor rule). The foregoing
notwithstanding, a security shall remain a Transfer Restricted Security until
all stop transfer instructions or notations and restrictive legends with respect
to such security have been lifted or removed.
"Underwriters' Commissions" shall mean discounts of and commissions to
underwriters, selling brokers, dealer managers or similar securities
professionals relating to the distribution of the Registrable Securities.
"Underwritten Registration" or "Underwritten Offering" shall mean a
registration in which securities of the Company are sold to an underwriter for
distribution to the public.
"Warrants" shall mean the warrants to purchase Common Stock issued pursuant
to a Warrant Agreement dated of even date herewith by and between the Company
and GE.
5
<PAGE>
Section 2. DEMAND REGISTRATIONS
(a) TIMING OF DEMAND REGISTRATIONS.
GE (on behalf of itself and all permitted assignees who are Holders of
Registrable Securities) may request at any time that the Company file a
Registration Statement under the Securities Act on an appropriate form (which
form shall be available for the sale of the Registrable Securities in accordance
with the intended method or methods of distribution thereof and shall include
all financial statements required by the SEC to be filed herewith) covering the
shares of Registrable Securities that are the subject of such request.
(b) NUMBER OF DEMAND REGISTRATIONS; REQUIRED THRESHOLD.
The Company shall be obligated to prepare, file and cause to become
effective pursuant to this Section 2 no more than two (2) Registration
Statements in the aggregate for GE (on behalf of itself and all permitted
assignees who are Holders of Registrable Securities); provided, however, that a
Registration Statement shall not be counted as one of the two (2) Demand
Registrations hereunder unless it becomes effective and is maintained effective
in accordance with the requirements specified in Section 5(a). The Company
shall not be obligated to prepare, file and cause to become effective pursuant
to this Section 2 a Registration Statement unless the proposed aggregate public
offering price of the Registrable Securities to be included in such Demand
Registration is at least $5 million.
(c) DEFERRAL BY COMPANY.
Notwithstanding anything in this Section 2 to the contrary, the Company
shall not be obligated to prepare, file and cause to become effective pursuant
to this Section 2 a Registration Statement if the Company furnishes GE a
certificate signed by the President of the Company that in the good faith
judgment of the Board of Directors it would be detrimental in any material
respect to the Company and its shareholders for the Company to comply with the
Demand Registration, and it is therefore essential to defer the filing of the
Registration Statement relating thereto. Any such deferral shall be for a
period of not more than six (6) months after the Company's receipt of GE's
written request for registration pursuant to this Section 2; PROVIDED, HOWEVER,
that the Company may not exercise this right more than once with respect to a
Demand Registration and that any requested registration deferred, and not
ultimately effected, by the Company pursuant to the provisions of this Section
2(c) shall thereafter not be deemed to be a requested registration for purposes
of the limitation to two (2) Demand Registrations pursuant to Section 2(a)
above.
(d) PARTICIPATION.
The Company shall promptly give written notice to all Holders of
Registrable Securities and to the Carlyle Investors upon receipt of a request
for a Demand Registration pursuant to Section 2(a) above. The Carlyle Investors
may, by written notice to the Company and GE, within thirty (30) business days
of the Company's notice, elect to join in a request for a Demand Registration
pursuant to Section 2(a) above, with respect to a number of shares of the
Carlyle
6
<PAGE>
Investors' Registrable Securities that is less than or equal to the number of
shares of Registrable Securities requested to be registered in such Demand
Registration by GE. The Carlyle Investors' Registrable Securities being offered
by the Carlyle Investors in such Demand Registration shall be treated pari passu
with the Registrable Securities being offered by GE for all purposes including
"underwriter's cutbacks" under subsection (e) of this Section and any such
request by the Carlyle Investors shall not be treated as either a request for
"piggyback" rights under Section 3 hereof or be treated as the exercise of a
demand registration right by the Carlyle Investors under the Carlyle Investors'
Registration Rights Agreement. In addition, the Company shall include in such
Demand Registration such shares of Registrable Securities for which it has
received written requests to register such shares within thirty (30) days after
such written notice has been given.
(e) UNDERWRITER'S CUTBACK.
If the public offering of Registrable Securities and/or Carlyle Investors'
Registrable Securities is to be underwritten and, in the good faith judgment of
the managing underwriter, the inclusion of all the Registrable Securities and/or
Carlyle Investors' Registrable Securities requested to be registered hereunder
would interfere with the successful marketing of a smaller number of such shares
of Registrable Securities and/or Carlyle Investors' Registrable Securities, the
number of shares of Registrable Securities and/or Carlyle Investors' Registrable
Securities to be included shall be reduced to such smaller number with the
participation in such offering to be pro rata among the Holders of Registrable
Securities and/or Carlyle Investors' Registrable Securities requesting such
registration, based upon the number of shares of Registrable Securities and/or
Carlyle Investors' Registrable Securities owned by such Holders.
Any shares that are thereby excluded from the offering shall be withheld
from the market by the Holders thereof for a period (not to exceed thirty (30)
days prior to the effective date and one hundred twenty (120) days thereafter)
that the managing underwriter reasonably determines is reasonably necessary in
order to successfully market the securities to be offered in the Underwritten
Offering.
The Company and, subject to the requirements of Section 11 hereof, other
Holders of securities of the Company may include such securities in such
Registration if, but only if, the managing underwriter concludes that such
inclusion will not interfere with the successful marketing of all the
Registrable Securities requested to be included in such registration.
(f) MANAGING UNDERWRITER.
The managing underwriter or underwriters of any Underwritten Offering
covered by a Demand Registration shall be selected by GE (if GE owns a majority
of the shares of Common Stock to be offered therein), subject to the approval of
the Board of Directors (by a majority of the Directors not elected by the
holders of the Preferred Stock and the Series B Preferred Stock), which approval
shall not be unreasonably withheld.
7
<PAGE>
3. PIGGYBACK REGISTRATIONS
(a) PARTICIPATION.
Each time the Company decides to file a Registration Statement under the
Securities Act (other than registrations on Forms S-4 or S-8 or any successor
form thereto, and other than a Demand Registration) covering the offer and sale
by it or any of its security holders of any of its securities for money, the
Company shall give written notice thereof to all Holders of Registrable
Securities. The Company shall include in such Registration Statement such
shares of Registrable Securities for which it has received written requests to
register such shares within twenty (20) days after such written notice has been
given. If the Registration Statement is to cover an Underwritten Offering, such
Registrable Securities shall be included in the underwriting on the same terms
and conditions as the securities otherwise being sold through the underwriters.
(b) UNDERWRITER'S CUTBACK.
Subject to the requirements of Section 11 hereof, if in the good faith
judgment of the managing underwriter of such offering the inclusion of all of
the shares of Registrable Securities and any other Common Stock requested to be
registered would interfere with the successful marketing of a smaller number of
such shares, then the number of shares of Registrable Securities and other
Common Stock to be included in the offering shall be reduced to such smaller
number with the participation in such offering to be in the following order of
priority: (1) first, the shares of Common Stock which the Company proposes to
sell for its own account, (2) second, the shares of Registrable Securities of
all Holders of Registrable Securities requested to be included, PARI PASSU with
all shares of Carlyle Investors' Registrable Securities requested by the Carlyle
Investors to be included and all shares of any Person granted "piggyback"
registration rights by the Company prior to the date hereof with respect to the
Company's securities, as set forth in Schedule A attached hereto, requested by
such Person to be included, and (3) third, any other shares of Common Stock
requested to be included. Any necessary allocation among the Holders of shares
within each of the foregoing groups shall be pro rata among such Holders
requesting such registration based upon the number of shares of Common Stock and
Registrable Securities owned by such Holders.
All shares so excluded from the Underwritten Offering shall be withheld
from the market by the Holders thereof for a period (not to exceed thirty (30)
days prior to the effective date and one hundred twenty (120) days thereafter)
that the managing underwriter reasonably determines is reasonably necessary in
order to successfully market the securities to be offered in the Underwritten
Offering.
(c) COMPANY CONTROL.
The Company may decline to file a Registration Statement after giving
notice to Holders pursuant to Section 3(a) above, or withdraw a Registration
Statement after filing and after such notice, but prior to the effectiveness
thereof; provided that the Company shall promptly notify each Holder of
Registrable Securities in writing of any such action and provided further that
the
8
<PAGE>
Company shall bear all expenses incurred by each Holder or otherwise in
connection with such withdrawn Registration Statement.
4. HOLD-BACK AGREEMENTS
(a) BY HOLDERS OF REGISTRABLE SECURITIES
Upon the written request of the managing underwriter of any Underwritten
Offering of the Company's securities, a Holder of Registrable Securities shall
not sell, make any short sale of, loan, grant any option for the purchase of, or
otherwise dispose of any Registrable Securities (other than those included in
such registration) without the prior written consent of such managing
underwriter for a period (not to exceed thirty (30) days before the effective
date and one hundred twenty (120) days thereafter) that such managing
underwriter reasonably determines is necessary in order to effect the
Underwritten Offering; provided that each of the officers and directors of the
Company shall have entered into substantially similar holdback agreements with
such managing underwriter covering at least the same period.
(b) BY THE COMPANY AND OTHERS.
The Company agrees:
(1) not to effect any public or private sale or distribution of
its Equity Securities during the 30-day period prior to, and during the
60-day period after, the effective date of each Underwritten Offering made
pursuant to a Demand Registration or a Piggyback Registration, if so
requested in writing by the managing underwriter (except as part of such
Underwritten Offering, pursuant to registrations on Forms S-4 or S-8 or any
successor forms thereto or private issuances of Equity Securities as
consideration for any acquisition by the Company or a subsidiary of assets
or capital stock of any unaffiliated third party), and
(2) not to issue any Equity Securities other than for sale in a
registered public offering unless each of the Persons to which such
securities are issued has entered a written agreement binding on its
transferees not to effect any public sale or distribution of such
securities (except for employee stock options issued to Persons other than:
directors or officers; or shareholders owning five percent (5%) or more of
the Company's Equity Securities) during such period, including without
limitation a sale pursuant to Rule 144 under the Securities Act (except as
part of such Underwritten Registration, if and to the extent permitted
hereunder).
5. REGISTRATION PROCEDURES
If and whenever the Company is required to register Registrable Securities
in a Demand Registration, the Company will use all commercially reasonable
efforts to effect such registration to permit the sale of such Registrable
Securities in accordance with the intended plan of distribution thereof. With
respect to both Demand Registrations and Piggyback Registrations (except as
otherwise specifically provided), the Company will as expeditiously as
practicable:
9
<PAGE>
(a) prepare and file with the SEC as soon as practicable a Registration
Statement with respect to such Registrable Securities and use all commercially
reasonable efforts to cause such Registration Statement to become effective and
remain continuously effective until the date that is the earlier to occur of (i)
the date six months from the date such Registration Statement was declared
effective, and (ii) the date the last of the Registrable Securities covered by
such Registration Statement have been sold, provided that before filing a
Registration Statement or Prospectus or any amendments or supplements thereto,
the Company shall furnish to Holders of Registrable Securities covered by such
Registration Statement and the underwriters, if any, draft copies of all such
documents proposed to be filed, which documents will be subject to the review of
GE and such underwriters, and the Company shall not file any Registration
Statement or amendment thereto or any Prospectus or any supplement thereto to
which GE or the underwriters, if any, shall reasonably object;
(b) prepare and file with the SEC such amendments and post-effective
amendments to the Registration Statement, and such supplements to the
Prospectus, as may be requested by any underwriter of Registrable Securities or
as may be required by the rules, regulations or instructions applicable to the
registration form used by the Company or by the Securities Act or rules and
regulations thereunder to keep the Registration Statement effective until all
Registrable Securities covered by such Registration Statement are sold in
accordance with the intended plan of distribution set forth in such Registration
Statement or supplement to the Prospectus;
(c) promptly notify the selling Holders of Registrable Securities and the
managing underwriter, if any, and (if requested by any such Person) confirm such
advice in writing,
(1) when the Prospectus or any supplement or post-effective
amendment has been filed, and, with respect to the Registration Statement
or any post-effective amendment, when the same has become effective,
(2) of any request by the SEC for amendments or supplements to
the Registration Statement or the Prospectus or for additional information,
(3) of the issuance by the SEC of any stop order suspending the
effectiveness of the Registration Statement or the initiation of any
proceedings for that purpose,
(4) if at any time the representations and warranties of the
Company contemplated by clause (1) of paragraph (o) below cease to be
accurate in all material respects,
(5) of the receipt by the Company of any notification with
respect to the suspension of the qualification of the Registrable
Securities for sale in any jurisdiction or the initiation or threatening of
any proceeding for such purpose, and
(6) of the existence of any fact which results in the
Registration Statement, the Prospectus or any document incorporated therein
by reference containing a Misstatement;
10
<PAGE>
(d) make all commercially reasonable efforts to obtain the withdrawal of
any order suspending the effectiveness of the Registration Statement at the
earliest practicable time;
(e) unless the Company objects in writing on reasonable grounds, if
requested by the managing underwriter or GE (if GE holds more than 50% of the
Registrable Securities then outstanding) (on behalf of itself and all permitted
assignees who are Holders of Registrable Securities), as promptly as practicable
incorporate in a supplement or post-effective amendment such information as the
managing underwriter and GE agree should be included therein relating to the
sale of the Registrable Securities, including, without limitation, information
with respect to the number of shares of Registrable Securities being sold to
underwriters, the purchase price being paid therefor by such underwriters and
with respect to any other terms of the Underwritten Offering of the Registrable
Securities to be sold in such offering; and make all required filings of such
supplement or post-effective amendment as soon as notified of the matters to be
incorporated in such supplement or post-effective amendment;
(f) only with respect to Demand Registrations, promptly prior to the
filing of any document which is to be incorporated by reference into the
Registration Statement or the Prospectus (after initial filing of the
Registration Statement) provide copies of such document to counsel to GE (on
behalf of itself and all permitted assignees who are Holders of Registrable
Securities) and to the managing underwriter, if any, and make the Company's
representatives available for discussion of such document and make such changes
in such document prior to the filing thereof as counsel for GE or underwriters
may reasonably request;
(g) furnish to each selling Holder of Registrable Securities and the
managing underwriter, without charge, at least one signed copy of the
Registration Statement and any post-effective amendments thereto, including
financial statements and schedules, all documents incorporated therein by
reference and all exhibits (including those incorporated by reference);
(h) deliver to GE (on behalf of each selling Holder of Registrable
Securities) and the underwriters, if any, without charge, as many copies of each
Prospectus (and each preliminary prospectus) as such Persons may reasonably
request (the Company hereby consenting to the use of each such Prospectus (or
preliminary prospectus) by each of the selling Holders of Registrable Securities
and the underwriters, if any, in connection with the offering and sale of the
Registrable Securities covered by such Prospectus (or preliminary prospectus));
(i) prior to any public offering of Registrable Securities, use all
commercially reasonable efforts to register or qualify or cooperate with the
selling Holders of Registrable Securities, the underwriters, if any, and their
respective counsel in connection with the registration or qualification of such
Registrable Securities for offer and sale under the securities or blue sky laws
of such jurisdictions as GE or such underwriters may designate in writing and do
anything else necessary or advisable to enable from a legal perspective the
disposition in such jurisdictions of the Registrable Securities covered by the
Registration Statement; provided that the Company shall not be required to
qualify generally to do business in any jurisdiction where it is not then so
qualified or to take any action which would subject it to general service of
process in any such jurisdiction where it is not then so subject;
11
<PAGE>
(j) cooperate with the selling Holders of Registrable Securities and the
managing underwriter, if any, to facilitate the timely preparation and delivery
of certificates not bearing any restrictive legends representing the Registrable
Securities to be sold and cause such Registrable Securities to be in such
denominations and registered in such names as the managing underwriter may
request at least three business days prior to any sale of Registrable Securities
to the underwriters;
(k) use all commercially reasonable efforts to cause the Registrable
Securities covered by the Registration Statement to be registered with or
approved by such other governmental agencies or authorities as may be necessary
to enable the seller or sellers thereof or the underwriters, if any, to
consummate the disposition of such Registrable Securities;
(1) if the Registration Statement or the Prospectus contains a
Misstatement, prepare a supplement or post-effective amendment to the
Registration Statement or the related Prospectus or any document incorporated
therein by reference or file any other required document so that, as thereafter
delivered to the purchasers of the Registrable Securities, the Prospectus will
not contain a Misstatement;
(m) use all commercially reasonable efforts to cause all Registrable
Securities covered by the Registration Statement to be listed on any national
securities exchange on which the Company's securities are listed or authorized
for quotation on Nasdaq, if requested by GE (on behalf of itself and all
permitted assignees who are Holders of Registrable Securities) or the managing
underwriter, if any; provided, however, that the payment of any required listing
or other fee shall always be deemed to be "commercially reasonable" for purposes
of this Section 5(m);
(n) provide a CUSIP number for all Registrable Securities not later than
the effective date of the Registration Statement;
(o) enter into such agreements (including an underwriting agreement) and
do anything else reasonably necessary or advisable in order to expedite or
facilitate the disposition of such Registrable Securities, and in such
connection, whether or not the registration is an Underwritten Registration:
(1) make such representations and warranties to the Holders of
such Registrable Securities and the underwriters, if any, in form,
substance and scope as are customarily made by issuers to holders and
underwriters, respectively, in similar Underwritten Offerings;
(2) obtain opinions of counsel to the Company and updates
thereof (which counsel and opinions (in form, scope and substance) shall be
reasonably satisfactory to the managing underwriter, if any, and GE (on
behalf of itself and all permitted assignees who are Holders of Registrable
Securities)) addressed to each selling Holder and the underwriter, if any,
covering the matters customarily covered in opinions delivered to holders
and underwriters, respectively, in similar Underwritten Offerings and such
other matters as may be reasonably requested by GE or such underwriters;
12
<PAGE>
(3) obtain "cold comfort" letters and updates thereof from the
Company's independent certified public accountants addressed to the selling
Holders of Registrable Securities and the underwriters, if any, such
letters to be in customary form and covering matters of the type
customarily covered in "cold comfort" letters to holders and underwriters,
respectively, in connection with similar Underwritten Offerings;
(4) if an underwriting agreement is entered into, cause the same
to include customary indemnification and contribution provisions and
procedures with respect to such underwriters; and
(5) deliver such documents and certificates as may be reasonably
requested by GE (on behalf of itself and all permitted assignees who are
Holders of Registrable Securities) and the managing underwriter, if any, to
evidence compliance with clause (1) above and with any customary conditions
contained in the underwriting agreement or other agreement entered into by
the Company.
The above shall be done at each closing under such underwriting or similar
agreement or as and to the extent otherwise reasonably requested by GE (on
behalf of itself and all permitted assignees who are Holders of Registrable
Securities);
(p) make available for inspection by representatives of GE (on behalf of
itself and all permitted assignees who are Holders of Registrable Securities),
any underwriter participating in any disposition pursuant to such Registration
Statement, and any attorney or accountant retained by the sellers or any such
underwriter, all financial and other records and pertinent corporate documents
and properties of the Company, and cause the Company's officers, directors and
employees to supply all information reasonably requested by any such seller or
underwriter in connection with the Registration; provided that any records,
information or documents that are designated by the Company in writing as
confidential shall be kept confidential by such Persons unless disclosure of
such records, information or documents is required by court or administrative
order; and
(q) otherwise use all commercially reasonable efforts to comply with all
applicable rules and regulations of the SEC relating to such Registration, and
make generally available to its security holders earnings statements satisfying
the provisions of Section 11(a) of the Securities Act, no later than forty-five
(45) days after the end of any 12-month period (or ninety (90) days, if such
period is a fiscal year) commencing at the end of any fiscal quarter in which
Registrable Securities are sold to underwriters in an Underwritten Offering, or,
if not sold to underwriters in such an offering, beginning with the first month
of the Company's first fiscal quarter commencing after the effective date of the
Registration Statement, which statements shall cover said 12-month period.
13
<PAGE>
6. REGISTRATION EXPENSES
(a) DEMAND REGISTRATIONS.
The Company shall bear all Registration Expenses incurred in connection
with any Demand Registrations and of any Registrations which do not become or
are not maintained effective in accordance with the requirements specified in
Section 5(a) other than any Registration terminated prior to effectiveness at
the request of, or primarily as a result of, the actions of Holders whose
Registrable Securities are included in such registration. Notwithstanding the
foregoing, the Underwriters' Commissions incurred in connection with a Demand
Registration that becomes effective shall be shared by the Holders of the
Registrable Securities whose Registrable Securities are included in such
Registration and the Holders of the Carlyle Investors' Registrable Securities
whose Carlyle Investors' Registrable Securities are included in such
Registration, pro rata, in accordance with the aggregate amount of Registrable
Securities and Carlyle Investors' Registrable Securities sold by such Holders.
(b) PIGGYBACK REGISTRATIONS.
The Company shall bear all Registration Expenses incurred in connection
with any Piggyback Registrations, except that each Holder of the Registrable
Securities whose Registrable Securities are included in such Registration shall
pay its pro rata share of the Underwriters' Commissions incurred in such
Registration, in accordance with the amount of Registrable Securities sold by
all such Holders.
(c) COMPANY EXPENSES.
The Company also will, in any event, pay its internal expenses (including,
without limitation, all salaries and expenses of its officers and employees
performing legal or accounting duties), the expense of any annual audit, the
fees and expenses incurred in connection with any listing of the securities to
be registered on a securities exchange, and the fees and expenses of any Person,
including special experts, retained by the Company.
7. INDEMNIFICATION
(a) INDEMNIFICATION BY COMPANY.
The Company agrees to indemnify and hold harmless each Indemnified Holder
from and against all Claims arising out of or based upon any Misstatement or
alleged Misstatement, except insofar as such Misstatement or alleged
Misstatement was based upon information furnished in writing to the Company by
such Indemnified Holder expressly for use in the document containing such
Misstatement or alleged Misstatement. This indemnity shall not be exclusive and
shall be in addition to any liability which the Company may otherwise have.
The foregoing notwithstanding, the Company shall not be liable to the
extent that any such Claim arises out of or is based upon a Misstatement or
alleged Misstatement made in any preliminary prospectus if (i) such Indemnified
Holder failed to send or deliver a copy of the Prospectus with or prior to the
delivery of written confirmation of the sale of Registrable
14
<PAGE>
Securities giving rise to such Claim and (ii) the Prospectus would have
corrected such untrue statement or omission.
In addition, the Company shall not be liable to the extent that any such
Claim arises out of or is based upon a Misstatement or alleged Misstatement in a
Prospectus, (x) if such Misstatement or alleged Misstatement is corrected in an
amendment or supplement to such Prospectus and (y) having previously been
furnished by or on behalf of the Company with copies of the Prospectus as so
amended or supplemented, such Indemnified Holder thereafter fails to deliver
such Prospectus as so amended or supplemented prior to or concurrently with the
sale to the person who purchased a Registrable Security from such Indemnified
Holder and who is asserting such Claim.
The Company shall also provide customary indemnifications to underwriters,
selling brokers, dealer managers and similar securities industry professionals
participating in a distribution covered by a Registration Statement, their
officers and directors and each Person who controls such Persons (within the
meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act).
(b) INDEMNIFICATION PROCEDURES.
If any action or proceeding (including any governmental investigation or
inquiry) shall be brought or asserted against an Indemnified Holder in respect
of which indemnity may be sought from the Company, such Indemnified Holder shall
promptly notify the Company in writing, and the Company may assume the defense
thereof, including the employment of counsel reasonably satisfactory to such
Indemnified Holder and the payment of all expenses.
Such Indemnified Holder shall have the right to employ separate counsel in
any such action and to participate in the defense thereof, but the fees and
expenses of such separate counsel shall be at the expense of such Indemnified
Holder unless (i) the Company has agreed to pay such fees and expenses, (ii) the
Company shall have failed to assume the defense of such action or proceeding or
has failed to employ counsel reasonably satisfactory to such Indemnified Holder
in any such action or proceeding, or (iii) the named parties to any such action
or proceeding (including any impleaded parties) include both such Indemnified
Holder and the Company, and such Indemnified Holder shall have been advised in
writing by counsel that there may be one or more legal defenses available to
such Indemnified Holder that are different from or additional to those available
to the Company.
If such Indemnified Holder notifies the Company in writing that it elects
to employ separate counsel at the expense of the Company as permitted by the
provisions of the preceding paragraph, the Company shall not have the right to
assume the defense of such action or proceeding on behalf of such Indemnified
Holder. The foregoing notwithstanding, the Company shall not be liable for the
reasonable fee and expenses of more than one separate firm of attorneys at any
time for such Indemnified Holder and any other Indemnified Holders (which firm
shall be designated in writing by such Indemnified Holders) in connection with
any one such action or proceeding or separate but substantially similar or
related actions or proceedings in the same jurisdiction arising out of the same
general allegations or circumstances.
15
<PAGE>
The Company shall not be liable for any settlement of any such action or
proceeding effected without its written consent, but if settled with its written
consent, or if there be a final judgment for the plaintiff in any such action or
proceeding, the Company agrees to indemnify and hold harmless such Indemnified
Holders from and against any loss or liability by reason of such settlement or
judgment.
(c) INDEMNIFICATION BY HOLDER OF REGISTRABLE SECURITIES.
Each Holder of Registrable Securities agrees to indemnity and hold harmless
the Company, its directors and officers and each Person, if any, who controls
the Company within the meaning of either Section 15 of the Securities Act or
Section 20 of the Exchange Act to the same extent as the foregoing indemnity
from the Company to such Holder, but only with respect to information relating
to such Holder furnished in writing by such Holder expressly for use in any
Registration Statement, Prospectus or preliminary prospectus. In no event,
however, shall the liability hereunder of any selling Holder of Registrable
Securities be greater than the dollar amount of the proceeds received by such
Holder upon the sale of the Registrable Securities giving rise to such
indemnification obligation.
In case any action or proceeding shall be brought against the Company or
its directors or officers or any such controlling person, in respect of which
indemnity may be sought against a Holder of Registrable Securities, such Holder
shall have the rights and duties given the Company and the Company or its
directors or officers or such controlling person shall have the rights and
duties given to each Holder by Sections 7(a) and 7(b) above.
The Company shall be entitled to receive indemnities from underwriters,
selling brokers, dealer managers and similar securities industry professionals
participating in the distribution, to the same extent as provided above with
respect to information so furnished in writing by such Persons specifically for
inclusion in any Prospectus or Registration Statement.
(d) CONTRIBUTION.
If the indemnification provided for in this Section 7 is unavailable to an
indemnified party under Section 7(a) or Section 7(c) above (other than by reason
of exceptions provided in those Sections) in respect of any Claims referred to
in such Sections, then each applicable indemnifying party, in lieu of
indemnifying such indemnified party, shall contribute to the amount paid or
payable by such indemnified party as a result of such Claims in such proportion
as is appropriate to reflect the relative fault of the Company on the one hand
and of the Holder on the other in connection with the statements or omissions
which resulted in such Claims as well as any other relevant equitable
considerations. The amount paid or payable by a party as a result of the Claims
referred to above shall be deemed to include, subject to the limitations set
forth in Section 7(b), any legal or other fees or expenses reasonably incurred
by such party in connection with investigating or defending any action or claim.
The relative fault of the Company on the one hand and of the Holder on the
other shall be determined by reference to, among other things, whether the
Misstatement or alleged Misstatement relates to information supplied by the
Company or by the Holder and the parties'
16
<PAGE>
relative intent, knowledge, access to information and opportunity to correct or
prevent such Misstatement or alleged Misstatement.
The Company and each Holder of Registrable Securities agree that it would
not be just and equitable if contribution pursuant to this Section 7(d) were
determined by pro rata allocation or by any other method of allocation which
does not take account of the equitable considerations referred to above.
Notwithstanding the provisions of this Section 7(d), an Indemnified Holder
shall not be required to contribute any amount in excess of the amount by which
(i) the total price at which the securities that were sold by such Indemnified
Holder and distributed to the public were offered to the public exceeds (ii) the
amount of any damages which such Indemnified Holder has otherwise been required
to pay by reason of such Misstatement.
No person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Securities Act) shall be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation.
8. EXCHANGE ACT REPORTING REQUIREMENTS
From and after the date hereof, the Company shall (whether or not it shall
then be required to do so) timely file such information, documents and reports
as the Commission may require or prescribe under Section 13 or 15(d) (whichever
is applicable) of the Exchange Act. In addition, the Company shall use all
commercially reasonable efforts to file such other information, documents and
reports, as shall hereafter be required by the Commission as a condition to the
availability of Rule 144 under the Securities Act (or any successor provision)
and the use of Form S-3.
From and after the date hereof, the Company shall forthwith upon reasonable
request furnish any Holder of Registrable Securities (i) a written statement by
the Company that it has complied with such reporting requirements, (ii) a copy
of the most recent annual or quarterly report of the Company, and (iii) such
other reports and documents filed by the Company with the Commission as such
Holder may reasonably request in availing itself of an exemption for the sale of
Registrable Securities without registration under the Securities Act pursuant to
Rule 144 thereunder.
The purpose of the foregoing requirements are (a) to enable any such Holder
to comply with the current public information requirements contained in
paragraph (c) of Rule 144 under the Securities Act (or any successor provision)
and (b) to qualify the Company for the use of Registration Statements on Form
S-3.
9. REQUIREMENTS FOR PARTICIPATION IN UNDERWRITTEN OFFERINGS
No Person may participate in any Underwritten Offering pursuant to a
Registration hereunder unless such Person (a) agrees to sell such Person's
securities on the basis provided in any underwriting arrangements approved by
the Persons entitled hereunder to approve such arrangements, and (b) completes
and executes all questionnaires, powers of attorney, indemnities,
17
<PAGE>
underwriting agreements and other documents required under the terms of such
underwriting arrangements
10. SUSPENSION OF SALES
Upon receipt of written notice from the Company that (i) a Registration
Statement or Prospectus contains a Misstatement, or (ii) in the reasonable
determination of the Company, there exist circumstances not yet disclosed to the
public which would be required to be disclosed in such Registration Statement
and the disclosure of which would be materially harmful to the Company, each
Holder of Registrable Securities shall forthwith discontinue disposition of
Registrable Securities until such Holder has received copies of the supplemented
or amended Prospectus required by Section 5(l) hereof, or until such Holder is
advised in writing by the Company that the use of the Prospectus may be resumed,
and, if so directed by the Company, such Holder shall deliver to the Company (at
the Company's expense) all copies, other than permanent file copies then in such
Holder's possession, of the Prospectus covering such Registrable Securities
current at the time of receipt of such notice. The Company shall use all
commercially reasonable efforts to minimize the length of such suspension of
sales, provided, that the Company may require the suspension of sales for a
period of ninety (90) days in the event that the disclosure of any
circumstances, in the reasonable determination of the Company, would be harmful
in any material respect to the Company. In no event, however, shall the
aggregate period of time that the Company postpones the filing or declaration of
effectiveness of any Registration Statement pursuant to Section 5, or suspends
sales of Registrable Securities pursuant to Section 10 under any Registration
Statement, taken together with all such other periods with respect to such
Registrations Statement exceed, in the aggregate, ninety (90) days.
11. FUTURE REGISTRATION RIGHTS AGREEMENTS
Except for an underwriting agreement between the Company and one or more
professional underwriters of securities, the Company shall not agree to register
any Equity Securities under the Securities Act unless such agreement
specifically provides that:
(a) the Holder of such Equity Securities may not participate in any Demand
Registration without the consent of GE unless:
(i) the offering of the Registrable Securities is to be a Firm
Commitment Underwritten Offering and the managing underwriter concludes
that the public offering or sale of such Equity Securities would not
interfere with the successful marketing of all Registrable Securities
requested to be sold and
(ii) the Holders of Registrable Securities shall have the right
to participate, to the extent they may request, in any Registration
Statement initiated under a Demand Registration right exercised GE (if GE
holds more than 50% of the Registrable Securities then outstanding), except
that if the managing underwriter of a public offering made pursuant to such
a Demand Registration limits the number of shares of Common Stock to be
sold, the participation of the Holders of the Registrable Securities and
the
18
<PAGE>
Holders of all other Common Stock (other than the Equity Securities held by
such Holder of Equity Securities) shall be determined as set forth in
Section 3 hereof.
(b) the Holder of such Equity Securities may not participate in any
Piggyback Registration if the sale of Registrable Securities is to be
underwritten unless, if the managing underwriter limits the total number of
shares to be sold, the Holders of such Equity Securities and the Holders of
Registrable Securities are entitled to participate in such underwritten
distribution based on the order of priority set forth in Section 3 hereof, and
(c) all Equity Securities excluded from any Registration as a result of
the foregoing limitations may not be publicly offered or sold for a period (not
to exceed at least thirty (30) days prior to the effective date and sixty (60)
days thereafter) that the managing underwriter reasonably determines is
necessary in order to effect the underwritten public offering of Registrable
Securities registered pursuant to this Agreement.
12. TRANSFER OF REGISTRATION RIGHTS
The rights of Holders of Registrable Securities hereunder may be
transferred as permitted in the Purchase Agreement. The Company shall be given
written notice by the Holder at the time of any such transfer permitted by the
Purchase Agreement stating the name and address of the transferee, including a
writing by such transferee to the effect that such transferee agrees to be bound
by the terms hereof and identifying the securities with respect to which the
rights hereunder are being transferred.
13. MISCELLANEOUS
(a) REMEDIES.
Each Holder of Registrable Securities, in addition to being entitled to
exercise all rights provided herein, in the Purchase Agreement and granted by
law, including recovery of damages, shall be entitled to specific performance of
its rights under this Agreement. The Company agrees that monetary damages would
not be adequate compensation for any loss incurred by reason of a breach by it
of the provisions of this Agreement and hereby agrees to waive the defense in
any action for specific performance that a remedy at law would be adequate.
(b) NO INCONSISTENT AGREEMENTS.
The Company shall not, on or after the date of this Agreement, enter into
any agreement with respect to its securities that is inconsistent with the
rights granted to the Holders of Registrable Securities in this Agreement or
otherwise conflicts with the provisions hereof.
Other than as disclosed on Schedule A attached hereto, the Company has not
previously entered into any agreement with respect to its securities granting
any "piggy back" registration rights to any Person. The Company represents and
warrants to GE that, except as set forth in this Agreement and the Carlyle
Investors' Registration Rights Agreement, as of the date hereof, there are no
outstanding "demand" registration rights with respect to the Company's
securities. The rights granted to the Holders of Registrable Securities
hereunder do not in any way conflict with
19
<PAGE>
and are not inconsistent with the rights granted to the holders of the Company's
securities under any such agreements.
(c) AMENDMENTS AND WAIVERS.
The provisions of this Agreement, including the provisions of this
sentence, may not be amended, modified or supplemented, and waivers or consents
to departures from the provisions hereof may not be given unless the Company has
obtained the written consent of the Carlyle Investors (but such consent of the
Carlyle Investors shall only be necessary if, at the time such consent is
sought, the Carlyle Investors own the Carlyle Investors' Registrable Securities)
and of GE (if GE holds more than 50% of the Registrable Securities then
outstanding) (on behalf of itself and all permitted assignees who are Holders of
Registrable Securities). The foregoing notwithstanding, a waiver or consent to
departure from the provisions hereof that relates exclusively to the rights of
Holders of shares of Registrable Securities whose shares are being sold pursuant
to a Registration Statement and that does not directly or indirectly affect the
rights of other Holders of shares of Registrable Securities may be given by the
Holders of a majority of the shares of Registrable Securities being sold.
(d) NOTICES.
All notices and other communications provided for or permitted hereunder
shall be made in writing by hand-delivery, registered first-class mail, telex,
facsimile, or air courier guaranteeing overnight delivery:
(i) if to a Holder of Registrable Securities who is GE, at the
address of the Purchaser (as such term is defined in the Purchase
Agreement) set forth in Section 9.4 of the Purchase Agreement, with a copy
to Gibson, Dunn & Crutcher LLP, 333 South Grand Avenue, Los Angeles, CA
90071-3197, Facsimile: (213) 229-7250, Attention: Ronald S. Beard;
(ii) if to a Holder of Registrable Securities who is not GE, at
the most current address given by the Holder to the Company in accordance
with the provisions hereof, which address initially is the address of the
Purchaser (as such term is defined in the Purchase Agreement) set forth in
the Purchase Agreement, with a copy to Gibson, Dunn & Crutcher LLP, 333
South Grand Avenue, Los Angeles, CA 90071-3197, Facsimile: (213)
229-7250, Attention: Ronald S. Beard; and
(iii) if to the Company, initially at its address set forth
in the Purchase Agreement and thereafter at such other address, notice of
which is given in accordance with the provisions hereof, with a copy to
McDermott, Will & Emery, 2049 Century Park East, Los Angeles, CA 90067,
Facsimile: 310.277.4730, Attn: Mark J. Mihanovic, Esq., and Arent, Fox,
Kintner, Plotkin & Kahn, 1050 Connecticut Avenue, N.W., Suite 600,
Washington, D.C. 20036, Facsimile: 202.857.6395, Attn: Gerald P. McCartin,
Esq.
All such notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered; five business
days after being deposited in the mail,
20
<PAGE>
postage prepaid, if mailed; when answered back, if telexed; when receipt
acknowledged, if telecopied; and on the next business day, if timely delivered
to an air courier guaranteeing overnight delivery. The Company shall promptly
provide a list of the most current addresses of the Holders of Registrable
Securities given to it in accordance with the provisions hereof to any such
Holder for the purpose of enabling such Holder to communicate with other Holders
in connection with this Agreement.
(e) SUCCESSORS AND ASSIGNS.
This Agreement shall inure to the benefit of and be binding upon the
successors and assigns of each of the parties.
(f) COUNTERPARTS.
This Agreement may be executed in any number of counterparts and by the
parties hereto in separate counterparts, each of which when so executed shall be
deemed to be an original and all of which taken together shall constitute one
and the same agreement.
(g) HEADINGS.
The headings in this Agreement are for convenience of reference only and
shall not limit or otherwise affect the meaning hereof.
(h) GOVERNING LAW.
This Agreement shall be construed, interpreted and the rights of the
parties determined in accordance with the internal laws of the State of New
York, without regard to the conflict of law principles thereof; except with
respect to matters of law concerning the internal corporate affairs of any
corporate entity which is a party to or the subject of this Agreement, and as to
those matters the law of the jurisdiction under which the respective entity
derives its powers shall govern.
(i) SEVERABILITY.
In the event that any one or more of the provisions contained herein, or
the application thereof in any circumstance, is held invalid, illegal or
unenforceable, the validity, legality and enforceability of any such provision
in every other respect and of the remaining provisions contained herein shall
not be affected or impaired thereby.
(j) FORMS.
All references in this Agreement to particular forms of Registration
Statements are intended to include all successor forms which are intended to
replace, or to apply to similar transactions as, the forms herein referenced.
21
<PAGE>
(k) ENTIRE AGREEMENT.
This Agreement and the Purchase Agreement are intended by the parties as
the final expression of their agreement and intended to be a complete and
exclusive statement of the agreement and understanding of the parties hereto in
respect of the subject matter contained herein. There are no restrictions,
promises, warranties or undertakings, other than those set forth or referred to
herein or therein with respect to the registration rights granted by the Company
with respect to the securities sold pursuant to the Purchase Agreement. This
Agreement and the Purchase Agreement supersede all prior agreements and
understandings between the parties with respect to such subject matter
(including any prior agreements and understandings with respect to registration
rights regarding the Series A Preferred Stock).
(l) CARLYLE INVESTORS' REGISTRATION RIGHTS AGREEMENT.
If Holders elect to join in a request for Demand Registration pursuant to
Section 2(d) of the Carlyle Investors' Registration Rights Agreement, then such
registration of Holders' shares shall, with respect to the terms and conditions
of this Agreement, be treated as if such registration were a Demand Registration
pursuant to Section 2 of this Agreement; PROVIDED, HOWEVER, that such
registration of Holders' shares pursuant to Section 2(d) of the Carlyle
Investors' Registration Rights Agreement shall not: (i) count as one of the two
Demand Registrations available to Holders pursuant to this Agreement, or (ii) be
subject in any way whatsoever to the $5 million threshold of Section 2(b) of
this Agreement.
[signature page follows]
22
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed, as of the day and year first above written.
INSIGHT HEALTH SERVICES CORP.,
a Delaware corporation
By:
--------------------------------
Name:
--------------------------------
Title:
--------------------------------
GENERAL ELECTRIC COMPANY,
a New York corporation
By:
--------------------------------
Name:
--------------------------------
Title:
--------------------------------
23
<PAGE>
SECURITIES PURCHASE AGREEMENT
BY AND BETWEEN
INSIGHT HEALTH SERVICES CORP.
AND
GENERAL ELECTRIC COMPANY
October 14, 1997
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE I DEFINITIONS.........................................................2
1.1 Defined Terms.........................................................2
ARTICLE II PURCHASE AND SALE OF SECURITIES...................................15
2.1 Purchase and Sale of Securities......................................15
2.2 Consideration for Securities.........................................15
ARTICLE III CLOSING..........................................................16
3.1 Closing..............................................................16
3.2 Deliveries by the Company at the Closing.............................16
3.3 Deliveries by the Purchaser at the Closing...........................16
3.4 Second Closing.......................................................17
3.5 Form of Documents and Instruments....................................17
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE COMPANY.....................17
4.1 Organization of the Company..........................................17
4.2 Capitalization of the Company........................................18
4.3 Authorization of Issuance............................................19
4.4 Authorization........................................................20
4.5 Noncontravention.....................................................20
4.6 Consents.............................................................21
4.7 Subsidiaries.........................................................21
4.8 Employee Benefit Plans and Other Agreements..........................22
4.9 Governmental Filings.................................................25
4.10 Financial Statements and Reports....................................26
4.11 Absence of Undisclosed Liabilities: Guarantees......................26
4.12 Absence of Certain Changes..........................................27
4.13 Compliance With Laws................................................28
4.14 Litigation..........................................................28
4.15 True and Complete Disclosure........................................29
4.16 Taxes...............................................................29
4.17 Environmental Matters...............................................31
4.18 Insurance...........................................................32
4.19 Real Property and Leaseholds........................................33
4.20 Tangible Assets.....................................................33
4.21 Contracts and Commitments...........................................34
4.22 Books and Records...................................................35
4.23 Labor Matters.......................................................35
4.24 Payments............................................................35
4.25 Intellectual Property...............................................36
4.26 Securities Offerings................................................36
i
<PAGE>
4.27 No Other Agreements to Sell the Assets or the Company...............37
4.28 No Brokers..........................................................37
4.29 Accounts and Notes Receivable.......................................37
4.30 Indebtedness........................................................37
4.31 Transactions with Affiliates........................................37
4.32 No Research Grants..................................................38
4.33 Certain Regulatory Matters..........................................38
4.34 Certain Additional Regulatory Matters...............................38
4.35 Medicare/Medicaid Participation.....................................39
4.36 Compliance with Medicare/Medicaid and Insurance Programs............40
ARTICLE V REPRESENTATIONS AND WARRANTIES OF THE PURCHASER....................40
5.1 Organization of the Purchaser........................................40
5.2 Authorization........................................................41
5.3 Noncontravention.....................................................41
5.4 Consents and Appeals.................................................41
5.5 Purchase for Investment..............................................41
5.6 No Brokers...........................................................42
5.7 No Agreements........................................................43
ARTICLE VI COVENANTS.........................................................43
6.1 Best Efforts.........................................................43
6.2 Restrictive Agreements Prohibited....................................43
6.3 Continuing Operations................................................43
6.4 Financial Statements and Information.................................43
6.5 Press Releases.......................................................45
6.6 Notification of Certain Matters......................................45
6.7 Liability Insurance..................................................46
6.8 Conversion Stock.....................................................46
6.9 Certain Regulatory Matters...........................................47
6.10 Employment Arrangements.............................................47
6.11 Transactions with Affiliates........................................48
6.12 Stockholder Approval of Certain Actions.............................48
6.13 Board of Directors..................................................52
6.14 Restrictions on Transfer of Capital Stock...........................54
6.15 Expiration of Certain Covenants.....................................56
ARTICLE VII CONDITIONS TO CLOSING............................................57
7.1 Conditions to Each Party's Obligations...............................57
7.2 Conditions to the Company's Obligations..............................57
7.3 Conditions to the Purchaser' Obligations.............................58
ARTICLE VIII INDEMNIFICATION.................................................60
8.1 Survival of Representations, Etc.....................................60
8.2 Indemnification by the Company.......................................60
8.3 Limitation on Indemnities............................................61
ii
<PAGE>
8.4 Losses...............................................................61
8.5 Defense of Claims....................................................61
ARTICLE IX MISCELLANEOUS.....................................................62
9.1 Fees and Expenses....................................................62
9.2 Injunctive Relief....................................................63
9.3 Assignment...........................................................63
9.4 Notices..............................................................63
9.5 Choice of Law........................................................64
9.6 Entire Agreement.....................................................65
9.7 Counterparts.........................................................65
9.8 Invalidity...........................................................65
9.9 Headings; Language...................................................65
9.10 Limitation of Liability.............................................66
9.11 Amendments and Waivers..............................................66
EXHIBITS
- --------
EXHIBIT A: Form of Amended and Restated Bylaws
EXHIBIT B: Form of Registration Rights Agreement
EXHIBIT C: Form of Series B Certificate of Designation
EXHIBIT D: Form of Series C Certificate of Designation
EXHIBIT E: Form of Series D Certificate of Designation
EXHIBIT F: Form of Warrant Agreement
EXHIBIT G: Form of GE Warrant Agreement
EXHIBIT H: Form of Opinion of the Purchaser's Counsel
EXHIBIT I: Form of Opinion of the Company's Corporate Counsel
EXHIBIT J: Persons Whose Knowledge Is Attributed to the Company
EXHIBIT K: Center Operations
EXHIBIT L: Form of Supplemental Service Fee Termination Agreement
SCHEDULES
- ---------
Schedule 4.1(b) Organization of the Company
Schedule 4.2 Capitalization of the Company
Schedule 4.6 Consents
Schedule 4.7 Subsidiaries
Schedule 4.8 Employee Benefit Plans and Other Agreements
Schedule 4.11 Absence of Undisclosed Liabilities: Guarantees
Schedule 4.12(x) Absence of Certain Changes
Schedule 4.13(a) Compliance With Laws
Schedule 4.14 Litigation
Schedule 4.16 Taxes
Schedule 4.17 Environmental Matters
Schedule 4.19 Real Property and Leaseholds
Schedule 4.20 Tangible Assets
iii
<PAGE>
Schedule 4.21 Contracts and Commitments
Schedule 4.23 Labor Matters
Schedule 4.25 Intellectual Property
Schedule 4.26 Securities Offerings
Schedule 4.30 Indebtedness
Schedule 4.31 Transactions with Affiliates
iv
<PAGE>
SECURITIES PURCHASE AGREEMENT
This SECURITIES PURCHASE AGREEMENT (this "Agreement"), dated as of
October 14, 1997, is by and between INSIGHT HEALTH SERVICES CORP., a Delaware
corporation (the "Company"), and GENERAL ELECTRIC COMPANY, a New York
corporation (the "Purchaser").
RECITALS
WHEREAS, the Company desires to sell to the Purchaser, and the
Purchaser desires to purchase from the Company, for the consideration set forth
in Section 2.2 hereof, (i) an aggregate of 7,000 shares (the "First Closing
Preferred Shares") of its newly issued Series C Preferred Stock, each share of
which Series C Preferred Stock shall be convertible (a) initially into one
hundred nineteen and four hundred three one-thousandths (119.403) shares of
Common Stock at an initial conversion price of $8.375 per share of such Common
Stock (so that all of the shares of First Closing Preferred Shares purchased by
the Purchaser shall be convertible initially into an aggregate of 835,821 shares
of such Common Stock), having the rights, designations and preferences set forth
in the Series C Certificate of Designation or (b) after the Type B Trigger Date,
into shares of Series D Preferred Stock having the rights, designations and
preferences set forth in the Series D Certificate of Designation on the terms
set forth in the Series D Certificate of Designation and (ii) the Warrants; and
WHEREAS, the Company desires to sell to the Purchaser, and the
Purchaser desires to purchase from the Company, for the consideration set forth
in Section 2.2 hereof, an aggregate of 20,953 shares (the "Second Closing
Preferred Shares", and, collectively with the First Closing Preferred Shares,
the "Preferred Shares") of Series C Preferred Stock, each share of which Series
C Preferred Stock shall be convertible initially into one hundred nineteen and
four hundred three one-thousandths (119.403) shares of Common Stock at an
initial conversion price of $8.375 per share of such Common Stock (so that all
of the Second Closing Preferred Shares purchased by the Purchaser shall be
convertible initially into an aggregate of 2,501,851 shares of such Common
Stock), having the rights, designations and preferences set forth in the Series
C Certificate of Designation;
WHEREAS, contemporaneously with the Purchaser's acquisition of the
First Closing Preferred Shares, and as a condition to such acquisition, TC
Group, L.L.C. and certain of its Affiliates (collectively, "Carlyle") shall
(i) acquire warrants (the "Carlyle Warrants") initially to purchase 250,000
shares of Common Stock at an initial exercise price of $10.00 per share and
(ii) purchase 25,000 shares of newly issued Series B Preferred Stock, each share
of which Series B Preferred Stock shall be convertible (a) initially into one
hundred nineteen and four hundred three one-thousandths (119.403) shares of
Common Stock at an initial conversion price of $8.375 per share of Common Stock
(so that such shares of Series C Preferred Stock acquired in respect of such
purchase would be initially convertible into an aggregate of 2,985,075 shares of
Common Stock, at an initial conversion price of $8.375 per share), or (b) after
the Type B Trigger Date,
<PAGE>
into shares of Series D Preferred Stock having the rights, designations and
preferences set forth in the Series D Certificate of Designation on the terms
set forth in the Series D Certificate of Designation; and
WHEREAS, contemporaneously with the Purchaser's acquisition of the
Securities, and as a condition to such acquisition, the Company shall execute
and deliver definitive documents with respect to the Credit Facility, and
funding shall occur upon filing by the lender under the Credit Facility of
appropriate UCC filings and certain other conditions set forth in the
documentation related to the Credit Facility, and upon such funding, certain of
the proceeds of the Credit Facility and the investment described herein shall be
used by the Company to repay (i) Seventy Million Seven Hundred One Thousand Six
Hundred Eleven Dollars and Seventy-Five Cents ($70,701,611.75) in principal,
interest and fees, plus additional accrued and unpaid interest associated
therewith at the rate of Nineteen Thousand, Two Hundred Ninety-Six Dollars
($19,296) per day for each day after October 14, 1997, of Indebtedness of the
Company and certain of its Affiliates to GE pursuant to the Master Debt
Restructuring Agreement, and (ii) certain other Indebtedness.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual covenants and premises
contained herein and for other good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
1.1 Defined Terms.
As used herein, the terms below shall have the following meanings:
"AFFILIATE" of any specified Person means (a) any other Person
directly or indirectly controlling or controlled by or under direct or indirect
common control with such specified Person or (b) the beneficial owner of ten
percent (10%) or more of the voting securities of such Person). For purposes of
this definition, "control" (including, with correlative meanings, the terms:
"controlling," "controlled by" and "under common control with"), as used with
respect to any Person, shall mean the possession, directly or indirectly, of the
power to direct or cause the direction of the management or policies of such
Person, whether through the ownership of voting securities, by agreement or
otherwise.
"AGREEMENT" means this Securities Purchase Agreement, together with
all Schedules and Exhibits referenced herein, as the same hereinafter may be
amended from time to time.
"AMENDED BYLAWS" means the Amended and Restated Bylaws of the Company,
in the form attached hereto as Exhibit A.
2
<PAGE>
"ANCILLARY AGREEMENTS" means the Warrant Agreement and the
Registration Rights Agreement, as each hereinafter may be amended from time to
time.
"APPLICABLE LAW" means any statute, law, rule or regulation or any
judgment, order, writ, injunction, decree or financial assessment (subject, in
the case of financial assessments, to the exhaustion of appeals) of any
Governmental Entity to which a specified Person or its properties or assets, or
its officers, directors, employees, consultants or agents (in their capacities
as such) is subject, including, without limitation, all such statutes, laws,
rules, regulations, judgments, orders, writs, injunctions, decrees and financial
assessments relating to, without limitation, energy regulation, public utility
regulation, securities regulation, consumer protection, equal opportunity,
health care industry regulation, public health and safety, motor vehicle safety
or standards, third party reimbursement (including Medicare and Medicaid),
environmental protection, fire, zoning, building and occupational safety and
health matters and laws respecting employment practices, employee documentation,
terms and conditions of employment and wages and hours.
"APPROVALS" has the meaning set forth in Section 4.13 of this
Agreement.
"BENEFIT ARRANGEMENT" means any employment, consulting, severance or
other similar contract, arrangement or policy and each plan, arrangement
(written or oral), program, agreement or commitment providing for insurance
coverage (including without limitation any self-insured arrangements), workers'
compensation, disability benefits, supplemental unemployment benefits, vacation
benefits, retirement benefits, life, health or accident benefits (including
without limitation any "voluntary employees' beneficiary association" as defined
in Section 501(c)(9) of the Code providing for the same or other benefits) or
for deferred compensation, profit-sharing bonuses, stock options, stock
appreciation rights, stock purchases or other forms of incentive compensation or
post-retirement insurance, compensation or benefits which (a) is not a Welfare
Plan, Pension Plan or Multiemployer Plan, (b) is entered into, maintained,
contributed to or required to be contributed to, as the case may be, by the
Company or an ERISA Affiliate or under which the Company or any ERISA Affiliate
may incur any liability, and (c) covers any present or former employees,
directors or consultants of the Company (with respect to their relationship with
such entities).
"BOARD OF DIRECTORS" means the board of directors of the Company as it
is constituted from time to time in accordance with the terms of this Agreement,
the Certificate of Incorporation and the Amended Bylaws.
"BYLAWS" means the Bylaws of the Company as in effect on the date
hereof.
"BUSINESS" means the provision of diagnostic services to the
healthcare industry.
"CAPITAL BUDGET PLAN" means, for each Fiscal Year, the plan of the
Company for making Capital Expenditures for such Fiscal Year which has been
approved for such Fiscal Year by either the Executive Committee or a
Supermajority Vote of the Board of Directors.
3
<PAGE>
"CAPITAL EXPENDITURES" means, for any period, expenditures made by the
Company or any of its Subsidiaries to acquire or construct fixed assets, plant
and Fixtures and Equipment (including additions, improvements, upgrades and
replacements, but excluding repairs) during such period calculated in accordance
with GAAP.
"CAPITAL LEASE OBLIGATION" means, at the time any determination
thereof is to be made, the amount of the liability in respect of a lease that
would at such time be required to be capitalized on a balance sheet in
accordance with GAAP.
"CAPITAL STOCK" means (i) in the case of a corporation, corporate
stock, (ii) in the case of an association or business entity, any and all
shares, interests, participations, rights or other equivalents (however
designated) of corporate stock, (iii) in the case of a partnership, partnership
interests (whether general or limited) and (iv) any other interest or
participation that confers on a Person the right to receive a share of the
profits and losses of, or distributions of assets of, the issuing Person.
"CARLYLE AFFILIATES" means the Purchaser (as such term is defined in
the Carlyle Purchase Agreement), TC Group, L.L.C., and any investor in any
entity comprising the Purchaser (as such term is defined in the Carlyle Purchase
Agreement) or TC Group, L.L.C. on the date hereof.
"CARLYLE PURCHASE AGREEMENT" means that certain Securities Purchase
Agreement, of even date herewith, by and between the Company and Carlyle in
respect of the Series B Preferred Stock and the Carlyle Warrants.
"CARLYLE WARRANT AGREEMENT" means that certain Warrant Agreement by
and between the Company and Carlyle substantially in the form attached hereto as
Exhibit F pursuant to which the Company shall issue the Carlyle Warrants to
Carlyle.
"CARLYLE WARRANTS" means the warrants to purchase Common Stock to be
acquired by Carlyle at the First Closing.
"CARLYLE WARRANT SHARES" means the Common Stock issuable to Carlyle
upon the exercise of the Carlyle Warrants.
"CENTER OPERATIONS" means the operations of the Company and its
Subsidiaries at the locations identified in Exhibit K hereto.
"CERTIFICATE OF INCORPORATION" means the certificate of incorporation
(as defined in Section 104 of the Delaware General Corporation Law) of the
Company in effect on the date hereof, including, without limitation, the Series
B, the Series C and the Series D Certificate of Designation.
"CHAMPUS" has the meaning set forth in Section 4.34 of this Agreement.
"CHANGE OF CONTROL" shall be deemed to have occurred (i) at such time
as any person (as defined in Section 13(d)(3) of the Exchange Act but excluding
Carlyle and its Affiliates
4
<PAGE>
and the Purchaser, individually and collectively) at any time shall directly or
indirectly acquire more than 40% of the voting power of the Common Stock of the
Company, (ii) at such time as during any one (1) year period, individuals who at
the beginning of such period constitute the Company's Board of Directors cease
to constitute at least a majority of such Board of Directors (provided, however,
that a change in directors upon a Type B Event Date shall not be deemed to cause
a Change of Control pursuant to this clause (ii)), (iii) upon consummation of a
merger or consolidation of the Company into or with another Person in which the
stockholders of the Company immediately prior to the consummation of such
transaction shall own fifty percent (50%) or less of the voting securities of
the surviving corporation (or the parent corporation of the surviving
corporation where the surviving corporation is wholly-owned by the parent
corporation) immediately following the consummation of such transaction, or (iv)
the sale, transfer or lease of all or substantially all of the assets of the
Company, in any of cases (i), (ii), (iii) or (iv) in a single transaction or
series of related transactions; PROVIDED, that no Change of Control hereunder
with respect to the Company shall be deemed to occur solely by reason of (x) the
ownership by Carlyle or any Carlyle Affiliate thereof or GE or its Affiliates of
the Series C Preferred Stock or any Affiliate thereof of any Capital Stock of
the Company or (y) the conversion of shares of Series B Preferred Stock into
either Series D Preferred Stock (and any change in the Board of Directors
incident thereto) or Common Stock, or (z) the conversion of shares of Series D
Preferred Stock into Common Stock.
"CLAIM" has the meaning set forth in Section 8.5 of this Agreement.
"CLAIM NOTICE" has the meaning set forth in Section 8.5 of this
Agreement.
"CLOSING " means the time at which this Agreement is executed and
delivered by the parties, the Purchaser purchases the First Closing Preferred
Shares and Carlyle purchases the Carlyle Warrants and the Series B Preferred
Stock.
"CLOSING DATE" means the date on which the Closing occurs.
"CODE" means the Internal Revenue Code of 1986, as it may be amended
from time to time.
"COMMISSION" means the United States Securities and Exchange
Commission.
"COMMON EQUITY" means all shares now or hereafter authorized of any
class of common stock of the Company (including the Common Stock) and any other
stock of the Company, however designated, authorized after the date hereof,
which has the right (subject always to prior rights of any class or series of
preferred stock) to participate in any distribution of the assets or earnings of
the Company without limit as to per share amount, but shall not include the
Series A Preferred Stock, the Series B Preferred Stock, the Series C Preferred
Stock or the Series D Preferred Stock.
"COMMON STOCK" has the meaning set forth in Section 4.2(a) of this
Agreement.
"COMMON STOCK DIRECTOR" has the meaning set forth in the Certificate
of Incorporation.
5
<PAGE>
"COMPANY" has the meaning set forth in the Preamble to this Agreement,
and, in addition, with respect to past events, means the Company and its
predecessors.
"CONVERSION DIRECTOR" has the meaning set forth in the Amended Bylaws.
"CONVERSION PRICE" means $8.375 per share of Common Stock, subject to
adjustment as set forth in the Series C Certificate of Designation.
"CONVERTIBLE SECURITIES" shall mean any stock or securities directly
or indirectly convertible into or exchangeable for Common Equity, including,
without limitation, any exchangeable debt securities.
"CREDIT FACILITY" means the credit facility provided to the Company
pursuant to the terms of the Credit Agreement dated as of October 14, 1997 among
the Company, certain subsidiaries, as guarantors, certain financial institutions
party thereto and NationsBank, N.A., as Agent.
"CURRENT CUSTOMER" has the meaning set forth in Section 4.21 of this
Agreement.
"ELIGIBLE HOLDER" has the meaning set forth in Section 6.4 of this
Agreement.
"ELIGIBLE SECURITIES" means (i) the Series B Conversion Stock, the
Series C Conversion Stock and the Series D Conversion Stock, (ii) the Warrants
and (iii) any Common Stock of the Company issued or issuable in respect of the
Securities or other securities issued or issuable pursuant to the conversion of
the Securities upon any stock split, stock dividend, recapitalization, merger,
consolidation or similar event. Securities shall cease to constitute "Eligible
Securities" at such time that they are sold or transferred in a transaction
wherein the transferee does not acquire "restricted securities" within the
meaning of Rule 144 promulgated under the Securities Act.
"EMPLOYEE PLANS" means all Benefit Arrangements, Multiemployer Plans,
Pension Plans and Welfare Plans.
"EMPLOYMENT AGREEMENTS" has the meaning set forth in Section 4.8 of
this Agreement.
"ENCUMBRANCE" means any claim, lien, pledge, option, charge, easement,
security interest, right-of-way, encumbrance or other right of third parties,
and, with respect to any securities, any agreements, understandings or
restrictions affecting the voting rights or other incidents of record or
beneficial ownership pertaining to such securities.
"ENVIRONMENTAL CONDITION" means the Release or threatened Release of
any Hazardous Material (whether or not upon a Facility or any former facility or
other property and whether or not such Release constituted at the time thereof a
violation of any Environmental Law) as a result of which the Company has or
would reasonably be expected to become liable to any Person or by reason of
which any Facility, any former facility or any of the assets of the Company may
suffer or be subjected to any Encumbrances.
6
<PAGE>
"ENVIRONMENTAL LAWS" means any and all foreign, federal, state, local
or municipal laws, rules, orders, regulations, statutes, ordinances, codes,
legally binding decrees or other requirements of any Governmental Entity
(including, without limitation, common law) regulating, relating to or imposing
liability or standards of conduct concerning protection of the environment or of
human health relating to exposure of any kind of Hazardous Materials, as have
been, are now or may at any time hereafter be in effect.
"ENVIRONMENTAL PERMITS" means any and all permits, licenses,
registrations, notifications, exemptions and any other authorizations required
under any Environmental Law.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"ERISA AFFILIATE" means any entity which is (or at any relevant time
was) a member of a "controlled group of corporations" with, under "common
control" with, a member of an "affiliated service group" with or otherwise
required to be aggregated with the Company, as set forth in Section 414(b), (c),
(m) or (o) of the Code.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"FACILITY" or "FACILITIES" means one or more of the offices and
buildings and all other real property and related facilities which are owned,
leased or operated by the Company or any Subsidiary.
"FEDERAL HEALTH CARE PROGRAM" has the meaning set forth in Section
4.35 hereof.
"FINANCIAL STATEMENTS" has the meaning set forth in Section 4.10
hereof.
"FIRST CLOSING" means the time at which this Agreement is executed and
delivered by the parties, the Purchaser purchases the First Closing Preferred
Shares and Carlyle purchases the Carlyle Warrants and the shares of Series B
Preferred Stock.
"FIRST CLOSING DATE" means the business day upon which the First
Closing occurs.
"FIRST CLOSING PREFERRED SHARES" has the meaning set forth in the
Recitals.
"FISCAL YEAR" means each year ending June 30, or any other fiscal year
as approved by the Board of Directors.
"FIXTURES AND EQUIPMENT" means all of the furniture, fixtures,
furnishings, machinery, equipment and other tangible assets owned by the Company
or any Subsidiary that are material to the conduct of their businesses as
currently conducted.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board, which are in effect as of the date of
this Agreement.
7
<PAGE>
"GE" means General Electric Company, a New York corporation, and its
Affiliates.
"GE TRANSACTION EXPENSES" means the reasonable fees and expenses
incurred by the Purchaser and any GE Affiliate (including, but not limited to,
reasonable fees and expenses of legal counsel, accountants, consultants and
travel expenses in connection with the preparation of this Agreement and the
Purchaser's due diligence examination) relating to this Agreement and the
Transaction, which, together with the Carlyle Transaction Expenses (as such term
is defined in the Carlyle Purchase Agreement) shall be in an amount not to
exceed $500,000.
"GOVERNMENTAL ENTITY" means any court or tribunal in any jurisdiction
(domestic or foreign) or any federal, state or local public, governmental or
regulatory body, agency, department, commission, board, bureau or other
authority or instrumentality (domestic or foreign).
"HAZARDOUS MATERIALS" means any hazardous substance, gasoline or
petroleum (including crude oil or any fraction thereof) or petroleum products,
polychlorinated biphenyls, ureaformaldehyde insulation, asbestos or
asbestos-containing materials, pollutants, contaminants, radioactivity and any
other materials or substances of any kind, whether solid, liquid or gas, and
whether or not any such substance is defined as hazardous under any
Environmental Law, that is regulated pursuant to any Environmental Law or that
could give rise to liability under any Environmental Law.
"HSR ACT" means the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended.
"INDEBTEDNESS" means, as to any Person without duplication, (a) all
items which, in accordance with GAAP, would be included as a liability on the
balance sheet of such Person and its Subsidiaries (including any obligation of
such Person to the issuer of any letter of credit for reimbursement in respect
of any drafts drawn under such letter of credit), excluding (i) obligations in
respect of deferred taxes and deferred employee compensation and benefits, and
(ii) anything in the nature of Capital Stock, surplus capital and retained
earnings; (b) Capital Lease Obligations of such Person; and (c) all obligations
of other Persons that such Person has guaranteed, including, without limitation,
all obligations of such Person consisting of recourse liabilities with respect
to accounts receivable sold or otherwise disposed of by such Person, PROVIDED,
HOWEVER, that the term Indebtedness shall not include trade accounts payable
(other than for borrowed money) arising in, and accrued expenses incurred in,
the ordinary course of business of such Person, provided the same are not more
than sixty (60) days overdue or are being contested in good faith.
"INDEMNIFIED PARTY" has the meaning set forth in Section 8.2 of this
Agreement.
"INDEPENDENT" means any person who is not an officer or employee of
the Company or any Subsidiary or other Affiliate of the Company or otherwise
paid any compensation or remuneration by the Company or any Subsidiary or other
Affiliate of the Company other than director's fees.
8
<PAGE>
"JOINT DIRECTOR" has the meaning set forth in Section 6.13 of this
Agreement.
"LIABILITY" or "LIABILITIES" means, with respect to any Person, any
liability or obligation of such Person of any kind, character or description,
whether known or unknown, absolute or contingent, accrued or unaccrued,
liquidated or unliquidated, secured or unsecured, joint or several, due or to
become due, vested or unvested, executory, determined, determinable or otherwise
and whether or not the same is required to be accrued on the financial
statements of such Person.
"LIQUIDATING EVENT" means (i) the commencement by the Company of a
voluntary case under the bankruptcy laws of the United States, as now or
hereafter in effect, or, if an involuntary case against the Company has been
commenced, the decision by the Company not to timely controvert such petition
and seek its prompt dismissal; (ii) the commencement by the Company of any
proceeding under any reorganization, arrangement, adjustment of debt, relief of
debtors, dissolution, insolvency or liquidation or similar law of any
jurisdiction whether now or hereafter in effect relating to the Company or the
adoption of a plan of liquidation; (iii) if any proceeding set forth in the
preceding clause has been commenced against the Company, the decision by the
Company not to controvert such proceeding and seek its prompt dismissal; or
(iv) any Change of Control (A) pursuant to clauses (i) and (ii) of the
definition thereof if such Change of Control occurred in or as a result of a
transaction or series of related transactions approved by the Board of
Directors, or (B) pursuant to clauses (iii) or (iv) of the definition of Change
of Control; in any of cases (i) through (iv) above, in a single transaction or
series of related transactions.
"LOSSES" has the meaning set forth in Section 8.2 of this Agreement.
"MARKET PRICE" means as to any security the average of the closing
prices of any such security's sales on all domestic securities exchanges on
which such security may at the time be listed, or, if there have been no sales
on any such exchange on any day, the average of the highest bid and lowest asked
prices on all such exchanges at the end of such day, or, if on any day such
security is not so listed, the average of the representative bid and asked
prices quoted in Nasdaq as of 4:00 P.M., New York time, on such day, or, if on
any day such security is not quoted in Nasdaq, the average of the highest bid
and lowest asked prices on such day in the domestic over-the-counter market as
reported by the National Quotation Bureau, Incorporated, or any similar
successor organization, in each such case averaged over a period of twenty-one
(21) business days consisting of the day as of which "Market Price" is being
determined and the twenty (20) consecutive business days prior to such day;
provided that if such security is listed on any domestic securities exchange the
term "business days" as used in this sentence means business days on which such
exchange is open for trading. If at any time such security is not listed on any
domestic securities exchange or quoted in Nasdaq or the domestic
over-the-counter market, the "Market Price" shall be the fair value thereof
determined by the Company and approved by the Purchaser; provided that if such
parties are unable to reach agreement within a reasonable period of time, such
fair value shall be determined by an appraiser jointly selected by the Company
and the Purchaser. The determination of such appraiser shall be final and
binding on the Company and the Purchaser, and the fees and expenses of such
appraiser shall be paid by the Company.
9
<PAGE>
"MASTER DEBT RESTRUCTURING AGREEMENT" means that certain Master Debt
Restructuring Agreement dated as of June 26, 1996 by and among Purchaser,
General Electric Capital Corporation, the Company, American Health Services
Corp. Maxum Health Corp. and certain subsidiaries of Maxum Health Corp., as
amended through the date hereof.
"MATERIAL ADVERSE EFFECT" with respect to any Person means a material
adverse effect on the results of operations, condition (financial or otherwise),
assets, liabilities (whether absolute, accrued, contingent or otherwise) or
business of such Person and its Subsidiaries (if any), taken as a whole.
"MATERIAL AGREEMENTS" has the meaning set forth in Section 4.21 of
this Agreement.
"MERGER AGREEMENT" means that certain Agreement and Plan of Merger
dated as of February 26, 1996 by and among the Company, American Health Services
Corp., AHSC Acquisition Corp., Maxum Health Corp. and MXHC Acquisition Corp.
"MOBILE OPERATIONS" means all operations of the Company and its
Subsidiaries other than Center Operations.
"MULTIEMPLOYER PLAN" means any "multiemployer plan," as defined in
Section 400l(a)(3) or 3(37) of ERISA, which (a) the Company or any ERISA
Affiliate maintains, administers, contributes to or is required to contribute
to, or, after September 25, 1980, maintained, administered, contributed to or
was required to contribute to, or under which the Company or any ERISA Affiliate
may incur any liability and (b) covers any employee or former employee of the
Company or any ERISA Affiliate (with respect to their relationship with such
Persons).
"OPERATING LEASE" shall mean any lease with respect to which the
obligations of the lessee thereunder are, at the time any determination thereof
is to be made, not required to be capitalized on the lessee's balance sheet in
accordance with GAAP.
"OPTION" shall mean any rights or options to subscribe for or purchase
Common Equity or Convertible Securities.
"ORDINARY COURSE OF BUSINESS," for purposes of Section 6.12(s) of this
Agreement, means the ordinary course of business for a company engaged in the
business of providing diagnostic services to the health care industry; provided,
however, that all sales by the Company or any Subsidiary, as the case may be, of
inventory and sales of Fixtures and Equipment no longer used or useful in such
business shall be deemed to be in the Ordinary Course of Business.
"PARITY SECURITIES" has the meaning set forth in Section 2 of the
Series B Certificate of Designation.
"PBGC" means the Pension Benefit Guaranty Corporation.
10
<PAGE>
"PENSION PLAN" means any "employee pension benefit plan" as defined in
Section 3(2) of ERISA (other than a Multiemployer Plan) which (a) the Company or
any ERISA Affiliate maintains, administers, contributes to or is required to
contribute to, or, within the five (5) years prior to the Closing Date,
maintained, administered, contributed to or was required to contribute to, or
under which the Company or any ERISA Affiliate may incur any liability and
(b) covers any employee or former employee of the Company or any ERISA Affiliate
(with respect to their relationship with such Persons).
"PERMITS" means all licenses, permits, orders, consents, approvals,
registrations, authorizations, qualifications and filings required by any
federal, state, local or foreign law or regulation or governmental or regulatory
bodies and all industry or other non-governmental self-regulatory organizations.
"PERMITTED ENCUMBRANCES" means (a) any mechanic's or materialmen's
lien or similar Encumbrances with respect to amounts not yet due and payable or
which are being contested in good faith by appropriate proceedings and for which
appropriate reserves have been established, (b) Encumbrances for Taxes not yet
due and payable or which are being contested in good faith by appropriate
proceedings, for which appropriate reserves have been established,
(c) easements, licenses, covenants, rights of way and similar Encumbrances
which, individually or in the aggregate, would not materially and adversely
affect the marketability or value of the property encumbered thereby or
materially interfere with the operations of the Business and (d) Encumbrances
arising under the Credit Facility.
"PERSON" means any individual, corporation, partnership, limited
partnership, limited liability partnership, joint venture, association, limited
liability company, joint-stock company, trust, unincorporated organization or
government or agency or political subdivision thereof (including any subdivision
or ongoing business of any such entity or substantially all of the assets of any
such entity, subdivision or business).
"PRE-CLOSING ENVIRONMENTAL CONDITIONS" means any Environmental
Condition occurring or in existence on or prior to the Closing Date.
"PREFERRED SHARES" has the meaning set forth in the Recitals to this
Agreement.
"PROCEEDING" means any action, suit, claim, litigation, legal or other
proceeding, whether civil, criminal, administrative, arbitrative or
investigative, any appeal in such an action, suit, claim, litigation, legal or
other proceeding, and any investigation that could reasonably be expected to
lead to such an action, suit, claim, litigation, legal or other proceeding, not
including an audit other than an audit by a Governmental Entity pursuant to any
Applicable Laws relating to health care, the health care industry and the
provision of health care services, third party reimbursement (including Medicare
and Medicaid), public health and safety and wrongful death and medical
malpractice, which shall be included in this definition of "Proceeding."
"PROPRIETARY RIGHTS" has the meaning set forth in Section 4.25 of this
Agreement.
11
<PAGE>
"PROXY STATEMENT" means that certain Maxum Health Corp. and American
Health Services Corp. Joint Proxy Statement for Special Meeting of Stockholders
to be held June 25, 1996, dated May 9, 1996.
"PURCHASER" has the meaning set forth in the Preamble to this
Agreement, and shall include the Purchaser's successors and permitted assigns.
"REGISTRATION RIGHTS AGREEMENT" means the Registration Rights
Agreement by and among the Company and the Purchaser substantially in the form
attached hereto as Exhibit B.
"REGULATION D" has the meaning set forth in Section 4.26 of this
Agreement.
"RELEASE" means and includes any spilling, leaking, pumping, pouring,
emitting, emptying, discharging, injecting, escaping, leaching, dumping or
disposing into the environment or the workplace of any Hazardous Materials, and
otherwise as defined in any Environmental Law.
"SEC FILINGS" has the meaning set forth in Section 4.9 of this
Agreement.
"SECOND CLOSING" means the time at which the Purchaser converts all of
its Series A Preferred Stock into the Second Closing Preferred Shares.
"SECOND CLOSING PREFERRED SHARES" has the meaning set forth in the
Recitals.
"SECOND CLOSING DATE" means the business day after all waiting periods
with respect to Purchaser's filing of a notification under the HSR Act with
respect to the transactions to occur at the Second Closing have expired or have
been terminated and neither the Federal Trade Commission nor the Department of
Justice shall have sent a letter giving notice of its intention to initiate
legal action to prevent such transactions or to seek further information.
"SECURITIES" means the Preferred Shares and the Warrants.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SENIOR MANAGEMENT" means such members of the senior management of the
Company as are proposed by the President of the Company and accepted by the
Series B Directors and the Series C Director, which acceptance shall not
unreasonably be withheld.
"SENIOR SECURITIES" has the meaning set forth in Section 2 of the
Series C Certificate of Designation.
"SERIES A PREFERRED STOCK" means the Convertible Preferred Stock,
Series A, par value $0.001 per share, of the Company, all of the outstanding
shares of which as of the date of this Agreement are held by Purchaser.
"SERIES B CERTIFICATE OF DESIGNATION" means the Certificate of
Designation, Preferences and Rights of the Series B Preferred Stock, in the form
attached hereto as Exhibit C.
12
<PAGE>
"SERIES B CONVERSION SHARES" means the shares of Common Stock
issuable, upon certain conditions, by the Company to Carlyle in respect of the
Series B Preferred Stock.
"SERIES B PREFERRED STOCK" means the Convertible Preferred Stock,
Series B, par value $0.001 per share, of the Company, with the rights,
preferences and privileges set forth in the Series B Certificate of Designation.
"SERIES C CERTIFICATE OF DESIGNATION" means the Certificate of
Designation, Preferences and Rights of the Series C Preferred Stock, in the form
attached hereto as Exhibit D.
"SERIES C CONVERSION SHARES" means the shares of Common Stock
issuable, upon certain conditions, by the Company to Purchaser in respect of the
Series C Preferred Stock.
"SERIES C PREFERRED STOCK" means the Convertible Preferred Stock,
Series C, par value $0.001 per share, of the Company, with the rights,
preferences and privileges set forth in the Series C Certificate of Designation.
"SERIES D CERTIFICATE OF DESIGNATION" means the Certificate of
Designation, Preferences and Rights of the Series D Preferred Stock, in the form
attached hereto as Exhibit E.
"SERIES D CONVERSION SHARES" means the shares of Common Stock
issuable, upon certain conditions, by the Company to the Purchaser in respect of
the Series D Preferred Stock.
"SERIES D PREFERRED STOCK" means the Convertible Preferred Stock,
Series D, par value $0.001 per share, of the Company, with the rights,
preferences and privileges set forth in the Series D Certificate of Designation.
"SPECIAL CORPORATE EVENT" shall be deemed to have occurred (i) at
such time as any person (as defined in Section 13(d)(3) of the Exchange Act),
except Carlyle, any Carlyle Affiliate, Purchaser and/or any Affiliate of
Purchaser, at any time shall directly or indirectly acquire more than twenty
percent (20%) of the voting power of the Common Stock of the Company, (ii) at
such time as during any one (1) year period, individuals who at the beginning of
such period constitute the Company's Board of Directors cease to constitute at
least a majority of such Board (provided, however, that a change in directors
upon a Type B Event Date shall not be deemed to cause a Special Corporate Event
pursuant to this clause (ii)), (iii) upon consummation of a merger or
consolidation of the Company into or with another Person in which the
stockholders of the Company immediately prior to the consummation of such
transaction shall own fifty percent (50%) or less of the voting securities of
the surviving corporation (or the parent corporation of the surviving
corporation where the surviving corporation is wholly-owned by the parent
corporation) immediately following the consummation of such transaction, or (iv)
the sale, transfer or lease of all or substantially all of the assets of the
Company, in any of cases (i), (ii), (iii) or (iv) in a single transaction or
series of related transactions.
"SSA" has the meaning set forth in Section 4.34 of this Agreement.
"STATE HEALTH CARE PROGRAM" has the meaning set forth in Section 4.35
of this Agreement.
13
<PAGE>
"SUBSIDIARY" means (a) any corporation of which at least a majority in
interest of the outstanding voting stock (having by the terms thereof voting
power under ordinary circumstances to elect a majority of the directors of such
corporation, irrespective of whether or not at the time stock of any other class
or classes of such corporation shall have or might have voting power by reason
of the happening of any contingency) is at the time, directly or indirectly,
owned or controlled by the Company and/or by one or more Subsidiaries of the
Company, or (b) any corporate or non-corporate entity in which the Company
and/or one or more Subsidiaries of the Company, directly or indirectly, at the
date of determination thereof, has an ownership interest and one hundred percent
(100%) of the revenue of which is included in the consolidated financial reports
of the Company consistent with GAAP. With respect to past events, a reference
to a Subsidiary shall be a reference to such Subsidiary and its predecessors.
"SUPERMAJORITY VOTE" means the affirmative vote of six (6) directors
of the Company with respect to the matter subject to such vote.
"SUPERVOTING SECURITIES" means any class or series of the Company's
Capital Stock the holders of which have the right to cast more than one vote per
share and/or have the right to elect one or more members of the Board of
Directors, voting as a class or series.
"SUPPLEMENTAL SERVICE FEE" has the meaning set forth in the Recitals
hereof.
"SUPPLEMENTAL SERVICE FEE TERMINATION AGREEMENT" means the
Supplemental Service Fee Termination Agreement between the Company and the
Purchaser substantially in the form attached hereto as Exhibit L.
"TAX" or "TAXES" means any federal, state, local or foreign net or
gross income, gross receipts, license, payroll, employment, excise, severance,
stamp, occupation, premium, (including taxes under Section 59A of the Code),
customs duties, Capital Stock, franchise, profits, withholding, social security
(or similar), unemployment, disability, real property, personal property, sales,
use, transfer, registration, value added, alternative or add-on minimum,
estimated or other tax, governmental fee or like assessment or charge of any
kind whatsoever, including any interest, penalty or addition thereto, whether
disputed or not, imposed by any Governmental Entity or arising under any tax law
or agreement, including, without limitation, any joint venture or partnership
agreement.
"TAX RETURN" means any return, declaration, report, claim for refund
or information or return or statement relating to Taxes, including any schedule
or attachment thereto, and including any amendments thereof.
"THIRD PARTY NOTICE" has the meaning set forth in Section 8.5 of this
Agreement.
"TRANSACTION" means, taken together, the transactions contemplated
under this Agreement and the Carlyle Purchase Agreement, including, without
limitation, the transactions that will occur at the Closing, the initial funding
of the Credit Facility and the Second Closing.
"TYPE B CONVERSION" has the meaning set forth in the Series B
Certificate of Designation and the Series C Certificate of Designation.
14
<PAGE>
"TYPE B EVENT DATE" has the meaning set forth in the Series B
Certificate of Designation and the Series C Certificate of Designation.
"TYPE B TRIGGER DATE" means the date one year after the inital
borrowing of funds under the Credit Facility.
"WARRANT AGREEMENT" means that certain Warrant Agreement by and
between the Company and the Purchaser substantially in the form attached hereto
as Exhibit E pursuant to which the Company shall issue the Warrants to the
Purchaser.
"WARRANT CERTIFICATES" means one or more warrant certificates
evidencing the Warrants, in the form attached as an exhibit to the Warrant
Agreement.
"WARRANTS" means 250,000 warrants, issued pursuant to the Warrant
Agreement, to purchase, initially, an equivalent number of shares of Common
Stock at an initial exercise price of $10.00 per share, expiring on the date
that is the fifth anniversary of the Closing Date.
"WARRANT SHARES" means the Common Stock issuable upon the exercise of
the Warrants.
"WELFARE PLAN" means any "employee welfare benefit plan" as defined in
Section 3(1) of ERISA, which (a) the Company or any ERISA Affiliate maintains,
administers, contributes to or is required to contribute to, or under which the
Company or any ERISA Affiliate may incur any liability and (b) covers any
employee or former employee of the Company or any ERISA Affiliate (with respect
to their relationship with such entities).
ARTICLE II
PURCHASE AND SALE OF SECURITIES
2.1 Purchase and Sale of Securities.
Upon the terms and subject to the conditions contained herein, on the
First Closing Date the Company shall sell to the Purchaser and the Purchaser
shall purchase from the Company the First Closing Preferred Shares and the
Warrants. Upon the terms and subject to the conditions contained herein, on the
Second Closing Date the Company shall sell to the Purchaser and the Purchaser
shall purchase from the Company the Second Closing Preferred Shares.
2.2 Consideration for Securities.
Upon the terms and subject to the conditions contained herein, as
consideration for the purchase of the First Closing Preferred Shares and the
Warrants, on the First Closing Date the Purchaser shall terminate the
Supplemental Service Fee. Upon the terms and subject to the conditions
contained herein (including without limitation the conditions relating to the
HSR Act), as consideration for the purchase of the Second Closing Preferred
Shares, on the Second Closing Date the Purchaser shall convert all of its shares
of Series A Preferred Stock into the Second Closing Preferred Shares.
15
<PAGE>
2.3 Private Placement Fee.
On the First Closing Date, the Company shall pay by wire transfer of
immediately available funds to an account designated by the Purchaser at least
24 hours before the Closing a private placement fee of One Hundred Twenty Five
Thousand Dollars ($125,000).
ARTICLE III
CLOSING
3.1 Closings.
The First Closing shall be held at 10:00 a.m. Los Angeles time on the
First Closing Date, at the offices of Gibson, Dunn & Crutcher LLP, 333 South
Grand Avenue, Los Angeles, CA 90071, unless the parties hereto otherwise agree.
The Second Closing shall be held at 10:00 a.m. Los Angeles time on the Second
Closing Date, at the offices of Gibson, Dunn & Crutcher LLP, 333 South Grand
Avenue, Los Angeles, CA 90071, unless the parties hereto otherwise agree.
3.2 Deliveries by the Company at the First Closing.
At the First Closing, the Company shall issue and deliver to the
Purchaser:
(a) Certificates evidencing the First Closing Preferred Shares in the
name of the Purchaser (or its assignees), in the respective amounts as set forth
in a written notice provided to the Company by the Purchaser 24 hours in advance
of the First Closing;
(b) The Warrant Certificates in the names of the Purchaser (or its
assignees), in the respective amounts as set forth in a written notice provided
to the Company by the Purchaser;
(c) The Ancillary Agreements;
(d) The certificates, opinions of counsel and other documents
described in Article VII of this Agreement; and
(e) All such other documents and instruments as the Purchaser or its
counsel shall reasonably request to consummate the First Closing.
3.3 Deliveries by the Purchaser at the Closing.
At the First Closing, the Purchaser shall deliver to the Company:
(a) The Supplemental Service Fee Termination Agreement;
(b) The Ancillary Agreements;
(c) The certificates, opinions of counsel and other documents
described in Article VII of this Agreement; and
16
<PAGE>
(d) All such other documents and instruments as the Company or its
counsel shall reasonably request to consummate the Closing.
3.4 Second Closing.
The parties contemplate that the Second Closing shall occur on the
Second Closing Date. At the Second Closing, all of GE's shares of Series A
Preferred Stock shall be converted into Series C Preferred Stock. At the Second
Closing, the Company shall issue and deliver to the Purchaser Certificates
evidencing the Second Closing Preferred Shares in the names of the Persons
comprising the Purchaser (or their assignees), in the respective amounts as set
forth in a written notice provided to the Company by the Purchaser 24 hours in
advance of the Second Closing, and the Purchaser shall deliver to the Company
certificates evidencing the shares of Series A Preferred Stock.
3.5 Form of Documents and Instruments.
All of the documents and instruments delivered at the Second Closing
shall be in form and substance, and shall be executed and delivered in a manner,
reasonably satisfactory to the respective counsel of the Purchaser and the
Company.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Purchaser as follows:
4.1 Organization of the Company.
(a) The Company is a corporation duly organized, validly existing and
in good standing under the laws of the State of Delaware and has all requisite
corporate power and authority to own, lease and operate its properties and
assets and to carry on its business as presently being conducted and as proposed
to be conducted. No actions or Proceedings to dissolve the Company are pending
or, to the Knowledge of the Company, threatened. The copies of the Certificate
of Incorporation and Amended Bylaws heretofore delivered by the Company to the
Purchaser are accurate and complete as of the date hereof. The Company is duly
qualified or licensed to do business as a foreign corporation and is in good
standing in each jurisdiction in which the property owned, leased or operated by
it or the conduct of its business requires such qualification or licensing,
except where the failure to do so taken in the aggregate would not have a
Material Adverse Effect on the Company. The Certificate of Incorporation and
the Amended Bylaws of the Company comply in all material respects with Delaware
law.
(b) Each Subsidiary is a corporation or other business entity duly
organized, validly existing and in good standing under the laws of its
jurisdiction of organization, and has all requisite power and authority to own,
lease and operate its properties and assets and to carry on its business as
presently being conducted and as proposed to be conducted. Except as set forth
in Schedule 4.1(b), each Subsidiary is duly qualified or licensed to do business
as a foreign corporation and is in good standing in each jurisdiction in which
the property owned, leased or operated by it or the conduct of its business
requires such qualification or licensing, except where
17
<PAGE>
the failure to do so would not have a Material Adverse Effect on the Company.
The terms and provisions of the organizational documents of each Subsidiary
comply in all material respects with the laws of such Subsidiary's jurisdiction
of incorporation.
4.2 Capitalization of the Company.
(a) The authorized Capital Stock of the Company consists of:
(i) Twenty-Five Million (25,000,000) shares of common stock, par value $0.001
per share (the "Common Stock"), Two Million Seven Hundred Fourteen Thousand
Seven Hundred Twenty Five (2,714,725) shares of which will be issued and
outstanding immediately after the Closing Date; (ii) Three Million Five Hundred
Thousand (3,500,000) shares of preferred stock, of which (A) Two Million Five
Hundred One Thousand Seven Hundred Sixty (2,501,760) shares of Series A
Preferred Stock are issued and outstanding as of the date hereof, all of which
shares are expected to be exchanged at the Second Closing for shares of Series C
Preferred Stock so that no shares of Series A Preferred Stock are expected to be
outstanding immediately after the Second Closing Date; (B) Twenty Five Thousand
(25,000) shares of Series B Preferred Stock which will be designated and
authorized as of the Closing Date, all of which will be issued and outstanding
immediately after the Closing Date; (C) Twenty Seven Thousand Nine Hundred Fifty
Three (27,953) shares of Series C Preferred Stock which will be designated and
authorized as of the Closing Date, Seven Thousand (7,000) shares of which will
be issued and outstanding immediately after the Closing Date and all of which
are expected to be issued and outstanding immediately after the Second Closing
Date; and (D) Six Hundred Thirty Two Thousand Two Hundred Sixty Six (632,266)
shares of Series D Preferred Stock which will be designated and authorized as of
the Closing Date, no shares of which will be issued and outstanding immediately
after the Closing Date. All outstanding shares of Capital Stock of the Company
are fully paid, non-assessable, free and clear of all Encumbrances and have been
issued in compliance with all state and federal securities laws. Except for the
Series B Preferred Stock, the Series C Preferred Stock and the Series D
Preferred Stock, none of such shares is subject to, nor has been issued in
violation of, any preemptive rights.
(b) The Company has not become subject to any commitment or
obligation, either absolute or conditional, matured or unmatured, vested or not
yet vested, to issue, deliver or sell, or cause to be issued, delivered or sold,
under offers, stock option agreements, stock bonus agreements, stock purchase
plans, incentive compensation plans, warrants, options, calls, conversion rights
or otherwise, any shares of the Capital Stock or other securities of the Company
including securities or obligations convertible into or exchangeable for any
shares of Capital Stock, other equity securities or ownership interests, upon
payment of any consideration or otherwise, except for (i) the commitments and
obligations of the Company pursuant to this Agreement, the Warrant Agreement,
the Carlyle Purchase Agreement, the Carlyle Warrant Agreement, the Series B
Certificate of Designation and the Series C Certificate of Designation; (ii) the
issuance, sale or grant of the options outstanding on the date hereof to Senior
Management and directors of the Company set forth on SCHEDULE 4.2 hereto;
(iii) the warrants outstanding on the date hereof set forth on SCHEDULE 4.2
hereto; (iv) as set forth on SCHEDULE 4.2 hereto, the number of shares of
Capital Stock (all of which are included in the Two Million Seven Hundred
Fourteen Thousand Seven Hundred Twenty Five (2,714,725) outstanding shares of
Common Stock stated in Section 4.2(a)) as to which the Company would be required
to issue new stock certificates if all stock certificates were now surrendered
that represented shares of
18
<PAGE>
Capital Stock of American Health Services Corp. or Maxum Health Corp.
(constituent corporations in the mergers contemplated by the Merger Agreement)
that either were outstanding immediately prior to such mergers or that were
issuable pursuant to any commitment or obligation of either of such constituent
corporations, either absolute or conditional, matured or unmatured, vested or
not yet vested, to issue, deliver or sell, or cause to be issued, delivered or
sold, under offers, stock option agreements, stock bonus agreements, stock
purchase plans, incentive compensation plans, warrants, options, calls,
conversion rights or otherwise; and (v) as set forth on SCHEDULE 4.2, and to the
extent not otherwise described in clause (iv) of this Section 4.2, the number of
shares of Capital Stock of the Company that would be required to be issued if
the surviving corporations of such mergers were to give their written approval
(pursuant to Section 262(k) of the Delaware General Corporation Law), to holders
of shares of Capital Stock of such constituent corporations who exercised their
appraisal rights with respect to such shares, to withdraw such holders' demands
for appraisal and accept such mergers. Except as provided in this Agreement,
the Company is not a party or subject to any agreement or understanding and, to
the Company's Knowledge, there is no agreement or understanding between any
Persons and/or entities, that affects or relates to the voting or giving of
written consents with respect to any of the Company's voting securities.
(c) Upon issuance to the Purchaser of the Twenty-Seven Thousand, Nine
Hundred and Fifty Three (27,953) shares of Series C Preferred Stock to be issued
hereunder, if the Purchaser were to immediately convert such shares into Common
Stock, such shares of Common Stock would represent Thirty One and Seven Tenths
(31.7%) of the Common Stock of the Company on a fully diluted basis. Such
percentage shall equal one hundred (100) times the following quotient. The
numerator of such quotient shall be the number of shares of Common Stock that
the Purchaser would be entitled to receive if the Purchaser were to convert into
Common Stock, immediately following the First Closing and the Second Closing and
pursuant to the terms of the Series C Certificate of Designation, all of the
shares of Series C Preferred Stock the Purchaser is to receive at the First
Closing and the Second Closing pursuant to the terms of this Agreement. The
denominator of such quotient shall equal the sum of (1) such numerator, plus (2)
the number of shares of Common Stock that would need to be issued if all of the
shares of Series B Preferred Stock to be issued pursuant to the Carlyle Purchase
Agreement were converted into Common Stock, pursuant to the terms of the Series
B Certificate of Designation, plus (3) the number of shares of Common Stock that
would need to be issued if the all of the Warrants and Carlyle Warrants were
exercised in full, plus (4) the maximum number of shares of Common Stock that
would need to be issued if all of the issuances of Capital Stock contemplated in
clauses (ii), (iii), (iv) and (v) of Section 4.2(b) were to occur immediately
following the Closing plus (5) all shares of Common Stock issued and outstanding
on the First Closing Date. The calculation in the immediately preceding
sentence shall be made as if all issuances of Common Stock referred to in
clauses (1), (2), (3), (4) and (5) thereof were made immediately following the
First Closing, whether or not the Company is or could be under any obligation to
issue such shares of Common Stock immediately following the First Closing.
4.3 Authorization of Issuance.
The rights, preferences, privileges and restrictions of the Series B
Preferred Stock are as stated in the Series B Certificate of Designation. The
rights, preferences, privileges and
19
<PAGE>
restrictions of the Series C Preferred Stock are as stated in the Series C
Certificate of Designation. The rights, preferences, privileges and
restrictions of the Series D Preferred Stock are as stated in the Series D
Certificate of Designation. Upon consummation of the Transaction, the
Securities acquired by the Purchaser from the Company will be duly authorized
and validly issued, fully paid and non-assessable and not subject to any
preemptive rights except as set forth in the Series C Certificate of
Designation, and the Purchaser will have good and marketable title to such
Securities, free and clear of any Encumbrances or preemptive rights. Upon
consummation of the Transaction, the Series B Conversion Shares and the Series
C Conversion Shares (and the Series D Conversion Shares, which will not be
issued to the extent that Series B Conversion Shares and Series C Conversion
Shares are issued) will be duly authorized and reserved for issuance and upon
conversion in accordance with the terms of the Series B Preferred Stock and the
Series C Preferred Stock (and the Series D Preferred Stock), respectively, will
be validly issued, fully paid and non-assessable and not subject to any
preemptive rights except as set forth in the Series B Certificate of Designation
and the Series C Certificate of Designation (and the Series D Certificate of
Designation), respectively, and the Purchaser will have good and marketable
title to the Series C Conversion Shares (and the Series D Conversion Shares),
free and clear of any Encumbrances or preemptive rights. Upon consummation of
the Transaction, the Warrant Shares and the Carlyle Warrant Shares will be duly
authorized and reserved for issuance and, upon exercise of the Warrants or the
Carlyle Warrants, as the case may be, and when issued and paid for in accordance
with the terms of the Warrants or the Carlyle Warrants, as the case may be, will
be validly issued, fully paid and non-assessable and not subject to any
preemptive rights, and the Purchaser will have good and marketable title to the
Warrant Shares, free and clear of any Encumbrances or preemptive rights.
4.4 Authorization.
The Company has full corporate power and authority to execute and
deliver this Agreement, the Carlyle Purchase Agreement and the Ancillary
Agreements and to consummate the Transaction. The execution and delivery by the
Company of this Agreement, the Carlyle Purchase Agreement and the Ancillary
Agreements and the consummation by it of the Transaction, have been duly
authorized by all necessary corporate action of the Company. This Agreement,
the Carlyle Purchase Agreement and each Ancillary Agreement has been duly
executed and delivered by the Company and each constitutes a valid and legally
binding obligation of the Company, enforceable against the Company in accordance
with its terms, except that such enforceability may be limited by (i) applicable
bankruptcy, insolvency, reorganization, moratorium, and similar laws affecting
creditors' rights generally, and (ii) general equitable principles (regardless
of whether such enforceability is considered in a proceeding in equity or at
law). No approval or consent of the Company's stockholders for this Agreement,
the Carlyle Purchase Agreement, the Ancillary Agreements or the consummation of
the Transaction is required.
4.5 Noncontravention.
The execution and delivery by the Company of this Agreement, the
Carlyle Purchase Agreement and the Ancillary Agreements and the consummation by
it of the Transaction do not and will not (i) conflict with or result in a
violation of any provision of the Certificate of
20
<PAGE>
Incorporation or the Amended Bylaws, or the charter, bylaws or other governing
instruments of any Subsidiary, (ii) materially conflict with or result in a
material violation of any provision of, constitute (with or without the giving
of notice or the passage of time or both) a material default under or give rise
(with or without the giving of notice or the passage of time or both) to any
loss of material benefit or of any right of termination, cancellation or
acceleration under, any Material Agreement, (iii) result in the creation or
imposition of any material Encumbrance upon the properties of the Company or any
Subsidiary, or (iv) violate in any material respect any Applicable Law binding
upon the Company or any Subsidiary.
4.6 Consents.
No material consent, approval, order, authorization of or declaration,
filing or registration with any Governmental Entity is required to be obtained
or made by the Company or any Subsidiary in connection with the execution and
delivery by the Company of this Agreement, the Carlyle Purchase Agreement and
the Ancillary Agreements or the consummation of the Transaction, other than
(a) compliance with any applicable requirements of the Securities Act;
(b) compliance with any applicable requirements of the Exchange Act;
(c) compliance with any applicable state securities laws and (d) compliance with
applicable provisions of the HSR Act. Except as set forth on SCHEDULE 4.6, no
material consent or approval of any Person is required to be obtained or made by
the Company or any Subsidiary in connection with the execution and delivery by
the Company of this Agreement, the Carlyle Purchase Agreement and the Ancillary
Agreements or the consummation of the Transaction.
In addition, no consent, approval, order, authorization of or
declaration, filing or registration with any Governmental Entity is required to
be obtained or made by the Company or any Subsidiary that could affect the
validity of the issuance of the Series B Preferred Stock, the Series C Preferred
Stock, the Series D Preferred Stock, the Warrants, the Carlyle Warrants, the
Warrant Shares or the Carlyle Warrant Shares, other than (a) compliance with any
applicable requirements of the Securities Act; (b) compliance with any
applicable requirements of the Exchange Act; (c) compliance with any applicable
state securities laws; and (d) compliance with applicable provisions of the HSR
Act. Except as set forth on SCHEDULE 4.6, no consent or approval of any Person
is required to be obtained or made by the Company or any Subsidiary that could
affect the validity of the issuance of the Series B Preferred Stock, the Series
C Preferred Stock, the Series D Preferred Stock, the Warrants, the Carlyle
Warrants, the Warrant Shares or the Carlyle Warrant Shares.
4.7 Subsidiaries.
(a) Except as otherwise set forth on SCHEDULE 4.7, the Company does
not own, directly or indirectly, more than five percent (5%) of the Capital
Stock or other securities of any Person or have any direct or indirect equity or
ownership interest of more than five percent (5%) in any other Person, other
than its Subsidiaries. SCHEDULE 4.7 lists each Subsidiary as of the date
hereof, its respective jurisdiction of incorporation and the jurisdictions in
which it is qualified to do business, the number of shares, partnership or other
equity interests and the percentage ownership interest held by the Company in
each such Subsidiary. Except as otherwise indicated on SCHEDULE 4.7, no actions
or other Proceedings to dissolve any Subsidiary are pending.
21
<PAGE>
(b) Except as otherwise indicated on SCHEDULE 4.7, all the
outstanding Capital Stock or other equity interests of each Subsidiary is owned
directly or indirectly by the Company, free and clear of all Encumbrances and
restrictions on voting, sale or disposition. All outstanding shares of Capital
Stock of each Subsidiary have been validly issued and are fully paid and
non-assessable. No shares of Capital Stock or other equity interests of any
Subsidiary are subject to, nor have any been issued in violation of, preemptive
or similar rights.
(c) Except for shares of common stock owned by the Company or any
Subsidiary and as set forth on SCHEDULE 4.7, there are outstanding (i) no shares
of Capital Stock or other voting securities of any Subsidiary; (ii) no
securities of any Subsidiary convertible into or exchangeable for shares of
Capital Stock or other voting securities of any Subsidiary; (iii) no
subscriptions, options, warrants, calls, commitments, preemptive rights or other
rights of any kind to acquire Capital Stock or other voting securities from any
Subsidiary, and no obligation of any Subsidiary to issue or sell, any shares of
Capital Stock or other voting securities of any Subsidiary or any securities of
any Subsidiary convertible into or exchangeable for such Capital Stock or voting
securities; and (iv) no equity equivalents, interests in the ownership or
earnings or other similar rights of or with respect to any Subsidiary to
repurchase, redeem or otherwise acquire any shares of Capital Stock or any other
securities of the type described in clauses (i)-(iv) above. No Subsidiary holds
shares of its Capital Stock in its treasury.
4.8 Employee Benefit Plans and Other Agreements.
(a) SCHEDULE 4.8 contains a complete list of Employee Plans. True
and complete copies of each of the following Employee Plan documents have been
delivered or made available by the Company to the Purchaser: (i) each Employee
Plan document (and, if applicable, related trust agreements and all annuity
contracts or other funding instruments) and all amendments thereto, all
reasonably available written descriptions thereof which have been distributed to
the Company's employees and those of its ERISA Affiliates during the last
thirty-six (36) months and a reasonably detailed description of any Employee
Plan which is not in writing,, (ii) the most recent determination or opinion
letter issued by the Internal Revenue Service with respect to each Pension Plan
and each Welfare Plan (other than a Multiemployer Plan), (iii) for the three (3)
most recent plan years, Annual Reports on Form 5500 Series required to be filed
with any governmental agency for each Pension Plan, (iv) a description setting
forth the amount of any liability of the Company as of the Closing Date for
payments more than thirty (30) calendar days past due with respect to each
Welfare Plan.
(b) EMPLOYEE PLANS.
(i) PENSION PLANS.
(A) No Pension Plan is or has been subject to Title IV
of ERISA or Section 412 of the Code.
(B) Each Pension Plan and each related trust
agreement, annuity contract or other funding instrument is qualified
and tax-exempt under the
22
<PAGE>
provisions of Code Sections 401(a) (or 403(a), as appropriate) and
501(a) and has been so qualified during the period from its adoption
to date.
(C) Each Pension Plan and each related trust
agreement, annuity contract or other funding instrument presently
complies and has been maintained in compliance, in all material
respects, with its terms and, both as to form and in operation, with
the requirements prescribed by any and all Applicable Laws, including
without limitation ERISA and the Code.
(ii) MULTIEMPLOYER PLANS.
(A) Neither the Company nor any ERISA Affiliate has,
at any time within the last seventy-two (72) months, maintained,
contributed to or been obligated to maintain or contribute to, or
withdrawn from, a Multiemployer Plan.
(iii) WELFARE PLANS.
(A) Each Welfare Plan presently complies and has been
maintained in compliance, in all material respects, with its terms
and, both as to form and operation, with the requirements prescribed
by any and all statutes, orders, rules and regulations which are
applicable to such Welfare Plan, including, without limitation, ERISA
and the Code.
(B) Except as disclosed on SCHEDULE 4.8, none of the
Company, any ERISA Affiliate or any Welfare Plan has any present or
future obligation to make any payment to, or with respect to any
present or former employee of the Company or any ERISA Affiliate
pursuant to, any retiree medical benefit plan or other retiree Welfare
Plan, and no condition exists which would prevent the Company from
amending or terminating any such benefit plan or Welfare Plan.
(C) Each Welfare Plan which is a "group health plan,"
as defined in Section 607(1) of ERISA, has been operated in compliance
with provisions of Part 6 of Title I, Subtitle B of ERISA and 4980B of
the Code at all times. The Company is not obligated to provide health
care benefits of any kind to its retired or former employees or their
dependents pursuant to any agreement or understanding.
(iv) BENEFIT ARRANGEMENTS. Each Benefit Arrangement has been
maintained in compliance, in all material respects, with its terms and with
the requirements prescribed by any and all statutes, orders, rules and
regulations which are applicable to such Benefit Arrangement, including
without limitation, the Code, and with all plan documents. Except as set
forth in SCHEDULE 4.8 and except as provided by law, the employment of all
persons presently employed or retained by the Company is terminable at
will.
23
<PAGE>
(v) UNRELATED BUSINESS TAXABLE INCOME. No Employee Plan (or
trust or other funding vehicle pursuant thereto) is subject to any Tax
under Section 511 of the Code.
(vi) DEDUCTIBILITY OF PAYMENTS. Except as disclosed in
SCHEDULE 4.8, there is no contract, agreement, plan or arrangement covering
any present or former employee, director or consultant of the Company or
any of its ERISA Affiliates (with respect to his or her relationship with
such entities) that, individually or collectively, provides for the payment
by the Company of any amount (i) that is not deductible under
Section 162(a)(l) or 404 of the Code or (ii) that is an "excess parachute
payment" pursuant to Section 280G of the Code.
(vii) FIDUCIARY DUTIES AND PROHIBITED TRANSACTIONS. Neither
the Company nor any plan fiduciary of any Welfare Plan or Pension Plan has
engaged in any transaction in violation of Sections 404 or 406 of ERISA or
any "prohibited transaction," as defined in Section 4975(c)(1) of the Code,
for which no exemption exists under Section 408 of ERISA or Section
4975(c)(2) or (d) of the Code, or has otherwise violated the provisions of
Part 4 of Title I, Subtitle B of ERISA. The Company has not participated
in a violation of Part 4 of Title I, Subtitle B of ERISA by any plan
fiduciary of any Welfare Plan or Pension Plan. The Company has not been
assessed any civil penalty under Section 502(1) of ERISA.
(viii) VALIDITY AND ENFORCEABILITY. Each Welfare Plan related
trust agreement, annuity contract or other funding instrument is legally
valid, binding, enforceable against the Company and in full force and
effect, except as enforceability may be limited by (i) applicable
bankruptcy, insolvency, reorganization, moratorium, and similar laws
affecting creditors' rights generally, and (ii) general equitable
principles (regardless of whether such enforceability is considered in a
proceeding in equity or at law). .
(ix) LITIGATION. There is no Proceeding relating to or
seeking benefits under any Employee Plan that is pending, or, to the
Knowledge of the Company, threatened against the Company, any ERISA
Affiliate or any Employee Plan other than routine claims for benefits.
(x) NO AMENDMENTS. Except as disclosed in Schedule 4.8,
neither the Company nor any ERISA Affiliate has any announced plan or
legally binding commitment to create any additional Employee Plans which
are intended to cover present or former employees, directors or consultants
of the Company or any of its ERISA Affiliates (with respect to their
relationship with such Persons) or to amend or modify any existing Employee
Plan. Each Employee Plan can be amended or terminated at any time without
approval from any Person, without advance notice and without any liability
other than for benefits accrued prior to such amendments or termination.
(xi) NO OTHER MATERIAL LIABILITY. To the Knowledge of the
Company, no event has occurred in connection with which the Company or any
ERISA Affiliate or
24
<PAGE>
any Employee Plan, directly or indirectly, could be subject to any material
liability (A) under any statute, regulation or governmental order relating
to any Employee Plan or (B) pursuant to any obligation of the Company to
indemnify any person against liability incurred under any such statute,
regulation or order as they relate to the Employee Plans.
(xii) INSURANCE CONTRACTS. Neither the Company nor any
Employee Plan (other than a Multiemployer Plan) holds as an asset of any
Employee Plan any interest in any annuity contract, guaranteed investment
contract or any other investment or insurance contract issued by an
insurance company that is the subject of bankruptcy, conservatorship or
rehabilitation proceedings.
(xiii) NO ACCELERATION OR CREATION OF RIGHTS. Except as
disclosed on Schedule 4.8, neither the execution and delivery of this
Agreement by the Company nor the consummation of all or any portion of the
Transaction will result in the acceleration or creation of any rights of
any person to benefits under any Employee Plan (including, without
limitation, the acceleration of the vesting or exercisability of any stock
options, the acceleration of the vesting of any restricted stock, the
acceleration of the accrual or vesting of any benefits under any Pension
Plan or the acceleration or creation of any rights under any severance,
parachute or change in control agreement).
(c) There are no employment, consulting, change of control, severance
pay, continuation pay, termination pay, loans, guarantees or indemnification
agreements or other similar agreements of any nature whatsoever (collectively,
"Employment Agreements") between the Company, on the one hand, and any current
or former stockholder, officer, director, employee or Affiliate of the Company
or any consultant or agent of the Company, on the other hand, that, as a direct
result of the Transaction, (i) will require any payment by the Company or any
consent or waiver from any stockholder, officer, director, employee or Affiliate
of the Company or any consultant or agent of the Company, or (ii) will result in
any change in the nature of any rights of any stockholder, officer, director,
employee or Affiliate of the Company or any consultant or agent of the Company
under any such Employment Agreement or other similar agreement (including,
without limitation, any accelerated payments, deemed satisfaction of goals or
conditions, new or increased benefits or additional or accelerated vesting).
4.9 Governmental Filings.
(a) Since June 30, 1994, the Company and each of its Subsidiaries
have filed with the Commission all forms, reports, schedules, statements and
other documents required to be filed by them under the Securities Act, the
Exchange Act and all other federal securities laws and the rules and regulations
promulgated thereunder (the "SEC Filings"). Each SEC Filing was prepared in
accordance with, and at the time of filing complied in all material respects
with, the requirements of the Securities Act, the Exchange Act or other
applicable federal securities law and the rules and regulations promulgated
thereunder, as the case may be, except as the same was corrected or superseded
in an amendment to such SEC Filing filed with the Commission. None of the SEC
Filings, including, without limitation, any financial statements or schedules
included therein, at the time filed, contained any untrue statement of a
material fact or omitted to state any material fact required to be stated
therein or necessary in order to make the statements contained
25
<PAGE>
therein, in light of the circumstances under which they were made, not
misleading, except as the same was corrected or superseded in a subsequent
document duly filed with the Commission. The Company has heretofore furnished
or made available to the Purchaser true, correct and complete copies of all SEC
Filings since June 30, 1996.
(b) Since June 30, 1992, all material reports, documents and notices
required to be filed, maintained or furnished to any Governmental Entity (other
than the Commission) by the Company or any Subsidiary have been so filed,
maintained or furnished. All such reports, documents and notices were complete
and correct in all material respects on the date filed (or were corrected in or
superseded by a subsequent filing) such that no Liabilities exist with respect
to such filing.
4.10 Financial Statements and Reports.
(a) The financial statements contained in the SEC Filings
(collectively, the "Financial Statements") have been prepared in accordance with
GAAP applied on a consistent basis throughout the periods indicated and with
each other (except that the Financial Statements may not contain all footnotes
required by GAAP) and fairly present the consolidated financial condition of the
Company and the Subsidiaries and the consolidated results of operations as of
such dates and for such periods indicated. Since April 30, 1997, there has not
been any change to the financial condition of the Company or any Subsidiary as
set forth in the Financial Statements that would have a Material Adverse Effect
on the Company. Except as reflected in the Financial Statements, neither the
Company nor any Subsidiary is a guarantor or indemnitor of any Indebtedness of
any other Person. The Company maintains a standard system of accounting
established and administered in accordance with GAAP. The general ledger,
accounts receivable, accounts payable, bank reconciliations and payroll records
of the Company have been maintained in all material respects in the ordinary
course and contain a materially correct and complete record of the matters
typically contained in records of such nature.
(b) The Company has not received any management letters or other
letters (other than audit letters included in the SEC Filings) from the
Company's independent auditing firm(s) relating to the results of operations,
financial statements or internal controls of the Company or any Subsidiary
insofar as the same may pertain to the business or assets of the Company and any
Subsidiary during any period from and after June 30, 1994.
4.11 Absence of Undisclosed Liabilities: Guarantees.
(a) Except as set forth in the Financial Statements or as set forth
on SCHEDULE 4.11: (i) as of April 30, 1997, neither the Company nor any
Subsidiary had any Liabilities or obligations (whether accrued, absolute,
contingent, unliquidated or otherwise) which are reasonably expected to have,
individually or in the aggregate, a Material Adverse Effect on the Company, and
(ii) since April 30, 1997, the Company and its Subsidiaries, taken as a whole,
have not incurred any such Liabilities or obligations that have had a Material
Adverse Effect on the Company.
26
<PAGE>
(b) Except as set forth on SCHEDULE 4.11, neither the Company nor any
Subsidiary is a party to (i) any Material Agreement relating to the making of
any advance to, or investment in, any Person, or (ii) any Material Agreement
providing for a guarantee or other contingent liability with respect to any
Indebtedness or similar obligation of any Person.
4.12 Absence of Certain Changes.
Since April 30, 1997, except as reflected in the Financial Statements
or the SEC Filings, neither the Company nor any Subsidiary has (i) declared or
paid any dividends, or authorized or made any distribution upon or with respect
to any class or series of its Capital Stock; (ii) made Capital Expenditures or
commitments therefor, other than such Capital Expenditures or commitments made
in the ordinary course consistent with past practice; (iii) made any loans or
advances to any Person exceeding $5,000 individually or $25,000 in the aggregate
(other than advances for business or travel expenses) or guaranteed the
obligations of any Person; (iv) sold, exchanged or otherwise disposed of any of
its assets or rights exceeding $5,000 individually or $25,000 in the aggregate,
other than the sale, exchange or other disposition of its equipment and services
in the ordinary course of business consistent with past practice; (v) incurred
any material change in the assets, Liabilities, financial condition, operating
results or Business of the Company from that reflected in the Financial
Statements, except changes that have not, in the aggregate, had a Material
Adverse Effect on the Company; (vi) suffered any damage, destruction or loss,
whether or not covered by insurance, that had or would have a Material Adverse
Effect on the Company; (vii) waived a right or a debt owed to it exceeding
$1,000 individually or $5,000 in the aggregate, except in the ordinary course of
business consistent with past practice; (viii) satisfied or discharged any
Encumbrance or payment of any obligation, except in the ordinary course of
business consistent with past practice and that has not had and is not
reasonably expected to have a Material Adverse Effect on the Company;
(ix) agreed to or made any material change or amendment to any Material
Agreement, except in the ordinary course of business consistent with past
practice; (x) except as set forth in SCHEDULE 4.12(X), made any material change
in any compensation arrangement or agreement with any employee that would
increase such employees' compensation by more than ten percent (10%);
(xi) permitted or allowed any of its assets to be subjected to any material
Encumbrance, other than Encumbrances on equipment in the ordinary course of
business consistent with past practice; (xii) written up the value of any
inventory, notes or accounts receivable or other assets in any material respect;
(xiii) licensed, sold, transferred, pledged, modified, disclosed, disposed of or
permitted to lapse any right to the use of any Proprietary Rights; (xiv) made
any change in any method of accounting or accounting practice or any change in
depreciation or amortization policies or rates previously adopted; (xv) paid,
lent or advanced any amount to, sold, transferred or leased any assets to or
entered into any material agreement or material arrangement with any of its
Subsidiaries or GE (except for the GE Purchase Agreement, the GE Registration
Rights Agreement, the GE Warrant Agreement and related documents) or entered
into any agreement or arrangement whatsoever with any of its Affiliates other
than its Subsidiaries and GE, except for directors' fees, travel expense
advances and employment compensation to officers; or (xvi) incurred or suffered
any other event or condition of any character that could reasonably be expected
to have a Material Adverse Effect on the Company.
27
<PAGE>
4.13 Compliance With Laws.
(a) The Company and its Subsidiaries are in compliance in all
material respects with all material Applicable Laws. Material Applicable Laws
includes, without limitation, all Applicable Laws relating to health care, the
health care industry and the provision of health care services, third party
reimbursement (including Medicare and Medicaid), public health and safety and
wrongful death and medical malpractice. Neither the Company nor any of its
Subsidiaries has received any notice of, nor does the Company or any of its
Subsidiaries have any Knowledge of, any violation (or of any investigation,
inspection, audit or other proceeding by any Governmental Entity involving
allegations of any violation) of any Applicable Law involving or related to the
Company or any of its Subsidiaries which has not been dismissed or otherwise
disposed of. Except as set forth in SCHEDULE 4.13(A), neither the Company nor
any of its Subsidiaries has received notice or otherwise has any Knowledge that
the Company or any Subsidiary is charged with, threatened with or under
investigation with respect to, any violation of any Applicable Law, or has any
Knowledge of any proposed change in any Applicable Law that would have a
Material Adverse Effect on the Transaction or the Company.
(b) Each of the Company and its Subsidiaries has, and all
professional employees or agents of each of the Company and its Subsidiaries who
are performing health care or health care related functions on behalf of the
Company or any of its Subsidiaries or joint ventures have, all material
licenses, franchises, permits, accreditations, provider numbers, authorizations,
including certificates of need, consents or orders of, or filings with, or other
approvals from all Governmental Entities ("Approvals") necessary for the conduct
of, or relating to the operation of, the business of each of the Company and its
Subsidiaries and the occupancy and operation, for its present uses, of the real
and personal property which each of the Company and its Subsidiaries owns or
leases, and neither the Company nor any Subsidiary or the professional employees
or agents of either (acting in such capacities) is in violation of any such
Approval in any material respect or any terms or conditions thereof. All such
Approvals are in full force and effect, have been issued to and fully paid for
by the holder thereof and no notice or warning from any Governmental Entity with
respect to the suspension, revocation or termination of any Approval has been,
to the Knowledge of the Company, threatened by any Governmental Entity or issued
or given to the Company or any Subsidiary. No such Approvals will in any way be
affected by, terminate or lapse by reason of the consummation of all or any
portion of the Transaction. There are no physicians (other than radiologists
and radiation oncologists) owning Capital Stock in any Subsidiary, and no
physicians own stock in the Company, except for physician ownership of publicly
traded stock of the Company acquired on terms equally available to the public
through trading on the Nasdaq Stock Market, and no physician owns 5% or more of
the outstanding shares of any class of securities issued by the Company.
4.14 Litigation.
Except as set forth on SCHEDULE 4.14 hereto, there is no Proceeding
(by any Governmental Entity or otherwise) of which the Company has received
notice or of which the Company has Knowledge pending against or affecting the
Company, any Subsidiary or the assets, products or business of any of them or,
to the Knowledge of the Company, any basis therefor or threat thereof. Except
as set forth on SCHEDULE 4.14 hereto, neither the Company nor any
28
<PAGE>
Subsidiary is a party or subject to the provisions of any order, writ,
injunction, judgment or decree of any court or other Governmental Entity.
Except as set forth on SCHEDULE 4.14 hereto, there is no Proceeding by the
Company or any Subsidiary currently pending or that the Company or any
Subsidiary currently intends to initiate. There are no Proceedings pending or,
to the Knowledge of the Company, threatened against the Company, any Subsidiary
or any of their respective businesses, assets or products that seek to enjoin,
question the validity of or rescind the Transaction, the Carlyle Purchase
Agreement, the Ancillary Agreements or otherwise prevent the Company from
complying with the terms and provisions of this Agreement, the Carlyle Purchase
Agreement, the Ancillary Agreements or any of such other agreements. Any and
all Liabilities of the Company and its Subsidiaries under such Proceedings that
are probable and subject to reasonable estimation within the meaning of GAAP are
adequately covered (except for standard deductible amounts) by the existing
insurance maintained by the Company or estimates in accordance with GAAP for the
uninsured costs thereof are reflected in the Financial Statements. No holder of
shares of the Capital Stock of American Health Services Corp. or Maxum Health
Corp. (constituent corporations in the mergers contemplated by the Merger
Agreement) that either were outstanding immediately prior to such mergers made a
demand for the appraisal of such holder's shares pursuant to Section 262 of the
Delaware General Corporation Law.
4.15 True and Complete Disclosure.
Taken as a whole, this Agreement, the Carlyle Purchase Agreement, the
Ancillary Agreements, the Exhibits, Schedules, statements and certifications
made or delivered in connection herewith or therewith, do not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements herein or therein not misleading. All financial projections
reflected in the 1998 budget provided by the Company to the Purchaser were
prepared in good faith on the basis of assumptions believed to be reasonable at
the time such projections were prepared.
4.16 Taxes.
(a) All Company Tax Returns have been properly and timely filed and
all such Tax Returns are correct and complete in all material respects. Each
affiliated group with which any of the Company and its Subsidiaries files a
consolidated or combined Tax Return has filed all such Tax Returns that it was
required to file for each taxable period during which any of the Company and its
Subsidiaries was a member of the group. All such consolidated and combined Tax
Returns were correct and complete in all material respects.
(b) All material Taxes due and payable by the Company and/or its
Subsidiaries (whether or not shown on any Tax Return) have been timely paid in
full. All material Taxes owed by any affiliated group with which any of the
Company and its Subsidiaries files a consolidated or combined Tax Return
(whether or not shown on any Tax Return) have been paid for each taxable period
during which any of the Company and the Subsidiaries was a member of the group.
(c) There is no (nor is there any pending request for an) agreement,
waiver or consent providing for an extension of time with respect to the
assessment or collection of, or statute of limitations regarding, any Taxes or
the filing of any Tax Returns that is currently in
29
<PAGE>
effect and no power of attorney granted by or with respect to the Company or any
Subsidiary with respect to any Tax matter is currently in force.
(d) To the Knowledge of the Company, there is no pending audit,
examination or investigation with respect to any Company Tax Returns, nor to the
Knowledge of the Company, is there pending any notice of the initiation thereof;
there is no Proceeding, claim, demand, deficiency or additional assessment
pending or threatened with respect to any Company Tax Returns.
(e) To the Knowledge of the Company and its Subsidiaries, the Company
and its Subsidiaries have withheld all Taxes required to have been withheld and
paid by them on their behalf in connection with amounts paid or owing to any
employee, independent contractor, creditor, stockholder or other related or
unrelated third party, and such withheld Taxes have either been duly paid to the
proper Governmental Entity or set aside in accounts for such purpose.
(f) None of the Company and its Subsidiaries (i) has been a member of
any affiliated group filing a consolidated federal income Tax Return (other than
a group the common parent of which is the Company) or (ii) has any liability for
the Taxes of any Person (other than the Company and its Subsidiaries) under
Treas. Reg. Section 1.1502-6 (or any similar provision of state, local or
foreign law), as a transferee or successor, by contract or otherwise.
(g) The charges, accruals and reserves for Taxes (including deferred
Taxes) currently reflected on the Financial Statements in accordance with GAAP
are adequate to cover all unpaid Taxes accruing or payable by the Company and
its Subsidiaries in respect of taxable periods that end on or before the Closing
Date and for any taxable periods that begin before the Closing Date and end
thereafter to the extent such Taxes are attributable to the portion of such
period ending on the Closing Date.
(h) Neither the Company nor any Subsidiary has agreed, requested or
been requested to make, or is required to make, any adjustment to taxable income
for any taxable period after the Closing under Sections 481(a) or 263A of the
Code or any comparable provision of state or foreign tax laws by reasons of a
change in accounting method or otherwise.
(i) There are no Encumbrances (other than Permitted Encumbrances) on
any asset or property of the Company or any Subsidiary arising out of, connected
with or related to any Tax imposed on the Company, its Subsidiaries or any of
their businesses or properties.
(j) The Company is not a party to, is not bound by and has no
obligation (or potential obligation) under any Tax sharing or allocation
agreement.
(k) Neither the Company nor any Subsidiary is a party to any
agreement with an Affiliate relating to a foreign sales corporation (or "FSC")
within the meaning of Section 922 of the Code; or a domestic international sales
corporation (or "DISC") within the meaning of Section 992 of the Code.
(l) Other than the elections made in the Tax Returns provided to or
made available to the Purchaser, no agreement, consent or election for foreign,
federal, state or local tax
30
<PAGE>
purposes that would affect or be binding on the Company or any Subsidiary after
the Closing has been filed or entered into by the Company or any Subsidiary. No
consent has been filed with respect to the Company or any Subsidiary under
Section 341(f) of the Code.
(m) SCHEDULE 4.16 lists all federal, state, local and foreign Tax
Returns that have been audited, and indicates those Tax Returns that currently
are the subject of audit, other than (i) Tax Returns relating to closed years,
and (ii) Tax Returns that have been audited where such audit did not result in
any change in any tax due from the Company or any Subsidiary to any Governmental
Entity. Correct and complete copies of all federal Tax Returns, examination
reports and statements of deficiencies assessed against or agreed to by the
Company or any of its Subsidiaries since June 30, 1996 have been delivered or
made available to the Purchaser. Each of the Company and its Subsidiaries has
disclosed on its federal income Tax Returns all positions taken therein that
could reasonably be expected to give rise to a substantial understatement of
federal income Tax within the meaning of Section 6662 of the Code.
4.17 Environmental Matters.
(a) For purposes of this Section 4.17, the term "Company" shall
include (i) the Company, (ii) any Affiliates of the Company other than the
Purchaser, (iii) the Business, (iv) all partnerships, joint ventures and other
entities or organizations in which the Company or the Business was at any time
or is a partner, joint venturer, member or participant, and (v) all predecessor
or former corporations, partnerships, joint ventures, organizations, businesses
or other entities, whether in existence as of the date hereof or at any time
prior to the date hereof, the assets or obligations of which have been acquired
or assumed by the Company or the Business or to which the Company or the
Business has succeeded.
(b) The Company and its Subsidiaries: (i) are, and within the period
of all applicable statutes of limitation have been, in compliance in all
material respects with all applicable Environmental Laws PROVIDED, that the
representation and warranty contained in this clause (i) is limited to the
Knowledge of the Company to the extent (but only to the extent) that it directly
applies to real property that the Company has purchased or has leased from
another Person in a transaction other than the acquisition of such Person
(whether by merger or consolidation, stock purchase or exchange, acquisition of
all or substantially all of the assets of such Person or a similar fundamental
transaction); (ii) hold all Environmental Permits (each of which is in full
force and effect) required for any of their current or intended operations or
for any property owned, leased or otherwise operated by any of them; (iii) are,
and within the period of all applicable statutes of limitation have been, in
compliance with all of their Environmental Permits; and (iv) reasonably believe
that each of their Environmental Permits currently in effect will be renewed
effective prior to the expiration of such Environmental Permit.
(c) Except as set forth on SCHEDULE 4.17, the Company and its
Subsidiaries have not received any notice of alleged, actual or potential
responsibility for, or any inquiry or investigation regarding, any Environmental
Condition. The Company has not received any notice of any other claim, demand
or action by any individual or entity alleging any actual or threatened injury
or damage to any person, property, natural resource or the environment arising
from or relating to any Release or threatened Release of any Hazardous Materials
at, on, under, in, to or
31
<PAGE>
from any Facility or any former Facilities, or in connection with any operations
or activities of the Company or any of its Subsidiaries.
(d) Except as disclosed in SCHEDULE 4.17 or with respect to such
matters as have been fully and finally resolved and as to which there are to the
Knowledge of the Company, no remaining obligations, neither the Company nor any
of its Subsidiaries has entered into or agreed to or is subject to any consent
decree, order or settlement or other agreement in any judicial, administrative,
arbitral or other similar forum relating to compliance with or Liability under
any Environmental Law.
(e) Except as disclosed in SCHEDULE 4.17, Hazardous Materials have
not been transported, disposed of, emitted, discharged or otherwise Released or
threatened to be Released to or at any real property presently or formerly owned
or leased by the Company or any of its Subsidiaries, which Hazardous Materials
are reasonably expected to (i) give rise to Liability of the Company or any
Subsidiary under any applicable Environmental Law, (ii) interfere with the
Company's or any Subsidiary's continued operations or (iii) materially impair
the fair salable value of any real property owned or leased by the Company or
any Subsidiary.
(f) Except as disclosed in SCHEDULE 4.17, neither the Company nor any
of its Subsidiaries has assumed or retained, by contract or, to the Knowledge of
the Company, by operation of law in connection with the sale or transfer of any
assets or business, Liabilities arising from or associated with or otherwise in
connection with such assets or business of any kind, fixed or contingent, known
or not known, under any applicable Environmental Law. Neither the Company nor
any of its Subsidiaries, to the Knowledge of the Company, is required to make
any capital or other expenditures to comply with any Environmental Law nor to
the Knowledge of the Company is there any reasonable basis on which any
Governmental Entity could take any action that would require any such capital
expenditures.
(g) True, complete and correct copies of the written reports, and all
parts thereof, of all environmental audits or assessments which have been
conducted in respect of any Facility or any former Facility within the past five
(5) years, either by the Company or any attorney, environmental consultant or
engineer or other Person engaged by the Company or any of its Subsidiaries for
such purpose, have been delivered to the Purchaser and a list of all such
reports, audits and assessments and any other similar report, audit or
assessment of which the Company has Knowledge is included on SCHEDULE 4.17.
4.18 Insurance.
Each insurance policy held by or for the benefit of the Company or any
of its Subsidiaries is in full force and effect. Each of the Company and its
Subsidiaries carries, and will continue to carry, insurance with reputable
insurers (except as to self-insurance) with respect to such of their respective
properties and businesses, in such amounts and against such risks as is
customarily maintained by other entities of similar size engaged in similar
businesses (which may include self-insurance in amounts customarily maintained
by companies similarly situated or has been maintained in the past by the
Company and its Subsidiaries). None of such insurance was obtained through the
use of materially false or misleading information or the failure to provide the
32
<PAGE>
insurer with all material information requested in order to evaluate the
liabilities and risks insured. Neither the Company nor any of its Subsidiaries
has received any notice of cancellation or non-renewal of any insurance policies
or binders.
4.19 Real Property and Leaseholds.
(a) To the Knowledge of the Company, each lease agreement and
mortgage to which the Company or any Subsidiary is a party is in full force and
effect in accordance with its terms.
(b) With respect to each parcel of real property owned or leased by
the Company or any of its Subsidiaries:
(i) The Company or the relevant Subsidiary, as the case may
be, has good and valid title to and/or a valid and subsisting leasehold
interest in each item of real property and leasehold, as appropriate, free
and clear of all mortgages, liens, Encumbrances (except Permitted
Encumbrances), leases, equities, claims, charges, easements, rights-of-way,
covenants, conditions and restrictions, except for liens, if any, for
property taxes not due;
(ii) No officer, director or employee of the Company, of any
Subsidiary or of any Affiliate of the Company, nor any Subsidiary or
Affiliate of the Company, owns directly or indirectly in whole or in part,
any of such real properties or leaseholds;
(iii) Neither the Company nor any Subsidiary is in default with
respect to any material term or condition of any such mortgage or lease,
nor has any event occurred which, through the passage of time or the giving
of notice or both, would constitute a default thereunder by the Company or
any Subsidiary or would cause the acceleration of any obligation of the
Company or any Subsidiary or the creation of a lien or encumbrance upon any
asset of the Company or any Subsidiary;
(iv) All of the buildings, fixtures and other improvements
described in SCHEDULE 4.19 are in reasonably good operating condition, have
been maintained in accordance with reasonable industry practices and are
adequate to conduct the business of the Company and its Subsidiaries, as
the case may be, as presently conducted; and
(v) Neither the Company nor any Subsidiary has received any
notice or otherwise has Knowledge that the Company or any such Subsidiary,
as the case may be, is in violation of any applicable building code, zoning
ordinance or other law or regulation.
4.20 Tangible Assets.
(a) The Company and its Subsidiaries have good and valid title to or
valid and subsisting leasehold interests in all Fixtures and Equipment having
original cost or fair market value in excess of Five Thousand Dollars ($5,000),
including all such Fixtures and Equipment reflected in the Company's most recent
balance sheet included in the Financial Statements and all such Fixtures and
Equipment purchased or otherwise acquired by the Company or any Subsidiary
33
<PAGE>
since the date of such Balance Sheet. Except as set forth on SCHEDULE 4.20,
none of such Fixtures and Equipment is subject to any Encumbrance except for
Permitted Encumbrances and Encumbrances which, individually or in the aggregate,
are not substantial in amount and do not materially detract from the value of
the property or assets of the Company and its Subsidiaries taken as a whole or
interfere with the present use of such property or assets (taken as a whole).
The Company and each Subsidiary has in all material respects performed all the
obligations required to be performed by it with respect to all such Fixtures and
Equipment leased by it through the date hereof, except where the failure to
perform would not have a Material Adverse Effect on the Company and its
Subsidiaries, taken as a whole. All such leases are valid, binding and
enforceable with respect to the Company and its Subsidiaries in accordance with
their terms and are in full force and effect. No default has occurred
thereunder on the part of the Company, any Subsidiary or, to the Knowledge of
the Company, any other party which default would be reasonably likely to have a
Material Adverse Effect on the Company.
(b) The buildings and Fixtures and Equipment of the Company and its
Subsidiaries are in reasonably good operating condition and repair (except for
ordinary wear and tear), with no material defects, are sufficient for the
operation of the business of the Company and its Subsidiaries as presently
conducted and are in conformity, in all material respects, with all Applicable
Laws relating thereto currently in effect, except where the failure to conform
would not have a Material Adverse Effect on the Company.
4.21 Contracts and Commitments.
(a) SCHEDULE 4.21 contains a correct and complete list of all
agreements, contracts, Indebtedness, Liabilities and other obligations to which
the Company or any Subsidiary is a party or by which it is bound that are
material to the conduct and operations of its business and properties, which
provide for payments to or by the Company or any Subsidiary in excess of Five
Hundred Thousand Dollars ($500,000) annually, which obligate the Company or any
Subsidiary to share, license or develop any product or technology or which
involve transactions or proposed transactions between the Company and any
Subsidiary, on the one hand, and any officer, director or Affiliate or
Subsidiary, on the other hand (collectively, the "Material Agreements").
(b) The Company and its Subsidiaries have in all material respects
performed, and are now performing in all material respects, the obligations
under, and are not in default (or by the lapse of time and/or the giving of
notice or otherwise be in default) in respect of, any of the Material
Agreements. Each of the Material Agreements is in full force and effect and is
a valid and enforceable obligation against the Company or a Subsidiary, as
applicable, and, to the Company's Knowledge, the other party or parties thereto,
in accordance with its terms.
(c) "Current Customer" means any Person from whom the Company or any
Subsidiary has recognized revenue since June 1, 1997 or to whom the Company or
any Subsidiary has any obligation to complete work or honor any contractual
warranty or has any obligation or Liabilities. Since June 1, 1997, no Current
Customer with respect to a Center Operation has canceled or terminated any
Material Agreement or notified the Company or any Subsidiary in writing or
orally of its intent to cancel or terminate its contract, and no Current
Customer with
34
<PAGE>
respect to a Mobile Operation has canceled or terminated any Material Agreement
or notified the Company or any Subsidiary in writing or orally of its intent to
cancel or terminate its contract, except any such cancellations, terminations or
notifications from Current Customers with respect to Mobile Operations that in
the aggregate could not have a Material Adverse Effect (taking into account
revenue generated from replacement customers) on the Company.
4.22 Books and Records.
The Company has made and kept (and given the Purchaser access to)
books and records and accounts, which, in reasonable detail, accurately and
fairly reflect the activities of the Company and its Subsidiaries, taken as a
whole. The minute books of the Company and each such Subsidiary previously made
available to the Purchaser accurately and adequately reflect all action
previously taken by the stockholders, the Board of Directors and committees of
the Board of Directors and each of its Subsidiaries.
4.23 Labor Matters.
(a) Since June 30, 1992, neither the Company nor any Subsidiary has
or has ever had any employees represented by collective bargaining agreements.
The Company and its Subsidiaries are in compliance in all material respects with
all material Applicable Laws respecting employment practices, terms and
conditions of employment and wages and hours and are not engaged in any unfair
labor practice. There is no unfair labor practice charge or complaint against
the Company or any Subsidiary pending before the National Labor Relations Board
or any other governmental agency arising out of the activities of the Company or
any of its Subsidiaries of which the Company has received notice or of which the
Company has Knowledge, and the Company has no Knowledge of any facts or
information which would give rise thereto. There is no labor strike or labor
disturbance pending or, to the Knowledge of the Company, threatened against the
Company or any of its Subsidiaries. There is no grievance currently being
asserted and neither the Company nor any Subsidiary has experienced since
June 30, 1994 a work stoppage or other labor difficulty which grievance, work
stoppage or other labor difficulty is reasonably likely to have a Material
Adverse Effect on the Company. No collective bargaining representation petition
is pending or, to the Knowledge of the Company, threatened against the Company
or any Subsidiary.
(b) SCHEDULE 4.23 lists those employees of the Company that prior to
the Closing Date had written employment agreements with the Company in effect.
4.24 Payments.
Neither the Company nor any of its Subsidiaries has, directly or
indirectly, paid or delivered any fee, commission or other sum of money or item
of property, however characterized, to any finder, agent, government official or
other party, in the United States or any other country, which is in any manner
related to the business or operations of the Company or its Subsidiaries and
which the Company or any of its Subsidiaries knows or has reason to believe to
have been illegal under any federal, state or local laws of the United States
(including, without limitation the U.S. Foreign Corrupt Practices Act) or any
other country having jurisdiction. Neither the
35
<PAGE>
Company nor any of its Subsidiaries has participated, directly or indirectly, in
any boycotts or other similar practices affecting any of its actual or potential
customers
4.25 Intellectual Property.
(a) The Company and its Subsidiaries either own or have valid
licenses or other rights to use all patents, copyrights, trademarks, service
marks, software, databases, data and other technical information used in their
businesses as presently conducted ("Proprietary Rights"), subject to the
limitations contained in the agreements governing the use of the same. SCHEDULE
4.25 sets forth all such Proprietary Rights owned by, used by or licensed to the
Company or any Subsidiary. There are no limitations contained in such
agreements of the type described in the immediately preceding sentence which,
upon consummation of all or any portion of the Transaction, will materially
alter or materially impair any such rights, breach any such material agreement
with any third party vendor or require payments of additional sums thereunder.
The Company and its Subsidiaries are in compliance in all material respects with
such licenses and agreements. Except as set forth on SCHEDULE 4.25, there are
no pending or, to the Knowledge of the Company, threatened Proceedings
challenging or questioning the validity or effectiveness of any license or
agreement relating to such property or the right of the Company or any
Subsidiary to use, copy, modify or distribute the same.
(b) No person has a right, other than those set forth on SCHEDULE
4.25, to receive a royalty or similar payment in respect of any material
Proprietary Rights whether or not pursuant to any contractual arrangements
entered into by the Company or its Subsidiaries.
4.26 Securities Offerings.
(a) Except as set forth on SCHEDULE 4.26, since the consummation of
the merger pursuant to the Merger Agreement, the Company has not sold any
securities other than securities registered pursuant to the Securities Act.
(b) Neither the Company nor any affiliate (as defined in Rule 501(b)
of Regulation D under the Securities Act ("Regulation D")) of the Company has,
directly or through any agent (provided that no representation is made as to the
Purchaser or any person acting on their behalf), (i) sold, offered for sale,
solicited offers to buy or otherwise negotiated in respect of any security (as
defined in the Securities Act) that is or will be integrated with the offering
and sale of the Securities in a manner that would require the registration of
the Securities under the Securities Act or (ii) engaged in any form of general
solicitation or general advertising (within the meaning of Regulation D) in
connection with the offering of the Securities.
(c) Except as provided in Schedule 4.26(c) neither the Company nor
any Subsidiary is a party to any agreement or commitment that obligates the
Company to register under the Securities Act any of its presently outstanding
securities or any of its securities that hereafter may be issued, except as
contemplated hereby and by the Registration Rights Agreement.
36
<PAGE>
4.27 No Other Agreements to Sell the Assets or the Company.
Except as contemplated by this Agreement, none of the Company or any
of its Subsidiaries have any legal obligation, absolute or contingent, to any
other person or firm to sell the Capital Stock, material assets or the business
of the Company or any Subsidiary or to effect any merger, consolidation,
liquidation, dissolution, recapitalization or other reorganization of the
Company or any Subsidiary or to enter into any agreement with respect thereto.
4.28 No Brokers.
Except for Shattuck Hammond Partners Inc., the aggregate fees of which
are Five Hundred Thousand Dollars ($500,000) in connection with the Transaction,
all of which shall be paid by the Company, neither the Company nor any
Subsidiary has employed, nor is any of them subject to the known claim of, any
broker, finder, consultant or other intermediary in connection with all or any
portion of the Transaction (or the negotiations looking toward the consummation
of all or any portion of the Transaction) who might be entitled to a fee or
commission from the Company in connection with all or any portion of the
Transaction (or the negotiations looking toward the consummation of all or any
portion of the Transaction).
4.29 Accounts and Notes Receivable.
None of the accounts, notes and other receivables owed to the Company
or any Subsidiary as of the date hereof is pledged to any third party. The
reserve for doubtful accounts shown on the Company's most recent balance sheet
included in the Financial Statements is in accordance with GAAP.
4.30 Indebtedness.
SCHEDULE 4.30 sets forth a true and complete list of all Indebtedness
of the Company or any Subsidiary for borrowed money as of September 30, 1997.
4.31 Transactions with Affiliates.
Except as set forth in SCHEDULE 4.31 and except for regular salary
payments and fringe benefits under an individual's compensation package with the
Company or any Subsidiary, none of the officers, employees, directors or other
Affiliates of the Company or any Subsidiary or members of their families is a
party to any agreement, understanding, Indebtedness or proposed transaction with
the Company or any Subsidiary or is directly interested in any Material
Agreement with the Company or any Subsidiary. Neither the Company nor any
Subsidiary has guaranteed or assumed any obligations of their respective
officers, directors, employees or other Affiliates or members of any of their
families. To the Company's Knowledge, none of such Persons has any direct or
indirect ownership interest in any Affiliate or Subsidiary, with any Person with
which the Company or any Subsidiary has a business relationship or with any
Person that competes with the Company or any Subsidiary, other than an interest
of less than five percent (5%) ownership in any publicly traded company that may
compete with the Company or any Subsidiary. For purposes of this Section 4.31,
the term "Affiliates" shall not include the Purchaser.
37
<PAGE>
4.32 No Research Grants
Neither the Company nor any of its Subsidiaries since inception has
provided any research, educational or study grants of any kind to any hospital,
physician or health care provider.
4.33 Certain Regulatory Matters.
Neither the Company nor any of its Subsidiaries since inception has
received notice that the Company or any Subsidiary has been, or to the Company's
Knowledge has been, the subject of any investigative proceeding before any
federal or state regulatory authority or the agent of any such authority,
including, without limitation, federal and state health authorities.
4.34 Certain Additional Regulatory Matters.
Neither the Company nor any Subsidiary, nor the officers, directors or
managing employees, as that term is defined in 42 C.F.R. Section
1001.1001(a)(1), nor to the Knowledge of the Company or any Subsidiary, the
other employees or agents of any of the Company or any Subsidiary have engaged
in any activities which are prohibited under criminal law, or are cause for
civil penalties or mandatory or permissive exclusion from Medicare or Medicaid,
or any other State Health Care Program or Federal Health Care Program (as
defined in Section 4.35 below) under Sections 1320a-7, 1320a-7a, 1320a-7b or
1395nn of Title 42 of the United States Code, the federal Civilian Health and
Medical Plan of the Uniformed Services statute ("CHAMPUS"), or the regulations
promulgated pursuant to such statutes or regulations or related state or local
statutes or which are prohibited by any private accrediting organization from
which the Company or any of its Subsidiaries seeks accreditation or by generally
recognized professional standards of care or conduct, including, but not limited
to, the following activities:
(a) Knowingly and willfully making or causing to be made a false
statement or representation of a material fact in any application for any
benefit or payment;
(b) Knowingly and willfully making or causing to be made any false
statement or representation of a material fact for use in determining rights to
any benefit or payment;
(c) Presenting or causing to be presented a claim for reimbursement
under CHAMPUS, Medicare, Medicaid or any other State Health Care Program or
Federal Health Care Program that is (i) for an item or service that the Person
presenting or causing to be presented knows or should know was not provided as
claimed, or (ii) for an item or service that the Person presenting knows or
should know that the claim is false or fraudulent;
(d) Knowingly and willfully offering, paying, soliciting or receiving
any remuneration (including any kickback, bribe or rebate), directly or
indirectly, overtly or covertly, in cash or in kind (i) in return for referring,
or to induce the referral of, an individual to a Person for the furnishing or
arranging for the furnishing of any item or service for which payment may be
made in whole or in part by CHAMPUS, Medicare or Medicaid or any other State
Health Care Program or any Federal Health Care Program, or (ii) in return for,
or to induce the purchase, lease or order or the arranging for or recommending
of the purchase, lease or order of, any good,
38
<PAGE>
facility, service or item for which payment may be made in whole or in party by
CHAMPUS, Medicare or Medicaid or any other State Health Care Program or any
Federal Health Care Program; or
(e) Knowingly and willfully making or causing to be made or inducing
or seeking to induce the making of any false statement or representation (or
omitting to state a material fact required to be stated therein or necessary to
make the statements contained therein not misleading) or a material fact with
respect to (i) the conditions or operations of a facility in order that the
facility may qualify for CHAMPUS, Medicare, Medicaid or any other State Health
Care Program certification or any Federal Health Care Program certification, or
(ii) information required to be provided under Section 1124(A) of the Social
Security Act ("SSA") (42 U.S.C. Section 1320a-3).
4.35 Medicare/Medicaid Participation.
Neither (a) the Company nor any other Person who after the Closing
will have a direct or indirect ownership interest of 5% or more (as those terms
are defined in 42 C.F.R. Section 1001.1001(a)(2)) in the Company or any
Subsidiary, or who will have an ownership or control interest (as defined in SSA
Section 1124(a)(3) or any regulations promulgated thereunder) in the Company or
any Subsidiary, or who will be an officer, director or managing employee (as
defined in 42 C.F.R. Section 1001.1001(a)(1)) of the Company or any Subsidiary,
or, to the Knowledge of the Company and any Subsidiary, any other employee or
agent thereof, nor (b) any Person with any relationship with such entity
(including, without limitation, a parent company of or partner in a Subsidiary)
who after the Closing will have an indirect ownership interest of 5% or more (as
that term is defined in 42 C.F.R. Section 1001.1001(a)(2)) in the Company or any
Subsidiary: (i) has had a civil monetary penalty assessed against it under
Section 1128A of the SSA or any regulations promulgated thereunder; (ii) has
been excluded from participation under Medicare, Medicaid or a state health care
program as defined in SSA Section 1128(h) or any regulations promulgated
thereunder ("State Health Care Program") or a federal health care program as
defined in SSA Section 1128B(f) ("Federal Health Care Program"); or (iii) has
been convicted (as that term is defined in 42 C.F.R. Section 1001.2) of any of
the following categories of offenses as described in SSA Section 1128(a) and
(b)(1), (2), (3) or any regulations promulgated thereunder:
(A) Criminal offenses relating to the delivery of an
item or service under Medicare, Medicaid or any other State Health Care
Program or Federal Health Care Program;
(B) Criminal offenses under federal or state law
relating to patient neglect or abuse in connection with the delivery of a
health care item or service;
(C) Criminal offenses under federal or state law
relating to fraud, theft, embezzlement, breach of fiduciary responsibility
or other financial misconduct in connection with the delivery of a health
care item or service or with respect to any act or omission in a program
operated by or financed in whole or in part by any federal, state or local
governmental agency;
39
<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.
4.36 Compliance with Medicare/Medicaid and Insurance Programs
(a) The Company and its subsidiaries are eligible to receive payments
with respect to operations of their respective business under Title XVIII of the
SSA and under Title XIX of the SSA. The Company and its Subsidiaries have
timely filed (except where the failure to timely file would not reasonably be
expected to have a Material Adverse Effect on the Company) all claims and
reports required to be filed with respect to the operations of their respective
businesses in connection with all state Medicaid and federal Medicare programs,
which claims and reports are complete and correct. The failure to timely file a
medical claim or report resulting only in a late payment will not for these
purposes be deemed adverse to the Company or its Subsidiaries. There are no
actions, appeals or investigations pending or, to the best of the Company's and
its Subsidiaries' Knowledge, threatened before any entity, commission, board or
agency, including an intermediary or carrier or the administrator of the Health
Care Financing Administration, with respect to any Medicare or Medicaid claims
or reports filed by the Company or its Subsidiaries with respect to the
operations of their respective businesses on or before the date hereof or
program compliance matters, which would reasonably be expected to have a
Material Adverse Effect on the Company.
(b) Other than regularly scheduled audits and reviews, no validation
review, peer review or program integrity review related to the operations of the
Company or its Subsidiaries' respective businesses has been conducted by any
entity, commission, board or agency in connection with the Medicare or Medicaid
program, and to the best of the Company's and its Subsidiaries' Knowledge, no
such reviews are scheduled, pending or threatened against or affecting such
businesses.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
The Purchaser hereby represents and warrants to the Company, with
respect to itself only, as follows:
5.1 Organization of the Purchaser.
The Purchaser is duly formed and validly existing and in good standing
under the laws of its jurisdiction of formation and has full power and authority
to carry on its business as currently being conducted.
40
<PAGE>
5.2 Authorization.
The Purchaser has full power and authority to execute and deliver this
Agreement and the Ancillary Agreements and to consummate the Transaction. The
execution and delivery by the Purchaser of this Agreement and the Ancillary
Agreements and the consummation by it of the Transaction have been duly
authorized by all necessary action of the Purchaser. This Agreement and each
Ancillary Agreement has been duly executed and delivered by the Purchaser and
constitutes a valid and legally binding obligation of the Purchaser, enforceable
against the Purchaser in accordance with its terms, except that such
enforceability may be limited by (i) applicable bankruptcy, insolvency,
reorganization, moratorium and similar laws affecting creditors' rights
generally and (ii) general equitable principles (regardless of whether such
enforceability is considered in a proceeding in equity or at law).
5.3 Noncontravention.
The execution and delivery by the Purchaser of this Agreement and the
Ancillary Agreements and the consummation by it of the Transaction do not and
will not (i) conflict with or result in a violation of any provision of the
operating agreement or any other governing agreement of the Purchaser,
(ii) conflict with or result in a violation of any provision of, constitute
(with or without the giving of notice or the passage of time or both) a default
under or give rise (with or without the giving of notice or the passage of time
or both) to any right of termination, cancellation, or acceleration under any
bond, debenture, note, mortgage, indenture, lease, agreement or other instrument
or obligation to which the Purchaser is a party or by which the Purchaser or any
of its properties may be bound, (iii) result in the creation or imposition of
any Encumbrance upon the properties of the Purchaser, or (iv) violate any
Applicable Law binding upon the Purchaser, except, in the case of clauses (ii),
(iii) and (iv) above, for any such conflicts, violations, defaults,
terminations, cancellations, accelerations or Encumbrances which would not,
individually or in the aggregate, have a material adverse effect on the ability
of the Purchaser to consummate the Transaction.
5.4 Consents and Appeals.
No consent, approval, order or authorization of or declaration, filing
or registration with any Governmental Entity is required to be obtained or made
by the Purchaser in connection with the execution and delivery by the Purchaser
of this Agreement and the Ancillary Agreements or the consummation of the
Transaction other than (i) any filings required under Section 13 of the Exchange
Act and Rule 13d-1 under the Exchange Act (ii) compliance with applicable
provisions of the HSR Act, as amended and (iii) such consents, approvals, orders
or authorization which, if not made, would not, individually or in the
aggregate, have a material adverse effect on the ability of the Purchaser to
consummate the Transaction.
5.5 Purchase for Investment.
(a) The Purchaser has been furnished with all information that it has
requested for the purpose of evaluating the proposed acquisition of the
Securities pursuant hereto, and the Purchaser has had an opportunity to ask
questions of and receive answers from the Company
41
<PAGE>
regarding the Company and its Business, assets, results of operations, financial
condition and prospects and the terms and conditions of the issuance of the
Securities.
(b) The Purchaser is acquiring the Securities solely by and for its
own account, for investment purposes only and not for the purpose of resale or
distribution. The Purchaser has no contract, undertaking, agreement or
arrangement with any Person to sell, transfer or pledge to such Person or anyone
else any Securities and the Purchaser has no present plans or intentions to
enter into any such contract, undertaking or arrangement, except for a possible
transfer or transfers to Affiliates.
(c) The Purchaser acknowledges and understands that (i) no
registration statement relating to the Securities, the Series C Conversion
Shares or the Warrant Shares has been or is to be filed with the Commission
under the Securities Act or pursuant to the securities laws of any state;
(ii) the Securities, the Series C Conversion Shares, the Series D Preferred
Stock, the Series D Conversion Shares and the Warrant Shares cannot be sold or
transferred without compliance with the registration provisions of the
Securities Act or compliance with exemptions, if any, available thereunder and
without the delivery to the Company by reputable counsel of such counsel's
opinion, in form and substance reasonably satisfactory to the Company, to the
effect that such sale or transfer is exempt from such registration provisions;
(iii) the certificates representing the respective Securities will include a
legend thereon that refers to the foregoing; and (iv) the Company has no
obligation or intention to register the Securities, the Series C Conversion
Shares, the Series D Preferred Stock, the Series D Conversion Shares or the
Warrant Shares under any federal or state securities act or law, except to the
extent, in each case, that the terms of the Registration Rights Agreement shall
otherwise provide.
(d) The Purchaser (i) is an "accredited investor" as defined in Rule
501 of Regulation D under the Securities Act; (ii) has such knowledge and
experience in financial and business matters in general that it has the capacity
to evaluate the merits and risks of an investment in the Securities and to
protect its own interest in connection with an investment in the Securities;
(iii) has such a financial condition that it has no need for liquidity with
respect to its investment in the Securities to satisfy any existing or
contemplated undertaking, obligation or Indebtedness; and (iv) is able to bear
the economic risk of its investment in the Securities for an indefinite period
of time.
5.6 No Brokers.
The Purchaser has not employed, and is not subject to the known claim
of, any broker, finder, consultant or other intermediary in connection with all
or any portion of the Transaction (or the negotiations looking toward the
consummation of all or any portion of the Transaction) who might be entitled to
a fee or commission in connection with all or any portion of the Transaction (or
the negotiations looking toward the consummation of all or any portion of the
Transaction).
42
<PAGE>
5.7 No Agreements.
Such Person has not entered into any agreement or arrangement with
respect to the disposition or voting of or exercise of any other rights with
respect to any Capital Stock of the Company with any Person who is not an
Affiliate of such Person (which shall in no event include Carlyle).
ARTICLE VI
COVENANTS
6.1 Best Efforts.
The Company shall comply with the Carlyle Purchase Agreement and the
Credit Facility through and including the Second Closing.
6.2 Restrictive Agreements Prohibited.
Through and including the Second Closing, the Company shall not become
a party to any agreement which by its terms violates the terms of the Carlyle
Purchase Agreement, the terms of the Series B Preferred Stock as set forth in
the Series B Certificate of Designation, the terms of the Series C Preferred
Stock as set forth in the Series C Certificate of Designation, the terms of the
Series D Preferred Stock as set forth in the Series D Certificate of
Designation, or the terms of the Carlyle Warrants. From and after the Second
Closing, the Company shall not become a party to any agreement which by its
terms violates the terms of the Series C Preferred Stock as set forth in the
Series C Certificate of Designation or the terms of the Series D Preferred Stock
as set forth in the Series D Certificate of Designation.
6.3 Continuing Operations.
From and after the Closing Date, the Company shall, and shall use its
best efforts to cause each Subsidiary to, use all commercially reasonable
efforts to operate its business in a prudent fashion and in such a fashion as is
not likely to result in a Material Adverse Effect on the Company; PROVIDED,
HOWEVER, that the Company shall not be liable to the Purchaser for violation of
this Section 6.3 in connection with any action or operation of the Company that
those members of the Board of Directors who were elected by the Purchaser (as
provided in Section 6.13 of this Agreement) voted to approve, adopt or ratify
(if such action or operation was voted upon by the Board of Directors), unless
the information provided to the Board of Directors in connection with its vote
upon such action or operation failed to contain all information that a
reasonable person would deem material in considering such action or operation.
6.4 Financial Statements and Information.
(a) For so long as GE owns shares of Series C Preferred Stock and
Series A Preferred Stock with a total liquidation preference, taken as a whole,
at least equal to 25% of the total liquidation preference of the shares of
Series C Preferred Stock and Series A Preferred Stock outstanding on the Closing
Date, the Company shall furnish to the Purchaser:
43
<PAGE>
(i) MONTHLY REPORTS. Within thirty (30) days following the
end of each calendar month, a management report for the preceding calendar
month summarizing the Company's operating and financial performance during
such preceding calendar month and including, without limitation, an
unaudited income statement, an unaudited balance sheet and an unaudited
statement of cash flows for such preceding calendar month and a narrative
description of any event, condition or change in condition that had, or is
likely to have, a Material Adverse Effect on the Company (but such reports
need only be furnished if the Purchaser (and any Affiliate of the Purchaser
who is to receive such reports) shall have executed and delivered to the
Company an appropriate confidentiality agreement reasonably satisfactory to
the Company.
(ii) QUARTERLY FINANCIAL STATEMENTS. As soon as available and
in any event within sixty (60) days after the end of each of the first
three (3) fiscal quarterly periods of each Fiscal Year, the Company's
quarterly report on Form 10-Q as filed with the Commission.
(iii) ANNUAL FINANCIAL STATEMENTS. As soon as available and in
any event within one hundred twenty (120) days after the end of each Fiscal
Year, the Company's Annual Report on Form 10-K and related Annual Report to
Shareholders as filed with the Commission.
(iv) SEC REPORTS; MAILINGS TO STOCKHOLDERS. Promptly after
sending or making available or filing of the same, copies of all
registration statements, proxy statements, financial statements and reports
on Forms 10-K, 10-Q and 8-K (or any comparable successor form), if any,
which the Company or any of its Subsidiaries shall file with the Commission
or any national securities exchange. In addition, (A) at the same time
that the Company makes a mailing to its stockholders generally and (B)
promptly after the Company issues a press release, the Company shall
provide a copy of the same to the Purchaser.
(v) NOTICE OF DEFAULT OR CLAIMED DEFAULT. Promptly upon (and
in any event within five (5) business days following) any officer of the
Company obtaining Knowledge (A) of any condition or event which constitutes
an event of default or default (including, without limitation, by way of
cross-default) under any Indebtedness having a principal amount of at least
$5 million, (B) that the holder of any Indebtedness has given any written
notice or taken any other action with respect to a claimed condition or
event which constitutes such an event of default or default or (C) that any
Person has given any written notice to the Company or any of its
Subsidiaries or taken any other action with respect to a claimed default
under an agreement (other than Indebtedness included in clause (A) of this
Section 6.4(a)(v)) or other obligation having total consideration to the
parties of at least $1 million, an officer's certificate describing the
same and the period of existence thereof and what action the Company has
taken, is taking and proposes to take with respect thereto.
(vi) BANKRUPTCY. Promptly upon receiving notice of any
Person's seeking to obtain or threatening to seek to obtain a decree or
order for relief with respect
44
<PAGE>
to the Company or any of its Subsidiaries in an involuntary case under any
applicable bankruptcy, insolvency or other similar law now or hereafter in
effect, a written notice thereof specifying what action the Company or such
Subsidiary is taking or proposes to take with respect thereto.
(vii) ADDITIONAL INFORMATION. With reasonable promptness, such
other information, including financial statements and computations,
relating to the performance of the provisions of this Agreement or the
affairs of the Company or any of its Subsidiaries as the Purchaser may from
time to time reasonably request.
(b) The Company will furnish to the Purchaser, at the time it
furnishes each set of financial statements pursuant to Section 6.4(a)(ii) or
(iii) above, an officer's certificate to the effect that no event of default
under any Indebtedness has occurred and is continuing (or, if any such event of
default has occurred and is continuing, describing the same in reasonable
detail, the period of existence thereof and the action that the Company has
taken and proposes to take with respect thereto).
(c) The Company will keep at its principal executive offices the
books, accounts and records of the Company and cause the same to be available
for inspection at said offices during normal business hours by the Purchaser or
by any prospective purchaser of any of the Securities from either the Purchaser
or any Affiliate of the Purchaser (other than such a purchaser proposing to
purchase pursuant to a valid registration statement or pursuant to Rule 144
promulgated under the Securities Act). The Purchaser may, at its option and its
own expense, conduct internal audits of the books, records and accounts of the
Company. Audits may be on either a continuous or periodic basis or both and may
be conducted by employees of the Purchaser or by independent auditors or other
consultants retained by the Purchaser. The Company shall make available to the
Purchaser such information and financial statements in addition to the foregoing
as shall be required by the Purchaser in connection with the preparation of
registration statements, current and periodic reports, proxy statements, Tax
Returns and other documents required to be filed under Applicable Law and shall
cooperate in the preparation of any such documents.
6.5 Press Releases.
Except as may be required by Applicable Law or by the rules of any
national securities exchange, neither the Purchaser nor the Company shall issue
any press release with respect to this Agreement or the Transaction without the
prior consent of the other party hereto (which consent shall not be unreasonably
withheld under the circumstances). Any such press release required by
Applicable Law or by the rules of any national securities exchange shall only be
made after reasonable notice to the other party as to the form and content of
such press release.
6.6 Notification of Certain Matters.
The Company shall give prompt notice to the Purchaser, and the
Purchaser shall give prompt notice to the Company, of (i) the occurrence or
failure to occur of any event which
45
<PAGE>
occurrence or failure causes any representation or warranty contained in this
Agreement to be untrue or inaccurate in any material respect at any time from
and including the date hereof through the time at which such representation or
warranty ceases to survive pursuant to Section 8.1 hereof, and (ii) any material
failure of the Company or the Purchaser, as the case may be, to comply with or
satisfy any covenant, condition or agreement to be complied with or satisfied by
it hereunder, and each party shall use all reasonable efforts to remedy such
failure. In addition, the Company shall give prompt notice to the Purchaser of
any developments that could reasonably be expected to have a Material Adverse
Effect on the Company.
6.7 Liability Insurance.
For so long as GE owns shares of Series C Preferred Stock and Series A
Preferred Stock with a total liquidation preference, taken as a whole, at least
equal to 25% of the total liquidation preference of the shares of Series C
Preferred Stock and Series A Preferred Stock outstanding on the Closing Date,
the Company shall ensure that each person serving on the Board of Directors on
and after the Closing Date shall receive the same liability insurance coverage
as a member of the Board of Directors receives as of the date hereof (including
coverage for liabilities arising before the date of taking office to the extent
arising from such person's status as a prospective member of the Board of
Directors) and that such policies shall be in full force and effect in
accordance with their terms as of the Closing Date.
6.8 Conversion Stock.
The Company shall at all times reserve and keep available out of its
authorized but unissued shares of Common Stock and preferred stock, par value
$.001 per share, solely for the purpose of effecting the conversion of shares of
Series B Preferred Stock and Series C Preferred Stock and the issuance of Common
Stock in respect of the Warrants and the Carlyle Warrants, the full number of
whole shares of Common Stock and Series D Preferred Stock then deliverable upon
(a) the conversion of all shares of Series B Preferred Stock and Series C
Preferred Stock then outstanding, (b) the issuance of Common Stock in respect of
the Warrants and the Carlyle Warrants, and (c) if any Series D Preferred Stock
is then outstanding, the full number of whole shares of Common Stock then
deliverable upon the conversion of all shares of Series D Preferred Stock then
outstanding. The Company shall take at all times such corporate action as shall
be necessary in order that the Company may validly and legally issue fully paid
and non-assessable shares of Common Stock or Series D Preferred Stock (as the
case may be) upon the conversion of shares of Series B Preferred Stock, Series C
Preferred Stock, and Series D Preferred Stock and the exercise of the then
outstanding Warrants and Carlyle Warrants. If at any time the number of
authorized but unissued shares of Common Stock or Series D Preferred Stock shall
not be sufficient to effect the conversion of all then outstanding shares of the
Series B Preferred Stock, Series C Preferred Stock, and Series D Preferred Stock
and the exercise of all the then outstanding Warrants and Carlyle Warrants, in
addition to such other remedies as shall be available to the holders of the
Series B Preferred Stock, Series C Preferred Stock, and Series D Preferred
Stock, the Company shall forthwith take such corporate action as may be
necessary to increase its authorized but unissued shares of Common Stock or
Series D Preferred Stock to such numbers of shares as shall be sufficient for
such purpose, including butnot limited to promptly calling and holding a meeting
of the Company's stockholders, at which the Company's
46
<PAGE>
stockholders shall vote on a proposed amendment to the Certificate of
Incorporation that would so increase the number of authorized shares of Common
Stock or preferred stock, par value $.001 per share, as appropriate, a favorable
vote for which amendment shall have been recommended to the Company's
stockholders by the Board of Directors, pursuant to a duly and validly adopted
resolution of the Board of Directors setting forth the amendment proposed and
declaring its advisability, all in accordance with Section 242 of the Delaware
General Corporation Law; and, in case of an increase in the number of authorized
shares, of such preferred stock, the Board of Directors shall promptly cause to
become effective a certificate of increase pursuant to Section 151 of the
Delaware General Corporation Law.
6.9 Certain Regulatory Matters.
(a) The operations of the Company and its Subsidiaries will be
conducted in compliance with all material Applicable Laws (material Applicable
Laws includes, without limitation, all Applicable Laws relating to health care,
the health care industry and the provision of health care services, third party
reimbursement (including Medicare and Medicaid), public health and safety and
wrongful death and medical malpractice). In addition to, and without limiting
the generality of the foregoing, the Company shall adopt and implement a
compliance plan adequate to assure such compliance. The compliance plan shall
include all material elements of an effective program to prevent and detect
violations of law as defined in Commentary 3(k) to Section 8A1.2 of the Federal
Sentencing Guidelines.
(b) Without limiting the generality of the foregoing, the Company and
all Affiliates shall comply in all material respects with all lawful directives,
orders, instructions, bulletins and other announcements received from third
party payors and their agents (including, without limitation, Medicare carriers
and fiscal intermediaries) regarding participation in third party payment
programs, including, without limitation, preparation and submission of claims
for reimbursement. Nothing in this Section 6.9 shall be construed as or is
intended to create any third party beneficiaries.
6.10 Employment Arrangements.
(a) The Company will keep in effect following the First Closing the
employment agreements with the employees set forth in SCHEDULE 4.23, on the same
terms and conditions contained in such employment agreements prior to the First
Closing Date; provided, however, that such employment agreements shall be
modified so that none of (i) the Transaction, (ii) any conversion of Series B
Preferred Stock or Series C Preferred Stock acquired hereunder or under the GE
Purchase Agreement into shares of Series D Preferred Stock or Common Stock ,
(iii) any conversion of shares of Series D Preferred Stock into Common Stock, or
(iv) any change in the membership, size or composition of the Board of Directors
incident to the transaction or such conversions, shall trigger or constitute a
change of control or otherwise give any party to such employment agreements any
right to receive any payment (or any acceleration thereof) or protections
whatsoever.
47
<PAGE>
(b) Following the First Closing, the Company and the Purchaser will
review the terms and conditions of the bonus plan currently in effect at the
Company to determine whether any changes should be made to such bonus plan.
6.11 Transactions with Affiliates.
For so long as GE owns shares of Series C Preferred Stock and Series A
Preferred Stock with a total liquidation preference, taken as a whole, at least
equal to 25% of the total liquidation preference of the shares of Series C
Preferred Stock and Series A Preferred Stock outstanding on the Closing Date,
the Company covenants and agrees that it will not, and will not permit any of
its Subsidiaries to, directly or indirectly, engage in any transaction with any
Affiliate of the Company, including, without limitation, the purchase, sale or
exchange of assets or the rendering of any service, except: (a) transactions
with Affiliates of the Company that involve consideration or payments in the
aggregate of less than $5,000; (b) transactions with Affiliates of the Company
that are approved by the Board of Directors; and (c) transactions with
Affiliates of the Company in the ordinary course of business and pursuant to the
reasonable requirements of the Company's or such Subsidiary's business and upon
fair and reasonable terms that are no less favorable to the Company or such
Subsidiary, as the case may be, than those which might be obtained in an
arm's-length transaction at the time from a Person which is not such an
Affiliate.
6.12 Stockholder Approval of Certain Actions.
Without limitation of the rights, restrictions and protections
contained in the Series C Certificate of Designation or otherwise available to
holders of shares of the Series C Preferred Stock, for so long as the Purchaser,
any Affiliate of the Purchaser, or the Initial Purchaser and any such Affiliate,
taken as a whole, owns or own at least thirty-three percent (33%) in total
liquidation preference, taken as a whole, of (i) the outstanding shares of
Series C Preferred Stock and (ii) the outstanding shares of Series A Preferred
Stock, the Company shall not take, and shall cause its Subsidiaries not to take,
any of the following actions without the affirmative vote of holders of at least
sixty-seven percent (67%) of the shares of the Series C Preferred Stock then
outstanding:
(a) Alter, change or amend (by merger or otherwise) any of the
rights, preferences and privileges of the Series B Preferred Stock, the Series C
Preferred Stock or any other class of Capital Stock or the terms or provisions
of any Option or Convertible Security;
(b) Effect or enter into any transaction or event that results or
could reasonably be expected to result, directly or indirectly, in a Special
Corporate Event with respect to the Company or any Subsidiary;
(c) Initiate any Liquidating Event with respect to the Company or any
Subsidiary;
(d) Amend, restate, alter, modify or repeal (by merger or otherwise)
the Certificate of Incorporation or the Amended Bylaws of the Company,
including, without limitation, amending, restating, modifying or repealing (by
merger or otherwise) any certificate of
48
<PAGE>
designation or preferences (as in effect from time to time) relating to the
Series A Preferred Stock, the Series B Preferred Stock, the Series C Preferred
Stock or the Series D Preferred Stock, including, without limitation, the filing
by the Company of a certificate with the Secretary of State of the State of
Delaware, pursuant to Section 151(g) of the Delaware General Corporation Law,
setting forth a resolution or resolutions adopted by the Board of Directors of
the Company that none of the authorized shares of Series D Preferred Stock are
outstanding and that none will be issued subject to the Series D Certificate of
Designation, (provided however, that upon any upon any Type A Conversion
pursuant to Section 5 of the Series B Certificate of Designation, the Company
shall immediately file a certificate with the Secretary of State of the State of
Delaware, pursuant to Section 151(g) of the Delaware General Corporation Law,
setting forth a resolution or resolutions adopted by the Board of Directors of
the Company that none of the authorized shares of Series D Preferred Stock are
outstanding and that none will be issued subject to the Series D Certificate of
Designation.);
(e) Change the number of directors of the Company to a number less
than eight (8) or more than nine (9) or the manner in which the directors are
selected, except as provided in the Certificate of Incorporation, Amended
Bylaws, Series B Certificate of Designation, Series C Certificate of Designation
and Series D Certificate of Designation;
(f) Incur any Indebtedness, in the aggregate with respect to the
Company and its Subsidiaries, in excess of $15 million in any Fiscal Year;
PROVIDED, HOWEVER, that this provision shall not apply to draw-downs under any
credit facility as to which a credit agreement had been executed and delivered
on or prior to the date hereof;
(g) Become a party to Operating Leases during any Fiscal Year with
respect to which the present value of all payments due during the term of such
Operating Leases in the aggregate (determined using a discount rate of 10%)
exceed $15 million;
(h) Create, authorize or issue any shares of Series B Preferred Stock
or any class or series of Senior Securities, Parity Securities, Supervoting
Securities or shares of any such class or series;
(i) Reclassify any authorized stock of the Company into Series B
Preferred Stock or any class or series of Senior Securities, Parity Securities,
Supervoting Securities or shares of any such class or series;
(j) Increase or decrease the authorized number of shares of Series B
Preferred Stock, Series D Preferred Stock or any class or series of Senior
Securities, Parity Securities, Supervoting Securities or shares of any such
class or series;
(k) Issue any equity security below either the then current Market
Price (without deduction for any underwriters' discount) or the then applicable
Conversion Price of the Series B Preferred Stock (as defined in the Series B
Certificate of Designation), other than for (i) management stock options
currently authorized and available for grant for not more than Three Hundred
Thousand (300,000) shares of Common Stock in the aggregate, in which Senior
Management of the Company shall not participate, (ii) management stock options
exercisable at
49
<PAGE>
not less than the then-applicable Conversion Price per share of Common Stock
issued after October 14, 1997, exercisable for not more than Five Hundred
Thousand (500,000) shares of Common Stock in the aggregate, in which only Senior
Management of the Company shall participate, and (iii) the Common Stock
underlying such management stock options and other stock options outstanding as
of October 14, 1997;
(l) Declare or pay any dividend or make any distribution (including,
without limitation, by way of redemption, purchase or other acquisition) with
respect to shares of Capital Stock or any securities convertible into or
exercisable, redeemable or exchangeable for any share of Capital Stock of the
Company or any Subsidiary (including, without limitation, any Option or
Convertible Security) directly or indirectly, whether in cash, obligations or
shares of the Company or other property;
(m) Acquire, in one or a series of related transactions, any equity
ownership interest or interests of any Person, where the aggregate consideration
payable in connection with such acquisition (including, without limitation, cash
consideration, the fair market value of any securities and the net present value
of any deferred consideration) is at least $15 million;
(n) Acquire, in one or a series of related transactions, any asset or
assets of any Person, where the aggregate consideration payable in connection
with such acquisition (including, without limitation, cash consideration, the
fair market value of any securities and the net present value of any deferred
consideration) is equal to or greater than $15 million; PROVIDED, HOWEVER, that
this provision shall not apply to Capital Expenditures made by the Company in
the Ordinary Course of Business;
(o) Merge or consolidate with any Person, or permit any other Person
to merge into it where: (i) the stockholders of the Company immediately prior
to the consummation of such merger or consolidation shall, immediately after the
consummation of such merger or consolidation, hold securities possessing more
than 50% of both the total voting power of and the beneficial ownership
interests in the surviving entity of such merger or consolidation and (ii) the
equity holders of such other Person immediately prior to the consummation of
such transaction shall receive (directly or indirectly) aggregate consideration
payable in connection with such transaction (including without limitation cash
consideration, the fair market value of any securities and the net present value
of any deferred consideration) equal to or greater than $15 million;
(p) Cause or permit any Subsidiary to merge or consolidate with any
other Person (other than the Company or a wholly-owned Subsidiary), or cause or
permit any other Person to merge into it, where: (i) the stockholders of such
Subsidiary immediately prior to the consummation of such merger or consolidation
shall, immediately after the consummation of such merger or consolidation, hold
securities possessing more than 50% of both the total voting power of and the
beneficial ownership interests in the surviving entity of such merger or
consolidation and (ii) the equity holders of the subject Person immediately
prior to the consummation of such transaction shall receive (directly or
indirectly) aggregate consideration payable in connection with such transaction
(including without limitation cash consideration, the fair market value of any
securities and the net present value of any deferred consideration) equal to or
greater than $15 million;
50
<PAGE>
(q) Substantially and materially engage in, either through
acquisition or internal development, any business other than the Business;
(r) Make or permit any of its Subsidiaries to make Capital
Expenditures in any Fiscal Year in excess, in the aggregate, of two percent (2%)
above the approved Capital Budget Plan for such Fiscal Year unless such Capital
Expenditure is approved by the Executive Committee of the Board of Directors or
a Supermajority Vote of the Board of Directors;
(s) (i) Sell, transfer, convey, lease or dispose of, outside the
Ordinary Course of Business, any assets or properties of the Company or any
Subsidiary, whether now or hereafter acquired, in any transaction or
transactions, if (X) the aggregate consideration payable in connection with any
single such transaction (including, without limitation, cash consideration, the
fair market value of any securities and the net present value of any deferred
consideration), is greater than $5 million or (Y) the aggregate consideration
payable in connection with all such transactions (including, without limitation,
cash consideration, the fair market value of any securities and the net present
value of any deferred consideration), consummated after the Closing Date, taken
as a whole, is or would become as a result of such transaction greater than $20
million; (ii) undergo or cause or permit any Subsidiary to undergo a
reorganization or recapitalization; (iii) merge or consolidate with any Person,
or permit any other Person to merge into it, where the stockholders of the
Company immediately prior to the consummation of such merger or consolidation
shall, immediately after the consummation of such merger or consolidation, hold
securities possessing 50% or less of either the total voting power of or the
beneficial ownership interests in the surviving entity of such merger or
consolidation; (iv) cause or permit any Subsidiary to merge or consolidate with
any other Person (other than the Company or a wholly-owned Subsidiary of the
Company), or cause or permit any other Person to merge into such Subsidiary,
where the stockholders of such Subsidiary immediately prior to the consummation
of such merger or consolidation shall, immediately after the consummation of
such merger or consolidation, hold 50% or less of either the total voting power
of or the beneficial ownership interests in the surviving entity of such merger
or consolidation, if (X) the value of the assets of such Subsidiary is greater
than $5 million or (Y) the aggregate value of the assets of all such
Subsidiaries with respect to all such mergers or consolidations consummated
after the Closing Date, taken as a whole, and including such transaction, is
greater than $20 million;
(t) Permit any Subsidiary to issue or sell any share of Capital
Stock, Option or Convertible Security; PROVIDED, HOWEVER, that the Company may
form a new Subsidiary not all of the equity securities of which need be owned
directly or indirectly by the Company (a "Partial Subsidiary"), but only if (i)
at the time of creation of such Partial Subsidiary, such Partial Subsidiary is
designated as such in a written notice to the Purchaser, and, (ii) cumulatively
through time no more than $5,000 of assets (in the aggregate ) are transferred
to such Partial Subsidiary by the Company or any other Subsidiary, and (iii) no
liabilities of such Partial Subsidiary are ever assumed or guaranteed by the
Company or any other Subsidiary; or
(u) Amend, restate, alter, modify or repeal (by merger or otherwise)
or permit any Subsidiary to amend, restate, modify or repeal (by merger or
otherwise) the certificate of incorporation or bylaws of any Subsidiary in any
material respect; or
51
<PAGE>
(v) Issue any shares of Series D Preferred Stock, otherwise than
pursuant to a Type B Conversion.
6.13 Board of Directors.
(a) The Board of Directors at all times following the Closing and
before a Type B Event Date shall be comprised of between eight (8) and nine (9)
members with one vacancy until the ninth member, an Independent nominated by the
Purchaser and Carlyle has been approved by the Board of Directors (the "Joint
Director") to fill such vacancy. After the occurrence of a Type B Event Date,
the Board of Directors shall be comprised of a number of members that is
consistent with the Series B Certificate of Designation, the Series C
Certificate of Designation, the Series D Certificate of Designation and the
Amended Bylaws. As long as Carlyle and all Carlyle Affiliates own at least
fifty percent (50%) of the shares of Series B Preferred Stock originally
purchased by Carlyle, the holders of the Series B Preferred Stock, by a vote as
provided in the Series B Certificate of Designation, shall have the right to
elect two (2) directors. As long as the Purchaser, any Affiliate of the Initial
Purchaser, or the Purchaser and any such Affiliate of the Purchaser, taken as a
whole owns or own shares of Series C Preferred Stock and Series A Preferred
Stock with a total liquidation preference, taken as a whole, at least equal to
25% of the total liquidation preference of the shares of Series C Preferred
Stock and Series A Preferred Stock outstanding as of the First Closing Date, the
holders of the Series C Preferred Stock, by a vote as provided in the Series C
Certificate of Designation, shall have the right to elect one (1) director.
Until the occurrence of a Type B Event Date, the holders of the Common Stock
shall have the right to elect between five (5) and six (6) directors (one (1) of
whom shall be the Joint Director) plus, if any of the percentage ownership
conditions contained in the two immediately preceding sentences fail to be
satisfied otherwise than pursuant to a Type B Conversion, such director or
directors as would, absent such failure, be elected by holders of the Series B
Preferred Stock or the Series C Preferred Stock, as ppropriate.
(b) Immediately following the Closing, the Board of Directors shall
appoint, and shall thereafter until a Type B Event Date, unless approved by a
majority of the entire board of directors and a majority of the directors
elected by the holders of the Series B Preferred Stock and the Series C
Preferred Stock, maintain as provided in the Amended Bylaws the following
committees of the Board of Directors with the respective duties, membership and
voting requirements stated below, PROVIDED, that if the holders of the Series C
Preferred Stock shall, otherwise than as a result of the conversion of their
shares of Series C Preferred Stock in a Type B Conversion, cease to have the
right to nominate and elect any Preferred Stock Director at all, then such
holders shall no longer have the right to select any member of any of the
following committees and the member or members of such committees selected by
such holders shall automatically cease to be a member or members of such
committees:
(i) Compensation Committee, which shall consist of three (3)
directors, at least one (1) of whom shall be selected jointly by the
directors elected by the Series B Preferred Stock and the director elected
by the Series C Preferred Stock. An affirmative vote of at least two (2)
members of the Compensation Committee shall be required for approval of
matters considered by the Compensation Committee. The Compensation
Committee shall ensure that the representative on the Compensation
52
<PAGE>
Committee selected by the directors elected by the Series B Preferred Stock
and the director elected by the Series C Preferred Stock shall receive
adequate notice of and an opportunity to participate in any meetings of the
Compensation Committee;
(ii) Audit Committee, which shall consist of three (3)
directors, including as many Independent directors as are available, not to
exceed three (3). An affirmative vote of at least two (2) members of the
Audit Committee shall be required for approval of matters considered by the
Audit Committee;
(iii) Executive Committee, which shall consist of four (4)
directors, one (1) of whom shall be selected by the directors elected by
the Series B Preferred Stock, one (1) of whom shall be selected by the
director elected by the Series C Preferred Stock, and two (2) of whom shall
be selected by the Board of Directors. The members selected by the
directors elected by the Series B Preferred Stock and the director elected
by the Series C Preferred Stock may be removed only by the director or
directors, respectively, who selected such members. The Executive
Committee shall, in addition to the customary duties of an executive
committee, have the right to approve any financing activity, including but
not limited to the Capital Budget Plan. An affirmative vote of at least
three (3) members of the Executive Committee shall be required for approval
of any matters considered by the Executive Committee. Each financing
activity not approved by the Executive Committee may be referred to the
Board of Directors for approval, which approval shall require a
Supermajority Vote; and
(iv) An Acquisitions Committee, which shall consist of four
(4) directors, one (1) of whom shall be selected by the directors elected
by the Series B Preferred Stock, one (1) of whom shall be selected by the
director elected by the Series C Preferred Stock, and two (2) of whom shall
be selected by the Board of Directors. The Acquisitions Committee shall
have the right to approve any transaction of the types described in
Sections 6.12(m), (n), (o) and (p) with respect to which transaction the
aggregate consideration payable in connection with such transaction
(including, without limitation, cash consideration, the fair market value
of any securities and the net present value of any deferred consideration)
is less than $15 million. A unanimous vote of the Acquisitions Committee
shall be required for approval of any matters considered by the
Acquisitions Committee. Except as described in the next sentence, each
matter considered but not unanimously approved by the Acquisitions
Committee may be referred to the Board of Directors for approval, which
approval shall require a majority vote of the Board of Directors. The
unanimous approval of the Acquisitions Committee or the unanimous approval
of the Board of Directors shall be required before the Company or any of
its Subsidiaries engage in a transaction of the types described in Sections
6.12(m), (n) (which, only for purposes of this clause, shall also apply to
Capital Expenditures made by the Company in the ordinary course of
business), (o) and (p), in which transaction: (A) the aggregate
consideration payable in connection with such transaction (including,
without limitation, cash consideration, the fair market value of any
securities and the net present value of any deferred consideration) is less
than $15 million; and (B) the Company is to issue its common stock at an
implicit or explicit price of less than $8.375 per share. Such implicit
price shall be determined in an appraisal approved unanimously by the
53
<PAGE>
Acquisitions Committee or unanimously by the Board of Dirctors, such
appraisal to be performed by an independent appraiser selected unanimously
by the Acquisitions Committee or unanimously by the Board of Directors.
(c) Regular meetings of the Board of Directors of the Company shall
be held at least once a calendar quarter at the offices of the Company or at
such other times and places as may be fixed by the Board of Directors upon
notice to the members of the Board of Directors.
(d) After the Closing, the following matters, among others specified
in the Bylaws, shall be deemed approved by the Board of Directors only upon a
Supermajority Vote in respect of any such matter:
(i) Approving the annual Capital Budget Plan; and
(ii) Approving the Company entering into any financing
activity not approved by the Executive Committee.
(e) Upon any Type A Conversion pursuant to Section 5 of the Series B
Certificate of Designation and Section 5 of the Series C Certificate of
Designation, of all of the outstanding shares of Series B Preferred Stock and
Series C Preferred Stock, the Company shall immediately file a certificate with
the Secretary of State of the State of Delaware, pursuant to Section 151(g) of
the Delaware General Corporation Law, setting forth a resolution or resolutions
adopted by the Board of Directors of the Company that none of the authorized
shares of Series D Preferred Stock are outstanding and that none will be issued
subject to the Series D Certificate of Designation.
6.14 Restrictions on Transfer of Capital Stock.
(a) The Purchaser shall not transfer, sell, assign, or pledge to any
Person other than an Affiliate of the Purchaser, or dispose of, any interest in
any shares of the Series C Preferred Stock without the prior approval of the
Board of Directors, in its sole discretion. The Purchaser shall not transfer,
sell or assign to any Affiliate of the Purchaser, any interest in any shares of
the Series C Preferred Stock if such Affiliate is engaged in the Business.
(b) After the Closing Date and before the earlier to occur of April
14, 1999 and a Type B Event, the Purchaser shall not transfer, sell or assign to
any Person any of the Series C Conversion Shares without the prior approval of
an ordinary majority of the Board of Directors in its sole discretion, other
than in the following circumstances:
(i) A transfer to an Affiliate of the Purchaser (provided
that prior to any such transfer such Affiliate shall have delivered to the
Company its written agreement to be bound by the terms of this Section
6.14);
(ii) A transfer permitted under Rule 144 under the Securities
Act;
(iii) A transfer pursuant to a registered offering under
registration rights from the Company as provided in the Registration Rights
Agreement; or
54
<PAGE>
(iv) A transfer pursuant to a transaction available to all
stockholders of the Company on the same terms as to the Purchaser, which
has been approved by a majority of the Board of Directors;
(c) If a Type B Event Date occurs prior to April 14, 1999, then from
the Type B Event Date until the second subsequent annual meeting of stockholders
of the Company after such Type B Event Date, (A) the Purchaser shall not make a
transfer of any of its Series D Preferred Stock, Series C Conversion Shares or
Series D Conversion Shares in a transaction available to all holders of Common
Stock on the same terms as to the Purchaser, unless such transaction has been
approved either by (I) the affirmative vote of not less than 80 percent of the
outstanding shares of the Company entitled to vote, or (II) at least two-thirds
(2/3) of the directors of the Company (which must include either (i) the Joint
Director, if either (x) such Joint Director served in such position as of the
Type B Event Date, or (y) such Joint Director has been approved by a majority of
the directors who were Common Stock Directors as of the Type B Event Date, or
(ii) at least one director who was a Common Stock Director prior to the Type B
Event Date, unless neither such Joint Director, nor any of such Common Stock
Directors continue to serve on the Board of Directors at such time) and (B) the
Purchaser shall not make a transfer of any of its Series D Preferred Stock,
Series C Conversion Shares or Series D Conversion Shares in a transaction other
than one available to all holders of Common Stock on the same terms as to the
Purchaser, unless such transaction has been approved either by (I) the
affirmative vote of not less than 80 percent of the outstanding shares of the
Company entitled to vote, or (II) at least 50 percent of the directors of the
Company who are not the Preferred Stock Directors or the Conversion Directors.
If a Type B Event Date occurs prior to October 14, 1999, then from the Type B
Event Date until the second subsequent annual meeting of stockholders of the
Company after such Type B Event Date, none of the following actions or
transactions shall be effected by the Company or approved by the Company as a
stockholder of any subsidiary of the Company, and neither the Purchaser nor any
other holder of Series D Preferred Stock (other than a holder pursuant to a
transfer permitted in paragraphs (b)(ii) or (b)(iii) of this Section 6.14) shall
engage in, or be a party to, any of the following actions or transactions
involving the Company or any subsidiary of the Company, if, as of the record
date for the determination of the stockholders entitled to vote thereon, or
consent thereto, any other corporation, person or entity referred to in clauses
(i) through (iv) of this sentence beneficially owns or controls, directly or
indirectly, five percen (5%) or more of the outstanding shares of the Company
entitled to vote:
(i) any merger or consolidation of the Company or any of its
subsidiaries with or into such other corporation, person or entity; or
(ii) any sale, lease, exchange or other disposition of all or any
substantial part of the assets of the Company or any of its subsidiaries to, or
with, such other corporation, person or entity; or
(iii) the issuance or delivery of any voting securities of the
Company or any of its subsidiaries to such other corporation, person or entity
in exchange for cash, other assets or securities, or a combination thereof; or
(iv) any dissolution or liquidation of the Company;
55
<PAGE>
PROVIDED, HOWEVER, that the prohibitions contained in this sentence shall not
apply with respect to any such action or transaction approved by (I) the
affirmative vote of not less than 80 percent of the outstanding shares of the
Company entitled to vote or (II) at least two-thirds (2/3) of the directors of
the Company (which must include either the Joint Director if either (x) such
Joint Director served in such position as of the Type B Event Date, or (y) such
Joint Director has been approved by a majority of the directors who were Common
Stock Directors as of the Type B Event Date, or at least one director who was a
Common Stock Director prior to the Type B Event Date, unless neither such Joint
Director, nor any of such Common Stock Directors continue to serve on the Board
of Directors at such time).
For purposes of the immediately preceding sentence, a Person shall be deemed to
own or control directly or indirectly, any outstanding shares of stock of the
Company (A) which it has the right to acquire pursuant to any agreement, or upon
the exercise of, conversion rights, warrants or options, or otherwise or (B)
which are beneficially owned, directly or indirectly (including shares deemed
owned through application of clause (A) above) by any other corporation, person
or other entity (x) with which it or its "affiliate" or "associate" (as defined
below) has any agreement, arrangement, or understanding for the purpose of
acquiring, holding, voting or disposing of stock of the Company or (y) which is
its "affiliate" or "associate" as those terms are defined under the Securities
Exchange Act of 1934, as amended, and the rules and regulations promulgated
thereunder.
No transfer of Series C Preferred Stock or Series C Conversion Shares may be
made by Purchaser or any Affiliate (other than a transfer described in paragraph
(b)(ii) or (b)(iii) of this Section 6.14), unless prior thereto, the transferee
in such transfer shall have entered into an agreement in form and substance
reasonably satisfactory to the Company, agreeing to be bound by the terms of
this Section 6.14(c). Notwithstanding anything to the contrary contained in
this Section 6.14(c), the Purchaser shall not need any approval by any
directors, the Board of Directors or any stockholders under this Section 6.14 in
order to transfer, sell or assign any of its Series C Conversion Shares in the
circumstances and the persons set forth in clauses (i), (ii) and (iii) of
Section 6.14(b).
(d) The Warrants and the Warrant Shares shall be transferable by
the Purchaser, subject to compliance with federal and state securities laws,
without the approval of the Board of Directors.
(e) Except in the case of a transfer pursuant to Rule 144
promulgated pursuant to the Securities Act, or any successor rule, prior to
consummating any private sale or transfer of Common Stock to any Person other
than an Affiliate of Purchaser, the Purchaser shall provide to the Company the
written opinion of reputable legal counsel in form reasonably acceptable to the
Company that such sale or transfer is being made in compliance with applicable
federal securities laws.
6.15 Expiration of Certain Covenants.
The covenants contained in Sections 6.3, 6.5 and 6.9 of this Agreement
shall expire if, at any date after the Closing Date, the Purchaser and
Affiliates of the Purchaser
56
<PAGE>
collectively hold, and, upon conversion into Common Stock of all of the Series C
Preferred Stock and Series A Preferred Stock and Series D Preferred Stock held
by the Purchaser and its Affiliates, would hold less than 5% of the issued and
outstanding Common Stock of the Company on a fully diluted basis; PROVIDED,
HOWEVER, that to the extent that such covenants relate to or arise out of any
Applicable Laws relating to health care, the health care industry and the
provision of health care services, third party reimbursement (including Medicare
and Medicaid), public health and safety and wrongful death and medical
malpractice), such covenants shall expire if, at any date after the Closing
Date, the Purchaser and Affiliates of the Purchaser collectively hold less than
5% of the Series C Preferred Stock originally purchased by the Purchaser.
ARTICLE VII
CONDITIONS TO CLOSING
7.1 Conditions to Each Party's Obligations.
The respective obligations of each party to consummate the First
Closing on the First Closing Date and the Second Closing on the Second Closing
Date are subject to the satisfaction or waiver, on or prior to each respective
closing date, of the condition that there shall be no injunction or court order
restraining consummation of all or any portion of the Transaction, there shall
be no pending or threatened Proceeding by or before a court or governmental body
brought by or on behalf of any Person or Governmental Entity seeking to restrain
or invalidate all or any portion of the Transaction and there shall not have
been adopted any law or regulation making all or any portion of the Transaction
illegal.
7.2 Conditions to the Company's Obligations.
The obligation of the Company to consummate the Transaction on the
First Closing Date is subject to the satisfaction or waiver, by the Company, on
or prior to the First Closing Date of each of the following conditions:
(a) All representations and warranties of the Purchaser contained
in this Agreement shall be true and correct in all material respects at and as
of the First Closing Date as if such representations and warranties were made at
and as of the First Closing Date, and the Purchaser shall have performed in all
material respects all agreements and covenants required hereby to be performed
by it prior to or at the First Closing Date. There shall be delivered to the
Company a certificate (signed by an authorized person of the Purchaser) to the
foregoing effect.
(b) All consents, approvals, Permits and waivers from Governmental
Entities and other parties necessary to permit the Company and the Purchaser to
consummate the Transaction shall have been obtained.
(c) The Purchaser shall have delivered to the Company the opinions
of Gibson, Dunn & Crutcher, LLP, counsel to the Purchaser, in the form attached
hereto as Exhibit H.
(d) No order enjoining the sale of the Securities or the Carlyle
Warrants or the proposed issuance of the Series C Preferred Stock, the Series B
Conversion Shares, the Series C Conversion Shares, the Series D Preferred Stock,
the Series D Coversion Shares, the Warrant
57
<PAGE>
Shares or the Carlyle Warrant Shares shall have been issued and no proceedings
for such purpose shall be pending or threatened by the Commission or any
commissioner of corporations or similar officer of any state having jurisdiction
over the Transaction. At the time of the Closing, the sale and issuance of the
Securities, the Carlyle Warrants, the Series C Preferred Stock, the Series B
Conversion Shares, the Series C Conversion Shares, the Series D Preferred Stock,
the Series D Coversion Shares, the Warrant Shares and the Carlyle Warrant Shares
shall be legally permitted by all laws and regulations to which the Company and
the Purchaser are subject.
(e) The Supplemental Service Fee shall have been terminated.
(f) The Purchaser shall have delivered to the Company, unless
waived in writing by the Company, such other documents relating to the
Transaction as the Company or the Company's counsel may reasonably request.
(g) The lender under the Credit Facility shall have executed and
delivered the Credit Facility and all related documents.
7.3 Conditions to the Purchaser' Obligations.
The obligation of the Purchaser to consummate the First Closing on the
First Closing Date is subject to the satisfaction or waiver on or prior to the
First Closing Date of each of the following conditions:
(a) All representations and warranties of the Company contained in
this Agreement shall be true and correct in all material respects at and as of
the First Closing Date as if such representations and warranties were made at
and as of the First Closing Date, and the Company shall have performed in all
material respects all agreements and covenants required hereby to be performed
by it prior to or at the First Closing Date. There shall be delivered to the
Purchaser a certificate (signed by the President and Chief Executive Officer and
the Secretary of the Company) to the foregoing effect.
(b) All consents, approvals, Permits and waivers from Governmental
Entities and other parties necessary to permit the Purchaser and the Company to
consummate the First Closing shall have been obtained.
(c) The Company shall have delivered to the Purchaser the opinions
of McDermott, Will & Emery, special counsel for the Company, in the form
attached hereto as Exhibit I.
(d) Since the date of this Agreement, there shall not have been any
Material Adverse Effect on the Company.
(e) All actions shall have been taken by the Company and its Board
of Directors so that, immediately upon the Purchaser's purchase of the
Securities, the Board of Directors shall consist of eight (8) directors, two (2)
of whom were elected by the holders of Series B Preferred Stock pursuant to the
Series B Certificate of Designation and one (1) of whom
58
<PAGE>
was elected by the holders of Series C Preferred Stock pursuant to the Series C
Certificate of Designation.
(f) The Amended Bylaws shall be in effect in the form set forth in
Exhibit A hereto.
(g) The Company shall have provided to the Purchaser a copy of the
insurance policies together with the riders and schedules thereto which evidence
compliance with the provisions set forth in Section 6.7.
(h) No order enjoining the sale of the Securities or the Carlyle
Warrants or the proposed issuance of the Series C Preferred Stock, the Series B
Conversion Shares, the Series C Conversion Shares, the Series D Preferred Stock,
the Series D Conversion Shares, the Warrant Shares or the Carlyle Warrant Shares
shall have been issued and no Proceedings for such purpose shall be pending or
threatened by the Commission or any commissioner of corporations or similar
officer of any state having jurisdiction over the Transaction. At the time of
the Closing, the sale and issuance of the Securities, the Carlyle Warrants, the
Series C Preferred Stock, the Series B Conversion Shares, the Series C
Conversion Shares, the Series D Preferred Stock, the Series D Conversion Shares,
the Warrant Shares and the Carlyle Warrant Shares shall be legally permitted by
all laws and regulations to which the Company and the Purchaser are subject.
(i) The Company shall have adopted and duly filed with the
Secretary of State of Delaware the Series B Certificate of Designation, the
Series C Certificate of Designation and the Series D Certificate of Designation
and each such Certificate shall have become effective under Delaware law.
(j) The Company shall have delivered to the Purchaser, unless
waived in writing by the Purchaser:
(A) copies (certified by the Secretary of the Company)
of the resolutions duly adopted by the Board of Directors of the Company,
authorizing the execution, delivery and performance of this Agreement and
the other agreements contemplated hereby;
(B) a copy (certified by the Secretary of the State of
Delaware) of the certificate of incorporation as amended through the date
of the Closing and a copy (certified by the Secretary of the Company) of
the Company's bylaws as amended through the date of the Closing; and
(C) such other documents relating to the Transaction
as the Purchaser or the Purchaser's counsel may reasonably request.
(k) The Company shall have (A) issued the Series B Preferred Stock
and (B) issued the Carlyle Warrants.
(l) The Company and the lender under the Credit Agreement shall
have executed and delivered the Credit Facility and related documents.
59
<PAGE>
7.3 Conditions to Second Closing
The sole condition to the Purchaser's and the Company's obligations to
consummate the Second Closing shall be the expiration or termination of all
waiting periods with respect to Purchaser's filing of a notification under the
HSR Act with respect to the transactions to occur at the Second Closing, and
that neither the Federal Trade Commission nor the Department of Justice shall
have given notice of its intention to challenge the legality of such transaction
or to seek further information.
ARTICLE VIII
INDEMNIFICATION
8.1 Survival of Representations, Etc.
The representations and warranties of the parties hereto contained
herein shall survive the Closing for a period of sixty (60) days following
receipt by the Purchaser of the audited financial statements of the Company for
the Fiscal Year ended June 30, 1998, except as to (a) the representations and
warranties set forth in Sections 4.8, 4.9, 4.13 (to the extent related to any
Applicable Laws relating to health care, the health care industry and the
provision of health care services, third party reimbursement (including Medicare
and Medicaid), public health and safety and wrongful death and medical
malpractice), 4.16, 4.17, 4.32, 4.33, 4.34, 4.35 and 4.36 hereof, which shall
survive for the period of the statute of limitations applicable thereto; (b) any
matter as to which a Claim has been submitted in writing to the Company prior to
such date; and (c) any matter based on fraud by the Company in making any of the
representations and warranties contained in this Agreement. With respect to the
matters set forth in (b) and (c) above, the cause of action in favor of the
Purchaser in respect of such matters shall survive indefinitely.
8.2 Indemnification by the Company.
The Company agrees to indemnify and hold harmless the Purchaser, its
Subsidiaries, and its Affiliates and the directors, officers, employees,
stockholders and partners of each of the Purchaser, its Subsidiaries, and its
Affiliates (individually, an "Indemnified Party" and collectively, the
"Indemnified Parties"), from and against any liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, claims, costs and reasonable
attorneys' fees, expenses and disbursements of any kind ("Losses") which may be
imposed upon or incurred by the Purchaser in any manner relating to or arising
out of any untrue representation, breach of warranty or failure to perform any
covenant or agreement by the Company contained in this Agreement (including,
without limitation, the schedules and exhibits hereto), the Series C Certificate
of Designation, the Series D Certificate of Designation, the Ancillary
Agreements or in any certificate or document delivered pursuant hereto or
thereto or arising out of any Applicable Laws relating to health care, the
health care industry and the provision of health care services, third party
reimbursement (including Medicare and Medicaid), public health and safety and
wrongful death and medical malpractice or otherwise relating to or arising out
of the Transaction; PROVIDED, HOWEVER, that the Company shall provide no
indemnification with respect to Losses relating to or arising out of the
Transaction if such Losses were caused principally by the gross negligence or
willful misconduct of one or more Indemnified Parties.
60
<PAGE>
8.3 Limitation on Indemnities.
No Claim may be made against the Company for indemnification pursuant
to Section 8.2 until the aggregate dollar amount of all Losses indemnifiable
pursuant to Section 8.2 exceeds $250,000 (in which event the Purchaser shall be
entitled to claim the whole amount of such Losses and not merely the excess).
In no event shall the aggregate amount paid by the Company pursuant to Section
8.2 exceed $25 million with respect to Claims arising out of or related to
matters other than breaches of the representations, warranties and covenants
contained in Sections 4.13 (to the extent related to Applicable Laws relating to
health care, the health care industry and the provision of health care services,
third party reimbursement (including Medicare and Medicaid), public health and
safety and wrongful death and medical malpractice), 4.32, 4.33, 4.34, 4.35, 4.36
and 6.9 (to the extent related to Applicable Laws relating to health care, the
health care industry and the provision of health care services, third party
reimbursement (including Medicare and Medicaid), public health and safety and
wrongful death and medical malpractice), as to which breaches of the
representations, warranties and covenants contained in such Sections, there
shall be no cap on the Company's indemnification obligations under Section 8.2.
8.4 Losses.
The term "Losses" as used in this Article VIII is not limited to
matters asserted by third parties but includes Losses incurred or sustained by
an Indemnified Party in the absence of third party claims. The difference
between (a) any insurance proceeds received by an Indemnified Party in respect
of Losses and (b) the legal costs and expenses incurred by such Indemnified
Party, if any, in seeking the payment of such insurance proceeds from the
insurer or insurers who insured against such Loss, shall be deducted from any
Claim for indemnification made by such Indemnified Party against the Company.
Payments by an Indemnified Party of amounts for which such Indemnified Party is
indemnified hereunder shall not be a condition precedent to recovery. If, after
payment of any Claim by the Company to an Indemnified Party, such Indemnified
Party receives insurance proceeds on account of the Loss indemnified by such
payment by the Company, such Indemnified Party shall pay to the Company the
lesser of (a) the amount of the payment on the Claim with respect to such Loss
by the Company to the Indemnified Party and (b) the amount of such insurance
proceeds minus the legal costs and expenses incurred by such Indemnified Party,
if any, in seeking the payment of such insurance proceeds from the insurer or
insurers who insured against such Loss.
8.5 Defense of Claims.
If a claim for Losses (a "Claim") is to be made by an Indemnified
Party, such Indemnified Party shall give written notice (a "Claim Notice") to
the Company as soon as practicable after such Indemnified Party becomes aware of
any fact, condition or event which may give rise to Losses for which
indemnification may be sought under this Article VIII. If any lawsuit or
enforcement action is filed against any Indemnified Party hereunder, notice
thereof (a "Third Party Notice") shall be given to the Company as promptly as
practicable (and in any event within ten (10) calendar days after the service of
the citation or summons). The failure of any Indemnified Party to give timely
notice hereunder shall not affect rights to indemnification hereunder, except to
the extent that the Company demonstrates actual damage caused by such
61
<PAGE>
failure. After receipt of a Third Party Notice, if the Company shall
acknowledge in writing to the Indemnified Party that the Company shall be
obligated under the terms of its indemnity hereunder in connection with such
lawsuit or action, then the Company shall be entitled, if it so elects, (a) to
take control of the defense and investigation of such lawsuit or action, (b) to
employ and engage attorneys of its own choice to handle and defend the same, at
the Company's cost, risk and expense unless the named parties to such action or
proceeding include both the Company and the Indemnified Party and the
Indemnified Party has been advised in writing by counsel that there may be one
or more legal defenses available to such Indemnified Party that are different
from or additional to those available to the Company, and (c) to compromise or
settle such claim, which compromise or settlement (i) shall be made and entered
into only with the advance written consent of the Indemnified Party (in its sole
discretion) if such compromise or settlement, in the reasonable judgment of the
Indemnified Party, would cause more than de minimis harm to such Indemnified
Party's business reputation, (ii) may be made and entered into in the sole
discretion of the Company if such compromise or settlement provides for the
payment solely of cash to the claimant in such lawsuit in full satisfaction of
such claimant's claim therein and includes a release of the Indemnified Party to
the maximum extent permitted by law (and would not otherwise, in the reasonable
judgment of such Indemnified Party, cause more than de minimis harm to such
Indemnified Party's business reputation) and (iii) otherwise shall be entered
into only with the advance written consent of the Indemnified Party (such
consent not to be unreasonably withheld). The Indemnified Party shall cooperate
in all reasonable respects with the Company and such attorneys in the
investigation, trial and defense of such lawsuit or action and any appeal
arising therefrom; and the Indemnified Party may, at its own cost, participate
in the investigation, trial and defense of such lawsuit or action and any appeal
arising therefrom and appoint its own counsel therefor, at its own cost. The
parties shall also cooperate with each other in any notifications to insurers.
If the Company fails to assume the defense of such claim within fifteen (15)
calendar days after receipt of the Third Party Notice, the Indemnified Party
against which such claim has been asserted will (upon delivering notice to such
effect to the Company) have the right to undertake the defense, compromise or
settlement of such claim at the Company's cost and the Company shall have the
right to participate therein at its own cost; provided, however, that such claim
shall not be compromised or settled without the written consent of the Company,
which consent shall not be unreasonably withheld. In the event the Indemnified
Party assumes the defense of the claim, the Indemnified Party will keep the
Company reasonably informed of the progress of any such defense, compromise or
settlement. Notwithstanding the foregoing, the Company shall not be liable for
the reasonable fees and expenses of more than one firm of attorneys at any time
for any and all Indemnified Parties (which firm shall be designated in writing
by such Indemnified Party or Parties) in connection with any one such action or
proceeding or multiple actions or proceedings provided that they are held in the
same jurisdiction, arising out of the same general allegations or circumstances.
ARTICLE IX
MISCELLANEOUS
9.1 Fees and Expenses.
The Company shall be responsible for the payment of all expenses
incurred by the Company in connection with the Transaction, regardless of
whether any portion of the
62
<PAGE>
Transaction closes, including, without limitation, all fees and expenses of the
Company's legal counsel and all third party consultants engaged by the Company
to assist in the Transaction.
9.2 Injunctive Relief.
The parties hereto acknowledge and agree that irreparable damage would
occur in the event any of the provisions of this Agreement were not performed in
accordance with their specific terms or were otherwise breached. It is
accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of the provisions of this Agreement and shall be
entitled to enforce specifically the provisions of this Agreement in any court
of the United States or any state thereof having jurisdiction, in addition to
any other remedy to which the parties may be entitled under this Agreement or at
law or in equity
9.3 Assignment.
Neither this Agreement nor any of the rights or obligations hereunder
may be assigned by the Company without the prior written consent of the
Purchaser, or by the Purchaser without the prior written consent of the Company,
except that the Purchaser may, without such consent, assign, in whole or in
part, the right to acquire the Securities hereunder to an Affiliate of the
Purchaser. Subject to the foregoing, this Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
assigns, and no other person shall have any right, benefit or obligation
hereunder.
9.4 Notices.
Unless otherwise provided herein, any notice, request, instruction or
other document to be given hereunder by any party to the other shall be in
writing and delivered by hand-delivery, registered first-class mail, return
receipt requested, facsimile or air courier guaranteeing overnight delivery, as
follows:
If to the Company: InSight Health Services Corp.
4400 MacArthur Boulevard, Suite 800
Newport Beach, CA 92660
Facsimile: 714.851.4488
Attn: Chief Financial Officer
With a copy to: McDermott, Will & Emery
2049 Century Park East - 34th Floor
Los Angeles, CA 90067
Facsimile: 310.277.4730
Attn: Mark J. Mihanovic, Esq.
and
Arent, Fox, Kintner, Plotkin & Kahn
63
<PAGE>
1050 Connecticut Avenue, N.W., Suite 600
Washington, D.C. 20036
Facsimile: 202.857.6395
Attn: Gerald P. McCartin, Esq.
If to the Purchaser: General Electric Company
P.O. Box 414, W-490
Milwaukee, WI 53201-0414
Facsimile: 414.789.4573
Attn: Richard S. Berger, Finance Manager
and
GE Capital
260 Long Ridge Road
Stamford, CT 06927-5000
Facsimile: 203.357.6567
Attn: Michael E. Aspinwall, Senior Vice President
With a copy to: Gibson, Dunn & Crutcher LLP
333 S. Grand Avenue
Los Angeles, CA 90071-3197
Facsimile: 213.229.7520
Attn: Ronald S. Beard, Esq.
or to such other place and with such other copies as either party may designate
as to itself by written notice to the other. All such notices, requests,
instructions or other documents shall be deemed to have been duly given at the
time delivered by hand, if personally delivered, four (4) business days after
being deposited in the mail, postage prepaid, if mailed, when receipt is
acknowledged by addressee, if by facsimile, or on the next business day, if
timely delivered to an air courier guaranteeing overnight delivery.
9.5 Choice of Law.
This Agreement shall be construed, interpreted and the rights of the
parties determined in accordance with the internal laws of the State of New
York, without regard to the conflict of law principles thereof; except with
respect to matters of law concerning the internal corporate affairs of any
corporate entity which is a party to or the subject of this Agreement, and as to
those matters the law of the jurisdiction under which the respective entity
derives its powers shall govern. The parties irrevocably elect as the sole
judicial forum for the adjudication of any matters arising under or in
connection with
64
<PAGE>
this Agreement, the Ancillary Agreements and the transactions contemplated
hereby and thereby, and consent to the jurisdiction of, the courts of the United
States of America for the Southern District of New York and of the State of New
York in Manhattan in connection with the adjudication of any matter arising
under or in connection with this Agreement, the Ancillary Agreements and the
transactions contemplated hereby and thereby, and waive any and all objections
to such jurisdiction or venue that they may have.
9.6 Entire Agreement.
All Exhibits and Schedules attached to this Agreement by this
reference are incorporated herein as if fully set forth herein. This Agreement,
including all Exhibits and Schedules attached hereto, constitutes the entire
agreement among the parties pertaining to the subject matter hereof and
supersedes all prior agreements, understandings, negotiations and discussions,
whether oral or written, of the parties, including the written summary of
proposed terms between the Company and the Purchaser dated September 15, 1997.
Capitalized terms used in the Exhibits and Schedules but not defined therein
shall have the respective meanings ascribed to such terms in this Agreement.
Any item disclosed in one Schedule shall be deemed to have been disclosed in all
other Schedules.
9.7 Counterparts.
This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
9.8 Invalidity.
In the event that any one or more of the provisions contained in this
Agreement or in any other instrument referred to herein shall for any reason be
held to be invalid, illegal or unenforceable in any respect, such invalidity,
illegality or unenforceability shall not affect any other provision of this
Agreement or any other such instrument.
9.9 Headings; Language.
The headings of the Articles and Sections herein are inserted for
convenience of reference only and are not intended to be a part of or to affect
the meaning or interpretation of this Agreement. In this Agreement, unless the
context otherwise requires, the masculine, feminine and neuter genders and the
singular and the plural include one another. Whenever used in this Agreement:
the term "Knowledge," with respect to any Person, means the actual knowledge of
such Person, after reasonable inquiry. For purposes hereof, a Person shall be
deemed to have actual knowledge of the contents of all books and records with
respect to which such Person has reasonable access. Without limiting the
generality of the foregoing, with respect to any Person that is a corporation,
partnership or other business entity, actual knowledge shall be deemed to
include the actual knowledge of all principal employees of any such Person
(which, for purposes of the Company, shall include without limitation those
Persons listed in Exhibit J) as well as the Chief Executive Officer, President,
Chief Financial Officer and all Vice Presidents in the case of corporate
Persons, and general partners in the case of general or limited partnerships, as
the case may be; "receipt by the Company or any Subsidiary of notice," and
similar phrases, means physical receipt at a location owned, leased or operated
by the Company or its Subsidiaries; "including" means including, without
limitation.
65
<PAGE>
9.10 Limitation of Liability.
In no event shall (a) any Affiliate of the Purchaser, (b) any member
or representative of the Purchaser or of any Affiliate of the Purchaser or
(c) any direct or indirect member, stockholder, officer, director, limited
partner, employee or any other such person of the Purchaser or any Affiliate of
the Purchaser, be personally liable for any obligation of the Purchaser under
this Agreement. In no event shall any direct or indirect stockholder, officer,
director, partner, employee or salesperson of the Company or any Subsidiary or
any other such Person be personally liable for any obligation of the Company
under this Agreement.
9.11 Amendments and Waivers.
Any term of this Agreement may be amended and the observance of any
term of this Agreement may be waived (either generally or in a particular
instance and either retroactively or prospectively) only with the written
consent of the Purchaser, the Company and TC Group, L.L.C.
66
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Securities
Purchase Agreement to be duly executed as of the day and year first above
written.
THE COMPANY:
INSIGHT HEALTH SERVICES CORP.,
a Delaware corporation
By
--------------------------------
Name:
--------------------------------
Title:
--------------------------------
THE PURCHASER:
GENERAL ELECTRIC COMPANY
a New York corporation
By:
--------------------------------
Name:
--------------------------------
Title:
--------------------------------
