<PAGE> 1
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934
<TABLE>
<S> <C>
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement [ ] Confidential, For Use of the
Commission Only (as permitted
by Rule 14a-6(e)(2)
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
American Shared Hospital Services
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ] No fee required
[X] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
Not applicable.
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transactions applies:
Not applicable.
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee
is calculated and state how it was determined):
$13,552,000 (aggregate cash consideration)
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
$13,552,000
- --------------------------------------------------------------------------------
(5) Total fee paid:
$2,710.40
- --------------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials:
- --------------------------------------------------------------------------------
[ ] Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by registration statement
number, or the form or schedule and the date of its filing.
(1) Amount previously paid:
Not applicable.
- --------------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement no.:
Not applicable.
- --------------------------------------------------------------------------------
(3) Filing Party:
Not applicable.
- --------------------------------------------------------------------------------
(4) Date Filed:
Not applicable.
- --------------------------------------------------------------------------------
</TABLE>
<PAGE> 2
AMERICAN SHARED HOSPITAL SERVICES
FOUR EMBARCADERO CENTER, SUITE 3620
SAN FRANCISCO, CALIFORNIA 94111-4155
April 30, 1998
To our Shareholders:
On behalf of the Board of Directors of American Shared Hospital Services
(the "Company"), I cordially invite you to attend a Special Meeting of
Shareholders of the Company (including any adjournment or postponement thereof,
the "Special Meeting") to be held at 10:00 a.m. (Pacific time), on June 12,
1998, at the Ritz Carlton Hotel, 600 Stockton at California Street, San
Francisco, California 94108.
At the Special Meeting you will be asked to approve the sale by the Company
of its diagnostic imaging business. The consideration to be received by the
Company will be $13,552,000 in cash and the assumption by the purchasers of
substantially all of the debt and other liabilities of the diagnostic imaging
business. Important details regarding the structure of the transaction and other
matters are described more fully in the accompanying Proxy Statement.
Following these transactions you will continue to be a shareholder of the
Company. Nevertheless, because of the importance of the business being sold,
California law requires that the Company seek your approval before proceeding.
The business to be sold does not include the Company's Gamma Knife or insurance
divisions. The net cash proceeds from the Proposed Sale will be used to expand
the Company's Gamma Knife business and for general corporate purposes. In
addition, the Board of Directors will analyze, with the assistance of its
financial and legal advisors, other uses of such proceeds in light of the
capital requirements of the Company, opportunities available to it and legal
constraints under California law.
THE BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED, AND RECOMMENDS THAT YOU
VOTE "FOR", THE PROPOSED SALE OF THE COMPANY'S DIAGNOSTIC IMAGING BUSINESS. In
arriving at its recommendation, the Board of Directors has given careful
consideration to a number of factors described in the enclosed Proxy Statement,
including an opinion of PaineWebber Incorporated, the Company's financial
advisor, that the consideration to be received by the Company for the Company's
diagnostic imaging business in the proposed transaction (as more fully described
in the enclosed Proxy Statement) is fair to the Company from a financial point
of view.
The Board of Directors has for some time considered the strategic direction
of the Company in light of, among other things, the competitive conditions
facing the Company and the Company's financial condition and leverage. Based on
these and other considerations more fully described in the enclosed Proxy
Statement, the Board of Directors believes that the proposed sale is expedient
and fair and in the best interests of the Company and its shareholders.
The approval of the proposed sale requires the affirmative vote of holders
of at least a majority of the outstanding shares of Common Stock, no par value
per share, of the Company (the "Common Shares"). The purchasers of the Company's
diagnostic imaging business have entered into Stockholder Agreements with
certain shareholders of the Company who are the beneficial owners of
approximately 27.0% of the issued and outstanding Common Shares, pursuant to
which such shareholders have agreed to vote in favor of the proposed sale. In
addition, affiliates of the purchasers are the beneficial owners of
approximately 9.2% of the issued and outstanding Common Shares (although no
agreement or understanding exists with such affiliates as to the voting of such
Common Shares) and another shareholder has agreed, if it is necessary to achieve
a majority vote, to exercise certain options and vote the resulting Common
Shares in favor of the proposed transaction. If all such options are in fact
exercised, the shareholders who have agreed to vote in favor of the proposed
sale and the affiliates of the purchasers would hold approximately 51.4% of the
Common Shares issued and outstanding following such exercise.
<PAGE> 3
Details of the proposed sale and other important information are included
in the accompanying Proxy Statement. Please give this material your careful
attention. Whether or not you plan to attend the Special Meeting in person,
please date, sign and mail the enclosed proxy in the envelope provided. If you
attend the Special Meeting, you may vote in person even if you have previously
returned your proxy card. Your prompt consideration will be greatly appreciated.
Yours sincerely,
Ernest A. Bates, M.D.
Chairman of the Board and Chief
Executive Officer
<PAGE> 4
AMERICAN SHARED HOSPITAL SERVICES
FOUR EMBARCADERO CENTER, SUITE 3620
SAN FRANCISCO, CALIFORNIA 94111-4155
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON JUNE 12, 1998
TO THE SHAREHOLDERS OF AMERICAN SHARED HOSPITAL SERVICES:
NOTICE IS HEREBY GIVEN that, pursuant to a call of the Board of Directors,
a Special Meeting (the "Special Meeting") of Shareholders of American Shared
Hospital Services, a California corporation (the "Company"), will be held at the
Ritz Carlton Hotel, 600 Stockton at California Street, San Francisco, California
94108 on Friday, June 12, 1998 at 10:00 a.m. (Pacific time) to consider and act
upon the following matters, all as set forth in the Proxy Statement.
1. PROPOSED SALE. To consider and vote upon a proposal to approve the sale
(the "Proposed Sale") (a) by the Company to Embarcadero Holding Corp. I, a
Delaware corporation ("Purchaser A") and a wholly-owned subsidiary of Alliance
Imaging, Inc., a Delaware corporation ("Alliance") of (i) all of the issued and
outstanding shares of common stock, par value $1.00 per share, of CuraCare,
Inc., a Delaware corporation and wholly-owned subsidiary of the Company and (ii)
all its 50% general partnership interest in American Shared-CuraCare, a
California general partnership ("AS-C") and (b) by MMRI, Inc., a California
corporation and a wholly-owned subsidiary of the Company ("MMRI") to Embarcadero
Holding Corp. II, a Delaware corporation and a wholly-owned subsidiary of
Alliance ("Purchaser B"; and together with Purchaser A, the "Purchasers"), of
all its 50% general partnership interest in AS-C, in each case pursuant to the
terms and conditions of the Securities Purchase Agreement dated as of March 12,
1998, by and among the Company, MMRI, Alliance and the Purchasers.
2. OTHER BUSINESS. To transact such other business and to consider and take
action upon any and all matters that may properly come before the Special
Meeting and any and all adjournments thereof.
The Board of Directors knows of no matters, other than those set forth in
paragraph (1) above, that will be presented for consideration at the Special
Meeting.
The Board of Directors has fixed the close of business on April 23, 1998 as
the Record Date for the determination of shareholders entitled to vote at the
Special Meeting.
WHETHER OR NOT YOU EXPECT TO ATTEND THE SPECIAL MEETING IN PERSON, PLEASE
DATE, SIGN AND MAIL THE ENCLOSED PROXY IN THE ENVELOPE PROVIDED AS PROMPTLY AS
POSSIBLE. THE PROXY IS REVOCABLE AND WILL NOT AFFECT YOUR RIGHT TO VOTE IN
PERSON IF YOU ATTEND THE MEETING. IN ORDER TO FACILITATE THE PROVISION OF
ADEQUATE ACCOMMODATIONS, PLEASE INDICATE ON THE PROXY WHETHER YOU PLAN TO ATTEND
THE MEETING IN PERSON.
By Order of the Board of Directors
Willie R. Barnes
Corporate Secretary
Dated: April 30, 1998
San Francisco, California
<PAGE> 5
AMERICAN SHARED HOSPITAL SERVICES
FOUR EMBARCADERO CENTER, SUITE 3620
SAN FRANCISCO, CALIFORNIA 94111-4115
------------------------
PROXY STATEMENT
SPECIAL MEETING OF SHAREHOLDERS
JUNE 12, 1998
------------------------
INTRODUCTION
This Proxy Statement is being furnished to shareholders of American Shared
Hospital Services, a California corporation (the "Company"), in connection with
the solicitation of proxies by the Company's Board of Directors for use at the
Special Meeting of Shareholders scheduled to be held at 10:00 a.m. (Pacific
Time) on Friday, June 12, 1998 (including any adjournment or adjournments
thereof, the "Special Meeting") at the Ritz Carlton Hotel, 600 Stockton at
California Street, San Francisco, California 94108. It is anticipated that this
Proxy Statement and the Proxy will first be sent to shareholders on or about
April 30, 1998.
The matters to be considered and voted upon at the Special Meeting will be:
(1) To consider and vote upon a proposal to approve the sale (the "Proposed
Sale") (a) by the Company to Embarcadero Holding Corp. I, a Delaware corporation
("Purchaser A") and a wholly-owned subsidiary of Alliance Imaging, Inc., a
Delaware corporation ("Alliance") of (i) all the issued and outstanding shares
(the "CT Shares") of common stock, par value $1.00 per share, of CuraCare, Inc.,
a Delaware corporation and a wholly-owned subsidiary of the Company ("CuraCare")
and (ii) all its 50% general partnership interest (the "Parent Partnership
Interest") in American Shared-CuraCare, a California general partnership
("AS-C"; and together with CuraCare, the "Entities") and (b) by MMRI, Inc., a
California corporation and a wholly-owned subsidiary of the Company ("MMRI"; and
together with the Company, the "Sellers") to Embarcadero Holding Corp. II, a
Delaware corporation and a wholly-owned subsidiary of Alliance ("Purchaser B";
and together with Purchaser A, the "Purchasers"), of all its 50% general
partnership interest (the "MMRI Partnership Interest"; and together with the CT
Shares and the Parent Partnership Interest, the "Shares") in AS-C, in each case
pursuant to the terms and conditions of the Securities Purchase Agreement dated
as of March 12, 1998 (the "Securities Purchase Agreement"), by and among the
Company, MMRI, Alliance and the Purchasers; and
(2) To transact such other business as may properly be brought before the
Special Meeting and any and all adjournments thereof.
A copy of the Securities Purchase Agreement is attached to this Proxy
Statement as Annex A. The consideration to be received by the Company for the
Shares is $13,552,000 in cash and the assumption by the Purchasers of debt and
liabilities, including approximately $26,100,000 of debt of CuraCare and AS-C.
The Proposed Sale does not include the Company's Gamma Knife or insurance
businesses. See "TERMS OF THE PROPOSED SALE." The net cash proceeds of the
Proposed Sale will be used to expand the Company's Gamma Knife business and for
general corporate purposes. In addition, the Board of Directors will analyze,
with the assistance of its financial and legal advisors, other uses of such
proceeds in light of the capital requirements of the Company, opportunities
available to it and legal constraints under California law. See "USE OF
PROCEEDS."
Only shareholders of record at the close of business on April 23, 1998 (the
"Record Date") are entitled to notice of and to vote at the Special Meeting.
The Company's principal executive offices are located at Four Embarcadero
Center, Suite 3630, San Francisco, California 94111-4115 and its telephone
number is (415) 788-5300.
<PAGE> 6
VOTING AND PROXIES
VOTE REQUIRED AND VOTING PROCEDURES
Each holder of shares of Common Stock, no par value per share, of the
Company ("Common Shares") will be entitled to one vote, in person or by proxy,
for each share standing in his, her or its name on the books of the Company as
of the Record Date for the Special Meeting on each of the matters duly presented
for vote at the Special Meeting. The affirmative vote of the holders of a
majority of the outstanding Common Shares entitled to vote as of the Record Date
is necessary for the approval of the Proposed Sale.
All outstanding Common Shares represented by properly executed and
unrevoked proxies received in time for the Special Meeting will be voted. All
Common Shares represented by properly executed proxies will be voted at the
Special Meeting as instructed in the accompanying proxy on each matter submitted
to shareholders. The enclosed form of proxy provides a means for shareholders to
vote for approval of the Proposed Sale, to vote against the Proposed Sale or to
abstain from voting with regard to the approval of the Proposed Sale. IF NO
INSTRUCTIONS ARE SPECIFIED, THE COMMON SHARES REPRESENTED BY A PROPERLY EXECUTED
PROXY WILL BE VOTED "FOR" THE PROPOSED SALE.
A proxy submitted by a shareholder may indicate that all or a portion of
the Common Shares represented by such proxy are not being voted by such
shareholder with respect to a particular matter. This could occur, for example,
when a broker is not permitted to vote stock held in street name on certain
matters in the absence of instructions from the beneficial owner of the stock.
The Common Shares subject to any such proxy which are not being voted with
respect to a particular matter (the "non-voted shares") will be considered
shares not present and entitled to vote on such matter, although such shares may
be considered present and entitled to vote for other purposes and will count for
purposes of determining the presence of a quorum. Because the approval of the
Proposed Sale requires a vote based on the total outstanding number of Common
Shares, abstentions and non-voted shares will be equivalent to a vote against
the Proposed Sale. Accordingly, the Company urges each shareholder to vote and
urges shareholders whose shares are held in the name of their broker, bank or
nominee to instruct such person to vote their shares.
In connection with the solicitation by the Board of Directors of proxies
for use at the Special Meeting, the Board of Directors has designated Ernest A.
Bates, M.D. and Richard Magary as proxies. The Board of Directors is not aware
of any matters that will come before the Special Meeting other than as described
above. However, if such matters are presented, the named proxies will, in the
absence of instructions to the contrary, vote such proxies in accordance with
the judgment of such named proxies with respect to any such other matter
properly coming before the Special Meeting.
A majority of the Common Shares outstanding on the Record Date must be
represented in person or by proxy at the Special Meeting in order to constitute
a quorum for the transaction of business. Assuming the presence of a quorum, the
affirmative vote of the holders of a majority of the Common Shares entitled to
vote as of the Record Date is required for the approval of the Proposed Sale.
In connection with the execution of the Securities Purchase Agreement, the
Purchasers have entered into Stockholder Agreements with certain shareholders,
including directors and officers, of the Company who are the beneficial owners
of approximately 27.0% of the issued and outstanding Common Shares, pursuant to
which such shareholders have agreed to vote in favor of the Proposed Sale. In
addition, affiliates of the Purchasers are the beneficial owners of
approximately 9.2% of the issued and outstanding Common Shares (although no
agreement or understanding exists with such affiliates as to the voting of such
Common Shares) and another shareholder has agreed, if it is necessary to achieve
a majority vote, to exercise certain options and vote the resulting Common
Shares in favor of the Proposed Sale. If all such options are in fact exercised,
the shareholders who have agreed to vote in favor of the Proposed Sale and the
affiliates of the Purchasers would hold approximately 51.4% of the Common Shares
issued and outstanding following such exercise.
The Board of Directors has appointed Geraldine Zarbo of American Stock
Transfer & Trust Company, the registrar and transfer agent for the Common
Shares, or her designee, as the Inspector of Elections for the
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<PAGE> 7
Special Meeting. The Inspector of Elections will determine the number of Common
Shares represented in person or by proxy at the Special Meeting, whether a
quorum exists, the authenticity, validity and effect of proxies and will receive
and count the votes.
RECORD DATE; OUTSTANDING SECURITIES
The Board of Directors has fixed April 23, 1998 as the Record Date for the
determination of shareholders entitled to notice of, and to vote at, the Special
Meeting. At the close of business on the Record Date, there were outstanding and
entitled to vote 4,769,384 Common Shares. The Common Shares are the only class
of securities entitled to vote at the Special Meeting.
DISSENTERS' RIGHTS
Under the laws of the State of California, the Company's shareholders who
object to the Proposed Sale will not be entitled to dissenters' rights.
REVOCABILITY OF PROXIES
A proxy for use at the Special Meeting is enclosed. Any shareholder who
executes and delivers such proxy may revoke it at any time prior to its use by
filing with the Secretary of the Company either written instructions revoking
such proxy or a duly executed proxy bearing a later date. Written notice of the
death of the person executing a proxy, before the vote is counted, is tantamount
to revocation of such proxy. A proxy may also be revoked by attending the
Special Meeting and voting in person.
SOLICITATION OF PROXIES
This proxy solicitation is being made by the Board of Directors of the
Company. The expense of the solicitation will be paid by the Company. To the
extent necessary to assure sufficient representation at the Special Meeting,
proxies may be solicited by any appropriate means by directors, officers,
regular employees of the Company and the stock transfer agent for the Common
Shares, who will not receive any additional compensation therefor. The Company
will request that banks, brokers and other fiduciaries solicit their customers
who own beneficially the Common Shares listed of record in names of nominees
and, although there is no formal arrangement to do so, the Company will
reimburse such persons the reasonable expenses of such solicitation. In
addition, the Company may pay for and utilize the services of individuals or
companies not regularly employed by the Company in connection with the
solicitation of proxies, if the Board of Directors of the Company determines
that this is advisable.
THE PROPOSED SALE
BACKGROUND OF THE PROPOSED SALE
Beginning in 1992, the Company experienced substantial declines in revenues
from its mobile shared medical diagnostic imaging business (the "Imaging
Business"). These revenue declines were caused in large part by increased
competition and reduced acceptance of the services offered by the Company. The
combination of reduced revenues and the Company's high fixed payment obligations
under its equipment leases and two series of Senior Subordinated Notes Due 1996
(the "Notes") led to a serious cash shortage in the second half of 1992. During
this period the Company concluded that revenues from its operating activities
would be insufficient to meet its fixed obligations and determined that these
obligations would have to be restructured.
The Company failed to make the required semi-annual payments due under the
Notes beginning in October 1992. In addition, the Company suspended lease
payments on a significant portion of its medical equipment leases beginning in
December 1992. As a result of these actions, both the Notes and equipment leases
relating to substantially all of the Company's medical imaging equipment were in
default. This gave the holders of these obligations, as well as the lender under
the Company's secured working capital facility, the
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<PAGE> 8
right to declare all amounts immediately due and payable and, in the case of the
leases, reclaim substantially all of the Company's medical imaging equipment.
The Company stated at the time that any such action by the holders would have
forced the Company to seek a liquidation under Chapter 7 or a reorganization
under Chapter 11 of the United States Bankruptcy Code.
On May 17, 1995, the Company repurchased (the "Notes Repurchase")
$17,694,000 principal amount of Notes for a combination of $3,900,000 in cash,
819,000 Common Shares and immediately exercisable Warrants to acquire an
additional 216,000 Common Shares, which amounts were adjusted in October 1995 in
connection with the issuance of stock options to the Company's Chairman and
Chief Executive Officer as consideration for his personal guarantee of the
Medical Imaging Credit Facilities described below, for a total of 1,193,000
Common Shares and Warrants to acquire 314,000 Common Shares. In August 1996, the
Company completed an exchange offer in which it issued 287,000 Common Shares for
a majority of the Notes that were outstanding following the Notes Repurchase.
The remaining $360,000 principal amount of Notes was paid at maturity in October
1996.
In order to finance the Notes Repurchase, the Company entered into a
$4,000,000 revolving credit facility (which was increased to $5,500,000 in
November 1997) and a $2,500,000 term loan. These loans are secured by all of the
Company's accounts receivable and medical equipment, respectively. These loan
facilities are referred to as the "Medical Imaging Credit Facilities." At the
time of the Notes Repurchase, the Company also incurred a $1,500,000 loan to
refinance its Gamma Knife unit at the Medical Center of the University of
California, San Francisco.
As part of the restructuring described above, the Company was able to amend
most of the capital and operating leases (the "Medical Imaging Leases") covering
its medical equipment to extend the lease terms and reduce the required monthly
payments thereunder. In connection with these amendments, the Company converted
certain accrued and unpaid lease and service payments into promissory notes (the
"GE Notes") to General Electric Company ("GE") in the principal amounts of
approximately $2,000,000 and $500,000, respectively. On December 29, 1995 and
March 1, 1996, the Company further restructured certain of its Medical Imaging
Leases and the GE Notes to extend the terms of the leases and defer certain
monthly lease payments and installment payments under the GE Notes. The GE Notes
are secured by a lien on the accounts receivable of AS-C and CuraCare and by
liens on certain medical equipment.
The transactions described above enabled the Company to cure all of the
defaults on its debt and equipment leases. Nevertheless, the Company remained
highly leveraged and had substantial fixed payment obligations, including
significant short term maturities. The Company's financial condition precluded
access to the capital markets and subjected the Company to stringent and
expensive financing terms. As a result of the Company's weakened financial
condition, its Chairman and Chief Executive Officer was required to provide an
irrevocable personal guarantee of the Medical Imaging Credit Facilities and, for
the period from 1993 through 1996, the annual renewal premiums under most of the
Company's commercial insurance policies.
Following the 1995 and 1996 restructurings, the Company instituted a
program of asset sales and cost reductions in order to provide cash to meet its
obligations as they became due. Nevertheless, the Company's management and Board
of Directors acknowledged at the time that, in the longer term, the Company
would be required to respond to fundamental changes in the industry. It was
apparent that the medical imaging business, both mobile and fixed, was entering
a period of consolidation as a result of the growth of managed care and other
competitive forces. Smaller entities, such as the Company, would either be
required to grow through acquisitions or become part of larger enterprises in
order to compete successfully and achieve acceptable returns for their
shareholders.
On December 11, 1996, the Company and US Diagnostic Inc. ("USD") entered
into a letter of intent pursuant to which USD would acquire the Company for
$2.25 per share in cash. USD made it clear that it did not wish to acquire the
Company's Gamma Knife or insurance businesses, and arrangements had been made
for these to be sold to the Company's Chairman and Chief Executive Officer. On
January 29, 1997, the Company and USD agreed to revised terms. Under the revised
terms, USD agreed to acquire the outstanding securities of the Company for USD
common shares at the rate of $2.40 per share of the Company in a transaction
that would be accounted for under pooling instead of the purchase method of
accounting. In each
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<PAGE> 9
case, the sales price was contingent upon obtaining significant concessions from
GE on the terms of the Medical Imaging Leases. The transaction was terminated in
April 1997 as a result of the inability of USD to proceed with negotiations
within a reasonable time period and on satisfactory terms.
The Company had agreed to be acquired by USD in response to the industry
trend toward consolidation and because the transaction would enable the
Company's shareholders to obtain a fair price and liquidity for their
investment. The termination of the proposed transaction, in light of the
unavailability of capital to the Company and continuing weakness in the price of
its Common Shares, made it necessary for the Company to seek additional
acquisition offers. Accordingly, the Company's management and its advisors
initiated meetings with other industry participants in order to seek expressions
of interest in the Company or its assets.
During May and early June 1997, the Company's Chairman and Chief Executive
Officer engaged in discussions and correspondence with the senior executives of
Alliance regarding a combination of the companies. On June 18, Alliance offered
to acquire the Company's Imaging Business, and to assume all related debt and
lease obligations, for cash consideration of $12,000,000. Alliance specifically
excluded the Company's Gamma Knife and insurance businesses from its offer. In
addition, the offer was conditioned on the receipt of substantial concessions
from GE with respect to debt and lease terms.
On June 24, an operator of mobile Magnetic Resonance Imaging (MRI) units in
the eastern United States, announced that it had entered into an agreement to be
acquired by an affiliate of Apollo Management, L.P. ("Apollo"). Apollo, through
its affiliates, is the beneficial owner of 554,947 Common Shares (which includes
Warrants to acquire 115,629 Common Shares), representing approximately 7.9% of
the fully diluted Common Shares. Apollo received these shares and warrants in
the Notes Repurchase. Following the public announcement of Apollo's intent to
make this acquisition, the Company contacted Apollo to determine whether it was
interested in acquiring the Company.
On July 23, 1997, Alliance announced that it had entered into a definitive
agreement to merge with an affiliate of Apollo. The transaction in which Apollo,
through its affiliates, acquired Alliance closed on December 18, 1997.
On July 25, 1997, within several days after agreeing to acquire Alliance,
Apollo entered into a letter agreement (the "Confidentiality Agreement") with
the Company. Pursuant to the Confidentiality Agreement, the Company agreed to
provide certain non-public information to Apollo, its affiliates and their
advisors so that they could evaluate the possible acquisition of the Company's
diagnostic imaging assets. Such persons conducted a review of the Company's
operations and finances during August and September 1997. As part of this
review, Apollo confirmed that it would consider acquiring only the Company's
Imaging Business and not its Gamma Knife or insurance businesses.
In late August and early September 1997, Apollo and the Company discussed
possible transaction structures and valuation models for an acquisition of the
Imaging Business. Once again, GE became involved in these discussions because of
the significant amount of debt and equipment leases that would have to be
assumed in any transaction. As a result of these discussions, Apollo and the
Company were able to agree on minimum transaction terms that the Company's Board
of Directors found acceptable, but Apollo was not willing to commit to acquire
the Company's assets without performing a more thorough review and monitoring
the Company's performance over the course of several months.
On September 15, 1997, Apollo and the Company entered into a second letter
agreement (the "Exclusivity Letter"). In the Exclusivity Letter, the Company
agreed, among other things, to afford full access to Apollo and its advisors for
the purpose of conducting a comprehensive business and financial review of the
Imaging Business. In addition, the Company agreed not to negotiate with or
provide non-public information to any other person or entity other than Apollo
(with the exception described below) with respect to a sale or recapitalization
of the Company or the Imaging Business until November 15, 1997. The Exclusivity
Letter also required the Company to reimburse Apollo for up to $500,000 of
expenses in the event that, among other things, the Company (i) entered into an
agreement for another sale transaction with a designated person prior to
November 15, 1997 or (ii), on or before such date and after completion of its
due diligence review, Apollo confirmed to the Company "its good faith intention
to pursue an acquisition of the
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<PAGE> 10
assets of the Company constituting its imaging division for not less than
$13,552,000, the assumption by the purchaser of the related debt (approximately
$30 million) and the sale by GE Medical of its 225,000 shares of Common Stock to
the Company for $0.01 per share. . . ." and the Company declined to negotiate
with Apollo concerning such a transaction or enter into an agreement with Apollo
to consummate such a transaction and the Company thereafter consummated a
similar transaction within one year with any party.
The Exclusivity Letter permitted the Company to negotiate and supply
information to one other corporation that had previously expressed an interest
in acquiring the Company. Based on conversations with the other corporation
subsequent to the date of the Exclusivity Letter, the Company determined that
such corporation was not able or willing to pursue an acquisition. The Company
has not been in contact with the other corporation since late September 1997.
Following their execution of the Exclusivity Letter, Apollo and its
advisors conducted an extensive due diligence review and the Company and Apollo
engaged in lengthy and complex negotiations over terms of the transaction and
the elements of a purchase contract. The materiality of the unresolved business
and financial issues required the parties to extend the exclusivity period on
several occasions. The exclusivity period was initially extended from November
15, 1997 through December 31, 1997, and subsequently to January 31, 1998,
February 9, 1998 and March 4, 1998. In connection with the first extension, the
Company gave up its right to negotiate with the corporation described in the
immediately preceding paragraph and, in consideration therefor, was relieved of
any obligation to reimburse Apollo's due diligence expenses. In connection with
the final extension, Apollo paid the Company a non-refundable $75,000 fee, which
will be credited against the purchase price if the Proposed Sale is consummated.
The final extension of the exclusivity period expired on March 4, 1998.
Apollo requested, but the Company declined to grant, another extension. The
parties nevertheless continued to negotiate and entered into the Securities
Purchase Agreement on March 12, 1998.
As of March 10, 1998, the last full trading day prior to the public
announcement of the Proposed Sale, the high and low closing sales prices for the
Common Shares were $1 11/16 and $1 9/16, respectively.
RECOMMENDATION OF THE BOARD OF DIRECTORS FOR THE PROPOSED SALE
THE BOARD OF DIRECTORS OF THE COMPANY HAS UNANIMOUSLY APPROVED THE PROPOSED
SALE. THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS APPROVAL OF THE PROPOSED
SALE BY THE SHAREHOLDERS OF THE COMPANY.
The material factors considered by the Board of Directors in making its
recommendation include the following:
Competitive Conditions
The Board of Directors and management of the Company determined nearly two
years ago that the Company would either have to grow or be sold. This
determination was based on the consolidation of the industry in response to the
growth of managed care and the intensification of competition. The Company is
competing against larger and better financed companies with access to equipment
at lower prices and on terms superior to those available to the Company. Because
of its weak financial condition and low stock price, the Company cannot
realistically expect to grow through acquisitions. Accordingly, the Board
believes that a sale is the best way to acquire capital to expand in areas where
the Company can seek better returns for its shareholders.
Best Transaction Available
The Company has been engaged in discussions or negotiations regarding a
sale for more than 18 months. These discussions and negotiations were publicly
disclosed in November 1996 and since that time the Company has regularly stated
in its public reports and filings that it was available for sale. During this
period, management has responded to numerous inquiries, most of which did not
result in acceptable or substantive offers. Apollo and Alliance understand the
mobile diagnostic imaging industry and have spent a considerable
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amount of time, effort and money on due diligence and to negotiate and execute
the Securities Purchase Agreement. The Company achieved a purchase price
substantially higher than Apollo originally offered in August 1997 and believes
that the terms of the Securities Purchase Agreement are as favorable to the
Company as could be obtained under the circumstances. See "-- Background of the
Proposed Sale." In addition, the Board has received the oral and written advice
of its financial advisor, PaineWebber Incorporated ("PaineWebber"), that the
consideration to be received by the Company for the Shares is fair to the
Company from a financial point of view. See "-- Opinion of Financial Advisor."
For all of these reasons, the Board believes that the Proposed Sale is the best
transaction available to the Company.
Risks of Non-Approval
The Company faces severe competition and its financial condition is weak.
The Company is highly leveraged and does not have access to capital at
attractive rates. In addition, the Company's small size and financial weakness
means that it is unable to acquire or finance imaging equipment on terms that
enable it to operate at levels of profitability that are acceptable to
investors. If the Proposed Sale is not consummated, the Company will have to
continue operating as an independent entity under these conditions or seek
another buyer for its assets. The Board does not consider these alternatives to
be in the best interest of the Company's shareholders when compared to a the
Proposed Sale pursuant to the Securities Purchase Agreement.
Capital for Expansion of Gamma Knife
The proceeds of the Proposed Sale will be available for the Company to
expand its Gamma Knife operations. See "USE OF PROCEEDS." The Board believes
that the Company's past successes in the Gamma Knife business, as well as its
joint venture with the manufacturer of the Gamma Knife, make it likely that the
Company will be able to successfully expand its activities with this modality.
In addition, the history of profitable operations of the Gamma Knife division
makes it likely, in the Board's judgment, that pursuing this business will
result in higher returns to the Company's shareholders than have been or could
reasonably be obtained in the medical diagnostic imaging business. Nevertheless,
the Gamma Knife business involves a substantial amount of risk and there can be
no assurance that the Company will successfully expand its Gamma Knife
operations. See "-- Voting Considerations -- Risks of Gamma Knife Business."
VOTING CONSIDERATIONS
This Proxy Statement contains or incorporates by reference statements that
constitute forward looking information within the meaning of the Private
Securities Litigation Reform Act of 1995. All statements regarding the Company's
future financial condition, results of operations, cash flows, financing plans,
business strategy, projected costs and capital expenditures, operations after
the Proposed Sale and words such as "anticipate," "estimate," "expect,"
"project," "intend," and similar expressions are intended to identify
forward-looking statements. Such statements are subject to certain risks,
uncertainties and assumptions. All of these forward-looking statements are based
on estimates and assumptions made by the Company's management which, although
believed by the Company's management to be reasonable, are inherently uncertain.
Shareholders are cautioned that such forward looking statements are not
guarantees of future performance or results and involve risks and uncertainties
and that actual results or developments may differ materially from the
forward-looking statements as a result of various considerations, including the
considerations described below.
The following considerations, in addition to the other information
contained or incorporated by reference in this Proxy Statement, should be
considered by the shareholders of the Company in evaluating whether to approve
the Proposed Sale:
Limited Profitability
The Company has reported significant operating losses in three of the last
four fiscal years. The net loss of the Company (before extraordinary items) was
$5,537,000, $12,459,000 and $353,000 for the years ended December 31, 1994, 1995
and 1996, respectively. The Company had a net capital deficiency of $8,953,000
at
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December 31, 1997. The Company had net income of $1,522,000 for the year ended
December 31, 1997, but this included a $821,000 gain from the sale of assets and
an early termination of capital leases due to casualty losses. In light of the
competitive environment in the diagnostic imaging business, the Company will be
constrained in its ability to raise scan rates or to take other measures to
increase revenues. Accordingly, if the Proposed Sale is not consummated, the
Company may continue to experience limited profitability and possibly losses if
competition becomes more intense.
High Debt Level
The Company is highly leveraged. At December 31, 1997, the Company had
approximately $16,720,000 of long-term debt and approximately $15,778,000 of
obligations under capital leases. Scheduled payments of principal and interest
under debt obligations and capital leases are approximately $12,271,000 during
1998. In addition, scheduled payments under operating leases and related
maintenance and service agreements are approximately $4,467,000 during 1998. If
the Proposed Sale is consummated, the Purchasers will assume substantially all
of the above obligations and the Company will be relieved of such debt and lease
liabilities. If the Proposed Sale is not consummated, there can be no assurance
that the Company will be able to meet these obligations as they become due.
Further, its high level of leverage will continue to adversely affect the
Company's cost of financing and its ability to secure or retain customer
contracts.
Potential Inability to Repay Maturing Indebtedness
A substantial portion of the Company's funded debt will mature in the near
future. In addition to the Company's long-term debt and capital lease
obligations, on May 1999 the Company's revolving credit facility (approximately
$5,438,000 at December 31, 1997) will become due. The Company does not expect to
have sufficient cash resources to pay all of these obligations at maturity.
Accordingly, the Company will be required to seek new financing to meet its
maturing obligations. If the Proposed Sale is consummated, the Purchasers will
assume or repay all of this indebtedness and the Company will have no continuing
liability therefor. If the Proposed Sale is not consummated, there can be no
assurance that financing to replace the Company's funded debt will be available
or that the terms of any such financing will be acceptable to the Company.
Consolidation of Medical Diagnostic Imaging Industry
The medical diagnostic imaging business, both fixed and mobile, is in a
period of consolidation as a result of the growth of managed care and other
competitive forces. The Company's Board of Directors and management decided some
time ago that the Company would either have to grow through acquisitions or
become part of a larger enterprise in order to compete successfully and achieve
an acceptable return for its shareholders. The Company's weak financial
condition has hindered its ability to obtain capital and its continuing low
share price has made the Common Shares unavailable as a currency for
acquisitions. In addition, competitors of the Company have used the Company's
weak financial condition and qualified audit opinion to discourage customers of
the Company from entering into long-term contracts with the Company. The Board
has approved the Proposed Sale because it will relieve the Company of burdensome
fixed obligations and provide capital for higher growth businesses. If the
Proposed Sale is not consummated, the Company will be required to continue to
compete in the medical diagnostic imaging business against much larger entities
with significantly more capital than the Company. There can be no assurance that
the Company will be able to compete effectively under such circumstances.
Limited Access to Capital and Financing
The Company is severely limited by covenants in its credit agreements from
incurring additional indebtedness. In addition, the Company has pledged
substantially all of its liquid assets and substantially all of its tangible
personal property to secure its existing debt. Because of its weak financial
condition and limited sources of capital, the lease financing available to the
Company is expensive relative to its competitors. As a result, the Company has
very little financial flexibility to address unforseen cash needs, to fund
growth or to finance necessary equipment purchases and upgrades. If the Proposed
Sale is not consummated, the Company
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will be required to retain the debt and leases associated with its medical
imaging business and will continue to face the severe constraints described
above.
Inability to Acquire Advanced Technology
Diagnostic imaging technology is subject to continuous development and
change. New technological breakthroughs may require the Company to acquire new
or technologically improved products to service its customers. There can be no
assurance that the Company's financial resources will enable it to make the
investment necessary to acquire such products if the Proposed Sale is not
consummated. The failure to acquire or use new technology and products could
have a material adverse effect on the Company's business and results of
operations.
Possible Delisting of Common Stock and Loss of Active Trading Market
The Common Shares are currently traded on the American Stock Exchange (the
"AMEX") and the Pacific Exchange (the "PCX"). The Company's losses and net
capital deficiency have caused the Company to no longer satisfy the minimum
criteria with respect to net income and net worth for continued listing
published by AMEX. The per share trading price of the Common Shares is also
below the minimum criteria for continued listing on such exchange. The closing
price per share was $ on April , 1998. The Company has been advised
that its net capital deficiency is inconsistent with the criteria applied by the
PCX for continued listing on such exchange. The AMEX and the PCX are currently
reviewing the Company's financial condition in order to determine whether the
Common Shares will continue to be listed on such exchanges. If the Proposed Sale
is not consummated and the Company continues to experience losses, no assurance
can be given that a holder of Common Shares will be able to sell Common Shares
in the future on a national or regional securities exchange, or that there will
be an active trading market for the Common Shares or as to the price at which
the Common Shares might trade.
Risks of Gamma Knife Business
Historically, the Gamma Knife business, which the Company conducts through
its 81.0% interest in GK Financing LLC ("GK Financing"), has accounted for only
a small portion of the Company's revenues. The percentage of the Company's
revenues attributable to the Gamma Knife business for each the years ended
December 31, 1997, 1996 and 1995 was 6.0%, 5.0% and 5.0%, respectively. If the
Proposed Sale is consummated, the Company currently intends to invest a
significant portion of the proceeds in the Gamma Knife business. See "USE OF
PROCEEDS" and "UNAUDITED PRO FORMA STATEMENTS OF OPERATIONS AND BALANCE SHEET."
There are significant risks involved in an expansion of the Company's Gamma
Knife business, including the following:
O Each Gamma Knife unit requires a substantial capital investment.
Currently, the price for a Gamma Knife is $3,200,000. This cost must be
borne by the Company and, because of the structure of its contracts with
hospitals, there can be no assurance that this cost will be fully recovered
or that the Company will earn a satisfactory return on its investment.
O There is a limited market for the Gamma Knife. Because of the high
cost of acquiring a Gamma Knife, it is economically necessary to place
units at medical centers with large neurosurgery and radiation oncology
departments where there is a potential for performing a large number of
procedures. The Company has identified approximately 200 such medical
centers in the United States as potential future sites. There are at
present only about 35 locations in the United States with an operating
Gamma Knife (four of which contain a Company-supplied unit). There can be
no assurance that the Company will be successful in placing units at a
significant number of sites in the future.
O There are currently two companies (in addition to the Company) in
the business of supplying the Gamma Knife to users. The Company does not at
present have an exclusive relationship with the manufacturer of the Gamma
Knife and has lost sales in the past to customers that choose to purchase a
Gamma Knife directly from the manufacturer and may continue to lose sales
in the future to such
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customers and to competitors of the Company. There can be no assurance that
the Company will be able to successfully compete against others to place
units in the future.
O There are a number of methods of treatment that compete against the
Gamma Knife, including the modified linear accelerator and microsurgery.
There are at present approximately 200 medical centers in the United States
with modified linear accelerators. Each of the medical centers targeted by
the Company could decide to acquire a modified linear accelerator instead
of a Gamma Knife. In addition, surgeons, who are the primary persons
responsible for referring patients for Gamma Knife surgery, may not be
willing to make such referrals for various reasons. Accordingly, there can
be no assurance that the Company will be able to secure a sufficient number
of sites or procedures to attain profitability and growth.
O Effective October 1, 1997, Gamma Knife services for Medicare
hospital in-patients were reclassified from Diagnosis Related Group ("DRG")
1 to either DRG 7 or DRG 8. This reclassification is estimated to reduce
hospital revenues from the Medicare DRG program by approximately 30%.
Although the Company's existing contracts are reimbursed by the hospital to
the Company on a fee-for-service basis, the Company has entered into a
contract on a shared revenue basis that has not yet commenced. Revenues
under this contract and any future contract based on shared revenue will be
reduced due to the reimbursement rate change. A significant number of
future contracts for Gamma Knife services may be based on a shared revenue
instead of a fee-for-service basis and there can be no assurance that
future changes in healthcare regulations and reimbursement rates will not
adversely affect the Company's Gamma Knife revenues.
O As with other highly sophisticated medical equipment, there is
constant change and innovation in the market. New and improved machines can
be introduced that could make the Gamma Knife technology obsolete and that
would make its operation uneconomic. There can be no assurance that such
changes will not adversely affect the Company's Gamma Knife business.
OPINION OF FINANCIAL ADVISOR
THE FULL TEXT OF THE OPINION OF PAINEWEBBER, DATED APRIL , 1998, WHICH
SETS FORTH THE ASSUMPTIONS MADE, PROCEDURES FOLLOWED, MATTERS CONSIDERED AND
LIMITATIONS ON THE REVIEW UNDERTAKEN, IS ATTACHED AS ANNEX B TO THIS PROXY
STATEMENT. HOLDERS OF COMMON SHARES ARE URGED TO READ SUCH OPINION CAREFULLY AND
IN ITS ENTIRETY. THE SUMMARY OF THE PAINEWEBBER OPINION SET FORTH IN THIS PROXY
STATEMENT IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF SUCH
OPINION.
The Company retained PaineWebber as its exclusive financial advisor in
connection with the Proposed Sale. In connection with such engagement, the
Company requested PaineWebber to render an opinion as to whether or not the
consideration to be received by the Company for the Shares (as described under
"TERMS OF THE PROPOSED SALE -- Purchase and Sale") (the "Merger Consideration")
is fair, from a financial point of view, to the Company.
In connection with the consideration by the Board of Directors of the
Company of the Securities Purchase Agreement, PaineWebber delivered its oral
opinion to the Board of Directors on February 1, 1998 (the "Opinion"), which
Opinion was subsequently confirmed in writing on the date hereof, to the effect
that, as of such date, and based upon its review and assumptions and subject to
the limitations summarized below, the Merger Consideration is fair, from a
financial point of view, to the Company. The Opinion was directed to the
Company's Board of Directors and does not constitute a recommendation to any
holder of Common Shares as to how any such shareholder should vote with respect
to the Proposed Sale.
In arriving at its opinion, PaineWebber, among other things: (i) reviewed,
among other public information, the Company's Annual Reports, Forms 10-K and
related financial information for the three fiscal years ended December 31,
1997; (ii) reviewed historical financial information relating to the performance
of the Imaging Business for the three years ended December 31, 1997, furnished
to PaineWebber by or on behalf
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of the Company; (iii) reviewed certain information, including financial
forecasts, relating to the business, earnings, cash flow, assets and prospects
of the Imaging Business, furnished to PaineWebber by or on behalf of the
Company; (iv) conducted discussions with members of senior management of the
Company concerning the business and prospects of the Imaging Business; (v)
compared the results of operations of the Imaging Business with that of certain
companies which PaineWebber deemed to be relevant; (vi) compared the proposed
financial terms of the Proposed Sale with the financial terms of certain other
business combinations which PaineWebber deemed relevant; (vii) reviewed the
Securities Purchase Agreement; and (viii) reviewed such other financial studies
and analyses and performed such other investigations and took into account such
other matters as PaineWebber deemed necessary, including PaineWebber's
assessment of regulatory, economic, market and monetary conditions.
In preparing the Opinion, PaineWebber relied on the accuracy and
completeness of all information that was publicly available, supplied or
otherwise communicated to PaineWebber by or on behalf of the Company and
PaineWebber has not assumed any responsibility to independently verify the same.
PaineWebber assumed that the financial forecasts examined by PaineWebber were
reasonably prepared on bases reflecting the best currently available estimates
and good faith judgments of the management of the Company as to the future
performance of the Imaging Business. PaineWebber also relied, with consent of
the Board of Directors of the Company, upon assurances of the management of the
Company that they are unaware of any facts that would make the information or
financial forecasts provided to PaineWebber incomplete or misleading.
PaineWebber also assumed, with the consent of the Board of Directors of the
Company, that any material liabilities (contingent or otherwise, known or
unknown) of the Imaging Business are set forth in the financial statements of
the Imaging Business. PaineWebber has not been engaged to make, nor has
PaineWebber made, an independent evaluation or appraisal of the assets or
liabilities (contingent or otherwise) of the Imaging Business nor has
PaineWebber been furnished with any such evaluations or appraisals. The Opinion
was based upon regulatory, economic, market and monetary conditions existing on
the date thereof. Furthermore, PaineWebber expressed no opinion as to the price
or trading ranges at which Common Shares will trade after the date of the
proposed sale. The Opinion did not address the relative merits of the Proposed
Sale and any other transactions or business strategies that may have been
discussed by the Board of Directors of the Company as alternatives to the
Proposed Sale, or the decision of the Board of Directors of the Company to
proceed with the Proposed Sale. In preparing the Opinion, PaineWebber assumed
that the sale of 225,000 Common Shares by GE back to the Company, for nominal
consideration, will occur on or prior to the consummation of the Proposed Sale.
PaineWebber did not, and was not requested to, make any recommendations as to
the form or amount of consideration to be paid pursuant to the Securities
Purchase Agreement. The Company did not place any limitations upon PaineWebber
with respect to the procedures followed or factors considered in rendering the
Opinion.
The following paragraphs summarize the significant analyses performed by
PaineWebber in arriving at the Opinion.
Selected Comparable Public Company Analysis
Using publicly available information, PaineWebber compared selected
historical and projected financial and operating performance data of the Imaging
Business to the corresponding data of the Imaging Business Comparable Companies
(as defined below). The Imaging Business Comparable Companies consisted of
InSight Health Services, Inc.; Medical Resources, Inc.; Primedex Health Systems,
Inc.; and U.S. Diagnostic Inc. (collectively, the "Imaging Business Comparable
Companies").
PaineWebber reviewed, among other information, the Imaging Business
Comparable Companies' multiples of total enterprise value (market value plus
total debt less cash and cash equivalents) ("TEV") to (i) latest twelve months
("LTM") net revenue; (ii) LTM earnings before interest, taxes, depreciation and
amortization ("EBITDA"); and (iii) LTM earnings before interest and taxes
("EBIT"). PaineWebber also reviewed, among other information, the Imaging
Business Comparable Companies' multiples of market value to LTM net income. As
of January 30, 1998, the Imaging Business Comparable Companies' (i) LTM net
revenue multiples ranged from 0.94x to 1.70x (1.25x mean); (ii) LTM EBITDA
multiples ranged from 5.1x
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to 6.7x (5.9x mean); (iii) LTM EBIT multiples ranged from 10.7x to 15.7x (13.4x
mean); and (iv) LTM net income multiples ranged from 12.7x to 13.8x (13.2x
mean).
Selected Comparable Mergers and Acquisitions Analysis
PaineWebber reviewed publicly available financial information for selected
mergers and acquisitions involving health care based companies that are
affiliated with the diagnostic imaging sector. The selected mergers and
acquisitions PaineWebber analyzed included (acquiror/target): Apollo/Alliance
Imaging, Inc.; Apollo/SMT Health Service, Inc.; Health South Corp./Health
Images, Inc.; U.S. Diagnostic Inc./Medical Imaging Centers of America, Inc.;
Medical Resources, Inc./NMR of America, Inc.; Advanced NMR, Inc./ Medical
Diagnostics, Inc.; Health Images, Inc./MedAlliance, Inc. (collectively, the
"Comparable Transactions").
PaineWebber reviewed the consideration paid (based, with respect to stock
transactions, on stock prices on the day prior to the announcement of the
transaction) in the Comparable Transactions and compared multiples of TEV to the
target's net revenue, EBITDA, and EBIT, each for the latest twelve months prior
to the announcement of the transaction. PaineWebber also reviewed multiples of
equity consideration paid to the target's LTM net income for the latest twelve
months prior to the announcement of the transaction. PaineWebber calculated the
Comparable Transactions' multiples of LTM net revenue, LTM EBITDA, LTM EBIT and
LTM net income as follows: (i) LTM net revenue multiples ranged from 1.18x to
3.66x (2.22x mean); (ii) LTM EBITDA multiples ranged from 3.6x to 7.8x (6.2x
mean); (iii) LTM EBIT multiples ranged from 7.4x to 15.1x (12.3x mean); and (iv)
LTM net income multiples ranged from 5.3x to 25.6x (18.9x mean).
Discounted Cash Flow Analysis
PaineWebber analyzed the Imaging Business based on an unleveraged
discounted cash flow analysis of the projected financial performance of the
Imaging Business. Such projected financial performance was based upon a
five-year forecast for the Imaging Business provided by the Company's
management. In conducting its analysis, PaineWebber reviewed with the Company's
management the projected financial performance of the Company and the risks
associated therewith to derive what it believes to be appropriate discount
rates. The discounted cash flow analysis determined the discounted present value
of the unleveraged after-tax cash flows generated over the five-year period and
then added a terminal value based upon a range of net revenue, EBITDA and EBIT
multiples from 1.00x to 1.30x, 4.5x to 6.0x and 8.0x to 12.5x, respectively. The
unleveraged after-tax cash flows and terminal value were discounted using a
range of discount rates from 16.0% to 19.0%.
The preparation of a fairness opinion involves various determinations as to
the most appropriate and relevant quantitative methods of financial analyses and
the application of those methods to the particular circumstances and, therefore,
such an opinion is not readily susceptible to partial analysis or summary
description. Accordingly, PaineWebber believes that its analysis must be
considered as a whole and that considering any portion of such analysis and of
the factors considered, without considering all analyses and factors, could
create a misleading or incomplete view of the process underlying the Opinion. In
its analyses, PaineWebber made numerous assumptions with respect to industry
performance, general business and economic conditions and other matters, many of
which are beyond the control of the Company. Any estimates contained in these
analyses are not necessarily indicative of actual values or predictive of future
results or values, which may be significantly more or less favorable than as set
forth therein. In addition, analyses relating to the value of businesses do not
purport to be appraisals or to reflect the prices at which businesses may
actually be sold. Accordingly, such analyses and estimates are inherently
subject to substantial uncertainty and neither the Company nor PaineWebber
assumes responsibility for the accuracy of such analyses and estimates.
The Company selected PaineWebber to be its financial advisor in connection
with the Proposed Sale because PaineWebber is a prominent investment banking and
financial advisory firm with experience in the
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valuation of businesses and their securities in connection with mergers and
acquisitions, negotiated underwritings, secondary distributions of securities,
private placements and valuations for corporate purposes.
Pursuant to an engagement letter between the Company and PaineWebber dated
October 9, 1997, PaineWebber earned a fee of $300,000 for rendering the Opinion.
In addition, PaineWebber will receive a subsequent financial advisory fee of
$150,000 for services rendered in advising the Board of Directors of the Company
with respect to the proceeds of the Proposed Sale. PaineWebber will also be
reimbursed for certain of its related expenses. The Company also agreed, under
separate agreement, to indemnify PaineWebber, its affiliates and each of its
directors, officers, agents and employees and each person, if any, controlling
PaineWebber or any of its affiliates against certain liabilities, including
liabilities under federal securities laws.
In the ordinary course of PaineWebber's business, PaineWebber may actively
trade the securities of the Company for its own account and for the accounts of
its customers and, accordingly, may at any time hold long or short positions in
such securities. In addition, a representative of PaineWebber's investment
banking group is a member of the Board of Directors of the Company.
GOVERNMENTAL AND REGULATORY APPROVALS
The Proposed Sale is subject to applicable antitrust laws and review by the
Antitrust Division of the Department of Justice (the "Antitrust Division") and
the Federal Trade Commission (the "FTC"). Under the provisions of the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, the Proposed
Sale may not be consummated until notice and specified information has been
furnished to the Antitrust Division and the FTC, and certain waiting period
requirements have been satisfied. The Company and Alliance filed such notice and
information with the Antitrust Division and the FTC on April 8, 1998.
The Company is aware of no other governmental or regulatory approvals
required for the consummation of the Proposed Sale, other than compliance with
applicable securities laws.
TERMS OF THE PROPOSED SALE
The detailed terms and conditions of the Proposed Sale are contained in the
Securities Purchase Agreement, which is attached hereto as Annex A and made a
part of this Proxy Statement. THE FOLLOWING DISCUSSION SETS FORTH A DESCRIPTION
OF CERTAIN MATERIAL TERMS AND CONDITIONS OF THE SECURITIES PURCHASE AGREEMENT
AND IS QUALIFIED BY THE MORE COMPLETE INFORMATION SET FORTH IN THE SECURITIES
PURCHASE AGREEMENT. THE COMPANY'S SHAREHOLDERS ARE URGED TO READ THE SECURITIES
PURCHASE AGREEMENT IN ITS ENTIRETY.
PURCHASE AND SALE
Pursuant to the Securities Purchase Agreement, (a) the Company has agreed
to sell to Purchaser A, and Purchaser A has agreed to acquire, all of the CT
Shares and the Parent Partnership Interest and (b) MMRI has agreed to sell to
Purchaser B, and Purchaser B has agreed to acquire, the MMRI Partnership
Interest, for an aggregate cash purchase price of $13,552,000 payable to the
Sellers and the assumption by the Purchasers of substantially all of the debt
and other liabilities of the Imaging Business.
CONDUCT OF BUSINESS PENDING THE PROPOSED SALE
The Company and MMRI (collectively, the "Sellers") have agreed that during
the period from the date of the Securities Purchase Agreement through the
closing of the Proposed Sale (the "Closing Date"), each of the Sellers will not
and will cause each Entity, among other things, not to (i) sell, lease, licence
or otherwise dispose of any assets with a book value in excess of $50,000; (ii)
issue, sell or transfer any equity interests of the Entities; (iii) change the
number of authorized shares of the equity interests of the Entities or
reclassify, combine, split, subdivide or redeem or otherwise repurchase such
equity interests; (iii) incur or issue any
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securities evidencing any indebtedness or enter into any operating leases; (iv)
enter into any contract with aggregate payments which could exceed $50,000; (v)
enter into any employment agreement or increase the compensation payable to
officers or employees of any Entity or the Company; (vi) create or suffer to
exist any encumbrance on any of its assets or properties other than certain
liens arising in the ordinary course of business; (vii) change their tax or
accounting principles, policies or practices; (viii) make any material tax
election or compromise any material tax liability; (ix) make any payments to or
for the benefit of GK Financing (other than payments made on behalf of GK
Financing and reimbursed by GK Financing on a basis consistent with past
practice and in the ordinary course of business); (x) amend any of its charters
or by-laws or any contracts relating to payments by any person in excess of
$25,000; (xi) enter into any transaction other than in the ordinary course of
business or which is not at arms-length with unaffiliated third persons; (xii)
take or omit to take any action which would result in the representations and
warranties contained in the Securities Purchase Agreement being untrue on the
Closing Date; (xiii) make any material change in the manner in which the Sellers
or the Entities extend discounts or credits to customers or any material change
in the manner or terms by which accounts receivable are collected; or (xiv)
agree or otherwise commit to take any of the actions described above.
In addition, the Sellers have also agreed that during such period, each of
the Sellers will and will cause each Entity to (i) promptly provide the
Purchasers with at least five business days notice of (x) the terms and
conditions of any renewals of existing contracts; (y) any intention not to renew
an existing contract and (z) the actual non-renewal of an existing contract;
(ii) conduct its business substantially as presently conducted and only in the
ordinary course consistent with past practice; (iii) use commercially reasonable
efforts to (A) maintain its business, assets, relations with present employees,
customers, suppliers, partners, licensees and operations as an ongoing business
and preserve its goodwill, in accordance with past practice and custom and (B)
satisfy each of the closing conditions to be satisfied by it under the
Securities Purchase Agreement; and (iv) pay and continue to defer all accounts
payable and all expenses in a manner which is consistent with past practices and
in the ordinary course of business.
NO SOLICITATION
The Company has agreed that the Company will not and will cause MMRI and
each Entity not to and will not authorize or permit any of its, MMRI's or any
Entity's officers, directors, employees, representatives or agents to (i)
solicit, initiate or encourage or take any other action to facilitate any
inquiries or the making of any proposal that may lead to an Alternative
Transaction or (ii) participate in any discussions or negotiations regarding any
proposed Alternative Transaction. The Company has agreed to immediately advise
the Purchasers of any request for information or of any proposal or any inquiry
regarding any Alternative Transaction. However, if at any time prior to the
Closing Date, the Board of Directors of the Company determines in good faith
that action is required by reason of such Board of Directors' fiduciary duties
to the Company's shareholders under applicable law, the Company may, in response
to an unsolicited Third Party Proposal, (x) furnish information with respect to
the Company and the Entities to the person making such Third Party Proposal
pursuant to a confidentiality agreement and (y) participate in negotiations
regarding such Third Party Proposal. The Company has agreed that the Board of
Directors of the Company will not withdraw or modify the approval or
recommendation of such Board of Directors of the Securities Purchase Agreement,
the agreements related thereto or any of the transactions contemplated thereby,
approve or recommend any Alternative Transaction or cause or permit the Company,
MMRI or any Entity to enter into any letter of intent, agreement in principle,
acquisition agreement or other agreement with respect to an Alternative
Transaction unless the Board of Directors of the Company has terminated the
Securities Purchase Agreement in accordance with the terms thereof.
As used in this Proxy Statement, "Alternative Transaction" means (a) any
acquisition or purchase of any material portion of the Imaging Business of the
Company or any material assets of either Entity outside the ordinary course of
business, (b) acquisition or purchase of any equity securities of any Entity,
any tender offer or exchange offer that if consummated would result in any
person beneficially owning more than 50% of any class of equity securities of
the Company or any equity securities of either Entity or (c) any merger,
consolidation, business combination, recapitalization, liquidation, dissolution
or similar transaction involving
14
<PAGE> 19
any Entity, other than the transactions contemplated to be effected with the
Purchasers by the Securities Purchase Agreement. "Third Party Proposal" means a
bona fide proposal from a third party which third party the Board of Directors
of the Company determines in good faith has the capacity and is reasonably
likely to consummate a Superior Proposal. "Superior Proposal" means a Third
Party Proposal to effect an Alternative Transaction which the Company's Board of
Directors determines in its good faith judgment is on terms that are more
favorable to the Company's shareholders than the Proposed Sale and that the
failure to recommend or accept such proposal would violate the fiduciary duties
of the Company's Board of Directors under applicable law. If the Board of
Directors determines that a Third Party Proposal for an Alternative Transaction
constitutes a Superior Proposal, the Board of Directors may terminate the
Securities Purchase Agreement upon the payment to the Purchasers of $1,350,000
plus expenses. See "-- Termination."
NON-COMPETE AND NON-SOLICITATION ARRANGEMENT
During the period ending on the fifth anniversary of the Closing Date, the
Company has agreed, pursuant to the Securities Purchase Agreement, (i) not to
own, manage, control, participate in, consult with, render services for or in
any manner engage in or represent any business that is competitive with the
Imaging Business and (ii) not to (x) induce or attempt to induce any employee of
the Purchasers or any affiliate to leave the employ of the Purchasers or such
affiliate or (y) induce or attempt to induce any customer, supplier, licensee or
other business relation of any Purchaser or any affiliate to cease doing
business with such person.
REPRESENTATIONS AND WARRANTIES
The Sellers, the Purchasers and Alliance have made various representations
and warranties of the kind customary in agreements for the sale of securities
similar to the Shares, including, among other things (i) their organization,
existence, good standing, corporate power and similar corporate matters; (ii)
their authorization, execution, delivery and performance of the Securities
Purchase Agreement and related agreements; and (iii) the absence of conflicts,
violations and defaults under their charters and by-laws and certain other
agreements and documents.
Each of the Sellers has represented and warranted (subject to specified
exceptions) to the Purchasers and Alliance, concerning, among other matters, (a)
ownership of the Shares and (b) the absence of certain changes and events and
the absence of any change or event that could reasonably be expected to have a
material adverse effect on the assets, properties, business, financial
condition, results of operations or prospects of the Imaging Business (a
"Material Adverse Effect").
CLOSING AND CLOSING CONDITIONS
The Closing will occur at the offices of the Purchasers' counsel on a date
that shall be mutually agreeable to the Company and the Purchasers and as soon
as practicable following the approval of the Proposed Sale by the shareholders
of the Company.
The obligations of the Sellers, the Purchasers and Alliance to consummate
the Proposed Sale are subject to the satisfaction or waiver of certain
conditions, including (i) all representations and warranties of the other party
being true on the Closing Date; (ii) all agreements and conditions of the other
party to be performed or complied with at or prior to the Closing Date; (iii)
the approval of the Proposed Sale by the shareholders of the Company; (iv) the
absence of a change in respect of the Imaging Business that has had or is
reasonably likely to have a Material Adverse Effect and (v) the occurrence of
certain events described in "THE PROPOSED SALE -- Governmental and Regulatory
Approvals."
INDEMNIFICATION
The Sellers have agreed to indemnify and hold the Purchasers and Alliance
harmless from and against any losses incurred or suffered by them arising from
or in connection with (i) a breach of any representation or warranty or covenant
of the Sellers in the Securities Purchase Agreement or related document; (ii)
claims asserted under an agreement with Vencor, Inc.; and (iii) liability for
certain transfer and other taxes. The Purchasers and Alliance have agreed to
indemnify and hold the Sellers harmless from and against any losses
15
<PAGE> 20
incurred or suffered by them arising from or in connection with (a) a breach of
any representation or warranty or covenant of Alliance or the Purchasers in the
Securities Purchase Agreement or related document; (b) any failure to comply
after the Closing Date with the Worker Adjustment and Retraining Act of 1988, as
amended, or any similar state law; and (c) liability for certain transfer taxes.
In each case, the indemnification obligations of the parties with respect to
breaches of certain representations and warranties may not exceed $2,000,000 and
such indemnification obligations will only arise once the aggregate amount of
such losses exceeds $500,000.
TERMINATION
The Securities Purchase Agreement may be terminated at any time prior to
the Closing Date by (i) the mutual written consent of the parties; (ii) the
Purchasers or Alliance if the Sellers have breached any representation or
warranty in the Securities Purchase Agreement or any related document in any
material respect or breached any covenant in the Securities Purchase Agreement
and such breach shall not have been cured within 10 business days; (iii) the
Sellers if the Purchasers or Alliance have breached any representation or
warranty in the Securities Purchase Agreement or any related document in any
material respect or breached any covenant in the Securities Purchase Agreement
and such breach shall not have been cured within 10 business days; (iv) any of
such parties if the Proposed Sale has not been consummated by September 15,
1998; (v) any of the parties if any permanent injunction or order preventing the
closing of the Proposed Sale shall have become final and nonappealable; and (vi)
by either Parent or the Purchasers if, prior to the Closing Date, (x) the Board
of Directors of the Company determines that a Third Party Proposal for an
Alternative Transaction constitutes a Superior Proposal, (y) after providing the
Purchasers with an opportunity to modify the terms of the Proposed Sale, the
Board continues to believe that such Third Party Proposal constitutes a Superior
Proposal and (z) the Company pays to the Purchasers a fee of $1,350,000 and
expenses.
FEES AND EXPENSES
Except for the fees and expenses of Ernst & Young LLP ("Ernst & Young")
incurred in connection with the preparation of certain financial statements,
which fees and expenses will be paid by the Purchasers, all fees and expenses
incurred in connection with the Proposed Sale will be paid by the party
incurring such fees and expenses, whether or not the Proposed Sale is
consummated. If the Securities Purchase Agreement is terminated by any Purchaser
or Alliance for the failure to obtain Company shareholder approval of the
Proposed Sale prior to September 15, 1998, and within 180 days of such
termination either an Alternative Transaction is consummated or any Seller or
Entity enters into an agreement providing for an Alternative Transaction, then
in either event the Sellers will pay the Purchasers a fee of $1,350,000 together
with up to $350,000 of the Purchasers' expenses.
PURCHASERS
The Purchasers are wholly-owned subsidiaries of Alliance, which is an
affiliate of Apollo. Apollo affiliates, Lion Advisors, L.P. and AIF II, L.P. are
the beneficial owners of 554,947 Common Shares (including immediately
exercisable warrants to acquire 115,629 Common Shares), which constitute
approximately 9.2% of the issued and outstanding Common Shares and approximately
7.9% of the fully diluted outstanding Common Shares. The Purchasers' principal
executive offices are located at 1065 PacifiCenter Drive, Suite 200, Anaheim,
California 92806.
RELATED AGREEMENTS
Agreement with DVI Lenders
The Company, the Entities, Ernest A. Bates, M.D. and the Purchasers have
entered into a letter agreement with DVI Business Credit Receivables Corp. ("DVI
Business") and DVI Financial Services Inc. ("DVI Financial"; and together with
DVI Business, the "DVI Lenders"), pursuant to which the DVI Lenders have agreed
(i) to terminate the Medical Imaging Credit Facilities and (ii) release and
terminate their liens on the assets of the Entities and certain guaranties of
the Company and Dr. Bates, in each case on the Closing
16
<PAGE> 21
Date, upon the prepayment of the outstanding principal and all accrued and
unpaid interest due under the Medical Imaging Credit Facilities and the payment
of prepayment premiums not to exceed $75,000 in the aggregate.
Agreements with GE
Concurrent with the Securities Purchase Agreement the Company entered into
an agreement with GE pursuant to which (i) GE has agreed to sell to the Company
and the Company has agreed to purchase from GE all 225,000 Common Shares held by
GE (the "GE Shares") for a purchase price of $0.01 per share; (ii) GE consents
to the Proposed Sale and (iii) GE has agreed to release on the Closing Date the
guarantees of the Company, MMRI, European Shared Medical Services and Dr. Bates
in connection with equipment purchased or leased by the Entities from GE and
certain other obligations owing to GE by the Entities.
Also concurrent with the Securities Purchase Agreement, Purchaser A entered
into a Prepayment Agreement with GE (the "Prepayment Agreement") which shall be
effective upon the Closing Date and the receipt by GE of a guaranty from
Alliance of certain obligations of the Entities to GE. Pursuant to the
Prepayment Agreement, GE has agreed, among other things, (i) to grant Purchaser
A the option to prepay the lease payment obligations under any or all of the
Medical Imaging Leases and the right to prepay, without premium or penalty, the
principal amount of the GE Notes and other notes and obligations held by GE;
(ii) to release all the liens and security interests granted to GE by the
Company and the Entities pursuant to the Restructuring Agreement dated November
1, 1994 by and among GE, the Company and the Entities (the "Restructuring
Agreement"); and (iii) to release any and all guaranties provided by the
Entities in connection with the Restructuring Agreement.
USE OF PROCEEDS
The net cash proceeds of the Proposed Sale will be used to expand the
Company's Gamma Knife business and for general corporate purposes. In addition,
the Board of Directors will analyze, with the assistance of its financial and
legal advisors, other uses of such proceeds in light of the capital requirements
of the Company, opportunities available to it and legal constraints under
California law.
FEDERAL INCOME TAX CONSEQUENCES
For federal income tax purposes, the Company will recognize income or gain
as a result of the Proposed Sale. As of December 31, 1997, the Company had
approximately $18,000,000 of federal net operating loss carryforwards available
to offset income or gain on the Proposed Sale. After applying its current year
net operating loss and its loss carryforwards, the Company should have
approximately $5,000,000 of federal net taxable income or gain as a result of
the Proposed Sale, requiring the Company to pay income tax with respect to such
net taxable income or gain.
Additionally, the Company has determined that the Proposed Sale will not
have any federal income tax consequences to the shareholders of the Company.
ACCOUNTING TREATMENT
The Proposed Sale will be treated as a sale for accounting purposes.
INTEREST OF CERTAIN PERSONS IN THE PROPOSED SALE
Ernest A. Bates, M.D., the Chairman and Chief Executive Officer of the
Company, has personally guaranteed the Company's Medical Imaging Credit
Facilities. The outstanding indebtedness of the Company under such facilities as
of December 31, 1997 was $6,504,000. Under the terms of the Proposed Sale, the
Purchasers will assume or repay the Company's indebtedness under the Medical
Imaging Credit Facilities and Dr. Bates' personal guarantee will be released.
See "TERMS OF THE PROPOSED TRANSACTION --
17
<PAGE> 22
Related Agreements." In addition, in the event that, upon the written request of
the Purchasers, Dr. Bates exercises all or a portion of his options to purchase
1,495,000 Common Shares, the Purchasers have agreed (a) to pay to Dr. Bates a
"gross up" for taxes in the form of cash in the amount of 19% of (i) the fair
market value of such Common Shares, minus (ii) the aggregate exercise price paid
by Dr. Bates for such Common Shares and (b) to loan to Dr. Bates an amount equal
to the tax liability for such exercise less the amount of the "gross up", which
amount will be secured by the Common Shares acquired by Dr. Bates pursuant to
such exercise. See "VOTING AND PROXIES -- Vote Required and Voting Procedures."
SELECTED FINANCIAL INFORMATION
The following selected financial data relating to the Company for the
periods set forth below have been derived from the consolidated financial
statements of the Company. Such data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the consolidated financial statements and notes thereto of the
Company incorporated by reference herein. See "INCORPORATION OF CERTAIN
DOCUMENTS BY REFERENCE."
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------
1997 1996 1995(1) 1994 1993(2)
------- -------- -------- -------- --------
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS
Medical services revenues.................... $37,172 $ 36,989 $ 34,077 $ 38,545 $ 39,485
======= ======== ======== ======== ========
Costs of operations.......................... 27,044 28,071 32,675 34,145 37,071
Selling and administrative expense........... 5,901 5,309 8,432 5,971 6,820
Interest expense............................. 3,671 4,199 5,310 7,423 6,752
Write-down of intangible assets.............. 0 0 600 0 5,308
------- -------- -------- -------- --------
Total costs and expenses..................... 36,616 37,579 47,017 47,539 55,951
------- -------- -------- -------- --------
556 (590) (12,940) (8,994) (16,466)
Gain on sale of assets and early termination
of capital leases.......................... 821 3 226 3,294 124
Interest and other income.................... 155 227 258 183 691
------- -------- -------- -------- --------
Income (loss) before income taxes and
extraordinary item......................... 1,532 (360) (12,456) (5,517) (15,651)
Income tax provision (benefit)............... 10 (7) 3 20 (7)
------- -------- -------- -------- --------
Income (loss) before extraordinary item...... 1,522 (353) (12,459) (5,537) (15,644)
Extraordinary item........................... 0 0 19,803 362 0
------- -------- -------- -------- --------
Net income (loss)............................ $ 1,522 $ (353) $ 7,344 $ (5,175) $(15,644)
======= ======== ======== ======== ========
Earnings (loss) per common share:
Income (loss) before extraordinary item.... $ 0.32 $ (0.08) $ (2.96) $ (1.93) $ (5.46)
Extraordinary item......................... $ 0.00 $ 0.00 $ 4.71 $ 0.13 $ 0.00
------- -------- -------- -------- --------
Net income (loss).......................... $ 0.32 $ (0.08) $ 1.75 $ (1.80) $ (5.46)
======= ======== ======== ======== ========
Earnings (loss) per common share assuming
dilution:
Income (loss) before extraordinary item.... $ 0.24 $ (0.08) $ (2.96) $ (1.93) $ (5.46)
Extraordinary item......................... $ 0.00 $ 0.00 $ 4.71 $ 0.13 $ 0.00
------- -------- -------- -------- --------
Net income (loss) per common share assuming
dilution................................ $ 0.24 $ (0.08) $ 1.75 $ (1.80) $ (5.46)
======= ======== ======== ======== ========
</TABLE>
18
<PAGE> 23
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------------
1997 1996 1995(1) 1994 1993(2)
------- -------- -------- -------- --------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Working capital deficiency................... $(8,039) $(10,888) $ (6,793) $(33,369) $(56,518)
Total assets................................. 30,209 32,969 31,345 47,222 50,179
Current portion of long-term debt and
obligations under capitalized leases....... 10,929 13,182 8,720 11,214 26,635
Long-term debt and obligations under
capitalized leases less current portion.... 21,569 23,935 26,125 24,244 3,106
Senior subordinated notes.................... 0 0 773 18,467 18,788
Shareholders' equity (Net capital
deficiency)................................ $(8,953) $(10,475) $(10,576) $(22,341) $(17,754)
------- -------- -------- -------- --------
</TABLE>
- ---------------
(1) In June 1995, the Company incorporated a new wholly-owned subsidiary,
African American Church Health And Economic Services, Inc. ("ACHES") and
ACHES' wholly-owned subsidiary, ACHES Insurance Services, Inc. ("AIS"), and
in October 1995, entered into an operating agreement granting American
Shared Radiosurgery Services ("ASRS") an 81% ownership interest in GK
Financing LLC. Accordingly, the financial data for the Company presented
above include the results of the establishment of ACHES, AIS and GK
Financing LLC for 1995 through 1997.
(2) In August 1993, ASHS incorporated a new wholly-owned subsidiary, ASRS.
Accordingly, the financial data for the Company presented above include the
results of the establishment of the subsidiary for 1993 through 1997.
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited Pro Forma Consolidated Financial Statements and
accompanying notes should be read in conjunction with the Company's historical
Consolidated Financial Statements and the notes thereto incorporated by
reference herein. The unaudited Pro Forma Consolidated Financial Statements are
presented for informational purposes only and do not purport to represent what
the Company's financial position or results of operations would actually have
been if the consummation of the Proposed Sale had occurred on the dates set
forth therein, or to project the Company's financial position or results of
operations at any future date or for any future period. However, the unaudited
Pro Forma Consolidated Financial Statements contain, in the opinion of
management, all adjustments necessary for a fair presentation.
The unaudited Pro Forma Consolidated Balance Sheet reflects adjustments for
the exclusion of assets and liabilities associated with the Proposed Sale. The
unaudited Pro Forma Financial Statements present the Consolidated Balance Sheet
as of December 31, 1997 and the Statements of Operations for the years ended
December 31, 1997, 1996, 1995, 1994 and 1993. The unaudited Pro Forma Financial
Statements present the Consolidated Balance Sheet as if the Proposed Sale
occurred as of December 31, 1997 and the Statements of Operations as if the
Proposed Sale occurred as of January 1 for each period presented.
The unaudited Pro Forma Financial Statements reflect (a) the sale of the
Imaging Business for $13,552,000 in cash and the assumption by the Purchasers of
associated debt and liabilities and (b) the sale by GE of the GE Shares to the
Company for $0.01 per share. The unaudited Pro Forma Financial Statements also
reflect that two Gamma Knife units were in operation throughout 1997 and that a
third Gamma Knife unit commenced operations in September 1997. The unaudited Pro
Forma Financial Statements for 1996 and 1995 include start-up costs related to
ACHES. The unaudited Pro Forma Financial Statements for 1996, 1995, 1994 and
1993, respectively, include interest expense related to the Notes. Selling and
administrative costs included in the unaudited Pro Forma Financial Statements
reflect the Company's estimated ongoing costs following the completion of the
Proposed Sale rather than historical cost allocations.
The accounting for the Proposed Sale and the purchase by the Company of the
GE Shares will result in a one-time gain of approximately $10,444,000 for the
Company. The extraordinary gain from the Proposed Sale of approximately
$10,052,000 and the $392,000 gain from the repurchase of the GE Shares are not
included in the Pro Forma Statements of Operations.
19
<PAGE> 24
AMERICAN SHARED HOSPITAL SERVICES
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1997
ASSETS
<TABLE>
<CAPTION>
DEDUCT
SALE OF
AS IMAGING PRO FORMA
REPORTED BUSINESS(1) ADJUSTMENTS PRO FORMA
------------ ------------ ----------- -----------
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 17,000 $10,050,000(2) $10,067,000
Restricted cash........................................... 651,000 651,000
Accounts receivable:
Trade................................................... 7,960,000 7,326,000 634,000
Less allowances for doubtful accounts................... (1,302,000) (1,185,000) (117,000)
Other................................................... 472,000 462,000 10,000
Prepaid expenses, inventories and other current assets.... 708,000 438,000 270,000
------------ ------------ ----------- -----------
Total current assets.................................... 8,506,000 7,041,000 10,050,000 11,515,000
Property and equipment
Land, buildings and improvements.......................... 1,572,000 1,568,000 4,000
Medical, transportation, office and leased equipment...... 12,202,000 3,777,000 8,425,000
Capitalized leased medical and transportation equipment... 26,410,000 26,261,000 149,000
Deposits and construction in progress..................... 1,901,000 134,000 1,767,000
------------ ------------ ----------- -----------
Total property and equipment............................ 42,085,000 31,740,000 0 10,345,000
Accumulated depreciation and amortization............... (21,983,000) (17,868,000) (4,115,000)
------------ ------------ ----------- -----------
Net property and equipment.............................. 20,102,000 13,872,000 0 6,230,000
Intangible assets, less accumulated amortization.......... 1,038,000 951,000 87,000
Other assets.............................................. 563,000 227,000 336,000
------------ ------------ ----------- -----------
Total other assets...................................... 1,601,000 1,178,000 0 423,000
------------ ------------ ----------- -----------
Total assets............................................ $ 30,209,000 $ 22,091,000 $10,050,000 $18,168,000
============ ============ =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY (Net Capital Deficiency)
Current liabilities:
Accounts payable.......................................... $ 3,693,000 $ 3,122,000 $ 571,000
Accrued interest.......................................... 32,000 32,000
Employee compensation and benefits........................ 1,050,000 823,000 227,000
Other accrued liabilities................................. 841,000 547,000 294,000
Current portion of long-term debt......................... 4,784,000 2,226,000 2,558,000
Current portion of long-term obligations under capital
leases.................................................. 6,145,000 6,139,000 6,000
------------ ------------ ----------- -----------
Total current liabilities.......................... 16,545,000 12,857,000 0 3,688,000
Long-term debt, less current portion........................ 11,936,000 9,174,000 2,762,000
Obligations under capital leases, less current portion...... 9,633,000 9,633,000 0
Deferred gain on early lease termination.................... 296,000 296,000 0
Deferred income taxes....................................... 164,000 164,000
Minority interest........................................... 588,000 588,000
Shareholders' equity (net capital deficiency):
Common stock.............................................. 11,089,000 (2,000)(3) 11,087,000
Common stock options issued to officer.................... 2,414,000 2,414,000
Additional paid in capital................................ 930,000 (392,000)(4) 538,000
Retained earnings (accumulated deficit)................... (23,386,000) (9,869,000) 10,444,000 (4) (3,073,000)
------------ ------------ ----------- -----------
Total shareholders' equity (net capital
deficiency)...................................... (8,953,000) (9,869,000) 10,050,000 10,966,000
------------ ------------ ----------- -----------
Total liabilities and shareholders' equity (net
capital deficiency).............................. $ 30,209,000 $ 22,091,000 $10,050,000 $18,168,000
============ ============ =========== ===========
</TABLE>
- ---------------
(1) Reflects assets and liabilities included in the Proposed Sale.
(2) Reflects cash proceeds from the Proposed Sale of $13,552,000 less (i) income
taxes of approximately $2,500,000, (ii) estimated transaction cost of
$1,000,000 and (iii) costs to repurchase the GE Shares of $2,000.
(3) Reflects the repurchase of the GE Shares for $0.01 per share.
(4) Reflects (i) a one-time extraordinary gain of $10,052,000, net of income
taxes of approximately $2,500,000 and estimated transaction costs of
$1,000,000, from the Proposed Sale for $13,552,000 in cash and the
assumption by the Purchasers of associated debts and liabilities and (ii) a
gain of $392,000 from the repurchase of the GE Shares from GE for $0.01 per
share.
20
<PAGE> 25
AMERICAN SHARED HOSPITAL SERVICES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
DEDUCT
SALE OF
AS IMAGING PRO FORMA
REPORTED BUSINESS(1) ADJUSTMENT PRO FORMA
---------- ----------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues:
Medical services....................... $ 37,172 $ 34,771 $ 2,401
Costs and expenses:
Costs of operations:
Medical services payroll............ 7,533 7,517 16
Maintenance and supplies............ 5,959 5,849 110
Depreciation........................ 6,398 5,591 807
Write-down of equipment............. 0 0 0
Equipment rental.................... 2,686 2,686 0
Other............................... 4,468 4,336 132
Selling and administrative............... 5,901 4,418 1,483
Interest expense......................... 3,671 3,335 336
Write-down of intangible assets.......... 0 0 0
---------- ---------- ---------- ----------
Total costs and expenses....... 36,616 33,732 0 2,884
---------- ---------- ---------- ----------
556 1,039 0 (483)
Gain on sale of assets and early
termination of capital leases due to
casualty loss.......................... 821 820 1
Interest and other income................ 155 10 500(2) 645
---------- ---------- ---------- ----------
Income (loss) before income taxes and
extraordinary item..................... 1,532 1,869 500 163
Income tax expense (benefit)............. 10 (5) 200 65
---------- ---------- ---------- ----------
Income (loss) before extraordinary
item................................... 1,522 1,874 300 98
========== ========== ========== ==========
Earnings (loss) per common share:
Income (loss) before extraordinary
item................................ $ 0.32 $ 0.39 $ 0.07 $ 0.02
========== ========== ========== ==========
Weighted average shares.................. 4,769,000 4,769,000 4,544,000(3) 4,544,000(3)
</TABLE>
- ---------------
(1) Reflects revenues and expenses related to the Imaging Business.
(2) Reflects interest income from net sales proceeds of $10,000,000 from the
Proposed Sale invested at 5% from the beginning of the period.
(3) Reflects repurchase of the GE Shares.
21
<PAGE> 26
AMERICAN SHARED HOSPITAL SERVICES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
DEDUCT
SALE OF
AS IMAGING PRO FORMA
REPORTED BUSINESS(1) ADJUSTMENT PRO FORMA
---------- ----------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues:
Medical services.......................... $ 36,989 $ 34,861 $ 2,128
Costs and expenses:
Costs of operations:
Medical services payroll............... 7,312 7,206 106
Maintenance and supplies............... 6,698 6,531 167
Depreciation........................... 6,631 5,943 688
Write-down of equipment................ 0 0 0
Equipment rental....................... 3,449 3,448 1
Other.................................. 3,981 3,854 127
Selling and administrative.................. 5,309 3,692 1,617
Interest expense............................ 4,199 3,766 433
Write-down of intangible assets............. 0 0 0
---------- ---------- ---------- ----------
Total costs and expenses.......... 37,579 34,440 0 3,139
---------- ---------- ---------- ----------
(590) 421 0 (1,011)
Gain on sale of assets and early termination
of capital leases due to casualty loss.... 3 40 (37)
Interest and other income................... 227 67 500(2) 660
---------- ---------- ---------- ----------
Income (loss) before income taxes and
extraordinary item........................ (360) 528 500 (388)
Income tax expense (benefit)................ (7) 9 (16)
---------- ---------- ---------- ----------
Income (loss) before extraordinary item..... (353) 519 500 (372)
========== ========== ========== ==========
Earnings (loss) per common share:
Income (loss) before extraordinary item... $ (0.08) $ 0.12 $ 0.12 $ (0.09)
========== ========== ========== ==========
Weighted average shares..................... 4,498,000 4,498,000 4,273,000(3) 4,273,000(3)
</TABLE>
- ---------------
(1) Reflects revenues and expenses related to the Imaging Business.
(2) Reflects interest income from net sales proceeds of $10,000,000 from the
Proposed Sale invested at 5% from the beginning of the period.
(3) Reflects repurchase of the GE Shares.
22
<PAGE> 27
AMERICAN SHARED HOSPITAL SERVICES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
DEDUCT
SALE OF
AS IMAGING PRO FORMA
REPORTED BUSINESS(1) ADJUSTMENT PRO FORMA
---------- ----------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues:
Medical services............................ $ 34,077 $ 32,245 $ 1,832
Costs and expenses:
Costs of operations:
Medical services payroll................. 6,984 6,876 108
Maintenance and supplies................. 6,766 6,486 280
Depreciation............................. 8,302 7,661 641
Write-down of equipment.................. 3,825 3,825 0
Equipment rental......................... 2,808 2,808 0
Other.................................... 3,990 3,867 123
Selling and administrative.................... 8,432 6,999 1,433
Interest expense.............................. 5,310 3,682 1,628
Write-down of intangible assets............... 600 600 0
---------- ---------- ---------- ----------
Total costs and expenses............ 47,017 42,804 0 4,213
---------- ---------- ---------- ----------
(12,940) (10,559) 0 (2,381)
Gain on sale of assets and early termination
of capital leases due to casualty loss...... 226 226 0
Interest and other income..................... 258 117 500(2) 641
---------- ---------- ---------- ----------
Income (loss) before income taxes and
extraordinary item.......................... (12,456) (10,216) 500 (1,740)
Income tax expense (benefit).................. 3 7 (4)
---------- ---------- ---------- ----------
Income (loss) before extraordinary item....... (12,459) (10,223) 500 (1,736)
========== ========== ========== ==========
Earnings (loss) per common share:
Income (loss) before extraordinary item..... $ (2.96) $ (2.43) $ 0.13 $ (0.44)
========== ========== ========== ==========
Weighted average shares....................... 4,201,000 4,201,000 3,976,000(3) 3,976,000(3)
</TABLE>
- ---------------
(1) Reflects revenues and expenses related to the Imaging Business.
(2) Reflects interest income from net sales proceeds of $10,000,000 from the
Proposed Sale invested at 5% from the beginning of the period.
(3) Reflects repurchase of the GE Shares.
23
<PAGE> 28
AMERICAN SHARED HOSPITAL SERVICES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1994
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
DEDUCT
SALE OF
AS IMAGING PRO FORMA
REPORTED BUSINESS(1) ADJUSTMENT PRO FORMA
---------- ----------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues:
Medical services.......................... $ 38,545 $ 36,622 $ 1,923
Costs and expenses:
Costs of operations:
Medical services payroll............... 10,284 10,176 108
Maintenance and supplies............... 7,808 7,524 284
Depreciation........................... 9,504 8,804 700
Write-down of equipment................ 0 0 0
Equipment rental....................... 1,580 1,577 3
Other.................................. 4,969 5,093 (124)
Selling and administrative.................. 5,971 4,767 1,204
Interest expense............................ 7,423 4,126 3,297
Write-down of intangible assets............. 0 0 0
---------- ---------- ---------- ----------
Total costs and expenses.......... 47,539 42,067 0 5,472
---------- ---------- ---------- ----------
(8,994) (5,445) 0 (3,549)
Gain on sale of assets and early termination
of capital leases due to casualty loss.... 3,294 3,298 (4)
Write-down of intangible assets........... 0
Interest and other income................... 183 32 500(2) 651
---------- ---------- ---------- ----------
Loss before income taxes and
extraordinary item........................ (5,517) (2,115) 500 (2,902)
Income tax expense (benefit)................ 20 4 16
---------- ---------- ---------- ----------
Loss before extraordinary item.............. (5,537) (2,119) 500 (2,918)
========== ========== ========== ==========
Loss per common share:
Loss before extraordinary item............ $ (1.93) $ (0.74) $ 0.19 $ (1.10)
========== ========== ========== ==========
Weighted average shares 2,867,000 2,867,000 2,642,000(3) 2,642,000(3)
</TABLE>
- ---------------
(1) Reflects revenues and expenses related to the Imaging Business.
(2) Reflects interest income from net sales proceeds of $10,000,000 from the
Proposed Sale invested at 5% from the beginning of the period.
(3) Reflects repurchase of the GE Shares.
24
<PAGE> 29
AMERICAN SHARED HOSPITAL SERVICES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1993
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
DEDUCT
SALE OF
AS IMAGING PRO FORMA
REPORTED BUSINESS(1) ADJUSTMENT PRO FORMA
---------- ----------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues:
Medical services.......................... $ 39,485 $ 37,691 $ 1,794
Costs and expenses:
Costs of operations:
Medical services payroll............... 11,442 11,321 121
Maintenance and supplies............... 7,431 7,184 247
Depreciation........................... 7,715 7,074 641
Write-down of equipment................ 443 443 0
Equipment rental....................... 5,067 4,988 79
Other.................................. 4,973 4,791 182
Selling and administrative.................. 6,820 5,597 1,223
Interest expense............................ 6,752 3,331 3,421
Write-down of intangible assets............. 5,308 5,308 0
---------- ---------- ---------- ----------
Total costs and expenses.......... 55,951 50,037 0 5,914
---------- ---------- ---------- ----------
(16,466) (12,346) 0 (4,120)
Gain on sale of assets and early termination
of capital leases due to casualty loss.... 124 197 (73)
Interest and other income................... 691 (7) 500(2) 1,198
---------- ---------- ---------- ----------
Loss before income taxes and
extraordinary item........................ (15,651) (12,156) 500 (2,995)
Income tax expense (benefit)................ (7) 21 (28)
---------- ---------- ---------- ----------
Loss before extraordinary item.............. (15,644) (12,177) 500 (2,967)
========== ========== ========== ==========
Loss per common share:
Loss before extraordinary item............ $ (5.46) $ (4.25) $ 0.19 $ (1.12)
========== ========== ========== ==========
Weighted average shares..................... 2,863,000 2,863,000 2,638,000(3) 2,638,000(3)
</TABLE>
- ---------------
(1) Reflects revenues and expenses related to the sale of the Imaging Business.
(2) Reflects interest income from net sales proceeds of $10,000,000 from the
Proposed Sale invested at 5% from the beginning of the period.
(3) Reflects repurchase of the GE Shares.
25
<PAGE> 30
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Shares as of March 23, 1998, of (i) each
person known to the Company to own beneficially 5% or more of the Common Shares,
(ii) each director of the Company, (iii) the chief executive officer and each
other executive officer named in the Summary Compensation Table incorporated by
reference herein, and (iv) all directors and executive officers as a group.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
<TABLE>
<CAPTION>
COMMON SHARES OWNED BENEFICIALLY
------------------------------------------------
AMOUNT AND NATURE OF
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP(3) PERCENT OF CLASS(8)
------------------------------------ ----------------------- -------------------
<S> <C> <C>
Total Number of Shares............................... 6,981,050(4) 100.0%
Ernest A. Bates, M.D.(1)............................. 2,334,070(5)(7) 37.3%
SunAmerica Inc.(2)................................... 128,066(2) 2.7%
SunAmerica Life Insurance Company(2)................. 277,473(2) 5.7%
Anchor National Life Insurance Company(2)............ 307,219(2) 6.3%
Lion Advisors, L.P. ................................. 384,195(6)(7) 7.9%
1301 Avenue of the Americas
New York, NY 10019
AIF II, L.P.......................................... 170,752(6)(7) 4.7%
c/o Apollo Advisors, L.P.
1999 Avenue of the Stars
Los Angeles, CA 90071
General Electric Company............................. 225,000(7) 4.7%
c/o GE Medical Systems
20825 Swenson Drive
Waukesha, WI 53186
Willie R. Barnes(1).................................. 9,000(5)(7) *
Matthew Hills(1)..................................... 6,915(5)(7) *
John F. Ruffle(1).................................... 80,711(5)(7) 1.7%
Stanley S. Trotman, Jr.(1)........................... 108,295(5)(7) 2.3%
Augustus A. White, III, M.D.(1)...................... 17,992(5)(7) *
Charles B. Wilson, M.D.(1)........................... 9,600(5) *
Craig K. Tagawa (1).................................. 137,600(5)(7) 2.8%
Senior Vice President -- Chief Financial Officer
David Neally(1)...................................... 55,100(5) 1.1%
Senior Vice President -- Operations
Gregory Pape(1)...................................... 65,000(5) 1.3%
Senior Vice President -- Sales and Marketing
Richard Magary(1).................................... 78,300(5)(7) 1.6%
Senior Vice President -- Administration
All Directors and Executive Officers as a Group (11
persons)........................................... 2,906,583(5)(7) 44.0%
</TABLE>
- ---------------
* Less than 1%
(1) The address of each such individual is c/o American Shared Hospital
Services, Four Embarcadero Center, Suite 3620, San Francisco, California
94111-4155.
(2) Based on information provided to the Company by SunAmerica Inc. and its
direct and indirect subsidiaries, SunAmerica Life Insurance Company
(formerly known as Sun Life Insurance Company of America) and Anchor
National Life Insurance Company as of March 27, 1997, such entities then
owned beneficially 712,758 Common Shares, including immediately exercisable
Warrants to acquire 169,264 Common Shares. The address of each Beneficial
Owner is c/o SunAmerica Inc., 1 SunAmerica Center, Los Angeles, CA 90067.
(3) Each person directly or indirectly has sole voting and investment power with
respect to the shares listed under this column as being owned by such
person.
26
<PAGE> 31
(4) Represents the aggregate of issued and outstanding Common Shares plus Common
Shares that all persons or groups of persons are entitled to acquire upon
the exercise of options or warrants within 60 days after March 23, 1998.
(5) Includes shares underlying options that are currently exercisable or which
will become exercisable within 60 days following March 23, 1998: Dr. Bates,
1,495,000; Mr. Barnes, 8,000 shares; Mr. Hills, 5,333 shares; Mr. Ruffle,
8,000 shares; Mr. Trotman, 5,333 shares; Dr. White, 12,000 shares; Dr.
Wilson, 9,600 shares; Mr. Tagawa, 125,000 shares; Mr. Neally, 54,000 shares;
Mr. Pape, 65,000 shares; and Directors and Executive Officers as a group,
1,842,266 shares.
(6) Based on information contained in the Schedule 13D dated March 23, 1998 and
filed with the Securities and Exchange Commission by Apollo Advisors II,
L.P. and affiliates, including Lion Advisors, L.P. ("Lion") and AIF II, L.P.
("AIF II"), such entities own beneficially 554,947 Common Shares, including
immediately exercisable Warrants to acquire 115,629 Common Shares. The
managing general partner of AIF II is Apollo Advisors, L.P. ("Advisors").
Advisors and Lion are affiliates. Lion beneficially holds the indicated
securities for an investment account under management over which Lion has
investment, dispositive and voting power.
(7) In connection with the Securities Purchase Agreement the Purchasers entered
into the Stockholder Agreements with certain shareholders of the Company,
each of whose beneficial ownership is indicated in the accompanying table.
Those shareholders, including directors and officers, have agreed to vote,
and have granted a proxy to vote their Common Shares (including, in the case
of Ernest A. Bates, M.D., the Common Shares issuable upon the exercise of
his 1,495,000 options), in favor of the Securities Purchase Agreement and
the Proposed Sale.
(8) Shares that any person or group of persons is entitled to acquire upon the
exercise of options or warrants within 60 days after March 23, 1998, are
treated as issued and outstanding for the purpose of computing the percent
of the class owned by such person or group of persons but not for the
purpose of computing the percent of the class owned by any other person.
DIVIDENDS
The Company has never declared or paid a cash dividend on the Common Shares
and is currently prohibited from paying any dividends on the Common Shares under
the terms of its credit agreements. The Board of Directors does not anticipate
paying any cash dividends in the foreseeable future.
INDEPENDENT AUDITORS
The Company's consolidated financial statements have been audited by Ernst
& Young or its predecessor from 1983 through the fiscal year ended December 31,
1997. Representatives of Ernst & Young are expected by be present at the Special
Meeting to respond to appropriate questions and will be given an opportunity to
make a statement if they so desire.
SHAREHOLDER PROPOSALS
Under certain circumstances, shareholders are entitled to present proposals
at shareholders meetings. To be eligible for inclusion in the Proxy Statement
for the Company's next Annual Meeting of Shareholders, a shareholder proposal
must be received at the Company's principal executive offices prior to July 15,
1998.
OTHER BUSINESS
Management knows of no business, other than as stated in the Notice of
Special Meeting, which will be presented for consideration at the Special
Meeting. If, however, other matters properly are brought before the Special
Meeting, it is the intention of the persons named in the accompanying form of
proxy to vote the shares represented thereby on such matters in accordance with
their best judgment and in their discretion.
27
<PAGE> 32
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
This Proxy Statement incorporates by reference the Company's Annual Report
to Shareholders for the fiscal year ended December 31, 1997, which includes the
Company Annual Report on Form 10-K, copies of which accompany this Proxy
Statement.
AMERICAN SHARED HOSPITAL SERVICES
By Order of the Board of Directors
Willie R. Barnes
Corporate Secretary
Dated: April 30, 1998
28
<PAGE> 33
ANNEX A
================================================================================
SECURITIES PURCHASE AGREEMENT
BY AND AMONG
ALLIANCE IMAGING, INC.
EMBARCADERO HOLDING CORP. I,
EMBARCADERO HOLDING CORP. II,
AMERICAN SHARED HOSPITAL SERVICES,
AND
MMRI, INC.
DATED AS OF MARCH 12, 1998
================================================================================
<PAGE> 34
SECURITIES PURCHASE AGREEMENT dated as of March 12, 1998, by and among
ALLIANCE IMAGING, INC., a Delaware corporation ("Alliance"), EMBARCADERO HOLDING
CORP. I, a Delaware corporation ("Purchaser A"), EMBARCADERO HOLDING CORP. II, a
Delaware corporation ("Purchaser B" and, together with Purchaser A, the
"Purchasers"), AMERICAN SHARED HOSPITAL SERVICES, a California corporation
("Parent") and MMRI, INC., a California corporation ("M Sub").
WHEREAS, each Entity is engaged in the business of providing mobile, shared
diagnostic imaging services to hospitals, medical centers and medical offices
(including magnetic resonance imaging ("MRI") services, computed axial
tomography scanning ("CT") services, ultrasound services, nuclear medicine
services and related services) (collectively, the "Business");
WHEREAS, the Parent owns all of the issued and outstanding shares of common
stock, par value $1.00, of CT Sub (the "CT Shares") and the Parent Partnership
Interests;
WHEREAS, M Sub owns the M Sub Partnership Interests;
WHEREAS, the Sellers desire to sell to Alliance, and Alliance desires to
purchase from the Sellers, all of the Shares, on the terms and subject to the
conditions contained in this Agreement; and
WHEREAS, Alliance has designated the Purchasers, each of which is a
wholly-owned Subsidiary of Alliance, to acquire the Shares for and on behalf of
Alliance.
NOW, THEREFORE, in consideration of the premises and the mutual
representations hereinafter set forth, the parties hereto hereby agree as
follows (certain capitalized terms used herein are defined on Annex I hereto):
ARTICLE I
PURCHASE AND SALE
1.1 TRANSFER OF SHARES.
(a) On the terms and subject to the conditions of this Agreement, at the
Closing (after the transactions referenced in Section 1.2 have been
consummated), (i) the Parent shall sell, transfer, convey and assign to
Purchaser A, and Purchaser A shall purchase and acquire from the Parent, all of
the Shares (other than the M Sub Partnership Interests), free and clear of all
Encumbrances and (ii) M Sub shall sell, transfer, convey and assign to Purchaser
B and Purchaser B shall purchase and acquire from M Sub, the M Sub Partnership
Interests, free and clear of all Encumbrances. It is agreed by the parties, that
Purchaser A and Purchaser B have been designated by, and hereto shall purchase
the Shares for and on behalf of Alliance.
(b) The Sellers shall, at any time after the Closing, upon the request of
the Purchasers, take, execute, acknowledge and deliver, and cause to be taken,
executed, acknowledged and delivered, all such further acts, deeds, assignments,
transfers, conveyances, powers of attorney or assurances as may be required to
transfer, convey, grant and confirm to and vest in the Purchasers, good and
marketable title to all of the Shares, free and clear of all Encumbrances.
1.2 TRANSFERS OF ASSETS AND LIABILITIES.
(a) Prior to the Closing Date, the Parent and M Sub shall effectively sell,
transfer, convey and assign (the "Asset Contribution") to the Partnership, (i)
all of the Parent's and M Sub's right, title and interest in, to and under the
assets, properties, interests in properties and rights of the Parent or M Sub,
as the case may be, of every kind, nature and description, whether real,
personal or mixed, movable or immovable, tangible or intangible, used in or held
for use in the Business, wherever located and listed on Schedule 1.2(a) hereof
(the "Purchased Parent Assets") and (ii) all of the Liabilities (other than any
Excluded Liabilities) related to the Purchased Parent Assets, on terms and
conditions satisfactory to the Purchasers including, without limitation,
pursuant to such deeds, bills of sale, endorsements, assignments and other good
and sufficient instruments of
1
<PAGE> 35
sale, transfer, conveyance and assignment (collectively, the "Conveyance
Instruments") as are necessary to sell, transfer, convey and assign to the
Partnership the Purchased Parent Assets and such Liabilities.
(b) Prior to the Closing Date, (i) the Parent shall cause each of the
Entities to effectively sell, transfer, convey and assign (the "Asset
Disposition") to the Parent all of such Entities' right, title and interest in,
to and under the assets, properties, interests in properties and rights listed
on Schedule 1.2(b) hereof (the "Excluded Assets") and (ii) the Parent shall
assume from each of the Entities all of the Excluded Liabilities which are
Liabilities of each Entity, on terms and conditions satisfactory to the
Purchasers including, without limitation, pursuant to Conveyance Instruments as
are necessary to sell, transfer, convey and assign to the Parent the Excluded
Assets and the Excluded Liabilities.
(c) Anything contained in this Agreement to the contrary notwithstanding,
(i) neither the Purchasers nor Alliance are assuming any Liabilities (fixed or
contingent, known or unknown, matured or unmatured) of the Sellers or the
Entities whether or not relating to the Business which are specified on Schedule
1.2(c) (the "Excluded Liabilities") all of which Excluded Liabilities shall at
and after the Closing become the exclusive responsibility of the Parent and (ii)
on the Closing Date, the Sellers or any of their Subsidiaries (other than the
Entities and GK Finance) shall retain (x) not less than $600,000 aggregate
amount of Liabilities in respect of accounts payable (y) not less than $175,000
aggregate amount of Liabilities in respect of accrued expenses (other than
Liabilities in respect of accrued expenses referenced in Section 1.2(c)(z)) and
(z) all of the Liabilities in respect of accrued expenses for "accrued payroll"
and "accrued payroll taxes and benefits" outstanding as of the Closing Date.
1.3 PAYMENT OF THE PURCHASE PRICE.
The aggregate purchase price (the "Purchase Price") to be paid by Alliance
to the Sellers for the Shares and the covenants set forth in Section 6.10 of
this Agreement shall be a cash amount equal to $13,552,000. At the Closing and
subject to the terms and conditions of this Agreement and the Related Documents,
Alliance shall cause the Purchasers to make payment of the Purchase Price (minus
$75,000 of the Purchase Price which was previously paid to the Parent) to the
Sellers by wire transfer of immediately available funds to the accounts
previously designated in writing to the Purchasers by the Parent.
1.4 ALLOCATION OF PURCHASE PRICE.
The parties hereto agree that the Purchase Price, subject to any
indemnification payments made hereunder, shall be allocated to the CT Shares and
to the Partnership Interests by the Purchasers on a basis reasonably
satisfactory to the Sellers.
ARTICLE II
THE CLOSING
Unless this Agreement shall have terminated pursuant to its terms, the
closing (the "Closing") of the transactions contemplated by this Agreement and
the Related Documents shall take place at the offices of O'Sullivan Graev &
Karabell, LLP, 30 Rockefeller Plaza, New York, New York 10112, at 10:00 a.m.
(New York time) on a date that shall be mutually agreeable to the parties hereto
(the "Closing Date"), provided, however, that the parties shall use commercially
reasonable efforts to consummate the Closing, in accordance with Section 6.3
hereof, as soon as practicable following the date of the Parent Stockholder
Approval.
2
<PAGE> 36
ARTICLE III
REPRESENTATIONS AND WARRANTIES
The Sellers jointly and severally represent and warrant to the Purchasers
and Alliance as of the date hereof, and as of the Closing Date as follows:
3.1 TITLE TO THE SHARES.
Each of the Sellers is the lawful record and beneficial owner of the Shares
purported to be owned by it and has good and marketable title to such Shares,
free and clear of any Encumbrances whatsoever and with no restriction on the
voting rights and other incidents of record and beneficial ownership pertaining
thereto (except restrictions imposed by federal and state securities laws). No
Entity is the subject of any bankruptcy, reorganization or similar proceeding.
3.2 ORGANIZATION, POWER, AUTHORITY AND GOOD STANDING.
(a) CT Sub is a corporation. The Partnership is a general partnership. The
Parent was incorporated on October 31, 1983 in the State of California. CT Sub
was incorporated on May 1, 1984 in the State of Delaware. M Sub was incorporated
on October 8, 1987 in the State of California. The Partnership was formed on
March 7, 1985 in the State of California.
(b) Each Seller and each Entity is duly organized and validly existing and
in good standing under the laws of its jurisdiction of organization and has all
requisite power and authority (corporate and otherwise) to own, lease and
operate its assets and properties and to carry on its business as presently
conducted.
(c) Each Seller and each Entity is duly qualified and in good standing to
transact business as a foreign Person in those jurisdictions set forth opposite
its name on Schedule 3.2(c), which constitute all the jurisdictions in which the
character of the property owned, leased or operated by such Person or the nature
of the business or activities conducted by such Person makes such qualification
necessary other than those jurisdictions in which the failure to be so qualified
and in good standing could not reasonably be expected to have a Material Adverse
Effect.
(d) The Purchasers have been furnished with true, correct and complete
copies of the Organizational Documents of each Entity and each Seller, in each
case as amended and in effect on the date hereof.
(e) No Entity or Seller has (i) during the five year period prior to the
date hereof, engaged in any business other than the Business or as otherwise set
forth opposite its name on Schedule 3.2(e)(i) and (ii) within the last five
years, used any trade names or assumed names other than the trade names or
assumed names set forth opposite its name on Schedule 3.2(e)(ii).
(f) Each Seller has all requisite power and authority (corporate and
otherwise) to execute, deliver and perform its obligations under this Agreement
and each Related Document to which it is or will be a party and to consummate
the transactions contemplated hereby and thereby. Except for the Parent
Stockholder Approval, each Seller's execution and delivery of this Agreement and
each Related Document to which it is or will be a party, and the performance by
each Seller of its obligations hereunder and thereunder have been duly and
validly authorized by all requisite corporate action on the part of such Seller,
and this Agreement and each Related Document to which either Seller is or will
be a party has been, or upon the execution thereof will be, duly and validly
executed and delivered by such Seller, respectively, and constitutes, or upon
its execution and delivery will constitute, a valid and binding obligation of
such Seller, respectively, enforceable against such Seller, respectively, in
accordance with its terms except as such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other similar
laws affecting creditors' rights generally and by general principles of equity
(regardless of whether enforcement is sought in equity or at law). Except as set
forth on Schedule 3.2(f), none of the execution and delivery by each Seller of
this Agreement and each Related Document, the performance by either Seller of
its obligations under this Agreement and each Related Document to which it is or
will be a party, or the consummation of the transactions contemplated hereby or
thereby, does or will (a) result in the creation of an Encumbrance upon any
Entities' assets or properties,
3
<PAGE> 37
(b) conflict with, or result in any violation or breach of, any of the terms,
conditions or provisions of, or constitute (with due notice or lapse of time, or
both) a default or give rise to any right of contingent payment, termination,
cancellation, acceleration or non-renewal, under, any provision of any
Organizational Document of any such Person or any Contract to which any such
Person is a party or by which any of its assets or properties is or may be bound
which, in the case of such Contracts, could reasonably be expected to have a
Material Adverse Effect or prevent the consummation of the transactions
contemplated hereby or under the Related Documents and other than with respect
to the foregoing for which consents have been obtained, or (c) violate any Law
applicable to any Entity or Seller, which conflict or violation could prevent
the consummation of the transactions contemplated by this Agreement or any of
the Related Documents to which any such Person is or will be a party.
(g) Except as contemplated by this Agreement or as set forth on Schedule
3.2(g), no consent, approval, Permit, Order, notification or authorization of,
or any exemption from or registration, declaration or filing with, any
Governmental Entity or any Person is required in connection with the execution,
delivery and performance by any Seller of this Agreement or any Related Document
to which any Seller is or will be a party or the consummation by any Seller of
the transactions contemplated hereby or thereby, except for those consents,
approvals, Permits, Orders, notifications, authorizations, exemptions,
registrations, declarations or filings the failure to obtain could not
reasonably be expected to have a Material Adverse Effect or prevent the
consummation of the transactions contemplated hereunder or under the Related
Documents or for those consents, approvals, Permits, Orders, notifications,
authorizations, exemptions, registrations, declarations and filings which have
been obtained.
3.3 CAPITALIZATION.
(a) The authorized capital stock of CT Sub consists of 1,000 duly
authorized shares of common stock, par value $1.00 per share, of which 1,000
shares are duly and validly issued and outstanding, fully paid and
nonassessable, with no personal Liability attached to the ownership thereof and
all of which are held of record and beneficially by the Parent.
(b) The Partnership Interests of the Partnership are owned beneficially and
of record in the amounts and by the Persons set forth in Schedule 3.3(b).
(c) There are no securities outstanding which are convertible into,
exchangeable for, or carrying the right to acquire, Equity Interests of any
Entity, or subscriptions, warrants, options, calls, puts, convertible
securities, registration or other rights, arrangements or commitments obligating
any Entity to issue, sell, register, purchase or redeem any of its Equity
Interests or any ownership interest or rights therein. There are no voting
trusts or other similar agreements to which any Entity is bound with respect to
the voting of the any Entity's Equity Interests. There are no stock appreciation
rights, phantom stock rights or similar rights or arrangements outstanding with
respect to any Entity.
(d) Except as set forth on Schedule 3.3(d), there are no Contracts,
commitments, arrangements, understandings or restrictions to which any Seller or
any of its Subsidiaries is bound relating in any way to any Equity Interest of
any Entity, including any rights of first refusal and any rights of first offer.
(e) All Shares issued by each Entity have been issued in transactions
exempt from registration under the Securities Act and the rules and regulations
promulgated thereunder and all applicable state securities or "blue sky" laws,
and no Entity has violated the Securities Act or any applicable state securities
or "blue sky" laws which may give rise to rights of rescission, cancellation or
damages in connection with the issuance of any such securities.
3.4 SUBSIDIARIES; INVESTMENTS.
No Entity owns or holds, directly or indirectly, any Equity Interest in any
Person.
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3.5 FINANCIAL INFORMATION.
(a) The Parent has filed with the SEC all reports, forms, schedules and
statements and other documents required to be filed by it (the "SEC Documents").
As of their respective filing dates, (i) the SEC Documents complied in all
material respects with the requirements of the Securities Act, or the Exchange
Act, as the case may be, and the rules and regulations of the SEC promulgated
thereunder applicable to such SEC Documents, and (ii) none of the SEC Documents
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. The financial statements included in the SEC Documents complied, as
of their respective filing dates, as to form in all material respects with
applicable accounting requirements and the published rules and regulations of
the SEC with respect thereto, were prepared in accordance with GAAP (except, in
the case of unaudited statements, as permitted by Form 10-Q of the SEC and as
otherwise noted therein) applied on a consistent basis during the periods
involved (except as may be indicated in the notes thereto) and fairly present,
in all material respects, the consolidated financial position of the Parent and
its Subsidiaries as of the dates thereof and the results of operations and cash
flows for the periods then ended (subject, in the case of unaudited statements,
to normal year-end audit adjustments). Except as set forth on Schedule 3.5(a)
and except for Liabilities incurred in the ordinary course of business
consistent with past practices since the date of the most recent consolidated
balance sheet included in the SEC Documents filed and publicly available prior
to the date hereof, neither the Parent nor any of its Subsidiaries has any
Liabilities of any nature (whether accrued, absolute, contingent or otherwise)
required by GAAP to be set forth on a balance sheet or in the notes thereto.
(b) Schedule 3.5(b) contains true, correct and complete copies of the
unaudited balance sheets of each of the Entities as of December 31, 1997 (the
"Latest Balance Sheet"; and such date being the "Latest Balance Sheet Date"),
and the unaudited statements of operations, shareholders' equity and cash flows
for the twelve month period then ended, adjusted to give effect to the
consummation of the transactions contemplated by Section 1.2 hereof as if such
transactions were consummated at January 1, 1997 prepared in accordance with
GAAP (the "Entities' Financial Statements").
(c) Neither of the Sellers has any knowledge of any fact, event or
circumstance that would reasonably cause it to believe that the Entities'
Financial Statements do not fairly present, in all material respects, the
financial position of the Persons referenced therein as of the dates indicated
and the results of operations and cash flows of such Persons for the periods
indicated.
(d) Schedule 3.5(d) sets forth as of January 31, 1998, the Funded
Indebtedness owed by the Parent and each Entity to any third party (separately
identifying the portion of such Funded Indebtedness incurred in respect of each
mobile and each fixed magnetic resonance imaging unit (each, an "MRI Unit"),
each mobile and each fixed computed axial tomography unit (each, a "CT Unit"),
each single photon emission computed tomography unit (each a "SPECT UNIT"), each
ultrasound machine (each, an "Ultrasound Machine"), each respiratory system
(each a "Respiratory System"), and each cardiac catherization lab (each a "Cath
Lab" and together with the MRI Units, CT Units, SPECT Units, Ultrasound
Machines, Respiratory Systems, and Cath Labs, the "Units") owned, leased or on
order by any Entity and the Parent, if any). As of the date hereof, the sum of
the aggregate commitments of the lenders under the DVI Revolving Credit
Agreement is $5,500,000 and as of the close of business on March 10, 1998, the
aggregate principal amount of loans and obligations outstanding thereunder is
$5,222,484.75.
(e) Schedule 3.5(e) sets forth as of (other than in the case of clause (iv)
below) the date which is 10 Business Days prior to the date hereof, (i) the
specifications of each Unit owned, leased, used or on order by any Entity or the
Parent, (ii) the name of the applicable Entity or the Parent, whether such Unit
is owned, leased, used or on order and, in the case of Units used but not owned
or leased by any such Person, the name of the owner or the lessee thereof, (iii)
the date that such Person purchased, commenced leasing or using or, in the case
of Units on order, has committed to purchase or lease, such Unit, (iv) the net
book value per Unit as of December 31, 1997 or, in the case of Units on order,
the price to be paid to the manufacturer thereof or that any such Person or any
source of financing has committed to pay to the manufacturer thereof
(specifying, if applicable, the price applicable to the Unit and the price
applicable to the coach or van used or to be used to
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transport such Unit) and (v) a summary of whether Tax payments in respect of the
lease payments for each Unit are paid at the inception of the relevant lease or
as part of the monthly lease payment.
(f) Schedule 3.5(f) sets forth (i) the date and cost of each upgrade
completed in the one year period prior to the date hereof to each Unit owned,
leased or used by each Entity or the Parent and (ii) all amounts in excess of an
aggregate of $25,000 that each Entity or the Parent has committed to pay in
respect of any pending upgrade.
(g) Schedule 3.5(g) sets forth a true and correct Schedule of all of the
accounts payable of the Entities (including payee, amount due and due date) as
of the close of business on January 31, 1998.
(h) Schedule 3.5(h) sets forth a true and correct Schedule of (i) all
principal payments or prepayments made by the Parent and each Entity for the
year ended on the Latest Balance Sheet Date and for the one month period ending
January 31, 1998, (ii) the interest expense incurred by the Parent and each
Entity in respect of Funded Indebtedness for the year ended on the Latest
Balance Sheet Date and for the one month period ending January 31, 1998, (iii)
the revenues, cash operating expenses, and EBITDA generated per Unit for the
Parent and each Entity for the year ended on the Latest Balance Sheet Date and
for the one month period ending January 31, 1998 and (iv) the capital
expenditures made by the Parent and each Entity for the year ended on the Latest
Balance Sheet Date, and for the one month period ending January 31, 1998, in
each case, setting forth such information separately for each such Person.
3.6 INFORMATION SUPPLIED.
None of the information supplied or to be supplied by the Parent
specifically for inclusion or incorporation by reference in any documents to be
filed by the Parent with the SEC or any other Governmental Entity in connection
with the Parent Stockholder Vote and the other transactions contemplated hereby
and under the Related Documents will, on the date of its filing, or, with
respect to the Proxy Statement, as supplemented if necessary, on the date it is
sent or given to stockholders or at the time of the Parent Stockholder Vote,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they are made, not
misleading; provided, that no representation or warranty is made by the Sellers
with respect to statements made or incorporated by reference therein based on
information supplied by the Purchasers specifically for inclusion or
incorporation by reference therein. The Proxy Statement and any such other
documents filed by the Parent with the SEC or with any other Governmental Entity
will comply as to form in all material respects with the requirements of the
Exchange Act and the rules and regulations thereunder.
3.7 ABSENCE OF CHANGES.
Since the Latest Balance Sheet Date and on or prior to the date hereof,
except as set forth on Schedule 3.7, the Parent (with respect to the Business)
and each Entity have been operated in the ordinary course, consistent with past
practice, and there has not been:
(a) any change or event that, individually or in the aggregate with any
other change or event, has had or can reasonably be expected to have a material
adverse effect on the assets, properties, business, financial condition, results
of operations or prospects of the Business (a "Material Adverse Effect");
(b) any general uniform increase in the salaries or wages of employees of
the Parent or any Entity, or any increase in salaries or wages payable to any
officer, director or employee of any such Person whose total salary, wages,
bonus and commissions for 1997 exceeded $75,000;
(c) any change in the tax or other accounting methods or practices followed
by the Parent or any Entity, any change in depreciation or amortization policies
or rates previously adopted or any write-up of inventory or other assets;
(d) any delivery of a notice of non-renewal or any failure to renew any
Contract by any hospitals, clinics, medical or healthcare providers, health
maintenance organizations or other customers or third party payors,
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which are material, individually or in the aggregate, except that any such event
shall not be deemed material for this purpose to the extent that new or
additional Contracts as replacements thereof have been obtained;
(e) any loss of any employee of the Parent or any Entity who earned, during
1997, more than $125,000 (in salary, bonus and other cash compensation);
(f) any sale, lease, license or other disposition of any assets with a book
value in excess of $50,000 in the aggregate;
(g) any issuance, sale or transfer of any Equity Interests of any Entity or
issuance or sale of any securities convertible into, exercisable or exchangeable
for or options or warrants to purchase or rights to subscribe for, any such
Equity Interests;
(h) any new Contract (except for any Contract related to any Employee
Benefit Plan of the Parent for which neither Entity has assumed or has any
Liability that is not disclosed hereunder) entered into with aggregate payments
which could exceed $50,000, any incurrence of Funded Indebtedness or operating
leases (other than Funded Indebtedness or operating leases outstanding on the
date hereof and disclosed on any Schedule hereunder) or any amendment, waiver or
modification with respect to the terms of any Funded Indebtedness or operating
leases (including, without limitation, any increase in the commitments to extend
credit thereunder);
(i) a change in any accounting principles or policies;
(j) any material Tax election made or compromise of any material Tax
Liability;
(k) any payments made by the Parent or any Entity to or for the benefit of
GK Finance (other than payments made on behalf of GK Finance and reimbursed by
GK Finance on a basis consistent with past practices and in the ordinary course
of business);
(l) any amendment to any Organizational Document or Contracts;
(m) any creation or incurrence (whether or not voluntary) of any
Encumbrance other than Permitted Encumbrances and Encumbrances which exist on
the date hereof and which have been disclosed on the Schedules to this
Agreement;
(n) any payments made or deferred in respect of accounts payable or any
expenses in a manner which is not consistent with past practices or is not in
the ordinary course of business; or
(o) any agreement, whether in writing or otherwise, to take any of the
actions specified in the foregoing clauses in this Section 3.7.
3.8 TAX MATTERS; CERTAIN DEFINITIONS.
(a) Except as set forth on Schedule 3.8(a), each Entity, each Seller and
every other corporation (a "Consolidated Affiliate") that is or has been
included (or should have been included) in the filing of a consolidated or
combined Tax Return that included any Entity or Seller, (but with respect to a
Consolidated Affiliate, only for the years that such Consolidated Affiliate was
(or should have been included) in such Tax Return (the "Years Included")),
(i) has timely paid or caused to be paid all Taxes required to be paid
by it through the date hereof and as of the Closing Date (including any
Taxes shown due on any Tax Return filed by such Entity or Seller);
(ii) has filed or caused to be filed in a timely and proper manner
(within any applicable extension periods) all Tax Returns required to be
filed by it with the appropriate Governmental Entities in all jurisdictions
in which such Tax Returns are required to be filed; and
(iii) has not requested or caused to be requested any extension of
time within which to file any Tax Return, which Tax Return has not since
been filed.
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(b) The Sellers have previously delivered true, correct and complete copies
of all Tax Returns filed by or on behalf of the Sellers and each Entity for each
of the Tax years of each such Person for which the applicable statutes of
limitation have not, as of the Closing Date, expired. All such Tax Returns are
true, complete and correct.
(c) Except as set forth in Schedule 3.8(c):
(i) no Entity, Seller or Consolidated Affiliate, for the Years
Included, has been notified by the Internal Revenue Service or any other
taxing authority that any issues have been raised, which issues are
currently pending, by the Internal Revenue Service or any other taxing
authority in connection with any Tax Return of any such Person, there are
no pending Tax audits and no waivers of statutes of limitation have been
given or requested with respect to any such Person which waivers are
currently in effect;
(ii) full and adequate provision has been made (A) on the Latest
Balance Sheet, and the books and records of each Entity and the Sellers for
all Tax Liabilities of such Person for all periods ending on or prior to
the Latest Balance Sheet Date, and (B) on the books and records of each
such Person for all Tax Liabilities of each such Person for all periods
beginning after the Latest Balance Sheet Date;
(iii) no Entity, Seller or Consolidated Affiliate has or shall incur
any Tax Liability from and after the Latest Balance Sheet Date through the
Closing Date other than Taxes attributable to the transactions described
herein or attributable to transactions or other activities conducted in the
ordinary course of business and consistent with previous years and past
practices;
(iv) no Entity or the Sellers is or has (A) made an election to be
treated as a "consenting corporation" under Section 341(f) of the Code or
(B) been a "personal holding company" within the meaning of Section 542 of
the Code;
(v) each Entity, Seller and Consolidated Affiliate, for the Years
Included, has complied in all respects with all applicable Laws relating to
the collection or withholding of Taxes (such as sales Taxes or withholding
of Taxes from the wages of employees);
(vi) CT Sub is, as of the Closing Date will be, and has been from
October 15, 1987 and through the Closing, a member of the affiliated group,
as defined in Section 1504 of the Code, that included the Parent (the
"Consolidated Group"). CT Sub has been included in all consolidated Tax
Returns filed by the Consolidated Group for all periods during which CT Sub
has been a member of the Consolidated Group including the taxable year of
the Consolidated Group that includes the Closing Date;
(vii) no Entity or the Sellers has incurred any Liability to make or
possibly make any payments either alone or in conjunction with any other
payments, including payments that are made in connection with transactions
contemplated hereunder or under the Related Documents, that would
constitute a "parachute payment" within the meaning of, Section 280G of the
Code (or any corresponding provision of state, local or foreign income Tax
Law);
(viii) no Entity has agreed with the Internal Revenue Service to
change its method of accounting and the Internal Revenue Service has not
proposed that any Entity change its method of accounting for any Tax
period;
(ix) no written claim has ever been made by any taxing authority in a
jurisdiction in which any Entity, Seller or Consolidated Affiliate (for the
Years Included) does not file Tax Returns that such Person is or may be
subject to taxation by that jurisdiction; and
(x) no Entity or the Sellers is a foreign Person within the meaning of
Treas. Reg. Section 1.1445-2(b), and the Purchasers have been furnished
with a true and accurate certificate of each such Person so stating which
complies in all respects with Treas. Reg. Section 1.1445-2(b)(1).
(d) Schedule 3.8(d) sets forth a list of all of the states and localities
with respect to which each Entity and the Sellers is required to file or be
included in a consolidated or combined filing of any corporate, income or
franchise tax returns during the three taxable years ended December 31, 1996.
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(e) The Partnership, since its date of organization and for all years and
periods thereafter up to the Closing, has been validly classified as a
partnership for Federal, state and local income tax purposes and subject to the
provisions of Subchapter K of the Code, the Partnership will have a valid
Section 754 election in effect as of the Closing Date.
(f) M Sub has not engaged in any sales, transfers or dispositions of
tangible personal property (other than the sale of the M Sub Partnership
Interests to be sold on the Closing Date) during the twelve month period ending
on the Closing Date.
3.9 TITLE TO ASSETS, PROPERTIES AND RIGHTS AND RELATED MATTERS.
(a) Each Entity has (or will have after the consummation of the Asset
Contribution) good and marketable title to all of the assets, properties and
interests in properties, real, personal or mixed, reflected on its Latest
Balance Sheet or acquired after such Latest Balance Sheet Date (except accounts
receivable paid in full subsequent to the Latest Balance Sheet Date), free and
clear of all Encumbrances, of any kind or character, except for those
Encumbrances set forth on Schedule 3.9 and Permitted Encumbrances. The
properties and assets necessary or required to conduct the Business are in
reasonably good repair and operating condition, ordinary wear and tear excepted
and are sufficient for the conduct of the Business as presently conducted. After
the consummation of the transactions contemplated by Section 1.2 hereof, the
Parent and M Sub shall own no assets whatsoever related to the Business (other
than the Excluded Assets) and the Partnership shall acquire good and marketable
title to all of the Purchased Parent Assets. As of the Closing Date, each of the
transactions contemplated by Section 1.2 hereof shall have been consummated in
accordance with their respective terms. Each of Schedule 1.2(a), Schedule 1.2(b)
and Schedule 1.2(c) accurately reflects the aggregate balances of each of the
assets and liabilities set forth therein, in each case as of the date hereof.
(b) Except as set forth in Schedule 3.9, the Parent and each Entity has
complied in all material respects with the terms of all material leases to which
it is a party or under which it is in occupancy relating to the Business, and
all such leases are in full force and effect. The Parent and each Entity enjoy
peaceful and undisturbed possession under all such material leases.
3.10 REAL PROPERTY -- OWNED OR LEASED.
No Entity owns any real property. Schedule 3.10(a) contains a list and
brief description of all of the real property leased by each Entity pursuant to
one or more leases (the "Leased Property"), and sets forth the names of the
lessor and the lessee and the basic terms thereof. The Leased Property
constitutes all real property used or occupied by the Entities in connection
with the Business.
3.11 INTELLECTUAL PROPERTY.
(a) Except in each case as set forth on Schedule 3.11(a):
(i) each Entity owns, has the right to use, sell, license and dispose
of, and has the right to bring actions for the infringement of, all
Intellectual Property Rights necessary or required for the conduct of the
Business (collectively, the "Owned Requisite Rights"), other than those
Intellectual Property Rights for which any Entity has a valid license, all
of which are listed on Schedule 3.11(a) (collectively, the "Licensed
Requisite Rights"; and together with the Owned Requisite Rights, the
"Requisite Rights"), and such rights to use, sell, license, dispose of and
bring actions are exclusive with respect to the Owned Requisite Rights;
(ii) each Entity has taken reasonable and practicable steps designed
to safeguard and maintain (i) the secrecy and confidentiality of
Confidential or Proprietary Information and (ii) the proprietary rights of
each Entity in all of its Requisite Rights;
(iii) no Entity has interfered with, infringed upon, misappropriated
or otherwise come into conflict with any Intellectual Property Rights of
any Person or committed any acts of unfair competition, and no
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Entity has received from any Person in the past five years any notice,
charge, complaint, claim or assertion thereof, and no such claim is
impliedly threatened; and
(iv) no Entity has sent to any Person in the past five years, or
otherwise communicated to any Person, any notice, charge, complaint, claim
or other assertion of any present, impending or threatened infringement by
or misappropriation of, or other conflict with, any Intellectual Property
Rights of any Entity by such other Person or any acts of unfair competition
by such other Person, nor to the Best Knowledge of the Sellers, is any such
infringement, misappropriation, conflict or act of unfair competition
occurring or threatened.
(b) Schedule 3.11(b) contains a true and complete list of all applications,
filings and other formal actions made or taken pursuant to any Laws by each
Entity to perfect or protect its interest in its Intellectual Property Rights,
including, without limitation, all patents, patent applications, trademarks,
trademark applications, service marks and service mark applications, copyrights
and copyright applications.
3.12 AGREEMENTS, NO DEFAULTS, ETC.
(a) Except for Contracts relating to any Employee Benefit Plan listed on
Schedule 3.17(a), Schedule 3.12 contains a true and complete list and brief
description of all Contracts, to which each Entity is a party and (x) which were
entered into or made outside the ordinary course of business, or (y) which were
entered into or made in the ordinary course of business and are described in any
of clauses (i) through (xiv) of this Section 3.12(a). Except as set forth on
Schedule 3.12, no Entity is a party to any of the following: (i)
distributorship, dealer, sales, advertising, agency, manufacturer's
representative or other Contract relating to the payment of a commission; (ii)
Contract for the employment of any officer, employee or consultant or any other
type of Contract or understanding with any officer, employee or consultant,
including any agreement or understanding relating to severance payments, but
excluding Contracts, agreements or understandings relating to any Employee
Benefit Plan listed on Schedule 3.17(a); (iii) indenture, mortgage, promissory
note, loan agreement, security agreement, pledge agreement, conditional sale,
guarantee or other Contract for the borrowing of money, for a line of credit or
for a Capital Lease; (iv) Contract for charitable contributions; (v) Contract
for capital expenditures in excess of $25,000 individually or $100,000 in the
aggregate; (vi) Contract or arrangement for the sale of any assets, properties
or rights other than the sale of services or products in the ordinary course of
business; (vii) lease or other agreement pursuant to which it is a lessee of or
holds or operates any machinery, equipment (including Units), motor vehicles,
office furniture, fixtures, products, merchandise or other personal property
owned by any other Person, with annual lease payments in excess of $20,000
individually or $50,000 in the aggregate; (viii) Contract with respect to the
lending or investing of funds, other than with respect to any Employee Benefit
Plan listed on Schedule 3.17(a); (ix) Contract with respect to any form of
intangible property, including any Intellectual Property Rights; (x) Contract
which restricts any Entity from engaging in any aspect of the Business or any
other business anywhere in the world; (xi) Contract or group of related
Contracts with the same Person (excluding purchase orders entered into in the
ordinary course of business which are to be completed within three months of
entering into such purchase orders) for the purchase or sale of products or
services under which the undelivered balance thereof (including the aggregate
undelivered balance under any such Contracts between the same Person and such
Entity) has a selling price or outstanding balance in excess of $10,000; (xii)
agreement for the acquisition or disposition of a Person or a division of a
Person for which either of the Entities shall have continuing Liabilities after
the Closing Date; (xiii) Contract to provide MRI, CT, ultrasound or nuclear
medicine services to a hospital, clinic or provider; and (xiv) other Contract
material to the Business, including all franchise agreements and license
agreements and all financing agreements related thereto, other than with respect
to any Employee Benefit Plan listed on Schedule 3.17(a). With respect to the
Contracts specified in Section 3.12(a)(vii), Schedule 3.12 sets forth with
respect to each such Contract, as of the date hereof, the aggregate annual
rental payments (including interest factor) and the purchase price payable to
terminate such Contract and acquire the underlying asset. With respect to the
Contracts specified in Section 3.12(a)(xiii), Schedule 3.12 sets forth the fees,
as of the date hereof, for each scan, study or other service performed
thereunder.
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(b) All items listed on Schedule 3.12 are in full force and effect,
constitute legal, valid and binding obligations of the respective parties
thereto, and are enforceable in accordance with their respective terms except as
such enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting creditors' rights
generally and by general principles of equity (regardless of whether enforcement
is sought in equity or at law). Except as set forth on Schedule 3.12, there
exists no default, or any event which upon the giving of notice or the passage
of time, or both, would give rise to a claim of a default in the performance by
any Entity or to the Best Knowledge of the Sellers, any other party to any of
the foregoing of their respective obligations thereunder. The Purchasers have
been furnished with true, complete and correct copies of all items listed on
Schedule 3.12.
3.13 LITIGATION, ETC.
(a) Except as disclosed on Schedule 3.13(a), there are no (i) Proceedings
pending or, to the Best Knowledge of the Sellers, threatened against any Entity,
whether at law or in equity, whether civil or criminal in nature or whether
before or by any Governmental Entity or arbitrator, or (ii) Orders of any
Governmental Entity or arbitrator with respect to, involving or against any
Entity. The Sellers have delivered to the Purchasers, or made available to the
Purchasers, all material documents and correspondence relating to such matters
referred to on Schedule 3.13(a).
(b) Schedule 3.13(b) lists each matter described in Section 3.13(a) that
was in existence within the last 3 years that resulted in any criminal sanctions
or payments in excess of $50,000 by any Entity (whether as a result of a
judgment, civil fine, settlement or otherwise).
3.14 COMPLIANCE WITH LAWS.
Each Entity (a) has complied in all respects with, and is in compliance in
all respects with, all Laws, Orders and Permits applicable to it and the
Business, the noncompliance with which could reasonably be expected to have a
Material Adverse Effect and (b) has all material Permits used or necessary in
the conduct of the Business. All of such Permits are listed on Schedule 3.14,
are in full force and effect, no violations with respect to any thereof have
occurred or are or have been recorded, no Proceeding is pending or, to the Best
Knowledge of the Sellers, threatened to revoke or limit any thereof except, in
each case, such of the foregoing as could not reasonably be expected to have a
Material Adverse Effect. No investigation or review by any Governmental Entity
with respect to any Entity is pending or, to the Best Knowledge of the Sellers,
threatened, nor has any Governmental Entity notified any Entity or any Seller of
its intention to conduct the same.
3.15 INSURANCE.
(a) Schedule 3.15(a) contains a true and complete list of all policies of
liability, theft, fidelity, fire, product liability, workmen's compensation and
other forms of insurance held by each Entity and/or by any Seller for the
benefit of any Entity (specifying the insurer, amount of coverage, type of
insurance, policy number and any pending claims thereunder) other than policies
relating to any Employee Benefit Plan.
(b) Except as set forth on Schedule 3.15(b), with respect to each policy of
insurance listed on Schedule 3.15(a): (i) all premiums with respect thereto are
currently paid and are not subject to adjustment, and no Person is in default in
any respect with respect to its obligations under such policy, and (ii) no
Entity has received any notice that such policy has been or shall be canceled or
terminated or will not be renewed on substantially the same terms as are now in
effect or the premium on such policy shall be materially increased on the
renewal thereof.
3.16 LABOR RELATIONS: EMPLOYEES.
(a) Schedule 3.16(a) sets forth a list of all directors, officers and
employees of each Entity and employees of the Parent (solely with respect to the
Business) as of the date hereof whose aggregate compensation exceeded $75,000 in
1997, together with their respective titles, their rate of annual salary,
bonuses and commissions for 1997 and the respective dates on which they
commenced employment. To the
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extent any such employee is on a leave of absence as of the date hereof,
Schedule 3.16(a) indicates the nature of such leave of absence and such
employee's anticipated date of return to active employment. Except as set forth
on Schedule 3.16(a), no former employee whose aggregate compensation exceeded
$75,000 in 1997 has left the service of any Entity or the Parent within the last
6 months. The schedule of employees of the Parent and the Entities previously
provided to the Purchasers by the Parent (which sets forth the Person (as among
the Parent and the Entities) which employs each such employee) was true and
correct as of the date provided and none of such employees who are currently
employees of Parent or the Entities has become employed by any other Person (as
among Parent and the Entities) since such date.
(b) As of the date hereof, except as set forth on Schedule 3.16(b): (i)
there is no labor strike or work stoppage actually pending against any Entity or
the Parent; (ii) no Entity or the Parent is a party to or bound by any
collective bargaining agreement or union contract; (iii) no such agreement is
currently being negotiated by any Entity or the Parent and (iv) no Entity or the
Parent has received a request for recognition from any labor organization or any
notice that a petition for election with respect to such Person has been filed
with the National Labor Relations Board.
3.17 ERISA COMPLIANCE.
(a) Schedule 3.17(a) contains a true, complete and correct list of all
existing Employee Benefit Plans (collectively, the "Employee Plans") (i) that
cover any employees, contract employees or former employees of any Entity or any
spouses, family members or beneficiaries thereof (A) that are maintained,
sponsored or contributed to by any Entity or (B) with respect to which any
Entity is obligated to contribute or has any Liability, or (ii) with respect to
which any Entity has any Liability on account of the maintenance or sponsorship
thereof or contribution thereto by any present or former ERISA Affiliate of any
Entity.
(b) Administration and Compliance. Except as set forth on Schedule 3.17(b),
with respect to each Employee Plan:
(i) such Employee Plan has been established, maintained, operated and
administered in all material respects in accordance with its terms and in
compliance in all material respects with ERISA, the Code, and other
applicable Laws (including with respect to reporting and disclosure);
(ii) all amounts withheld pursuant to such Employee Plan from
employees have, where applicable, been timely deposited into the
appropriate trust or account;
(iii) no Entity or any ERISA Affiliate of either Entity has breached
the fiduciary rules of ERISA or engaged in a prohibited transaction that
could subject either Entity to any Tax or penalty imposed under Section
4975 of the Code or Section 502(i), (j) or (l) of ERISA in excess of
$50,000;
(iv) as of the date hereof, no Proceedings (other than routine claims
for benefits or administrative appeals with respect thereto) are pending
against such Employee Plan;
(v) such Employee Plan, if intended to be "qualified", within the
meaning of Section 401(a) of the Code, has been determined by the Internal
Revenue Service to be so qualified to the extent addressed in the most
recent favorable determination letter, and nothing has occurred that has or
could reasonably be expected to adversely affect such qualification;
(vi) except as may be required under Laws of general application, such
Employee Plan does not obligate any Entity to provide any employee or
former employee, or their spouses, family members or beneficiaries, any
post-employment or post-retirement health or life insurance, accident or
other "welfare-type" benefits;
(vii) if such Employee Plan is a "group health plan" within the
meaning of Section 5000 of the Code, such Employee Plan has been maintained
in compliance with Section 4980B of the Code and Title I, Subtitle B, Part
6 of ERISA so that no Tax imposed under Section 4980B of the Code has been
or is expected to be incurred by either Entity in excess of $50,000;
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(viii) all reporting and disclosure obligations imposed under ERISA
and the Code have been satisfied in all material respects and no IRS Form
5500 has been filed late (after consideration of any applicable extension)
for any of the three most recently ended plan years; and
(ix) without limiting Section 3.8(c), no benefit payable or which
becomes payable by any Entity pursuant to such Employee Plan shall
constitute an "excess parachute payment," within the meaning of Section
280G of the Code, which is or may be subject to the imposition of an excise
Tax under Section 4999 of the Code or which will not be deductible by
reason of Section 280G of the Code.
(c) Since 1988, no Entity and no ERISA Affiliate of any Entity is or has
ever maintained or been obligated to contribute to a "multiemployer plan" as
defined in Section 3(37) of ERISA, a "multiple employer plan," as defined in
Section 413 of the Code, or a "defined benefit pension plan," as defined in
Section 3(35) of ERISA;
(d) With respect to each Employee Plan, as of the date hereof, the
Purchasers have been provided with true and complete copies, to the extent
applicable, of each plan and trust document governing the terms of such Employee
Plan, the two most recent annual reports (Form 5500 and attachments) and
financial statements prepared therefor, the most recent favorable determination
letter issued to Parent or either Entity (and pending requests therefor), and
each of the foregoing documents accurately reflects the terms of such Employee
Plan in effect at the time such document was prepared (including, without
limitation, any agreement or provision which would limit the ability of any
Entity to make any prospective amendments or terminate such Employee Plan).
3.18 CERTAIN ADDITIONAL REGULATORY MATTERS.
(a) None of the Sellers, the Entities or any officer, director or managing
employee of the Sellers or the Entities (within the meaning of 42 U.S.C.
(Section 1320a-5(b)) have engaged in any activities which constitute violations
of, or are cause for imposition of civil penalties upon any Entity or mandatory
or permissive exclusion of any Entity from Medicare or Medicaid, under Sections
1320a-7, 1320a-7a, 1320a-7b, or Section 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 constitute violations of
or deficiencies under the standards of any private accrediting organization from
which any Entity is accredited or seeks accreditation, including the following
activities:
(i) 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;
(ii) 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;
(iii) knowingly and willfully 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
where the Person presenting knows or should know that the claim is false or
fraudulent;
(iv) 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 (iii) in return for, or to induce, the purchase, lease, or order, or the
arranging for or recommending of the purchase, lease, or order, of any
good, facility, service, or item for which payment may be made in whole or
in part by CHAMPUS, Medicare or Medicaid or any other State Health Care
Program or any Federal Health Care Program; or
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(v) 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) of 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).
(b) Each Entity has a Medicare provider number, and a participating
provider agreement in force with a Medicare Part B carrier, in each locale, as
applicable, in which such Entity bills directly to Medicare for services
furnished by such Entity.
(c) Each Entity has a Medicaid number and a participating provider
agreement in each state, as applicable, in which such Entity bills directly to
such states' Medicaid agency for services provided by such Entity.
3.19 MEDICARE/MEDICAID PARTICIPATION.
None of the Sellers, the Entities, or any officer, director, or managing
employee (as defined in SSA Section 1126(b) or any regulations promulgated
thereunder) of the Sellers or the Entities: (1) has had a civil monetary penalty
assessed against him, her or it under Section 1128A of the SSA or any
regulations promulgated thereunder; (2) has been excluded from participation
under the Medicare program or a state health care program as defined in SSA
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 (3) 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:
(i) criminal offenses relating to the delivery of an item or service
under Medicare or any State Health Care Program or any Federal Health Care
Program;
(ii) 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;
(iii) 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;
(iv) federal or state laws relating to the interference with or
obstruction of any investigation into any criminal offense; or
(v) criminal offenses under federal or state law relating to the
unlawful manufacture, distribution, prescription or dispensing of a
controlled substance.
3.20 ENVIRONMENTAL MATTERS.
(a) Except as set forth on Schedule 3.20(a), each Entity is in material
compliance with all applicable Environmental, Health and Safety Laws. Each
Entity has all of the Permits, licenses, authorizations, registrations and
approvals from Governmental Entities necessary to operate the Business, and all
such Permits, licenses, authorizations, registrations and approvals are valid
and in effect
(b) Except as set forth on Schedule 3.20(b), there are no pending or, to
the knowledge of the Sellers, threatened claims by any Governmental Entity
concerning or alleging a violation of any Environmental Health and Safety Law by
any Entity, nor are any pending or, to the knowledge of the Sellers, threatened
claims under any Environmental Health and Safety Laws concerning any property or
facility previously owned, leased or operated by any Seller or Entity or
predecessor of any Seller or Entity.
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(c) Except as set forth on Schedule 3.20(c), no Entity presently is the
subject of any ongoing administrative or judicial proceeding or investigation
brought by any Governmental Entity under any Environmental, Health or Safety Law
including, without limitation, any voluntary clean-up program or any Proceeding
under the Comprehensive Environmental Response, Compensation and Liability Act
("CERCLA," also known as "Superfund") or any state counterparts to CERCLA, nor
is any Entity obligated to remediate, monitor, investigate, conduct corrective
action or report on environmental, health and safety matters concerning the
Business pursuant to any order, agreement, decree or mediation or arbitration
proceeding.
(d) Except as set forth on Schedule 3.20(d), in the five years preceding
the date hereof, no Entity has received any written notice, report or other
written information (i) regarding any actual or alleged violation of any
Environmental, Health and Safety Laws, or (ii) that any Entity is potentially
responsible under any Environmental, Health and Safety Laws for response costs,
corrective action or natural resource damages, as those terms are defined under
any Environmental, Health and Safety Laws.
(e) Except as set forth on Schedule 3.20(e), Sellers are not aware of
impending changes in Environmental Health or Safety Laws which could reasonably
be expected to materialize before the one year anniversary of the Closing Date
and which could result in a Material Adverse Effect.
(f) Sellers have provided to the Purchasers copies of, or access for
purposes of review to, all documents, reports, studies or other non-legally
privileged information concerning environmental, heath or safety matters
relating to the Business which are in the possession of Sellers. The information
prepared or originated by the Sellers or the Entities and provided to the
Purchasers is true and correct.
3.21 BROKERS.
No Seller or Entity has employed any broker or finder or incurred any
Liability for any brokerage fees, commissions or finders' fees in connection
with the transactions contemplated hereby for which any Purchaser or Alliance
may have Liability after the Closing.
3.22 RELATED TRANSACTIONS.
Except as set forth on Schedule 3.22 or on Schedules 3.17 (a) or (b) and
except for compensation to bona-fide employees of any Entity for services
rendered in the ordinary course of business, no Affiliate of any Entity or any
"associate" (as defined in the rules promulgated under the Securities Exchange
Act of 1934, as amended (the "Exchange Act")) thereof, is now (i) party to any
transaction or Contract with any Entity providing for the furnishing of services
by, or rental of real or personal property from, or otherwise requiring payments
to, any such Affiliate or associate, or (ii) the direct or indirect owner of a
controlling interest in any Person which is a present or potential competitor,
supplier or customer of any Entity (other than nonaffiliated holdings in
publicly held companies). Except as set forth on Schedule 3.22, no Entity is a
guarantor or otherwise liable for any actual or potential Liability of its
Affiliates and their associates (other than with respect to any Entity, the
other Entity). Except as set forth on Schedule 3.22, no Entity owns or pays for
any social club memberships, whether or not for the benefit of any Entity and/or
its executives.
3.23 BANK ACCOUNTS; POWERS OF ATTORNEY.
Schedule 3.23 sets forth a true and complete list of (i) all bank accounts
and safe deposit boxes of each Seller and Entity and all Persons who are
signatories thereunder or who have access thereto and (ii) the names of all
persons, firms, associations, corporations or business organizations holding
general or special powers of attorney from any Seller or Entity and a summary of
the terms thereof.
3.24 VOTING.
The affirmative vote of a majority of the outstanding shares (the "Parent
Stockholder Approval") of the Parent's common stock, par value $0.01 per share
(the "Parent Common Stock") is the only vote of the
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holders of any class or series of the Parent's capital stock which is necessary
to approve this Agreement and the transactions contemplated hereby.
3.25 OPINION OF FINANCIAL ADVISOR.
The Board of Directors of the Parent has received the oral opinion of
PaineWebber Incorporated to the effect that, as of the date hereof, the
consideration to be received in respect of Shares pursuant to this Agreement is
fair from a financial point of view to the Parent.
3.26 PHYSICIAN RELATIONSHIPS.
(a) Except as set forth in Schedule 3.26 the Entities do not have any
"financial relationship" with any "referring physician" or an immediate family
member of such physician, within those terms' meanings under 42 U.S.C. Section
1395nn.
(b) To the Best Knowledge of each of the Sellers, no "referring physician"
(within the meaning of 42 U.S.C. Section 1395nn) owns any securities of the
Sellers.
3.27 OTHER HOSPITAL RELATIONSHIPS.
Except as set forth in Schedule 3.27 other than with respect to reading
radiologists, the Entities do not have any lease or other arrangement with any
hospital or other entity whereby the Entities pay the hospital or other entity
rent or any other fee the amount of which is dependent in whole or in part on
the gross or net revenues, net income, or cash flow of any segment of the
business of the Entities.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS
Each Purchaser represents and warrants, severally as to itself, as of the
date hereof and as of the Closing Date as follows:
4.1 ORGANIZATION; CORPORATE AUTHORITY.
Such Purchaser is a corporation duly organized, validly existing and in
good standing under the Laws of the jurisdiction of its incorporation and has
all requisite power and authority (corporate or otherwise) to own, lease and
operate its assets and properties and to carry on its business as presently
conducted and as presently proposed to be conducted. Such Purchaser is duly
qualified and in good standing to transact business as a foreign Person in those
jurisdictions set forth on Schedule 4.1, which, as of the date hereof,
constitute all the jurisdictions in which the character of the property owned,
leased or operated by such Purchaser or the nature of the business or activities
conducted by such Purchaser makes such qualification necessary.
4.2 CORPORATE ACTION; AUTHORITY; NO CONFLICT.
Such Purchaser has all requisite power and authority (corporate and
otherwise) to execute, deliver and perform its obligations under this Agreement
and each Related Document to which it is or will be a party and to consummate
the transactions contemplated hereby and thereby. The execution, delivery and
performance by such Purchaser of this Agreement and each Related Document to
which it is or will be a party, and performance of its obligations hereunder and
thereunder have been duly and validly authorized by all necessary corporate
action on the part of such Purchaser. This Agreement and each Related Document
to which it is or will be a party has been or upon the execution thereof will
be, duly and validly executed and delivered by such Purchaser, and constitutes,
or upon its execution and delivery will constitute, a valid and binding
obligation of such Purchaser, enforceable against it in accordance with its
terms except as such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other similar laws affecting
creditors' rights generally and by general principles of equity (regardless of
whether enforcement is sought in equity or at law). Neither such Purchaser's
execution and delivery of, and/or
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performance of its obligations under, this Agreement and each Related Document
to which it is or will be a party, nor the consummation of the transactions
contemplated hereby and thereby shall (i) conflict with or result in any
violation or breach of, any of the terms, conditions or provisions of, or
constitute (with due notice or lapse of time, or both) a default under, or give
rise to any right of termination, cancellation or acceleration or result in the
creation of any Encumbrance upon any of the assets or properties of such
Purchaser under provision of such Purchaser's Organizational Documents or any
Contract to which such Purchaser is a party (other than security documents
relating to financing arrangements existing for the benefit of the Purchasers'
Affiliates) or by which it or any of its assets or properties is or may be bound
which, in the case of such Contracts, would reasonably be expected to have a
material adverse effect on any Purchaser or prevent the consummation of the
transactions contemplated hereby or under the Related Documents and other than
with respect to the foregoing for which consents have been obtained or (ii)
violate, or result in the creation of an Encumbrance upon any of such
Purchaser's assets as a result of, any Law's applicable to such Purchaser or any
of its properties or assets, in each case, which would prohibit the such
Purchaser from consummating the transactions contemplated hereby.
4.3 BROKERS.
Such Purchaser has not employed any broker or finder or incurred any
Liability for any brokerage fees, commissions or finders' fees in connection
with the transactions contemplated hereby for which any Seller may have any
Liability after the Closing.
4.4 CONSENTS.
Except as contemplated by this Agreement or as set forth on Schedule 4.4,
and the Related Documents, no consent, approval, Order or authorization of, or
registration, declaration or filing with or notification to, any Governmental
Entity or any third party is required in connection with the execution, delivery
and performance by such Purchaser of this Agreement or the Related Documents to
which such Purchaser is or will be a party or the consummation of the
transactions contemplated hereby or thereby except for those consents,
approvals, Orders, authorizations, registrations, declarations, filings or
notifications the failure to obtain could not reasonably be expected to have a
material adverse effect on such Purchaser or except for those consents,
approvals, Orders, authorizations, registrations, declarations or filings which
have been obtained.
4.5 INVESTMENT REPRESENTATIONS.
Each of the Purchasers are acquiring the Shares to be purchased by it, for
its own account, for investment and not with a view to the distribution thereof
in violation of the Securities Act.
4.6 INFORMATION SUPPLIED.
None of the written information supplied or to be supplied by any Purchaser
specifically for inclusion or incorporation by reference in the Proxy Statement,
as supplemented if necessary, and any other documents to be filed by the Parent
with the SEC or any Governmental Entity in connection with the transactions
contemplated hereby will, on the date of its filing or, with respect to the
Proxy Statement, as supplemented if necessary, on the date it is sent or given
to stockholders or at the time of the Stockholders Meeting, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they are made, not misleading.
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ARTICLE V
REPRESENTATIONS AND WARRANTIES OF ALLIANCE
Alliance represents and warrants, as to itself, as of the date hereof and
as of the Closing Date as follows:
5.1 ORGANIZATION; CORPORATE AUTHORITY.
Alliance is a corporation duly organized, validly existing and in good
standing under the Laws of the jurisdiction of its incorporation and has all
requisite power and authority (corporate or otherwise) to own, lease and operate
its assets and properties and to carry on its business as presently conducted
and as presently proposed to be conducted.
5.2 CORPORATE ACTION; AUTHORITY; NO CONFLICT.
Alliance has all requisite power and authority (corporate and otherwise) to
execute, deliver and perform its obligations under this Agreement and each
Related Document to which it is or will be a party and to consummate the
transactions contemplated hereby and thereby. The execution, delivery and
performance by Alliance of this Agreement and each Related Document to which it
is or will be a party, and performance of its obligations hereunder and
thereunder have been duly and validly authorized by all necessary corporate
action on the part of Alliance. This Agreement and each Related Document to
which Alliance is or will be a party has been or upon the execution thereof will
be, duly and validly executed and delivered by it, and constitutes, or upon its
execution and delivery will constitute, a valid and binding obligation of it,
enforceable against it in accordance with its terms except as such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting creditors' rights
generally and by general principles of equity (regardless of whether enforcement
is sought in equity or at law). Neither Alliance's execution and delivery of,
and/or performance of its obligations under, this Agreement and each Related
Document to which it is or will be a party, nor the consummation of the
transactions contemplated hereby and thereby shall (i) conflict with or result
in any violation or breach of, any of the terms, conditions or provisions of, or
constitute (with due notice or lapse of time, or both) a default under, or give
rise to any right of termination, cancellation or acceleration or result in the
creation of any Encumbrance upon any of the assets or properties of Alliance
under provision of its Organizational Documents or any Contract to which it is a
party or by which it or any of its assets or properties is or may be bound
which, in the case of such Contracts, would reasonably be expected to have a
material adverse effect on it or prevent the consummation of the transactions
contemplated hereby or under the Related Documents and other than with respect
to the foregoing for which consents have been obtained or (ii) violate, or
result in the creation of an Encumbrance upon any of its assets as a result of,
any Law's applicable to it or any of its properties or assets, in each case,
which would prohibit it from consummating the transactions contemplated hereby.
5.3 DESIGNATION OF PURCHASERS.
Alliance has duly designated the Purchasers to acquire the Shares
hereunder, and will cause the Purchasers to perform each and every obligation
undertaken by them herein.
ARTICLE VI
COVENANTS AND AGREEMENTS
6.1 ACCESS TO RECORDS AND PROPERTIES OF THE ENTITIES.
From and after the date hereof until the Closing, the Sellers shall, and
shall cause each Entity to afford, (i) to the Purchasers, their respective
lenders and Affiliates and each of their respective authorized representatives,
including accountants, consultants and attorneys, free and full access at all
reasonable times to the assets, business, facilities, properties, books, records
(including tax returns filed and in preparation), customers, consultants, and
employees of or relating to each Entity and the Parent in order that the
Purchasers have full opportunity to make such investigation as they shall
reasonably desire to make of the affairs of each
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Entity and the Parent and in order that the Purchasers may integrate the
Business into the business currently being conducted by the Purchasers'
Affiliates, and (ii) to the respective independent certified public accountants
of the Purchasers, free and full access at all reasonable times to the records
of the independent certified public accountants of each Entity and the Parent.
The Sellers shall cause their employees to actively cooperate and assist
Purchasers and such other Persons in effecting such integration. From and after
the date hereof until the Closing, (i) the Sellers shall provide to the
Purchasers promptly but in any event no later than the 25th day after the last
day of each calendar month, a copy of the consolidated and consolidating balance
sheets, statements of operations, shareholders equity and cash flows of the
Parent and its Subsidiaries for each such calendar month, together with a copy
of the Parent's "white book" and "blue book" (and any supporting information
with respect thereto), and (ii) such other information regarding the Parent and
its Subsidiaries as may be reasonably requested by the Purchasers. The
investigation contemplated by this Section 6.1 shall not affect or otherwise
diminish or obviate in any respect any of the representations and warranties or
the indemnification obligations contained in this Agreement.
6.2 CONDUCT PENDING CLOSING.
From and after the date hereof until the earlier of the Closing or the
termination of this Agreement pursuant to Article IX, each of the Sellers shall,
and shall cause each Entity to (unless otherwise consented to in writing by the
Purchasers):
(a) not sell, lease, license or otherwise dispose of any assets with a book
value in excess of $50,000 in the aggregate;
(b) not issue, sell or in any way transfer any Equity Interests of the
Entities or issue or sell any securities convertible into, exercisable or
exchangeable for or options or warrants to purchase or rights to subscribe for,
any such Equity Interests;
(c) not change the number of authorized shares of the Equity Interests of
the Entities or reclassify, combine, split, subdivide or redeem or otherwise
repurchase any of such Equity Interests, or issue, deliver, pledge or encumber
any additional Equity Interests of the Entities or other securities equivalent
to, or exchangeable for, Equity Interests of the Entities or enter into any
Contract to do any of the foregoing;
(d) not incur or issue any securities evidencing any Funded Indebtedness or
enter into any operating leases (other than Funded Indebtedness of a Seller for
which no Entity (or its assets) is liable or obligated (whether contractually,
by applicable Law, as a guarantor or through the incurrence or grant of any
Encumbrances), Funded Indebtedness related to money advanced from Sellers or GK
Finance to an Entity on a basis consistent with past practice and in the
ordinary course of business, provided that the amounts so advanced are repaid
prior to the Closing Date, Funded Indebtedness or operating leases outstanding
on the date hereof and disclosed on any Schedules hereunder), or amend, modify
or agree to a waiver of the terms of any Funded Indebtedness or operating leases
(including, without limitation increasing any commitments to extend credit
thereunder);
(e) not enter into any Contract with aggregate payments which could exceed
$50,000 (except for any Contract related to any Employee Benefit Plan of the
Parent or any Subsidiary other than the Entities, and for which Contract neither
Entity assumes or has any Liability not disclosed hereunder) or any Contract in
respect of the rental of any Unit;
(f) not enter into any employment agreement, or in any manner change the
Person (as among the Parent and the Entities) which is the employer of the
employees of the Parent and the Entities from the Person disclosed on the
schedule referenced in the last sentence of Section 3.16(a) as such employee's
employer, or terminate the employment of any employees in a manner which is
inconsistent with past practices or policies, or except as required by
applicable Law, effect any increase in the rate or terms of compensation payable
or to become payable to officers or employees of any Entity or the Parent
(solely as relating to the Business) other than increases in compensation under
Employee Benefit Plans which are available to all employees generally;
(g) not create or suffer to exist any Encumbrance on any of its assets or
properties other than Permitted Encumbrances, Encumbrances on Equity Interests
or assets of GK Finance or any assets of Subsidiaries of the
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Parent other than the Entities, and Encumbrances which exist on the date hereof
and which have been disclosed on the Schedules to this Agreement;
(h) not change its tax or accounting principles, policies or practices,
change any depreciation or amortization policies or rates previously adopted or
write-up inventory or any other assets;
(i) not make any material Tax election or compromise any material Tax
Liability;
(j) not make any payments to or for the benefit of GK Finance (other than
payments made on behalf of GK Finance and reimbursed by GK Finance on a basis
consistent with past practices and in the ordinary course of business);
(k) not amend any of its Organizational Documents or any Contracts (other
than Contracts related to any Employee Plan);
(l) not enter into any transaction other than in the ordinary course of
business, or any transaction which is not at arms-length with unaffiliated third
Persons;
(m) not take or omit to take any action which would result in the
representations and warranties contained in this Agreement and the Related
Documents being untrue on the Closing Date, other than such action as shall have
been previously agreed to in writing by the parties hereto;
(n) not make any material change in the manner in which such Person extends
discounts or credits to customers or any material change in the manner or terms
by which such Person collects its accounts receivable or otherwise deals with
customers;
(o) not agree or otherwise commit to take any of the actions set forth
above;
(p) promptly provide the Purchasers with at least five Business Days notice
of (i) the terms and conditions with respect to renewals of any existing
Contracts to be renewed by the Entities, (ii) any intention to not renew any
existing Contracts and (iii) the actual nonrenewal of any existing Contract;
(q) conduct its business substantially as presently conducted and only in
the ordinary course consistent with past practice;
(r) use commercially reasonable efforts to (i) maintain its business,
assets, relations with present employees, customers, suppliers, partners,
licensees and operations as an ongoing business and preserve its goodwill, in
accordance with past custom and practice and (ii) to satisfy each of the closing
conditions to be satisfied by it set forth in Article VII hereof; and
(s) pay and continue to defer all accounts payable and all expenses in a
manner which is consistent with past practices and in the ordinary course of
business.
6.3 EFFORTS TO CONSUMMATE.
Subject to the terms and conditions of this Agreement, each party shall use
commercially reasonable efforts to take or cause to be taken all actions and do
or cause to be done all things required under all applicable Laws, in order to
consummate the transactions contemplated hereby.
6.4 NO SOLICITATION.
(a) The Parent shall, shall cause M Sub and each Entity to and shall direct
and cause its and each such Person's officers, directors, employees,
representatives and agents to, immediately cease any discussions or negotiations
with any parties (other than the Purchasers and Alliance) that may be ongoing
with respect to an Alternative Transaction. The Parent shall not, shall cause M
Sub and each Entity not to and shall not authorize or permit any of its or any
such Person's officers, directors or employees or any investment banker,
financial advisor, attorney, accountant or other representative representing any
such Person to, directly or indirectly, (i) solicit, initiate or encourage
(including by way of furnishing information), or take any other action to
facilitate, any inquiries or the making of any proposal that may lead to an
Alternative Transaction or (ii) participate in any discussions or negotiations
regarding any proposed Alternative Transaction; provided,
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however, that if, at any time prior to the Closing Date, the Board of Directors
of the Parent determines in good faith, based on written advice from outside
counsel, that action is required by reason of such Board of Directors' fiduciary
duties to the Parent's stockholders under applicable law, the Parent may
(subject to compliance with Section 6.4(c)), in response to an unsolicited Third
Party Proposal, (A) furnish information with respect to the Parent and the
Entities to the Person making such Third Party Proposal pursuant to a
confidentiality agreement that is at least as protective of the Parent's and its
Subsidiaries' interests as is the Confidentiality Agreement and (B) participate
in negotiations regarding such a Third Party Proposal. Without limiting the
foregoing, it is understood that any violation of the restrictions set forth in
the preceding sentence by any director, officer or employee of the Parent, M Sub
or any Entity or any investment banker, financial advisor, attorney, accountant
or other representative acting on behalf of any such Person shall be deemed to
be a breach of this Section 6.4(a).
(b) Neither the Board of Directors of the Parent nor any committee thereof
shall (i) withdraw or modify the approval or recommendation by such Board of
Directors or such committee of this Agreement, the Related Documents or any of
the transactions contemplated hereby or thereby, (ii) approve or recommend any
Alternative Transaction or (iii) cause or permit the Parent, M Sub or any Entity
to enter into any letter of intent, agreement in principle, acquisition
agreement or other agreement (an "Acquisition Agreement") with respect to an
Alternative Transaction unless the Board of Directors of the Parent shall have
previously terminated this Agreement pursuant to Section 9.1(f).
(c) In addition to the obligations of the Parent set forth in paragraphs
(a) and (b) of this Section 6.4, the Parent shall immediately advise the
Purchasers orally and in writing of any request for information or of any
proposal or any inquiry regarding any Alternative Transaction, the material
terms and conditions of such request, proposal or inquiry and the identity of
the Person making such request, proposal or inquiry. The Parent will keep the
Purchasers fully informed of the status and details (including amendments or
proposed amendments) of any such request, proposal or inquiry.
(d) Nothing contained in this Section 6.4 shall prohibit the Parent from at
any time taking and disclosing to its stockholders a position contemplated by
Rules 14d-9 and 14e-2(a) promulgated under the Exchange Act or from making any
disclosure to the Parent's stockholders, in each case with respect to any Third
Party Proposal, if the Parent shall have provided the Purchasers with as much
advance notice of its position and proposed disclosure as is possible under the
circumstances; provided, however, that neither the Parent nor its Board of
Directors nor any Committee thereof shall, except as permitted by Section
6.4(b), withdraw or modify, or propose to withdraw or modify, its position with
respect to this Agreement, the Related Documents or any of the transactions
contemplated hereby or thereby or approve or recommend, or propose to approve or
recommend, an Alternative Transaction.
6.5 CONFIDENTIALITY.
The Sellers and the Purchasers agree that, through and including the
Closing Date, they shall comply with that certain letter agreement relating to
matters of confidentiality dated as of July 24, 1997 (as amended, modified or
supplemented, the "Confidentiality Agreement").
6.6 NOTICE OF PROSPECTIVE BREACH.
Each party shall immediately notify the other parties in writing upon the
occurrence, or failure to occur, of any event, which occurrence or failure to
occur would be reasonably likely to cause any representation or warranty of such
party that is contained in this Agreement or any Related Document to be untrue
or inaccurate in any material respect at any time from the date of this
Agreement to the Closing.
6.7 PUBLIC ANNOUNCEMENTS.
Each party agrees that, except (i) as otherwise required by Law or Order
and (ii) for disclosure to its respective directors, officers, employees,
financial advisors, potential financing sources, legal counsel, independent
certified public accountants or other agents, advisors or representatives on a
need-to-know basis and with whom such party has a confidential relationship, it
will not issue any reports, statements or releases, in each
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case pertaining to this Agreement or any Related Document to which it is a party
or the transactions contemplated hereby or thereby, without consulting in
advance with the other parties hereto.
6.8 COOPERATION REGARDING TAX FILINGS; SECTION 338(H)(10).
(a) After the Closing, the Purchasers and the Sellers shall act in good
faith and cooperate with one another for the purpose of filing all Tax Returns
and reports required to be filed by any of them. Parent shall join Purchaser A
in a timely election pursuant to Section 338(h)(10) of the Code (and under any
comparable provision of any state or local law) with respect to the CT Shares
(the "338(h)(10) Election"). The parties hereto recognize that the 338(h)(10)
Election will result in the purchase of the CT Shares hereunder being treated as
a sale of assets by CT Sub for Federal income Tax purposes and for applicable
state and local tax purposes and that any Tax Liability arising with respect to
the 338(h)(10) Election (other than a Liability for Transfer Taxes described in
Section 10.14) shall be deemed a Covered Tax. None of the parties hereto shall
make any Tax Return or other filing that is inconsistent with the foregoing.
(b) The Purchasers shall be responsible for the preparation and filing of
all 338(h)(10) Election forms and the Sellers shall execute and deliver to
Purchasers such documents as are reasonably requested to properly complete such
forms at least twenty (20) days prior to the date such 338(h)(10) Election is
required to be filed. The Sellers agree that the Purchasers shall be entitled to
determine the allocation of the Modified Aggregate Deemed Sales Price (as
defined in the treasury regulations promulgated under Section 338 of the Code)
among the assets of CT Sub in their sole discretion, and in accordance with
Section 338 of the Code and the regulations thereunder (including the allocation
of any adjustment to the Modified Aggregate Deemed Sales Price by reason of any
purchase price adjustment or indemnification payment under this Agreement), and
shall notify the Sellers of such determination as soon as possible after making
such determination. The Purchasers and the Sellers agree to act in accordance
with any such allocation in all relevant Tax Returns and filings.
(c) Parent shall cause to be prepared and cause to be timely filed all
consolidated, combined or unitary federal, state, local or foreign Tax Returns
required to be filed with respect to Parent for all taxable periods ending
before or including the Closing Date and shall include CT Sub in all such
returns in which it is eligible to be included. The Purchasers agree to
cooperate with Parent and its Affiliates in the preparation of the portions of
such Tax Returns pertaining to CT Sub. The Parent shall permit the Purchasers to
review and comment on the portion of all Tax Returns prepared by Parent pursuant
to this Section 6.8(c) pertaining to CT Sub, or the Partnership prior to the
filing of such Tax Returns. Parent shall cause to be timely paid all Taxes to
which such Tax Returns relate for all periods covered by such Tax Returns.
(d) The extent to which Taxes of CT Sub and the Partnership for a taxable
period that includes but does not end on the Closing Date are treated as Taxes
for the period ending on or prior to the Closing Date shall be determined for
all purposes, including for purposes of calculating Covered Taxes, as follows:
(i) Taxes measured in whole or in part by net or gross income and Taxes relating
to specific transactions shall be apportioned on the basis of a closing of the
books of the Entity liable for such Tax at the close of business on the Closing
Date; provided, however, that all transactions not in the ordinary course of
business and not contemplated in this Agreement that occur on the Closing Date
after Purchaser A's purchase of the CT Shares shall be reported on Purchaser A's
federal income tax return to the extent permitted by Treas. Reg. Section
1502-76(b((1)(3); and (ii) all other Taxes shall be prorated according to the
ratio of the number of days in such taxable period prior to and including the
Closing Date to the number of days in such taxable period.
(e) The Sellers shall cause to be prepared all required federal, state,
local and foreign Tax Returns of CT Sub and the Partnership for any period which
ends on or before the Closing Date, for which Tax Returns have not been filed as
of the Closing Date (other than Tax Returns to be filed by Parent pursuant to
Section 6.8(c)). The Purchasers shall cause to be prepared and cause to be
timely filed all required federal, state, local and foreign Tax Returns of CT
Sub and the Partnership (other than Tax Returns to be filed by Parent pursuant
to Section 6.8(c)) for taxable periods beginning before and ending after the
Closing Date. The Sellers and Purchasers agree to cooperate with each other in
the preparation of such Tax Returns. The
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Purchasers shall permit Sellers to review and comment on all Tax Returns
prepared by the Purchasers pursuant to this Section 6.8(e) and such Tax Returns
shall be subject to the prior approval of the Sellers which approval shall not
be unreasonably withheld. The Sellers shall permit the Purchasers to review and
comment on all Tax Returns prepared by the Sellers pursuant to this Section
6.8(e). Prior to the date such Tax Returns are due, the Parent will provide the
Purchasers with amounts equal to the Covered Taxes, as shown on the Tax Returns
to be filed under this Section 6.8(e), after taking into account any Tax or
estimated Tax paid with respect to such Covered Taxes prior to the Closing Date.
Promptly after receipt by the Purchasers of the amounts in respect of the
Covered Taxes from the Parent, the Purchasers will cause the applicable Tax
Returns prepared by the Seller to be filed.
(f) Parent shall be entitled to any refund of Taxes paid by or with respect
to CT Sub that is attributable to taxable periods ending on or prior to the
Closing Date, and the Purchasers shall cause CT Sub to pay over to Parent any
such refunds (net of any Tax Liability attributable thereto and any expenses
incurred in the collection of such refund) within fifteen (15) days after
receipt thereof. If the amount of such refund that is paid over by Parent is
subsequently reduced by a Governmental Entity, Parent shall pay to Purchasers an
amount necessary to reflect such adjustment.
(g) The Parent shall not file any claim for a refund or credit, or an
amended return claiming a refund or credit, after the Closing Date, for any Tax
paid by CT Sub without the prior written consent of the Purchasers, which
consent shall not be unreasonably withheld.
(h) Each of the Purchasers and the Sellers shall promptly notify the other
party upon receipt of a notice of any pending or threatened Tax audit or
assessment (a "Tax Claim") that may affect the Tax Liabilities of CT Sub, or the
Partnership and for which any Seller would be liable under this Agreement;
provided, however, that no delay on the part of either party in so notifying the
other party shall relieve the other party from any liability or obligation
hereunder (unless, and then solely to the extent) that the other party is
materially and irrevocably prejudiced by such delay. Such notice shall be
accompanied by copies of all relevant documentation with respect to such Tax
Claim.
(i) If the Sellers shall acknowledge in a writing delivered to the
Purchasers that such Tax Claim is properly subject to their indemnification
obligations hereunder and the Sellers shall have the financial resources to meet
such indemnification obligations, then subject to the further provisions of this
Section 6.8(i), the Sellers shall have the right to assume the defense of such
Tax Claim at their own expense and by their own counsel and other advisers,
which counsel and other advisors shall be reasonably satisfactory to the
Purchasers; provided, however, that the Sellers shall not have the right to
assume the defense of any Tax Claim, notwithstanding the giving of such written
acknowledgment, if the Sellers shall not have assumed the defense of such Tax
Claim in a timely fashion. Notwithstanding anything to the contrary contained
herein, if a Tax Claim involves, or could have a material effect on any material
matter beyond the scope of the indemnification obligations of the Sellers, the
Sellers and Purchasers shall jointly assume the defense of such Tax Claim at
their own expense. If the Sellers exercise their right to assume the defense of
a Tax Claim pursuant to and in accordance with this Section 6.8(i), (i) the
Purchasers shall be entitled to participate in such defense with their own
counsel and other advisors at their own expense, (ii) the Purchasers will
reasonably cooperate with the Sellers and their counsel and advisors in the
defense of such Tax Claim, and (iii) the Sellers shall not make any settlement
of such Tax Claim without the written consent of the Purchasers, which consent
shall not be unreasonably withheld, provided that consent may be withheld if any
Losses to be incurred by the Purchasers pursuant to such settlement are not
indemnified pursuant to the indemnification provisions set forth in Article VIII
hereunder.
(j) If the Sellers shall assume the defense of a Tax Claim pursuant to and
in accordance with Section 6.8(i), the Sellers shall not be responsible for any
legal or other defense costs subsequently incurred by the Purchasers in
connection with the defense thereof. If the Sellers do not exercise their right
to assume the defense of a Tax Claim or are otherwise restricted from doing so
pursuant to Section 6.8(i), the Sellers shall nevertheless be entitled to
participate in such defense with their own counsel and other advisors at their
own expense. If the defense of a Tax Claim is retained by the Purchasers, the
Purchasers shall not be entitled
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to settle such Tax Claim without the prior written consent of the Sellers, which
consent shall not be unreasonably withheld.
(k) After the Closing Date, the Sellers and the Purchasers shall make
available to the other, as reasonably requested, all information, records or
documents relating to Tax Liabilities or potential Tax Liabilities of CT Sub or
the Partnership for all periods ending on or prior to the Closing Date, and
shall preserve all such information, records and documents until the expiration
of any applicable statute of limitations or extensions thereof.
(l) All Tax Returns which are required to be prepared by Sellers pursuant
to Sections 6.8(c) and (e) shall be prepared and filed in a manner consistent
with past practice and applicable Law and, on such Tax Returns, no position
shall be taken, elections made or method adopted that is inconsistent with
positions taken, elections made or methods used in preparing and filing similar
Tax Returns in prior periods.
6.9 EXCHANGE PROCEEDS.
If, between the date hereof and the Closing, any Entity or any Seller
receives any proceeds in consideration for the exchange of any of its assets
(solely, in the case of the Parent as it relates to the Purchased Parent
Assets), whether from the sale of any such assets, from insurance proceeds
payable on account of any loss or casualty to such assets, any proceeds from the
taking of such assets pursuant to the power of eminent domain, or any other
proceeds from whatever source relating to the disposition of such assets (the
"Exchange Proceeds"), the Sellers shall immediately notify the Purchasers of the
receipt of such Exchange Proceeds and shall consult with the Purchasers with
respect to the application of any such Exchange Proceeds. The Sellers shall
ensure that any Exchange Proceeds received by any Entity shall either be used to
purchase replacement assets or shall be retained by the applicable Entity.
6.10 NON-COMPETE; NON-SOLICITATION.
(a) During the Non-Compete Period, the Parent shall not, and cause its
Affiliates not to, directly or indirectly, own, manage, control, participate in,
consult with, render services for, or in any manner engage in or represent any
business within any Restricted Territory that is competitive with the Business
or any product or services of the Business as such Business is conducted or
proposed to be conducted from and after the Closing Date; provided, however,
that nothing herein shall be deemed to prevent the Parent or any of its
Affiliates from engaging in any activities presently conducted or proposed to be
conducted by GK Finance or from providing any imaging modality as part of its
"Operating Room of the Twenty First Century" business.
(b) During the Non-Compete Period, none of the Parent nor any Affiliate
shall directly or indirectly through another Person (i) induce or attempt to
induce any employee of any Purchaser or any Affiliate of such Purchaser to leave
the employ of such Purchaser or such Affiliate or in any way interfere with the
relationship between such Purchaser or any such Affiliate, on the one hand, and
any employee thereof, on the other hand, or (ii) induce or attempt to induce any
customer, supplier, licensee or other business relation of any Purchaser or any
Affiliate of such Purchaser to cease doing business with such Person or in any
way interfere with the relationship between any such customer, supplier,
licensee or business relation, on the one hand, and such Person, on the other
hand.
(c) If, at the time of enforcement of this Section 6.10, a court holds that
the restrictions stated herein are unreasonable under the circumstances then
existing, the parties agree that the maximum period, scope or geographical area
reasonable under such circumstances shall be substituted for the stated period,
scope or area. The parties hereto acknowledge that money damages would be an
inadequate remedy for any breach of this Section 6.10. Therefore, in the event
of a breach or threatened breach of this Section 6.10, the Purchasers or their
successors or assigns may, in addition to other rights and remedies existing in
their favor, apply to any court of competent jurisdiction for specific
performance and/or injunctive or other relief in order to enforce, or prevent
any violations of, the provisions of this Section 6.10.
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6.11 CERTAIN TAX MATTERS.
From the date hereof until the Closing Date, (i) the Parent shall and shall
cause each Entity to file all tax returns and reports ("Post-Signing Returns")
required to be filed in a manner consistent with past practices; (ii) the Parent
shall and shall cause each Entity to timely pay all Taxes shown as due and
payable on the Post-Signing Returns; (iii) the Parent shall and shall cause each
Entity to make provision for all Taxes payable for which no Post-Signing Return
is due prior to the Closing Date; (iv) the Parent shall allow the Purchasers an
opportunity to review and comment on any Post-Signing Return prior to the due
date of such Post-Signing Return; and (v) the Parent will promptly notify the
Purchasers of any action, suit, proceeding, claim or audit pending against or
with respect to the Parent or any Entity in respect of any Tax where there is a
possibility of a determination or decision which could have an adverse effect on
the Parent's or any Entity's Tax Liabilities or Tax attributes.
6.12 ADVICE OF CHANGES; FILINGS.
The Parent shall confer with the Purchasers on a regular and frequent basis
as reasonably requested by the Purchasers, report on operational matters and
promptly advise the Purchasers orally and, if requested by the Purchasers, in
writing of any change with respect to the Parent or any Entity. The Parent shall
promptly provide to the Purchasers (or their counsel) copies of all filings made
by the Parent or any Entity with any Governmental Entity in connection with this
Agreement and the transactions contemplated hereby.
(a) The Parent will, as soon as practicable following the date hereof, duly
call, give notice of, convene and hold a meeting of its stockholders (the
"Stockholders Meeting") for the purpose of obtaining the approval of this
Agreement, the Related Documents, and the transactions contemplated hereby and
thereby. The Parent will, through its Board of Directors, recommend to its
stockholders that the Parent Stockholder Approval be given.
(b) The Parent will, as soon as practicable following the date hereof,
prepare and file a preliminary proxy or information statement (as amended,
modified or supplemented, the "Proxy Statement") with the SEC and will use its
best efforts to respond to any comments of the SEC or its staff and to cause the
Proxy Statement to be mailed to its stockholders as promptly as practicable
after responding to all such comments to the satisfaction of the SEC staff. The
Proxy Statement shall contain the written opinion of Paine Webber Incorporated,
opining as to the matters set forth in Section 3.25. The Parent will afford the
Purchasers opportunity to review and comment upon any description of the
Purchasers or their Affiliates, this Agreement, the Related Documents or the
transactions contemplated hereby and thereby set forth in the Proxy Statement
(including all drafts or amendments thereto). Each Purchaser shall provide the
Parent with all necessary information reasonably requested with respect to
itself and Alliance solely for inclusion by the Parent in the Proxy Statement.
The Parent will notify the Purchasers promptly of the receipt of any comments
from the SEC or its staff and of any request by the SEC or its staff for
amendments or supplements to the Proxy Statement or for additional information
and will supply the Purchasers with copies of all correspondence between the
Parent or any of its representatives, on the one hand, and the SEC or its staff,
on the other hand, with respect to the Proxy Statement. If at any time prior to
the Stockholders Meeting there shall occur any event that should be set forth in
an amendment or supplement to the Proxy Statement, the Parent will promptly
prepare and mail to its stockholders such an amendment or supplement.
6.13 MAINTENANCE OF CASH AND CASH EQUIVALENTS.
During the period commencing on the Closing Date and ending on April 15,
1999, the Parent shall at all times hold cash or Cash Equivalents of not less
than $1,000,000 in the aggregate in an investment account at a financial
institution reasonably satisfactory to the Purchasers which shall not be subject
to any Encumbrance other than Permitted Encumbrances. During such period, the
Parent shall provide copies of all notices or reports delivered to it in respect
of such account to the Purchasers within 5 Business Days of the receipt thereof.
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6.14 FURTHER ASSURANCES.
The Sellers shall and shall cause the Entities to take such further actions
or execute such further documents or instruments as shall be reasonably
requested by the Purchasers to further implement the transactions contemplated
by Section 1.2 including, without limitation, discharging or disposing of any
Excluded Liability which may be a Liability of any Entity on terms reasonably
satisfactory to the Purchasers.
6.15 AUDITED FINANCIAL STATEMENTS.
The Parent shall, and shall cause each of its Subsidiaries to, provide the
Purchasers and their advisors with such information (including, without
limitation, consolidating balance sheets and statements of operations as at
December 31, 1997 and for the fiscal year then ended; such consolidating
financial statements to incorporate the Entities in such form as presented in
Schedule 3.5(b) as well as individual columns for each of GK Finance, Parent and
each other Subsidiary of the Parent, in each case, as adjusted to give effect to
the transactions contemplated by Section 1.2 hereof), and access to its books
and records (including, without limitation, access to its management employees),
to permit them or their advisors to prepare audited balance sheets of the
Entities as of December 31, 1997, and related audited statements of operations,
shareholders' equity and cash flows for the period then ended, in each case in
accordance with GAAP and adjusted to give effect to the consummation of the
transactions contemplated by Section 1.2 as if such transactions were
consummated at January 1, 1997.
6.16 DVI FUNDED INDEBTEDNESS.
At the request of the Purchasers, on the Closing Date, the Parent shall and
shall cause its Subsidiaries to repay all Funded Indebtedness held by DVI
Financial Services, Inc. and DVI Business Credit Receivables Corp. ("DVI") under
agreements relating to Funded Indebtedness provided by DVI to the Parent and its
Subsidiaries upon payment by the Purchasers in full of all amounts due on the
Closing Date to DVI in respect of principal, accrued interest thereon and
prepayment premiums not to exceed $75,000 in the aggregate. On the Closing Date,
Parent shall deliver all instruments and documents reasonably requested by the
Purchasers to evidence the repayment in full of such Funded Indebtedness
including reasonably satisfactory pay-off letters, releases of Encumbrances,
releases of pledges of Equity Interests and UCC-3 financing statements.
6.17 TRANSFER OF PARENT PARTNERSHIP INTERESTS.
Upon the request of the Purchasers, the Parent shall, on or immediately
prior to the Closing Date, assign the Parent Partnership Interests to a newly
organized wholly-owned corporate Subsidiary (which shall conduct no business
whatsoever) and shall cause such Subsidiary to assign the Parent Partnership
Interests to Purchaser A in accordance with Section 1.1 hereof.
6.18 CERTAIN EMPLOYEE MATTERS.
(a) On the Closing Date, the Purchasers shall or shall cause the Entities
or an Affiliate of the Purchasers, to continue the employment of or offer
employment, as applicable, to the employees of the Entities and Parent to be
identified by the Purchasers prior to the Closing Date in accordance with the
terms of a letter, dated of even date herewith, delivered by Purchaser A to the
Parent (any such employees who so continue or accept such offer of employment
being referred to herein as the "Hired Employees"). Such employment shall be in
a substantially similar position as such Hired Employee held while employed by
the applicable Entity or Parent prior to the Closing, and the Purchasers shall
have no Liability or obligation to any other employees of the Parent or any of
its Subsidiaries (other than the Entities as set forth herein). Prior to the
Closing, Parent and the Entities shall take such actions and, after the Closing
Date, Parent and the Purchasers shall take, and the Purchasers shall cause the
Entities to take, such actions as are necessary so that each Hired Employee
shall cease to be entitled to participate in or accrue benefits under any of
Parent's Employee Benefit Plans, programs, policies and arrangements except to
the extent required by applicable Law. The Purchasers shall, or shall cause the
Entities or an Affiliate of the Purchasers, to take such actions as may be
necessary such that, subject to the provisions of this Section 6.18, on and
after the Closing Date, each Hired Employee shall be
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eligible to participate in, and be subject to the provisions of, the Employee
Benefit Plans (including a 401(k) plan and a flexible benefits plan), programs,
personnel policies and guidelines sponsored or maintained by Alliance, and
applicable for employees of Alliance or its Affiliates in a similar position,
subject to the satisfaction of all the eligibility criteria for participation
thereunder (except as otherwise provided in this Section 6.18).
(b) With respect to the Alliance Employee Benefit Plans, programs,
personnel policies and guidelines, Alliance shall grant all Hired Employees from
and after the Closing Date credit for all service with the Entities and Parent
prior to the Closing Date for all purposes. Alliance shall take such actions as
are necessary to provide that on the Closing Date all Hired Employees and their
spouses and dependents shall be immediately covered by the group health plan
maintained by Alliance which shall (i) provide immediate coverage as of the
Closing Date without any waiting period, (ii) waive any pre-existing condition
exclusions or limitations, and (iii) provide that any amounts paid by Hired
Employees through the Closing Date for medical expenses that are treated as
deductible, co-insurance and out-of-pocket payments under the Parent's health
plan shall reduce the amount of any deductible, co-insurance or out-of-pocket
payments required to be paid for a similar period under the Alliance health
plan; provided, however, that the Sellers shall provide Alliance with a list of
all current and former employees participating in the Parent's health plan along
with a listing of each employee's deductible and co-insurance payments through
the Closing Date.
(c) Effective as of the Closing, the Purchasers shall assume the Parent's
or Entities' obligations with respect to accrued sick pay, personal holidays and
vacation pay for Hired Employees, provided that the vacation pay costs as of the
Latest Balance Sheet Date have been accrued and reflected on the Latest Balance
Sheet.
(d) Parent shall take such actions as are necessary to provide that the
Hired Employees are fully vested in their benefits under the Retirement Plan for
Employees of Parent and CT Sub (the "ASHS 401(k) Plan"). Parent shall also take
such actions as are necessary to provide that the Hired Employees will be
eligible to receive distributions from the ASHS 401(k) Plan that will be
eligible for rollover to the Alliance "401(k)" plan. The Purchasers shall take
such action as is necessary after the Closing Date to provide that the Alliance
"401(k)" plan will allow rollovers of distributions from the ASHS 401(k) Plan.
(e) After the Closing Date, the Purchasers and the Sellers agree to take
such actions as are necessary to provide for the transfer of the account
balances of the flexible spending accounts of each Hired Employee from Parent's
"Section 125" plan to the Alliance "Section 125" plan and the Purchasers shall
provide for the reimbursement from the Alliance "Section 125" plan of medical
and childcare expenses incurred by Hired Employees during 1998.
(f) After the Closing Date, the Purchasers shall be responsible for
providing health care continuation coverage pursuant to the requirements of the
Consolidated Omnibus Budget Reconciliation Act of 1985, as amended ("COBRA"), to
the extent required by COBRA, for all former employees of the Entities and/or
their "qualified beneficiaries" (as such term is defined in Part 6 of Title I of
ERISA) who were receiving health care continuation coverage under COBRA prior to
the Closing Date or who are or become eligible to receive such coverage on or
after the Closing Date. As of the date hereof, there were 2 former employees of
the Entities and/or their "qualified beneficiaries" who were receiving health
care continuation coverage under COBRA and 8 former employees who experienced a
"qualifying event" under COBRA.
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ARTICLE VII
CLOSING CONDITIONS
7.1 CONDITIONS TO EACH PARTY'S OBLIGATIONS.
The respective obligations of each party to consummate the transactions
contemplated hereby is subject to the satisfaction prior to the Closing Date of
the following conditions unless waived (to the extent such conditions can be
waived) by the Parent (on behalf of the Sellers) or the Purchasers and Alliance,
as applicable:
(a) Approvals. The authorizations, consents, Orders or approvals of, or
declarations or filings with, or expiration of waiting periods of any
Governmental Entity required to consummate the transactions contemplated hereby
shall have been obtained or made.
(b) Stockholder Approval. The Parent Stockholder Approval shall have been
obtained.
(c) No Injunctions or Restraints. No temporary restraining order,
preliminary or permanent injunction or other Order issued by any court or
Governmental Entity of competent jurisdiction nor other legal restraint or
prohibition preventing the consummation of the transactions contemplated hereby
shall be in effect.
(d) Actions and Statutes. No Proceeding shall have been taken or
threatened, and no Law or Order shall have been enacted, promulgated or issued
or deemed applicable to the transactions contemplated by this Agreement or the
Related Documents by any Governmental Entity that could (i) make the
consummation of the transactions contemplated hereby or thereby illegal or
substantially delay the consummation of any material aspect of the transactions
contemplated hereby or thereby or (ii) render any party unable to consummate the
transactions contemplated hereby or thereby.
7.2 CONDITIONS TO OBLIGATIONS OF THE PURCHASERS AND ALLIANCE.
The obligations of the Purchasers and Alliance under this Agreement are
subject to the satisfaction of the following conditions unless waived (to the
extent such conditions can be waived) by the Purchasers and Alliance:
(a) Accuracy of Representations and Warranties. All representations and
warranties made by the Sellers in this Agreement and the Related Documents shall
be true and correct, individually or in the aggregate, in all material respects
(except for such representations and warranties which are qualified by their
terms by a reference to materiality, or "Material Adverse Effect" which
representations and warranties as so qualified shall be true and correct,
individually or in the aggregate, in all respects) as of the date hereof and as
of the Closing Date (unless such representations and warranties relate to a
specific date other than the Closing Date, in which case such representations
and warranties shall be true and correct, individually or in the aggregate, in
all material respects, or in all respects, as the case may be, on such date)
with the same effect as if such representations and warranties had been made at
and as of the Closing Date (including, after giving effect to the transactions
contemplated by Section 1.2).
(b) Performance of Obligations of the Sellers. The Sellers shall have
performed in all material respects all obligations, agreements and covenants
required to be performed by them under this Agreement and the Related Documents
prior to or as of the Closing Date.
(c) Certificates. At the Closing, in consideration of the delivery of the
Purchase Price pursuant to Section 1.3 hereof, (a) the Parent shall deliver or
cause to be delivered to Purchaser A, the certificates representing the Shares
(other than the M Sub Partnership Interests) and the Parent shall deliver or
cause to be delivered to Purchaser B, a certificate representing the M Sub
Partnership Interests, in each case, duly endorsed in blank for transfer or
accompanied by stock and partnership transfer powers duly executed in blank,
sufficient in form and substance to convey to each Purchaser good and marketable
title to all of the Shares purchased by such Purchaser, free and clear of all
Encumbrances.
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(d) Consents and Approvals. The Purchasers shall have received duly
executed copies of all consents and approvals required for or in connection with
the execution and delivery by the Sellers of this Agreement and each of the
Related Documents to which any of them may be parties (including, without
limitation, the assumption of any Funded Indebtedness and any consents or
approvals necessary to be obtained in connection with the transactions
contemplated by Section 10.4(b)), the consummation of the transactions
contemplated hereby and thereby, and the continued conduct of the Business as
previously conducted (including, without limitation, the transfer of any
necessary regulatory Permits currently in the name of the Parent or any
Subsidiary other than the Entities), in form and substance reasonably
satisfactory to the Purchasers and their counsel. The Sellers shall obtain all
Permits required to conduct the Business which have not been obtained on or
prior to the date hereof in the name of the Entities. The Parent shall cause
each of the Encumbrances designated to be terminated on or prior to the Closing
Date on Schedule 3.9 to be so terminated on or prior to the Closing Date (unless
such Encumbrances cease to be effective under applicable Law).
(e) Asset Contribution and Asset Disposition. The Asset Contribution, Asset
Disposition and the other transactions contemplated by Section 1.2 shall each be
consummated in accordance with Section 1.2 hereof.
(f) Absence of Material Adverse Effect. Since the Latest Balance Sheet
Date, there shall have been no change in respect of the Business that has had or
is reasonably likely to have a Material Adverse Effect.
(g) Related Documents. Each of the agreements attached hereto as Exhibit
A-1 and Exhibit A-2, respectively (each as amended, modified or supplemented, a
"Related Document" or a "Stockholder Agreement") shall have been executed and
delivered by the parties thereto and the transactions contemplated thereby to be
completed at or prior to the Closing substantially consummated or effected, as
the case may be, in accordance with the terms thereof.
(h) Partnership Agreement Amendment. The Partnership Agreement shall be
amended and restated in its entirety by the Sellers on such terms and conditions
as shall be satisfactory to the Sellers and the Purchasers.
(i) Sellers' Certificates. Each of the following certificates shall have
been executed and delivered, as the case may be, by the Person who or which is
the subject thereof:
(i) a certificate of the Sellers, dated as of the Closing Date,
certifying, in each case, (i) that true and complete copies of the
Organizational Documents of each Entity and the Sellers as in effect on the
Closing Date are attached thereto, (ii) as to the incumbency and
genuineness of the signatures of each officer of such Seller executing this
Agreement and the Related Documents, (iii) the genuineness of the
resolutions (attached thereto) of the board of directors of the Sellers
authorizing the execution, delivery and performance of this Agreement and
the Related Documents to which the Sellers are a party and the consummation
of the transactions contemplated hereby and thereby and (iv) the
genuineness of the resolutions (attached thereto) of the management
committee or similar governing body of each Entity authorizing such Entity
to consent to the transactions contemplated by this Agreement;
(ii) certificates of the secretaries of state of the states (or other
applicable office) in which each Seller and each Entity is organized and
qualified to do business, dated as of a date not more than five days prior
to the Closing Date, certifying as to the good standing and non-delinquent
tax status of such Seller and Entity;
(iii) a certificate signed by the principal executive officer of each
Seller, dated as of the Closing Date, and certifying as to (A) the accuracy
of the representations and warranties of the Sellers contained herein, as
contemplated by Section 7.2(a) hereof, and (B) the performance of the
obligations, covenants and agreements of the Sellers contained herein, as
contemplated in Section 7.2(b) hereof; and
(iv) a certificate of the Sellers dated as of the Closing Date,
certifying that no Entity is a foreign person within the meaning of Section
1445 of the Code.
(j) Resignation of Officers and Directors. The Purchasers shall have
received letters from all of the officers and directors of the Entities,
resigning their respective positions as officers and directors of such Entities,
respectively, immediately upon the Closing.
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(k) Officer's Certificate. The Purchasers shall have received a certificate
of a duly authorized officer of the Parent certifying as to the matters set
forth in Section 7.2(e).
7.3 CONDITIONS TO OBLIGATIONS OF THE SELLERS.
The obligations of the Sellers under this Agreement are subject to the
satisfaction of the following conditions unless waived (to the extent such
conditions can be waived) by the Sellers:
(a) Accuracy of Representations and Warranties. All representations and
warranties made by Alliance and the Purchasers in this Agreement and the Related
Documents shall be true and correct, individually or in the aggregate, in all
material respects (except for such representations and warranties which are
qualified by their terms by a reference to materiality, or "Material Adverse
Effect" which representations and warranties as so qualified shall be true and
correct, individually or in the aggregate, in all respects) as of the date
hereof and at and as of the Closing Date (unless such representations and
warranties relate to a specific date other than the Closing Date, in which case,
such representations and warranties shall be true and correct, individually or
in the aggregate, in all material respects, or in all respects, as the case may
be, on such date) with the same effect as if such representations and warranties
had been made at and as of the Closing Date.
(b) Performance of Obligations of the Purchasers and Alliance. Alliance and
the Purchasers shall have performed in all material respects all obligations,
agreements and covenants required to be performed by them under this Agreement
and the Related Documents prior to or as of the Closing Date.
(c) Certificates. Each of the following certificates shall have been
executed and delivered, as the case may be, by the Person who or which is the
subject thereof:
(i) a certificate of the secretary of Alliance and each Purchaser,
dated as of the Closing Date, certifying, in each case, (i) that true and
complete copies of its Organizational Documents as in effect on the Closing
Date are attached thereto, (ii) as to the incumbency and genuineness of the
signatures of each officer of Alliance and such Purchaser executing this
Agreement and the Related Documents, and (iii) the genuineness of the
resolutions (attached thereto) of the board of directors of Alliance and
such Purchaser (or committee thereof) authorizing the execution, delivery
and performance of this Agreement and the Related Documents to which
Alliance or such Purchaser is a party and the consummation of the
transactions contemplated hereby and thereby;
(ii) (xlii) certificates of the secretaries of state of the states in
which Alliance and each of the Purchasers is organized, dated a date not
more than five days prior to the Closing Date as of the Closing Date,
certifying as to the good standing and non-delinquent tax status of
Alliance and the Purchasers; and
(iii) (xliii) a certificate signed by a principal executive officer of
Alliance and each Purchaser, dated as of the Closing Date, and certifying
as to (A) the accuracy of the representations and warranties of Alliance
and such Purchaser contained herein, as contemplated by Section 7.3(a)
hereof and (B) the performance of the obligations, agreements and covenants
of Alliance and such Purchaser contained herein, as contemplated in Section
7.3(b) hereof.
ARTICLE VIII
INDEMNIFICATION
8.1 INDEMNIFICATION GENERALLY; ETC.
(a) Subject to the further terms of this Article VIII, the Sellers agree,
jointly and severally, to indemnify the Purchaser Indemnified Persons for, and
hold them harmless from and against, any and all Purchaser Losses arising from
or in connection with any of the following:
(i) the untruth, inaccuracy or breach of any representation or
warranty (without regard to whether such representation or warranty is
qualified by reference to materiality or "Material Adverse Effect") of the
Sellers contained herein, in any Related Document, or in any certificate
delivered by any Seller
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relating thereto delivered in connection herewith (or any facts or
circumstances constituting any such untruth, inaccuracy or breach);
(ii) the breach of any agreement or covenant of the Sellers contained
in this Agreement or in any Related Document;
(iii) any Liability of any Entity in any manner related to a claim
asserted under the Agreement for Purchase and Sale of Assets, dated as of
December 30, 1994 among Vencor, Inc., CT Sub and Parent;
(iv) for any Liability with respect to Covered Taxes and for 50% of
any Liability with respect to all transfer, documentary, sales, use, stamp,
registration and other such Taxes and fees ("Transfer Taxes") with respect
to the transactions contemplated by Section 1.2; and
(v) any Liability of any Entity for Taxes attributable to the
inclusion of an adjustment in taxable income of an Entity under Section 481
of the Code for any Tax period beginning on or after the Closing Date as a
result of a required or optional change in method of accounting with
respect to a Tax period ending on or prior to the Closing Date.
(b) Subject to the further terms of this Article VIII, each of Alliance and
the Purchasers agree jointly and severally to indemnify the Seller Indemnified
Persons for, and hold them harmless from and against, any and all Seller Losses
arising from or in connection with any of the following:
(i) the untruth, inaccuracy or breach of any representation or
warranty (without regard to whether such representation or warranty is
qualified by reference to materiality or "Material Adverse Effect") of
Alliance or such Purchaser contained herein, any Related Document, or any
certificate delivered by Alliance or such Purchaser in connection herewith
at or before the Closing (or any facts or circumstances constituting any
such untruth, inaccuracy or breach);
(ii) the breach of any agreement or covenant of Alliance or either
Purchaser contained in this Agreement or in any Related Document;
(iii) any failure to comply after the Closing Date with the Worker
Adjustment and Retraining Act of 1988, as amended, or any similar state law
arising out of, or relating to, any actions taken by Alliance or the
Purchasers with respect to Hired Employees after the Closing Date; and
(iv) any Liability for Transfer Taxes to be borne by Purchasers or
Alliance pursuant to Section 10.14.
(c) Notwithstanding the foregoing the Purchasers shall not be entitled to
indemnification hereunder for any Losses arising as a result of the untruth or
inaccuracy of any representation or warranty to the extent that a Liability
arising as a result of such untruth or inaccuracy is reflected as a Liability in
the financial statements delivered on the date hereof pursuant to Section 3.5
hereof.
(d) Absent fraud, the rights of the parties for indemnification relating to
this Agreement and the transactions contemplated hereby and under the Related
Documents shall be strictly limited to those contained in this Article VIII, and
such indemnification rights shall be the exclusive remedies of the parties
subsequent to the Closing Date with respect to any matter relating to this
Agreement or arising in connection herewith.
8.2 ASSERTION OF CLAIMS.
No claim shall be brought for a breach of a representation or warranty
under Section 8.1 hereof unless the Indemnified Persons, or any of them, at any
time prior to the applicable Survival Date, give the Indemnifying Persons (a)
written notice of the existence of any such claim, specifying the nature and
basis of such claim and the amount thereof, to the extent known or (b) written
notice pursuant to Section 8.3 of any Third Party Claim, the existence of which
might give rise to such a claim. Upon the giving of such written notice as
aforesaid, the Indemnified Persons, or any of them, shall have the right to
commence legal proceedings prior to or subsequent to the Survival Date for the
enforcement of their rights under Section 8.1.
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8.3 NOTICE AND DEFENSE OF THIRD PARTY CLAIMS.
The obligations and liabilities of an Indemnifying Person with respect to
Losses resulting from the assertion of claim or Liability by third parties other
than in respect of Tax Claims (each, a "Third Party Claim") shall be subject to
the following terms and conditions:
(a) The Indemnified Persons shall promptly give written notice to the
Indemnifying Persons of any Third Party Claim which might give rise to any Loss
by the Indemnified Persons, stating the nature and basis of such Third Party
Claim, and the amount thereof to the extent known; provided, however, that no
delay on the part of the Indemnified Persons in notifying any Indemnifying
Persons shall relieve the Indemnifying Persons from any liability or obligation
hereunder unless (and then solely to the extent) the Indemnifying Person thereby
is materially and irrevocably prejudiced by the delay. Such notice shall be
accompanied by copies of all relevant documentation with respect to such Third
Party Claim, including any summons, complaint or other pleading which may have
been served, any written demand or any other document or instrument.
(b) If the Indemnifying Persons shall acknowledge in a writing delivered to
the Indemnified Persons that such Third Party Claim is properly subject to their
indemnification obligations hereunder, then the Indemnifying Persons shall have
the right to assume the defense of any Third Party Claim at their own expense
and by their own counsel, which counsel shall be reasonably satisfactory to the
Indemnified Persons; provided, however, that the Indemnifying Persons shall not
have the right to assume the defense of any Third Party Claim, notwithstanding
the giving of such written acknowledgment, if (i) the Indemnified Persons shall
have been advised by counsel that there are one or more legal or equitable
defenses available to them which are different from or in addition to those
available to the Indemnifying Persons, and, in the opinion of the Indemnified
Persons, counsel for the Indemnifying Persons could not adequately represent the
interests of the Indemnified Persons because such interests could be in conflict
with those of the Indemnifying Persons, or (ii) the Indemnifying Persons shall
not have assumed the defense of the Third Party Claim in a timely fashion.
(c) If the Indemnifying Persons shall assume the defense of a Third Party
Claim (under circumstances in which the proviso to the first sentence of Section
8.3(b) is not applicable), the Indemnifying Persons shall not be responsible for
any legal or other defense costs subsequently incurred by the Indemnified
Persons in connection with the defense thereof. If the Indemnifying Persons do
not exercise their right to assume the defense of a Third Party Claim by giving
the written acknowledgment referred to in Section 8.3(b), or are otherwise
restricted from so assuming by the proviso to the first sentence of Section
8.3(b), the Indemnifying Persons shall nevertheless be entitled to participate
in such defense with their own counsel and at their own expense. If the defense
of a Third Party Claim is assumed by the Indemnified Persons, the Indemnified
Persons shall not be entitled to settle such Third Party Claim without the prior
written consent of the Indemnifying Persons, which shall not be unreasonably
withheld.
(d) If the Indemnifying Persons exercise their right to assume the defense
of a Third Party Claim, (i) the Indemnified Persons shall be entitled to
participate in such defense with their own counsel at their own expense and (ii)
the Indemnifying Persons shall not make any settlement of any claims without the
written consent of the Indemnified Persons, which shall not be unreasonably
withheld.
8.4 SURVIVAL OF REPRESENTATIONS AND WARRANTIES.
(a) Subject to the further provisions of this Section 8.4, the
representations and warranties contained in this Agreement, the Related
Documents, or in any certificate or other writing delivered in connection with
this Agreement shall survive the Closing Date until April 15, 1999; provided,
however, that (i) the representations and warranties contained in Sections 3.1,
3.2, 3.3, 3.4, 3.21, 4.1, 4.2, 4.3, 4.4, 5.1, 5.2 and 5.3 (other than the
covenant set forth therein which shall survive in accordance with the second
sentence of this Section 8.4(a)) of this Agreement shall survive indefinitely
and (ii) the representations and warranties contained in Sections 3.8 and 3.20
of this Agreement shall survive the Closing Date until the expiration of any
applicable statue of limitations (those representations and warranties
referenced in the foregoing clauses (i) and (ii), being the "Excluded
Representations and Warranties") for Third Party Claims applicable to the
matters covered thereby. The covenants and other agreements of the parties
contained in this Agreement and the Related Documents (including the indemnity
provided for in Section 8.1(a)(iii) of this Agreement) shall
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survive the Closing Date until they are otherwise terminated by their terms. The
obligations of the Sellers under Section 8.1(a)(iv) and (a)(v) shall survive the
Closing Date until the expiration of any applicable statute of limitations with
respect to the matters set forth therein. The obligations of Alliance and the
Purchasers under Section 8.1(b)(iv) shall survive the Closing Date until the
expiration of any applicable statute of limitations with respect to the matters
set forth therein.
(b) For convenience of reference, the date upon which any representation or
warranty contained herein shall terminate, if any, is referred to herein as the
"Survival Date".
8.5 LIMITATIONS ON INDEMNIFICATION.
(a) Indemnity Baskets for the Sellers. The Purchaser Indemnified Persons
shall not have the right to be indemnified for breaches of representations and
warranties pursuant to Section 8.1(a)(i) unless and until the Purchaser
Indemnified Persons shall have incurred on a cumulative basis aggregate Losses
(without giving effect, in determining whether and to what extent
representations and warranties were breached or Losses were incurred, to
qualifications therein relating to materiality or "Material Adverse Effect") in
an amount of $500,000, in which event the right to be indemnified shall apply in
respect of all Losses; provided, however, that in no event shall the limitations
set forth in this Section 8.5(a) apply with respect to the Excluded
Representations and Warranties.
(b) Indemnity Limitations for the Sellers. The sum of all Losses (without
giving effect, in determining whether and to what extent representations and
warranties were breached or Losses were incurred, to qualifications therein
relating to materiality or "Material Adverse Effect") pursuant to which
indemnification is payable by the Sellers pursuant to Section 8.1(a)(i) shall
not exceed $2,000,000; provided, however, that in no event shall the limitations
set forth in this Section 8.5(b) apply with respect to the Excluded
Representations and Warranties.
8.6 LIMITATIONS ON INDEMNIFICATION.
(a) Indemnity Baskets for the Purchasers and Alliance. The Seller
Indemnified Persons shall not have the right to be indemnified for breaches of
representations and warranties pursuant to Section 8.1(b)(i) unless and until
the Seller Indemnified Persons shall have incurred on a cumulative basis
aggregate Losses (without giving effect, in determining whether and to what
extent representations and warranties were breached or Losses were incurred, to
qualifications therein relating to materiality or "Material Adverse Effect") in
an amount of $500,000, in which event the right to be indemnified shall apply in
respect of all Losses; provided, however, that in no event shall the limitations
set forth in this Section 8.6(a) apply with respect to the Excluded
Representations and Warranties.
(b) Indemnity Limitations for the Purchasers and Alliance. The sum of all
Losses (without giving effect, in determining whether and to what extent
representations and warranties were breached or Losses were incurred, to
qualifications therein relating to materiality or "Material Adverse Effect")
pursuant to which indemnification is payable by the Purchasers and Alliance
pursuant to Section 8.1(b)(i) shall not exceed $2,000,000; provided, however,
that in no event shall the limitations set forth in this Section 8.6(b) apply
with respect to the Excluded Representations and Warranties.
8.7 ALLOCATION OF INDEMNIFICATION PAYMENTS.
The parties hereto agree that any indemnification payment shall be treated
as an adjustment to the Purchase Price.
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ARTICLE IX
TERMINATION; EFFECT OF TERMINATION
9.1 TERMINATION.
This Agreement may be terminated at any time prior to the Closing by:
(a) the mutual written consent of the parties hereto; or
(b) the Purchasers or Alliance, if there has been a breach by any Seller of
any of the representations or warranties in this Agreement or in any Related
Document, individually or in the aggregate, in any material respect (except for
representations and warranties which are qualified by their terms by a reference
to materiality or "Material Adverse Effect" in which case, such representations
or warranties as so qualified shall have been breached in any respect),
covenant, obligation or agreement set forth in this Agreement or in any Related
Document and such breach shall not have been cured within 10 Business Days after
notice thereof is given by any Purchaser or Alliance (except that no cure period
shall be provided for a breach which by its nature cannot be cured); or
(c) the Sellers, if there has been a breach by Alliance or any Purchaser of
any of the representations or warranties in this Agreement or in any Related
Document, individually or in the aggregate, in any material respect (except for
representations and warranties which are qualified by their terms by a reference
to materiality or "Material Adverse Effect" in which case, such representations
or warranties as so qualified shall have been breached in any respect),
covenant, obligation or agreement set forth in this Agreement or in any Related
Document and such breach shall not have been cured within 10 Business Days after
notice thereof is given by any Seller (except that no cure period shall be
provided for a breach which by its nature cannot be cured); or
(d) either the Purchasers, Alliance or the Sellers, if the Closing shall
not have been consummated by September 15, 1998; or
(e) either the Purchasers, Alliance or the Sellers, if any permanent
injunction or Order of a Governmental Entity preventing the Closing shall have
become final and nonappealable;
(f) By either Parent or the Purchasers if, prior to the Closing Date, (i)
the Board of Directors of the Parent determines that a Third Party Proposal for
an Alternative Transaction constitutes a Superior Proposal, (ii) the Parent
promptly notifies the Purchasers of its determination in writing, which writing
shall set forth the terms and conditions of the Third Party Proposal and the
identity of the Person making the Third Party Proposal, (iii) ten days have
elapsed following receipt by the Purchasers of such written notice, (iv) during
such ten day period the Parent cooperates with the Purchasers with the intent of
enabling, but not obligating, the Purchasers to agree to a modification of the
terms and conditions of this Agreement so that the transactions contemplated
hereby may be effected, and (v) at the end of such ten day period, the Board of
Directors of the Parent continues to believe that such Third Party Proposal
constitutes a Superior Proposal and the Parent pays to the Purchasers the
amounts specified under Section 10.5(b) pursuant to the terms thereof. For
purposes of this Agreement, a "Superior Proposal" means any Third Party Proposal
to effect an Alternative Transaction; provided that (i) the Board of Directors
of the Parent determines in its good faith judgment (following the consultation
with, and the receipt of the advice of, the Parent's financial advisor) that
such Third Party Proposal is on terms that are more favorable to the Parent's
stockholders than the transactions contemplated by this Agreement (taking into
account all relevant factors, including the amount and form of consideration to
be received, the relative value of any non-cash consideration, and the timing
and certainty of closing) and (ii) the Board of Directors of the Parent
determines in its good faith judgment (based on the written advice of outside
counsel) that the failure to recommend or accept such Third Party Proposal would
violate the fiduciary duties of the Board of Directors of the Parent under
applicable Law; provided, however, in each case, that none of the Sellers,
Alliance nor the Purchasers shall be entitled to terminate this Agreement if
such party's breach of this Agreement has prevented the satisfaction of a
condition. Any termination pursuant to this Section 9.1 shall be effected by
written notice from the party or
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parties so terminating to the other parties hereto, which notice shall specify
the Section of this Agreement pursuant to which this Agreement is being
terminated.
9.2 EFFECT OF TERMINATION.
In the event of the termination of this Agreement as provided in Section
9.1, this Agreement shall be of no further force or effect, except for Section
6.7, Section 10.5 and this Section 9.2, each of which shall survive the
termination of this Agreement; provided, however, that the Liability of any
party for any intentional, willful or knowing breach by such party of the
representations, warranties, covenants, obligations or agreements of such party
set forth in this Agreement occurring prior to the termination of this Agreement
shall survive the termination of this Agreement and, in addition, in the event
of any action for breach of contract in the event of a termination of this
Agreement, the prevailing party shall be reimbursed by the other party to the
action for reasonable attorneys' fees and expenses relating to such action.
ARTICLE X
MISCELLANEOUS PROVISIONS
10.1 AMENDMENT.
This Agreement shall not be altered or otherwise amended except pursuant to
an instrument in writing signed by the parties hereto. No waiver by any party of
any default, misrepresentation, or breach of representation or warranty or
covenant hereunder, whether intentional or not, shall be deemed to extend to any
prior or subsequent default, misrepresentation, or breach of warranty or
covenant hereunder or affect in any way any rights arising by virtue of any
prior or subsequent such occurrence.
10.2 ENTIRE AGREEMENT.
This Agreement and the other agreements and documents referenced herein
(including, but not limited to, the schedules and the exhibits (in their
executed form) attached hereto) and any other document or agreement
contemporaneously entered into with this Agreement (including the Related
Documents) contain all of the agreements among the parties hereto with respect
to the transactions contemplated hereby and supersede all prior agreements or
understandings among the parties with respect thereto (including, but not
limited to, the letter agreement dated September 15, 1997 (as amended to the
date hereof) between the Parent and Apollo Management, L.P.
10.3 SEVERABILITY.
It is the desire and intent of the parties that the provisions of this
Agreement be enforced to the fullest extent permissible under the Law and public
policies applied in each jurisdiction in which enforcement is sought.
Accordingly, in the event that any provision of this Agreement would be held in
any jurisdiction to be invalid, prohibited or unenforceable for any reason, such
provision, as to such jurisdiction, shall be ineffective, without invalidating
the remaining provisions of this Agreement or affecting the validity or
enforceability of such provision in any other jurisdiction. Notwithstanding the
foregoing, if such provision could be more narrowly drawn so as not to be
invalid, prohibited or unenforceable in such jurisdiction, it shall, as to such
jurisdiction, be so narrowly drawn, without invalidating the remaining
provisions of this Agreement or affecting the validity or enforceability of such
provision in any other jurisdiction.
10.4 BENEFITS OF AGREEMENT.
All the terms and provisions of this Agreement shall be binding upon and
inure to the benefit of the parties and their respective successors and
permitted assigns. Except as expressly provided herein, this Agreement shall not
confer any rights or remedies upon any Person other than the foregoing;
provided, however, that anything contained herein to the contrary
notwithstanding, the Purchasers may (a) collaterally assign this Agreement and
the Related Documents, without the prior consent of any other party, to a
financial
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or lending institutions providing financing to such Persons or their Affiliates,
(b) assign the rights to acquire any and all assets (including interests under
leases, Permits and Contracts with third parties) related to certain MRI Units
to be designated by the Purchasers to the Sellers to any Affiliate of the
Purchasers, pursuant to Conveyance Instruments reasonably satisfactory to the
Purchasers on the Closing Date and (c) assign this Agreement to any wholly-owned
Subsidiary of Alliance.
10.5 FEES AND EXPENSES
(a) Except as otherwise provided herein and as provided below in this
Section 10.5, all fees and expenses incurred in connection with this Agreement,
the Related Documents and the transactions contemplated hereby and thereby shall
be paid by the party incurring such fees or expenses, whether or not such
transactions are consummated; provided, however, that the Purchasers shall pay
the reasonable fees and expenses of Ernst & Young, LLP in connection with the
preparation of the financial statements referenced in Section 3.5(b) and Section
6.15.
(b) If this Agreement is terminated pursuant to Section 9.1(f), the Sellers
shall pay to the Purchasers promptly upon such termination $1,350,000 plus all
Expenses.
(c) If this Agreement is terminated by any Purchaser or Alliance pursuant
to Section 9.1(d) as a result of a failure to be satisfied of the condition
precedent set forth in Section 7.1(b), and, if, within 180 days of such
termination either an Alternative Transaction shall be consummated or any Seller
or Entity shall enter into an Acquisition Agreement providing for an Alternative
Transaction, then the Sellers shall pay the Purchasers, upon the closing of such
transaction, if and whenever it occurs, $1,350,000 plus all Expenses. No amounts
whatsoever shall be payable to the Purchasers under this Section 10.5(c) if, at
the Stockholders Meeting or any adjournments or postponements thereof, the
Purchasers or their Affiliates fail to vote or cause to be voted, or fail to
grant or cause the granting of consent or approval with respect to, any shares
of Parent Common Stock owned by them or as to which they have voting rights, in
favor of this Agreement and the transactions contemplated hereby.
(d) The Sellers acknowledge that the agreements contained in this Section
10.5 are an integral part of the transactions contemplated by this Agreement,
and that, without these agreements, the Purchasers and Alliance would not enter
into this Agreement. Accordingly, if the Sellers fail promptly to pay any amount
due pursuant to this Section 10.5, and, in order to obtain such payment, the
Purchasers or Alliance commence a suit which results in a judgment against the
Sellers for the amounts set forth in this Section 10.5, the Sellers shall pay
the Purchasers and Alliance all costs and expenses (including attorney's fees
and expenses) in connection with such suit, together with interest on such
amounts (excluding the Purchaser's and Alliance's costs and expenses) at the
prime rate of the Bankers Trust Company in effect on the date such payment was
required to be made. If such a suit results in a judgment against the Purchasers
or Alliance, the Purchasers and Alliance shall pay to the Sellers all costs and
expenses (including attorney's fees and expenses) in connection with such suit.
"Expenses" shall mean all reasonably documented out-of-pocket expenses incurred
by the Purchasers and Alliance in connection with this Agreement, the Related
Documents and the transactions contemplated hereby and thereby, including fees
and expenses of its consultants, attorneys, accountants, and other advisors;
provided, however, that unless the Parent has previously agreed in writing to
increase such amount, the aggregate amount of such Expenses reimbursable under
this Section 10.5 shall not exceed $350,000.
10.6 HEADINGS.
Descriptive headings are for convenience only and shall not control or
affect in any way the meaning or construction of any provision of this
Agreement.
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10.7 NOTICES.
All notices or other communications pursuant to this Agreement shall be in
writing and shall be deemed to be sufficient if delivered personally,
telecopied, sent by nationally-recognized, overnight courier or mailed by
registered or certified mail (return receipt requested), postage prepaid, to the
parties at the following addresses (or at such other address for a party as
shall be specified by like notice):
(a) if to any Seller, to:
American Shared Hospital Services
Four Embarcadero Center
Suite 3620
San Francisco, California 94111
Attention: Ernest A. Bates, M.D.
Telephone No.: (415) 788-5300
Facsimile No.: (415) 788-5660
with a copy to:
Sidley & Austin
875 Third Avenue
14th Floor
New York, New York 10022
Attention: Daniel Kelly
Telephone No.: (212) 906-2000
Facsimile No.: (212) 906-2021
(b) if to the Purchasers or Alliance, to:
Alliance Imaging, Inc.
1065 PacifiCenter Drive
Suite 200
Anaheim, California 92806
Attention: Richard N. Zehner
Telephone No.: (714) 688-7100
Facsimile No.: (714) 688-3388
with a copy to:
O'Sullivan Graev & Karabell, LLP
30 Rockefeller Plaza
New York, New York 10112
Attention: John J. Suydam, Esq.
Telephone No.: (212) 408-2400
Facsimile No.: (212) 408-2420.
All such notices and other communications shall be deemed to have been
given and received (i) in the case of personal delivery, on the date of such
delivery, (ii) in the case of delivery by telecopier, on the date of such
delivery, (iii) in the case of delivery by nationally-recognized, overnight
courier, on the Business Day following dispatch, and (iv) in the case of
mailing, on the third Business Day following such mailing.
10.8 COUNTERPARTS.
This Agreement may be executed in any number of counterparts, and each such
counterpart shall be deemed to be an original instrument, but all such
counterparts together shall constitute one agreement.
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10.9 GOVERNING LAW.
THIS AGREEMENT WILL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
DOMESTIC LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO ANY CHOICE OF
LAW OR CONFLICTING PROVISION OR RULE (WHETHER OF THE STATE OF NEW YORK, OR ANY
OTHER JURISDICTION) THAT WOULD CAUSE THE LAWS OF ANY JURISDICTION OTHER THAN THE
STATE OF NEW YORK TO BE APPLIED. IN FURTHERANCE OF THE FOREGOING, THE INTERNAL
LAW OF THE STATE OF NEW YORK WILL CONTROL THE INTERPRETATION AND CONSTRUCTION OF
THIS AGREEMENT, EVEN IF UNDER SUCH JURISDICTION'S CHOICE OF LAW OR CONFLICT OF
LAW ANALYSIS, THE SUBSTANTIVE LAW OF SOME OTHER JURISDICTION WOULD ORDINARILY
APPLY. ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY
RELATED DOCUMENT MAY BE BROUGHT IN THE COURTS OF THE STATE OF NEW YORK OR OF THE
UNITED STATES FOR THE SOUTHERN DISTRICT OF NEW YORK, AND, BY EXECUTION AND
DELIVERY OF THIS AGREEMENT, EACH PARTY HERETO HEREBY IRREVOCABLY ACCEPTS FOR
ITSELF AND IN RESPECT OF ITS PROPERTY AND ASSETS, GENERALLY AND UNCONDITIONALLY
THE JURISDICTION OF THE AFORESAID COURTS.
10.10 INCORPORATION OF EXHIBITS AND SCHEDULES.
The Annexes, Exhibits and Schedules identified in this Agreement are
incorporated herein by reference and made a part hereof.
10.11 INTERPRETATION; CONSTRUCTION.
The term "Agreement" means this agreement together with all schedules,
annexes and exhibits hereto, as the same may from time to time be amended,
modified, supplemented or restated in accordance with the terms hereof. Unless
the context otherwise requires, words importing the singular shall include the
plural, and vice versa. In this Agreement, the term "Best Knowledge" of any
Person means (i) the actual knowledge of such Person and (ii) that knowledge
which should have been acquired by such Person after making such due inquiry and
exercising such due diligence as a prudent businessperson would have made or
exercised in the management of his or her business affairs, including due
inquiry of those officers, directors, employees and professional advisers
(including attorneys, accountants and consultants) of the Person who could
reasonably be expected to have actual knowledge of the matters in question. When
used in the case of the Sellers, the term "Best Knowledge" shall include the
Best Knowledge of each Seller and each Entity. The use in this Agreement of the
term "including" means "including, without limitation." The words "herein",
"hereof", "hereunder", "hereby", "hereto", "hereinafter", and other words of
similar import refer to this Agreement as a whole, including the schedules,
annexes and exhibits, as the same may from time to time be amended, modified,
supplemented or restated, and not to any particular article, section,
subsection, paragraph, subparagraph or clause contained in this Agreement. All
references to articles, sections, subsections, clauses, paragraphs, schedules
and exhibits mean such provisions of this Agreement and the schedules and
exhibits attached to this Agreement, except where otherwise stated. The title of
and the article, section and paragraph headings in this Agreement are for
convenience of reference only and shall not govern or affect the interpretation
of any of the terms or provisions of this Agreement. The use herein of the
masculine, feminine or neuter forms shall also denote the other forms, as in
each case the context may require. Where specific language is used to clarify by
example a general statement contained herein, such specific language shall not
be deemed to modify, limit or restrict in any manner the construction of the
general statement to which it relates. The language used in this Agreement has
been chosen by the parties to express their mutual intent, and no rule of strict
construction shall be applied against any party. Accounting terms used but not
otherwise defined herein shall have the meanings given to them under GAAP.
Unless expressly provided otherwise, the measure of a period of one month or
year for purposes of this Agreement shall be that date of the following month or
year corresponding to the starting date, provided that if no corresponding date
exists, the measure shall be that date of the following month or year
corresponding to the next day following the starting date. For example, one
month following February 18 is March 18, and one month following March 31 is May
1.
10.12 REMEDIES.
The parties shall each have and retain all rights and remedies existing in
their favor under this Agreement, the Related Documents, at law or equity,
including rights to bring actions for specific performance and injunctive and
other equitable relief (including, without limitation, the remedy of rescission)
to enforce or
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prevent a breach or any violation of this Agreement or the Related Documents.
All such rights and remedies shall, to the extent permitted by applicable Law,
be cumulative.
10.13 APPOINTMENT OF REPRESENTATIVE.
M Sub hereby irrevocably appoints the Parent to be its attorney-in-fact and
representative for the purpose of administering this Agreement on behalf M Sub.
The Purchasers shall be entitled to deal exclusively with the Parent, as the
representative of M Sub. Purchaser B hereby irrevocably appoints Purchaser A to
be its attorney-in-fact and representative for the purpose of administering this
Agreement on behalf of Purchaser B. The Sellers shall be entitled to deal
exclusively with Purchaser A as the representative of Purchaser B.
10.14 SALE AND TRANSFER TAXES.
All Transfer Taxes incurred in connection with the consummation of the
transactions contemplated herein (other than the Transfer Taxes referenced in
Section 8.1(a)(iv) to be borne by the Sellers) shall be paid 100% by Alliance
and the Purchasers.
10.15 WAIVER OF JURY TRIAL.
EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY
JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR RELATING TO
THIS AGREEMENT OR ANY RELATED DOCUMENT.
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IN WITNESS WHEREOF, the parties hereto have executed this Securities
Purchase Agreement as of the date first written above.
ALLIANCE IMAGING, INC.
By: /s/ RICHARD N. ZEHNER
------------------------------------
Name: Richard N. Zehner
Title: CEO
EMBARCADERO HOLDING CORP. I
By: /s/ JOSH HARRIS
------------------------------------
Name: Josh Harris
Title: Vice President
EMBARCADERO HOLDING CORP. II
By: /s/ JOSH HARRIS
------------------------------------
Name: Josh Harris
Title: Vice President
AMERICAN SHARED HOSPITAL
SERVICES
By: /s/ ERNEST A. BATES
------------------------------------
Name: Ernest A. Bates, M.D.
Title: Chairman and CEO
MMRI, INC.
By: /s/ ERNEST A. BATES
------------------------------------
Name: Ernest A. Bates, M.D.
Title: Chairman and President
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ANNEX I
DEFINITIONS
"Acquisition Agreement" has the meaning ascribed thereto in Section 6.4.
"Affiliate" means, with respect to any Person, (i) a director, officer or
greater than 10% shareholder of such Person, (ii) a spouse, parent, sibling or
descendant of such Person (or spouse, parent, sibling or descendant of any
director or executive officer of such Person), or (iii) any other Person that,
directly or indirectly through one or more intermediaries, Controls, or is
Controlled by, or is under common Control with, such Person.
"Alliance" has the meaning ascribed thereto in the preamble.
"Alternative Transaction" means any (i) acquisition or purchase of any
material portion of the Business or any material assets of either Entity outside
the ordinary course of business, (ii) acquisition or purchase of any Equity
Securities of any Entity, any tender offer or exchange offer that if consummated
would result in any Person beneficially owning more than 50% of any class of
Equity Securities of the Parent or any Equity Securities of either Entity or
(iii) any merger, consolidation, business combination, recapitalization,
liquidation, dissolution or similar transaction involving any Entity, other than
the transactions contemplated to be effected with the Purchasers by this
Agreement.
"ASHS 401(k) Plan" has the meaning ascribed thereto in Section 6.18.
"Asset Contribution" has the meaning ascribed thereto in Section 1.2.
"Asset Disposition" has the meaning ascribed thereto in Section 1.2.
"Business" has the meaning ascribed thereto in the first WHEREAS clause.
"Business Day" means any day that is not a Saturday, Sunday or a day on
which banking institutions in New York, New York are not required to be open.
"Capital Lease" means any obligation to pay rent or other amounts under any
lease of (or other arrangement conveying the right to use) real or personal
property, or a combination thereof, which obligations are required to be
classified and accounted for as capital leases on a balance sheet of such Person
as of such date computed in accordance with GAAP.
"Cash Equivalents" means any of the following: (a) securities issued, or
that are directly and fully guaranteed or insured, by the United States
Government or any agency or instrumentality thereof having maturities of not
more than 12 months from the date of acquisition, (b) time deposits and
certificates of deposit having maturities of not more than 12 months from the
date of acquisition of any domestic commercial bank having capital and surplus
in excess of $500,000,000, (c) repurchase agreements with a term of not more
than seven days for underlying securities of the types described in clauses (a)
and (b) above entered into with any bank meeting the qualifications specified in
clause (b) above or with securities dealers of recognized national standing, and
(d) commercial paper rated (as of the date of acquisition thereof) at least A-1
or the equivalent thereof by Moody's Investors Service, Inc. and at least P-1 or
the equivalent thereof by Standard & Poor's Corporation and maturing within six
months after the date of its acquisition.
"Cath Lab" has the meaning ascribed thereto in Section 3.5.
"CERCLA" has the meaning ascribed thereto in Section 3.20.
"CHAMPUS" has the meaning ascribed thereto in Section 3.18.
"Closing" has the meaning ascribed thereto in Article II.
"Closing Date" has the meaning ascribed thereto in Article II.
"COBRA" has the meaning ascribed thereto in Section 6.18.
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"Code" means the Internal Revenue Code of 1986, as amended.
"Confidential or Proprietary Information" means all information disclosed
(i) by or on behalf of any Entity or any Seller to the Purchasers, Alliance or
to employees, consultants or others in a confidential relationship with any of
them, or (ii) by or on behalf of the Purchasers or Alliance to any Seller or any
Entity, or to employees, consultants or others in a confidential relationship
with any of them, in each case other than such information which (A) becomes
generally available to the public (other than as a result of a breach of this
Agreement), (B) was known to the party to whom such information was disclosed
prior to its disclosure to such party, (C) is hereafter available to the party
to whom such information was disclosed on a non-confidential basis from a source
(other than the party disclosing or on whose behalf such information was
disclosed) which was, to the knowledge of the receiving party, entitled to
disclose the same or (D) is compelled by Law or Order to be disclosed by the
party to whom such information was disclosed.
"Confidentiality Agreement" has the meaning ascribed thereto in Section
6.5.
"Consolidated Affiliate" has the meaning ascribed thereto in Section 3.8.
"Consolidated Group" has the meaning ascribed thereto in Section 3.8.
"Contract" means any agreement, contract, or license (i) for purposes of
Section 3.7(l) and Section 6.2(k), relating to payments by any Person of a
dollar amount in excess of $25,000 and (ii) for purposes of all other Sections
of this Agreement, relating to payments by any Person of a dollar amount in
excess of $10,000.
"Control" means, with respect to any Person, the possession, directly or
indirectly, of the power to direct or cause the direction of the management or
policies of a Person, whether through the ownership of securities, by contract
or otherwise.
"Conveyance Instruments" has the meaning ascribed thereto in Section 1.2.
"Covered Taxes" means, all Taxes of CT Sub and/or the Partnership with
respect to periods ending on or prior to the Closing Date other than those Taxes
that are to be paid by Purchasers and Alliance pursuant to Section 10.14.
"CT Shares" has the meaning ascribed thereto in the second WHEREAS clause.
"CT Sub" means CuraCare, Inc., a Delaware corporation.
"CT Unit" has the meaning ascribed thereto in Section 3.5.
"DVI" has the meaning ascribed thereto in Section 6.16.
"DVI Revolving Credit Agreement" means the Loan and Security Agreement
dated as of January 31, 1996 among MRI Sub and CT Sub, as borrowers, the Parent
and Ernest A. Bates, M.D., as guarantors, and DVI, as lender, as amended by
Amendment No. 1 dated March 26, 1996, as amended by Amendment No. 2 dated
January 31, 1997, as amended by Amendment No. 3 dated April 30, 1997, as amended
by Amendment No. 4 dated as of July 31, 1997 and as amended by Amendment No. 5
dated as of December 1, 1997.
"EBITDA" means, for any period with respect to any Unit, net income (or net
loss) from operations plus, to the extent deducted in calculating such net
income (or net loss), the sum of (a) interest expense, (b) income tax expense,
(c) depreciation expense and (d) amortization expense, in each case determined
and as properly allocated to such Unit in accordance with GAAP.
"Employee Benefit Plan" means (i) any qualified or non-qualified "employee
pension benefit plan," as defined in Section 3(2) of ERISA, including any
"multiemployer plan," as defined in Section 3(37) of ERISA, or "multiple
employer plan," as defined in Section 413 of the Code, (ii) any "employee
welfare benefit plan," as defined in Section 3(1) of ERISA, or (iii) any
severance, employment, incentive, bonus, profit-sharing, stock option, stock
purchase or other pension, welfare or fringe plan, program or arrangement,
whether or not subject to ERISA and whether or not funded.
"Employee Plans" has the meaning ascribed thereto in Section 3.17.
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"Encumbrances" shall mean any security interest, mortgage, lien, pledge or
charge or any option or right of first refusal.
"Entities" means CT Sub and the Partnership.
"Entities' Financial Statements" has the meaning ascribed thereto in
Section 3.5.
"Environmental, Health and Safety Laws" means all Laws, Permits, Orders and
Contracts and all common Law relating to or addressing pollution or protection
of the environment, public health and safety, or employee health and safety,
including, but not limited to, all those relating to the presence, use,
production, generation, handling, transportation, treatment, storage, disposal,
distribution, labeling, testing, processing, discharge, release, threatened
release, control or cleanup of any hazardous materials, substances or wastes,
chemical substances or mixtures, pesticides, pollutants, contaminants, toxic
chemicals, petroleum products or byproducts, asbestos, polychlorinated
biphenyls, noise or radiation.
"Equity Interests" means (i) with respect to a corporation, any and all
shares, interests, participation or other equivalents (however designated) of
corporate stock, including all common stock and preferred stock, or warrants,
options or other rights to acquire any of the foregoing and (ii) with respect to
a partnership, limited liability company or similar Person, any and all units,
interests, rights to purchase, warrants, options or other equivalents of, or
other ownership interests in, any such Person.
"ERISA" means the Employment Retirement Income Security Act of 1974, as
amended.
"ERISA Affiliate" means, with respect to any Person, any other Person that
is a member of a "controlled group of corporations" with, or is under "common
control" with, or is a member of the same "affiliated service group" with such
Person as defined in Sections 414(b), 414(c), 414(m) or 414(o) of the Code.
"Exchange Act" has the meaning ascribed thereto in Section 3.22.
"Exchange Proceeds" has the meaning ascribed thereto in Section 6.9.
"Excluded Assets" has the meaning ascribed thereto in Section 1.2.
"Excluded Liabilities" has the meaning ascribed thereto in Section 1.2.
"Excluded Representations and Warranties" has the meaning ascribed thereto
in Section 6.4.
"Expenses" has the meaning ascribed thereto in Section 10.5.
"Federal Health Care Program" has the meaning ascribed thereto in Section
3.19.
"Funded Indebtedness" means, without duplication, with respect to any
Person the aggregate amount (including the current portions thereof) of all (i)
indebtedness for money borrowed from others and purchase money indebtedness
(other than accounts payable in the ordinary course) of such Person; (ii)
indebtedness of the type described in clause (i) above guaranteed, directly or
indirectly, in any manner by such Person, through an agreement, contingent or
otherwise, to supply funds to, or in any other manner invest in, the relevant
debtor, or to purchase indebtedness, or to purchase and pay for property if not
delivered or pay for services if not performed, primarily for the purpose of
enabling such debtor to make payment of the indebtedness or to assure the owners
of the indebtedness against loss (any such arrangement being hereinafter
referred to as a "Guaranty"), but excluding endorsements of checks and other
instruments in the ordinary course; (iii) indebtedness of the type described in
clause (i) above secured by any Encumbrances upon property owned by such Person,
even though such Person has not in any manner become liable for the payment of
such indebtedness; (iv) interest expense accrued but unpaid, and all prepayment
premiums, on or relating to any of such indebtedness; (v) obligations in respect
of leases which would be required to be capitalized under GAAP; and (vi)
obligations under operating leases for Units.
"GAAP" means United States generally accepted accounting principles,
consistently applied.
"GK Finance" means GK Financing, LLC, a California limited liability
company.
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"Governmental Entity" means any federal, state, local or foreign government
and any court, tribunal, administrative agency, commission or other governmental
or regulatory authority or agency, domestic, foreign or supranational.
"Guaranty" has the meaning ascribed thereto in the definition of Funded
Indebtedness.
"Hired Employees" has the meaning ascribed thereto in Section 6.18.
"Indemnified Persons" means and includes the Seller Indemnified Persons
and/or the Purchaser Indemnified Persons, as the case may be.
"Indemnifying Persons" means and includes the Seller Indemnifying Persons
and/or the Purchaser Indemnifying Persons, as the case may be.
"Intellectual Property Rights" means all intellectual property rights,
including, without limitation, patents, patent applications, trademarks,
trademark applications, tradenames, servicemarks, servicemark applications,
trade dress, logos and designs and the goodwill connected with the foregoing,
copyrights and copyright applications, know-how, trade secrets, proprietary
processes and formulae, confidential information, franchises, licenses,
inventions, instructions, marketing materials and all documentation and media
constituting, describing or relating to the foregoing, including, without
limitation, manuals, memoranda and records.
"Latest Balance Sheet" has the meaning ascribed thereto in Section 3.5.
"Latest Balance Sheet Date" has the meaning ascribed thereto in Section
3.5.
"Law" means any applicable foreign, federal, state or local law, statute,
treaty, rule, directive, regulation, ordinance and similar provision having the
force or effect of law or an Order of any Governmental Entity (including all
Environmental, Health and Safety Laws).
"Leased Property" has the meaning ascribed thereto in Section 3.10.
"Liability" means any liability whether fixed or unfixed or liquidated or
unliquidated.
"Licensed Requisite Rights" has the meaning ascribed thereto in Section
3.11.
"Losses" means any and all losses, claims, damages, Liabilities, expenses
(including reasonable attorneys' and accountants' and other professionals'
fees), assessments and Taxes, (including interest or penalties thereon) that are
the subject of indemnification under Article VIII, in each case, (i) net of any
cash insurance benefits actually received and (ii) net of any Tax benefits
realized in respect of the Losses for which the indemnification payments are
being made. For purposes of this definition, Tax benefits realized shall mean
the sum of all reductions in federal, state, local and foreign Taxes (including
estimated Taxes) payable by the Indemnified Person solely as a result of the
Losses for which the indemnification payments are being made. All calculations
shall be made using reasonable assumptions agreed upon by the Purchasers,
Alliance and the Sellers including the timing of the utilization of any such Tax
benefits, and any such Tax benefits shall be assumed to be utilized in a given
Tax year only after all other Tax benefits available in such year have first
been taken into account. If a Tax benefit that has been taken into account for
purposes of calculating Losses hereunder is wholly or partially disallowed by a
taxing authority, the Indemnifying Person shall pay the Indemnified Person the
amount that would have been paid originally with respect to such Losses had such
disallowed Tax benefit not been taken into account.
"M Sub" has the meaning ascribed thereto in the preamble.
"M Sub Partnership Interests" means the 50% general partnership interests
in the Partnership held or owned by M Sub.
"Material Adverse Effect" has the meaning ascribed thereto in Section 3.7.
"MRI Unit" has the meaning ascribed thereto in Section 3.5.
"Non-Compete Period" means the period ending on the fifth anniversary of
the Closing Date.
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"Orders" means judgments, writs, decrees, compliance agreements,
injunctions or judicial or administrative orders and determinations of any
Governmental Entity or arbitrator.
"Organizational Documents" means (i) any certificate or articles filed with
any state which filing forms a Person and (ii) all agreements, documents or
instruments governing the internal affairs of a Person, including such Person's
by-laws, codes of regulations, partnership agreements, limited liability company
agreements, joint venture agreements and operating agreements.
"Owned Requisite Rights" has the meaning ascribed thereto in Section 3.11.
"Parent" has the meaning ascribed thereto in the preamble.
"Parent Common Stock" has the meaning ascribed thereto in Section 3.24.
"Parent Partnership Interests" means the 50% general partnership interest
in the Partnership held or owned by the Parent.
"Parent Stockholder Approval" has the meaning ascribed thereto in Section
3.24.
"Partnership" means American Shared-CuraCare, a California general
partnership.
"Partnership Agreement" means the Joint Venture Agreement, between M Sub
and the Parent, dated March 7, 1985, as modified by the Modification to Joint
Venture Agreement dated April 5, 1985, the Modification to Joint Venture
Agreement dated May 20, 1985, the First Supplement to the Joint Venture
Agreement dated as of October 14, 1987, the Second Supplement to the Joint
Venture Agreement dated as of May 15, 1995, and as further amended, modified or
supplemented from time to time including, without limitation, as amended and
restated pursuant to Section 7.2 hereunder.
"Partnership Interests" means the M Sub Partnership Interests and the
Parent Partnership Interests.
"Permits" means all permits, certificates of need, licenses,
authorizations, registrations, franchises, approvals, certificates, variances
and similar rights obtained, or required to be obtained, from Governmental
Entities.
"Permitted Encumbrances" means with respect to any Person, (i) Encumbrances
for Taxes not yet due and payable or being contested in good faith by
appropriate proceedings and for which there are adequate reserves on the books
and records of such Person, (ii) workers or unemployment compensation liens
arising in the ordinary course of business, (iii) statutory lessor liens arising
under leases, and (iv) mechanic's, materialman's, supplier's, vendor's or
similar liens arising in the ordinary course of business securing amounts that
are not delinquent.
"Person" shall be construed broadly and shall include an individual, a
partnership, a corporation, a limited liability company, an association, a joint
stock company, a trust, a joint venture, an unincorporated organization or a
Governmental Entity (or any department, agency or political subdivision
thereof).
"Post Signing Returns" has the meaning ascribed thereto in Section 6.11.
"Proceedings" means any action, suit, investigation or proceedings before
any Governmental Entity or arbitrator other than the review by Internal Revenue
Service of an application for a favorable determination letter regarding any
Employee Plan.
"Proxy Statement" has the meaning ascribed thereto in Section 6.12.
"Purchase Price" has the meaning ascribed thereto in Section 1.3.
"Purchased Parent Assets" has the meaning ascribed thereto in Section 1.2.
"Purchaser A" has the meaning ascribed thereto in the preamble.
"Purchaser B" has the meaning ascribed thereto in the preamble.
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"Purchaser Indemnified Persons" means and includes the Purchasers, their
Affiliates (including, without limitation, Alliance), their successors and
assigns, and the respective officers, directors, employees and agents of each of
the foregoing.
"Purchaser Indemnifying Persons" means Alliance and each Purchaser (jointly
and severally) and their successors and assigns.
"Purchaser Losses" means any and all Losses sustained, suffered or incurred
by any Purchaser Indemnified Person arising from or in connection with any such
matter which is the subject of indemnification under Article VIII.
"Purchasers" has the meaning ascribed thereto in the preamble.
"Related Documents" has the meaning ascribed thereto in Section 7.2
"Requisite Rights" has the meaning ascribed thereto in Section 3.11.
"Respiratory System" has the meaning ascribed thereto in Section 3.5.
"Restricted Territory" means any portion of the United States in which the
Business has operated during the three years preceding the Closing Date.
"SEC" means the United States Securities and Exchange Commission and any
successor agency.
"SEC Documents" has the meaning ascribed thereto in Section 3.5.
"Securities Act" means the Securities Act of 1933, as amended.
"Seller Indemnified Persons" means and includes the Sellers and their
respective successors and assigns.
"Seller Indemnifying Persons" means and includes the Sellers (jointly and
severally) and their respective successors and assigns.
"Seller Losses" shall mean any and all Losses sustained, suffered or
incurred by any Seller Indemnified Person arising from or in connection with any
matter which is the subject of indemnification under Article VIII.
"Sellers" means the Parent and M Sub.
"Shares" means the CT Shares and the Partnership Interests.
"SPECT UNIT" has the meaning ascribed thereto in Section 3.5.
"SSA" has the meaning ascribed thereto in Section 3.18.
"State Health Care Program" has the meaning ascribed thereto in Section
3.19.
"Stockholders Agreement" has the meaning ascribed thereto in Section 7.2.
"Stockholders Meeting" has the meaning ascribed thereto in Section 6.12.
"Subsidiary" means any Person with respect to which a specified Person (or
a Subsidiary thereof) has the power to vote or direct the voting of sufficient
securities to elect a majority of the directors or other governing body.
"Superfund" has the meaning ascribed thereto in Section 3.20.
"Superior Proposal" has the meaning ascribed thereto in Section 9.1.
"Survival Date" has the meaning ascribed thereto in Section 8.4.
"Tax Claim" has the meaning ascribed thereto in Section 6.8.
"Tax Return" means any return, declaration, report, claim for refund, or
information return or statement relating to Taxes, including any schedule or
attachment thereto, and including any amendment thereof.
46
<PAGE> 80
"Taxes" means, with respect to any Person, (i) all income taxes (including
any tax on or based upon net income, gross income, income as specially defined,
earnings, profits or selected items of income, earnings or profits) and all
gross receipts, sales, use, ad valorem, transfer, franchise, license,
withholding, payroll, employment, excise, severance, stamp, occupation, premium,
property or windfall profits taxes, alternative or add-on minimum taxes, customs
duties and other taxes, fees, assessments or charges of any kind whatsoever,
together with all interest and penalties, additions to tax and other additional
amounts imposed by any taxing authority (domestic or foreign) on such Person (if
any) and (ii) any liability for the payment of any amount of the type described
in clause (i) above as a result of (A) being a "transferee" (within the meaning
of Section 6901 of the Code or any other applicable Law) of another Person, (B)
being a member of an affiliated, combined or consolidated group or (C) a
contractual arrangement or otherwise.
"Third Party Claim" has the meaning ascribed thereto in Section 8.3.
"Third Party Proposal" means a bona fide proposal from a third party, which
proposal did not result from a breach of Section 6.4(a) and which third party
the Board of Directors of the Parent determines in good faith has the capacity
and is reasonably likely to consummate a Superior Proposal.
"338(h)(10) Election" has the meaning ascribed thereto in Section 6.8.
"Transfer Taxes" has the meaning ascribed thereto in Section 8.1.
"Ultrasound Machine" has the meaning ascribed thereto in Section 3.5.
"Units" has the meaning ascribed thereto in Section 3.5.
"Years Included" has the meaning ascribed thereto in Section 3.8.
47
<PAGE> 81
ADDENDUM
The following is a list of and description of the contents of Schedules to
the foregoing Securities Purchase Agreement that have been omitted from such
Agreement as filed with the Annual Report on Form 10-K; such Schedules will be
provided to the Commission upon request:
<TABLE>
<CAPTION>
SCHEDULE
NUMBER TITLE AND DESCRIPTION
----------- ---------------------
<S> <C>
1.2(a) Purchased Parent Assets: assets used in the business current
held by the Parent and that are to be assigned or transfered
to the Entities prior to the Closing.
1.2(b) Excluded Assets: assets held by either of the Entities that
are to be assigned or transfered by the Entities to the
Parent prior to the Closing.
1.2(c) Excluded Liabilities: liabilities of the Entities that are
not being assumed by the Purchasers and that must be assumed
by the Parent prior to the Closing.
3.2(c) Jurisdictions of Sellers and Entities: list of each state
(other than the state of incorporation) in which the Sellers
and Entities are qualified to do business and are in good
standing.
3.2(e)(i) Businesses: Description of businesses engaged in during the
last five years by the Sellers and the Entities.
3.2(e)(ii) Trade Names and Assumed Names: trade and assumed names used
by the Sellers and the Entities.
3.2(f) Authority: listing of agreements or documents that would be
in default as a result of the agreement, absent waiver or
consent.
3.2(g) Consents: Consents of third parties that must be obtained
for the transactions contemplated by the Agreement.
3.3(b) Partnership Interests: Listing of percentage of interests in
the Partnership owned by each Seller.
3.3(d) Contracts re Equity Interests: Listing of any outstanding
agreements related to equity interests in the Entities.
3.5(a) Parent and Subsidiary Liabilities Incurred Since September
30, 1997: Description of Liabilities incurred by Parent and
its Subsidiaries since September 30, 1997.
3.5(b) Pro Forma Financial Statements: Financial Statements of the
Entities pro forma for the transactions provided for in
Section 1.2 of the Agreement.
3.5(d) Funded Indebtedness: Funded Indebtedness outstanding at
January 31, 1998.
3.5(e) Specifications of Units: Information related to each Unit
used in the Business, including specifications, net book
value, date acquired.
3.5(f) Upgrades and Commitments for Upgrades of Units: Description
of upgrades completed within the last year and upgrades that
have been committed to be completed.
3.5(g) Accounts Payable: Accounts payable outstanding at January
31, 1998.
3.5(h) Principal Payments or Prepayments: Listing of principal and
interest payments made and capital expenditures during the
year ended December 31, 1997 and one month ended January 31,
1998; revenues and EBITDA for each Unit for the year ended
December 31, 1997 and the one month ended January 31, 1998.
3.7 Changes in Operations: Description of changes in operations
of the business since December 31, 1997.
3.8(a) Tax Returns: Description of any tax returns that have not
been filed on a timely basis.
3.8(c) Audits: Description of any outstanding audits related to
taxes.
</TABLE>
48
<PAGE> 82
<TABLE>
<CAPTION>
SCHEDULE
NUMBER TITLE AND DESCRIPTION
----------- ---------------------
<S> <C>
3.8(d) States Where Filed Income Tax Returns: Listing of states in
which income tax returns were required to be filed in each
of the three years ended December 31, 1997.
3.9 Compliance with Leases; Encumbrances on Property: Schedule
showing any existing defaults or items that, with passage of
time or giving of notice, would constitute a default under
leases and a listing of liens (UCC financing statements) on
record against the Sellers and the Entities.
3.10(a) Leased Real Property: Listing of all real property leased by
the Sellers and Entities and a description of the basic
terms of the leases.
3.11(a) Owned or Leased Intellectual Property: Listing of
intellectual property owned or leased by the Sellers and
Entities.
3.11(b) Applications re Intellectual Property: Listing of
applications to register trade marks or service marks that
are pending.
3.12 Contracts: Listing of Contracts related to the Business.
3.12 Defaults: Defaults under Contracts existing at the signing
date or items that, with the passage of time or giving of
notice could constitute default.
3.13(a) Pending and Threatened Civil and Criminal Proceedings:
Listing and description of pending and threatened civil and
criminal litigation, investigations, administrative
proceedings and similar matters.
3.13(b) Concluded Material Proceedings: Description of concluded
matters in which the Entities paid more than $50,000 in
settlement or damages during the last three years.
3.14 Permits: Listing of permits issued to Sellers or the
Entities used in the Business.
3.15(a) Insurance: Listing of insurance policies maintained by the
Sellers or the Entities in connection with the Business and
a summary of pending claims.
3.15(b) Premiums: Listing of any premiums for insurance policies
that have not been paid or are subject to adjustment or
retrospective premium.
3.16(a) Officers, Directors and Employees Earning Greater than
$75,000 per year: Listing of officers and directors of the
Entitites and employees who earned more than $75,000 during
1997.
3.16(b) Labor Matters: Listing of any pending labor matters.
3.17(a) Employee Benefit Plans: Listing of employee benefit plans
maintained by the Sellers or the Entities.
3.17(b) Administration of Employee Benefit Plans: Listing of any
pending proceedings or violations in the administration of
the employee benefit plans.
3.20(a) Environmental Matters: Listing of any matters in which the
Entitites are not in compliance with environmental laws.
3.20(b) Environmental Claims: Listing of any pending or threatened
claims by governmental entities concerning a violation of an
environmental law.
3.20(c) Administrative Proceedings re Environmental: Listing of any
pending administrative or judicial proceeding or
investigation regarding remediation under environmental,
health or safety laws.
3.20(d) Notices of Violations of Environmental: Listing of notices
or violations or requirements to remediate or take
corrective action related to environmental, health and
safety laws during the last five years by the Entities.
3.20(e) Changes in Environmental Laws: Listing of changes in
environmental laws of which the Sellers have knowledge.
</TABLE>
49
<PAGE> 83
<TABLE>
<CAPTION>
SCHEDULE
NUMBER TITLE AND DESCRIPTION
----------- ---------------------
<S> <C>
3.22 Related Transactions: Summary of transactions with
affiliates.
3.23 Bank Accounts and Powers of Attorney: Listing of bank
accounts maintained by the Sellers or the Entities and
powers of attorney granted by Entities or Sellers.
3.26 Physician Relationships: Description of any "financial
relationships" of the Entities with "referring physicians'
under 42 U.S.C. Section 1395nn..
3.27 Hospital Relationships: Description of any relationships of
the Entities with hospitals in connection with rental
payments based on fees or revenues of any segment of the
business of the Entities.
4.1 Organization of Purchasers: Jurisdictions in which
Purchasers are qualified to do business as a foreign person.
4.4 Consents: Listing of consents that must be obtained or
actions that must be taken by Purchasers to avoid conflicts
with agreements or documents to which it is a party or
subject.
</TABLE>
50
<PAGE> 84
ANNEX B
FAIRNESS OPINION OF PAINEWEBBER INCORPORATED
, 1998
Board of Directors
American Shared Hospital Services
Four Embarcadero Center, Suite 3620
San Francisco, CA 94111
Ladies and Gentlemen:
American Shared Hospital Services (the "Company"), MMRI, Inc., a
wholly-owned subsidiary of the Company ("MMRI"), and Embarcadero Holding Corp. I
and Embarcadero Holding Corp. II, two wholly-owned subsidiaries of the acquiring
company (the "Purchaser") propose to enter into an agreement pursuant to which
the Purchaser will acquire the mobile shared diagnostic imaging business of the
Company (the "Imaging Business") through the acquisition from the Company of (i)
all of the shares of common stock, par value $1.00, of CuraCare, Inc. ("Common
Stock"), (ii) the general partnership interests in American Shared -- CuraCare,
and (iii) the transfer of all other assets and liabilities related to mobile
shared diagnostic services pursuant to the Securities Purchase Agreement dated
March 12, 1998 (the "Agreement") (taken together the "Sale Transaction"). The
Sale Transaction is expected to be considered by the shareholders of the Company
at a special meeting as soon as practicable.
You have asked us whether or not, in our opinion, the proposed
consideration to be received by the Company in the Sale Transaction is fair to
the Company from a financial point of view.
In arriving at the opinion set forth below, we have, among other things:
(1) Reviewed, among other public information, the Company's Annual
Reports, Forms 10-K and related financial information for the three fiscal
years ended December 31, 1997;
(2) Reviewed historical financial information relating to the
performance of the Imaging Business for the three years ended December 31,
1997, furnished to us by or on behalf of the Company;
(3) Reviewed certain information, including financial forecasts,
relating to the business, earnings, cash flow, assets and prospects of the
Imaging Business, furnished to us by or on behalf of the Company;
(4) Conducted discussions with members of senior management of the
Company concerning the business and prospects of the Imaging Business;
(5) Compared the results of operations of the Imaging Business with
that of certain companies which we deemed to be relevant;
(6) Compared the proposed financial terms of the transactions
contemplated by the Agreement with the financial terms of certain other
mergers and acquisitions which we deemed to be relevant;
(7) Reviewed the Agreement; and
(8) Reviewed such other financial studies and analyses and performed
such other investigations and took into account such other matters as we
deemed necessary, including our assessment of regulatory, economic, market,
and monetary conditions.
In preparing our opinion, we have relied on the accuracy and completeness
of all information that was publicly available, supplied or otherwise
communicated to us by or on behalf of the Company and we have not assumed any
responsibility to independently verify the same. We have assumed that the
financial forecasts examined by us were reasonably prepared on bases reflecting
the best currently available estimates and good faith judgments of the
management of the Company as to the future performance of the Imaging Business.
We have also relied, with your consent, upon assurances of the management of the
Company that they are unaware of any facts that would make the information or
financial forecasts provided to us incomplete or misleading. We have also
assumed, with your consent, that any material liabilities (contingent or
otherwise, known or unknown) of the Imaging Business are as set forth in the
financial statements of the Imaging
-1-
<PAGE> 85
Business. We have not been engaged to make, nor have we made, an independent
evaluation or appraisal of the assets or liabilities (contingent or otherwise)
of the Imaging Business nor have we been furnished with any such evaluations or
appraisals. Our opinion is based upon regulatory, economic, market and monetary
conditions existing on the date hereof.
This opinion is directed to the Board of Directors of the Company and does
not constitute a recommendation to any shareholder of the Company as to how any
such shareholder should vote on the Sale Transaction. This opinion does not
address the relative merits of the Sale Transaction and other transactions or
business strategies discussed by the Company as alternatives to the Sale
Transaction or the decision of the Board of Directors of the Company to proceed
with the Sale Transaction. No opinion is expressed herein as to the price at
which the Common Stock may trade at any time subsequent to the Sale Transaction.
This opinion has been prepared for the information of the Board of
Directors of the Company in connection with the Sale Transaction and shall not
be reproduced, summarized, described or referred to or provided to any other
person or otherwise made public without the prior written consent of PaineWebber
Incorporated ("PaineWebber") except that the opinion may be reproduced in full
in the proxy statement related to the Sale Transaction.
PaineWebber is currently acting as financial advisor to the Board of
Directors in connection with the Sale Transaction and will receive a fee upon
the delivery of this opinion and certain other fees subsequent to the
consummation of the Sale Transaction.
In the ordinary course of our business, we may trade the securities of the
Company for our own account and for the accounts of our customers and,
accordingly, may at any time hold long or short positions in such securities. In
addition, a representative of PaineWebber's investment banking group is a member
of the Board of Directors of the Company.
On the basis of, and subject to the foregoing, we are of the opinion that
the proposed consideration to be received by the Company in the Sale Transaction
is fair to the Company from a financial point of view.
Very truly yours,
PAINEWEBBER INCORPORATED
By
------------------------------------
-2-
<PAGE> 86
AMERICAN SHARED HOSPITAL SERVICES
For a Special Meeting of Shareholders
to be Held June 12, 1998
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby nominate(s), constitutes(s) and appoint(s) Ernest
A. Bates, M.D. and Richard Magary, and each of them, the attorneys, agents and
proxies of the undersigned, with full powers of substitution to each, to attend
and to act as proxy or proxies of the undersigned at the Special Meeting of
Shareholders (the "Special Meeting") of AMERICAN SHARED HOSPITAL SERVICES (the
"Company") to be held at the Ritz Carlton Hotel, 600 Stockton at California
Street, San Francisco, California 94108 at 10:00 a.m. (Pacific time), or any
adjournments thereof, and to vote as specified herein the number of shares which
the undersigned, if personally present, would be entitled to vote.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE PROPOSED SALE OF
SUBSTANTIALLY ALL OF THE COMPANY'S DIAGNOSTIC IMAGING BUSINESS (THE "PROPOSED
SALE"). YOU ARE ENCOURAGED TO SPECIFY YOUR CHOICE BY MARKING THE APPROPRIATE
BOX. THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED AS DIRECTED. IF NO
DIRECTION IS MADE, IT WILL BE VOTED "FOR" THE PROPOSED SALE. THE PROXIES CANNOT
VOTE YOUR SHARES UNLESS YOU HAVE SIGNED AND RETURNED THIS CARD. ABSTENTIONS AND
NON-VOTED SHARES WILL BE EQUIVALENT TO A VOTE AGAINST THE PROPOSED SALE. THE
BOARD OF DIRECTORS IS NOT AWARE OF ANY MATTERS THAT WILL COME BEFORE THE SPECIAL
MEETING OTHER THAN THOSE DESCRIBED IN THIS PROXY. HOWEVER, IF SUCH MATTERS ARE
PRESENTED, THE NAMED PROXIES WILL, IN THE ABSENCE OF INSTRUCTIONS TO THE
CONTRARY, VOTE SUCH PROXIES IN ACCORDANCE WITH THE JUDGMENT OF SUCH NAMED
PROXIES WITH RESPECT TO ANY SUCH OTHER MATTER PROPERLY COMING BEFORE THE SPECIAL
MEETING. THIS PROXY MAY BE REVOKED PRIOR TO ITS EXERCISE BY FILING WITH THE
SECRETARY OF THE COMPANY AN INSTRUMENT IN WRITING REVOKING THE PROXY OR A DULY
EXECUTED PROXY BEARING A LATER DATE. THIS PROXY MAY ALSO BE REVOKED BY
ATTENDANCE AT THE MEETING AND ELECTION TO VOTE IN PERSON.
<PAGE> 87
-2-
[REVERSE SIDE]
[X] PLEASE MARK YOUR VOTE AS IN THIS EXAMPLE
This proxy when properly executed will be voted in the manner directed
herein and in the discretion of the proxy holders on all other matters coming
before the meeting. If no direction is made, this Proxy will be voted FOR the
Proposal.
----------------------------------------
The Board of Directors recommends a vote FOR the Proposal.
<TABLE>
<S> <C> <C> <C>
[ ] FOR [ ] AGAINST [ ] ABSTAIN
1. Approval of the sale (a) by the Company to
Embarcadero Holding Corp. I of (i) all of the
issued and outstanding shares of common stock,
par value $1.00 per share, of CuraCare, Inc. and
(ii) all its 50% general partnership interest in
American Shared-CuraCare ("AS-C") and (b) by
MMRI, Inc. to Embarcadero Holding Corp. II of
all its 50% general partnership interest in AS-C.
</TABLE>
[ ] I PLAN TO ATTEND THE MEETING IN PERSON
The undersigned hereby ratifies and confirms all that said attorneys and
proxies, or any of them, or their substitutes, shall lawfully do or cause to be
done by virtue hereof, and hereby revokes any and all proxies heretofore given
by the undersigned to vote at the Meeting. The undersigned acknowledges receipt
of the Notice of the Special Meeting and the Proxy Statement accompanying such
Notice.
Signature _____________________________ Date _______________
Signature ______________________________ Date _______________
Signature if held jointly
NOTE: Please date this Proxy and sign as your name(s) appear(s) on this
document. Joint owners should each sign personally. Corporate Proxies
should be signed by an authorized officer. Executors, administrators,
trustees, etc. should give their full titles.
