<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------------
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
SECURITIES EXCHANGE ACT OF 1934
FOR QUARTER ENDED : SEPTEMBER 30, 1997
------------------
COMMISSION FILE NUMBER: 0-16334
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ALLIANCE IMAGING, INC.
----------------------
(Exact name of registrant as specified in its charter)
DELAWARE 33-0239910
(State or other jurisdiction (IRS Employer Identification Number)
of incorporation or organization)
1065 NORTH PACIFICENTER DRIVE
SUITE 200
ANAHEIM, CALIFORNIA 92806
--------------------------
(Address of principal executive office)
(714) 688-7100
--------------
Registrant's telephone number, including area code
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934,
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes (X) No ( )
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of October 31, 1997:
Common Stock, $.01 par value, 11,023,344
<PAGE>
ALLIANCE IMAGING, INC.
FORM 10-Q
September 30, 1997
Index
Page
----
PART I - FINANCIAL INFORMATION
Item 1 - Condensed Financial Statements:
Condensed Consolidated Balance Sheets 3
September 30, 1997 and December 31, 1996
Condensed Consolidated Statements of Income 4
Three and nine months ended September 30, 1997 and 1996
Condensed Consolidated Statements of Cash Flows 5
Nine months ended September 30, 1997 and 1996
Notes to Condensed Consolidated Financial Statements 7
Item 2 - Management's Discussion and Analysis 10
of Financial Condition and Results of
Operations
PART II - OTHER INFORMATION 18
SIGNATURES 26
<PAGE>
ALLIANCE IMAGING, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996*
---- -----
(UNAUDITED)
ASSETS
<S> <C> <C>
Current assets:
Cash and short-term investments $ 10,557,000 $ 10,867,000
Accounts receivable, net of allowance for doubtful accounts 10,597,000 8,889,000
Prepaid expenses 997,000 710,000
Other receivables 115,000 345,000
------------ ------------
Total current assets 22,266,000 20,811,000
Equipment, at cost 152,113,000 121,354,000
Less--Accumulated depreciation (52,511,000) (43,735,000)
------------ ------------
99,602,000 77,619,000
Goodwill 26,657,000 27,990,000
Deposits and other assets 3,098,000 2,090,000
------------ ------------
Total assets $151,623,000 $128,510,000
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 3,039,000 $ 1,765,000
Accrued compensation and related expenses 3,399,000 3,465,000
Other accrued liabilities 11,268,000 6,341,000
Current portion of long-term debt 20,476,000 16,323,000
------------ ------------
Total current liabilities 38,182,000 27,894,000
Long-term debt, net of current portion 62,597,000 72,702,000
Other liabilities 2,188,000 2,029,000
Deferred income taxes 4,831,000 4,831,000
Redeemable preferred stock - 4,694,000
Non-redeemable preferred and common stockholders' equity:
Convertible preferred stock 18,000,000 388,000
Common stock 110,000 109,000
Additional paid-in capital 36,561,000 34,404,000
Accumulated deficit (10,846,000) (18,541,000)
------------ ------------
Total non-redeemable preferred and common stockholders' equity 43,825,000 16,360,000
------------ ------------
Total liabilities and stockholders' equity $151,623,000 $128,510,000
------------ ------------
------------ ------------
</TABLE>
*Derived from audited financial statements
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
3
<PAGE>
ALLIANCE IMAGING, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended September 30, Nine Months Ended September 30,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues $22,374,000 $17,795,000 $62,285,000 $49,097,000
Cost and expenses:
Operating expenses, excluding depreciation 9,684,000 8,530,000 27,499,000 23,549,000
Depreciation expense 4,078,000 3,122,000 11,222,000 9,170,000
Selling, general and administrative expenses 2,261,000 1,719,000 6,251,000 4,879,000
Amortization expense, primarily goodwill 602,000 564,000 1,767,000 1,309,000
Interest expense, net of interest income 1,758,000 1,501,000 5,315,000 4,184,000
----------- ----------- ----------- -----------
Total costs and expenses 18,383,000 15,436,000 52,054,000 43,091,000
----------- ----------- ----------- -----------
Income before income taxes and extraordinary gain 3,991,000 2,359,000 10,231,000 6,006,000
Provision for income taxes 1,355,000 410,000 3,480,000 955,000
----------- ----------- ----------- -----------
Income before extraordinary gain 2,636,000 1,949,000 6,751,000 5,051,000
Extraordinary gain, net of taxes - - 1,332,000 -
----------- ----------- ----------- -----------
Net income 2,636,000 1,949,000 8,083,000 5,051,000
Less: Preferred stock dividends - (238,000) - (706,000)
Add: Excess of carrying amount of preferred stock
repurchased over consideration paid - - 1,906,000 -
----------- ----------- ----------- -----------
Income applicable to common stock $ 2,636,000 $ 1,711,000 $ 9,989,000 $ 4,345,000
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Weighted average common and common equivalent
shares outstanding 15,130,000 11,558,000 14,028,000 11,463,000
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Earnings per share:
Income before items below $ 0.17 $ 0.15 $ 0.48 $ 0.38
Excess of carrying amount of preferred stock
repurchased over consideration paid - - 0.14 -
----------- ----------- ----------- -----------
Income before extraordinary gain 0.17 0.15 0.62 0.38
Extraordinary gain, net of taxes - - 0.09 -
----------- ----------- ----------- -----------
Income applicable to common stock $ 0.17 $ 0.15 $ 0.71 $ 0.38
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
4
<PAGE>
ALLIANCE IMAGING, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------
1997 1996
---- ----
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 8,083,000 $ 5,051,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Extraordinary gain (1,332,000) -
Depreciation and amortization 12,989,000 10,479,000
Amortization of deferred financing charges 42,000 325,000
Distributions in excess of (undistributed) income
of investee 85,000 (74,000)
Changes in operating assets and liabilities:
Accounts receivable, net (1,630,000) (1,696,000)
Prepaid expenses (287,000) (566,000)
Other receivables 230,000 247,000
Other assets (1,302,000) (31,000)
Accounts payable, accrued compensation and
other accrued liabilities 5,053,000 2,496,000
Other liabilities 159,000 1,117,000
----------- -----------
Net cash provided by operating activities 22,090,000 17,348,000
INVESTING ACTIVITIES:
Equipment purchases (32,940,000) (20,504,000)
Decrease in deposits on equipment 150,000 1,297,000
Purchase of contracts and related assets of Mobile
M.R. Venture, Ltd. - (455,000)
Purchase of common stock of Royal Medical
Health Services, Inc., net of cash acquired - (1,844,000)
Purchase of common stock of Sun MRI
Services, Inc., net of cash acquired - (269,000)
Purchase of contracts and related assets of
West Coast Mobile Imaging - (90,000)
Purchase of MRI contracts and related assets of
Pacific Medical Imaging, Inc. (756,000) -
----------- -----------
Net cash used in investing activities (33,546,000) (21,865,000)
</TABLE>
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
5
<PAGE>
ALLIANCE IMAGING, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (CONTINUED)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------
1997 1996
---- ----
<S> <C> <C>
FINANCING ACTIVITIES:
Payment of preferred stock dividends (653,000) (930,000)
Repurchase of senior subordinated debentures (2,286,000) -
Repurchase of Series A preferred stock (2,523,000) -
Principal payments on long-term debt (14,324,000) (9,567,000)
Proceeds from long-term debt 25,782,000 15,618,000
Proceeds from senior bridge loan 5,128,000 -
Proceeds from exercise of employee stock options 22,000 21,000
Increase in deferred financing charges - (76,000)
------------ -----------
Net cash provided by financing activities 11,146,000 5,066,000
------------ -----------
Net (decrease) increase in cash and short-term
investments (310,000) 549,000
Cash and short-term investments, beginning of period 10,867,000 11,128,000
------------ -----------
Cash and short-term investments, end of period $10,557,000 $11,677,000
------------ -----------
------------ -----------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid $ 5,562,000 $ 4,176,000
Income taxes paid 337,000 307,000
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES
Conversion of senior bridge loan into Series D 4%
convertible preferred stock $18,000,000 -
Conversion of Series C 5% convertible preferred stock into
common stock $ 388,000 -
</TABLE>
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
6
<PAGE>
Alliance Imaging, Inc.
Notes to Condensed Consolidated Financial Statements
September 30, 1997
(Unaudited)
1. BASIS OF PREPARATION
The accompanying unaudited condensed consolidated financial statements
have been prepared by Alliance Imaging, Inc. ("Alliance" or "the Company")
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10
of Regulation S-X of the Securities and Exchange Commission. Accordingly,
they do not include all of the information and footnotes required by
generally accepted accounting principles for complete financial statements.
In the opinion of the Company, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have been
included. Operating results for the nine month period ended September 30,
1997, are not necessarily indicative of the results that may be expected
for the year ending December 31, 1997. For further information, refer to
the consolidated financial statements and footnotes thereto included in the
Company's annual report on Form 10-K for the year ended December 31, 1996.
The earnings per common share for the nine month periods ended
September 30, 1997 and 1996 are based upon weighted average common and
common equivalent shares outstanding during the period. For the nine month
period ended September 30, 1996, common equivalent shares include the
dilutive effect of stock options with an exercise price lower than current
market value and reflect preferred dividend requirements of $706,000. For
the nine month period ended September 30, 1997, common equivalent shares
include the dilutive effect of warrants and stock options with exercise
prices lower than current market value, as well as the assumed conversion
of the Series D convertible preferred stock into common shares.
Supplemental earnings per share for the nine months ended September 30,
1997 based on historical earnings per share adjusted assuming the
conversion of the senior bridge loan into Series D convertible preferred
stock had occurred on January 1, 1997 is $0.47 per share. This calculation
ignores amounts reported in the 1997 historical results as gain arising
from the repurchase of the senior subordinated debentures and the earnings
per share benefit arising from the excess of carrying value of the
preferred stock repurchased over the consideration paid. Therefore, this
supplemental earnings per share calculation is the most comparable to the
$0.48 per share "income before items below" reported in the Company's first
nine months ended 1997 historical results of operations.
In February 1997, the Financial Accounting Standards Board issued
Statement No. 128, "Earnings per Share", which is required to be adopted on
December 31, 1997. At that time, the Company will be required to change
the method currently used to compute earnings per share and to restate all
prior periods. Under the new requirements for calculating basic earnings
per share, the dilutive effect of stock options, warrants and the Series D
convertible preferred stock will be excluded. The impact is expected to
result in an increase to basic earnings per share for the nine months ended
September 30, 1997 and 1996 of $.10 and $.02, per share respectively.
7
<PAGE>
Alliance Imaging, Inc.
Notes to Condensed Consolidated Financial Statements (continued)
September 30, 1997
(Unaudited)
The provisions for income taxes for the nine month periods ended September
30, 1997 and 1996 are less than the statutory federal rate due to
utilization of certain net operating loss carryforwards during the periods.
2. SUBSEQUENT EVENT
On July 23, 1997, Alliance entered into an Agreement and Plan of
Merger as amended, (the "Recapitalization Merger Agreement"). Under the
terms of the Recapitalization Merger Agreement, an entity formed by
affiliates of Apollo Management, L.P. (collectively, "Apollo") will merge
with and into Alliance (the "Recapitalization"). Each share of Alliance
common stock, par value $.01 per share, issued and outstanding immediately
prior to the effective time of the Recapitalization, other than dissenting
shares, either (1) will be converted into the right to receive $11.00 in
cash or (2) will be retained by such stockholder. The Recapitalization
Merger Agreement requires that 409,091 shares in the aggregate of common
stock be retained by Alliance's existing stockholders; therefore, the right
to receive either $11.00 in cash for each share or to retain that share of
Alliance common stock is subject to proration.
The proposed Recapitalization is subject to stockholder approval.
However, pursuant to a Stockholder Agreement, stockholders representing
beneficial ownership of not less than 54.4% of Alliance common stock (the
"Stockholders") have agreed to vote all shares beneficially owned by them
in favor of the approval of the Recapitalization Merger Agreement and the
Recapitalization and to convert or exercise all securities they hold that
are convertible into or exercisable for shares of Alliance common stock
prior to the time of the special meeting of shareholders called in
connection with the Recapitalization. In addition, each Stockholder has
granted to Apollo an option to acquire their shares of common stock, and a
proxy to vote such shares in favor of the Recapitalization. At the closing
of the Recapitalization, significant new sources of financing will be
provided to Alliance for the purchase of shares of common stock in the
Recapitalization, repayment of indebtedness, and for working capital
purposes, among other uses.
The Recapitalization Merger Agreement originally contemplated that, in
connection with the closing of the Recapitalization, Alliance would also
acquire all of the capital stock of the parent corporation of SMT Health
Services Inc. ("SMT") from Apollo, in exchange for additional shares of
Alliance common stock. The Recapitalization Merger Agreement has been
amended to eliminate that transaction; as a result, SMT will not be
acquired by Alliance in connection with the Recapitalization, and instead
will remain an independent company owned by Apollo.
8
<PAGE>
Alliance Imaging, Inc.
Notes to Condensed Consolidated Financial Statements
September 30, 1997
(Unaudited)
After the consummation of the Recapitalization, the Company will adopt a
new employee stock option plan pursuant to which options (the "New Options")
with respect to a total of, 454,545 shares of Alliance common stock (the "New
Option Shares") will be available for grant. The New Option Shares will be
allocated in amounts agreed upon between Apollo and the Company. Of the new
Option Shares, 50% will vest in equal increments over four years ending on the
fourth anniversary of the last day of the consummation of the Recapitalization.
The remaining 50% will vest seven and one-half years after the date of grant,
subject to acceleration if certain per-share equity targets are achieved.
Vesting of New Options occurs only during an employee's term of employment. The
exercise price for the New Options is expected to be at the fair market value
at a grant date (i.e., $11.00 per share at the consummation of the
Recapitalization).
As a part of the new financing to be provided, Alliance plans to sell $165
million of Senior Subordinated Notes (the "Notes") in an underwritten public
offering. The Notes are to be unconditionally guaranteed, on a senior
subordinated basis, jointly and severally, by all significant direct and
indirect consolidated subsidiaries of Alliance, which consist of Royal Medical
Health Services, Inc., Alliance Imaging of Central Georgia, Inc., Alliance
Imaging of Ohio, Inc. and Alliance Imaging of Michigan, Inc.
On October 20, 1997 the Company announced execution of a definitive
agreement to acquire Medical Consultants Imaging Co. ("MCIC"), a Cleveland,
Ohio based provider of mobile MRI services, CT services and other outsourced
healthcare services. The acquisition also includes MCIC's one-half interest in
an operating joint venture in Michigan. The purchase price consists of $13
million cash (subject to certain reductions) plus the assumption of
approximately $5 million in financing arrangements. MCIC operates 14 mobile MRI
systems and several other diagnostic imaging systems, primarily in Ohio,
Michigan, Indiana and Pennsylvania. The transaction is expected to close in
November 1997.
9
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.
OVERVIEW
The Company is a leading nationwide provider of diagnostic imaging services
and related outsourced radiology services. The Company primarily provides
magnetic resonance imaging (MRI) systems and services to hospitals and other
health care providers on a mobile, shared user basis. The Company also provides
dedicated, full-time MRI systems and services as well as full-service management
of imaging operations for selected hospitals. The Company's services enable
small to mid-size hospitals to gain access to advanced diagnostic imaging
technology and related value-added services without making a substantial
investment in equipment and personnel. The Company operates a fleet of 95 MRI
systems and services over 355 MRI customers in 36 states under exclusive
contracts with average remaining length of approximately 24 months as of
September 30, 1997.
The Company's revenues are principally a function of the number of systems
in service, scan volumes and fees per scan. The Company generates substantially
all of its revenues under exclusive one to eight-year contracts with hospitals
and health care providers. The Company's contracts typically offer tiered
pricing with lower fees per scan on incremental scans, allowing customers to
benefit from increased scan volumes and the Company to benefit from the
operating leverage associated with increased scan volumes.
The Company also provides CT services and imaging systems. Revenues from
CT services and imaging systems accounted for less than 5% of the Company's
revenues for the year ended December 31, 1996.
The principal components of the Company's operating costs include salaries
paid to technologists and drivers, annual system maintenance costs, insurance
and transportation costs. Because a majority of these expenses are fixed,
increased revenues as a result of higher scan volumes significantly improve the
Company's profitability while lower scan volumes result in lower profitability.
Among other things, the Company is subject to the risk that customers will
cease using the Company's MRI services, upon expiration of contracts, to
purchase or lease their own MRI systems. In the past, when this has occurred,
the Company has generally been able to obtain replacement customers. However,
it is not always possible to immediately obtain replacement customers, and some
replacement customers have been smaller facilities and have had lower scan
volumes.
The health care industry is highly regulated and very competitive. The
current health care environment is characterized by cost containment pressures
which management believes have resulted in decreasing revenues per scan.
Although scan prices appear to have stabilized, the Company expects modest
continuing downward pressure on pricing levels. However, in many cases higher
scan volumes associated with new customer contracts justify lower scan prices
and
10
<PAGE>
such contracts do not adversely impact the Company's revenues and profitability.
Although the Company has experienced increased scan volumes in 1995, 1996, and
in the first nine months of 1997, it has also had periods of declining volumes
in earlier years, and there can be no assurance that the recent positive trends
will continue.
The Company has implemented numerous cost containment and efficiency
measures to reduce operating, payroll and selling, general and administrative
costs. It has also developed a new marketing plan to refocus and expand its
sales and marketing efforts, and has substantially upgraded its MRI systems over
the last few years. Additionally, the Company continues to evaluate the
profitability of certain existing customer relationships with a view toward
eliminating unprofitable accounts.
The Company's ongoing equipment trade-in and upgrade program has
substantially improved the marketability and productivity of its MRI and
computed axial tomography (CT) systems. The Company periodically evaluates its
older, less marketable MRI systems to determine if it is more beneficial for
them to continue in profitable, although reduced, revenue service, or to trade
in such equipment in connection with new system purchases. The Company expects
to operate its few remaining older systems for another one to two years, after
which time such systems will be traded-in or otherwise disposed of.
RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1996 -- Revenues for the first nine months of 1997 were $62,285,000, an increase
of $13,188,000, or 26.9%, over 1996. This increase reflects a scan-based MRI
revenue increase of $11,706,000, or 26.9% ($2,515,000 or 5.8% as a result of MRI
operations acquired subsequent to the first quarter of 1996), resulting from a
29.2% increase in total scan volume partially offset by a 1.8% decrease in the
average revenue realized per MRI scan. The average daily scan volume per MRI
system increased 7.5% to 7.2 from 6.7 in 1996. Management attributes the
volume increase to the Company's continuing MRI systems upgrade program, which
has enabled the Company to obtain new, long-term contracts from both existing
and new customers, and to the effect of marketing programs implemented in early
1997. Management believes the decrease in average revenue realized per scan is
the result of: many customers achieving discount price levels on incremental
scan volumes; obtaining contracts with customers that have high scan volumes
which justify lower scan prices; and continuing competitive pressure in the MRI
service industry and cost containment efforts by health care payers. CT
revenues increased $782,000, or 29.4%, as a result of internal growth and the
fourth quarter 1996 acquisition of a small CT business. Other revenues
increased $548,000 primarily as a result of the implementation in late 1996 of a
program providing management services for a large portfolio of imaging systems
owned by others.
The Company operated 95 MRI systems at September 30, 1997 compared to 86
MRI systems at September 30, 1996. The average number of MRI systems operated
by the Company was 89 during the first nine months of 1997, compared to 84
during the first nine months of 1996.
11
<PAGE>
Operating expenses, excluding depreciation, totaled $27,499,000 in the
first nine months of 1997, an increase of $3,950,000, or 16.8%, from the first
nine months of 1996. Payroll and related employee expenses increased
$2,028,000, or 19.1%, primarily as a result of an increase in operating staffing
levels necessary to support revenue growth. Repairs and maintenance expense
increased $477,000, or 40.0%, due to an increased number of systems in service.
Fuel and other vehicle expenses collectively increased $387,000, or 36.8%,
primarily due to increasing fuel prices and the addition of new mobile MRI
systems. Preventative maintenance and cryogen contract expense increased
$186,000, or 2.8%, due to the expiration of the warranties on an increased
number of MRI systems. Other operating expenses (including insurance, site
fees, office expenses, equipment rental, supplies and professional services)
increased $872,000, or 21.0 %, as a result of the increased level of operations.
Depreciation expense during the first nine months of 1997 totaled
$11,222,000, an increase of $2,052,000, or 22.4%, from the 1996 level
principally due to a higher amount of depreciable assets associated with
equipment additions and upgrades. Amortization expense during the first nine
months of 1997 increased $458,000, or 35.0%, over the 1996 period as a result of
goodwill amortization associated with recent business acquisitions.
Selling, general and administrative expenses totaled $6,251,000 in the
first nine months of 1997, an increase of $1,372,000, or 28.1%, from the same
period in 1996. Professional services expenses increased $566,000, or 147.0%,
primarily due to costs associated with increased investor relations efforts and
merger and acquisition activity. Payroll and related expenses increased
$436,000, or 12.0%, primarily as a result of increased staffing levels necessary
to support the Company's increased level of operations. Other expenses increased
primarily as a result of expanded marketing programs and costs associated with
relocating the Company's corporate offices.
Interest expense of $5,315,000 in the first nine months of 1997 was
$1,131,000, or 27.0%, higher than the same period in 1996, as a result of higher
average outstanding debt balances during 1997 as compared to 1996. This
increase was primarily related to the senior bridge loan (which was converted
into Series D convertible preferred stock on March 26, 1997) and to the
financing of several new imaging systems during the first nine months of 1997.
An income tax provision of $3,480,000 was recorded in the first nine months
of 1997, which was higher than the tax provision recorded in the same period in
1996 by $2,525,000, or 264.4%. The increase resulted from the increase in
income before taxes and an increase in the Company's effective tax rate. The
effective income tax rate increased to 34.0% in 1997 from 15.9% in 1996 because
the Company's taxable income in 1997 is expected to exceed remaining available
net operating loss carryforwards.
The Company's income before extraordinary gain was $6,751,000 in the first
nine months of 1997 compared to net income of $5,051,000 in the first nine
months of 1996, an increase of $1,700,000, or 33.7%, primarily attributable to
the increase in revenues achieved without a proportionate increase in costs and
administrative expenses. The Company reported an extraordinary gain, net of
income taxes, in the first quarter of 1997 of $1,332,000 on early extinguishment
of debt in January 1997.
12
<PAGE>
Earnings per common share directly related to operations totaled $0.48 in
the first nine months of 1997, compared to earnings per common share of $0.38
for the same period in 1996, an increase of 26.3%. Alliance reported an
extraordinary gain, net of income taxes, in the first quarter of 1997 of
$1,332,000, or $0.11 per common share, on early extinguishment of debt in
January 1997. In addition, Alliance recorded $1,906,000 or $0.16 per common
share related to the excess of the carrying amount of the Series A 6% cumulative
preferred stock repurchased over the consideration paid in January 1997.
Although the preceding earnings per share amounts for the first nine months of
1997 are not representative of operating performance in accordance with
generally accepted accounting principles ("GAAP"), they have been provided to
highlight the significant non-recurring elements contained within the GAAP
earnings per share calculation. Earnings per common share totaled $0.71 in the
first nine months of 1997. The earnings per common share calculations reflect
preferred dividend requirements of $706,000 in the first nine months of 1996 and
none in 1997.
QUARTER ENDED SEPTEMBER 30, 1997 COMPARED TO QUARTER ENDED SEPTEMBER 30, 1996 --
Revenues for the third quarter of 1997 were $22,374,000, an increase of
$4,579,000, or 25.7%, over the third quarter of 1996. This increase reflects a
scan-based MRI revenue increase of $3,991,000, or 25.2%, resulting from a 27.2%
increase in total scan volume partially offset by a 1.6% decrease in the average
revenue realized per MRI scan. The average daily scan volume per MRI system
increased 7.1% to 7.5 from 7.0 in 1996. Management attributes the volume
increase to: the Company's continuing MRI systems upgrade program, which has
enabled the Company to obtain new, long-term contracts from both existing and
new customers; certain smaller business acquisitions; and to the effect of
recently implemented marketing programs. Management believes the decrease in
average revenue realized per scan is the result of: many customers achieving
discount price levels on incremental scan volumes; obtaining contracts with
customers that have high scan volumes which justify lower scan prices; and
continuing competitive pressure in the MRI service industry and cost containment
efforts by health care payers. CT revenues increased $385,000, or 46.9%, as a
result of internal growth and the fourth quarter 1996 acquisition of a small CT
business. Other revenues increased $248,000 primarily as a result of the
implementation in late 1996 of a program providing management services for a
large portfolio of imaging systems owned by others.
The average number of MRI systems operated by the Company was 93 during the
third quarter of 1997, compared to 88 during the third quarter of 1996.
Operating expenses, excluding depreciation, totaled $9,684,000 in the third
quarter of 1997, an increase of $1,154,000, or 13.5%, from the third quarter of
1996. Payroll and related employee expenses increased $777,000, or 20.2%,
primarily as a result of an increase in operating staffing levels necessary to
support revenue growth. Repairs and maintenance increased $112,000, or 23.8%,
due to an increased number of systems in service. Fuel and other vehicle
expenses collectively increased $98,000, or 22.7%, primarily due to increasing
fuel prices and the addition of new mobile MRI systems. Preventative maintenance
and cryogen contract expense increased $48,000, or 2.3%, due to the expiration
of the warranties on an increased number of MRI systems. Other operating
expenses (including insurance, office
13
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supplies, equipment rental, supplies and professional services) increased
$119,000, or 7.7%, as a result of the increased level of operations.
Depreciation expense during the third quarter of 1997 totaled $4,078,000,
an increase of $956,000, or 30.6%, from the 1996 level principally due to a
higher amount of depreciable assets associated with equipment additions and
upgrades. Amortization expense during the third quarter of 1997 increased
$38,000, or 6.7%, over the 1996 period as a result of goodwill amortization
associated with a recent business acquisition.
Selling, general and administrative expenses totaled $2,261,000 in the
third quarter of 1997, an increase of $542,000 or 31.5%, from the same period in
1996. Professional services expenses increased $269,000, or 199.1%, primarily
due to costs associated with increased merger and acquisition activity. Payroll
and related expenses increased $179,000, or 14.5%, primarily as a result of
increased staffing levels necessary to support the Company's increased level of
operations. Other expenses increased primarily as a result of expanded marketing
programs and costs associated with relocating the Company's corporate offices.
Interest expense of $1,758,000 in the third quarter of 1997 was $257,000,
or 17.1%, higher than 1996, as a result of higher average outstanding debt
balances during 1997 as compared to 1996. This increase was primarily related
to financed purchases of new equipment.
An income tax provision of $1,355,000 was recorded in the third quarter of
1997, which was higher than the tax provision recorded in the same period of
1996 by $945,000, or 230.5%. The increase resulted from the increase in income
before taxes and an increase in the Company's effective tax rate. The effective
income tax rate increased to 34.0% in the third quarter of 1997 from 17.4% in
1996 because the Company's taxable income in 1997 is expected to exceed
remaining available net operating loss carryforwards.
The Company's net income was $2,636,000 in the third quarter of 1997
compared to net income of $1,949,000 in the third quarter of 1996, an increase
of $687,000, or 35.2%, primarily attributable to the increase in revenues
achieved without a proportionate increase in costs and administrative expenses.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1997, cash and short-term investments were $10,557,000
compared to $10,867,000 at December 31, 1996, and the aggregate of the Company's
long-term debt was $62,597,000 compared to $72,702,000 at December 31, 1996.
The Company maintains a $3,000,000 revolving line of credit secured by accounts
receivable. This line, which has not been utilized, is intended to act as a
temporary supplement to fund working capital needs.
The Company generated $22,090,000 in net cash from operating activities
during the first nine months of 1997, compared to $17,348,000 for the same
period in 1996, an increase of $4,742,000, or 27.3%. The increase in cash
provided by operating activities reflects the increase in scan volumes and
improved operating performance. Capital expenditures, consisting primarily of
new equipment purchases, totaled $34,175,000 during the first nine months of
1997.
14
<PAGE>
During the first three quarters of 1997, The Company has upgraded two MRI
systems and purchased 20 new MRI systems, including replacement systems. As of
December 31, 1996, The Company had binding equipment purchase commitments
totaling approximately approximately $29,200,000. The Company expects to
purchase the equipment under these commitments in 1997 and finance such
purchases with installment debt primarily provided by the equipment
manufacturers.
The Company's primary cash needs consist of capital expenditures and
debt service. The Company incurs capital expenditures for the purposes of
(i) providing routine upgrades of its MRI systems; (ii) replacing or making
major upgrades to older, less advanced systems with new state-of-the-art
systems; and (iii) purchasing new systems. The Company estimates that
routine annual upgrade expenditures average approximately $25,000 per system
or approximately $2,400,000 in the aggregate, based on the fleet size at
September 30, 1997. In addition to these routine expenditures, the Company
expects capital expenditures to be approximately $6,300,000 in the last three
months of 1997, which reflects the anticipated purchase of four new systems,
including replacement systems. The Company expects capital expenditures to be
approximately $20,000,000 in 1998, which includes the anticipated purchase of
10 new MRI systems and routine upgrade expenditures. The Company's decision
to purchase a new system is typically predicated on obtaining new or
extending existing customer contracts which serve as the basis of demand for
the new system.
On December 31, 1996, the Company entered into a Bridge Loan Agreement
(enabling the Company to borrow up to $18,000,000) and borrowed $12,872,000
under a senior bridge loan; an additional $5,128,000 was borrowed on January 2,
1997. The senior bridge loan was convertible into 18,000 shares of a new Series
D 4% convertible preferred stock. On December 31, 1996, the Company used the
proceeds of the senior bridge loan to repurchase $11,345,000 carrying value of
its senior subordinated debentures (Debentures) and $11,071,000 of its Series A
6% redeemable preferred stock at a discount (plus related accrued interest and
dividends). In connection with this transaction, on January 2, 1997, the
Company used the additional senior bridge loan proceeds to repurchase the
remaining balance of its Debentures and Series A redeemable preferred stock at a
discount (plus related accrued interest and dividends). On March 26, 1997, the
holder of the senior bridge loan exercised its option to convert the senior
bridge loan into 18,000 shares of Series D convertible preferred stock. At that
time, senior notes not to exceed $9,000,000 held by the same investor became
convertible into a new Series E convertible preferred stock on or after January
1, 1998. The senior note agreement contains limitations on equipment additions,
incurrence of debt and other similar items.
In connection with the Company's debt refinancing effective December 31,
1996, the Company authorized 18,000 shares of a new Series D convertible
preferred stock and 9,000 shares of a new Series E convertible preferred
stock. The holders of the Series D and E convertible preferred stock, when
issued, are entitled to receive cumulative dividends at the rate of 4% per
annum of the stated liquidation value. Unpaid dividends accumulate and are
payable quarterly by the Company in cash. Shares of Series D convertible
preferred stock are convertible at the option of the holder at any time on or
before December 31, 2006 into shares of common stock at a conversion price of
$6.00 per common share, subject to adjustment. Shares of Series E
convertible preferred stock are convertible at the option of the holder at
any time on or before December 31, 2006 into shares of common stock at a
conversion price of the greater of $6.00 per
15
<PAGE>
share of common stock or the market price (as defined) per common share at
date of issuance of the Series E convertible preferred stock. Shares of
Series D and E convertible preferred stock are subject to redemption at the
option of the Company after December 31, 2006. In the event of liquidation,
dissolution or winding up of the Company, the holders of Series D and E
convertible preferred stock shall be entitled to receive an amount equal to
the stated liquidation value per share (plus accumulated but unpaid
dividends) prior to any distributions to common stockholders. No sinking
fund has been or will be established for the retirement or redemption of
shares Series D or E convertible preferred stock.
On August 29, 1997, the Company called for the redemption of its Series C
convertible redeemable preferred stock on September 30, 1997. All of the
holders thereof elected to convert their Series C shares into common stock of
the Company. In addition, in connection with the Recapitalization Merger
Agreement, the holder of all of the outstanding Series D convertible preferred
stock agreed that, in connection with the closing of the Recapitalization, such
stock will be converted into common stock of the Company.
RECAPITALIZATION MERGER -- On July 23, 1997, Alliance entered into an Agreement
and Plan of Merger, as amended, (the "Recapitalization Merger Agreement") with
Newport Investment LLC (the "Investor"), a Delaware limited liability company
and an affiliate of Apollo Management, L.P. ("Apollo"). Pursuant to the
Recapitalization Merger Agreement, at the effective time of the Recapitalization
Merger (the "Recapitalization Effective Time"), a new corporation formed by the
Investor ("Newco") will be merged into Alliance (the "Recapitalization Merger"),
the separate corporate existence of Newco will cease, and Alliance will continue
as the surviving corporation (the "Recapitalization Company"). Pursuant to the
Recapitalization Merger, each share of Alliance common stock, par value $.01
("Common Stock"), issued and outstanding immediately prior to the
Recapitalization Effective Time other than dissenting shares, either (1) will be
converted into the right to receive $11.00 in cash (the "Cash Merger Price"), or
(2) will be retained by such stockholder. Because the Recapitalization Merger
Agreement requires that 409,091 shares in the aggregate of Common Stock be
retained by Alliance's existing shareholders, the right to either receive $11.00
in cash for each share or to retain that share of Alliance Common Stock is
subject to proration, as set forth in the Recapitalization Merger Agreement and
as described in Amendment No. 3 to the Form S-4 (reg. No. 333-33787) filed by
Alliance on or about November 10, 1997 (the "Form S-4").
After the Recapitalization Merger and the Acquisition, affiliates of Apollo
will own approximately 90% of the outstanding Common Stock of Alliance, and
Alliance's existing shareholders will own approximately 10% of the outstanding
Common Stock of Alliance.
In connection with the Recapitalization Merger Agreement, the Investor
entered into a Stockholder Agreement, dated as of July 23, 1997 (the
"Stockholder Agreement"), with certain beneficial owners of shares of Alliance
Common Stock (the "Stockholders") representing beneficial ownership (as defined
in Rule 13d-3 under the Securities Exchange Act of 1934, as amended) of
approximately 66% of Alliance's Common Stock. Pursuant to the Stockholder
Agreement, the Stockholders have agreed to vote all shares beneficially owned by
them in favor of the approval of the Recapitalization Merger Agreement and the
Recapitalization Merger. The Stockholders that hold securities convertible into
or exercisable for shares of Alliance Common
16
<PAGE>
Stock have further agreed to convert or exercise all such securities prior to
the time of the special meeting of shareholders called in connection with the
Recapitalization Merger. In addition, each Stockholder has granted Investor an
option to acquire their shares of Common Stock, and a proxy to vote such shares
in favor of the Recapitalization Merger and the Recapitalization Merger
Agreement, among other things.
At the closing of the Recapitalization Merger and the Acquisition,
significant new sources of financing will be provided to Alliance for the
purchase of shares of Common Stock in the Recapitalization Merger, repayment of
indebtedness and for working capital purposes, among other uses. Details
concerning the impact of the Recapitalization Merger and the Acquisition, and
the related financing on the capitalization of Alliance are provided in the Form
S-4, and in Amendment No. 3 to the Form S-2 (reg. No. 333-33817) filed by
Alliance on or about November 10, 1997.
In February 1996, the Company acquired four MRI systems and associated MRI
contracts from Mobile M.R. Venture, Ltd. In connection with the Royal
acquisition, the Company acquired six MRI systems. In August, the Company
acquired all of the outstanding shares of Sun MRI Services, Inc., a northern
California based MRI service provider. In connection with this transaction, the
Company obtained one MRI system and six hospital contracts. In late September
1996, the Company acquired certain assets and associated contracts from West
Coast Mobile Imaging, a southern California based CT service provider. Although
the acquisition was comparatively small, it added 16 new CT customers. In May
1997, the Company acquired two MRI systems and related customer contracts from
Pacific Medical Imaging, Inc. These transactions were primarily funded with
approximately $3,600,000 from existing cash reserves, debt assumed and issuance
of equity securities. Additional investments of this nature may be made in the
future (subject to certain conditions contained in the Company's long-term
financing arrangements) from a combination of cash reserves, cash flow from
operations, common or preferred equity and long-term secured or unsecured
financing, if available.
On October 20, 1997 the Company announced execution of a definitive
agreement to acquire Medical Consultants Imaging Co. ("MCIC"), a Cleveland,
Ohio based provider of mobile MRI services, CT services and other outsourced
healthcare services. The acquisition also includes MCIC's one-half interest in
an operating joint venture in Michigan. The purchase price consists of $13
million cash (subject to certain reductions) plus the assumption of
approximately $5 million in financing arrangements. MCIC operates 14 mobile MRI
systems and several other diagnostic imaging systems, primarily in Ohio,
Michigan, Indiana and Pennsylvania. The transaction is expected to close in
November 1997.
If the Company adds MRI systems at a more rapid rate than is currently
planned, or if it acquires additional business entities, or if the net cash
generated by operations declines from current or anticipated levels, the Company
could be required to raise additional capital. However, there can be no
assurance that the Company would be able to raise such capital, or do so on
terms acceptable to the Company.
17
<PAGE>
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
EXHIBIT NO. NOTE DESCRIPTION
---------- ---- -----------
2.1 (22) Stockholder Agreement among Newport Investment LLC and the
individuals listed on Schedule A attached thereto, dated
as of July 23, 1997.
2.2 (22) Agreement and Plan of Merger between Alliance Imaging,
Inc., and Newport Investment LLC, dated as of July 23,
1997.
2.3 (24) Amendment No. 1 dated as of August 13, 1997 to the
Recapitalization Merger Agreement.
2.4 (24) Amendment No. 2 dated as of October 13, 1997 to the
Recapitalization Merger Agreement.
2.4.1 (24) Amendment No. 3 dated as of November 10, 1997 to the
Recapitalization Merger Agreement.
2.5 (24) Guaranty Letter dated July 22, 1997, from AJF III to
Alliance.
3.1 (21) Restated Certificate of Incorporation of Alliance Imaging,
Inc.
3.2 (1) By-Laws of Alliance Imaging, Inc., as amended.
3.3 (24) Amendment to Restated Certificate of Incorporation of
Alliance.
3.4 (24) Form of Amended and Restated Certificate of Incorporation
of Alliance.
3.5 (24) Form of By-Laws of Alliance, as amended.
4.1 (1) Specimen of Common Stock Certificate.
4.2 (9) Amended and Restated Purchase Agreement dated as of
December 31, 1994 among the Registrant and the holders
of the Registrant's Senior Subordinated Debentures due
2005.
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<PAGE>
4.2.1 (8) Amendment No. 1 to Amended and Restated Purchase Agreement
dated as of December 31, 1994 among the Registrant and the
holders of the Registrant's Senior Subordinated Debentures.
4.2.2 (18) Amendment No. 2 to Amended and Restated Purchase Agreement
dated as of April 15, 1996 among the Registrant and the
holders of the Registrant's Senior Subordinated Debentures
due 2005.
4.3 (1) Note Purchase Agreement dated as of April 14, 1989 governing
sale of Senior Notes by Alliance Imaging, Inc.
4.4 (1) First Amendment to Note Purchase Agreement dated as of
September 20, 1990 among Alliance Imaging, Inc., CIGNA
Property and Casualty Insurance Company, Connecticut General
Life Insurance Company, Insurance Company of America and
Life Insurance Company of North America.
4.4.1 (1) Amendment No. 2 to Note Purchase Agreement dated as of June
3, 1991.
4.4.2 (2) Amendment No. 3 to Note Purchase Agreement dated as of
December 1, 1991.
4.4.3 (3) Amendment No. 4 to Note Purchase Agreement dated as of
December 31, 1992.
4.4.4 (4) Amendment No. 5 to Note Purchase Agreement dated as of June
30, 1993.
4.4.5 (6) Amendment No. 6 to Note Purchase Agreement dated as of
January 1, 1994.
4.4.9 (10) Amendment No. 7 to Note Purchase Agreement dated as of
December 31, 1994.
4.4.10 (8) Amendment No. 8 to Note Purchase Agreement dated as of
December 31, 1994.
4.4.11 (18) Amendment No. 9 to Note Purchase Agreement dated as of April
15, 1996.
4.4.12 (19) Amendment No. 10 to Note Purchase Agreement dated as of
November 6, 1996.
4.4.13 (21) Amendment No. 11 to Note Purchase Agreement dated as of
March 25, 1997.
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<PAGE>
4.5 (1) Amended and Restated Shareholders Agreement dated as of
April 17, 1989.
4.6 (11) Security Agreement dated as of December 31, 1994 among the
Registrant, the holders of the Senior Notes and the
Collateral Agent for the Senior Noteholders.
4.7 (12) Guaranty dated as of December 31, 1994 of the Registrant's
obligations to the Senior Noteholders and the Senior
Subordinated Debentureholders executed by the subsidiaries
of the Registrant identified therein.
4.8 (13) Registration Rights Agreement dated as of December 31, 1994
among the Registrant, the Senior Noteholders and the Senior
Subordinated Debentureholders.
4.9 (14) Certificate of Designation concerning the Registrant's
Series A 6.0% Cumulative Preferred Stock.
4.10 (15) Certificate of Designation concerning the Registrant's
Series B Convertible Preferred Stock.
4.11 (18) Certificate of Designation concerning the Registrant's
Series C 5% Cumulative Convertible Redeemable Preferred
Stock.
4.12 (21) Amended Certificate of Designation concerning the
Registrant's Series D 4% Cumulative Convertible Redeemable
Preferred Stock.
4.13 (21) Amended Certificate of Designation concerning the
Registrant's Series E 4% Cumulative Convertible Redeemable
Convertible Preferred Stock.
4.14 (21) Certificate of Elimination concerning the Registrant's
Series A 6% Cumulative Preferred Stock and Series B
Convertible Redeemable Preferred Stock.
4.15 (24) Commitment Letter from Bankers Trust Company, dated July 22,
1997.
10.4 (20) Amended and Restated 1991 Stock Option Plan of Alliance
Imaging, Inc., including forms of agreement used thereunder.
10.4.1 (24) 1997 Alliance Imaging, Inc. Stock Option Plan, including
form of agreement used thereunder.
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<PAGE>
10.15 (24) Agreement Not to Compete dated as of July 23, 1997 among
Newport Investment LLC, Alliance, Richard N. Zehner and
Vincent S. Pino.
10.16 (1) Form of Indemnification Agreement between Alliance Imaging,
Inc. and its directors and/or officers.
10.20 (5) Georgia Magnetic Imaging Center, Ltd. Limited Partnership
Agreement dated as of March 22, 1985.
10.20.1 (5) Amendment to Georgia Magnetic Imaging Center, Ltd. Limited
Partnership Agreement dated as of July 1, 1993.
[10.23 (24) Form of Registration Rights Agreement dated as of November
[X], 1997 between Alliance and the Investor.]
10.24 (23) Amended and Restated Employment Agreement dated as of May
15, 1997, between Alliance Imaging, Inc. and Richard N.
Zehner.
10.25 (23) Amended and Restated Employment Agreement dated as of May
15, 1997, between Alliance Imaging, Inc. and Vincent S.
Pino.
10.26 (7) Employment Agreement dated as of September 9, 1993, between
Alliance Imaging, Inc. and Terry A. Andrues.
10.27 (7) Employment Agreement dated as of September 9, 1993, between
Alliance Imaging, Inc. and Jay A. Mericle.
10.28 (23) Amended and Restated Employment Agreement dated as of May
15, 1997, between Alliance Imaging, Inc. and Terrence M.
White.
10.29 (7) Employment Agreement dated as of June 6, 1994, between
Alliance Imaging, Inc. and Neil M. Cullinan.
10.30 (7) Employment Agreement dated as of June 6, 1994, between
Alliance Imaging, Inc. and Cheryl A. Ford.
10.31 (21) Amended and Restated Standstill Agreement dated as of
December 31, 1996 between the Registrant and Connecticut
General Life Insurance Company, CIGNA Property and Casualty
Insurance Company, Insurance Company of North America and
Life Insurance Company of North America.
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<PAGE>
10.32 (21) Amended and Restated Standstill Agreement, dated as of
December 31, 1996, between Richard N. Zehner and Alliance
Imaging, Inc.
10.33 (21) Amended and Restated Standstill Agreement, dated as of
December 31, 1996, between each of The Northwestern Mutual
Life Insurance Company, The Travelers Indemnity Company, The
Travelers Insurance Company, The Travelers Life and Annuity
Company, The Lincoln National Life Insurance Company and
Bedrock Asset Trust I and Alliance Imaging, Inc.
10.34 (21) Amended and Restated Standstill Agreement, dated as of
December 31, 1996, between DLJ Capital Corporation and
Alliance Imaging, Inc.
10.36 (16) Employment Agreement dated July 7, 1995 between Alliance
Imaging, Inc. and Michael W. Grismer.
10.37 (23) Amended and Restated Long-Term Executive Incentive Plan
dated as of July 22, 1997.
10.38 (17) Loan and Security Agreement with Comerica Bank-California,
dated as of December 21, 1995.
10.39 (18) Royal Medical Health Services, Inc. Merger Agreement dated
as of April 16, 1996.
10.40 (18) A & M Trucking, Inc. Acquisition Agreement dated as of April
16, 1996.
10.41 (18) Form of Warrant Agreement concerning 100,000 common shares
with an exercise price of $3.9375 per share dated as of
April 15, 1996.
10.42 (18) Form of Warrant Agreement concerning 96,900 common shares
with an exercise price of $5.00 per share dated as of April
26, 1996.
10.43 (19) Form of Warrant Agreement concerning 125,000 common shares
with an exercise price of $5.00 per share dated as of
November 6, 1996.
10.44 (21) Bridge Loan Agreement dated as of December 31, 1996 between
Alliance Imaging, Inc. and General Electric Company, acting
through GE Medical Systems.
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<PAGE>
10.45 (21) Form of Senior Bridge Note in the aggregate principal amount
of $18,000,000, dated December 31, 1996.
10.46 (21) Assignment, dated December 31, 1996, by The Northwestern
Mutual Life Insurance Company, The Travelers Indemnity
Company, The Travelers Insurance Company, The Travelers Life
and Annuity Company, The Lincoln National Life Insurance
Company and Bedrock Asset Trust I to Alliance Imaging, Inc.
10.47 (21) Stock Purchase Agreement dated as of March 25, 1997, between
Alliance Imaging, Inc. and General Electric Company, acting
through GE Medical Systems.
10.48 (25) Acquisition Agreement dated as of October 17, 1997 among
Medical Consultants Imaging Corp., Bondcat Corp., Chip-Cat
Corp., Medical Consultants Scanning Systems, Inc., Alliance
Imaging of Ohio, Inc., Alliance Imaging of Michigan, Inc.,
and Alliance Imaging, Inc.
11 (25) Statement of Computation of Per Share Earnings.
21.1 (24) List of Subsidiaries.
- --------------------
(1) Incorporated by reference herein to the indicated exhibits filed in
response to Item 16, "Exhibits" of the Company's Registration
Statement on Form S-1, No. 33-40805, initially filed on May 24, 1991.
(2) Incorporated by reference herein to the indicated exhibits filed in
response to Item 21, "Exhibits" of the Company's Registration
Statement on Form S-4, No. 33-46052, initially filed on February 28,
1992.
(3) Incorporated by reference herein to the indicated exhibits filed in
response to Item 14(a)(3), "Exhibits" of the Company's Annual Report
on Form 10-K for the year ended December 31, 1992.
(4) Incorporated by reference herein to the indicated exhibits filed in
response to Item 6(a), "Exhibits" of the Company's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1993.
(5) Incorporated by reference herein to the indicated exhibits filed in
response to Item 6(a), "Exhibits" of the Company's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1993.
(6) Incorporated by reference herein to the indicated exhibits filed in
response to Item 14(a)(3), "Exhibits" of the Company's Annual Report
on Form 10-K for the year ended December 31, 1993.
23
<PAGE>
(7) Incorporated by reference herein to the indicated exhibit filed in
response to Item 6(a), "Exhibits" of the Company's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1994.
(8) Incorporated by reference herein to the indicated exhibits filed in
response to Item 14(a)(3), "Exhibits" of the Company's Annual Report
on Form 10-K for the year ended December 31, 1994.
(9) Incorporated by reference herein to Exhibit 4.4 filed in response to
Item 7, "Exhibits" of the Company's Form 8-K Current Report dated
January 25, 1995.
(10) Incorporated by reference herein to Exhibit 4.1 filed in response to
Item 7, "Exhibits" of the Company's Form 8-K Current Report dated
January 25, 1995.
(11) Incorporated by reference herein to Exhibit 4.2 filed in response to
Item 7, "Exhibits" of the Company's Form 8-K Current Report dated
January 25, 1995.
(12) Incorporated by reference herein to Exhibit 4.3 filed in response to
Item 7, "Exhibits" of the Company's Form 8-K Current Report dated
January 25, 1995.
(13) Incorporated by reference herein to Exhibit 4.5 filed in response to
Item 7, "Exhibits" of the Company's Form 8-K Current Report dated
January 25, 1995.
(14) Incorporated by reference herein to Exhibit 4.6 filed in response to
Item 7, "Exhibits" of the Company's Form 8-K Current Report dated
January 25, 1995.
(15) Incorporated by reference herein to Exhibit 4.7 filed in response to
Item 7, "Exhibits" of the Company's Form 8-K Current Report dated
January 25, 1995.
(16) Incorporated by reference herein to Exhibit 10.36 filed in response to
Item 6(a), "Exhibits" of the Company's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1995.
(17) Incorporated by reference herein to the indicated Exhibit in response
to Item 14(a)(3), "Exhibits" of the Company's Annual Report on Form
10-K for the year ended December 31, 1995.
(18) Incorporated by reference herein to the indicated Exhibit filed in
response to Item 6(a), "Exhibits" of the Company's Quarterly Report on
Form 10-Q for the quarter ended March 31, 1996.
(19) Incorporated by reference herein to the indicated Exhibit filed in
response to Item 6(a), "Exhibits" of the Company's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1996.
24
<PAGE>
(20) Incorporated by reference herein to Exhibits filed with the Company's
Registration Statement on Form S-1, No. 33-40805, initially filed on
May 24, 1991 and the Company's definitive Proxy Statement with respect
to its Annual Meeting of Stockholders held May 16, 1996.
(21) Incorporated by reference herein to the indicated Exhibit in response
to Item 14(a)(3), "Exhibits" of the Company's Annual Report on Form
10-K for the year ended December 31, 1996.
(22) Incorporated by reference herein to Exhibits 2.1 and 2.2 filed in
response to Item 7, "Exhibits" of the Company's Form 8-K Current
Report dated August 1, 1997.
(23) Incorporated by reference herein to the indicated Exhibit in response
to Item 6(a), "Exhibits" of the Company's Quarterly Report on Form
10-Q for the quarter ended June 30, 1997.
(24) Incorporated by reference herein to the indicated Exhibit in response
to Item 21(a), "Exhibits" of the Company's Form S-4 Registration
No. 333-33787.
(25) Filed herewith.
(b) REPORTS ON FORM 8-K IN THE THIRD QUARTER OF 1997:
Form 8-K dated August 1, 1997
Item 1. Changes in Control of Registrant -
Certain stockholders entered into a stockholder agreement
with Newport Investment LLC (the "Investor") on July 23, 1997
granting the Investor an option to purchase the stock of the
certain stockholders.
Item 5. Other Events -
On July 23, 1997, the Company entered into the Merger
Agreement with the Investor.
25
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ALLIANCE IMAGING, INC.
November 10, 1997 By: /s/ Richard N. Zehner
------------------------------
Richard N. Zehner
Chairman, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on November 10, 1997.
Signature Title
--------- -----
/s/ Richard N. Zehner Chairman of the Board of Directors,
- ------------------------------ President and Chief Executive Officer
Richard N. Zehner (Principal Executive Officer)
/s/ Terrence M. White Senior Vice President, Chief
- ------------------------------ Financial Officer and Secretary
Terrence M. White (Principal Financial Officer)
26
<PAGE>
EXECUTION COPY
ACQUISITION AGREEMENT
THIS ACQUISITION AGREEMENT (the "Agreement") made and entered into this
17th day of October 1997, by and among MEDICAL CONSULTANTS IMAGING CORP., an
Ohio corporation ("MCIC Corp"), BONDCAT CORP., an Ohio corporation ("Bondcat"),
CHIP-CAT CORP., an Ohio corporation ("Chip-Cat"), MEDICAL CONSULTANTS' SCANNING
SYSTEMS, INC., an Ohio corporation ("MCSSI") (MCIC Corp, Bondcat, Chip-Cat and
MCSSI are sometimes referred to herein collectively as "Sellers" and,
individually, as a "Seller"), ALLIANCE IMAGING OF OHIO, INC., a Delaware
corporation ("Sub I"), ALLIANCE IMAGING OF MICHIGAN, INC., a Delaware
corporation ("Sub II"), and ALLIANCE IMAGING, INC., a Delaware corporation
("Alliance") (Sub I, Sub II and Alliance are sometimes collectively referred to
herein as "Buyer") is to evidence the following agreements and understandings:
W I T N E S S E T H:
--------------------
WHEREAS, the Sellers own all of the issued and outstanding partnership
interests ("Partnership Interests") of MEDICAL CONSULTANTS IMAGING CO., an Ohio
general partnership ("MCIC"), as indicated on EXHIBIT "A" attached hereto;
WHEREAS, MCIC Corp owns 1% of the issued and outstanding membership
interests (the "Membership Interests") of MEDICAL CONSULTANTS IMAGING CO., LTD.,
an Ohio limited liability company ("MCLtd"), and MCIC owns the remaining 99% of
the issued and outstanding Membership Interests in MCLtd;
WHEREAS, MCIC owns a 50% interest in MCIC-HNI, a joint venture ("MCIC-HNI")
with Hospital Network, Inc., a Michigan corporation ("HNI");
WHEREAS, MCIC has conditionally agreed to assign all of its interest in
MCIC-HNI to MCLtd;
WHEREAS, MCIC owns a 50% interest in Midwest Mobile Lithocare, LTD, an Ohio
limited liability company ("Lithocare");
WHEREAS, MCIC owns at least a 50% interest in Midwest Mobile PET Services,
LTD, an Ohio limited liability company ("PET");
WHEREAS, MCIC owns a 50% interest in Midwest Medical Diagnostics, LTD, an
Ohio limited liability company ("Diagnostics");
WHEREAS, MCIC owns a 70% interest in Mobile SPECT Services Co., a joint
venture ("SPECT") with SPECTCO, Inc., an Ohio corporation;
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WHEREAS, MCIC owns a 50% interest in Blue Grass Health Care Services, LLC,
a Kentucky limited liability company ("Blue Grass");
WHEREAS, MCIC owns a 33 1/3% interest in Radio Pharmaceutical Express
Services, L.L.C., an Ohio limited liability company ("Radio");
WHEREAS, MCIC directly owns a 1% interest and indirectly owns a 49%
interest in MCIC-HNI Leasing Co., L.L.C., a Michigan limited liability company
("Leasing"); and
WHEREAS, Sellers desire to sell and transfer to Buyer the Partnership
Interests and Membership Interests, and Buyer desires to purchase and acquire
from Sellers the Partnership Interests and the Membership Interests (the
"Acquisition"), all as provided herein.
NOW, THEREFORE, in consideration of the mutual promises, covenants,
agreements, representations and warranties hereinafter set forth and for other
good and valuable consideration, the receipt, adequacy and sufficiency of which
is hereby acknowledged, Sellers and Buyer hereby agree as follows:
: DEFINITIONS
-------------
Capitalized terms not otherwise defined in this Agreement shall have the
meanings set forth in this Article I:
.0 "BANK" means National City Bank of Cleveland, Ohio, MCIC's primary
institutional lender.
.1 "CLOSING" shall have the meaning set forth in Section 3.1 hereof.
.2 "CLOSING DATE" means the time and date the Closing occurs.
.3 "COBRA" means the Consolidated Omnibus Budget Reconciliation Act of 1985,
as amended.
.4 "CODE" means the Internal Revenue Code of 1986, as amended.
.5 "DEFUNCT ENTITIES" means collectively, Cleveland MR Imaging Co. Limited
Partnership, Cleveland MR Imaging Limited Partnership, MRI Associates of Mentor
Limited Partnership, MRI Associates Limited Partnership, MR Imaging, Inc.,
MCIC-MMMC, UMS/MCIC and any other subsidiary or affiliate of the Sellers and/or
the Operating Entities (excluding the Operating Entities) that has been
dissolved or liquidated, or has permanently ceased business activities or is no
longer in existence.
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.6 "ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
.7 "EQUIPMENT LEASES" means all leases for equipment used in the operation of
the businesses of the Operating Entities that (a) provide for annual payments in
excess of Twenty Five Thousand Dollars ($25,000), (b) have remaining obligations
under the lease terms in excess of One Hundred Thousand Dollars ($100,000) or
(c) relate to one or more units of equipment used in medical imaging, diagnostic
or therapeutic processes, including but not limited to, any magnetic resonance
imaging unit (each an "MRI Unit"), any computed axial tomography imaging unit
(each a "CT Unit") and any single photon emission computed tomography unit (each
a "SPECT Unit"), including, in each case, without limitation, all maintenance
contracts and software license agreements in connection therewith, each of which
is listed on SCHEDULE 1.8 attached hereto.
.8 "KNOWLEDGE OF SELLERS" or words of like effect means, with respect to
representations and warranties made by Sellers, the actual knowledge of Theodore
J. Castele, M.D., Ian C.P. Woodburn, Kennie Hopper, George Angelidis, Gregory
Hedegore, Polly Schmauch and Richard Fluke; provided, however, that the
knowledge of Richard Fluke for purposes of this definition shall be limited to
regulatory issues, customer relations (including matters relating to contracts
with customers) and litigation matters, in each case solely as they relate to
the business and operations of MCIC-HNI in the State of Michigan. For purposes
hereof, "actual knowledge" means, in addition to any pertinent individual's
actual knowledge of facts or circumstances, such facts and circumstances as a
prudent individual situated in the same office or position as the named
individuals would be expected to discover or otherwise become aware in the
course of conducting a reasonably comprehensive investigation.
.9 "MATERIAL ADVERSE EFFECT" means for all purposes of this Agreement any
change or effect that (a) individually or when taken together with all other
changes or effects that have occurred during any relevant time period prior to
the date of determination of the occurrence of the Material Adverse Effect, is
or is reasonably likely to be (based on facts and circumstances existing as of
the date of determination) materially adverse to the business, assets (including
intangible assets), financial condition or results of operations or prospects of
the Operating Entities taken as a whole, (b) does or is reasonably likely to
materially adversely affect the ability of any of the Sellers to perform its
respective obligations under this Agreement or to consummate the transactions
contemplated hereby, or (c) does or is reasonably likely to materially adversely
affect the ability of any of the Operating Entities to conduct its respective
business after the Closing Date substantially as such business is being
conducted as of the date hereof, where such business is material to the
Operating Entities taken as a whole.
.10 "OPERATING ENTITIES" means collectively MCIC, MCLtd, MCI-HNI, Lithocare,
PET, Diagnostics, SPECT, Blue Grass, Radio and Leasing.
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.11 "PERMITTED LIENS" means: (a) liens, encumbrances or imperfections of title
which do not materially detract from the value of, or materially interfere with,
the present use or the marketability of the property affected thereby; (b) lien,
encumbrances, restrictions, conditions, agreements, easements and covenants of
record; (c) liens for taxes and assessments both special and general which are
not yet due and payable or are being contested in good faith pursuant to
appropriate proceedings and are reserved on the financial statements as required
by GAAP (as hereinafter defined); (d) zoning, building, use and other
governmental ordinances, if any; or (e) leases entered into and security
interests granted in the ordinary course of business, each of which is listed on
SCHEDULE 1.12.
.12 "OSHA" means the Occupational Safety and Health Act of 1970, as amended.
.13 "SHAREHOLDERS" shall mean the equity owners of the Sellers.
.14 "WARN" means the Worker Adjustment Retraining Notification Act of 1988, as
amended.
I : SALE AND PURCHASE
-------------------
.0 SALE AND PURCHASE OF PARTNERSHIP INTERESTS AND MEMBERSHIP INTERESTS.
Pursuant to the terms and provisions of this Agreement and subject to the
conditions hereinafter set forth, on the Closing Date, Buyer will purchase from
the Sellers all of their Partnership Interests and the Membership Interests of
MCIC Corp in MCLtd. Such purchased securities shall be transferred and assigned
to Sub I and Sub II as directed by Alliance in its sole discretion.
.1 PURCHASE PRICE. The aggregate purchase price, subject to the adjustments
as provided in this Agreement, shall be Thirteen Million Dollars ($13,000,000)
(subject to such adjustments, the "Purchase Price") payable in cash as follows:
(a) on the Closing Date, Buyer will wire transfer to accounts designated by
Sellers, in immediately available federal funds, an amount equal to Eleven
Million Dollars ($11,000,000) (subject to the adjustments to the Purchase Price
set forth herein) and (b) on the Closing Date, Buyer will wire transfer to an
account designated by the Escrow Agent (as defined in the Escrow Agreement), in
immediately available federal funds, Two Million Dollars ($2,000,000) (including
any interest accrued thereon, the "Escrow Amount") to the Escrow Agent in
accordance with the terms of an escrow agreement (the "Escrow Agreement") in the
form attached hereto as EXHIBIT "B". The Escrow Amount shall be held by the
Escrow Agent for Buyer's use as security for the obligations of the Sellers
referred to in this Agreement (including, without limitation, the indemnity
obligations of the Sellers referred to in Article IX herein). In the event
that, as of the date on which the remaining Escrow Amount would otherwise be
released to the Sellers, there remain one or more outstanding Claims for which
the Sellers may be required to make payment as provided in this Agreement, then
the Escrow Agent shall continue to hold a portion of the Escrow Amount, in
accordance with the terms of the
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Escrow Agreement, until the final resolution of such Claim or Claims. The
Sellers' agreed upon allocation of the Purchase Price among the Sellers shall be
equal to the percentages shown on EXHIBIT "A" attached hereto, which Buyer
shall utilize both for the payment of the Purchase Price on the Closing Date and
the Escrow Agent shall utilize for the release of any amount of the Escrow
Amount to the Sellers, as applicable. Each of the Sellers acknowledges that it
has agreed to such allocation and that Buyer and Escrow Agent shall have no
responsibility for such allocation, and each Seller agrees to indemnify and hold
Buyer and Escrow Agent harmless from and against any disputes, disagreements or
claims (including, without limitation, all costs and expenses incurred in
connection therewith) arising from or challenging such allocation. The Purchase
Price shall be reduced by (a) subject to the last sentence of this Section, the
amount of the bonuses to be paid by any of the Operating Entities to certain of
the officers, agents, directors and employees thereof, whether such bonuses are
to be paid as of the Closing Date or have been committed by any of the Operating
Entities to be paid at a subsequent date, all of which bonuses are listed on
SCHEDULE 2.2(b) hereof, (b) amounts required to retire all outstanding options,
each as listed on SCHEDULE 2.2(b) and (c) the aggregate amount of fees and
expenses paid, payable or incurred by any of the Operating Entities in
connection with this Agreement and the transactions contemplated hereby (the
"Transaction Expenses"), as estimated on SCHEDULE 2.2(c). Final expenses will
be provided on an updated SCHEDULE 2.2(c) on the date immediately preceding the
Closing Date. Upon the execution of this Agreement and unless terminated in
accordance with the terms hereof, if the Closing fails to occur prior to
November 19, 1997, the Purchase Price shall increase by Five Thousand Dollars
($5,000) per day (the "Delinquency Amount"), beginning November 19, 1997, until
the Closing Date; provided, however, that (i) such November 19 date shall be
conterminously extended to the extent that Buyer makes the filing required under
the HSR Act and Sellers or Shareholders, as applicable, do not, within five (5)
days following the date of this Agreement, and (ii) the Purchase Price shall not
be increased by the Delinquency Amount, if the failure of the Closing to occur
by that date is due to Sellers' inability to satisfy the closing condition
expressed in any of paragraphs (a), (c), (e), (f), (h), (i), (j), (k), (n), (p),
(q), or (r), of Section 8.1. For the avoidance of doubt, a delay in the Closing
caused by the necessity of obtaining any third party lessor or customer consent
shall not result in an extension of the November 19 date for purposes of
computation of the Delinquency Amount. Notwithstanding the foregoing, with
respect to year-end discretionary bonuses payable to employees of the Operating
Entities, Sellers shall be responsible for one-third of the amount thereof, such
one-third amount shall not exceed Fifty Thousand Dollars ($50,000); Buyer will
invoice the Sellers at the time that final year-end discretionary bonuses are
determined, and Sellers will be required to make cash payment to Buyer within
ten (10) days of receipt of such invoice. The year-end discretionary bonuses
shall be reasonably consistent with the amount provided in the prior year and
Buyer shall consult with Sellers regarding the amount of such final year-end
discretionary bonuses.
.2 ASSET VALUATION. The assets of the Operating Entities shall be valued as
set forth on SCHEDULE 2.3 (the "Asset Valuation"). Each Seller and the Buyer
covenants and agrees
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that it shall utilize such Asset Valuation when filing all applicable forms with
the Internal Revenue Service and any other Tax authority and further covenants
and agrees that it will not take a position on any federal, state or local tax
return, before any governmental agency charged with the collection of any tax or
in any judicial proceeding that is in any way inconsistent with the Asset
Valuation and will cooperate with one another in the timely filing (consistent
with such Asset Valuation) on the applicable tax forms with the Internal Revenue
Service or any other governmental agency of all applicable tax returns.
.3 CERTAIN CONTRACT RIGHTS. Without limiting the generality of actions to be
taken and documents to be delivered by or on behalf of Sellers at the Closing,
Sellers agree to (i) cause an assignment of all (A) agreements and arrangements
with customers of the Operating Entities and (B) other Material Contracts of the
Operating Entities designated by Buyer prior to the Closing, in each case from
the existing Operating Entity party thereto to MCLtd, and (ii) provide
reasonably satisfactory evidence of such assignment(s) to Buyer.
.4 ADMISSION AS NEW PARTNERS OR MEMBERS. In accordance with Article V of the
First Amended and Restated Partnership Agreement of MCIC (the "Partnership
Agreement") and Article V of the Operating Agreement of MCLtd (the "Operating
Agreement"), each of the Sellers agrees to the sale and transfer of the
Partnership Interests and Membership Interests to Buyer and to the admission of
any of Alliance, Sub I or Sub II as new partners or members of MCIC and MCLtd,
respective, and that such sale, transfer or admission shall not trigger any
dissolution or termination provision of MCIC or MCLtd under Article VII of the
Partnership Agreement or Article VII of the Operating Agreement. In accordance
with the terms of the Partnership Agreement and Operating Agreement, each of the
Sellers acknowledges receipt of written notice of the proposed transfer or sale
of the Partnership Interests and Membership Interests, waives any and all rights
of first refusal and waives any and all time and notice requirements contained
therein.
II : CLOSING AND CLOSING DATE
--------------------------
.0 CLOSING. Consummation of the purchase and sale of the Partnership
Interests and Membership Interests and the other transactions provided for in
this Agreement (the "Closing") shall take place at the offices of Kahn,
Kleinman, Yanowitz & Arnson Co., L.P.A., on the earliest practicable date
following the satisfaction (or waiver by the appropriate party(ies)) of the
conditions precedent to Closing set forth in Article VIII herein, commencing at
10:00 a.m. local time, and all other transactions provided for herein to occur
on and as of the Closing Date shall be deemed to have occurred simultaneously
and to be effective as of the close of business on such date.
.1 DELIVERY AT CLOSING. Concurrently with the Closing, Buyer will deliver (or
cause to be delivered) to the Sellers, and Sellers will deliver (or cause to be
delivered) to Buyer those consents, agreements, certificates, documents and
instruments described in a closing agenda to be delivered prior to the Closing.
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III : SELLERS' REPRESENTATIONS AND WARRANTIES.
------------------------------------------
Each Seller, jointly and severally, makes the following representations and
warranties to Buyer, each of which shall be true and correct as of the Closing
Date as if specifically made on such date (except for changes contemplated or
permitted under this Agreement and except as otherwise expressly provided
herein) and shall survive the Closing for the periods specified in Article IX
hereof and shall thereafter terminate and expire and have no further force and
effect:
.0 EXISTENCE AND GOOD STANDING.
() OPERATING ENTITIES.
() MCIC is a general partnership duly organized and existing
under the laws of the State of Ohio, having full power and authority to own
its properties and to carry on its business as presently conducted. MCIC
is duly qualified to transact business and is in good standing in each
jurisdiction in which the operation of its business and the ownership of
its assets requires it to be so qualified, except where the failure to so
qualify does not constitute a Material Adverse Effect.
(i) MCIC-HNI is a joint venture duly organized and existing
under the laws of the State of Ohio, having full power and authority to own
its properties and to carry on its businesses as presently conducted.
MCIC-HNI is duly qualified to transact business and is in good standing in
each jurisdiction in which the operation of its business and the ownership
of its assets requires it to be so qualified, except where the failure to
so qualify does not constitute a Material Adverse Effect.
(ii) MCLtd is a limited liability company duly organized and
existing under the laws of the State of Ohio, having full power and
authority to own its properties and to carry on its businesses as presently
conducted. MCLtd is duly qualified to transact business and is in good
standing in each jurisdiction in which the operation of its business and
the ownership of its assets requires it to be so qualified, except where
the failure to so qualify does not constitute a Material Adverse Effect.
(iii) Lithocare is a limited liability company duly organized and
existing under the laws of the State of Ohio, having full power and
authority to own its properties and to carry on its businesses as presently
conducted. Lithocare is duly qualified to transact business and is in good
standing in each jurisdiction in which the operation of its business and
the ownership of its assets requires it to be so qualified, except where
the failure to so qualify does not constitute a Material Adverse Effect.
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(iv) PET is a limited liability company duly organized and
existing under the laws of the State of Ohio, having full power and
authority to own its properties and to carry on its businesses as presently
conducted. PET is duly qualified to transact business and is in good
standing in each jurisdiction in which the operation of its business and
the ownership of its assets requires it to be so qualified, except where
the failure to so qualify does not constitute a Material Adverse Effect.
(v) Diagnostics is a limited liability company duly organized
and existing under the laws of the State of Ohio, having full power and
authority to own its properties and to carry on its businesses as presently
conducted. Diagnostics is duly qualified to transact business and is in
good standing in each jurisdiction in which the operation of its business
and the ownership of its assets requires it to be so qualified, except
where the failure to so qualify does not constitute a Material Adverse
Effect.
(vi) Leasing is a limited liability company duly organized and
existing under the laws of the State of Michigan, having full power and
authority to own its properties and to carry on its businesses as presently
conducted. Leasing is duly qualified to transact business and is in good
standing in each jurisdiction in which the operation of its business and
the ownership of its assets requires it to be so qualified, except where
the failure to so qualify does not constitute a Material Adverse Effect.
(vii) SPECT is a joint venture duly organized and existing under
the laws of the State of Ohio, having full power and authority to own its
properties and to carry on its business as presently conducted. SPECT is
duly qualified to transact business and is in good standing in each
jurisdiction in which the operation of its business and the ownership of
its assets requires it to be so qualified, except where the failure to so
qualify does not constitute a Material Adverse Effect.
(viii) Blue Grass is a limited liability company duly organized and
existing under the laws of the State of Kentucky, having full power and
authority to own its properties and to carry on its business as presently
conducted. Blue Grass is duly qualified to transact business and is in
good standing in each jurisdiction in which the operation of its business
and the ownership of its assets requires it to be so qualified, except
where the failure to so qualify does not constitute a Material Adverse
Effect.
(ix) Radio is a limited liability company duly organized and
existing under the laws of the State of Ohio, having full power and
authority to own its properties and to carry on its businesses as presently
conducted. Radio is duly qualified to transact business and is in good
standing in each jurisdiction in which the operation of its business and
the ownership of its assets requires it to be so qualified, except where
the failure to so qualify does not constitute a Material Adverse Effect.
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(a) ORGANIZATIONAL DOCUMENTS. Copies of the Partnership
Agreement of MCIC and the Articles of Organization and Operating
Agreements of MCLtd, Lithocare, PET, Diagnostics Blue Grass, Radio and
Leasing, respectively, and the Joint Venture Agreements of MCIC-HNI
and SPECT, respectively, and all amendments thereto, have been
delivered to Buyer and as delivered are complete and correct. Copies
of the Certificate of Partnership of MCIC have been delivered to Buyer
and as delivered are complete and correct.
(b) SELLERS. Each of the Sellers is an Ohio corporation, duly
organized, incorporated and existing under the laws of the State of
Ohio, having full power and authority to own its properties and to
carry on its business as presently conducted. None of the Sellers is
qualified to transact business in any jurisdiction other than in the
State of Ohio and the State of Michigan, and none of the Sellers
conducts any business activities (other than holding the Partnership
Interests and Membership Interests and other passive investments)
whatsoever. The copies of the Articles of Incorporation and Code of
Regulations of each respective Seller have been delivered to Buyer and
as delivered are complete and correct.
.1 AUTHORITY. Each Seller has the requisite organizational power and
authority to execute and deliver this Agreement, and perform its respective
obligations hereunder and the transactions described in or contemplated by this
Agreement. This Agreement has been duly executed by each Seller. Each Seller
has obtained the necessary authorization of its Board of Directors and
Shareholders in accordance with all applicable laws and its organizational
documents for the execution, delivery and performance of this Agreement and the
transactions described in or contemplated by this Agreement, and such matters do
not require notice to, or consent or approval of, (a) any governmental body or
other regulatory authority, except for the filing under the Hart Scott Rodino
Antitrust Improvements Act of 1976, as amended (the "HSR Act") and early
termination or expiration of the waiting period thereunder, or (b) any other
third party under or in connection with any Material Contract (as defined in
Section 4.8 below) or as required by Section 2.4 above, in each case except as
identified on SCHEDULE 4.2. This Agreement is a valid, legal and binding
obligation of each Seller enforceable against each Seller in accordance with its
terms, except to the extent that enforceability may be limited by applicable
bankruptcy, insolvency or similar laws affecting the enforcement of creditors'
rights generally and subject to general principles of equity (regardless of
whether such enforcement is considered in a proceeding in law or at equity).
The person executing this Agreement on behalf of each Seller has been
specifically authorized to do so by all necessary corporate action. No other
action by any Seller will be necessary to authorize the execution of the
documents and the consummation of the transactions described in or contemplated
by this Agreement.
.2 CAPITALIZATION; TITLE TO PARTNERSHIP INTERESTS AND MEMBERSHIP INTERESTS.
The authorized Partnership Interests and Membership Interests of MCIC and MCLtd,
respectively, and the number of such Partnership Interests or Membership
Interests held by
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each Seller and all other third parties is set forth in EXHIBIT "A" attached
hereto. Each Seller has good and marketable title to the Partnership Interests
and the Membership Interests and owns beneficially and of record, free and clear
of any voting trust arrangements, claims, liens, restrictions, security
interests or other encumbrances (collectively, "Liens"), and has full power and
authority to sell, assign, transfer, vote and convey free and clear of any Liens
the Partnership Interests and the Membership Interest, shown adjacent to such
Seller's name on EXHIBIT "A", and such Partnership Interests and Membership
Interests constitute all of the ownership interests in MCIC and MCLtd owned by
such Seller and, in the aggregate, constitute all of the outstanding Partnership
Interests and Membership Interests in MCIC and MCLtd. SCHEDULE 4.3 attached
hereto identifies, for each of the Operating Entities other than MCIC and MCLtd,
all of the partnership interests, membership interests or other ownership
interests held by persons or entities other than the Sellers, and the number of
units held by each such person or entity and the percentage ownership of such
Operating Entity represented thereby. Except for the Operating Entities and the
Defunct Entities, none of the Sellers, MCIC or MCLtd owns, directly or
indirectly, any equity or ownership interest in any other entity. Except as set
forth on SCHEDULE 4.3, there are no outstanding options, convertible securities,
warrants, agreements, rights, contracts, calls, commitments or demands of any
character that either (a) obligates any Seller or any Operating Entity to issue,
redeem, sell, convert or purchase any of the Partnership Interests or Membership
Interests or any other partnership, membership, or ownership interest, or
restricts or relates in any way to the voting of any such securities, or (b)
restricts the transfer of, or otherwise relates to transactions in, the
ownership interests of any Seller or any Operating Entity.
.3 NO CONFLICTS. Neither the execution and delivery of this Agreement, nor
the consummation of the transactions described in or contemplated by this
Agreement, (a) breach or constitute grounds for the occurrence or declaration of
an acceleration of payment or a default or a right of termination, amendment,
modification or cancellation under any note, mortgage, bond, license, permit,
franchise agreement, indenture or other Material Contract (as hereinafter
defined) to which a Seller or any Operating Entity is a party or by which a
Seller or any Operating Entity or any of their properties may be bound or
affected; (b) conflict with or violate any provision of law or any regulation or
any order, judgment or decree of any court or other agency of government,
applicable to any Seller or Operating Entity or to which any of its properties
or business may be subject; (c) result in a breach of, conflict with or give to
others any rights of termination, amendment, modification or cancellation of,
any permit, franchise, license or other similar right or authorization to which
any Seller or Operating Entity is a party or by which any of their properties
may be bound or affected or which is otherwise material to the operation of
their businesses; (d) conflict with or violate any provision of the Articles of
Incorporation, Articles of Organization, Bylaws, partnership agreement,
operating agreement, joint venture agreement, Code of Regulations or other
organizational documents of any Seller or Operating Entity; or (e) result in the
creation or imposition of (or the obligation to create or impose) any Lien on
any of their respective properties. The execution, delivery and performance of
this
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Agreement by each Seller does not require the consent, approval, or action of,
or any filing with or notice to, any governmental authority or any other party
whatsoever, except as required by the HSR Act and as identified on SCHEDULE 4.2
attached hereto.
.4 FINANCIAL STATEMENTS; NO UNDISCLOSED LIABILITIES. (a) The Sellers have
delivered to Buyer true and complete copies of (i) the audited consolidated
balance sheets of MCIC at December 31, 1994, 1995 and 1996, and the related
consolidated statements of income, cash flow and changes in partners' equity for
the fiscal years then ended, and (ii) the audited balance sheets of MCIC-HNI and
Leasing at December 31, 1994, 1995 and 1996, and the related statements of
income, cash flow and changes in partners' equity for the fiscal years then
ended (collectively, the materials referred to in clauses (i) and (ii) are the
"Financial Statements") all of which have been prepared in accordance with
generally accepted accounting principles consistently applied ("GAAP")
throughout the periods involved, other than accruals for any employee vacation
pay obligations. Such balance sheets, including the related notes thereto, as
of their respective dates, fairly present the financial position, assets and
liabilities (whether accrued, absolute, contingent or otherwise) of MCIC,
MCIC-HNI and Leasing, respectively, and such statements of income, cash flow and
changes in partners' equity fairly present the results of operations, cash flow
and changes in partners' equity of MCIC, MCIC-HNI and Leasing, respectively, for
the periods indicated, all in accordance with GAAP. The Sellers have delivered
to Buyer true and complete copies of (x) the unaudited consolidated financial
statements of MCIC as of and for the period ended August 31, 1997, and (y) the
unaudited financial statements of MCIC-HNI and Leasing as of and for the period
ended August 31, 1997 (collectively, the materials referred to in clauses (x)
and (y) are the "Interim Statements"). Except as noted therein and subject to
normal year end adjustments which are not expected in the aggregate to be
material and accruals for bonuses payable to officers, agents, directors and
employees, the Interim Statements fairly present the financial position, assets
and liabilities (whether accrued, absolute, contingent or otherwise) of such
entities at August 31, 1997 and the results of such entities' respective results
of operations, cash flow and changes in partners' equity for the eight months
then ended, all in conformity with GAAP and applied on a consistent basis with
prior periods; provided, however, footnotes required by GAAP have been omitted
from such Interim Statements. Sellers represent that for both financial
statement and tax purposes, the assets, liabilities and operations of each of
MCLtd, SPECT and MCIC-MMMC have been consolidated with those of MCIC.
(b) Except as set forth in SCHEDULE 4.5 attached hereto or set forth in
the Financial Statements and the Interim Statements, there is no claim,
liability or obligation of any nature, whether absolute, accrued, known or
unknown, contingent or otherwise, affecting the Operating Entities or their
businesses, other than obligations incurred in the ordinary course of such
businesses consistent with past practice, none of which constitutes a Material
Adverse Effect.
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(c) SCHEDULE 4.5 attached hereto lists each distribution, dividend or
similar payment to the Sellers on or with respect to the Partnership Interests
and/or Membership Interests made during 1997 and through the Closing Date.
.5 ACCOUNTS RECEIVABLE. Except as set forth in SCHEDULE 4.6 attached hereto,
the accounts receivable of each of the Operating Entities arising from their
respective operations as reflected in the Financial Statements, the Interim
Statements and the latest available monthly balance sheets delivered to the
Buyer by the Sellers represent valid claims against the account debtors for
sales made or services rendered by the Operating Entities in the ordinary course
of business consistent with past practice.
.6 INTELLECTUAL PROPERTY. Set forth on SCHEDULE 4.7 attached hereto is a list
of all trade names, assumed names, service names, service marks, trademarks,
logos, patents, copyrights, licenses and other tangible or written intellectual
property rights (the "Intellectual Property") owned by the Operating Entities or
used or required by the Operating Entities in the operation of their businesses.
Except as set forth on SCHEDULE 4.7 attached hereto, the Operating Entities hold
all the right, title and interest in and to the Intellectual Property, free and
clear of all Liens. The Operating Entities own or have the right to use,
without the making of any payment (other than (i) a payment made in connection
with an equipment lease listed on SCHEDULE 1.8 or (ii) periodic payments to and
filings with a governmental authority for continued usage or validity) or the
granting of any rights to others, all Intellectual Property necessary to conduct
its business as presently being conducted. Except as set forth on SCHEDULE 4.7
attached hereto, to the Knowledge of Sellers, the conduct of the business of the
Operating Entities as now conducted does not infringe or conflict with any
intellectual property rights of others. The Operating Entities have, as of the
date hereof, and will have as of the Closing Date, satisfied all governmental
requirements necessary to maintain the validity of all Intellectual Property,
and the right to use such Intellectual Property; provided, that this sentence
shall apply only to such of the Intellectual Property as is subject to or
covered by applicable statutes or regulations affecting the validity and/or
right to use intellectual property rights. Except as set forth on SCHEDULE 4.7
attached hereto, no suit or proceeding by others alleging infringement of any
intellectual property rights of such third parties is pending against any
Operating Entity, or to the Knowledge of Sellers, threatened against any
Operating Entity by any third party. All licenses, rights and other agreements
pertaining to the Intellectual Property are in compliance in all material
respects with all applicable laws, rules and regulations in all jurisdictions in
which the Operating Entities conduct any business. Except as set forth on
SCHEDULE 4.7, the execution and delivery of this Agreement and the consummation
of the transactions contemplated hereby will not alter or impair the rights and
interests of the Operating Entities in any of the Intellectual Property and the
Operating Entities will have the same rights and interests in such items at and
after the Closing Date as they had immediately prior to the Closing Date.
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.7 CONTRACTS. Set forth on SCHEDULE 4.8 hereto is a complete and accurate
list of all Material Contracts to which any Operating Entity is a party or by
which any of their assets, properties or business is bound or affected. The
term "Material Contracts" means (a) all contracts or commitments that do not
arise in the ordinary and usual course of business; (b) all contracts or
commitments requiring payments in excess of Five Thousand Dollars ($5,000)
annually and involving an obligation which cannot or in reasonable probability
will not be performed or terminated within three (3) months from the Closing
Date or providing for termination only upon the payment of a penalty or the
equivalent thereof; (c) all contracts or commitments affecting ownership of,
title to, use of, or any interest in real estate; (d) all bonuses, incentive
compensation, pension, group insurance or employee welfare plans of any nature
whatsoever; (e) all collective bargaining agreements or other contracts or
commitments to or with any labor unions or other employee representatives or
groups of employees; (f) employment contracts and all other contracts,
agreements or commitments to or with individual employees or agents extending
for a period of more than three (3) months from the Closing Date or providing
for earlier termination only upon the payment of a penalty or the equivalent
thereof; (g) all other contracts or commitments providing for payments based in
any manner upon the sales, fees, services, purchases or profits of any Operating
Entity, individually in excess of Twenty-Five Thousand Dollars ($25,000) per
annum; (h) all contracts or commitments, whether in the ordinary course of
business or not, which involve future payments, performance of services or
delivery of goods and/or materials, to or by any Operating Entity of an
aggregate amount or value in excess of Twenty-Five Thousand Dollars ($25,000),
including, without limitation, and whether or not meeting that numerical
standard all such contracts or commitments relating to (x) the purchase, lease
or other acquisition or use of equipment used in medical imaging, diagnostic or
therapeutic processes, (y) the provision of equipment or services to hospitals,
clinics, health maintenance organizations, medical or other health care
providers or other customers or clients of any Operating Entity (excluding
customers with respect to which billings by the Operating Entities during the
preceding twelve (12) months did not, and for the twelve (12) months following
the date hereof are not reasonably expected to exceed Five Thousand Dollars
($5,000)), or (z) sites at which the Operating Entities provide services under
"retail billing" arrangements; (i) real or personal property leases and other
rental, use or service arrangements of any Operating Entities that either (A)
cannot be terminated without penalty by the Operating Entity, as the case may
be, on ninety (90) days' notice or (B) individually requires payment by any
Operating Entity, over its remaining life of more than Twenty-Five Thousand
Dollars ($25,000); (j) all laboratory management agreements, compensation
arrangements (as defined in the Omnibus Budget Reconciliation Act of 1989) with
referring physicians, indemnity or guaranty arrangements, business acquisition
agreements, licenses, nondisclosure agreements, non-compete agreements,
joint-venture agreements and commission agreements; (k) all agreements between
any of the Operating Entities and (A) any Shareholder, Seller or an affiliate or
related party thereof or thereto or (B) any officer, director, member or partner
of any of the Operating Entities; (l) any contracts, agreements or arrangements
for the provision of services provided by physicians, physician groups or other
medical professionals; (m) all patent licensing agreements and all other
agreements and commitments with respect to patents, patent applications,
trademarks,
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trade names, service marks, inventions, technical assistance, know-how, special
processes, copyrights or other like items; (n) all loan agreements, indentures,
promissory notes and other documents evidencing or relating to debt for borrowed
money or other funded indebtedness or capital lease obligations; and (o) all
other agreements and commitments the loss of which would constitute a Material
Adverse Effect. There is no breach or default, nor to the Knowledge of Sellers
is there any basis for any claim of breach or default, in any obligation to be
performed by any Seller or Operating Entity under any Material Contract and
neither Sellers nor any Operating Entity has waived any material right under any
Material Contract. With respect to each of the Material Contracts set forth on
SCHEDULE 4.8: (a) a true and correct copy, or if a copy is not available, a
summary of the contractual obligation, has been provided to Buyer; (b) each is
in full force and effect, without breach or default by the respective Operating
Entity or, to the Knowledge of Sellers, breach or default by any other party
thereto; and (c) no written notice has been received or, to the Knowledge of
Sellers, threatened regarding termination, suspension, material alteration,
modification or amendment thereof. Each Material Contract is a valid and
binding obligation of the respective Operating Entity and to the actual
knowledge of Sellers, of the third parties thereto in accordance with its
respective terms. With respect to agreements, indentures, promissory notes and
other documents referred to in clause (n) of the definition of "Material
Contracts," SCHEDULE 4.8 identifies (a) any related security interests or other
Liens and (b) the amount of any prepayment penalties or similar amounts required
to be paid in connection with the retirement of the related obligations.
SCHEDULE 4.8 also identifies each loan agreement, indenture, promissory note,
other debt for money borrowed, capital lease and other financing or similar
obligation that cannot be prepaid or retired in advance of the stated maturity
or contractual payment date(s) or that can be prepaid or retired only upon
payment of a prepayment penalty or similar amount.
.8 INSURANCE. The assets, properties and operations of the Operating Entities
are insured under various policies of general liability and other forms of
insurance, a summary of which has been provided to Buyer, as identified on
SCHEDULE 4.9. SCHEDULE 4.9 discloses for each policy the risks insured against,
coverage limits, deductible amounts, all outstanding claims thereunder, the
carrier, and whether the terms of such policy provide for retrospective premium
adjustments. All such policies are in full force and effect in accordance with
their terms, no notice of cancellation has been received, and to the Knowledge
of Sellers, there is no existing breach or default or event which, with the
giving of notice or lapse of time or both, would constitute a breach or default
thereunder. Such policies are in amounts consistent with local industry
standards in relation to the assets, properties and operations of the Operating
Entities, and all premiums to date have been paid in full. All of the material
assets, properties and operations of the Operating Entities which are of an
insurable character are insured against loss or damage by fire and casualty and
the Operating Entities have adequate insurance, in each case to the extent and
in a manner customary for entities engaged is a similar business or owning
similar properties and assets in its geographic area.
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.9 LABOR RELATIONS AND EMPLOYEE AGREEMENTS.
() COMPLIANCE. Except as disclosed on SCHEDULE 4.10:
() The Operating Entities are each in material compliance with all
applicable laws, rules, regulations and ordinances relating to the
employment of labor, including, without limitation, OSHA and those other
applicable laws, rules, regulations and ordinances relating to wages,
hours, occupational health and safety, anti-discrimination, collective
bargaining, equal employment opportunity and employment of labor in
general, and to the payment of social security and similar taxes
(collectively "Labor Laws");
(i) No Seller or Operating Entity has received written notice of, nor
to the Knowledge of Sellers, is there any threatened or reasonably
anticipated notice with respect to, any assessment, deficiency, levy or
imposition, or any other civil or criminal penalty or sanction against any
of the Operating Entities for failure to comply with any of the applicable
Labor Laws;
(ii) There are no actions or proceedings pending with or, to the
Knowledge of Sellers, threatened against any of the Sellers or Operating
Entities by any federal, state, local or foreign governmental agency
alleging any violation of any of the applicable Labor Laws;
(a) EMPLOYMENT AGREEMENTS. Except as disclosed on SCHEDULE 4.8, none of
the Operating Entities is a party to any employment contract with any employee,
collective bargaining agreement, employees' pension plan or retirement plan,
employees' profit sharing plan, bonus plan or any other similar agreement or
plan. There are no material labor controversies pending or to the Knowledge of
Sellers, threatened between an Operating Entity and any of its employees and, to
the Knowledge of Sellers, there are no organizational efforts presently being
made involving any of such employees. Each Operating Entity's relations with
its employees are generally good. Except as disclosed on SCHEDULE 4.10, the
Sellers have no actual knowledge that any executive or officer of an Operating
Entity has any plans to terminate his or her employment with such Operating
Entity.
(b) ERISA.
(b) SCHEDULE 4.10 attached hereto contains a list of all "employee
pension benefit plans" (as defined in Section 3(2) of ERISA) (sometimes
referred to herein as "Pension Plans"), "employee welfare benefit plans"
(as defined in Section 3(1) of ERISA) and all other plans providing for
insurance coverage (including, without limitation, self-insured
arrangements), workers' compensation, disability benefits, supplemental
unemployment benefits, vacation benefits or retirement
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benefits, or for profit sharing, deferred compensation, bonuses, incentive
compensation or post-retirement insurance, compensation or benefits,
maintained or contributed to by the Operating Entities or any other person
or entity that, together with the Operating Entities, is treated as a
single employer under Section 414(b), (c), (m) or (o) of the Code (the
Operating Entities and each such other person or entity, a "Commonly
Controlled Entity"), for the benefit of any current or former employees,
officers or directors of the Operating Entities or dependents of any such
person (collectively, "Benefit Plans"). The Operating Entities have
delivered or made available to Buyer, its counsel, representatives or
advisors, true, complete and correct copies of (i) each Benefit Plan (or,
in the case of any unwritten Benefit Plans, descriptions thereof), (ii) the
most recent annual report on Form 5500 filed with the Internal Revenue
Service with respect to each Benefit Plan (if any such report was
required), (iii) the most recent summary plan description for each Benefit
Plan for which such summary plan description is required, (iv) each trust
agreement and group annuity contract relating to any Benefit Plan and (v)
each Internal Revenue Service determination letter relating to any Benefit
Plan. None of the following have occurred which could have a Material
Adverse Effect: (A) any failure to administer any Benefit Plan in all
material respects in accordance with its terms, or (B) any failure by the
Operating Entities or any Benefit Plan to comply in all material respects,
or any failure of any Benefit Plan to be operated and administered in all
material respects, in accordance with the applicable provisions of ERISA
and the Code." Except as disclosed in SCHEDULE 4.10 attached hereto, no
Operating Entity or Commonly Controlled Entity has, within one (1) year
before the date of this Agreement, announced or otherwise made any
commitment to create or amend any Benefit Plan.
(i) Except as disclosed in SCHEDULE 4.10 attached hereto, all Pension
Plans intended to qualify under Section 401(a) of the Code have been the
subject of determination letters from the Internal Revenue Service to the
effect that such Pension Plans are qualified and exempt from Federal income
taxes under Section 401(a) and 501(a), respectively, of the Code, and no
such determination letter has been revoked nor has any such Pension Plan
been amended since the date of its most recent determination letter or
application therefor in any respect, and no event has occurred that would
adversely affect its qualification or materially increase its costs in a
manner which would constitute a Material Adverse Effect. Except as
disclosed on SCHEDULE 4.10, there have been no violations of ERISA or the
Code which could have a Material Adverse Effect with respect to the filing
of applicable documents, notices or reports (including, without limitation,
annual reports filed on IRS Form 5500) relating to any Benefit Plan
maintained by the Operating Entities or any Commonly Controlled Entity with
any governmental authority or the furnishing of such required documents to
the participants or beneficiaries of such Benefit Plans.
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(ii) Neither the Operating Entities nor any Commonly Controlled Entity
has within the five (5) year period immediately preceding the date hereof
maintained, contributed to or been obligated to contribute to any Benefit
Plan that is subject to Title IV of ERISA or Section 412 of the Code.
Neither the Operating Entities nor any Commonly Controlled Entity is
required to contribute to any "multiemployer plan" (as defined in Section
4001(a) (3) of ERISA) or has withdrawn from any multiemployer plan where
such withdrawal has resulted or would result in any "withdrawal liability"
(within the meaning of Section 4201 of ERISA) that has not been fully paid.
(iii) With respect to any Benefit Plan that is an employee welfare
benefit plan, except as disclosed in SCHEDULE 4.10 attached hereto, (1) no
such Benefit Plan is funded through a "welfare benefits fund", as such term
is defined in Section 419 (e) of the Code, (2) each such Benefit Plan that
is a "group health plan", as such term is defined in Section 5000 (b)(1) of
the Code, complies substantially with the applicable requirements of
Section 4980B(f) of the Code and (3) except as provided in writing in such
plan, there are no understandings, agreements or undertakings, written or
oral, that would prevent any such plan (including any such plan covering
retirees or other former employees) from being amended or terminated
without liability to the Operating Entities or any Subsidiary on or at any
time after the Closing Date which could constitute a Material Adverse
Effect. Except as set forth in SCHEDULE 4.10 attached hereto, no Benefit
Plan that is a welfare benefit plan provides for post-retirement medical or
life insurance benefits coverage to any current or former employee,
officer, or director of the Operating Entities or any dependent of any such
individual except as may be required under Section 4980B of the Code.
(iv) Except as set forth in SCHEDULE 2.2(b), no employee, officer or
director of the Operating Entities or any other person will be entitled to
any additional compensation or benefits or any acceleration of the time of
payment or vesting of any compensation or benefits under any Benefit Plan
as a result of the transactions contemplated by this Agreement.
(v) Except as set forth in SCHEDULE 4.10, all contributions due and
payable on or before the Closing Date in respect of any Benefit Plan will
or have been made in full and proper form, or adequate accruals have been
provided for in the financial statements referred to in Section 4.5, in
accordance with GAAP, for all other contributions or amounts in respect of
the Benefit Plans for periods ending on the Closing Date, pursuant to
routine administrative procedures or, in the case of any contributory
Benefit Plan, amounts have been or will be contributed to such Benefit Plan
within the time prescribed by the Code, ERISA, or any regulations
thereunder or interpretations thereof by the Internal Revenue Service or
the Department of Labor.
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(vi) As of the date hereof and the Closing Date, except as set forth
in SCHEDULE 4.10 there are no actions, suits, disputes, arbitrations or
claims pending (other than routine claims for benefits) and the Operating
Entities have received no notice of any legal, administrative or other
proceedings or governmental investigations pending or, to the knowledge of
the Sellers, threatened against any Benefit Plan or against the assets of
any Benefit Plan.
(viii) Sellers shall not be deemed to have breached the
representations and warranties of this Section 4.10(c) solely on account of
an assertion by the Internal Revenue Service that the termination in
accordance with Section 8.1(q) of this Agreement of any Benefit Plan
intended to qualify under Section 401(k) of the Code fails to qualify under
Section 401(k)(10)(A)(i) of the Code.
.10 PAYMENT OF TAXES; DISTRIBUTIONS. Each of the Operating Entities has timely
filed all Tax Returns required to have been filed by it and has paid or accrued
all Taxes due to any taxing authority with respect to all taxing periods ending
on or prior to the date hereof, and all such Tax Returns are true, correct and
complete in all material respects. The Financial Statements and Interim
Statements include an adequate reserve for all Taxes not yet due or with respect
to which Tax Returns, as of the Closing, are not required to have been filed, in
each case to reflect the operations of the Sellers and Operating Entities
through the Closing. Except as set forth in SCHEDULE 4.11, there is no pending
Tax audit, investigation or other proceeding by a governmental authority against
or affecting any of the Sellers and Operating Entities. Each of the Sellers and
Operating Entities has (or before the Closing will have) filed true, correct and
complete (in all material respects) federal and state income Tax Returns
relating to its fiscal year ended December 31, 1996 and paid all Taxes shown as
payable thereon. All amounts that are required to be collected or withheld by
each Seller and Operating Entity has been duly collected or withheld, and all
such amounts that are required to be remitted to any taxing authority (including
license and other similar fees payable to the Department of Motor Vehicles and
other governmental agencies) have been duly remitted. Sellers have provided
copies of such Tax Returns to Buyer. For purposes of this Agreement, "Taxes"
means all taxes imposed of any nature including federal, state, commonwealth,
local or foreign net income tax, alternative or add-on minimum tax, profits or
excess profits tax, franchise tax, gross income, adjusted gross income or gross
receipts tax, employment related tax (including employee withholding and
employer payroll tax, FICA and FUTA), real and personal property tax or ad
valorem tax, sales or use tax, excise tax, stamp tax or duty, any withholding or
back up withholding tax, value added tax, severance tax, prohibited transaction
tax, premiums tax, occupation tax, together with any interest or any penalty, in
addition to any tax or additional amount imposed by any governmental authority
(domestic or foreign) responsible for the imposition of such tax. "Tax Return"
means all returns, reports, forms or other information required to be filed with
respect to any Taxes.
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.11 BOOKS OF ACCOUNT. The books, records and accounts of the Operating
Entities accurately and fairly reflect, in accordance with GAAP, the
transactions and the assets and liabilities of such Operating Entity, as the
case may be, with respect to their respective businesses. Except as set forth
in SCHEDULE 4.12, none of the Operating Entities has engaged in any transaction
with respect to their respective businesses, maintained any bank account for
their respective businesses or used any of its funds, except for transactions,
bank accounts and funds which have been and are reflected in the normally
maintained books, records and accounts of such Operating Entities. Each of
MCIC, SPECT, MCLtd, Leasing and MCIC-HNI, respectively, maintains a system of
internal accounting control sufficient to provide reasonable assurances that (a)
transactions are executed in accordance with management's general or specific
authorization, (b) transactions are recorded as necessary to permit preparation
of financial statements in conformity with GAAP, (c) access to assets,
properties, books, records and accounts is permitted only in accordance with
management's general or specific authorization, and (d) the recorded accounting
for assets is compared with the existing assets at reasonable intervals and
appropriate action is taken with respect to any differences.
.12 CONDITION OF TANGIBLE ASSETS. SCHEDULES 4.13 AND 1.8 set forth a complete
and accurate list of all machinery, equipment, furniture, motor vehicles and
other tangible assets (other than inventories and supplies held in the ordinary
course of business) owned or held under lease agreements by the Operating
Entities on August 31, 1997 and which are capitalized by an Operating Entity and
which had a then present book value of at least Twenty Five Thousand Dollars
($25,000) or, if of a like or similar nature, when aggregated as a group had a
book value of at least Twenty Five Thousand Dollars ($25,000) or which, for
reasons other than value, are material to the Operating Entities. Except as
described in SCHEDULES 4.13 AND 1.8, such machinery, equipment, furniture, motor
vehicles and other tangible assets owned or used by the Operating Entities are
in generally good operating condition and repair, subject to ordinary wear and
tear and routine maintenance and repairs. The inventories and supplies held by
the Operating Entities are usable, taken as a whole, in the ordinary course of
their respective businesses. The information set forth in SCHEDULE 4.13(a) is
true and correct as of the date thereof.
.13 OWNERSHIP OF ASSETS. Except as described in SCHEDULE 4.14, each Operating
Entity, as the case may be, has good and marketable title to, or holds under
lease, all of its respective assets and properties, free and clear of all Liens
except for Permitted Liens. SCHEDULE 4.14 sets forth all bank indebtedness and
any related Liens currently in effect. None of the assets and properties of any
of the Operating Entities is located outside of the United States.
.14 BROKERS. Except for a fee owed to Carleton, McCreary, Holmes & Co., which
shall be paid by Sellers, no amount is payable by the Operating Entities, the
Sellers or the Shareholders by way of brokerage fees, finder's commissions or
otherwise to any party on account of this Agreement or transactions contemplated
herein. Sellers, jointly and
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severally, agree to indemnify and hold Buyer harmless from any claims arising
from any such assertions.
.15 COMPUTER PROGRAMS AND SOFTWARE. Set forth on SCHEDULE 4.16 is a list and
description of all computer programs and software currently being used in the
business and operations of any of the Operating Entities, excluding
off-the-shelf commercially available systems owned or licensed to one or more of
the Operating Entities or computer programs included in purchased or leased
equipment (collectively, the "Software").
.16 LITIGATION. Except as disclosed on SCHEDULE 4.17, there is no claim,
action, suit, litigation, arbitration, investigation or other legal proceeding
which is pending before any court or governmental authority, or arbitrator or
board of arbitrators or, to the Knowledge of Sellers, threatened, to which any
of the Sellers or Operating Entities is a party, or to which any of the assets
or properties of the Sellers or Operating Entities is subject, which does or may
constitute a Material Adverse Effect. No Seller or Operating Entity is in
default with respect to any order, writ, injunction, decree or demand of any
court or other governmental or regulatory authority.
.17 ENVIRONMENTAL MATTERS.
() APPLICABLE PERMITS AND LICENSES. Each of the Sellers and Operating
Entities has obtained all permits, licenses and other authorizations required
for the operation of its business required by all applicable federal, state,
foreign and local laws and governmental agencies relating to pollution,
protection of the environment, hazardous substances, waste, disposal, dumping,
burial, and the storage, presence and discharge of chemicals and other
substances, including, without limitation, all laws and regulations relating to
receiving, acquiring, possessing and transferring by-product, source and special
nuclear material (collectively, "Environmental Laws"), except where the failure
to obtain such permits, licenses and other authorizations does not have and will
not have a Material Adverse Effect; and each of the Sellers and Operating
Entities has complied with all of the terms and conditions of all such permits,
licenses and authorizations except where the failure to so comply does not have
and will not have a Material Adverse Affect.
(a) NO VIOLATIONS. Except as disclosed on SCHEDULE 4.18, (i) none of the
Sellers or Operating Entities has received written notice that the operation of
its respective business is in violation of any applicable Environmental Laws and
(ii) there are no pending or, to the Knowledge of Sellers, threatened claims,
administrative proceedings, judgments, declarations or orders relating to the
violation of such Environmental Laws.
(b) NO EXPOSURE OR LIABILITY. None of the Sellers or Operating Entities
nor, to the Knowledge of Sellers, any other person or entity has placed, stored,
buried, dumped or disposed of any regulated or prohibited substances or any
materials produced by, or resulting from, any business, commercial or industrial
activities, operations or processes on,
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beneath, or adjacent to any owned or leased real property of any Seller or
Operating Entity, in violation of any applicable Environmental Laws. To the
Knowledge of Sellers, no employee of any Seller or Operating Entity has been
exposed in the course of his or her employment with such Seller or Operating
Entity to any regulated or prohibited substances or any materials produced or
used by any Seller or Operating Entity in any manner that could give rise to any
material liability under any applicable Environmental Law against any Seller or
Operating Entity or its respective properties. None of the Sellers or Operating
Entities has received any notice from any governmental agency or private or
public entity advising such Seller or Operating Entity that it is responsible or
potentially responsible for actual or potential response costs with respect to a
release, a threatened release or clean-up of materials, including hazardous
substances, pursuant to any Environmental Laws.
.18 EQUIPMENT LEASES. SCHEDULE 1.8, sets forth a list of all Equipment Leases.
With respect to each of the Equipment Leases listed on SCHEDULE 1.8: (a) each
is in full force and effect, without breach or default by the respective
Operating Entity party thereto, as the case may be, and, to the Knowledge of
Sellers, there is no breach or default by any other party thereto and (b) no
written notice has been received or, to the Knowledge of Sellers, is threatened
regarding termination, suspension, material alteration or amendment thereof.
Each of the Equipment Leases is a valid and binding obligation of the respective
Operating Entity thereto and, to the actual knowledge of the Sellers, each of
the other parties thereto, as the case may be, enforceable in accordance with
its respective terms. Except as disclosed on SCHEDULE 1.8 or on SCHEDULE 4.2,
no consent or approval is required for the assignment or transfer of such
Equipment Lease in connection with this Agreement.
.19 REAL PROPERTY LEASES. SCHEDULE 4.20 sets forth a list of all real property
leases ("Real Property Leases") to which any Operating Entity is a party. The
Real Property Leases are valid and binding obligations of the respective
Operating Entity thereto and, to the actual knowledge of Sellers, each of the
other parties thereto, and enforceable in accordance with their respective
terms. None of the Operating Entities is in breach or default, and to the
Knowledge of the Sellers, none of the other parties thereto is in breach or
default under or with respect to any Real Property Lease. To the Knowledge of
Sellers, all of the Operating Entities are in compliance with all current
applicable building and zoning codes except where the failure to so comply does
not have or will not have a Material Adverse Effect on the Operating Entities'
use of the real property and none of the Operating Entities has received written
notice of, and Sellers have no knowledge with respect to any facts or
allegations giving rise to any violation, breach or default by the Operating
Entity under any Real Property Lease, or any federal, state or local law,
ordinance, rule, regulation, order or published requirement of any governmental
agency or department having jurisdiction over or affecting the real property
subject to a Real Property Lease to which any Operating Entity is a party. The
Operating Entities do not individually or collectively own any real property.
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.20 PERMITS, LICENSES AND COMPLIANCE WITH LAWS. SCHEDULE 4.21 sets forth a
list, including the identity of the holder thereof, of all permits, licenses and
approvals from federal, state, local and foreign governmental and regulatory
bodies held by any of the Sellers or Operating Entities (including, without
limitation, Certificates of Need and various approvals and application therefor)
and such permits, licenses and approvals are valid and sufficient for all the
services presently conducted by the Operating Entities. SCHEDULE 4.21 lists all
claims and notices that any of the Operating Entities has received alleging that
such Operating Entity is or was not in compliance with the terms of any such
permits, licenses and approvals and with all requirements, standards and
procedures of the federal, state, local and foreign governmental and regulatory
bodies which issued them or of any limitation or proposed limitation on any
permit, license or approval. Notwithstanding anything in this Agreement to the
contrary, Sellers shall not be liable (pursuant to Article IX hereof or
otherwise) to Buyer in connection with any governmental claim relating to the
failure of the Operating Entities to have valid and sufficient permits, licenses
and approvals or for violations of laws, except and to the extent that such
claims and violations clearly relate to the operation of the business of the
Operating Entities prior to the Closing. The Operating Entities have been and
are in compliance in all respects with all federal, state and local laws,
ordinances, codes, regulations, orders, requirements, standards and procedures
that are applicable to their businesses and with the rules and regulations of
all applicable private third party insurers and reimbursers of health care costs
and expenses, including without limitation, such laws, rules and regulations
that relate to the practice of medicine and the provision of medical imaging,
diagnostic or therapeutic services and otherwise. Billing by the Sellers and
Operating Entities under the rules and regulations of all applicable private
third party insurers, reimbursers of health care and the Medicare and Medicaid
programs has been true and correct in all respects and in compliance with
applicable laws, rules, regulations and policies thereof and has been true and
correct in all respects for all other billings.
To the Knowledge of Sellers, none of the Sellers or Operating Entities, nor
any of their respective officers, partners, directors, members or agents has
been convicted of, charged with or, investigated for a Medicare, Medicaid or
state health program related offenses or convicted of, charged with or, to the
Knowledge of Sellers, investigated for a violation of federal or state law
related to fraud, theft, embezzlement, breach of fiduciary responsibility,
financial misconduct, obstruction of an investigation or controlled substances,
or has been excluded or suspended from participation in Medicare, Medicaid or
any federal or state health program or been subject to any order or consent
decree of, or criminal or civil fine or penalty imposed by, any court or
governmental agency.
.21 BANK ACCOUNTS. SCHEDULE 4.22 sets forth a list of all bank accounts, bank
boxes and other depositories of the Operating Entities identifying bank, branch
and account number, as well as the authorized signatories thereto.
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.22 NO SUBSEQUENT CHANGES. Except as contemplated in this Agreement or
reflected in any Schedule or Exhibit attached hereto, since August 31, 1997,
there have been no events or changes that constitute a Material Adverse Effect
(whether by sale, destruction, pledge, lease or otherwise and whether or not
covered by insurance) in the assets (including licenses, permits and
franchises), liabilities, financial condition or prospects of any of the
Operating Entities, except as specified on SCHEDULE 4.23. Since August 31,
1997, except as reflected on SCHEDULE 4.23, the Operating Entities have not,
directly or indirectly: (a) paid, declared or set aside any dividends or
distributions, (b) issued, sold, redeemed or repurchased any of their capital
stock or ownership interests or securities of any class, or (c) taken or omitted
to take any other action that, if such action or omission occurred after the
date hereof, would constitute a breach of Section 6.1 hereof.
.23 CUSTOMERS. Except as set forth on SCHEDULE 4.24, during the past twelve
months no Significant Customer has (or, from the date hereof until the Closing,
shall have) (a) cancelled or otherwise terminated, or threatened to cancel or
otherwise terminate, its relationship with the Operating Entities, or
(b) materially changed, or requested a material change in the price or quantity
of the goods, services and products sold by the Operating Entities to such
Significant Customer. For purposes of this Agreement, "Significant Customer"
shall mean any of the top twenty (20) largest customers (in terms of aggregate
revenues) of the Operating Entities, taken as a whole, during the last fiscal
year of the Operating Entities. SCHEDULE 4.24 attached hereto lists the
Significant Customers.
.24 DEFUNCT ENTITIES. SCHEDULE 4.25 identifies, with respect to each Defunct
Entity, (a) whether such Defunct Entity has been duly and properly dissolved and
liquidated in accordance with applicable law or (b) whether such Defunct Entity
continues in existence and, if so, the owner(s) thereof. Sellers and Buyer
agree that any and all interests in such Defunct Entities are expressly excluded
from the Acquisition, and Sellers, jointly and severally, shall indemnify and
hold Buyer harmless from and against any and all claims, liabilities, disputes,
costs and expenses arising from the previous operations of or in any other way
relating to such Defunct Entities.
.25 CERTAIN ADDITIONAL REGULATORY MATTERS. Except where a matter has not had a
Material Adverse Effect that has not been cured or where a Material Adverse
Effect would not reasonably be expected to occur, none of (x) the Operating
Entities, or, the officers, directors, or employees or agents of the Operating
Entities, (y) to the Knowledge of Sellers (for this purpose, without independent
investigation or inquiry), any of the persons having a direct or indirect
ownership interest in any of the Operating Entities within the meaning of
Section 1320a-7(b)(8) of Title 42 of the United States Code or (z) to the
Knowledge of Sellers (for this purpose, without independent investigation or
inquiry), any of the persons who provide professional services under agreements
with any of the Operating Entities as agents of such entities, have engaged in
any activities which constitute violations of, or are cause for imposition of
civil penalties upon any of the Operating Entities or mandatory or permissive
exclusion of any of the Operating Entities from Medicare or Medicaid, under
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Sections 1320a-7, 1320a-7a, 1320a-7b, or 1395nn of Title 42 of the United States
Code, the federal Civilian Health and Medical Plan of the Uniformed Services
statute ("CHAMPUS"), or the regulations promulgated pursuant to such statutes or
regulations or related state or local statutes including the following
activities:
() 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 from a federal of state health care program;
(a) 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 from a federal or state health care program;
(b) presenting or causing to be presented a claim for reimbursement under
CHAMPUS, Medicare, Medicaid or any other State Health Care Program (as defined
below) or Federal Health Care Program (as defined below) that is (i) for an item
or service that the person presenting or causing to be presented knows or should
know was not provided as claimed, or (ii) for an item or service and the person
presenting knows or should know that the claim is false or fraudulent;
(c) knowingly and willfully offering, paying, soliciting or receiving any
illegal 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
(d) knowingly and willfully making or causing to be made or inducing or
seeking to induce the making of any false statement or representation (or
knowingly and willfully 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") (Section 1320a-3 of Title 42 of the United
States Code).
.26 MEDICARE/MEDICAID PARTICIPATION; ACCREDITATION. (a) Except where a
matter has not had a Material Adverse Effect that has not been cured or where a
material adverse effect would not reasonably be expected to occur, none of the
Operating Entities or to the
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Knowledge of Sellers, any existing officers or directors of the Operating
Entities who is expected to be an officer, director, agent (as defined in 42
C.F.R. Section 1001.1001(a)(2)), or managing employee (as defined in SSA Section
1126(b) or any regulations promulgated thereunder) of the Operating Entities:
(1) has had a civil monetary penalty assessed against 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:
() 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;
(i) 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; 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;
(ii) federal or state laws relating to the interference with or
obstruction of any investigation into any criminal offense described above
in this clause (a); or
(iii) criminal offenses under federal or state law relating to the
unlawful manufacture, distribution, prescription or dispensing of a
controlled substance.
(a) With respect to operations in Ohio, MCIC 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 North Coast Billing bills
directly to Medicare for services furnished by MCIC to Medicare beneficiaries.
(b) With respect to operations in Ohio, MCIC has a Medicaid provider
number and a participating provider agreement in each state, as applicable, in
which North Coast Billing bills directly to such states' Medicaid agency for
services provided by MCIC to such states' Medicaid beneficiaries.
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(c) MCIC has applied for a Medicare provider number with respect to
billing in Pennsylvania and Sellers have no reason to believe that such Medicare
provider number will not be obtained.
(d) The matters set forth in a separate letter being delivered by or on
behalf of the Sellers to Buyer and referring to this Section 4.27 are true and
correct.
.27 SCOPE OF REPRESENTATIONS AND WARRANTIES. This Agreement (including any
Exhibit or Schedule) and each other document and certificate prepared or
delivered by or on behalf of Sellers and furnished or to be furnished to Buyer
in connection herewith, as of their respective dates, did not, and as of the
date hereof, do not (i) contain any untrue statement of a material fact, or
(ii) omit to state a material fact necessary in order to make the statements
contained herein and therein not misleading. Except as disclosed in this
Agreement (including any Exhibit or Schedule) and such other documents and
certificates, there is no fact known to Sellers (other than matters relating to
economic conditions generally) which reasonably could be expected to materially
and adversely affect the business of the Operating Entities, taken as a whole.
IV : BUYER'S REPRESENTATIONS AND WARRANTIES
Buyer makes the following representations and warranties to Sellers, each
of which shall be true and correct as of the Closing Date as if specifically
made on such date and survive the Closing for the period specified in Article IX
hereof and shall thereafter terminate and expire and be of no force and effect:
.0 EXISTENCE AND GOOD STANDING. Alliance is a corporation duly organized,
validly existing and in good standing under the laws of State of Delaware.
Sub I is a corporation duly organized, validly existing and in good standing
under the laws of Delaware. Sub II is a corporation duly organized, validly
existing and in good standing under the laws of Delaware. Sub I and Sub II are
direct wholly-owned subsidiaries of Alliance.
.1 AUTHORITY. Each of Alliance, Sub I and Sub II has the requisite corporate
power and authority to execute and deliver this Agreement, and perform its
obligations hereunder, and the transactions described in or contemplated by this
Agreement. This Agreement has been duly executed by each of Alliance, Sub I and
Sub II. Each of Alliance, Sub I and Sub II has obtained the necessary corporate
authorizations for the execution, delivery and performance of this Agreement in
accordance with all applicable laws and its organizational documents. This
Agreement is a valid, legal and binding obligation of each of Alliance, Sub I
and Sub II enforceable in accordance with its terms, except to the extent that
enforceability may be limited by applicable bankruptcy, insolvency or similar
laws affecting the enforcement of creditors' rights generally and subject to
general principles of equity (regardless of whether such enforcement is
considered in a proceeding at law or at equity). The person executing this
Agreement on behalf of each of Alliance, Sub I and Sub II has been specifically
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authorized to do so by all necessary corporate action. No other action by
Alliance, Sub I or Sub II will be necessary to authorize the execution of the
documents and the consummation of the transactions described in or contemplated
by this Agreement.
.2 NO CONFLICTS. Neither the execution and delivery of this Agreement, nor
the consummation of the transactions described in or contemplated by this
Agreement, (a) will result in a breach of, a default under or conflict with any
judgment, decree or order of any court or other governmental body to which
Alliance, Sub I or Sub II is subject or to any agreement or understanding to
which Alliance, Sub I or Sub II is a party or (b) will conflict with or violate
any provisions of the Certificate of Incorporation, Bylaws or other
organizational documents of Alliance, Sub I or Sub II. The execution, delivery
and performance of this Agreement by Alliance, Sub I or Sub II does not require
the consent, approval or action of, or any filing with or notice to, any public
authority or any other party whatsoever, except as may be required by the HSR
Act and as identified on SCHEDULE 5.3 attached hereto.
.3 BROKERS. No amount is payable by Buyer by way of brokerage fees, finder's
commissions or otherwise to any party on account of this Agreement or the
transactions contemplated herein. Buyer agrees to indemnify the Sellers and
hold them harmless from any claims arising from any such assertions.
.4 KNOWLEDGE OF BREACHES. Buyer hereby acknowledges and agrees that it shall
not be entitled to any recourse or indemnity rights against Sellers with respect
to any specific fact or circumstance of which Buyer has actual knowledge prior
to the Closing Date, and which Buyer actually knows to constitute a breach of a
representation or warranty of Sellers herein, if Buyer fails to notify Sellers
of such fact or circumstance prior to the Closing and nonetheless elects to
close the transactions contemplated hereby.
V : COVENANTS BY SELLERS
From the date hereof until the Closing Date, the Sellers covenant and agree
to the following.
.0 CONDUCT OF BUSINESS. Sellers will and will cause the Operating Entities to
do the following unless Buyer shall otherwise consent in writing:
() AFFIRMATIVE COVENANTS. Perform the following:
() conduct their respective businesses only in the ordinary and
usual course and consistent with prior practice and refrain from changing
or introducing any new method of management or operations;
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(i) use its reasonable efforts to preserve intact its business
organization, maintain its rights, licenses and franchises and to preserve
the goodwill of any customers, clients, suppliers, agents and others having
business relationships with any of the Operating Entities;
(ii) maintain its books, accounts and records in the ordinary and
usual course and consistent with prior practice and in material compliance
with all applicable laws;
(iii) use its reasonable efforts to maintain and keep its properties
and assets in good repair and condition, subject to ordinary wear and tear;
(iv) pay its respective debts and taxes when due subject to good faith
disputes and to pay its other debts or perform its other obligations
consistent with prior practice;
(v) use its reasonable efforts to retain its employees, officers and
agents and maintain satisfactory relationship with its employees, officers
and agents and maintain its current termination, compensation, hiring and
promotion practices; and
(vi) have in effect and maintain, at all times, all insurance of the
kind, in the amount, and with the insurers set forth in SCHEDULE 4.9.
(a) NEGATIVE COVENANTS. Refrain from the following:
() making any purchase, sale, transfer, assignment, lease, or
disposition of any asset or property or waiving any right of material
value, other than in the ordinary and usual course of business and
consistent with prior practice; provided, however, that any Operating
Entity shall not enter into any agreement or transaction for the
acquisition (by purchase, lease, rental or otherwise) of any equipment used
in the medical imaging, diagnostic or therapeutic process or enter into any
other capital or operating lease obligation without the prior written
consent of Buyer, which shall not be unreasonably withheld; provided,
however, that this clause (b)(i) shall not preclude MCIC from (A) entering
into any such agreements or transactions provided that the aggregate
payments called for thereunder are not in excess of Fifty Thousand Dollars
($50,000), (B) exercising its option to purchase another MRI Unit from
Siemens Medical Systems for a price not to exceed $1.5 million (which price
includes two (2) years of service and warranty) pursuant to the terms of
the Settlement Agreement, or (C) purchasing the equipment currently on
order and listed on SCHEDULE 6.1(b) hereof;
(i) amending its Articles of Incorporation, partnership agreement,
Certificate of Partnership, operating agreement, joint venture agreement,
Bylaws or Code of Regulations or other organizational document; changing
the number of
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authorized or outstanding shares of its capital stock, partnership
interests, membership interests, ownership interests or effect any
reclassification thereof; or declaring, setting aside or paying any
dividend or other distribution or payment in cash, capital stock,
partnership interest, membership interest, ownership interest or property;
(ii) issuing, granting, selling or pledging any shares of its capital
stock, partnership interests, membership interests, ownership interests or
rights therein; acquiring, directly or indirectly, by redemption, exchange
or otherwise, any shares of capital stock, partnership interests,
membership interests, ownership interests or rights therein, or entering
into or modifying any contract, agreement, commitment or arrangement with
respect to any of the foregoing, except as set forth in SCHEDULE 2.2(b);
(iii) mortgaging, pledging, subjecting to a Lien or otherwise
encumbering any of their respective properties or assets, except for
current property taxes not yet due and payable or any such transactions in
the ordinary and usual course of business and consistent with prior
practice;
(iv) incurring any contingent liability as a guarantor or otherwise
with respect to the obligations of others, or any other contingent or fixed
obligations or liabilities except those in the ordinary and usual course of
business and consistent with prior practice;
(v) borrowing any amount, incurring any indebtedness for borrowed
money or becoming subject to any material liabilities, except (x) current
liabilities incurred in the ordinary and usual course of business
consistent with prior practice, (y) liabilities under contracts entered
into in the ordinary and usual course of business and consistent with prior
practice and (z) indebtedness incurred for purposes of purchasing equipment
pursuant to Section 6.1(b)(i), provided, however, (A) Sellers shall provide
notice of such proposed indebtedness to Buyer prior to incurrence and shall
permit Buyer to substitute alternate financing, provided such alternative
financing is on substantially similar or better terms in the aggregate, and
(B) Sellers shall not, in any event, permit the incurrence of any such
indebtedness without Buyer's consent, which consent will not be
unreasonably withheld;
(vi) discharging or satisfying any material Lien or paying any
material liability, other than current liabilities paid in the ordinary and
usual course of business and consistent with prior practice, or canceling
without fair consideration any material debts or claims owing to or held by
it;
(vii) except as specified in SCHEDULE 2.2(b), granting any options,
bonus, wage or salary increase or severance or termination payment to any
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employee, officer or agent or group thereof, other than any ordinary course
periodic performance or longevity increases in bonus, wages or salary not
in excess of 4% to any non-officer employee, or granting any increase in
any employee benefit plan or arrangement or amending or terminating any
existing employee benefit plan or arrangement (except as required by law)
or adopting any new employee benefit plan or arrangement;
(vii) making any loans or advances to, or guarantees for the benefit
of, any persons, except for advances made to employees for expenses in the
ordinary and usual course of business;
(ix) acquiring or agreeing to acquire, by merger, consolidation,
exchange, purchase or otherwise, an equity interest or substantially all
the assets of any business, corporation, partnership, joint venture or
other business organization;
(x) entering into, modifying, amending or terminating any Material
Contract, provided, however, in the case of customer contracts that are
Material Contracts, such activities will not be precluded by this clause
(xi) provided that the terms of such activities are in the ordinary and
usual course consistent with prior practice and written notice of such
terms is delivered to the Buyer prior to the execution, modification,
amendment or termination of any such customer contracts or are activities
permitted in subsection 6.1(b)(i) above; and
(xi) entering into any other material transaction other than in the
ordinary and usual course of business and consistent with prior practice.
.1 INSPECTION OF THE BUSINESS. Pursuant to a Confidentiality Agreement,
attached hereto as EXHIBIT "C", which shall survive the termination of this
Agreement, Sellers will give Buyer and its counsel, accountants, and other
authorized representatives, reasonable access during normal business hours, upon
reasonable notice to Sellers, to each of the Operating Entities' offices,
assets, properties, agreements, books and records relating to their respective
businesses, and will cause each of the Operating Entities' employees to
cooperate with Buyer in all reasonable respects as Buyer may, from time to time,
reasonably request, PROVIDED, HOWEVER, that Buyer's access, in each instance,
shall be arranged through Ian C.P. Woodburn, and either Ian C.P. Woodburn or his
designee shall be present during each such examination. Buyer shall have the
right to make copies of the Operating Entities' operational records and excerpts
therefrom, at Buyer's cost. All of Buyer's investigations hereunder shall be
conducted so as not to interfere with any of the normal activities of the
Operating Entities.
.2 NOTICE OF ACTIONS, PROCEEDINGS AND OTHER MATTERS. Sellers shall promptly
notify Buyer of any claims, actions, procedures, or investigations commenced or,
to the Knowledge of Sellers, threatened, involving or affecting Sellers or any
Operating Entity or any of its properties or assets, or, against any employee,
consultant, director, officer or
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shareholder of Sellers or any Operating Entity in his, her or its capacity as
such, which if decided adversely to Seller, such Operating Entity or such other
person, might reasonably be expected to have a Material Adverse Effect on any
Seller or any Operating Entity, or relates to the consummation of the
transactions or obligations contemplated hereby. Sellers shall give prompt
notice to Buyer of any notice of, or other communication received by Sellers or
any Operating Entity relating to, a breach, default or event which, with notice
or lapse of time or both, would become a breach or default under any agreement,
indenture or instrument material to the financial condition, business,
properties, results of operations or prospects of Sellers or any Operating
Entity, and any notice or other communication from any third party or
governmental agency alleging that the consent or approval of such third party or
governmental agency is or may be required in connection with the transactions
contemplated by this Agreement. Sellers shall promptly notify Buyer of the
occurrence, or non-occurrence, of any event the occurrence, or non-occurrence,
of which would be reasonably likely to cause any representation or warranty of
it contained in this Agreement to be untrue or inaccurate and any failure of it
to comply with or satisfy any covenant, condition or agreement to be complied
with or satisfied by it hereunder. In addition, Sellers shall give prompt
notice to the Buyer of any facts or circumstances that arise or become evident
after the date of this Agreement and on or before the Closing Date which
reasonably could be expected to materially and adversely affect the business of
the Operating Entities, taken as a whole.
.3 DISTRIBUTIONS AND ASSIGNMENTS. The parties agree that, prior to the
Closing, the Sellers shall cause the Operating Entities to distribute to the
Shareholders (a) the sales/use tax refund claims and related claims against
equipment vendors (the "Vendor Sales Tax Claims") identified on SCHEDULE 6.4
attached hereto and (b) the stock or other ownership interests of each of the
Defunct Entities. The parties agree that no Purchase Price adjustment shall be
effected in connection with such distributions. The allocation of such
distributions shall be determined by the Sellers in their sole discretion, and
each of the Sellers agrees that Buyer shall have no responsibility therefor and
agrees, jointly and severally, to indemnify Buyer against any contrary claim by
any Seller or other third party. Any Tax liability arising in connection with
such distribution shall be the sole responsibility of the Sellers, and each of
the Sellers, jointly and severally, agree to indemnify Buyer against any Tax
claim or liability asserted by any Tax authority. Sellers represent and warrant
that the effect of the distributions contemplated by this Section 6.4 on the
balance sheets included within the Interim Statements referred to in Section 4.5
will not be significant. To the extent that the Vendor Sales Tax Claims cannot
be resolved through cash payments made by the applicable vendors, and instead
such vendor(s) provide a credit to any of the Operating Entities in respect of
such claims, then, promptly following each realization upon such credits, Buyer
shall cause the applicable Operating Entities to pay the cash amount thereof to
the Sellers.
.4 PRESS RELEASES. Except as required by applicable law, none of the
Operating Entities nor any Seller shall give notice to third parties or
otherwise make any public statement or releases concerning this Agreement or the
transactions contemplated hereby except for such
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written information as shall have been approved in writing as to form and
content by Buyer, which approval shall not be unreasonably withheld.
.5 NO SHOP; NOTICE OF PROPOSALS. Until the Closing Date or termination of
this Agreement, Sellers shall not directly or indirectly, solicit, initiate, or
encourage any inquiries or proposals that constitute, or could reasonably be
expected to lead to, a proposal or offer for a merger, consolidation, business
combination, sale of substantial assets, sale of partnership units, membership
units or shares of capital stock (including without limitation by way of a
tender offer) or similar transactions involving any of the Operating Entities,
other than the transactions contemplated by this Agreement (any of the foregoing
inquiries or proposals being referred to in this Agreement as an "Acquisition
Proposal"), engage in negotiations or discussions concerning, or provide any
non-public information to any person or entity relating to, any Acquisition
Proposal, or agree to, approve or recommend any Acquisition Proposal. If after
the making of this Agreement any person or entity extends to Sellers any
Acquisition Proposal, or Sellers become aware of any Acquisition Proposal,
directly or indirectly, and regardless of the form of the transaction, or
Sellers become aware that any person or entity is seeking to conduct any
discussions with respect to any such matters, then in each such case Sellers
shall promptly notify Buyer of such information, including the identity of such
person or entity. Without limiting the foregoing, it is understood that any
violation of the restrictions set forth in this Section 6.6 by any director,
officer, employee or affiliate of any Shareholder, Seller or Operating Entity or
any investment banker, financial advisor, attorney, accountant or other
representative of any Shareholder, Seller or Operating Entity shall be deemed to
be a breach of this Section 6.6 by the Sellers.
.6 REASONABLE EFFORTS. Subject to the terms and conditions hereof, Sellers
agree to use all of their reasonable efforts to take, or cause to be taken, to
do, or cause to be done, and to assist and cooperate with the Buyer in doing,
all things necessary, proper or advisable under applicable laws and regulations
to consummate and make effective, as soon as practicable, the transactions
contemplated by this Agreement. Such actions shall include, without limitation,
(a) using reasonable efforts to obtain any consents, amendments to or waivers
under the terms of any Material Contracts that are required or advisable as a
result of the transactions contemplated by this Agreement, and (b) using
reasonable efforts to defend any lawsuits or other legal proceedings, whether
judicial or administrative and whether brought derivatively or on behalf of
third parties (including governmental agencies or officials), challenging this
Agreement or the consummation of the transactions contemplated hereby. Subject
to the terms and conditions hereof, Sellers agree to use all its reasonable
efforts to take, or cause to be taken, all actions and to do, or cause to be
done, all things necessary to satisfy all the conditions of Closing set forth
herein at the earliest possible time.
.7 SECTION 754 ELECTIONS. On or following the Closing, Buyer will cause a
Section 754 election to be made under the Code with respect to MCIC and
MCIC-HNI. Sellers acknowledge and agree to such elections and further agree
that they will indemnify Buyer and hold Buyer harmless from and against any
claims, damages, losses and expenses
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incurred as a result of any claim asserted by the joint venture partner in
MCIC-HNI as a result thereof.
VI : COVENANTS OF BUYER
Buyer covenants and agrees to the following:
.0 PRESS RELEASES. From the date of this Agreement until the Closing Date,
except as required by applicable law, Buyer will not give notice to third
parties or otherwise make any public statement or releases concerning this
Agreement or the transactions contemplated hereby except for such written
information as shall have been approved in writing as to form and content by the
Sellers, which approval shall not be unreasonably withheld.
.1 REASONABLE EFFORTS. From the date of this Agreement until the Closing
Date, subject to the terms and conditions hereof, Buyer agrees to use all its
reasonable efforts to take, or cause to be taken, to do, or cause to be done,
and to assist and cooperate with the Sellers in doing, all things necessary,
proper or advisable under applicable laws and regulations to consummate and make
effective, as soon as practicable, the transactions contemplated by this
Agreement. Such actions shall include, without limitation, (a) using reasonable
efforts to obtain any consents, amendments to or waivers under the terms of any
material contracts, commitments or arrangements that are required as a result of
the transactions contemplated by this Agreement, and (b) using reasonable
efforts to defend any lawsuits or other legal proceedings, whether judicial or
administrative and whether brought derivatively or on behalf of third parties
(including governmental agencies or officials), challenging this Agreement or
the consummation of the transactions contemplated hereby. Subject to the terms
and conditions hereof, Buyer agrees to use all its reasonable efforts to take,
or cause to be taken, all actions and to do, or cause to be done, all things
necessary to satisfy all the conditions of Closing set forth herein at the
earliest possible time.
.2 CERTAIN TAX RETURNS. Buyer shall, and Sellers acknowledge that Buyer
shall, be responsible for causing the preparation of all Tax Returns for MCIC
and MCLtd. which come due for filing after the Closing Date; provided, however,
that with respect to such Tax Returns that relate to any period prior to the
Closing Date, Sellers shall have an opportunity to review such Tax Returns and
such Tax Returns shall be subject to Sellers' consent, which consent shall not
be unreasonably withheld. If Sellers' consent is reasonably withheld, Sellers
shall be entitled to prepare such Tax Returns at Sellers' expense (subject to
Buyer's review and consent, which consent shall not be unreasonably withheld).
Sellers shall not take any action inconsistent with this Section 7.3. Buyer
shall make available upon reasonable request and at Sellers' expense, certain
books and records of the Operating Entities which are needed by or helpful to
the Sellers or any government agency in connection with Sellers' preparation of
the sales tax refund claims referred to in Sections 4.5(c) and 6.4 above and any
other tax issues, audits and governmental investigations affecting Sellers that
relate to any period prior to the Closing Date.
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.3 OFFICERS' AND DIRECTORS' INSURANCE; INDEMNIFICATION.
() Buyer agrees to cause the Operating Entities (i) not to change, for
seven (7) years after the Closing Date, the provisions of any of the Operating
Entities charter documents or applicable indemnification agreements in effect on
the date hereof (the "Indemnification Agreements") in each case relating to
indemnification of each present or former director, officer or employee of the
Operating Entities (together with any successor by operation of law,
individually a "Seller Indemnified Party" and collectively the "Seller
Indemnified Parties") in a manner which adversely affects the rights of such
Seller Indemnified Party to indemnification thereunder and (ii) to perform its
obligations thereunder, or exercise any discretionary authority thereunder, to
the fullest extent permissible by law to provide such Seller Indemnified Party
with all rights to indemnification available thereunder. Notwithstanding the
foregoing, nothing in this Agreement shall constitute a waiver of, or otherwise
operate to adversely affect, the existing rights of the Seller Indemnified
Parties under the Indemnification Agreements relating to the indemnification of
any Seller Indemnified Party. Nothing in this Section shall preclude Buyer from
restructuring any of the Operating Entities as long as the indemnification
obligations remain effective against the applicable Operating Entity or its
legal successor.
(a) Buyer agrees to cause the Operating Entities to maintain for seven (7)
years after the Closing Date, any officers' and directors' liability insurance
policies currently in place indemnifying and holding harmless the Seller
Indemnified Parties with respect to any actions or omissions occurring prior to
the Closing Date, on terms no less advantageous to the Seller Indemnified
Parties than the Operating Entities' existing policies. Notwithstanding the
foregoing, no Operating Entity shall be obligated to pay more than the most
recent annual premium payment (subject to annual increase in the same percentage
as increases in a national consumer price index selected by Buyer in good faith)
to maintain such insurance coverage, and Buyer may elect to provide comparable
coverage for the Seller Indemnified Parties through another policy of insurance
maintained by Buyer or an affiliate of Buyer.
(b) This Section 7.4 shall survive the Closing, is intended to benefit
Sellers and each of the Seller Indemnified Parties (each of whom shall be
entitled to enforce this Section 7.4 against the Operating Entities) and shall
be binding on all successors and assigns of the Operating Entities, provided
that this paragraph shall not create any right in any person other than the
Seller Indemnified Parties and no such other person shall become a third party
beneficiary of this Agreement. Notwithstanding anything in this Agreement to
the contrary, this Section 7.4 shall not provide to any Seller Indemnified Party
indemnification protections greater than that currently in effect and provided
by an Operating Entity.
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VII : CONDITIONS PRIOR TO CLOSING
.0 CONDITIONS TO OBLIGATIONS OF BUYER. The obligation of Buyer to purchase
the Partnership Interests and Membership Interests pursuant to the terms and
conditions of this Agreement and to consummate the transactions described in or
contemplated by this Agreement is subject to the satisfaction prior to or as of
the Closing Date of all of the following unless otherwise waived in writing by
Buyer:
() REPRESENTATIONS, WARRANTIES AND COMPLIANCE WITH AGREEMENT. All
representations and warranties of Sellers contained in this Agreement remain
true and correct in all material respects at all times prior to and as of the
Closing Date except for changes permitted or contemplated by this Agreement;
provided, however, that whenever any such representation or warranty is
conditioned by reference to materiality or a Material Adverse Effect, for the
purposes of this Section 8.1(a), such representation or warranty shall be
treated as if such representation or warranty did not contain any limitation as
to materiality or Material Adverse Effect. All of the obligations and covenants
of Sellers to be performed on or before the Closing Date pursuant to the terms
and conditions of this Agreement are fully performed;
(a) NO THREATENED OR PENDING LITIGATION. On the Closing Date, no suit,
action or other proceeding, or preliminary or final injunction or final
judgment, order or decree relating thereto, shall be threatened or be pending
before any court or governmental or regulatory official, body or authority in
which it is sought to restrain or prohibit or to obtain damages or other relief
in connection with this Agreement or the consummation of the transactions
contemplated hereby, and no investigation that might result in any such suit,
action or proceeding shall be pending or threatened;
(b) OUTSTANDING OPTIONS. Buyer shall have received evidence satisfactory
to it in its sole reasonable discretion that all options, warrants and other
rights and conversion privileges entitling any person to acquire ownership
interests in any of the Operating Entities (including, without limitation, the
options identified on SCHEDULE 2.2(b) or SCHEDULE 4.3 attached hereto) have been
cancelled and surrendered;
(c) GOVERNMENTAL AND THIRD PARTY CONSENTS. All statutory requirements for
the consummation by Sellers and Buyer of the transactions contemplated by this
Agreement shall have been fulfilled; all notices to, and declarations, filings
and registrations with, and consents, authorizations, approvals and waivers
from, governmental and regulatory bodies required (including, without
limitation, CON approval for continued CT operations in Michigan pursuant to the
non-substantive review procedure or otherwise), and all material third party
consents or waivers (including, without limitation, the consents referred to on
SCHEDULE 4.2 and SCHEDULE 5.3 hereto) necessary or advisable in connection with
the transactions contemplated hereby and to permit the businesses presently
carried on by the Operating Entities to continue substantially unimpaired
immediately following the Closing
35
<PAGE>
Date (including all necessary and appropriate consents or waivers of equipment
lenders) shall have been made or obtained;
(d) OPINION OF COUNSEL FOR SELLERS. Buyer shall have received from (i)
Kahn, Kleinman, Yanowitz & Arnson Co., L.P.A., counsel for Sellers, an opinion,
dated the Closing Date, substantially in the form attached hereto as EXHIBIT
"D-1" and (ii) one or more firms, counsel for Sellers reasonably satisfactory to
Buyer, an opinion or opinions, dated the Closing Date substantially in the form
attached hereto as EXHIBIT "D-2";
(e) CLOSING CERTIFICATE. Buyer shall have received certificates from
Sellers and the Operating Entities dated the Closing Date, to the extent
reasonably requested by and in form and substance reasonably satisfactory to
Buyer;
(f) EQUIPMENT LEASES. Each of the Equipment Leases shall, if necessary or
appropriate in connection with the consummation of the Acquisition, have been
assumed by Buyer, and the lessor shall have consented thereto, including the
obligations under the maintenance contracts and the software license agreements
thereto;
(g) CORPORATE OR PARTNERSHIP MATTERS. Sellers shall have delivered to
Buyer such other documents, instruments, certifications and further assurances
as such counsel for Buyer may reasonably require;
(h) SHAREHOLDER CONSENTS. On or prior to the Closing, the Shareholders of
the Sellers having an indirect economic ownership of at least 90% of the
outstanding Partnerships Interests as of the date of the Closing shall execute
and deliver to Buyer and Sellers a Joinder and Consent substantially in the form
of EXHIBIT "E" attached hereto (collectively the "Shareholder Consents"),
pursuant to which, among other things, such shareholders will (a) consent to the
terms and conditions in this Agreement, (b) consent to the sale and transfer of
the Partnership Interests and Membership Interests to Buyer and (c) join in and
agree to be responsible for certain obligations of the Sellers, as specified
therein;
(i) CORPORATE NAME CHANGES. On or prior to the Closing, Medical
Consultants Imaging Corp. and Medical Consultants' Scanning Systems, Inc. will
change their corporate names to eliminate each of the words "Medical,"
"Consultants" and "Imaging," and each of the Sellers will thereafter refrain
from using any of those words or the initials "MCIC" or any confusingly similar
words or initials in their corporate names;
(j) EMPLOYMENT AGREEMENTS. Any current and outstanding employment
agreements between any of the Operating Entities and any employee thereof shall
have been terminated;
(k) NONCOMPETITION AGREEMENTS. On or prior to the Closing, Buyer shall
have received duly executed and delivered Covenants Not to Compete substantially
in the form
36
<PAGE>
attached hereto as EXHIBIT "F" from each of Theodore Castele, M.D. and Ian C.P.
Woodburn (unless, in the case of Mr. Woodburn, substantially similar covenant
protection is contained in an employment agreement executed by MCIC and such
individual governing the period after the Closing);
(l) SECTION 754 ELECTIONS. Buyer shall have satisfied itself as to the
satisfaction of the matters referred to in Section 6.8 above;
(m) RESIGNATIONS. All directors and members of all committees of the
Board of Directors and similar management bodies of each of the Operating
Entities shall have resigned at or prior to Closing in writing effective
immediately after the Closing, and all officers of each of the Operating
Entities designated by Buyer prior to the Closing shall have resigned at or
prior to Closing in writing effective immediately after the Closing;
(n) NO MATERIAL ADVERSE CHANGE. There shall not have been a material
adverse change from the date hereof in the financial condition, properties,
business, results of operations or prospects of any Operating Entity, taken as a
whole;
(o) SHAREHOLDER AND BOARD OF DIRECTOR APPROVALS. This Agreement and the
transactions contemplated hereby shall have been approved and adopted by a
sufficient vote of each of the Seller's Board of Directors and Shareholders to
approve this Agreement and the transactions contemplated hereby, and such votes
shall remain unaffected by subsequent action;
(p) TERMINATION OF 401(k) PLAN. Sellers shall have caused the Operating
Entities to terminate, or resolved through written action of the Board of
Directors or management committee(s) of such Operating Entities to terminate,
each Benefit Plan intended to qualify under Section 401(k) of the Code, pursuant
to documentation reasonably satisfactory to Buyer; and
(q) ESCROW AGREEMENT. The Sellers and the Escrow Agent shall have
executed the Escrow Agreement in the form attached hereto as EXHIBIT "B".
.1 CONDITIONS TO OBLIGATIONS OF SELLERS. The obligation of the Sellers to
sell their Partnership Interests and Membership Interests pursuant to the terms
and conditions of this Agreement and to consummate the transactions described in
or contemplated by this Agreement is subject to the satisfaction prior to or as
of the Closing Date of the following unless otherwise waived in writing by the
Sellers:
() REPRESENTATIONS, WARRANTIES AND COMPLIANCE WITH AGREEMENT. All
representations and warranties of Buyer contained in this Agreement remain true
and correct at all times prior to and as of the Closing Date and all of the
obligations and covenants of Buyer to be performed on or before the Closing Date
pursuant to the terms and conditions of this Agreement are fully performed;
37
<PAGE>
(a) NO THREATENED OR PENDING LITIGATION. On the Closing Date, no suit,
action or other proceeding, or preliminary or final injunction or final
judgment, order or decree relating thereto, shall be threatened or be pending
before any court or governmental or regulatory official, body or authority in
which it is sought to restrain or prohibit or to obtain damages or other relief
in connection with this Agreement or the consummation of the transactions
contemplated hereby, and no investigation that might result in any such suit,
action or proceeding shall be pending or threatened;
(b) GOVERNMENTAL AND THIRD PARTY CONSENTS. All statutory requirements for
the consummation by Sellers and Buyer of the transactions contemplated by this
Agreement shall have been fulfilled; all notices to, and declarations, filings
and registrations with, and consents, authorizations, approvals and waivers
from, governmental and regulatory bodies required if any, and all material third
party consents or waivers necessary or advisable in connection with the
transactions contemplated hereby and to permit the business presently carried on
by the Operating Entities to continue substantially unimpaired immediately
following the Closing (including all necessary and appropriate consents or
waivers of equipment lenders) shall have been made or obtained;
(c) OPINION OF COUNSEL FOR BUYER. Sellers shall have received from Irell
& Manella LLP, counsel for Buyer an opinion, dated the Closing Date,
substantially in the form attached hereto as EXHIBIT "G";
(d) CLOSING CERTIFICATE. Sellers shall have received a certificate from
Buyer dated the Closing Date, to the extent reasonably requested by and in the
form and substance reasonably satisfactory to Sellers;
(e) CORPORATE MATTERS. Buyer shall have delivered to Sellers such other
documents, instruments, certifications and further assurances as such counsel
for Sellers may reasonably require;
(f) BOARD OF DIRECTOR APPROVAL. The Agreement and the transactions
contemplated hereby shall have been approved and adopted by each of the Board of
Directors of Alliance, Sub I and Sub II; and
(g) ESCROW AGREEMENT. The Buyer and the Escrow Agent shall have executed
the Escrow Agreement in the form attached hereto as EXHIBIT "B".
VIII: INDEMNIFICATION
.0 SELLERS' INDEMNIFICATION. Subject to the limitations contained in Section
9.4 hereof, the Sellers, jointly and severally, agree to defend, indemnify, and
hold Buyer and its officers, directors, members, employees, shareholders,
agents, accountants, attorneys, legal
38
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representatives, successors and permitted assigns, and each of them, as the case
may be (collectively, the "Buyer Group"), harmless of, from and against any and
all loss, claim, damage, liability, penalty or other cost or expense, including,
without limitation, reasonable attorneys' fees and costs (collectively "Claims"
and individually "Claim"), incurred or sustained by the Buyer Group, or any of
them, arising from or relating to:
() a misrepresentation or breach by Sellers of any term, representation,
warranty, covenant or agreement of the Sellers contained in this Agreement or in
any Schedule, Exhibit or other document delivered by the Sellers pursuant to the
terms of this Agreement; or
(a) (i) any assessment, liability or lien by any federal, state, local, or
foreign governmental agency or authority for any Taxes, interest or penalties
due and owing, directly or indirectly, by Sellers on account of income earned,
compensation and benefits paid or provided to employees, property owned and/or
used by the Operating Entities or the results of their operations at any time
prior to the Closing Date, PROVIDED, HOWEVER, that this indemnification shall
not extend to any tax liability arising solely out of the failure of the
termination in accordance with Section 8.1(q) of this Agreement of any Benefit
Plan intended to qualify under Section 401(k) of the Code to qualify under
Section 401(k)(10)(A)(i) of the Code, (ii) any recapture or offset of costs
reimbursed prior to the Closing Date by Medicare, Medicaid or any other
governmental reimbursement program, or (iii) any other claim by Medicare,
Medicaid or any other medical reimbursement program arising with respect to
payments received by the Operating Entities from any such program with respect
to any event, occurrence or transaction prior to the Closing Date.
.1 BUYER'S INDEMNIFICATION. Subject to the limitations contained in Section
9.4 hereof, Buyer agrees to defend, indemnify, and hold the Sellers and their
officers, directors, members, partners, employees, heirs, agents, accountants,
attorneys, legal representatives, successors and assigns, and each of them, as
the case may be (collectively, the "Seller Group"), harmless of, from and
against any and all Claims incurred or sustained by the Seller Group, or any of
them, arising from or relating to:
() a misrepresentation or breach by Buyer of any term, representation,
warranty, covenant or agreement of Buyer contained in this Agreement or in any
other document delivered pursuant to this Agreement by the Buyer;
(a) the filing (or failure to file) or payment (or non-payment) of Tax
Returns or Taxes of the Operating Entities, to the extent that such Tax Returns
or Taxes relate to the operations of the Operating Entities (i) following the
Closing or (ii) prior to the Closing, provided that Tax liability in connection
therewith has been properly accrued on financial statements delivered to Buyer
prior to the Closing Date; provided, however, that this clause (b) shall not
apply to the extent that the matter that would otherwise give rise to an
indemnification claim hereunder constitutes a breach or default of any provision
of this Agreement by Sellers;
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<PAGE>
(b) indebtedness and other obligations of the Operating Entities owing or
in existence as of the Closing, provided that the amount or existence thereof
does not constitute a breach or default of any provision of this Agreement by
Sellers; or
(c) the operation of the Operating Entities following the Closing,
provided that the matter that would otherwise give rise to an indemnification
claim hereunder does not constitute a breach or default of any provision of this
Agreement by Sellers.
.2 PAYMENT. Subject to the limitations set forth in Section 9.4, upon the
determination by Sellers and Buyer, or absent their mutual agreement, by the
decision of a court of competent jurisdiction, of the amount of any liability
for any Claim, the Indemnifying Party (as defined in Section 9.5) shall pay to
the Indemnified Party (also as defined in Section 9.5), within ten (10) days
after such determination, the amount of any Claim.
.3 LIMITATIONS ON INDEMNIFICATION. The provisions set forth in Article IX
shall not be subject to any time limitations generally governing this Agreement,
except as specifically set forth in this Section 9.4 as follows:
() TIME LIMITATION. (i) The indemnification obligations of Buyer
contained in Section 9.2(a) shall expire on January 1, 1999 and the
indemnification obligations of Buyer contained in Section 9.2(b), (c) and (d)
shall have no time limitation, except that the indemnity obligations arising out
of the breach by Buyer of its covenant contained in Section 7.4 shall survive
for seven (7) years from the Closing Date, and (ii) the indemnification
obligations of Sellers contained in Section 9.1 shall expire on January 1, 1999,
except for the indemnity obligations arising out of a breach by Sellers of any
representation and warranty contained in Section 4.1 (Existence and Good
Standing), Section 4.2 (Authority), Section 4.3 (Capitalization) and Section
4.11 (Taxes) (collectively, the "Excluded Claims"), which shall have no time
limitation. The foregoing limitations shall not apply with respect to those
pending Claims for indemnification for which written notice was given by the
Indemnified Party to the Indemnifying Party on or prior to January 1, 1999,
which written notice shall have the effect of continuing the applicable
indemnity obligations until such Claim(s) are resolved and all required payments
in respect thereof, as applicable, are made.
(a) DOLLAR LIMITATIONS. Except with respect to Excluded Claims (with
respect to which there will be no "basket"), Buyer shall not be entitled to
indemnification from Sellers, and Sellers shall not be required to pay to Buyer
for, any Claims unless and until the aggregate amount of all Claims exceeds One
Hundred Thirty Thousand Dollars ($130,000) (the "Basket Amount"). In the event
Buyer's Claims exceed the Basket Amount, Buyer shall be entitled to
indemnification for such Claims in excess of the Basket Amount; PROVIDED,
FURTHER, that Sellers' aggregate liability for any Claims by Buyer (i.e., the
amount of such Claims in excess of the Basket Amount) shall in no event exceed
Two Million Dollars ($2,000,000) (the "Basket Cap"), except as to Excluded
Claims which shall not be subject to the Basket Cap. By way of example, if the
aggregate Claims (not including Excluded
40
<PAGE>
Claims) by Buyer were Two Million One Hundred Thirty Thousand Dollars
($2,130,000), then Sellers would be liable to Buyer for Two Million Dollars
($2,000,000) of such Claims (i.e., the aggregate amount thereof less the Basket
Amount). Further, the aggregate amount that Buyer shall be entitled to recover
from Sellers for any of the Excluded Claims pursuant to this Section 9.4 shall
not exceed Thirteen Million Dollars ($13,000,000) minus any amounts previously
recovered by Buyer from Sellers in connection with any of the Claims that are
subject to the Basket Cap. Notwithstanding the above or anything else in this
Agreement to the contrary, (i) the Basket Amount shall not apply to any known
issues or Claims relating to regulatory matters identified in writing by Buyer
to Sellers on or prior to the date hereof, (ii) any Claims in respect thereof
shall not be subject to or count toward the aggregate dollar limitation on
recoverable Claims pursuant to this paragraph, and (iii) any Claims in respect
thereof shall not be subject to any time limitation.
(b) OTHER LIMITATIONS. Notwithstanding anything contained in this Article
IX to the contrary, (i) neither Sellers nor Buyer shall be liable for punitive
damages and (ii) neither Sellers nor Buyer shall be entitled to recover more
than once for any loss that may have resulted from the breach of any
representation or warranty or the breach of any covenant or agreement hereunder.
.4 CLAIM PROCEDURE. A person entitled to indemnification hereunder
("Indemnified Party") shall promptly give the indemnifying party (an
"Indemnifying Party") written notice of any matter which such Indemnified Party
has determined has given rise to a right of indemnification under this
Agreement, stating the amount of the Claim, if known, and method of computation
thereof, all with reasonable particularity (subject to the last sentence of this
paragraph). The obligations and liabilities of any party under this Article IX
with respect to Claims arising from claims, assertions, events or proceedings of
any third party (including, without limitation, claims by any assignee or
successor of the Indemnified Party or any governmental agency), which are
subject to the indemnification provided for in this Article IX ("Third Party
Claims") shall be governed by and be subject to the following additional terms
and conditions: if any Indemnified Party shall receive written notice of any
Third Party Claim, the Indemnified Party shall give the Indemnifying Party
prompt written notice of such Third Party Claim (subject to the last sentence of
this paragraph) and shall permit the Indemnifying Party, at its option, to
participate in the defense of such Third Party Claim by counsel of its own
choosing and at its expense. Furthermore, if the Indemnifying Party
acknowledges in writing its obligation to indemnify the Indemnified Party
hereunder against any loss (without limitation) that may result from such Third
Party Claim, then the Indemnifying Party shall be entitled, at its option, to
assume and control the defense against such Third Party Claim at its expense and
through counsel of its choice if it gives prompt written notice of its intention
to do so to the Indemnified Party unless, in the reasonable opinion of counsel
for the Indemnified Party, there is a conflict or a potential conflict of
interests between the Indemnified Party and the Indemnifying Party in such
action, suit or proceeding, in which event the Indemnified Party shall be
entitled to direct the defense with respect to, but only with respect to, those
issues with respect to which such conflict exists. In the event the
Indemnifying Party exercises its right to undertake the defense against any
41
<PAGE>
such Third Party Claim as provided above, the Indemnified Party shall, and it
shall cause its affiliates to, cooperate with the Indemnifying Party in such
defense and make available to the Indemnifying Party all pertinent records,
materials and information in their possession or under their control relating
thereto as is required by the Indemnifying Party. No such Third Party Claim,
except the settlement thereof which involves (i) the payment of money only for
which any Indemnifying Party is totally indemnified (without limitation) by the
Indemnifying Party and (ii) the unconditional release from all related liability
of the Indemnified Party, may be settled by the Indemnifying Party without the
written consent of the Indemnified Party. Any settlement of a Third Party Claim
by an Indemnified Party without the written consent of the Indemnifying Party
shall discharge the Indemnifying Party from all liability hereunder with respect
to the subject matter of such Third Party Claim. The foregoing notwithstanding,
the failure of any Indemnified Party to give any notice required to be given
hereunder shall not affect such Indemnified Party's right to indemnification
hereunder except to the extent the Indemnifying Party from whom such indemnity
is sought shall have been actually and materially prejudiced in its ability to
defend the claim or action for which such indemnification is sought by reason of
such failure.
.5 OBLIGATION TO DEFEND.
() The Indemnifying Party agrees, unless it assumes the defenses of any
Claim hereunder pursuant to Section 9.5, to pay the Indemnified Party's actual,
out of pocket costs of defending any Claim, including, without limitation,
attorneys' and paralegal fees, accountants' fees, witness fees, and court costs,
promptly after written demand therefor is given by the Indemnified Party to the
Indemnifying Party.
(a) If the Indemnifying Party undertakes the defense of any Claim pursuant
to Section 9.5, then so long as the Indemnifying Party, in good faith, is
contesting or defending the Claim: (i) the Indemnified Party may not admit any
liability with respect thereto, or settle, compromise, pay, or discharge the
same without the prior written consent of the Indemnifying Party, which consent
shall not be unreasonably withheld; (ii) the Indemnified Party agrees to
cooperate with the Indemnifying Party in the contest or defense of the Claim;
(iii) subject to Section 9.5, the Indemnified Party agrees to accept any
settlement of the Claim, provided that settlement is effected by monetary
payment or arrangements for monetary payment adequate to the Indemnified Party's
reasonable satisfaction, are made by the Indemnifying Party; and (iv) the
Indemnifying Party will provide the Indemnified Party with all information
regarding the contest or defense of the Claim and allow counsel for the
Indemnified Party to monitor, at the Indemnified Party's sole expense, all
proceedings in connection with the Claim.
.6 EXCLUSIVE REMEDY. The indemnification provisions of this Article IX and in
the Shareholder Consents will constitute the exclusive remedies of the parties
arising by virtue of a breach of any representation, warranty, agreement or
covenant under this Agreement unless Sellers or any person included within the
definition of "Knowledge of Sellers" made any knowingly false representation or
intentional misrepresentation with respect to any
42
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material fact contained in any representation or warranty set forth in this
Agreement or knowingly prevented Buyer from discovering the actual facts or
knowingly concealed the actual facts, relating to any representation or warranty
set forth in this Agreement, in which case Buyer shall be entitled to seek all
relief to which it is entitled under applicable law. Except as provided in the
prior sentence and Article X, and without limiting the generality of the
preceding sentence, the parties shall have no right to rescind, abrogate,
terminate or abandon this Agreement.
IX : TERMINATION
.0 TERMINATION. This Agreement may be terminated by written notice from the
party or parties indicated below under the following circumstances:
() ADVERSE PROCEEDINGS. By either Buyer or Sellers in the event that any
court of competent jurisdiction or other governmental body shall have issued an
order (other than a temporary restraining order or preliminary injunction),
decree or ruling or taken any other action restraining, enjoining or otherwise
prohibiting the Acquisition or any material part of the transactions
contemplated hereby, and such order, decree, ruling or other action shall have
become final and nonappealable;
(a) FAILURE OF CONDITION TO BUYER OBLIGATIONS. By Buyer, if any of the
conditions in Section 8.1 is not satisfied by January 2, 1998 (other than as a
result of such party's breach or default hereunder) and is not waived in writing
by Buyer;
(b) FAILURE OF CONDITION TO SELLERS OBLIGATIONS. By Sellers, if any of
the conditions in Section 8.2 is not satisfied by January 2, 1998 (other than as
a result of any of the Sellers' breach or default hereunder) and is not waived
in writing by Sellers;
(c) MUTUAL AGREEMENT. By mutual agreement of the Buyer and Sellers; or
(d) DROP DEAD DATE. By Buyer or Sellers if the Closing shall not have
occurred by January 2, 1998 (provided, that if the failure of the Closing to
occur by such date is due to the failure of the Buyer or the Sellers to perform
or comply with its or their respective representations, warranties, covenants or
obligations and conditions precedent under this Agreement, then the
non-breaching party(ies) shall have the right and option to extend the Closing
Date for an additional 30 days by notifying the breaching party(ies) in writing
of such election to extend).
.1 EFFECT OF TERMINATION. In the event of the termination of this Agreement
according to its terms, this Agreement shall thereafter become void and have no
effect and no party hereto shall have any liability to any other party hereto or
its stockholders or directors or officers in respect thereof, except that each
party shall preserve any rights and remedies that it may have against a party
hereunder as a result of such party's breach of this Agreement.
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X: MISCELLANEOUS PROVISIONS
.0 BINDING EFFECT/ASSIGNMENT/NO THIRD PARTY BENEFICIARY. This Agreement will
be binding upon and inure to the benefit of Sellers and Buyer, and their
respective legal representatives, successors, and permitted assigns, if any.
This Agreement may not be assigned without the prior written consent of the
other party, except as provided in this Section 11.1. This Agreement is for the
benefit of Sellers and Buyer only, and no other person or entity will be deemed
a third-party beneficiary of this Agreement. Buyer may assign its rights to
receive all or any portion of the Partnership Interests and Membership Interests
and all of its other rights and obligations under this Agreement to (a) an
affiliate of Buyer or (b) SMT Health Services Inc. or an affiliate thereof. An
assignment pursuant to clause (b) of the preceding sentence shall be deemed a
novation and shall relieve Buyer from all obligations hereunder, but an
assignment pursuant to clause (a) of the preceding sentence shall not relieve
Buyer from its obligations hereunder.
.1 COMMUNICATIONS. All notices and other communications required or desired
to be given pursuant to this Agreement must be given in writing and will be
deemed duly given: (a) upon personal delivery; (b) on the third day after
mailing if sent by registered or certified mail, postage prepaid, return receipt
requested; (c) on the day after mailing if sent by a nationally recognized
overnight delivery service which maintains records of the time, place, and
recipient of delivery; or (d) upon receipt of a confirmed transmission, if sent
by telex, telecopy or facsimile transmission, and in each case if addressed as
follows:
If to Sellers, then to: Medical Consultants Imaging Corp.
c/o Richard Castele
16103 Lake Avenue
Lakewood, Ohio 44107
Telephone: 216-221-6358
Fax: 216-221-6358
With a copy to: Frederick N. Widen, Esq.
Kahn, Kleinman, Yanowitz & Arnson Co., L.P.A.
2600 Tower at Erieview
1301 East 9th Street
Cleveland, Ohio 44114
Telephone: 216-696-3311
Fax: 216-696-1009
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EXHIBIT 11 - STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
Three Months Ended September 30, Nine Months Ended September 30,
------------------------------- ------------------------------
1997 1996 1997 1996
--------- ----------- --------- ----------
(000's omitted, except per share data)
<S> <C> <C> <C> <C>
Primary:
Weighted average shares outstanding 10,970 10,867 10,942 10,858
Net effect of dilutive employee stock options and common
stock warrants - based on the treasury stock method
using average market price 1,160 691 1,021 605
Assumed conversion of Series D convertible preferred
stock into common shares 3,000 - 2,065 -
-------- -------- -------- --------
Total 15,130 11,558 14,028 11,463
-------- -------- -------- --------
-------- -------- -------- --------
Net income $ 2,636 $ 1,949 $ 8,083 $ 5,051
Less: Preferred stock dividends - 238 - 706
Add: Carrying amount of preferred stock repurchased
over consideration paid - - 1,906 -
-------- -------- -------- --------
Income applicable to common stock $ 2,636 $ 1,711 $ 9,989 $ 4,345
-------- -------- -------- --------
-------- -------- -------- --------
Income per share applicable to common stock $ 0.17 $ 0.15 $ 0.71 $ 0.38
-------- -------- -------- --------
-------- -------- -------- --------
Fully Diluted:
Weighted average shares outstanding 10,970 10,867 10,942 10,858
Net effect of dilutive employee stock options and common
stock warrants - based on the treasury stock method
using average market price 1,160 691 1,021 605
Assumed conversion of Series D convertible preferred
stock into common shares 3,000 - 2,065 -
-------- -------- -------- --------
Total 15,130 11,558 14,028 11,463
-------- -------- -------- --------
-------- -------- -------- --------
Net income $ 2,636 $ 1,949 $ 8,083 $ 5,051
Less: Preferred stock dividends - 238 - 706
Add: Carrying amount of preferred stock repurchased
over consideration paid - - 1,906 -
Income applicable to common stock $ 2,636 $ 1,711 $ 9,989 $ 4,345
-------- -------- -------- --------
-------- -------- -------- --------
Income per share applicable to common stock $ 0.17 $ 0.15 $ 0.71 $ 0.38
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<CIK> 0000817135
<NAME> ALLIANCE IMAGING
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 10,557
<SECURITIES> 0
<RECEIVABLES> 10,597
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 22,266
<PP&E> 152,113
<DEPRECIATION> 52,511
<TOTAL-ASSETS> 151,623
<CURRENT-LIABILITIES> 38,182
<BONDS> 62,597
0
18,000
<COMMON> 110
<OTHER-SE> 25,715
<TOTAL-LIABILITY-AND-EQUITY> 151,623
<SALES> 0
<TOTAL-REVENUES> 62,285
<CGS> 0
<TOTAL-COSTS> 27,499
<OTHER-EXPENSES> 19,240
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,315
<INCOME-PRETAX> 10,231
<INCOME-TAX> 3,480
<INCOME-CONTINUING> 6,751
<DISCONTINUED> 0
<EXTRAORDINARY> 1,332
<CHANGES> 0
<NET-INCOME> 8,083
<EPS-PRIMARY> .71
<EPS-DILUTED> .71
</TABLE>
